The demographics of Japan say the yen will continue to fall for 30 years. Europe is much the same. Canada and the U.S. have better demographics due to net immigration, but for the U.S. in the last 5 years, that is close to zero.
So for the next 30 years, foreign exchange is likely to be driven by commodities imports/exports. Canada and possibly Australia win here. Interest rates are low because population growth is low. In Europe, population growth, ex-immigration, is negative. Empty houses are deflationary for housing, but not for food/energy.
A Slow Motion Run On European Banks Will Benefit Gold [View article]
Counterparty risk is deflationary, by itself. It is similar in effect to getting a margin call. Only this is hitting the savers who were trying to play it safe.
Gold is down because all that money in accounts in Cyprus just went poof! It's grand for Cyprus, only now they are out of other people's money. Count on Greece to hit it one more time, along with Spain, Portugal, Italy, and soon France.
And the biggest part isn't the loss of paper capital but human capital. Many of the top young people in Italy are leaving, for the U.S., South America, Singapore, and a few other destinations. This happens on a multi-decadal scale. It's why West Virginia has been poor for generations, why city cores in the U.S. have been dying since 1965 - almost 50 years running - and why there is no political will to fix it. Vote with your feet, and you're not there to complain.
It's too late politically for a pure austerity solution in the eurozone, the U.S. and Japan. Default is coming, via partial default (best solution), default, or hyperinflation (worst solution).
The result, however, will be similar to a pure austerity solution. See the old Soviet Union 1990-2000 for details. Pensions, whether public or private, and retirement medical care will be hardest hit. Other government-paid employees, including teachers, medical, and military/defense, will also watch incomes fall.
Main question is timing. I figure 2015-2021 to be the time span, with Europe first and the U.S. last, due to different demographics and political structure. Strong possibility of domino fall, due to cross-holdings of bonds and trade. China won't be pretty, either.
From an investment standpoint, best to hold a combination of essentials, real estate, and some paper (food stocks and Canadian currency seem extremely likely to outperform). No way the whole market can fit through that door, as real losses need to be recognized.
Conspicuous Correlation: Retail Sales December 2012 [View article]
The housing market was peaking when the 2005 bankruptcy law came into effect. The combination of the two hit housing early and the stock market later. While the bankruptcy code hasn't officially changed since then, millions of houses and rental units have been delinquent for 3 months to 5 years without foreclosure. Note that for rental units I am referring to owner delinquency, as simple non-payment of rent is still handled quickly in many parts of the country.
So the economy could do better, short-term, by a revision of bankruptcy law, or worse, short-term, by an increase in foreclosures. Long-term, uniform and speedy enforcement of the rule of law (including foreclosures, no robosignings, paying of title transfer fees rather than claiming MERS owns everything) will increase output as it trims down malinvestment. There will always be malinvestment as long as there are people and governments.
After Factory Explosion, A Big Retail Pump On Neptune [View article]
Acasti (ACPHF) trades by appointment, has a book value of .17 per share, and a return on equity of -71.8%. Both Acasti and Neptune will need to raise more funds. The recent filing of a securities fraud lawsuit against Neptune may make it harder to sell new shares, whether or not the suit has merit. Neptune has stated that the lawsuit is totally without merit.
APO.V, the Canadian symbol for Acasti, does trade more - 37,000 shares/day last 3 months. And NEPT holds warrants for 6.75 million APO.V shares, currently at 2.22, to buy at 2.30. So there is time value in the warrants. Plus NEPT already owns 57% of Acasti,more than 40 million shares (48 million according to previous poster). So there is both a bull and a bear case in NEPT.
But trying to sell 48 million shares into a daily volume of 37,000 tells me NEPT can't just convert its stake in Acasti into cash - even if there is a big drug trial success soon.
Think of the U.S. government, or any government, as a stock company. Then physical U.S. dollars (but not checking, savings, T-bonds, etc.) are the shares of stock in the company. Since voting is not by shares, but by universal suffrage, there is no premium in holding physical dollars. So people are as happy holding checking, savings, T-bonds, etc.
