Empire of Dunces


Black Swans?

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Not so sure anymore that it will actually take something like a Black Swan type event to really make things crumble. I suppose that something like the sovereign default of Italy, for example, could still qualify as such. And it would certainly shake things up in a major way. But it would not be a surprise really. Certainly not for the decision makers. Yes, here in Germany, they actually still have the MSM asking questions like – “Can a country even go bankrupt?”(!!!) Uhm… You think…? Dumb question, I know. But for card-carrying socialists, it actually would be something of a mystery, I suppose. But I cannot imagine the actual decision makers being that dumb. That kind of kabuki is just for mass-consumption.

The Euro has gone up recently against the USD. And everything is good again. Or so we are told. Look, my previous statements in this regard stand. The Euro is toast. But so is the USD. In other words, it is completely meaningless, which of these two fiat currencies is rising against the other. In the end, both are worthless. Now I read recently that Marc Faber, who is eminently qualified, recommended keeping one third of your holdings in cash, so that you have some liquidity for any opportunities that might present themselves. In principle, it is of course always a good idea to keep some liquidity on hand. But it is necessary to remember that cash has its own drawbacks. In particular, the exchange risk and inflation. The latter not really being a problem right now (but inevitably in the future), I see little point in holding a large stash of cash on account of the exchange risk. While I hesitate to contradict Marc Faber, I nevertheless prefer to hold at best 10% of our portfolio in cash, and I will probably be fully invested in the near future. In addition, I see substantial problems with Faber’s recommendations about investing in the stock markets. The attempt to time market entries, in particular in the current environment is futile. Plus, the fact that in most markets it has still not been acknowledged that the crisis is far from over, and bound to get substantially worse, makes me doubt that the true risk has been fully priced in yet. This is assuming that there are no further shocks to the system, and instead only a steady deterioration along fundamental lines. Something that is by no means a given. Our strategy is clear, based on previously articulated predictions about the way the economy is indicating things have to move. It is the timing that is at issue, not what exactly is going to happen. The US government will have to default at some point. That is quite simply the only solution for the ever increasing debt burden of the public household. It is not even theoretically possible to repay all the outstanding debt, especially when you include all the pension obligations. Which leaves only default, as unimaginable as that may sound right now. All of this is being ignored, and even ridiculed currently. That does not make it any less true. “When you have eliminated the impossible, whatever remains, however improbable, must be the truth.”. From that follows certain actions that need to be taken to prepare our portfolios and profit quite handsomely. Obviously, somebody like Marc Faber has access to information and contacts that make it possible to get more up-to-date information, especially in the Asian markets. I have no doubt that he will be able to profit no matter what scenario unfolds. Whereas my knowledge about the Asian stock markets is rather limited. We should focus on that in which we know best. In our case that means commodities, real estate and currencies.

Next in our line up of exciting opportunities – rare earth elements! Shrinking supply in few hands. Growing demand by many. Can you say Yum?


Written by gloege

August 6, 2010 at 21:17

Posted in Uncategorized

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