| From: Peter Dierks | 8/21/2012 10:25:29 AM | | | | | | Upcoming Crash Will Be ‘Worse Than 2008’ Says Economist Peter Schiff
Wednesday, 13 Jun 2012 03:52 PM
By Christian Hill
Investors need to prepare for an upcoming stock market crash that will be “worse than 2008.”
That’s according to a well-respected author and investor, making a recent appearance on Fox Business.
Peter Schiff, the CEO of Euro Pacific Capital, says the stock market collapse we experienced in 2008 “wasn’t the real crash. The real crash is coming.”
He says that Federal stimulus, or quantitative easing, never works and that it just makes the economy sicker in the end. “The reason we are so screwed up is all this quantitative easing is toxic. I don’t doubt that we are going to pressure Germany into printing. We are like the kid who is trying to get a friend to ditch school with us to go to the beach. We are a bad influence on everybody.”
Schiff’s solution is to raise interest rates, but he acknowledges that it would bring a huge downside risk with it. “In America, the problem is that interest rates are too low. They have to go up. We can’t have an economy with interest rates at zero. If the Fed lets interest rates go up, we have to realize that we will have a deeper recession, we have to realize that banks are going to fail.”
He points out that today’s “safe haven” investments — the U.S. dollar and Treasurys — are anything but safe. “There are a lot of people who don’t understand what is going on. Look at how many people are buying the dollar. Look at people buying Treasurys. That makes no sense either. The risk lies in the dollar. The risk lies in Treasurys and other currencies being printed into oblivion.”
A noted economist agrees with Schiff that a much worse stock market crash is coming. And unlike Schiff, he has given very specific details about just how bad it will get.
“The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting in 2012.”
That catastrophic outlook comes from Robert Wiedemer, economist and author of The New York Times best-seller Aftershock. Before you dismiss Wiedemer’s claims, consider this: In 2006 he accurately predicted the collapse of the U.S. housing market, equity markets, and consumer spending that almost sank the United States.
interview, Wiedemer unapologetically displayed shocking charts backing up his allegations, and then ended his argument with, “You see, the medicine will become the poison.”
The interview has become a wake-up call for those unprepared (or unwilling) to acknowledge an ugly truth: The country’s financial “rescue” devised in Washington has failed miserably.
The blame lies squarely on those whose job it was to avoid the exact situation we find ourselves in, including current Federal Reserve Chairman Ben Bernanke and former Chairman Alan Greenspan, tasked with preventing financial meltdowns and keeping the nation’s economy strong through monetary and credit policies.
At one point, Wiedemer even calls out Bernanke, saying that his “money from heaven will be the path to hell.”
But it’s not just the grim predictions that are causing the sensation; rather, it’s the comprehensive blueprint for economic survival that’s really commanding global attention.
The interview offers realistic, step-by-step solutions that the average hard-working American can easily follow.
The overwhelming amount of feedback to publicize the interview, initially screened for a private audience, came with consequences as various online networks repeatedly shut it down and affiliates refused to house the content.
Bernanke and Greenspan were not about to support Wiedemer publicly, nor were the mainstream media.
“People were sitting up and taking notice, and they begged us to make the interview public so they could easily share it,” said Newsmax Financial Publisher Aaron DeHoog, “but unfortunately, it kept getting pulled.”
“Our real concern,” DeHoog added, “is what if only half of Wiedemer’s predictions come true?
“That’s a scary thought for sure. But we want the average American to be prepared, and that is why we will continue to push this video to as many outlets as we can. We want the word to spread.”
moneynews.com |
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| From: TimF | 9/6/2012 12:40:49 PM | | | | | | The prosociality of short selling
Short selling is under attack. In 2010, the SEC adopted new restrictions on it. Spain and Italy have adopted purportedly temporary bans on it.
I've noted many times over the years that short selling has many pro-social aspects, while being unfairly blamed for problems whose root causes lie elsewhere. A new paper brings to our attention an important additional prosocial benefit of short selling:
We hypothesize that short-selling has a disciplining role vis-à-vis the managers forcing them to reduce earning manipulation. Using firm-level short-selling data over the sample period of 2002 to 2009 across 33 countries, we document a significantly negative relationship between lending supply and activism in the short sell market and earnings manipulation. Additional tests using ETF ownership as an instrument or based on market-wide short-selling restrictions further confirm that short selling potential strongly discourages earnings manipulation. Meanwhile, the impact is more pronounced for firms with weaker corporate governance. Collectively, our findings suggest that short selling provides an external governance mechanism to discipline managerial incentives.
