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Dr Stocks' Investment Strategy
A happy New Year
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
JANUARY 2012
After a disappointing and difficult 2011, we found some joy in the first trading days of 2012. Hopefully, it will last. I want to share my thoughts for the immediate future with you here:
The most important support for the market is the scaffolding of extremely low interest rates which is not going to be removed soon. Secondly, companies are doing generally well; they are cashed up and prepared to navigate through potentially difficult terrain.
China will not implode as expected by many pundits. The US economy will continue to grow moderately, usually a good condition for the stock market. The euro will not turn into confetti, banks in Europe will not collapse and any state or other body too big to fail will not do so. The opinion leaders in Europe and especially its successful businesspeople are fiercly backing the euro. That matters more than the guided opinions of large parts of the population which remain angry and confused.
I expect continuing tensions in the Middle East, perhaps a war between Israel and the US vs. Iran. The same interests which promoted the phony war in Iraq are aligned to do it again. Eisenhower's "military-industrial complex" needs a new war to justify and guarantee its trillion dollar allocation. If it happens, the dollar and gold will go up, along shares of Lockheed Martin, General Dynamics etc. The rest of the market will wobble, but eventually recover. Oil will explode, at least for a few days or weeks.
I'm not as optimistic about gold as I have been over the last few years. Even if base money increases due to "money printing", it's only about a tenth of overall money supply and won't matter much in the short to medium term (just look at Japan, if you doubt that). More importantly, banks are deleveraging and cutting balance sheets, states are switching to austerity mode and consumers are tight. The velocity of money, the speed it's moving through the system, is low.
Take all that and inflation is not the imminent danger. Down the road, in 3-5 years, that might change. If there's little danger from inflation and even the euro disaster of the second half of last year didn't push gold up markedly, why expect a bull market now? I keep my gold but I won't buy more - for the time being.
Finally, I stick with energy stocks (often recommended here) and add a few bucks into speculative counters such as banks, which have been totally bombed out.
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They Stand and Fall Together
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
DECEMBER 2011
Folks are upset when they hear that banks are being rescued while ordinary guys are discarded without hesitation.
The anger is justified, but it can't be helped. You see, the big banks all over the world are like segments of a giant roller coaster. If only one of those segments collapses, the whole coaster would become off limits, especially when nobody knows which part of the ride would fall off. One could improve safety by changing the design of the machine, but that takes time, especially when it has to continue running during the upgrade.
Central banks of the world are also connected at the hip and are the responsible guardians of the system, the roller coaster. They cannot allow the track to become unsafe, they have to stand behind the whole juggernaut. And because that is as it is, I expect no big bank to fail.
That makes for an interesting trading proposition:
Every other day some bad news or rumors are spreading, and the market tanks, most of all the financials.
Time to buy.
Unsurprisingly, the sky is not falling, central banks are easing, bank shares are rallying.
Time to sell.
This strategy is of course not suitable for everyone. One needs strong nerves, because the exact timing of tops and bottoms is impossible. There will be (temporary) losses, some entries and exits will happen too early. But, considering that bank shares have already been beaten down a lot, it could be worthwhile. It's hard speculation, but nearly everything in life is, too. Whom we marry, what job we choose, if/when/where we build a home - we'll only know years later, whether it was the right decision or not.
Even gold, the seemingly safest way to navigate the present circumstances is an essential gamble. We are, willingly or not, forced to choose, or gamble, and doing nothing is also a choice.
Finally, here is a famous statement of the US Fed boss, Ben Bernanke; he said "The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost." Congressman Ron Paul accused him of being engaged in a full time money counterfeiting operation. Be it as it may, money will definitely be created to save the banks (and governments).
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A Bunch Of Losers
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
NOVEMBER 2011
It's known that insurance companies pay out less than they take in. The beasts have to be maintained after all, and that costs.
The arrangement would perhaps be acceptable if the guys behind the marble columns were superior guardians of our money. Risk assessment is their daily bread, and investment management their calling. It turns out, however, that the insurance folks were trusting believers in long-running Ponzi schemes. They've placed large portions of their assets in government bonds which will never be paid. At least not in the same money which went into them.
