MarketVVizard's Market Thoughts

Top 370. Oct 7, 2003 6:05 AM

» MarketVVizard - Book Reco

Last night I started reading the most captivating investment related book I've seen in a while. I'm only 3 chapters in, but so far it has been quite illuminating. I highly recommend "Rich Dad's Prophecy" (subtitle = "Why the biggest stock market crash in history is still coming... and how you can prepare yourself and profit from it"). The discussions in the first 3 chapters about "freedom vs. security", "investor vs. employee", "defined benefit vs. defined contribution" alone make the book worth reading. At least it got me thinking anyway...

-- posted by MarketVVizard

Top 371. Oct 7, 2003 6:14 PM

» stocksystm - Re: Book Reco

In response to message posted by MarketVVizard:

I've read that this book is interesting, but isn't the author recommending that everyone invest up to their eyeballs in real estate? What happens if interest rates go up? This is the kind of advice that could cause the Great Depression II.

-- posted by stocksystm

Top 372. Oct 7, 2003 7:53 PM

» Normxxx - Re: Book Reco

In response to message posted by MarketVVizard:
Read the book-- and also some reviews that go into Robert T. Kiyosaki's background. Despite all the hoopla, RTK made his money (maybe several millions-- but probably not even in the tens of millions) mainly by luck and good salesmanship. Another guy who made a fortune in real estate with no down payment. He got into Hawaiian real estate roughly about when the Japanese did, and made a bundle after a number of false starts, which he somewhat descrbes in his books.

So, he tells everyone that real estate is it, because that's where he made his bundle and that's all he really knows. At the moment, in case you haven't noticed, RTK has become an industry. He sells the books, courses, a financial game, etc. He has appeared on the TV talk show circuit. He is a good salesman, but I defy you to squeeze much concrete advice out of his books, except to buy and sell real estate.

As for the crash he is predicting, he is emphasizing that the IRAs and 401Ks have a built in clause that everyone must start withdrawing by 70 1/2 years old. So, by 2017 or so when the baby boomers start hitting 70 en masse, they will all cash in their stocks and that will be the end of the world. --Not to worry.

First, the Roth IRA does not have a mandatory withdrawal age. Second, the mandatory withdrawal at age 70 1/2 clause is not fixed in stone and can be changed with the stroke of a pen, and will be, in plenty of time.

Of course, he also doesn't like defined contribution plans or several other elements of ERISA. There is much truth in what he says, but what he says is simplistic and has been said before (many times) by other, much better writers.

-- posted by Normxxx

Top 373. Oct 8, 2003 8:49 AM

» MarketVVizard - Re: Re: Book Reco

In response to message posted by Normxxx:

I picked up the book with absolutely no background info on the author. I've never read any of the other books he has written, or any reviews. He is definitely a good salesman, you can quickly determine that. He is also cashing in bigtime from his books -- which is a warning sign. So maybe I'm being naive but I definitely appreciate the author's ability to make me think in new ways, and I like the fact that he and his mentor were/are very successful, apparently without sacrificing their values (whether it was luck or not).

I'm now about 120 pages (9 chapters) into the book and he still has not given a shred of investment advice nor has he mentioned real estate investing yet, so I guess I'll have to wait and see what he says. But I personally don't read books to pick up on specific investment advice and I don't think that was the intention of this book either. Too many people seem to be looking for a guru to tell them exactly what to do. Ironically the same people probably just glossed right over the point he was trying to make about those who seek security/sanctuary. Perhaps the book reached an audience it was really not intended or well suited for?

So far the author has mentioned a failed company that manufactured and sold nylon/velcro surfer wallets. I think the "lessons learned" that he shared about that experience were quite valuable (no need to rehash them here). He has also mentioned several successful businesses including something to do with commercial radio. The details are not relevant in my opinion, although they would make an interesting autobiography.

The only real estate related comments thus far have been a single sentence mentioning his wife being involved in real estate investing -- and that was only to illustrate the contrast between "one who invests" and "an investor". Again, if you thought this book was a "how-to" on successful entrepreneurship, or a Carlton Sheets infomercial type thing then maybe you had the wrong expectations? And if you get the idea that the author is recommending you go buy real estate without any investor education in that area of expertise, you probably were not paying attention.

The whole "generational" investing theme has certainly been done before, can anyone say Harry Dent lives!? It has been dissected and refuted by many (by the way, I think Dent's book "The Great Boom Ahead" -- published before he went pop, is a decent read, "The Roaring 2000s" is a complete waste of time). But I think the theme of an aging baby boom generation (with record setting obesity by the way) that is unprepared for retirement is quite real. Will the government do all they can to alleviate the potential problems? OF COURSE -- what do you think they are doing right now? Have you taken a look at the budget? Have you taken a look at what is contributing to GDP growth?

