Category Archives: Investing Gurus

Victor Sperandeo on the Inevitability of U.S. Hyperinflation

Why we are doomed

debt-GDP

http://www.oftwominds.com/blogjuly14/interest-debt7-14.html

Update on Hyperinflation Talk Presented 2010 by Victor Sperandeo,

EAM Partners L.P.                                                                May 13, 2013

On February 16, 2010, I first gave a speech titled “Hyperinflation: A Statistical Inevitability” at a charity event in Dallas, Texas. In essence, the talk was a “warning” that unless the growth of the nominal debt versus nominal GDP changed to a more normal balance, the US would “eventually” suffer from hyperinflation.

Hyperinflation is a debt problem whose root cause is when a country’s level of debt rises to a level that when its economy goes into a deep recession (or depression) the country cannot borrow money or raise enough taxes to cover its expenditures, and therefore it is forced to print money to cover a greater percentage of its expenditures than the markets and investors think is sustainable. This concludes in the country’s inability to pay the interest on its debt, which progressively consumes its overall budget, causing the country to continue to print money to pay its ever increasing debts and interest thereon, which ultimately leads to a loss in confidence in its currency, ending with hyperinflation as the result.

Editor: Note the difference between inflation and hyperinflation (hyperinflation is NOT just an ultra-high rate of inflation) See links below.

Where the U.S. Stands Today

My original speech was based on the 2010 Congressional Budget Office’s Budget and Economic Outlook Fiscal Years 2010-2020. At the time, total US debt was growing at an unsustainable rate of 11.90% compounded from 2006 -2010 (fiscal years) while gross GDP was growing at a nominal rate of 2.75%. Debt was increasing at 4.3 x’s higher than growth. Clearly, this was an unsustainable situation.

Further, the reason that I state hyperinflation will occur “within” the next 10 years has a logical basis. If one takes the position that the net debt will grow at 5% a year, total U.S. debt will be $27.324 trillion in 10 years (not including current off-balance sheet items or unfunded liabilities). As the CBO does not project total U.S. debt, only public debt, the $27.324 trillion figure is based on my projection.

Now, what will interest rates be in 10 years? The CBO says an average yield is 4.6% (CBO 2/13 Report page 5), but let’s assume it reverts to the mean for bills and bonds of the last 52 years, or from 1961, which was 6.01%. Assuming that spending increases 5.08% a year from 2014-2023 (CBO 2/13 Report page 3), they say annual spending will be $5.082 trillion in 2023 net of annual interest.

However, annual interest in 2023 on my projected $27.324 trillion total U.S. debt (using the historic average interest rate of 6.01%) will be $1.642 trillion, or 32% of projected 2023 annual spending without interest and 24% of projected 2023 annual spending with interest. Today, interest is 6% of the budget. Therefore, one has to ask the question, where does the approximately 20% difference come from? I believe U.S. bond holders will sell what they own, the U.S. dollar will decline, and the Fed will print money at a rate that will make today’s Fed look like they are Shaolin Monks.

See full article here:Hyperinflation by Victor Sperandeo

A history of hyperinflation in pre-revolutionary France: Fiat_Inflation_in_France_by_White

Wheel

Children fiatburn fiatth

An Austrian economist, Joseph Salerno discusses in nineteen minutes the theory of hyperinflation (High School Lecture) http://youtu.be/xVDZVhdT2gY

I am interested to hear from readers how the U.S. will AVOID hyperinflation assuming our current trends continue. What will politicians try to avoid default.  What do YOU think?

Two short, six minute videos discussing Market Wizard, Victor Sperandeo: http://youtu.be/OBkb69tvVqs and http://youtu.be/8XfSz3MT3Xg

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Yamana valuation to be posted Friday.

Value Traps; The Dollar Crisis; Depression of 1929

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I owe my early success as an investor not to brains or knowledge, because my mind was untrained and my ignorance was colossal, The game taught me the game, And didn’t spare the rod while teaching.  

Whenever I have lost money in the stock market I have always considered that I have learned something; that if I have lost money I have gained experience, so that the money really went for a tuition fee.  –Jessie Livermore

Mark Sellers and PRXI Value Trap

He put over 50% of his fund into MCF:

MCF

I added an update to yesterday’s micro-cap post. http://wp.me/p2OaYY-2tX.  The point is to try and understand prior investment successes or failures. Any lessons there?

