VACACIONES MAYO 2015
Jueves 30 de Abril del 2014
Les escribo estas líneas con motivo de mi próximo viaje que me tendrá ausente de la oficina y de nuestras lecturas cotidianas, desde el lunes 4 hasta el miércoles 20 de Mayo próximo.
Durante estos días no tendré acceso regular al Internet ni a mis correos.
Lamentablemente, en los últimos meses la situación internacional se ha seguido complicando tanto social, económica, financiera y geopolíticamente, de acuerdo a lo previsto en mi carta de Setiembre pasado y las anteriores, a pesar de todas las declaraciones y anuncios en contrario por parte de las autoridades de los bancos centrales y los representantes de los gobiernos.
En realidad no podía ser de otra manera, si tenemos en cuenta que no se ha hecho nada en los últimos años para reparar los profundos desequilibrios estructurales en los fundamentos de la economía global, sino que mas bien, por el contrario, se ha seguido "maquillando" por parte de los bancos centrales la insostenible situación económica y financiera global, profundizando los desequilibrios y la inestabilidad vía el constante crecimiento de las deudas, aumentando las ineficiencias y dilatando el necesario ajuste. El crecimiento estructural de la economía global es cada vez mas frágil, dudoso e insostenible.
Hasta la crisis del 2000 y luego de la del 2008, ahora así llamada la Gran Recesión, la demanda global había sido “subvencionada” por un sistema financiero manipulado e intervenido, creando una demanda y una economía global ficticia, una recuperación así llamada "subprime", liderada por la FED mediante un crecimiento desproporcionado de las deudas, imposible de auto-sustentarse en un crecimiento de la economía real en el largo plazo.
Deuda, deuda y mas deuda, parece ser el mantra de la FED.
Desde entonces, la FED y el resto los bancos centrales de todos los países más importantes del mundo se han negado y se siguen negando a reconocer esta realidad, aceptando el inicio de un ajuste inevitable y estructural, regresando a un nivel real de la economía global de alguna manera manejable. Aun siguen abocados al esfuerzo de una gran represión financiera, manipulando e inflando irresponsablemente los mercados financieros vía una política monetaria de emisiones inorgánicas de papel moneda sin respaldo y muy bajas tasas de interés.
Las deudas de consumidores, empresas y gobiernos, eran y son insostenibles.
Por ello creemos que los bancos centrales no aumentarán de "motu propio" las tasas de interés de manera importante a corto plazo, salvo que este aumento provenga final y sorpresivamente de una crisis generada por la desaparición de la confianza de los inversionistas globales en los mercados financieros.
Inmediatamente sus deudas se volverían obviamente impagables y la crisis que tanto han tratado de evitar reconocer, sobrevendría inevitable.
Solo para mencionar al país con la economía mas importante, la deuda de los Estados Unidos de Norteamerica ha crecido por encima de los 18 trillones de dólares, a mas del 100% de su PBI. Y si incluimos las deudas contingentes internas, como el Seguro Social y los Fondos de Pensiones, algunos analistas calculan que la deuda norteamericana podría llegar a sumar entre los 80 a 120 trillones de dólares, es decir, entre 5 a 7 veces el producto bruto anual.
Para un análisis detallado del desarrollo de esta problemática y la verdadera situación actual, ver los artículos del blog, aquí, aquí y aquí.
Esta situación se ha seguido agravando en los últimos años y es insostenible en el mediano y largo plazo. (ver articulo)
Para evitarlo, es que los bancos centrales han tenido que esforzarse en mantener ficticiamente una apariencia de normalidad en el "statu quo", inyectando cantidades innombrables de papel moneda sin respaldo a los mercados financieros y reducido las tasas de interés a niveles nunca vistos por largo tiempo, desde que la historia económica recuerda. (QE1, QE2, QE3, Q4, Abenomics, China, etc….)
Todo ello nos hace presumir que todo ello se lleva a cabo por el fundamentado temor a perder el control del esquema Ponzi mundial, que es lo que son ahora la economía global y los mercados financieros, y por ende se derrumbe el castillo de naipes enfrentando de golpe un ajuste económico enorme y hasta la posibilidad de una revolución social incontenible, guerras, etc.
¿Porqué un ahorrista o un inversionista estaría dispuesto a depositar su dinero en un banco o comprar un bono de un gobierno, que no solamente no le paga ningún interés sino que más bien ahora le cobra por mantener su deposito, o si se lo paga, es un interés muy reducido y hasta negativo?
