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 Our approach to taking positions during a new up cycle, is to buy a position and if that trade is working out, buy again a little higher, maybe again higher and sell as close as possible to the high. Don has done a wonderful job in this briefing to help you understand how we have worked with your portfolio during this last up cycle. It is worth your time to get to know how these briefings work. Once you are familiar with the format, you can quickly glance each week and maintain a comfort level that your funds are being professionally managed on a daily basis. Europe's Big Deal  Don just mentioned that Bernie's family was on 60 Minutes tonight. I thought this was a perfect cartoon that I've been keeping in my archives, because it ties into the Europe deal perfectly. How you may ask? Well, the European bailout fund which is a little over $100 Billion Euros after the guarantees already promised, is now going to be about $1 Trillion (yes, that is the equivalent to 10 cigarettes for 1). How? Well, no one has really said. Maybe we should ask Bernie. So far the Euro Fed has said it WON'T print money. It will be interesting to see where it comes from. Unfortunately 1 Trillion is only about half of what the most conservative estimates say they will initially need.I would love to stop talking about Europe every week, but it is moving our markets so dramatically, I just can't quit. Everyone who reads this weekly brief knows that I am a fervent John Mauldin reader. I am so unimpressed reading most financial news because so much of it spews the same wall street hype. I prefer to go behind the scenes to look at what is CAUSING the hype. John knows most of the insiders and doesn't fit in the wall street box. Just my kind of guy. I'm going to give you a very brief review of his lengthy eLetter that came today. It goes behind the scenes to help us understand why the market had such a huge reaction to this European deal and why it may not be a long lasting reaction. First: Germany is only playing on one condition. The ECB (Euro Fed) doesn't print any extra money. They strictly remember Weimar. Second: Pretty much everyone else is telling the ECB to do the right thing. . . PRINT MORE MONEY!! Third: Everyone agreed to write off 50% of what Greece owes them. This, by itself, was a large cause for our market to shoot up. If everyone writes it off rather than having Greece default, then no one needs insurance (CDS's) for the possible default. Since this isn't needed then all the short positions supporting them need to be bought back and Voila! Many institutions are putting in buy orders immediately and the market shoots up. Fourth: The trillion dollars that is going to mysteriously appear in the Bailout Fund will be used to fund 20% of new bonds issued by needy Countries. This has been done before and doesn't accomplish anything meaningful. The market simply looks at it now as an 80% bond and changes the interest and rating slightly. And everyone knows 20% is a drop in the bucket when it comes to Countries defaulting. Much more is needed if you want to make an impact. Fifth: Portugal is in steep decline. Money is drying up (no one investing there) just like it did for Greece. M1, which is watched by the experts to tell what will happen in the next 6 months, has fallen at an annualized rate of 21% in the last 6 months alone! With it comes another banking crisis. Sixth: Ireland has been waiting for the Euro Zone to make their first deal, so they can begin to get a deal also. They owe more than they can pay and have been waiting for a precedent to be set. Much pressure is on their new Prime Minister to relieve pressure on their tax payers and place it upon the taxpayers of all of Europe. Seventh: Part of the deal was to have banks raise their capital up to 9%. Unfortunately Dexia was at 12% just before they went bankrupt. Italy and Spain, whose banks are basically broke already, will need help. Why should their individual Countries do this when everyone else is getting bailed out? This entire European Crisis is being treated as a lack of the market having faith in the system. In all reality, it is a problem of too much debt in Greece, Ireland and Portugal and Spain and Italy and yes, France. There will come a time when the markets figure out this deal is simply lipstick stuck on a pig. The pig might look a little better, but it is still a pig. Nothing has been solved and fear will return. What will YOUR money be doing when this occurs? Sorry for the lengthy report, but I believe it is an important one. Please go to the briefing room and enjoy the fresh layout and approach. Don has done such a wonderful job calling the markets in this room. As I mentioned, spend a little time to familiarize yourself with it. You'll be glad you did. Have a great day!! John Norquay CEO PivotPoint Advisors |
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Sunday, October 30, 2011
Europe's Big Deal
Monday, October 24, 2011
We've Turned The Corner
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 We began taking positions again last week which means we must have turned the corner? Hopefully the market isn't trying to pull another fast one and we have to exit quickly once again. The market wouldn't lie, right? I wrote about the Weimar republic last week. It has been interesting to watch Sarkozy and Merkel duke it out this last week with their own versions of the Euro bailout agreement (or lack thereof). Sarkozy, representing the French, wants to turn the EU bailout fund into a bank that can accept funds from the EU Fed. The EU Fed can simply "expand its balance sheet" and extend the bailout fund lots of money. Unfortunately when you see the term "expand the balance sheet" in terms of a Federal Reserve Bank, it means PRINTING MONEY. Germany knows that printing money isn't the answer, and they have the experience to prove it! Instead they prefer to use the bailout fund as an insurance company, guaranteeing the loans (bonds) of the failing countries. This has its own problems because if you are a stable country and don't need the EU insurance, you might lose investment dollars for your bonds because investors are buying higher yielding ones WITH the EU insurance. Ultimately, they are trying to turn 400 billion euros into at least 2 trillion to stave off the first round of failures which, reportedly, could occur any day now. I still have a hard time understanding how more leverage and debt is the solution to too much leverage and debt. Maybe the U.S. administration could help them understand you can't increase debt to cure your debt problems? I'm probably the only who thinks I'm funny. If Europe gets their problems figured out quickly enough, then maybe this 20% pullback will be behind us and we can ride off into the sunset and new market highs. Turn the corner with us by checking out the briefing room.
