Very uncertain times

May I draw your attention to an interview with Dr Marc Faber on CNBC on 21st April (see videos on sidebar)?

Dr Faber is a highly respected commentator and his predictions of economic disaster, though cheerily delivered, are perfectly serious (he has a European way of giving bad news with an ironic smile).

He believes - and has done for a long time - that governments will try to inflate their way out of the long-developing overspending mess, and that eventually all "fiat" money (currencies not backed by anything that restricts the growth of the money supply) will become worthless. Then there will be a crash of epochal proportions, and the social consequences will be very painful (which is why his website is called GloomBoomDoom.com).

As he says in this interview, his view is that gold and silver are not to be considered as commodities like oil and corn, but as a form of money that governments cannot multiply as they do with their sovereign currencies. He advises (please remember that I cannot advise you here on this blog) investors to build up their holdings of physical gold and silver - "physical" because there is much speculation in this market and many times more in contracts than can be actually delivered. After that, maybe some investment in precious metal exploration companies.

Given Dr Faber's view of the real practical consequences of economic collapse, I think it is not irrelevant that he lives in Chiang Mai, northern Thailand, an area that can provide the needs of life locally and that is close to several international borders.

We may still have time - Dr Faber thinks that with continued monetary inflation, we could still see markets go up for quite a period; but from all that he says, and all that I have thought (and said) for years now, we appear to be facing a prolonged period of high volatility and the danger of sudden and savage reverses in valuations. Until inflation takes off, it can be good to hold cash; but if Dr Faber is correct, ultimately cash will be the worst possible investment.

I would also say that before considering your investment portfolio, there may be other issues to resolve - where you should live, what work you should do, what skills you should acquire, security precautions you should take, emergency provisions you should stock up with. Even if disaster does not strike with full force, big rises in fuel costs would transform the conditions of our daily life.

It is curious that we are now expected to be exercised by climate change issues, yet the media have yet to come to grips with our economic climate. It is still not generally known that the good old days (as remembered) of the Conservative boom in the 1980s (and mid-90s) was because of excessive bank lending, which caused both housing and the stockmarket to become heavily overvalued. This process of inflating the economy until it pops (as it must, one day, but who knows exactly when), has being going on for decades.

I've tried to get the message across to the public; perhaps I should spend my time quietly advising my clients, instead. Anyhow, I've told you, now.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Very uncertain times

May I draw your attention to an interview with Dr Marc Faber on CNBC on 21st April (see videos on sidebar)?

Dr Faber is a highly respected commentator and his predictions of economic disaster, though cheerily delivered, are perfectly serious (he has a European way of giving bad news with an ironic smile).

He believes - and has done for a long time - that governments will try to inflate their way out of the long-developing overspending mess, and that eventually all "fiat" money (currencies not backed by anything that restricts the growth of the money supply) will become worthless. Then there will be a crash of epochal proportions, and the social consequences will be very painful (which is why his website is called GloomBoomDoom.com).

As he says in this interview, his view is that gold and silver are not to be considered as commodities like oil and corn, but as a form of money that governments cannot multiply as they do with their sovereign currencies. He advises (please remember that I cannot advise you here on this blog) investors to build up their holdings of physical gold and silver - "physical" because there is much speculation in this market and many times more in contracts than can be actually delivered. After that, maybe some investment in precious metal exploration companies.

Given Dr Faber's view of the real practical consequences of economic collapse, I think it is not irrelevant that he lives in Chiang Mai, northern Thailand, an area that can provide the needs of life locally and that is close to several international borders.

We may still have time - Dr Faber thinks that with continued monetary inflation, we could still see markets go up for quite a period; but from all that he says, and all that I have thought (and said) for years now, we appear to be facing a prolonged period of high volatility and the danger of sudden and savage reverses in valuations. Until inflation takes off, it can be good to hold cash; but if Dr Faber is correct, ultimately cash will be the worst possible investment.

I would also say that before considering your investment portfolio, there may be other issues to resolve - where you should live, what work you should do, what skills you should acquire, security precautions you should take, emergency provisions you should stock up with. Even if disaster does not strike with full force, big rises in fuel costs would transform the conditions of our daily life.

It is curious that we are now expected to be exercised by climate change issues, yet the media have yet to come to grips with our economic climate. It is still not generally known that the good old days (as remembered) of the Conservative boom in the 1980s (and mid-90s) was because of excessive bank lending, which caused both housing and the stockmarket to become heavily overvalued. This process of inflating the economy until it pops (as it must, one day, but who knows exactly when), has being going on for decades.

