why we need to watch the Japanese Yen …

Finest and most generous investing/trading post I’ve read in 2014

Bart's Charts

full disclosure … check out this chart below.  this is where I was stopped out of a LONG USD vs the JPY.

this game is really hard, if you make it.  As my mentor and friend Larry Pesavento says – “trading/investing isn’t hard, but it sure isn’t easy.”  I was pretty cocky 7-8 years ago when I was sitting in Larry’s trading room.  I asked him “what do you consider a good month?”  He sat back, looked at me and stared me directly in the eyes and said “if I make 1 cent.”  I laughed … little did I know that one sentence was the most profound statement I would here ….. no kidding.

so how do you get in this move … ? well, you WAIT for the opportunity to come to you.  If you look at the line in the sand – 10/28/2011 – you’ll see the “SEED…

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Is NOW really the time to be invested in or to be investing in Western shares?

It doesn’t take a genius to see that the FTSE (the index of the share prices of the largest 100 public companies based in the UK) is down on where it was nearly A YEAR AND A HALF AGO.

It is not relevant that the fall may be only c 7%.  It is not a rise.  And it is nearly a year and half ago.  This is not a market powering ahead or making positive returns to portfolios.  And statistics show

  1. This is the sector that most private client portfolios are most heavily invested in and
  2. The sector that most people are putting new money into, month after month, is UK Large Cap High Dividend shares’ funds

Yet, they cannot have made any profit from it since the Spring/Summer of 2013.

We are often showing to clients how the herd often makes the wrong investment decisions because it feels right at the time.  It would appear this is the case yet again.  How do portfolio managers sleep putting more and more into a sector that may actually be in a major topping process, after having risen from Spring 2009.  Very soundly we imagine.  How will their clients sleep if it IS a topping process and the result is a large fall and thus a large hole in their retirement fund?  Not soundly we imagine.

Now it may be that the UK is unique?  Let’s look at the top German index, the DAX:

It’s back to levels of a year ago, after a sharp drop since the Summer.

So, it’s not just the UK.

Now, we will show you a most interesting chart of ‘the insides’ of the US S&P 500 index.

Margin debt, in essence, is the amount of borrowings market participants take out to invest in the stock market.

The amount outstanding is a) huge and b) more than 2000 (Dot Com) and even 2007 (the Credit Bubble).

Given all the above, is now really the time to hold large amounts in and invest in Western stock markets?  You decide.

Posted in Asset allocation, Investing, Retirement, Shares | Tagged , ,

Investment markets – Update on equity markets

I’ve just wasted 4 and a half hours of my professional life.  And £15.80.

The latter was the cost of a return train ticket to get to a conference on investing.  The former was the time travelling and the 10% of the 2 day seminar I listened to.

Before I get more into that, I last wrote about the S&P 500, specifically, in November 2013 and of Emerging Markets vis-a-vis Developed Markets in April 2014.

I’ve been saying for quite a while that the great S&P500 surge in 2013 (which I got wrong) maybe was dying and we may be seeing the end of the (now) 5 and a half year rise in the S&P.  I’ve also been wondering if one wants to invest in equities then perhaps look at EMs, which had crashed nominally and relatively.  Why invest in shares which were on a high?  Doesn’t make sense to me.  And yet most do that very thing.  It’s going up so it will go up.  Er…

Don’t get me wrong.  I’m all for following trends.  But nothing goes in one direction for ever and if there are reasons to be cautious or bearish so be it.

So what’s happened since November 2013?

spxThe market continued rising until September and indeed rose a further c 18% to its peak.

Of course, since the peak it has reversed somewhat sharply and stands now at just c 4% higher than the blog written 11 months ago.

Bear in mind I am writing (and thinking) for Sterling based investors.  The £:$ is at the same rate as last November.  So, the net result is, whatever has happened in between, the market is up by all of 4% – hardly powering ahead after 11 months.

The thing is I wrote about concerns and rising risks.  That the market rose a hefty 18% then gave almost all of it back sharply, that is the kind of capital risk I am ever watchful for.  Great, you made 18%.  Aren’t you amazing.  Have you held on to it?

Are you certain the market is pulling back just to go to the next higher high?

I am not so sure.

