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Asset protection

A Rational Look At Stock Market Risk

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Posted by Chris Ciovacco - Ciovacco Capital Management

on Monday, 22 September 2014 13:03

No Fear Mongering, Just Facts

Group of 20 finance chiefs and central bankers said current risks include uneven growth and the possibility of excessive risk-taking in a low interest rate environment. They also pointed out that when push comes to shove, they will continue to stimulate. From Bloomberg:

"It is critical that we take concrete steps to boost growth and create jobs," Australian Treasurer Joe Hockey, who hosted the meeting, told reporters after the communique was released. "We will use all levers available, including additional fiscal and monetary policy leverage where appropriate."


This Is What Risk-Off Looks Like

If an increasing threat of a global recession is the primary concern, we would expect more conservative assets to be gaining traction. Investor preferences allow us to better understand the stock market's risk-reward profile. For example, when economic fear was high in 2008, the performance of growth-oriented stocks (SPY) was weak relative to defensive-oriented bonds (AGG) (see chart below).

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This is What Risk-On Looks Like



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Asset protection

This Great Danger May Trigger A Worldwide Crash

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Posted by John Mauldin via King World News

on Monday, 15 September 2014 07:29

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Today John Mauldin spoke with King World News about the great danger he believes may trigger a worldwide crash.  Mauldin, President of Millennium Wave Securities, also warned that the problems in Europe are so enormous that it may ultimately shock the Europeans by causing the destruction of their currency.

....continue reading HERE

Ed Note: John Mauldin has a much longer article in his "Thoughts From The Frontline" posted below:

Thoughts from the Frontline - What's on Your Radar Screen?

What’s on Your Radar Screen?
Emerging Markets Are Set Up for a Crisis
Who’s Competing with Whom?
O Canada, Where Are You Headed?
Thinking about Momentum
The Rational Bear



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Asset protection

#2 Most Read This Week: Markets Climb as World Faces Crisis

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Posted by John Browne - Euro Pacific

on Saturday, 13 September 2014 08:48

egypt-riots-2011-5"The concept of order that has underpinned the modern era is in crisis." - Henry Kissinger
 
On August 28th while the geographical area formerly known as Iraq descended further into chaos, President Obama announced to the world "We don't have a strategy, yet." A few days later, another brave American journalist was brutally beheaded by a slickly televised cockney-accented jihadist. Clearly things are not going well outside the bubbly confines of the S&P 500. 
 
Last week The Wall Street Journal published an extract from Henry Kissinger's forthcoming book, "World Order". In it, the former Secretary of State cited Libya, ISIL, Afghanistan and "a resurgence of tensions with Russia and a relationship with China" as developments of grave concern to the United States.  Kissinger went on to warn, "The concept of order that has underpinned the modern era is in crisis."

Kissinger noted that the era between 1948 and 2000 could be considered an "amalgam of American idealism and traditional European concepts of statehood and balance of power. But vast regions of the world have never shared and only acquiesced in the Western Anglosphere concept of order. These reservations are now becoming explicit, for example, in the Ukraine crisis and the South China Sea. The order established...by the West stands at a turning point."

In the 20th Century, the Anglosphere was unsuccessfully challenged by Germany and Russia. The first German challenge ended with the abdication of the Kaiser in 1918. But Allied negotiators failed in a crucial test and set the stage for a brutal outcome. Although Germany was left unoccupied, its citizens were saddled with a very heavy debt load. These conditions were mutually incompatible. Soon a strong man emerged in Germany to try to throw off the Anglo yolk. Similarly at the end of the Cold War, the Soviet Union never was occupied, but hadnegotiated a peace. Implicit in the voluntary dismantling of the Soviet Union was the Russian understanding that NATO would not extend its membership to the former Soviet satellite states in Eastern Europe. 

But fired with the heady feeling of apparent 'victory', the Anglosphere attempted to 'bend' the agreed Cold War peace terms by extending NATO membership to the Baltic States, Hungary, Slovakia, Romania, and Poland. It was no secret that the Ukraine was next on NATO's wish list. Such an outcome would have been very difficult for Russia to accept. 

Like the Germans, the Russians are a proud and tough people. While 'acquiescing', to use Kissinger's term, they resented deeply this seemingly covert aggression by the Anglosphere. Under a tough, patriotic and charismatic President Putin, Russia apparently now seeks to regain some of its lost regional sphere of influence or empire. In this very limited sense, the Putin/Hitler comparison is apt.

