Financial Crisis

[Gambles]

You cannot argue with the monetarists concept of a printing press. You may not like it, you might think it is destructive but you cannot argue against it in terms of practicality.

Why not? Are the presses always right? Is there a guarantee of success? Is practical right...always? In whose terms? Those that profit from it or those that see their savings depreciated?

The argument for practicality is very simple. The US can pay off all its debts tomorrow by printing. So yes you can guarantee success.

I specifically argued that it was a solution - not the best case solution. Although as you have huge amounts of your debt held by foreigners, the chances are that screwing them is a net beneficial solution for the US. Ultimately any end game is that the US will achieve the biggest default on loan obligations in history and this will be achieved without default. It is an inherently counterbalancing interaction between the accumulation of reserves being subject to undervaluation and the increase in inherent borrowing being made increasingly worthless.

You cannot escape the underlying dichotomy of a domestic currency being the global reserve currency until it is essentially rendered worthless.

If you think about it, at what point do we go from thinking, short term treasuries are the safest investment to the riskiest, it is only a matter of time.

To achieve the above in a way that turns out well for America, let alone the global economy, requires lab conditions. The global and US economies are not perfect lab rats and this is the stupidity of monetarism - it unrealistically assumes a level of behaviour and response from people in general that has never happened nor is it ever likley. Monetarism would work if only the monetarists could take all these pesky, irrational peasants out of it. But you can't. They're the people. They matter and they influence outcomes and there's a heck of a lot of them, everywhere.

Edited May 28, 2010 by Gambles

[Gambles]

You cannot argue with the monetarists concept of a printing press. You may not like it, you might think it is destructive but you cannot argue against it in terms of practicality.

Why not? Are the presses always right? Is there a guarantee of success? Is practical right...always? In whose terms? Those that profit from it or those that see their savings depreciated?

The argument for practicality is very simple. The US can pay off all its debts tomorrow by printing. So yes you can guarantee success.

I specifically argued that it was a solution - not the best case solution. Although as you have huge amounts of your debt held by foreigners, the chances are that screwing them is a net beneficial solution for the US. Ultimately any end game is that the US will achieve the biggest default on loan obligations in history and this will be achieved without default. It is an inherently counterbalancing interaction between the accumulation of reserves being subject to undervaluation and the increase in inherent borrowing being made increasingly worthless.

You cannot escape the underlying dichotomy of a domestic currency being the global reserve currency until it is essentially rendered worthless.

If you think about it, at what point do we go from thinking, short term treasuries are the safest investment to the riskiest, it is only a matter of time.

As a tax paying US citizen living in the US I do not agree it is any form of a solution/success.................

The measure of success does not end with printing infinite amounts to satisfy debt anymore than it would if a citizen did the same with their debts. There is a massive loss in such irresponsible behavior whether the too big too fail acknowledge it or not.

Expedient creation of ever more debt does not suggest a solution at all.

In fact we are increasing the problem.

While the ultimate possibility may sound simple for the US to walk on its debt the reality will more than likely be far worse.

We need not even consider a nuclear war but let us at least stick to the basic lack of morality that route suggests.

This whole line of thinking is part of the moral financial decay that has set this country to rot.

As far as "at what point do we go from thinking, short term treasuries are the safest investment to the riskiest" I would say the point has long been passed...But who am I ?

Hear me talk!

[Gambles]

the trouble is there isn't a churchill or thatcher on the horizon,and do the people have the balls to rise up,no money,no food should do it though.

Well thats good news then, no "Thatcher on the horizen" considering she closed down most of our Industries or sold the

Public owned ones off to her own greedy kind,cost the country 7000bln in the Falklands war of her own making and

almost 300 deaths,amongst many other atrocious decisions of which the UK is still suffering from many of them today.

We had many a financial crisis under her Regime too.

Thatcher and Reagan de-regulated the financial sector and for that alone probably bear the largest share of responsibility for the current global economic problems. I don't comment on politics but economically they planted very poisonous seeds in the grounds that are now choking us all.

For all his many obvious great qualities, Churchill was a bit of a disaster economically too.

Edited May 28, 2010 by Gambles

[Gambles]

As a tax paying US citizen living in the US I do not agree it is any form of a solution/success.................

The measure of success does not end with printing infinite amounts to satisfy debt anymore than it would if a citizen did the same with their debts. There is a massive loss in such irresponsible behavior whether the too big too fail acknowledge it or not.

Expedient creation of ever more debt does not suggest a solution at all.

In fact we are increasing the problem.

While the ultimate possibility may sound simple for the US to walk on its debt the reality will more than likely be far worse.

