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

[FRED]

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

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.

And as Louis at GaveKal told us last year, due to lack of a euro bond market to use to readily monetize government debt, likely the impact of recession, econ contraction, and asset price deflation in Europe will be deflation. Add to that EJ's theory that CBs tend to follow "culture" set by old currency terrors, the ECB, heavily influenced by Buba (Deutsche Bundesbank), will tend like the BoJ to be currency and inflation hawkish. Bad combo.

[FRED]

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

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.

All due respect to investmentscore.com, but isn't this a video that documents what Ka-Poom Theory said in 2001 was going to happen? Assets may have "value" but they have to be priced in something. EJ's Hard Assets Las Vegas Conference 2007 Keynote Presentation explains that gold went up in dollars first as the US depreciated the dollar unilaterally and then in all currencies as all major nations joined in. Gold then went up in all currencies. For all practical purposes, then, is not gold itself becoming the standard of value against which assets are measured, a market imposed return to the international gold standard? (See fourthcurrency.com, coming soon.)

[bart]

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

And as Louis at GaveKal told us last year, due to lack of a euro bond market to use to readily monetize government debt, likely the impact of recession, econ contraction, and asset price deflation in Europe will be deflation. Add to that EJ's theory that CBs tend to follow "culture" set by old currency terrors, the ECB, heavily influenced by Buba (Deutsche Bundesbank), will tend like the BoJ to be currency and inflation hawkish. Bad combo.

Methinks we are actually having fun now, especially with a slight change to Bubba for the Deutsche Bundesbank... ;)

And on a more serious note, EJ's "culture" point is very well taken in both the sense of them fighting the last war and also being a self reinforcing good old boys club that acts exceedingly slowly to factual changes... Volcker of course being the exception along with Reagan for having allowed him to act.

The western central banks seem to act very much as a "cooperating partnership", and I think one of the top 10 stories and questions and dangers over the next 3-10 years is how well (or not) the eastern and middle eastern and emerging country's central banks will play along behind the scenes where it really counts.
Brazil sure seems to be in the cooperating group.

[FRED]

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

Methinks we are actually having fun now, especially with a slight change to Bubba for the Deutsche Bundesbank... ;)

And on a more serious note, EJ's "culture" point is very well taken in both the sense of them fighting the last war and also being a self reinforcing good old boys club that acts exceedingly slowly to factual changes... Volcker of course being the exception along with Reagan for having allowed him to act.

The western central banks seem to act very much as a "cooperating partnership", and I think one of the top 10 stories and questions and dangers over the next 3-10 years is how well (or not) the eastern and middle eastern and emerging country's central banks will play along behind the scenes where it really counts.
Brazil sure seems to be in the cooperating group.

If you go to the Deutsche Bundesbank web site you'll find they call themselves "Bubba" as an affectionate nick name. Who says central bankers don't have a sense of humor?

As for western central banks getting on, a decent papers on the topic: Past and Future Central Bank Cooperation, IMF, 2005

[jk]

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

bart, isn't today the day a lot of "temporary, year-end" liquidity comes due, both in the u.s. and eurozone? any sense on how it is being handled?

[bart]

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

If you go to the Deutsche Bundesbank web site you'll find they call themselves "Bubba" as an affectionate nick name. Who says central bankers don't have a sense of humor?

Darn and drat... I was hoping that you didn't know and I'd get extra points.

As for western central banks getting on, a decent papers on the topic: Past and Future Central Bank Cooperation, IMF, 2005

Thanks, one I hadn't seen or hear about. I suspect it doesn't deal much with the behind the scenes areas but its all grist for the mill.

[Chris Coles]

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

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.

You make my point for me, inadvertently. You are all talking about the effects between the US and Europe. What I am saying is that now we have another grouping that is not on the same paradigm, China, India do not have our problems. They are in a quite different phase that will not become destabilised by our problems. Yes, they might have to change gear, for a while, but their own internal markets are so large and undeveloped relative to ours that they will ride any storm we have to endure.

That is much different to any other period in recent history.

