Global Market Comments
July 1, 2014
Fiat Lux
Featured Trade:
(WHEN THE DEMOGRAPHIC HEADWIND BECOMES A TAILWIND),
(LISTEN TO JOHN THOMAS ON HEDGE FUND RADIO),
(AN AFTERNOON WITH ACE REPORTER HELEN THOMAS)
(THE TAX RATE FALLACY)
I managed to catch up with my friend, Harry Dent, the other day, the guru on all things demographic (click here for his). Regular readers of this letter are well aware of the enormous headwind impeding all assets classes caused by the retirement of 80 billion baby boomers, which started in earnest at the beginning of 2012. With only 65 million Gen Xer?s of the following generation to buy their assets, prices could only head southward, as they have for the past six years.
My question for Harry was ?When does the headwind turn into a tailwind?? That would indicate when demographics shift from a barrier to asset price appreciation to an accelerant. Of course, Harry had the answer on the tip of his tongue: 2023. That is the year when baby boomers cease to be a drag on the economy, safely ensconced in nursing homes, wondering if their diapers will get changed on time.
That will leave 65 million Gen Xer?s chased by 85 million millennials trying to buy their assets, triggering a 13-year boom. A labor shortage will ensue, driving up wages, boosting consumer spending, and igniting another real estate boom.
Globally, the picture is a little more complicated. Demographically, China and Europe will become dead weight from 2036, cutting into growth at home. The US will then experience a 12 year echo boom from 2045, taking growth rates back up. There are exceptions. Rapid population growth and rising standards of living are expected to keep India strong all the way to the late 2060?s.
The biggest question of the decade for investors will be when the markets start to discount the great economic boom starting in 2023. Look at the last cycle for some clues. While the first baby boomer hit retirement age on January 1, 2012, the financial markets started to roll over five years in advance, in 2007, while the less liquid real estate market topped out six years ahead of schedule, in 2006. Check out the Case-Shiller chart below to see that I?m right.
This timing suggests that you should buy your new home in 2017 and load your portfolio with high beta risky stocks in 2018. But that is only if history repeats itself. Until then, try not to go broke.
The Next New Round of Buyers?
During my recent trip to Australia, I had the privilege to be interviewed by Alan Patching, one of the leaders of the country?s vibrant business community.
Alan was the chief organizer of the 2000 Sydney Olympics. He is the author of several business books. He is also a professor at Bond University in Perth, Australia. Patching is one of the top entrepreneurs in Australia, arranging tens of billions of dollars worth of transactions over the past decade.
During the interview we covered about every asset class under the sun, looking for long and short opportunities. I discussed the ongoing global synchronized economic recovery and the implications for the market.
I go into why US dollar will remains a reserve currency. I explain how wars of the last 50 years were all about oil, and in the next 50 years they will revolve around food and water supplies.
Chinese money will continue to pour into Australia. I even reminisce about flying the best Russian fighters in the early nineties.
I have broken up the extensive hour and a half interview into three 30-minute segments. You can purchase each one for $4.95 on Hedge Fund Radio by clicking here at http://madhedgefundradio.com/radio-show/.
I managed to catch up with my former white House Press Corp colleague, Helen Thomas, just a short time before she passed away last year at the age of 92. Helen was the oldest and longest serving member of this esteemed group of journalists and had the traditional right to ask the first question at each press conference.
The native Kentuckian covered every president since Kennedy, but observed the political scene since the Roosevelt era (Franklin, not Teddy). I knew her when I was a wet behind the ears apprentice writer during the Carter administration and she was a senior writer for the old United Press International.
Helen never changed an iota and maintained a feisty streak. John F. Kennedy was her favorite president, a man of peace who knew war, who inspired people and launched the space program and the Peace Corp. Lyndon Johnson brought to life the most sweeping social programs since FDR?s New Deal, but saw his legacy shattered by the Vietnam War. She pitied Richard Nixon, who at the end felt the wrath of the nation fall upon his shoulders.
Gerald Ford was a decent human being, too nice, really, for the job that was thrust upon him. Ronald Reagan was a master at managing the press. George W. Bush lied to the people about WMD?s in Iraq and hung the albatross of torture around America?s neck. He then sanitized the war for public consumption and cowed the press into fearing being called unpatriotic and anti-American. Bush heard that Helen was murmuring that he was the worst president in US history and broke with a century of precedent by conspicuously ignoring her seniority during his administration.
