Financial Bloggers Need To Get A Life!

Many complain about the mainstream media in how they miss points, and how they keep looking at the bright side of things without seeing the dark side. Well, Bloggers need to get a life. For the most part I have completely ignored blogs like Mish’s, and How I Made My First Million at 33, and so on. And I have completely ignored Jim Rogers who seems unable to make a trade.

"I have no shorts for one of the first times in my life," Rogers, a co-founder with George Soros of the Quantum Fund, told Reuters TV in Singapore. "On the other hand I don’t see much to buy."

Well Jim, then you are not doing your job are you now! After all the name of the game in the fund industry is that you have to earn your keep. And right now after telling us that your previous predictions of impending doom and despair are causing you to do nothing? In other words your pessimism has caused you to become paralyzed! And this is the problem. Sure you can stay on the sidelines, and retail investors can afford that luxury, but Jim you are supposed to be the expert here, and you are supposed to offer guidance.

Zero Hedge (which I can barely endure) has an interesting viewpoint on how the “experts” are missing the numbers in a big way;

Personal income was out today and "economists" (the ones we trust to tell us how the economy is doing) were off by 600% in their estimates. Personal income was up 1.4% due to massive inflows of stimulus but what’s disturbing here is how wildly far off the "experts" can be. This is their job, they are supposed to have a clue! While boosting incomes for a month by 1.4% may sound great, what we really have is an indication that you can’t stimulate a dead cat as Personal Spending was up just 0.3% and the PCE came in at our own deflationary 0.1%.

Yes economists and the “experts” could not hit the broad side of a barn. I have known this for a while, and as such have ignored the experts. What I do is look at the numbers and they say we are slowly moving out of this recession. So while the experts can’t hit the broad side of a barn many many bloggers can’t get off the “the world is ending theme.”

Look, I do not like being negative. You do not like to hear negative things - this is human nature, we like to be happy. But this is seriously dangerous stuff people! If nothing happens then fine but please do not get all bullish as if nothing will. A major bank or a medium-sized country could default tomorrow and who knows who they owe money to who would also default and so on and so on. Very sadly, we’re going to have to do a weekend post on catastrophe protection because the VIX isn’t the only thing back to pre-Lehman levels. So is the level of economic idiocy….

Why are bloggers like this? Because it is an echo chamber. If you are a blogger then you are telling the “truth” and as such you will be sceptical of the media, and thus will only listen to other bloggers. And these other bloggers are spouting their version of the earth coming to an end. Thus the echo chamber resonates with negativity. And since the bloggers only trust each other they believe they are the only ones who understand what is going on. So here I say, “get a life!!!”

Maybe I am too optimistic, or too positive, but I as a rule in my investment style using psychology. And in this case people are getting tired of the constant drone of impending doom. It is not that they are spending like crazy, but they are living their lives. Yes some people have it hard, and some people are worried. But most people I have talked to are taking one step at a time. And maybe these bloggers need to do the same thing! And in Zero Hedge’s guest column regarding Japan, you as being my reader would have known that in my 2009 predictions (written in December of 2008) I said Japan would blow up and should be avoided at all costs. Japan is a unique case and its downfall is its own doing. And who is doing better? Oh yeah you as my reader would have known that as well, China!

As the retail investor what do you do? Because this market is not helping you in any way. What you do is digest the numbers step by step. My uncle who managed to take his medium sized business from bankruptcy to recovery told me one thing: “Take each day as a step, and take each step as a move forward. And with every move forward look at what worked and what did not work. Don’t try to solve the problem in one step because you can’t. And then several years down the road you will be grinning and wondering how you did it.”

In closing if any reader has any question on any of the numbers or questions about the market because they don’t understand a specific concept send me an email at christianhgross at gmail dot com. I will be more than willing to explain the concepts like the velocity of money, consumption curves, economic philosophies like Keynesian. Please don’t hesitate since I see lots of one sided arguments that could be easily discounted by knowing the theory.

Will There Be Another Jackson?

So I was reading this New York Times article, and it said the following:

But even if nobody achieves album sales on a Jacksonian scale, couldn’t he or she be an artist every bit as popular, every bit as loved, every bit as listened to?

Probably not. The pop-idol field — like every field that can lead to super-fame — is more crowded than it has ever been, and the variety of routes to stardom keep growing.