Note the price is lower than the August low.  If….big if… the next rise goes to a lower high then we will have a lower low AND a lower high AKA a downtrend…

The fact is, there are numerous markets’ issues going on – too many to relate here – that suggest this may be more than a small correction – that at least we may be looking at a 2011 20% fall scenario or maybe even the ending process of the 5 and a half year bull market which can lead to a 2008 – type collapse.

It is far too early to tell but the old adage is spot on:

The higher a market goes the more risk rises and the lower it goes the more risk falls.

One point I will make of my thinking last November is this:

The FTSE – as of now – peaked 17 MONTHS AGO.

ftseAnd the peak in May 2013 has been tested 4 times since.  Normally, we would say a Resistance (to the high) or a Support (to the low) tested so often will eventually break.  Well, it hasn’t yet and IS down 7% over 17 months.  Bullish behaviour?  No.

So what has all that to do with wasting time and money?

Well, 6 and a bit years ago in the Summer of 2008 I attended an investment conference at the invitation of a Sales Rep of an investment house by the name of Ashburton.  At this conference the Keynote speaker was Anatole Kaletsky, the great – in his own lunchtime – economist and S Times guru (beware of gurus) who told the assembled throng that, economically and markets-wise, all is well and we have nothing to be concerned about.

I duly raised my hand.  Er… aren’t the banks in difficulty?  Hasn’t Northern Rock gone under?  Hasn’t Bear Sterns (5th largest US inv bank IIRC) just gone bust – Feb or March 2008 – etc etc?  … which he will have known about and probably in detail.

Weeks later we had the biggest economic and financial bust IN HISTORY!

And this so-called economist told us not to be worried about stuff (that you don’t understand…).  After all ‘I’ am getting paid a lot of money to tell you to invest more in nice Ashburton’s funds.  No vested interest.  And I truly care about your clients’ pension funds…

NB.  None of our clients lost money in 2008…

So how did I waste time and money today?

1.  I went to the conference of the same sales rep but now with a new company by the name of Momentum.  I should have known better.

Look, as a wealth manager, I am often invited to seminars and conferences to learn about markets, economics and products.  Well, when I say learn… it’s a big sales job and I get that.

2. The first 2 presenters were top guys at JP Morgan and Deutsche bank.

… who both essentially said… nothing to worry about.  Not in those words but essentially.  I kid you not.  After 5 and a half years of a US equity bull market, DMs crashing, govt bond yields crashing (as I have been saying would happen since 2013 again and again and they’ve been saying they would soar…), US$ rising, inflation all over falling to multi year and record lows,  aggregate household earnings collapsing etc etc

And yet these guys who earn 00s of 000s of £££ per annum were telling us, essentially, nothing to be concerned about as investment managers/advisers.

The best one was ‘QE hasn’t worked so we need much much more of it’.  FFS!

You Couldn’t Make It Up.

Serves me right?  I should have known that the inviter would be bringing me to exactly the same as 2008.  But no.  Naive little me says to myself – I’ll see if anything’s different.  I’ll give him another chance.

So I sat through the 2 presentations till coffee and he came up to me, all public school affable etc (count your fingers JD).  After genial discourse I gave him feedback and said I wouldn’t be coming back next year as the presentations so far have been lousy (well my language was much coarser than that) and said why.  The presenters are from huge investment banks and they and central banks are terrified of deflation whereas I would love a lower cost of living and businesses would love lower costs.  In other words they were giving us the same tripe that helps them but not the economy nor investors.  And all the reasons why there needs to be more QE and inflation.

I then reminded him of the Kaletsky incident.  At which point he suggested I not remain.  i.e. F… OFF.  So I did.

I am reminded too, in May 2013, I went to an investment conference by the firm of which John Redwood IIRC is Chairman.  I took a friend/client with me.  The message was invest in UK shares as all the banks are much much healthier than 2008.

Yes, May 2013.  Look what has happened since then.

The point is the investment industry could care two hoots if you make or lose money.  They want you to invest with them and they get their fees.  More importantly, when they get to a big enough size they will sell the company to an even bigger company.  It’s a bit like Securitisation – receiving a capital sum for future client fees.

