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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 24, 2011
We've Turned The Corner
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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Sunday, October 2, 2011
A Bug Looking For A Windshield
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 Please note there are no attachments to this eLetter. No motion sickness bag needed. In fact, this week is what we would call a "value" week. The area between our return and the S&P 500's is what we call the value area. This week that area grew. Not losing is gaining in the area of value. Everyone who has followed this eLetter knows that our first objective is to not lose money. There will always be a time when making money in the market will be easy again. We want all our marbles still in the game when that time comes. This way, we won't spend all our time trying to simply get back to even. There are a number of reasons I'm concerned about the current market and why I believe everyone needs an investment approach similar to ours. I'll share a couple of them. The headline of an article on Wednesday said that an "organized default" by Greece, might be a positive for the market. Huh? European banks are in a worse situation right now than the American banks prior to the 2008 sub prime debacle. As I've said before, when things are so fragile, ANYTHING can become a trigger. Greece has been in default 160 out of the last 200 years. How could we be surprised when they do it again? No one really cares about Greece by itself because it is an insignificant part of the world's economy. The fear comes from the fact that the over leveraged European banks haven't had to put anything away in case a sovereign country defaults on their debt. The thought behind this rule is that sovereigns never default. Unfortunately the black swan always shows up sooner or later and the dominos begin to fall. Japan is one such economy, but one that everyone cares about. It is still the third largest economy in the world. John Mauldin says that Japan is a bug looking for a windshield because they are going to hit the wall within the next couple years. We've been in a secular bear market since 2000. "Secular" in this context means long. A Secular market simply means the long term trend. Therefore a secular bear market means the long term trend is down. I"ve found these long term cycles have a tendency to last about 15 years. If this is true, we still have a few years to wait this market out. Historically it's taken three solid recessions to get out of a secular bear market. We've had two so far and many believe we are either in or heading into our third. The good news is a deep recession could help straighten the world out. The bad news is how much people in the market would have to give up in order to get there. Thursday at 7 pm central this week, I will be doing a live Webinar explaining PivotPoint Advisors investment approach. An ex-anesthesiologist in Vermont is hosting the webinar and inviting 2,500 of his closest friends. You are all invited as well and I will be sending a link to join the event early this week. Feel free to share this link with anyone who may have motion sickness from their portfolio. This webinar may act as the dramamine they are looking for. Read the briefing if you would like to get a warm feeling about your portfolio, regardless of your risk profile.
Have a great day!!
John Norquay CEO PivotPoint Advisors |
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