Massa, Massimo, Zhang, Bohui and Zhang, Hong, The Invisible Hand of Short-Selling: Does Short-Selling Discipline Earnings Manipulation? (August 5, 2012). Available at SSRN: ssrn.com
Earnings manipulation is an important source of agency costs in public corporations. By constraining management's ability to do so, short selling thus provides an important market check on potentially destructive misconduct. Which, once again, calls into question the wisdom of restricting it.
professorbainbridge.com |
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| From: Peter Dierks | 11/27/2012 10:16:50 AM | | | | | | Economic Bricolage
We should treat failed entrepreneurs with the reverence that we reserve for fallen soldiers.
November 26, 2012, 4:06 p.m. ET
By MATT RIDLEY
You don't need a physics degree to ride a bicycle. Nor, Nassim Nicholas Taleb realized one day, do traders need to understand the mathematical theorems of options trading to trade options. Instead traders discover "heuristics," or rules of thumb, by trial and error. These are then formalized by academics into theorems and taught to new generations of traders, who become slaves to theory, ignore their own common sense and end by blowing up the system. In a neat echo of its own thesis, Mr. Taleb's paper making this point sat unpublished for seven years while academic reviewers tried to alter it to fit their prejudices.
Mr. Taleb, a former trader and expert on probability, tells this story in "Antifragile: Things That Gain from Disorder" to illustrate the point that "we don't put theories into practice. We create theories out of practice." It is a startling insight, which he applies not just to finance but to medicine, science and philosophy. Successful medicine was a "craft built around experience-driven heuristics" that had to fight against entrenched, top-down theorizing from Galen and other wise fools.
Discovery is a trial and error process, what the French molecular biologist François Jacob called bricolage. From the textile machinery of the industrial revolution to the discovery of many pharmaceutical drugs, it was tinkering and evolutionary serendipity we have to thank, not design from first principles. Mr. Taleb systematically demolishes what he cheekily calls the "Soviet-Harvard" notion that birds fly because we lecture them how to—that is to say, that theories of how society works are necessary for society to work. Planning is inherently biased toward delay, complication and inflexibility, which is why companies falter when they get big enough to employ planners.
If trial and error is creative, then we should treat ruined entrepreneurs with the reverence that we reserve for fallen soldiers, Mr. Taleb thinks. The reason that restaurants are competitive is that they are constantly failing. A law that bailed out failing restaurants would result in disastrously dull food. The economic parallel hardly needs spelling out.
The author is a self-taught philosopher steeped in the stories and ideas of ancient Greece (a civilization founded, of course, by traders like Mr. Taleb from Lebanon, as Phoenicia is now known). Anti-intellectual books aren't often adorned by sentences like: "I have been trying to bring alive the ideas of Aenesidemus of Knossos, Antiochus of Laodicea, Menodotus of Nicomedia, Herodotus of Tarsus, and of course Sextus Empiricus." So he takes his discovery—that knowledge and progress are bottom-up phenomena—and derives an abstract theory from it: anti-fragility.
Something that is fragile, like a glass, can survive small shocks but not big ones. Something that is robust, like a rock, can survive both. But robust is only half way along the spectrum. There are things that are anti-fragile, meaning they actually improve when shocked, they feed on volatility. The restaurant sector is such a beast. So is the economy as a whole: It is precisely because of Joseph Schumpeter's "creative destruction" that it innovates, progresses and becomes resilient. The policy implications are clear: Bailouts risk making the economy more fragile.
Biological evolution, too, is anti-fragile. The death of unfit individuals is what causes a species to adapt and improve. The body is anti-fragile: Without stress it weakens. To build muscles, you must push them to the point of failure. Though he has no truck with homeopathy, Mr. Taleb is intrigued by hormesis, an old idea, now enjoying a revival, that a small dose of a harmful substance is actually beneficial.
It follows that, in Mr. Taleb's world, the greatest sin is to be a "fragilista," somebody who encourages an institution to become fragile. This word is defined in the book's glossary thus: "somebody who causes fragility because he thinks he understands what's going on. See Iatrogenics." The latter term is from medicine, meaning when doctors do more harm than good, for example, by bleeding the patient in the past, or by putting ice on swellings today.
