How to make $301% in six years with low volatility

[metalman]

Re: How to make $315% in six years with low volatility

Bill -

If your point is that many players in the upcoming energy infrastructure "bubble" are ex-USA as well as domestic, I fully understand and accept that. Indeed it seems overwhelmingly likely. But that raises the simple question, how can this be a pure 'bubble' if bids on it are already appearing spontaneously from all parts of the world?

US FIRE economy mechanisms cannot be assumed to be the motive force in any acquisitions occurring from multiple origin points worldwide, right? To imply or conclude that all those acquisitions in this sector are occurring due to FIRE economy bubble dynamics (i.e. these are the first outlier evidences of the new 'alt energy bubble') would apparently be an imprecise description.

Rather these bids on alt energy would seem more plausibly prompted by far-sighted investor groups responding to fundamental drivers in that sector. How can what's apparently building up in alt-energy then be described as a future 'bubble' in the same category as the stocks bubble or the housing bubble? This emerging 'bubble' bears all the hallmarks of a bid on technologies and resources that are a direct response to resource problems that are increasingly being percieved as critical to the future global economy.

my take is hank the bank paulson headed out to china with the "bonds for sale" sign and was told to piss off. then he went out with the "asset for sale" sign and got some takers after prices dropped. check this...

An Ottoman warning for indebted America

Future historians will look back on the current decade as a turning point comparable with that of the Seventies. No, not the 1970s. This is not going to be another piece pointing out the coincidence of an unpopular Republican president, soaring oil prices, a sagging dollar and an unwinnable faraway war. I am talking about the 1870s.

At first sight, the resemblances across 130 years may not seem obvious. The 1870s were a time when conservative leaders such as Benjamin Disraeli, British prime minister, were powerful and popular. It was a time of falling commodity prices, after the financial crash of 1873 and the opening up of the American plains to agriculture. And it was an era of currency stability, as one country after another followed the British lead by pegging to gold.

Yet, on closer inspection, we are indeed living through a global shift in the balance of power very similar to that which occurred in the 1870s. This is the story of how an over-extended empire sought to cope with an external debt crisis by selling off revenue streams to foreign investors. The empire that suffered these setbacks in the 1870s was the Ottoman empire. Today it is the US.

and this on hussman...

John Hussman Turns Bullish On Gold

I've been reading (and admiring) John Hussman's weekly Weekly Market Comment for a couple years now. He seems to be among the most sophisticated, well-balanced, conservative and truly insightful money managers out there who publishes his thinking on a weekly basis. I've learned a lot from him.

Because he is so well-balanced, I was really surprised to see him in this week's commentary somewhat on the same wavelength as your author regarding precious metals:

"In precious metals, the Market Climate remains favorable, and the Strategic Total Return Fund currently has just under 20% of assets invested in precious metals shares. The U.S. dollar, having cleared its oversold condition, may be vulnerable particularly if employment figures are not particularly strong."

hey, better late than never, but he missed the easy 315% gain.

[jk]

Re: How to make $315% in six years with low volatility

and this on hussman...hey, better late than never, but he missed the easy 315% gain.

hussman's total return fund has had a variable exposure to gold shares - 10 to 20% - for years.

[bart]

Re: How to make $315% in six years with low volatility

In currency derivatives, it's zero sum. Not so with credit derivatives.

Here's a site entirely predicated on the idea that investment banks are simply hedge funds bloated with too much overhead, and doomed to fail as hedge funds take over: FinTag. They beat the ibanks like a drum. Quite amusing.

From my relatively limited study in comparison to yours or EJ's, the majority of derivatives are in the interest rate area - whether swaps or futures - and they're close to zero sum as best I can tell.
No question that the wacky stuff like CDS, ABS, MBS etc., aren't zero sum though... and often with a vengeance too.

And I can be wrong too, so feel free to correct me... it probably won't hurt as much as when I get Finster'ed... ;)



Love that FinTag site, he has the proper amount of dis-respect for the jock jerks and other lowlifes.
It surprises me a bit that the banks with the worst messes in Tier 3 issues (MS, GS & LEH as the top three) have so far been relatively unscathed.
Ain't "PR" grand? :mad:

[FRED]

Re: How to make $315% in six years with low volatility

A video like we'd make, except after the fact and we didn't make it. ;)

[Guest]

Re: How to make $315% in six years with low volatility

my take is hank the bank paulson headed out to china with the "bonds for sale" sign and was told to piss off. then he went out with the "asset for sale" sign and got some takers after prices dropped. check this...

