Oil prices have fallen 70% since hitting a record $147.27 a barrel in July, which means in just five months, crude has given up all the price gains it made in the past four years.
After such a wrenching plunge, many analysts believe the outlook for the “black gold” remains bleak - and in the short term it certainly is. In the long run, however, dwindling supplies, resurgent demand, and a lack of investment will cause crude oil to double, triple, or even quintuple in price over the next few years.
In fact, the Paris-based International Energy Agency (IEA) - energy advisor to 28 industrialized nations - says oil will rise to $100 a barrel by 2015, as a result of a major “supply crunch,” and will ultimately soar to $200 a barrel.
But before it does, prices are likely to sink even further, perhaps falling as low as $20 a barrel in the first quarter of the New Year.
Indeed, much of Wall Street expects oil prices to average about $50 a barrel in 2009. Some of the firms and their specific forecasts include:
Deutsche Bank AG, which says oil prices will average $47.50 for all of next year.
Merrill Lynch & Co. Inc., which predicts that prices will average $50 even.
Moody’s Investors Service also says crude will average $50 a barrel in 2009, but says that average will increase to $55 a barrel for 2010.
Goldman Sachs Group Inc. is slightly more bearish, predicting that prices will average $45 for all of next year - after falling as low as $30 in the 2009 first quarter. (It’s worth noting that Goldman - just five months ago - predicted oil prices would hit $200 a barrel in 2009).
But analysts also agree on something else: When the recessionary tide finally recedes, all of the factors that drove oil to its record high last summer will once again be exposed, and crude will again soar to record highs.
“We may see prices drop lower - into the twenties, even - but there’s a better-than-average chance that they’ll be back over $70 a barrel by the end of next year,” says Money Morning Investment Director Keith Fitz-Gerald. “That’s where firms like Goldman and Merrill are getting all of these ‘middle-of-the road,’ $50-a-barrel estimates. And it’s why investors who buy in through the first quarter could enjoy compelling returns at the end of the year.”
In the meantime, however, low oil prices are crimping investment in new capacity, a reality that will lead to much higher prices down the road.
Just ask the IEA.
IEA: Rising Demand + Lack of Investment = ‘Supply Crunch’
According to widely respected energy advisor, global oil demand will slide 0.2%, or 200,000 barrels per day (bpd), this year, falling to an average of 85.8 million bpd. But the IEA also says that oil demand will advance by an annual average of 1.6% between 2006 and 2030.
The bottom line: Regardless of any short-term pullback, daily demand will rise from the current level of 86 million barrels to 106 million barrels in 2030. In other words, daily demand in 2030 will be 23%.
To meet that demand, the agency estimates that the world needs $26.3 trillion in supply-side investments over the next 21 years.
China, India and other developing countries, alone, will need investments of $360 billion a year through 2030, the agency said.
About 7 million bpd of additional capacity needs to be added to the market by 2015. And right now - because of marketplace changes - the financial incentives to make that happen just don’t exist.
Exploration costs have more than quadrupled since 2000, as oil producers have been forced to take on more complex projects, and the costs of both labor and materials have skyrocketed. At the same time, the steep drop in oil prices has put even more pressure on energy companies to curtail their investments rather than increase them.
Earlier this year, for instance, ConocoPhillips and Saudi Arabia Investment Co. were forced to postpone bidding on the construction of a 400,000 bpd export refinery at the Yanbu Industrial City.
“We see and hear about energy investments being delayed … this is a major worry and could lead to a supply crunch and much higher oil prices than we’ve seen before,” said Fatih Birol, the IEA’s chief economist.
The IEA predicts that, by 2015, a lack of investment and rising demand will create a “supply crunch” - that will once again send oil prices up into the triple digits.
“There remains a real risk that under-investment will cause an oil supply crunch in that time frame,” the IEA said in an executive summary of its “2008 World Energy Outlook.” “The gap between what is currently being built and what will be needed to keep pace with demand is set to widen sharply after 2010.”
The agency predicts that crude will average more than $100 a barrel from 2008 to 2015and rise above $200 a barrel by 2030, as demand far outpaces supply.
“While the situation facing the world is critical, it is vital we keep our eye on the medium to long-term target of a sustainable energy future,” Nobuo Tanaka, the Paris-based agency’s executive director, told reporters in London. “While market imbalances will feed instability, the era of cheap oil is over.”
While it’s probably true that the “era of cheap oil” is in our rearview mirror, a new question has arisen: Just how high do oil prices go?
According to some analysts, the IEA’s target price of $200 a barrel is far too conservative.
$500 Oil?
The lack of exploration and development is certainly a problem. But a much bigger issue is the fact that output from the world’s existing oil fields has sharply declined.
“The future rate of decline in output from producing oilfields as they mature is the single most important determinant of the amount of new capacity that will need to be built globally to meet demand,” the IEA says.
And output from the world’s oilfields is declining faster than previously thought.
In its “2007 World Energy Outlook,” the IEA estimated that output from the world’s existing oilfields was declining by 3.7% a year. But in its latest report, published in November, the IEA revised that estimate to an annual decline of 6.7%. (The November report was based on the first major study of the world’s 800 largest oil fields.)
Unfortunately, the IEA is behind the curve.
For nearly a decade, Matthew R. Simmons has said that the world’s oil production was nearing - or already at - an “inflection point.” While his book “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy,” was scoffed at when it was originally published back in 2005, Simmons is now viewed as perhaps the preeminent expert on the so-called “peak oil” movement.
“Like most people who ignore conventional wisdom, he was scoffed at, ridiculed, and denied,” commodities guru Jim Rogers told Fortune magazine. “And now, of course, people are starting to say, ‘Oh, well, I thought of that.’”
Simmons, chairman of the Houston-based investment bank Simmons & Co. International, poured through hundreds of technical documents submitted by Saudi oil geologists to the Society of Petroleum Engineers over the past 50 years.
“I finished reading the last paper on a Sunday afternoon,” Simmons told Fortune, “and I sat back and thought, ‘Holy crap, this is unbelievable. I’ve just discovered the biggest energy illusion ever in the world. We’re in big trouble. I’m going to write a book.’ “
Much of the alleged Saudi Arabia subterfuge has to do with a complete lack of transparency with respect to the Organization of Petroleum Exporting Countries. After OPEC decided to base its production quotas on reserve figures in the 1980s, several of the cartel’s producers suddenly raised their levels of “proven reserves” by 40% or more.
Back in 1988, for instance, Saudi Arabia raised its proven-reserve figure from 170 billion barrels to about 260 billion barrels. That figure has remained more or less constant since then, despite the fact that billions of barrels of oil have been pumped out of the ground.
“Saudi Arabia has announced for 20 years in a row that they have 260 billion barrels of oil in reserve,” Rogers told Money Morning during an exclusive interview in Singapore recently. “It’s astonishing. The figure never goes up and it never goes down. They have produced dozens of millions - billions - of dollars of oil in that period of time.
“Every oil country in the world has declining reserves except Saudi Arabia,” Rogers said. ”And I know that every oil company has declining reserves. So unless somebody discovers a lot of oil very quickly in very accessible areas, the surprise is going to be how high the price stays, and how high it goes.”
Simmons thinks oil prices could hit $300 a barrel - and could possibly even surge as high as $500 a barrel - during the next several years.
“Black Gold” Profit Plays
When it comes to investing, the oil sector poses some very clear risks, especially given the murky near-term outlook. However, there are a number of large-cap integrated oil companies that may offer some truly compelling values at current prices.
Exxon Mobil Corp. and Chevron Corp. are currently trading at multi-year lows, making them exceptionally cheap in both relative and absolute terms. These companies also have strong balance sheets (Exxon is “AAA”- rated and has more cash on its balance sheet than debt), generate strong cash flows, and have traditionally increased their dividends on a regular basis.
Chevron was actually recommended as a “Buy” by Money Morning Contributing Editor Horacio Marquez in his “Buy, Sell or Hold” column earlier this year.
“Chevron is the kind of company that is capable of continuing to post large profits - propelling its share higher from current levels - even if oil-and-gas prices were to drop from current levels over the next three years,” Marquez said. “That’s because Chevron’s business is well cushioned, since refining, marketing and chemicals margins would expand dramatically if market ’spot’ prices were to decline. Also, the company’s production is poised to expand strongly and Chevron uses some selective hedging that works very well in downside oil markets.”
Offshore drillers, particularly those capable of drilling in the deepest waters, also offer value at current levels. Petroleo Brasileiro (PBR), also known as Petrobras, is particularly appealing, as it recently discovered one of the largest offshore oil fields on earth off the coast of Rio de Janeiro. Known as Carioca, the field could hold 33 billion barrels of oil and gas, making the world’s largest discovery in at least 32 years.
Fitz-Gerald, the Money Morning investment director, suggests investors look at China National Offshore Oil Corporation, or CNOOC Ltd. The Hong Kong-based company recently got approval for a $29 billion exploration project in the South China Sea. The company expects to produce 50 million tons of oil equivalent per year from that region during the next 10-20 years. That would equal the production of China’s biggest project, the Daqing Oil Field.
Petrobras and CNOOC are also attractive because, as foreign companies, they will also get a boost from any devaluation in the U.S. dollar.
All of these companies have been hit hard by the combination of commodity-price weakness and credit market turmoil. But these operators do not require peak-cycle commodity prices to generate stellar results and have little or no credit-market exposure.
For a more direct play on oil prices, you might also try an exchange-traded fund (ETF), such as the United States Oil Fund LP (USO), the iPath S&P GSCI Crude Oil Total Return Fund (OIL), or the United States Gasoline Fund LP.
[Editor's Note: As the whipsaw trading patterns energy investors have endured this year have shown, the ongoing financial crisis has changed the investment game forever. Uncertainty is now the norm and that new reality alone has created a whole set of new rules that will help determine who profits and who loses. Investors who ignore this "New Reality" will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive - they will thrive.
Saturday, April 18, 2009
How to Bank Real Profits by Bucking Wall Street’s Latest Fashion Trends
Investors who trade actively and are closely in touch with the ebb and flow of opinion on Wall Street have one enormous barrier to good investment performance: They will often be seduced by what’s fashionable – whether it be in terms of sectors, countries or individual stocks.
But in this market, as in all markets, it’s best to look at the unfashionable – sectors that are scorned or ignored by the market and countries whose stock markets have been beaten down by adversity. Of course, it’s difficult to do this if you constantly have an ear to Wall Street. Perhaps that’s why Warren Buffett’s bases his investment business in Omaha, Neb., not New York.
Fashionable investments can do very well in the short term. In 1998-99, you could have made a lot of money in tech stocks. In 2006-07, you could have made lots of money investing in China. If you were given perfect foresight, you could construct a successful investment philosophy around “momentum” sectors, buying whatever is currently “hot” and dumping it before the market turned. For most of us, there’s nothing more boring than an investment that just sits there.
The problem is that none of us have perfect foresight, and what’s worse is that we all have a tendency to believe what limited foresight we do have is better than it really is.
But if investing in fashionable sectors is pretty well guaranteed to give you worse returns than the market, then there must be some other strategy that will give you better returns, on average. After all, for every loser there must be a winner.
And while some of those winners are Wall Street insiders trading on privileged information – the Securities and Exchange Commission can’t catch them all – there is also reason to suppose that a winning investment strategy is to invest in sectors and countries that are actively unfashionable, in which the conventional Wall Street wisdom is to shun them, even on a “bottom-fishing” basis.
One example of this appeared in the banking sector a few weeks ago when Citigroup Inc. shares sold for less than a dollar.
During 2008, there had been innumerable attempts to rally the banking sector’s stock prices, mostly led by the same types of Wall Street operators who had caused the banks’ initial problem. But by February/March 2009, the hot money had stopped trying – either through bankruptcy or exhaustion – and Citigroup’s decline to $1, after several months languishing around the $4 to $5 level, was a pretty good sign that the pros had given up.
At that point, there were two possible routes for the unfashionable investor to take: Invest directly in the stocks that had been beaten down by buying Citigroup or Bank of America Corp; or go in the opposite direction, staying with the unfashionable banking sector but looking for the banks that were best run and had the fewest operating or asset problems.
The first strategy, if blessed with pinpoint timing, would have made the most money in the short run, no question. A buyer of Citigroup at $1 would today be sitting on a 300% profit in about six weeks.
However, that was a risky strategy. Citigroup could have been subjected to a government intervention that wiped out its shareholders. Further it was in no sense “value investing.” Even the bankrupt American International Group Inc. has risen five-fold from its nadir to $1.70, in spite of the fact that the government owns 80%, and would be due to receive no less than $150 billion before AIG shareholders got a penny in the case of a liquidation.
Indeed, investing in either would have been like gambling at a Las Vegas casino – fun when it works, but not if you might need the money.
But at the other end of the spectrum investment in banks such as U.S. Bancorp or BB&T Corp. made a lot of sense. I said as much in my late February review of the top 12 U.S. banks.
Those banks had made money even in the dire fourth quarter of 2008, and looked likely to continue making money going forward. They have powerful franchises in attractive regions of the country, and with short-term rates now much lower than medium term rates their new businesses should be exceptionally profitable. USB has risen 110% from its early March nadir and BBT is up 80%. And both were, and are, investments into which you could reasonably put a decent chunk of money.
Going forward, the banking sector is no longer unfashionable; analysts are waiting eagerly for first quarter figures and the results of the government “stress test” so they can pick winners. It is, however, more than possible that at some point in the future the current recession will once again cast a cloud over the banking sector, making it possible to invest while it is again unfashionable. If not, some other sector will be in the doghouse, and we at Money Morning will try and alert you to that event.
Another example, this time an international one.
In 1999, I was working as a banker in Croatia. NATO was engaged in its Kosovo campaign, dropping bombs on neighboring Serbia and Montenegro (with the occasional stray hitting Croatia, Bulgaria and Macedonia). Needless to say, the tiny Croatian stock market was itself “bombed out” and people were saying that the country was economically doomed.
That was obvious nonsense. Croatia has an exquisite coast and 5,000 islands, and when the neighborhood is free from explosions they attract tourists from all over Europe and beyond. So, I put my modest savings into Croatian shares – the least risky I could find; a medium-sized bank and a food company. Within a year, I had tripled my money.
Opportunities for unfashionable investment occur fairly rarely, but are more common in bleak economic environments like the present. When they occur, they can prove exceptionally rewarding.
But in this market, as in all markets, it’s best to look at the unfashionable – sectors that are scorned or ignored by the market and countries whose stock markets have been beaten down by adversity. Of course, it’s difficult to do this if you constantly have an ear to Wall Street. Perhaps that’s why Warren Buffett’s bases his investment business in Omaha, Neb., not New York.
Fashionable investments can do very well in the short term. In 1998-99, you could have made a lot of money in tech stocks. In 2006-07, you could have made lots of money investing in China. If you were given perfect foresight, you could construct a successful investment philosophy around “momentum” sectors, buying whatever is currently “hot” and dumping it before the market turned. For most of us, there’s nothing more boring than an investment that just sits there.
The problem is that none of us have perfect foresight, and what’s worse is that we all have a tendency to believe what limited foresight we do have is better than it really is.
But if investing in fashionable sectors is pretty well guaranteed to give you worse returns than the market, then there must be some other strategy that will give you better returns, on average. After all, for every loser there must be a winner.
And while some of those winners are Wall Street insiders trading on privileged information – the Securities and Exchange Commission can’t catch them all – there is also reason to suppose that a winning investment strategy is to invest in sectors and countries that are actively unfashionable, in which the conventional Wall Street wisdom is to shun them, even on a “bottom-fishing” basis.
One example of this appeared in the banking sector a few weeks ago when Citigroup Inc. shares sold for less than a dollar.
During 2008, there had been innumerable attempts to rally the banking sector’s stock prices, mostly led by the same types of Wall Street operators who had caused the banks’ initial problem. But by February/March 2009, the hot money had stopped trying – either through bankruptcy or exhaustion – and Citigroup’s decline to $1, after several months languishing around the $4 to $5 level, was a pretty good sign that the pros had given up.
At that point, there were two possible routes for the unfashionable investor to take: Invest directly in the stocks that had been beaten down by buying Citigroup or Bank of America Corp; or go in the opposite direction, staying with the unfashionable banking sector but looking for the banks that were best run and had the fewest operating or asset problems.
The first strategy, if blessed with pinpoint timing, would have made the most money in the short run, no question. A buyer of Citigroup at $1 would today be sitting on a 300% profit in about six weeks.
However, that was a risky strategy. Citigroup could have been subjected to a government intervention that wiped out its shareholders. Further it was in no sense “value investing.” Even the bankrupt American International Group Inc. has risen five-fold from its nadir to $1.70, in spite of the fact that the government owns 80%, and would be due to receive no less than $150 billion before AIG shareholders got a penny in the case of a liquidation.
Indeed, investing in either would have been like gambling at a Las Vegas casino – fun when it works, but not if you might need the money.
But at the other end of the spectrum investment in banks such as U.S. Bancorp or BB&T Corp. made a lot of sense. I said as much in my late February review of the top 12 U.S. banks.
Those banks had made money even in the dire fourth quarter of 2008, and looked likely to continue making money going forward. They have powerful franchises in attractive regions of the country, and with short-term rates now much lower than medium term rates their new businesses should be exceptionally profitable. USB has risen 110% from its early March nadir and BBT is up 80%. And both were, and are, investments into which you could reasonably put a decent chunk of money.
Going forward, the banking sector is no longer unfashionable; analysts are waiting eagerly for first quarter figures and the results of the government “stress test” so they can pick winners. It is, however, more than possible that at some point in the future the current recession will once again cast a cloud over the banking sector, making it possible to invest while it is again unfashionable. If not, some other sector will be in the doghouse, and we at Money Morning will try and alert you to that event.
Another example, this time an international one.
