The Geography of Recession
June 4, 2009
Dear Friends:
One of the first things you learn about analyzing a company is how to dissect a balance sheet. What assets and liabilities can be deployed by a company to create equity over time? I've enclosed a fascinating variant on this process. Take a look at how STRATFOR has analyzed the "geographic balance sheets" of the US, Russia, China, and Europe to understand why different countries' economies have suffered to varying degrees from the current economic crisis.
As investors, it's precisely this type of outside-the-box thinking that can provide us profitable opportunities, and it's precisely this type of outside-the-box thinking that makes STRATFOR such an important part of my investment decision making. The key to investment profits is thinking differently and thinking earlier than the next guy. STRATFOR's work exemplifies both these traits.
I've arranged for a special deal on a STRATFOR Membership for my readers, which you can click here to take advantage of. Many of you are invested in alternative strategies, but I want to make sure that you also employ alternative thinking strategies. So take a look at these different "country balance sheets" as you formulate your plans.
The Next 100 Years
January 22, 2009
Much of the world is focused on the next 100 days—what Obama is going to do. That's important. But today in a special Outside the Box from my good friend George Freidman of Stratfor We will look out a bit further George is just about to release his latest book, The Next 100 Years: A Forecast for the 21st Century. (Even pre-release it's already at #11 on Amazon's non-fiction bestseller list!) Here's my quick summary; and to cut to the chase, it's just fascinating.
What reads like a geopolitical thriller gives a thought-provoking glimpse into what the world will look like in the coming century. George's strength is his ability to take geopolitical patterns and use them to forecast future events, sometimes with startling and counterintuitive results.
For example, he forecasts:
- By the middle of this century, Poland and Turkey will be major international players
- Russia will be a regional power - after emerging from a second cold war
- Space-based solar power will completely change the global energy dynamic
- The border areas between the US and Mexico are going to be in play again, like 150 years ago
- Shrinking labor pools will cause countries to compete for immigrants rather than fighting to keep them out
I confess when George first told me about these ideas, I raised an eyebrow. But after reading the book, and going through the analysis, I find myself sometimes nodding in agreement and other times not being sure what I was reading. But like all the analysis reviews I do, I pay as much attention to the methods, the logic, and the arguments as the conclusions. Do that, and what seems hard to believe all of a sudden makes sense.
Don't let short-term fears blind you to long term opportunities. George's company, Stratfor, is my source for this kind of geopolitical analysis on an on-going basis. I've included the full introduction to the book below; and I heartily recommend that you click here for a special offer on a Stratfor Membership that includes a copy of George's upcoming book.
Dow 5,000 Redux
December 8, 2008
What is fair value for stocks? Are they now cheap? You can certainly make that argument by comparing valuations based on past performance. But repeat after me, "Past performance is not indicative of future returns." The investment climate of today is almost certainly going to be quite different than that of the 80's and 90's. Thus, to expect stocks to repeat the performance of the last bull market in a climate of government intervention, deleveraging and increased regulations may not be realistic?
This week Bill Gross, the Managing Director of PIMCO (and one of my favorite analysts) moves away from his familiar neighborhood of bonds and offers a few thoughts on stock market valuations. This is not a lengthy read, but it is one you might want to read twice, as the concepts are important. And not just for stocks but for investments of all types. I trust you will enjoy this week's Outside the Box.
The International Economic Crisis and Stratfor’s Methodology
October 16, 2008
Dear Friends:
Exhale for a moment, forget your losses for the time being, and try to appreciate the fact that you're living through the single most important development in global finance since Bretton Woods. This is a "tell the grandkids about it" moment, when governments all around the world have essentially decided in unison that it's time to rewrite the rules, the very framework, in which financial transactions take place. Stock trading, interbank lending, commercial paper, the very concept of private sector ownership are all up in the air right now.
The only thing I can tell you with certainty is that if you try to evaluate your investments using the same metrics you've always relied on - P/E ratios, market share, interest rates, etc. - you're going to be as successful as a football-turned-baseball coach evaluating a pitcher by the number of touchdowns he throws. The rules are changing, gentle reader, changing at least for awhile from market-driven inputs to government-driven inputs. If you try to apply what you know from the "old game" without understanding that you're playing a "new game," the rules might not make sense.
I'm sending you today a piece from my friend George Friedman on how his company Stratfor looks at economics. More precisely, this piece explains how they look at Political Economy. And from here on out, it's political economy that's going to be driving markets. If the old rule was "Never fight the Fed." It's now, "Never fight the Fed. And the Treasury. And the ECB. And the Bank of England. And the Bank of Japan...." You get my point.
George has very kindly arranged for a special offer on a Stratfor Membership for my readers. I strongly encourage you to click here to take advantage of this offer. Now more than ever, you need the kinds of insights that you can't get from traditional finance sources. You need a wider lens, and there's no one better than George and his team at Stratfor at this kind of analysis. I know you'll find them as valuable as I do.
Your Taking-It-All-In Analyst,
A Value Investor Looks At China
August 12, 2008
China is all the rage for the next few weeks as the Olympics are going on. Many are calling this China's time to showcase itself to the world. I have a lot of friends and analysts who are big China bulls, believing that the next few years will see continued high growth in China, although less than the above 10% of the past few years.
In Outside the Box, we like to look at some contrarian analysis from time to time. Value Investor Vitaliy Katsenelson gives us some reasons why the outlook for China might not be so bright. This has implications for lots of markets that are driven by Asian demand.
Vitaliy N. Katsenelson, CFA, is a Director of Research at Investment Management Associates in Denver and teaches a graduate investment class at the University of Colorado at Denver. He is also the author of Active Value Investing: Making Money in Range-Bound Markets (Wiley 2007). Enjoy the essay.