Have a great day!!
John Norquay CEO PivotPoint Advisors |
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Monday, October 17, 2011
How Many Euros Is Enough?
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I've had an idea for a few years now of trying to bring the billions and trillions of dollars always being spoken of regarding our government into terms of a household budget. If this could be done, then a lot more people could grasp the numbers and get upset enough to take action. This weekend as I was reading, I came across this very short blog post from an economist and it blew my socks off. They say to Keep It Simple Stupid, well, it couldn't get any simpler than this! Some stats about the US government:
Now, remove 8 zeroes and pretend it’s a household budget:
The biggest difference between the government and a household, is the government can "create" currency to pay their bills. If we tried to create our own currency, they would throw us in jail! This week, John Mauldin referred to Art Cashin's article where he spoke about the Weimar Republic. These guys were printing money to pay their bills and improve the economy (QE2?). Unfortunately the economy didn't improve. After multiple attempts of printing money and no economic reaction, they devalued the mark. To bring this into terms we can understand, lets look at the cost of a loaf of bread:
"In the middle of 1914, just before the war, a one pound loaf of bread cost 13 cents. Two years later it was 19 cents. Two years more and it sold for 22 cents. By 1919 it was 26 cents. Now the fun begins.
In 1920, a loaf of bread soared to $1.20, and then in 1921 it hit $1.35. By the middle of 1922 it was $3.50. At the start of 1923 it rocketed to $700 a loaf. Five months later a loaf went for $1200. By September it was $2 million. A month later it was $670 million (wide spread rioting broke out). The next month it hit $3 billion. By mid month it was $100 billion. Then it all collapsed [as if a roughly 8 billion times rise in cost wasn't already collapse!"
You may say that things are different now, but Peter Bernholz studied 29 periods of hyperinflation throughout the world. His takeaway was that the ratio between a government's deficit and its expenditures was key to its path to inflation and hyperinflation. 20% deficits were behind all but four cases of hyperinflation. Where is this percentage for the US? 30%!
We are spending nearly twice what we make and "borrowing - creating" the difference. Germany is fiscally sound today because of the hard lessons they learned from the Weimar Republic. I think we need to read and learn those lessons without experiencing them ourselves.
The briefing room this week points to a potential change in the investment climate and what we are doing about it. Please keep yourself abreast of those changes. As they say, "The only thing guaranteed is change." I will leave you with a perplexing question. Is it a vase, or two faces on this cow's face? 
Have a great day!!
John Norquay CEO PivotPoint Advisors |
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Monday, October 10, 2011
DEXIA: Europe's First Domino?
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Does the name Dexia sound familiar? If not, it should. This huge European bank has assets greater than the entire Greek banking system and larger than the combined assets of all the banks bailed out in Ireland over the last couple years. Dexia was the world's largest lender to municipalities. Now it is being dismantled under a bailout plan after its funding evaporated. In my humble opinion, this is the first domino to fall. Germany quickly promised to work something out so their failure wouldn't cause all the dominos to begin falling. They said within the next 2 or three weeks they would have a plan. This promise has caused our markets to catapult up 2.5% this morning. Wow. Really? 
Angela Merkel on the Size of Greek Debt Problem
The problem with this promise? They have been working on this problem for two years already. It isn't like the U.S. where a few committees can gather and make a decision. There are many sovereign Countries involved with each having its internal politics to work through. Unfortunately, politics is the easy part of the problem. The greater problem is the system needs about 6 trillion Euros to resolve the debt crisis. How much do they actally have? 400 billion. Before your eyes glaze over from these large numbers, lets get a feel for the difference between 400 billion and 6 trillion. We will begin with a mere million. If you had a million dollars, you would have a dollar for every second for 12 days. A billion dollars would be a dollar for every second for 33 years! A trillion dollars is a dollar for every second for 33,000 years!!! If you do the math, you will find the bailout pool available is only about 7 percent of what they need. "Won't you be able to bail out one problem child at a time?" It would be nice if you could simply bail out Greece and then recover a couple years and then bail out Spain, etc. However, when a parent bails out one of their children, the other children want to be treated fairly and equally. All these countries in trouble are waiting for the first deal to be made so they can jump on the band wagon. It seems like human selfishness would rather see all of Rome burn than give up an "entitlement". Because of the above, I believe this pop in the market, that came from a new lower level, will fade quickly and join the rest of the downturns that have rocked our market. The bright side? The market doesn't care what I think! In this week's briefing Don points to a potential shift occuring in the momentum of this current down trend. If he is right, we may have an opportunity to make some money soon. For those of you who missed the live webinar, you can watch it here. This is about an hour and a perfect way for someone to get a feel for our investment approach. For those of you who might not understand who Don Miller is and his capabilities, spend 50 minutes watching this video (episode 6) and you will know why he is managing YOUR portfolio.
Have a great day!!
John Norquay CEO PivotPoint Advisors |
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