Juggling Dynamite

Levered booms always go bust. The only way to survive and thrive through the cycle is to accept this fact and control our risk exposure through low debt, high savings and avoidance of the most over-priced assets and sectors. Preparation and discipline is everything. For those who have not learned this lesson to date, the next schooling has begun. Lest we kid ourselves: energy has been ‘the’ engine driving growth and jobs in the real economy over the past 6 years, its collapse now will be felt across the entire economy.

Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., talks about the impact of oil prices on the economy of Texas, North Dakota, California, Alaska and Oklahoma [Alberta, Newfoundland and Labrador too].  Here is a direct video link.

As for how low energy prices and related company shares and bonds can go, the answer is far lower than most can imagine.  Anchoring our expectations to a price point in recent memory is likely to prove devastating.  The following long term perspective of Suncor and CNQ (the two largest holdings in the Canadian energy sector ETF) offers a glimpse of the mean reversion that is possible (green band lower left) now that the secular energy boom since 2000 has bust.

Men’s Health interviewed Mark Spitznagel, billionaire founder of Universa Investments and asked for his best investment advice.  His answers are refreshingly useful:

What’s the easiest, fastest way to get rich in 2015?

Here’s a better question: What’s the easiest, fastest way to get very poor in 2015? Answer: Going for the easiest, fastest way to get rich in 2015—or punting on what’s worked in the recent past.

Don’t fall for the trap of myopically following yesterday’s winners. Protect yourself, keep your powder dry (meaning, the cash you’ve set aside for investing), and wait for a better day. Think more about getting rich in 2020 or beyond.

How do I decide whether a stock is a bargain?

If you’re searching for stock-market bargains, this is the wrong time to be looking. The Federal Reserve has been single-handedly setting interest rates at essentially zero and purchasing everything from government debt to mortgages—all of which has turned the entire investing population into zombies (with a gambling addiction, I might add) wandering aimlessly in search of any tiny extra return to ravenously consume.

This has left stock markets as elevated and overvalued as they’ve been since the dot-com mania (and more than they were in 1929 and 2007), which history has shown will likely lead to significant declines ahead.

I’m not saying the market is going to drop like a stone tomorrow (although with each passing day, the odds of that happening increase), but these aren’t ideal conditions for investing, to say the least…

One word of encouragement I can give is that I am certain that there will be generational investment opportunities to come in our lifetime. Fortunes will be made by those with the dry powder of capital to invest when everyone else is stampeding for the exits and trying to sell their investments—because few others will have kept their powder dry.

Most everyone is all-in today. So, despite the markets’ run-up, you aren’t necessarily really missing much. As has always been the case when Federal Reserve monetary policy creates asset bubbles, these bubble profits are ephemeral.

So let this light a fire under you to start socking savings away, starting now. Every dollar saved will be worth many multiples later if you have the stomach to wait while the market keeps going up and invest them once all the zombies have finally been obliterated in the next crash.

You’ll know when that happens, because everyone will be crying over their losses, and the TV pundits will be wearing signs that say “the end is near.”

A smarter, cleaner, future that wastes less and affords more, includes many renewable energy solutions.  Very exciting time to be alive.  Yes we can.

A French start-up says its Wind Tree is ideal for urban environments, harnessing the most gentle of winds to produce power through its micro-turbine leaves. Here is a direct video link.