Oh give me a break! Want to know what lesson I learned in life? EVERYBODY, and I do mean EVERYBODY is replaceable. The sooner you learn that, the sooner you can get on with your life and make sane decisions.

I was 8 years old when Elvis Presley died, and I was in California at the time, or was it North Carolina? I don’t exactly remember, but I was living in the US. When the death of the King was announced it was a bombshell. For me it did not matter since I really did not know who Elvis was.

And now with the death of Jacko I am actually kind of lackluster about it. Not because he was not talented. Namely because at the height of Jacko I was a heavy metal head and well many of my friends had some very unkind words about him. Me I did not like his style, but I did understand the man had talent.

Jacko is indeed the King of Pop and he will be remembered. Just like the King of Rock and Roll, Elvis Presley is remembered.  Time will not take away from either of these kings because they will be remembered. But to say that there will never be another King is just downright nuts!

The following paragraph in my mind illustrates how the human mind filters out to support a narrative:

That’s why even Michael Jackson would have a hard time becoming Michael Jackson these days. Come to think of it, Farrah Fawcett, who also passed away this week, would never have become Farrah Fawcett if she showed up in that red, one-piece bathing suit today. In the ’70s, she became the fantasy of choice for every post-pubescent teenage boy in the country, selling 10 million posters of her iconic, high-beam smile. Now, there are so many vixens grinning seductively from so many Web sites and lad mags that no single woman could ever commandeer the public imagination in quite the same way. There is no “this year’s model” anymore. There is this week’s model, and that’s about it.

The flaw in this thinking is that somebody like Jacko would do the same thing he did back then today. You have to remember like Elvis, Jacko defined the era. And if Jacko were born today you could say he might define the next era of whatever that may be. Jacko was Jacko because of the times, and if here were put in another time period then he would be a reflection of that time period.

Now regarding the comment of Farrah Fawcett, well that is just plain not thinking, because there is one vixen who actually has replaced Farrah Fawcett. Drum roll, one guess here…  Pamela Lee Anderson! She was the quintessential babe of Baywatch that the ENTIRE world lusted for. Did you know that Baywatch was one of the most popular TV shows world wide! And I am guessing its because of the storyline!! Hint, Hint. Ironically she had a one piece red bath suit, just like Farrah Fawcett.

My point is that while Jacko was a goal post in the legacy of music there will be another superstar. What needs to be remembered is that super star might not appear for another decade! After all the King of Rock and Roll and King of Pop did set high standards.

So how does this relate to the stock market? Simple humans always tend to think, “oh things have never been this bad, or this is a new economy now” And whenever I hear those words I think, yupe we are about change track because the unexpected is about to happen! So when people say we are going to fall off the cliff and the world is going towards hyper-inflation I say take a deep breath look around and smell the roses.

Though I do hope Jacko finds his peace! God bless…

What Am I Investing In?

Oddly enough I seem to be getting quite a few requests asking, “so Christian what are you investing in?” Since the beginning of this year I have been advising my mother on her investment portfolio. Though she does give me quite a few good tips as well. She started investing again this year and her portfolio is up 95%!!!! For the past couple of years she quit, and this time she listened to me and my techniques.

So how do you get returns like this? First buy when nobody else is buying. Classic contrarian. Secondly, buy companies that have solid balance sheets, and/or solid visions for the future.

My current investment portfolio is very diverse, but my new positions are focused on two themes; Energy, and Technological Vision. And here is a list of stocks that I am either looking at, or have purchased. I will not do any further disclosure and if you follow my advice remember you need to do your own due diligence. Please note I add positions from American, and European companies.

• KTG Agar: A very interesting company that represents the industrialization of agriculture. Though they are not only interested in regular crops, but also organic. Organic foods is growing in leaps and bounds. Finally they are complimenting their business with renewable energy.
• PNE Wind AG: A company specializing in the production of renewable energies mainly wind energy. They not only create wind parks, but manage many of them themselves. Thus they get the benefit of creating windparks for clients, but have a constant revenue stream from their own windparks.
• Active Power: A company that specializes in energy storage using flywheels. Very interesting technology and ideas. Though the only thing that bothers me with this company is that they are growing, while not rebuilding their balance sheet.
• Energy Conversion: Another interesting company that specializes in the management of renewable energies. Though what bothers me with this company is that they are specializing in older rechargeable battery technologies. Though it is not completely irrational to see them adopt new battery technologies.
• Pfleiderer AG: A company that specializes in flooring materials. They are present throughout the world, and they have excellent laminat experience. For those wondering what laminat is, it is a wood floor that looks like wood, but is fake. We have it throughout our house. The advantage of such a flooring is that it is very durable and scratch resistant. In our case we have dogs and I remember our house with real hardwood floors. It was a mess of claw marks. The flooring is not necessarily that much cheaper, but better.
• Nanogate: A company that specializes in nano based technologies that makes sinks resistant to stains. Interesting technology.
• Altair Nanotechnologies: This company seems interesting though it just came on my radar and hence have little to say about.

