Wednesday, October 3, 2012

John Mauldin on Value Investing in Age of Uncertainty

Continuing coverage, we're posting up notes from the Value Investing Congress.  Below are notes from the presentation of John Mauldin of Millennium Wave Advisors.  His talk was entitled 'How Will the Elections Affect the Endgame?  Finding Value in an Upside Down World.'

He's not a stock picker, but a macroeconomic thinker and writer (author  of "Thoughts from the frontline" a newsletter.

Differences between uncertainty and risk: Uncertainty is the "unknown unknowns" the term used by Rumsfield.  The things we don't even know we don't know.   Investors are obsessed with risk.  We can model it, it makes us feel like scientists.  We have more ways to quantify risk, yet me walked into 2008 missing the obvious.  We think we can model risk. Surprises aren't only the bad things, but the good things (like the invention of the iPhone? or the steam engine)

In 1850 the number one job in the USA was a farm worker, in 1900, it was personal servant.  The cheapest thing was to hire a laborer to do the hand labor.  Uncertainty comes in all forms.  The problem with uncertainty is you can't model it.

The Tremendous War In Gold Continues Near The $1800 Level

from King World News
Today acclaimed money manager Stephen Leeb spoke with King World News about the ongoing war in the gold market near the $1,800 level. Leeb also spoke about how it will end. Here is what Leeb had to say: “There really has been a battle just below the $1,800 level on gold. It’s fierce, and it’s ongoing. Some people will say there is some government or bank selling to keep gold in check. Others will say it’s just normal profit-taking as you get toward a round number.”
Stephen Leeb continues:
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Currency Devaluations of the 1930s /
For some reason, I have the urge to work on this topic a little more. I made available the raw data here:
April 15, 2012: Foreign Exchange Rates 1914-1941
The basic story of this time period, 1920-1940 is something like this: A lot of currencies left the gold standard during WWI, including the U.S. to a small degree. Some then had hyperinflation in the early 1920s. During the mid-1920s, these currencies are repegged to gold. The Great Depression begins. I thought Germany was the first of the big countries to devalue in August of 1931, but it turns out that was wrong. Germany’s government defaulted on its debt that month, and imposed heavy currency controls, but the currency was not (officially) devalued. Thus, Britain was the first of the big countries to devalue, in September 1931. Because the British pound was the world’s premier international currency, much like the dollar is today, many countries followed Britain’s lead and devalued simultaneously or soon after. Japan followed in December 1931, basically to return the yen exchange rate to its pre-devaluation level.
These are annual averages, which unfortunately do not capture some of these events well. The September 1931 devaluations, for example, get averaged into 1931, so the 1931 averages show only a slight decline for the full year. The U.S. devalues in 1933 of course, and repegs to gold in 1934 at $35/oz.
I suppose some of the points made here are that most countries devalued their currencies around the late 1931 timeframe, if not earlier in some instances. This put “beggar thy neighbor” trade pressures on all the non-devaluing countries. When the world’s premier international currency, in this case the British pound, is devalued, usually there are a lot of copycats. The result is that nearly all countries also devalued, if only to restore exchange rates to somewhere near their pre-devaluation levels.
I’ll have the remainder of the countries next week.

Ellis Martin Report with David Morgan October 2, 2011

Silver’s Bullish ‘Golden Cross’; Morgan Stanley Like Silver In Q4 and 2013

Silver’s Golden Cross – (Bloomberg)
Gold rose $3.60 or 0.2% in New York yesterday and closed at $1,776.90. Silver surged to hit a multi month high of $35.367 before it edged down, but it finished with a gain of 0.58%.
Gold edged up on Tuesday, nearing the 11 month high hit in the prior session. Gold and silver are being bolstered by concerns about the dollar, the euro and fiat currencies.
Silver 6 Months Daily – (Bloomberg)
Many analysts predict more central banks will follow the ECB, US Fed and BOJ and increase ‘stimulus’ measures for their economies, flooding the market with cash. This global debasement of currencies will continue to benefit gold and silver bullion.
Today, the Reserve Bank of Australia decreased interest rates to 3.25% due to weaker economic growth. The Aussie dollar fell against all major currencies and especially against gold – falling to AUD 1,727/oz.
Deutsche Bank research published overnight said “we believe that expanding monetary conditions globally will provide the catalyst for higher gold prices over the near-medium term”.
Deutsche Bank has a price target which exceeds $2,000 for gold in the first half of 2013 due to “supply constraints”.
Amplats a top platinum mining company said yesterday that it would fire all strikers who did not attend disciplinary hearings the following day as an illegal strike continued at four of its South African mines.

PIMCO On Gold – The Simple Facts / By Tyler Durden

GOLD – The Simple Facts
When it comes to investing in gold, investors often see the world in black and white. Some people have a deep, almost religious conviction that gold is a useless, barbarous relic with no yield; it’s an asset no rational investor would ever want. Others love it, seeing it as the only asset that can offer protection from the coming financial catastrophe, which is always just around the corner.
Our views are more nuanced and, we believe, provide a balanced framework for assessing value. Our bottom line: given current valuations and central bank policies, we see gold as a compelling inflation hedge and store of value that is potentially superior to fiat currencies.

