Category Archives: Investing Gurus

Value Vault Update; Information Overload and Investing

VALUE VAULT UPDATE

Many have recently asked for keys to the Value Vaults. Unfortunately many keys have expired, therefore they need to be refreshed. I plan to have new keys for all by Monday so check back.

Meanwhile, new investors can learn from this story about Matt Drudge and information overload–very applicable for investors.

See: http://www.mises.org/media/8340/Matt-Drudge-and-Information-Overload

Investor Interview (Audio)

Russian Bear

A good interview of a self-taught professional investor (John Hempton of http://brontecapital.blogspot.com/.   GO HERE: https://soundcloud.com/the-odd-lot/john-hempton-audio-interview

Certainly this investor is a tad eccentric, but he certainly has found a great method to find and manage short selling opportunities.  A great listen. Also, seek out http://oddlotinvest.wordpress.com/about/   Wow, a treasure chest of obscurities.

Risks for equities, IN GENERAL, are high.  Note that the equity and debt market combined for companies is at all-time highs. Be careful.

EV multiple all time high

EV mult vs return_0

Overvalued stock market HussmanInfAdjDow_2

Looking At Bottoms; Gold Stocks

200205666-001

No, not these…..

Bottom

 

 

 

I mean these……….. (Thanks to http://www.classicvalueinvestors.com/

Gold Stocks

The table below is meant to highlight the HUGE price ranges of the micro-cap junior precious metals sector. I tend to avoid or make allowance for some of these companies going to $0.00 or diluting shareholders with equity offerings.

GroupofMinersPerformanceFebruary182014-300x90

 If you go back and read the author’s post over the past two years, you will get a feel for the suffering of investors who ride a BIG BEAR market in small junior mining stocks. Be aware of the downside as well! See:  http://classicvalueinvestors.com/i/2014/03/goldgroup-mining-this-is-what-i-call-a-great-day/

How one investor changed his life by developing his OWN method of investing.

Below is an advertisement to get you to hear the audio story. The ad places the HOOK, “an unusual money-making secret.”  Baloney, he doesn’t use any “secret”. He simply found a method to value, buy cheaply, and manage a portfolio of precious metals’ stocks.  And over the years he has done extremely well while stomaching swings of 50% or more. He can hold on, because of his work and confidence. THAT is his secret. I know this guy and you should listen to the interview. Yes, a bit hokey at first –who cares that he got revenge on his ex-wife–but a true story. There are LESSONS here.

Dear Reader,

If you’re a middle-aged guy, divorce is one of the worst things that can happen to you. It can ruin you, both financially and emotionally.

But I recently heard the story of a Ft. Lauderdale man named John  (Actually, John Doody of www.goldstockanalyst.com) who discovered an unusual moneymaking secret after going through a bitter divorce.

John says this secret has made him a multimillionaire over the past decade… even though his ex-wife took almost all of his assets. And he asked us if he could share his story with you.

In fact, he says he even went through the expense of having his transactions verified by an independent auditing firm… just so he could prove his incredible story to the world.

Click here to listen to John’s story.

Jan. 2014 Interview of John Doody (down 50% in 2013!) http://youtu.be/95gjTXIGsgU

Regards,

Will Bonner, Publisher, Diary of a Rogue Economist 

Who Wants to Analyze a Gold Stock?

If there is interest, we can work through a company in a few posts next week.

HAVE A GREAT WEEKEND!

LINKS

AK Rifles

“You can’t build lasting stock market gains or solid GDP growth on debt. Because debt cannot expand forever. Sooner or later it must stabilize and then it must contract. When that happens, all the positive features of debt become negative features. Instead of borrowing and spending more, people must spend less and pay off past debt. Instead of adding to corporate sales and profits, they subtract from them. Instead of driving up asset prices, they push them down.”