I am also invested in the alternative energy ETF, and the mainstream energy complex converting to alternative energy ETF.

My thinking is that energy and new and interesting technologies are the wave of the future. With electrical vehicles, and more electronic devices that ever before we will have a voracious appetite for energy. And we are also on the cusp of new technologies that are possible due to computing power and the R&D that has occurred for the past decade.

If you want the bluechip companies of the future consider the mainstream computing companies. Companies like Google, or Yahoo, or even EBay are now going to enter a maturity phase where they will be the blue-chips of this generation. I am not doubtful of that. Though remember blue-chip means steady profits and value.

What would I avoid? Walmart, McDonalds, StarBucks, and so on. These companies are “fashion” companies. They are in their prime now and they will probably do ok. But give things some time things will not be as rosy. For example, I rarely eat at McDonalds. It is bizarre, but McDonalds has completely lost me as a client. I don’t know when it happened, but it did. StarBucks is the next one to go. I guess what I am saying is avoid companies that play to the traditional consumer.

I say avoid the traditional consumer plays because we are on the cusp of a change in direction of the consumer. The younger generation is much more global, much more aware of our footprint on this planet. And that is ringing in their ears. As such they will not adopt certain habits and I fear the consumer names that I gave will suffer as a result. Though I don’t know what names will be the names of the future since I am not a 14-18 year old. I am a new 40 year old. I suppose if you have teenagers have a good talk to them and ask, “so what are you buying?”

And lastly I am betting quite a bit on the main industrials because industrials are going to be completely indispensible! No way around them.

What If The US is Dropped as Reserve Currency?

I was asked by Bill:

How would “the USD being dropped as the global reserve currency” factor into your recovery predictions? and why?

First of all lets talk about the elephant in the room. Will the US be dropped as the global reserve currency? Yes! Will it be tomorrow? No!

The USD will always have a certain amount of importance because so many things are based on the USD, with an example being South America. South America does a very large part of it commerce denominated in the USD. They would not switch to the Euro since that would be a disadvantage for them.

Put it  in context. If Ecuador were to use the Euro as a basis then they would instantly become uncompetitive as an exporter. Thus as the USD weakens it only improves the ability of South America to export to non USD based countries. And with respect to each other nothing changes. And it is this aspect that you need remember when looking at the dynamics of the Euro. The fact that the Euro is strong does not matter to most of Europe and many countries that deal with Europe since they are based on the Euro. Currency only matters when you are in a situation where there two completely different systems (eg Europe and the America’s).

So the fact that the US could weaken in my opinion is not that big a problem, of course I am not hoping we will have 10 USD’s per Euro.

Now let’s get back to the reserve currency aspect. This actually could be a long term problem. There is simply too much money out and about. I can’t hide and say that this would not be an issue since it is apparent that it could be. The only real solution is the shrinking of the money supply by the American government and the Fed. This could be done by taking money out of the system, or by increasing the fractional reserve requirements.

Switzerland wants to institute a system where in good times fractional reserves will be much higher, and lower in bad times. A good approach because it gives the banking system the flexibility to build up reserves that could be used up in bad times. I think this is the best approach since it is very Keynesian.

Savings by American consumers is not going to help because you are just delaying the day of reckoning. Money needs to flow and when it is saved it is stagnant, but can be put to work again, meaning the money supply has not shrunk.

If the US mops up the currency excesses then the USD will do fine in the world, and it will be a currency like GBP, or YEN. Not the major currency, but also not the minor two bit player. Will the US mop up its excesses? The Fed yes, the government? Depends… I think Obama is quite aware of what is going on and I think he will do the right thing.

Overall I don’t see this a problem in the recovery of the US since I am thinking that the US will not be the major player in the recovery. I actually think that the US and the G7 are moving towards the G20 and that means who was important before is less important. As contradictory as it sounds I am actually hoping that the recovery in the US and Europe will be slower since that will assure that we don’t get a hyper-inflation scenario.