They do not have a wealth preservation mentality as we do.  They do not have a deep deep value philosophy ie searching for quality global assets that have collapsed in price, ideally, thus hugely reducing capital risk.  They just want your funds and they will then invest like everyone else does.  When it goes tits up they’ll say no-one could have foreseen it as they drive away in their Merc S classes.

Actually there are many who are decidedly uncomfortable with the Western Economy and the outlook.

Newly elected Douglas Carswell MP for one:

Telegraph – Douglas Carswell truly grasps the root of our malaise.  And there are many many others.  But you’d be hard pressed to see many of us in the media.  I wonder why that is…

To finish off, it wasn’t a TOTAL waste of time.  I did take away a pen and a highlighter which were in the goodie bag.  Like I need a new pen and a new highlighter!

Nothing in these articles can be taken as financial advice.  Neither Jonathan Davis nor Jonathan Davis Wealth Management will be held responsible for action taken or not taken from reading these articles.

We recommend investors seek bespoke advice before acting.

© 2014 Copyright Jonathan Davis – All Rights Reserved

Posted in Asset allocation, Depression, Investing, Shares | Tagged , , , , , | 2 Comments

US Dollar and GB Pound update

First, a recap of what I said a month ago.  Full post here.

4 August 2014:

“So, the US $ is to collapse, so say the inflationistas, the gold bugs, the Anderson shelter types etc.

USDYet the $ index, against a generally accepted basket of currencies, has failed to collapse for over 2 years and, indeed, is rising again, from multi year support.

This is the reason why the GB£ has recently been falling – not because of anything internal to the UK.

USD-GBP1.70/72 was 20 year resistance, apart from the extreme period of 2003-2007.  As I told clients, from 1.70/72 £ could rise further 20% or fall 20% to 1.35.  Falling so far. On verra.

The £ has fallen recently due to $ strength and has broken below rising support, since February.  It seems fair to suggest the break will hold.  Next support down at 1.63.”

Now the update:

USDThe US $ (index) is in a multi year uptrend.  There is no getting round that fact, whatever your opinions of what ‘should be’.  The trend up started in mid 2011, paused for a very long 2 years and, indeed, may still be pausing ie moving horizontally.  Until it breaks up, sustainably, above 85 or below 78 it is pausing in the trend.

The fact is though it is approaching the top of the channel, since mid 2012.  So, there is a slightly greater likelihood of a reversal from around here than a continued rise up.  It would be easier for the market to stop at this resistance than break through.

The high RSI signifies overbought status.

However, longer term, unless and until the trend reverses the multi year uptrend of the US$ is the trend.  That is unlikely to be good for stocks and commodities.  Unlikely to be inflationary.  Likely to be supportive of deflation and government bonds.

As for Sterling vis-a-vis the US$, in the British press all and sundry are blaming a recent fall in the £ on a rise in support of Scottish Independence (on which I had something to say here.)   Nonsense!  The recent polls were last week.  A) The US$ started rising rapidly in June. B) the recent fall in the £ started over 2 months ago.  The fall in Sterling has NOTHING to do with the polls or potential for Scottish Independence.  Economics and Political Media. MEH!

XBP

Note, I said, on 4 August it seemed likely the first major support (and point for reversal back up) would be around 1.63.  That is where we are now.  It is no coincidence that it coincides with a potential reversal of the short term surge in the US$.  I told clients that a strengthening £, since last Summer, would not be immune to a generally strengthening US$ ie the £ was not uniquely strengthening and it would not continue to do so if the US$ started to rise.  That has proven to be correct.

That UK house prices are softening, the timing for a Base Rate rise gets put further and further back (Quelle Surprise!), that household earnings remain weak, that disinflation remains true etc etc these are amongst the reasons I have held the view that a strengthening pound was strange.  (As many things in the markets are.)

It is also noticeable that the £ has bounced hard off the very long term resistance of $1.70/72, as I pointed out previously.

What seems likely is a rebound from here and it may go back up to the $1.70/72 level again.  Whatever it does on the rally, that will be the retest of the $1.72 high.  If the US$ is to break up above 85 expect the £ to be lower than now in the medium term, whatever may happen in the short term.

 

Nothing in these articles can be taken as financial advice.  Neither Jonathan Davis nor Jonathan Davis Wealth Management will be held responsible for action taken or not taken from reading these articles.

