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Dr Stocks' Investment Strategy
The EURO
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
FEBRUARY 2010
At its introduction a decade ago, the euro was not very popular, especially not in Germany. As it turned out, the European Central Bank (ECB) has managed the currency quite well, just like the Bundesbank did previously. But a strong currency is not a good thing for everyone. If you are used to living beyond your means, with easy money for the boys sprinkled around, you actually need a weak currency with good inflation to keep things cosy. A generous devaluation every now and then certainly helps. There should have been a big, cigarette pack-style warning sign on the euro: "Using this coin will make you lose your beloved printing press and thus end the easy life for you." Obviously Greece and a few others didn't think through the consequences of using a hard currency. Now they are facing some hard choices.
I don't think a default by Greece would lead to the end for the euro. If Orange County in California, or Chicago, or Idaho default on their bonds, it would not end the dollar. Let's assume we all used gold coins as our currency. What would it mean if some guys ran out of gold? Should we abandon gold then, and use sea shells, or paper instead? In fact, it's time to let everybody who can not manage his affairs properly, go bankrupt. The welfare state can not take care of all incompetents on top of the weak, old and lazy ones. In big European cities, more than 50% of the population is living on transfer and welfare payments. The pool of workers and employees who have to pay for all this waste and welfare is shrinking and getting angry. I say: liquidate the bloated welfare and waste and let the incompetents go bankrupt. In Greece's case that means: let the IMF handle it, they are the clean-up squad.
It is very likely that in the near to medium term speculators, who have smelled blood, will keep the euro under pressure. Therefore it might be advisable to keep a substantial part of one's investments in dollars for the time being.
Equities have not been great if you just held on to them over the last 10 years. They've gone nowhere. My guess is the next 10 years will be quite similar. Lots of ups and downs with a flat end result. I'm afraid that might be the lucky case. A worst case would probably look similar to Japan's: there, the market is down 75% over the last 20 years, and the future looks bleak. This is not a good time for "buy and hold". But I'd make an exception for some solid, dividend paying stocks like Nestle, Exxon, Pfizer and the like. Everything else needs to be watched carefully and has to be bought and sold on strict parameters. Some gold, at least 5-10% of a portfolio, should be kept regardless of short term noise. It's the one insurance that doesn't depend on somebody else's goodwill and solvency.
And finally: we have to come to terms with the fact that the US' and Europe's relative weight and importance are shrinking. 100 years ago, China had less people than Europe. In a few years, the middle class there will be bigger than the whole population of the old continent. But even China will suffer from an aging population, just like Germany, Italy, Japan and most other Western and North Asian countries. There will be, however, billions of young people in Africa, the Middle East and South Asia, most of them Muslim, for whom the old and still comparatively wealthy countries will be attractive destinations. This is already a fact, but we don't like it much, and we have no good solution for it. My advice is to think quietly about the long-term implications for all kinds of investments under that scenario.
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Just a short note
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
DECEMBER 2009
Following my last missive on gold: it's up 14% since then ( less than a month ) and it will probably go higher still. Compared to the deluge of paper money in the world gold is substantially undervalued. My raison du jour why I think gold is still on the up: as expected, President Obama has decided to send another 30,000 US troops to Afghanistan. This will cost the Americans about 30 billion usd p.a. and the total annual cost of the Afghanistan war is now well in excess of 100 billion. This is money the US doesn't have and eventually the Fed's printing presses will have to roll to issue more green paper. If the war would make any sense the sacrifices could be justified. But it makes even less sense than Vietnam did in the 60ies. Obama says: we were attacked from Afghanistan ( 9/11 ), but in fact nearly all attackers were Saudis, plotting from Hamburg, Germany. Obama seems to touch all the wrong buttons: in Israel he demanded an end to settlements and when Netanyahu ignored him he just let it be, in war matters he goes along with the generals' wishes, at home he subsidizes the fat cats of Wall Street and the dinosaurs in Detroit. His treasury secretary "Little Tim" Geithner has lost all credibility.
That's why gold is hot, very hot. Some may even get their fingers burnt.
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GOLD
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
NOVEMBER 2009
As I start writing this column, gold is trading at 1,065 USD per ounce. Where is it headed?
My answer, in short, is: further up.
Of course, there could be - and there will be - corrections from time to time, perhaps 5 or 10% down. But I personally am betting on gold, and my advice therefore can only be to do likewise.
Why am I holding gold at a time when inflation is not a current threat? Basically, there are two reasons.
First: Country by country, the developed world is slowly but steadily going bankrupt.
Official debt measured against GDP is approaching 80 to 100% in many places. If we include unfunded government obligations such as social insurance, pensions, healthcare etc., the level of debt approaches double the just stated figures. The fact is, nobody will be able to level such monstrous debt mountains without massive inflation.
Second: Banks in the US and Europe are still carrying trillions of dollars and euros in bad debt and a lot of paper assets floating around are basically toilet paper. Why should we lend out our money to potential deadbeats at ridiculously low interest rates? Why indeed?
I don't know where the gold price will be in 3 or 12 months from now, but I'll hold on to my stash at least for the next few years, if only to be able to sleep better during tumultuous times.
Regarding equities, I only repeat my observation that we are in a prolonged period of volatility, and this calls for alert trading. Buy the dips and sell the highs. There might be a major shock coming along at any time, therefore it's necessary to keep a relatively large cash pile for emergencies or as yet unforeseeable opportunities.
I don't buy the Chinese success story at all. In my opinion, it's just a bubble which has been created by the government's injection of a few hundred billion dollars into the economy. After most of the government stimuli there and elsewhere have been removed, the souffle will deflate again. I see 2010 as a very difficult year for most economies.