Recently I had a discussion with somebody on where to move to. The context was if you were a twenty something and had to start a career where would I go. My answer was India, Brazil, Russia, China, and not Europe or America or Canada. I know I talk about my brother and sister quite a bit, but with my sister in Ecuador, and brother in Russia I see how their lives are more interesting than my life Switzerland.

Summarizing, I am expecting the USD to be dropped over a period of time as a reserve currency and I am expecting that the recovery will not be strong in America. But that will be good for the world on the whole and requires that you look at the world when investing.

Microsoft Has Become a Zombie Corporation!

Disclosure: I had a Microsoft position which I unloaded at a slight profit due to the fact that I have lost complete faith in the current management of Microsoft.

I was surfing the web and every now and then I like to check the website MSDN.Microsoft.com. I check it out because I write .NET code, and I use Office in my solutions. So that I don’t confuse people to like .NET and C# quite a bit, and I like Office 2007, but my love of Microsoft ends there.

I use to be a Microsoft Regional Director (1997 to 2001) which meant I was a third party that evangelizes their technology. I quit being a Microsoft Regional Director because at that time I had a mid manager meeting where I said, “open source is going to present problems for you.” At the time I was listened to, but ignored. Though 8 years later Open Source has changed the development landscape to the determent for Microsoft.

Now I have another commentary and it is that Microsoft has become a zombie corporation. A zombie is something that has no life, and rambles from corner to corner uttering words that are unintelligible to most people. For example consider the following  article and another. Code words uttered that are unintelligible to anybody but Microsoft, and it is chasing the Nokia’s, Palm’s and Apple’s of the world.

This is what a zombie does and it is what Microsoft is doing. But why stop there. They announced and launched a new Zune player. The version is 3.0 and those that follow Microsoft know Microsoft gets the killer product at 3.0. At least they used to a decade past. The new Zune player is quoted as being the iPod Touch killer.

How else can you explain this statement from Chris Stephenson–general manager of global marketing for Microsoft Zune regarding the just-announced Zune HD (as quoted by CNET’s Ina Fried)?

"This device is created to go head to head with the iPod Touch."

Yet it is not an iPod touch killer. In fact it is a day late, and dollar short of being an iPod Touch Killer. So what is the problem here? Simple MANAGEMENT is too busy drawing little diagrams and slides on what technology will be created a decade down the road. Management is acting like a zombie as offered by the following comment.

An app store: One of the touch’s key features is Apple’s App Store. Microsoft sounds ready to launch something similar for games, but what about other applications? Seitz says that the company looked at the top 20 apps people used on the touch and found that most were games. Without a cell radio and constant Internet, this makes sense. The Zune team also wants to avoid duplicating work being done by the Windows Mobile team, and it doesn’t make sense to have two separate app stores.

This is completely misguided since the coolness of the iPod is not just games. The coolness of the iPod is the fact that it has the ability to do what the user wants. For me that is news, and data. Games is a third option. This is what makes the Apple portable device such a killer platform.

But the zombie bits don’t end there. I surfed to Jesse Liberty’s website and in particular I was interested in the article on how to teach a programmer. I actually disagree with Jesse since it is not about technology, but about solving problems. This is why Apple is so effective since it attempts to solve problems for a particular clientele. It is also why Oracle is doing so well in this market.

What bothered me is that I was constantly asked to install Silverlight. But when I did want to install I got a screen that said, “hey you are ok everything is installed.” I closed my browser, opened the browser, went to his page, and I got the same nag saying I needed to install the latest version of Silverlight. I had this problem in the past and this is why I ignore Silverlight. The fact that Microsoft has not solved this problem shows that they are more interested in pumping technology that actually solving my problems. For reference I have NEVER received this error with Flash.

I could go on, with examples being Vista, and a whole host of other technologies. It all boils down to the problem that Microsoft is a zombie corporation. Even as Goldman Sachs upgraded MSFT I would not touch Microsoft.

The bigger problem that I see with the share price of Microsoft is that too many Microsoftie’s want to sell! The moment MSFT moves up there will be selling pressure as people want to cash out. That is a train I want to avoid.

But Microsoft does not have to be a zombie corporation. In fact Microsoft has many things going its way. If I had to restructure Microsoft here is what I would do.

