Market notes
Wolf Waves
From a collective financial standpoint the US is now deeply into an increasingly violent and potentially terminal process.
Fire and Ice
"There is no salvation in becoming adapted to a world which is crazy."
Henry Miller(1891 - 1980)
In a fire and ice world the forces at play are opposite and extreme. On the one
hand deleveraging simply has to take place to restore the natural flow of credit
and risk taking. Yet, on the other hand, this could get out of hand if it happens
too quickly and turn the financial system to ice.
The Fed's remedy of extreme measures sets a very dangerous precedent in accelerating
the measures and intensity with which monetary support can be injected into the
financial system. Although this can provide short term relief, these actions
are simply an acceleration of the interventions that got us into so much trouble
in the first place, and ultimately produce the fire for inflation.
Making predictions in this environment is more than usually hazardous. Investors
simply need greater awareness of the situation, and more extensive stress testing
of their portfolio, as well as clear rules for the risk management of their assets,
as instability becomes a greater risk.
The key change is that now the financial structure itself has become a major issue.
The Dollar Myth
"The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing
credit expansion based on the dollar as the reserve currency... Now the rest of the world is increasingly unwilling to accumulate
dollars," - George Soros, January 2008
The US has been blessed with an enormous financial privilege for over 60 years as a direct consequence
of the status of the US dollar as the world's reserve currency. However, the US dollar's status is now in
steep decline. This decline takes with it the financial foundations that so many Americans have come to
take for granted. Understanding and managing the dollar's decline will likely be one of the most important
components of any investment plan in the years ahead, and it may also have far reaching lifestyle and social consequences.
Lets Be Real
"Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing had happened." - Winston Churchill
A reality check has become a matter of urgency. What we find is that in many ways the economic world has been turned up side down over the
last two decades, but economic statistics are trying harder and harder to pretend it didn't happen.
Being real today applies not only to our assessment of the economy but also to our investment choices. Appropriately chosen real
assets need to form a sizeable part of any allocation. Also, without any substantive changes, we must continue to assume that
disguised inflation remains the real economic policy.
Credit Super Cycle Endgame
After an extraordinary period of excessive credit creation, and financial engineering of staggering proportions we have now entered a new
phase of the credit super cycle. Confidence is fickle and unpredictable, but more than likely the market turbulence of the last two
months heralds a new and possibly chaotic period for the markets.
Many will argue that if the markets seem stable and well behaved that all is well. However, it is important to distinguish between
short term palliatives, providing the appearance of stability, and deep seated issues that have gone well beyond the point of a quick fix.
At this stage the credit super cycle changes character. The cumulative build up in credit makes the continued management of business
cycles much harder and increasingly prone to much greater instability. In short this is point at which the credit super cycle has reached the endgame.
More than likely we are now at a point where stagflation seems like the best option. Growth will probably remain weak as the real value of debt
falls with sustained higher levels of inflation. As Hyman Minsky once said, "Stagflation is the price we pay for the success we have in avoiding
a great or serious depression".
The Dhandho Investor
"The Dhandho Investor" by Mohnish Pabrai is short, very simple to read and understand,
and yet provides a highly comprehensive and effective approach to successful value investing.
Finding low risk situations is the key to long term investment success, and low risk does not
mean low return. This is the key to becoming a "Dhandho" Investor, and for most the surest
path to becoming a very successful investor.
Your Money and Your Brain
It's not that we are intellectually deficient, or that we are not capable of being rational. It's just that when it comes to emotional
intelligence, we have no idea. Jason Zweig's new book "Your Money and Your Brain", which will be out in a few months, examines the
reasons why most investors, including professional investors, are so often their own worst enemy.
By examining how the brain works, we can learn a great deal about investing. Not just how groups of investors behave but also
how we ourselves react as individuals.
Sovereign Bankruptcy US Style
It is rare indeed to find any person, family, corporation or government entity that has concluded both of the following:
1. It is on course for bankruptcy.
2. It is going to do nothing about it, or is going to make bankruptcy even more likely.
Don't believe this ever happens? Take a look at the US federal government.
