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If U climb a wall of worry, U'll be OKHarry Schultz US$382 for
a 1
year! subscription There's the growing risk of a sudden event -- like a Long Term Capital Management cum derivatives crisis, a 2nd/3rd world central bank default (a la Mexico bailout, Russia default or a US-$ collapse, not to mention 1st world terror attacks). There are many really scary, mega-size balloons & bubbles that can burst so fast U can't exit your positions after the news breaks. When the next crisis inevitably occurs, you'll know it when U hear, metaphorically speaking: "Houston, we have a problem."
In the Big Picture view, the world may well "muddle through" for quite some time. But the risks are rising, along with ocean levels, & U don't want to have to start all over again (horrible thought!) to rebuild your assets because U didn't plan on your asset house burning down. ··· The trick here is to diversify, among alternative investments, boring as that often is. It calls for buying things U don't enjoy very much just for the sake of diversification. Anyone who goes all-out for only 1-2 asset classes is gambling with his future. Avoid feeling smug just because U have made a mkt killing (U think, in your innocence) in one area (property? Oil? tech stks?). Often if I celebrate a killing, I get a backlash. Pride will bury U. Property is the "Present Danger" for those who are property-leveraged &/or using flexible rate loans. If U think U are clever, U may be headed for a fall. If U climb a wall of worry, U'll be OK. The overall world monetary problem (potential crises above aside) is the need to "re-balance" - the new in-word to describe how everything is out of whack. Eg, trade imbalances & budget deficits/surpluses, China's overbuilding capacity, ridiculous globalization (which stresses labour mkts), pension & health care promises by many govts & corps that can't (& won't) be met. Govts everywhere are overspending & overtaxing. The US-$ itself needs rebalancing, ie, lower, which is almost certain to eventuate, but how fast/far is in the lap of Zeus. See our currency & futures sections for specific guidelines, plus our charts, to shed light on the timing of this. IMO, we have a realistic fix on the situation. If U get our Gold Charts R Us service, U also now get a mini currency advisory every Wednesday. But I said, above, the "muddling through" has a fair chance for now. I especially meant re the US-$ re-balancing (which affects a lot of areas). Why? Because the game can probably go on as long as Asian govts will accept US-$'s & keep them in US-$ bonds. Asian govts are the main ones who might bring about the most rebalancing, eg, by switching to the yen, £ & euro (& gold). But govts want to stay in power (that's all politicians live for), so most will do their rebalancing very slowly & quietly, as they're already doing. But there are some other govts who don't mind doing it out loud, eg, Russia, Mideast & Latin nations, though their $reserves aren't as massive as Japan, China & the tigers. Regardless, the longer term will erode the US-$ for a great many reasons. Since writing that paragraph, The Economist mag appeared. Lead article: Traffic lights on the blink? Says rebalancing is in jeopardy because the normal mechanisms, which worked in the past, have jammed. Relationships between real US bond yields have fallen, not risen, in past few years partly because Asian central banks have been keen to buy US T-bonds to prevent their currencies rising. As long as low yields continue to support the US housing boom/bubble & hence strong consumer spending, they block any reduction in US current-account deficit. If that sounds complex, it is, & that makes investment advice by the unwashed (& even most of the washed) pretty anaemic. Euro interest rates give wrong signals to govt & consumers. The silly idea of 1-interest rate for all EU nations puts water into petrol tanks. Eg, Germany & Italy don't have the same growth rates as Spain & Greece. There's more to this story, but I'm getting dizzy writing about this camel designed by a committee. The Economist rightly says "interest rates & bond yields are the traffic lights of the global economy. When these traffic lights break down, there's a risk the global economy can get snarled up or even crash." Another way to put it: global economics are disfigured. So, be wary of dogmatic opinion; things are not black & white. More like dirty grey. The Great Mall-of-China threw UncleSam a bone via a Potemkin façade currency manipulation. They switched the Yuan from a direct $-link to an indirect $-link. "Very clever these Chinese" (old US cliché). By using a basket of currencies (in which US$ is a big portion) China gets best of 3 worlds. Gets Mr. Snow & US Congress off their back, lessens China's total dependency on US$ movements, marginally, & wins PR. The 2% move was too small to see, & the US$ actually fell on the news, but China got credit as if it was a 10% revaluation. Chinese checkers & checkmate chess. U see, China can't afford a 10-15% move (as US wanted) because they have a big unemployment problem, which threatens political stability, as well as economics. That's why I predicted no true revaluation would happen. Also, a 10% Yuan revaluation would be an ipso facto 10% devaluation of their pile of US$ reserves. So, don't join the rush to buy Yuan in hope of a windfall gain. That's far distant. A word about inflation, which all govts promote (via money/credit supply) & simultaneously mask via corrupt CPI data to avoid paying higher social security/pensions. Why does the press never mention this reason? U know why. Press is bank/govt/big biz controlled. Inflation is rising ever faster, govt data reports. Imagine what the real numbers are! But economies are on balance gradually slipping. This will lead to stagflation, which I find is mentioned now by several credible writers & which I predicted (on 5/9/04) to occur in late 2005-2006. · Oil is now impacting inflation numbers seriously. CPI's in UK, US, Germany, etc, are climbing. If fuel was included in US CPI, it would transform everything! Excluding it was a slimy maneuver by insider manipulators. ·In US poll, 84% are worried about inflation-which they wouldn't be if govt's small CPI number was honest data. People only worry when the real numbers affect them. *** Keep your balance (via diversifying) while this global rebalancing act takes place. The press is full of global warming news & rising sea levels. A French paper says the Riviera may become as warm as Spain or North Africa, so we should then go with the flow & do as warm weather Latins do -- take a siesta every day after lunch. Siestas also preclude summertime heat strokes. That's the best idea yet to come out of climate change. Think I'll start it now, get in some practice.
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This
means we must have stop-loss orders in, as well as taking profits
as they occur. This does not mean we must withdraw from
mkts; we just need to use strategies that are in tune with turbulent,
traumatic, times. There are still many good stocks to buy. And
learning to sell short is a tool U should learn to utilize, now
that price earnings ratios are again at historically high levels,
& a number of stks deserve shorting. Likewise, futures are
something U should consider. They can be used long or short.
They are not high risk if stops are used. In fact, they are safer,
as most people don't bother to put stops on stocks, whereas they
are afraid not to use stops in futures. 