The mantra that is continuously repeated throughout Keith Fitz-Gerald's Fiscal Hangover:How to Profit From the New Global Economy is: "You must begin investing on a global scale, with a special focus on China. Fail to do so and I can almost guarantee that you will be left far, far behind.". Fitz-Gerald, who has a subscriber base of 500,000 with his daily missive Money Morning, believes that a decoupling has taken place in the worldwide economy and that the BRIC (Brazil, Russia, India, China) countries with China as the lead sled dog pulling: "the world's economy and its investment markets out of the mire.". I don't agree with his decoupling theory and am from the school that the world economies commingle and are interconnected through a vast spiderweb of financial and trade relationships. In fact, I don't agree with a lot of what Fitz-Gerald proposes in his well written book except for his premise that: "this U.S. economic collapse may become the toughest in recorded history - far more destructive in financial terms than the Crash of 1929 and the subsequent Great Depression.".
I got the feeling from reading Fiscal Hangover that Fitz-Gerald has his roots in the Austrian School of economics because he stated many times in the book that the stimulus programs were a mistake. He sums it up here: "...we should never have begun the bailouts. The concept of 'too big to fail' is a total myth. History is littered with failed institutions of all kinds - from banks to brokerage companies to automakers and airlines. In the end, U.S. taxpayers will be on the hook for all of the bailout costs, either directly through higher taxes or indirectly through still more inflation.". Again, I beg to differ. If there hadn't been a bailout program, the entire free world's economic infrastructure would have come to it's knees, if not worse. Throughout the book I got the impression that Fitz-Gerald thinks he's breathing rarefied air and that he somehow cracked the code on how to solve the world's economic problems. It's just not that easy.
Fitz-Gerald spends an adequate amount of time in Fiscal Hangover giving practical investing advice, some that I agree with, some that I don't. What I concur on is his belief that right now investors should be preserving liquidity and hoarding cash. He doesn't feel we are out of the woods yet as far as the financial crisis is concerned here in the United States, but despite that, you should be putting your money into overseas securities, particularly those from the BRIC countries. As he advises: "I still firmly believe that, while maintaining a diligent safety-first attitude, you should have at least 40 to 60 percent of your assets allocated to international investments...". I don't see eye-to-eye with him on this stance for two reasons. First, I think stocks worldwide are overvalued, especially in China. Secondly, he doesn't think that ADRs are the best way to go when investing in foreign securities.
Fitz-Gerald believes in investing directly in overseas stocks by going to the foreign exchanges via specialty brokers. He recommends Euro-Pacific Capital run by Peter Schiff and International Assets Advisory if you need a full service broker in this arena. For discount brokers, he suggests Interactive Brokers, Charles Schwab Global Investing Service or E-Trade. I still believe that if you want to invest in overseas companies, the best and safest way to go is with ADRs. With an ADR, you won't need a specialty broker. Investor's Business Daily has many BRIC country ADRs to chose from. You just have to read the paper on a regular basis to see which ones are up and comers or hot established companies. If you would like more information about specific stock recommendations, the author does offer a small smattering of individual securities in Fiscal Hangover, but the best route would be to subscribe to his newsletter The Money Map Report which goes for $99.95 a year. A reasonable price for a stock newsletter.
Tuesday, February 9, 2010
Saturday, February 6, 2010
Clawing Back
The Ithaca Experiment portfolio gained ground last week in a very volatile 5 days of trading. Nothing to get excited about, but still moving in the right direction. The S&P 500 broke a resistance level of 1065 and spiraled downward towards the next resistance level of 1035, but managed to rally back into positive territory in late trading Friday afternoon. That 1035 level on the S&P would put us at a 10% correction, which many have been predicting because these 10% corrections are healthy for the market, but still I believe we are in for a nasty downturn. Besides the Ithaca Experiment portfolio, the rest of my money is in cold, hard cash in the form of money market accounts and CDs. We are in a crisis of confidence right now with the sovereign debt problems over in Europe and the high unemployment rate here stateside, if not worldwide. I do not believe these problems are just going to blow over.