In 1999, I was working as a banker in Croatia. NATO was engaged in its Kosovo campaign, dropping bombs on neighboring Serbia and Montenegro (with the occasional stray hitting Croatia, Bulgaria and Macedonia). Needless to say, the tiny Croatian stock market was itself “bombed out” and people were saying that the country was economically doomed.
That was obvious nonsense. Croatia has an exquisite coast and 5,000 islands, and when the neighborhood is free from explosions they attract tourists from all over Europe and beyond. So, I put my modest savings into Croatian shares – the least risky I could find; a medium-sized bank and a food company. Within a year, I had tripled my money.
Opportunities for unfashionable investment occur fairly rarely, but are more common in bleak economic environments like the present. When they occur, they can prove exceptionally rewarding.
Thursday, April 16, 2009
美元贬值完美路线
对于"未来美元会贬值"表示疑虑的主要有两类意见。一种观点认为，去杠杆把美国的"影子银行"的信用机器彻底摧毁了，随着资产归零，包括经纪自营商、对冲基金、私人股本集团、结构投资工具和渠道、货币市场基金以及非银行抵押贷款机构将遭受灭顶之灾。
1999年克林顿的《金融服务现代化法案》通过后，美国的银行终于可以解除受《格拉斯-斯蒂格尔法案》长达65年的禁闭，堂而皇之地进入市场与投资银行们一争高下了。最近5年中，多数银行表外的规模往往是表内的3-5倍。花旗危机前表内资产7000亿～8000亿美金，而表外的规模或高达3万～4万亿美元。
赚钱的时候，大家都在表外享受泡沫的狂欢，一旦大祸临头，表外的损失是必须回到表内的，于是乎，灾难就从"影子银行"体系传递到了母公司（传统银行体系），就得资产减计，债务的压缩，信贷规模的紧缩，除了还债去杠杆，什么活也干不了。
所以你看到，即便当下联储资产高速扩张了一倍多（从2008年9月的9000亿美金上升至目前的1.9万亿美元），但货币乘数也掉了一半多，所以整体上信用规模并没有扩张，或还在收缩。
我同意，在"影子银行"得到有效清理之前，还会处于紧缩之中，与基础货币发行量互相抵消。未来美国信贷市场即便恢复正常，货币乘数肯定也回不到那个虚妄的繁荣时代的水平。但是我们不能拿现在极端不正常状态的货币乘数说事，现在是传统的金融部门都出现了恐慌，机构都窖藏货币不干活，随着政府兜住毒资产计划的实施，未来应该有一个从极端回复正常的过程。
如此，一旦市场向正常回归，传统的金融机构出来干活，货币乘数反弹，短时间内就可能是滔天洪水。因为货币当局回收流动性的操作远比释放流动性要困难得多。所以说，这种以泡制泡的方式能否成功，未来美元的前景，恶性通胀的前景，会不会是以更大的萧条，来结束这一切以恢复均衡（这时候，美元可能超强势回归，但世界可能已经是满目疮痍），的确令人深忧。
第二种观点认为，"数量宽松"开始在全世界央行蔓延，我们看到，除了美联储以外，英格兰央行、日本央行、瑞士央行纷纷开闸放水，即便是风格最严谨的欧洲央行恐怕也挡不住被一群数量型放松的央行所包围的压力，如果欧元因此再度升值，困境中的欧洲经济将雪上加霜。全球外汇市场的均衡可能是各国货币竞相贬值，在大家都放水的情况下，美元是否就一定贬值呢？
在我看来，有哪国货币当局放水能超过美联储呢？一国货币当局"数量放松"的力度取决于本国主权货币被外部世界所接受的程度，因为这决定了该国本身转嫁风险的能力，如果你滥发货币以后风险转不出去的话，那就是引火烧身。欧洲大陆国家，如德国法国，敢置国内的通胀风险于不顾，去采用过激的货币手段吗？
坦率地讲，只要美联储买公债，某种程度上讲，这就是毒品，沾上了就可能摆脱不掉，不论成败只能一条道走到黑。有一点是肯定的，处于太空中的美国债务率只有通过高通胀才能最终真正被降下来，美国人所有的政策是围绕它的债务在做文章，当美元真正贬下去了造成通货膨胀的时候，吸走的是外部世界的财富，因为美国是最大的债务人。当外部世界的储蓄率和财富掉下来的时候，事实上美国的负债率也就跟从太空安全着陆，美元资产获得了支撑，通货膨胀也就止步了，一个完美的自我平衡机制。
希望在这个通胀过程的实现中，美国人能抓紧时间找到带领世界经济进入下个长周期增长的"载体"（像上世纪80年代信息革命一样），用生产效率提速来填充日益膨胀的货币，否则世界将掉入滞胀的泥潭。这也算是美联储"数量放松"的功德了。
1999年克林顿的《金融服务现代化法案》通过后，美国的银行终于可以解除受《格拉斯-斯蒂格尔法案》长达65年的禁闭，堂而皇之地进入市场与投资银行们一争高下了。最近5年中，多数银行表外的规模往往是表内的3-5倍。花旗危机前表内资产7000亿～8000亿美金，而表外的规模或高达3万～4万亿美元。
赚钱的时候，大家都在表外享受泡沫的狂欢，一旦大祸临头，表外的损失是必须回到表内的，于是乎，灾难就从"影子银行"体系传递到了母公司（传统银行体系），就得资产减计，债务的压缩，信贷规模的紧缩，除了还债去杠杆，什么活也干不了。
所以你看到，即便当下联储资产高速扩张了一倍多（从2008年9月的9000亿美金上升至目前的1.9万亿美元），但货币乘数也掉了一半多，所以整体上信用规模并没有扩张，或还在收缩。
我同意，在"影子银行"得到有效清理之前，还会处于紧缩之中，与基础货币发行量互相抵消。未来美国信贷市场即便恢复正常，货币乘数肯定也回不到那个虚妄的繁荣时代的水平。但是我们不能拿现在极端不正常状态的货币乘数说事，现在是传统的金融部门都出现了恐慌，机构都窖藏货币不干活，随着政府兜住毒资产计划的实施，未来应该有一个从极端回复正常的过程。
如此，一旦市场向正常回归，传统的金融机构出来干活，货币乘数反弹，短时间内就可能是滔天洪水。因为货币当局回收流动性的操作远比释放流动性要困难得多。所以说，这种以泡制泡的方式能否成功，未来美元的前景，恶性通胀的前景，会不会是以更大的萧条，来结束这一切以恢复均衡（这时候，美元可能超强势回归，但世界可能已经是满目疮痍），的确令人深忧。
第二种观点认为，"数量宽松"开始在全世界央行蔓延，我们看到，除了美联储以外，英格兰央行、日本央行、瑞士央行纷纷开闸放水，即便是风格最严谨的欧洲央行恐怕也挡不住被一群数量型放松的央行所包围的压力，如果欧元因此再度升值，困境中的欧洲经济将雪上加霜。全球外汇市场的均衡可能是各国货币竞相贬值，在大家都放水的情况下，美元是否就一定贬值呢？
在我看来，有哪国货币当局放水能超过美联储呢？一国货币当局"数量放松"的力度取决于本国主权货币被外部世界所接受的程度，因为这决定了该国本身转嫁风险的能力，如果你滥发货币以后风险转不出去的话，那就是引火烧身。欧洲大陆国家，如德国法国，敢置国内的通胀风险于不顾，去采用过激的货币手段吗？
坦率地讲，只要美联储买公债，某种程度上讲，这就是毒品，沾上了就可能摆脱不掉，不论成败只能一条道走到黑。有一点是肯定的，处于太空中的美国债务率只有通过高通胀才能最终真正被降下来，美国人所有的政策是围绕它的债务在做文章，当美元真正贬下去了造成通货膨胀的时候，吸走的是外部世界的财富，因为美国是最大的债务人。当外部世界的储蓄率和财富掉下来的时候，事实上美国的负债率也就跟从太空安全着陆，美元资产获得了支撑，通货膨胀也就止步了，一个完美的自我平衡机制。
希望在这个通胀过程的实现中，美国人能抓紧时间找到带领世界经济进入下个长周期增长的"载体"（像上世纪80年代信息革命一样），用生产效率提速来填充日益膨胀的货币，否则世界将掉入滞胀的泥潭。这也算是美联储"数量放松"的功德了。
3到5年后不良贷款可能全面爆发
我们也许要转变观念,全球史无前例的主要央行联合发钞、联合托市的行为,扭曲了目前的资本市场价格,让大家沉醉于资产品价格短期反弹带动经济复苏的幻觉之中。而后,我们可能痛苦地从幻觉中醒来,发现必须扭转另一个观念,即违背市场有效性的价格上升,最终会让我们付出更为惨痛的代价。
金融危机是典型的例子。由于全球货币毫无节制的泛滥,一些经典理论如有效市场和股市收益好于债券等受到挑战,资本市场异常现象层出不穷:1971年至2002年美联储利率与按揭利率步调一致,到2002年至2005年期间却出现偏差,美联储从2004年开始加息以来,美国国债长期利率水平出人意料地长期低于短期利率。这是全球对于美国长期债需求过多导致,如此反常让资产证券化获得了沃土,出现高增长、低通胀的喜人局面,但最后一切归于尘土。
目前市场处于又一个异常阶段,短期的扩张政策带动资本市场反弹——上证综指今年一季度涨幅超过30%,H股略受小惠,上涨3%。美国股市从3月6日以来进入反弹区间,标普从3月6日的666.8上涨到3月26日的832.8,同期道指从6469.95反弹到8776点,黄金与美元同步涨跌更是醒目。避险资金进入任何可以避险的市场以求一逞。所有的资金都怀着矛盾的心态火中取栗,他们既不愿意放弃反弹的机会,又无法对需求不足视而不见。
这是经济滞胀出现之前令人欣快的短暂复苏,但最终我们会发现,增长的基础必须依靠企业效率的提高,市场会在短期的提振之后陷入长期的底部盘整状态。
我国股市业已被认为是稳定经济信心的基石,备受呵护,证监会两次辟谣新股IPO上市,创业板上市分流的资金被限制在最小范围之内,300家公司所吸纳的资金不及一个大盘股的说法四处流传。最让人振奋的当属3月份银行信贷增量可能超过2月份,突破万亿以上的规模。
刺激政策造成了不同的产品价格效应,由银行信贷和政策支撑的资本市场反弹市还在持续,国储收购的铜、铝等期货价格震荡上行,钢铁在短期上涨后跌回低位;为帮助大型炼化企业消化过剩产能,政府有关部门在提高油品价格后,又免征17%的出口增值税,帮助企业渡过危机。里昂证券发布的中国采购经理人指数环比下降,显示民企状况依然不佳。
两则新闻让人对于信贷扩张后的不良贷款率产生担忧。
3月末,上海液晶龙头企业上海广电集团因资不抵债被上海仪电控股集团公司托管,直接牵涉沪上至少8家银行的大额贷款安全。上广电和大小子公司的银行总贷款量已超过100亿元,两笔银团贷款超过50亿元,追逐大项目、国资项目的银行业几乎被一网打尽。技术更新跟不上、成本失控、国企效率低下、子公司关联担保等企业痼疾一一浮出水面。银行现在惟一的指望就是通过地方政府的托管、重组来盘活资产。
另一则新闻则是深圳国资委被指“封杀”兴业银行。2005年,当时兴业广州分行将深圳机场总经理崔绍先以骗贷罪告上广东省高院,深圳机场的主管部门深圳国资委据称曾对兴业银行深圳分行下了隐形封杀令,致使后者流失20余亿元国企存款。2009年3月初,深圳机场的上述官司败诉后,又使兴业流失30余亿元国企存款。不过,深圳国资委对此回应称,如有转出存款完全是企业行为,不存在所谓的“封杀令”。
如果说第一个案例印证了政府主导、支持的项目未必可靠,第二个案例则印证了在中国的信贷市场,银行面对国资处于相对弱势地位。行政主导的国有项目贷款、银行对政府信用的追逐,以及国资与银行之间剪不断、理还乱的维权关系,导致金融系统的隐性风险居高不下。银行内部人员也坦承,目前信贷结构极不合理,却无力改变。
银监会副主席蒋定之曾表示,我国GDP每降低1个百分点,银行不良贷款率将上升0.4个百分点。我国2008年GDP官方数据为9%,今年力保8%,截至2008年12月末,我国境内商业银行（包括国有商业银行、股份制商业银行、城市商业银行、农村商业银行和外资银行）不良贷款余额5681.8亿元。目前拜信贷扩张所赐,银行坏账率下降,等到三五年后贷款质量暴露之时呢？
相信到那时只有靠资产证券化来解决了,不良资产管理公司又有了大笔的生意。
金融危机是典型的例子。由于全球货币毫无节制的泛滥,一些经典理论如有效市场和股市收益好于债券等受到挑战,资本市场异常现象层出不穷:1971年至2002年美联储利率与按揭利率步调一致,到2002年至2005年期间却出现偏差,美联储从2004年开始加息以来,美国国债长期利率水平出人意料地长期低于短期利率。这是全球对于美国长期债需求过多导致,如此反常让资产证券化获得了沃土,出现高增长、低通胀的喜人局面,但最后一切归于尘土。
目前市场处于又一个异常阶段,短期的扩张政策带动资本市场反弹——上证综指今年一季度涨幅超过30%,H股略受小惠,上涨3%。美国股市从3月6日以来进入反弹区间,标普从3月6日的666.8上涨到3月26日的832.8,同期道指从6469.95反弹到8776点,黄金与美元同步涨跌更是醒目。避险资金进入任何可以避险的市场以求一逞。所有的资金都怀着矛盾的心态火中取栗,他们既不愿意放弃反弹的机会,又无法对需求不足视而不见。
这是经济滞胀出现之前令人欣快的短暂复苏,但最终我们会发现,增长的基础必须依靠企业效率的提高,市场会在短期的提振之后陷入长期的底部盘整状态。
我国股市业已被认为是稳定经济信心的基石,备受呵护,证监会两次辟谣新股IPO上市,创业板上市分流的资金被限制在最小范围之内,300家公司所吸纳的资金不及一个大盘股的说法四处流传。最让人振奋的当属3月份银行信贷增量可能超过2月份,突破万亿以上的规模。
刺激政策造成了不同的产品价格效应,由银行信贷和政策支撑的资本市场反弹市还在持续,国储收购的铜、铝等期货价格震荡上行,钢铁在短期上涨后跌回低位;为帮助大型炼化企业消化过剩产能,政府有关部门在提高油品价格后,又免征17%的出口增值税,帮助企业渡过危机。里昂证券发布的中国采购经理人指数环比下降,显示民企状况依然不佳。
两则新闻让人对于信贷扩张后的不良贷款率产生担忧。
3月末,上海液晶龙头企业上海广电集团因资不抵债被上海仪电控股集团公司托管,直接牵涉沪上至少8家银行的大额贷款安全。上广电和大小子公司的银行总贷款量已超过100亿元,两笔银团贷款超过50亿元,追逐大项目、国资项目的银行业几乎被一网打尽。技术更新跟不上、成本失控、国企效率低下、子公司关联担保等企业痼疾一一浮出水面。银行现在惟一的指望就是通过地方政府的托管、重组来盘活资产。
另一则新闻则是深圳国资委被指“封杀”兴业银行。2005年,当时兴业广州分行将深圳机场总经理崔绍先以骗贷罪告上广东省高院,深圳机场的主管部门深圳国资委据称曾对兴业银行深圳分行下了隐形封杀令,致使后者流失20余亿元国企存款。2009年3月初,深圳机场的上述官司败诉后,又使兴业流失30余亿元国企存款。不过,深圳国资委对此回应称,如有转出存款完全是企业行为,不存在所谓的“封杀令”。
如果说第一个案例印证了政府主导、支持的项目未必可靠,第二个案例则印证了在中国的信贷市场,银行面对国资处于相对弱势地位。行政主导的国有项目贷款、银行对政府信用的追逐,以及国资与银行之间剪不断、理还乱的维权关系,导致金融系统的隐性风险居高不下。银行内部人员也坦承,目前信贷结构极不合理,却无力改变。
银监会副主席蒋定之曾表示,我国GDP每降低1个百分点,银行不良贷款率将上升0.4个百分点。我国2008年GDP官方数据为9%,今年力保8%,截至2008年12月末,我国境内商业银行（包括国有商业银行、股份制商业银行、城市商业银行、农村商业银行和外资银行）不良贷款余额5681.8亿元。目前拜信贷扩张所赐,银行坏账率下降,等到三五年后贷款质量暴露之时呢？
相信到那时只有靠资产证券化来解决了,不良资产管理公司又有了大笔的生意。
为何穷人喜欢垃圾股
一项新的研究表明，彩民在进入股市之后，通常会选择像彩票一样的股票，即基本上像彩票一样只赔不赚。也许我们不应该只关注彩民，因为大部分股民中似乎都有一些这样的成份。
经典经济学是建立在理性人的假设之上的，但三十年来行为金融学的研究表明，人们并不总是做出理性决策。比如研究显示，人们从损失感受到的痛苦是从盈利感受到的快乐的两倍。这就使得股票投资者往往舍不得割肉，直到跌得不行了才割在地板上，同时获利股票又卖得太早。另外，人们倾向于给不太可能的事件赋予过高的价值，对平常事件赋予价值过低。他们欣然地飙车到机场，但却担心飞机起飞后是否会出事。
彩票中同时包含这两种倾向。损失很小而且可以提前预知，收益尽管可能性极低但金额巨大。正如纽约的彩票行销人员所提醒的，你所需要的只是一美元和一个梦想。由于人们对亏损的态度部分受其财富限定，彩票微不足道的成本对于那些经济状况不好的人尤其有吸引力。长期以来的研究结果表明，很大一部分彩票购买者都是穷人、年轻人、教育水平低的人和少数民族成员。
得克萨斯大学的阿洛克-库玛(Alok Kumar)在一篇论文中尝试将彩票和选股进行类比，该文将发表在今年的《金融杂志》上。他对彩票型股票的定义是这样的：价格低、波动大、历史回报率相当反常。利用从一家大型零售券商获得的数据，他报告了四个主要发现。
首先，机构会回避彩票性股票，但个人投资者趋之若骛。彩票型股票占整个市场权重的1.25%，占机构投资组合的0.76%，但占个人投资者持股的3.74%。
第二，库玛发现，那些生活在高收入人群附近的低收入人群更容易偏好垃圾股，似乎是攀比心理导致了他们无所顾忌地投资。
第三个发现是，彩票型股票每年收益率平均比普通股票低4个百分点。这样糟糕的结果几乎是第一点的一个必然结果。因为如果投资者配置过多的彩票型股票，这些股票就会比它们应该具有的价值更加昂贵。
第四个发现对所有投资者都很重要，尤其是现在。库玛报告说，当经济指标(比如失业率)变得糟糕，投资者就会大批买进彩票型股票。
如果说对彩票有兴趣的是那些经济上处于劣势的人，那么在道指从2007年10月高点下跌40%多以后，也许我们所有人的优势都减少了。但是要警惕那些低价投机股的诱惑，把赌博留给他人吧。价值型股票才是最有可能替我们挽回财富损失的手段，而不是那些垃圾股。
经典经济学是建立在理性人的假设之上的，但三十年来行为金融学的研究表明，人们并不总是做出理性决策。比如研究显示，人们从损失感受到的痛苦是从盈利感受到的快乐的两倍。这就使得股票投资者往往舍不得割肉，直到跌得不行了才割在地板上，同时获利股票又卖得太早。另外，人们倾向于给不太可能的事件赋予过高的价值，对平常事件赋予价值过低。他们欣然地飙车到机场，但却担心飞机起飞后是否会出事。
彩票中同时包含这两种倾向。损失很小而且可以提前预知，收益尽管可能性极低但金额巨大。正如纽约的彩票行销人员所提醒的，你所需要的只是一美元和一个梦想。由于人们对亏损的态度部分受其财富限定，彩票微不足道的成本对于那些经济状况不好的人尤其有吸引力。长期以来的研究结果表明，很大一部分彩票购买者都是穷人、年轻人、教育水平低的人和少数民族成员。
得克萨斯大学的阿洛克-库玛(Alok Kumar)在一篇论文中尝试将彩票和选股进行类比，该文将发表在今年的《金融杂志》上。他对彩票型股票的定义是这样的：价格低、波动大、历史回报率相当反常。利用从一家大型零售券商获得的数据，他报告了四个主要发现。
首先，机构会回避彩票性股票，但个人投资者趋之若骛。彩票型股票占整个市场权重的1.25%，占机构投资组合的0.76%，但占个人投资者持股的3.74%。
第二，库玛发现，那些生活在高收入人群附近的低收入人群更容易偏好垃圾股，似乎是攀比心理导致了他们无所顾忌地投资。
第三个发现是，彩票型股票每年收益率平均比普通股票低4个百分点。这样糟糕的结果几乎是第一点的一个必然结果。因为如果投资者配置过多的彩票型股票，这些股票就会比它们应该具有的价值更加昂贵。
第四个发现对所有投资者都很重要，尤其是现在。库玛报告说，当经济指标(比如失业率)变得糟糕，投资者就会大批买进彩票型股票。
如果说对彩票有兴趣的是那些经济上处于劣势的人，那么在道指从2007年10月高点下跌40%多以后，也许我们所有人的优势都减少了。但是要警惕那些低价投机股的诱惑，把赌博留给他人吧。价值型股票才是最有可能替我们挽回财富损失的手段，而不是那些垃圾股。
极度保守的投资风格并不妨碍你获得超越市场的回报
别被“最糟的一年”、“愚蠢的投资”等说法蒙蔽，2008年对于巴菲特来说绝非惨淡
当巴菲特发言，人们迷信——即使他在谈论自己的错误。
美国时间2月28日，随着这个时代最伟大的投资者发布其2008年度《致股东书》，几乎所有媒体和投资者都将目光放在了信中的两个定性之语上：这是巴菲特执掌伯克希尔·哈萨维公司以来“最糟的一年”，以及“2008年我做了一些愚蠢的投资”。
投资者和评论界似乎就此获得了宣判“股神老矣”的通行证。成功预言本轮经济危机中一系列连锁反应而被喻为“毁灭博士”的马克·法布尔在电视上称：“巴菲特买进后长期持有的方法论已经失效，这方法已经失效十年了，未来十年仍将失效。”而资本市场对于巴菲特的信任也跌至八年来最低谷：2009年伯克希尔·哈萨维的最低股价为70050美元，较之2007年底的高点148220美元跌去了53%，这一跌幅与道琼斯指数从2007年底14000点跌至今天的6544点相当。
的确，对于一名44年保持20.3%复合增长率的投资者，其公司净资产在一年间缩水9.6%（减少115亿美元），绝非佳绩。而在油价高峰时期买下了康菲石油公司5.7％的股份，致使年终时损失26亿美元，也确实堪称“重大错误”。但真到了将巴菲特请下神坛的时刻？
不妨将目光稍从巴菲特的错误上移开，随《环球企业家》一起仔细阅读最新这份《致股东书》，你会发现这很可能并非巴菲特“最糟的一年”，而且你依然能从中学到许多。
一如往常，《致股东书》的第一页是1965年以来伯克希尔哈萨维每年的净资产变化及标准普尔500指数的变化。2008年对应的两个数字都算得上难看：伯克希尔哈萨维的净资产缩水9.6%，而标准普尔500指数下跌了37%。但这意味着，巴菲特不仅在去年“跑赢大市”，其相对收益更是高达27.4%。更为有趣的是，这是过去44年中，伯克希尔·哈萨维超越标普500第七多的年份。像评判所有投资者时一样，人们衡量巴菲特的标准也并非他是否赚钱，而是他能否比整个市场赚得更多。而在过去五年，巴菲特与标普500的赛跑并未取得实质性的胜利：2003和2004年他分别落后对方7.7%和0.4%，即使2005至2007年超出了对方，也不过是1.5%、2.6%和5.5%的微弱优势。也就是说，自2003年全球经济复苏以来的本轮经济周期中，2008年是巴菲特表现最佳的一年。
历史上，巴菲特相对收益最高的年份是1977年，超出了标普500指数39.3%。接下来成绩最好的五个年份是1981（+36.4%）、1976（+35.7%）、2002（+32.1%）、1966（+32.0%）、1974（+31.9%）。值得注意的是，这些成绩通常发生于大熊市或经济危机之后的年份：2002年是美国在科网泡沫、安然丑闻和9-11事件后信心崩溃时期；1974年是上世纪仅次于“大萧条”最严重的熊市；1981年则是美国史上通胀及失业率最为失控的一年。这完全符合巴菲特在1960年对个人投资方法的一个总结：“在熊市中取得优秀的业绩，在牛市中取得平均业绩。”
不可否认，伯克希尔·哈萨维的净资产毕竟减少了115亿美元。但不妨思考下这一事实：在70年以来最严重的经济衰退中，作为一名投资者，巴菲特的损失竟然没有超过10%。当然，人们可以说，巴氏所秉承的价值投资原本就是一种轻股票价格、重真实价值的方法论，但这一成绩在所有价值投资者中仍是罕见的：在1974年的股市崩盘中，日后成为巴菲特搭档的查理·芒格当时操盘的私募基金损失过半，而另一个著名的价值投资机构红杉基金（并非风险投资公司红杉资本）则在1974年时更是险遭清盘。究其原因，无论当年的芒格还是红杉基金，都更倾向于选择那些比资本市场本身波动性更强的股票，以获得超额回报。
巴菲特的经验却证明了，极度保守的投资风格并不妨碍你获得超越市场的回报。或者说，影响你取得超常回报的并非保守的投资，而是错误的投资。
当巴菲特发言，人们迷信——即使他在谈论自己的错误。
美国时间2月28日，随着这个时代最伟大的投资者发布其2008年度《致股东书》，几乎所有媒体和投资者都将目光放在了信中的两个定性之语上：这是巴菲特执掌伯克希尔·哈萨维公司以来“最糟的一年”，以及“2008年我做了一些愚蠢的投资”。
投资者和评论界似乎就此获得了宣判“股神老矣”的通行证。成功预言本轮经济危机中一系列连锁反应而被喻为“毁灭博士”的马克·法布尔在电视上称：“巴菲特买进后长期持有的方法论已经失效，这方法已经失效十年了，未来十年仍将失效。”而资本市场对于巴菲特的信任也跌至八年来最低谷：2009年伯克希尔·哈萨维的最低股价为70050美元，较之2007年底的高点148220美元跌去了53%，这一跌幅与道琼斯指数从2007年底14000点跌至今天的6544点相当。
的确，对于一名44年保持20.3%复合增长率的投资者，其公司净资产在一年间缩水9.6%（减少115亿美元），绝非佳绩。而在油价高峰时期买下了康菲石油公司5.7％的股份，致使年终时损失26亿美元，也确实堪称“重大错误”。但真到了将巴菲特请下神坛的时刻？
不妨将目光稍从巴菲特的错误上移开，随《环球企业家》一起仔细阅读最新这份《致股东书》，你会发现这很可能并非巴菲特“最糟的一年”，而且你依然能从中学到许多。
一如往常，《致股东书》的第一页是1965年以来伯克希尔哈萨维每年的净资产变化及标准普尔500指数的变化。2008年对应的两个数字都算得上难看：伯克希尔哈萨维的净资产缩水9.6%，而标准普尔500指数下跌了37%。但这意味着，巴菲特不仅在去年“跑赢大市”，其相对收益更是高达27.4%。更为有趣的是，这是过去44年中，伯克希尔·哈萨维超越标普500第七多的年份。像评判所有投资者时一样，人们衡量巴菲特的标准也并非他是否赚钱，而是他能否比整个市场赚得更多。而在过去五年，巴菲特与标普500的赛跑并未取得实质性的胜利：2003和2004年他分别落后对方7.7%和0.4%，即使2005至2007年超出了对方，也不过是1.5%、2.6%和5.5%的微弱优势。也就是说，自2003年全球经济复苏以来的本轮经济周期中，2008年是巴菲特表现最佳的一年。
历史上，巴菲特相对收益最高的年份是1977年，超出了标普500指数39.3%。接下来成绩最好的五个年份是1981（+36.4%）、1976（+35.7%）、2002（+32.1%）、1966（+32.0%）、1974（+31.9%）。值得注意的是，这些成绩通常发生于大熊市或经济危机之后的年份：2002年是美国在科网泡沫、安然丑闻和9-11事件后信心崩溃时期；1974年是上世纪仅次于“大萧条”最严重的熊市；1981年则是美国史上通胀及失业率最为失控的一年。这完全符合巴菲特在1960年对个人投资方法的一个总结：“在熊市中取得优秀的业绩，在牛市中取得平均业绩。”
不可否认，伯克希尔·哈萨维的净资产毕竟减少了115亿美元。但不妨思考下这一事实：在70年以来最严重的经济衰退中，作为一名投资者，巴菲特的损失竟然没有超过10%。当然，人们可以说，巴氏所秉承的价值投资原本就是一种轻股票价格、重真实价值的方法论，但这一成绩在所有价值投资者中仍是罕见的：在1974年的股市崩盘中，日后成为巴菲特搭档的查理·芒格当时操盘的私募基金损失过半，而另一个著名的价值投资机构红杉基金（并非风险投资公司红杉资本）则在1974年时更是险遭清盘。究其原因，无论当年的芒格还是红杉基金，都更倾向于选择那些比资本市场本身波动性更强的股票，以获得超额回报。
巴菲特的经验却证明了，极度保守的投资风格并不妨碍你获得超越市场的回报。或者说，影响你取得超常回报的并非保守的投资，而是错误的投资。
Friday, April 10, 2009
The Problem with "Bear Market Rallies"
Of late, Mr. Market has seemingly begun to look a little more on the sunny side, instead of remaining moody and depressed which was his prevailing mood for the past 17 months. Just to remind, the Singapore Stock Market's index (STI) has risen in 4 straight weeks, with only 5 "down" days out of a total of 20 trading days (meaning 25% down, 75% up). Many may recall that it was only on March 6, 2009 when the Index hit a 5.5 year-low (of 1,456.95), after which it has so far rallied around 25% to its current level of 1,820.87. The sharp rebound has had many pundits and investors shaking their heads and rolling their eyes, and provided no end of amusement to the author of this blog (yours truly). I will proceed to explain why below, so dear readers, please be patient and read on.....
Interestingly, most analysts and economists who were interviewed were decidedly bearish and pessimistic. They pointed out (rightly so) that the economy had yet to bottom, manufacturing data was still weak, exports had fallen off a cliff and unemployment (in the USA and Singapore) was set to increase even further. Against such a bleak backdrop, how could rallies possibly sustain and how could Mr. Market be perceived as being more sunny and optimistic for an extended period of time ? The even more cynical ones point out that corporate results reporting season is due in a few weeks' time, and the probability of more companies reporting dismal earnings and lower profits would cause "reality" to sink in and give Mr. Market a blow in the face for being too exuberant. In short, there's nothing much to look forward to given that data, numbers, facts, figures and sentiment are so poor right now. Even if there was some hope that things were "bottoming out", these experts are quick to point out that more certainty needs to come along in the form of hard data to justify any cheer that the gloom is about to lift.
The above paragraph shows the distinct difficulty in what investors would term the "tricks" of Mr. Market. To quote a very over-used cliched line: "Bull Markets climb a wall of worry". This basically means that a bull market has to overcome an amazing load of negative news, all the while reaching for greater heights and overcoming adversity (and doubt). The greatest difficulty faced by pundits and seasoned experts who observe markets is in differentiating between a bear market rally (of which many occurred during The Great Depression) and the start of a genuine bull market (or even if not, at least an end to the current bear market). Understandably, the confusion often lies in the fact that no one can predict future turn of events well enough to state if economies will recover, and how soon that will be, and to what extent. Investors are also unaware if markets have priced in the most pessimistic scenario in terms of earnings growth and industry doldrums, and thus prices only have one direction to go in future which is: higher. This confusion and lack of clarity is the main reason which keeps investors from placing their money in good, high quality companies for fear that "the bottom has not been reached".
In order to adopt good value investing practices, one must identify suitable value and purchase at a price which provides a decent margin of safety. In the case of Mr. Market's moods, I have often used the STI as a rough barometer of sentiment, and thus have made my purchases on days when the Mr. Market is pessimistic, rather than when he is exuberant. The fear that "the bottom" is still out there does not make sense to me because I believe it is impossible to time the market - thus an investor should just look out for good value and purchase within his means. If we have evaluated a good company and understand its business characteristics and are confident with its prospects, we should feel comfortable buying at current depressed valuations. Too many people live with the perpetual fear that Mr Market's moods will determine if their investments will do well or badly, but then one must remember that it is his pocketbook which we have to take advantage of, and we must NOT be lulled by his schizoprehnic mood swings.
As long as one purchases with a value mindset, one does not have to care if a rally is a "bear market rally" or a "genuine rally". That is the focus and discussion for analysts, pundits and prognosticators who make a living out of predicting and commenting. They are fun to read and amusing to follow but offer no real value in terms of building wealth through the ownership of equities, as most of them are armed with a trading mindset to boot (e.g. sell into the next bear rally after prices have risen 10% etc). With the fricitonal costs relating to frequent trading, volatile market mood swings and the risk of getting whipsawed often by changing sentiments, I find it hard to see how most traders can consistently make money.
In adhering to my value investing principles, I have, of late, also learnt more about the way businesses and companies function during long periods of drought where financing dries up, as well as how companies cope with adversity (e.g. slashing selling prices, cutting costs aggressively by retrenching). It has been a good learning experience and I now understand businesses better than before and it will assist me in my evaluation of more companies to own in future. I am glad that I have managed to escape a severe permanent loss in capital through the concepts of value and margin of safety - it could have been a lot worse had I been speculating recklessly or if I had purchased "over-hyped" companies with flawed business models.
Interestingly, most analysts and economists who were interviewed were decidedly bearish and pessimistic. They pointed out (rightly so) that the economy had yet to bottom, manufacturing data was still weak, exports had fallen off a cliff and unemployment (in the USA and Singapore) was set to increase even further. Against such a bleak backdrop, how could rallies possibly sustain and how could Mr. Market be perceived as being more sunny and optimistic for an extended period of time ? The even more cynical ones point out that corporate results reporting season is due in a few weeks' time, and the probability of more companies reporting dismal earnings and lower profits would cause "reality" to sink in and give Mr. Market a blow in the face for being too exuberant. In short, there's nothing much to look forward to given that data, numbers, facts, figures and sentiment are so poor right now. Even if there was some hope that things were "bottoming out", these experts are quick to point out that more certainty needs to come along in the form of hard data to justify any cheer that the gloom is about to lift.
The above paragraph shows the distinct difficulty in what investors would term the "tricks" of Mr. Market. To quote a very over-used cliched line: "Bull Markets climb a wall of worry". This basically means that a bull market has to overcome an amazing load of negative news, all the while reaching for greater heights and overcoming adversity (and doubt). The greatest difficulty faced by pundits and seasoned experts who observe markets is in differentiating between a bear market rally (of which many occurred during The Great Depression) and the start of a genuine bull market (or even if not, at least an end to the current bear market). Understandably, the confusion often lies in the fact that no one can predict future turn of events well enough to state if economies will recover, and how soon that will be, and to what extent. Investors are also unaware if markets have priced in the most pessimistic scenario in terms of earnings growth and industry doldrums, and thus prices only have one direction to go in future which is: higher. This confusion and lack of clarity is the main reason which keeps investors from placing their money in good, high quality companies for fear that "the bottom has not been reached".
In order to adopt good value investing practices, one must identify suitable value and purchase at a price which provides a decent margin of safety. In the case of Mr. Market's moods, I have often used the STI as a rough barometer of sentiment, and thus have made my purchases on days when the Mr. Market is pessimistic, rather than when he is exuberant. The fear that "the bottom" is still out there does not make sense to me because I believe it is impossible to time the market - thus an investor should just look out for good value and purchase within his means. If we have evaluated a good company and understand its business characteristics and are confident with its prospects, we should feel comfortable buying at current depressed valuations. Too many people live with the perpetual fear that Mr Market's moods will determine if their investments will do well or badly, but then one must remember that it is his pocketbook which we have to take advantage of, and we must NOT be lulled by his schizoprehnic mood swings.
As long as one purchases with a value mindset, one does not have to care if a rally is a "bear market rally" or a "genuine rally". That is the focus and discussion for analysts, pundits and prognosticators who make a living out of predicting and commenting. They are fun to read and amusing to follow but offer no real value in terms of building wealth through the ownership of equities, as most of them are armed with a trading mindset to boot (e.g. sell into the next bear rally after prices have risen 10% etc). With the fricitonal costs relating to frequent trading, volatile market mood swings and the risk of getting whipsawed often by changing sentiments, I find it hard to see how most traders can consistently make money.
In adhering to my value investing principles, I have, of late, also learnt more about the way businesses and companies function during long periods of drought where financing dries up, as well as how companies cope with adversity (e.g. slashing selling prices, cutting costs aggressively by retrenching). It has been a good learning experience and I now understand businesses better than before and it will assist me in my evaluation of more companies to own in future. I am glad that I have managed to escape a severe permanent loss in capital through the concepts of value and margin of safety - it could have been a lot worse had I been speculating recklessly or if I had purchased "over-hyped" companies with flawed business models.
