As I have written in the past, our beloved Baby Boomers have moved from being the biggest earners over the past twenty years and thus the biggest spenders, now moving in to retirement and with this the largest group of savers, a major drain on HealthCare, Pensions and overall government support. Could they alone dictate what will happen to our economic future?
Despite the recession, boomers want more from retirement. What they're willing to do to get it -- and what they may be missing in their plans.
Watch the news long enough and you'll remember there are two sides to every story -- even financial ones.
In recent months we've been inundated with depressing news about how many boomers can't afford to retire and how they fear they'll outlive their money. The latest number out of the U.S. is that almost 60 per cent of baby boomers won't have enough money to cover the basics in retirement, according to a report in the Wall Street Journal. A recent survey conducted by Allianz Life Insurance Group found that the majority of boomers feared outliving their assets more than they feared death.
In other words, things are looking pretty bleak...
Or are they? True, the economy has turned many people's retirement plans on their head, but many boomers haven't lost their optimism -- or perhaps their high expectations?
Boomers want more from retirement
Here's a counterpoint to the doom and gloom: despite the challenges of longevity and the economy, many boomers have high hopes for retirement. For example, in the Allianz Life Survey, 80 per cent of respondents expected their lifestyle in retirement would be better than their parents', despite worries of not having enough cash.
When we hear that so many boomers can't afford to retire, we often imagine an impending struggle just to make ends meet. However, there's a big difference between not being able to afford basic needs and not being able to afford one's current lifestyle -- let alone fund a better one. Adding fuel to the proverbial fire is the fact that the line between "needs" and "wants" is increasingly becoming blurred, according to a new poll.
The Boomer Retirement Lifestyle Study, conducted by Harris Interactive on behalf of Mainstay Investments, found that things that used to fall on the luxuries side of the budget have now moved over to necessities. (Bear in mind the respondent pool consisted of people who already had some assets -- the study polled more than 1000 U.S. adults ages 45-65 who are still working, who have at least $100,000 of investable liquid assets and who are at least partly responsible for making household financial decisions.)
The results? While everyone needs food, shelter, healthcare and clothing, 84 per cent of boomers also felt an internet connection is a basic need -- second only to healthcare -- and two thirds of respondents say shopping for birthdays and special occasions is also a requirement. Yearly vacations, weekend getaways, professional haircuts and coloring, home care, pet care and funding their children's and grandchildren's educations were also on the must-have list for nearly half of all respondents.
Dining out is also a luxury many boomers would be loath to give up -- in fact, more than 65 per cent of respondents feel it's a necessity too.
"When it comes to lifestyle, Baby Boomers are redefining what constitutes a basic need and what they consider a luxury. We have clearly expanded beyond the three traditionally thought-of necessities -- clothes, food and shelter." said Matthew Leung, director and head of practice management programs at MainStay Investments, in a press release. "Boomers essentially want it all."
Sacrifice now, spend later
They want it all in retirement -- but boomers are also willing to make some sacrifices to get it. The Mainstay study also reported 55 per cent of boomers would rather work longer than give up luxuries/necessities. Forty per cent of boomers polled admit that they'll have to put off retirement as a result.
One luxury they are willing to give up? A large home. Nearly half of respondents say they would be willing to downsize in order to afford the "wants".
We already know that many boomers are delaying retirement in order to beef up their assets, but that's not the only step they're taking. They're adjusting their portfolio allocations -- that is, rearranging their investments -- and spending less. Three quarters of boomers in the Mainstay study said they would prefer to save now and have the life they want in retirement than "have it all and have it now".
Indeed, the most recent census data (from 2008) out of the U.S. shows that older adults have seriously curbed their spending compared to ten years earlier. While they're spending more on medications, gasoline, healthcare and health insurance, people who are approaching retirement age have slashed their spending on entertainment, vehicles, food, eating out, clothing and furnishings. (Read the article in the Wall Street Journal for full details.)
While it should come as no surprise that people approaching retirement are setting more aside, the changes in spending have some economists worried. Some have even gone so far as to claim that boomers' and seniors' more conservative habits could be slowing economic recovery. Their logic: spending is essential for boost the economy and bolster up shrunken nest eggs and depressed home values. After all, while individual boomers may be struggling, collectively this cohort controls a significant portion of the wealth in North America.
What's missing?
So will smart boomers make ends meet? Not so fast... Critics are quick to point out that people's survey responses don't always reflect their habits and behaviours. Most people know they need to save more, but there are still some serious gaps in the planning process -- like not knowing how is much needed to retire, not having a retirement plan and not having an income plan for post-retirement.