Metalman -

Yes you are right, the participation by foreign entities in US emerging 'alt energy' assets < is / or will be > even occurring at the express invitation of "Hank the Bank". However the international participation required to morph this bidding up of assets in alt-energy into a 'bubble' remains far too diffused globally in it's range of separate nation interests to constitute the inputs for a 'bubble'.

There will be nations bidding into these alt-energy assets all for totally different, localised reasons of their own. Only a very few of them have any links to US centric FIRE economy inputs.

It's agreed, there is every reason to believe this sector is going to see an ever increasing bid, even growing into a massive bid. And yes, that bid will be contributed to by many different money pools in the world. But the underpinnings of this bid are profoundly different than were those underpinning the US originated stock and real property bubbles.

It's just my own POV, but I don't think it's going to be the same set of FIRE economy inputs driving the alt energy boom, therefore 'bubble' is a misnomer.

[Guest]

Re: How to make $315% in six years with low volatility

I am a satisfied subscriber to investmentscore.com .

[FRED]

Re: How to make $315% in six years with low volatility

I am a satisfied subscriber to investmentscore.com .

Cool. What do you like about them? We're not fans of trading PMs. Our thesis has been buy and hold for many years. Trading costs money and will rarely make you any on net.

[Guest]

Re: How to make $315% in six years with low volatility

Cool. What do you like about them? We're not fans of trading PMs. Our thesis has been buy and hold for many years. Trading costs money and will rarely make you any on net.

Fred - I agree completely, trading for most of us (except for the "Barts" of this world who make out like bandits) is an expensive way to merely indulge the nervous need to be 'doing something'. I think JK posted a quote of Jesse Livermore's to the effect that the 'sitting' was the part of the process that really is responsible for winning the biggest gains.

Investmentscore.com fully agree with this. They keep the bulk of their holdings permanently invested for the duration of the bull market, and trade only a minor portion to capture gains. And the process by which they do this is to 'scale in' and 'scale out' that portion only as tops and bottoms in bullion moves approach. In other words, they never try to capture a top or bottom, believing this to be impossible.

The advisory service is woefully lacking in weekly commentary. It is indeed a very spartan investment service. What they do is measure the purchasing power of each of the two metals, gold and silver, against a basket of other goods (I have no further idea of the alchemy of this process, but probably Bart or other chartists here could produce a fair approximation).

This provides a running 'investment score' of the metals cheapness or expensiveness at any given time. Real simple. You can add to your positions when at clear intervals, the relative cheapness score baselines, and scale out some holdings when it gets pricier.

Once again, kudos must go to the Charles Mackays and Grapejelly's of this community who adopted this extremely simple investment view years ago (as did EJ). I marvel at the frenetic trading, shorting, straddle trades, and complex incessant portfolio tweaking going on everywhere - these people must enjoy churning portfolios for it's own sake rather than seeking a sober and fundamentally sound way to grow their retirement money in this horrific decade.

[bart]

Re: How to make $315% in six years with low volatility

I think JK posted a quote of Jesse Livermore's to the effect that the 'sitting' was the part of the process that really is responsible for winning the biggest gains.

I have no desire to encourage anyone to do active trading... but that quote from JK is far from a fully accurate and complete picture of what Livermore said.