1. Ballmer is put in retirement. He is given his formal adieu’s and told to buzz off. I feel Ballmer is the major reason why Microsoft is a zombie corporation.
2. All of top level management is put under review for effectiveness. Effectiveness here is the ability to innovate and grow a business profitability. Those that don’t cut it are fired.
3. For the remaining management they are put under review for being effective in terms of innovation and building a business. Not all are fired, but are asked to focus on the new direction of Microsoft. 
4. 30% of tech projects are cut! It is an arbitrary number, but Microsoft has a dismal technology R&D record and they need to learn that you need to create useful technology. Examples being things like Oslo where to this day nobody can really explain what they are trying to solve and for whom it is useful. This is too nebulous. 
5. Microsoft needs to focus on the technologies that their Open Source people have been building. The Microsoft dynamic language runtime, IronPython, F#, etc people have generated real buzz and real interest with real solutions. Keep these folks going.
6. Make Windows client open source without any addons (eg IE, etc). Take the raw Windows operating system client and give it away under an Apache license with the catch that nobody can call it Microsoft Windows, but must call it [My Own Operating System]. While this will not bring in revenue it will ensure that Windows survives and thus ensures products like Office, and Visual Studio have revenue streams. Without this action Windows client might actually disappear and hence kill off the company called Microsoft. Because if Windows fails then so will all of the other products. Windows has become the liability.
7. Drop Windows Mobile, Zune, etc since these are loss leaders. Apple beat you, even though Apple had no cred. The mobile market is too difficult for somebody who walking around like a zombie.
8. Drop Windows Search like Bing. Yet again another example of not innovating, but playing catch up. Microsoft should buy out a company like Wolfram since they have a neat “search” engine called Alpha that has real potential.
9. Focus on Cloud Computing and its legal ramifications. Cloud computing is an unwritten slate where there is no single dominate player. Cloud computing allows Microsoft to leverage its server software as a service.
10. Allow the IIS/ASP.NET/SharePoint and Internet team to write to any operating system that they wish. This team is a winner! They are doing everything right, so why saddle them down with the anchor that has become Windows. Let them blossom.
11. Visual Studio/.NET/Dynamic Languages are winners as well and let them write for any platform they wish. No more focus on Windows.
12. Windows Server, SQL Server, Exchange should be allowed to do what they want. They are enterprise level software and as such should be allowed to focus on the enterprise and things like cloud computing, etc.

These recommendations are hard decisions, but if you look at IBM, Apple, and a host of other corporations that have survived they made those hard decisions. Compare that to the companies that failed to change and adapt. Those companies had dogma, and collapsed with examples being Wang, Apollo Computer, Digital Corporation, Sun, etc. The tech industry is littered with examples. 

As a final thought Microsoft should ask itself, “Is Apple and Google really scared of me?” The honest answer is a NO! I have been long enough in the industry to know that there was a time when NOBODY wanted to compete against Microsoft. No venture money would go towards corporations that said they had a better product than Microsoft. Those days are long gone. Now people just laugh and yawn when Microsoft comes out with their “killer” product. So you should think hard about buying Microsoft stock.

Would I change my opinion if Windows 7 does well? No…

My Debt Discussion Continues (Velocity of Money) Important!!!

Chris wrote to me the following comment:

Debt is the biggest issue facing us all.
I found this video on YouTube which really opened my eyes to the importance of getting out of debt: http://www.youtube.com/watch?v=50bWUrKAbwU
I am sure you will be as amazed as I was.

Chris, sorry to disappoint you, but I was not amazed. Not because what he was saying was not true. In fact he is saying the truth, but the fact that he is misleading the truth. What he is saying about getting out of debt and the fractional banking system is not entirely correct because he is missing the rest of the equation.

If you are wondering about missing the rest of the equation, go to Wikipedia and search for Simon Newcomb. What he did in 1855 was quantify an equation on the quantity of money of money. Quite an important equation actually.

His equation was as follows

MV = PQ

This says that the money and its velocity is equal to the prices of their products and their quantity.

You might think, velocity of money, HUH? Velocity of money refers to the term of how often money is cycled. Think of it as how often a dollar bill exchanges hands. If the dollar bill exchanges hands many many times then you have a high velocity, and if not well then you have no velocity.

The velocity of money is the key to any functioning economy and that is what was missed in the great depression. The velocity of money collapsed. But the fact that we do have a velocity is what causing people to have an over-sensitivity to hyper-inflation. Let me explain the equation.

