Juggling Dynamite

It is a good juncture to leaf through some market classics like Charles Kindleberger’s Manias, Panics, and Crashes for a refresher on how bear markets move. A few timeless points to keep in mind:

1. Most financial ‘advisers’ and firms are long-always, or in the business of selling long -always financial products to others, so don’t expect them to say a downturn is in motion, or that anyone should wait to buy, or sell, in order to avoid losses. The majority will only utter such suggestions near the bottom of a bear market after capital has been pulverized and they are demoralized and inundated with client complaints and lawsuits.  At that point, that is likely to be the wrong advice.
2. There is no such thing as certainty. All those (including El-Elrian in the clip below) who talk about the Fed or companies or the market waiting for ‘certainty’ are talking nonsense. The only participants who see certainty, are those who are deluding themselves.
3. All we ever have are probabilities to assess.  When prices have gone far past historic averages in duration and magnitude in either direction, the probabilities of mean reversion are high.  Perfect timing is not the goal.  Minimizing losses and buying undervalued assets are the goals.
4. Only those who limit their exposure to losses in the bear market and preserve cash will have the wherewithal to take advantage of sale prices and buy when everyone else is liquidating in panic.
5. Bear markets during secular bears that begin from extreme valuations and financial leverage like today, tend to run for 18 to 24 months and take valuations down by 50% and more.  They also include regular counter-trend rallies along the way, when those who are losing, will repeatedly call bottoms throughout.  Trying to catch falling knives by stepping in early or buying interim dips, tends to be financially painful.
6. Bear markets that hit when policy makers are out of bullets (like today) tend not to rebound to previous highs quickly, but rather labor in a trading range for years, as valuations grind well below fair value and average dividend yields well above 5%.  By then the masses who are holding today, will have left, revolted by their losses.
7. A bear market is overdue this cycle.  It may now be underway, or hold off a while longer, but one thing that’s certain:  asset markets that have gone up too far the past few years, are highly likely to come back down.  And it is wise to be prepared.

Mohamed El-Erian, Allianz Chief Economic Adviser, shares his outlook on global markets and why it is causing “heightened risk aversion.” You’re going to see lots of opportunities as dislocations spread.”Here is a direct video link.

Want good economic growth and jobs? Instead of fawning over the misguided verbiage of bankers, try investing in things that help humans survive and thrive over the long run…Clean energy equipment and infrastructure is a huge growth area for private sector and taxpayer investment all over the world. And the revelation is spreading at long last.

Today’s “BWest Byte” is $779 million, for the amount of money the British government is committing over the next five years to construct roads that will wirelessly charge electric cars as they drive. Here is a direct video link.

A New York Times op ed this past weekend, offers a sobering overview of the Harper government’s near decade reign in Canada.  The end of the late, great, secular boom in commodities has left Canada with the opportunity to evolve our economy or suffer the consequences.  The defining questions for democracy everywhere today, no matter what government gets elected this fall, is how do we, the people, like our countries?  What are we each, personally, prepared to do in furtherance of that vision?  See, The closing of the Canadian mind:

Americans have traditionally looked to Canada as a liberal haven, with gun control, universal health care and good public education.

But the nine and half years of Mr. Harper’s tenure have seen the slow-motion erosion of that reputation for open, responsible government. His stance has been a know-nothing conservatism, applied broadly and effectively. He has consistently limited the capacity of the public to understand what its government is doing, cloaking himself and his Conservative Party in an entitled secrecy, and the country in ignorance.

…In 2012, he tried to defund government research centers in the High Arctic, and placed Canadian environmental scientists under gag orders. That year, National Research Council members were barred from discussing their work on snowfall with the media. Scientists for the governmental agency Environment Canada, under threat of losing their jobs, have been banned from discussing their research without political approval. Mentions of federal climate change research in the Canadian press have dropped 80 percent. The union that represents federal scientists and other professionals has, for the first time in its history, abandoned neutrality to campaign against Mr. Harper.

…The major foreign policy goal of his tenure was the Keystone Pipeline, which Mr. Harper ultimately failed to deliver. The Canadian dollar has returned to the low levels that once earned it the title of the northern peso. Despite being left in a luxurious position of strength after the global recession, he coasted on what he knew: oil.”