Here's a few others, and from the book that he himself actually wrote almost 20 years after the book from which JK quoted:


"Speculators in stock markets have lost money. But I believe that it is a safe statement that the money lost by speculators alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride."
-- Jesse Livermore, "How to Trade in Stocks" (page 25)

"From my point of view, the investors are the big gamblers. They make a bet, stay with it, and if all goes wrong, they lose it all."
-- Jesse Livermore, "How to Trade in Stocks" (page 25)



"The only reason an investor or speculator should ever want to have pointed out to him is the action of the market itself. Whenever the market does not act right or in the way it should - that is reason enough for you to change your opinion and change it immediately· Remember, there is always a reason for a stock acting the way it does. But also remember: the chances are that you will not become acquainted with that reason until some time in the future, when it is too late to act on it profitably."
-- Jesse Livermore, "How to Trade in Stocks" (page 71)

“I have long since learned, as all should learn, not to make excuses when wrong. Just admit it and try to profit by it. We all know when we are wrong. The market will tell the speculator when he is wrong, because he is losing money. When he first realizes he is wrong is the time to clear out, take his losses, try to keep smiling, study the record to determine the cause of his error, and await the next big opportunity. It is the net result over a period of time in which he is interested”
-- Jesse Livermore, "How to Trade in Stocks"

“Remember too that it is dangerous to start spreading out all over the market. By this I mean, do not have an “Interest in too many stocks at one time. It is much easier to watch a few than many. I made that mistake years ago and I cost me money”
-- Jesse Livermore, "How to Trade in Stocks"

When you make a trade, you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.
-- Jesse Livermore, "How to Trade in Stocks"

[Tulpen]

Re: How to make $315% in six years with low volatility

In currency derivatives, it's zero sum. Not so with credit derivatives.

It is indeed not zero sum between the two parties of the derivative instrument but if we include the reference entity it is a zero sum.

[agisthos]

Re: How to make $315% in six years with low volatility

If not deflation, then hyperinflation?

The US is not on the gold standard so a 1930s style deflation is impossible. The Fed even before Bernanke was hired repeatedly stated (as in the presentation we got the image from) that the Fed will not sit by and allow inflation to fall below zero, so a repeat of the Japanese 1990s "deflation" experience is about zero, unless the Fed decides to crash the US economy on purpose on behalf of some external political entity–and that ain't how we operate.

Besides the 1930s depression in the US and the self-inflicted ongoing debt deflation in Japan, every other instance when a government, its politicians, and their voters have gotten themselves in as much credit driven hot water as the US is in today has done one thing, and over and over. In fact, while the world experienced two (2) deflationary episodes in the past century, how many debt deflations resulted in currency depreciation and all-goods price inflation? The answer: 17.

• Germany 1920 - 1923: 3.25 million percent
• Russia 1921 - 1924: 213 percent
• Austria 1921 - 1922: 134 percent
• Poland 1922 - 1924: 275 percent
• Hungary 1922 - 1924: 98 percent
• Greece 1943 - 1944: 8.55 billion percent
• Hungary 1945 - 1946: 4.19 quintillion percent
• Shanghai 1949 - 1950: 100 percent
• Argentina 1984 - 1991: 5000 percent
• Brazil 1984 - 1997: 5 trillion percent
• Chile 1973: 600 percent
• Bolivia 1984: 14,700 percent
• Peru 1981 - 1989: 900 percent
• Poland 1989 - 1990: 344 percent
• Russia 1992 - 1995: 2,323 percent
• Ukraine 1991 - 1994: 10,000 percent
• Yugoslavia 1993 - 94: 1 trillion percent

I'm leaving off many minor examples, and that is just in the past 90 years. Go back centuries and several dozens of examples can be cited. Yet the one instance of a runaway price "deflation" in the 1930s becomes for some the model for a modern, post credit bubble US debt deflation. Bizarre.

There is some issues with this analysis EJ. All 17 examples of inflation are either basket case Soviet block countries or South American banana republics.

You can not compare such countries financial systems, which are usually wholly controlled by the state, to ours. Our financial/banking systems are the ones which dictate state/government policy, not the other way around.

The 17 countries listed either had nationalized financial systems, or a smoke and mirrors privatised system that was essentially state controlled in everything but name.

What is the chance that our western banking system will allow the government to bail us out via out of control inflation?
Isnt it the banks themselves that suffer the most during a loss of confidence in the currency?

If you go by the record of how many modern western financial/banking systems have chosen debt deflation over currency depreciation we are 2 - 0 zero in favour of debt deflation.

[EJ]

Re: How to make $315% in six years with low volatility

Thank you for the question.

There is some issues with this analysis EJ. All 17 examples of inflation are either basket case Soviet block countries or South American banana republics.