We need not even consider a nuclear war but let us at least stick to the basic lack of morality that route suggests.

This whole line of thinking is part of the moral financial decay that has set this country to rot.

As far as "at what point do we go from thinking, short term treasuries are the safest investment to the riskiest" I would say the point has long been passed...But who am I ?

I can only offer the simplest, easiest and most practical solution. It will imply an increasing amount of moral hazard but is an inherent key to the survival of capitalism. Every solution will be what might one call a least cost option. There are no easy cures. Do you think deflating a 12% deficit in Spain against 20% unemployment is much fun.

What you should understand is that printing is a bit like bailing out the banks - totally irresponsible, totally immoral but essentially inevitable. So when you come down to solutions, you really have to realize that many people think giving a huge amount of credit to Greece is a solution. Obviously noone thinks it is a good solution but presumably they think it is the best of the crap solutions. Which by the way is a pretty heroic assumption.

on if you're a monetarist theoretician

From where I am it looks like utter cowardice and complte abdication of responsibility

[12DrinkMore]

[midas]

Thanks for showing it Alex Lah style with a picture

I am speechless

[midas]

As a tax paying US citizen living in the US I do not agree it is any form of a solution/success.................

The measure of success does not end with printing infinite amounts to satisfy debt anymore than it would if a citizen did the same with their debts. There is a massive loss in such irresponsible behavior whether the too big too fail acknowledge it or not.

Expedient creation of ever more debt does not suggest a solution at all.

In fact we are increasing the problem.

While the ultimate possibility may sound simple for the US to walk on its debt the reality will more than likely be far worse.

We need not even consider a nuclear war but let us at least stick to the basic lack of morality that route suggests.

This whole line of thinking is part of the moral financial decay that has set this country to rot.

As far as "at what point do we go from thinking, short term treasuries are the safest investment to the riskiest" I would say the point has long been passed...But who am I ?

I can only offer the simplest, easiest and most practical solution. It will imply an increasing amount of moral hazard but is an inherent key to the survival of capitalism. Every solution will be what might one call a least cost option. There are no easy cures. Do you think deflating a 12% deficit in Spain against 20% unemployment is much fun.

What you should understand is that printing is a bit like bailing out the banks - totally irresponsible, totally immoral but essentially inevitable. So when you come down to solutions, you really have to realize that many people think giving a huge amount of credit to Greece is a solution. Obviously noone thinks it is a good solution but presumably they think it is the best of the crap solutions. Which by the way is a pretty heroic assumption.

on if you're a monetarist theoretician

From where I am it looks like utter cowardice and complte abdication of responsibility

PLUS I maintain deflation is actually not so bad for the man in the street so

I use your word Abrak ..." <deleted> " to the handful of people that benefit from inflation.

And Naam and jcon also said " bring it on " ( deflation)

[Abrak]

One of things I liked in that Independent was that the French Goverment had promised to reduce the deficit to 4.6% by 2012. It has already announced Euro5bn in spending cuts over the next two years. It needs to make Euro60bn of additional cuts or tax increases over the next 30 months.

[Abrak]

PLUS I maintain deflation is actually not so bad for the man in the street so

I use your word Abrak ..." <deleted> " to the handful of people that benefit from inflation.

And Naam and jcon also said " bring it on " ( deflation)

Well Midas you maybe right,

But when I say I have changed my views about economic conflict, I really mean that if you intend to tackle the current problems through deflation rather than inflation you will cause it. So bring it on and, as I say, the results will not be good. If anyone can design an economic model that deflates Greece out of their current problems without default, I will be impressed.

[Gambles]

PLUS I maintain deflation is actually not so bad for the man in the street so

I use your word Abrak ..." <deleted> " to the handful of people that benefit from inflation.

And Naam and jcon also said " bring it on " ( deflation)

Well Midas you maybe right,

But when I say I have changed my views about economic conflict, I really mean that if you intend to tackle the current problems through deflation rather than inflation you will cause it. So bring it on and, as I say, the results will not be good. If anyone can design an economic model that deflates Greece out of their current problems without default, I will be impressed.

the best outcome would seem to be a very short, very sharp shock

we need to build a base and if that means half of the 11 million Greeks being unemployed before we can start again then so be it

go down far enough and you'll always find a bottom to build from

Live in denial and you have to rely on inflation to devalue the debt or deflationary austerity a la Japan

This applies to every country

if we need to give up foreign holidays, cars, plasma TVs, BBs etc and even our jobs then so be it; it's because we can't afford them so we shouldn't be having them. However no politicians would ever be brave enough to do the right thing....

