"Let's not be turkeys." - Nassim Taleb
Having stayed up most of the night last night smoking a turkey for my son's class I am already in the thanksgiving spirit. So with Thanksgiving next week I thought that I would look at things that might take the edge off the gloom that is currently weighing on the market. With the aftermath of hurricane Sandy and Apple shareholders being beaten down by over $200 billion in the past few weeks (even with the holiday season expected to boost revenues) it certainly is not easy to find much to be thankful for however I believe that if we look carefully there are places to invest that will put that smile back on the dial and allow you to enjoy that festive spirit.
So how are we to be thankful this thanksgiving? First off we are not turkeys! Nassim Taleb is a crisis manager who bets on the only sure thing that will happen in the market - a crash. Now most of the time he losses money but when the crash happens (and it always does) he wins big. His philosophy is summed up by the quote above. If you think about the turkey he lives 1,094 days in peace and tranquility with his friends on the farm not knowing that day 1,095 everyone will be slaughtered. This is the black swan event that he refers to in his book of the same name. Now we may live longer than the turkey but most of the time we invest like them, we bet that life will provide us with continued moderate returns on our investments forever. While I am no Taleb I do believe in his theories as there is no disputing the evidence which is why I spend a lot of time in this blog trying to educate and protect your investments.
Looking at the market though there are a few areas where I feel there is a buying opportunity. You cannot fight innovation. This is what took Apple from virtual bankruptcy to the world's most prized company in a decade. So what other innovative ideas are out there? One of my favorites is 3D Systems Corp which makes 3 dimensional printers for the home and office. To me this is the way of the future. Imagine that for the holidays instead of buying a new iPhone you bought a printer that could print toys? This is a reality and the stock has appreciated like a rocket.
Another place is the new technology around charging batteries. The technology is already here but only 10 million have been sold so far. The technology I refer to is wireless charging systems. Soon to come to your nearest Starbucks is an insert into the table at which you sit that will automatically recharge your battery on your cell phone and laptop using magnetic fields. Amazing stuff and not only should it boost revenues at Starbucks (no I am not suggesting you buy this stock) it will go a long way to assisting with battery cars. Think about it, you can park your Volt at work and while you sit working it automatically recharges itself by linking to the magnetic field in the garage where you parked. Now that would help offset the $20 a day it costs to park plus it will eliminate the stress of worrying if you will make it home on the remaining charge in your car.
Outside of innovation a relatively safe bet which I have mentioned repeatedly is gold. Now I would not load up exclusively on gold and gold stocks but I believe that it should have a position in your portfolio as if and when that bad day does show up it will serve you well.
Next is housing. This investment should provide safety and some decent returns in the next few years as interest rates are expected to remain low at least until Bernanke's tenor is over (January 2014). Furthermore as the banks are coming to grips with the problem the inventory of nonperforming houses should start to slow which will allow further appreciation. As I mentioned in my last blog I would not buy heavily into the builders but looking at the carnage in the dividend paying REITs and closed end funds could be another alternative.
The fiscal cliff that everyone is talking about has caused carnage to these high dividend payers. The assumption (and I believe it is virtual certainty) is that the tax rate on dividends will be allowed to increase at the end of the year. Due to this tax increase investors have dumped closed end funds and REITs in large quantities more than offsetting the tax increase through the stock value depreciation. Some of these investments are yielding more than 10% after the sell-off and I believe that this could be a good investment for the future as regardless of the tax consequences investors want yield. Locking in the current prices locks in the current yields and as investors settle down you should also get a decent upside kick.
As mentioned before I also believe in generic drug manufacturers and anyone that stands to benefit from Obama care. Outside of these areas I would caution you to remain skeptical of the market in general as the problems Europe faces and the slowdown in China are hurting big business. Furthermore unemployment, while improving is still far too high and the government needs to reign in spending. Now don't let me get started on all the negatives as this is the Thanksgiving blog and the point is that while it may be tough out there with some work and some expert assistance there is always a reason to enjoy thanksgiving.
Friday, November 16, 2012
Friday, November 9, 2012
The Obama Investment
"We're living under the Obama economy. Any CEO in America with a record like this after three years on the job would be graciously shown the door." - Mitch McConnell
Obama is back and I must admit that to many a business owner this is not the outcome that was desired. Interestingly though the rest of the world is relieved and believes that he is the man for the job. That said there is little anyone can do about it now but plan and prepare our investments to benefit during the next four years under his administration. Having already had four years with him to date it is not a really big stretch to expect much of the same, so how can you position yourself to take advantage of his policies?
Well regardless of this week's movement in the stock market this is one of the best performing asset classes during the last four years. The question is can this continue? As long time followers of my blog know I am very skeptical about that but I do believe as you will see below that there are pockets of investments that should benefit.
First off, health care reform is as good as implemented. It may get a few tweaks along the way but essentially millions of Americans will be provided with health care regardless of their ability to pay. This should result in a massive boom for the generic drug manufacturers (for full disclosure, this is my largest investment at present). The reason that generic drug manufacturers will get a boost is that the millions of people accessing health benefits will not be able to afford the brand name.
Looking deeper into this space I would stay away from health care providers for the moment as I am still not fully clear how the influx of new, under insured patients will impact their bottom line. Also insurers will have to come to grips with the mandate and I expect that this will also impact their bottom line until everything is ironed out so for now I would avoid investing too heavily in them.
Next is the low interest rate environment. This policy will remain intact. As such I expect treasuries to yield even less in a year than they do today. He is desperate to create a legacy and he does not want to be the President that did not "fix" unemployment. Furthermore with all of the entitlement programs that he has put in place from health care reform to unemployment benefits, continued printing and monetizing of this spending spree will be required. So for now I expect the Federal Reserve to continue to monetize the deficit in such a way as to ensure that interest rates are kept low for the foreseeable future. (As you know I do have a solution to this with my Fixed Rate Deposits program - just saying).
Low interest rates should be good for housing so I would expect REITs and the builders to continue to benefit from this but to be honest I am not a fan of the builders as they still have to sell their inventory into the market. What I do believe in is investment into income producing real estate, whether it is a single family residence or a block of apartments. At present I have invested in both single family residences, mini storage and am looking at trailer parks, all of which are being bolstered by the low interest environment. Not only are these producing a good cash flow but they are also appreciating once again.