You can not compare such countries financial systems, which are usually wholly controlled by the state, to ours. Our financial/banking systems are the ones which dictate state/government policy, not the other way around.

The 17 countries listed either had nationalized financial systems, or a smoke and mirrors privatised system that was essentially state controlled in everything but name.

That's why we say hyperinflation isn't going to happen in the US.

What is the chance that our western banking system will allow the government to bail us out via out of control inflation?
Isnt it the banks themselves that suffer the most during a loss of confidence in the currency?

The western banking system is getting bailed out of a global debt deflation via monetary inflation now. Is the question, then, what is the chance that it will "allow" the government to continue to do so? 100% The alternative is a runaway deflationary collapse.

If you go by the record of how many modern western financial/banking systems have chosen debt deflation over currency depreciation we are 2 - 0 zero in favour of debt deflation.

You are confusing terms. The debt deflation is occurring either way. There are two possible forms of debt deflation: 1) runaway asset price and commodity price deflation caused by and causing (self-reinforcing) a collapse in the money supply and velocity of money or 2) a monetary inflation which increases the nominal value of collateral against which loans were made; the banking system remains functional and the money supply, albeit not in the same sectors of the economy as before, grows via monetization, that is, printing money and buying assets, such as government bonds.

The first question then is how many governments have experienced a runaway asset price and commodity price deflation since going off the gold standard and the answer is: zero.

The second question, then, is has any government been able to engineer a gradual debt deflation via gradual monetary inflation without crashing the currency? I can find instances of periods of high inflation experienced by major economies, as occurred in the US during the Vietnam War era, but none that I'd call "intentional" from a policy standpoint.

My reading of dozens of papers on the Japanese "deflation" experience–written by Japanese economists, not American and British back seat drivers–is that the BoJ was not optimistic about using inflation and currency depreciation as policy tools to fight deflation, thus the reluctance to take advice from western economists such as Paul Krugman to attempt unconventional anti-deflation policies, such as targeting negative interest rates (paying borrowers to borrow) which has worked in nations that have continuous, multi-generational record of currency protection without causing the currency to sell off. The Japanese wipe-out that occurred after WWII was hyperinflationary; the critical cultural result that influenced policy is that a level of inflation that is tolerable in the US and countries that have never experienced a hyperinflationary wealth wipe-out is not tolerable in Japan. The Japanese policy makers' fear is that there is no such thing as a little inflation in the context of Japan's economy, that the yen will sell off as wealth holders exited yen denominated assets in anticipation of inevitable government debasement and hyperinflation. US policy makers appear to believe that dollar depreciation can be modest while a policy of debt deflation via monetary inflation is executed, and have been following that route for over a year.

My forecast of a modest inflation is therefore optimistic. Some of the best research I can point you to on the subject of debt deflation and government efforts to anticipate and manage it is Deflation (pdf) by Pierre Siklos, published by Cambridge University Press, 2004. One of his conclusions is that deflationary and inflationary forces have been consistently underestimated by agents of government. History suggests that the Fed, in its diligence to avoid deflation, may get a lot more inflation than it is bargaining for. Note also that all 20 of his examples of deflations studied occurred before 1933, after which the US went off the gold standard.

[Chris Coles]

Re: How to make $315% in six years with low volatility

Thank you for the question.

That's why we say hyperinflation isn't going to happen in the US.

The western banking system is getting bailed out of a global debt deflation via monetary inflation now. Is the question, then, what is the chance that it will "allow" the government to continue to do so? 100% The alternative is a runaway deflationary collapse.

You are confusing terms. The debt deflation is occurring either way. There are two possible forms of debt deflation: 1) runaway asset price and commodity price deflation caused by and causing (self-reinforcing) a collapse in the money supply and velocity of money or 2) a monetary inflation which increases the nominal value of collateral against which loans were made; the banking system remains functional and the money supply, albeit not in the same sectors of the economy as before, grows via monetization, that is, printing money and buying assets, such as government bonds.

The first question then is how many governments have experienced a runaway asset price and commodity price deflation since going off the gold standard and the answer is: zero.