[Naam]

PLUS I maintain deflation is actually not so bad for the man in the street so

I use your word Abrak ..." <deleted> " to the handful of people that benefit from inflation. And Naam and jcon also said " bring it on " ( deflation)

there seems to be something missing as far as i am concerned. my "bring it on" applies to inflation and deflation. none of both can come overnight as a surprise and that means one has enough time to make the necessary preparations and adjustments.

[Abrak]

the best outcome would seem to be a very short, very sharp shock

we need to build a base and if that means half of the 11 million Greeks being unemployed before we can start again then so be it

go down far enough and you'll always find a bottom to build from

Live in denial and you have to rely on inflation to devalue the debt or deflationary austerity a la Japan

This applies to every country

if we need to give up foreign holidays, cars, plasma TVs, BBs etc and even our jobs then so be it; it's because we can't afford them so we shouldn't be having them. However no politicians would ever be brave enough to do the right thing....

To some extent I agree with you although you do sound a little like Maggie Thatcher. Part of the problem I agree is that economies were not allowed to contract enough to build a 'base'. Taking monetary and fiscal policy to its ultimate extreme essentially, at the very least, creates a Japanese scenario.

I do think, though, that over and above that there are some serious structural problems namely....

1) The US$ as the central reserve currency

2) A Yuan peg with capital controls

3) A dysfunctional euro community

And within these structural constraints, the extent of a short sharp shock is easier said than done. By that I mean to say that 50% unemployment in Greece is to me more an economic solution rather than an acceptable political solution.

[Abrak]

there seems to be something missing as far as i am concerned. my "bring it on" applies to inflation and deflation. none of both can come overnight as a surprise and that means one has enough time to make the necessary preparations and adjustments.

I would agree if the underlying sentiment is that we will be faced with monetary inflation and 'real' asset deflation. In other words effectively negative real interest rates. That, as I see it, is the future for the next few years and it is behind much of my investment thought.

[Naam]

there seems to be something missing as far as i am concerned. my "bring it on" applies to inflation and deflation. none of both can come overnight as a surprise and that means one has enough time to make the necessary preparations and adjustments.

I would agree if the underlying sentiment is that we will be faced with monetary inflation and 'real' asset deflation. In other words effectively negative real interest rates. That, as I see it, is the future for the next few years and it is behind much of my investment thought.

i aired a similar thought in a meeting ~10 days ago and only my "seniority" in this "club" prevented that i was ridiculed by my learned friends

[Abrak]

A far more difficult question would be what would want to theoretically hold in a negative real interest rate environment,

Obviously equities do look attractive currently but given that you cannot have an economy built on negative real rates, it is basically illogical to assume their continuance for any length of time. Essentially as negative real rates are inherently illogical asset prices based on them are likely to be overvalued (or theoretically, if one assumes negative real interest rates ad infinitum, stocks will have a value of infinity in the case of some equities).

To the extent you assume real asset deflation through nominal or real, life is inherently hard.

[12DrinkMore]

World Collapse Explained in 3 Minutes

http://www.youtube.com/watch?v=H0a_FA_J6Sw

"What was the answer to that question?"

:D

[12DrinkMore]

Miami Budget Begging for Bankruptcy

One commissioner says bankruptcy might be the Magic City's only hope.

http://www.nbcmiami.com/news/politics/Miam...isis_Miami.html

Some hard decisions and difficult times coming up, methinks.

[Gambles]

the best outcome would seem to be a very short, very sharp shock

we need to build a base and if that means half of the 11 million Greeks being unemployed before we can start again then so be it

go down far enough and you'll always find a bottom to build from

Live in denial and you have to rely on inflation to devalue the debt or deflationary austerity a la Japan

This applies to every country

if we need to give up foreign holidays, cars, plasma TVs, BBs etc and even our jobs then so be it; it's because we can't afford them so we shouldn't be having them. However no politicians would ever be brave enough to do the right thing....

To some extent I agree with you although you do sound a little like Maggie Thatcher. Part of the problem I agree is that economies were not allowed to contract enough to build a 'base'. Taking monetary and fiscal policy to its ultimate extreme essentially, at the very least, creates a Japanese scenario.

I do think, though, that over and above that there are some serious structural problems namely....

1) The US$ as the central reserve currency

2) A Yuan peg with capital controls

3) A dysfunctional euro community

And within these structural constraints, the extent of a short sharp shock is easier said than done. By that I mean to say that 50% unemployment in Greece is to me more an economic solution rather than an acceptable political solution.

