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 What happens in Greece, DOESN'T stay in Greece. It seems that Spain and Greece are vying for the greatest illegitimate child award. It gets tiresome writing about these guys, but you can't ignore them since they are the ones moving our markets right now. Although it looked like the market may have shown a short term bottom a week or so ago, I was happy that our client's money wasn't exposed to the Greek election this weekend. Currently the market seems to be digesting what was a 10% loss at the bottom. Had the election gone the wrong way, the digestion process could have been over followed by a voracious appetite for further losses. As it is, the "Austerity" party eeked out a win and believe they can put a coalition government together that will continue the cutbacks required to receive further bail out funds from big brother (Euro Zone). This new party has a glaring challenge in front of them. Nearly 2% of all bank deposits in the country are leaving each week. Any of you who know how the fractional reserve banking system works, this means that 9 or 10 times the money that is leaving must be reigned in from what is loaned out (to businesses and individuals). We have heard this called "de-leveraging" in our own debt crisis. If a bank loses a dollar in deposit then they must decrease what they have loaned to others by approximately 10 dollars. At this rate, simple math tells us it won't even take a year for the banks to have zero deposits. In all reality, unless something changes, the 2% per week will increase dramatically as more become aware that it could be headed for zero and decide to leave as well. With the cash gone, the collateral is worthless and well . . . you get the point. Spain looks like Greece did three years ago, but with a couple exceptions; their economy is worse and theyalready have a banking crisis. As Spain's loans come due, they don't have the money to repay the principal, therefor must borrow to repay. Unfortunately the market won't lend them money now at a rate that Spain can pay back. The term for this is being "shut out" of the market. Its like a person with bad credit trying to get a loan. The bank with reasonable rates turn you down while the loan sharks step in to make a killing from you. This leads up to the saying in general "When an accident is waiting to happen, it usually does." At PivotPoint, we would rather lose a few opportunities of quick money to avoid the loss of principle. As Don mentions in the briefing this week, we look like fools on days the market jumps up and we are sitting on cash. On the other hand we look like geniuses on days the market takes huge losses and we don't - due to our large cash position. We simply must hold to our conservative convictions until the market conflicts resolve themselves. Don has laid out our position very clearly in this week'sbriefing. Please take a peek!
Have a great day!!
John Norquay CEO PivotPoint Advisors |
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Showing posts with label European Crisis. Show all posts
Showing posts with label European Crisis. Show all posts
Monday, June 18, 2012
An Accident Waiting To Happen . . . Does:
Tuesday, May 1, 2012
The Man Who Bankrupted The Bank Of England Speaks:
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George Soros single handedly broke he Bank of England. He is known for his support of progressive causes and is disliked by nearly every conservative on the planet. BUT love him or hate him, you can't discount the fact he is one VERY canny investor. There are three men whose opinions I will weigh heavily whether I agree with them or not (Warren Buffet USED to be a fourth before he became a gov't man). These three are Don Miller, Bill Gross and George Soros. Many talk good stories, but only a few actually perform.
George Soros said in an article recently that he believes "the Euro Crisis is getting worse. It's not over yet, and going in the wrong direction." Soros is of the opinion that the European Union hierarchy have mis-defined their problem and therefor their solutions are only feeding their crisis. He sees investment fleeing FROM Europe due to the discord between the countries themselves and the lack of plausible solutions being offered. Bill Gross said the U.S. will be affected by Europe no matter how fervently we deny it. He said the U.S. needs 5% GDP growth to improve the jobs situation, yet the actual figure is only at 2.2%. The only way to hit the 5% is to have the European economy contribute. So far, they aren't and can't. This adds up to a very slow growth period for the U.S. which makes "buy and hold" or "asset allocation and diversification" strategies painful for retirement planning. As an aside, Don Miller and Bill Gross have a lot in common. Bill Gross is probably the most successful mutual fund manager on the planet with his $250 Billion Total Return Fund. Bill used to be a professional poker player. You ever notice how its always the same guys who show up on the final table in all the major poker tournaments? Its because they know that poker is governed by the same laws as the market. When you aren't sure of your hand, you play conservatively. In other words, when you lose, just lose a little, but don't curb your ability to win big when the right situation occurs. Don Miller is also a big fan of poker and writes about the correlations with the market in his blog. These are two very successful people who disagree with the major tenets of Wall Street hype. Hallelujah. Have a great day!! John Norquay CEO PivotPoint Advisors |
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