Many people are choosing to go it alone even if they do have a plan. The Mainstay study found that less than half of respondents had a financial advisor. In Canada, the numbers are the same: according to a recent survey from the BMO Retirement Institute, less than half of Canadians over the age of 55 have talked to a financial advisor -- or plan to talk to one. Furthermore, many boomers are so busy planning for retirement that they haven't given much thought to what happens after they cross the threshold: less than half of all boomers have a post-retirement income management plan. (See Will you outlive your money? for details.)
In addition, there's more to a fulfilling retirement than money. Experts also note that focusing on maintaining good health and social relationships goes a long a way to towards a happy retirement.
Naturally, the statistics are going to change -- and we're going to have a lot more thrown at us in the months and years to come. No one can predict what's going to happen as baby boomers begin to retire, but this generation has always been at the vanguard of change. One thing we're guaranteed -- it's going to be an interesting ride.
by Elizabeth Rogers, 50Plus.com
Saverio Manzo
http://www.saveriomanzo.com/
Source: Abby Joseph Cohen ‐ Goldman Sachs, Morgan Stanley, Michael Hartnett‐ Bank of America Merrill Lynch, RBC Capital, Donald Coxe ‐ Coxe Advisors, BMO Capital Markets , David Rosenberg ‐ Gluskin Sheff + Associates, Barry Ritholtz - The Big Picture, T. Rowe Price, Federated Investors, Brain Fabbri ‐ BNP Paribas, Sherry Cooper – BMO, Kurt Karl ‐ Swiss RE, Investment Postcards, Barry Ritholtz, Peter Grandich, Nouriel Roubini, Marc Faber, Bill Gross ‐ PIMCO, Barton Riggs, Eric Sprott – Sprott Capital, Jeremy Siegel, Steven Leuthold, Jeremy Grantham & Merrill Lynch Fund Managers Survey
Friday, August 27, 2010
Sunday, August 22, 2010
Are you a truth seeker or a truth obscurer?
Barry Ritholtz on his works: The broader mission of what I try to do is seek the Truth.
I define “the Truth” as being in accord with objective reality. Philosophers have argued we can never achieve that degree of perfection, so to me it means getting as close as possible to the Truth as any slightly cleverer, pants-wearing monkey can.
I do this for three reasons: The first is that I am interested in it intellectually. I am aware that our individual universes are mere constructs of a sophisticated cognitive process, the evolutionary apex of this planet. I am also all too aware it is filled with flaws and biases and error. So few people seem to understand what objective reality is that it is a rarified space to even get near, much less inhabit.
This means venturing far and wide in search of “enlightenment.” No one discipline has a monopoly on the Truth, and very often a brilliant insight from one field can be applied in another. Hence, Behavioral economics, music, neurophysiology, methods of data-depiction (aka chart porn), market history, even automotive innovations all part of the multi-discipline process.
The second reason is professional: Fund managers whose universe deviate from reality eventually come to major losses, under-performance, and professional ruin. The most public version of this was likely Bill Miller: His failure to understand the derivative situation, creaky Housing edifice, and the artifice of the 2002-07 finance rally led his fund to load up on banks, GSEs, investment houses — and ruined an incredible record. There are many other examples, but this one is the most acute. Note there is a distinction between those who play probabilities that do not play out, and those whose world view is so flawed as to make losses all but inevitable.
I believe in Variant Perspective as an investment thesis: Identify where most of the investing public is objectively wrong; determine what the best approximation to reality is; factor in timing, and invest accordingly. Value investors do this when the buy undervalued stocks; they are saying the public is wrong about the lack of worth of an issue; short sellers do this as well, implicitly saying the opposite — that the public is overvaluing a stock, and making their bet.
One of the surprising things this blog has taught me about Reality is how long it takes to go viral. There are entrenched interests opposed to the truth, and they release their grip on their subjective fantasies very, very slowly.
When people said that Housing never falls in price, or that it is such a small part of the economy, and it could never have much impact, I push back against that error. Not a difference of opinion, mind you, but a cognitive failure on their part to hypothesize a probable or likely outcome. Years passed before the Truth became known. When the inverted Yield Curve as an omen of impending recession was dismissed as different this time, it invited my criticism. Erroneous discussions of cheap home builders, expensive tech stocks, low inflation, high employment were all subjects of discussions here.
There are 100s of such examples. Some people claim that nobody forecast a possible housing/derivative/market collapse. This is a lie to obscure their own failures. When the CRA or Fannie/Freddie are blamed for the economic crisis, I recognize this as false, a blatant attempt to obscure, rather than reveal the truth. Arguments talking up or down the economy usually have a specific agenda apart from the objective reality of the situation.
Which leads us to our headline: Seeking the Truth — Or Obscuring It?
I have explained my motivations as a truth seeker. It is intellectually stimulating, and it can be profitable. The major investment houses have for the most part abandoned it as part of their model, leaving that market niche open (to smaller, nimble firms like mine).