First let’s say you have a money supply of say 100 USD, and let’s say that your current velocity is 1. This means multiplying the money supply with 100, and 1 gets you 100.

Second let’s look at the right side, if the product quantity is 10, then to fulfill the equality of the equation the price of the products will be 10 (10 times 10 equals 100).

With fractional requirements you increase the velocity of money since that same dollar is being recycled more often. So to make the equation balance you need to alter the right side and assuming you have a constant consumption the price would equal 20.

Now assuming you believe it was this easy you would say, “but Christian this is hyper-inflation”, and indeed this is exactly what everybody is talking about. So I don’t argue that the equation is right, and don’t argue that we could have hyper-inflation, but here is where I disagree.

I don’t believe the consumption of goods will remain constant. In fact I believe that the consumption of goods will increase, if you can get other countries to consume. But to get them to consume you need them to spend and soak up the dollars that they need. For that to happen you need traders to move out of currencies and into commodities. And that has happened quite effectively. The result is that those commodity based countries will get the excess currencies and spend them. This in turn will result in jobs for the west because there will be increased trade.

This is why I do believe so long as there is more consumption inflation will have a hard tie since in the west there will be a lack of ability to pay for the higher prices. A sort of buffer against inflation will be created where the west will slow things down.

Now let’s take the opposite approach. Imagine for the moment that you reduce the money supply and the velocity. You know no debt, no nothing. Then to make the equation meet up you would have to reduce the number of products that are consumed or their prices.

And it is at this point a devils circle begins. Since you are forced to reduce quantity or prices you are forced to lay off people, and thus have less consumers, who will consume less. My point is that the equation is a very fine scale that could get tipped either way towards depression or inflation. It is the task of the central bank to control the money supply and velocity.

So I am not arguing for uncontrolled debt. I am arguing for controlled managed debt. Because without debt our world would be very very different. And I don’t think for the better.

Ah Yes Let’s All Panic And Pullback…

The market is oh so predictable… I kid you not.

On April 6, 2009 I wrote the following email to Squawkbox Europe.

Me I think this will last till around June before we start pulling back slowly with no major selloff. Just dribs and drabs as the market and economy begins to recover…

So what gives, why is it that at the beginning of April I had a hunch? Why did I think we would go up till June? Answer is because the market is so predictable. I went back to the 1900’s ever since my original time frame was blown out of the water. And looking at all of that data what it showed me was that indeed we would have a run-up with sells offs until the fall. Though I am not making any predictions since I have not yet had time to digest the latest market data. Though I do think in the medium term we are headed up.

I guessed June because of earnings since right now all you see are green shoots, but no earnings and as such everybody thinks that selling right now is the thing to do. But there are green shoots and here it is:

Alberta Sand’s Shows Signs Of Life

But in recent weeks, Mr. Halbauer and many others in the province have noticed that the economy is slowly improving, especially in the northern half of Alberta.

“We are almost really busy. Work is rolling in,” Mr. Halbauer said.

Indeed, a run-up in oil prices and recent news that two oil sands projects, including Imperial Oil Ltd.’s $8-billion Kearl mine outside Fort McMurray, are going ahead has buoyed many.

As I have been saying time and time again the fact that commodity prices are going up is good for the world economy. Sure it sucks for the American consumer, but let’s face facts the American consumer is already under water and there is no chance that they will save the world economy. As I have been saying, it will be the combination of higher commodity prices, and world exports that will cause the world economy to jump start again.

I was recently talking a fellow Canadian and we both came to the conclusion that to a large degree Canada is being protected from the massive downturn. Sure Ontario is hurting, but the rest of Canada is doing ok.

What people need to remember is exactly an Albertan economist is saying:

But still, he’s optimistic that the province’s economy is headed towards “balanced growth,” instead of the recent boom that led to high construction and labour costs and housing prices.

“When we look at the decline here, it’s not as through we were declining from a normal growth path.”

This is the point, we are getting back to normal growth, and a normal economy.

So how do you play this market? Just as I have been doing for quite a while. Buy international corporate plays! Stay away from local market players because you will get burned. What this new century is showing is that we are about to start a truly global boom, a place where people are just people and we all begin to understand each other.

YES I am bullish! I am actually sad that I was not born a couple of years ago because I would truly love to see how this century ends. It will be exciting actually…

BTW I am not convinced that the American consumer is done for. I am just saying it will not be the American consumer that will lead this global economy out of the recession. Though it will be the American consumer that will give the additional kick of the global economy into higher gear.