Ello sucede solo cuando el ahorrista y/o el inversionista esperan una deflación en la economía, i.e. que los precios mañana serán mas bajos que los de hoy, la que sería mayor que el costo de ese depósito, y/o una ganancia potencial en el fortalecimiento de esa moneda, es decir, en ambos casos, a pesar de todo, un aumento del poder adquisitivo de sus inversiones. Y también, cuando además, existe una enorme aversión al riesgo en los mercados financieros "tradicionales". Solo así se puede justificar racionalmente esta realidad por un ahorrista o inversionista que desea mantener su poder de compra, sin tener que enfrentar riesgos desconocidos e incalculables, pero claramente presumibles en los mercados financieros globales. (ver articulo)
El hecho es que el esfuerzo de política monetaria intervencionista llevada a cabo por la mayoría de los bancos centrales del mundo, en los últimos 15 años, más intensa y desproporcionadamente desde los últimos siete años, además, ha producido la transferencia más importante de riqueza que se recuerda en la historia, de manos de los pensionistas y los ahorristas, hacia las clases privilegiadas.
Mas importante todavía, se ha distorsionado y manipulado fundamentalmente las reglas de la economía del libre mercado con consecuencias funestas y aun impredecibles en el mediano y largo plazo para los consumidores e inversionistas del mundo, incrementando la alocación ineficiente de los recursos de inversión, además de multiplicar el costo de la inevitable implosión de los mercados financieros, tanto de las acciones, como de los bonos y otros instrumentos de inversión financiera.
Todo esto para no mencionar a los derivados financieros, estimados por algunos analistas en mas de 1 cuadrillón de dólares (1000 trillones de dólares), que se ciernen como una espada de Damocles, sobre todo el sistema financiero y económico internacional.
Recientemente el FMI ha advertido de la posibilidad que la economía global esta entrando a un periodo de "stagnación" y a una probable nueva recesión, con las consecuencias que ello implicaría. (ver articulo)
El reconocido economista y analista Ricardo Lago hace recientemente en un diario local un excelente resumen de la ultima reunión del FMI y el Banco Mundial en Washington, sus conclusiones e implicancias. (ver articulo)
Obviamente estos organismos no pueden decirnos toda la verdad. Ello sería propiciar ellos mismos el adelanto inevitable del descalabro global, el caos y el ajuste sin anestesia, con resultados imprevisibles.
La pregunta de fondo es ¿hasta cuando se podrá o podrán mantener esta realidad bizarra?
Y eso nadie lo puede responder con seguridad. La confianza de los inversionistas en los mercados financieros es la verdadera incógnita.
¿Existen aun los inversionistas?
Observan algunos críticos y analistas que los pequeños y medianos inversionistas se han retirado del mercado y todo el movimiento que observamos en los índices, es solo en volúmenes reducidos. Piensan que ello se debe solo a la actuación de unos cuantos brokers y/o "high frequency traders"de los grandes bancos globales que se siguen "alimentando" de las manipulaciones y ventajas, coordinadas y producidas por los bancos centrales.
Hace alrededor de 100 años el asesinato del archiduque Francisco Fernando y su esposa Sofía Chotek en Sarajevo fue el detonante de la primera guerra mundial. Y nadie pensó en ese momento que ese acontecimiento, aparentemente sin importancia global, traería la primera guerra mundial.
Por ello ahora tenemos que preguntarnos seriamente, ¿cuál de todos los potenciales "cisnes negros", conocidos o no, que hoy se ciernen sobre la economía global ,y que son muchos, económicos, sociales y geopolíticos, podrían ser el detonante de la nueva catástrofe?
Solo la historia nos responderá a esta crucial pregunta. No hay cuerda para mucho. Y evidentemente, toda situación que es insostenible, finalmente se caerá.
Tenemos que insistir mas que nunca que la experiencia y la prudencia, el análisis y la inteligencia, la vigilancia y la paciencia, son los socios más importantes en las decisiones de políticas y estrategias de inversión a corto y mediano plazo.