The second question, then, is has any government been able to engineer a gradual debt deflation via gradual monetary inflation without crashing the currency? I can find instances of periods of high inflation experienced by major economies, as occurred in the US during the Vietnam War era, but none that I'd call "intentional" from a policy standpoint.

My reading of dozens of papers on the Japanese "deflation" experience–written by Japanese economists, not American and British back seat drivers–is that the BoJ was not optimistic about using inflation and currency depreciation as policy tools to fight deflation, thus the reluctance to take advice from western economists such as Paul Krugman to attempt unconventional anti-deflation policies, such as targeting negative interest rates (paying borrowers to borrow) which has worked in nations that have continuous, multi-generational record of currency protection without causing the currency to sell off. The Japanese wipe-out that occurred after WWII was hyperinflationary; the critical cultural result that influenced policy is that a level of inflation that is tolerable in the US and countries that have never experienced a hyperinflationary wealth wipe-out is not tolerable in Japan. The Japanese policy makers' fear is that there is no such thing as a little inflation in the context of Japan's economy, that the yen will sell off as wealth holders exited yen denominated assets in anticipation of inevitable government debasement and hyperinflation. US policy makers appear to believe that dollar depreciation can be modest while a policy of debt deflation via monetary inflation is executed, and have been following that route for over a year.

My forecast of a modest inflation is therefore optimistic. Some of the best research I can point you to on the subject of debt deflation and government efforts to anticipate and manage it is Deflation (pdf) by Pierre Siklos, published by Cambridge University Press, 2004. One of his conclusions is that deflationary and inflationary forces have been consistently underestimated by agents of government. History suggests that the Fed, in its diligence to avoid deflation, may get a lot more inflation than it is bargaining for. Note also that all 20 of his examples of deflations studied occurred before 1933, after which the US went off the gold standard.

I am not sure that either of you are correct. Surely, we are not looking at an asset deflation event? Why? Because this time there are balancing forces we have not seen before. If we look back historically, there has never been a period of change quite like today. During the 1930's for example there was no BRIC community, neither was there in the 1970's or the 1980's. Certainly not like we have at the moment.

In the past, when any economy got into difficulties the difficulties caused a slowdown that spread. Here in the UK we were brought up on the old adage, "when the US sneezes, we catch a cold". But not this time. China is rolling along sucking in every asset imaginable. In fact now it is buying assets on the world market through its Sovereign Wealth Funds and that process is accelerating. It has every incentive to exchange currency for assets as it has no other way to offload the currency it holds.

So there is no certainty that the Fed can manage anything any more and that means this period of uncertainty takes us outside of previous experience. So I say, we have no model to fall back on.

Again, the excellent video, investmentscore.com Fred put up earlier also shows another aspect, that while it appears we are in a currency deflation, the underlying asset VALUE remains.

It seems to me the real question to pose is what is that base value. Where do we set a baseline for asset value? From what date?

Turning to Robert Beckman's book "The Downwave", his evaluation, back nearly 30 years was that the base value was pre-1939 house and land prices.

The wall of money created by hedge funds over the last decade, (something the Fed has had no control over at all), has a very long way to trickle down before we will have any real idea of the true answer to that question.

[art]

Next Asset Bubble - found!

At the bottom of this page:
http://www.thepowerhour.com/news/ite...ppearfirst.htm

3. After awhile, even gold can lose its luster. But there is no luxury
in war quite like toilet paper. Its surplus value is greater than
gold's.

[bart]

Re: How to make $315% in six years with low volatility

In the past, when any economy got into difficulties the difficulties caused a slowdown that spread. Here in the UK we were brought up on the old adage, "when the US sneezes, we catch a cold". But not this time.

There is always a time lag involved.

The UK housing market is not in good shape and appears to be about where the US was approximately a year ago. The UK and Euro area housing bubble is much larger and prices moved even more than the US since about 2002.

The Northern Rock fiasco was directly related to US derivatives issues, same with various Euro area banks.

The temp repo pools of the ECB show the same patterns as the Fed's since about the year 2000 although they're still expanding where the Fed's isn't.

Your own GDP and CPI (RPI) are showing the same patterns as the US in both the lies and overstated areas.

A slowdown or outright recession is dead ahead for the UK and the Euro area too, and its very likely that it has already started especially for the UK.