Borrowed money has an almost magical effect on the way up. It comes out of nowhere. So there is no labor cost to offset against it. It goes almost directly into corporate profits. http://www.rickackerman.com/2011/06/a-gloomy-richebacher-was-prescient-in-1999/

Links

If you have a few favorites, please let me know. 

                                                      -work in progress-

My Other Blogs

Un Inversor Inteligente www.uninversorinteligente.com (spanish)

Ferrer Invest www.ferrerinvest.com/un-inversor-inteligente.html (spanish)

Seeking Wisdom www.seekingworldlywisdom.tumblr.com

Value Investing Research

Magic Formula Investing www.magicformulainvesting.com

Outstanding Investor Digest www.oid.com

The Manual of Ideas www.manualofideas.com

Value Investors Club www.valueinvestorsclub.com

Value Investor Insight www.valueinvestorinsight.com

Value Line www.valueline.com

Value Investing Blogs

All Value Investing www.allvalueinvesting.com  Check out the videos!

Above Average Odds www.aboveaverageodds.com

The Brooklyn Investor: http://brooklyninvestor.blogspot.com/

Buffett FAQ www.buffettfaq.com

Fundoo Professor www.fundooprofessor.wordpress.com

Gannon and Hoang on Investing http://gannonandhoangoninvesting.com/

GrahamandDoddsville www.grahamanddoddsville.net

Greenbackd.com    www.greenbackd.com

Greg Speicher www.gregspeicher.com

Margin of Safety www.amarginofsafety.com

Mungerisms www.mungerisms.blogspot.com

The Inoculated Investor www.inoculatedinvestor.com

Simoleon Sense www.simoleonsense.com

Street Capitalist www.streetcapitalist.com

Value Investing World www.valueinvestingworld.com

ValueWalk www.valuewalk.com

Warren Buffett Resource www.warrenbuffettresource.wordpress.com

Value Investing Sites

Alphaclone www.alphaclone.com

Dataroma www.dataroma.com

Gurufocus www.gurufocus.com

Seeking Alpha www.seekingalpha.com

Value Investing Firms

Ariel Investments www.arielinvestments.com

Aquamarine www.aquamarinefund.com

Baron Funds www.baronfunds.com

Baupost www.baupost.com

Bestinver www.bestinver.es

Century Management www.centman.com

Clipper Fund www.clipperfund.com

Davis Funds www.davisfunds.com

Dreman Value Management www.dreman.com

Fairholme www.fairholmefunds.com

First Eagle Funds www.firsteaglefunds.com

First Pacific Advisors www.fpafunds.com

Formula Investing Funds www.formulainvestingfunds.com

GMO www.gmo.com

Greenlight Capital www.greenlightcapital.com

Himalaya Capital Management www.himalayacapital.com

Hummingbird Value Fund www.hummingbirdvalue.com

Longleaf Partners www.longleafpartners.com

Mackenzie Investments www.mackenziefinancial.com

Muhlenkamp & Co. www.muhlenkamp.com

Oakmark Funds www.oakmark.com

Oaktree Capital Management www.oaktreecapital.com

Olstein Funds www.olsteinfunds.com

Pabrai Investment Funds www.pabraifunds.com

Pzena Investment Management http://www.pzena.com

Redfield, Blonsky & Co. www.rbcpa.com

Sarbit www.sarbit.com

Sequoia www.sequoiafund.com

T2 Partners www.t2partnersllc.com

Third Avenue www.thirdavenuefunds.com

Third Point www.thirdpoint.com

Tweedy, Browne www.tweedy.com

Weitz Funds www.weitzfunds.com

Wintergreen Funds www.wintergreenfund.com

Value Investing Schools and Courses

Centro Enseñanza Online Manuel Ayau www.umayau.com  (spanish)

