Hello Pezz, Today's Report:
(1) We were just in a nominal bull but genuine (as measured by gold standard) bear market;
(2) We have now entered a nominal bear market and what I suspect will be a genuine (relative to gold) uber bear market;
(3) I am not actually a gold bug, and never was. I merely believe that gold of the physical sort require effort to dig up, as opposed to printed or electronically generated. Gold has been treated as a monetary metal for a long time, as meant by the creator, and that when alarmed, and threatened with massive harm, the capitals of the world will make a dash for safety, much as folks on the Titanic did once, running towards and grasping at the life boats;
(4) I crystalized some excess savings and surplus capital today and acquired a brilliant round D IF carbon construct mounted on a Platinum ring. Must decide whether it is meant for my faithful wife or some less deserving friend :0)
(5) As to my mystery stock, it is not so much that I have bought a lot of it, because I have not. I have only acquired two dollops, because I wanted a margin of safety, meaning I was waiting for a lower price. That lower price appeared today, magically, at HKD 0.82, a much more reasonable price than my original purchase price of HKD 1.5x, and so I tripled my position, now holding average cost of HKD 1.07
I stand ready to throw ... let me see ... 2 more doubling of capital at the risk, by and by.
(6) The reflexologist alerted me to this and several other stocks at the equivalent of HKD 0.07 stage, meaning at the beginning of a schema. However, the man behind the schema actually only gained control of the listed shell at HKD 1.00, at around my current average cost. Yes, had I listened to my wise reflexologist, and bet all when at HKD 0.07 ... why, the consequences would have been life style uplifting.
We must not look down on reflexologist, for it depends on the sort he serves, and how many of the same sort he serves.
One of the richest man in the world living here in Hong Kong was the fortune teller to Nina Wang taipeitimes.com (the man was a hundred millionaire in own right before the inheritance).
In any case, the reflexologist is around 35, owns several apartments in Shenzhen, is exceptionally wise in own right, and hangs out with the right sort of clients.
(7) Next week should be an interesting one for the market, because I am taking a well deserved vacation again, starting this Saturday :0)
(8) I found the following in my e-mail box, and believe I should share its content here:
Good piece by David Roche in the FT.
He gave a great speech at the CLSA Conference last year (he had earlier written about it to subscribers, but that wasn't for public disclosure).
The basic premise is that classic money has been replaced by modern money.
1 - in 1980 "money" was 83.3% of global GDP. 4.4% was "power Money" and 78.9% was Bank and other financial institution loans.
2 - in 2006, money is 836% of global GDP. What changed? The emergence of Securitized debt and Derivatives. So while Power money and Broad money are now 130% of global GDP vs. 83% 25 years ago, total money in the system is now 10 times that.
To me, that explains a lot. It explains why we have had tremendous inflation in Assets, but very low inflation in CPI. After all, you're not using derivatives to buy cereal or a TV, but you are using them to finance LBO's,. share buybacks, mortgage loans, etc. Whereas the FED requires reserves to be held by banks, there are no such requirements for derivative products. So leverage is 100X underlying vs. 10X for banks loans. Thus, global leverage is much greater. Wonderful news in bull markets. Disastrous news in bear ones.]
. . .
ft.com
Market insight: Goldilocks market faces the three bears test
By David Roche
Published: August 6 2007 17:54 | Last updated: August 6 2007 17:54
Several thousand billion dollars have been knocked off the value of financial assets in the last few weeks. The loss is probably about 5 per cent of world GDP. Yet little changed in the "real" economy to make this happen. Indeed, the robust state of the global economy is why many see the turmoil in markets as a correction unjustified by "fundamentals".
The optimists may be proven wrong. We are accustomed to view the financial economy as dependent upon the real economy. However, the financial economy ¡V the stock of all assets and their funding ¡V is now so great in relation to the real economy our measure puts it at about 10 years' of global GDP. Whatever happens in the financial economy now may affect the real economy as much as the other way around.
Traditional economics and financial analysis defines liquidity as something akin to broad money supply which includes such things as notes and coins in circulation, deposits at banks and the reserves that commercial banks hold at central banks. But that fails to include most means of investing in financial assets. A modern definition departs from the traditional measure of liquidity by including securitised debt and derivatives.
These new securities add to liquidity in two ways: they attract more investors and they change the nature of risk, most importantly in ways that increase the amount of debt that investors are prepared to assume to buy assets. To be more specific: securitised debt, interest-rate swaps and credit derivatives shift the risk of loans from bank balance sheets to a more diversified investor base. That frees up banks to make more loans.
The same instruments allow investors to fix the cost or return of holding an asset or a liability and to offset all or part of the risk of ownership. That encourages investors to take on more debt because the risks of doing so are seen to be small. More debt means more liquidity.
As important is the 'insurance function' which derivative markets perform by slicing and dicing risk and diversifying ownership of it.
An unchanged level of risk held by many parties rather than one will affect financial markets less if the risk goes sour.
This insurance function has contributed to reducing asset price volatility markedly. The result is that massive corporate bankruptcies (Enron), energy crises (oil at $75 a barrel) and cataclysmic geopolitical events (9/11, Iraq) have come and gone as blips on the financial radar screen, leaving volatility lower than it was before.
Some empirical analysis bears out the relevance of new monetarism (as we call it) to financial asset prices. In recent years, the traditional measure of liquidity, broad money, has just kept pace with GDP growth. There is scant evidence of excess money boosting asset prices.
But growth in liquidity, as defined under new monetarism, far outpaces GDP growth and closely parallels the exponential rise in asset prices.
Furthermore, as liquidity pushed up asset prices, while reducing volatility, investors enjoyed a long period in which they earned more for assuming less risk.
Such a free lunch is never for keeps. But why should it end now? One reason is that most liquidity driven-asset bubbles come to an end of their own accord and not because of some macro event.
Another reason is that the drivers of credit (and thus liquidity) growth today are risk appetite and the long-term cost of capital, not central bank policy. Once either deteriorates, liquidity contracts and asset prices fall. There is every sign that risk appetite is contracting.
Moreover, this current liquidity cycle benefited from a remarkably stable and low level of long-term interest rates that encouraged widespread use of debt in financial markets.
That period is now behind us. Only the safe-havens of government debt markets are now immune from rising interest rates. The combined effect is that, despite inevitable rallies, the Goldilocks asset markets of recent years will face the test of the three bears: falling risk appetite, a higher cost of capital and rising asset and currency volatility.
David Roche is president and global strategist at Independent Strategy, a London-based investment consultancy
Chugs, TJ |
