*** FUTURE POSTS WILL ALSO APPEAR AT 'NOW AND NEXT' : https://rolfnorfolk.substack.com
Wednesday, August 22, 2007
Safety first
Be careful about using low P/E ratios as a buying indicator. We read in this morning's paper that the average P/E on the ASX 200 is the lowest its been in 12 months. That doesn't automatically mean stocks are "good value." In fact, in the past, low P/E ratios have been a sign of the market top. Why?
At the height of an economic cycle, corporate earnings are high. When earnings rise faster than share prices, the P/E ratio will look low, flashing a "buy" signal. But this may be just the time that earnings themselves have peaked. That's definitely not the time to buy a stock.
And even commodity shares have to be chosen with care, when you factor-in rising costs.
Friday, August 17, 2007
Following the markets today
Tuesday, August 14, 2007
Marc Faber update
A most interesting and informative interview with Marc Faber on Bloomberg TV, last Friday. He thinks we've seen, not a correction, but the start of a bear market. In his opinion, the central banks intervention is inappropriate and will cause inflation. He thinks they "should let the crisis burn through the system, and eliminate some players". The Dow should correct by 20 - 30%; and as hedge funds "de-leverage", i.e. reduce their borrowings, the prices of most assets will drop.
..................................................... Modern Manila
Friday, July 27, 2007
Gold - or cash?
I guess his position is close to that of Marc Faber, who said recently that all asset classes are inflated and on the whole, he'd prefer to stand on the platform rather than get on any of the waiting trains.
Bank of England investment in US Treasuries; gold
Let's combine the recent mystery about Britain's massive investment in US Treasury securities, with the worldwide asset bubble.
This is Doug Casey speaking to the Agora Financial "Rim of Fire" conference in Vancouver this week, on YouTube (thanks to "Daniel" for alerting me to it).
His view on American bonds? "A triple threat". Why?: (1) interest rates are very low and are going to become very high; (2) credit risk: he says he would not wish to be a lender now, with so much debt everywhere -he refers to a possible "financial credit collapse"; (3) currency risk - he says dollars say "IOU nothing", and compares them to the Argentinian peso 10 years ago.
So, why has the UK invested an extra $112 billion in US-dollar-denominated Treasury bonds, between June '06 and May '07? To dramatise this figure somewhat, let's look at the Forbes list of the richest people in America (Sep 2006): the top 5 billionaires are worth $155 bn between them. Britain is now into America for $167.6 bn. The increase in the last year alone is more than the net worth of Bill Gates and Warren Buffett combined. I wonder (rhetorically) whether they would bet their entire fortunes on US Treasuries?
We already know what Casey thinks about cash held in dollars, and he regards stocks and property as overvalued, too.
So what does he favour? Gold. "It's not just going through the roof, it's going to the moon". He's been a gold bull for the last 7 years. He picks mining stocks, but warns that they are very volatile, even more than Internet stocks. But there are other ways to own gold.
Meanwhile, is there anyone here in the UK who is willing to grill the supposedly independent Bank of England (it wasn't the British Treasury, after all, it seems) about the rationale for its vast punt on "triple risk" US bonds?
Let's finish with Bill Bonner's keynote speech at the same conference, on the difference between the real boom of the Far East and the Ludwig von Mises "crack-up boom" of our inflationary economies:
Wednesday, July 11, 2007
Cash still king?
Monday, June 25, 2007
Planning for the crash
I think I agree with the writer's analysis that it may play out as follows:
1. The current inflation will continue until some big scare or crisis starts the run
2. Then there will be deflation, but governments will try to get out of it by printing even more money
3. Printing more money won't work, because people will have lost faith in the currency, so (if you follow the link provided by the writer) we will eventually get to a surge in the price of gold
But we don't know when stage 1 will end, and holding cash may reduce your wealth relative to other assets. So where do you invest?
Buying gold now may mean a long wait before the market comes round to your point of view (if it ever does) and as some (e.g. Peter Schiff) have pointed out, even if you're right, you may find the government forces you to give up your gold, as it did before.
Houses are overpriced, but rather than a general sell-off of real estate I could imagine a long period of house price stagnation, with people staying put if possible. You haven't lost money till you've sold, or the bank has forced you to sell. If you really have nerve, you might sell, live in a tent and buy a bargain when (if!) the housing market tanks - but would your partner agree? Christopher Fildes was suggesting (in the Spectator magazine) moving into a hotel, some years ago - but look at what's happened to London house prices since then.
Some businesses continue even during a depression, if they provide essential services. It's interesting that Warren Buffett and George Soros have both bought into railways recently.
I can't call the play - personally, I am looking to reduce debt and trim personal expenditure, increase cash savings, and otherwise invest with a weather eye on the macroeconomic situation.
Thursday, June 14, 2007
Mark Skousen warns of market turmoil
Reportedly, Greenspan spoke of the scary periods in 1987 and 2001, and his surprise at the resilience of the US economy. Skousen notes two important points from the talk: Greenspan's enthusiasm for the future of the European Union under its more conservative economic leadership, and surprise at the low global interest rates that have helped to drive up the markets. Skousen suggests that interest rates may be on the rise, and the recently increased yield on the 10-year US Treasury bond seems to bear the same interpretation.
For investors, Skousen suggests using stop-loss triggers on share holdings (in a real emergency, will they work as intended?), gold and silver coin to pay your way if the worst comes, and a large amount of cash. Definitely a bear, and with a reputation for prescience: if you look at his website, you'll see that Skousen advised his readers to get out of stocks 6 weeks before the crash of October 1987 - "one of the few advisors to anticipate the crash".
I have to say that I expected it too, but I wasn't an adviser at the time; and I also anticipated the Far East slide of 1997 and the falls post-2000. Not because I'm a genius, nor on account of insider whispers: being naturally wary, I looked and listened for warnings from experts. And so, if I may suggest, should you.
Sunday, June 10, 2007
Is the bear view becoming more generally accepted?
When gold may not be safe
I think gold bugs are looking to the longer future, when governments desperate to get out of a slump may choose to print currency and so devalue it against precious metals, which they can't multiply at will. Meanwhile, if you follow Dr Faber, you may consider waiting with your cash at the station instead of boarding any of the asset trains, as he puts it.
Thursday, June 07, 2007
Marc Faber: cash may be king
Currently, Faber is cautiously bearish about most types of asset:
...it will become increasingly important for investors not only to decide which asset-class train they want to board, but also, and even more importantly, whether they want to board ANY of the asset trains.
...a peculiar feature of the bull market in asset prices since 2002 has been that all asset prices around the world have appreciated in concert, as a result of highly expansionary monetary policies, which has led to excessive credit growth and a credit bubble of historic proportions. Therefore, if my theory of slower credit growth in the future holds, it is conceivable that, for a while at least, all asset markets (with the exception of bonds and cash) could come under pressure, albeit with different intensities.
In fact, asset markets would come under pressure, even if credit growth continued at the present rate and didn't accelerate. In this instance, investors would be better off not boarding any investment train at all and, instead, staying at the station loaded up with cash. (However, they would still have to decide what kind of cash to hold.) U.S. dollars might not be the very best choice.