Columbia Business School www7.gsb.columbia.edu/valueinvesting

Gabelli School of Business www.fordham.edu/cba

Kellogg School Of Management www.bit.ly/zU5n3b

Management Development Institute www.sanjaybakshi.net

Richard Ivey School of Business www.bengrahaminvesting.ca

UC Davis Graduate School of Management www.bit.ly/xkUZ4v

Value Oriented Companies

Berkshire Hathaway www.berkshirehathaway.com

Fairfax Financial Holdings www.fairfax.ca

Notable Economists

Carlos Rodriguez Braun www.carlosrodriguezbraun.com  (spanish)

Jesús Huerta de Soto www.jesushuertadesoto.com  (spanish)

Juan Ramón Rallo www.juanramonrallo.com  (spanish)

Philipp Bagus www.philippbagus.com

Xavier Sala-i-Martín www.salaimartin.com

Amateur Portfolio Managers

Covestor www.covestor.com

Marketocrazy www.marketocracy.com

Unience www.unience.com (spanish)

Media and other resources

Farnam Street www.farnamstreetblog.com

Barking up the wrong tree www.bakadesuyo.com

Futile Finance www.futile.free.fr

Inteligencia y Libertad www.intelib.com  (spanish)

Libre Mercado www.libremercado.com  (spanish)

Grupo Retiro www.gruporetiro.com  (Family Business, spanish)

Michael Mauboussin www.michaelmauboussin.com

Santa Fe Institute www.santafe.edu

Libertarian Think Tanks

CATO Institute www.cato.org

Instituto Juan de Mariana www.juandemariana.org  (spanish)

Ludwig von Mises Institute www.mises.org

A reader suggests:

  1. Bronte Capital’s blog – John Hempton shares his thought process and interacts frequently with readers on the blog. (http://brontecapital.blogspot.com/)
  2. Distressed debt investing blog (http://www.distressed-debt-investing.com/)
  3. Corner of Berkshire and Fairfax forums (http://www.cornerofberkshireandfairfax.ca/forum/)                                 

Banker “Suicides”; Economic Myths; Food Crises; Gold Stock Analysis?

jumper

The string of suicides among the leading bank employees is indicative of the change in trend. The major Wall Street banks including Bank of America, Goldman Sachs, JP Morgan, Credit Suisse, subsequently told junior bankers to take more time off since the death at Bank of America last August of a 21-year-old Bank of America intern who died after reportedly working consecutive all-nighters at the bank’s London office.

http://armstrongeconomics.com/2014/02/18/are-bankers-committing-suicide-for-a-connected-reason/

An excellent course on behavioral economics. I took this course and highly recommend but it is a time commitment of $six to eight hours per week. Improve the YOU. https://www.coursera.org/course/behavioralecon

POKER: To learn about investing in the 21st Century: The great poker movie, Rounders: http://www.tfmetalsreport.com/blog/5494/rounders

Munger on Investing: http://www.valueinvestingworld.com/

Any interest in analyzing a gold stock? http://youtu.be/NML5-dgp1u4

Economic Myths

Myth #8: The Fed provides a net benefit to the US economy

It never ceases to amaze us that people who understand that it would make no sense to have central planners setting the price of eggs believe that it is a good idea to have central planners setting the price of credit.

Myth #2: The Fed’s QE boosts bank reserves, but doesn’t boost the money supply.

It’s a fact that for every dollar of assets purchased by the Fed as part of its QE, one dollar is added to bank reserves at the Fed and one dollar is added to demand deposits within the economy (the demand deposits of the securities dealers that sell the assets to the Fed).

Myth #12: Inflation is not a problem unless the CPI is rising quickly

The conventional wisdom that “inflation” is not a major concern unless the CPI is rising quickly is not only wrong, it is also dangerous. It is wrong because monetary inflation affects different prices in different ways at different times, but the resultant price distortions always end up causing economic problems. It is dangerous because it leads people to believe that there are no serious adverse consequences of central-bank money printing during periods when the prices included in the CPI are not among the prices that are being driven skyward by money printing.