But what motivates people to pursue a narrative that is blatantly false, misleading or intellectually dishonest? Typically, it meets a powerful group’s specific agenda. There is a embedded interest amongst the powerful to preserve the status quo. The thought process seems to be “Hey, its working for us, let’s not mess up a good thing.”
We see this in a variety of areas: Politics are notorious for disregarding the Truth. Political objectives are to win votes, control public monies, amass power and influence. Truth is an obvious casualty in this process.
Amongst corporate interests, the Truth can get in the way of sales, earnings reports, and profitability, impacting careers, stocks prices and of course bonuses. Regulation reduced profits. Impacting the debate to achieve a desired outcome is worth billions, even if the consequences to society costs trillions.
Even academia is suffers from this error prone tendency to obscure the truth when it contradicts a long held theory or belief system. Look no further than the Efficient Market Hypothesis, and the way it was applied in real world discussions of policy, and self-regulation. Then consider the tortured route it took to go from the intellectual standard of academic capital market explanations to a partially discredited, somewhat outmoded belief system.
I initially mentioned three reasons. The third is simply that we live in a society where decision-making takes place with less and less reverence for the Truth, with terrible consequences. Those people who seek to obscure the Truth for personal gain do an enormous disservice to our nation. Public policy is made based on false pronouncements, monies are allocated based upon misleading arguments, laws are made, taxes levied, policy executed. The lives of 100s of millions of people is significantly impacted by our public policy.
When the entire edifice rests on falsehoods, mistruths, faulty assumptions, false premises, future outcomes, as we have seen over the past few years, can be horrific. History teaches us that eventually, the Truth will reveal itself. When that happens, there can be terrible consequences: Economies collapse, wars occur, empires crumble, millions die.
Whenever I read a major policy piece, newspaper article, or OpEd, I ask the following question: Is this person a truth seeker, or a truth obscurer? When you see nasty posts that dissect/shred/fisk these, it is because I was not happy with the answer to that question.
Are you a truth seeker, or a truth obscurer?
Barry Ritholtz, The Big PIcture
Saverio Manzo
http://www.saveriomanzo.com/
About me: I give Economic, Social and Global trend briefings from some of the world's brightest minds at my blog http://saveriomanzo.com/ and http://saveriomanzo.blogspot.com/. I also provide true and tested financial planning and wealth advice. Most recently, over the past few years, I have become socially conscious and have been attempting to practise ways in which I can live my life more environmentally friendly. Along with some truly exceptional friends, we provide consulting and business development for small-medium sized businesses. In addition, I truly believe in being philanthropic, giving and doing unto other as we would have them do unto us. Some of my fondest resources are from Barry Ritholtz of The Big Picture, David Rosenberg and what Warren Buffett of Berkshire Hathaway is up to behind the scenes, as an example.
I define “the Truth” as being in accord with objective reality. Philosophers have argued we can never achieve that degree of perfection, so to me it means getting as close as possible to the Truth as any slightly cleverer, pants-wearing monkey can.
I do this for three reasons: The first is that I am interested in it intellectually. I am aware that our individual universes are mere constructs of a sophisticated cognitive process, the evolutionary apex of this planet. I am also all too aware it is filled with flaws and biases and error. So few people seem to understand what objective reality is that it is a rarified space to even get near, much less inhabit.
This means venturing far and wide in search of “enlightenment.” No one discipline has a monopoly on the Truth, and very often a brilliant insight from one field can be applied in another. Hence, Behavioral economics, music, neurophysiology, methods of data-depiction (aka chart porn), market history, even automotive innovations all part of the multi-discipline process.
The second reason is professional: Fund managers whose universe deviate from reality eventually come to major losses, under-performance, and professional ruin. The most public version of this was likely Bill Miller: His failure to understand the derivative situation, creaky Housing edifice, and the artifice of the 2002-07 finance rally led his fund to load up on banks, GSEs, investment houses — and ruined an incredible record. There are many other examples, but this one is the most acute. Note there is a distinction between those who play probabilities that do not play out, and those whose world view is so flawed as to make losses all but inevitable.
I believe in Variant Perspective as an investment thesis: Identify where most of the investing public is objectively wrong; determine what the best approximation to reality is; factor in timing, and invest accordingly. Value investors do this when the buy undervalued stocks; they are saying the public is wrong about the lack of worth of an issue; short sellers do this as well, implicitly saying the opposite — that the public is overvaluing a stock, and making their bet.
One of the surprising things this blog has taught me about Reality is how long it takes to go viral. There are entrenched interests opposed to the truth, and they release their grip on their subjective fantasies very, very slowly.
When people said that Housing never falls in price, or that it is such a small part of the economy, and it could never have much impact, I push back against that error. Not a difference of opinion, mind you, but a cognitive failure on their part to hypothesize a probable or likely outcome. Years passed before the Truth became known. When the inverted Yield Curve as an omen of impending recession was dismissed as different this time, it invited my criticism. Erroneous discussions of cheap home builders, expensive tech stocks, low inflation, high employment were all subjects of discussions here.