If anyone should know about the US federal government's finances, it is David Walker. Walker is the nation's
chief accountability officer and head of the U.S. Government Accountability Office (GAO). His "60 minutes" interview
is currently available in the Video section. The interview displays Walker's
conviction that urgent action is needed to avoid bankruptcy for the US federal government. It also suggests that most
politicians in Washington do not disagree with his basic conclusion, but the most remarkable part is that apparently
no-one wants to talk about it, because no-one wants to do anything about it!
This may or may not be disturbing to you, as this is a long term issue and a "tipping" point still seems several
years away. However, as an investor, I believe this issue can no longer be ignored. This note discusses how and
why the coming "Sovereign Bankruptcy US Style" is already having an impact. It could be influencing your
investments much sooner than you realize.
Hedge Funds: "Heads they win, Tails you lose?"
Hedge funds have grown dramatically in recent years. There are now some 8000 hedge funds,
somehow attracting institutional investors as well now, so that total assets amount to
about $1.2 trillion. Yet hedge fund returns have averaged below 10% over the last six years.
Maybe a hedge fund manager will provide a better return, and maybe not, it will surely be hard
to tell in advance. However, there can hardly be any doubt that the cost and structure of a
relationship with a Registered Investment Adviser is far more attractive to the investor. The
optimal strategy for most investors should therefore be clear. Find a Registered Investment
Adviser, who can manage your capital to your liking.
Creating free options Using
options and an appropriate money management system not only helps investors make
decisions, but it can also significantly improve their returns while minimizing risks.
Will I have enough?
How to move towards true wealth and avoid a nasty surprise. Financial planning has gone
badly wrong in the case of many defined benefit pension plans. What went wrong? What are
the lessons for your own financial planning?
Trade of the decade
Its too bad that the Dow Jones Index has broken down to new lows in 2006, continuing its
downtrend since the peak in 1999. What? You think its near its all time high? Oh!
You must be measuring it the old fashioned way, in terms of US dollars. Don't worry!
There is still time to take advantage of the trade of the decade.
|
|
Articles
Executive Summary - By Chris Martenson
As is increasingly the case it is crucial to look deep into real data, and not accept conventional opinion.
The current investment euphoria provides a crucial opportunity to reallocate you assets in a sustainable direction.
The markets are never more dangerous than when consensus is at bullish extremes and investors are complacent
about risks.
In this article, Chris Martenson does an outstanding job of setting out the immense risks underlying financial markets.
Zimbabwe: A Fresh Start - By Alf Field
The history of Zimbabwe provides the latest episode of the tyranny and inevitable traumatic collapse of a fiat monetary system. Fortunately, Zimbabwe is now improving very quickly. Debt has been wiped out and there is no longer any control or currency manipulation within the country over the currency in use. Equality and confidence are returning at lightening speed, and well as peace and prosperity.
We would all be well served to consider where other countries are in their own cycle, and learn the timeless lessons of the history of monetary systems unbacked by tangible assets. If this was widely understood, why would any intelligent majority ever choose a fiat monetary system?
Economics and Moral Courage - by Llewellyn H. Rockwell Jr.
"To be an economist with integrity means having to say things that people don't want to hear and especially to say things that the regime does not want to hear. It takes more than technical knowledge to be a good economist. It takes moral courage, and that is in even shorter supply than economic logic."
Lew Rockwell
Audit the Fed - by Thomas E. Woods, Jr.
The superstitious reverence that Americans have been taught to have for the
Federal Reserve is unworthy of the dignity of a free people. The Fed enjoys a
government-granted monopoly on the creation of legal-tender money. It is not an
unreasonable imposition for Americans to demand to know about the activities of
such an institution. It is common sense.
Property Rights Take a Hit
"... the fact that two of the highest-ranking government
officials can conspire to violate both securities laws and private property rights is abhorrent to everything America supposedly
stands for. If they get away with it, which I believe they will, the precedent and the message will be chilling."
Peter Schiff
The End Game Draws Nigh – The Future Evolution of the Debt-to-GDP Ratio
The
debt-to-GDP Ratio is the ultimate determinator of the success or ruin of any nation.