I'd rather that you said Lee Kuan Yew than Maggie!

You're right about the issues and about the impossibility of politicians doing the right thing....

[Gambles]

there seems to be something missing as far as i am concerned. my "bring it on" applies to inflation and deflation. none of both can come overnight as a surprise and that means one has enough time to make the necessary preparations and adjustments.

I would agree if the underlying sentiment is that we will be faced with monetary inflation and 'real' asset deflation. In other words effectively negative real interest rates. That, as I see it, is the future for the next few years and it is behind much of my investment thought.

i aired a similar thought in a meeting ~10 days ago and only my "seniority" in this "club" prevented that i was ridiculed by my learned friends

No ridicule from me on this one, guys

Stop the asset price flooring deals!!

[Gambles]

A far more difficult question would be what would want to theoretically hold in a negative real interest rate environment,

Obviously equities do look attractive currently but given that you cannot have an economy built on negative real rates, it is basically illogical to assume their continuance for any length of time. Essentially as negative real rates are inherently illogical asset prices based on them are likely to be overvalued (or theoretically, if one assumes negative real interest rates ad infinitum, stocks will have a value of infinity in the case of some equities).

To the extent you assume real asset deflation through nominal or real, life is inherently hard.

Martin Gray said back in 2007 that the FTSE is a buy again when it starts with a 4

it's still unclear to me whether that means a fall of around 4% from where we are now or a fall of over 90%....

Equities can be a buy in a deflation/recession as long as they're at the right price

Look at equities from the 1932 bottom; the problem is that they've been prevented from getting there

Time for some words of wisdom:

FOXES AND HEDGEHOG UPDATE?

Behavioural Finance: Information overload can lead to short-termism

By Frances Hudson | 11:51:58 | 27 May 2010 Courtesy of Citywire

The City has been castigated for short-termism, but why and what are the consequences?

In 1936, Keynes defined speculation as ‘the activity of forecasting the psychology of the market’ and theorised that ‘as the organisation of investment markets improves, the risk of the predominance of speculation increases’. If this is true, then behavioural finance should continue to gain prominence. The investment decisions that we make are bounded by our time horizons. This seems eminently sensible. If there is a known or even probable future liability, either in the form of a cash flow or lump-sum cash requirement, it should be taken into account. In the absence of known liabilities, the goal might be to achieve superior risk-adjusted returns over a period of time appropriate to the instruments and methodology being used. So far so good, but recent experience is contrary. Holding periods for US equity mutual funds contracted 80% from an average of 16 years in the 1950s and 1960s to just over three years in 2003 before settling at around four years pre-crisis. At the same time, turnover within portfolios increased from 17% to 110% per annum, implying a holding period for equities of just 11 months. Most analytical tools used by investors are not intended to work on such short time horizons, suggesting that many investors are, as Keynes forecast, engaged in second-guessing the psychology of the market rather than applying conventional fundamental analysis. One explanation for the compression of time horizons is increased information availability. Besides trade and risk disclosures and marking-to-market, investment managers and companies report and are assessed on a quarterly or even a monthly basis, even though the tools they use are effective over very different timeframes. It could be that greater frequency and volume of information provides a degree of comfort to investors, though it may be a false sense of security, engendering overconfidence and leading to over-trading. It seems obvious that increased trading results in increased costs, which detract from long-term performance. As a further caveat, even if it were successful, short-term performance does not necessarily translate into long-term gains. In the immediate aftermath of the global financial crisis, investors’ time horizons shortened dramatically as they sought the most liquid instruments – those they could be sure of exiting if the world did end up crashing around their ears. Herding towards the exits was an understandable (if less than rational) way to behave and provided a contrarian opportunity for those willing and able to take a longer view, reaping an illiquidity premium. Of course, being seen to be doing something – especially if it is the same course as others are following – is a low-risk short-term strategy in reputational terms. However, being distracted by the noise around markets rather than focusing on longer-term changes to the conduct of business could prove a costly course to follow.

[Can't get the chart to copy]

However the long term in only equities can mean some 10-15 year periods of nil returns as depicted above? Please always note that Strategic Asset Allocation for long term growth also changes every decade or so.

Scott Campbell

28th May 2010

[sokal]

You cannot argue with the monetarists concept of a printing press. You may not like it, you might think it is destructive but you cannot argue against it in terms of practicality.

Why not? Are the presses always right? Is there a guarantee of success? Is practical right...always? In whose terms? Those that profit from it or those that see their savings depreciated?

The argument for practicality is very simple. The US can pay off all its debts tomorrow by printing. So yes you can guarantee success.

