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PRESERVE & PROTECT:  The Jaws of Death

 

 

Mon. Feb. 8th , 2016

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KEY TO TIPPING POINTS

1- Bond Bubble
2 - Risk Reversal
3 - Geo-Political Event
4 - China Hard Landing
5 - Japan Debt Deflation Spiral
6- EU Banking Crisis
 
7- Sovereign Debt Crisis
8 - Shrinking Revenue Growth Rate
9 - Chronic Unemployment
10 - US Stock Market Valuations
11 - Global Governance Failure
12 - Chronic Global Fiscal ImBalances
13 - Growing Social Unrest
14 - Residential Real Estate - Phase II
15 - Commercial Real Estate
16 - Credit Contraction II
17- State & Local Government
18 - Slowing Retail & Consumer Sales
19 - US Reserve Currency
 
20 - US Dollar
21 - Financial Crisis Programs Expiration
22 - US Banking Crisis II
23 - China - Japan Regional Conflict
24 - Corruption
25 - Public Sentiment & Confidence
26 - Food Price Pressures
27 - Global Output Gap
28 - Pension - Entitlement Crisis
29 - Central & Eastern Europe
 
30 - Terrorist Event
31 - Pandemic / Epidemic
32 - Rising Inflation Pressures & Interest Pressures
33 - Resource Shortage
34 - Cyber Attack or Complexity Failure
35 - Corporate Bankruptcies
36 - Iran Nuclear Threat
37- Finance & Insurance Balance Sheet Write-Offs
38- Government Backstop Insurance
39 - Oil Price Pressures
40 - Natural Physical Disaster

 

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"BEST OF THE WEEK "

MOST CRITICAL TIPPING POINT ARTICLES TODAY

 

   

 

2012 - FINANCIAL REPRESSION

2012

2013

2014

  02-08-16    

 

John Charalambakis:

IT’S ABOUT RISK MITIGATION & CAPITAL PRESERVATION!

 

John Charalambakis is the Managing Director of Group, a boutique style asset and wealth management firm, which focuses on risk mitigation, capital preservation and growth through strategies that are rule based. Dr. Charalambakis has been teaching economics and finance in the US for the last twenty years. Currently he teaches economics at the Patterson School of Diplomacy & International Commerce at the University of Kentucky.

FINANCIAL REPRESSION

“The outcome of financial repression is when the role of the markets is diminished because of the actions of central authorities, such as central banks.”

Fed: Central banks of the United States, ECB: European central bank, and BoJ Bank of Japan

Assets under management have skyrocketed from about 7% in 2007 for the U.S Fed, to over 20% as of the end of 2015, increasing 3 times. Over this time, the GDP did not equally increase 3 times. This increase eventually leads to a greater role of central authorities. Looking at Japan in 2007, they had about 20% of their GDP in their balance sheet, currently they have over 90%, meaning the role of the markets is diminishing and the role of central authorities is increasing, creating financial repression.

Gord asks John what assets people should invest in, in this era of financial repression that would create a store of value, which may not bring in a yield, but would preserve their money.

GOLD – INTRINSIC VALUE ASSETS

“I think the goal of any pension fund, institutional or private investor should be capital preservation. Assets should have intrinsic value.” “Assets that have intrinsic value such as gold or silver, historically have retained their value especially in times of crisis.” John mentions how the price of gold in 2009 rose from about $500-$500 to $1900 because investors were seeking a safe haven of intrinsic value assets. “There is not enough gold for everyone. Only 1/3 of 1%, a miniscule number, is invested in precious metals.” Hypothetically if every manager by the end 2016 would invest just 3% of their wealth into precious metals, the price of gold would rise to an estimated $2700. Growing demand and financial stress can, and likely eventually will, create a financial crisis.

KEY PRINCIPLES OF THE AUSTRIAN SCHOOL OF THOUGHT

  • Uncertainty is endogenous in the markets, and therefore investments should be based on rules. “Regardless of where the market temporarily may be moving, the investor, whether individual or institutional, should be guided by rules.”
  • Investors, whether fortunately or unfortunately, are emotional beings, therefore there are psychological deficiencies caused through emotions, effecting investments. Due to these emotional deficiencies, investors must be disciplined, and once again be guided by rules
  • The conventional methodology of 60/40, stock and bond rule is not adequate. It ignores the risk parity considerations. Investors should shift their portfolio based on the macro environment of risk, in order to take advantage of the more promising and safe investment at the time being. John mentions that in 2009-2011 bonds gave a much better return, because money had left stock and shifted to bonds. It also ignores the potential black swan phenomenon. A black swan phenomenon is likely to happen again and in greater frequency than we’ve seen before, we need to be prepared and eventually hedge our portfolios in such a way, that we are able to sacrifice some return for the sake of stability and preservation.
  • Portfolios need to structure in such a way to survive in a macro and business cycle, as well as the credit cycle.
  • Markets cannot escape realities of wealth creation. Nations do not become wealthy by printing money. Rather, wealth is created through free markets, when the entrepreneur is allowed to take risks, because risk liberates. “When there is excess regulation suffocating the entrepreneur, wealth cannot be created.” Investing in entrepreneurs and innovators, with proper risk analysis, can result in great returns.