It is unclear why experienced actuaries, statistics and maths wizards, ever assumed that states, which couldn't balance their budgets for decades, were somehow good debtors. It must have been an extreme example of swarm intelligence gone bad. Now one insurer after another admits to losing hundreds of millions, or even billions, of dough. Bad luck for their clients and shareholders.
What happened in the insurance realm is nothing new in banking. Boom and bust are familiar cycles. The same mistakes which killed banks since they existed are being made again and again. Insane leverage, term and currency mismatches are the eternal poison pills for aggressive bankers. Astonishing gaps in risk control are the icing on the cake.
Our conclusion from this state of affairs has to be to either to avoid both sectors completely, or try extremely short-term speculative dips into them. The volatility is tempting, like a surfers' paradise, with waves like giant barrels and plunging breakers.
We repeat our long-standing recommendation for solid blue chip stocks with good dividend yields. The precious metals position stays, too. Periodic profit taking after short surges is not a bad idea.
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Only One Way Out
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
NOVEMBER 2011
The Euro was the political price which the French President Mitterand demanded for Germany's reunification 21 years ago. The two main actors, Mitterand and Kohl, agreed on a common currency without understanding the basics of it, let alone the disasters it would entail. Now we have landed in a holy mess and if we don't find and accept the only feasible way out of it the Euro is doomed. Time is of the essence. Incompetent politicians have already wasted two years and we are moving ever more closely to a steep cliff and a hard fall.
The only way out of the terrible situation we find ourselves in is the monetization of a large part of European debt by the ECB. All of Europe is technically bankrupt because it is unable to meaningfully reduce its debt without placing the whole continent into a severe depression. Now, in order to deflect the two main arguments against monetization, moral hazard and inflation, here is our solution:
Instead of just forgiving a large part of Greece's debt and later on also Portugal's, Italy's, Spain's etc. we just forgive half of the debt of each and every Euro country. Nobody has to pay the debt of other countries, all benefit equally from debt forgiveness. Technically that will work through the purchase of about 3 trillion Euros of government-issued debt by the ECB. Immediate consequences of the announcement of such action should be: a gigantic rally in the debt, equity and commodity markets, a drop in long-term interest rates, especially for the weaker countries and a decline of the Euro exchange rate. The latter would definitely be welcome by European exporters.
In order to eliminate moral hazard all parties have to agree to follow a strict debt regime with severe and automatic sanctions in case of delinquency ( exclusion from the Euro zone ). This must be agreed before any monetization can take place.
As to the danger of inflation: While banks are shrinking balance sheets and consumers stay tight with their money there is no danger of inflation. Witness Japan and the USA which have printed tons of money without igniting inflation. Of course the danger of future inflation is real and the ECB shall be ready to act if that becomes necessary.
Our guess is that the above solution or variation of it will be chosen, but only after everything else has been tried and has failed.
That means the turmoil will continue for the time being. During such time the volatility is extreme, oscillating between hope and despair. It's a potentially good time for traders as we see movements of 20% or more within a few weeks. It's also very dangerous for inexperienced or overconfident folks. A quantity of them will be crushed and this itself will contribute to the chaos which only few can navigate successfully.
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A Safe Haven
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
OCTOBER 2011
Life is relatively easy - when you are in possession of a limitless credit card. At least it seemed like one. Our welfare state was built on it. But suddenly a whistle has been blown, credit is being withdrawn, and the wheels are coming off our shiny car.
Economists were always laughing when some simpletons compared governments to households and said: you can't run persistent deficits. Yes it's true, nations can increase taxes or crank up the printing press, but those actions have consequences. And they are not pretty. There's simply too much debt around nowadays, and there are only three choices before us:
1) Austerity and hard deflation.
2) Default.
3) Inflation.
Looking at these choices, and also at various decisions being made by our politicians and central bankers, it seems obvious we're headed towards choice number 3. Debts will be wiped out on one side of the balance sheet, assets and savings on the other. Before and while that happens, we'll have to spend some time in austere purgatory, just to make sure that the misery is really thorough. '
As if that were not enough, our governments are introducing new taxes - while real incomes are stagnating or even dropping. And the common currency of over 300 million people in Europe is in danger of collapse.
Yes, the house is on fire and the exits are not clearly marked.
