Prepare for a Harder World

Posted on March 31, 2015 by MN Gordon

Aside from death and taxes, the only guarantee in life is change.  Change, you see, is constant.  It’s always happening.

Sometimes change is an improvement.  Other times it’s an adversity.  But it’s always happening…you can count on it.  With this in mind, here’s one perspective of what’s coming down the turnpike…

“We should all be prepared for adjusting to a world that is harder,” were the gloomy words offered by Charles Munger last week in Los Angles.  Munger, if you don’t recall, is Warren Buffett’s billionaire sidekick who helped build Berkshire Hathaway.  His remark was made in response to a question about the Federal Reserve’s massive balance sheet expansion since the 2008 financial crisis.

“You can count on the purchasing power of money to go down over time,” added Munger. “And you can almost count that you’ll have more trouble in the next 50 years than the last.”  In fact, Munger believes the last 50 years have been an anomaly… Continue reading →

Posted in Inflation, MN Gordon | Tagged , , , , | Leave a comment

How to Cash In On the Economic Sweet Spot

Posted on March 27, 2015 by MN Gordon

By all accounts, the U.S. stock market is expensive.  Not only is it hitting new nominal highs, its valuations are also off the charts.  How can one tell?

Fortunately, there are several metrics to guide us.  The Shiller’s Cyclically Adjusted Price Earnings (CAPE) ratio, for instance, is currently 27.5.  That’s 65 percent higher than the CAPE’s long-term historical average.

What’s more, there have only been two occasions over the last 100 years that saw the CAPE at a higher valuation than today.  One was during the late 1920s…right before the stock market crash.  The other was the late 1990s…just prior to the popping of the internet bubble.

The Buffett indicator, which is a ratio of the total market capitalization over gross domestic product, also shows that stocks are significantly overvalued.  The ratio currently stands at about 125 percent.  A fairly valued market is a ratio somewhere between 75 and 90 percent.  Anything above 115 percent is considered significantly over valued. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , , | Leave a comment

What Comes After the Boom

Posted on March 24, 2015 by MN Gordon

Last week Fed Chair Janet Yellen opted to keep the Fed’s zero interest rate policy in place.  Wall Street cheered the news and bid stock prices up to near record levels.  After more than six years, and over $3 trillion of direct asset purchases, what could the Fed really do?

Sure they could have begun the difficult task of walking credit markets back from their policies of mad insanity.  But that would destroy something the Fed’s worked very hard to create.  In short, it would explode a financial H-bomb and crash the perilous stock market edifice it has constructed.

This real possibility has the Fed parsing its words out like Bill Clinton at a Congressional impeachment hearing.  “Just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient,” said Yellen.  Huh?  So they may raise rates soon…but not too soon?

By all accounts, this dither drabble is categorically worthless.  What’s more, it’s ludicrous that in the year 2015, in an era of indoor plumbing and tablet communications, the financial system rests upon the mixed utterances of a frail bureaucrat with a hair helmet. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , , | Leave a comment

China’s Economy is Doomed

Posted on March 20, 2015 by MN Gordon

Sometime early last summer, Hui Ka Yan, chairman of Evergrande Real Estate in China, displayed his brilliant deal making abilities.  He took time off from developing and selling residential real estate buildings to sell China’s most popular soccer team to fellow billionaire, and chairman of Alibaba Group, Jack Ma.

“By accident I got him drunk,” recounted Yan, of how the deal went down with Ma.  “I told him my Evergrande soccer team is planning to issue shares and raise money to support strategic development, will you join?  He said I will.  We finished it in 15 minutes.”

Surely, such stellar business dealings have been fundamental in Yan accumulating a net worth of $6.4 billion.  Likewise, for Ma this $192 million soccer team purchase may have been nothing more than an act of philanthropy.  Ma’s net worth – $22.5 billion – dwarfs Yan’s.

One of the great marvels of life is the direction money flows.  From whose hand is it given?  To whose hands is it received? Continue reading →

Posted in Government Debt, MN Gordon | Tagged , , , , , , | Leave a comment