Another area to look is precious metals. While these do get a bad rap, they are a place to invest to protect your undercarriage. While I would not be too aggressive here I would allocate roughly 10% of the portfolio into precious metals which should continue to perform well due to the continued global economic problems and the constant and continued monetization of all government debts around the world.
Now there are a number of ways in which to invest into gold. You can buy the physical commodity, invest into coins, buy gold ETFs, take a gamble on futures or invest into the stocks of gold mining companies. Out of all of these I prefer the ETF and the stock trade (although I do trade the futures for added bandwidth). GDX and GDXJ are my two favorites as the value of the gold mining stocks continues to trail the underlying spot price of gold. Once this narrows you will get an upside move in addition to the movement of the spot gold price.
The final place to look as I mentioned in previous blogs is at alternative investments such as private equity. There are a number of opportunities being presented to the astute investor. This opportunity comes from the void left by the banks and should continue for a decent amount of time given Obama's concentration on creating a far more socialist state at the expense of innovation and growth.
So using a very broad brush that is my take on the future and while it may not be the future that a lot of us wanted we have to adapt to the playing field that presented. Riding through all of this is that the good old days of letting your portfolio lie are gone for now. All of the above takes a lot of work so ensure that you are either actively managing the portfolio yourself or find a portfolio manager that will take a vested interest in your well being.
Obama is back and I must admit that to many a business owner this is not the outcome that was desired. Interestingly though the rest of the world is relieved and believes that he is the man for the job. That said there is little anyone can do about it now but plan and prepare our investments to benefit during the next four years under his administration. Having already had four years with him to date it is not a really big stretch to expect much of the same, so how can you position yourself to take advantage of his policies?
Well regardless of this week's movement in the stock market this is one of the best performing asset classes during the last four years. The question is can this continue? As long time followers of my blog know I am very skeptical about that but I do believe as you will see below that there are pockets of investments that should benefit.
First off, health care reform is as good as implemented. It may get a few tweaks along the way but essentially millions of Americans will be provided with health care regardless of their ability to pay. This should result in a massive boom for the generic drug manufacturers (for full disclosure, this is my largest investment at present). The reason that generic drug manufacturers will get a boost is that the millions of people accessing health benefits will not be able to afford the brand name.
Looking deeper into this space I would stay away from health care providers for the moment as I am still not fully clear how the influx of new, under insured patients will impact their bottom line. Also insurers will have to come to grips with the mandate and I expect that this will also impact their bottom line until everything is ironed out so for now I would avoid investing too heavily in them.
Next is the low interest rate environment. This policy will remain intact. As such I expect treasuries to yield even less in a year than they do today. He is desperate to create a legacy and he does not want to be the President that did not "fix" unemployment. Furthermore with all of the entitlement programs that he has put in place from health care reform to unemployment benefits, continued printing and monetizing of this spending spree will be required. So for now I expect the Federal Reserve to continue to monetize the deficit in such a way as to ensure that interest rates are kept low for the foreseeable future. (As you know I do have a solution to this with my Fixed Rate Deposits program - just saying).
Low interest rates should be good for housing so I would expect REITs and the builders to continue to benefit from this but to be honest I am not a fan of the builders as they still have to sell their inventory into the market. What I do believe in is investment into income producing real estate, whether it is a single family residence or a block of apartments. At present I have invested in both single family residences, mini storage and am looking at trailer parks, all of which are being bolstered by the low interest environment. Not only are these producing a good cash flow but they are also appreciating once again.
Another area to look is precious metals. While these do get a bad rap, they are a place to invest to protect your undercarriage. While I would not be too aggressive here I would allocate roughly 10% of the portfolio into precious metals which should continue to perform well due to the continued global economic problems and the constant and continued monetization of all government debts around the world.
Now there are a number of ways in which to invest into gold. You can buy the physical commodity, invest into coins, buy gold ETFs, take a gamble on futures or invest into the stocks of gold mining companies. Out of all of these I prefer the ETF and the stock trade (although I do trade the futures for added bandwidth). GDX and GDXJ are my two favorites as the value of the gold mining stocks continues to trail the underlying spot price of gold. Once this narrows you will get an upside move in addition to the movement of the spot gold price.
The final place to look as I mentioned in previous blogs is at alternative investments such as private equity. There are a number of opportunities being presented to the astute investor. This opportunity comes from the void left by the banks and should continue for a decent amount of time given Obama's concentration on creating a far more socialist state at the expense of innovation and growth.
So using a very broad brush that is my take on the future and while it may not be the future that a lot of us wanted we have to adapt to the playing field that presented. Riding through all of this is that the good old days of letting your portfolio lie are gone for now. All of the above takes a lot of work so ensure that you are either actively managing the portfolio yourself or find a portfolio manager that will take a vested interest in your well being.
Friday, November 2, 2012
A Recovery In The Making?
"The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis." - Ben Bernanke
The news regarding the United States economic recovery was relatively good this week. Barring the business interruption of Sandy which will have an impact on fourth quarter GDP it appears that housing is rapidly finding a base and that banks are finally getting to grips with the problem and are becoming more proactive in writing down debt so that they can clear out the bad wood and start to lend. The question is can the recovery take proper hold and for this to happen jobs need to be created and interest rates need to remain low for a long period of time.
Let's look at job creation first. In recent weeks there has been a slew of companies laying off thousands of workers. Bank of America is laying off 30,000, HP 29,000, Staples, FedEx and others bring the total to over 100,000 jobs. This is not good news and comes in the face of very poor results from some of Wall Street's bell weather stocks. Apple shares have been crushed from a peak of just over $700 to $590 today. Google shares are down over $100. Banking shares continue to languish and the S&P 500 is down 5% over the last two months. This economy needs jobs to maintain its recovery. Wall Street knows it and this is why the markets are turning over. So how do we get that going?
Well ask either of the presidential candidates and they are going to create millions of jobs overnight. We all know that is not going to happen, but I did stumble across one very interesting idea that may have a very good result. What if, instead of paying people unemployment benefits for 99 months we poured that money into removal of the minimum wage? A radical idea to say the least but let me clarify. If there was no minimum wage I know a number of businesses that would hire workers right away. Sure they would only pay them $5 an hour but that is far better than sitting at home wasting away. Once you are back at work the juices start to flow and suddenly you are able to find better opportunities.
