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(P&I) The World Trader’s Almanac

October 24, 2014
Figure 1: The Middle World

Figure 1: The Middle World

Drama. There are a large number of “economic unions” of countries that voluntarily regulate a favorable trade with each other; please see Figure 1 on the right.

And almost all, but not all, of the world is covered by regulatory organizations such as the International Monetary Fund (IMF), the World Bank, and the Bank of International Settlements (BIS); and the United Nations (UN), and the North Atlantic Treaty Organization (NATO); and the Olympics (IOC) and the World Cup (FIFA), and so on, all of which operate seamlessly and more or less independently, and for most of us, anonymously, so that we are not even aware of their day-to-day operations, although we can be certain that there are hundreds of thousands of people, possibly millions, who work in these organizations and they are doing something every day to advance their cause and purpose.

We turned this page because the NYSE and Canadian bond and equity markets, are beginning to look “very small” to us, not so much because the money is small – several tens of trillions of dollars and most of the world’s money in market value – but because they are so predictable – even though we don’t know what’s going to happen tomorrow.

In fact, there is nothing – except delusion – that correlates well with a stock price other than the avoidance of bankruptcy, and so the only “stock price” that we might trust is the one that’s low enough that we might think about buying the whole company, and “fixing it”, if it can be fixed.

The Bull Chase and the Bear Embrace

The Bull Chase and the Bear Embrace

And we also know that whatever happens tomorrow, it’s happened before, and not too long ago, and we know that because almost everything that the investors will do – and we can’t think of any exceptions absent fraud – relies on time-series, and therefore, there is an implicit yearning for the past, and the growth equation – more earnings growth, and more income, and maybe more capital gains, again.

But that’s the problem – “more” might not be in the cards because there’s already a “high price for income” after forty years of “growth” and “massive churning of the same investments”, and we need to look where the “money is dear” and the “investments are cheap”, and they ought to think about leaving the past, and forgetting it, because all that’s left in the world is “The Middle World” and the four billion people who live in it, and who are growing fast in numbers, but not resources, and how are they going to pay for it all?

The Middle World

Figure 2: GDP Growth - Global Dynamics

Figure 2: GDP Growth – Global Dynamics

The world looks quite different when we turn it on its end, north and south (please see Figure 1 above), and ideologies don’t seem to matter much if the polar ice-caps are melting (The Guardian, September 1, 2014, New satellite maps show polar ice caps melting at ‘unprecedented rate’) and we might soon have a lot of “new neighbors” with “new problems” that we’ve left with them for several hundred years, and which have no chance of staying there in our lifetimes (please see Figure 2 on the right, and for the full report, the recent (2011) Global Unconditional Convergence Among Larger Economies After 1998? for more information).

Moreover, as the 1st World becomes more homogeneous because of its institutions and regulatory authorities, it will begin to look like a sovereign nation with many cultures within it, and a common currency. But we know that a sovereign nation with a common currency can only develop the Company D modality, α=1/e=0.368… which we call the “Death Embrace”, and which obtains in the absence of trade outside of itself; please see Exhibit 1 below.

Exhibit 1: The World Trader’s Almanac – Where The Investments Are Cheap and The Money Is Dear

Figure 1.1: The World Trader's Almanac

Figure 1.1: The World Trader’s Almanac

In Exhibit 1, we concluded that the $US is currently 50% “overvalued” with respect to the purchase of investments, and we would also have to conclude that the Chinese renminbi is 60% “undervalued” (0.400 = 2.074/5.182, the ratio of the “Capital Exchange”, please see Figure 1.1) – if we had the “One World” in which all commerce and investment occurred only within the “sovereign state” of the “One World”.

The Kiribati, the World's Most Undervalued Currency

The Kiribati, the World’s Most Undervalued Currency

However, “Our World” is still far from the “One World” and the “Trade Productivity” suggests that the renminbi is only 17.2% (0.8279 = 240.132/290.033) “undervalued” with respect to the $US trade dollar, in-trade, and that in-trade, the $Euro outranks them both, and is currently 62.5% (0.375 = 108.786/290.033) “undervalued” with respect to the $US in-trade – that’s a shocking result, but it turns out that in-trade, as trade contributes to the nation’s “net worth” (GDP*), most of the world outranks the US, and the US only casts a shadow on Australia, Colombia, Japan, Argentina, and Brazil – and before we run out and convert all of our $US to $Euro, or even the $Kiribati which is pegged to the Australian dollar, we need to consider that most of the US “production” is consumed internally and is not put out to trade; please see Exhibit 2 below for all the details.

Exhibit 2: The World Trader’s Almanac – Trade Trumps All

 

Figure 2.1: Capital Productivity and Trade Productivity

Figure 2.1: Capital Productivity and Trade Productivity

Our view doesn’t rely on time-series, or predictions of the future based on the past, but only on “The State Equations” for Capital and Trade Productivity that explain what the potential is for growth, based only on what we know now and the implications of that for the necessary evolution of  the Gross Domestic Product (GDP), absent a revolution that is a random factor and might not be predicted, although it could be foreseen because our conclusion is that there isn’t any growth potential in the core economies, and not enough growth potential in the Middle World, soon enough for the four billion or so people who live in it.

For more information on the “Five Equations of State”, and an introduction to the terms that we have used here, please see our Post “(B)(N) Through the Looking-Glass“, and for the really hard rocks, the Theory of the Firm which is based on The Process.

And 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 actionLa 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 AmericaBig OilShopping in America or Banking in America, to name just a few.

Postscript

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
Guaranteed
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.

Disclaimer

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*.