Thursday, April 9, 2009
全球通胀不可避免 股票投资是最佳出路
今天有一条新闻“联合国特别报告员说全球粮食危机尚未缓解”：联合国粮食权问题特别报告员奥利维耶·德许特6日说，尽管国际社会已采取一些措施应对全球粮食危机，但这一危机还没有缓解，今年的形势将更为严峻…他说：目前全球约有10亿人正处于饥饿状态或濒临饥饿状态边缘，平均每6秒钟就有一名儿童死于营养不良。受价格浮动以及气候变化等因素影响，2009年粮食危机将进一步加剧，其中贫穷国家受到的冲击尤为严重。
大家都知道我一直认为粮食等农产品存在危机隐患——供求紧张但价格偏低。因此，我自然觉得该联合国官员的看法是很清醒、很理智的。粮食的确是短缺的，联合国的粮食权问题专员不会欺骗我们。短缺还表现在全球的粮食储备处于30年来的最低水平。而造成粮食短缺的原因，自然气候因素当然是原因之一，但主要的还是人为因素，那就是近20年来世界各国错误的农业政策以及对粮食危机的漠视。在虚拟经济反客为主的时代，一个典型的后果就是粮食价格持续偏低，这才是粮食供给和储备不足的根源。现在，考虑人口增长、粮食生化能源生产不断扩大以及营养结构的变化等新增粮食需求因素，应该是“市场先生”奋起反击的时候了。
很多人不愿意主动承认和面对这个显而易见的事实以及已经近在眼前的危险，就象我们曾经不愿意承认过去的所有严重失衡一样。市场危机之所以屡屡发生，就是因为这个人类通病。
在今天的一个内部研讨会上，我清晰地表明了自己的观点：未来的全球通胀几乎是不可避免的！不承认这个结果，任何人都无法解释目前全球史无前例“无限量救市”资金的最终出路。这些被纯粹市场学派看来毫无意义却惊人庞大的资金注入，注定被分散沉淀在市场的各个角落，而无原则地救助本身只能延长私人经济部门本就无法有效缩短的休整和观望期。这甚至让我想起了农夫与蛇的故事。那些冻僵了的资本家们，终有一天要反咬一口，让善良的大众再次遭受致命的威胁。想想尚未过去的经济危机和以往几年资本家和资本市场的表现，我甚至敢打赌说：即使现在已经苏醒，他们也不会立即行动起来，因为贪婪的本性会驱使他们继续利用他人无知的善意隔岸观火、养精蓄锐。
在这个看似平静的阶段，一些叫做“政府”的牧羊倌们却还在极力营造祥和气氛，驱赶着牛羊们成群结队地进入猎物们的伏击圈。殊不知，那些虎视眈眈的虎狼之辈已经越聚越多，它们阴暗地躲在森林或山石的一角，虎视眈眈、蠢蠢欲动，耐心等待着人们放松最后的警惕。总有一天，虎狼们将咆哮而出，牛羊根本无所逃遁，就连牧童也奈何不得，弄不好，还会一起丢了性命。
我相信欧洲要求加强金融监管的声音发自肺腑、切中时弊，但是美国会放弃金融这个立国之本吗？欧洲的状况也比美国好不了多少，最终还不是有心无力？欧美国家为代表的无原则救助，实际上早已宣告了他们对于“市场”和“资本”的妥协，因为发达国家的政府无一例外地须要依赖资本和资本家才能得以生存和延续，还因为金融资本早已绑架了实体经济，令你不救不行，你不给他们空间，你就别无选择。
所以奥巴马鼓励别人买股票，所以奥巴马允许美联储加印美元，所以直到现在你还看到英国、澳洲等还在降息，而美国和日本的利率早已降无可降。
温家宝总理谈信心、看股市；在中国，官方实际上已经认可了经济增长高于一切，所以才会不惜代价，所以继去年12月的高增后，才有今年一季度贷款的“意外”猛增—今年1、2月份,银行业金融机构新增贷款分别达到1.6万亿元和1万亿元；票据融资则分别达到6239亿元和4870亿元，占当月新增信贷分别达到38%和45%；而3月份新增贷款或达1.8万亿元，同比增长约6.6倍。一季度贷款总额已经超过全年新增5万亿贷款的8成。即便从二季度开始控制，初步预计全年贷款增长仍有望增加到6万亿元以上(2007、2008年新增贷款分别是3.6万亿元和4.9万亿元)。实际上几乎所有官方机构都在刻意营造繁荣，当然这建立在“振兴经济和刺激消费”的共识之上。这与发达国家重点救助金融机构的思路并非一致，但制造未来流动性严重过剩的结果却殊途同归。
不出意外，未来的半年内，中国的利率仍有下降的必要——这最好赶在通胀之前，尤其是，高达15.5%的存款准备金率，会不断下行到10%以下。中期来看，则国民收入都有大幅增加的必要及可能，这是启动内需、经济转型的必要之举——光靠农民和农村市场是远远不够的。据本人了解，军队的工资最近又宣布上涨了，是近年的第二次上调。一个三级士官的月薪已经由其三、四年前的不足1千元，上涨到了目前的3千多元，而且还会发放一年的补差工资差。这说明，未来各界薪酬都有上涨的必要和可能。只能说，购买力将会越来越强，流动性还会越来越充足，曾经短暂冲击人们神经的通缩，已经大势已去了。综合来看，我们又如何能逃过未来的通胀之劫呢？
再来审视一下美元政策及其对通胀预期的影响。尽管由于弱势美元而使得美国遭遇了世界各国的一致指责，但是，我们至今几乎看不到美国有任何改弦更张的可能性。一个濒临破产的国家，必然会被迫把美元的铸币权用到极致。百年一遇金融和经济危机的客观环境，决定了“狗急跳墙”的事情随时都会发生。你站在一个饿极了的“狼”面前，还在幻想他不要吃掉你的牛羊，这似乎很不容易、很不现实。那么，美元的持续弱势和继续下跌应该是可以期待的——这取决于各国货币政策的跟进情况。而多数国际贸易品以及主要的大宗商品，中期来看，都无法改变美元标价的事实。美元已经充斥全球，还注定要继续放水。美元下跌了，商品价格不涨，这合理吗？智商最差的人，都知道买入产品和资产保值。下一轮的通胀仍然主要是美元的货币现象，其他国家的货币政策，作用有限。
有一个反对通胀预期的思路是：当经济走出低谷之时，假使各国开始回收多余的流动性，那么，通胀就会被遏制。这话看似有理，然覆水难收。我反问一句：工资上涨容易还是下降容易呢？还有一句中国的古话，叫做：“从俭入奢易，从奢入俭难”。什么意思？很明显，就是回收流动不是没有必要，但是其回收难度可想而知。即便回收，也不会像全球救市一样达成如此广泛的一致和高效。因此，个人判断，未来各国遏制流动性的任务十分艰巨，因此对未来通胀的影响很小，至少是缓慢或滞后的。
由此再反观粮食等农产品价格，你就会发现，超级流动性这个“烈火”正在无限接近总量短缺而价格偏低的粮食市场这个“干柴”，一个新的危机正在酝酿之中，形势几乎是一触即发。可怕的是，似乎没有任何因素可以阻止这一切的发生。
曾经的原油、铁矿石和有色金属，都曾经涨到了天价。遗憾的是，经济学家们不承认这是“通货膨胀”，虽然它确实是供求关系和美元货币双重因素共同引发的实实在在的通货膨胀。因为全世界研究通胀的专家们，眼睛都只盯着那个不但滞后而且本来已经很不重要的CPI。由于粮食价格低迷，加之中国廉价制造品充斥世界，导致了CPI在过去几年时间里都无法及时给这些僵化的家伙们报警，这是导致全球各国都对金融危机疏于防范的理论根源。未来的粮价一旦开涨，将成为推动CPI指数的强劲动力，所以CPI将还给这些人一个公平，让他们看到“实实在在的通货膨胀”。
粮食价格是未来通胀的先锋。所以英明的中国政府已经派员检查粮库了。李克强说：部分粮库可能存在空仓现象；而且，去冬今春以来粮食主产区遭遇50年大旱，夏季粮食生产存在不确定性。人们还在等待，等待空仓的事情被曝光，其实，有也未必曝光。为什么说有呢？因为囤粮一直就不是个“合算”的事。问题的根源在价格上、在过往20年的老观念上。夏粮到底会减产多少呢？无法定量分析，因此也不下结论。至少，增产的局面难以维持了，这就是危险的信号，足以打破脆弱的平衡。除非谎报军情，不过，那样做的危害会更大。
目前的种种迹象还表明，中国有望成为全球的投资热土，未来的外部流动性冲击对防范和抑制通胀，构成又一个不容乐观的因素。
毕竟不是一家一国的事情，粮食市场是世界性的，发令枪不知道最终会发自哪里。是福是祸，全看应对之策。不过，同样的等待，有些人习惯于为了不确定性而等待；而有些人，则为了确定性而等待。
有人说：恶性通货膨胀真的就无以逃避了吗？非也。
去看看投资大师们的忠告吧：“上帝制造了通货膨胀这个坏蛋，也留下了股票投资这条活路。历史证明，上帝庇佑了那些在灾难中持有股票的人们。”
大家都知道我一直认为粮食等农产品存在危机隐患——供求紧张但价格偏低。因此，我自然觉得该联合国官员的看法是很清醒、很理智的。粮食的确是短缺的，联合国的粮食权问题专员不会欺骗我们。短缺还表现在全球的粮食储备处于30年来的最低水平。而造成粮食短缺的原因，自然气候因素当然是原因之一，但主要的还是人为因素，那就是近20年来世界各国错误的农业政策以及对粮食危机的漠视。在虚拟经济反客为主的时代，一个典型的后果就是粮食价格持续偏低，这才是粮食供给和储备不足的根源。现在，考虑人口增长、粮食生化能源生产不断扩大以及营养结构的变化等新增粮食需求因素，应该是“市场先生”奋起反击的时候了。
很多人不愿意主动承认和面对这个显而易见的事实以及已经近在眼前的危险，就象我们曾经不愿意承认过去的所有严重失衡一样。市场危机之所以屡屡发生，就是因为这个人类通病。
在今天的一个内部研讨会上，我清晰地表明了自己的观点：未来的全球通胀几乎是不可避免的！不承认这个结果，任何人都无法解释目前全球史无前例“无限量救市”资金的最终出路。这些被纯粹市场学派看来毫无意义却惊人庞大的资金注入，注定被分散沉淀在市场的各个角落，而无原则地救助本身只能延长私人经济部门本就无法有效缩短的休整和观望期。这甚至让我想起了农夫与蛇的故事。那些冻僵了的资本家们，终有一天要反咬一口，让善良的大众再次遭受致命的威胁。想想尚未过去的经济危机和以往几年资本家和资本市场的表现，我甚至敢打赌说：即使现在已经苏醒，他们也不会立即行动起来，因为贪婪的本性会驱使他们继续利用他人无知的善意隔岸观火、养精蓄锐。
在这个看似平静的阶段，一些叫做“政府”的牧羊倌们却还在极力营造祥和气氛，驱赶着牛羊们成群结队地进入猎物们的伏击圈。殊不知，那些虎视眈眈的虎狼之辈已经越聚越多，它们阴暗地躲在森林或山石的一角，虎视眈眈、蠢蠢欲动，耐心等待着人们放松最后的警惕。总有一天，虎狼们将咆哮而出，牛羊根本无所逃遁，就连牧童也奈何不得，弄不好，还会一起丢了性命。
我相信欧洲要求加强金融监管的声音发自肺腑、切中时弊，但是美国会放弃金融这个立国之本吗？欧洲的状况也比美国好不了多少，最终还不是有心无力？欧美国家为代表的无原则救助，实际上早已宣告了他们对于“市场”和“资本”的妥协，因为发达国家的政府无一例外地须要依赖资本和资本家才能得以生存和延续，还因为金融资本早已绑架了实体经济，令你不救不行，你不给他们空间，你就别无选择。
所以奥巴马鼓励别人买股票，所以奥巴马允许美联储加印美元，所以直到现在你还看到英国、澳洲等还在降息，而美国和日本的利率早已降无可降。
温家宝总理谈信心、看股市；在中国，官方实际上已经认可了经济增长高于一切，所以才会不惜代价，所以继去年12月的高增后，才有今年一季度贷款的“意外”猛增—今年1、2月份,银行业金融机构新增贷款分别达到1.6万亿元和1万亿元；票据融资则分别达到6239亿元和4870亿元，占当月新增信贷分别达到38%和45%；而3月份新增贷款或达1.8万亿元，同比增长约6.6倍。一季度贷款总额已经超过全年新增5万亿贷款的8成。即便从二季度开始控制，初步预计全年贷款增长仍有望增加到6万亿元以上(2007、2008年新增贷款分别是3.6万亿元和4.9万亿元)。实际上几乎所有官方机构都在刻意营造繁荣，当然这建立在“振兴经济和刺激消费”的共识之上。这与发达国家重点救助金融机构的思路并非一致，但制造未来流动性严重过剩的结果却殊途同归。
不出意外，未来的半年内，中国的利率仍有下降的必要——这最好赶在通胀之前，尤其是，高达15.5%的存款准备金率，会不断下行到10%以下。中期来看，则国民收入都有大幅增加的必要及可能，这是启动内需、经济转型的必要之举——光靠农民和农村市场是远远不够的。据本人了解，军队的工资最近又宣布上涨了，是近年的第二次上调。一个三级士官的月薪已经由其三、四年前的不足1千元，上涨到了目前的3千多元，而且还会发放一年的补差工资差。这说明，未来各界薪酬都有上涨的必要和可能。只能说，购买力将会越来越强，流动性还会越来越充足，曾经短暂冲击人们神经的通缩，已经大势已去了。综合来看，我们又如何能逃过未来的通胀之劫呢？
再来审视一下美元政策及其对通胀预期的影响。尽管由于弱势美元而使得美国遭遇了世界各国的一致指责，但是，我们至今几乎看不到美国有任何改弦更张的可能性。一个濒临破产的国家，必然会被迫把美元的铸币权用到极致。百年一遇金融和经济危机的客观环境，决定了“狗急跳墙”的事情随时都会发生。你站在一个饿极了的“狼”面前，还在幻想他不要吃掉你的牛羊，这似乎很不容易、很不现实。那么，美元的持续弱势和继续下跌应该是可以期待的——这取决于各国货币政策的跟进情况。而多数国际贸易品以及主要的大宗商品，中期来看，都无法改变美元标价的事实。美元已经充斥全球，还注定要继续放水。美元下跌了，商品价格不涨，这合理吗？智商最差的人，都知道买入产品和资产保值。下一轮的通胀仍然主要是美元的货币现象，其他国家的货币政策，作用有限。
有一个反对通胀预期的思路是：当经济走出低谷之时，假使各国开始回收多余的流动性，那么，通胀就会被遏制。这话看似有理，然覆水难收。我反问一句：工资上涨容易还是下降容易呢？还有一句中国的古话，叫做：“从俭入奢易，从奢入俭难”。什么意思？很明显，就是回收流动不是没有必要，但是其回收难度可想而知。即便回收，也不会像全球救市一样达成如此广泛的一致和高效。因此，个人判断，未来各国遏制流动性的任务十分艰巨，因此对未来通胀的影响很小，至少是缓慢或滞后的。
由此再反观粮食等农产品价格，你就会发现，超级流动性这个“烈火”正在无限接近总量短缺而价格偏低的粮食市场这个“干柴”，一个新的危机正在酝酿之中，形势几乎是一触即发。可怕的是，似乎没有任何因素可以阻止这一切的发生。
曾经的原油、铁矿石和有色金属，都曾经涨到了天价。遗憾的是，经济学家们不承认这是“通货膨胀”，虽然它确实是供求关系和美元货币双重因素共同引发的实实在在的通货膨胀。因为全世界研究通胀的专家们，眼睛都只盯着那个不但滞后而且本来已经很不重要的CPI。由于粮食价格低迷，加之中国廉价制造品充斥世界，导致了CPI在过去几年时间里都无法及时给这些僵化的家伙们报警，这是导致全球各国都对金融危机疏于防范的理论根源。未来的粮价一旦开涨，将成为推动CPI指数的强劲动力，所以CPI将还给这些人一个公平，让他们看到“实实在在的通货膨胀”。
粮食价格是未来通胀的先锋。所以英明的中国政府已经派员检查粮库了。李克强说：部分粮库可能存在空仓现象；而且，去冬今春以来粮食主产区遭遇50年大旱，夏季粮食生产存在不确定性。人们还在等待，等待空仓的事情被曝光，其实，有也未必曝光。为什么说有呢？因为囤粮一直就不是个“合算”的事。问题的根源在价格上、在过往20年的老观念上。夏粮到底会减产多少呢？无法定量分析，因此也不下结论。至少，增产的局面难以维持了，这就是危险的信号，足以打破脆弱的平衡。除非谎报军情，不过，那样做的危害会更大。
目前的种种迹象还表明，中国有望成为全球的投资热土，未来的外部流动性冲击对防范和抑制通胀，构成又一个不容乐观的因素。
毕竟不是一家一国的事情，粮食市场是世界性的，发令枪不知道最终会发自哪里。是福是祸，全看应对之策。不过，同样的等待，有些人习惯于为了不确定性而等待；而有些人，则为了确定性而等待。
有人说：恶性通货膨胀真的就无以逃避了吗？非也。
去看看投资大师们的忠告吧：“上帝制造了通货膨胀这个坏蛋，也留下了股票投资这条活路。历史证明，上帝庇佑了那些在灾难中持有股票的人们。”
为什么没有人通过赌博成为富翁
“买彩票算投资吗？”提出这个问题在最初级的理财师那里，或者诸如此类的什么认证培训课程上都会被人嘲笑，因为有一大套投资理论等着你呢。为什么企图拿着彩票混入神圣的投资界？彩票赌博扔硬币这种活动是会让理财师、投资家们讨厌的，如果投资真是这样“随机漫步”，他们的职业重要性也就大大降低了。
不过管它算什么呢，还有什么比中奖这件事更值得高兴的吗？算起来，除了违法乱纪和从事天才性的工作之外，公司人获得财务自由的方法大概也只有投资和中奖两种。只是买中彩票得大奖的几率要小一些，在中国，国家彩票的返奖率在50%以下，在国外赌场上的返奖率也就是总的赔率则在80%以上，所以去赌博获得财富的概率要比买彩票大。当然这是指在合法的范围内的。投资的收益概率相对来说大得多，但是有些极端化的商品或者金融衍生品投资已经接近了赌博的风险和概率。投资、赌博和彩票就像兄弟，它们长得有点像，走近一看又千差万别，但是它们的很多数学和心理模型可以共用，这种共用对投资者来说是有趣而且有意义的，也就是说可以通过赌博的规律指导投资，用投资的规律指导赌博，这要看你更喜欢哪一种风险类型。
频繁交易中，麻将比投资有收益
如果想更多地获得收益，那么就应该频繁地交易，从投资、买彩票和赌博上看，这种频繁交易对下注者和投资人收益会有不同的影响。
从投资上看，频繁交易无疑没有给投资者带来更多的收益，因为投资者没法了解短期内的股票涨跌，而券商却从投资者频繁交易中获得了大量手续费，就像小弗雷德.施维德的《客户的游艇在哪》一书中提到的，投资者交易养肥了那些券商、经纪人，而他们还会反过来笑话你多愚蠢。
在巴菲特 1982年给股东的信中，他把交易比作一场代价相当昂贵的“听音乐抢椅子”的游戏，投资者付出的交易成本相当于他们对自己征收了重税。比如每天交易量为1亿股，那意味着相对于5000万股交易日，股东们为了“抢座椅”要付出两倍的手续费—因为要一卖一买—再假设每买卖一股的平均成本为15美分，那么一年累积下来约要花费75亿美元的代价，这相当于埃克森石油、通用动力、通用汽车与太古石油这四家全美最大企业在1982年利润的总和。这种现象在中国资本市场似乎一点也不弱，在交易最火爆的2007年，全年股票市场交易印花税达到2005亿人民币，这就已经覆盖了中国石油、工商银行和建设银行三家中国最赚钱的公司的总利润，这里还没有算各家券商的手续费用。
要是买彩票的频率加快，它的收益效果会怎样呢？前边我们已说过中国的彩票总赔率很低，这就等于买彩票的人已经被征收了重税。在此基础上，假如一个公司人每期坚持买一张彩票，也并不会增加他中奖的可能性，因为坚持很多期买一张彩票和在某一期买一张彩票的几率是一样的，彩票没有投资的熊市和牛市之说，所以频繁买彩票的赔钱效果要比频繁投资还要好。
而赌博的频繁操作其收效相对来说就要有利一些，如果是场外交易—也就是说假设赌博不是在赌场进行，而是在朋友家打麻将—那么参与次数越多，所有参与者的胜负几率将越平均，因为没有额外付出—不算时间价值—所以麻将从长期来看是不输不赢的游戏。
对喜欢频繁进出的参与者来说，也许选择赌博比选择资本市场要好。
为什么只有人通过赌博倾家荡产，而没有人通过赌博成为亿万富翁？
这里最重要的原因在于赌场的“庄家效用”，也就是说看似公平的几率竞猜其实只对“庄家”，也就是赌场的开办者有利。在很多赌博游戏中庄家都有占先规定。比如在著名的纸牌游戏21点（黑杰克）里，庄家所占的优势是5.5%，这种几率保证了在同等情况下连续进行游戏，庄家会比你多赢5.5%的局数，其实这就已经足以让长期嗜赌者血本无归。在期望价值领域大有建树的爱德华.索普在《打败发牌人》里把庄家效用描述得更加明显，由于在21点游戏中报酬数额固定，所以玩家主要的任务是评价有多大机会抽到一张对自己有利的牌。当机会有利于玩家时，最好的战略是增加下注，而在最理想的状况下，有利于玩家的概率也只有9.8%，其余90.2%都是赌场的。所以，赌场要做的就是把游戏参与者拖住，尽量地将概率的力量展现出来。
当然这里也有一些例外，比如著名的21点天才马恺文，他带领他的麻省理工21点小组在1990年代，利用算牌方式狂捞了约1000万美元。各家“大出血”的赌场纷纷通过监视画面将这些算牌人的头像存储，建立了一份黑名单。从此，马恺文等人成为美国境内近百家赌场“21点”牌桌的“拒绝往来户”。只要他们进入赌场，赌场员工便会以防贼似的眼神紧盯着他们，而他们的伟大业绩也被好莱坞拍成了《攻陷拉斯维加斯》。
马恺文运用的所谓算牌技巧需要复杂的计算和艰难的记忆，但是这种技巧只能给游戏参与者提高3%的胜率，而且这还是在那些数学和记忆天才以“非赌不可—怎么赌？”为课程目标研习了很长时间才达到的。至于为什么3%战胜了5.5%，可能只是个偶然吧。
所以根据这个道理，在高风险投资领域，投资者坚持不了解的产品不去投资也就是在回避这种资本市场上的“庄家效用”给普通投资者可能带来的资产损失。
没有办法是必胜之道
如果对于完全概率事件，也就是有效市场理论所说的“随机漫步”事件，输赢完全无法估测，改变下注技巧最著名的方法就是逐次放大下注额度。也就是第一次下注如果输掉，在第二次下注的时候把赌注放大一倍，如此类推一直等到下注成功就立刻结束下注，把赢的钱抱回家。这种方法从理论上来说可行，但是若要从反证的方式推断，它肯定存在问题，因为世界上毕竟还有那么多的赌场在运行而且赚钱。
逐次加注的方法在实际操作中会遇到两个问题，下注者本身会因为财力不足支持不住，就像一个投掷硬币者，连续五次掷出同一个面是很可能的，而对于下注者来说，连续5次压错宝也不是什么非常奇怪的事，而连续五次压错宝却导致压注者损失了31倍的起始下注资金（下注者损失的是一个基础下注金额的等比数列倍数，它们是“1+2+4+8+16”倍的启示下注资金），如果下注者即使在以前的下注过程中每次都受益，也会被这次小失败而葬送掉命，因为这种下注方法决定下注人只可能连续失败，不可能连续下注成功，这有点像那种毛利非常低的公司，一般市道只能赚小钱，而在市道不好情况下一年亏损就能把以前的盈利全部侵蚀掉。
除了这种系统风险之外，下注赌博的人很难有非常好的自控能力，可以在赢钱后就匆匆离开。如此再加上赌场的庄家效用，赌客们必然输多赢少。
这种累加下注计划的破产也向在期货投资上使用这种方法的投资者提出了警示，因为在期货投资中下的注要比赌场还大，以一千块钱为例，如果累加下注，很快投资者就可能输掉几十倍的资金，这完全能达到倾家荡产的效果。在完全概率市场没有必胜之道。
有趣的是赌场上没有傻瓜把自己的输赢记录做成K线图来分析明天的输赢和下注情况，而在同样完全概率市场的一些衍生品市场上这么做的人却大把的在。
最后一场赛马
著名的心理学家丹尼尔.卡奈曼和阿莫斯.特威尔斯基在《人们如何在管理风险和不稳定性中完成了非常有趣的工作》中提到，在赌赛马时，最后一天赛会上，前几天最不被看好的赛马上的下注会大幅度增加。这主要是因为两个原因，一是在赛马会的最后一天，大部分参与者还是亏损的，其次，那些亏损者急于要翻本。由于最不被看好的赛马赔率要高于其它，所以在最后一天出现了赌劣马的现象。
芝加哥大学教授理查德.塞勒和埃里克.约翰逊对一些MBA学生做了更具体的测试，他们对参加测试者提出以下三个问题：
实验结果表明，赌徒在有可能平抑赌场造成损失的情况下，更愿意去冒更大的风险，如果不能平抑以前的损失，则对风险的兴趣就会减小；而在此前已经获得收益的情况下，人们会以收益为限额，对风险的容忍度也相应提高，如果风险影响超出收益的界限，则人们对风险的容忍度将降低。这个原因是人们喜欢把赌博挣来的钱或者亏掉的钱在头脑中放到一个账户中，比如认为，赌赛马赢来的钱可以赌赛马输掉，但是不能把其他钱输掉。这种事先的收益或亏损状况影响到以后人们决策的情形被称为赌场资金效应。这种情况，在资本市场上很多投资者身上也同样存在。比如很多投资者会在牛市的情况下为避免以后的损失把股票卖掉，把和原来投入等额的本金取出来存到另外的定期账户中，这样可以让他们认为现在在股市中的资金是从投资股市中赚来的钱，从而对风险的容忍度也会提高。在熊市中，投资者购买股票被套牢，在一段时间后如果股票价格恢复到投资者原来购买的价位，投资者往往选择把股票卖掉，这是因为他们认为已经挽回了股市中的损失，对风险已经受够了。
令人心痛的成本
赌徒最危险的行为是什么？那就是持续不断的翻本心理，始终对于结束赌局欲罢不能，这是因为人们会对已经投入大量时间、精力、最重要的是钱财的一件事不肯轻易罢手，并倾向于将已进行的事情进行完，虽然继续下去会造成更大的损失也在所不惜。人们脑子里会出现这样的忠告：“如果现在结束，以前投入的就全白亏了。”由于这种心态，在投资市场上，很多投资者即使买入的投资品种严重亏损，而且还有可能继续下跌，投资者也不愿意把它卖掉，因为投资者希望这种投资品的投资成本应该由这种投资品的收益来承担，如果在亏损的时候卖出了，那么就会造成事实上的亏损，即使有其它的投资收益超过这个亏损，投资者也会产生强烈的损失厌恶情绪，而绝不认亏出场。
这种把成本沉没掉的心理作用，甚至影响到国家政策。例如在美国越南战争中，美国政府内一些人认为获胜机会已经非常渺茫，但是也有人反对战争的结束，这些人的反对理由就是沉没成本的原因，“难道让那些在越战中战死的士兵白白牺牲了么？”
在哈尔阿科斯关于沉没成本的研究中表明，已经在某一项目投入成本的人，对于这个项目的成功的可能性预期高于没有在这个项目上投入成本的人对项目的预期。在明明知道自己的投资是错误的情况下，仍然坚持继续投资的原因是，如果停止投资就等于承认前边的成本沦为沉没成本，而这种对错误的认可是大多数人不愿意做的，这可能与人类避免承认错误的责任本能有关。
分散投资适时下注
扑克游戏可能有稳操胜券的情况么？“即使你有99.99％的把握，你也有可能输掉。”著名的扑克世界冠军皮尔森凭他的经历说出其中的实情。因为在获胜机率大的情况下由于风险，获得的收益也小，而小机率情况下由于赔率大，这样就可能出现大损失。所以下注者不能在一次下注时就倾囊而出。和很多投资家一样，皮尔森在其从事的金钱游戏中进行分散投资。
投资者的资产分配会随着各个子市场的上涨下跌而进行配置变化，这就和玩扑克游戏一样，虽然你不能在一次发牌中下了所有的注，但在时机有利于你的时候下注是明智的，高手的区别就是懂得怎么下注。
世界上最大的债券公司Pimco Total Return管理者比尔.格雷斯说，投资者必须知道市场有无理变化的一面，应该做好充分的准备。另一方面，你应该在机会可能对你有利时下大注。
在合适的时机下大注的情况也是所有投资家想达到的一个理想状况，但是这也很可能是一个成功者的幻觉，也许在合适的时机下合适的赌注根本没人能做得到。
不过管它算什么呢，还有什么比中奖这件事更值得高兴的吗？算起来，除了违法乱纪和从事天才性的工作之外，公司人获得财务自由的方法大概也只有投资和中奖两种。只是买中彩票得大奖的几率要小一些，在中国，国家彩票的返奖率在50%以下，在国外赌场上的返奖率也就是总的赔率则在80%以上，所以去赌博获得财富的概率要比买彩票大。当然这是指在合法的范围内的。投资的收益概率相对来说大得多，但是有些极端化的商品或者金融衍生品投资已经接近了赌博的风险和概率。投资、赌博和彩票就像兄弟，它们长得有点像，走近一看又千差万别，但是它们的很多数学和心理模型可以共用，这种共用对投资者来说是有趣而且有意义的，也就是说可以通过赌博的规律指导投资，用投资的规律指导赌博，这要看你更喜欢哪一种风险类型。
频繁交易中，麻将比投资有收益
如果想更多地获得收益，那么就应该频繁地交易，从投资、买彩票和赌博上看，这种频繁交易对下注者和投资人收益会有不同的影响。
从投资上看，频繁交易无疑没有给投资者带来更多的收益，因为投资者没法了解短期内的股票涨跌，而券商却从投资者频繁交易中获得了大量手续费，就像小弗雷德.施维德的《客户的游艇在哪》一书中提到的，投资者交易养肥了那些券商、经纪人，而他们还会反过来笑话你多愚蠢。
在巴菲特 1982年给股东的信中，他把交易比作一场代价相当昂贵的“听音乐抢椅子”的游戏，投资者付出的交易成本相当于他们对自己征收了重税。比如每天交易量为1亿股，那意味着相对于5000万股交易日，股东们为了“抢座椅”要付出两倍的手续费—因为要一卖一买—再假设每买卖一股的平均成本为15美分，那么一年累积下来约要花费75亿美元的代价，这相当于埃克森石油、通用动力、通用汽车与太古石油这四家全美最大企业在1982年利润的总和。这种现象在中国资本市场似乎一点也不弱，在交易最火爆的2007年，全年股票市场交易印花税达到2005亿人民币，这就已经覆盖了中国石油、工商银行和建设银行三家中国最赚钱的公司的总利润，这里还没有算各家券商的手续费用。
要是买彩票的频率加快，它的收益效果会怎样呢？前边我们已说过中国的彩票总赔率很低，这就等于买彩票的人已经被征收了重税。在此基础上，假如一个公司人每期坚持买一张彩票，也并不会增加他中奖的可能性，因为坚持很多期买一张彩票和在某一期买一张彩票的几率是一样的，彩票没有投资的熊市和牛市之说，所以频繁买彩票的赔钱效果要比频繁投资还要好。
而赌博的频繁操作其收效相对来说就要有利一些，如果是场外交易—也就是说假设赌博不是在赌场进行，而是在朋友家打麻将—那么参与次数越多，所有参与者的胜负几率将越平均，因为没有额外付出—不算时间价值—所以麻将从长期来看是不输不赢的游戏。
对喜欢频繁进出的参与者来说，也许选择赌博比选择资本市场要好。
为什么只有人通过赌博倾家荡产，而没有人通过赌博成为亿万富翁？
这里最重要的原因在于赌场的“庄家效用”，也就是说看似公平的几率竞猜其实只对“庄家”，也就是赌场的开办者有利。在很多赌博游戏中庄家都有占先规定。比如在著名的纸牌游戏21点（黑杰克）里，庄家所占的优势是5.5%，这种几率保证了在同等情况下连续进行游戏，庄家会比你多赢5.5%的局数，其实这就已经足以让长期嗜赌者血本无归。在期望价值领域大有建树的爱德华.索普在《打败发牌人》里把庄家效用描述得更加明显，由于在21点游戏中报酬数额固定，所以玩家主要的任务是评价有多大机会抽到一张对自己有利的牌。当机会有利于玩家时，最好的战略是增加下注，而在最理想的状况下，有利于玩家的概率也只有9.8%，其余90.2%都是赌场的。所以，赌场要做的就是把游戏参与者拖住，尽量地将概率的力量展现出来。
当然这里也有一些例外，比如著名的21点天才马恺文，他带领他的麻省理工21点小组在1990年代，利用算牌方式狂捞了约1000万美元。各家“大出血”的赌场纷纷通过监视画面将这些算牌人的头像存储，建立了一份黑名单。从此，马恺文等人成为美国境内近百家赌场“21点”牌桌的“拒绝往来户”。只要他们进入赌场，赌场员工便会以防贼似的眼神紧盯着他们，而他们的伟大业绩也被好莱坞拍成了《攻陷拉斯维加斯》。
马恺文运用的所谓算牌技巧需要复杂的计算和艰难的记忆，但是这种技巧只能给游戏参与者提高3%的胜率，而且这还是在那些数学和记忆天才以“非赌不可—怎么赌？”为课程目标研习了很长时间才达到的。至于为什么3%战胜了5.5%，可能只是个偶然吧。
所以根据这个道理，在高风险投资领域，投资者坚持不了解的产品不去投资也就是在回避这种资本市场上的“庄家效用”给普通投资者可能带来的资产损失。
没有办法是必胜之道
如果对于完全概率事件，也就是有效市场理论所说的“随机漫步”事件，输赢完全无法估测，改变下注技巧最著名的方法就是逐次放大下注额度。也就是第一次下注如果输掉，在第二次下注的时候把赌注放大一倍，如此类推一直等到下注成功就立刻结束下注，把赢的钱抱回家。这种方法从理论上来说可行，但是若要从反证的方式推断，它肯定存在问题，因为世界上毕竟还有那么多的赌场在运行而且赚钱。
逐次加注的方法在实际操作中会遇到两个问题，下注者本身会因为财力不足支持不住，就像一个投掷硬币者，连续五次掷出同一个面是很可能的，而对于下注者来说，连续5次压错宝也不是什么非常奇怪的事，而连续五次压错宝却导致压注者损失了31倍的起始下注资金（下注者损失的是一个基础下注金额的等比数列倍数，它们是“1+2+4+8+16”倍的启示下注资金），如果下注者即使在以前的下注过程中每次都受益，也会被这次小失败而葬送掉命，因为这种下注方法决定下注人只可能连续失败，不可能连续下注成功，这有点像那种毛利非常低的公司，一般市道只能赚小钱，而在市道不好情况下一年亏损就能把以前的盈利全部侵蚀掉。
除了这种系统风险之外，下注赌博的人很难有非常好的自控能力，可以在赢钱后就匆匆离开。如此再加上赌场的庄家效用，赌客们必然输多赢少。
这种累加下注计划的破产也向在期货投资上使用这种方法的投资者提出了警示，因为在期货投资中下的注要比赌场还大，以一千块钱为例，如果累加下注，很快投资者就可能输掉几十倍的资金，这完全能达到倾家荡产的效果。在完全概率市场没有必胜之道。
有趣的是赌场上没有傻瓜把自己的输赢记录做成K线图来分析明天的输赢和下注情况，而在同样完全概率市场的一些衍生品市场上这么做的人却大把的在。
最后一场赛马
著名的心理学家丹尼尔.卡奈曼和阿莫斯.特威尔斯基在《人们如何在管理风险和不稳定性中完成了非常有趣的工作》中提到，在赌赛马时，最后一天赛会上，前几天最不被看好的赛马上的下注会大幅度增加。这主要是因为两个原因，一是在赛马会的最后一天，大部分参与者还是亏损的，其次，那些亏损者急于要翻本。由于最不被看好的赛马赔率要高于其它，所以在最后一天出现了赌劣马的现象。
芝加哥大学教授理查德.塞勒和埃里克.约翰逊对一些MBA学生做了更具体的测试，他们对参加测试者提出以下三个问题：
实验结果表明，赌徒在有可能平抑赌场造成损失的情况下，更愿意去冒更大的风险，如果不能平抑以前的损失，则对风险的兴趣就会减小；而在此前已经获得收益的情况下，人们会以收益为限额，对风险的容忍度也相应提高，如果风险影响超出收益的界限，则人们对风险的容忍度将降低。这个原因是人们喜欢把赌博挣来的钱或者亏掉的钱在头脑中放到一个账户中，比如认为，赌赛马赢来的钱可以赌赛马输掉，但是不能把其他钱输掉。这种事先的收益或亏损状况影响到以后人们决策的情形被称为赌场资金效应。这种情况，在资本市场上很多投资者身上也同样存在。比如很多投资者会在牛市的情况下为避免以后的损失把股票卖掉，把和原来投入等额的本金取出来存到另外的定期账户中，这样可以让他们认为现在在股市中的资金是从投资股市中赚来的钱，从而对风险的容忍度也会提高。在熊市中，投资者购买股票被套牢，在一段时间后如果股票价格恢复到投资者原来购买的价位，投资者往往选择把股票卖掉，这是因为他们认为已经挽回了股市中的损失，对风险已经受够了。
令人心痛的成本
赌徒最危险的行为是什么？那就是持续不断的翻本心理，始终对于结束赌局欲罢不能，这是因为人们会对已经投入大量时间、精力、最重要的是钱财的一件事不肯轻易罢手，并倾向于将已进行的事情进行完，虽然继续下去会造成更大的损失也在所不惜。人们脑子里会出现这样的忠告：“如果现在结束，以前投入的就全白亏了。”由于这种心态，在投资市场上，很多投资者即使买入的投资品种严重亏损，而且还有可能继续下跌，投资者也不愿意把它卖掉，因为投资者希望这种投资品的投资成本应该由这种投资品的收益来承担，如果在亏损的时候卖出了，那么就会造成事实上的亏损，即使有其它的投资收益超过这个亏损，投资者也会产生强烈的损失厌恶情绪，而绝不认亏出场。
这种把成本沉没掉的心理作用，甚至影响到国家政策。例如在美国越南战争中，美国政府内一些人认为获胜机会已经非常渺茫，但是也有人反对战争的结束，这些人的反对理由就是沉没成本的原因，“难道让那些在越战中战死的士兵白白牺牲了么？”
在哈尔阿科斯关于沉没成本的研究中表明，已经在某一项目投入成本的人，对于这个项目的成功的可能性预期高于没有在这个项目上投入成本的人对项目的预期。在明明知道自己的投资是错误的情况下，仍然坚持继续投资的原因是，如果停止投资就等于承认前边的成本沦为沉没成本，而这种对错误的认可是大多数人不愿意做的，这可能与人类避免承认错误的责任本能有关。
分散投资适时下注
扑克游戏可能有稳操胜券的情况么？“即使你有99.99％的把握，你也有可能输掉。”著名的扑克世界冠军皮尔森凭他的经历说出其中的实情。因为在获胜机率大的情况下由于风险，获得的收益也小，而小机率情况下由于赔率大，这样就可能出现大损失。所以下注者不能在一次下注时就倾囊而出。和很多投资家一样，皮尔森在其从事的金钱游戏中进行分散投资。
投资者的资产分配会随着各个子市场的上涨下跌而进行配置变化，这就和玩扑克游戏一样，虽然你不能在一次发牌中下了所有的注，但在时机有利于你的时候下注是明智的，高手的区别就是懂得怎么下注。
世界上最大的债券公司Pimco Total Return管理者比尔.格雷斯说，投资者必须知道市场有无理变化的一面，应该做好充分的准备。另一方面，你应该在机会可能对你有利时下大注。
在合适的时机下大注的情况也是所有投资家想达到的一个理想状况，但是这也很可能是一个成功者的幻觉，也许在合适的时机下合适的赌注根本没人能做得到。
Wednesday, April 8, 2009
Martin Armstrong: The Coming Great Depression
The Coming Great Depression
Why Government Is Powerless
It is frustrating to read so many comparisons of our current situation with 1929 while watching policy be set-in-motion to create spending on infrastructure. Everyone has their hand out looking for a bailout like a bunch of street burns pleading for money so they can get drunk or stay drunk. Almost nothing of what I have read is close to being accurate. The scary part is depressions are inevitably caused by politicians who may be paving the road with good intentions, but are relying upon analysis so biased, we do not stand a chance.
The stock market by no means predicts the economy. A stock market crash does not cause a Depression. The Crash of 1903 was properly titled – “The Rich Man's Panic." What has always distinguished a recession from a Depression is the stock market drop may signal a recession, but the collapse in debt signals a Depression.
This Depression was set in motion by (1)excessive leverage by the banks once more, but (2)the lifting of usury laws back in 1980 to fight inflation that opened the door to the highest consumer interest rates in thousands of years and shifted spending that created jobs into the banks as interest on things like credit cards. As a percent of GDP, household debt doubled since 1980 making the banks rich and now the clear and present danger to our economic survival. A greater proportion of spending by the consumer that use to go to savings and creating jobs, goes to interest and that has undermined the ability to avoid a major economic melt-down.
The crisis in banking has distinguished depression from recession. The very term "Black Friday" comes from the Panic of 1869 when the mob was dragging bankers out of their offices and hanging them in New York. They had to send in troops to stop the riot. A banking collapse destroys the capital formation of a nation and that is what creates the Depression. The stock market is not the problem despite the fact it is visible and measurable and may decline 40%, 60% or even 89% like in 1929-32. But the stock market decline is normally measured in months (30-37) whereas the economic decline is measured in years (23-26). Beware of schizophrenic analysis that is often mutually contradictory or often antagonistic in part or in quality for far too often people think they have to offer a reason for every daily movement.
Our fate will not be determined by the stock market performance. Neither can we stimulate the economy by increasing spending on infrastructure any more than buying your wife a mink coat, will improve the grades of your child in school. We are facing a Depression that will last 23-26 years. The response of government is going to seal our fate because they cannot learn from the past and will make the same mistakes that every politician has made before them. Even if the Dow Industrials make new highs next week (impossible), the Depression is unstoppable with current models and tools.
Stocks & Consumers vs. Investment Banks
Let us set the record straight. The Stock Market is a mere reflection of the economy like looking at yourself in a mirror. It is not the economy and does not even provide a reliable forecasting tool of what is to come economically. We are headed into the debt tsunami that is of historical proportions unheard-of in history. There have been the big debt crisis incidents that have hobbled nations, toppled kings, and set in motion economic dark ages. It is so critical to understand the difference between the economy and the stock market, for unless you comprehend this basic and root distinction between the two, survival may be impossible.