I've tried to get the message across to the public; perhaps I should spend my time quietly advising my clients, instead. Anyhow, I've told you, now.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

The credit crunch revisited

The elegant presentation above is via Wolfie, slightly over a year ago. It needs updating: interest rates now down to zero in the USA, the banks bailed out by vast amounts of taxpayer cash, and houses still dropping in value. It seems to me like trying to inflate a ripped hot air balloon, or maybe this old cartoon from Punch magazine (click to enlarge):

Power to the people

A couple of days ago I referred to "rootless business magnates"; and a couple of years ago I said "Big MD (or Big CEO) will have his arm around the shoulders of Big Brother". Now, the Daily Mail runs a feature about how the super-rich are taking over our economy, just as the super-powerful are whipping democratic control from our hands.

They cannot stop themselves. And, I fear, it may end in tyranny, revolution or anarchy.

... and since writing this, I see Warren Pollock's latest presentation is about capture of law and regulation in the USA by powerful interests.

Dead right!

Invest defensively

Investment expert Jeremy Grantham gives his views via Financial Times video:

• the UK and Australia are still experiencing bubbles in housing
• there are potential bubbles in commodities and emerging markets
• savers are being tempted (I'd say almost forced) into speculating when they should be cautious
• the US stockmarket is generally overpriced, but...
• investors should be more interested in big, boring, robust companies such as Coca-Cola, Microsoft and Johnson & Johnson

(htp: Global Perspectives)

Safety first

Investment expert Jeremy Grantham gives his views via Financial Times video:

• the UK and Australia are still experiencing bubbles in housing
• there are potential bubbles in commodities and emerging markets
• savers are being tempted (I'd say almost forced) into speculating when they should be cautious
• the US stockmarket is generally overpriced, but...
• investors should be more interested in big, boring, robust companies such as Coca-Cola, Microsoft and Johnson & Johnson

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Inflation vs deflation

This article in The Economic Voice echoes what I've been saying for quite some time: the inflation issue is subject to market segmentation. Basics are costing more, luxuries are being sold at a discount. Though I suspect that luxuries of the very rich are another segment altogether.

Similarly, housing is segmented: the cost of basic stock in average income areas will, I think, decline in real terms, but the nicest property in the wealthiest areas may hold up OK. We're like different species in the sea, each with its optimum depth-habitat and ecosystem.

Crime, compulsion and rescue

I recently read this outrageous confessional by super-successful pump-and-dumper Jordan Belfort.

I'm not particularly sold on sorry-for-criminals (The Godfather, The Sopranos and all the rest of that genre); I think it's an emotional con that salves our conscience for being imaginatively complicit in the crimes.

But I do think Belfort is a victim as well as a perpetrator; a driven, a hag-ridden man. How much of history has been shaped by these out-of-control types? Mao saw himself as a destructive natural force; Stalin wondered why people had always helped him.

One feature of Belfort's story that sticks in my mind is how he used the louche, high-burn lifestyle at Stratton-Oakmont as a means to enslave his employees. As he explained (p.86) to his financially prudent father during a row about expenses:

"There's a method to my madness, especially when it comes to the spending. It's important to keep these guys chasing the dream. And it's even more important to keep them broke. Look at them; as much money as they make, every last one of them is broke! They spend every dime they have, trying to keep up with my lifestyle. But they can't, because they don't make enough. So they end up living paycheck to paycheck on a million bucks a year. It's hard to imagine, considering how you grew up, but, nevertheless, it is what it is.

"Anyway, keeping them broke makes them easier to control. Think about it: virtually every last one of them is leveraged to the hilt, with cars and homes and boats and all the rest of that crap, and if they miss even one paycheck they're up shit's creek. It's like having golden handcuffs on them. I mean, the truth is I could afford to pay them more than I do. But then they wouldn't need me as much. But if I paid them too little, then they would hate me. And as long as they need me they'll always fear me."

Belfort is plenty clever enough to play the repentant sinner - his book makes clear his manipulative approach to loved ones as well as employees - but it may well be that a part of him wanted to be stopped. The addictive, compulsive pleasuring is a whirring of hind legs scrambling to get away from the edge of what Clarissa Dickson-Wright calls "the abyss", to which even death is preferable. His permanently overactive mind required daily stunning with Quaaludes, because he didn't know how else to slow it down.

Returning to Stalin, another who could control everything except himself, I recall a TV programme about concert pianist Maria Yudina, who dared to write to him in frank terms that one would have thought were certain to get her shot or sent to Siberia. I have tried to find a transcript but this is the best I can do - though I clearly remember she referred not to his soul, but his "black heart". She had a courage almost insane. And yet he spared her. Was there a speck of gold left in the Stygian recesses of his spirit? I think so. When anticlericals have finished railing against bells and smells, there will still be the issue of the abyss and the light.

Lloyd Blankfein

Trivial, I know; but I'd really like to see a photo of him when he was a baby. Perhaps we'd have to title it "vampire kid" or chipirón.