Another quick blog today, but there are two excellent Zerohedge pieces I want to keep.
The first looks at the implications of a world without growth. I often think about this theme and at some point our economies are going to have to move past the traditional model of need growth to flourish. This will require a fundamental shift in mindset, but there is something inexorable about this notion.
The second spells out some of the key facts we all need to be aware of which illustrate just how bad the situation is for everyone. It brings me back to the Wyle E. Coyote moment I had a week or so ago.
I still find I don’t have much time at the moment, but I have been pondering the muted reaction to QE3. Just how much of this was already priced in?
The Fed and ECB have really fired up the printing presses with their commitment to open ended monetary easing. Logic and history suggest the outcome of these policies will be highly inflationary, which will be positive for stocks and gold.
However with recession biting home in Europe and forecast in America, the fiscal cliff looming and a gridlocked political system there is so much pessimism out there.
The Technical Take and the MoneyWeek Trader have both published their views of tops being in, in both equities and gold. The sentiment gauges they use have been pretty accurate barometers for market direction.
Even so everything just feels so off at the moment. We live in a world where up is down and black is white. Nothing makes much sense. Continue reading
Life has been so busy in the last few months, that there have been several topics I wanted to blog about, but just didn’t have the time. I saved the links to various articles I read and am posting these now, in case I ever want to come back to them
Loss of retail investor participation in stock markets
A favourite leitmotif of Zerohedge’s is the collapse of participation by retail investors in American stock markets as measured by the Domestic Equity Mutual Fund Flows. Two articles of theirs caught my attention. The first charted “The Lost Generation of Investors”, the second shows how retail investors have avoided the stock market like the plague for the last few years.
Where does money come from?
An interesting piece I picked up somewhere (not sure where). Continue reading
I read an excellent piece yesterday by John Burford, the MoneyWeek Trader.
He laid out a convincing argument that T-Bill yields (the interest paid on US Treasuries) has bottomed.
Looking at the charts he presents, he is calling the bottom of a 27 year trend. This is a very bold call, but I think there is something to watch out for here.
I am not sure if I agree with him that the trend for the decline in yields is necessarily over just yet. He is right to talk about the unsustainable level of American debt and that when the market does turn, it will likely reverse its course sharply.
At the heart of this issue is the increasing tension between inflation and deflation clearly present in the global economy.
On the one hand we are probably about to witness another bout of inflationary money printing. On the other hand we could well be about to see European banking losses finally be realised (e.g. through a Greek exit from the Euro, a write down of Spain/Ireland/Portugal, even Italy?), which will obviously be heavily deflationary.
This analysis is simplistic, but the point is still valid.
To profit from Burford’s assessment the timing is as important as the view. I agree that we could be reaching a bottom for yields, but I don’t believe this will be challenged until the point where the general market wakes up the fact that a US default of some kind increasingly looks inevitable.
Whatever the case this is a market I am going to pay much closer attention to as this kind of trend reversal can provide some of the most profitable opportunities by far.
I need to learn more about this market.
I don’t have much time to write today other than to suggest you watch this video.
Economist Laurence Kotlikoff has some very interesting ideas about banking reform.
He advocates a return to a form of equity financed mutual funds in banking. I’ve come across this idea before and it makes perfect sense. Owners of business tend to be far more prudent in their risk-taking as their wealth is directly tied to the success or otherwise of their business. A key problem with too many participants in the banking world is that they are gambling with other people’s money.
An interesting point made in this video is that in 2008, although assets declined in value, the operating business models of the equity financed mutual funds largely survived the worst of the crisis. At the same time we were being told of the dire systemic risks the impending failure of the banks threatened us with.
As Professor Kotlikoff states “the market place is a public good”. When it is not acting in this manner then change is required.
You know my views on this.