Greetings-
Follow-up on leadership…
Enough said,
And yes, I know ostriches don’t really have canine teeth. Again, hyperbole to bury the point.
Anyway, I mentioned a while back that the Australians could feel the crimp in China-this happened fast. Over the last month, the ASX in Australia is now down 14% and the currency has now dropped 11% making the US dollar denominated holder a 25% loser… in one month. That means a 33% gain is needed for US$ holders to get back losses in Australian equities….last month.
I like to talk to children about their educations and their ideas and dreams because in some ways they represent pure positive limitless potential. Markets just go up and down or nowhere and that always appeals to that side of me that can use one fork one knife and one plate for weeks on end when my family is away. Simpleton’s like me were always interested in the markets. Sector, earnings, cash flow, economic growth, interest rates, currencies, inflation; there is data, you accumulate it, massage it, assess it…this has always been the simpler part. “Well bought is half sold…Nobody gets killed diving out the first floor window.. etc.” However, politics, policy and psychology – “people” risks are typically the things that really need to be weighed in order to assess and especially to hedge off the big risks. Foreign policy, Budget Policy, Trade Policy, Banking Policy, Interest rate Policy, none of these issues have anything to do with the P/E ratio or frankly anything else the management at GE, MMM or GM’s is doing. But, the ugly impact on stock performance is undeniable.
“Money managers” alive today seldom understand the “people risks” involved, how to hedge them, or when. If you are smart enough to have withstood the market’s swings and kept chunks of your money, congratulate yourself and do not be passive. Understand what you are doing or don’t do it. As my dad said often, “it is not what you make it is what you keep.” If you have a significant amount of your net worth involved in the markets you must educate yourself to them. You are unwittingly being forced into the casino because rates are so low you cannot “earn” anything elsewhere, (fixed income, bank CD’s). Though“it feels so good when they stop hitting me,” it is no reason to invest. If you do not understand what you are buying or what you have bought or you are paying somebody 1 or 2% a year to lose money for you in this environment, that is !@#$!@# Q@#!#$--not intelligent. If you do not want to manage your money, at least manage the risk by being a stingy SOB when you negotiate with your money managers and keep tight hand cuffs on them. Leave the “relationships” to your family and friends.
Although never before seen levels, truly Herculean borrowing and spending, to get the US economy came and went, we may very well have lost a decent shot at the US economy being ready to roll in 2010. The Europeans, who stuck their heads in the sand and did nothing in 2008 when the grim reaper stared down the US financial system, brought wave one of an unhelpful strong dollar to the markets. Throw in a touch of Chinese and Australian monetary tightening, a dash of Icelandic volcano, a splash of Kim Ill Dumb (sp?) in North Korea and I think you have lowered the odds of a near-term substantial economic recovery in the US significantly. The strength in the dollar is now being exacerbated by the Korean conflict and this will pile driveChina as they are linked to the dollar and far more dependent on their exports for economic growth. The Probability of something worse economically has increased significantly.
Having fallen 19% over the last month, commodity prices overall are 36% lower than May, 2007 (before the sharp run-up in oil). Tack on home prices,stock prices, etc. and the Western world has had a tectonic shift which has happened despite zero interest rates and doing everything under the sun to ramp up spending governmentally. Deflation must now be considered as a significant potential. Keep what you have-invest for cash flow, not capital appreciation and pay off debt aggressively. Buying opportunities will abound eventually after the lows are plunged and the dust settles. In the end… trying to catch a falling knife just leaves you with less fingers. This month today’s lows have been tomorrow’s highs and the 11,000 oops 10,000 level is slipping away.
On a lighter note, though contending with Kim Damn Dumb (sp?) in N. Korea, riots in Thailand, a severed artery running to the center of the earth in the seabed of the Gulf of Mexico and Mr. Coke holding Kingston Jamaica hostage…mahn- one ray of hope for consumers and businesses this summer is that crude oil prices have tanked 25% since their April highs and are now down 20% ytd…and there is ample supply in storage, everywhere. Though not so hot for future cash flow in the GCC- (I feel your hearts breaking in the US and Europe), for those that are planning to drive cars and boats this summer, it may allow a little savings and/or a little longer trip.
At a point in the future, they are going to place all of the perceptible risk into the price of stocks and are going to create a “margin of safety” that will present a great opportunity to buy, with your cash. So, count your cash and keep it safe. At some point we will have to go on a buying spree… at some point.
Get ready,
Leon
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