An excellent book on the inflationary 1970s The-Dollar-Crisis by Percy Greaves

I just like the old photos to capture the spirit of the times: The-Stock-Market-Crash-of-1929

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I am still in shock over Brazil’s World Cup blow-out.

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A fat tail event?

Sentiment vs. Money Supply Growth; Find Cheap Options

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Market Sentiment and Money Supply update: http://www.acting-man.com/?p=31559

James Grant’s Investment Approach (Video) June 12, 2014

Jim Grant: Buy Gold

Editor: Focus on how Mr. Grant approaches investing not necessarily the current object of his affections.

James Grant: “The Fed’s policy will inevitably fail because hyper-aggressive leveraged finance always seems to step in front of a bus.”

“Macro-economic forecasting is not a useful endeavor. It seems a better way is to consider the panoply of risks and then after having pondered them, look for mis-priced and cheap options on likely but uncertain outcomes.”

http://www.realclearmarkets.com/video/2014/06/12/jim_grant_buy_gold.html

[Note: Grant's comments on gold begin at the 7:12 minute mark.]

“Gold is an example to me of an opportunity,” James Grant, editor of Grant’s Interest Rate Observer said in an interview this week. “[It] exhibits so many of the characteristics of a corpse, although it does occasionally toss and turn.”

“Gold stocks certainly look as if they were dead—but nobody even bothers to poke them with a stick.”

Gold is a cheap option on the failure of price control. Observe how the future is handicapped. We now have low levels of volatility and terrific embedded complacency. You will be paid well if the consensus makes a mistake. Invest in the monetary failure of an improvised monetary system run by tenured professors (Yellen).

Investing is when you want people to agree with you not now but in the future.

“Gold and gold mining shares are very, very cheap-and certainly widely detested options on the failure of this massive world-wide experiment, or the demonstration of the hopelessness of the technique of price control.”

HAVE A HAPPY FOURTH!

Curated Alpha; Update on the Resource Markets, Michael Marcus

Tin cup

 

A Blog worth exploring

http://www.curatedalpha.com/category/behavorial-economics/

An update on the resource market

Mr. Rule, a Graham and Dodder in the resource sector, is a smooth communicator, but move on and do your own work. Start here:

https://www.explorationinsights.com/

Free course on resource investing: http://www.sprottgroup.com/natural-resource-investing/investment-university/

http://oreninc.com/orenthink

One of the better gold funds:  www.tocqueville.com

Market Wizard, Michael Marcus Speech:

http://www.curatedalpha.com/2011/curated-interview-with-michael-marcus-from-market-wizards/

 

Soros on the 2008 Crisis and Reflexivity (History)

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I have started to develop a set of generalizations along these lines by introducing the concept of reflexivity.  Reflexivity can be interpreted as a two-way feedback mechanism between the participants’ expectations and the actual course of events.  The feedback may be positive or negative.  Negative feedback serves to correct the participants’ misjudgments and misconceptions and brings their views closer to the actual state of affairs until, in an extreme case, they actually correspond to each other.  In a positive feedback a distortion in the participants’ view causes mispricing in financial markets, which in turn affects the so-called fundamentals in a self-reinforcing fashion, driving the participants’ views and the actual state of affairs ever further apart.  What renders the outcome uncertain is that a positive feedback cannot go on forever, yet the exact point at which it turns negative is inherently unpredictable.  Such initially self-reinforcing but eventually self-defeating, boom-bust processes are just as characteristic of financial markets as the tendency towards equilibrium.

Instead of a universal and timeless tendency towards equilibrium, equilibrium turns out to be an extreme case of negative feedback.  At the other extreme, positive feedback produces bubbles.  Bubbles have two components: a trend that prevails in reality and a misconception relating to that trend.  The trend that most commonly causes a bubble is the easy availability of credit and the most common misconception is that the availability of credit does not affect the value of the collateral.  Of course it does, as we have seen in the recent housing bubble.  But that’s not sufficient to fully explain the course of events.