To the left I have provided the Economic Confidence Model for the immediate decline. You will notice I did not call this the "stock market model" nor a model for gold, oil, or commodities. I used the word "economic" with distinct and clear purpose. I have stressed it does not forecast the fate, of a particular market or even a particular economy. It is the global economic cycle some may call even a business cycle. Please note that what does line-up and peaks precisely with this model often even to the specific day that was calculated decades advance is the area of primary focus. Yet the US stock market reached a high precisely with this model and then rallied to a new high price 8.6 months later. In Japan, the NIKKEI 225 peaked precisely on February 26th, 2007. This is not a very good omen. But there was something profound that turned down with the February 27th, 2007 target - the S&P Case-Shiller index of housing prices in 20 cities. February 2007 was the peak for this cycle in the debt markets - not the US stock market.
The stock market always bottoms in advance of the economic low. In fact, we will see new highs in the now even in the middle of a Great Depression. At least the 1929 cycle was more of a bubble top in stocks than what we have in place currently in the US stock market. We still had the bubble top in the NASDAQ back in 2000, but this illustrates the point. There was a major explosive speculative boom. The bubble burst in 2000 and there was a moderate investment recession into 2002, but there was no appreciable economic decline that was set in motion because of that crash. Currently, we have a major high in 2007, but it was not a bubble top because it was not the focus of speculation. The real concentration of capital that created the bubble top, took place in the debt markets. This is the origin of the economic depression - not stocks and not the displacement of farmers because of a 7 year drought created by the Dust Bowl that invoked the response of the Works Progress Administration (WPA) in 1935. Keep in mind the stock market bottomed in the mid summer of 1932 when unemployment was not excessive from a historical perspective.
The 25% level of unemployment came after the major 1932 stock market low that was followed by both the banking crisis after the election of FDR and before his fateful inauguration. The Banking Crisis came about because of rumors that Roosevelt was going to confiscate gold. Herbert Hoover published his memoirs showing letters written to Roosevelt pleading with him to make a statement that the rumors were false. He did not.
It’s the Debt Level Stupid
In 1907, the excessive debt was in the stock market. Call Money Rates (the level of interest paid to support broker loans) reached 125%. Even 1929 never came close to such levels. This also illustrates that the capital markets do not have enough money to invest equally on all levels in all segments of a domestic economy or in particular nations. To create the boom-bust, it requires the concentration of capital. A bubble top is formed when the majority of those seeking to employ money to make money are focused in a particular market or even country. The 1907 Crash was a bubble top because capital invested on a highly concentrated basis in railroad stocks. The bubble top in Japan back in 1989 was caused by a concentration of both domestic and international capital that had made Japan the number one market in the World. It is this concentration of capital that creates the boom and bust cycle. If money was evenly disbursed like the socialistic & communistic philosophies argue, we would be back to the dark ages where there was no concentration of capital and no economy beyond the walls of the castle so to speak. That is why communism failed.
It is the overall level of debt that has reached a bubble top in almost every possible area. For example, in 1980, household debt was about 50% of GDP. Going into the February 2007 high, it reached about 100% of GDP. We must also realize that something profound took place back in 1980. Americans would on the first blush seem to be living it up, buying everything they can on credit and have piles of tangible assets to show for it. That is like looking at the statistics for carrots and arguing that they are lethal because every person who has ever eaten a carrot is dead or in the process of a gradual slow death. This absurd example illustrates the bias that can produce the schizophrenic analysis.
There were, once upon a time, usury laws that generally held any interest rate greater than 10% was illegal. The Federal Reserve under Paul Volker believed that interest rates needed to be raised to insane levels to stop the runaway inflation, which was the first stone that hit the water sending the shock waves that we are having to pay for today. Once the usury laws were altered so the Fed could fight inflation, it set in motion the doubling of household debt, not to mention the national debt. At 8%, the principle is doubled through interest in less than 10 years. The national debt exploded from $1 to about $10 trillion in 25 years and household debt has doubled. Some states now consider usury to be 26%. Historically, these are the interest rates paid by the very worst of all debtors - the bankrupts. In fact, in China, the worst creditors historically paid at best 10%. What we have done is the lifting of usury to fight inflation back in 1980, has resulted in usury now being so high, a larger portion of income of the common worker is spent on interest, not buying goods & services that even create jobs. This is one primary reason why jobs have been leaving as well. The consumer needs the lowest possible price and labor wants the highest wages, and to stay competitive, producers leave taking manufacturing jobs as well as service jobs. The extraordinary rise in interest rates that are historical highs since at least pre-Roman times, could not have been possible but for the lifting of usury laws back in 1980 to fight inflation. This amounted to setting a fire to try to stop a brush fire that failed. Consumers pay the highest rates in thousands of years that feed the banks at the expense of economic growth. Even the National Debt rose from $2. 1 to $8.5 trillion between 1 986 and 2006 with $6. 1 trillion being interest. We are funding the nation on a credit card and destroying the economy simultaneously.
This has been enhanced by the tremendous leverage and false position that were created in the derivative markets causing the banks to just implode. Indeed, this is the origin of the economic Depression we are facing. The $700 billion bailout might have worked if Paulson did what he said he would - buy the debt and take it out of the banks. Had the debt been segregated into a pool and managed independently by a hedge fund manager not an investment banker, we could have mitigated the problem. But that is now too late. The credit implosion is taking place on a wholesale basis around the world. The more the economy declines in housing prices, the greater the defaults, the greater the foreclosures, and the lower the economy will move. We are now in a downward spiral that cannot be fixed by indirect schemes. As I said, you cannot get your kid's test scores up by purchasing a mink coat for your wife. Everyone will have their hand out begging for infrastructure money. But the theory of just spending money that will somehow make things better, it is like handing Mexico a trillion dollars and arguing that they will buy US goods that will somehow reverse the economy.
The leveraging of debt by the Investment Banks in particular has undermined the global economy. Where household debt has doubled since 1980, the professional financial service sector has seen a rise from 21% of GDP in 1980 to 116% by February 2007. Now consider the debt that they created with the mortgages is already down by 50% and falling, the bailouts will keep coming. To help correct the problem, the commercial banks will tighten credit to make their exposure less, and in fact, their solvency ratios will require it anyway. This we can expect to see not just in business, but housing and car loans that will contract the economy as well.
The Great Depression is not the perfect model for today. It was a complete capital contraction. The stock market basis the now Dow Jones Industrials fell 89% between September 3rd, 1929 and July 1932. The contraction in debt was quite massive. Then too, the leverage in banks collapsed that reduces the velocity of money and therefore the money supply. The banks were the first real widespread failures with 608 in 1930. Between February and August 1931, the commercial banks began to bleed profusely as bank deposits fell almost $3 billion or about 9% of all deposits. As 1932 began, the number of bank failures reached 1,860. The massive amount of bank failures in the thousands took place with the rumor of Roosevelt's intention to confiscate gold. Although he denied that was his policy the night of the elections, he remained silent refusing to discuss the issue until he was sworn in. on March 6, 1933 just 2 days after taking office, Roosevelt called a bank "holiday" closing the banks from which at least another 2,500 never reopened.
All of these events are contrasted by the collapse in national debts in Europe. Other than Herbert Hoover’s memoirs, I have yet to read any analysis of the Great Depression attribute anything internationally other than the infamous US Smoot-Hawley Act setting in motion the age of protectionism in June 1930. It was the financial war between European nations attacking each other's bond markets openly shorting them that led to all of Europe defaulting on their debt. Even Britain went into a moratorium suspending debt payments. This is what put the pressure on capital flows sending waves of capital to the United States that to sane degree was kind of like the capital flow to Japan into 1989. This put tremendous pressure upon the dollar driving it to new record highs that were misread by the politicians who did not understand capital flow. They responded with Smoot-Hawley misreading the entire set of facts. (see Greatest Bull Market In History) (Herbert Hoover's memoirs).
It is true that today we have Keynesian and Monetarist theories to manage the crisis. Sad to say, neither one will now work. Bernanke has responded in force dropping the federal funds rate from 5.25% to .25%. He has also opened the Fed Window and thrown out more than $1 trillion in 13 months. However, as admirable as this may be, he has no tool that will do the job. Milton Friedman was correct! The Great Depression was not caused by the decline in the stock market. The event was set in motion by the credit and banking crisis that resulted in a one-third contraction in the money supply.
Interest rates will do nothing. The flight to quality always takes place so what happens is a two-fold punch. (1) Interest rates collapse because capital seeks preservation not yield and will accept during such times virtually a zero rate of return, and (2) the flight to quality takes more available cash from the private sector because government debt truly does compete with the private sector. We are seeing this even now. Federal debt becomes the place to go so we see higher yields in both state am municipal bonds because they are not quality and could default like any bank. This contracts the money supply. Opening the window and just throwing buckets of money into the system will never have any impact to reverse the trend.
Furthermore, we are now in a Floating-Exchange Rate system that has made the global economy far more complex than it was in 1929. We all know that China is one of the biggest holders of US government debt. With the contagion spreading to Russia, South America, and China aside from Europe, we see a steeper decline in the China stock market than we do in the United States because that is where capital had concentrated domestically. If China needs money to stimulate its own economy when exports appear to be collapsing by about 50%, then we can see that the Keynesian model is worthless. If the Fed tries to pump money into the system through buying bonds from the private sector, those bonds may be held by aliens who take the money back to their own economies. The Fed cannot be sure it is even capable of stimulating the purely domestic economy. Lower interest rates to virtually zero like Japan did during the 19905, then if capital finds a better place to invest, it can leave for a higher rate of interest as capital did from Japan to the United states, which is why their domestic economy was never stimulated by the' lower interest rates.
Leverage during the Great Depression was not even remotely close to what we have to face today. The credit-default swaps are alone worth about $60 trillion. This was a stupid product for it has so tangled the world there may be no way out. This product created the false illusion that you did not have to worry about the quality of the loan because it was insured. We have no way of covering this level of implosion. Add the unfunded entitlements and then the state and local debts who cannot print money to cover their shortfall s, and we are looking at a contraction of debt that is simply beyond all contemplation.
So What Now?
So now that we see it is not Wall Street, again, but the banks, perhaps we can separate the facts from the fantasy. We can now see that there are two separate and distinct forecasts to be made - (1) economy and (2) stock market. Economic Depressions have a duration unfortunately of generally 23 years with an outside potential of 26 years. The 1873 Panic led to a economic depression of really 23 years into 1896. There were bouts with high volatility and injection of major waves of inflation following the major silver discoveries. It was the age of the Silver Democrats who tried to create inflation by over-valuing silver relative to gold. This created a wave of European-American arbitrage where silver flowed into the US exchanging it for gold, which then flowed back to Europe. By 1896, the US Treasury was broke.
The Panic of 1873 marked the collapse of J. Cook & Co, the huge investment bank that was the 19th Century version of Goldman Sachs. They went bust because of excessive leverage in railroad stocks. It matters not what the instrument may be, it is always the leverage, which set the tone for a economic depression that lasted into 1896 where JP Morgan became famous for leading a bailout of the us Treasury organizing a loan of gold bullion. The stock market rallied and made new highs with plenty of panics between 1873 and 1896. The point is, The Panic of 1893 was quite a horrible one. The point is, the stock market is not a reflection of the economy. It often trades up in anticipation of better times, and trades down on those same perceptions of bad times. In both cases, new highs or lows unfold even contrary to economic trends.
We will see new highs in the now long before we see the final low in the economy. The ideal lows on a timing basis for the stock market will be as soon as April 2009 or by June of 2009. The more pronounced lows would be due on a timing basis between December 2009 and April 2010. The most extreme target would seem to be August 2010. The shorter the resolution to the stock market low, the sooner we will start to see much higher volatility.
The low for the Dow would be indicated by reaching the 3,500-4,000 area. A 2008 closing below 12,000 in the cash now Jones Industrials will signal that the bear market is underway into at least 2009 if not 2010. A year-end closing for 2008 below the 9,700-9,800 level, will signal higher volatility as well. The real critical level for the closing of 2008 will be the 7,200 area generally. A year-end closing beneath this general level will signal that we could see the sharp decline to test the extremes support at 3,600-4,000 by as early as April 19th, 2009 going into May /June 2009. If we were to drop so quickly into those targets, this would be most likely the major low with a significant rally into at least April 16th, 2010.
The less volatile outcome would be a prolonged decline into the December 2009 target to about April 16th, 2010. A low at that late date would tend to project out for a high as early as June 2011 or into late 2012. Nevertheless, volatility appears to be very high. Those who were at the 1985 Economic conference in Princeton, may want to review those video tapes. The volatility we were looking at 20-30 years into the future is now. As 3 of the 5 major investment bankers failed, Merrill, Lehman and Bear, the liquidity has evaporated so the swings are going to be much more dramatic.
The major support is 3,600 on the now Industrials. During '09, the support area appears to be 6,600, 5,000, and 4,000-3,600. Clearly, resistance is shaping up at 9,700-9,800. It would take a monthly close back above the 12,400 level to signal new highs are likely. If we saw a complete collapse into a low by April 2009 or June 2009 reaching the 4,000 general area, this would be the major low with most likely a hyper-inflationary spiral developing thereafter. In that case, the now Jones Industrials could be back at even new highs as early as mid 2011 or going into late 2012.
Gold has decoupled from oil as it should and has been rising on an ounce-to-barrel ratio. Here, the pivot area for 2009 seems to be the $730-$760 area with the key support being still at the $525-$540 zone. The major high intraday was on March 17th, 2008. A weekly closing below $800 warns of consolidation. Only a monthly closing below the $535 area would signal a major high is in place. The more critical support appears to be at about $680 - $705. A weekly closing beneath this area will also warn of a potential consolidation. A major high is possible as early as 2010-2011 with the potential for an exponential rally into 2015 if there is any kind of a low going into 2011.45. The key to watch will be crude Oil. The collapse of Investment Banks has removed the speculation that exaggerated the trend. A year-end close below $40 for 2008 would signal a major high and serious economic decline ahead.
There Are No Tools Left! The Emperor Has No Clothes
It is hard to explain to someone who believe he has power, that he really has nothing of any significance. This becomes the story of the Emperor Has No Clothes. No one will tell him, and if you do, it may be off-with-your-head. This is akin to the man behind the curtain in the Wizard of OZ trying to keep up the whole illusion. After all, why do we vote for people unless we believe that will somehow change our lives?