The other major difference in U.S. dollars vs. shares in a corporation is that large numbers of people keep score in U.S. dollars because so many contracts are denominated in U.S. dollars. If/when inflation gets severe enough that people want to keep score in gold, Swiss francs, Canadian dollars, etc. then and only then the U.S. dollar stops being money for more and more people.
U.S. fiscal and monetary policy since 2007 has tried to stop the natural deflation from the end of the housing boom, with mixed results and large distortions in relative prices as a major result. If/when housing goes back to having expected gains of more than 5% per year, the psychology changes, while fiscal and monetary policy will lag as usual, continuing to fight the previous crisis.
Net: I don't expect nominal S&P of 666, but inflation-adjusted S&P could easily drop more than is priced into the markets. In the 1970s, inflation almost got out of potential control, and it took peak interest rates of over 20% to control it. This is definitely not priced into the markets. If it were, housing demand would be much stronger, and banks would be unwilling to lend for housing at current rates, because they couldn't resell the loans at a profit. But I could easily go broke trying to call the turn, and in between the "fiscal cliff" and healthy growth, we could get to neutral fiscal policy in 2014. Flipside, the combination of healthy growth and the cliff is considered unlikely by the markets.
What Investing For The Long Term Is All About [View article]
Massive battle between savers and spenders. Right now, on the political side, the spenders are winning big. Four years, increase in the cash portion of the federal debt of $6 trillion. NPV of federal promises made and earned in the range $120 trillion - $222 trillion.
On the business side, savers are winning. Massive cash positions by major corporations, unwilling to invest in the U.S. either directly or by buying shares in their own or other companies' stock.
On the personal side, age over 30, savers are winning. Massive paydowns/writeoffs of homes, credit cards, etc. Auto sales are picking up, so we may be near the end of this deleveraging cycle.
Age under 30, spending. Big increases in student loans. High unemployment, relatively low wages compared to student debt. Considering the low birth rate from 1970-1990, it's even worse than the raw numbers indicate. But plenty of jobs open in retail, trucking, and health.
Pressure on U.S. financial assets should be expected until about 2037, due to demographics - peak birth year 1957 reaches age 80. So, many in the over age 50 group will be like the horse in Animal Farm, working until we drop.
It matters. Government malinvestment, as in AONE or the recent Greek debt extension, extend the moral hazard of bad decisions further. The real price of food and energy is up year-over-year, disguised by hills and valleys along the way. When ordinary people in Greece resort to dumpster diving to eat, it matters. When the dumpsters are empty, it matters more quickly.
The U.S. retirement debt (mostly Social Security, Medicare, and Medicaid) has recently been estimated at $222 trillion NPV. The U.S. government can and will default, most likely by a rise in food, energy and housing prices, and by doctors retiring or switching fields. University professors will be cut (perhaps after a change in administration), fat, muscle, and bone will fall. After that? It's like trying trying to predict the outcome of a game of musical chairs. When the music stops, a lot of unhappy people will notice the lack of chairs. On the bright side, bartering skills will be appreciated in the market. Something similar happened in Russia in the 1990s. As long as key people make the right decisions (think U.S. 1787 rather than France 1789) we will be okay. The road to serfdom is a two-way highway, with exits at unmarked intervals.
Charts Of The Day, Equity Volume Edition [View article]
It's bad. It means that government malinvestment has crowded out stock investment, by the same principle that bad money drive out good. This road leads to serfdom.
How The Official Sector Restructures, Greece Edition [View article]
So the Greek government is gaining unknown billions. Who is losing these billions? I figure the French and Germans, for starters. Sounds like a Chapter 7 personal bankruptcy, with pretend payments that will never happen. Obviously, with enough of these, the euro gets pressured, like the dollar would be if the U.S. government bought all the outstanding bonds of California. Of course, these things can take years/decades to crash, but eventually the productive people/nations will either say "Enough!" or we will run out of productive people/nations. Betting on option 2.