Now here is the best part. The government would subsidize the difference between minimum wages and what the company pays the employee. So for example if the worker is paid $5 an hour but the minimum wage is $8 then the government would top up the workers pay at the end of each month. This three dollar difference would be far less costly and far more efficient in getting people back to work than our current program. Once a target of full employment is reached, there would be a slow re-introduction of the minimum wage, there would be a slow transfer of the burden back to the companies reducing the government's involvement. The idea is that at that time the economy would be at full employment so the demand for workers would bring the hourly rate up anyway and this would have the result of slowly reducing the government's burden as things improve. Furthermore a lot of the burden would be offset by the receipt of more tax revenues.
To me this idea has a lot of merit and is far superior to the money printing philosophy that we have in place right now. This philosophy has resulted in an economy that is still stagnant. Furthermore as I have repeatedly mentioned in this blog that the old ideas of pumping money blindly into a black hole are not targeted and are not producing the results that are needed but are creating a fiscal problem of the magnitude never before known.
The second piece of the puzzle is keeping interest rates low. This is key to the continued recovery in housing. A spike in interest rates would cripple the housing recovery which in turn would derail any form of moderate economic recovery. For now it seems that the continued transfer of toxic debt from banks to the Federal Reserve is containing interest rates but rates need to remain low for an extended time without printing money.
The first thing to do is to ensure as best as possible that banks are not involved in risky investments. In an article in Bloomberg it was mentioned that Dodd-Frank has done nothing to curtail banks enthusiasm for taking on risk. Furthermore as we have seen in crisis after crisis not only do bankers not fully understand risk but their greed gets the better of them and they need to be reigned in to abide by strict parameters. Let the hedge funds and alternative investment fund managers handle the risky stuff, banks need to be the backbone of the economy and the only way to do this is to limit the risk by increasing their reserve requirements. This is very simple to do but at present very risky as banks are already struggling to maintain current requirements while they unload their toxic debt. Increasing this now would cripple banks and put a big stake into the heart of their ability to lend. That said it should be ratcheted up over time to ensure that banks are not as vulnerable to systemic shocks as they were.
By strengthening the banking system with increased reserves and by increasing the base of employed workers I would argue that the economy would strengthen attracting foreign investors. This would keep interest rates low for an extended period. The only reason that interest rates would rise in this scenario is if magically Europe fixed its problems and there was reduced demand for perceived risk free investments. At this point interest rates would have to rise to attract investment. Outside of that unless inflation spikes interest rates should remain low, maybe not at the low levels they are right now but certainly not at massively elevated levels that people fear. A strong US economy would produce the desired result particularly while Europe struggles.
All of these ideas are relatively simple to implement but like any idea it would take time to produce the expected results however I believe those results would be achieved far quicker and far more cheaply than our current strategy. In the meantime we will have to deal with the approaching fiscal cliff and a globe that continues to be mired in uncertainty. Worse still we have an economy that does not have a repaired financial system and an economy that appears to be on the verge of a recession. Weak earnings, recession in Europe and problems in the United States are no reason to stay invested in an over inflated stock market.
The news regarding the United States economic recovery was relatively good this week. Barring the business interruption of Sandy which will have an impact on fourth quarter GDP it appears that housing is rapidly finding a base and that banks are finally getting to grips with the problem and are becoming more proactive in writing down debt so that they can clear out the bad wood and start to lend. The question is can the recovery take proper hold and for this to happen jobs need to be created and interest rates need to remain low for a long period of time.
Let's look at job creation first. In recent weeks there has been a slew of companies laying off thousands of workers. Bank of America is laying off 30,000, HP 29,000, Staples, FedEx and others bring the total to over 100,000 jobs. This is not good news and comes in the face of very poor results from some of Wall Street's bell weather stocks. Apple shares have been crushed from a peak of just over $700 to $590 today. Google shares are down over $100. Banking shares continue to languish and the S&P 500 is down 5% over the last two months. This economy needs jobs to maintain its recovery. Wall Street knows it and this is why the markets are turning over. So how do we get that going?
Well ask either of the presidential candidates and they are going to create millions of jobs overnight. We all know that is not going to happen, but I did stumble across one very interesting idea that may have a very good result. What if, instead of paying people unemployment benefits for 99 months we poured that money into removal of the minimum wage? A radical idea to say the least but let me clarify. If there was no minimum wage I know a number of businesses that would hire workers right away. Sure they would only pay them $5 an hour but that is far better than sitting at home wasting away. Once you are back at work the juices start to flow and suddenly you are able to find better opportunities.
Now here is the best part. The government would subsidize the difference between minimum wages and what the company pays the employee. So for example if the worker is paid $5 an hour but the minimum wage is $8 then the government would top up the workers pay at the end of each month. This three dollar difference would be far less costly and far more efficient in getting people back to work than our current program. Once a target of full employment is reached, there would be a slow re-introduction of the minimum wage, there would be a slow transfer of the burden back to the companies reducing the government's involvement. The idea is that at that time the economy would be at full employment so the demand for workers would bring the hourly rate up anyway and this would have the result of slowly reducing the government's burden as things improve. Furthermore a lot of the burden would be offset by the receipt of more tax revenues.
To me this idea has a lot of merit and is far superior to the money printing philosophy that we have in place right now. This philosophy has resulted in an economy that is still stagnant. Furthermore as I have repeatedly mentioned in this blog that the old ideas of pumping money blindly into a black hole are not targeted and are not producing the results that are needed but are creating a fiscal problem of the magnitude never before known.
The second piece of the puzzle is keeping interest rates low. This is key to the continued recovery in housing. A spike in interest rates would cripple the housing recovery which in turn would derail any form of moderate economic recovery. For now it seems that the continued transfer of toxic debt from banks to the Federal Reserve is containing interest rates but rates need to remain low for an extended time without printing money.
The first thing to do is to ensure as best as possible that banks are not involved in risky investments. In an article in Bloomberg it was mentioned that Dodd-Frank has done nothing to curtail banks enthusiasm for taking on risk. Furthermore as we have seen in crisis after crisis not only do bankers not fully understand risk but their greed gets the better of them and they need to be reigned in to abide by strict parameters. Let the hedge funds and alternative investment fund managers handle the risky stuff, banks need to be the backbone of the economy and the only way to do this is to limit the risk by increasing their reserve requirements. This is very simple to do but at present very risky as banks are already struggling to maintain current requirements while they unload their toxic debt. Increasing this now would cripple banks and put a big stake into the heart of their ability to lend. That said it should be ratcheted up over time to ensure that banks are not as vulnerable to systemic shocks as they were.
