Bubbles, Baubles & Black Swans

|
Includes: BIL, BMDPY, BTC-USD, COIN, DBIT, DFVL, DFVS, DLBL-OLD, DLBS, DTUL, DTUS, DTYL, DTYS, EDV, EGF, EUFL, EUFN, EUFS, EWI, FIBR, FTT, GBIL, GBTC, GOVT, GSY, HEWI, HYDD, IEF, IEI, ITE, PLW, PST, RISE, SCHO, SCHR, SHV, SHY, SPTL, SPTS, TAPR, TBF, TBT, TBX, TLH, TLT, TMF, TMV, TTT, TUZ, TYBS, TYD, TYNS, TYO, UBT, UST, VGIT, VGLT, VGSH, VUSTX, ZROZ
by: Mark J. Grant

As we approach the New Year, and stare hard at our investments, it is always appropriate to wonder what could go wrong. I approach this differently than most because I do not try to handicap the odds. This is a fool's game better employed at Casinos, in my opinion.

What I try to identify is the Risk. Is it present and to what degree? That is what I try to calculate. There is a significant difference in focus, between Handicapping and Risk Assessment, and I advise the later as a far better strategy, for gauging your investments.

I also point out one thing that I have learned, and I bear the scars, after forty-three years on Wall Street. "The velocity of loss is almost always greater than the velocity of gain." Please bear this in mind when looking forward. The "Risk/Reward Ratio" is an ever present indicator that requires constant re-evaluation. As the holidays approach, I am always on the lookout for the Scrooge that might steal Christmas.

I am totally onboard with my great friend, Randy Forsyth, at Barron's, on the great bubble and it is negative yielding bonds. J.P. Morgan identifies some $10.1 trillion bonds globally that are still in this category and while it is down from $12.7 trillion at its height, it is still a daunting number. Paying someone to hold your money is not a game that I wish to play.

It is all the result of financial engineering, of course, as the ECB, the BOJ, and the rest, use "Pixie Dust" to create money from nothing and then buy bonds and other assets with it. While I do not expect a pinprick, where the balloon contorts wildly around the world's trading desks, these negative yielding bonds may be one of the best shorts of 2018, if you get the timing right.

The bauble is Bitcoin. The stuff is virtually unregulated, at present, and, in my opinion, little more than casino gambling. There is nothing wrong with gambling, if you wish to toss your money into the air, but I caution against it for investments.

On Wall Street, in my estimation, there is gambling, speculating and investing. All three activities are always present and the key here is to identify which is which. A great many snake oil salesmen, and game show host types, will try to convince you that one is the other and I can assure you, that ignorance is not bliss, though, it is generally the cause of losing your money.

Remember this: The House doesn't beat the player.

It just gives him the opportunity to beat himself.

- Nicholas Dandolos, a.k.a. "Nick the Greek"

I never, ever, trust the House which is why I am so frequently in the minority. I am a staunch proponent of "Cash Flow Investing" which is markedly different from betting on the come. I think some prudent speculation is fine, such as buying equities for appreciation, but I do not gamble with my money, or my client's money.

I advise some of the largest financial institutions in the United States and I have chastened them, more than once, for getting caught up in various types of gambling fever. I do not view prayers, hope or luck, as prudent investment strategies. If you want to buy your wife or girlfriend a bauble, that is fine. However, please do not tell me that it is a great investment. I make the same remark about Bitcoin. It is just a chip.

The guy who invented poker was bright, but the guy who invented the chip was a genius.

- Julius Weintraub, a.k.a. "Big Julie"

The Black Swan, once known as the Holy Roman Empire, is Italy. This "booted" country is the Achilles Heel of the European Union, in my view. There is no greater threat, to the survival of the European Union, than what will take place next March, in my opinion. These are the mandated Italian elections.

The reemergence of Mr. Berlusconi, and his compatriots, coupled with the rise of Mr. Grillo's Five Star Movement puts Italy squarely in play, in my estimation. Neither group are fans of the EU and I am watching the situation in Italy quite closely now. To quote Holmes, "The game is afoot." Brexit came first and now I am waiting for "It-Out."

The arrogance of officialdom should be tempered and controlled, and assistance to foreign hands should be curtailed, lest Rome fall.

- Taylor Caldwell

I would also remark that the Italian banking system is a mess. Pick any major bank you like, any of them, and I would say that it is having financial issues. That is my opinion. There have been decades of mismanagement and an equal time allotted to playing charades with the numbers and Monti Paschi (OTCPK:BMDPY), and the like, are only the momentum that has gotten the ball rolling. Also, bonds designated as "mis-sold," to local investors, is a clear expression of the corruption in Italy, which has also been allowed by both the ECB and the EU, which indicates, at least to me, that these institutions cannot be trusted.

I remark, that I do not invest, with people that I do not trust. I care not for their heritage or title or standing upon the world's stage. I will not invest money with people that create fairy tales to justify their actions. The Italian government and the European Union and the European Central Bank have all signed up for the "mis-sold" bond fraud. Fine, but in doing so, they have driven me out of the conversation. I will not be speaking to them again.