We believe investors should consider allocating gold and other precious metals to a diversified investment portfolio. The supply of gold is constrained, and we see demand increasing consistent with global economic growth on a per capita basis. Regarding inflation in particular, we feel that the Federal Reserve’s decision to begin a third round of quantitative easing makes gold even more attractive.

We see the Fed’s actions in the wake of the financial crisis as a paradigm shift whereby the Fed is attempting to ease financial conditions and encourage risk-taking by increasing inflation expectations. Its policies will likely result in continuous negative real interest rates because nominal rates will be fixed at close to 0% for the foreseeable future.

To be sure, gold isn’t the only asset with the potential to hold its value in inflationary times. For U.S. investors, at least, Treasury Inflation-Protected Securities (TIPS) offer an explicit inflation hedge. What’s more, TIPS tend to be less volatile than gold and, if held to maturity, are guaranteed to receive their principal back – barring a U.S. government default (which we see as incredibly improbable). Still, history shows that gold is highly correlated to inflation and has unique supply and demand characteristics that potentially lead to attractive valuations.

A unique store of value
For more than a millennium, gold has served as a store of value and a medium of exchange. It has broadly managed to maintain its real value, even as various currency regimes have come and gone. The reason is that the supply of gold is not at the whim of any governmental power; it is fundamentally supply constrained. Total outstanding above-ground gold stocks – the amount that has been extracted over the past few millennia – are roughly 155,000 metric tons. Each year mines supply roughly 2,600 additional metric tons, or 1.7% of the outstanding total. This is why gold can be thought of as the currency without a printing press.

Financial Astrology: State of the Markets Into 2013

By Karen Starich
It is very important to note here that we are most likely entering into a very big new growth cycle and potentially huge economic boom beginning in January 2013.  The signs of recovery will start to emerge before the end of the year, so now is the time to start planning your portfolio to take advantage of this new growth cycle.  We have already established positions in some of the stocks that are poised to make very large gains long term.  Before I go into the stocks I want to illustrate why this is happening and give a view of the past updates here to save time in having to go back and reread.

Last October I warned about a potential banking scandal and to “watch out” near October 28th, 2011.
 Although I thought it would be Goldman Sachs it turned out to be MF Global instead.  The markets and the economy were at a critical point that could have caused a collapse similar to Lehman Brothers.  We booked some short positions however in late November I sent an alert to warn that we could see a form of QE that could be ‘secret’, and that the markets could go up.  We did get a rally into the end of February where I put together a group of stocks in the technology sector to watch for a pullback the first week of March in order to establish some long positions..  Many subscribers enjoyed those trades as the profits were fantastic.  However, some subscribers were disappointed the run did not continue and wrote to me about their frustration.  We were advising short positions and many subscribers do not like to short the market.  There is a reason why the sentiment changed and it has a lot to do with the planet Pluto.

The momentum changed in April as Pluto (rules the economy and wealth) went retrograde from 9 degrees Capricorn, creating an undertow in the economy, particularly for gold, silver, and mining.  Saturn  (retrograde) also made a hard square to the Federal Reserve Jupiter (suppression of employment) and the U.S. Mercury in the 8th house of foreclosure, debt, bankruptcy, and investments.  The combination was a further drag on the economy and created fear among investors who pulled money from the markets in droves fearing a repeat of August 2011.  The retrograde of Pluto also suggests there were most likely hidden political agendas that did not materialize the preferred results while Neptune was at the same time trine the U.S. Venus.  Neptune’s effect is very slippery when it comes to schemes, often the desired results slip away from the schemer, and so when Saturn made a final square to the Federal Reserve Neptune on September 13th, Bernanke most likely made a bold move to preempt the exposure of his failed policies, as the economy did not need additional QE in 2012 and would soon be very robust.

Now Pluto has moved direct and the economy is ready to really take off and bring in new technology and advances that were stopped in April of 2012.  Japan is also ready to start a new boom cycle and we may see growth first with Japan and then with America as Pluto makes a very powerful trine to Japan’s Sun in November.  It will be important to watch the news regarding Japan’s economy and the yen, as there may be signs that both are moving higher in late October and November. There is a caveat however, and that is the deleveraging process the world bankers will have to undergo, and as we all know nothing goes up or down in a straight line.  I will continue to focus on the timing for such concerns.

Russian General: “The USSR Collapsed and the Same Fate Has Been Prepared for the USA”

by Mac Slavo

In the following video commentary Russian General Konstantin P. Petrov (Ret.) asks some interesting questions and includes his own thoughts (perhaps the non-official Russian position) about a variety of topics that include the end of US dollar hegemony, the orchestration of the 9-11 attacks to engage America in a mid-east war, the puppeteers behind the politicians and the coming premeditated collapse of the United States of America as we know it.
While here in the United States we remain enclosed in a propaganda bubble controlled by western multi-billion dollar media conglomerates, business interests and political alliances, there can be no doubt that other schools of thought exist throughout the world. What may seem like reality to our populace is perhaps nothing more than illusion.
The United States does not exist in a vacuum. As such, we simply cannot ignore the assessments, outlook and opinions of foreign leadership as they pertain to the global implications of current events.
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