En un cambio importante de ciclos como en el que pensamos que estamos envueltos hoy día, y en el que mas allá de lo circunstancial, el pasado y el futuro se bifurcan y se oponen, los riesgos para los inversionistas son profundos. (ver articulo)
Con estas anotaciones y advertencias que espero les sean de utilidad, me despido de Uds. con un cordial abrazo hasta el regreso a mis actividades, Dios mediante, a inicios de la semana del lunes 23 de Mayo próximo, cuando estaré nuevamente a su gentil disposición.
PD. Algunos días durante mis vacaciones en la medida de lo posible y excepcionalmente publicaré artículos en el blog que podrán leer entrando directamente y/o subscribiéndose al blog: www.gonzaloraffoinfonews.com
VACACIONES MAYO 2015
The Dollar Joins the Currency Wars
MAY 1, 2015
Read more at http://www.project-syndicate.org/commentary/dollar-joins-currency-wars-by-nouriel-roubini-2015-05#cDwblhMXPF4jMfXJ.99
Prelude to a Japanese Revival
By John Minnich
April 28, 2015 | 08:00 GMT
As always with such occasions, the real work, whether on revising guidelines for U.S.-Japanese defense cooperation or negotiating the finer points of Japan's accession to the Trans-Pacific Partnership, will take place long before Abe sits down with Obama. In this sense, his visit is largely symbolic. But this does not make it insignificant. The significance of Abe's trip, like that of the work that precedes and surrounds it, rests in what it tells us about Japan's strategy and what that strategy reveals about Japan's evolving interests and environment.
Stratfor has long argued that the post-Cold War status quo of relative introversion and economic stagnation in Japan was unsustainable. We believed that internal and external pressures ultimately would compel Japan to play a far more proactive role in regional and global affairs. And we said this process would likely entail a fundamental break with the social, political, economic and foreign policy order that has defined Japan since World War II.
In Abe's visit to the United States and his efforts to deepen trade and defense cooperation with Washington, and more broadly in his struggle to resuscitate the Japanese economy and to normalize Japan's defense forces, we see the embryonic stage of just such a transformation.
The question is whether these moves will be sufficient to achieve Japan's long-term economic — and therefore foreign policy and security — imperatives, or whether the Abe administration's reforms are merely the prelude to more profound changes. Answering this question is no trivial matter. To a great extent, how we approach this question will shape our understanding of Japan's role in the global system in the years to come, and by extension its relationship with that system's lone superpower, the United States.
With this in mind, Abe's visit, and the defense and trade deals likely to follow from it, is occasion to think more broadly about Japan's evolution. To do so, we must outline Japan's current situation and identify the center of gravity — the core compulsions and constraints, both internal and external — of Japan's emerging strategy.
Fraying at the Edges
For the past 20 years, the economic and political order that guided post-World War II Japan has been caught in a slow-burning crisis. During these so-called Lost Decades, Japanese economic growth remained essentially flat, while per capita gross domestic product, income and household spending levels all fell slightly. Economic stagnation coincided with the exhaustion of Japan's demographic dividend in the 1990s. Since then, a rapidly aging population and outright population decline have taken their toll on the country's economic vitality and fiscal and financial health.
Between 2005 and 2015, Japan's working-age population fell by an estimated 7.7 million people, while its elderly population grew by more than 8 million. During the same period, the household savings rate collapsed, and social security emerged as the single largest government expenditure, followed closely by debt-servicing payments — a result of Japan's deepening budget deficits and mounting sovereign debt. Rising underemployment rates among Japan's shrinking workforce have exacerbated the financial effects of population aging. In the 1990s, less than 20 percent of Japan's employed workers held "non-regular" (temporary, part-time or contract-based) jobs. By 2002, that figure had risen to 29 percent. Now it is nearly 40 percent, a stark reminder of the effects two decades of offshoring have had on the manufacturing and electronics industries that once formed the backbone of full-time employment in Japan.
Incoherence, volatility and inflexibility in Japan's political sphere mirror the Lost Decades of economic stagnation. Since 1993, Japan has had 13 prime ministers, many of them serving for one year or less. The elite civil bureaucracy that once made Japan a paragon of efficient administration and state-led economic development has proved lethargic when it comes to implementing reforms that cut against the desires of powerful interests like the agriculture lobby. Meanwhile, apathy among young and urban voters, combined with demographic trends and a parliamentary districting system that favor older and rural segments, have forced political parties to compete ever more fiercely for the "organized" vote controlled by those same interest groups. Certain prime ministers, most notably Junichiro Koizumi between 2003-2006 and now Abe, have attempted to reform Japan's political system from within, but to only limited effect.