So what does all this mean for the stock market tomorrow or next week? Nothing. However the next 20 years should be fascinating. Personally I want to be ready for a catastrophic event, I also want to make money every year even if there is a huge cyclical bull rally (which by the way, this author is calling for). This may be a lofty, reckless, or impossible ambition, who knows...

I see flocks of foolish speculators back in the markets. Online brokers are fighting over the surge in daytrader volumes again. People are dumping money into analyst upgraded stocks again (how quickly they forget that the analysts are not there to make them money). The market is up huge and the "2 quarters away earnings recovery" that analysts have been predicting for the last 3 years has finally actually arrived.

What I see are a lot of people who haven't learned a thing over the last few years. Where will all this lead? You tell me.

-- posted by MarketVVizard

Top 374. Oct 8, 2003 7:10 PM

» Normxxx - Re: Re: Re: Book Reco

In response to message posted by MarketVVizard:

I agree with you, which is why I have about three of his books. There is usually at least one or several nuggets hidden in the general blurb. (The narrative approach is entertaining until you get used to it/tired of it.) Of course, being cheap, I usually wait until I can get them at discount or second hand.

As for what's ahead, history says that with this much money sloshing around in the economy, barring catastrophe, the markets must go up. The tip-off should be that the stock and the gold (and, until recently, the bond) markets were all going up together. But that's maybe for the next several quarters.

Beyond that, who knows? It may be Armageddon, but the doomsayers have regularly predicted Armageddon since I entered into the adult world, over 50 years ago. The secret to surviving is to stay nimble and have lots of contingency plans. Somehow, we always muddle through. My contribution to philosophy is "Never underestimate the power of any individual or group to 'just muddle through.'" Of course, sometimes they don't!

As for upside potential, I see the Dow as being psychologically capped at 10k for the forseeable future. The late '90s euphoria and delusion that drove the Dow over 10k is simply lacking at this time (but who knows how things will look in a few months).

As for the boomers (of which I assume you are one), I think you underestimate them. Yes, sadly, they will certainly have to make adjustments to their current lifestyle in retirement, but they will survive. Since the "baby bust" followed the boomers and health is so much better, I think you will see lots of folk working into their '70s and beyond. Note how cleverly the boomers made sure that he SS cap on earnings has been removed. (Also, given the high costs of providing health benefits, an oldster equipped with medicare makes a smart business choice.)

-- posted by Normxxx

http://www.themoscowtimes.com/stories/20...

Top 375. Oct 9, 2003 6:10 AM

» Austrian - Hegemonic Decay Revisited

Several months ago I stated that the US Dollar would probably lose it status as the dominant global reserve currency. Historically this has been a long a gradual process absent cataclysmic events (war, famine, pestilence, acts of God, Trojan Horse, etc.). History is full of examples of super powers in decay, from the Greek empire to the British empire. Many books have documented the process of imperial decay its symptoms, characteristics, and effects. I believe the United States has begun the process of decay, leading to a change in the value and perception of our currency. The reasons for this gradual change have been outlined by me in earlier posts and more eloquently by individuals who command global respect, Stephen Roach, Bill Gross, Dr. Kurt Richebacher, Marc Faber, Dr. Martin Weiss, Dr. Frank Shostack, Doug Roland, Jim Puplava, etc. I grant you that this is a minority opinion, mostly held by individuals who spout Austrian Economic rhetoric.

Evidence that the dollar is beginning to lose its dominance as THE global reserve currency abound, the latest is particularly troublesome due to the size of the economic value of the transactions recorded. This isn’t gloom and doom, or Chicken Little, it is merely part of the global economic landscape in which we live. I expect dollar dominance decay to accelerate as alternative currencies are tested and proven, and they will be proven, as their printing presses can make pretty paper just like US printing presses make pretty Federal Reserve Notes. Since no currency is backed by anything other than the faith of the issuer, once faith is established, look out! As this occurs, the most likely outcome is dollar depreciation, interest rates rising, and economic activity slowing until US spending and savings come back revert to historic norms (Austrian perspective). An additional likely outcome is the flight to hard assets, gold, silver, oil, natural gas, and commodities in general as I have posted previously. To fully justify this position is beyond the scope of this post. To understand this perspective, I would respectfully suggest reading the above named individuals over time as a basis for the conclusions presented here.