Read more:Economics_Myths_on_Fed_Reserves_Saville

An Expert on Bear Stearns:

 Why the rioting? fig1_crises

Social unrest may reflect a variety of factors such as poverty, unemployment, and social injustice. Despite the many possible contributing factors, the timing of violent protests in North Africa and the Middle East in 2011 as well as earlier riots in 2008 coincides with large peaks in global food prices. We identify a specific food price threshold above which protests become likely. These observations suggest that protests may reflect not only long-standing political failings of governments, but also the sudden desperate straits of vulnerable populations. If food prices remain high, there is likely to be persistent and increasing global social disruption. Underlying the food price peaks we also find an ongoing trend of increasing prices. We extrapolate these trends and identify a crossing point to the domain of high impacts, even without price peaks, in 2012-2013. This implies that avoiding global food crises and associated social unrest requires rapid and concerted action.

Tweet Map (clickable)

Clickable food prices tweet map

Press Release: Scientists show link between food pricing and global riots

A new Cambridge study issues stern warning for policy makers

(CAMBRIDGE, MA) — A new study shows that the timing of outbreaks of violence rocking North Africa and the Middle East is linked to global food prices.

Today’s headlines explode with stories of failed political systems, harsh regimes, and denial of rights underlying riots and warfare. The authors, however, point to rising food prices as a key factor too–not only in assessing the aftermath but in predicting future times of unrest.

The study, titled “The Food Crises and Political Instability in North Africa and the Middle East,” is by Marco Lagi, Karla Bertrand and Yaneer-Bar-Yam of the New England Complex Systems Institute.

Using detailed charts showing data from the FAO Food Price Index and the timing of the riots, the authors were able to demonstrate how food prices have a direct link to the tipping points of unrest and upheaval.

The authors also criticize the deregulation of commodities markets in the US as contributing to the rise in food prices.

The authors issued a stern warning that if food prices remain high, disturbances will continue. Averting further crises this year and next requires quick and concerted action by policy makers, they added.

“Our predictions are conditional on the circumstances, and thus allow for policy interventions to change them. Whether policy makers will act depends on the various pressures that are applied to them, including both the public and special interests,” said Prof. Bar-Yam.

The Temptations of Saint Warren

untitled

LewisBuffett

Michael Steinhardt sounds off on Warren Buffett

A True Contrarian: John M. Templeton


 

What is your investment approach? John Templeton, “I search for bargains.” “Buy at the point of maximum pessimism. Go where the outlook is the worst.”

The above video is worth viewing if you want to understand how important personality and values are for the type of investor you become. Templeton’s thrifty ways and contrary streak were embedded in his approach. He is seldom studied. Too bad. 

The Templeton Way A book synopsis

Templeton on Investor Attitude

Criticism is the fertilizer of learning. –John Templeton.

A Great Individual Investor’s Investment Letter; A Reader’s Questions

NSA-Santa

A successful individual investor recaps 2013 (Must Read) David Collum_2013_year_in_review  

Note how few long-term decisions he made. Owning long-term bonds from 1980 to 1988, etc.  Buying precious metals in 2001 and STILL holding on through 2013–now that is long-term investing! 2013 was only his second losing year in several decades thanks to gold and silver being down 39% and 55% this year.

Video

A Reader’s Question

I have a couple of valuation questions that I have been wrestling with recently.  I would love to hear your take.

