Investment Outlook - Towards the Paranormal. How many ways can you say “it’s different this time?”
There’s “abnormal,” “subnormal,” “paranormal” and of course “new normal.” Mohamed El-Erian’s awakening phrase of several years past has virtually been adopted into the lexicon these days, but now it has an almost antiquated vapor to it that reflected calmer seas in 2011 as opposed to the possibility of a perfect storm in 2012. The New Normal as PIMCO and other economists would describe it was a world of muted western growth, high unemployment and relatively orderly delevering. Now we appear to be morphing into a world with much fatter tails, bordering on bimodal. It’s as if the Earth now has two moons instead of one and both are growing in size like a cancerous tumor that may threaten the financial tides, oceans and economic life as we have known it for the past half century. So global economies and their credit markets instead of delevering and contracting, continue to mildly expand. Bond Markets: Stocks and Commodities: Currencies:
Charlie Rose Show: Ray Dalio, Bridgewater Associates. You Can't Solve A Debt Problem With More Debt. "Whoever cannot seek the unforeseen sees nothing for the known way is an impasse.
" ― Heraclitus, Fragments Which path will we take? If we could only grow our way out of our sovereign debt problems. But growing debt creates even more problems if not dealt with, making it even more difficult to deal with; yet getting the debt and deficit under control brings its own form of pain. As I keep pointing out, there are no easy choices left. Some countries must choose between difficult and very bad, and others are faced with either disaster or calamity. It's that time of year when we start thinking about what the next may hold for us. Follow this thinking carefully and then think through their outline of what a country would have to do to leave the euro, which starts at the subhead entitled "What if… ? ". Business Insider - The 25 Best Financial Blogs. A Run On The Global Banking System - How Close Are We? Guest Post via Gonzalo Lira Nine weeks after its bankruptcy, the general public still hasn’t quite realized the implications of the MF Global scandal.
My own sense is, this is the first tremor of the earthquake that’s coming to the global financial system. And how the central banks and financial regulators treated the “Systemically Important Financial Institutions” that had exposure to MF Global—to the detriment of the ordinary, blameless customer who got royally ripped off in its bankruptcy—is both the template of how the next financial crisis will be handled, and an accelerator that will make the next crisis happen that much sooner. So first off, what happened with MF Global? Simple: It went bankrupt—because it made bad bets on European sovereign debt, by way of leveraging positions 100-to-1.
From this one issue, it seems clear to me that we can infer what will happen when the next financial crisis hits in the nearterm future. Why does this difference of a single subchapter matter? Why? FINALLY, SOME EXCELLENT INVESTMENT ADVICE: Don't Play The Losers' Game. If you're an individual with some money to invest, the first thing you need to know if you want to invest intelligently is that you shouldn't play the Losers' Game.
What's the Losers' Game? The game that 99.9% of the people who talk about investing appear to be playing: Namely, following global economics and markets and investment advice and trying to make smart decisions along the way. If you play that investment game, you're almost certain to lose. And the sooner you understand that, the sooner you'll be on your way to investing intelligently. In other words, if you want to invest intelligently, the first thing you should do is ignore 99.9% of what you hear in the financial media. Why? Because, if your goal is to invest intelligently, what you hear in the financial media is mostly distracting noise that will trick you into making expensive mistakes.
That doesn't mean that the people in and on the financial media are stupid--they aren't. Specifically, you should ignore: Monitoring the Global Economy. On a long enough timeline the survival rate for everyone drops to zero.
PAYBACK TIME: Citi Warns Of A Coming Decade Of Deleveraging. The Western World is just getting started on the second of two lost decades, according to a big report by Citi's Matt King.
While the last lost decade was characterized by boom and bust, the new one will be characterized by deleveraging and slow growth. We haven't even begun to erase the massive debt load from the past few decades. The UK particularly stands near the Japanese peaks of the early 1990s. King recommends fixed income for the best returns in the next decade. Corporate bonds could provide a better return to risk ratio, just watch out for bankruptcies. Interestingly another recent report from Citi Equity Strategy predicts a rebirth of the cult of equities driven by low bond yields -- but that this change might not take place for another decade.
As for real estate, the combination of deleveraging plus demographics is a nightmare scenario.