I have formulated a specific hypothesis for the crash of 2008 which holds that it was the result of a “super-bubble” that started forming in 1980 when Ronald Reagan became President of the United States and Margaret Thatcher was Prime Minister of the United Kingdom. The prevailing trend in the super-bubble was also the ever-increasing use of credit and leverage; but the misconception was different.  It was the belief that markets correct their own excesses.  Reagan called it the “magic of the marketplace”; I call it market fundamentalism.  Since it was a misconception, it gave rise to bubbles.

Read more…

  1. Soros Anatomy of a Crisis 
  2. George-Soros-Theory-of-Reflexivity-MIT-Speech

Why You Win or Lose

Wrong

 Jim Rogers, “Well in my new book, http://www.amazon.com/Street-Smarts-Adventures-Road-Markets/, I explain why many schools now are going to go bankrupt—why American education is going to see some starving, some shocking bankruptcies coming out of American tertiary education—and business school is certainly not much use, I was once a full professor in an Ivy League business school (Columbia GBS), and I will tell you, Jeff Macke, most of what goes on is not very useful at all, except to the professors. They charge huge amounts of money. They teach a lot of conventional wisdom, so the kids who come out, come out in the hole financially but also knowledge-wise; their peers who went to work are way ahead of them financially after two years, but secondly knowledge-wise, too, because a lot of what they teach in business school is flat-out wrong.

These poor kids have to unlearn it and start over. In my view, if you do your own work and teach yourself or start with what you know, you will come out way, way, way ahead of going to business school. I consider business school a complete waste of time, money, energy, and everything else. I’ll tell you what, Jeff, you go down and short soybeans one day, you will learn more in the first six weeks than you will learn in 10 years at any business school. The Internet and real life is a fast way to learn, if your are really interests (Source: pages 26-27 in http://www.amazon.com/Clash-Financial-Pundits-Influences-Investment/).

Why You Win or Lose: WHY_YOU_WIN_or_LOSE_Fred_Kelly (1)

A short synopsis of the 1930 contrarian classic.

Another new investing blog: http://glennchan.wordpress.com/2014/06/14/insider-ownership-is-overrated/#comment-1882

One of my favorites:

http://reminiscencesofastockblogger.com/2014/06/15/a-new-bet-on-hercules-offshore/   (Don’t be lazy–do thy own work)

TREASURE CHEST!

Hashtag

INFLATION

http://www.acting-man.com/?p=31075  Note the ZIRP-induced distortion in the production structure.

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Fed and Stocks

BB

bPKW

PKW is a buy-back ETF which only chooses companies that will buy back at least 5% of their shares per year.

Treasure Chest 

Lecture Links  Thanks to a generous contribution! Let me know what you learn.

Snowball Author Discusses Buffett; Pierre Lassonde on Royalty Companies

U.S.CivilWar_1

Tim Du ToitFounder & CEO of Eurosharelab.com

Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life. Looking forward to your questions. (self.investing)

http://www.reddit.com/r/investing/comments/2550vq/hi_im_alice_schroeder_author_of_the_snowball

Royalty Companies: Pierre Lassonde, Chairman of Franco-Nevada. Not cheap but you pay a fair price now for quality.

If you ever wanted the cheapest way to own precious metals and/or copper, then focus on micro-cap companies with good assets and that are NOT producing–got that?

Now if you don’t want to wade through tmx.com then I suggest GLDX.

GLDX May 22

Counter intuitively, this may be a safer investment than GDX or GDXJ.  WHY? Aren’t explorers and pre-production companies risky? Yes, of course, you must diversify, but if gold declines these companies can hibernate by cutting costs sharply–faster than Newmont. And if gold turns, this can double or triple. A 50% loss for a double or triple is what I am assuming.  I could be wrong. Remember you are not buying quality but cheap, cheap assets.   This is NOT a recommendation but an idea for YOU to investigate or forget about.  This is about cheap OPTION value.  Do not do anything before going to school. 

Go to the mining investment university:

http://www.sprottglobal.com/natural-resource-investing/investment-university/mining-investment-college-video-1/

www.goldsilverdata.com then click on mining 101

www.oreninc.com

HAVE A GREAT WEEKEND and MEMORIAL DAY in the U.S.A.

