Re-Crash Test, Bad CNBC and Not investing in America
This was to be the title of the May letter which I did not have time to finish. It is an ominous title, and I meant it to be. I want my clients to understand that although we have been doing relatively well the past couple years, that we can not become complacent and allow a volatile market to trip us up. While I can not make any precise prediction of what the market will do in the short run, I can be fairly accurate in the intermediate term. My boldest prediction is that United States markets, both equity and fixed income, will do relatively worse than international markets over the next several years. My belief is that this U.S. stock market rally we are seeing the past three months-we were largely buyers in February and March- is becoming more dangerous the higher it goes. Right now, as the U.S. Market rises at a rapid pace, it feels good. But this steep incline is probably just as unhealthy as the last time we saw this a few years ago. As it goes higher in the short run, it requires us to play more defense, becoming sellers accordingly.
While I don't usually come right out and say I am afraid of another 20-30% drop in the markets, I clearly am, and with what I believe are good reasons. This fear is no emotional response to volatility. The U.S. dollar is already turning over and beginning to decline (as I discussed in prior letters that was likely to happen), unemployment remains high, consumer demand is flat at best, industry has not ramped up yet and the financial system is still a wreck. While I hope for the best, I am planning for worse and this rally is giving us an opportunity to retrench.
While America will rebound in the long run, the short run will continue to be rough, and investing in it will be as well.
More On Expectations on TV
If you read the title of this out loud, you will hear it is a play on words. I have been tuning into CNBC so that you won't have to (you really should thank me, CNBC is brutal to listen to sometimes). What I am hearing is all over the board, but the general bullish sentiment and spin in the face of the financial and economic calamity we are in the middle of (not near the end of) is too much to bear sometimes. The short-term trader focused approach to investing that is portrayed on that network is unhelpful and downright dangerous to 99% of the population. Yet, I hear people regurgitate the same things I have heard on CNBC time after time. The political garbage truck that they drive through the network is also overbearing and unhelpful. Sharing the opinions of most of the people on CNBC and then acting on that is bad for your financial and probably emotional health. CNBC has almost everything backwards, so I guess we can use it as a contrarian indicator, but in general for you, stay away. Fortunataly, from time to time, they do have an insightful guest, we will hear from one below. If you have to watch financial TV and have Bloomberg, I recommend that network as it is much more educational.
With that rant done, let's get to some material worth watching.
Because the research I do is rather technical, and often my conclusions are shared, I am going to start embedding videos in my letters which I feel are worth your time. Some, like today, will simply provide analysis that I mostly agree with. I also list some articles on the
Links page of this site, however, that list threatened to get too long so I will leave that for articles and interviews that have are topic specific and more static in nature going forward.
The first link is a recent interview from legendary investor Jim Rogers, one of the gurus I keep a close ear on:
http://www.youtube.com/v/9IbL_QfsohE&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&feature=player_embedded&fs=1"> name="allowFullScreen" value="true"> http://www.youtube.com/v/9IbL_QfsohE&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&feature=player_embedded&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344">
Here is a manager I follow and have read his books on the east coast named Peter Schiff:
http://www.youtube.com/v/smy8QfN4wvc&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&feature=player_embedded&fs=1"> name="allowFullScreen" value="true"> http://www.youtube.com/v/smy8QfN4wvc&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&feature=player_embedded&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344">
strategies I am using are designed to help clients of mine to not only do well to preserve their absolute level of assets during this mess, but have an opportunity to generate inflation beating returns over the next several years. We are in fact investing relatively little money in American assets. While some might question this on patriotic grounds, I take the attitude that it is more patriotic, and certainly more pragmatic and prudent, to make more money in the intermediate term so that we can reinvest in America when it is priced right and things look brigther. In the intermediate term, in my and some other credible investor's opinions, we are likely to make more money overseas (and in Canada). At some point, when American assets have retrenched fundamentally in real terms, we hope to have accumulated non-depreciated money earned mostly abroad to re-invest in the American up markets of the future.