Interest Rates
When an economy is rising and the stock market is exploding, interest rates always rise because the demand for money is rising because people believe that they can make a profit. Government pretend to be raising interest rates to stop inflation, but they do not create a trend contrary to the free markets. What happened in 1980 was merely that the government over-shoots the differential between expectations and the rate of interest. If you believe the stock market will double, you will pay 20% interest. A rising interest rate does not create a bear market. Only when the rate of interest exceeds expectations of potential profit offering almost a fixed secured return, will capital leave the speculative market and run to the bond market.
In a bear market, interest rates always decline because of the flight to quality. When there is a risk of a .banking crisis as well, then the flight to quality shows that capital is willing to accept virtually zero in return for the privilege to park itself is a secure manner to preserve the future.
In both cases, the government may accelerate the trend, but by no means can they create the trend or alter the trend. Lowering interest rates to zero right now will not reverse the economic decline. People will look out the window and until they feel confident again, they will not come out from behind the castle walls. Japan lowered interest rates to virtually zero for nearly a decade. All it did was fuel the carry trade whereby yen was borrowed at 0.1 % and invested in dollars at 5-8%. There was little opportunity to invest domestically in Japan and the stock market languished in a broad consolidation with flurries the upside every-now-and-again.
Monetary Theory
The Fed has already put into the system about $1 trillion in 13 months. The real problem is they are buying back US government debt injecting cash into the system. But if those bonds are sold to the Fed by foreign holders, there can be no injection of cash into the domestic economy. This amounts to the monetization of our debt in any event. Clearly, buying bonds from the market is not a guaranteed increase in domestic money supply especially when the velocity of money is itself collapsing. Borrowing heavily all these years and depending on foreign investors to buy that debt, altered the course of economics. Of course there has always been the foreign investor, but there has not been the floating exchange rate system. The rise and fall of the dollar itself can now either attract foreign capital with an advance or repel capital with its decline. Like we needed another new variable.
Infrastructure Spending
There really is nothing left in the tool bag that can help even to mitigate the coming Economic Depression. The unemployment rate at the end of 1930 was only about 8.9% - similar to the 1975 recession. Things were very slow back then. Even housing was not moving and people took whatever offers came their way. It was the Dust Bowl that began in 1934 that sent the unemployment rising after the 1932 low in the stock market. About 40% of the work force was agrarian. Hence, Congress could not pass a law to make it rain. The real devastation was that this presented a huge portion of the work force that had to be retrained into skilled labor. It was the Great Depression that finally by force of necessity, created an industrial work force that may have taken another 200 years to unfold by gradual transformation.
The WPA was formed in 1935, 3 years after the low in the stock market (1932). It had a slow and marginal success. At best, if we attribute all improvement to this one program, very unlikely, unemployment was only reduced by about 20%.
1935 20.3%
1936 16.9%
1937 14.3%
1938 19.0%
1939 17.2%
1940 14.6%
Even if we attribute everything to the WPA, all the way into 1940, the most the unemployment declines was by 30%. However, at the end of World War II, we see an Unemployment rate of 1.9% by 1945. Any ideas that we can spend trillions on infrastructure and make it all better, forget it.
Turning to infrastructure in the middle of a debt crisis makes no sense. The idea of just spending money will somehow stimulate the economy, will not work. This is like trying to fight in the desert of Iraq using the same tactics as in Vietnam. There has to be sane connection to what we are doing. Just because FDR instituted the WPA when we had a huge displacement issue in the work force, almost 6 years after the crash began, makes no sense at all for our current problems. As I said, this is like buying your wife a mink coat to somehow influence your kid to get their grades up. The connection is tenuous at best and nonexistent in all reality.
Summary
Unless we attack the debt structure directly, there is no point in counting upon any government to help mitigate the problem and more-likely-than-not, our very future may be recast in so many ways, the level of frustration will rise, and that leads to war because war distracts the people from hanging their own politicians. The oldest trick in the book is to blame the guy next-door down. Unless we are honestly prepared to truly 1) reorganize the structure of government, 2) reorganize the entire debt structure both private and public, 3) regulate leverage, 4) restore usury laws that will free up personal income, and 5) look at just eliminating the federal income tax in combination with 6) establishing a new national heathcare system that will restructure all pension plans public and private, there is not much hope for the future from government. Our definition of money (M1) does not include bonds so we can fool ourselves by issuing $10 trillion in bonds is different than printing the cash. It is still money. Taxes are needed in a gold standard where money cannot be created. Stop competing with the states, control the budget as a percent of GDP, increase the money supply to that degree, and stop the taxing when money is created by leverage and velocity anyway. This will restore jobs and inject huge confidence as in 1964 when the payroll tax was cut permanently. One-offs never work. People save the rebates for a rainy day. We need real honest reform since the states will go broke and seek handouts as well. So, it is time to get real. It is time we restructure the entire system including the banks which always cause the problem. We don't need excessive regulation of things that did not create the problem when the real culprits always escape.
Why Government Is Powerless
It is frustrating to read so many comparisons of our current situation with 1929 while watching policy be set-in-motion to create spending on infrastructure. Everyone has their hand out looking for a bailout like a bunch of street burns pleading for money so they can get drunk or stay drunk. Almost nothing of what I have read is close to being accurate. The scary part is depressions are inevitably caused by politicians who may be paving the road with good intentions, but are relying upon analysis so biased, we do not stand a chance.
The stock market by no means predicts the economy. A stock market crash does not cause a Depression. The Crash of 1903 was properly titled – “The Rich Man's Panic." What has always distinguished a recession from a Depression is the stock market drop may signal a recession, but the collapse in debt signals a Depression.
This Depression was set in motion by (1)excessive leverage by the banks once more, but (2)the lifting of usury laws back in 1980 to fight inflation that opened the door to the highest consumer interest rates in thousands of years and shifted spending that created jobs into the banks as interest on things like credit cards. As a percent of GDP, household debt doubled since 1980 making the banks rich and now the clear and present danger to our economic survival. A greater proportion of spending by the consumer that use to go to savings and creating jobs, goes to interest and that has undermined the ability to avoid a major economic melt-down.
The crisis in banking has distinguished depression from recession. The very term "Black Friday" comes from the Panic of 1869 when the mob was dragging bankers out of their offices and hanging them in New York. They had to send in troops to stop the riot. A banking collapse destroys the capital formation of a nation and that is what creates the Depression. The stock market is not the problem despite the fact it is visible and measurable and may decline 40%, 60% or even 89% like in 1929-32. But the stock market decline is normally measured in months (30-37) whereas the economic decline is measured in years (23-26). Beware of schizophrenic analysis that is often mutually contradictory or often antagonistic in part or in quality for far too often people think they have to offer a reason for every daily movement.
Our fate will not be determined by the stock market performance. Neither can we stimulate the economy by increasing spending on infrastructure any more than buying your wife a mink coat, will improve the grades of your child in school. We are facing a Depression that will last 23-26 years. The response of government is going to seal our fate because they cannot learn from the past and will make the same mistakes that every politician has made before them. Even if the Dow Industrials make new highs next week (impossible), the Depression is unstoppable with current models and tools.
Stocks & Consumers vs. Investment Banks
Let us set the record straight. The Stock Market is a mere reflection of the economy like looking at yourself in a mirror. It is not the economy and does not even provide a reliable forecasting tool of what is to come economically. We are headed into the debt tsunami that is of historical proportions unheard-of in history. There have been the big debt crisis incidents that have hobbled nations, toppled kings, and set in motion economic dark ages. It is so critical to understand the difference between the economy and the stock market, for unless you comprehend this basic and root distinction between the two, survival may be impossible.
To the left I have provided the Economic Confidence Model for the immediate decline. You will notice I did not call this the "stock market model" nor a model for gold, oil, or commodities. I used the word "economic" with distinct and clear purpose. I have stressed it does not forecast the fate, of a particular market or even a particular economy. It is the global economic cycle some may call even a business cycle. Please note that what does line-up and peaks precisely with this model often even to the specific day that was calculated decades advance is the area of primary focus. Yet the US stock market reached a high precisely with this model and then rallied to a new high price 8.6 months later. In Japan, the NIKKEI 225 peaked precisely on February 26th, 2007. This is not a very good omen. But there was something profound that turned down with the February 27th, 2007 target - the S&P Case-Shiller index of housing prices in 20 cities. February 2007 was the peak for this cycle in the debt markets - not the US stock market.
The stock market always bottoms in advance of the economic low. In fact, we will see new highs in the now even in the middle of a Great Depression. At least the 1929 cycle was more of a bubble top in stocks than what we have in place currently in the US stock market. We still had the bubble top in the NASDAQ back in 2000, but this illustrates the point. There was a major explosive speculative boom. The bubble burst in 2000 and there was a moderate investment recession into 2002, but there was no appreciable economic decline that was set in motion because of that crash. Currently, we have a major high in 2007, but it was not a bubble top because it was not the focus of speculation. The real concentration of capital that created the bubble top, took place in the debt markets. This is the origin of the economic depression - not stocks and not the displacement of farmers because of a 7 year drought created by the Dust Bowl that invoked the response of the Works Progress Administration (WPA) in 1935. Keep in mind the stock market bottomed in the mid summer of 1932 when unemployment was not excessive from a historical perspective.
The 25% level of unemployment came after the major 1932 stock market low that was followed by both the banking crisis after the election of FDR and before his fateful inauguration. The Banking Crisis came about because of rumors that Roosevelt was going to confiscate gold. Herbert Hoover published his memoirs showing letters written to Roosevelt pleading with him to make a statement that the rumors were false. He did not.
It’s the Debt Level Stupid
In 1907, the excessive debt was in the stock market. Call Money Rates (the level of interest paid to support broker loans) reached 125%. Even 1929 never came close to such levels. This also illustrates that the capital markets do not have enough money to invest equally on all levels in all segments of a domestic economy or in particular nations. To create the boom-bust, it requires the concentration of capital. A bubble top is formed when the majority of those seeking to employ money to make money are focused in a particular market or even country. The 1907 Crash was a bubble top because capital invested on a highly concentrated basis in railroad stocks. The bubble top in Japan back in 1989 was caused by a concentration of both domestic and international capital that had made Japan the number one market in the World. It is this concentration of capital that creates the boom and bust cycle. If money was evenly disbursed like the socialistic & communistic philosophies argue, we would be back to the dark ages where there was no concentration of capital and no economy beyond the walls of the castle so to speak. That is why communism failed.
It is the overall level of debt that has reached a bubble top in almost every possible area. For example, in 1980, household debt was about 50% of GDP. Going into the February 2007 high, it reached about 100% of GDP. We must also realize that something profound took place back in 1980. Americans would on the first blush seem to be living it up, buying everything they can on credit and have piles of tangible assets to show for it. That is like looking at the statistics for carrots and arguing that they are lethal because every person who has ever eaten a carrot is dead or in the process of a gradual slow death. This absurd example illustrates the bias that can produce the schizophrenic analysis.
There were, once upon a time, usury laws that generally held any interest rate greater than 10% was illegal. The Federal Reserve under Paul Volker believed that interest rates needed to be raised to insane levels to stop the runaway inflation, which was the first stone that hit the water sending the shock waves that we are having to pay for today. Once the usury laws were altered so the Fed could fight inflation, it set in motion the doubling of household debt, not to mention the national debt. At 8%, the principle is doubled through interest in less than 10 years. The national debt exploded from $1 to about $10 trillion in 25 years and household debt has doubled. Some states now consider usury to be 26%. Historically, these are the interest rates paid by the very worst of all debtors - the bankrupts. In fact, in China, the worst creditors historically paid at best 10%. What we have done is the lifting of usury to fight inflation back in 1980, has resulted in usury now being so high, a larger portion of income of the common worker is spent on interest, not buying goods & services that even create jobs. This is one primary reason why jobs have been leaving as well. The consumer needs the lowest possible price and labor wants the highest wages, and to stay competitive, producers leave taking manufacturing jobs as well as service jobs. The extraordinary rise in interest rates that are historical highs since at least pre-Roman times, could not have been possible but for the lifting of usury laws back in 1980 to fight inflation. This amounted to setting a fire to try to stop a brush fire that failed. Consumers pay the highest rates in thousands of years that feed the banks at the expense of economic growth. Even the National Debt rose from $2. 1 to $8.5 trillion between 1 986 and 2006 with $6. 1 trillion being interest. We are funding the nation on a credit card and destroying the economy simultaneously.
This has been enhanced by the tremendous leverage and false position that were created in the derivative markets causing the banks to just implode. Indeed, this is the origin of the economic Depression we are facing. The $700 billion bailout might have worked if Paulson did what he said he would - buy the debt and take it out of the banks. Had the debt been segregated into a pool and managed independently by a hedge fund manager not an investment banker, we could have mitigated the problem. But that is now too late. The credit implosion is taking place on a wholesale basis around the world. The more the economy declines in housing prices, the greater the defaults, the greater the foreclosures, and the lower the economy will move. We are now in a downward spiral that cannot be fixed by indirect schemes. As I said, you cannot get your kid's test scores up by purchasing a mink coat for your wife. Everyone will have their hand out begging for infrastructure money. But the theory of just spending money that will somehow make things better, it is like handing Mexico a trillion dollars and arguing that they will buy US goods that will somehow reverse the economy.
The leveraging of debt by the Investment Banks in particular has undermined the global economy. Where household debt has doubled since 1980, the professional financial service sector has seen a rise from 21% of GDP in 1980 to 116% by February 2007. Now consider the debt that they created with the mortgages is already down by 50% and falling, the bailouts will keep coming. To help correct the problem, the commercial banks will tighten credit to make their exposure less, and in fact, their solvency ratios will require it anyway. This we can expect to see not just in business, but housing and car loans that will contract the economy as well.
The Great Depression is not the perfect model for today. It was a complete capital contraction. The stock market basis the now Dow Jones Industrials fell 89% between September 3rd, 1929 and July 1932. The contraction in debt was quite massive. Then too, the leverage in banks collapsed that reduces the velocity of money and therefore the money supply. The banks were the first real widespread failures with 608 in 1930. Between February and August 1931, the commercial banks began to bleed profusely as bank deposits fell almost $3 billion or about 9% of all deposits. As 1932 began, the number of bank failures reached 1,860. The massive amount of bank failures in the thousands took place with the rumor of Roosevelt's intention to confiscate gold. Although he denied that was his policy the night of the elections, he remained silent refusing to discuss the issue until he was sworn in. on March 6, 1933 just 2 days after taking office, Roosevelt called a bank "holiday" closing the banks from which at least another 2,500 never reopened.
All of these events are contrasted by the collapse in national debts in Europe. Other than Herbert Hoover’s memoirs, I have yet to read any analysis of the Great Depression attribute anything internationally other than the infamous US Smoot-Hawley Act setting in motion the age of protectionism in June 1930. It was the financial war between European nations attacking each other's bond markets openly shorting them that led to all of Europe defaulting on their debt. Even Britain went into a moratorium suspending debt payments. This is what put the pressure on capital flows sending waves of capital to the United States that to sane degree was kind of like the capital flow to Japan into 1989. This put tremendous pressure upon the dollar driving it to new record highs that were misread by the politicians who did not understand capital flow. They responded with Smoot-Hawley misreading the entire set of facts. (see Greatest Bull Market In History) (Herbert Hoover's memoirs).
It is true that today we have Keynesian and Monetarist theories to manage the crisis. Sad to say, neither one will now work. Bernanke has responded in force dropping the federal funds rate from 5.25% to .25%. He has also opened the Fed Window and thrown out more than $1 trillion in 13 months. However, as admirable as this may be, he has no tool that will do the job. Milton Friedman was correct! The Great Depression was not caused by the decline in the stock market. The event was set in motion by the credit and banking crisis that resulted in a one-third contraction in the money supply.
Interest rates will do nothing. The flight to quality always takes place so what happens is a two-fold punch. (1) Interest rates collapse because capital seeks preservation not yield and will accept during such times virtually a zero rate of return, and (2) the flight to quality takes more available cash from the private sector because government debt truly does compete with the private sector. We are seeing this even now. Federal debt becomes the place to go so we see higher yields in both state am municipal bonds because they are not quality and could default like any bank. This contracts the money supply. Opening the window and just throwing buckets of money into the system will never have any impact to reverse the trend.
Furthermore, we are now in a Floating-Exchange Rate system that has made the global economy far more complex than it was in 1929. We all know that China is one of the biggest holders of US government debt. With the contagion spreading to Russia, South America, and China aside from Europe, we see a steeper decline in the China stock market than we do in the United States because that is where capital had concentrated domestically. If China needs money to stimulate its own economy when exports appear to be collapsing by about 50%, then we can see that the Keynesian model is worthless. If the Fed tries to pump money into the system through buying bonds from the private sector, those bonds may be held by aliens who take the money back to their own economies. The Fed cannot be sure it is even capable of stimulating the purely domestic economy. Lower interest rates to virtually zero like Japan did during the 19905, then if capital finds a better place to invest, it can leave for a higher rate of interest as capital did from Japan to the United states, which is why their domestic economy was never stimulated by the' lower interest rates.
Leverage during the Great Depression was not even remotely close to what we have to face today. The credit-default swaps are alone worth about $60 trillion. This was a stupid product for it has so tangled the world there may be no way out. This product created the false illusion that you did not have to worry about the quality of the loan because it was insured. We have no way of covering this level of implosion. Add the unfunded entitlements and then the state and local debts who cannot print money to cover their shortfall s, and we are looking at a contraction of debt that is simply beyond all contemplation.
So What Now?
So now that we see it is not Wall Street, again, but the banks, perhaps we can separate the facts from the fantasy. We can now see that there are two separate and distinct forecasts to be made - (1) economy and (2) stock market. Economic Depressions have a duration unfortunately of generally 23 years with an outside potential of 26 years. The 1873 Panic led to a economic depression of really 23 years into 1896. There were bouts with high volatility and injection of major waves of inflation following the major silver discoveries. It was the age of the Silver Democrats who tried to create inflation by over-valuing silver relative to gold. This created a wave of European-American arbitrage where silver flowed into the US exchanging it for gold, which then flowed back to Europe. By 1896, the US Treasury was broke.
The Panic of 1873 marked the collapse of J. Cook & Co, the huge investment bank that was the 19th Century version of Goldman Sachs. They went bust because of excessive leverage in railroad stocks. It matters not what the instrument may be, it is always the leverage, which set the tone for a economic depression that lasted into 1896 where JP Morgan became famous for leading a bailout of the us Treasury organizing a loan of gold bullion. The stock market rallied and made new highs with plenty of panics between 1873 and 1896. The point is, The Panic of 1893 was quite a horrible one. The point is, the stock market is not a reflection of the economy. It often trades up in anticipation of better times, and trades down on those same perceptions of bad times. In both cases, new highs or lows unfold even contrary to economic trends.
We will see new highs in the now long before we see the final low in the economy. The ideal lows on a timing basis for the stock market will be as soon as April 2009 or by June of 2009. The more pronounced lows would be due on a timing basis between December 2009 and April 2010. The most extreme target would seem to be August 2010. The shorter the resolution to the stock market low, the sooner we will start to see much higher volatility.
The low for the Dow would be indicated by reaching the 3,500-4,000 area. A 2008 closing below 12,000 in the cash now Jones Industrials will signal that the bear market is underway into at least 2009 if not 2010. A year-end closing for 2008 below the 9,700-9,800 level, will signal higher volatility as well. The real critical level for the closing of 2008 will be the 7,200 area generally. A year-end closing beneath this general level will signal that we could see the sharp decline to test the extremes support at 3,600-4,000 by as early as April 19th, 2009 going into May /June 2009. If we were to drop so quickly into those targets, this would be most likely the major low with a significant rally into at least April 16th, 2010.
The less volatile outcome would be a prolonged decline into the December 2009 target to about April 16th, 2010. A low at that late date would tend to project out for a high as early as June 2011 or into late 2012. Nevertheless, volatility appears to be very high. Those who were at the 1985 Economic conference in Princeton, may want to review those video tapes. The volatility we were looking at 20-30 years into the future is now. As 3 of the 5 major investment bankers failed, Merrill, Lehman and Bear, the liquidity has evaporated so the swings are going to be much more dramatic.
The major support is 3,600 on the now Industrials. During '09, the support area appears to be 6,600, 5,000, and 4,000-3,600. Clearly, resistance is shaping up at 9,700-9,800. It would take a monthly close back above the 12,400 level to signal new highs are likely. If we saw a complete collapse into a low by April 2009 or June 2009 reaching the 4,000 general area, this would be the major low with most likely a hyper-inflationary spiral developing thereafter. In that case, the now Jones Industrials could be back at even new highs as early as mid 2011 or going into late 2012.
Gold has decoupled from oil as it should and has been rising on an ounce-to-barrel ratio. Here, the pivot area for 2009 seems to be the $730-$760 area with the key support being still at the $525-$540 zone. The major high intraday was on March 17th, 2008. A weekly closing below $800 warns of consolidation. Only a monthly closing below the $535 area would signal a major high is in place. The more critical support appears to be at about $680 - $705. A weekly closing beneath this area will also warn of a potential consolidation. A major high is possible as early as 2010-2011 with the potential for an exponential rally into 2015 if there is any kind of a low going into 2011.45. The key to watch will be crude Oil. The collapse of Investment Banks has removed the speculation that exaggerated the trend. A year-end close below $40 for 2008 would signal a major high and serious economic decline ahead.
There Are No Tools Left! The Emperor Has No Clothes
It is hard to explain to someone who believe he has power, that he really has nothing of any significance. This becomes the story of the Emperor Has No Clothes. No one will tell him, and if you do, it may be off-with-your-head. This is akin to the man behind the curtain in the Wizard of OZ trying to keep up the whole illusion. After all, why do we vote for people unless we believe that will somehow change our lives?
Interest Rates
When an economy is rising and the stock market is exploding, interest rates always rise because the demand for money is rising because people believe that they can make a profit. Government pretend to be raising interest rates to stop inflation, but they do not create a trend contrary to the free markets. What happened in 1980 was merely that the government over-shoots the differential between expectations and the rate of interest. If you believe the stock market will double, you will pay 20% interest. A rising interest rate does not create a bear market. Only when the rate of interest exceeds expectations of potential profit offering almost a fixed secured return, will capital leave the speculative market and run to the bond market.
In a bear market, interest rates always decline because of the flight to quality. When there is a risk of a .banking crisis as well, then the flight to quality shows that capital is willing to accept virtually zero in return for the privilege to park itself is a secure manner to preserve the future.
In both cases, the government may accelerate the trend, but by no means can they create the trend or alter the trend. Lowering interest rates to zero right now will not reverse the economic decline. People will look out the window and until they feel confident again, they will not come out from behind the castle walls. Japan lowered interest rates to virtually zero for nearly a decade. All it did was fuel the carry trade whereby yen was borrowed at 0.1 % and invested in dollars at 5-8%. There was little opportunity to invest domestically in Japan and the stock market languished in a broad consolidation with flurries the upside every-now-and-again.
Monetary Theory
The Fed has already put into the system about $1 trillion in 13 months. The real problem is they are buying back US government debt injecting cash into the system. But if those bonds are sold to the Fed by foreign holders, there can be no injection of cash into the domestic economy. This amounts to the monetization of our debt in any event. Clearly, buying bonds from the market is not a guaranteed increase in domestic money supply especially when the velocity of money is itself collapsing. Borrowing heavily all these years and depending on foreign investors to buy that debt, altered the course of economics. Of course there has always been the foreign investor, but there has not been the floating exchange rate system. The rise and fall of the dollar itself can now either attract foreign capital with an advance or repel capital with its decline. Like we needed another new variable.
Infrastructure Spending
There really is nothing left in the tool bag that can help even to mitigate the coming Economic Depression. The unemployment rate at the end of 1930 was only about 8.9% - similar to the 1975 recession. Things were very slow back then. Even housing was not moving and people took whatever offers came their way. It was the Dust Bowl that began in 1934 that sent the unemployment rising after the 1932 low in the stock market. About 40% of the work force was agrarian. Hence, Congress could not pass a law to make it rain. The real devastation was that this presented a huge portion of the work force that had to be retrained into skilled labor. It was the Great Depression that finally by force of necessity, created an industrial work force that may have taken another 200 years to unfold by gradual transformation.
The WPA was formed in 1935, 3 years after the low in the stock market (1932). It had a slow and marginal success. At best, if we attribute all improvement to this one program, very unlikely, unemployment was only reduced by about 20%.
1935 20.3%
1936 16.9%
1937 14.3%
1938 19.0%
1939 17.2%
1940 14.6%
Even if we attribute everything to the WPA, all the way into 1940, the most the unemployment declines was by 30%. However, at the end of World War II, we see an Unemployment rate of 1.9% by 1945. Any ideas that we can spend trillions on infrastructure and make it all better, forget it.
Turning to infrastructure in the middle of a debt crisis makes no sense. The idea of just spending money will somehow stimulate the economy, will not work. This is like trying to fight in the desert of Iraq using the same tactics as in Vietnam. There has to be sane connection to what we are doing. Just because FDR instituted the WPA when we had a huge displacement issue in the work force, almost 6 years after the crash began, makes no sense at all for our current problems. As I said, this is like buying your wife a mink coat to somehow influence your kid to get their grades up. The connection is tenuous at best and nonexistent in all reality.
Summary
Unless we attack the debt structure directly, there is no point in counting upon any government to help mitigate the problem and more-likely-than-not, our very future may be recast in so many ways, the level of frustration will rise, and that leads to war because war distracts the people from hanging their own politicians. The oldest trick in the book is to blame the guy next-door down. Unless we are honestly prepared to truly 1) reorganize the structure of government, 2) reorganize the entire debt structure both private and public, 3) regulate leverage, 4) restore usury laws that will free up personal income, and 5) look at just eliminating the federal income tax in combination with 6) establishing a new national heathcare system that will restructure all pension plans public and private, there is not much hope for the future from government. Our definition of money (M1) does not include bonds so we can fool ourselves by issuing $10 trillion in bonds is different than printing the cash. It is still money. Taxes are needed in a gold standard where money cannot be created. Stop competing with the states, control the budget as a percent of GDP, increase the money supply to that degree, and stop the taxing when money is created by leverage and velocity anyway. This will restore jobs and inject huge confidence as in 1964 when the payroll tax was cut permanently. One-offs never work. People save the rebates for a rainy day. We need real honest reform since the states will go broke and seek handouts as well. So, it is time to get real. It is time we restructure the entire system including the banks which always cause the problem. We don't need excessive regulation of things that did not create the problem when the real culprits always escape.
銀行隱憂
美國企業今年首季業績公佈潮昨日展開，去年第四季業績創下慘淡紀錄後，投資者預期企業受經濟衰退拖累，新一輪的業績報告都會好差，再加上大投機家索羅斯話美股最近的升市只係熊市的反彈，打壓投資氣氛，美股昨日走勢疲弱。
湯森路透預計標普500企業首季盈利將按年大跌約36.9%。若果然是如此的的話，將是標普500指數1998年開始有記錄以來，首次錄得連續七個季度的企業盈利負增長。Hester Capital Management嘅CEO Craig Hester話，「第一季業績差勁，應該不會令人感到意外。關鍵是看企業對未來經營情況的說法。」問題係企業對未來環境都估得好悲觀。
另一個打壓市場投資氣氛嘅係一個由多家企業的CEO組成的協會公佈其對經濟前景的看法，指標由負50至正150，低過50，表示看法悲觀。該協會對今年首季指標係負5，係七年以來最低的。去年同期係79.5，上季亦有16.5。CEO預計今年美國GDP會倒退1.9%，遠差過3個月前預測的零增長。
美國鋁業係打頭炮公布首季業績的杜指巨企，昨日在收市後率先公佈業績。因全球需求下滑和鋁價大跌，美國鋁業錄得連續第二季季度虧損，經營收入下跌37%至41億美元，淨虧損4.9億美元，合每股虧損0.61美元，上年度同期營收為65億美元，淨利潤為3億美元或每股盈利0.37美元，美鋁的業績顯示鋁業的經營環境仍然相當惡劣。
美國鋁業話，將推出全面計畫重整資產負債表和營運成本，至2010年將增加至節省20億美元，資本開支將削減50%。美國鋁業先升後回，下跌1.5%至7.79美元。
美股表面看是因為企業首季業績而跌，但銀行業的危疾亦重重壓住美股。英國泰晤士報報道，國際貨幣基金會(IMF)最新預測料顯示，環球銀行和保險商持有的有毒債務可能會攀升至4萬億美元，呢個數字遠高於各國投入金融市場消除毒債的資金。消息打壓市場人氣拖累金融股下跌。KBW銀行指數BKX下跌3.5%，摩根大通挫3.4%至27.25美元，富國銀行跌2.6%至14.85美元；美銀跌1.6%至7.36美元；而花旗集團則逆市上升，升1.5%至2.76美元，成為杜指成份股唯一上升的股份。匯控在美國的ADR股價亦跟隨下跌，收報50.01元，比香港收市價低2.3%.