By strengthening the banking system with increased reserves and by increasing the base of employed workers I would argue that the economy would strengthen attracting foreign investors. This would keep interest rates low for an extended period. The only reason that interest rates would rise in this scenario is if magically Europe fixed its problems and there was reduced demand for perceived risk free investments. At this point interest rates would have to rise to attract investment. Outside of that unless inflation spikes interest rates should remain low, maybe not at the low levels they are right now but certainly not at massively elevated levels that people fear. A strong US economy would produce the desired result particularly while Europe struggles.
All of these ideas are relatively simple to implement but like any idea it would take time to produce the expected results however I believe those results would be achieved far quicker and far more cheaply than our current strategy. In the meantime we will have to deal with the approaching fiscal cliff and a globe that continues to be mired in uncertainty. Worse still we have an economy that does not have a repaired financial system and an economy that appears to be on the verge of a recession. Weak earnings, recession in Europe and problems in the United States are no reason to stay invested in an over inflated stock market.
Friday, October 26, 2012
How Will The Fiscal Cliff Get Resolved?
"I am quite concerned about Fiscal Cliff." - Alan Greenspan
"I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts." - Abraham Lincoln
"Any idiot can face a crisis - it's day to day living that wears you out." - Anton Chekhov
Alan Greenspan the former Chairman of the Federal Reserve is not my favorite person. Now I cannot blame him for everything because that would be unfair, but I do believe that his loose monetary policies started the drive towards a fiscal cliff by allowing politicians to behave irrationally and spend money in a flagrant way. Once he had started the ball rolling Bernanke picked it up and has run with it better than Hussein Bolt breaking the world 100 meter dash. So it is ironic to me that the ex-Chairman has finally decided that the Federal Reserve is not all powerful and that unless the politicians get their act together that the looming Fiscal Cliff will create an economic problem.
By once again voting to postpone the inevitable day of reckoning our politicians have driven us once again to the edge of a Fiscal Cliff so the questions are how will it get resolved and if it does not what does that mean? Let's start with the second question first. The Fiscal Cliff was created in the third quarter of 2011 when congress was at an impasse regarding raising the debt ceiling. In order to push through the increase in the debt ceiling (they had to as the level of the debt had reached the maximum allowed) they agreed to severe tax increases and spending cuts in an effort to curb the spiralling budget deficit. In true political fashion they kicked the can to the end of Obama's first term and so these all kick in at the end of this year.
According to economic consensus if all of the tax increases and spending cuts go through it will shave roughly 4% off GDP growth. Some have it pegged at slightly less than that while others have it as high as 7%, but either way, as the economy is only growing at under 2% a year at present, shaving 4% off that pushes the United States into a recession instantly. So now that we know what the Fiscal Cliff means what is going to be accomplished between now, the Presidential election and the end of the year?
Politicians are by nature very slippery. It is a shame that we could not get the truth out of them, but that seems like an impossibility especially around election time. On the surface it appears that there are some cuts and tax increases that will be allowed to happen regardless of who is elected. Both candidates have said that the tax on the wealthy will happen and both have said that they want to try to protect the middle class, so if you strip out the tax increases that are pointed at the middle class you have taken out just under half of all the tax increases. The remainder will more than likely go through and this will create a minimum of a 2% drag on economic growth.
So what are the other pieces that will go through? On the tax side there is $79B to the wealthy, $140B increase in Social Security (this will hit small business hardest) and extended unemployment benefits for a total of $219B. On the spending side there is the Budget Control Act of $160B mostly targeted at defense spending for a grand total of $379B. If these are left to kick in that drag on the economy would knock a minimum of 2% off GDP and would effectively wipe out any growth in 2013. I would say that this is almost a sure thing regardless of who wins the election as if the Republicans lose, they will want to ensure that Obama does not spend in his second term and if Romney wins he will want to prove himself tough and will take the hard choices up front in an effort to give himself time to recover later in his term.
Combine this with weak earnings from businesses, a weak global economy and you have the very real potential that this 2% drag will be enough to push the United States into a recession in 2013. I still believe that it will be relatively mild in terms of GDP contraction, but I also believe that the stock market is priced for perfection and that a recession, no matter how mild will have a tremendous impact on the market.
"I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts." - Abraham Lincoln
"Any idiot can face a crisis - it's day to day living that wears you out." - Anton Chekhov
Alan Greenspan the former Chairman of the Federal Reserve is not my favorite person. Now I cannot blame him for everything because that would be unfair, but I do believe that his loose monetary policies started the drive towards a fiscal cliff by allowing politicians to behave irrationally and spend money in a flagrant way. Once he had started the ball rolling Bernanke picked it up and has run with it better than Hussein Bolt breaking the world 100 meter dash. So it is ironic to me that the ex-Chairman has finally decided that the Federal Reserve is not all powerful and that unless the politicians get their act together that the looming Fiscal Cliff will create an economic problem.
By once again voting to postpone the inevitable day of reckoning our politicians have driven us once again to the edge of a Fiscal Cliff so the questions are how will it get resolved and if it does not what does that mean? Let's start with the second question first. The Fiscal Cliff was created in the third quarter of 2011 when congress was at an impasse regarding raising the debt ceiling. In order to push through the increase in the debt ceiling (they had to as the level of the debt had reached the maximum allowed) they agreed to severe tax increases and spending cuts in an effort to curb the spiralling budget deficit. In true political fashion they kicked the can to the end of Obama's first term and so these all kick in at the end of this year.
According to economic consensus if all of the tax increases and spending cuts go through it will shave roughly 4% off GDP growth. Some have it pegged at slightly less than that while others have it as high as 7%, but either way, as the economy is only growing at under 2% a year at present, shaving 4% off that pushes the United States into a recession instantly. So now that we know what the Fiscal Cliff means what is going to be accomplished between now, the Presidential election and the end of the year?
Politicians are by nature very slippery. It is a shame that we could not get the truth out of them, but that seems like an impossibility especially around election time. On the surface it appears that there are some cuts and tax increases that will be allowed to happen regardless of who is elected. Both candidates have said that the tax on the wealthy will happen and both have said that they want to try to protect the middle class, so if you strip out the tax increases that are pointed at the middle class you have taken out just under half of all the tax increases. The remainder will more than likely go through and this will create a minimum of a 2% drag on economic growth.