How We Learned to Stop Worrying (so much) and Love "Da Bomb"
May 21, 2007
Humans, by nature, tend to let things worry them a bit more than they ought to. Whether it's a job situation, relationship issue or investment decision, we all tend to blow the small things out of proportion and lose sight of the bigger picture at hand. In this week's Outside the Box, PIMCO Managing Director Bill Gross does an excellent job at explaining why we need to worry less and grab a hold of some of the larger trends behind today's markets.
In his article "How We Learned to Stop Worrying (so much) and Love 'Da Bomb,'" Bill discusses the four big picture topics of globalization, technology, freer markets/financial innovation and favorable public policy as well as show how these forces will affect economies across the globe. He also points out some potential threats that could disrupt the asset markets overall. One particular point that I found of interest was Bill's explanation of a shift in the credit creation process from that of the Central Bank's to those of more private agents such as hedge funds.
Bill always does a superb job of taking a lot of variables and boiling them down to their key metrics. I trust that you will enjoy his commentary and find it to be both valuable and "outside the box."
So What Should We Worry About?
May 7, 2007
Today's Outside the Box is a very interesting piece written by Louis-Vincent Gave and the team at GaveKal entitled "Part 2: So What Should We Worry About?" His article is a follow up to an earlier one that he wrote on why he, and the rest of the GaveKal team, had been bullish on the markets a couple of months ago. This letter is to answer the question "what could go wrong" with their previous outlook in light of the recent market climate.
For those of you unfamiliar with GaveKal, the firm was started in the late 1990s in London by Charles Gave, Louis-Vincent Gave and Anatole Kaletsky. GaveKal is a research firm, focusing on macro economics and tactical asset allocation for institutional clients around the world. Louis-Vincent is the CEO of GaveKal where he contributes frequently to the research and was the main author of their books Our Brave New World and The End is Not Nigh.
Let me make a quick remark regarding the latter of his 2 books. The End is Not Nigh has just recently been released and I highly recommend it as a good read. It is a great example of a book that presents a positive view of not just the markets but of the developing world as well. You can purchase the book directly from their website (www.gavekal.com) or through Amazon.
I trust that you will enjoy this week's Outside the Box from the always thought-provoking Louis-Vincent Gave.
Household Wealth and the US Savings Rate
April 30, 2007
This week's Outside the Box is comprised of 2 smaller articles that I believe will, collectively, provide you with some interesting information to digest. The 1st article will be a follow up piece to last week's Outside the Box where I featured a commentary by Morgan Stanley's Chief Economist Stephen Roach titled "The Missing Link to Global Rebalancing." Kathleen Camilli, the President of Camilli Economics, has weighed in on some of Roach's views by providing a quasi-rebuttal of her own. While her article "Household Wealth and the US Savings Rate" does not address the structural current account deficit that Roach points out, it does address the low savings rate/Asset Economy issue. You can reach here at www.camillieconomics.com.
And secondly, I quoted some excerpts from Jeremy Grantham's latest letter to investors in my weekly publishing of "Thoughts from the Frontline." Many people have since expressed curiosity about this letter so we've decided to reproduce the whole letter for you to read.
Each article provides some thought-provoking commentary and insight that I believe you will thoroughly enjoy.
The Missing Link to Global Rebalancing
April 23, 2007
Over the past couple of years, I've written quite a bit about how the global economy has taken shape and why it is important to understand it when building one's investment portfolio. There have been many market pundits saying that the global economy is out of balance with each individual having some sort of variable solution, whether it be the currency markets, trade relations or productivity growth. Morgan Stanley's Chief Economist, Stephen Roach, has written an excellent article on the subject, one definitely worthy of this week's "Outside the Box."
In his article "The Missing Link to Global Rebalancing," Roach contradicts the widespread notion that the US Dollar is the primary driver for rebalancing and explains why personal consumption is the issue to keep an eye on. For those of you unfamiliar with Roach, I always find his musings and analysis to be very forward thinking in nature, regardless if our views completely align.
I trust that you will enjoy his commentary and find it valuable to your investment acumen.
Geopolitics and the U.S. Spoiling Attack
March 29, 2007
This week's special edition Outside the Box is what I would call one of the more "philosophical" pieces by Stratfor President George Friedman...let me explain. In his article "Geopolitics and the U.S. Spoiling Attack," George looks through the lens of history at the US involvement in Iraq by comparing the outcomes with past US military encounters. While he goes on to show the result of each situation, the most interesting part, at least to me, has been the intended or unintended consequences that have developed as a result.
For example, George hypothesizes that victory may not be or have been the optimal outcome for all of the past US military endeavors, but rather the strategy (or unintended consequence) of only using a fraction of the country's military might to disrupt an imposing enemy's agenda. This is what he calls a "spoiling attack."
George's company Stratfor provides some insightful and comprehensive research on geopolitical events and global affairs. He continues to be generous by offering my readers a discount to his normal subscription rates which can be obtained by clicking here.
My desire is that you continue to find these special editions of Outside the Box to be valuable and, at the very least, thought provoking.
Perils of a New Globalization
March 20, 2006
Two week's ago in my Friday letter, Thoughts From the Frontline, I wrote about the Dubai ports situation, Smoot-Hawley, globalization and protectionism. Today we look at two commentaries by Stephen Roach, Chief Economist of Morgan Stanley. The first was from Monday, March 13 and the follow up was on Friday, March 17.
Roach explores the newest data on trade flows and weighs in with his view of protectionism. Back in the 1930s politicians were trying to protect manufacturing jobs, but now they are reacting to the loss of white-collar jobs brought on by the internet and globalization. The developed world fears a decrease in living standards and the developing world hopes to increase theirs, but protectionism may bring about the worst outcome for both and that is why this was picked for this week's Outside the Box.