我地昨日講過美國資深銀行業分析師Mike Mayo對銀行業的估評，佢在報告中有嚇人的估計，佢話「美國銀行業的貸款虧損將會增加到超過1930年大蕭條的水平，政府的新救助措施不會如預期那樣有重大作用。」佢話而家銀行只對其貸款帳簿作了2%的撥備，即係借咗1美元出街，只撥備了2美仙，仲有0.98美元在帳上，撥備仍遠低於可能的虧損。
Mike Mayo那句「大蕭條水平」可能係吸引眼球的誇張之詞，但銀行現時主要對住宅樓宇按揭做了撥備，但往後工業和商業按揭及信用咭貸款撥備，好快又殺到。
如今美國銀行股的沽空數字係近期低位，這也是銀行股大反彈的必然結果，逼到大量沽空盤平倉，但彈完之後，沽空盤慢慢多番。而家唯一要睇係金融股回吐後有無後抽，而後抽的水平又會唔會高過上一浪。
湯森路透預計標普500企業首季盈利將按年大跌約36.9%。若果然是如此的的話，將是標普500指數1998年開始有記錄以來，首次錄得連續七個季度的企業盈利負增長。Hester Capital Management嘅CEO Craig Hester話，「第一季業績差勁，應該不會令人感到意外。關鍵是看企業對未來經營情況的說法。」問題係企業對未來環境都估得好悲觀。
另一個打壓市場投資氣氛嘅係一個由多家企業的CEO組成的協會公佈其對經濟前景的看法，指標由負50至正150，低過50，表示看法悲觀。該協會對今年首季指標係負5，係七年以來最低的。去年同期係79.5，上季亦有16.5。CEO預計今年美國GDP會倒退1.9%，遠差過3個月前預測的零增長。
美國鋁業係打頭炮公布首季業績的杜指巨企，昨日在收市後率先公佈業績。因全球需求下滑和鋁價大跌，美國鋁業錄得連續第二季季度虧損，經營收入下跌37%至41億美元，淨虧損4.9億美元，合每股虧損0.61美元，上年度同期營收為65億美元，淨利潤為3億美元或每股盈利0.37美元，美鋁的業績顯示鋁業的經營環境仍然相當惡劣。
美國鋁業話，將推出全面計畫重整資產負債表和營運成本，至2010年將增加至節省20億美元，資本開支將削減50%。美國鋁業先升後回，下跌1.5%至7.79美元。
美股表面看是因為企業首季業績而跌，但銀行業的危疾亦重重壓住美股。英國泰晤士報報道，國際貨幣基金會(IMF)最新預測料顯示，環球銀行和保險商持有的有毒債務可能會攀升至4萬億美元，呢個數字遠高於各國投入金融市場消除毒債的資金。消息打壓市場人氣拖累金融股下跌。KBW銀行指數BKX下跌3.5%，摩根大通挫3.4%至27.25美元，富國銀行跌2.6%至14.85美元；美銀跌1.6%至7.36美元；而花旗集團則逆市上升，升1.5%至2.76美元，成為杜指成份股唯一上升的股份。匯控在美國的ADR股價亦跟隨下跌，收報50.01元，比香港收市價低2.3%.
我地昨日講過美國資深銀行業分析師Mike Mayo對銀行業的估評，佢在報告中有嚇人的估計，佢話「美國銀行業的貸款虧損將會增加到超過1930年大蕭條的水平，政府的新救助措施不會如預期那樣有重大作用。」佢話而家銀行只對其貸款帳簿作了2%的撥備，即係借咗1美元出街，只撥備了2美仙，仲有0.98美元在帳上，撥備仍遠低於可能的虧損。
Mike Mayo那句「大蕭條水平」可能係吸引眼球的誇張之詞，但銀行現時主要對住宅樓宇按揭做了撥備，但往後工業和商業按揭及信用咭貸款撥備，好快又殺到。
如今美國銀行股的沽空數字係近期低位，這也是銀行股大反彈的必然結果，逼到大量沽空盤平倉，但彈完之後，沽空盤慢慢多番。而家唯一要睇係金融股回吐後有無後抽，而後抽的水平又會唔會高過上一浪。
Tuesday, April 7, 2009
Soros: "Danger of Collapse Has Passed," But Stock Rally Not Sustainable
"The real danger of collapse has passed," says legendary financier George Soros. But the "fallout of the collapse" of the banking system "will linger."
In the wake of Lehman Brothers' bankruptcy on Sept. 15, 2008, authorities were forced to put the financial system remains on "artificial life support, which is where it is now," says Soros, the chairman of Soros Fund Management and author of several books, including most recently The Crash of 2008 and What It Means.
As a result, the billionaire speculator says the stock market's recent rally is doomed to fail. "Now we will face reality," he says, referring to a belief policymakers "did not succeed in recapitalizing the banks to point where they can lend freely." Unfortunately, "talk of zombie banks – that's where we are now," Soros says. "Instead of providing the lifeblood of credit, [banks] are effectively drawing it to themselves."
That, in turn, will keep the economy from producing anything more than a fleeting bounce for the foreseeable future, says Soros.
In the wake of Lehman Brothers' bankruptcy on Sept. 15, 2008, authorities were forced to put the financial system remains on "artificial life support, which is where it is now," says Soros, the chairman of Soros Fund Management and author of several books, including most recently The Crash of 2008 and What It Means.
As a result, the billionaire speculator says the stock market's recent rally is doomed to fail. "Now we will face reality," he says, referring to a belief policymakers "did not succeed in recapitalizing the banks to point where they can lend freely." Unfortunately, "talk of zombie banks – that's where we are now," Soros says. "Instead of providing the lifeblood of credit, [banks] are effectively drawing it to themselves."
That, in turn, will keep the economy from producing anything more than a fleeting bounce for the foreseeable future, says Soros.
扭曲的熊市-谢国忠
Stock markets have stormed back in the past month, up 20 to 30 per cent across the board. Businessmen who have been reporting plummeting earnings are beaming with confidence about the future - that is, you should give them more money. Well, hold on to your cash; this is just a dead-cat bounce. The world is in a protracted bear market that will last at least throughout 2010 - and, with policymakers focused on stimulus rather than reform, it could last considerably longer. So don't join the chase. If you do, kiss your money goodbye first.
Cash is still king. There will be a time when the central banks' money-printing will make cash unsafe. Then, you'll want to swap cash into assets like oil and gold. But, before inflation rears its ugly head, cash is still safe. The time for switching will probably be in the first half of 2010.
Plummeting stock, property and commodity markets have cleaned out many wealthy people. But, the smarter ones escaped early and are cash rich now. After hibernating for months, they are itching for action. Unfortunately, the itchier ones will probably part with their cash for good, too. There will be many bear-market bounces over the next two years. They will swallow those who escaped the bear's clutches before. Stock markets are cash grinders now.
Most investors fondly remember stock markets as wealth fountains, in which buying opportunities always followed major declines. But such memories are opium that lure the unwary into traps. The past three decades have been the exception, not the norm, in stock market investing. Even Warren Buffett got lucky. The last bear market in the US lasted for more than a decade. Japan's market is lower today than it was a quarter of a century ago. South Korea's is lower than it was two decades ago. If you believe stock markets make money in the long run, you need to live for a really long time.
America and Europe have entered the sort of structural bear market that gripped Japan and South Korea two decades ago, for two reasons. First, the need to reverse the past borrowing binge will keep economic growth weak, so the pie won't expand significantly in the future. Second, there are more pressing needs, for example, coping with an ageing society. When a society abandons economic growth, is there any reason for favouring profit?
America's bank bailout plan was the catalyst for the current bounce. It wasn't significantly different from former US Treasury Secretary Henry Paulson's plan. The market's response was different because it had been in fear mode for so long that it was ready to interpret such action positively. But, the problem with stripping toxic assets from failing banks is their prices. The current market prices are too low for the banks to survive. The plan tries to boost demand for toxic assets by offering buyers leverage of six times with government-guaranteed debt. As the debt cost for such a private borrower is probably eight percentage points higher than the government's, the subsidy for the equity tranche is nearly 50 percentage points. By priming the upside for private investors, the Treasury hopes that demand for toxic assets will increase sufficiently for their prices to rise enough for banks to survive the stripping.
This hope is probably in vain. In contrast to the stock market's reaction, the credit market has barely changed since the plan's announcement. The prices for toxic assets may need to more than double for the banks to survive. The odds of this happening are quite low. The chances are that the Treasury will come back to nationalisation again.
The Federal Reserve's plan to buy up to US$1.15 trillion of treasuries, credit card loans and mortgage-backed securities was another reason for the market's optimism. Its main aim was to keep mortgage interest low which would, in turn, stabilise the US housing market. But, printing money to keep interest rates low only works temporarily; it will eventually cause the US dollar to crash. Shouldn't investors demand higher interest rates for holding dollar papers? It is working in the short term, as investors focus on the impact of the Fed buying Fannie Mae and Freddie Mac's paper, and ignore its impact on the dollar.
The US is essentially counting on the treasury bubble to keep its economy alive. Because China, Japan and Saudi Arabia are locked in, a depreciating asset could sell at a high price. Like IT, property and collateralised debt obligations before, this bubble will burst. I believe that US asset prices will finally bottom out when the treasury bubble bursts, possibly in 2010.
Experience from the past two decades has taught investors to rush in when a market seems to have hit the bottom, as a V-shaped recovery has always followed. But you will be making a big mistake if you think it will happen this time: there will be no V-shaped recovery; perhaps no recovery at all. Economies and markets may remain at the bottom for years. Possibly the only hope for the next bull market is for China to pick up where the US left off. It has the size and growth potential to lead globalisation. But it must change its export/investment-led model and undertake three reforms:
l Float the yuan, open the capital account and cut income tax to 25 per cent. These actions will attract the rich and talented from all over the world. Shanghai would surpass London and New York as a global financial centre.
l Return the wealth to the people in the form of all government shares in state-owned enterprises. The initial impact would increase household consumption by 500 billion yuan (HK$568 billion). A good economy will tighten the labour market and push up wages, further boosting consumption.
l Designate 25 metropolises as mega cities, with 30 million people each. These cities should be allowed to issue bonds to finance their development, so they can keep property prices low, which would attract buyers. As migrant workers build the cities, the government should start a mortgage programme to allow them to buy the properties they build.
China has the potential to become a developed economy in two decades. There could be another bull market, but the catalyst will not be what Washington is doing. Watch Beijing, instead.
Cash is still king. There will be a time when the central banks' money-printing will make cash unsafe. Then, you'll want to swap cash into assets like oil and gold. But, before inflation rears its ugly head, cash is still safe. The time for switching will probably be in the first half of 2010.
Plummeting stock, property and commodity markets have cleaned out many wealthy people. But, the smarter ones escaped early and are cash rich now. After hibernating for months, they are itching for action. Unfortunately, the itchier ones will probably part with their cash for good, too. There will be many bear-market bounces over the next two years. They will swallow those who escaped the bear's clutches before. Stock markets are cash grinders now.
Most investors fondly remember stock markets as wealth fountains, in which buying opportunities always followed major declines. But such memories are opium that lure the unwary into traps. The past three decades have been the exception, not the norm, in stock market investing. Even Warren Buffett got lucky. The last bear market in the US lasted for more than a decade. Japan's market is lower today than it was a quarter of a century ago. South Korea's is lower than it was two decades ago. If you believe stock markets make money in the long run, you need to live for a really long time.
America and Europe have entered the sort of structural bear market that gripped Japan and South Korea two decades ago, for two reasons. First, the need to reverse the past borrowing binge will keep economic growth weak, so the pie won't expand significantly in the future. Second, there are more pressing needs, for example, coping with an ageing society. When a society abandons economic growth, is there any reason for favouring profit?
America's bank bailout plan was the catalyst for the current bounce. It wasn't significantly different from former US Treasury Secretary Henry Paulson's plan. The market's response was different because it had been in fear mode for so long that it was ready to interpret such action positively. But, the problem with stripping toxic assets from failing banks is their prices. The current market prices are too low for the banks to survive. The plan tries to boost demand for toxic assets by offering buyers leverage of six times with government-guaranteed debt. As the debt cost for such a private borrower is probably eight percentage points higher than the government's, the subsidy for the equity tranche is nearly 50 percentage points. By priming the upside for private investors, the Treasury hopes that demand for toxic assets will increase sufficiently for their prices to rise enough for banks to survive the stripping.
This hope is probably in vain. In contrast to the stock market's reaction, the credit market has barely changed since the plan's announcement. The prices for toxic assets may need to more than double for the banks to survive. The odds of this happening are quite low. The chances are that the Treasury will come back to nationalisation again.
The Federal Reserve's plan to buy up to US$1.15 trillion of treasuries, credit card loans and mortgage-backed securities was another reason for the market's optimism. Its main aim was to keep mortgage interest low which would, in turn, stabilise the US housing market. But, printing money to keep interest rates low only works temporarily; it will eventually cause the US dollar to crash. Shouldn't investors demand higher interest rates for holding dollar papers? It is working in the short term, as investors focus on the impact of the Fed buying Fannie Mae and Freddie Mac's paper, and ignore its impact on the dollar.
The US is essentially counting on the treasury bubble to keep its economy alive. Because China, Japan and Saudi Arabia are locked in, a depreciating asset could sell at a high price. Like IT, property and collateralised debt obligations before, this bubble will burst. I believe that US asset prices will finally bottom out when the treasury bubble bursts, possibly in 2010.
Experience from the past two decades has taught investors to rush in when a market seems to have hit the bottom, as a V-shaped recovery has always followed. But you will be making a big mistake if you think it will happen this time: there will be no V-shaped recovery; perhaps no recovery at all. Economies and markets may remain at the bottom for years. Possibly the only hope for the next bull market is for China to pick up where the US left off. It has the size and growth potential to lead globalisation. But it must change its export/investment-led model and undertake three reforms:
l Float the yuan, open the capital account and cut income tax to 25 per cent. These actions will attract the rich and talented from all over the world. Shanghai would surpass London and New York as a global financial centre.
l Return the wealth to the people in the form of all government shares in state-owned enterprises. The initial impact would increase household consumption by 500 billion yuan (HK$568 billion). A good economy will tighten the labour market and push up wages, further boosting consumption.
l Designate 25 metropolises as mega cities, with 30 million people each. These cities should be allowed to issue bonds to finance their development, so they can keep property prices low, which would attract buyers. As migrant workers build the cities, the government should start a mortgage programme to allow them to buy the properties they build.
China has the potential to become a developed economy in two decades. There could be another bull market, but the catalyst will not be what Washington is doing. Watch Beijing, instead.
Sunday, April 5, 2009
Surging Wall Street faces earnings season test
After putting together a remarkable four-week winning streak, Wall Street faces a new test of its rally in the coming week with the opening of earnings season.
Although the market has been lifted by optimism that the worst crisis since the Great Depression is easing, the news from corporate America may provide clues about whether and when recovery is coming, say analysts.
The Dow Jones Industrial Average climbed 3.1 percent in the week to Friday to close at 8,017.59, capping four sizzling weeks that added some 22 percent to the blue-chip index.
The Standard & Poor's 500 index advanced 3.25 percent to 842.50, capping a 24 percent gain from lows hit March 9.
The tech-heavy Nasdaq powered higher by 4.96 percent on the week to 1,621.87.
The market managed to shrug off weak economic news in the past few sessions, amid a growing consensus that the worst may be over.
"While the economic news continues to be awful, recent news, including the small incremental bump in auto sales, factory orders and (a purchasing manager survey on) manufacturing, are leading many investors to believe the end of the economic recession is finally coming into sight," said Fred Dickson, chief market strategist at DA Davidson & Co.
"We are holding to our view that the rate of decline in the economy is beginning to slow, leading us to believe the economy has a good chance of bottoming out this summer."
Dickson said the rally has gained momentum as short sellers scramble to take profits and cover positions, and money managers with big cash positions "are becoming more nervous about missing the normal big early cycle move that traditionally leads an economic recovery."
But he said a key test will be upcoming with first-quarter earnings reports that will begin to hit the tape over the next few days.
"That will be a real test to see if the current rally is just a technical rally within the overall context of an ongoing bear market or the first leg of a new bull market," he said.
"Investors are very focused on what the economy will do in the second and third quarters," said Hugh Johnson at Johnson Illington Advisors.
"To get an idea of what the economy and earnings will do you have to look carefully at these earnings reports."
Many reports will be dismal but a key factor will be how companies see demand and whether they retrench further or gear up for better times.
In the coming week, Tuesday's quarterly report from aluminum giant Alcoa provides the traditional kickoff for earnings season. Earnings will get into full swing in the following week with results from key firms such as Google, Citigroup and General Electric.
Analysts said the market took in stride Friday's report showing a rise in the unemployment rate to 8.5 percent as 663,000 jobs were shed.
Douglas Porter, economist at BMO Capital Markets, said the view looking forward is not as bleak as in the rear-view mirror.
"Employment will be among the last major indicators to turn the corner," he said.
"First, sales must revive, and then be sustained, then business will try to squeeze more out of remaining employees, then add hours to the workweek, and only then add to payrolls. So, even as jobs spiral lower, another broad array of indicators this week suggested that the howling recession winds may be easing a touch."
Aaron Smith at Economy.com said the latest payrolls report was consistent with a 6.0 percent drop in US economic activity in the first quarter, which is terrible but not as bad as the 6.3 percent pace of decline in the fourth quarter.
"Economic data, growth momentum and policy have turned more supportive for equities," he said. "The next big hurdle will be first-quarter earnings due out over the next several weeks."
Bonds fell sharply for the week on improved appetite for stocks. The yield on the 10-year US Treasury bond rose to 2.907 percent from 2.761 percent a week earlier and that on the 30-year bond increased to 3.721 percent from 3.618 percent. Bond yields and prices move in opposite directions.
Although the market has been lifted by optimism that the worst crisis since the Great Depression is easing, the news from corporate America may provide clues about whether and when recovery is coming, say analysts.
The Dow Jones Industrial Average climbed 3.1 percent in the week to Friday to close at 8,017.59, capping four sizzling weeks that added some 22 percent to the blue-chip index.
The Standard & Poor's 500 index advanced 3.25 percent to 842.50, capping a 24 percent gain from lows hit March 9.
The tech-heavy Nasdaq powered higher by 4.96 percent on the week to 1,621.87.
The market managed to shrug off weak economic news in the past few sessions, amid a growing consensus that the worst may be over.
"While the economic news continues to be awful, recent news, including the small incremental bump in auto sales, factory orders and (a purchasing manager survey on) manufacturing, are leading many investors to believe the end of the economic recession is finally coming into sight," said Fred Dickson, chief market strategist at DA Davidson & Co.
"We are holding to our view that the rate of decline in the economy is beginning to slow, leading us to believe the economy has a good chance of bottoming out this summer."
Dickson said the rally has gained momentum as short sellers scramble to take profits and cover positions, and money managers with big cash positions "are becoming more nervous about missing the normal big early cycle move that traditionally leads an economic recovery."
But he said a key test will be upcoming with first-quarter earnings reports that will begin to hit the tape over the next few days.
"That will be a real test to see if the current rally is just a technical rally within the overall context of an ongoing bear market or the first leg of a new bull market," he said.
"Investors are very focused on what the economy will do in the second and third quarters," said Hugh Johnson at Johnson Illington Advisors.
"To get an idea of what the economy and earnings will do you have to look carefully at these earnings reports."
Many reports will be dismal but a key factor will be how companies see demand and whether they retrench further or gear up for better times.
In the coming week, Tuesday's quarterly report from aluminum giant Alcoa provides the traditional kickoff for earnings season. Earnings will get into full swing in the following week with results from key firms such as Google, Citigroup and General Electric.
Analysts said the market took in stride Friday's report showing a rise in the unemployment rate to 8.5 percent as 663,000 jobs were shed.
Douglas Porter, economist at BMO Capital Markets, said the view looking forward is not as bleak as in the rear-view mirror.
"Employment will be among the last major indicators to turn the corner," he said.
"First, sales must revive, and then be sustained, then business will try to squeeze more out of remaining employees, then add hours to the workweek, and only then add to payrolls. So, even as jobs spiral lower, another broad array of indicators this week suggested that the howling recession winds may be easing a touch."
Aaron Smith at Economy.com said the latest payrolls report was consistent with a 6.0 percent drop in US economic activity in the first quarter, which is terrible but not as bad as the 6.3 percent pace of decline in the fourth quarter.
"Economic data, growth momentum and policy have turned more supportive for equities," he said. "The next big hurdle will be first-quarter earnings due out over the next several weeks."
Bonds fell sharply for the week on improved appetite for stocks. The yield on the 10-year US Treasury bond rose to 2.907 percent from 2.761 percent a week earlier and that on the 30-year bond increased to 3.721 percent from 3.618 percent. Bond yields and prices move in opposite directions.
AUSGROUP'S CEO: Unfazed by challenges
IN THE second half of 2007 when John Sheridan was headhunted for the CEO post at AusGroup, the times were great for the industries that the company serviced. Its clients were enjoying record prices for the mineral resources, and oil and gas that they produced.
Benefiting from that boom, AusGroup’s market value on the Singapore Exchange soared as high as the $1-billion mark as institutional and retail money sought after the stock. The company’s CEO at that time, Mr Stuart Kenny, 55, indicated his desire to step down after leading the company for 10 years.
Mr Sheridan, 42, was then President Director and CEO of PT Petrosea tbk, a company listed in Indonesia, and enjoying much success in turning around the company. He was also a vice-president of the Indonesia-Australia Business Council, which represents the interests of its members in commercial and trade matters between Indonesia and Australia.
Accepting the AusGroup job, he and his family headed back to Perth, where he had grown up and had graduated from the University of Western Australia with a civil engineering degree and a Master’s in Business Administration.
With effect from January 2008, he became the company’s first professional CEO after it had been led by its founding shareholders since 1996.
Unfortunately, the business landscape soon was transformed dramatically by the global credit crisis. It got particularly bad in October when prices of commodities such as iron ore and crude oil plunged, resulting in AusGroup’s clients scaling back some projects or deferring them.
AusGroup’s stock price plummeted to as low as 10 cents in October, dragging its market capitalization to as low as $39 million before rebounding from being deeply oversold (relative to, say, its net asset value of 24.9 Aussie cents) to around $80 million at the end of 2008.
Difficulties lie ahead though, and Mr Sheridan was candid about it at this interview: “The mineral resources sector in Western Australia looks challenging. We see demand for our services reducing. We see clients’ projects being deferred or delayed, though not cancelled.
“That said we remain confident in the sector as it will bounce back. Our clients are typically major blue chip companies. They have no problem funding projects, their consideration is around project economics – driven by supply and demand and the commodity prices.”
A major client, Rio Tinto Group, recently announced it would cut output at its iron ore mines in Western Australia because of reduced demand from steel makers in China.
Mr Sheridan expressed confidence in the oil and gas industry’s fundamentals. That sector’s development projects are longer term and products are forward sold, so the project facilities have to be built and maintained, which is where AusGroup comes in.
AusGroup’s services include building, maintaining and upgrading of infrastructure, plant and equipment used in the extraction and processing of energy and resources.
“A sustained downturn will impact mineral resources and oil and gas, but who’s saying this is going to be a sustained downturn?” asked Mr Sheridan.
“We have a couple of quarters ahead of us where we have to deliver, deliver. That’s when we can start talking a more compelling and believable story to the market. It will believe us when we have got a few successful quarters under our belt,” said Mr Sheridan.
Key catalysts for the stock’s upside include a surge in the prices of hard commodities leading to greater mining activities, and a reversal in the price trend of oil leading to higher offshore exploration and production activities, they said.
Looking back on his taking over the helm at AusGroup, Mr Sheridan said he had encountered some surprises and a few challenges.
He added: “I have rolled up my sleeves and got to work. We reorganized the Australian operations, putting into place a strategic plan on how we are going to get to the next stage.”
He has beefed up work systems and processes, and brought in new talent, including a few people from his previous company.
Then he said with a small laugh: “When I joined AusGroup, its stock price was $1.61. I didn’t do anything to cause the price to come down but have implemented things to improve the business which have not been reflected in the price yet.”
Some institutional investors such as JP Morgan and Deutsche Bank are not waiting around for results. They have considerably lightened their holdings of AusGroup shares, perhaps to meet redemption from clients and perhaps to take into account the impact on AusGroup’s business prospects in the wake of the fall in the prices of commodities.
Asked about the performance of AusGroup’s 100 per cent owned subsidiary, Cactus Engineering, which operates out of Tuas in Singapore, Mr Sheridan said: “We are disappointed. Volumes of sub-sea equipment work have been flat and revenues haven’t grown in line with our expectations. We are working hard to turn this around.”
John Sheridan
Cactus was acquired in 2006, and contributed about 7 cent to the group’s revenue in the full year to 30 June 2008. The Australian operations servicing the mineral resources sector contributed 70 per cent, while the rest came from the oil and gas sector.
Strangely enough, as Mr Sheridan has discovered, sometimes fund managers and other investors are not entirely clear about where AusGroup makes its money. They have been prone to overemphasizing Cactus’ contribution as well as the oil and gas segment’s.
Passionate about people and strategy
Given the turbulence in global economies and given his relative short period of stewardship of AusGroup, it was pertinent to ask Mr Sheridan about his management style.
His reply: He approach is “inclusive” and he is a team player and leader. “I like the word “we” a lot more than the word “me”.
His strongest attribute, he said, is in working hard to develop a team and working with that team.
“There are two things I am particularly passionate about: people and strategy. Strategy – because I like absolute clarity about where we are going, and we can put an action plan around it and you can communicate that to your people so they know what is required of them.
“People – because I believe in the power of great teams. The real competitive advantage of companies these days is their people, and not just one or two individuals who happen to be good.”
Now, if that sounds like a cliché, this is how Mr Sheridan puts it: “Yes, you hear many CEOs say it, but I’m one of those who really get it.”
That is what he attributes the success he achieved in his three years heading PT Petrosea, which provides engineering, construction and contract coal-mining services. Petrosea’s key performance indicators improved substantially during his watch.
“The team I put together there was one of the best I have worked with. I thoroughly enjoyed building a fantastic team and setting a strategic business plan and getting the company on the path towards our goals.”
Early on in his career, he learnt a tough lesson in management when he led a subsea development project.
”I was based in Milan at the time with the rest of the project team was based in Perth. The project was technically demanding, at the time one of the deepest ever FPSO (Floating Production Storage & Offloading) development projects. The project was tough technically and commercially and I drove the project team hard.
”At the end of the project several team members left the company. This caused me to reflect on my management style and was important to me in developing the inclusive style I now have.”
Mr Sheridan does not own shares in AusGroup “but that is not to say I won’t at some point in the future.” In fact, he would have loved to buy when the stock hit 10 cents but could not do so because of a blackout period ahead of the company’s first-quarter results announcement recently.
He, however, has AusGroup stock options, and that is part of the fuel motivating him. But there’s much more – and it comes back to what he had said about developing a great team at work.
“The team we are building – their best work is ahead of us. It’s not today, but 12, 18, 24, 36 months ahead. We are going to start kicking some real goals.”
John Sheridan
He added: “I take a medium to long-term view. If you are passionate about people, investing in people is a medium to long-term strategy. In a downturn, the last thing I want to cut is any of the development programmes around our people.
“I don’t want to stop recruiting excellent people and developing our people. If that means replacing some people, that’s what I will do. When you have good people, your ability to deliver is multiplied.”