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A Chimera of a Recovery
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
SEPTEMBER 2009
While I'm personally on the road to recovery after my eye operation, with heartfelt thanks to all you well wishers, I strongly doubt whether the same can be said about the world economy. Yes, stocks are up 50% since the March lows, but this pleasant development was rather divorced from the soggy real economy and due more to boatloads of essentially free money which were printed by our central bankers and largely dispersed into speculative investments.
Isn't it ironical: we, the people, have borrowed too much over the last 20 years and need to reduce our debt burden. Our collective agent, the government, can not bear to see us suffer, and continues therefore borrowing on our alleged behalf. But instead of handing the extra money over to us to enable us repaying our debts or continue consuming, it shovels the money to zombie banks and deadbeat companies. It seems the problem of too much leverage is going to be solved through even more leverage, not of individuals this time, but of governments representing those individuals. Is this 21st century economics or a circus trick? You, Dear Reader, may decide.
The consumer, above all the US consumer, was the workhorse who pulled the economy along. This animal is now drowning in debt, his assets are worth substantially less than a year ago, his income is stagnant or falling, the bank won't lend him any more money and his job is shaky. These are obviously the ingredients of a swift recovery, judging from the avalanche of "good news" we are being fed every day.
Does that mean everything is bleak? Not at all. While I believe the economy is not yet out of the woods and may in fact soon deteriorate again, the markets offer, as always, some ways to profit. Overall, we will probably be in a sideways-down movement for many years to come. But within the trend canal, there will be multiple rallies and drops of 20% or more. Enough to make some money while the monkey is being chased up and down the tree. Of course it won't be easy to get the inflection points right, but one should try to catch and ride some of the coming waves. Buy and hold is not the recommended strategy now.
Which shares are being recommended? For trading purposes, some of the big banks are ok, they jump up and down like yoyos. If you must keep some long term money in equities, stick to blue chips in energy, consumer necessities and health care/pharmaceuticals. At least you can collect a dividend, if nothing else. Gold doesn't look exciting short term, but should be held as a worst-case insurance. In currencies, I have no strong opinions presently but I think the European Central Bank has done a rather good job so far and therefore I'd allocate some extra cash to euros.
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Heavy Weather
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
MAY 2009
The bulls were running hard since the lows we've seen in March. Frankly, I was surprised by the excessive strength we saw in some sectors, most notably in financials. In a way, I underestimated the determination of governments to throw unlimited amounts of money at the problem, and the complicity of central banks which have been busy in the printing department. Banks, insurers, car manufacturers, airlines, home owners: everybody is calling for and counting on a government rescue.
And it seems Mr. OB in the White House has nothing much against Big Government. Besides propping up every failing business of any size, OB also wants to introduce a costly health care plan, extend the war in Afghanistan, subsidize green energy and offer free apple pie to everybody.
Who will pay for all this? Why, big business and rich folks of course.
The present strategy could work if an economic recovery becomes self-sustaining quickly, and growth returns. But there are many more shoes to drop, in credit card and commercial loans for instance, and the hundreds of trillions of derivatives still floating around cast some shadow on the rosy picture. Money was being made available too cheap for too long, and a lot of questionable "investments" ensued.
This problem should actually not be tackled by throwing more free money around. But it looks as if most governments can't say no to anybody asking for help. In fact one group has been shafted badly: the secured creditors of Chrysler (and other big, soon to-fail companies). Bankruptcy laws have been cast aside in favor of government and union interests. This will have bad consequences for future corporate bond issues.
In order to avoid short-term pain we have mortgaged the (perhaps not so) distant future. My gut feeling is that it will all end badly. The house is being undermined, and, although it still looks ok when watched from a distance, it might collapse just suddenly. The real businesses of this world are still hurting badly. Just look at major Japanese companies: they are announcing billions in losses, from Toyota to Toshiba, from Sony to Hitachi. And elsewhere it's not much better.
Bottom line: the recent rally was fantastic, but it probably was just one of a few bear market rallies which appear during every protracted slump. Our best hope can only be to catch some parts of future rallies, bargain hunting and liquidating at opportune moments. Easier said than done, of course. But that's the way it is. In life, winning is not mandatory.
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The Iceman Cometh
BY MAG. DR. HANS-GEORG STOCKMAYR, LLP
MARCH 2009
My prediction right now is: we're going into a worldwide depression.
The main reason for this dire outlook is the complete failure of the Obama administration as well as most other governments to tackle the crisis on hand.
Obama, it's becoming clear, is a gifted speaker - with not many ideas of his own. His treasury secretary Geithner is more or less absent from the scene and everybody else is simply procrastinating. The only treatment which has been prescribed so far is the money shower: throwing money at each and every problem which appears on stage. Trillions are the new billions, deficits are exploding, states and countries are going bankrupt.
I hear recommendations to buy treasuries for safety, but I don't buy it. There is a not insignificant danger that the treasury markets might collapse under an onslaught of new paper. Banks are kept alive in intensive care, staring at us like zombie whoofs, unwilling and unable to lend money as required.
Unemployment will continue to grow everywhere, soon reaching double digits in the USA and higher still elsewhere. In this scenario the stock markets would have further to fall, house prices ditto and most everything else too.
If chaos and fear spread, gold should be one of the few refuges. But it has to be kept in a safe place, because bankrupt governments might be tempted to confiscate it as an act of desperation and "social justice".
Besides gold, I think some agricultural commodities such as wheat might do okay. Oil will also keep most of its (presently diminished) value. Other than that, I don't know and, while it might be tempting to pick up some seemingly cheap debris, it's hostile territory out there.
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