[bart]

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

bart, isn't today the day a lot of "temporary, year-end" liquidity comes due, both in the u.s. and eurozone? any sense on how it is being handled?

It actually started rolling off on the 2nd and will continue for another week or two.

I don't have much data yet but the US asset backed commercial paper market looks to be settling out fairly smoothly. H.8 interbank loans are at a decent range too and don't look very troublesome.

Borrowings at the discount window hit another new record at about $5.8 billion so it's far from over too (duh).

[bart]

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

You make my point for me, inadvertently. You are all talking about the effects between the US and Europe. What I am saying is that now we have another grouping that is not on the same paradigm, China, India do not have our problems. They are in a quite different phase that will not become destabilised by our problems. Yes, they might have to change gear, for a while, but their own internal markets are so large and undeveloped relative to ours that they will ride any storm we have to endure.

That is much different to any other period in recent history.

No large disagreements there but it remains to be determined how big the effect on China, India and various other "emerging" economies will be.

I strongly doubt that they'll go into outright recessions, but considering the basic and very large and long term globalization trends and strong links between economies (and even the very large lack of transparency in those economies) I also doubt that the effect will be small... and I have no positions in the area so my money is where my mouth is. ;)

"The four most dangerous words in investing are, 'It's different this time.'"
-- Sir John Templeton

[c1ue]

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

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.

Mr. Janszen,

How does the Japanese use of America as a military protector factor into the inflation vs. deflation consideration?

The problem I've always had in talking with Japanese academics vs. Japanese executives is that the executives recognize the relationship with America as an economic factor, while the academics only focus on internal Japan issues.

My belief arising from this conflict is that Japan kept its currency as low as was acceptable to the US, but was restrained by both the economic impact on US corporations (Detroit primarily) as well as consideration of their own aging populace.

The interesting offshoot from this is how this differs from China.

China has little need for US military protection, has a much younger populace, and these days seems more destined to cooperate with Russia due to continued American foreign policy ham-handedness.

It is pathetic that China would be even this close to Russia given the significant history of geo-political tensions over the Amur river area and Siberia in general. After all, Siberia is much closer to China than the 'White Russian' power centers in the West.

[EJ]

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

Mr. Janszen,

How does the Japanese use of America as a military protector factor into the inflation vs. deflation consideration?

The problem I've always had in talking with Japanese academics vs. Japanese executives is that the executives recognize the relationship with America as an economic factor, while the academics only focus on internal Japan issues.

As the new administration in Japan builds a domestic military and reduces its dependence on the US, it needs the US less for protection, and will be less willing to engage in politically motivated purchases of dollar denominated assets to support the dollar. A weaker dollar is, of course, inflationary. Japan has countered the negative impact on exports to the US by increasing exports to other countries, especially China.

My belief arising from this conflict is that Japan kept its currency as low as was acceptable to the US, but was restrained by both the economic impact on US corporations (Detroit primarily) as well as consideration of their own aging populace.

That is political balance as I understand it.

The interesting offshoot from this is how this differs from China.

China has little need for US military protection, has a much younger populace, and these days seems more destined to cooperate with Russia due to continued American foreign policy ham-handedness.

It is pathetic that China would be even this close to Russia given the significant history of geo-political tensions over the Amur river area and Siberia in general. After all, Siberia is much closer to China than the 'White Russian' power centers in the West.

It is a mistake among some pundits in the US to think China will behave even remotely like Japan as a trade partner. The history and political relationship between Japan in the US and China and the US are near opposites, and China's purchases of US debt are driven by very different motives. China is about China. Period. My theory has been that China seeks to gain leverage to purchase assets they need for their economy.

The alliance developing between China and Russia is complex and significant. That they are overcoming old and deep historical differences is significant. There must be a powerful motive. It is partly economic–China wants Russian oil–and partly political–both China and Russia need economic, political and military allies to balance the US block. This does not necessarily imply animosity toward the US, even though that is increasingly evident from Putin's behavior and rhetoric, but a multi-polar world with one strong super-power is inherently unstable compared to a bi-polar system.