First, do you ever use a PE ratio for valuation?  I have always used a EV to EBIT or something ratio whether pre-tax or after-tax.  (I have an idea of the multiples that interest me in both cases.)  Sometimes I come across something that has a low PE but not so low EV/EBIT.  I think this is when the company has financial leverage and is paying an interest rate substantially below the earnings yield.  If it’s a high quality business and the leverage does not harm the company is it sometimes better to use a PE?
John Chew: No, I would use EV (enterprise value which includes net debt) rather than “P” or market cap because debt is part of the price that you pay. Also, look at the terms and conditions of the debt. Note the quality as well as the quantity of the debt. Bank debt is more onerous than say company-issued bonds. 
Also, if you are normalizing earnings, and current earnings are depressed and may be for a while, do you account for this in the valuation, perhaps as a liability?  Or is this an effort to be overly precise?  This quote from Jean-Marie Eveillard in The Value Investors suggests that the former method is overly precise because the future is uncertain:
  “There is no point asking about a company’s earnings outlook because if we are investing for the long-term, then short-term earnings never affect our intrinsic value calculation. Asking management about long-term plans is also pointless to me because the world changes. No one can predict what will happen, and so what is important for us as analysts is to discover the underlying strengths and weaknesses of the business ourselves.”
John Chew: You do not count this as a liability when you normalize earnings.  You look back over a long enough history 12 to 15 years (including the 2008/09 credit crisis) to sense what normal earnings are.  Part of normalizing earning would be assessing the competitive advantage of the business or the uniqueness of the assets.  For example, you should be able to have confidence in the earnings power of the assets owned by Compass Minerals (rock salt positioned near the Great Lakes giving a cost advantage). 
Finally, I want to share a quote from Dylan Grice that I recently found and thought you may find interesting:
Dylan Grice in the July 17, 2012, Popular Delusions
The power of a discounted cashflow model is that it allows us to achieve a value which is objective. With a model based on discounted future cashflow we can arrive at intrinsic value.
But is this correct? Can cash flows be objectively valued? Suppose I’m a fund manager worried that if I underperform the market over a twelve-month period I’ll be out of a job. What value would I attach to a boring business with dependable and robust cash flows, and therefore represents an excellent place to allocate preserve and grow my client’s capital over time but which, nevertheless, is unlikely to ‘perform’ over the next twelve months? The likelihood is that I will value such cash flows less than an investor who considers himself the custodian of his family’s wealth, who attached great importance to the protection of existing wealth for future generations, values permanence highly, and is largely uninterested in the next twelve months.
In other words, an institutional fund manager might apply a ‘higher discount rate’ to those same expected cash flows than the investor of family wealth. They arrive at different answers to the same problem. The same cash flows are being valued subjectively and there is no such thing as an objective or ‘intrinsic value’ embedded in the asset, even though it has cash flows.
John Chew: Well, I agree that investors have different discount rates. You need to use one that fits your situation.  We are discussing human beings making decisions under uncertainty or human action.  All value is subjective. To learn more go to: http://mises.org/austecon/chap4.asp
Thanks for the questions and to all a Happy, Healthy and Prosperous New Year in 2014

 

The Forging of a Skeptic (Buffett/Schroeder Interview); Investigative Journalism

Dino

A Great Interview: The Forging of a Skeptic_Buffett

Snippets:

Learn about investigative journalism to become better at investing

Alice: Yes, I will give away some of my secrets. People would do well to study investigative journalism. Read something like Den of Thieves or A Civil Action and try to reverse engineer how it was reported.

Here are three other great books on conversing with people, understanding their real motives, and just generally understanding how the human mind works.

The Work of a Securities Analyst at a Wire House

You may wonder why analysts at banks hedge themselves so much – on the one hand this, on the other hand that. Partly it can be lack of courage. But someone is always trying to lawsuit-proof your opinion. Decisive statements are lawyered into “may, can, could, might, potentially, appears” instead of “is, does, should, will,” much less “look out below.”

The time pressures that work against quality research are also well-known. You write-up a lot of inconsequential things, especially what I call “elevator notes” (this quarter “X was up and Y was down”). Instead of writing original or probing views, you are really incentivized to spend as much time as possible marketing.

Also, if you adhere to consensus, it does protect your career. There’s an old saying that no one ever got fired for buying from IBM. Nobody ever got fired for making a wrong estimate that was within sell-side consensus.