Am I Missing the Point With the “Debt is Bad Argument”

Bill commented (and I have had others say the same thing)

this was not one of your better postings…I think you are missing the point about the debt-is-bad argument.

I don’t think I am missing the point and I will explain my thinking. You see this “debt is bad” argument in my opinion is the latest attack by people to bring down the market. And while many think that this is a conspiracy I actually work at a hedge fund, and am running the order book. This means I need to make money, and I need to quite a bit of money. Not 10 or 20%. Quite a bit more. Can I make my numbers? Yeah I think so! So if I am under pressure what do you think others are feeling? The same thing. And as a result I see things in a more cynical manner.

So how come I see the hypocrisy?

I want you to look at the example of the company TomTom. Look at their price movements, and their strategies. When things were good TomTom was a high flyer and their stock reached the 70’s. They made an acquisition of a Dutch company that makes maps. This purchase was an expensive one because they had competition from Garmin.

What needs to be understood is that this purchase was pushed by the investment banks as a way of building market share. And the investment banks just kept whispering sweet nothings into the ears of the TomTom founders. Though when TomTom managed to win the deal they had to come up with the money. Answer, they issued debt, which again was pushed by the investment banks as they sold the debt to investors.

Then we had a market crunch, credit crunch, what have you. Result? TomTom needs to be downgraded because they over bought. The analysts said that they had too much debt, and could go bankrupt. Who is saying this? The same investment banks that told them to take on the debt in the first place! When I saw these comments coming from the exact same investment banks that issued the debt I thought what a bunch of twits.

As a result the TomTom stock was pushed down to slightly over 2 Euros. This drop in share value makes the dot com bubble seem like a warm up. If I were one of the founders I would be angered that they have been left in a lurch by the same people who told them to what they did. So what does TomTom have to do? Issue stock, which in previous years would have been a VERY BAD thing to do. Who underwrites this? Investment banks!

So you see this “debt is bad” argument is an argument raised by people who want you to push companies into issuing stock so that they make more money. If you believe I am being cynical, do some research into TomTom and look at the players involved and what you will see will thoroughly disgust you.

I am not angry at these folks since this is the nature of the beast. But I will call a spade a spade.

Stepping back what I see is that the argument “debt is bad” is a fashion statement. It is something to pick at, because otherwise they might have say, “you know things are ok, not great, but ok.” I am not arguing for rampant out of control debt. Since that will lead into troubles. What I am saying is that people are yet again overdoing the argument. It reminded me of when Cramer said, “Oh you should buy high yield dividend companies since nobody would lower their dividend…”   Ooops they did drop the dividend.

I am not scared of debt and I am not scared of companies that have debt. What I want them to have is a vision since visions and execution is what drives a company forward. And in that execution debt is part of it. I also think debt keeps a company honest, just like mortgage owners tend to stay more focused than say people who rent.

What Is It With Peter Schiff and Taleb and Debt!

First up we have Nassim Taleb, who is crying wolf on how the government will fail us again.

"The way to restart everything is restructuring, conversion of debt into equity, convince people that debt is not good," Taleb said.

Gee Taleb, you are only 600 years late to the party!

DEBT MAKES THE WORLD GO ROUND BECAUSE WE DON’T LIVE LONG ENOUGH!

Here is Peter Schiff and his rant against debt.

They are ranting on how much debt there is and how we people should be savers? Really? We should? Wow, you are ONLY 600 YEARS LATE and you are making useless arguments. Because let’s talk about Christopher Columbus shall we.

About half of the financing was to come from private Italian investors, whom Columbus had already lined up. Financially broke after the Granada campaign, the monarchs left it to the royal treasurer to shift funds among various royal accounts on behalf of the enterprise. Columbus was to be made "Admiral of the Seas" and would receive a portion of all profits. The terms were unusually generous, but as his son later wrote, the monarchs did not really expect him to return.

Christopher Columbus relied on debt and funding to make his voyage to the America’s. He did not have the money, and he could not have saved enough to make his voyage.

How about the Louisiana purchase?