Nonetheless, despite its lack of growth for two decades, the Japanese economy remains the world's third largest, and the country enjoys high standards of living. Although some Japanese companies have lost market share to Korean, Chinese and other foreign competitors in recent years, many others remain global leaders in their respective industries. Japan claims one of the highest research and development expenditure-to-GDP ratios in the world, and it remains by many measures one of the world's most innovative economies. And despite creeping popular dissatisfaction with establishment parties and declining administrative effectiveness, Japan's political system is fundamentally stable, its government comparatively corruption-free, and its social contract between government and populace strong. To the extent that Japan's post-World War II political and economic order has entered into crisis, it is by most counts a fairly mild one.
This brings us back to the question of the center of gravity in Japan's emerging strategy.
Certainly, addressing the effects of demographic decline and dwindling economic vitality are central to the Abe administration's reform platform. They form the crux of his administration's signature initiative, the economic growth program known colloquially as "Abenomics." But it is unclear whether these problems, in and of themselves, will be pressing enough to force a break with Japan's status quo anytime soon. After all, they have been around for more than a decade without prompting such change.
More likely, left to its own devices, Japan would find the means to manage demographic decline and economic anemia without dramatically changing the way its economy and political system function.
Indeed, as long as its leaders can ensure that the rate of population decline outpaces the rate of economic decline, then they can, in theory, continue to provide high standards of living — high enough, at least, to prevent a rupture in Japan's political status quo. With the pace of population aging and workforce shrinkage set to slow in the coming decades — the next generation of Japanese to retire is considerably smaller than those who retired between 2005 and 2015 — and the rate of outright population decline set to rise precipitously as Japan's post-1945 baby boomer generation passes away, such a scenario becomes feasible. At the very least, it is difficult to say with much confidence that internal pressures stemming from demographic decline and economic decay, which will play out slowly, will be powerful enough on their own to drive Japan to break with the post-World War II political order. Considered in a vacuum, we expect Japan can manage.
But Japan is not in a vacuum. It is in an economically dynamic and geopolitically tempestuous region, one increasingly defined by two interconnected structural shifts that weigh heavily on Japan's interests. To understand Japan's strategy, both for reviving its economy and for expanding its regional political and security footprint, we must look to these shifts.
The Effect of China's Rise
The first is the rise of China. The country has long been the demographic heavyweight of East Asia and for most of its history also acted as the regional political, economic and cultural hegemon. But starting in the mid-19th century, internal and external pressures drove China into one of its many cycles of political fragmentation, social upheaval and introversion.
Though China reunified in 1949, the preceding century of chaos had left the country's economy in tatters and prevented China from translating its demographic heft into regional economic, let alone political and military, dominance within the 20th century.
After three decades of rapid economic growth, China now has the region's largest economy and is investing heavily in transforming its economic size into diplomatic influence and military power.
China is far from ready to overturn the East Asian security status quo — the U.S.-led alliance structure that includes Japan, South Korea, Taiwan, Australia and parts of Southeast Asia.
However, its military power is growing, and its maritime forces are becoming larger and more technologically and operationally sophisticated. China now possesses one of the region's most powerful navies, especially when including coast guard forces.
More important than what China is now is what it seeks to become, however unrealistically: the regional hegemon of East Asia, with military power sufficient to ensure that no competing power can block its access to crucial sea lines of communication or hinder its ability to protect overseas assets and operations in far-flung regions. Underscoring China's rise is its deepening reliance on overseas supplies of energy and raw materials. China no longer has the option, so readily exercised throughout Chinese history in times of internal turmoil, of closing itself off to the world. It must press outward.
This creates a qualitatively new reality for Japan. Modern Japanese history — the story of Japan's industrialization and geopolitical ascent that begins with its limited opening in 1853 and ignites with the Meiji Restoration of 1868 — takes place against the backdrop of a weak, fragmented and introverted China. The weakness of China played a crucial role in shaping Japanese behavior throughout its centurylong "miracle," both generating opportunities for an ascendant Japan to exploit and, just as critically, removing a key source of external pressure on Japan. Regardless of the real trajectory of Chinese power over the coming decades, Japan's leaders must plan as if China's economic, political and military influence will continue to grow.