This week I read David Faber's And Then The Roof Caved In about the root causes of the housing crisis. Faber is a high profile reporter with CNBC and I wanted to read what he has to say about the real estate implosion because I have always enjoyed his broadcast journalism. The book is very well written and is informative, but not as good as advertised. When I read a finance or economics book, I am looking for ways to increase my assets or for solutions to economic problems and this one came up short. Part of the problem with the book is that it is just straight forward unadulterated reporting with very little editorializing. I don't regret reading it because it solidified my belief that we are not in your run of the mill recession. But it just wasn't enough to recommend it.
One thing I've always liked about Faber's interviews on CNBC (and one of the reasons I bought the book), is that he tends to call the interviewees on the carpet and not let them gloss over missed predictions in previous encounters. This is a glaring omission with many of the anchors at CNBC, that they don't make guests fess up to previous mistakes. It is too bad with all of the technology that we have that CNBC, or even Bloomberg for that matter, don't have databases on their Web sites that would allow visitors to drill down for previous projections. As is, we are just taking the guests' market pronunciations at face value, whether they have been right or wrong in the past. Don't get me wrong, I like the financial cable channels, but sometimes feel they are just broadcasting for the moment and not the long-term. It is reporters like Faber that make for better viewing. I just wish he had written a better book.
This week I read David Faber's And Then The Roof Caved In about the root causes of the housing crisis. Faber is a high profile reporter with CNBC and I wanted to read what he has to say about the real estate implosion because I have always enjoyed his broadcast journalism. The book is very well written and is informative, but not as good as advertised. When I read a finance or economics book, I am looking for ways to increase my assets or for solutions to economic problems and this one came up short. Part of the problem with the book is that it is just straight forward unadulterated reporting with very little editorializing. I don't regret reading it because it solidified my belief that we are not in your run of the mill recession. But it just wasn't enough to recommend it.
One thing I've always liked about Faber's interviews on CNBC (and one of the reasons I bought the book), is that he tends to call the interviewees on the carpet and not let them gloss over missed predictions in previous encounters. This is a glaring omission with many of the anchors at CNBC, that they don't make guests fess up to previous mistakes. It is too bad with all of the technology that we have that CNBC, or even Bloomberg for that matter, don't have databases on their Web sites that would allow visitors to drill down for previous projections. As is, we are just taking the guests' market pronunciations at face value, whether they have been right or wrong in the past. Don't get me wrong, I like the financial cable channels, but sometimes feel they are just broadcasting for the moment and not the long-term. It is reporters like Faber that make for better viewing. I just wish he had written a better book.
Tuesday, February 2, 2010
Aftershock
Real estate, stocks and bonds down 90% from their peak values. 40% to 60% unemployment. A depression lasting more than 20 years. These are some of the future scenarios envisioned in David Wiedemer, Robert Wiedemer and Cindy Spitzer's Aftershock, the sequel to their 2006 book America's Bubble Economy where they predicted the 2008 housing market implosion and stock market collapse. The authors believe we are currently in the midst of six co-linked bubbles which have been growing since the early 1980's and that all of these bubbles are destined to pop in the next 2 - 4 years. The six bubbles in question are: real estate, the stock market, private debt, discretionary spending, the dollar and government debt. Of the six bubbles, the first four are already in motion and once the dollar and government debt spiral downward, our economy will be rocked to the core: "...and send deep and destructive financial shock waves around the globe.". Not a pretty picture.
In many places throughout the book, the authors caution about the current government bail-out and temporary reprieve from doomsday and sum it up best: "But the dramatic government intervention only served to temporarily blunt (not stop) the effects of the underlying fundamental trend, which is why falling housing, private debt and stock market bubbles are still on their way down. In time, these trends will also include a major Aftershock that few others are anticipating: the busting of the dollar and government debt bubbles.". It's a ticking time bomb right now, at least that's what the authors claim, and in a matter of months: "multiple failed treasury auctions will mark the beginning of the government bubble collapse.". Aftershock stipulates that: "if no one will buy our future debt, we will have no way to make payments on our past debt. The U.S. government will be in default on its debt, and the big government debt bubble will fully pop.". This is when all hell breaks loose causing the dollar to contract, too.