“Unfortunately risks and stresses are being built up and portfolios are suffering the consequences. People think because they have wealth on a financial statement, that wealth can be preserve. When the markets collide, that wealth is destroyed because it is paper wealth, not real wealth.”

INFASTRUCTURE INVESTMENT

“Infrastructure investment needs to be financed, usually countries finance infrastructure through deficit spending, and that cannot happen due to big holes in their budgets.” John questions whether or not the internal rate of return justifies infrastructure. He doesn’t believe the environment is mature enough currently, due to the possibility of a looming crisis in the next couple years. This would push back infrastructure spending.

PREPARING FOR A POSSIBLE CRISIS

  • Analyzing risk, and understand where the risk is coming from.
  • Anchor the portfolios. (Most usually used in hard assets)
  • If applicable; hedge the portfolio either by selling covered calls, and collect premium by doing so, as well as mitigating risks. Individuals may also consider buying puts.

“Since we are in an era of financial repression you cannot expect the income from treasuries or CDs, explore all sources of income”

Kamilla Guliveva

kamillaguliyeva@hotmail.ca

 

 

 

TIPPING POINTS, STUDIES, THESIS, THEMES & SII

COVERAGE THIS WEEK PREVIOUSLY POSTED - (BELOW)

 

MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - Feb 7th, 2016 to Feb 13th, 2016      
TIPPING POINTS - This Week - Normally a Tuesday Focus
BOND BUBBLE     1
RISK REVERSAL - WOULD BE MARKED BY: Slowing Momentum, Weakening Earnings, Falling Estimates     2
GEO-POLITICAL EVENT     3
CHINA BUBBLE     4
JAPAN - DEBT DEFLATION     5

EU BANKING CRISIS

   

6

TO TOP
MACRO News Items of Importance - This Week

GLOBAL MACRO REPORTS & ANALYSIS

     

US ECONOMIC REPORTS & ANALYSIS

     
CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES      
     
Market Analytics - WEDNESDAY STUDIES
STUDIES - MACRO pdf      

TECHNICALS & MARKET ANALYTICS

 

   
 
COMMODITY CORNER - AGRI-COMPLEX      
     
THESIS - Mondays Posts on Financial Repression & Posts on Thursday as Key Updates Occur

2016 - CRISIS OF TRUST

  • LOSS OF CONFIDENCE & TRUST - People No Longer Believe in the System
  • DEMONIZATION OF OPINION & EXPRESSION - Era of "Controlling the Narrative"
  • ERA OF UNCERTIANTY - A World of Increasing Uncertainty & Risk
  • CASUALTIES OF UNCERTAINTY - Individualism, Risk Taking, Capitalism & Economic Growth
2016 THESIS 2016
2015 - FIDUCIARY FAILURE 2015 THESIS 2015
2014 - GLOBALIZATION TRAP 2014

2013 - STATISM

2013-1H

2013-2H

2012 - FINANCIAL REPRESSION

2012

2013

2014

2011 - BEGGAR-THY-NEIGHBOR -- CURRENCY WARS

2011

2012

2013

2014

2010 - EXTEND & PRETEND

   
 
THEMES - Normally a Thursday "Themes" Post & a Friday "Flows" Post
I - POLITICAL
     

CENTRAL PLANNING - SHIFTING ECONOMIC POWER - STATISM

MACRO MAP - EVOLVING ERA OF CENTRAL PLANNING

 

G THEME  
- - CRISIS OF TRUST - Era of Uncertainty G THEME  

CORRUPTION & MALFEASANCE - MORAL DECAY - DESPERATION - RESENTMENT.

US THEME PAGE
- - SECURITY-SURVEILLANCE COMPLEX - STATISM G THEME  
- - CATALYSTS - FEAR (POLITICALLY) & GREED (FINANCIALLY) G THEME  
II-ECONOMIC
     
GLOBAL RISK      
- GLOBAL FINANCIAL IMBALANCE - FRAGILITY, COMPLEXITY & INSTABILITY G THEME  
- - SOCIAL UNREST - INEQUALITY & A BROKEN SOCIAL CONTRACT US THEME  
- - ECHO BOOM - PERIPHERAL PROBLEM M THEME  
- -GLOBAL GROWTH & JOBS CRISIS      
- - - PRODUCTIVITY PARADOX - NATURE OF WORK   THEME

MA w/ CHS

  01-08-16 THEME

MA w/ CHS

- - - STANDARD OF LIVING - EMPLOYMENT CRISIS, SUB-PRIME ECONOMY US THEME
MA w/ CHS
III-FINANCIAL
     

FLOWS -FRIDAY FLOWS

FLOWS - Liqudity, Credit & Debt

LIQUIDITY: Central Bank Liquidity Increases has slowed or Stopped

>> CREDIT: Cycle has turned

DEBT: Defaults/ Bankruptcies Will Emerge

 

MATA

RISK ON-OFF

THEME

w/ R Duncan

CRACKUP BOOM - ASSET BUBBLE 12-31-15 THEME  
SHADOW BANKING - LIQUIDITY / CREDIT ENGINE M THEME  
GENERAL INTEREST

 

   
 
STRATEGIC INVESTMENT INSIGHTS - Weekend Coverage
     

 

RETAIL - CRE

 

 

  SII

 

US DOLLAR

 

 

  SII

 

YEN WEAKNESS

 

 

  SII

 

OIL WEAKNESS

 

 

  SII
 
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Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

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