So what are the other pieces that will go through? On the tax side there is $79B to the wealthy, $140B increase in Social Security (this will hit small business hardest) and extended unemployment benefits for a total of $219B. On the spending side there is the Budget Control Act of $160B mostly targeted at defense spending for a grand total of $379B. If these are left to kick in that drag on the economy would knock a minimum of 2% off GDP and would effectively wipe out any growth in 2013. I would say that this is almost a sure thing regardless of who wins the election as if the Republicans lose, they will want to ensure that Obama does not spend in his second term and if Romney wins he will want to prove himself tough and will take the hard choices up front in an effort to give himself time to recover later in his term.
Combine this with weak earnings from businesses, a weak global economy and you have the very real potential that this 2% drag will be enough to push the United States into a recession in 2013. I still believe that it will be relatively mild in terms of GDP contraction, but I also believe that the stock market is priced for perfection and that a recession, no matter how mild will have a tremendous impact on the market.
Friday, October 19, 2012
Romney and the Market
"An election is coming. Universal peace is declared, and the foxes have a sincere interest in prolonging the lives of the poultry." - George Eliot
"Now, let me be clear. The path I lay out is not one paved with ever increasing government checks and cradle to grave assurance that government will always be the solution. If this election is a bidding war for who can promise the most goodies and the most benefits, I'm not your president. You have that president today." - Mitt Romney
Now I am not a politician. Never have been and I don't plan on ever being one, it is just not me. However, this election is going to have a dramatic impact on the market if Mr. Romney is elected AND if he stands by his election campaign rhetoric. As I have repeatedly mentioned in previous blog posts, the fate of the market is in the hands of the politicians. Never in my 25 years of trading the markets has it been this skewed towards their policies.
The main reason for this is that over the last few years government has been taking a larger and larger share of the market from buying up Collateral Mortgage Obligations (CMOs) to owning large blocks of GM and other companies to printing money in order to stimulate the market (Bernanke's words not mine). So the government through the Federal Reserve is trying to manipulate market prices and so far as the stock market is concerned it is working. But with an election looming what would happen if Romney gets elected?
The first thing he has mentioned is that he will remove the head of the Federal Reserve, Ben Bernanke, and replace him with someone that is of similar mind to his own. Based on the quote above that would mean cutting the money printing from the Federal Reserve and working towards balancing the budget. Without the support of the money printing machine the stock market will be destroyed and already it is showing signs of tiring and this is not being helped by poor results from bell weather companies such as IBM, Google, Microsoft and Apple.
So what of the bond market and interest rates? At present due to the continued economic weakness any elected president requires that interest rates remain subdued. If interest rates spike any form of recovery will be dismantled and there is no chance of balancing the budget as increased interest payments will offset any cuts in spending. There is one caveat here though, if the United States is seen to be more austere then there is a fair probability that the reward will be continued low rates. How low is a big question but I would be surprised to see rates on the 10 year note rise above 2.5% to 3.0% for the simple reason that during a stock market meltdown, demand for safety becomes tantamount and at present the only safety left is either gold or bonds. Furthermore while rates may start to rise higher, whomever is the Federal Reserve Chairman will have as his or her mandate that rates need to remain low.
So how can this be done without continued printing of money? He would have to rely on international buyers of United States debt. The Germans would argue that being more austere should lead to a dollar rally and this will attract foreign capital keeping interest rates low. Think about it for a moment, if the United States was seen to be balancing its budget and thereby taking care of its debt issues it would be viewed in a positive light as a good place to invest for safety. A dollar rally would also take the lid off much of the inflation drivers as oil and other commodity prices would fall. So if inflation remains muted and the currency remains strong there is every chance that interest rates will remain low for an extended period. Furthermore I would argue that if interest rates on the 10-year Treasury rose to say 4% that there would be an enormous demand for the product as that rate combined with a strengthening currency cannot be found anywhere. For a while it was available by investing in Australia and their economy boomed during this period, however it has since faded with the problems in China. That said it is a model that can be shown to work and one that I would expect Romney to hang his hat on.
So what are the chances that he gets elected? Well based on some of my sources it seems that the probability is relatively high. With unemployment stubbornly high and spiralling government debt it appears that most people want a change to see if that helps. In looking at the market one thing that it does not like is uncertainty and the coming election is creating uncertainty and this is showing up in the slow roll over in the indices. It is pointing toward a hard hit if Romney is elected but to me the interest factor is to see how interest rates react as if they do not spike on a Romney win then there is a better chance that he can pull off a continued low interest rate environment while implementing his policies.
The last criteria would be the longer term. I believe that while the market may sell off sharply in the near term on his announcement it is always hard to believe a politician until his actions start to match his words. Will Romney bow to congress once president and change his policies to suite them and will there be a congress that supports his measures if they get too tough to swallow. One thing is for sure, creating jobs by cutting the deficit, while it sounds good and will work in the long run, is sure to create short term pain and if I know anything about politicians it is that short term pain always wins over long term gains!
"Now, let me be clear. The path I lay out is not one paved with ever increasing government checks and cradle to grave assurance that government will always be the solution. If this election is a bidding war for who can promise the most goodies and the most benefits, I'm not your president. You have that president today." - Mitt Romney
Now I am not a politician. Never have been and I don't plan on ever being one, it is just not me. However, this election is going to have a dramatic impact on the market if Mr. Romney is elected AND if he stands by his election campaign rhetoric. As I have repeatedly mentioned in previous blog posts, the fate of the market is in the hands of the politicians. Never in my 25 years of trading the markets has it been this skewed towards their policies.
The main reason for this is that over the last few years government has been taking a larger and larger share of the market from buying up Collateral Mortgage Obligations (CMOs) to owning large blocks of GM and other companies to printing money in order to stimulate the market (Bernanke's words not mine). So the government through the Federal Reserve is trying to manipulate market prices and so far as the stock market is concerned it is working. But with an election looming what would happen if Romney gets elected?
The first thing he has mentioned is that he will remove the head of the Federal Reserve, Ben Bernanke, and replace him with someone that is of similar mind to his own. Based on the quote above that would mean cutting the money printing from the Federal Reserve and working towards balancing the budget. Without the support of the money printing machine the stock market will be destroyed and already it is showing signs of tiring and this is not being helped by poor results from bell weather companies such as IBM, Google, Microsoft and Apple.
