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The New Normal

November 2, 2012

The future is always exactly now. One might hope for a better chance but in the absence of necessity, which is now, there is no chance for hope. We don’t want to press the phenomenological point too hard because we’re talking about investment risk, but the investment professionals are once again scrambling to explain to their fund sponsors why their investment performance will be so bad this year. (Please see our earlier Post, Churn, Churn, Churn, October 2012.)

At the next Board meeting, we will need to understand “The New Now” (they say) and how the world is growth saturated and ill-equipped to deal with “the dangers of dramatic population growth, ageing in rich economies and shortages of natural resources and capital” all at the same time (Reuters, October 31, 2012). Our minds become “frosted” and distracted by the hopelessness of our situation in the new economic “permafrost” of zero bond yields and their failure to obtain at least inflation on our cash and investments despite a world that is burgeoning with new activity but which is unlike the past (they say) and we must place our hopes on finding and supporting innovative “new growth” firms with “environmentally sustainable and efficient long-term strategies” and “high scores on governance and regulatory sensitivity”.

It is that last bit about “governance and regulatory sensitivity” that gives us pause because are those not exactly the cause of the past decade of investment drama? (Please see our Post, Banks 1 Congress 0, June 2012.)  And should we further expect that the tail will wag the dog when it is, in fact, our job to find and support growth and new growth firms, however innovative, with our investments, now?

Despite their dismal prognosis and alleged “frosting”, in the past two months $300 billion has been added to the stock prices of the four major North American markets. Where did that money come from and how much of it did we get?

Exhibit 1: Major Market Capitalization – September and October 2012

Major Market Capitalization

Major Market Capitalization

(Please Click on the Chart to make it larger if required.)

These four markets at $20 trillion and just nine hundred companies have about 3.5% of the World’s estimated annual GDP of $65 trillion and are growing at the rate of $150 billion per month, or $25 per month for every person on the planet.

(Please Click on the Chart to make it larger if required.)

Our job as investors and portfolio managers is not to ask Why but to identify What and there are tens of thousands of us who are trying to do exactly that every day and who must therefore speak to what we believe to be important, now, and in the future and as The New Now emerges from day to day, week to week, and so forth.

Exhibit 2: The New Now – November 2012

(Please Click on the Chart to make it larger if required.)

For the year-to-date, we see that the Market Indices are all positive (please see Exhibit 2) and some of them are phenomenally so, but also there are 289 “losers” and 495 “winners” with, in aggregate, double digit loses and gains. Which of those were in our portfolios, we may ask?

As investors in The RiskWerk Company, however, we knew exactly where to put our money last January (nine months ago) and we’re in good shape for The New Now 2013. (Thank you very much.) Please see, for example, The Quintessential Perpetual Bond, above, or the Post, The “Quintessential” Perpetual Bond, September 2012, or the more recent, The Greater Society Perpetual Bond, October 2012.

Postscript

Hopefully, we’ve made investing look easy. But we know that it’s not easy. Our goal in investing is not to have a better chance of losing our money, but of keeping it and obtaining a hopeful return above the rate of inflation. For information about these new and innovative technologies, please see our Posts, The Price of Risk, August 2012 or The Nash Equilibrium & Its Stock Price, October 2012, or nearly any of our Posts on companies, (B)(N) There and Done That, or the major markets.

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*.

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