The American government used $3 million in gold as a down payment, and bonds for the balance to pay France for the purchase. Because of the impending war with Britain, French banks would not buy or market the American bonds. The American diplomats Livingston and Monroe therefore recommended the firms of Baring and Company of London and Hope and Company of Amsterdam for the transaction which France agreed upon. Because of their reputation as the two most stable financial houses in Europe and because Napoleon wanted to receive his money as quickly as possible, the French treasury minister Barbé-Marbois made arrangements with the two firms to convert the bonds France would receive into cash. After the American bonds had been delivered, the French government then sold them to Baring and Hope at a discount.

The reality is that debt is what makes our world go round. These examples are high profile corporations, or countries. But the type of debt is irrelevant, since it could be consumer debt, corporate debt or whatever other debt there is. Without debt nothing would work because we simply do not live long enough!

Think of it as follows. You want to buy a house and you have a limited pay. The most you would probably wait to live in your own house is 10 years. That means if you earn 100K and 30K is saved then the cost of a house has to be less than 300,000. If you earn 50K and can only save 10K then the house can cost at a maximum 100K.

The problem is that the cost of bringing a house to the market is more than that! Hence the price of a house is higher than you can afford. So that you don’t have to wait 20 years to be able to buy a house you get debt!

This is the core problem in that saving does not work for higher ticket items because the amount of time you get to enjoy that higher ticket item is quite a bit less.

So would you rather go into debt and enjoy a house for 30 years, or save, and enjoy the house for 10 years? Answer is 30 years, and that is why Taleb, and Schiff are completely misguided into believing that debt is bad.

Of course there is an argument to make regarding the total amount of debt, but that is not the argument they are making.

Taleb and Schiff as saying, “Debt is bad”, and that in itself is dumb!

Though I understand why Taleb and Schiff is saying what they are, “its cool and hip to go against debt since that the fashion of the moment.” After all it is a problem and hence we tend to listen to those who say what we want to hear!

How The Republicans Might Completely Self-Destruct

It is interesting to see, but I think the Republicans might actually self-destruct. Remember that the Republican party was the result of the whig party self-destructing. Though the question is can the Republican party self-destruct? Sure it can, after all the Progressive Conservatives of Canada are no more, Conservatives of the UK are a shadow of a party, and the SPD (one of Germany’s oldest party) is self destructing.

So what could be that watershed moment for the Republicans? The Fiat Chrysler deal.

Indiana’s state treasurer, Richard Mourdock, has objected to the deal. He oversees public pension funds holding $42.5m (£26m) of Chrysler’s $6.9bn secured debt, and he claims that a "foreign corporation" is unfairly benefiting from the Detroit motor manufacturer’s difficulties.

"Indiana retirees and Indiana taxpayers have suffered losses because of unprecedented and illegal acts of the federal government," said Mourdock, who is a Republican.

Of course you can argue America is a land of law and therefore they should have their day in court. While I agree on this principle, the additional issue at hand is that the law of the land is relative and depends on the mood of the people and the government.

Remember that the USA was a land where slavery was tolerated and that the idea of having segregated washrooms was actually a good idea. Even though one could argue that the constitution did not allow those things from the start. But America being America adapted, grew out of those habits and the country a better place to live. But that brings us to the question of having a day in court.

I agree that they should have their day in court, but are they ready to suffer the consequences? With every decision there is a good side and bad side. While Richard Mourdock argues that they would get more money in bankruptcy court I actually think otherwise.

The reason is because car companies by themselves have little value. There are already enough car makers and there is no car that the world absolutely has to have. Car plants are very specific things, as there are no general machines. Each and every car making machine is a custom piece of engineering for the car maker. I know because I used to design machines for the car makers. This means if you were to buy a seat making machine it would be for a particular car and make. You can’t just buy a seat making machine and hope that it works for another car. That leaves the question who on earth would buy a car making plant? Answer, NOBODY! Fiat is buying Chrysler it with no money down, and Magna only bought Opel with lots of money from the German government.

You might be thinking that I am a bit extreme, but I ask you to look at my track record of predictions in this scenario. In November of 2008 I said Fiat would be interested in Chrysler (nobody at that time would have thought that), and in March 2007 I also predicted that private equity would botch up Chrysler (which they did).

If the courts allow the appeal, Chrysler will go bankrupt, people will loose their jobs and the Democrats will point their fingers at the Republican party! So while the Indiana Republican Richard Mourdock might have won the battle he will most surely loose the war. Richard Mourdock might not even have the hallow victory because I am tempted to believe that he will get less money than now.

Again please do not mistake my blog entry as not wanting law and order. I am merely pointing out everything has two sides, a ying and yang, a double edged sword, etc…