There are 100s of such examples. Some people claim that nobody forecast a possible housing/derivative/market collapse. This is a lie to obscure their own failures. When the CRA or Fannie/Freddie are blamed for the economic crisis, I recognize this as false, a blatant attempt to obscure, rather than reveal the truth. Arguments talking up or down the economy usually have a specific agenda apart from the objective reality of the situation.
Which leads us to our headline: Seeking the Truth — Or Obscuring It?
I have explained my motivations as a truth seeker. It is intellectually stimulating, and it can be profitable. The major investment houses have for the most part abandoned it as part of their model, leaving that market niche open (to smaller, nimble firms like mine).
But what motivates people to pursue a narrative that is blatantly false, misleading or intellectually dishonest? Typically, it meets a powerful group’s specific agenda. There is a embedded interest amongst the powerful to preserve the status quo. The thought process seems to be “Hey, its working for us, let’s not mess up a good thing.”
We see this in a variety of areas: Politics are notorious for disregarding the Truth. Political objectives are to win votes, control public monies, amass power and influence. Truth is an obvious casualty in this process.
Amongst corporate interests, the Truth can get in the way of sales, earnings reports, and profitability, impacting careers, stocks prices and of course bonuses. Regulation reduced profits. Impacting the debate to achieve a desired outcome is worth billions, even if the consequences to society costs trillions.
Even academia is suffers from this error prone tendency to obscure the truth when it contradicts a long held theory or belief system. Look no further than the Efficient Market Hypothesis, and the way it was applied in real world discussions of policy, and self-regulation. Then consider the tortured route it took to go from the intellectual standard of academic capital market explanations to a partially discredited, somewhat outmoded belief system.
I initially mentioned three reasons. The third is simply that we live in a society where decision-making takes place with less and less reverence for the Truth, with terrible consequences. Those people who seek to obscure the Truth for personal gain do an enormous disservice to our nation. Public policy is made based on false pronouncements, monies are allocated based upon misleading arguments, laws are made, taxes levied, policy executed. The lives of 100s of millions of people is significantly impacted by our public policy.
When the entire edifice rests on falsehoods, mistruths, faulty assumptions, false premises, future outcomes, as we have seen over the past few years, can be horrific. History teaches us that eventually, the Truth will reveal itself. When that happens, there can be terrible consequences: Economies collapse, wars occur, empires crumble, millions die.
Whenever I read a major policy piece, newspaper article, or OpEd, I ask the following question: Is this person a truth seeker, or a truth obscurer? When you see nasty posts that dissect/shred/fisk these, it is because I was not happy with the answer to that question.
Are you a truth seeker, or a truth obscurer?
Barry Ritholtz, The Big PIcture
Saverio Manzo
http://www.saveriomanzo.com/
About me: I give Economic, Social and Global trend briefings from some of the world's brightest minds at my blog http://saveriomanzo.com/ and http://saveriomanzo.blogspot.com/. I also provide true and tested financial planning and wealth advice. Most recently, over the past few years, I have become socially conscious and have been attempting to practise ways in which I can live my life more environmentally friendly. Along with some truly exceptional friends, we provide consulting and business development for small-medium sized businesses. In addition, I truly believe in being philanthropic, giving and doing unto other as we would have them do unto us. Some of my fondest resources are from Barry Ritholtz of The Big Picture, David Rosenberg and what Warren Buffett of Berkshire Hathaway is up to behind the scenes, as an example.
Thursday, August 19, 2010
On the minds of private money
I have made it practise to bring out the advice and foresight of the some of the most commonly known money managers, economists and global gurus throughout this blog history. However, I also seek to find those "private billionaire investors".... not the famous Warren Buffet or George Soros type, but the billionaire who is not public ally known and continues to amass a fortune by diligently managing his own funds.
Today I bring you excerpt of an interview with one such self-made, Felix Zulauf private investor extraordinaire. How does he see things in our current environment and what he's doing about it today and planning for tomorrow...
Let’s shift gears and talk a little bit more about global macro and your approach. When you’re doing your day-to-day work, what are you looking for? What is a day in the life of Felix Zulauf when he gets to the office?
Well, I’m a believer in cycles. I strongly believe that an economy — all economies — do not move in linear but in cyclical fashion. And so do financial markets. And my goal is to catch most of the up cycles and most of the down cycles, because assets are priced based on where we are in the cycle. So I do a lot of cyclical work. I do not moon cycle but the classic business cycle. There is the 3-5 year inventory cycle that they teach in basic economic theory, then there is the investment-related cycle which lasts 9 years. And then you have the 18-20 year real estate cycle and etcetera. I try to get a big picture of where the major economies of the world are moving and where the risks and pitfalls will be in the next six to 12 months. That’s my work — to find out where we are in the business cycle. And then I apply classic tools like monetary analysis, I do valuations because capital markets go from one extreme to the other. They never go in between and reverse to where they come from — that’s important to understand.