Whereas, if you break from consensus, you really can’t afford to be wrong very often. That phenomenon really drives the sell-side. It can be overt, such as when we were judged on how “commercial” our work was. This is a veiled threat, because, of course, our work has to be marketable in order for us to have a job. The firms essentially want two things that are incompatible.

Focus on the Essentials

Miguel: It’s funny and I hope one day you can meet my boss. But you can tell him anything in the world (about an investment) but he always circles back to two questions

  1. Is it a good company, and
  2. Is it cheap?

Alice: Sure.

Miguel: I think that I am a little bit like you in that I love thinking about things. But I also find it very easy to get lost in details while forgetting to ask, “Is this something I even want to own in the first place?”

Alice: One trap is not probing deep enough to really answer whether a particular investment opportunity is a good business. It’s easy to make a facile judgment about that based on a summary description of a business. The sheer breadth of different business and investment opportunities in a modern capital market creates an overflow of information that leads many investors to have short attention spans in thinking about companies comparatively.

Curiosity is an inherent kind of arbitrage that no amount of computer technology can overcome. Warren makes it sound so simple to know what is and is not a truly good business – and great business do resonate very clearly when you understand why they are great and especially when they’ve been identified as successful investments by an investor like Warren Buffett and proven so with hindsight – but like many things in investing, Buffett makes it sound easier than it is. When it comes to appreciating something that is special about a business that others do not, I’ve learned that the devil really is in the details.

Miguel: How is Warren different from other value investors?

Alice: He’s more interested in money, for one thing (laughs).

In terms of how that affects his investing behavior, number one, in his classic investments he expends a lot of energy checking out details and ferreting out nuggets of information, way beyond the balance sheet. He would go back and look at the company’s history in-depth for decades. He used to pay people to attend shareholder meetings and ask questions for him. He checked out the personal lives of people who ran companies he invested in. He wanted to know about their financial status, their personal habits, what motivated them. He behaves like an investigative journalist. All this stuff about flipping through Moody’s Manual’s picking stocks … it was a screen for him, but he didn’t stop there.

Number two, his knowledge of business history, politics, and macroeconomics is both encyclopedic and detailed, which informs everything he does. If candy sales are up in a particular zip code in California, he knows what it means because he knows the demographics of that zip code and what’s going on in the California economy. When cotton prices fluctuate, he knows how that affects all sorts of businesses. And so on.

The third aspect is the way he looks at business models. The best way I can describe this is that it’s as if you and I see an animal, and he sees its DNA. He isn’t interested in whether the animal is furry; all he sees is whether it can run and how well it will reproduce, which are the two key elements that determine whether its species will thrive.

I remember when his daughter opened her knitting shop. Many parents would say, I’m so proud of Susie, she’s so creative, this is something of her own, maybe she can make a living at it. Warren’s version is, I’m so proud of Susie, I think a knitting shop can produce half a million a year in sales, they’re paying whatever a square foot for the storefront, and labor is cheap in Omaha.

It was similar when Peter was producing his multimedia show, The Seventh Fire. Many parents would say, wow, my son has pulled off a critically acclaimed show. Warren obviously thought that, but what he articulated was, they’re charging $40 a ticket, I think the Omaha market is too small for that price point, whereas in St. Louis they may cover the overhead, and I think he paid too much for the tent because the audience doesn’t really care what kind of tent it’s sitting in and it hurts margins, etc.

Read the entire interview: 

http://seekingalpha.com/article/235292-behind-the-scenes-with-buffett-s-biographer-alice-schroeder

 Investigative Journalism and Brookfield Asset Management

Brookfield

Repetitive Advantage: Broad Run Investment Management:Broad-Run-VII-Profile-Nov-2013

Buying Jan 2015 $15 call option at $3.00 in ABX 

A special situation since there is a change in Board. If ABX can survive its balance sheet by improving its low cost assets, then there could be 100% to 200% upside with gold prices above $1,250. Right now we are in tax selling as well as a weak gold environment.  ABX’s management says they will pare down/sell off their high cost mines. If gold goes sub- $1,000, then ABX could really struggle.