Amazingly, the Obama Administration failed to recognize the Crimea and the land bridge to it, as a vital Russian interest. As a result, the U.S. Administration badly bungled the diplomatic response to Russia's annexation of the territory. Far more serious is the probability that Anglo miscalculation can force greater cooperation between Russia and China and perhaps even Russia and Germany.

In his efforts to strike back at Putin, Obama's choice of weapons defies practical sense. The trade sanctions seem to offer little except discord among the NATO allies. It was recently revealed that Germany was forced to negotiate secretly with Russia to ensure the continuation of some 40 percent of its winter energy supplies. Sensing these divisions doubtless has increased Putin's ambitions. Now the entire Ukraine is in his sights. Over the weekend, news reports suggested a serious escalation of the conflict, which resulted in the Ukranian government shifting to a more defensive posture as Russian forces made serious territorial gains. More concerning, Obama's misjudgments may push Germany increasingly from the Anglosphere towards the Asian sphere of Russia and China.

At the upcoming NATO meetings it is likely that, underlying some bellicose speeches, the real politicwill dictate an overriding need to find a face-saving 'off-ramp' or way of accepting Russia's territorial hegemony over its "back yard." 

In the short-term, the flow of fear-money to the U.S. likely will continue and, depending on NATO's decision, even increase. This could help drive the U.S. dollar, equities and Treasuries to new increasingly bloated highs. Over the medium term as anti-Russian trade sanctions bite harder, likely they will deepen the looming international recession. This may inspire central banks to enact still more aggressive monetary stimulation, taking financial markets yet higher.

In light of the increasing evidence that Keynesian monetary stimulation is failing to ignite meaningful improvement in the broad economy, central banks may be tempted to create even more synthetic money. However, given the failure of past QE strategies to do much good, some central banks may try novel approaches to liquidity injection. In late August, the Council on Foreign Relations published in its Foreign Affairs magazine an astonishing article entitled,

'Print Less But Transfer More: Why Central Banks Should Give Money Directly to the People'.

Such open signs of Keynesian desperation might magnify fears of economic recession combined with financial hyperinflation, or stagflation, and bring precious metals increasingly into play. Further, it may threaten the U.S. dollar's Reserve status.

In short, the order that has dominated global politics for much of the past century is facing a severe test on all fronts. Unfortunately, the current leadership in Washington is woefully lacking in strategic understanding and intestinal fortitude. This is exactly the wrong combination at the wrong time. The Anglosphere's ineptitude may even overcome the best efforts of Janet Yellen and succeed in pushing the stock market into a much needed correction.



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Asset protection

Investor Implications Scottish Independence YES Vote Panic

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Posted by Market Oracle & Axel G. Merk

on Wednesday, 10 September 2014 07:13

scotland-trojan-horse-bank-of-englandThere is PANIC in the air as the NO Campaigns 20% opinion poll lead at the start of 2014 has now completely evaporated as the YES campaign edges into the lead with just 12 days to go.

"Whether the 300 year old United Kingdom lives or dies will be determined by as few as 4.5% of the British electorate on September 18th as only the people of Scotland, some 9% of the UK electorate have been afforded the luxury of deciding what happens to the United Island of Great Britain, and that if the tunnel visional nationalist have their way they would succeed in setting in motion its termination starting the morning of 19th of September when the world that Brit's have know for centuries starts to unravel."

"90% of North Sea oil revenues come from Scottish waters"

....continue reading more from the Market Oracle  Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK?

 

Scottish Independence Vote: Investor Implications

By: Axel G. Merk, Merk Investments

Is your portfolio’s fate dependent on Scotland’s? Why is it that when a place known for haggis, kilts and bagpipes indicates it might want to be independent, the markets pay attention?

The usually rather boring pound sterling jumped to life in recent days, becoming one of the world’s most volatile currencies. The trigger was a poll that suggested that the pro-independence camp in Scotland might hold the upper hand in the September 18, 2014 vote. Until recently, that event risk had not been priced in. All else equal, greater volatility warrants a lower price for an instrument (a security or currency). Prudent risk management takes into account the riskiness of the instrument.