Once it hits an extreme (like in 2000), it does not go to a new level in the historical range in terms of valuations and then goes back to overvaluation again. It always goes from overvaluations to undervaluations.
Is that true for the housing market in the US?
The housing market has been a linear affair, particularly since the gold standard was abandoned. When you overstay a cycle by these aberrations like two expansive monetary policies, you could a stretch a cycle for a long time. But when you do that and overstay a cycle, you create more excesses and the correction, when it comes, will be happening in a much-altered time frame than normal. And it will be much sharper and much more painful.
How do you avoid the classic investor foible of confirmation bias? Especially with the internet, you can very easily only read the things that agree with you and nothing else?
Every human being tends to be lazy, and tends to like people and opinions that tend to agree with him. My situation is that I really grew up in the whole industry as a maverick. I was never a mainstream guy. I can see best when I can see lonely. And the majority is on the other side. But I reason, I look at them, and I check it [their stance] out. And you know that the markets are horrible. The markets tell you, relatively quickly, when you’re wrong. So I’m very risk-averse. I like to make money, but I hate to lose money. So I’d rather make a little bit less and not lose money. That is something that I learned from my youth on. I wasn’t born with a golden spoon in my mouth, so I had to make my fortune first all through hard work and suffering. And I don’t want to lose it.
In March ‘09, I turned bullish for a rally. I saw that in 2 to 4 months it went up 25 to 40 percent and I didn’t expect that rally at the beginning when it started to last that long and go that far. Once it never corrected, I had to go back to my drawing board and do the homework and I sought a bet that was very similar to two previous cases in the history. One was in the US — that was in 1938 — that rally had the same characteristics in terms of fundamentals and in terms of technicals. And the other case was in Japan in 1995, ‘96. Both rallies lasted one full year. Both rallies were eventually fully retraced and that’s what I think will happen here too.
So we have three factors moving the market. One was the stimulus demand, the other was the re-stocking of inventory throughout the manufacturing sectors of the world, and the third was financial banks manipulating financial markets up to the point where they got the prices where they wanted them. And I think quantitative easing to that degree is not possible in the current environment without first having a crisis again because you run into political problems. And the same is true for government spending of the size we have seen last year. Because the political framework is such that some people are very concerned with the debt that we are piling up virtually everywhere. And therefore, the markets are now forcing the hand and you see that markets are beginning to break down. The deflationary forces are gaining the upper hand and the western world is really hoping that China will bail us out by buying all the goods that we want to sell.
I just came back from a three-week trip to China and my view is very different. I think China is in the early stage of a decline with economy weakening that will turn into a hard landing.
I’m bearish cyclically. I’m not sure about the secular framework, but it doesn’t matter at this point in time. At this point in time, the cyclical forces in China are bearish, and the biggest problem for the Chinese people are the run-up in home prices over the last 18 months of about 100%. Private sector debt in China is almost the same as in the US relative to the size of the economy. And the people cannot afford housing anymore so the government wants to bring housing prices down. And they will be successful with all of the tightening steps they have undertaken. The problem is — you cannot just hurt housing. The economy is a mechanism that is inter-linked. If you hurt housing, you hurt many other sectors too. I’m very bearish cyclically for the next two years or so. It could be also that we will never see 10 percent growth again. Maybe we will see 4 or 5 percent, that’s possible.
Ten percent growth in China? That’s over.
bearish on equities on a cyclical perspective over the next 2 years or so. I’m also bearish on commodities because of what I said about China.
There was recently too much noise in the gold market, but that was another opportunity to buy, because eventually gold is the best store for your savings over the next five years or so.
What else do you think is interesting, what might you look into buying 1,2,3 years from now?
I think equities in the very long term are interesting investments. But we are not at the point where we should buy them long-term yet. We are in a structural bear market that started 10 years ago. I talked about the valuation cycle and we have gone far away already in valuation declines in Europe. We have gone from four times book value to about 1.2 times book value. We will probably go under book value. In the US, book value is 500 in the S&P. Usually, secular bear markets end slightly below book value, so there is still some way to go.
So that sounds like you think we’ll break the March 2009 lows.
I think we’ll see it again in the next 2 years, yes.
Saverio Manzo
http://www.saveriomanzo.com/
Today I bring you excerpt of an interview with one such self-made, Felix Zulauf private investor extraordinaire. How does he see things in our current environment and what he's doing about it today and planning for tomorrow...
Let’s shift gears and talk a little bit more about global macro and your approach. When you’re doing your day-to-day work, what are you looking for? What is a day in the life of Felix Zulauf when he gets to the office?