So what of the bond market and interest rates? At present due to the continued economic weakness any elected president requires that interest rates remain subdued. If interest rates spike any form of recovery will be dismantled and there is no chance of balancing the budget as increased interest payments will offset any cuts in spending. There is one caveat here though, if the United States is seen to be more austere then there is a fair probability that the reward will be continued low rates. How low is a big question but I would be surprised to see rates on the 10 year note rise above 2.5% to 3.0% for the simple reason that during a stock market meltdown, demand for safety becomes tantamount and at present the only safety left is either gold or bonds. Furthermore while rates may start to rise higher, whomever is the Federal Reserve Chairman will have as his or her mandate that rates need to remain low.
So how can this be done without continued printing of money? He would have to rely on international buyers of United States debt. The Germans would argue that being more austere should lead to a dollar rally and this will attract foreign capital keeping interest rates low. Think about it for a moment, if the United States was seen to be balancing its budget and thereby taking care of its debt issues it would be viewed in a positive light as a good place to invest for safety. A dollar rally would also take the lid off much of the inflation drivers as oil and other commodity prices would fall. So if inflation remains muted and the currency remains strong there is every chance that interest rates will remain low for an extended period. Furthermore I would argue that if interest rates on the 10-year Treasury rose to say 4% that there would be an enormous demand for the product as that rate combined with a strengthening currency cannot be found anywhere. For a while it was available by investing in Australia and their economy boomed during this period, however it has since faded with the problems in China. That said it is a model that can be shown to work and one that I would expect Romney to hang his hat on.
So what are the chances that he gets elected? Well based on some of my sources it seems that the probability is relatively high. With unemployment stubbornly high and spiralling government debt it appears that most people want a change to see if that helps. In looking at the market one thing that it does not like is uncertainty and the coming election is creating uncertainty and this is showing up in the slow roll over in the indices. It is pointing toward a hard hit if Romney is elected but to me the interest factor is to see how interest rates react as if they do not spike on a Romney win then there is a better chance that he can pull off a continued low interest rate environment while implementing his policies.
The last criteria would be the longer term. I believe that while the market may sell off sharply in the near term on his announcement it is always hard to believe a politician until his actions start to match his words. Will Romney bow to congress once president and change his policies to suite them and will there be a congress that supports his measures if they get too tough to swallow. One thing is for sure, creating jobs by cutting the deficit, while it sounds good and will work in the long run, is sure to create short term pain and if I know anything about politicians it is that short term pain always wins over long term gains!
Friday, October 12, 2012
Where Has The Protection Gone?
"The Sharpe ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William Forsyth Sharpe." - Wikipedia
"If you are not willing to risk the unusual, you will have to settle for the ordinary." - Jim Rohn
"This report, by its very length, defends itself against the risk of being read." - Winston Churchill
In the world of finance the Sharpe ratio is a key aspect of investment. What you want is a high Sharpe ratio meaning for every unit of risk that you are taking you are receiving more than a fair share of reward in the form of return. For example, if you invest in a highly speculative stock that has a good chance of providing you with returns of 50% a year for the next five years and only a small chance of a loss, this position would provide you a high Sharpe ratio. Taking this one step further, funds are measured against an index and those that beat the index with a low level of volatility (risk) provide the investor with a high Sharpe ratio. They provide the investor with a higher return for the same or lower amount of risk. As an investor this is what you want!
So how is a high Sharpe ratio achieved? The easiest way is to find a basket of diverse investments that produce a high rate of return. This sounds easy and in many instances it is sold as being easy to do, but a recent study showed that not only do most investments have poor Sharpe ratios but that these numbers are dropping.
The first problem is that in the modern world of finance finding or creating a diverse portfolio of investments is almost impossible. Most people are ignorant to the fact that buying an array of mutual funds does not achieve the diversity that they need. This is due to the fact that many of the mutual funds hold the same investments even if they call themselves different things. For example a growth large cap fund and a value large cap fund more than likely have as their largest holding Apple. Buying both of these means that you are now doubly exposed to a movement in the price of Apple. This is great while it goes up but it is not a diverse portfolio.
A greater problem for the prudent investor is that the value of diversifying is losing its merit at precisely the time that it is needed most. The way that a portfolio is created is by finding investments that are not correlated to one another. As an example if you know that Apple will go up in price if the price of the raw materials of copper and nickel go down because Apple's profits will rise, then it would be said that copper and nickel have a negative correlation to Apple stock. So by buying all of these you would be protected as if Apple goes up copper and nickel go down. The one offsets the other. This reduces the risk of the portfolio but in this example would not provide you any capital gain.
In the real world it is impossible to find a correlation as perfect as this so money managers and investors look for investments that will not move in exactly the same direction or at the same speed at the same time. The idea is to weight the portfolio to capture some upside while limiting the downside which results in a properly diverse portfolio. Now if this portfolio beats the index tracked then it would have a high Sharpe ratio as the risk of the overall portfolio is reduced and it is still producing gains in excess of the market. This is the holy grail of investing but it is seldom if ever achieved.
The reason for this is many fold and I will delve into a few reasons here. The first reason is that correlation between asset classes are constantly changing. The trader knows that correlation trades last until they don't, meaning that you should trade the relationship until it breaks. A classic example of this was that up until recently if the dollar strengthened the market went down and vice versa. A great trade would therefore be to be long the market and the dollar and pocket the spread, however that correlation has weakened recently breaking the trade. In a portfolio to properly handle this constant change in correlations you need to constantly change your portfolio allocations. This comes with the added risk of the cost of moving the investment and the fact that once you have moved you may miss a good run in the position that you just sold.
The second reason is that correlations between all assets are becoming more closely linked. International stocks used to be a good hedge against movements in the United States back when I got into this game in 1985, but now they all move together. I also remember a time when commodities were a great hedge but nowadays that is also gone. Think about copper, it seems to lead the market lower or higher as people use it as a leading indicator rather than as a hedge.
Finally, as we have seen during the recent market melt down, at the exact time that the diversification is needed to protect your portfolio (when the market explodes) is the exact time when correlations move together and everything gets killed at once. So while countless hours are spent trying to build a perfect portfolio to protect against Armageddon, when that day shows up everything is pounded at once eliminating the desired protection.
So what is one to do? As with all studies it is far easier to link the main investment opportunities together than to dig for things that lie outside the box. For one, most people and most studies exclude private equity investments. This is why these are not typically linked to other investments. Just because the market is tanking does not mean that your investment in privately held regional Internet or biotech company has been impacted. Looking further, while local real estate markets are being pounded does not impact the short sellers or the buyers of foreclosures, in fact it benefits their business tremendously.
