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Frontier Justice

June 9, 2013

Drama. The market is already concerned that the Fed might stop buying in its own paper and giving the investors cash which they don’t know what to do with (Reuters, June 9, 2013, Analysis: History may repeat itself for Mexico, Peru as Fed eyes exit).

DOA & 0% unless it’s stolen, spent, or invested.

Cash, of course, is not the same as money.

Cash is dead money because it doesn’t earn a return in any economy other than a deflationary one; whereas money is invested cash and could earn a return with reasonable care.

That is why we often say that an investment in the Perpetual Bond™ is “as good as cash” and “better than money” because we can be certain of 100% capital safety and a hopeful return above the rate of inflation.

Admittedly, that’s a fine distinction but a useful one even though “cash” itself is just a security of the government and might be able to buy nothing in a severely inflationary economy, such as a hyper-inflationary economy, of which we have seen many examples in the past few decades.

Call The RiskWerk Company to fix flats.

But that’s the fear. All of that bond money in the multiple trillions that is owned by the banks, insurance companies and pension funds can’t get an easy and guaranteed return above zero, so their wealth is just oozing away, phsst, and worse, the paper they do hold might be suddenly worth-less if interest rates rise or inflation increases. Phsst. Phsst.

Nor do we have a lot of sympathy for them. If they left more of their money in the emerging economies, to give the investment a chance, then their own clients might benefit from the emerging market funds that they sold to them as diversification and prudent wealth management.

However, we can tell them that there are three ways to do better than phsstReal Return Bonds (RRBs) or Treasury Inflation Protected Securities (TIPS) or The RiskWerk Company.

Anything else is just a gamble although they might try investing in the real economy if they put their rubber stamps and other playthings away.

The Price of Risk

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2009) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.

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*.

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