Well, I’m a believer in cycles. I strongly believe that an economy — all economies — do not move in linear but in cyclical fashion. And so do financial markets. And my goal is to catch most of the up cycles and most of the down cycles, because assets are priced based on where we are in the cycle. So I do a lot of cyclical work. I do not moon cycle but the classic business cycle. There is the 3-5 year inventory cycle that they teach in basic economic theory, then there is the investment-related cycle which lasts 9 years. And then you have the 18-20 year real estate cycle and etcetera. I try to get a big picture of where the major economies of the world are moving and where the risks and pitfalls will be in the next six to 12 months. That’s my work — to find out where we are in the business cycle. And then I apply classic tools like monetary analysis, I do valuations because capital markets go from one extreme to the other. They never go in between and reverse to where they come from — that’s important to understand.
Once it hits an extreme (like in 2000), it does not go to a new level in the historical range in terms of valuations and then goes back to overvaluation again. It always goes from overvaluations to undervaluations.
Is that true for the housing market in the US?
The housing market has been a linear affair, particularly since the gold standard was abandoned. When you overstay a cycle by these aberrations like two expansive monetary policies, you could a stretch a cycle for a long time. But when you do that and overstay a cycle, you create more excesses and the correction, when it comes, will be happening in a much-altered time frame than normal. And it will be much sharper and much more painful.
How do you avoid the classic investor foible of confirmation bias? Especially with the internet, you can very easily only read the things that agree with you and nothing else?
Every human being tends to be lazy, and tends to like people and opinions that tend to agree with him. My situation is that I really grew up in the whole industry as a maverick. I was never a mainstream guy. I can see best when I can see lonely. And the majority is on the other side. But I reason, I look at them, and I check it [their stance] out. And you know that the markets are horrible. The markets tell you, relatively quickly, when you’re wrong. So I’m very risk-averse. I like to make money, but I hate to lose money. So I’d rather make a little bit less and not lose money. That is something that I learned from my youth on. I wasn’t born with a golden spoon in my mouth, so I had to make my fortune first all through hard work and suffering. And I don’t want to lose it.
In March ‘09, I turned bullish for a rally. I saw that in 2 to 4 months it went up 25 to 40 percent and I didn’t expect that rally at the beginning when it started to last that long and go that far. Once it never corrected, I had to go back to my drawing board and do the homework and I sought a bet that was very similar to two previous cases in the history. One was in the US — that was in 1938 — that rally had the same characteristics in terms of fundamentals and in terms of technicals. And the other case was in Japan in 1995, ‘96. Both rallies lasted one full year. Both rallies were eventually fully retraced and that’s what I think will happen here too.
So we have three factors moving the market. One was the stimulus demand, the other was the re-stocking of inventory throughout the manufacturing sectors of the world, and the third was financial banks manipulating financial markets up to the point where they got the prices where they wanted them. And I think quantitative easing to that degree is not possible in the current environment without first having a crisis again because you run into political problems. And the same is true for government spending of the size we have seen last year. Because the political framework is such that some people are very concerned with the debt that we are piling up virtually everywhere. And therefore, the markets are now forcing the hand and you see that markets are beginning to break down. The deflationary forces are gaining the upper hand and the western world is really hoping that China will bail us out by buying all the goods that we want to sell.
I just came back from a three-week trip to China and my view is very different. I think China is in the early stage of a decline with economy weakening that will turn into a hard landing.
I’m bearish cyclically. I’m not sure about the secular framework, but it doesn’t matter at this point in time. At this point in time, the cyclical forces in China are bearish, and the biggest problem for the Chinese people are the run-up in home prices over the last 18 months of about 100%. Private sector debt in China is almost the same as in the US relative to the size of the economy. And the people cannot afford housing anymore so the government wants to bring housing prices down. And they will be successful with all of the tightening steps they have undertaken. The problem is — you cannot just hurt housing. The economy is a mechanism that is inter-linked. If you hurt housing, you hurt many other sectors too. I’m very bearish cyclically for the next two years or so. It could be also that we will never see 10 percent growth again. Maybe we will see 4 or 5 percent, that’s possible.
Ten percent growth in China? That’s over.
bearish on equities on a cyclical perspective over the next 2 years or so. I’m also bearish on commodities because of what I said about China.
There was recently too much noise in the gold market, but that was another opportunity to buy, because eventually gold is the best store for your savings over the next five years or so.
What else do you think is interesting, what might you look into buying 1,2,3 years from now?
I think equities in the very long term are interesting investments. But we are not at the point where we should buy them long-term yet. We are in a structural bear market that started 10 years ago. I talked about the valuation cycle and we have gone far away already in valuation declines in Europe. We have gone from four times book value to about 1.2 times book value. We will probably go under book value. In the US, book value is 500 in the S&P. Usually, secular bear markets end slightly below book value, so there is still some way to go.