Mr Sheridan is married to Kayla, whom he fortuitously met on the very last day of his five years in university. As he started to recall when they got married, he slipped off his wedding band to confirm the year which was inscribed on it – 1995. That was after seven years of courtship.
The couple have two sons – Hamish, nine, and Thomas, 12. Aside from Jakarta, his family has lived in Milan, London and Bangkok as his career unfolded.
The traveling requirements of his job have not changed materially from the time he was at Petrosea. Instead of traveling to supply bases and coal mining operations in various parts of Indonesia, and climbing volcanoes and surfing for leisure, he now travels frequently – by scheduled flight and car - to remote oil and gas fields and mineral resources mines in Australia.
The rugged outdoors are what he has an affinity for. He has previously worked on oil projects in the South China Sea, the Mediterranean and the North Sea. He could be out at sea for days and months and, yes, it was inevitable that he would experience violent storms.
The exposure could serve him well as he navigates AusGroup through turbulent times.
Benefiting from that boom, AusGroup’s market value on the Singapore Exchange soared as high as the $1-billion mark as institutional and retail money sought after the stock. The company’s CEO at that time, Mr Stuart Kenny, 55, indicated his desire to step down after leading the company for 10 years.
Mr Sheridan, 42, was then President Director and CEO of PT Petrosea tbk, a company listed in Indonesia, and enjoying much success in turning around the company. He was also a vice-president of the Indonesia-Australia Business Council, which represents the interests of its members in commercial and trade matters between Indonesia and Australia.
Accepting the AusGroup job, he and his family headed back to Perth, where he had grown up and had graduated from the University of Western Australia with a civil engineering degree and a Master’s in Business Administration.
With effect from January 2008, he became the company’s first professional CEO after it had been led by its founding shareholders since 1996.
Unfortunately, the business landscape soon was transformed dramatically by the global credit crisis. It got particularly bad in October when prices of commodities such as iron ore and crude oil plunged, resulting in AusGroup’s clients scaling back some projects or deferring them.
AusGroup’s stock price plummeted to as low as 10 cents in October, dragging its market capitalization to as low as $39 million before rebounding from being deeply oversold (relative to, say, its net asset value of 24.9 Aussie cents) to around $80 million at the end of 2008.
Difficulties lie ahead though, and Mr Sheridan was candid about it at this interview: “The mineral resources sector in Western Australia looks challenging. We see demand for our services reducing. We see clients’ projects being deferred or delayed, though not cancelled.
“That said we remain confident in the sector as it will bounce back. Our clients are typically major blue chip companies. They have no problem funding projects, their consideration is around project economics – driven by supply and demand and the commodity prices.”
A major client, Rio Tinto Group, recently announced it would cut output at its iron ore mines in Western Australia because of reduced demand from steel makers in China.
Mr Sheridan expressed confidence in the oil and gas industry’s fundamentals. That sector’s development projects are longer term and products are forward sold, so the project facilities have to be built and maintained, which is where AusGroup comes in.
AusGroup’s services include building, maintaining and upgrading of infrastructure, plant and equipment used in the extraction and processing of energy and resources.
“A sustained downturn will impact mineral resources and oil and gas, but who’s saying this is going to be a sustained downturn?” asked Mr Sheridan.
“We have a couple of quarters ahead of us where we have to deliver, deliver. That’s when we can start talking a more compelling and believable story to the market. It will believe us when we have got a few successful quarters under our belt,” said Mr Sheridan.
Key catalysts for the stock’s upside include a surge in the prices of hard commodities leading to greater mining activities, and a reversal in the price trend of oil leading to higher offshore exploration and production activities, they said.
Looking back on his taking over the helm at AusGroup, Mr Sheridan said he had encountered some surprises and a few challenges.
He added: “I have rolled up my sleeves and got to work. We reorganized the Australian operations, putting into place a strategic plan on how we are going to get to the next stage.”
He has beefed up work systems and processes, and brought in new talent, including a few people from his previous company.
Then he said with a small laugh: “When I joined AusGroup, its stock price was $1.61. I didn’t do anything to cause the price to come down but have implemented things to improve the business which have not been reflected in the price yet.”
Some institutional investors such as JP Morgan and Deutsche Bank are not waiting around for results. They have considerably lightened their holdings of AusGroup shares, perhaps to meet redemption from clients and perhaps to take into account the impact on AusGroup’s business prospects in the wake of the fall in the prices of commodities.
Asked about the performance of AusGroup’s 100 per cent owned subsidiary, Cactus Engineering, which operates out of Tuas in Singapore, Mr Sheridan said: “We are disappointed. Volumes of sub-sea equipment work have been flat and revenues haven’t grown in line with our expectations. We are working hard to turn this around.”
John Sheridan
Cactus was acquired in 2006, and contributed about 7 cent to the group’s revenue in the full year to 30 June 2008. The Australian operations servicing the mineral resources sector contributed 70 per cent, while the rest came from the oil and gas sector.
Strangely enough, as Mr Sheridan has discovered, sometimes fund managers and other investors are not entirely clear about where AusGroup makes its money. They have been prone to overemphasizing Cactus’ contribution as well as the oil and gas segment’s.
Passionate about people and strategy
Given the turbulence in global economies and given his relative short period of stewardship of AusGroup, it was pertinent to ask Mr Sheridan about his management style.
His reply: He approach is “inclusive” and he is a team player and leader. “I like the word “we” a lot more than the word “me”.
His strongest attribute, he said, is in working hard to develop a team and working with that team.
“There are two things I am particularly passionate about: people and strategy. Strategy – because I like absolute clarity about where we are going, and we can put an action plan around it and you can communicate that to your people so they know what is required of them.
“People – because I believe in the power of great teams. The real competitive advantage of companies these days is their people, and not just one or two individuals who happen to be good.”
Now, if that sounds like a cliché, this is how Mr Sheridan puts it: “Yes, you hear many CEOs say it, but I’m one of those who really get it.”
That is what he attributes the success he achieved in his three years heading PT Petrosea, which provides engineering, construction and contract coal-mining services. Petrosea’s key performance indicators improved substantially during his watch.
“The team I put together there was one of the best I have worked with. I thoroughly enjoyed building a fantastic team and setting a strategic business plan and getting the company on the path towards our goals.”
Early on in his career, he learnt a tough lesson in management when he led a subsea development project.
”I was based in Milan at the time with the rest of the project team was based in Perth. The project was technically demanding, at the time one of the deepest ever FPSO (Floating Production Storage & Offloading) development projects. The project was tough technically and commercially and I drove the project team hard.
”At the end of the project several team members left the company. This caused me to reflect on my management style and was important to me in developing the inclusive style I now have.”
Mr Sheridan does not own shares in AusGroup “but that is not to say I won’t at some point in the future.” In fact, he would have loved to buy when the stock hit 10 cents but could not do so because of a blackout period ahead of the company’s first-quarter results announcement recently.
He, however, has AusGroup stock options, and that is part of the fuel motivating him. But there’s much more – and it comes back to what he had said about developing a great team at work.
“The team we are building – their best work is ahead of us. It’s not today, but 12, 18, 24, 36 months ahead. We are going to start kicking some real goals.”
John Sheridan
He added: “I take a medium to long-term view. If you are passionate about people, investing in people is a medium to long-term strategy. In a downturn, the last thing I want to cut is any of the development programmes around our people.
“I don’t want to stop recruiting excellent people and developing our people. If that means replacing some people, that’s what I will do. When you have good people, your ability to deliver is multiplied.”
Mr Sheridan is married to Kayla, whom he fortuitously met on the very last day of his five years in university. As he started to recall when they got married, he slipped off his wedding band to confirm the year which was inscribed on it – 1995. That was after seven years of courtship.
The couple have two sons – Hamish, nine, and Thomas, 12. Aside from Jakarta, his family has lived in Milan, London and Bangkok as his career unfolded.
The traveling requirements of his job have not changed materially from the time he was at Petrosea. Instead of traveling to supply bases and coal mining operations in various parts of Indonesia, and climbing volcanoes and surfing for leisure, he now travels frequently – by scheduled flight and car - to remote oil and gas fields and mineral resources mines in Australia.
The rugged outdoors are what he has an affinity for. He has previously worked on oil projects in the South China Sea, the Mediterranean and the North Sea. He could be out at sea for days and months and, yes, it was inevitable that he would experience violent storms.
The exposure could serve him well as he navigates AusGroup through turbulent times.
Saturday, April 4, 2009
等美國經濟回來，還是走一條新路？
中國現在是一個“拖”的策略，想先撐著，等世界經濟好了，我們又回來。但“拖”肯定是沒出路的
3月13日，溫家寶總理在兩會的記者會上直言對購買美國國債的擔憂，稱對借錢給美國“我的確有些擔心”。美方對此迅速反應，奧巴馬總統更是親自傳話，表示包括中國在內的全世界投資者都應對其在美國投資的安全性抱有“絕對信心”。
言猶在耳。美聯儲在18日宣布，將在今後6個月裡購買長期國債3000億美元；增加購買7500億美元的房貸支持證券；增加購買機構債券1000億美元。
美聯儲購買1萬億美元債券意味著要印鈔1萬億美元，從而使美元大幅貶值。中國匯率與美國掛鉤，去年底外匯儲備已高達1.95萬億美元，截至今年1月，中國持有的美國國債已經上升到了7396億美元，成為美國名副其實的第一債權國。美元的貶值必然使中國的巨額美元資產的價值也隨之大幅縮水，中國巨額外匯儲備本金和投資收益雙雙下降。
消息一出，中國國內反彈激烈，直斥美國此舉為“歷史上最無恥的救市”，美聯儲此舉“令美元蒙羞”。
本刊記者為此專訪了獨立經濟學家謝國忠。
美國最終是要印鈔票的
《人物周刊》：從美國國內的情況來看，美聯儲出台這樣一項政策有什麼樣的必然性？
謝國忠：什麼都是有選擇的，美聯儲認為，房地產價格下降跟不良資產的不斷出現在惡性循環，所以它要降低按揭利息來托房地產價格，這只能自己出手，最終的目的還是金融穩定。
《人物周刊》：您剛才說什麼都是可以有選擇，在您看來，美聯儲還有其他的選擇嗎？
謝國忠：一般債務危機都是跟資產的價格過高有關，有債務危機說明你的債過多。比如說房價從100塊錢漲到200塊，我借錢借到了150塊，房地產回到100塊，這時候我破產的話，我把100塊給了債主，還有50塊是他承擔的損失，我一分都沒有了。
另外一個做法就是搞通脹，把收入從100塊變成200塊。你的那個債當然就是相對削了一半，150塊變成75塊了。在第一個選擇方案裡面，債主其實虧了50塊。第二個方案債主是虧了75塊。
我舉的例子很簡單，實際情況更複雜。實際上美國經濟出現了惡性循環，因為債主是金融機構，金融機構虧欠了之後不貸款，導致經濟更差，進而使得房價掉得更嚴重。所以這個政策的依據就是它應該阻止這種惡性循環，最終美聯儲是在兩個方案中，一個破產、一個完全通脹當中選一個。美國這個國家，外國人是主要的債主，外國人擁有美金資產16萬億，所以通脹總的來說是對美國有利的。我過去寫了很多文章，美國最終是要印鈔票的。
美聯儲的邏輯
《人物周刊》：最後美聯儲選擇了第二種方式，由外國投資者來承擔損失。
謝國忠：美聯儲的用意不是一開始就這樣，它是一步步給逼的。
因為金融機構不健康，經濟好不了，美聯儲就需要不斷地做動作刺激經濟。美聯儲為了金融機構好轉，最終就必須把房地產的價格穩住；房地產價格要穩住，就要把按揭的利息壓低；按揭利率壓低之後別人還不願意借錢，那就美聯儲自己借，他就印鈔票借給要房貸的人。這樣一來，漸漸地會引起通脹，這個通脹等於是叫外國人承擔損失。
《人物周刊》：這是我第二個問題，能否梳理一下美聯儲從次貸危機一步步的應對措施？
謝國忠：美聯儲原來一直是要穩定金融機構，從2007年8月份次貸危機出現的時候，它就降息，降低金融機構的財務負擔，因為當時金融機構都採用槓桿放大20、30倍，一塊錢有20、30塊錢的債。當時美聯儲就想把利息降下來，讓金融機構能挺著，沒有逼債的，達到緩衝的作用。一些很糟的機構，比如說貝爾斯登這樣的，就由摩根大通去收購，美聯儲還補貼了摩根大通兩三百億，如果貝爾斯登資產質量比預想要差，美聯儲幫摩根大通承擔一定的負擔。
後來就出了AIG這個事。 AIG的問題最重要的是引進了很多華爾街其他公司的產品，而且都是些不好的產品，並且這些公司不是給了AIG現金，而是打了“白條”。所以AIG要倒，其他人都跑了，比如說高盛。後來美聯儲那麼多錢拿出來救AIG，主要為了拯救其他的金融機構，高盛一家就拿到800億美金，超過它整個股本金，AIG要倒的話高盛就倒了。所以，美聯儲這一步也是穩定金融機構，AIG看上去就像是一個黑洞，其實在洞後面錢都是有主的，錢都跑到高盛、摩根這些銀行里面去了。救了AIG，就救了一大撥人。
這之後雷曼的問題出來了，當時已經警示金融機構那麼久了，雷曼是可以倒的，倒的話影響也不會太大，因為大家都已經準備好了。結果在它倒了之後所有投行借錢的成本大幅上升，因為大家都看到了破產的風險。
這下問題就大了。因為投行原本是用槓桿把一塊錢放大了30倍，30塊錢中29塊錢都是藉來的，這邊借不到那邊資產就必須拋，拋了以後就引起這些資產大幅度下降，你按照市場價格算的話，這些機構不全都破產了嗎？
後來面臨這麼大一個問題了，怎麼辦？美聯儲一直想不出招，然後就這樣，市場不願意借錢給投行，我借。就這一招把金融機構又穩住了一點。穩住了之後，問題是金融機構的錢再也不出去了。在就業情況不好的時候，房地產就沒有需求了。
所以現在，美聯儲希望把按揭利率降到很低，這樣是為了達到兩個目的，一個是不要讓現在持有房貸的人感到有壓力，否則他一走了之不還錢了，把房產還給銀行，銀行拿去拍賣，房價會掉得更嚴重。
另外就是讓購房的成本比較低，以便增加需求。美聯儲的目標是控制房貸的價格。為了控制房貸的價格，它當然必須買一點國債，因為最終房貸的價格是國債利率加上自己風險的係數。
美國人這麼折騰，美元還是儲備貨幣
《人物周刊》：對一個央行來說，啟動機器印鈔票，還是一件讓人感到擔憂的事情。
謝國忠：最害怕的是大家對這個貨幣失去信心，如果人家覺得你會無限印鈔票，就會拋棄美元導致貨幣崩潰，這樣一來利息大幅上升，高度通脹，所有的目標都達不到。
所以美聯儲這麼宣布，我總共購買資產是多少錢。它要注水，注多少，事先給你說好，讓你重新定價，美金上週史無前例一周掉得最多，市場要重新定價。你要注那麼多水，美元的含金量就沖淡了。市場得信你說的話，如果這次沖淡了之後再來沖淡的話，以後怎麼信你？大家都不信的時候，都跑掉了，就是這個體制垮台的時候。
《人物周刊》：你覺得美元儲備貨幣的地位有沒有可能會失去？或者現在只是大家沒得選擇。
謝國忠：問題是美國人這麼折騰，美元還是儲備貨幣。最重要的原因就是沒有其他替代的產品，還有國際上沒有這麼大的開放的市場，中國為什麼貨幣不跟日本去掛鉤，不跟歐元去掛鉤，人家不是開放的經濟。
《人物周刊》：但是實際情況上，咱們無可選擇，世界都沒有選擇。
謝國忠：因為中國匯率跟美金掛鉤的，你的外匯儲備一定是要買美金的。這是很簡單的道理。當然也有可能全世界所有的央行都不買了，就是說我同時拋了，拋了我買別的東西了。美金狂降。這也有可能。
《人物周刊》：那各國央行去買什麼呢？難道去買黃金嗎？黃金市場高度波動，且其容量不足以容納中國的大部分外匯儲備，現在也不清楚以歐元或日圓計價的債券是否更安全、更具流動性且更有利可圖。
謝國忠：黃金太少了，不可能。全世界的黃金只有3萬噸，你去算一下，一共值多少錢。我建議中國買美國的指數基金，我已經建議過很多次了。因為股票後面實際有東西的，不是一張紙，它後面有房子，有機器，有品牌之類的。所以有通脹的時候，它也會重新估值的。
《人物周刊》：那美國的基金指數基金跟美元又是什麼樣的關係呢？
謝國忠：它可以抗衡美元貶值。美國公司的盈利一般是從全世界來的，這是一道防火牆。第二道防火牆是它的資產隨著通脹也會上升的。這不就是有對抗通脹力量嗎？因為你是有聯繫匯率，不能從美金退出來，你還得買美金的資產，不一定是買國債，美國的股票指數基金是可以的。
中國不能再有丫鬟心態
《人物周刊》：美聯儲這次印鈔票，對中國的外匯儲備是什麼樣的影響？美國五年十年的蕭條，它對世界經濟尤其對中國經濟又會造成的什麼樣的影響？
謝國忠：對中國經濟影響非常深遠，當然第一個是外匯儲備，這個事要自求出路了，因為美金貶值是一個比較長線問題，這個還是早做打算為好。
中國人的思想核心是中庸，他不是分析出來這是對美國最佳的方案，他憑感覺，不管一件事對還是錯，他覺得這個事這麼極端，不會吧，不會這麼幹吧？怎麼會那麼極端呢？所以中國在參與世界經濟的時候，思想還沒跟現代世界接軌呢。外匯儲備的事就看中國政府什麼時候早點下決心了。
還有一個就是經濟的問題，中國經濟是出口投資的經濟，美國是貸款消費的經濟，這兩個好比陰跟陽，所以那邊倒了，這邊肯定受影響。中國現在想通過銀行撐，給企業續貸，或者給房地產續貸，不要破產，我們先撐著，然後等到世界經濟好了，我們又回來了。中國政府現在是一個“拖”的策略。
“拖”肯定是沒出路的，肯定沒出路。中國得自己找出路。如果你還是想這些，綁著大家一起走，你就完蛋了。
《人物周刊》：這種想法，為什麼肯定沒有出路呢？以前行得通現在為什麼就行不通了呢？
謝國忠：因為投資都要有回報，回報要有需求，需求那邊應該是消費跟出口了。原來我們出口每年漲20%多，靠這個來撐投資這麼大盤子的。現在的話，不可能了。
《人物周刊》：您建議中國怎麼做呢？
謝國忠：第一中國要給老百姓錢花，因為中國消費不好，消費不好不是信心問題，是因為老百姓沒錢。政府那麼有錢，政府官員非常有權力，資產全在政府的手裡，政府越變越大，民間怎麼會有能力消費呢？經濟不好政府第一個想法就是投資。為什麼？投資錢都朝政府官員走的。這是體制支持的一件事。
中國現在核心的官與民的平衡問題，中國的官僚文化推動了投資的經濟，投資的經濟逼著中國走上出口的經濟，出口的經濟跟美國的消費貸款連上了。
《人物周刊》：中國的政治經濟體制跟美國借錢、花錢的體係是互補的關係，互相配上了。
謝國忠：對。所以那邊倒的時候，現在我們這邊是在掙扎，但是還是想要搞投資。搞投資沒出口的話，又沒消費，這次投資造出來不是空房子，就是全是不開工的廠。
《人物周刊》：中國政府在延續過去的思路。
謝國忠：是過去的思路在放大，它已經懸空了，自己還不知道。
《人物周刊》：您認為延續過去的思路在這次危機中是沒用的，而且會更糟糕。
謝國忠：投資投出來的東西是沒有回報的，最後把銀行給毀了，我們的銀行本來還可以，這是非常危險的一件事。最終要讓老百姓有消費的能力。我提出中國唯一的出路就是把股票分給老百姓，很多人覺得這個很極端。
《人物周刊》：把政府的財富轉移到老百姓中間去？
謝國忠：短線這是唯一的路。中線、長線，我們還有兩條路。一個外匯開放，降低稅收，把全世界的錢都吸引到中國來，把中國變成世界。原來不是美國帶我們進世界嗎？我們國家盤子夠大，你把個人所得稅降到25%，跟公司所得稅一樣。現在我們個人所得稅很高，其實又收不上來，大家都是花的公司的錢，公司的稅率低。稅率降下來之後把全世界的有錢人都吸引過來了，把人才都吸引過來了。我們把中國變成世界。
還有一個，世界上的錢都來了，我們要搞城市化，建設超大城市，讓農民先造城市，造房子，造好房子之後，我借錢給他們買房子，讓他們紮下根來，那個才是真正的發展。中國發展最後的目的就是讓農民進城，讓他們有房子住下來，這是市場經濟穩定和發展的核心，你看不到這一點的話，說明你不懂這個發展。就是三刀，三把刀。
第一把刀就是藏富於民，第二把刀把中國變成世界，第三把刀就是建設超大城市。這三件事，中國就活起來了，中國變成領頭羊了，這10年裡面，中國你不變成領頭羊，不是你願意不願意，你不變領頭羊，你也沒增長的機會，你讓別人走在你前面不可能，人家都已經趴下來了。就這一條路。
《人物周刊》：前面沒有可以依靠的了。
謝國忠：人家已經趴下來了。你靠不著了。這次金融海嘯對中國來說最核心的問題是，究竟是等美國經濟回來，還是自己走一條新路。我們現在應該知道，發達國家的經濟長期都不會好了，如果要保持經濟高增長，必須走出自己的道路。
中國人老是想要偷偷摸摸地提高地位，這實際上是做丫鬟的心態。加入WTO以來，中國一直都是從事OEM的生意，淨幹些臟活、粗活、累活，也是這種丫鬟心態在作祟。
現在大小姐們已經負債累累了，敞開大門說該你做大小姐了，中國人就不想，還是沒有這個膽量。
現在華爾街、矽谷多少人都沒有工作了，眼巴巴地望著中國，我們應該讓這些人來，讓全世界的人才、資源、產品都進來。不要總是想著幹粗活累活，借錢給別人享受。美國經濟情況不好，全球化接下來只有靠中國帶動了。
確立現代經濟思維
《人物周刊》：美聯儲這麼做，是不是一種對世界不負責任的態度？
謝國忠：你的貨幣跟美金掛鉤，是你自己願意挨打，可是你天天怪人家害你。這個是東西方一個區別。中國人覺得你給我設的一個陷阱，把我套進去了。
西方不是那麼回事。你不喜歡美金你就拋唄，我作為一個美金的國家，我跟你說你放在這邊沒問題的，這麼說對我有利，我就這麼說。
這個跟中國人是不一樣，中國人覺得我過去跟你好，你今天怎麼對我不好了，這多不仗義啊。這種思維方式去看待事情，肯定會有很大的問題。我覺得中國人議論人家政策的時候，不是用理性思維方式。
《人物周刊》：我們在這件事中摻雜了很多情緒。
謝國忠：一個人不要指望別人做什麼對你有利，然後老是告訴別人他應該做什麼，你要用理性的心態去想，這個人做什麼對他自己最有利，然後在他這樣做的情況下，我該怎麼做，這才是一個正確的現代的思維方式。
3月13日，溫家寶總理在兩會的記者會上直言對購買美國國債的擔憂，稱對借錢給美國“我的確有些擔心”。美方對此迅速反應，奧巴馬總統更是親自傳話，表示包括中國在內的全世界投資者都應對其在美國投資的安全性抱有“絕對信心”。
言猶在耳。美聯儲在18日宣布，將在今後6個月裡購買長期國債3000億美元；增加購買7500億美元的房貸支持證券；增加購買機構債券1000億美元。
美聯儲購買1萬億美元債券意味著要印鈔1萬億美元，從而使美元大幅貶值。中國匯率與美國掛鉤，去年底外匯儲備已高達1.95萬億美元，截至今年1月，中國持有的美國國債已經上升到了7396億美元，成為美國名副其實的第一債權國。美元的貶值必然使中國的巨額美元資產的價值也隨之大幅縮水，中國巨額外匯儲備本金和投資收益雙雙下降。
消息一出，中國國內反彈激烈，直斥美國此舉為“歷史上最無恥的救市”，美聯儲此舉“令美元蒙羞”。
本刊記者為此專訪了獨立經濟學家謝國忠。
美國最終是要印鈔票的
《人物周刊》：從美國國內的情況來看，美聯儲出台這樣一項政策有什麼樣的必然性？
謝國忠：什麼都是有選擇的，美聯儲認為，房地產價格下降跟不良資產的不斷出現在惡性循環，所以它要降低按揭利息來托房地產價格，這只能自己出手，最終的目的還是金融穩定。
《人物周刊》：您剛才說什麼都是可以有選擇，在您看來，美聯儲還有其他的選擇嗎？
謝國忠：一般債務危機都是跟資產的價格過高有關，有債務危機說明你的債過多。比如說房價從100塊錢漲到200塊，我借錢借到了150塊，房地產回到100塊，這時候我破產的話，我把100塊給了債主，還有50塊是他承擔的損失，我一分都沒有了。
另外一個做法就是搞通脹，把收入從100塊變成200塊。你的那個債當然就是相對削了一半，150塊變成75塊了。在第一個選擇方案裡面，債主其實虧了50塊。第二個方案債主是虧了75塊。
我舉的例子很簡單，實際情況更複雜。實際上美國經濟出現了惡性循環，因為債主是金融機構，金融機構虧欠了之後不貸款，導致經濟更差，進而使得房價掉得更嚴重。所以這個政策的依據就是它應該阻止這種惡性循環，最終美聯儲是在兩個方案中，一個破產、一個完全通脹當中選一個。美國這個國家，外國人是主要的債主，外國人擁有美金資產16萬億，所以通脹總的來說是對美國有利的。我過去寫了很多文章，美國最終是要印鈔票的。
美聯儲的邏輯
《人物周刊》：最後美聯儲選擇了第二種方式，由外國投資者來承擔損失。
謝國忠：美聯儲的用意不是一開始就這樣，它是一步步給逼的。
因為金融機構不健康，經濟好不了，美聯儲就需要不斷地做動作刺激經濟。美聯儲為了金融機構好轉，最終就必須把房地產的價格穩住；房地產價格要穩住，就要把按揭的利息壓低；按揭利率壓低之後別人還不願意借錢，那就美聯儲自己借，他就印鈔票借給要房貸的人。這樣一來，漸漸地會引起通脹，這個通脹等於是叫外國人承擔損失。
《人物周刊》：這是我第二個問題，能否梳理一下美聯儲從次貸危機一步步的應對措施？
謝國忠：美聯儲原來一直是要穩定金融機構，從2007年8月份次貸危機出現的時候，它就降息，降低金融機構的財務負擔，因為當時金融機構都採用槓桿放大20、30倍，一塊錢有20、30塊錢的債。當時美聯儲就想把利息降下來，讓金融機構能挺著，沒有逼債的，達到緩衝的作用。一些很糟的機構，比如說貝爾斯登這樣的，就由摩根大通去收購，美聯儲還補貼了摩根大通兩三百億，如果貝爾斯登資產質量比預想要差，美聯儲幫摩根大通承擔一定的負擔。
後來就出了AIG這個事。 AIG的問題最重要的是引進了很多華爾街其他公司的產品，而且都是些不好的產品，並且這些公司不是給了AIG現金，而是打了“白條”。所以AIG要倒，其他人都跑了，比如說高盛。後來美聯儲那麼多錢拿出來救AIG，主要為了拯救其他的金融機構，高盛一家就拿到800億美金，超過它整個股本金，AIG要倒的話高盛就倒了。所以，美聯儲這一步也是穩定金融機構，AIG看上去就像是一個黑洞，其實在洞後面錢都是有主的，錢都跑到高盛、摩根這些銀行里面去了。救了AIG，就救了一大撥人。
這之後雷曼的問題出來了，當時已經警示金融機構那麼久了，雷曼是可以倒的，倒的話影響也不會太大，因為大家都已經準備好了。結果在它倒了之後所有投行借錢的成本大幅上升，因為大家都看到了破產的風險。
這下問題就大了。因為投行原本是用槓桿把一塊錢放大了30倍，30塊錢中29塊錢都是藉來的，這邊借不到那邊資產就必須拋，拋了以後就引起這些資產大幅度下降，你按照市場價格算的話，這些機構不全都破產了嗎？
後來面臨這麼大一個問題了，怎麼辦？美聯儲一直想不出招，然後就這樣，市場不願意借錢給投行，我借。就這一招把金融機構又穩住了一點。穩住了之後，問題是金融機構的錢再也不出去了。在就業情況不好的時候，房地產就沒有需求了。
所以現在，美聯儲希望把按揭利率降到很低，這樣是為了達到兩個目的，一個是不要讓現在持有房貸的人感到有壓力，否則他一走了之不還錢了，把房產還給銀行，銀行拿去拍賣，房價會掉得更嚴重。
另外就是讓購房的成本比較低，以便增加需求。美聯儲的目標是控制房貸的價格。為了控制房貸的價格，它當然必須買一點國債，因為最終房貸的價格是國債利率加上自己風險的係數。
美國人這麼折騰，美元還是儲備貨幣
《人物周刊》：對一個央行來說，啟動機器印鈔票，還是一件讓人感到擔憂的事情。
謝國忠：最害怕的是大家對這個貨幣失去信心，如果人家覺得你會無限印鈔票，就會拋棄美元導致貨幣崩潰，這樣一來利息大幅上升，高度通脹，所有的目標都達不到。
所以美聯儲這麼宣布，我總共購買資產是多少錢。它要注水，注多少，事先給你說好，讓你重新定價，美金上週史無前例一周掉得最多，市場要重新定價。你要注那麼多水，美元的含金量就沖淡了。市場得信你說的話，如果這次沖淡了之後再來沖淡的話，以後怎麼信你？大家都不信的時候，都跑掉了，就是這個體制垮台的時候。
《人物周刊》：你覺得美元儲備貨幣的地位有沒有可能會失去？或者現在只是大家沒得選擇。
謝國忠：問題是美國人這麼折騰，美元還是儲備貨幣。最重要的原因就是沒有其他替代的產品，還有國際上沒有這麼大的開放的市場，中國為什麼貨幣不跟日本去掛鉤，不跟歐元去掛鉤，人家不是開放的經濟。
《人物周刊》：但是實際情況上，咱們無可選擇，世界都沒有選擇。
謝國忠：因為中國匯率跟美金掛鉤的，你的外匯儲備一定是要買美金的。這是很簡單的道理。當然也有可能全世界所有的央行都不買了，就是說我同時拋了，拋了我買別的東西了。美金狂降。這也有可能。
《人物周刊》：那各國央行去買什麼呢？難道去買黃金嗎？黃金市場高度波動，且其容量不足以容納中國的大部分外匯儲備，現在也不清楚以歐元或日圓計價的債券是否更安全、更具流動性且更有利可圖。
謝國忠：黃金太少了，不可能。全世界的黃金只有3萬噸，你去算一下，一共值多少錢。我建議中國買美國的指數基金，我已經建議過很多次了。因為股票後面實際有東西的，不是一張紙，它後面有房子，有機器，有品牌之類的。所以有通脹的時候，它也會重新估值的。
《人物周刊》：那美國的基金指數基金跟美元又是什麼樣的關係呢？
謝國忠：它可以抗衡美元貶值。美國公司的盈利一般是從全世界來的，這是一道防火牆。第二道防火牆是它的資產隨著通脹也會上升的。這不就是有對抗通脹力量嗎？因為你是有聯繫匯率，不能從美金退出來，你還得買美金的資產，不一定是買國債，美國的股票指數基金是可以的。
中國不能再有丫鬟心態
《人物周刊》：美聯儲這次印鈔票，對中國的外匯儲備是什麼樣的影響？美國五年十年的蕭條，它對世界經濟尤其對中國經濟又會造成的什麼樣的影響？
謝國忠：對中國經濟影響非常深遠，當然第一個是外匯儲備，這個事要自求出路了，因為美金貶值是一個比較長線問題，這個還是早做打算為好。
中國人的思想核心是中庸，他不是分析出來這是對美國最佳的方案，他憑感覺，不管一件事對還是錯，他覺得這個事這麼極端，不會吧，不會這麼幹吧？怎麼會那麼極端呢？所以中國在參與世界經濟的時候，思想還沒跟現代世界接軌呢。外匯儲備的事就看中國政府什麼時候早點下決心了。
還有一個就是經濟的問題，中國經濟是出口投資的經濟，美國是貸款消費的經濟，這兩個好比陰跟陽，所以那邊倒了，這邊肯定受影響。中國現在想通過銀行撐，給企業續貸，或者給房地產續貸，不要破產，我們先撐著，然後等到世界經濟好了，我們又回來了。中國政府現在是一個“拖”的策略。
“拖”肯定是沒出路的，肯定沒出路。中國得自己找出路。如果你還是想這些，綁著大家一起走，你就完蛋了。
《人物周刊》：這種想法，為什麼肯定沒有出路呢？以前行得通現在為什麼就行不通了呢？
謝國忠：因為投資都要有回報，回報要有需求，需求那邊應該是消費跟出口了。原來我們出口每年漲20%多，靠這個來撐投資這麼大盤子的。現在的話，不可能了。
《人物周刊》：您建議中國怎麼做呢？
謝國忠：第一中國要給老百姓錢花，因為中國消費不好，消費不好不是信心問題，是因為老百姓沒錢。政府那麼有錢，政府官員非常有權力，資產全在政府的手裡，政府越變越大，民間怎麼會有能力消費呢？經濟不好政府第一個想法就是投資。為什麼？投資錢都朝政府官員走的。這是體制支持的一件事。
中國現在核心的官與民的平衡問題，中國的官僚文化推動了投資的經濟，投資的經濟逼著中國走上出口的經濟，出口的經濟跟美國的消費貸款連上了。
《人物周刊》：中國的政治經濟體制跟美國借錢、花錢的體係是互補的關係，互相配上了。
謝國忠：對。所以那邊倒的時候，現在我們這邊是在掙扎，但是還是想要搞投資。搞投資沒出口的話，又沒消費，這次投資造出來不是空房子，就是全是不開工的廠。
《人物周刊》：中國政府在延續過去的思路。
謝國忠：是過去的思路在放大，它已經懸空了，自己還不知道。
《人物周刊》：您認為延續過去的思路在這次危機中是沒用的，而且會更糟糕。
謝國忠：投資投出來的東西是沒有回報的，最後把銀行給毀了，我們的銀行本來還可以，這是非常危險的一件事。最終要讓老百姓有消費的能力。我提出中國唯一的出路就是把股票分給老百姓，很多人覺得這個很極端。
《人物周刊》：把政府的財富轉移到老百姓中間去？
謝國忠：短線這是唯一的路。中線、長線，我們還有兩條路。一個外匯開放，降低稅收，把全世界的錢都吸引到中國來，把中國變成世界。原來不是美國帶我們進世界嗎？我們國家盤子夠大，你把個人所得稅降到25%，跟公司所得稅一樣。現在我們個人所得稅很高，其實又收不上來，大家都是花的公司的錢，公司的稅率低。稅率降下來之後把全世界的有錢人都吸引過來了，把人才都吸引過來了。我們把中國變成世界。
還有一個，世界上的錢都來了，我們要搞城市化，建設超大城市，讓農民先造城市，造房子，造好房子之後，我借錢給他們買房子，讓他們紮下根來，那個才是真正的發展。中國發展最後的目的就是讓農民進城，讓他們有房子住下來，這是市場經濟穩定和發展的核心，你看不到這一點的話，說明你不懂這個發展。就是三刀，三把刀。
第一把刀就是藏富於民，第二把刀把中國變成世界，第三把刀就是建設超大城市。這三件事，中國就活起來了，中國變成領頭羊了，這10年裡面，中國你不變成領頭羊，不是你願意不願意，你不變領頭羊，你也沒增長的機會，你讓別人走在你前面不可能，人家都已經趴下來了。就這一條路。
《人物周刊》：前面沒有可以依靠的了。
謝國忠：人家已經趴下來了。你靠不著了。這次金融海嘯對中國來說最核心的問題是，究竟是等美國經濟回來，還是自己走一條新路。我們現在應該知道，發達國家的經濟長期都不會好了，如果要保持經濟高增長，必須走出自己的道路。
中國人老是想要偷偷摸摸地提高地位，這實際上是做丫鬟的心態。加入WTO以來，中國一直都是從事OEM的生意，淨幹些臟活、粗活、累活，也是這種丫鬟心態在作祟。
現在大小姐們已經負債累累了，敞開大門說該你做大小姐了，中國人就不想，還是沒有這個膽量。
現在華爾街、矽谷多少人都沒有工作了，眼巴巴地望著中國，我們應該讓這些人來，讓全世界的人才、資源、產品都進來。不要總是想著幹粗活累活，借錢給別人享受。美國經濟情況不好，全球化接下來只有靠中國帶動了。
確立現代經濟思維
《人物周刊》：美聯儲這麼做，是不是一種對世界不負責任的態度？
謝國忠：你的貨幣跟美金掛鉤，是你自己願意挨打，可是你天天怪人家害你。這個是東西方一個區別。中國人覺得你給我設的一個陷阱，把我套進去了。
西方不是那麼回事。你不喜歡美金你就拋唄，我作為一個美金的國家，我跟你說你放在這邊沒問題的，這麼說對我有利，我就這麼說。
這個跟中國人是不一樣，中國人覺得我過去跟你好，你今天怎麼對我不好了，這多不仗義啊。這種思維方式去看待事情，肯定會有很大的問題。我覺得中國人議論人家政策的時候，不是用理性思維方式。
《人物周刊》：我們在這件事中摻雜了很多情緒。
謝國忠：一個人不要指望別人做什麼對你有利，然後老是告訴別人他應該做什麼，你要用理性的心態去想，這個人做什麼對他自己最有利，然後在他這樣做的情況下，我該怎麼做，這才是一個正確的現代的思維方式。
Wednesday, April 1, 2009
Roubini: Go Ahead, Keep Dreaming of That "V-Shaped" Recovery