[Chris Coles]

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

As the new administration in Japan builds a domestic military and reduces its dependence on the US, it needs the US less for protection, and will be less willing to engage in politically motivated purchases of dollar denominated assets to support the dollar. A weaker dollar is, of course, inflationary. Japan has countered the negative impact on exports to the US by increasing exports to other countries, especially China.



That is political balance as I understand it.


It is a mistake among some pundits in the US to think China will behave even remotely like Japan as a trade partner. The history and political relationship between Japan in the US and China and the US are near opposites, and China's purchases of US debt are driven by very different motives. China is about China. Period. My theory has been that China seeks to gain leverage to purchase assets they need for their economy.

The alliance developing between China and Russia is complex and significant. That they are overcoming old and deep historical differences is significant. There must be a powerful motive. It is partly economic–China wants Russian oil–and partly political–both China and Russia need economic, political and military allies to balance the US block. This does not necessarily imply animosity toward the US, even though that is increasingly evident from Putin's behavior and rhetoric, but a multi-polar world with one strong super-power is inherently unstable compared to a bi-polar system.

China and Russia are complete opposites in one interesting respect. Putin has his people eating out of his hand. China on the other hand is expected to abandon the CCP inside the next few years and to follow that up it appears the people of China, certainly the rural population, are strongly against the corruptive influence of the CCP.

They make strange bed fellows.

[bill]

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

http://www.fpif.org/fpiftxt/4853
Tarique Niazi | January 3, 2008
As U.S. unilateralism has asserted the role of the United States as the sole global superpower, the rest of the world is exploring a variety of ways of pushing back. One is the creation of several new regional security consortiums which are independent of the U.S. One of the most important is the Shanghai Cooperation Organization (SCO), a security alliance led by Russia and China, with several non-voting members including India. Its rising economic, political and military profile this year can serve as a useful lens through which to view this geopolitical pushback. It is based on promoting a multipolar world, distributing power along multiple poles in the international system, such as the United States, Europe, Asia-Eurasia and the Middle East,1 while also promoting the multilateralism of international cooperation.2 In recent years, Russia and China have stepped up their advocacy for a multipolar-multilateral alternative.

[c1ue]

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

The interesting part about Russia - Putin aside - is that Russia has been and continues to develop major economic ties with Europe.

I cannot say where I get this information from, but there are major efforts underway in Russia to actively cooperate with Europe on fronts as diverse as value-added wood & paper, to scientific exploration, to the more well known nuclear and oil/natural gas areas.

The interesting corollary to this is that Putin is in fact not so much about making Russia into a US style economic and military hegemony, so much as Russia taking its historically desired place as the bridge between East and West.

This in turn brings it into direct conflict with America - which recently has been the center of all things.

If this thesis is true, then Putin's behavior makes much more sense: that Russia must defend itself against American military and economic maneuvering in order to gain space to secure its own goals.

As for the CCP - the rurals dislike the CCP not so much for ideology, but for the fact that the CCP has been empowering the urban population at the expense of the rural ever since Mao bit the dust.

Thus the very real backlash does not necessarily mean the CCP is toast; in fact it would be child's play to bring back the propaganda that tossed Chiang Kai-Shek out of China in the first place - that the financial and economic oligarchs in China are abusing their place in the system.

This is made somewhat more difficult by the fact that some of the CCP are in this oligarchy, but that's what reformers are for...

[rj1]

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

I took some money out of my savings in the fall last year and bought some gold merely as a diversification measure to maintain my savings' value as the dollar fell. So I'm not looking "get rich" so much as "breaking even in real terms". The way I look at it, if I maintain the value of my savings while everyone around me loses money, I did a pretty good job.

Here's my one personal problem with what we all think is going to happen.

While I understand everything is pointing toward doom and gloom, I can't see how D.C. will allow something to happen that results in their loss of power. I don't know what it is, but Bernanke and Paulson are going to do something to stop this commodity appreciation.

I guess what I am asking is "What do we think D.C. will do in response, even if we think it will not work?"