Drama. An income from money as cash is not “sheep” and it’s unlikely that the “herd” is going to get it but they keep wanting it and there are lots of well-heeled investors who are waiting for governments everywhere to “give” them more money for their money by raising the central bank rate (Reuters, March 21, 2015, Big guns roll into the global currency war and Investors eye data as stocks approach records).
We’re motivated to look at that equation – an income from money – because world governments are dominated by partisanship of all sorts, one type of -ism or another, but what’s invariably on the table is not the rhetoric which is just a form of “advertising” but the “Sovereign Wealth” and who gets to use it.
The “income from money” is the central bank rate that is set by governments for whatever purpose but it varies quite a lot in the “market economies” (please see below) that are defined by investors who are hoping to obtain an income on their capital (their money) in excess of the government bond rate so that they might not need to spend it in order to “eat”, so to speak, and remain just as wealthy as before.
However, failure and dissipation is the 1st Rule of managing the Sovereign Wealth because it’s a winner-takes-all game and they do.
Country Risk & The Free Market Yield
“In a democracy, the people get the government that they deserve” (usually attributed to Alexis de Tocqueville 1840) and we’re not aware of any “best answer” that might defend a government but we have to accept that fact (or die) and do what we can with it (or die trying, such is the nature of the world).
For example, the Norwegian sovereign wealth fund, Statens pensjonsfond Utland (SPU), is managed by the central bank and was established in 1990 to provide a continuous management that was not subject to the ambitions or fancies of the government of the day which can only draw on the earnings and no more than 4% of those in any year.
The current assets are estimated to be worth about US$863 billion which amounts to about $180,000 for every man, woman, and child in Norway (5.1 million people) and it is currently the largest sovereign wealth fund in the world.
But all the sovereign wealth funds which are not governed by a kleptocracy (which has no problems) have the same problem – how do we manage it for 100% capital safety and a hopeful but not necessarily guaranteed return above the rate of inflation – and that problem becomes more difficult in a world that is not being held hostage to scarce resources or a world that is not growing fast enough to create the real income that is required; please see Exhibit 1 below (and click on it and again to make it larger as required).
Exhibit 1: Sovereign Wealth Funds
For more information on the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“.
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 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*.