The story below, I have seen in multiple media outlets over the last couple of days, anyway you look at it, it spells trouble for the dollar.

German Sources Say Russia Might Price Its Oil in Euros

Combined Reports YEKATERINBURG, Ural Mountains -- Russia is increasingly looking at pricing oil sales in euros instead of dollars, reflecting the euro's growing role as a reserve currency, German government sources said Wednesday.

"The question is taking on increasing significance," a person travelling with German Chancellor Gerhard SchrЪder on an official visit to Russia said.

A switch into euros by Russia, the second-biggest oil exporter behind Saudi Arabia and holder of the world's largest natural gas reserves, would represent a major shift in the balance of currencies behind the world's most traded commodity.

European leaders have long expressed interest in seeing energy contracts priced in euros rather than dollars to promote the currency and boost price stability in the European Union.

Most energy contracts are settled in dollars, meaning that for European buyers, trade in gas and oil is subject not only to fluctuations in their market prices but also to variations in the value of the U.S. currency. In 1999, just after Vladimir Putin became prime minister, he laid out a proposal to move Russia's trade out of dollars and into euros.

A Russian Energy Ministry official said he could not confirm the report. "We cannot confirm this information. No talks are taking place on the issue. The ministry draws up export timetables, but does not deal with financial issues on oil supplies," the source said. (Reuters, MT)

-- posted by Austrian

Top 376. Oct 9, 2003 8:31 AM

» MarketVVizard - Net Generals make a comeback

"As for upside potential, I see the Dow as being psychologically capped at 10k for the forseeable future. The late '90s euphoria and delusion that drove the Dow over 10k is simply lacking at this time (but who knows how things will look in a few months)."

AMZN hitting fresh 52 week highs. At 57 its a 23 Billion Dollar company. Have they ever had a single profitable year? Won't be long before they reach the old mania market highs. Not long at all...

Amazing. And Yahoo up 10% today. I wonder if at any point investors will realize the point of owning a company is to have a claim on future revenue streams. If it takes 120 years to get your money back... eh, no one cares, chart says it's going higher. I do find it interesting that gold has done so well despite the market rallying so much. Flight to safety or the building in of inflationary expectations?

As for retiring boomers -- don't you think the strain on the government because of high medical costs and SS payouts will be a serious problem? Maybe they will work until 70 at Walmart and McDonalds but does that change the fact that there is a high probability for net outflows from our richly valued markets? This is the same point as the mandatory withdrawals at 70.5 -- I don't see how it matters if they even drop the mandatory withdrawal rule completely, seems to me the money is coming out one way or another. Flip side is that as long as foreigners are willing to pump money into our markets, we should be OK. I think there is a pretty good case against that assumption, and the falling dollar is evidence of this change.

-- posted by MarketVVizard

Top 377. Oct 9, 2003 4:46 PM

» Normxxx - Re: Net Generals make a comeback

In response to message posted by MarketVVizard:

It doesn't show up very well in the charts today, but there were substantial rebounds in the Dow in 1930 and '31, and even '32, before the final bottom. As one historian put it, "those who had cleverly saved themselves from the great '29 crash were subsequently wiped out in '30, '31, or '32, until even the cleverist were caught and none was left standing." The psychology is interesting. All of your "buy and hold" investors now are prepared to hit the exits whenever the next downdraft hits. They are now all much wiser and thanks to the "Bear of 2000," have graduated into "market timers!" They rely on such things as stop-loss orders and their own good judgement to get themselves out in time. We shall see.

From ACousins on the TA: Technical Analysis & Charting thread: "Yowsa, CACS just keeps chugging along with this bubblicious market. I love 1999!" I guess he thinks he can get out in good time when the bubble bursts. I don't mean to pick on him, maybe he can. But usually everyone holds on to get the very last drop and then they all hit the exits together. As Bernard Baruch said, "I am always too early."

God, you bring back memories! How do you expect to get payback from a stock that has no dividends? Try cashing in an earnings check! There has not been much correlation between stock prices and reality since our 18 year boom started (the last time dividends were actually around 5%, but nowhere near bond yields at as much as 18-20%). There was actually a time (the '50s, I believe) when stock dividends were compared to bond yields and the tangible risk premiun for dividends was 1-2% more for dividends. The only time anyone worried about earnings was when the earnings fell much below about 120% of payout and it was assumed the dividend would be cut. Track records for companies was the number of years they had paid a dividend, uninterrupted. The hallmark of an AAA+ company was one that had a long, uninterrupted string of steadily rising dividends.