Obama, who shared a birthday with Helen, lacks the courage to do the right thing and should stick to his guns. But all new presidents come in completely unaware of what they have signed up for and there is a tortuous learning process. Investigative reporting is gone forever because newspapers can?t afford it.
Helen has seen public morals become more liberal for ourselves, but more strict for our public officials.
I know there isn?t any real investment insight here. But hey, when a piece of living history crosses your path, you grab on to her with both hands and shake her until the gems of insight she possesses fall loose. If Helen could only bottle and sell the energy she had at her age, she could have made a fortune.
Global Market Comments
June 30, 2014
Fiat Lux
Featured Trade:
(JULY 7 ROME, ITALY STRATEGY LUNCHEON),
(HOW OBAMACARE WILL BOOST YOUR PORTFOLIO),
(XLV), (GILD), (XLS), (XPH), (XBI), (GOOG)
Health Care Select Sector SPDR (XLV)
Gilead Sciences Inc. (GILD)
Exelis Inc. (XLS)
SPDR S&P Pharmaceuticals ETF (XPH)
SPDR S&P Biotech ETF (XBI)
Google Inc. (GOOG)
Global Market Comments
June 27, 2014
Fiat Lux
Featured Trade:
(DON?T MISS THE JULY 2 GLOBAL STRATEGY WEBINAR)
(JULY 24 ZERMATT, SWITZERLAND GLOBAL STRATEGY SEMINAR)
(THE TWO CENTURY DOLLAR SHORT),
(CNN?S JOHN LEWIS; THE DEATH OF A COLLEAGUE)
Global Market Comments
June 26, 2014
Fiat Lux
Featured Trade:
(JULY 11 SARDINIA, ITALY STRATEGY LUNCHEON),
(MY BRIEFING FROM THE JOINT CHIEFS OF STAFF), (XLK),
(WHY THE JGB MARKET MAY BE READY TO COLLAPSE),
(FXY), (DXJ), (EWJ)
Technology Select Sector SPDR ETF (XLK)
CurrencyShares Japanese Yen Trust (FXY)
WisdomTree Japan Hedged Equity (DXJ)
iShares MSCI Japan (EWJ)
Global Market Comments
June 25, 2014
Fiat Lux
Featured Trade:
(JULY 7 ROME, ITALY STRATEGY LUNCHEON)
(WHERE THE ECONOMIST BIG MAC INDEX FINDS CURRENCY VALUE),
(FXF), (FXE), (FXA), (FXE), (CYB)
(THE FALLING MARKET FOR KIDS),
(HOLLYWOOD CASHES IN ON WALL STREET TROUBLES)
CurrencyShares Swiss Franc Trust (FXF)
CurrencyShares Euro Trust (FXE)
CurrencyShares Australian Dollar Trust (FXA)
CurrencyShares Euro Trust (FXE)
WisdomTree Chinese Yuan Strategy ETF (CYB)
My former employer, The Economist, once the ever tolerant editor of my flabby, disjointed, and juvenile prose (Thanks Peter and Marjorie), has released its ?Big Mac? index of international currency valuations.
Although initially launched as a joke three decades ago, I have followed it religiously and found it an amazingly accurate predictor of future economic success. The index counts the cost of McDonald?s (MCD) premium sandwich around the world, ranging from $7.20 in Norway to $1.78 in Argentina, and comes up with a measure of currency under and over valuation.
What are its conclusions today? The Swiss franc (FXF), the Brazilian real, and the Euro (FXE) are overvalued, while the Hong Kong dollar, the Chinese Yuan (CYB), and the Thai Baht are cheap. I couldn?t agree more with many of these conclusions. It?s as if the august weekly publication was tapping The Diary of the Mad Hedge Fund Trader for ideas. I am no longer the frequent consumer of Big Macs that I once was, as my metabolism has slowed to such an extent that in eating one, you might as well tape it to my ass. Better to use it as an economic forecasting tool, than a speedy lunch.
The Big Mac in Yen is Definitely Not a Buy
Global Market Comments
June 24, 2014
Fiat Lux
Featured Trade:
(LAST CHANCE TO ATTEND THE JUNE 26 ISTANBUL, TURKEY STRATEGY LUNCHEON),
(THE BEST FINANCIAL BOOK EVER),
(A DAY WITH TOM FRIEDMAN OF THE NEW YORK TIMES)
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