I remember being an analyst in the early 1990's during that recession and while many of my friends were struggling our business was flourishing. The reason was we specialized in bankruptcy and commercial litigation, both of which are busiest during recessions. The key to the story is to look at your portfolio and see what your true weighting is in each asset class and then try to find something that will provide a level of protection if and when the market collapses.
As with everything there are no guarantees but hiding the money under a mattress comes with its own set of risks such as loss to inflation, risk of theft or being lost in a fire. Look at alternatives to the standard investment portfolio and it should stand you in good stead during these tough times.
"If you are not willing to risk the unusual, you will have to settle for the ordinary." - Jim Rohn
"This report, by its very length, defends itself against the risk of being read." - Winston Churchill
In the world of finance the Sharpe ratio is a key aspect of investment. What you want is a high Sharpe ratio meaning for every unit of risk that you are taking you are receiving more than a fair share of reward in the form of return. For example, if you invest in a highly speculative stock that has a good chance of providing you with returns of 50% a year for the next five years and only a small chance of a loss, this position would provide you a high Sharpe ratio. Taking this one step further, funds are measured against an index and those that beat the index with a low level of volatility (risk) provide the investor with a high Sharpe ratio. They provide the investor with a higher return for the same or lower amount of risk. As an investor this is what you want!
So how is a high Sharpe ratio achieved? The easiest way is to find a basket of diverse investments that produce a high rate of return. This sounds easy and in many instances it is sold as being easy to do, but a recent study showed that not only do most investments have poor Sharpe ratios but that these numbers are dropping.
The first problem is that in the modern world of finance finding or creating a diverse portfolio of investments is almost impossible. Most people are ignorant to the fact that buying an array of mutual funds does not achieve the diversity that they need. This is due to the fact that many of the mutual funds hold the same investments even if they call themselves different things. For example a growth large cap fund and a value large cap fund more than likely have as their largest holding Apple. Buying both of these means that you are now doubly exposed to a movement in the price of Apple. This is great while it goes up but it is not a diverse portfolio.
A greater problem for the prudent investor is that the value of diversifying is losing its merit at precisely the time that it is needed most. The way that a portfolio is created is by finding investments that are not correlated to one another. As an example if you know that Apple will go up in price if the price of the raw materials of copper and nickel go down because Apple's profits will rise, then it would be said that copper and nickel have a negative correlation to Apple stock. So by buying all of these you would be protected as if Apple goes up copper and nickel go down. The one offsets the other. This reduces the risk of the portfolio but in this example would not provide you any capital gain.
In the real world it is impossible to find a correlation as perfect as this so money managers and investors look for investments that will not move in exactly the same direction or at the same speed at the same time. The idea is to weight the portfolio to capture some upside while limiting the downside which results in a properly diverse portfolio. Now if this portfolio beats the index tracked then it would have a high Sharpe ratio as the risk of the overall portfolio is reduced and it is still producing gains in excess of the market. This is the holy grail of investing but it is seldom if ever achieved.
The reason for this is many fold and I will delve into a few reasons here. The first reason is that correlation between asset classes are constantly changing. The trader knows that correlation trades last until they don't, meaning that you should trade the relationship until it breaks. A classic example of this was that up until recently if the dollar strengthened the market went down and vice versa. A great trade would therefore be to be long the market and the dollar and pocket the spread, however that correlation has weakened recently breaking the trade. In a portfolio to properly handle this constant change in correlations you need to constantly change your portfolio allocations. This comes with the added risk of the cost of moving the investment and the fact that once you have moved you may miss a good run in the position that you just sold.
The second reason is that correlations between all assets are becoming more closely linked. International stocks used to be a good hedge against movements in the United States back when I got into this game in 1985, but now they all move together. I also remember a time when commodities were a great hedge but nowadays that is also gone. Think about copper, it seems to lead the market lower or higher as people use it as a leading indicator rather than as a hedge.
Finally, as we have seen during the recent market melt down, at the exact time that the diversification is needed to protect your portfolio (when the market explodes) is the exact time when correlations move together and everything gets killed at once. So while countless hours are spent trying to build a perfect portfolio to protect against Armageddon, when that day shows up everything is pounded at once eliminating the desired protection.
So what is one to do? As with all studies it is far easier to link the main investment opportunities together than to dig for things that lie outside the box. For one, most people and most studies exclude private equity investments. This is why these are not typically linked to other investments. Just because the market is tanking does not mean that your investment in privately held regional Internet or biotech company has been impacted. Looking further, while local real estate markets are being pounded does not impact the short sellers or the buyers of foreclosures, in fact it benefits their business tremendously.
I remember being an analyst in the early 1990's during that recession and while many of my friends were struggling our business was flourishing. The reason was we specialized in bankruptcy and commercial litigation, both of which are busiest during recessions. The key to the story is to look at your portfolio and see what your true weighting is in each asset class and then try to find something that will provide a level of protection if and when the market collapses.
As with everything there are no guarantees but hiding the money under a mattress comes with its own set of risks such as loss to inflation, risk of theft or being lost in a fire. Look at alternatives to the standard investment portfolio and it should stand you in good stead during these tough times.
Friday, October 5, 2012
The Independence of the Federal Reserve
"The Congress established maximum employment and stable prices as the key macroeconomic objectives for the Federal Reserve in its conduct of monetary policy. The Congress also structured the Federal Reserve to ensure that its monetary policy decisions focus on achieving these long-run goals and do not become subject to political pressures that could lead to undesirable outcomes." - Board of Governors of the Federal Reserve System
The Federal Reserve must be celebrating today as unemployment dropped below 8% for the first time since 2009. Finally the open ended purchasing of toxic debt and other assets, keeping interest rates at unsustainable low levels, has paid off as we are now trending in the right direction. A number of interesting things jump out of the page regarding these numbers.
First of all is the fact that the majority, 582,000 of the 873,000 jobs created, were part time. Now I wonder how many of those part timers were looking for a full time job. Furthermore it ties in with an article written in the local news paper last week that there are plenty of part time jobs available as stores ramp up for the holiday season. Is it just me or does this holiday season seem to happen earlier and earlier every year? It appears that retailers are trying to get a jump on the competition and boost frail sales numbers but either way part time jobs come and go and this is a seasonal adjustment.