Before we discuss specifics for Scotland, I would like to remind everyone that we are literally asking to be surprised by event risks of this sort in general as markets have been rather sleepy- evidenced by low volatility. In our assessment, this lull is a direct result of quantitative easing and related efforts by central bankers around the world that make risky assets appear less risky. Except, of course, the world is a risky place. So when something does pop up, the markets are taken by “surprise.” Just as the sterling fell sharply, the same could happen to the S&P 500 or any other investment. After all, keep in mind that the independence vote is not news; neither is the fact that the yes-vote has been gathering steam. In this complacent market environment risks are being suppressed until they can’t be ignored any longer – then they break out with a vengeance. It’s in this context that investors may want to stress test their portfolios in general- the lack of volatility in your portfolio may be deceiving.

Event risk means that once the event is over, reality ought to settle in. If the vote is NO, i.e. Scotland remains part of the UK, it might cause a relief rally in the sterling. However, if the vote is YES, the outcome isn’t all that obvious. Notably, while everyone is now glued to watching each poll, is Scottish independence, in the short-run might mean more uncertainty as it could trigger, amongst others, a challenge to Prime Minister David Cameron’s government; there’s also a lot of uncertainty around what might happen to the North Sea oil assets. But let’s not forget that Scotland comprises less than 10% of Britain’s GDP. Let’s also not forget that when a country splits up, there may be a flight of mobile capital to the stronger. While Scots rightfully show that that they do quite well based on numerous economic measures, the vulnerability remains with Scotland, as it has to play catch-up with institutions building: what happens if depositors move their deposits from Edinburgh to London? An asset-liability mismatch for the financial sector could be rather precarious as the Scottish financial system is about thirteen times Scotland’s GDP. If there is no access to a lender of last resort, it could destabilize Scotland.

The European Union, in our assessment, will initially play tough, arguing that Scotland will have to apply (and fulfill all criteria) to become an EU member, but ultimately would like an independent Scotland to become a member. Conversely, Scotland may try to take hostage some oil assets. In short, it will be haggling over haggis – a solution to many issues will be negotiated. This would take time.

There’s a silver lining in all of this:

 

  • Greater volatility is good. It’s not good for asset prices, but it’s good for the price discovery process and, as such, the long-term health of one’s portfolio. It’s not healthy that risky assets appear almost risk free, as it encourages capital misallocation, thus inducing bubbles and subsequent crashes.
  • Greater volatility is good for currency investors. You may argue you don’t care about those currently speculators, but you should, as 30% to 50% of international equity returns are due to currency moves. If you hedge out currency risk you are missing opportunities. If you ignore currency risk, you are taken for a ride. Active management of currency risk is something prudent investors may want to consider – and the latest flare-up may be the canary in the coal-mine that it’s about time investors take currency risk seriously.
  • Opportunities are being created. The same poll that suggested Scots will vote for independence also suggested 44% of Scots believe Scotland would be worse off economically as an independent country (vs 35% thinking Scotland would be better off); similarly, 41% of Scots thought they would be personally worse off with Scotland as an independent country (21% thought they would be better off). To me this suggests a proud Scot may well indicate in a poll that they favor independence, but it doesn’t mean they’ll vote that way. In a world where asset prices are expensive, it’s refreshing to see value opportunities in the markets. And if there’s a ‘YES’ vote, the opportunity may get even better.

 

On Tuesday, September 16, 2014, please join me for a “fireside chat.” We will make most of the hour available for you to ask questions. Please register to participate. We no longer record our webinars (the regulatory overhead is too much hassle), so join live to get answers to the questions you always wanted to ask.

If you haven’t done so, also make sure you sign up for Merk Insights. If you believe this analysis might be of value to your friends, please share it on your favorite social media site.

Axel Merk

Axel Merk is President and Chief Investment Officer, Merk Investments, 
Manager of the Merk Funds.

 



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Asset protection

Shocking Events — Past, Present and Future

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Posted by Martin D. Weiss, Ph.D.

on Monday, 08 September 2014 06:58

This is a landmark time. 

Just look around you. Look at what’s happening in the world. Clearly, you will see that we are nearing a tipping point for us all.

