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I’m just going to put this here.

At the moment I’m not making any changes to our portfolios due to this information. As I’ve mentioned before, by classic standards, I’ve been advocating relatively conservative portfolios of mutual funds. And, as I’ve said before, I’ve been mildly wrong for the past three years: the markets have continued to rise despite all our fears. So the balance of proof is now weighted in favor of a continuing bull market, and staying invested anyway is a decent strategy. Nobody really knows what will happen. Staying diversified is a proven tactic. But but but…there’s this. So I’m going to post it for our later review. Happy weekend.

It probably isn’t what you think it is.

I’m back from a week in Maui with the family, with sun-browned skin despite the twice-daily application of reef-friendly sun block, and with my head brimming with fascinating ideas.

Such as how Kamehameha, a relatively minor chief, was able to conquer all the islands between the years 1789 and 1810, because of a new technology: the flintlock musket.

And how, after his death, the ali’i…the nobility…of Hawaii sold out their own nation’s resources and financial stability to foreign nationals to enrich themselves.

And how foreign governments, including the United States, were inexorably drawn to take advantage of imperial Hawaii’s weaknesses.

Yet individual families survived and even thrived, despite government.

Now, here I am, sitting at my desk, contemplating that the current state of national and state governance is in fact somewhat normal, in the long term. Kleptocracy by whoever is in power is inevitable. Under the veneer of culture and rationality, we live in a world in which people will exploit weakness and take what they can. The assumption that things are different because we are equipped with cell phones and the Internet may or may not be correct.

As evidence, here’s an interesting article about our health insurance debate.

You and I, like the families of Hawaii, are mice among the elephants. We must continue to create success, health, and wealth in our own relatively small ways despite what the oligarchs may do.

It seems likely that the Trump Presidency will accomplish much less than expected. It seems likely that the major goal of Congress is to enrich itself at the expense of the rest of us. All this will happen despite the political party in power. All the political words which empower and energize us are simply tools to enlist us to their fight, for their benefits.

With this in mind, we need to continue to save, continue to nurture our families, and press onward regardless of all the social and governmental chaos. What happens in Washington or Brussels or Beijing will probably not define our lives. In the long term, people seem to thrive DESPITE government, and not because of it. On we go.

Overvaluation and a Dysfunctional Society

A recent analysis by Goldman Sachs does a rather good job of summarizing the challenges of our current over-valued stock markets. Read it here.

Essentially, domestic stock markets are overvalued, but supported by very low interest rates and a perception that central banks will forever intervene in any downturn. International stock markets are less expensive but subject to some unusual geopolitical risk.

Watching the recent news with President Trump’s new unnecessary squabble and insult-trading with Morning Joe talk show hosts reminds me that U.S. political risk remains large. I’ve never seen a presidency as vulgar, scattered, and puzzling as this, and I doubt you have either. So our executive branch may self-immolate at any time. Or not. We honestly don’t know. It’s also worth reflecting that the recent trend to off-the-charts anger and crudeness in public discourse probably reflects our society’s inner turbulent personality in some way. What does that imply?

It’s entirely possible that overvalued conditions in our stock markets could go on for years, and still possible that the Trump Presidency could get its act together. For us, the bottom line is that stock markets may continue to rise for years, until something external derails upward momentum. For that reason, attempting to dodge out of the way, beyond our current level of diversification, doesn’t seem to add value.

Happy 4th of July! It’s a great time to reflect on why we are all here, and what we want to accomplish.

Legendary Investor Jim Rogers Predicts A Stock Market Crash, And The World Yawns

Legendary investor Jim Rodgers has often been right, and often been wrong, about the future of U.S. financial markets. He’s completely bullish on the future of Asia, and in fact now lives officially in Singapore.

Now he’s calling for the worst stock market crash in our lifetime. Read more here.

He may be right. Or not.

It’s worth noting that when the stock markets first began flashing indications of overvaluation, they were at about half their current levels. Had we gone to cash in 2013 as the statistics suggested, we would have missed out on at least 1 of every 4 dollars in our diversified portfolios.

Why didn’t the financial markets crash after 2013? The unexpected happened: the Fed and other central banks of the world intervened to support financial markets.

I have my own emotional reservations about that: when governments intervene in markets as the mood strikes them, then markets become unquantifiable. But the money which has been made is quite real.

So now Jim Rogers says that the biggest stock market crash in our lifetime is imminent, he may be right. Stock markets ARE very overvalued, and have been for years. My response for all of us has been to stay very diversified and be a bit cautious. The result has been that our investment returns haven’t beaten the stock markets, but we’ve at least participated while remaining realistic about genuine dangers out there.

I also remember that the Financial Panic of 2008 was followed by a market boom.

Genuinely, we don’t know what will happen. Let’s also keep in mind that we want to buy low, and sell high, and we want to persist. Investing is a marathon, not a sprint.

Esteemed contrarian investor David Dreman has a warning about bonds.

David Dreman has earned a reputation as a superb contrarian investor over the past four decades. So when he writes a warning about bond investing, it’s worth reading. On the other hand, market support by central banks has been so extreme in recent years that rational investing expectations aren’t necessarily valid. The point of the article is solid, however: bonds are potentially at risk. Read here.

Let’s enjoy the ride…but remain a bit cautious.

While the stock markets are piling on gain after gain, this article is a decent yet extremely sobering read. There is ample reason to be a gentle skeptic about the current directions of our financial markets. On the other hand, there’s no compelling reason to go to cash either. The “Sweet Spot” of non-delusional investing seems to be a path of profound diversification and patience.

The Dow opened at 19,000 this morning!

This morning the Dow opened at 19,000 for the first time ever. We are experiencing another lesson in the short run unpredictability of markets. Aren’t we glad we didn’t sell everything in the face of political uncertainty? Now for the ten million dollar question: will these high levels last? My thought: we don’t know. Stay diversified! Read more here.

Pension defaults will probably be BIG in about 20 years. Possible solution: get your own money into a separate account.

If you read this LA Times article, you will find additional confirmation that we face looming social unrest and political challenges concerning underfunded defined benefit pensions. It is quite possible that in a few decades we will witness pooled defined benefit pensions experiencing a “renegotiation” of benefits. For that reason, maintaining our own pensions in separate accounts such as IRA rollovers becomes even more attractive. We can’t really foretell the future, but right now the numbers aren’t adding up.

Bill Gross has an opinion about our current political situation, and it’s worth reading.

Bill Gross is famous for decades of accurate bond market calls, and he predicted the the emergence of our “new normal” low return era. In fact he named it. Recently he’s also been wrong about the direction of interest rates, and he has a personal reputation as a bit of a diva. Considering all this, when he speaks or writes about our current political environment, we have to admit that he’s more informed than most, and worth consideration. Disclosure: we own Janus bond funds. Read his recent article here.