In my previous column, I related that Sir John’s predictions had evolved from one of great optimism during the pessimistic years around 1990, when the Dow Jones Industrial Average was around the 2500 level, to periods of pessimism around 2000 and 2007 when the Dow was around the 14,000 level. Yet I also intimated that I thought he might have been buying a few carefully selected stocks during the panic of 2008 when the Dow dropped to around 8,000. I should explain why.

In early 1999, Sir John asked me to co-author an article about why the Dow might probably rise to the one million level during the next century. The article was intended for his friends at Equities magazine, which had interviewed John annually for quite some time. To be quite honest, my initial reaction was to question John’s judgment this time! After all, he had also predicted the Dow would be flat during the coming decade. But I’d learned over the years, often the expensive way, not to question John’s financial insights. So I pulled out a financial calculator and discovered the Dow would only have to rise less than 5% annually for the Dow to reach one million. In essence, it was difficult for even me to believe the Dow might rise at one-half the rate it had during the twentieth century. Yet at the time, everyone around me believed a computer bug would end Western civilization! Many even believed the Second Coming was imminent.

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The period from the collapse of the Berlin Wall in 1989 to our credit crisis of 2009 has been one of watching Sir John’s evolving predictions—from anticipating “the twenty most prosperous years in history” to “financial chaos,” as he predicted in 2005—come true. Clearly, he was a prophet among us.

Unfortunately, as the Bible relates about old Ezekiel (Chapter 33, verse 31), people always “crowd in” to listen to men like Sir John but few do even a “single thing” they say as they only realize they were listening to a prophet “after all your words come true” (verse 33), which is too late to do them any good. After thirty years on Wall Street, I’ve grown to understand that’s usually due to there being so many “false prophets” around, wildly making predictions about that of which they know little and often saying the opposite of what true prophets are saying. I’ve also realized the most financially impoverishing ones are religious leaders who know little about economics but assure us they are speaking for God. The unsophisticated usually take them far more seriously than the secular prophets of Wall Street, who are always taken with a grain of salt. Continue reading →

In 2005, John Templeton wrote this memo to be shared with as many people as possible. In the wake of the current economic storm, those close to him have been circulating and commenting about this memo, which predicts a financial crisis as well as offers other predictions related to higher education and technology.

Financial Chaos–probably in many nations in the next five years.

The word chaos is chosen to express likelihood of reduced profit margin at the same time as acceleration in cost of living.

By John M. Templeton

June 15, 2005

Increasingly often, people ask opinion on what is likely to happen financially. I am now thinking that the dangers are more numerous and larger than ever before in my life time. Quite likely, in the early months of 2005, the peak of prosperity is behind us.

In the past century, protection could be obtained by keeping your net worth in cash or government bonds. Now, the surplus capacities are so great, that most currencies and bonds are likely to continue losing their purchasing power.

Mortgages and other forms of debts are over ten fold greater now than ever before 1970, which can cause manifold increases in bankruptcy auctions.

Surplus capacity, which leads to intense competition, has already shown devastating affects on companies who operate airlines and is now beginning to show in companies in ocean shipping and other activities. Also, the present surpluses of cash and liquid assets have pushed yields on bonds and mortgages to zero when adjusted for higher cost of living. Clearly, major corrections are likely in next few years.

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