We recommend investors seek bespoke advice before acting.

© 2014 Copyright Jonathan Davis – All Rights Reserved

 

Posted in Asset allocation, Currencies, Investing | Tagged , , , , ,

#TurningJapanese

A theme I have written of many times, during the last few years, is how we, in the West, may be #turningjapanese.  What this refers to is Japan’s lost TWO decades between 1989 and 2012 when Japan had Deflation and a slow growing or mostly falling economy – in other words a generational Depression.  During this period their stock market and their real estate valuations collapsed 80% each.

In the West we have had practically zero interest rates (Base Rates) for several years now, yet… contrary to consensus economists’ prognostications, not only is inflation not rising but actually we are positively in at least DISinflation (falling inflation) or, in some countries in the EU, in downright DEflation – falling PRICES.

We have long said this may happen and we have long said we are probably nowhere near the end of this particular road.

THIS is the INEVITABLE result of the debt mania we have had for many years.  Eventually, there is so much debt that whatever governments and central banks do they CANNOT avoid deflation.  Don’t listen to me, it’s what the Finance Minister (think UK Chancellor) Herr Schäuble of Germany said last week German Finance Minister on Bloomberg TV (5m 15s in).

I repeat, we have been saying similar for years.

So the new Bogeyman is Deflation.

Politicians and Central Banks tell us we MUST avoid it at all costs because, after all, look what happened to Japan during its deflationary Depression, they utter.

Except Japan did not have a Depression BECAUSE of Deflation, it was Deflation and Depression which AROSE FROM the fallout of a massive debt bubble which burst in the late 80s.

Also, what did Japan do to come out of Depression?  They borrowed more.  And more.  And more.  They are now the most heavily indebted country in the developed world.  And, though, they are now moving to INFlation, they remain in Depression.  Google Einstein to see his definition of insanity.

And, look at that, whatever mistakes Japan did for now 25 years, the West has been making exactly the same ones since 2009.  Solution to the huge Recession in 2008 from the initial bursting of the debt bubble…?  Borrow massively more.  Again and again and again.  It’s called Quantitative Easing.

You Couldn’t Make It Up.

So our economy will go the same way as Japan.  That is our prognosis based on the experience of Japan and we are doing as they did.

It seems the ‘smartest’ investors in the World agree with little us – the Bond market is deemed more canny than those in the stock market.  And when Bond prices are rising it suggests falling interest rates and falling inflation and slowing or falling economies.

When bond prices rise, their associated yields (or interest rates) fall (do ask if you wish a detailed explanation).  The table below, from Wednesday 27 August, shows the real time prices and yields from across the World.  The blue dot – to the left of the range – shows where yields are now, compared to the range over the last year.

Almost all of the blue dots ie almost all government bond yields are at year lows.

Don’t listen to me (the bulk don’t!), listen to the likes of The Finance Minister of a little country called Germany AKA The EU’s Sugar Daddy and the MultiHundred TRILLION $ market which is government bonds.

WE ARE IN AT LEAST DISINFLATION AND PROBABLY OUTRIGHT DEFLATION.

As I am often wont to say on Twitter we are #turningjapanese.

 

NB. There are those who believe that inflation is what Japan desperately needs.  Forget reform of the banking system, uncompetitive labour laws, immigration (or lack of it), demographics.

Yes, it’s all about inflation.  You Couldn’t Make It Up!

Remember GDP percentages are, normally, gross.  Take off the inflation and you’re left with reality.

 

 

Nothing in these articles can be taken as financial advice.  Neither Jonathan Davis nor Jonathan Davis Wealth Management will be held responsible for action taken or not taken from reading these articles.

We recommend investors seek bespoke advice before acting.

© 2014 Copyright Jonathan Davis – All Rights Reserved

Posted in Asset allocation, Depression, House prices, Investing, Japan, ZIRP | Tagged ,

Douglas Carswell defects to UKIP

A pretty momentous event last week.

I read two excellent pieces on it and on him:

and

I’ve also read a superb and informative discussion here Carswell defects online discussion

It seems to me that all is not as clear as various players want everyone to believe (so what’s new?).

