11/29/2011
Hello family and friends, a belated happy Thanksgiving to each of you! It’s again been some time since my last update but I have little to apologize about with respect to the infrequency of my updates as I’ve been very busy. Those I haven’t talked to lately might ask what the hell I’m so busy with now that I’m long done with the CFA program and am not even considering applying to bschool like so many of my ambitious peers…
The answer is a combination of A) work on a hobby/project that will assess my own interest/capability in macro trading and will pave the road to a redirection in career trajectory or an exit to more interesting opportunities outside my current profession, and B) continued self education. A) I won’t go into as the topic far exceeds the scope of this update and will be a work in progress for the foreseeable future. B) primarily involves reading on my new kindle fire (thanks to my girl for this early Christmas present). The books I’ve been reading the last few months primarily deal with topics related to A) or focuses on economics and history, in particular, Chinese history.
I have no particularly strong near-term conviction on the market but my longterm allocation advice hasn't changed much: hold 15-20% physical precious metals (you don't want to be entirely F*cked by a larger MF Global / Lehman type debacle or worse.. some kind of extended bank holiday / sudden devaluation), 20-30% commodity and frontier/EM stocks (yes, I am aware this has been a bloody hold this year but I'm assuming most people aren't swing trading), 20% real assets such as income producing real estate / MLPs, and the remainder in liquid cash / bonds of non-developed countries.
Best Regards.
Book Review: Currency Wars: The Making of the Next Global Crisis
http://www.amazon.com/Currency-Wars-Making-Global-Portfolio/dp/1591844495
One very informative and thought provoking book I just finished reading is “Currency Wars: The Making of the Next Global Crisis” by James Rickards, a former lawyer/economist/investment banker. This New York Times Bestseller dives into the origins and factors shaping what many foresee to be the mother of all financial crisis waiting for us right around the corner, theories regarding the evolution and nature of complex systems, the history of currency wars / the gold standard, and some likely end game scenarios that the world is rapidly accelerating toward.
I was surprised at how Rickards was able to dedicate a portion of the book to a detailed account of his personal involvement with a recent national security mock exercise that explores international non-military means of warfare… one would think there are more restrictions on anything written about government projects, especially for something that had happened so recently. Given that Rickards himself has had a long career on Wall Street, I think some previous background in economics or experience with the financial markets may facilitate in the understanding of the wealth of information he serves up. However, let this not be a deterrent to anyone who considers picking this book up. Rickards writes with enough clarity and supporting background such that even an inquisitive college student may be able to gain a lot from a quick pass through.
Currency Wars provides many rebutting points against some typical arguments made by opponents of the gold standard. The vast majority of people who put their personal fates in the hands of the ruling financial elites will do themselves a service by exploring the content of this book – while I can’t promise Rickards will be able to unconvert those who religiously believe in Keynesian economic policies, I do believe that this book will kindle some doubt...
The recent bull market in gold arises from the metal’s historically proven ability to preserve owners’ wealth through phase shifts in economic systems, the type that usually destroys the real value of fiat-linked securities, be it stocks or bonds. For those who are primarily interested in the key takeaways from this book on the valuation of gold: Currency Wars arrives at price estimates for gold ranging anywhere from $2,600 to $10,000+ per ounce, dependent upon key factors such as the final coverage ratio (fiat money has historically been backed at around a 40% level), degree of flexibility permitted to central bankers to deviate from these ratios during times of emergencies, definition of money used in calculating a money-gold ratio and the way by which the global currencies in use today can be re-anchored to gold. Rickards concludes in his book that $3,500 / oz gold is a fairly conservative estimate which only takes into account the cheap US dollars being dropped by Ben-copter. As we start to include in our theoretical calculations, the cheap European and Chinese fiat which are also being flooding into the financial system in attempt to gain a competitive trading advantage for their home countries, this fair value estimate quickly jumps to $7,000+ / oz.
Overall, I enjoyed reading this well written and informative book. Now that I am done reading Currency Wars, I have started reading “The Collapse of Complex Societies” by Joseph Tainter, which was quoted a few times by Rickards. I hope to write a similar review upon my completion sometime in the coming weeks.