I specifically argued that it was a solution - not the best case solution. Although as you have huge amounts of your debt held by foreigners, the chances are that screwing them is a net beneficial solution for the US. Ultimately any end game is that the US will achieve the biggest default on loan obligations in history and this will be achieved without default. It is an inherently counterbalancing interaction between the accumulation of reserves being subject to undervaluation and the increase in inherent borrowing being made increasingly worthless.

You cannot escape the underlying dichotomy of a domestic currency being the global reserve currency until it is essentially rendered worthless.

If you think about it, at what point do we go from thinking, short term treasuries are the safest investment to the riskiest, it is only a matter of time.

Your not fooling anyone by defaulting through printing, its still a default. If the US restructured its debts and the lenders took a 20% bath or if the US printed and devalued their currency by 20%; it amounts to the same thing. Printing is messier with more unintended consequences.

[sokal]

As a tax paying US citizen living in the US I do not agree it is any form of a solution/success.................

The measure of success does not end with printing infinite amounts to satisfy debt anymore than it would if a citizen did the same with their debts. There is a massive loss in such irresponsible behavior whether the too big too fail acknowledge it or not.

Expedient creation of ever more debt does not suggest a solution at all.

In fact we are increasing the problem.

While the ultimate possibility may sound simple for the US to walk on its debt the reality will more than likely be far worse.

We need not even consider a nuclear war but let us at least stick to the basic lack of morality that route suggests.

This whole line of thinking is part of the moral financial decay that has set this country to rot.

As far as "at what point do we go from thinking, short term treasuries are the safest investment to the riskiest" I would say the point has long been passed...But who am I ?

I can only offer the simplest, easiest and most practical solution. It will imply an increasing amount of moral hazard but is an inherent key to the survival of capitalism. Every solution will be what might one call a least cost option. There are no easy cures. Do you think deflating a 12% deficit in Spain against 20% unemployment is much fun.

What you should understand is that printing is a bit like bailing out the banks - totally irresponsible, totally immoral but essentially inevitable. So when you come down to solutions, you really have to realize that many people think giving a huge amount of credit to Greece is a solution. Obviously noone thinks it is a good solution but presumably they think it is the best of the crap solutions. Which by the way is a pretty heroic assumption.

Life still would have went on if everything was aloud to collapse in 08.

Printing and bailing out only changes the form that the losses will take. There is no free lunch, just because they have million dollar bills in Zimbabwe doesn't mean they are rich.

[badge]

A far more difficult question would be what would want to theoretically hold in a negative real interest rate environment,

Obviously equities do look attractive currently but given that you cannot have an economy built on negative real rates, it is basically illogical to assume their continuance for any length of time. Essentially as negative real rates are inherently illogical asset prices based on them are likely to be overvalued (or theoretically, if one assumes negative real interest rates ad infinitum, stocks will have a value of infinity in the case of some equities).

To the extent you assume real asset deflation through nominal or real, life is inherently hard.

Martin Gray said back in 2007 that the FTSE is a buy again when it starts with a 4

it's still unclear to me whether that means a fall of around 4% from where we are now or a fall of over 90%....

Equities can be a buy in a deflation/recession as long as they're at the right price

Look at equities from the 1932 bottom; the problem is that they've been prevented from getting there

Time for some words of wisdom:

FOXES AND HEDGEHOG UPDATE?

Behavioural Finance: Information overload can lead to short-termism

By Frances Hudson | 11:51:58 | 27 May 2010 Courtesy of Citywire

The City has been castigated for short-termism, but why and what are the consequences?

