My Quest to Meet Steve Leuthold

The things I do for you readers... flying to Minnesota in the grips of a blizzard, all for the sake of an interview. I won’t complain. He’s a stock market legend...

It all started with a book.

At first glance, The Myths of Inflation and Investing is not an exciting book.

This book uses lots of charts and statistics... and it’s full of long run stock return data from all the different inflationary and deflationary periods of the past hundred years.

The amazing thing about the book is, if you persist, you’ll find the conclusions it reached – when it was written in 1980 - turned out to be 100% correct 25 years later.

And the best thing is, at the time, these conclusions were totally contrary to the popular beliefs of the time.

For example, this book predicted that inflation would plateau. At the time, this was a preposterous idea. In 1980, everyone thought hyper-inflation and the destruction of the economic system was in the cards... that “it’s always darkest before the lights go out completely.”

Not the author of my book.

“The tide has turned,” he wrote. “With a few interrupting cyclical peaks and valleys, the basic inflation rate is expected to be below 3% ten years from now.”

He also predicted oil prices would calm down, and stocks and bonds would perform well... more contrarian ideas.

The author’s name is Steve Leuthold and - twenty-five years later – I went to track him down.

And even more interesting, Leuthold has been buying commodities for years now... both for himself and for his funds. I found several stories online, including one from Barron’s, describing how Leuthold owns tens of millions of dollars worth of physical silver, palladium, copper, aluminum and other metals -- and stored them all in his or his firm's name in warehouses across the country.

Given his position in physical commodities, I wanted to know if Leuthold thinks the tide has turned again... if we’re in for another period of high inflation. The Leuthold Group is based in Minneapolis. So when I was in Minneapolis two weeks ago, I popped in to ask him.

Unfortunately Leuthold wasn’t around. He’s semi-retired these days and spends the winters in Tucson, Arizona. But I did get to meet his research team.

The Leuthold Group runs three mutual funds with a total of $1.9 billion under management. I met the four guys who run the funds and put all the research together.

For almost two hours, they explained their business... how they picked stocks, how they allocate funds, what indicators they use, and a million other details.

In short, they use a very systematic approach, monitoring over 150 different indicators and holding positions in dozens of different sectors. Gut instinct and prediction play no part of their strategy. As a result...

I was briefed on the operation of a billion-dollar mutual fund, but I didn’t get the answer to my question.

I did, however, get access to the Leuthold Group’s research. I took these nuggets from Leuthold’s 2006 forecast, posted on the website:

“We are convinced,” Leuthold writes, “the CPI significantly understates the level of inflation experienced by the typical American consumer. Two decades ago, it was just the reverse. Back then, the CPI was overstating the level of inflation experienced by the typical consumer.”

“I believe there are once again valid reasons for conservative investors to personally own at least some physical gold, as a long-term hedge against hyperinflation, currency debasement, and catastrophic financial crisis, but not at these levels.”

Next time, I’ll fly to Minneapolis in the summer. And I’ll be sure to ask Leuthold if we’re entering a new era of inflation. In the meantime, we’ll just take his advice: “Own some gold, but don‘t be a buyer at these prices.”

Good investing,

Tom Dyson