TA vs. FA for Investors; Longleaf; The Outsiders

James-Turk-speech-Zurich

James Turk, a Goldbug, giving a speech last month to a mostly empty auditorium in Zurich last month.

Technical analysis versus value in gold By Alasdair Macleod Posted 16 May 2014

At the outset I should declare an interest. In the 1980s I was a member of the UK’s Society of Technical Analysis and for a while I was the society’s examiner and lecturer on Elliott Wave Theory. My proudest moment as a technician was calling the 1987 crash the night before it happened and a new bull market two months later in early December. Before anyone assumes I have a gift for technical analysis, I hasten to add I have also made many wrong calls using it, so to be so spectacularly right on that occasion was almost certainly down to a large element of luck. I should also mention that the most successful investors I have observed over 40 years are those who recognize value and disdain charts altogether.

Technical analysts assume past prices are a valid basis for predicting what investors will pay tomorrow. The Warren Buffetts of this world act differently: they care not what others think and use their own judgment of value. This means that value investors often buy when the trend is down and sell when the trend is up, the opposite of technically-driven decisions. A bear market ends when value investors overcome the trend.

Technical analysts go with the crowd and give any trend an added spin. This explains the preoccupation with moving averages, bands, oscillators and momentum. Speculators, who used to be independent thinkers, now depend heavily on technical analysis. This is not to deny that many technicians make a reasonable living: the key is to know when the trend ends, and the difficulty in that decision perhaps explains why technical analysts are not on anyone’s rich list.

Value investors like Buffett rely on an assessment of the income that an investment can generate, and the opportunity-cost of owning it. This may explain his well-known views on gold which for all but a small coterie of central and bullion banks does not generate any income. So where does gold, a sterile asset in Buffett’s eyes stand in all this?

Value investors in gold who buy on falling prices are predominately Asian. For Asians the value in gold comes from the continual debasement of national currencies, a factor rarely considered by western investors who measure investment returns in their home currency with no allowance for changes in purchasing power.

The financial system discourages a more realistic approach, not even according physical gold an investment status. Using technical analysis with the false comfort of stop-losses leads to more profits for market-makers. Furthermore, gold’s replacement as money by unstable national currencies makes economic and investment calculation for anything other than the shortest of timescales unreliable or even impossible. But then this point goes over the heads of the trend-followers as well as the fundamental question of value.

Technical analysis is a tool for idle investors unwilling or unable to understand true value. It dominates price formation in western markets and distorts investor behaviour by exaggerating any natural bias towards trends. It is this band-wagon effect that is the root of trend-following’s success, but also its ultimate weakness. A better strategy is to make the effort to value gold properly and then act accordingly.

http://www.goldmoney.com/research/analysis/technical-analysis-versus-value-in-gold

Longleaf Partners Presentation

http://longleafpartners.com/   (click on video link on the right side)

A great book on good capital allocating CEOs, The Outsiders: http://www.amazon.com/The-Outsiders-Unconventional-Radically-Blueprint/

Reading for this weekend

Snails

Bubble Watch

GMO_QtlyLetter_1Q14_FullVersion

ABOOK-Mar-2014-Valuations-Stocks-to-GDP

Momentum Stocks Crushed

Momentum Crush

http://www.acting-man.com/?p=30382#more-30382

Buffett Notes

BN-CQ488_0503be_M_20140503154303

http://covestreetcapital.com/Blog/?p=1173    Icahn slams Buffett on his cowardice.

Warren-Buffett-Katharine-Graham-Letter on Pensions 1975

Warren-Buffett-Florida-Speech

Buffett1984Retail Stores and Clean Surplus

Berkshire_Hathaway_annual_meeting_notes_5-3-2014

20140424_CNBC_Transcript__Legendary_Investor_Warren_Buffett_Speaks_with_Becky_Quick

BRK_annual_letter-2014

Have_Researchers_Uncovered_Buffetts_Secret

20140224_Preview_of_Buffett’s_annual_letter__Learn_from_my_real_estate_investments

And in case of Buffett overdoseCrony Capitalist

Resource StocksRules of Thumb for Junior Mining Speculators and A Light at the End of the Tunnel