In 1936, Keynes defined speculation as 'the activity of forecasting the psychology of the market' and theorised that 'as the organisation of investment markets improves, the risk of the predominance of speculation increases'. If this is true, then behavioural finance should continue to gain prominence. The investment decisions that we make are bounded by our time horizons. This seems eminently sensible. If there is a known or even probable future liability, either in the form of a cash flow or lump-sum cash requirement, it should be taken into account. In the absence of known liabilities, the goal might be to achieve superior risk-adjusted returns over a period of time appropriate to the instruments and methodology being used. So far so good, but recent experience is contrary. Holding periods for US equity mutual funds contracted 80% from an average of 16 years in the 1950s and 1960s to just over three years in 2003 before settling at around four years pre-crisis. At the same time, turnover within portfolios increased from 17% to 110% per annum, implying a holding period for equities of just 11 months. Most analytical tools used by investors are not intended to work on such short time horizons, suggesting that many investors are, as Keynes forecast, engaged in second-guessing the psychology of the market rather than applying conventional fundamental analysis. One explanation for the compression of time horizons is increased information availability. Besides trade and risk disclosures and marking-to-market, investment managers and companies report and are assessed on a quarterly or even a monthly basis, even though the tools they use are effective over very different timeframes. It could be that greater frequency and volume of information provides a degree of comfort to investors, though it may be a false sense of security, engendering overconfidence and leading to over-trading. It seems obvious that increased trading results in increased costs, which detract from long-term performance. As a further caveat, even if it were successful, short-term performance does not necessarily translate into long-term gains. In the immediate aftermath of the global financial crisis, investors' time horizons shortened dramatically as they sought the most liquid instruments – those they could be sure of exiting if the world did end up crashing around their ears. Herding towards the exits was an understandable (if less than rational) way to behave and provided a contrarian opportunity for those willing and able to take a longer view, reaping an illiquidity premium. Of course, being seen to be doing something – especially if it is the same course as others are following – is a low-risk short-term strategy in reputational terms. However, being distracted by the noise around markets rather than focusing on longer-term changes to the conduct of business could prove a costly course to follow.

[Can't get the chart to copy]

However the long term in only equities can mean some 10-15 year periods of nil returns as depicted above? Please always note that Strategic Asset Allocation for long term growth also changes every decade or so.

Scott Campbell

28th May 2010

Sounds like investors are being prepped for some 'short term trading aberrations' perhaps? Or to prove the dangers of dealing with people that have spiky equity-curves and thus large drawdowns(an essential reason for monthly performance data).

Are Scott Campbell and co. the only alternative managers MBMG have relationships with? It just seems theyre the only ones you post commentary form.

[sokal]

Marc Faber talks about Pattaya 2:00 into

.

[Gambles]

A far more difficult question would be what would want to theoretically hold in a negative real interest rate environment,

Obviously equities do look attractive currently but given that you cannot have an economy built on negative real rates, it is basically illogical to assume their continuance for any length of time. Essentially as negative real rates are inherently illogical asset prices based on them are likely to be overvalued (or theoretically, if one assumes negative real interest rates ad infinitum, stocks will have a value of infinity in the case of some equities).

To the extent you assume real asset deflation through nominal or real, life is inherently hard.

Martin Gray said back in 2007 that the FTSE is a buy again when it starts with a 4

it's still unclear to me whether that means a fall of around 4% from where we are now or a fall of over 90%....

Equities can be a buy in a deflation/recession as long as they're at the right price

Look at equities from the 1932 bottom; the problem is that they've been prevented from getting there

Time for some words of wisdom:

FOXES AND HEDGEHOG UPDATE?

Behavioural Finance: Information overload can lead to short-termism

By Frances Hudson | 11:51:58 | 27 May 2010 Courtesy of Citywire

The City has been castigated for short-termism, but why and what are the consequences?

In 1936, Keynes defined speculation as 'the activity of forecasting the psychology of the market' and theorised that 'as the organisation of investment markets improves, the risk of the predominance of speculation increases'. If this is true, then behavioural finance should continue to gain prominence. The investment decisions that we make are bounded by our time horizons. This seems eminently sensible. If there is a known or even probable future liability, either in the form of a cash flow or lump-sum cash requirement, it should be taken into account. In the absence of known liabilities, the goal might be to achieve superior risk-adjusted returns over a period of time appropriate to the instruments and methodology being used. So far so good, but recent experience is contrary. Holding periods for US equity mutual funds contracted 80% from an average of 16 years in the 1950s and 1960s to just over three years in 2003 before settling at around four years pre-crisis. At the same time, turnover within portfolios increased from 17% to 110% per annum, implying a holding period for equities of just 11 months. Most analytical tools used by investors are not intended to work on such short time horizons, suggesting that many investors are, as Keynes forecast, engaged in second-guessing the psychology of the market rather than applying conventional fundamental analysis. One explanation for the compression of time horizons is increased information availability. Besides trade and risk disclosures and marking-to-market, investment managers and companies report and are assessed on a quarterly or even a monthly basis, even though the tools they use are effective over very different timeframes. It could be that greater frequency and volume of information provides a degree of comfort to investors, though it may be a false sense of security, engendering overconfidence and leading to over-trading. It seems obvious that increased trading results in increased costs, which detract from long-term performance. As a further caveat, even if it were successful, short-term performance does not necessarily translate into long-term gains. In the immediate aftermath of the global financial crisis, investors' time horizons shortened dramatically as they sought the most liquid instruments – those they could be sure of exiting if the world did end up crashing around their ears. Herding towards the exits was an understandable (if less than rational) way to behave and provided a contrarian opportunity for those willing and able to take a longer view, reaping an illiquidity premium. Of course, being seen to be doing something – especially if it is the same course as others are following – is a low-risk short-term strategy in reputational terms. However, being distracted by the noise around markets rather than focusing on longer-term changes to the conduct of business could prove a costly course to follow.

