Investor Angst

The financial press is a “noise machine” as much as it is a “news machine” and that may be the price that we have to pay for any “news” at all.  After all, less than two hundred years ago we used carrier pigeons to deliver the important news of the day. The method was expensive and very exclusive, and there was generally no informed commentary at all but for “Coo, Coo” on delivery or publication so to speak.  Notwithstanding the method, the important news of today is that the major North American financial markets are UP in the double digits and that hasn’t been a headline for quite some time and it isn’t explained by the post-election press (please see the Postscript below). Investors who are still waiting for the “fiscal cliff” or “the eurobond meltdown” and seeking the “safety” of negative interest T-bills (adjusted for inflation) against the coming “recession” or “depression”, have missed it but they can still buy their stocks from us at higher prices. Oh well. That too is the price of doing business and we can further encourage that behaviour by noting that the price that we have to pay now is far less important than what we buy, when we buy it and how we sell it. (Coo, Coo.)

The Quintessential Perpetual Bonds™ are the easiest for us to run in any market at any time. (Please see our earlier Post, The “Quintessential” Perpetual Bond, September 2012, for more details.)  We just buy all the (B)’s at any time regardless of price and hold them until it’s time to “sell” with our usual and uneventful (and, therefore, not newsworthy) “selling” discipline. This year’s Quintessential Bonds are all showing near to double digit returns plus dividends yet to be earned (please see Exhibit 1 below).

The table also shows that the entire market is worth about $18 trillion at the present time (up from $17 trillion last year) and that about $5 trillion (or 29% of the total) and 206 companies are currently “locked” into a Perpetual Bond although the returns and portfolio size depends on the market.

Exhibit 1: Investor Angst 2012 – Major Market Performance

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

The “Market (B)(N)” portfolio is less rigid. It begins with the (B)’s but is thereafter a “managed portfolio” in which new (B)’s are allowed and, of course, we “sell” on (B)- to (N)-transitions as they occur. It’s also worthwhile to look at the Bonds of years (2009-2011) gone by.

Exhibit 2: Investor Angst 2009 through 2011 – Major Market Performance

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

All of this is, of course, very bad news for a generation of portfolio managers and investment pundits, wagging heads and pointing fingers. Where have they been while the market put on $3 trillion in the last four years and $1 trillion this year? How much of that money is now in our trust funds, endowment funds and private and public pension funds of all sorts? And what are they going to do tomorrow? (Coo, Coo.)

These results, by the way, are astounding and unheard of in terms of consistency and out-performance regardless of the market. For more information on the theory and technology, please see our Post, The Price of Risk, August 2012, and, of course, any of these data are available at no charge on request. Please see below.

Postscript

That’s the news and here are the headlines.

“Stocks sink on fiscal angst after U.S. vote.” – Reuters, November 7.

NEW YORK (Reuters) – Shares on world markets slumped and the euro slid further on Wednesday as investors worried that the fiscal challenges facing U.S. President Barack a day after his re-election could lead to a new recession. Fresh concerns about Europe’s debt crisis added to the jitters among investors, who scrambled for safer assets. Benchmark U.S. Treasury yields were set for their biggest one-day fall since May. “The minute such a deal is cut, we’ll boom. If one is not cut – and soon – we may well double-dip into recession,” said Robert L. Reynolds, president and chief executive of Putnam Investments in Boston. “This upcoming lame-duck session may just be the most consequential in our lifetimes. The stakes are high and the time is short,” he said in a statement. As worries over the U.S. fiscal cliff and Greece’s austerity votes moved to the forefront, investors flocked to the safety of low-risk assets, including the greenback and U.S. and German government bonds.

“World stocks rise after President Obama’s re-election.” – The Associated Press, November 7.

BANGKOK – World stock markets rose Wednesday after President Barack Obama won a fiercely contested race for re-election, allowing him to refocus his attention on issues other than the campaign. “I think stock market investors are likely to remain reasonably cautious before getting an idea of how that is going to be resolved,” said Ric Spooner, chief market analyst at CMC Markets in Sydney. “The fiscal cliff will remain a source of concern so I think we’ll see some negative premium built into the U.S. dollar.”

Flaherty says U.S. budget crisis could push Canada into a recession.” – The Canadian Press, November 7.

OTTAWA – Finance Minister Jim Flaherty is urging U.S. politicians to get back to work quickly on resolving their budget crisis now that the election is over, warning that failure would plunge both America and Canada into recession. The minister has voiced concern before about the so-called “fiscal cliff,” but the re-election of both Democrat President Barack Obama and a right-wing Republican House on Tuesday has led to new fears of the risk becoming reality. “The risks that the U.S. economy will fall off the looming fiscal cliff and fall back into recession is one of the top risks facing Canada’s economy as we head into 2013,” Burleton said. NDP and Liberal party leaders echoed the concerns, agreeing that Canada and the world would be negatively impacted by a sharp contraction in the U.S., still the world’s largest economy.

“3 big post-election concerns for investors.” – MarketWatch, November 7.

NEW YORK (MarketWatch) — The presidential election is over — finally! One million campaign ads have run and $6 billion was spent — all to re-elect President Barack Obama and keep the House of Representatives under Republican control and the Senate in Democratic hands. Who can possibly think it was worth it?

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*.