At the end of a busy day of study and action, I’m looking at overall debt loads and interest rates. I’m wondering if, perhaps, the US government might seek to “accidentally” create runaway inflation for a short period to reduce the real cost of their soaring debt load. Otherwise, when interest rates go up, it’s going to be very difficult to repay. It worked for Germany in the 1920’s. No, wait, it didn’t work, did it? Still, it will be tempting when the bills come due.
We have largely exited our energy holdings. Most of these were profitable. We have cut our gold exposure in half after a very successful run. Our overall holdings in technology and health care remain in place. Now we are newly invested in bank stocks, both foreign and domestic. The challenge of financial stocks currently is that they are a very uncertain and high-risk position, dependent upon both interest rates rising and economies not stalling. We can’t really guess what will happen. For example European bank stocks…of which we own a dollop…were hammered today with bad Euro-economic news (Is there any other kind?) I’m thinking that patience and humility may help us produce outsized gains in this unloved, ignored sector. Meanwhile billionaire bond trader Jeff Gundlach says sell everything, even the kids. I’m inclined to keep the kids. Stay patient.
The fading middle class is the dominant social issue of our era, and will somehow affect our investment choices.
This article is by a leading economist. My thought is that the fading middle class is the dominant social issue of our era, regardless of politics. It is CERTAIN to have an effect on the financial markets, but what that effect will be, we cannot know.
I continue to find lessons and indicators in the Brexit experience.
- In general, economically and culturally, Asia is rising. Europe is in decline.
- Immigration is a big issue globally. Britons feel swamped by unfettered immigration from Europe. That strongly affected their votes. I’m perceiving that the immigration issue was bigger by far than economic questions.
- Social anger is increasing. Many people feel they have lost ownership of government and are at risk of losing their cultural identity. Results: anger, alienation, separation, and fear. This was apparent in the “Brexit” vote. It is also apparent in the current angry American presidential campaign.
- Low and lower interest rates. Brexit demonstrates yet again that any crisis is a giant gift to the Federal Reserve. At this point the Federal Reserve can keep interest rates as low as it wishes for as long as it wishes, and blame Brexit.
Here’s my article in the Salinas Californian, to discuss this further.
Early thoughts on BREXIT: first, the vote last week was a non-binding referendum, which means that it was simply an opinion poll. Second, everybody seems intent on stalling any implementation. Third, the central banks are lining up to throw money supply at the problem. So this could be a big deal…or not. What happens next is literally unpredictable but probably we’ll all muddle by as we so often manage to do. Despite the rhetoric, we may discover that this was a good event, a bad event, or a non-event. Nobody really knows. So far it’s essentially been a non-event. Stay diversified. We are following this closely.
This article is a fascinating analysis of the global economy by the managers of the Forester Value Fund. I’m watching events unfold in Greece and at this point it seems that we cannot really predict what will happen. It is possible that the euro, as a currency, may be redefined. Even more attention getting was the Chinese government’s very overt support of their own crashing stock market. Our portfolios are diversified so we have the relative luxury of watching all of this unfold from a distance. If markets decline, we will be hunting for bargains wherever they reveal themselves.
As one of many deadlines approaches, normalcy is actually returning to some financial markets. The spiking blue line is the yield on the German 10 year bond. It SHOULD be spiking. Given the hazards of the potential Greek mini-default on June 30th, the decline in bond prices is actually quite rational. The insanity was driving bond prices so high that yields actually went negative.
Yes, we might see some volatility in coming days, but it appears justified to me. And we’ll be looking to buy bargains.