[Can't get the chart to copy]

However the long term in only equities can mean some 10-15 year periods of nil returns as depicted above? Please always note that Strategic Asset Allocation for long term growth also changes every decade or so.

Scott Campbell

28th May 2010

Sounds like investors are being prepped for some 'short term trading aberrations' perhaps? Or to prove the dangers of dealing with people that have spiky equity-curves and thus large drawdowns(an essential reason for monthly performance data).

Are Scott Campbell and co. the only alternative managers MBMG have relationships with? It just seems theyre the only ones you post commentary form.

Scott and Martin Gray are the 2 portfolio allocators that we tend to rely on (along with their colleagues, Sam Liddle and Nick Greenwood) - they obviously use lots of fund managers within their portfolios but fund manager views (especially the big houses) are generally best used as toilet paper because it's impossible for them to be impartial - for instance Fidelity's Iberian equity team's first response to the Greek crisis was to say that this was a great opportunity to buy Iberian equity (as was there second, third and subsequent responses). That's not to say that specialists don't come up with some great ideas - Warren Buffet speaks with a forked tongue but is always interesting, Orbis monthly and quarterly commentaries generally contain excellent equity themes and Dr. Mobius has a very goodm take on the emerging markets big picture and details. I read hundreds of fund manager views every week (Citywire is a great source) but most should be taken with a pinch of salt because of the partiality issue. PIMCO is maybe an exception - both Gross and El-Eridian write good big picture stuff without pushing the FI message too hard.

Portfolio allocators tend to be the only big picture people who are able to be truly independent because of this. Other good reads therefore tend to be the likes of Ruffer, Carmignac, many of the endowments like HIMCO. Iveagh also - their commentaries are spot on even if this doesn't always directly translate into their portfolio allocation results. Ruffer I like but it's maybe a bit too eccentric to post on here and the cartoons probably wouldn't come out!

Other than that it's the general economists (whether working for fund managers or not) that are the most interesting, Faber, Soros, Reinhart & Rogoff, Schiller, Stiglitz, Taleb, Roubini etc etc I like both Minack and Keen in Australia, but TBH my current favourite is Andrew Farlow - he writes some of the most enduring stuff and I'm currently re-reading many of the outstanding papers that he wrote 5-10 years back).

But the short answer is that in my own updates I quote multiple sources - but the views that I most trust and therefore am happy to quote verbatim are Campbell and Gray. There's a great Martin Gray Q&A that I should probably post about the nature of risk.

Also remember that permissions is an issue. With the Miton guys, that's not really an issue. I also have blanket permission from Tim Price to quote his writings - maybe I should start a Tim Price thread on here and just put his peices on that as he writes them - they're always very entertaining even if I don't always agree with everything that he writes but he gets it right much, much more than most.

[AlexLah]

Life still would have went on if everything was aloud to collapse in 08.

Printing and bailing out only changes the form that the losses will take. There is no free lunch, just because they have million dollar bills in Zimbabwe doesn't mean they are rich.

I believe they have not printed anything or brought into circulation, just added digital zero's with a few pushes on some buttons that make a banks balance sheet look better again.

The only thing that has increased is the amount of money that need to be payed to service the debt.

And we know that when money is created by creating debt/loans, it does not include the interest that needs to be payed on it.

Suck em dry!!!!

[badge]

[...]

Scott and Martin Gray are the 2 portfolio allocators that we tend to rely on (along with their colleagues, Sam Liddle and Nick Greenwood) - they obviously use lots of fund managers within their portfolios but fund manager views (especially the big houses) are generally best used as toilet paper because it's impossible for them to be impartial - for instance Fidelity's Iberian equity team's first response to the Greek crisis was to say that this was a great opportunity to buy Iberian equity (as was there second, third and subsequent responses). That's not to say that specialists don't come up with some great ideas - Warren Buffet speaks with a forked tongue but is always interesting, Orbis monthly and quarterly commentaries generally contain excellent equity themes and Dr. Mobius has a very goodm take on the emerging markets big picture and details. I read hundreds of fund manager views every week (Citywire is a great source) but most should be taken with a pinch of salt because of the partiality issue. PIMCO is maybe an exception - both Gross and El-Eridian write good big picture stuff without pushing the FI message too hard.