ABX

Look familiar?

Despair

Experts Opining on Markets; Lessons in Entrepreneurship

Where are the Customer’s Yachts? (1940)

For one thing thing, customers have an unfortunate habit of asking about the financial future. Now if you do someone the signal honor of asking him a difficult question, you may be assured that you will get a detailed answer. Rarely will it be the most difficult of all answers–“I don’t know.”

Today (Dec. 01, 2013) “As measured by the weekly Investors Intelligence survey of newsletter writers, the bullish boat is standing room only while the bear boat has the least amount of passengers dating back to the 1980′s. In today’s numbers, Bulls rose to 55.7 from 53.6 while the Bears fell to 14.4 from 15.5, an historic low in the history of this survey according to II. Combined with another record high in margin debt in October that puts its ratio to GDP at about 2.4%, near the high of 2.6% in July ’07 and 2.8% in March ’00 and it’s worth noting the historical limits in these two figures that we are pushing up against. That said, this says nothing about where markets go in the short term from here. This Fed hosted party can still have life left but I feel it’s always important to have perspective and these two data points should provide reason for an investing gut check in early 2014 in terms of how to be positioned.”   www.hussmanfunds.com

“Being wrong on your own, as Keynes described so eloquently in Chapter 12 of the General Theory, is the cardinal crime of an investment manager. The management of career risk results in very destructive herding. Investors should be aware that the U.S. market is already badly overpriced – indeed, we believe it is priced to deliver negative real returns over seven years [GMO estimates fair value for the S&P 500 at 1100]. Be prudent and you’ll probably forego gains. Be risky and you’ll probably make some more money, but you may be bushwhacked and if you are, your excuses will look thin. My personal view is that the path of least resistance for the market will be up.”

Value investor Jeremy Grantham, GMO, November 18, 2013

“I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends. You have got to be in things that are trending. Crashing is the least of my concerns. I can deal with that, but I cannot risk my reputation because we are in this virtuous loop where the market is trending. I may be providing a public utility here, as the last bear to capitulate.”

Hedge fund manager Hugh Hendry, Eclectica, November 22, 2013

“I am out of justification to fight the uptrend. Up until now, I have had what I thought was compelling evidence to believe in the bearish case, but it has now been revealed to have been insufficient for the task. I am without ammunition to bet on the bears. I don’t like it, because I see the market as overly dependent upon the Fed’s largesse for its upward continuation. I see this as a bubble, but a bubble that is continuing higher even though it should not. I plan to ride the bubble for a while, and will hope to be able to succeed in reading the right [exit] signs.”

Market technician Tom McClellan, November 26, 2013

In a classic case of not only locking the barn door after the horse is loose, but removing its best opportunity to return home, we’re seeing a capitulation by investment managers across every discipline, from technical, to value-conscious, to global macro. Historically extreme overvalued, overbought, overbullish conditions were in place even ten months ago, and my impression is that every further extension worsens the payback will inexorably follow.

Lesson: Don’t listen to gurus or “experts”.  They are more apt to be wrong. Follow your own common-sense thinking. Right now RISKS ARE HIGH. BE CAREFUL.

Lessons in Entrepreneurship (Gary Hoover) http://www.today.mccombs.utexas.edu/gary-hoover-video-library/

My break

I have been so busy buying gold and miners that I haven’t had much chance to post, but I do plan to resume once things settle down (I hope).

I like this: buying bullion (gold/silver) at a 10% discount. Last time was 2001.

CEF Premium

While being wary of this (in general).  Go here: www.hussmanfunds.com

SP 500 Horror

Note the early warnings signs—not all is well in Europe. 

European Equities

Jean-Marie Eveillard:  “I just returned from Europe, where I was mostly in France, and the mood was not good there because the economy is not doing well.  And since the economy is not doing well, there are political developments on the far-right and on the far-left….

