Juggling Dynamite

Day to day the cacophony of noise and nonsense can be deafening.  Day traders seek to buy and sell fleeting price swings.  Extremely few do it with lasting success over time.  Some people strike huge gains on fortuitous timing which they then mistake as superior intelligence and skill and spend the rest of their lives and fortunes striving to replicate.  Life is long and day to day fortunes can turn on a dime.  Living is full of every kind of risk.

The best way I know to survive longer term is to control risk in every way that we can. This means spending less than we earn no matter how much or little our earnings may be.  It means avoiding debt no matter how much our bankers assure us we can carry.  It means investing in our health, skills and relationships every day.  It means always hoping for the best while still weighing the probabilities of the worst.

When it comes to the global economy and asset markets, effective risk management starts in my view, with discerning the season.  If we get the season right, we are more likely to be properly equipped to navigate our needs and fortunes through it.

Today I believe we are working our way through a long and tedious winter.  We will no doubt have periods of milder days, some interim opportunities, but overall the world’s debt abuse over the past 15 years has left us waist deep in snow banks.  It is slow slogging to move forward.  But it does not have to be fatal or impossible.  I am reminded of stories of my grandfather who was a Canadian pioneer and a trapper in the far north.  He said it was amazing what humans could survive and navigate so long as they were prepared and didn’t lose their head.

This interview with economist and asset manager Lacy Hunt gives some excellent top down insight (and fabulous charts) on the world’s present season (via John Mauldin). Read it here:  Face the Music: the road back to prosperity is through shared sacrifice

This week supporters of the Occupy movement submitted a very detailed, laser-sharp 325 page comment to the Securities and Exchange Commission on the topic of financial reforms set out in the Dodd Frank Bill and the embedded Volcker Rule.  In doing so, the Occupy movement has solidified itself as a serious and powerful voice ably equipped to stand up to the banking industry and lobbyists.  Here is Mother Jones:

Point by point, it methodically challenges the arguments of finance industry lobbyists who want to water down last year’s historic Dodd-Frank Wall Street reforms. The lobbyists have been using the law’s official public comment period to try to kneecap the reforms, and given how arcane financial regulation can be, they might get away with it. But Occupy the SEC is fighting fire with fire, and in so doing, defying stereotypes of the Occupy movement. Its letter explains:

Occupy the SEC is a group of concerned citizens, activists, and professionals with decades of collective experience working at many of the largest financial firms in the industry. Together we make up a vast array of specialists, including traders, quantitative analysts, compliance officers, and technology and risk analysts.

The letter, which has been in the works for months, passionately defends the Volcker Rule, a provision of the Dodd-Frank Wall Street reforms meant to prohibit consumer banks from engaging in risky and speculative “proprietary” trading. That barrier had collapsed in the 1990s with the gradual watering down, and eventual repeal, of the Glass-Steagall Act. Occupy the SEC explains why this became a problem:

Proprietary trading by large-scale banks was a principal cause of the recent financial crisis, and, if left unchecked, it has the potential to cause even worse crises in the future. In the words of a banking insider, Michael Madden, a former Lehman Brothers executive: “Proprietary trading played a big role in manufacturing the CDOs (collateralized debt obligations) and other instruments that were at the heart of the financial crisis. . . if firms weren’t able to buy up the parts of these deals that wouldn’t sell. . .the game would have stopped a lot sooner.”

The entire Occupy SEC submission can be found here.

Analyst and author of Grant’s Interest Rate Observer offers some historical trends on interest rates, monetary policy and what is still strong in America.  Here is the direct audio link.

This chart since 1790 ties in nicely with discussion of the generational cycles in interest rates and underlines just how insanely low rates are today.  Best advice to those still in debt:  don’t use current rates to borrow more–use them to become debt free. History assures us that this-low-rate-time too shall pass. I personally look forward to the next phase where Central Banks are taken out of the driver’s seat, budgets are balanced, and markets are left to freely find fair value again. It is not a question of if–centuries of history tells us this will happen. The question is just how much mess and pain must intervene before they do.

(via the Big Picture Blog)