So that sounds like you think we’ll break the March 2009 lows.
I think we’ll see it again in the next 2 years, yes.
Saverio Manzo
http://www.saveriomanzo.com/
Tuesday, August 3, 2010
Global poverty and micro loans: flourish
NEW INDEX DEVELOPED TO MEASURE POVERTY: In an effort to help target aid more effectively to specific communities worldwide, the United Nations (UN) and Oxford University recently announced a new way to measure poverty.
The “Multidimensional Poverty Index” (MPI) assesses factors contributing
to poverty other than income, including education, health, assets, and key
services such as water, sanitation, and electricity to give a “multidimensional
picture of people living in hardship,” according to the UN.
Researchers looking at data from 104 countries with 5.2 billion people (about 78% of the world population) used the MPI and found that approximately 1.7 billion people, about 33%, live in multidimensional poverty, compared to 1.3 billion living on $1.25 a day or less, the generally accepted measure of extreme poverty.
A lending Organization with no Banking: Kiva
Kiva empowers individuals to lend to an entrepreneur across the globe. By combining microfinance with the internet, Kiva is creating a global community of people connected through lending. Kiva's mission is to connect people, through lending, for the sake of alleviating poverty.
What is microfinance?
"Microfinance is the supply of loans, savings, and other basic financial services to the poor." (CGAP)
As the financial services of microfinance usually involve small amounts of money – small loans, small savings etc. – the term "microfinance" helps to differentiate these services from those which formal banks provide.
Why are they small? Someone who doesn't have a lot of money isn't likely to want to take out a $5,000 loan, or be able to open a savings account with an opening balance of $1,000. Hence – "micro".
Pendo Luisi, 27 years old, borrowed $175 to open a cafe in Dar es Salaam, Tanzania.
Kiva was born of the following beliefs:
• People are by nature generous, and will help others if given the opportunity to do so in a transparent, accountable way.
• The poor are highly motivated and can be very successful when given an opportunity.
• By connecting people we can create relationships beyond financial transactions, and build a global community expressing support and encouragement of one another.
Kiva promotes:
• Dignity: Kiva encourages partnership relationships as opposed to benefactor relationships. Partnership relationships are characterized by mutual dignity and respect.
• Accountability: Loans encourage more accountability than donations where repayment is not expected.
• Transparency: The Kiva website is an open platform where communication can flow freely around the world.
As of November 2009, Kiva has facilitated over $100 million in loans.
How Kiva Works
1) Kiva Partners with a Microfinance Institution
Kiva partners with existing microfinance institutions around the world (we call them Field Partners). These organizations that have expertise in microfinance and a mission to alleviate poverty facilitate Kiva loans on the ground. Our Field Partners know their local area and clients and do all the leg work required to get Kiva loans to the entrepreneurs posted on Kiva.org.
2) Field Partners Disburse Loans and Upload Stories
Field Partners disburse loans as soon as they are needed. They can do this up to 30 days before the loan request is posted on Kiva's website or 30 days after (most choose to disburse funds before the loan request is posted). The Field Partner collects entrepreneur stories, pictures and loan details and uploads them to Kiva. Volunteer editors and translators review the loan requests and publish them to Kiva.org. Many Field Partners require mandatory savings as part of the loan cycle in order to ensure that borrowers represent a good lending risk and can build up cash reserves.
3) Lenders Browse Profiles and Lend
Lenders browse loan requests and select which ones they'd like to fund. Lenders can fund as little as $25 and as much as the entire amount of the loan. To help streamline the loan transaction process, loan requests posted by the Field Partner are rounded up to the nearest $25 increment. Kiva aggregates funds from Kiva lenders and provides them to the Field Partner.
4) Kiva Disburses Lenders' Funds to the Field Partner
The Field Partner uses the funds to replenish the loan they've already made to the entrepreneur. Kiva provides these funds on a schedule that accommodates the Field Partners' banking procedures.
5) Entrepreneurs Repay Their Loans
The Field Partner collects repayments from Kiva entrepreneurs as well as any interest due and lets Kiva know if a repayment was not made as scheduled. Interest rates are set by the Field Partner, and that interest is used to cover the Field Partner's operating costs. Kiva doesn't charge interest to its Field Partners and does not provide interest to lenders. Kiva also gives Field Partners the option to cover currency losses. Learn more
To minimize the expense and maximize the efficiency of money transfers, Kiva works on a net billing system. This means that, for any given month, we subtract the amount of Field Partner repayments from the amount of loans made by Kiva lenders. Kiva only asks our Field Partners to send payments for the difference and they have 30 days to send payment.