Ah, well. Today, the only way you can get your money back out of a stock is to sell it to someone else (the greater fool?) Everyone forgets that it is an auction market and the value of a stock is precisely what someone else is willing to pay for it. It is not much different than a Rembrandt painting. If you cannot find someone else to sell it to, it is worth --precisely nothing. Now a bond must return your principle at a fixed future date. Just a little something Glassman and Hassett ("Dow 36,000") forgot about when they decided that stocks were less risky than bonds.

SS payments will be reduced through inflation. They will either continue to finagle the current CPI number, as they have been doing, or "freeze" the COLAs temporarily, or some such finagle. Health care will be increasingly rationed (what do you think the HMOs are for?) In the end, we will adopt "Universal Healthcare," which means that you'd better not get sick, unless you can afford a "private" doctor. Oh yes, stocks and housing prices will drop, and a lot sooner than 2011, when the boomers reach that golden age. The late boomers will have to wait until 2013 or so (full retirement at 67+). But by then, there probably will be precious little left of their defined contribution plans anyways (in that I agree with Kiyosaki). So, its continue working or starve. Not to worry, we will cope the way we did before the Golden Post WWII Age. But it was fun while it lasted. If we consider our massive trade deficit as tribute, we probably have outdone the Romans (relatively, of course).

If I knew why gold was going up (except that all commodities are going up), I would feel a lot better about investing in it.

Flip side is that as long as foreigners are willing to pump money into our markets, we should be OK. I think there is a pretty good case against that assumption, and the falling dollar is evidence of this change.

Foreigners will continue to pump in money as long as they think the market will appreciate and our economy pick up. They will accept the currency loss as a cost of doing business and hope it reverses (as it has in the past). The problem is, everyone knows that as goes the U.S. economy, so goes the world economy. China is still too small to make much difference; besides, they limit most imports, one way or another, except commodities.

-- posted by Normxxx

http://www.gloomboomdoom.com/marketcoms/...

Top 378. Oct 11, 2003 11:15 AM

» SouthPacific - the size of the Asian economies?

Interesting read by Marc Faber

MARKET COMMENTS 02-Oct-03

"Do economic statistics adequately reflect the size of the Asian economies?"
Marc Faber

Officially, the US has a GDP of about US$11 trillion, while China’s GDP amounts to US$1.1 trillion and India’s to about US$500 billion. Moreover, whereas the world’s GDP stands at about US$32 trillion and the advanced economies have a combined GDP of US$25 trillion (G7: US$21 trillion), the emerging Asian economies (including China and India, but excluding Hong Kong, Japan, Singapore, South Korea, and Taiwan - countries that are classified as advanced economies) have a GDP of just US$2.2 trillion. However, if we look at some production figures, it becomes obvious that the US economy is nowhere near ten times as large as the Chinese economy or more than 20 times the size of India’s GDP. Neither do the G7 countries have a GDP ten times larger than the emerging Asian countries. According to The Economist’s World in Figures 2003 directory, China ranks as the world’s largest producer of cereals, meat, fruits, vegetables, rice, zinc, tin, and cotton. It is the world’s second-largest producer of wheat, coarse grains, tea, lead, raw wool, major oil seeds, and coal, the world third-largest producer of aluminium and energy (measured in million tonnes of coal equivalent), and ranks between fourth and sixth in the production of sugar, copper, precious metals, and rubber. India ranks among the top three producers of cereals, fruits, vegetables, wheat, rice, sugar, tea (number one for the latter two), and cotton. Indonesia ranks among the top four producers of rice, coffee, cocoa, copper, tin, and rubber; while Thailand is the world’s largest producer of rubber, and Vietnam the world’s second-largest producer of coffee.