The next interesting question is the timing of the release. It could not have happened at a better time for Obama. Interesting again is the fact that the Bureau of Labor Statistics had been under reporting the actual employment numbers all year and suddenly found their mistake this month. I don't know about you but to me the timing is questionable. Certainly Obama will use this number to show the world how effective his leadership has been and that sticking to his plan will create jobs. So let's look at the plan.
More than a trillion dollar a year deficits for as far as the eye can see covered by the printing press that is the Federal Reserve. The Federal Reserve's purchases of the government's massive trillion plus dollar deficits is what is called "monetizing" the debt. By monetizing the debt the Federal Reserve is giving Congress a blank check book saying spend as much as you want and we will buy the junk. Fiscal discipline is out of the window and in its place is a government that is out of control attached firmly to the umbilical chord of the Federal Reserve to preserve their madness. How anyone in government can look themselves in the mirror and say "It is only a few more trillion of my constituents money but it is well spent" is definitely not in touch with reality. That is why mirrors are banned in the White House! Only joking of course but how else can you wander around actually believing that what you are doing is solving the problem?
This dysfunctional government is creating a vast wall of debt that is rapidly becoming unmanageable however as long as the Fed keeps interest rates at the lowest level in our recent history the debt service charge is as low as it was $7 trillion dollars ago. Remember back 10 years ago, everyone was shocked at a $158 billion deficit and $6 trillion in debt. What would we give for that "little" of a number today? I bet that you cannot imagine us ever going down to such a low level again, but unless we do trouble lurks ahead. Just think about it for a minute, 10 years ago a massive deficit of $158 billion and now the deficit is 10 times that amount! That equates to a growth rate of 22% compounded annually!
So let's look at the results of all of this printing. Jobless rate of 8% five years after the Recession began and this is supposedly the recovery period. 47 million Americans on food stamps. Four years of declines in household income to a level equal to that of 1995. The lowest labor level participation since 1981. Gasoline prices above $4 a gallon up from $1.50 in 2002. Is this a recipe that is working? And yet the Fed continues to believe in printing money to bolster stock prices, housing prices and raise asset values so that the man in the street "feels" more wealthy and then will open their wallet to buy things stimulating the economy. Now I did not make that last sentence up, it comes directly from the mouth of the Fed Chairman! So this is how yous timulate an economy, manipulate all asset prices to give everyone the warma nd fuzzies so that tehy can spend money they do not have and get creamed by the next burst bubble. Nice!
Let's not also forget that they also need to monetize the ludicrous policies of the government and you have a situation where the independence of the Federal Reserve is vaporized. No longer are their policies to assist employment and keep prices stable for we have just seen that neither of these metrics is happening. What is happening is that they are manipulating prices and letting the government spending spin out of control with no accountability. Please do not get sucked into this manipulated market rally, look around you and see what is going on and protect your assets.
The Federal Reserve must be celebrating today as unemployment dropped below 8% for the first time since 2009. Finally the open ended purchasing of toxic debt and other assets, keeping interest rates at unsustainable low levels, has paid off as we are now trending in the right direction. A number of interesting things jump out of the page regarding these numbers.
First of all is the fact that the majority, 582,000 of the 873,000 jobs created, were part time. Now I wonder how many of those part timers were looking for a full time job. Furthermore it ties in with an article written in the local news paper last week that there are plenty of part time jobs available as stores ramp up for the holiday season. Is it just me or does this holiday season seem to happen earlier and earlier every year? It appears that retailers are trying to get a jump on the competition and boost frail sales numbers but either way part time jobs come and go and this is a seasonal adjustment.
The next interesting question is the timing of the release. It could not have happened at a better time for Obama. Interesting again is the fact that the Bureau of Labor Statistics had been under reporting the actual employment numbers all year and suddenly found their mistake this month. I don't know about you but to me the timing is questionable. Certainly Obama will use this number to show the world how effective his leadership has been and that sticking to his plan will create jobs. So let's look at the plan.
More than a trillion dollar a year deficits for as far as the eye can see covered by the printing press that is the Federal Reserve. The Federal Reserve's purchases of the government's massive trillion plus dollar deficits is what is called "monetizing" the debt. By monetizing the debt the Federal Reserve is giving Congress a blank check book saying spend as much as you want and we will buy the junk. Fiscal discipline is out of the window and in its place is a government that is out of control attached firmly to the umbilical chord of the Federal Reserve to preserve their madness. How anyone in government can look themselves in the mirror and say "It is only a few more trillion of my constituents money but it is well spent" is definitely not in touch with reality. That is why mirrors are banned in the White House! Only joking of course but how else can you wander around actually believing that what you are doing is solving the problem?
This dysfunctional government is creating a vast wall of debt that is rapidly becoming unmanageable however as long as the Fed keeps interest rates at the lowest level in our recent history the debt service charge is as low as it was $7 trillion dollars ago. Remember back 10 years ago, everyone was shocked at a $158 billion deficit and $6 trillion in debt. What would we give for that "little" of a number today? I bet that you cannot imagine us ever going down to such a low level again, but unless we do trouble lurks ahead. Just think about it for a minute, 10 years ago a massive deficit of $158 billion and now the deficit is 10 times that amount! That equates to a growth rate of 22% compounded annually!
So let's look at the results of all of this printing. Jobless rate of 8% five years after the Recession began and this is supposedly the recovery period. 47 million Americans on food stamps. Four years of declines in household income to a level equal to that of 1995. The lowest labor level participation since 1981. Gasoline prices above $4 a gallon up from $1.50 in 2002. Is this a recipe that is working? And yet the Fed continues to believe in printing money to bolster stock prices, housing prices and raise asset values so that the man in the street "feels" more wealthy and then will open their wallet to buy things stimulating the economy. Now I did not make that last sentence up, it comes directly from the mouth of the Fed Chairman! So this is how yous timulate an economy, manipulate all asset prices to give everyone the warma nd fuzzies so that tehy can spend money they do not have and get creamed by the next burst bubble. Nice!
Let's not also forget that they also need to monetize the ludicrous policies of the government and you have a situation where the independence of the Federal Reserve is vaporized. No longer are their policies to assist employment and keep prices stable for we have just seen that neither of these metrics is happening. What is happening is that they are manipulating prices and letting the government spending spin out of control with no accountability. Please do not get sucked into this manipulated market rally, look around you and see what is going on and protect your assets.
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