6) Kiva Provides Repayments to Lenders
If there is already money in the Field Partner's account, or once their payment is received, Kiva uses these funds to credit the appropriate lenders with their loan repayments. Lenders can re-lend their funds to another entrepreneur, donate their funds to Kiva (to cover operational expenses), or withdraw their funds via PayPal.
Saverio Manzo
http://www.saveriomanzo.com/
The “Multidimensional Poverty Index” (MPI) assesses factors contributing
to poverty other than income, including education, health, assets, and key
services such as water, sanitation, and electricity to give a “multidimensional
picture of people living in hardship,” according to the UN.
Researchers looking at data from 104 countries with 5.2 billion people (about 78% of the world population) used the MPI and found that approximately 1.7 billion people, about 33%, live in multidimensional poverty, compared to 1.3 billion living on $1.25 a day or less, the generally accepted measure of extreme poverty.
A lending Organization with no Banking: Kiva
Kiva empowers individuals to lend to an entrepreneur across the globe. By combining microfinance with the internet, Kiva is creating a global community of people connected through lending. Kiva's mission is to connect people, through lending, for the sake of alleviating poverty.
What is microfinance?
"Microfinance is the supply of loans, savings, and other basic financial services to the poor." (CGAP)
As the financial services of microfinance usually involve small amounts of money – small loans, small savings etc. – the term "microfinance" helps to differentiate these services from those which formal banks provide.
Why are they small? Someone who doesn't have a lot of money isn't likely to want to take out a $5,000 loan, or be able to open a savings account with an opening balance of $1,000. Hence – "micro".
Pendo Luisi, 27 years old, borrowed $175 to open a cafe in Dar es Salaam, Tanzania.
Kiva was born of the following beliefs:
• People are by nature generous, and will help others if given the opportunity to do so in a transparent, accountable way.
• The poor are highly motivated and can be very successful when given an opportunity.
• By connecting people we can create relationships beyond financial transactions, and build a global community expressing support and encouragement of one another.
Kiva promotes:
• Dignity: Kiva encourages partnership relationships as opposed to benefactor relationships. Partnership relationships are characterized by mutual dignity and respect.
• Accountability: Loans encourage more accountability than donations where repayment is not expected.
• Transparency: The Kiva website is an open platform where communication can flow freely around the world.
As of November 2009, Kiva has facilitated over $100 million in loans.
How Kiva Works
1) Kiva Partners with a Microfinance Institution
Kiva partners with existing microfinance institutions around the world (we call them Field Partners). These organizations that have expertise in microfinance and a mission to alleviate poverty facilitate Kiva loans on the ground. Our Field Partners know their local area and clients and do all the leg work required to get Kiva loans to the entrepreneurs posted on Kiva.org.
2) Field Partners Disburse Loans and Upload Stories
Field Partners disburse loans as soon as they are needed. They can do this up to 30 days before the loan request is posted on Kiva's website or 30 days after (most choose to disburse funds before the loan request is posted). The Field Partner collects entrepreneur stories, pictures and loan details and uploads them to Kiva. Volunteer editors and translators review the loan requests and publish them to Kiva.org. Many Field Partners require mandatory savings as part of the loan cycle in order to ensure that borrowers represent a good lending risk and can build up cash reserves.
3) Lenders Browse Profiles and Lend
Lenders browse loan requests and select which ones they'd like to fund. Lenders can fund as little as $25 and as much as the entire amount of the loan. To help streamline the loan transaction process, loan requests posted by the Field Partner are rounded up to the nearest $25 increment. Kiva aggregates funds from Kiva lenders and provides them to the Field Partner.
4) Kiva Disburses Lenders' Funds to the Field Partner
The Field Partner uses the funds to replenish the loan they've already made to the entrepreneur. Kiva provides these funds on a schedule that accommodates the Field Partners' banking procedures.
5) Entrepreneurs Repay Their Loans
The Field Partner collects repayments from Kiva entrepreneurs as well as any interest due and lets Kiva know if a repayment was not made as scheduled. Interest rates are set by the Field Partner, and that interest is used to cover the Field Partner's operating costs. Kiva doesn't charge interest to its Field Partners and does not provide interest to lenders. Kiva also gives Field Partners the option to cover currency losses. Learn more
To minimize the expense and maximize the efficiency of money transfers, Kiva works on a net billing system. This means that, for any given month, we subtract the amount of Field Partner repayments from the amount of loans made by Kiva lenders. Kiva only asks our Field Partners to send payments for the difference and they have 30 days to send payment.
6) Kiva Provides Repayments to Lenders
If there is already money in the Field Partner's account, or once their payment is received, Kiva uses these funds to credit the appropriate lenders with their loan repayments. Lenders can re-lend their funds to another entrepreneur, donate their funds to Kiva (to cover operational expenses), or withdraw their funds via PayPal.
Saverio Manzo
http://www.saveriomanzo.com/
Subscribe to:
Posts (Atom)