Sony: A Cautionary Tale For Any Portfolio [View article]
In my backtesting, it is possible to do well with 4 stocks, but to minimize the risk of decline over the long term, 16 diversified stocks is a good starting point. With just 4 stocks, you can maximize average logarithm of gain, but with a 30% chance of loss. This is with Buffett-quality picks. If beating the markets by just 2-3% per year, 25-40 stocks are better. If not beating the markets, buy 3-5 mutual funds with foreign/domestic exposure, plus bond funds, cash, and gold. Note that the best broad-based ETFs are a little better than the best broad-based mutual funds, and that some would advise to hold a portion of cash/gold personally, rather than in a fund or ETF.
Of Closet Indexing And Stock Picking [View article]
There are funds owning 150-250 stocks that regularly outperform the market. These tend to be actively managed, and often hedged - long half the portfolio, short the other half.
For a portfolio large enough that commissions are less than 0.5% per year, and liquid enough the the bid/ask spread is less than that, about 30 stocks are enough for portfolio risk to be acceptable. That said, it can pay to own more stocks/bonds/etc. to decrease risk further. At a portfolio level, it's important to quantify risk, especially systemic risk, which generally leads to looking at as many asset types as possible.
Thursday: World Bank Says Fighting Poverty An Investment [View article]
Phil does pick expensive calls/puts (usually puts) to short. Of course, sometimes they are expensive for a reason. Early and right on CMG. I didn't trade the SVU, because I need $25K to short options. Was tempted to take the covered short position - short the stocks and sell the puts.
Japan Isn't Bankrupt [View article]
So for the next 30 years, foreign exchange is likely to be driven by commodities imports/exports. Canada and possibly Australia win here. Interest rates are low because population growth is low. In Europe, population growth, ex-immigration, is negative. Empty houses are deflationary for housing, but not for food/energy.
A Slow Motion Run On European Banks Will Benefit Gold [View article]
Gold is down because all that money in accounts in Cyprus just went poof! It's grand for Cyprus, only now they are out of other people's money. Count on Greece to hit it one more time, along with Spain, Portugal, Italy, and soon France.
And the biggest part isn't the loss of paper capital but human capital. Many of the top young people in Italy are leaving, for the U.S., South America, Singapore, and a few other destinations. This happens on a multi-decadal scale. It's why West Virginia has been poor for generations, why city cores in the U.S. have been dying since 1965 - almost 50 years running - and why there is no political will to fix it. Vote with your feet, and you're not there to complain.
Initial, Continued, And Extended Unemployment Claims - March 7, 2013 [View article]
The Most Worrisome Charts [View article]
The result, however, will be similar to a pure austerity solution. See the old Soviet Union 1990-2000 for details. Pensions, whether public or private, and retirement medical care will be hardest hit. Other government-paid employees, including teachers, medical, and military/defense, will also watch incomes fall.
Main question is timing. I figure 2015-2021 to be the time span, with Europe first and the U.S. last, due to different demographics and political structure. Strong possibility of domino fall, due to cross-holdings of bonds and trade. China won't be pretty, either.
From an investment standpoint, best to hold a combination of essentials, real estate, and some paper (food stocks and Canadian currency seem extremely likely to outperform). No way the whole market can fit through that door, as real losses need to be recognized.
The Big Picture For The Week Of February 17, 2013 [View article]
I could wish for higher volume on RRGR. At least the spread has been reasonable.
Conspicuous Correlation: Retail Sales December 2012 [View article]
So the economy could do better, short-term, by a revision of bankruptcy law, or worse, short-term, by an increase in foreclosures. Long-term, uniform and speedy enforcement of the rule of law (including foreclosures, no robosignings, paying of title transfer fees rather than claiming MERS owns everything) will increase output as it trims down malinvestment. There will always be malinvestment as long as there are people and governments.