As we noted earlier, Nouriel Roubini of RGE Monitor actually has a surprisingly non-apocalyptic forecast for the economy: The first quarter of this year will mark the worst rate of decline, and the outlook will gradually improve from there.
We'll still be in a recession through 2009, says Roubini (in contrast to most economists, who think the economy will be growing nicely by Q4). But then, finally, the economy will begin to recover.
But what will this recovery look like? Will it be the V-shaped rocket launch that some bulls are looking for?
No.
It will be an L-shaped slog, says Roubini. The economy will grow at a depressingly slow rate for quite a while, and the stock market will tread water. We may have seen the lows on the S&P 500 (or close to it) but that doesn't mean stocks will make you any money anytime soon.
We'll still be in a recession through 2009, says Roubini (in contrast to most economists, who think the economy will be growing nicely by Q4). But then, finally, the economy will begin to recover.
But what will this recovery look like? Will it be the V-shaped rocket launch that some bulls are looking for?
No.
It will be an L-shaped slog, says Roubini. The economy will grow at a depressingly slow rate for quite a while, and the stock market will tread water. We may have seen the lows on the S&P 500 (or close to it) but that doesn't mean stocks will make you any money anytime soon.
投资的智慧在于等待和希望
法国作家大仲马的代表作《基督山伯爵》，在小说的最后，基督山伯爵给一对年轻恋人写的告别信中有一段经典的话：我心爱的孩子们，你们要快乐幸福地生活下去，而且永远不要忘记，在上帝为我们揭示未来之前，人类的所有智慧就包含在这两个词里 ---"等待和希望"。
2008年以来市场出现的剧烈下挫调整，对每一个投资者都是一次严酷的考验。其实，投资之路从来都不会也不可能是一帆风顺的。学会等待，保持对未来的希望不动摇，这是投资者应该学会的大智慧。
"股神"巴菲特的伯克希尔公司股票是美国最贵的股票之一。但伯克希尔几十年里所经受过的挫折考验和反复动荡有多少人了解呢？1973年至1974年大衰退期，伯克希尔股价从每股90美元跌至每股40美元；1987年股灾中，从每股大约4000美元跌至3000美元；1990年至1991年海湾战争期间，其股价从每股8900美元急剧跌至5500美元；1998年至2000年期间，又曾从每股大约80000美元跌至40800美元。
伯克希尔不能在市场暴跌中独善其身，但却始终能在长期价值投资的护航中一路走向辉煌与灿烂。
如巴菲特所言，投资其实不需要很高的智商，只需要一种人类共同的智慧：选择优质基金或股票买入并持有，耐心地等待，永不放弃希望。
2008年以来市场出现的剧烈下挫调整，对每一个投资者都是一次严酷的考验。其实，投资之路从来都不会也不可能是一帆风顺的。学会等待，保持对未来的希望不动摇，这是投资者应该学会的大智慧。
"股神"巴菲特的伯克希尔公司股票是美国最贵的股票之一。但伯克希尔几十年里所经受过的挫折考验和反复动荡有多少人了解呢？1973年至1974年大衰退期，伯克希尔股价从每股90美元跌至每股40美元；1987年股灾中，从每股大约4000美元跌至3000美元；1990年至1991年海湾战争期间，其股价从每股8900美元急剧跌至5500美元；1998年至2000年期间，又曾从每股大约80000美元跌至40800美元。
伯克希尔不能在市场暴跌中独善其身，但却始终能在长期价值投资的护航中一路走向辉煌与灿烂。
如巴菲特所言，投资其实不需要很高的智商，只需要一种人类共同的智慧：选择优质基金或股票买入并持有，耐心地等待，永不放弃希望。
LOU SIMPSON: WARREN BUFFETT II
Unlike all other CEOs of Warren Buffett's Berkshire Hathaway diverse business empire, who make annual shipments of excess capital and retained earnings to Omaha--Lou Simpson of GEICO Insurance keeps his retained earnings and float and makes his own independent investment decisions. Louis A. Simpson has become a superinvestor in his own right, and appears positioned to take over Berkshire if something were to happen to Buffett and Charlie Munger.
Simpson downplays the liklihood of ever becoming Buffett's successor. First of all, he is only six years younger than Buffett. Simpson says, I don't even think about it. I see myself as a potential back-up. Warren is Berkshire and as long as Warren is around he will be running Berkshire. He as dedicated his life to it and he's the best person to do it. Of course, taking over from Buffett would be no easy responsibility--not only because of the responsibility to manage over US$75 billion in assets, but to work under the shadow of such a renowned legend.
Simpson was born in Chicago in 1936 and initially enrolled in Northwestern University to study engineering, but soon transferred to Ohio Wesleyan University and changed majors to accounting and econimics. He later received a masters degree in economics from Princeton. His first job was with Chicago investment firm Stein, Roe & Farnham in 1962. In 1969, he left to join Los Angeles-based Shareholders Management, an aggressive growth fund. The market tumbled almost immediately, and Simpson learned a lifelong lesson about the importance of considering both valuation and growth when choosing investments. In 1971 he became vice president of Western Asset Management, and was promoted to President in 1976.
In 1979, GEICO's chairman, John J. Byrne, Jr., was looking for a new chief investment officer, and Simpson was one of the four final candidates. Since Buffett at that time already owned about 30% of GEICO, Byrne send the four candidates to Omaha for Buffett interviews. After Simpson left Buffett's office, he phoned Byrne and said, Stop the search,. That's the guy. Simpson's official title was senior vice president and chief investment officer.
Given free rein by his new employers, Simpson switched from bonds to utility, energy, and industrial stocks, and also increased GEICO�s holdings in food packaging and banking companies. Common stocks soon came to represent 32% of the company's portfolio, versus just 12% when he took over. Although his first-year return of 23.7% on equities was well below the market average of 32.3%, in 1982, when the US market's gain was 21.4%, GEICCO's was 45.8%. During the 17 years between his joining the company and its being sold to Berkshire Hathaway in 1996, Simpson achieved average annual returns of 24.7% (versus S&P's 17.8%), beat the S&P Index in 12 of 17 years, and increased GEICO's portfolio value from US$280 million to $1.1 billion.
Focused Investing
Simpson had $2.5 billion in just 7 stocks in 1996. By contrast, the average large-cap value mutual fund owns 86 stocks. Warren Buffett is renowned for following a concentrated approach that puts over 70% of Berkshire common stock holdings in just 4 stocks. Lou Simpson is the same. To quote Simpson, If we could find 15 positions that we really had confidence in, we'd be in 15 positions. We'll never be in 100 positions because we're never going to know 100 companies that well. I think the merits of a concentrated portfolio are: You live by the sword, you die by the sword. If you're right, you're going to add value. If you're going to add value, you're going to have to look different than the market. That means either being concentrated, or, if you're not concentrated in a number of issues, you�re concentrated in types of businesses or industries.
Stock Selections
It begins with research. Once Lou Simpson has identified a possible stock purchase, a meeting with company executives is arranged. One of the things I have learned over the years, Simpson says, is how important management is in building or subtracting from value. We will try to see a senior person, and prefer to visit the company at their office, almost like kicking the tires. You can have all the written information in the world, but I think it is important to figure out how senior people in the company think. Given his status ($2.5 billion under his control and billions more available) and the fact that Simpson can make a substantial investment on behalf of GEICO, a company�s executives are, more often than not, agreeable to meeting. If they are not agreeable, he doesn't invest in the company.
This is one area where Simpson disagrees somewhat with his boss, Mr. Buffett, and famed value investor Ben Graham. Instead, he follows legendary investor Phil Fisher and the qualitative approach to investing. Graham believe primarily in quantitative analysis: By studying the numbers, a wise investor can determine the best investment. In fact, Graham wrote that visiting management, also known as qualitative analysis, might subject an investor to management's salesmanship and charm. Buffett initially follow Graham's investing methods closely, but over time evolved into a blend of Graham and Fisher (with the help of close confidant and partner, Charlie Munger) with remarkable results. With a serious demeanor, straight talk, and down-to-business approach, few if any managers would have the ability to charm Simpson.
Lou Simpson has three qualities that are admired by Warren Buffett: intellect, character, and temperament. Buffett on Simpson, Temperament is what causes smart people not to function well. His temperament probably isn't different than mine. We both tend to do rational things. Our emotions don't get in the way of our intellect. As Charlie Munger says, I would argue that good stock-picking records are held by people who are a little cranky and are willing to bet against the herd. Lou just has that mind-set and that's what impressed us. Buffett and Simpson are not people-intensive but thought-intensive. They are not trading intensive but reading-intensive.
Lou Simpson manages his portfolio according to five basic principles. He outlined these timeless principles in GEICO's 1986 annual report, and he explained them at greater length in an interview with the Washington Post the following year:
1. Think independently. We try to be skeptical of conventional wisdom, he says, and try to avoid the waves of irrational behavior and emotion that periodically engulf Wall Street. We don't ignore unpopular companies. On the contrary, such situations often present the greatest opportunities.
2. Invest in high-return businesses that are fun for the shareholders. Over the long run, he explains, appreciation in share prices is most directly related to the return the company earns on its shareholders' investment. Cash flow, which is more difficult to manipulate than reported earnings, is a useful additional yardstick. We ask the following questions in evaluating management: Does management have a substantial stake in the stock of the company? Is management straightforward in dealings with the owners? Is management willing to divest unprofitable operations? Does management use excess cash to repurchase shares? The last may be the most important. Managers who run a profitable business often use excess cash to expand into less profitable endeavors. Repurchase of shares is in many cases a much more advantageous use of surplus resources.
3. Pay only a reasonable price, even for an excellent business. We try to be disciplined in the price we pay for ownership even in a demonstrably superior business. Even the world's greatest business is not a good investment, he concludes, if the price is too high. The ratio of price to earnings and its inverse, the earnings yield, are useful guages in valuing a company, as is the ratio of price to free cash flow. A helpful comparison is the earnings yield of a company versus the return on a risk-free long-term United States Government obilgation.
4. Invest for the long term. Attempting to guess short-term swings in individual stocks, the stock market, or the economy, he argues, is not likely to produce consistently good results. Short-term developments are too unpredictable. On the other hand, shares of quality companies run for the shareholders stand an excellent chance of providing above-average returns to investors over the long term. Furthermore, moving in and out of stocks frequently has two major disadvantages that will substantially diminish results: transaction costs and taxes. Capital will grow more rapidly if earnings compound with as few interruptions for commissions and tax bites as possible.
5. Do not diversify excessively. An investor is not likely to obtain superior results by buying a broad cross-section of the market, he believes. The more diversification, the more performance is likely to be average, at best. We concentrate our holdings in a few companies that meet our investment criteria. Good investment ideas--that is, companies that meet our criteria--are difficult to find. When we think we have found one, we make a large commitment. The five largest holdings at GEICO account for more than 50 percent of the stock portfolio.
Buffett, also quoted by the Washington Post, Lou has made me a lot of money. Under today's circumstances, he is the best I know. He has done a lot better than I have done in the last few years. He has seen opportunities I have missed. We have $700 million of our own net worth of $2.4 billion invested in GEICO's operations, and I have no say whatsoever in how Lou manages the investments. He sticks to his principles. Most people on Wall Street don't have principles to begin with. And if they have them, they don't stick to them.
Simpson downplays the liklihood of ever becoming Buffett's successor. First of all, he is only six years younger than Buffett. Simpson says, I don't even think about it. I see myself as a potential back-up. Warren is Berkshire and as long as Warren is around he will be running Berkshire. He as dedicated his life to it and he's the best person to do it. Of course, taking over from Buffett would be no easy responsibility--not only because of the responsibility to manage over US$75 billion in assets, but to work under the shadow of such a renowned legend.
Simpson was born in Chicago in 1936 and initially enrolled in Northwestern University to study engineering, but soon transferred to Ohio Wesleyan University and changed majors to accounting and econimics. He later received a masters degree in economics from Princeton. His first job was with Chicago investment firm Stein, Roe & Farnham in 1962. In 1969, he left to join Los Angeles-based Shareholders Management, an aggressive growth fund. The market tumbled almost immediately, and Simpson learned a lifelong lesson about the importance of considering both valuation and growth when choosing investments. In 1971 he became vice president of Western Asset Management, and was promoted to President in 1976.
In 1979, GEICO's chairman, John J. Byrne, Jr., was looking for a new chief investment officer, and Simpson was one of the four final candidates. Since Buffett at that time already owned about 30% of GEICO, Byrne send the four candidates to Omaha for Buffett interviews. After Simpson left Buffett's office, he phoned Byrne and said, Stop the search,. That's the guy. Simpson's official title was senior vice president and chief investment officer.
Given free rein by his new employers, Simpson switched from bonds to utility, energy, and industrial stocks, and also increased GEICO�s holdings in food packaging and banking companies. Common stocks soon came to represent 32% of the company's portfolio, versus just 12% when he took over. Although his first-year return of 23.7% on equities was well below the market average of 32.3%, in 1982, when the US market's gain was 21.4%, GEICCO's was 45.8%. During the 17 years between his joining the company and its being sold to Berkshire Hathaway in 1996, Simpson achieved average annual returns of 24.7% (versus S&P's 17.8%), beat the S&P Index in 12 of 17 years, and increased GEICO's portfolio value from US$280 million to $1.1 billion.
Focused Investing
Simpson had $2.5 billion in just 7 stocks in 1996. By contrast, the average large-cap value mutual fund owns 86 stocks. Warren Buffett is renowned for following a concentrated approach that puts over 70% of Berkshire common stock holdings in just 4 stocks. Lou Simpson is the same. To quote Simpson, If we could find 15 positions that we really had confidence in, we'd be in 15 positions. We'll never be in 100 positions because we're never going to know 100 companies that well. I think the merits of a concentrated portfolio are: You live by the sword, you die by the sword. If you're right, you're going to add value. If you're going to add value, you're going to have to look different than the market. That means either being concentrated, or, if you're not concentrated in a number of issues, you�re concentrated in types of businesses or industries.
Stock Selections
It begins with research. Once Lou Simpson has identified a possible stock purchase, a meeting with company executives is arranged. One of the things I have learned over the years, Simpson says, is how important management is in building or subtracting from value. We will try to see a senior person, and prefer to visit the company at their office, almost like kicking the tires. You can have all the written information in the world, but I think it is important to figure out how senior people in the company think. Given his status ($2.5 billion under his control and billions more available) and the fact that Simpson can make a substantial investment on behalf of GEICO, a company�s executives are, more often than not, agreeable to meeting. If they are not agreeable, he doesn't invest in the company.
This is one area where Simpson disagrees somewhat with his boss, Mr. Buffett, and famed value investor Ben Graham. Instead, he follows legendary investor Phil Fisher and the qualitative approach to investing. Graham believe primarily in quantitative analysis: By studying the numbers, a wise investor can determine the best investment. In fact, Graham wrote that visiting management, also known as qualitative analysis, might subject an investor to management's salesmanship and charm. Buffett initially follow Graham's investing methods closely, but over time evolved into a blend of Graham and Fisher (with the help of close confidant and partner, Charlie Munger) with remarkable results. With a serious demeanor, straight talk, and down-to-business approach, few if any managers would have the ability to charm Simpson.
Lou Simpson has three qualities that are admired by Warren Buffett: intellect, character, and temperament. Buffett on Simpson, Temperament is what causes smart people not to function well. His temperament probably isn't different than mine. We both tend to do rational things. Our emotions don't get in the way of our intellect. As Charlie Munger says, I would argue that good stock-picking records are held by people who are a little cranky and are willing to bet against the herd. Lou just has that mind-set and that's what impressed us. Buffett and Simpson are not people-intensive but thought-intensive. They are not trading intensive but reading-intensive.
Lou Simpson manages his portfolio according to five basic principles. He outlined these timeless principles in GEICO's 1986 annual report, and he explained them at greater length in an interview with the Washington Post the following year:
1. Think independently. We try to be skeptical of conventional wisdom, he says, and try to avoid the waves of irrational behavior and emotion that periodically engulf Wall Street. We don't ignore unpopular companies. On the contrary, such situations often present the greatest opportunities.
2. Invest in high-return businesses that are fun for the shareholders. Over the long run, he explains, appreciation in share prices is most directly related to the return the company earns on its shareholders' investment. Cash flow, which is more difficult to manipulate than reported earnings, is a useful additional yardstick. We ask the following questions in evaluating management: Does management have a substantial stake in the stock of the company? Is management straightforward in dealings with the owners? Is management willing to divest unprofitable operations? Does management use excess cash to repurchase shares? The last may be the most important. Managers who run a profitable business often use excess cash to expand into less profitable endeavors. Repurchase of shares is in many cases a much more advantageous use of surplus resources.
3. Pay only a reasonable price, even for an excellent business. We try to be disciplined in the price we pay for ownership even in a demonstrably superior business. Even the world's greatest business is not a good investment, he concludes, if the price is too high. The ratio of price to earnings and its inverse, the earnings yield, are useful guages in valuing a company, as is the ratio of price to free cash flow. A helpful comparison is the earnings yield of a company versus the return on a risk-free long-term United States Government obilgation.
4. Invest for the long term. Attempting to guess short-term swings in individual stocks, the stock market, or the economy, he argues, is not likely to produce consistently good results. Short-term developments are too unpredictable. On the other hand, shares of quality companies run for the shareholders stand an excellent chance of providing above-average returns to investors over the long term. Furthermore, moving in and out of stocks frequently has two major disadvantages that will substantially diminish results: transaction costs and taxes. Capital will grow more rapidly if earnings compound with as few interruptions for commissions and tax bites as possible.
5. Do not diversify excessively. An investor is not likely to obtain superior results by buying a broad cross-section of the market, he believes. The more diversification, the more performance is likely to be average, at best. We concentrate our holdings in a few companies that meet our investment criteria. Good investment ideas--that is, companies that meet our criteria--are difficult to find. When we think we have found one, we make a large commitment. The five largest holdings at GEICO account for more than 50 percent of the stock portfolio.
Buffett, also quoted by the Washington Post, Lou has made me a lot of money. Under today's circumstances, he is the best I know. He has done a lot better than I have done in the last few years. He has seen opportunities I have missed. We have $700 million of our own net worth of $2.4 billion invested in GEICO's operations, and I have no say whatsoever in how Lou manages the investments. He sticks to his principles. Most people on Wall Street don't have principles to begin with. And if they have them, they don't stick to them.
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