“So what?” some readers may think, since these are just commodities and thus are irrelevant in post-industrialized societies! However, if we consider that China is already the world’s largest manufacturer of textiles, garments, footwear, steel, refrigerators, TVs, radios, toys, office products, and motorcycles, just to mention a few product lines, and if we then add the industrial production of Japan, Taiwan, South Korea, and India, we get a totally different picture of the size of the Asian economies than is suggested by statistics based purely on nominal GDP figures, which don’t take into account the difference in the price level between different countries. In fact, statisticians, in order to account for the fact that in some countries the price level is far lower than in the Western industrialized countries (such as is the case for most emerging economies), have calculated the GDP level based on purchasing power parities (PPP). And while I have some doubts about the methodology of PPP-adjusted GDP figures, it is nevertheless interesting to see how large the emerging economies are when based on this measurement. Asia (including China, Japan, India, South Korea, Indonesia, Taiwan, Thailand, the Philippines, Pakistan, Bangladesh, Malaysia, Hong Kong, and Vietnam) has a PPP-adjusted GDP of US$14 trillion, which is 50% larger than the US’s PPP-adjusted GDP of US$9.6 trillion. In fact, by this measurement, Asia, in which we should probably also include Central Asia, Australia and New Zealand, as well as parts of Far East Russia, would be by far the world’s largest economic bloc. And while, as just mentioned, I have some reservations about PPP adjustments, in general I think that it is fair to say that the PPP-adjusted figures reflect a far more realistic picture of the size and importance of the Asian economic bloc with its 3.6 billion people (61% of the world’s population) than do the nominal GDP figures, which suggest that the US has a GDP ten times that of China.

One of the reasons why I have chosen to discuss the size of the Asian economies, their impact on commodity prices and on resource-based countries and basic companies aside is that if we compare the true size of Asia with the extremely low weighting some Asian countries have within the MSCI World Free Index, it becomes obvious that some big changes are likely to take place in future. The combined weighting of the entire Asian region with 3.6 billion people and the world’s largest economic bloc is just 3.4% excluding Japan and 12.1% including Japan! This low weighting of Asia compared to the US raises two important questions. Is Asia ex-Japan really worth around 5% of the world’s entire market capitalization (5% would include shares, which at present cannot be bought by foreigners), and is the US worth 11 times the Asian market capitalization ex-Japan? I, for one, doubt it! This particularly because of the low price level in Asia compared to the US and also because of Asia’s bulging foreign exchange reserves, which are approaching $ 2 trillion. Should the day come when Asians have more confidence in their own economic bloc (which I think will happen in the next few years), we could see a massive shift of assets from the US to Asia, with Asian financial assets and Asian currencies rising very strongly relative to US financial assets and the dollar. In other words, I think it is only a matter of time before Asian currencies and Asian assets, including real estate and stocks - will appreciate relative to US financial assets and US properties.

There is one further point worth mentioning. If an individual or a financial institution asked a traditional fund manager (who inevitably follows the index weighting quite closely) to invest their funds that have been allocated to equities, they would end up having more than 50% of their money in the US and just 11% in Asia including Japan, a region which, as I have explained above, is already the world’s largest economic bloc with 3.6 billion people and the world’s most favorable growth prospects (moreover, they would have a maximum of 5% of their money in Asia ex-Japan, with 3.5 billion people and which includes the world’s fastest-growing economies - China India, and Vietnam). He would also end up with less than 1% of his assets in combined China, India, Indonesia (the latter a country with the world’s fourth-largest population), Bangladesh (eighth-largest country), Pakistan (sixth-largest country), Thailand, and the Philippines. Somehow, I think that such an asset allocation, which implies that the index-benchmarked investor would own just 1% of a region which is inhabited by half the world’s population, simply doesn’t make any sense at all and exposes the absurdity of indexing as it is practiced today.

In fact, I believe that investors should allocate at least 50% of the money they invest in equities to Asia where valuations are far lower and growth prospects more favorable than in the US.

But, while I am very positive about Asia from a number of points of view (the size of the economy, growth potential, low valuations, and low weighting within the MSCI Index), I also have to admit that near term I am far less optimistic. I simply feel very uncomfortable about the US economy and the entire financial system, and feel that the US stock market has at best entered a sharp correction phase or may at worst, experience a crash - if not now, then following another brief bout of strength. And since the recent strength in the Asian markets has been driven largely by foreign buyers, a US stock market correction or, in the worst case, a crash would almost certainly spill over into Asia and lead to some pronounced weakness but not likely to new lows. It is for this reason that I have turned more cautious on Asia from a near term point of view. In the US, I am particularly concerned that rising interest rates will have a negative impact on the housing market and on financial stocks, which make up more than 20% of the S&P 500. Housing stocks, which have been formidable performers since 2000 (up fivefold), should from now on under-perform, as the decline in refinancing activity will slow down the industry. Moreover, the Philadelphia Bank Index appears to be tracing out a head and shoulders formation and financial shares such as Fannie Mae look poised to decline sharply. I may add that while financial stocks look likely to weaken in the US, in Asia financial shares appear to be strengthening. In sum, I like Asian assets including real estate and equities and I remain of the view that investors should avoid the US. Thus, you might consider hedging your Asian bets by shorting the US!

-- posted by SouthPacific