Although timing the market is an inexact science, Wiedemer, Wiedemer and Spitzer think these interlinking bubbles will explode sooner rather than later and dole out advice for not only maintaining your assets, but building them too. The first thing they want you to do is go into cash, and when they mean cash, they are talking about short-term government bonds like T-bills. However, when the dollar bubble pops, they feel you should move your money out of government debt and into gold: "The coming gold bubble could easily last 10 or more years, and at its height, gold prices could become truly stratospheric - so high, in fact, we won't even mention our best guess for fear of losing credibility.". I don't see why they wouldn't give us a ballpark figure on gold prices. After all, they already made bold projections on unemployment rates and stock market prices. Why not go the extra mile? One problem I have with putting all of your eggs in one basket with gold is that Uncle Sam confiscated all the gold back in the 1930's during the last depression. Why wouldn't he do it again? Other ways to make money during the crash are to short the market using ETFs, the same strategy the Ithaca Experiment is utilizing, or to invest in Euros with ETFs.
Aftershock fans the flames of my current belief that we are in for a sloppy and choppy market to the downside for the next few years. Although the authors caught lightning in a bottle with their first book, it is difficult to believe they can hit the bulls eye for a second straight time, but if they are close, my current strategy will be an optimal way to increase my holdings. Like Robert Prechter's Conquer The Crash, Aftershock paints a gloomy picture of what is right around the corner not only for Americans, but people all over the world. There are two sides to every trade and right now I'm on the short side. I'm just going to bide my time and let the chips land where they may.
In many places throughout the book, the authors caution about the current government bail-out and temporary reprieve from doomsday and sum it up best: "But the dramatic government intervention only served to temporarily blunt (not stop) the effects of the underlying fundamental trend, which is why falling housing, private debt and stock market bubbles are still on their way down. In time, these trends will also include a major Aftershock that few others are anticipating: the busting of the dollar and government debt bubbles.". It's a ticking time bomb right now, at least that's what the authors claim, and in a matter of months: "multiple failed treasury auctions will mark the beginning of the government bubble collapse.". Aftershock stipulates that: "if no one will buy our future debt, we will have no way to make payments on our past debt. The U.S. government will be in default on its debt, and the big government debt bubble will fully pop.". This is when all hell breaks loose causing the dollar to contract, too.
Although timing the market is an inexact science, Wiedemer, Wiedemer and Spitzer think these interlinking bubbles will explode sooner rather than later and dole out advice for not only maintaining your assets, but building them too. The first thing they want you to do is go into cash, and when they mean cash, they are talking about short-term government bonds like T-bills. However, when the dollar bubble pops, they feel you should move your money out of government debt and into gold: "The coming gold bubble could easily last 10 or more years, and at its height, gold prices could become truly stratospheric - so high, in fact, we won't even mention our best guess for fear of losing credibility.". I don't see why they wouldn't give us a ballpark figure on gold prices. After all, they already made bold projections on unemployment rates and stock market prices. Why not go the extra mile? One problem I have with putting all of your eggs in one basket with gold is that Uncle Sam confiscated all the gold back in the 1930's during the last depression. Why wouldn't he do it again? Other ways to make money during the crash are to short the market using ETFs, the same strategy the Ithaca Experiment is utilizing, or to invest in Euros with ETFs.
Aftershock fans the flames of my current belief that we are in for a sloppy and choppy market to the downside for the next few years. Although the authors caught lightning in a bottle with their first book, it is difficult to believe they can hit the bulls eye for a second straight time, but if they are close, my current strategy will be an optimal way to increase my holdings. Like Robert Prechter's Conquer The Crash, Aftershock paints a gloomy picture of what is right around the corner not only for Americans, but people all over the world. There are two sides to every trade and right now I'm on the short side. I'm just going to bide my time and let the chips land where they may.
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