I suggest the following:

  1. Carswell attended a high level Tory party meeting where a top-flight analyst said Clacton is the most UKIP-oriented seat in the country. Thus he simply got scared of losing his seat.
  2. If he’s so principled  – as ‘everyone’ says – how come this libertarian, free market capitalist has joined a Socialist party (have you seen their policies?)?
  3. If he’s so free market-minded, how come he gives short shrift to those who question the high house price mantra of the Centre?

OK, I’ll accept he’s relatively principled.  Also, he’s relatively libertarian and somewhat capitalist.  I guess he must be anti-EU but I don’t know.

I think he defected because a) he calculated he needs to go to UKIP or lose his high paid job.  Also, b) I’ll wager UKIP were über friendly to him whereas his own ex Party were nasty to him.  He felt friendless and he seeks friendship.  Who doesn’t?

What he IS is a sucking-on-the-teat of the State politician, first and foremost.  He desires his £100k (equivalent) income for doing (fill in salesmanship and marketing blanks).

Who wouldn’t?  It’s what he does.  He’s good at it and it’s so easy money.

I hope he wins the By Election and next May.  He’s – by far – not the worst politician in the UK.  But he is a politician.  And a very very clever one.

 

As an aside there is something a little weird worth mentioning.  I have never corresponded with him.  Neither he to me.  Directly or via social media.  Never once.   I have RT’d his tweets in the past.

He blocks me.  Around a couple of years ago, I once clicked to Follow and I couldn’t.  He had already blocked me before I had the chance to Follow him.  What’s that about???  Weird but true.

#bringbackcapitalism

 

Nothing in these articles can be taken as financial advice.  Neither Jonathan Davis nor Jonathan Davis Wealth Management will be held responsible for action taken or not taken from reading these articles.

We recommend investors seek bespoke advice before acting.

© 2014 Copyright Jonathan Davis – All Rights Reserved

Posted in UK Politics | Tagged | 13 Comments

Scottish Independence vote

The vote in September is unlikely to be Yes for Independence – though the polls are closer now than a few months ago and there is a large undecided bloc.  However, I’ll be surprised if Scotland votes Yes especially as the Establishment is out in force telling the people to vote No.

Why would that be, I wonder?  See below.

Until a few weeks ago my standard answer to ‘what would you vote for’ was:

Well, as an Economist and Wealth Manager AND as a Scot I can forcefully say…I don’t care what they do!🙂

As far as I could tell there are pros and cons on both sides and there is no black and white.  So, do or not – it’ll be fine (or terrible) whatever.

However, I changed my mind a few weeks ago.

It occurred to me this is a fantastic opportunity to bring a Government closer to the governed.

As everyone should know:

The closer a Government is to the governed, the easier it is for the governed to control the Government.  Hence why Cantons in Switzerland work and Switzerland does fantastically well.  As well as German Länder and Germany.  Then you have Hong Kong and Singapore.

The further the Government is from the governed… well you get it.  Look at Westminster and Scotland.  Brussels and all over EU.  Washington DC and USA.  Beijing and China etc.

So, Scotland would be stupid not to vote for Independence.  Thus, as everywhere, they will do the stupid thing and vote No.

It is immaterial that SNP is Socialist.  As are all the others!

What is 100% material is that the more Socialist a country becomes, if the governed have any power, Capitalism can be brought back.

If only…

Of course, all of this is likely to be nonsense because if Scotland did get Independence of Westminster it would then become subordinated to Brussels and the Edinburgh political mafia would get high six figure tax free salaries over there.😦

So I go back to what I said at outset – I don’t care what they do.  They’re toast anyway.  Politicians! MEH!

So why is the Establishment telling the people to stay in the Union?  Simple.

It needs as many as possible to bail out its #banksters and pay taxes to the Government and make the rich richer.  Obviously.

#bringbackcapitalism

#banbankbailouts

#letmktsetrates

#prosecutebankgenerals

#banQE

Nothing in these articles can be taken as financial advice.  Neither Jonathan Davis nor Jonathan Davis Wealth Management will be held responsible for action taken or not taken from reading these articles.

We recommend investors seek bespoke advice before acting.

© 2014 Copyright Jonathan Davis – All Rights Reserved

Posted in Uncategorized | Tagged , | 8 Comments