The Role of American Grand Strategy
But even China's rise, taken alone, is not sufficient to necessitate a Japanese economic resuscitation and an expansion of Tokyo's regional political and military footprint. The pressures imposed by China's rise must be understood in context of another structural shift: the maturation of the American grand strategy. As we have argued, the United States is transitioning from a grand strategy grounded in direct, tight and costly control of the balance of power in other regions to one in which the United States relies more heavily on regional partners to maintain the balance of power on its behalf. Certainly, this strategy will not unfold uniformly across all parts of the world. The United States historically has sought to exert tighter control over its Asian allies than those in Europe, working largely through bilateral rather than multilateral alliance frameworks, in part to deflect those allies', and especially Japan's, ambitions. The Asian "pivot" initiative, though progressing slowly, suggests the United States will seek to maintain a more robust diplomatic and security presence in the Asia-Pacific region for the time being.
Nonetheless, as Japan's lurch toward military normalization and a more proactive regional security posture attests, the United States' approach to East Asia is evolving in line with its maturing grand strategy. Simply put, military normalization and expansion in Japan would not happen without at least tacit approval from the United States. More important, these steps would not happen unless Japan felt compelled by the shift in American strategy to become more proactive in shaping and protecting its regional interests. After all, Japan endured decades of threats from the Soviet Union and North Korea without adopting such a posture. In part, this is because the United States actively constrained Japan throughout the Cold War and after. In part, it is because the United States made sure in decades following World War II that Japan's security interests were taken care of.
The confluence of China's rise with the maturation of American grand strategy is the core compulsion driving Japan's effort to revive its economy and expand its role in regional political and security affairs. These external pressures are inextricable from the internal pressures of demographic decline and loss of economic dynamism. Technological advances in the coming decades — namely, the proliferation of hypersonic precision-guided and space-based munitions systems — could loosen the connection between sheer economic size and military power, at least among the larger advanced economies. But they will make economic dynamism and innovation, and above all a world-class computing industry, all the more essential. It is not a coincidence that Abe's first visit to the United States involves a trip to Silicon Valley.
This is the framework for understanding Japan's emerging strategy. For now, economic revival remains the heart of that strategy, for without a dynamic economy, Japan will struggle to achieve its broader regional imperatives. But it is important to understand that this is not economic revival for its own sake. Ultimately, Japan is changing its behavior in response to the conjoined external pressures of China's rise and the United States' transition. Of course, other external factors will shape how Japan's strategy unfolds — Russia's potential collapse and eventual Korean unification come to mind — just as population aging and underemployment will. But these are contributing factors, not the center of gravity.
Japan Beyond Abe
The question is whether the Abe administration's measures will be sufficient to restore Japan's economic dynamism, particularly on a time frame amenable to its internal and external compulsions.
The Abe administration is still relatively young, but so far the available evidence suggests that Abenomics, at least as currently conceived, will not be sufficient. After two years, it has failed to generate consistent economic growth. Underemployment is rising, not falling. Quantitative easing has benefited larger conglomerates with extensive operations overseas but appears to be hurting small and medium-sized businesses that account for the bulk of Japan's domestic economy and employment — and thus will likely hit a political limit before long. Fiscal stimulus measures, namely corporate tax cuts, have not yet drawn significant volumes of new corporate investment to Japan. Consumer spending remains anemic. The list goes on. While the administration looks poised to introduce long-awaited structural reforms in labor, agriculture and other spheres later this year, bureaucratic and political wrangling will almost certainly dilute their impact. And recent efforts to cultivate a "Japanese Silicon Valley" are promising but will take many years to reach fruition.
We nonetheless watch Abe's moves, including his visit to the United States, with great interest, for the theory of geopolitics tells us that Japan's song is far from over. Abe may be only the prelude to that song, but in his administration's efforts we see the core structure and motifs of the transformation to come.
Read This, Spike That
Has the ‘Easy Money Been Made’ in Stocks?
Several star money managers give their picks, with one stating that “everything is overvalued.”
By John Kimelman
Updated April 27, 2015 6:29 p.m. ET
Gold Poised to Rally Into Summer
By: Trading On The Mark
Friday, May 1, 2015
As context, we had been counting the decline in metals since 2012 with the expectation of an intermediate low late in 2014. Silver made its low at the end of November, and gold made a higher low at the same time. We believe the Elliott wave pattern for gold produced a truncated fifth wave to complete the long decline even as silver traced a more appealing terminal pattern.