The Federal Reserve, in Mr. Taleb's view, is an iatrogenic institution run by fragilistas doing more harm than good by trying to root out randomness. This might seem a cheap shot were it not for Mr. Taleb's track record in spotting some of the ingredients of the recent financial crisis. In particular, after 2003, he took a lot of criticism because "I kept telling everybody who would listen to me, including random taxi drivers (well almost), that the company Fannie Mae FNMA +0.36%was sitting on a 'barrel of dynamite.'" He has little mercy for the Keynesian economist Joseph Stiglitz and the Orszag brothers, Peter and Jonathan, economic consiglieres to Democratic administrations, who insisted around the same time that the probability of default in the government-sponsored enterprises was "so small that it is difficult to detect."
As this illustrates, Mr. Taleb doesn't suffer fools, a category in which he includes virtually the entire profession of economics and many other academics. Consider the definition of "touristification," from his glossary: "the attempt to suck randomness out of life. Applies to soccer moms, Washington civil servants, strategic planners, social engineers, 'nudge' manipulators, etc." The opposite, strategy, which he approves, is to embrace "optionality"—like a traveler without an itinerary feeding off randomness by grabbing opportunities as they arise. The author's heroes, from Thales of Miletus, the first Western philosopher, to his intuitive street-wise trader friend Fat Tony, are people who find out how to do things empirically.
There are a few places in the book where I thought Mr. Taleb went wrong—for instance, he seems to underplay the degree to which unnatural medicine, while occasionally doing harm, also greatly prolongs healthy life; and he doesn't notice that climate models deserve as much of his scorn as economic ones. Sometimes he is led astray by his contrarianism, but then that is his point: If you don't take risks, you don't get results.
This is a bold, entertaining, clever book, richly crammed with insights, stories, fine phrases and intriguing asides. Does it achieve its goal, or does it cram and twist the world on to a Procrustean bed of one theory, thereby somewhat contradicting its own empirical and pragmatic outlook? I am not sure. I will have to read it again. And again.
Mr. Ridley writes the Journal's Mind & Matter column.
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| From: Brumar89 | 12/13/2012 11:37:24 AM | | | | | | Barron's publishes a Roundtable of discussions and stock picks shortly after the beginning of each year. Most such stuff is of little value. But there's a guy named Felix Zulauf who has had a very good run of results. A CAGR of returns of 25.4% over 10 years with NO down years. No negative returns in 2002 or 2008. Worth noticing.
He is a Swiss hedge fund guy. He has a blog ... everyone does now, I guess:
felixzulaufblog.blogspot.com
Whoa, a superbear. I'm not going to sell all my stocks like he advises but I think I will be moving some to gold.
".. from now on buying the dips [in the price of gold] is the right strategy because I think we have actually entered the next cyclical bull market within the secular bull run that we are still in. He also has a pretty ugly outlook for stocks: “I think over the next two years or so we will probably see 1,000 in the S&P again (a decline of more than 30%).”
On a political note, he called the election for Obama, though reluctantly.
If you're right that President Obama will be re-elected, what are the implications for taxes and spending cuts in the U.S.?
I hope Governor Romney wins, but I fear that Obama will be the victor. Then, much will depend on the composition of Congress. In any case, the so-called fiscal cliff won't be as high as many fear. Raising taxes and cutting spending wouldn't reduce GDP [gross domestic product] by 4.5 percentage points, but something closer to 1.5 percentage points. Still, the combination could slow the economy next year.
Just checked something - the return on his 2012 rec's through 12/6 was -3.2% ... so he may have his first negative return year in a decade.
blog.pundittracker.com |
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| To: Brumar89 who wrote (254) | 12/16/2012 12:10:57 PM | | From: TimF | | | | One problem with using past results to determine who is a good stock picker, if you start with a large sample, is that just by random chance some members of that large sample will be consistently good.
The longer the period your considering, the smaller the number that would make it through on random chance, and the more likely that factor doesn't make the data meaningless. A longer period would mean its more likely that their abilities might change, or no longer fit a new environment, but that typically would not be as big of factor in evaluating people from a large sample as the first, and if they do mentally decline, get distracted, or their skills no longer fit changed circumstances it shouldn't take long to see the results. Sure by random chance they could still get it right, but now you evaluating not the cherry picked best from a large sample, but specific individuals you have already screened out from the large sample, so your far less likely to find consistent outsized results going forward. |
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| To: Brumar89 who wrote (256) | 12/16/2012 12:34:02 PM | | From: TimF | | | | Yes.
OTOH I'm not sure that he made that 10 year return from predictions of what the market would do over the long term. He might be good at seeing the direction things are going for few weeks to a few months out, and getting ahead of it. That could make you a lot of money, but doesn't mean you know what things will be like in years down the line. |
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