This article explains why an original Obama supporter has never been more concerned.
This is perhaps the best economic analysis that I have read this year.
Can Congress Write Any Laws It Wants? - Andrew P. Napolitano
"Some men think the Earth is round, others think it flat… But, if it is flat, will
the King’s command make it round? And if it is round, will the King's command flatten
it? … NO."
Europe On the Ropes - Niels C. Jensen
This is an excellent article comprehensively setting out the scale, character and depth of the enormous financial issues facing Europe.
Paradox Squared - Paul Kasriel
This explanation and chart entirely refute current government policy.
Obama's Opening Salvo - Peter Schiff
"To restore prosperity, credit (derived from savings rather than a printing press) must flow to producers. Greater liquidity for business will lead to legitimate job creation, increased production, and rising living standards. By further encumbering the economy with burdensome regulation, and by transferring business decisions to vote-seeking politicians who will bail out the irresponsible, reward failure and punish success, the government will create a society destined for misery."
Houdiniomics: The New Era of Government Magic - by Peter Krieg
"How pale is the art of sorcerers, witches, and conjurors when compared with that of the government’s Treasury Department!"
~ Ludwig von Mises, The Theory of Money and Credit
Is The US Banking System Safe?
"Truth is in short supply today."
Jim Quinn
Wall Street, Banks, and American Foreign Policy
"The temptation for bankers in particular to wield the power of the State to their benefit is very great because it permits banks
to inflate their asset base systematically."
"The disruptions which accompanied the business cycle were a major factor in the transformation of the dominant ideology in the U.S.
from a general adherence to laissez-faire doctrines to an ideology of political capitalism which viewed the state as a necessary
instrument for the rationalization and stabilization of an inherently unstable economic order."
The Ticking Credit Card Time Bomb, by Peter Schiff
For those holding out hope that the American economy can miraculously avoid a long and deep recession
consumer credit is often viewed as the wonder drug that can cure all manner of economic ills. As such,
this week's report showing $15 billion growth in consumer credit was widely heralded as proof of
America's economic strength and resilience. However, we are now suffering the after effects of too
much debt, and our salvation cannot be found in more of the same.
Where is the Bottom in Housing?
"Those who think we are close to a bottom in the housing bubble are engaged in wishful thinking. You read above
what those who really do their homework are saying. If we had more space, I could give you even more statistics and
forecasts from Gary Shilling, Greg Weldon, Dr. Nouriel Roubini and others who do their homework, rather than trying
to see a trend in one month's statistics. Many of the home sales from February are foreclosures. Those are going to
rise. The key pieces of data to look at will be the months of supply of homes for sale and foreclosures. Until the
supply of homes gets back to 6 months, we will probably not have seen the bottom. Until we have worked through the
millions of foreclosures that are in front of us, it is hard to think in terms of a bottom.
We are in a recession, and that means rising unemployment and falling consumer spending. It means tighter profit
margins. Etc. It is going to take a long time for the economy to recover. Welcome to Muddle Through."
- John Mauldin.
Trade your way to Financial Freedom
"Most investors believe there is some magic
secret of the markets that will make them rich. Such a secret does
exist. But the answer is where you would least expect it to
be."
Dr. Van Tharp
Federal Reserve Oversight Needed Now
"How can a policy
of steadily debasing our currency be defended morally, knowing what
harm it causes to those who still believe in saving money and
assuming responsibility for themselves in their retirement years? Is
it any wonder we are a nation of debtors rather than savers? We need
more transparency in how the Federal Reserve carries out monetary
policy, and we need it soon."
- Dr. Ron Paul is a member of Congress.
Are you ready for retirement?
"Too many Americans don't save anything," I said, half-jokingly, "because they're spending money
they don't have, on things they don't need, to impress people they don't like."
The Best Stock Tip I Ever Received
When it comes to hot stock tips, it's either a bum insider tip (which could cost you a bundle) or it's a good insider
tip... in which case you're then guilty of insider trading.
