In the financial industry, we all piggyback on each other. Most of us listen to the market predictions and “how-to” information of others. Most investors and traders follow and pay attention to other investors – my list includes the likes of Jim Rogers, Jack Welch (who has a deep understanding of the economy), Jeremy Grantham, etc. So how does one determine which people to follow and pay attention to?
Archives For Miscellaneous
Ray Dalio, a brilliant hedge fund manager, is a serious thinker who I deeply respect. Unlike PR machines such as Warren Buffett who try to appeal to the masses, Dalio actually voices his own thoughts and shows the public how the mind of a deep thinker really works. Recently on CNBC, Dalio explained his views on the world.
“Europe’s Going to Be In Big Trouble”
Southern Europe will be restructuring its debt towards more acceptable debt-to-income ratios; in short, a deleveraging. Deleveragings can be painful if not managed properly. The way to offset the negative real growth that comes from deleveraging is to print money: monetary policy. In a sense, the deleveraging is a depression, which the Europeans will want to offset by printing money, because inflation is positive for growth. The countries must stimulate enough via monetary policy so that growth exceeds interest rates. This deleveraging will last anywhere between 10 to 15 years.
Unlike what many believe, the Euro is not about to collapse anytime soon. It’ll stay together, because at the moment it’s controlled by the votes of the member nations, of which the PIGS control a big part.
“The U.S. Situation Is Tricky, But Manageable”
In order to properly recover, we need a right mix of monetary and fiscal policy. A wrong mix will lead to too much monetary policy, which doesn’t actually put money into the hands of consumers. The biggest worry here is that the politicians won’t get the mix right, although this risk doesn’t exceed 50%.
This is a really tricky situation, because too much stimulus from monetary and fiscal policy will lead to inflation, which will further wound the economy, but too little stimulus leads to a depression.
“China Needs Strong Growth”
The entire Chinese economic machine is geared towards high growth – anything less than 6% a year leads to financial problems, such as banking, lending, etc.
On a side note, the fact that China believes 6% growth per year is a “recession” while the U.S. is happy with 2% growth shows the difference in competitiveness.
“Own Some Gold”
Gold is an alternative to cash. The central banks are printing money to ease their debt pressures, which are still ballooning in countries such as the U.S. Gold is a nice alternative to cash, although it isn’t exactly a long term “investment”. The nice thing about gold is that, unlike cash, it can’t be produced off the printing machines.
Deep Thoughts On Currencies
By cutting the value of currencies, countries are able to quickly increase the competitiveness of their goods/services. However, this is problematic in a “fallacy of composition” scenario, in which all the countries devalue one after another, hoping to make their own exports more competitive.
On a side note, China is “manipulating” their currency. That’s just a word American PR uses to attack China (hell, American politicians manipulate the stock market themselves). Because capital is flowing out, the Chinese government is trying to prevent the Yuan from going down, whereas before they were trying to prevent it from going up.
The U.S. dollar, in the long term, is on the rise. Everyone needs dollars: those who lent money to the U.S. government. At the moment, the U.S. dollar is the least worst of the big three: the Euro, the dollar, and the Yen. So obviously people are going to want dollars.
“How To Invest”
So many people get caught in the “this never happened before! What am I going to do!” Truth is, a lot of things didn’t happen before. The Great Depression didn’t happen before, the Crash of ’87 didn’t happen before. The proper way of investing is to create a template. “If this happens, I’ll do this this this. If that happens, I’ll do that that that” etc.
Big Announcement Regarding This Blog
I’m going to cut straight to the chase – I (Tony) just sold this blog to Jack. But don’t worry, I’ll still be doing all the writing for A Young Investor as a staff writer – it’s just that I couldn’t handle all the technical aspects of blogging, which will now be done by Jack.
Stick around and enjoy the content! A few changes are taking place:
- We’re going to start putting up advertisements, albeit not many. And Jack promises that the ads won’t be obtrusive, like huge banner or popup ads that significantly slow down the site.
- Jack has agreed to split all the ad revenues 50-50, because the community here is what makes this blog run.
- This means that 50% of all revenues will be given away via Cash Giveaways!
12 years ago, everyone and their grandmother were quitting their jobs to become stay-at-home-investors. Fastforward 12 years, and the words “stock market” have become synonymous with “you-know-who (or more appropriately, you-know-what)”. So what happened?
Wall Street’s earnings game reminds me of a political scene: the politicians are all sitting at a table, lying through their teeth, realizing that everyone else is lying, and grinning from ear to ear like some demented animal. For those who aren’t familiar with why earnings reports are called “the earnings game”, here’s how it works.
The title says it all: how should macro investors invest, and how should they analyze the markets? (For starters, macro investors should use a systematic approach, not a discretionary approach). In previous posts, I have mentioned that the same fundamental information can mean different things in different market stages. Thus, we must categorize fundamental conditions into 2 x 2 categories:
When it comes to investing, you need money to make money, right? Every new investor or trader starts off with one problem: a lack of funds (unless you’re already rich). Consider the following:
- Person A starts with $1 million, and makes 10 percent.
- Person B starts with $100,000. In order to match the profits of Person A, Person B must make a 100% return.
The point is, you need to start investing with as much capital as possible. So how can you increase your intial investment capital?
In the financial markets, money tends to gravitate from the hands of the many to the hands of the few. Thus, the question arises – why do most people lose money and why is investing profitably so difficult? No, you do not need an above average IQ to invest successfully (althought having one definitely wouldn’t hurt), and no, you don’t need to be taught by the likes of George Soros to make money (many famous investors and traders were self taught). Investing successfully is difficult because it:
The purpose of investing is to make money, and the purpose of money is to lead a better, wealthier life, right? But in order to live a better life, we must also invest our time in other things:
Less than 2 weeks after our previous giveaway, I’m pleased to announce that I am once again doing a giveaway – $500 worth of cash (via PayPal, check, or wiretransfer, whatever the winners want)! But before I get on with the details, I thought you should know why I’m hosting this giveaway:
A few weeks ago, a A Young Investor reader emailed me about an investment opportunity – I usually don’t listen to “hey, you should check this out….” kind of emails, but this was a little different, as the person had commented on the blog before and I had already been semi-interested in making the same investment. To make a long story short, she pointed me in a direction that I hadn’t thought of before, and thanks to her generosity, I made $982.34 on the investment. Shows what a Random Act of Kindness can to for someone. I’d like to challenge you to do a random act of kindness for someone today.
I thought it would be nice to giveback to the community (because of the readers, I accidently made $982.34!), so here’s my $500 Cash Giveaway.