Thirteen years minus nine days ago, a small group of terrorists attacked the very heart of our nation, setting off a tragic chain of events that have continued to ricochet through time, with a tremendous cost in life and treasure …

image1The fall of Saddam Hussein …The U.S. invasion of Iraq …

The emergence of al-Qaeda in Iraq, and now …

The rise of ISIS, the most brutal, most powerful terrorist organization of all time, bringing us around full circle to the danger of larger terrorist attacks on our soil.

At the same time, in parallel to the global war on terror, we’ve also had a global war on financial crisis.

Fifteen years ago, well before al-Qaeda’s first attacks on America, our tech stocks began to crumble. Over $5 trillion in equity value was wiped out. Our entire economy was temporarily paralyzed. And what’s worse, that crisis set off a tragic chain of economic events that also continue to ricochet through time …

Radical interest-rate cuts …

A great housing bubble — and BUST …

The emergence of a deadly debt crisis …

And now, the most risky and largest Fed money-printing operation of all time.

This chain of events has made the rich — especially wealthy Wall Street institutions — richer. But it has also wiped out vast amounts of invested wealth; the hard-earned savings of millions of everyday Americans.

It has propelled many investors to take unprecedented risks. And it is likely to bring us around full circle to the brink of another, potentially bigger, financial crisis.

So there you have it. The global war on terror. The global war on financial crisis. Two parallel and powerful historical sequences that are gaining momentum and reaching a crescendo.

Just bear in mind that not all is black and white.

For example, in a simplistic view of the world, global conflicts would automatically impact U.S.markets negatively. But that’s not always the case.

In fact, as Larry Edelson has correctly pointed out, right now, troubles overseas are driving large sums of fear money into the U.S. stock market, pushing our stock prices UP — not down.

And as Mike Larson has written, some of that flight capital is also flowing into key U.S. sectors, such as real estate and energy.

This is one reason why our markets have been going up. Another reason is the Federal Reserve. Years ago, bad economic or political news meant bad news for investors — a rationale for avoiding stocks.

But today, the Fed uses bad news as an excuse to pump up the stock market and inflate the economy even more — with tactics that would have been unthinkable years ago. Plus, some stocks have been soaring regardless of the fear money or Fed money, based on their own merits.

One of our readers, John R. has done an excellent job of voicing our readers’ most urgent concerns:

“I am 78 years old and retired after roughly 35 years in the investment management business. There are so many things that worry me, domestically, financially, as well as in the global situation, I don’t know where to start. We have:

“1. Debt levels never seen before with a slim chance or intent to pay them back.

“2. The threat of the US dollar losing its reserve currency status sooner than most people now predict.

“3. A worsening geopolitical situation throughout the world, and no evident world leader stepping up.

“4. For the first time in my life, the threat of radical Islamic terrorism right here in the US.

“5. A nation that’s more divided than any time since the American Civil War.”

John, I couldn’t have said it better myself.

In this environment, the first pitfall to avoid is the thousands of stocks in the world today that seem attractive on the surface, but, in reality, are pure garbage. They’re illiquid, poorly managed, and high risk. And I’d like to send you a complete list of them.

The second pitfall is the traditional buy-and-hold approach to investing. If you want to avoid portfolio-busting losses in a world with tremendous uncertainties, it’s simply not wise.

But the third pitfall is to simply withdraw from investing entirely, even while there are so many new opportunities to build your wealth.

Coming Next

My Ultimate Portfolio

More so than ever before, with the world in constant turmoil and Washington in eternal gridlock, the onus for defining your destiny falls squarely on you.

Wealth building is no longer an option; it’s a must. You will need money in order to insulate yourself from the geopolitical and political threats, to live in the world’s safest places, to be less dependent on the job market, to better secure your retirement, and to preserve your personal freedoms.

That’s what my goal is, both for myself and for our readers. And next up, I plan to give you what I believe is the ultimate wealth-building strategy to achieve all of the above.

This is a critical time for all of us. But by working together, we can get through the tumultuous days ahead in safety and comfort.

Good luck and God bless!

Martin

Martin D. Weiss, Ph.D.

Dr. Weiss founded Weiss Research in 1971 and has dedicated the past 40 years to helping millions of average investors find truly safe havens and investments. He is president of Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. And he is the chairman of the Sound Dollar Committee, originally founded by his father in 1959 to help President Dwight D. Eisenhower balance the federal budget. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recesssion and Depression.



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