Drama. The price of getting an income from money is still high because bond yields are low and the price of stocks is high – those are the symptoms but the cause is that the US economy, among many others, is in a “deflationary” mode which favors growth in the long term, but a low demand for money now, and there’s no reason for that to change, absent some untimely “monetary policy”, until there is a demand for money.
That puts the kibosh on “The Wall Street Pump” – alternating bull and bear markets, for whatever reason, with wealth transfers on every stroke to those who are adept at it, and new money going to the old hands; and the current banks’ emphasis on “Wealth Management” is just another attempt to disconnect investors from their money and throw it into the thrashing machine through the force of advertising and glamour – should they be prepared to guarantee the capital – 100% capital safety – and a hopeful but not necessarily guaranteed return above the rate of inflation, we might respect them more.
But we’ve had no reason to change our strategy or re-visit the big-cap portfolios of October and most of this year (please see our Post “(B)(N) What’s A Girl To Do“); for example, IBM and Chevron are still trading below the price of risk and the managed (B)-class portfolio is up +20.5% this year, plus a current dividend yield of 2.7%, which will help a lot of incomes if they knew enough to stay around – not to mention the Transports +67% this year, and they only started rolling in 2012; please click on the links “(B)(N) Dow Jones Industrials, Dow Transports, Dow Utilities – Cash Flow Summary” for summary updates.
However, we need to brace ourselves for something new – for a return to the “economics of the 60’s” absent the Vietnam War, the Cold (Cold) War, and the Oil-Price Shock – which is now “shocking” the other way as the price of world oil falls to $60, and why not $30 again (Bloomberg, December 8, 2014, One Hundred Years of Bond History Means Bears Destined to Lose).
The political landscape is also much altered because there are so many more countries that are poised to find a place in it; please see our recent Post “(P&I) The One World Food Bank” for a summary of who has which problems, and Figure 1 on the right for a World-class recap of how to read “The Barometer” which we’ll need below.
Country Risk & Trade Risk
In the new world order, the US and China account for 1/3rd of the Gross Domestic Product (GDP); ten countries make-up another third; and 58 countries make-up the last third, but for 115 countries that make-up less than 4%.
Can we imagine our neighborhood (the World, in this case) with two castles, ten palaces, fifty-eight bungalows, and 115 shacks? And the answer is no, we can’t, because every neighborhood that we know of has only one castle, and in our neighborhood, China has the edge; please see Figure 2 on the right for a summary of the current challenges and challengers in the Country Risk and the Trade Risk for which Wall Street has a lot of money but is constitutionally ill-equipped to deal with it.
The chart in Figure 2 shows that the rate of growth of both the GDP and the trade is greater in China than in the US at the present time, and for the past several years; but the chart shows more – it also shows that the rate of the rate of growth in China has been increasing faster than that of the US, and the uptake-time for the GDP is shorter, and the uptake-time for the trade is longer and more “enduring”.
If we try to look at the “big-picture”, the 60’s, 70’s and 80’s were about the US and Russia; but Russia, after some convulsions, has made an elegant retirement, and the World is now about two castles, ten palaces, and a lot of houses, all of which need to trade with each other in order to prosper.
For more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.
And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.
And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.
And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.
We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product
The Perpetual Bond™
Alpha-smart with 100% Capital Safety and 100% Liquidity
With No Fees and No Loads on Capital
For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.
Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.