Portfolio allocators tend to be the only big picture people who are able to be truly independent because of this. Other good reads therefore tend to be the likes of Ruffer, Carmignac, many of the endowments like HIMCO. Iveagh also - their commentaries are spot on even if this doesn't always directly translate into their portfolio allocation results. Ruffer I like but it's maybe a bit too eccentric to post on here and the cartoons probably wouldn't come out!

Other than that it's the general economists (whether working for fund managers or not) that are the most interesting, Faber, Soros, Reinhart & Rogoff, Schiller, Stiglitz, Taleb, Roubini etc etc I like both Minack and Keen in Australia, but TBH my current favourite is Andrew Farlow - he writes some of the most enduring stuff and I'm currently re-reading many of the outstanding papers that he wrote 5-10 years back).

But the short answer is that in my own updates I quote multiple sources - but the views that I most trust and therefore am happy to quote verbatim are Campbell and Gray. There's a great Martin Gray Q&A that I should probably post about the nature of risk.

Also remember that permissions is an issue. With the Miton guys, that's not really an issue. I also have blanket permission from Tim Price to quote his writings - maybe I should start a Tim Price thread on here and just put his peices on that as he writes them - they're always very entertaining even if I don't always agree with everything that he writes but he gets it right much, much more than most.

... a humble 'Yes' then.

Only joking Paul.

If thats what you like who am I to interrupt.

I saw this and thought of this forum.

[lannarebirth]

Please don't take this personally Paul as I'm sure it its my own ignorance that is at fault here, but am I to understand that you are a financial advisor that doesn't put money to work yourself , but that you make use of "portfolio allocators" who presumably use fund managers to try to get a return on the funds you have nder managenent? Here's my hypothetical situation. Suppose someome gives you $1,000,000 and there is a zero return on capital over the course of the next year. How much in percentage terms will they have lost by putting their money with you?, given all the mouths to feed? I admit I have a certasin bias against money mangers but I certainly don't have a special bias towards you.

[PCA]

Please don't take this personally Paul as I'm sure it its my own ignorance that is at fault here, but am I to understand that you are a financial advisor that doesn't put money to work yourself , but that you make use of "portfolio allocators" who presumably use fund managers to try to get a return on the funds you have under managenent? Here's my hypothetical situation. Suppose someome gives you $1,000,000 and there is a zero return on capital over the course of the next year. How much in percentage terms will they have lost by putting their money with you?, given all the mouths to feed? I admit I have a certain bias against money mangers but I certainly don't have a special bias towards you.

I do appreciate Paul's positive attitude to the job he is carrying out but in clear agreement with LRB behind the curtain there is not much more than trust and good believe into products that are basically non-transparent to the reseller.

No hard feelings for Paul or the genuine advises he intends to deliver but I know it from the other side of the river. The brightest minds of any field are serving the elite only. What ordinary and/or low funded people will receive from the finance industry is mediocre performance beating inflation at best and that's it(for the lucky ones). It is just a mindgame for the sheeple who actually believe that they don't gamble .

[flying]

Please don't take this personally Paul as I'm sure it its my own ignorance that is at fault here, but am I to understand that you are a financial advisor that doesn't put money to work yourself , but that you make use of "portfolio allocators" who presumably use fund managers to try to get a return on the funds you have nder managenent? Here's my hypothetical situation. Suppose someome gives you $1,000,000 and there is a zero return on capital over the course of the next year. How much in percentage terms will they have lost by putting their money with you?, given all the mouths to feed? I admit I have a certasin bias against money mangers but I certainly don't have a special bias towards you.

I have never used a money manager but...

I do not see what your describing as so out of the norm for such things.

I mean some hire a manager & I am sure it is based on previous performance as that is all there is.

So what if that manager finds the information through what ever channels & advice including outside of his own thoughts.

I do not see how that is different than hiring a manager who has a good record gained by looking at charts or cycles or throwing the bones for that matter.

Seems most folks who use a money manger do so because they feel they cannot suss it out themselves. They feel someone who does it as a service does it better...at times they may be right.

These are the same folks who do not do their own tax returns. But instead hire some accountant or a kid at H&R Block.

As for anyone being upset at getting no return on 1 million invested....well I guess they could also be glad they lost nothing. I know of no investment service that is guaranteed to make $$$ except for a saving bond/ CD etc.

I actually think it may be a good thing if more money manager would know when to step away from the table & just say the risk at this time outweighs any gain in their opinion. If not then they better sign up for gamblers anonymous

Edited May 29, 2010 by flying