Money and the Constitution
A close reading of the Constitution - the document whose purpose was to protect the
American people from federal officials - leaves little room for doubt about the
intentions of the Framers. As you read the following excerpts from the Constitution,
ask yourself: Did the Framers intend for our country to have a monetary system based
on gold and silver coins or on paper money?
Precious Metals - Critical Diversifier
Investors with a precious metals allocation improve their risk/return
performance.
How does a nation lose its soul? "What
is morally wrong can never be advantageous, even when it enables you
to make some gain that you believe to be to your advantage. The mere
act of believing that some wrongful course of action constitutes an
advantage is pernicious."
- Cicero
Senators know best?
Senators beat the market by an average of 12%, and they only have to file their financial
holdings once a year.
The case for the Barbarous Relic
"All the perplexities, confusions and distresses in America arise not from
defects in the constitution or confederation, not from want of honor
or virtue, as from downright ignorance of the nature of coin,
credit, and circulation."
- President John Adams.
Executives and Stock Options
Shareholders should really ask why executives should have any stock options at all.
50 timeless rules of investing
Dr. Steve Sjuggerud condenses enormous investment wisdom down to just 50 simple rules.
Budget Deficit Games
There is the highly publised "President's Budget" issued by the Office of Management and Budget,
and the almost secret "Financial Report of the United States" issued by the Department of Treasury.
The budget says the 2005 US fiscal deficit was $319bn, but the Financial Report claims it is $760bn.
The Principle of Sound Money "It is
impossible to grasp the meaning of the idea of sound money if one
does not realize that it was devised as an instrument for the
protection of civil liberties against despotic inroads on the part
of governments. Ideologically it belongs in the same class with
political constitutions and bills of rights."
- Ludwig von Mises.
Foreign policy and the dollar
Congressman Ron Paul describes the evolution of the link between the US dollar and US foreign policy.
The artificial demand for the US dollar as a reserve currecy, along with US military might, places the US
in a unique position to "rule" the world without productive work or savings, and without limits on consumer
spending or deficits. The problem is, it can't last.
|
|
Financial and Investment
Advice
The real
purpose of financial planning and investing is to enable financial
freedom and security. The less we have to worry about our finances,
the better able we are to have peace of mind and enjoy life to the
full. The sooner we realize this and take control of our own
financial future the better, because getting on the right track at
an early stage makes it easier to achieve our financial
goals.
Financial
Planning
Mostly financial planning amounts
to understanding one's own financial position as well as possible,
and setting your self goals. You need to be clear about your assets
and liabilities, your income and expenses. Then you need to
formulate an achievable plan. This is where you need to take some
care and Market Notes 64
describes the issues and provides a very simple and effective
approach.
Investment
Advice
Now you are in a good position to
consider investing your savings in the context of your financial
plan. You may be able to invest on your own, but as described in
Market Notes 67 most investors are not very successful at
investing their own money. If you decide to seek out investment
advice you need to be aware of the alternatives that are available
in order to find the best advice for
you.
Different Levels
of Investment Advice and
Protection
There is
considerable confusion in the investment community regarding
financial advice and the people who dispense it. In the financial
world there are basically two types of advice. One comes from
stockbrokers, and the other comes from Registered Investment
Advisers.
Not only do
most investors not know the difference between these two kinds of
advice. In fact, most aren't even aware a difference exists. The
distinction is very important to understand because it will directly
influence the quality of advice and level of protection the investor
receives.
TD Ameritrade
have conducted an awareness and opinion survey on investor
perceptions on this issue, as well as a note on Financial Advice
which explains the difference.
TD Ameritrade Investor perception study (pdf)
TD Ameritrade Financial Advice difference explained (pdf)
These
articles reveal the substantial ignorance about the distinctions,
and also once explained, shows a clear preference for Registered
Investment Advisers. Its not hard to understand why when you look at
the discrepancies.
Chris Belchamber Investment Management believes
that investment advice can only be genuinely focused on the clients
best interests if the adviser is solely
remunerated by clients. An exceptional service also needs to be cost
effective to the client, and backed up with experience, a track
record, and provided with transparency and
dialogue.
Full Brochure
|
