HOPE THIS ARTICLE FROM STEVE BLUMENTHAL GIVES PERSPECTIVE AND HELPS UNDERSTAND OUR CURRENT WORLD FINANCIAL SITUATION. 5 YEAR AFTER THE 2008 FINANCIAL COLLAPSE NOTHING HAS BEEN DONE IN WASHINGTON AND THE TAXPAYERS ARE STILL ON THE HOOK FOR THE NEXT COLLAPSE. GOOD READ. On My Radar: Shifts, Shocks and Currency Wars Share This: Share on linkedin Share on facebook Share on twitter June 7, 2013 By Steve Blumenthal “A Race to the Bottom”. It was April 2, 2011 and the call came. I had just gotten off the ski lift at nearly 12,000 feet on top of Snowbird mountain (Utah). “Are you sitting down?” No, I answered, what happened? Mauldin was to fly up to have dinner with me and my family that day to celebrate my 50th birthday. He was detoured by a private dinner meeting that included several prominent politicians (you’d know them), a few hedge fund managers and John. Several bottles of wine into his meeting the discussion deepened. What was revealed surprised both John and me. After presenting his views on a glide path solution, Mauldin asks, “ok guys, what’s your plan?”. The answer was firm, “John, we are going to print and print and keep on printing.” Mauldin sits up, “guys, do you know what that is going to do to the dollar?”. A firm reply, “We don’t give a damn!”. What a fine birthday present I told my good friend and headed down the mountain. Currency Wars has been on my radar ever since. What was unimaginable to me then is today’s reality. It is the great experiment. It is easy to close our eyes and project our most recent equity gains forward but the risk remains nonetheless. Don’t close your eyes. The good news is that risk can be managed. The bad news is that it never feels risky when risk is most elevated. “Evolve risk management approaches. Correlations have and will continue to change in this fluid world heavily impacted by central banks. Diversification, while necessary, is no longer sufficient for portfolio risk mitigation. Tail hedging can be an important addition, which also speaks to a broader issue: Narrow product mindsets need to continue to evolve into more holistic solution approaches.” I quote Mohamed El-Erian from his May 2013 Secular Outlook piece. So it is with a constant eye towards risk that I share a must read piece from my friend, James Rickards, titled – Economic Shifts, Financial Shocks and Currency Wars. It is a great walk through history and I believe a clear presentation on what is actually happening today. Is he right? I think so but none of us really know. Everything is risk – the point is to be aware of risk. We are in a unique period of time. My personal view is that Rickards is spot on. A few highlights followed by a link to the full piece. A pro-growth policy involves breaking up large banks, banning derivatives and reining in Wall Street abuses. A pro-growth policy also involves raising interest rates, promoting a stable dollar, cutting government spending and lowering taxes. Implementation of these policies seems extremely unlikely due to a lack of understanding of economic dynamics and the cronyism of Washington and Wall Street. Central bankers have now taken the world to a place from which there is no exit. By cutting interest rates to zero, or close to it, and by expanding balance sheets with unprecedented amounts of money printing, they have for now forestalled a more severe contraction, something that might have resembled the depression of 1920 in its intensity. Yet, in doing so, they have destroyed markets and merely delayed the reckoning. In desperation, policy makers then turn to currency wars, trying to cheapen their currencies against those of their trading partners. The purpose of cheapening a currency is to cheapen exports and create economic growth and jobs through the export-producing sector. At best, this produces temporary relief, but the gains are soon reversed as trading partners retaliate. When one increases the scale of a complex system the risk of collapse rises even faster. This is not speculation, it is sound theoretical science. Unless society takes immediate steps to reduce the scale of today’s complex capital markets by breaking up banks and banning derivatives it faces a catastrophic collapse on a par with the Bronze Age or Ancient Rome. Unknown to most observers is that the financial dangers of 2008 have not gone away, in fact, the situation is worse. The biggest banks are even bigger with a larger share of total bank assets. The taxpayers bailed out the system in 2008 and got nothing in return except the prospect of having to do it again. If the system is riskier and more dangerous than it was in 2008, where will the next collapse begin? What domino will cause the other dominoes to fall? A survey of the big three currency areas – Europe, China and the United States – provides a foundation for understanding why real risks remain and a new catastrophe is looming. – James Rickards from the IISS conference, read the full presentation here: Also, I recently had an interview on Bloomberg Radio where I discussed my view on a 33/33/34 allocation. You can listen to it on our website by clicking here. With warm regards, Steve Stephen B. Blumenthal Founder & CEO CMG Capital Management Group, Inc. Philadelphia – King of Prussia, PA steve@cmgwealth 610-989-9090 Phone 610-989-9092 Fax IMPORTANT DISCLOSURE INFORMATION
Posted on: Mon, 10 Jun 2013 14:26:50 +0000
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