We at XAM Capital Ltd. have managed wealth successfully for over a decade, and we are well equipped to steer through the coming storms. Many people will lose a lot of money in this turmoil. A few will be able to sail through, preserve and even add something to their wealth. In these uncertain times, trust becomes a rare and precious commodity. Trust to be in safe hands, and in a safe haven.
At XAM Capital Ltd., we are offering a safe haven to some old and a few new friends. As anybody can see from our results over the last decade, we have done well, always emphasizing low risk and high liquidity - while avoiding various bubbles.
Due to our philosophy and the nature of our setup we can only accept a very limited number of new assignments. Should you wish to explore possibilities, please contact us directly.
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Clowns and Undertakers
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
SEPTEMBER 2011
Do we have a situation here? And if so, can anything be done about it? In Italy, Cavaliere Cagliostro Berlusconi answers in the negative: Nothing much can be done, it's a shitty country after all, which makes him sick. Lowering the bar a bit more, he gives his assessment of Dear Angela: an unmountable horseass. There's some entertainment value in this opera buffa. Other than that, nothing much. To have money is better than having no money, and since we are now entering the age of less money, it's going to be less pleasant; perhaps a lot less.
The emperor has no clothes, the treasuries are empty, the entitlements are hollow.
Mountains of debt have to be dealt with. The choices before us are all hard. It's clear: somebody has to pay. But is it the taxpayers, the banks, the shareholders, the bondholders, the rich or, perhaps, us?
When chaos breaks out, gold shines. But beware of desperate governments, like F.D. Roosevelt's, which confiscated all privately held gold in 1933 and threatened anybody who kept his gold with a 10-year prison term. Conclusion: Bullion and coins are safer than certificates, as long as they are kept in a safe place, far away from our government grifters.
How safe are the banks? Today we read that Siemens has withdrawn all cash it had deposited with French banks. That is remarkable.
Many banks are dependent on emergency cash windows at the ECB. The ECB itself depends on swap arrangements with the Fed to supply European banks with needed dollars. The most likely scenario is an extended period of muddling through with emergency meetings, last minute rescues and an insane up and down in the markets.
A few will make money, wealth preservation is the priority, but many must lose.
We, at XAM Capital Ltd., are privileged to reside in Asia, and are trying our best to keep assets in relative safety.
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TURMOIL
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
AUGUST 2011
We are drifting through white water rapids, towards a waterfall. We don't know its height yet, and neither the dangers that are lurking at its bottom. We always knew that dangerous currents lie ahead, and we have written many times about them, in this space. We've advocated gold for years. Now's the time the ship is coming in.
There's been a divide between bad debt, owed by the southern European countries, and good debt, issued by the likes of Germany and the US. This is clearly shown by the interest rate differential between the two. In our opinion, the so-called good debtors are as - or nearly as bad - as the presently punished, "bad" ones. Most countries in the western hemisphere plus Japan have spent year after year, decade after decade piling up debts. None of it will ever be paid back. Whoever lends money for 5, 10 or even 30 years to a bankrupt government at ridiculously low interest rates, is a fool. Nearly every insurance company and pension fund belongs in that category.
Now, as previously "safe" government debt has been found to be toxic, most banks are facing insolvency. Panic is the worst possible outcome. We don't think it will come to that. The Federal Reserve in the US and the European Central Bank are in business to prevent such disasters. Pushed to the wall, they will run their printing presses day and night. Unlimited lines of credit can be extended to banks, and government bonds can be bought up at the flick of a button. The monetization of debt is likely, in our opinion. The manure will be spread around through fine nozzles in an Herculean effort to clean the Augean stables.
That means inflation is upon us. That's nothing new. Most people already experience inflation at least twice as high as officially reported. We've mentioned the statisticians' tricks a few times before. We expect gold to do well, still; however, the more parabolic its curve becomes, the more speculative it will be. There will be setbacks, trading opportunities for alert investors. Because of the steep falls in equity markets, we feel that good investment opportunities will evolve soon.
There's an old saying "Don't try to catch a falling knife", and there is some truth in it. Nevertheless, reward will only come to the bold (and prudent) man; that means to push the 'buy' button at certain times. Look at the overall strength of a company, its dividend yield, the desirability of its products as a guideline.
As said above, there is no panic - yet. If it ever occurs, all short-term bets are off (except gold, of course). But a river usually runs through a quiet stretch after passing mighty falls.
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