The long decline probably represented wave A of an A-B-C correction. Now we believe prices are advancing in an upward corrective wave B which should continue into the summer.
The corrective pattern for gold that began at the end of November should consist of three segments which we have labeled as [a]-[b]-[c] on the weekly chart below. After the rally in [a], price dipped somewhat alarmingly in [b], but it managed to form a higher low in March. Now the scenario calls for gold to advance in wave [c] to challenge and probably exceed the January high.
The most likely price targets for the present move in gold are $1,309 and $1,354, although $1,245 may offer some resistance along the way. The area around $1,309 is especially appealing because it is near the upper edge of the Schiff channel defined by waves [a] and [b]. However, the decisive factor affecting how far the rally can extend may be the dominant 64-week price cycle, which suggests that we may see a high around June or July.
We expect the preeminent gold ETF to follow approximately the same path that we described above. The equivalent price targets for GLD include $125.80 and $130, with additional resistance possible at $119.70. Of those levels, the middle one is probably the most attractive.
We caution traders not to become too attached to long positions in precious metals. If our primary counts are correct, prices should begin a new leg of their decline this summer which could produce new lows in 2016.
Preparing For The Next Market Collapse
by: Chris DeMuth Jr.
- About two-thirds of Americans anticipate another financial crisis.
- More are worried about a market crisis than are prepared for one.
- Here is what works and what doesn't in a total market collapse.
What doesn't work: using data points from functional markets to model dysfunctional markets
How will specific investment ideas perform in a total market collapse? No one really knows. In many ways, 5% market corrections are substantively different than one tenth 50% moves. While the one is unlikely to meaningfully change corporate events, the latter will probably impact all corporate events.
Regardless of contractual language, a massive market collapse will be material and adverse to nearly everything in the corporate world. Predicting and modeling collapse scenarios by linearly extrapolating from more modest price moves during market equilibrium is probably futile.
What doesn't work: relying on contractual obligations, previous financing commitments, and reputational costs of counterparties
During market disequilibrium, everything changes. Corporate behavior changes include companies' failing to get financing, failing to honor their legal duties, and changing their strategies to protect themselves. In each case, boards and managements are willing to accept more reputational costs in order to protect themselves.
What doesn't work: risk models
Value at risk/VaR and other Greek-based risk models fail. Most financial risk models will not be able to correctly measure the risk of loss during events that are materially different from the recent time periods used to build the VaR models' assumptions. Arithmetically hedging bad investment ideas will fail in more ways than could be previously contemplated. For example, if one looks as the loosely defined "arbitrage" in "merger arbitrage" and "convertible arbitrage" funds in 2008-2009, the long parts of their portfolios often dropped precipitously. But there was also forced covering in short positions as funds with high cross ownership covered positions in order to meet redemptions. One long-biased fund was having a sensationally good 2008 until its relatively loose redemption terms caused massive redemptions to meet limited partners' own withdrawals. Investors sought liquidity anywhere that they could find it with little regard for price.
What works: Sizing Discipline and Cash
Ordinary opportunity sets should lead to only ordinary position sizing, leaving extraordinarily large positions for only the rarest of opportunities. At a one percent position, one could conceivably find subsequent risk:reward opportunities to double down three times and still have a statistically diversified portfolio. Hyper-diversification accomplishes very little, but a dozen truly uncorrelated positions accomplishes much of what correlation can offer. However, if one starts with a 5% position and doubles it three times on apparently better subsequent entry points, one is left with an over-concentrated or overleveraged portfolio.
When everything is going horribly wrong, the comparative advantage of being more liquid than your marginal counterparty becomes extreme. So, while I do not know what the right amount of cash is, I am certain that it is better to have more. You should have more than whomever you are trading against when nothing is working in the markets. How much is that? I currently have 25% of my assets in easily accessible cash and am glad that I do. My percentage might be too low but I am virtually certain that it is not too high. Whatever opportunity cost that I pay in terms of diminished return can be quickly recouped during the next market collapse.
Cash has other virtues. Instead of buying real estate with cash, my local mortgage broker got me a tax-efficient mortgage that costs 2% before taxes (and less on an after tax net basis). This allows me to build up a larger pile of cash on the sidelines to use opportunistically. I have hundreds of separate deposit accounts, most with balances beneath the $250,000 deposit insurance cap. I keep these accounts in institutions with diverse geographies and regulatory jurisdictions. Most are at institutions that have equity options attached to their deposits in the form of potential future mutual conversions. On top of cash available for seizing opportunistic investments, everyone should have at least six months of living expenses (twelve is better) in a separate account. This takes away any short-term pressure from potentially losing jobs.