“Some people, and I cannot blame them, believe that the establishment has failed them in the sense that the economy continues to do poorly.”

Eric King:  “Jean-Marie, it sounds like there is a polarization happening in Europe where people are jumping on both sides and the middle-ground is being lost.”

Eveillard:  “Yes, and usually it’s the middle-ground that governs.  That has been the case in France where both the socialist party, which is currently in power, and the center-right party, both of them have historically been close to the center.  That’s not the case any more.

They both have their own extreme wings, but it has been the center that has always governed.  Now people believe that the ‘center’ has governed poorly enough that you have more people who are being seduced by the far-right, and the far-left.”

Eric King:  “Does that worry you?”

Eveillard:  “Yes, but, again, it’s a result of the establishment and it’s happening in the US as well.  You have the center disappearing in the US, which means that both extremes on the left and the right will keep gaining additional audiences.”

Eric King:  “This trend obviously has you worried.”

Eveillard:  “It worries me particularly because in the US, France, and elsewhere, it’s Neo-Keynesian policies that are being followed because it’s the fashion of the day.  Even though the Neo-Keynesians didn’t see the financial crisis coming, nevertheless they are still in power in academia, the political world, and in the world of corporate economists.

I ask myself, ‘If Keynes were alive today, would he be a Neo-Keynesian?’  I don’t think so.  But the Neo-Keynesians believe, as Keynes did, that every now and then private sector demand is weak and has to be supplemented by public sector demand.

What we’ve had in the US over the past 5 years , both from a monetary and from a fiscal point of view, is the most stimulative economic policies ever — completely unprecedented.  The printing of money, QE, etc, the budget deficit, the tremendous increase in government debt, and yet the economic recovery continues to be weak.

Now, the stock market is up sharply because some of the excess liquidity being created by the Fed is going into stocks.  Some of it has also gone into things such as the real estate and fine art markets.  But the money goes particularly into the stock market.

And the stock market is strong not just because of the excess liquidity, but because the vast majority of investors seem to believe, they are wrong, but they believe that, ‘Yes, we had a financial crisis 5 years ago, but that’s all over.  We are going back to normal, and within a few months the economy in the US will grow at more than an annual rate of 2%.’  

It hasn’t happened yet.  How come it hasn’t happened yet?  Nobody seems to be asking the question.  It hasn’t happened yet because the medicine being prescribed by the Neo-Keynesians is not working.  Incidentally, I don’t think anything will work because there no steps which can be taken by the politicians that would, almost overnight, result in a non-inflationary economy growing at 3% or 4% a year.

The reality is the steps which have been taken over the past 5 years will cause tremendous chaos and problems in the future, but we haven’t seen that yet.”

Eveillard also spoke about gold:  “I believe that if I’m right, and the Neo-Keynesian medicine continues not to work, although they can continue with their QE, even at the Fed they know that quantitative easing cannot go on forever.  So at some point something will have to give.  That’s the point where investors will change their attitudes and move to gold.  But it isn’t happening right now in the West because investors continue to believe the Neo-Keynesian medicine will succeed any day now.”

Eric King:  “If there is this move you just described back to gold in the West, Jean-Marie, do you see new all-time highs in gold?”

Eveillard:  “Yes, because gold will become the substitute currency.  People will say, ‘I don’t want the yen, dollar, or the euro because they are all engaged in a race to the bottom.’  Yes, then gold will become the substitute currency.  Gold will be money again.  In a sense it never stopped, but 40 years ago the politicians decided that we were going to operate on the basis of a pure paper money system.  But I can assure you that the history of pure paper money systems is not inspiring.” (www.kingworldnews.com)

CSInvesting: I don’t agree with everything said. Will gold become a substitute “currency?”  Perhaps, more people will understand that Gold is the best money in the world (despite the raving over bitcoin or “token” money).