After Factory Explosion, A Big Retail Pump On Neptune [View article]
APO.V, the Canadian symbol for Acasti, does trade more - 37,000 shares/day last 3 months. And NEPT holds warrants for 6.75 million APO.V shares, currently at 2.22, to buy at 2.30. So there is time value in the warrants. Plus NEPT already owns 57% of Acasti,more than 40 million shares (48 million according to previous poster). So there is both a bull and a bear case in NEPT.
But trying to sell 48 million shares into a daily volume of 37,000 tells me NEPT can't just convert its stake in Acasti into cash - even if there is a big drug trial success soon.
Probable Versus Possible [View article]
The other major difference in U.S. dollars vs. shares in a corporation is that large numbers of people keep score in U.S. dollars because so many contracts are denominated in U.S. dollars. If/when inflation gets severe enough that people want to keep score in gold, Swiss francs, Canadian dollars, etc. then and only then the U.S. dollar stops being money for more and more people.
U.S. fiscal and monetary policy since 2007 has tried to stop the natural deflation from the end of the housing boom, with mixed results and large distortions in relative prices as a major result. If/when housing goes back to having expected gains of more than 5% per year, the psychology changes, while fiscal and monetary policy will lag as usual, continuing to fight the previous crisis.
Net: I don't expect nominal S&P of 666, but inflation-adjusted S&P could easily drop more than is priced into the markets. In the 1970s, inflation almost got out of potential control, and it took peak interest rates of over 20% to control it. This is definitely not priced into the markets. If it were, housing demand would be much stronger, and banks would be unwilling to lend for housing at current rates, because they couldn't resell the loans at a profit. But I could easily go broke trying to call the turn, and in between the "fiscal cliff" and healthy growth, we could get to neutral fiscal policy in 2014. Flipside, the combination of healthy growth and the cliff is considered unlikely by the markets.
What Investing For The Long Term Is All About [View article]
On the business side, savers are winning. Massive cash positions by major corporations, unwilling to invest in the U.S. either directly or by buying shares in their own or other companies' stock.
On the personal side, age over 30, savers are winning. Massive paydowns/writeoffs of homes, credit cards, etc. Auto sales are picking up, so we may be near the end of this deleveraging cycle.
Age under 30, spending. Big increases in student loans. High unemployment, relatively low wages compared to student debt. Considering the low birth rate from 1970-1990, it's even worse than the raw numbers indicate. But plenty of jobs open in retail, trucking, and health.
Pressure on U.S. financial assets should be expected until about 2037, due to demographics - peak birth year 1957 reaches age 80. So, many in the over age 50 group will be like the horse in Animal Farm, working until we drop.
Forecasting: Don't Swim Upstream [View article]
The U.S. retirement debt (mostly Social Security, Medicare, and Medicaid) has recently been estimated at $222 trillion NPV. The U.S. government can and will default, most likely by a rise in food, energy and housing prices, and by doctors retiring or switching fields. University professors will be cut (perhaps after a change in administration), fat, muscle, and bone will fall. After that? It's like trying trying to predict the outcome of a game of musical chairs. When the music stops, a lot of unhappy people will notice the lack of chairs. On the bright side, bartering skills will be appreciated in the market. Something similar happened in Russia in the 1990s. As long as key people make the right decisions (think U.S. 1787 rather than France 1789) we will be okay. The road to serfdom is a two-way highway, with exits at unmarked intervals.
Charts Of The Day, Equity Volume Edition [View article]
How The Official Sector Restructures, Greece Edition [View article]
Sony: A Cautionary Tale For Any Portfolio [View article]
Of Closet Indexing And Stock Picking [View article]
For a portfolio large enough that commissions are less than 0.5% per year, and liquid enough the the bid/ask spread is less than that, about 30 stocks are enough for portfolio risk to be acceptable. That said, it can pay to own more stocks/bonds/etc. to decrease risk further. At a portfolio level, it's important to quantify risk, especially systemic risk, which generally leads to looking at as many asset types as possible.
Thursday: World Bank Says Fighting Poverty An Investment [View article]