What works: Backing up your backup plan
Investors should probably broaden their concept of backup plans. Clearly, there should be institutional redundancy. For example, if there is a crisis at your prime broker, you should have a dual prime or backup prime ready to take over. Securities Investor Protection Corporation/SIPC protects against the loss of cash and securities including such as stocks and bonds that are held by a customer at a financially-troubled SIPC-member brokerage firm.
However, insurance claims can take months during which time you could be in immense professional or personal trouble.
There should also be redundancy in your information technology. Redundant servers in separate, safe locations can protect data. Also, crucial data should be backed up on computers without any internet connectivity. The added step of transferring data without connectivity is a hassle, but can make data much safer from attack.
Electronic vs. Physical Assets
What percentage of one's assets should be electronic and what percentage should be physical?
While I do not know the right answer and while it certainly varies from person to person, having less than 10% in either electronic or physical assets strikes me as an extreme answer.
With proper security measures, it might make sense to own some physical currency and stock certificates so that all of your financial assets are not reachable only electronically. Land, especially arable land, and the tools to work it, can also add redundancy to electronic assets during a market collapse.
What works: Redundant skills as well as redundant stuff
Within one's professional life, it can be lucrative and useful to have extreme specialization. However, it is also wise to nurture skillsets outside of one's specific specialty. Far short of a total market collapse, the 2008 financial crisis led to extreme new rules on short-selling, for example, that made some investment strategies impossible. Only with the skillset that allows you to react nimbly can you avoid professional paralysis in a total market collapse. What other relevant professional roles can you fill? What other professions might be available on a short-term basis?
Maybe, the answer will be that no professions are needed over the short- to medium-term. It could be that the top of the professional food chain is demoted straight to the bottom in a total market collapse. What then? A second layer of redundant skills that may be worthwhile would be to have a basic trade that one can offer. In many potential natural and man-made disasters, the role of arbitrageur will not be what it once was. Fine. But I still want to be useful and relevant to my society and my family. So it is worth having some specific trade skills.
In a total market collapse, there could be a period of time in which neither professional nor trade skills are in demand. Thus, one should have the skills as well as the stuff for basic survival. Yes, one should buy when there is blood in the streets, but that old aphorism is hardly useful if the blood in the streets is yours. So, it is worth having a full range of options for self-insuring everything that insurance companies cannot insure, from all of the basic life needs to physical security, to the skillsets necessary to function in a crisis.
The Jade Turtle
Singapore is one of my favorite countries in the world. Its founder, Lee Kuan Yew is one of my heroes. It ranks second in the world in the 2015 Index of Economic Freedoms. But it is also located in a tough neighborhood. When one of their senior intelligence officers went looking for advice on securing their most important state secrets, he reached out to his counterpart in Israel for help. He invited the Israeli to visit to see how their security could be improved.
The Israeli first wanted to know the number of locations at which information is stored. "One" said the Singapore officer. There is a single location that is so secure that it requires no redundancy.
Everything is there because it has the most sophisticated, modern surveillance equipment available.
In fact, each night, the Singaporean officer personally checked on his most secure site. He trusts it with his most prize possession, an ancient jade turtle statue that has been passed down to him through generations of his family. It was kept behind every type of security apparatus available within a safe in the innermost part of the fortification.
He was suspicious of the need for redundancy, but asked his Israeli guest to show him the weakness of the facility, and the Singapore government will make whatever changes are needed. Two days later, he received a carefully wrapped package containing his jade turtle. The Israeli had made his point as clearly as it could be made. After that, Singapore always had a backup plan.
It might sound overly defensive or even paranoid to have a fully functioning plan in place for surviving a total market collapse during a period of relative peace and prosperity. It certainly is a comfort to know that one's business and one's family are well prepared to survive anything that could happen in the markets.
But a mentality that focuses on safety in all environments, including in a collapse, can also be a strong offensive tool. If you are maximally prepared with redundant plans for all eventualities, then there is actually much less scrambling around to do in routine crises. Everyone else might be literally or figuratively flailing around in the dark. But you will be cheerfully prepared for everything, including prepared for scooping up what will be plentiful bargains.
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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