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Common Sense from Marc Faber

Dr. Marc Faber, the economist, investor and long-time member of the prestigious Barron’s Roundtable, offers up some good perspective on investing in his latest Monthly Market Commentary newsletter.

The title of the commentary is “One of the First Duties of the Investment Advisor is Educating the Masses not to Speculate,” and it’s worth grabbing out a few of his key points.

I feel that most investors take far too many risks – often with borrowed money – and fail to diversify sufficiently. They also have little patience, very short-term time horizons and no tolerance for losses. Finally, their expectations about investment returns are completely unrealistic… Most investors buy a stock or make an investment with the view that within a month the return should be between 10% and 20%.

A real return of around 4% per annum is about what an investor (exclusive of costs, and without making the mistake to buy “high” and sell “low”) could expect to achieve over longer periods of time… If you can achieve an annual average real return of just 3% on all your assets (inflation adjusted), you will leave a huge fortune to your children.

For the average investor like myself, I prefer diversification and no leverage. I have seen time and again investors (including myself) be right about an asset class’ future performance but fail to convert those views into any capital gains… All I wish to say to my readers who are not managing risk on a daily basis is that the prime consideration should always be capital preservation and avoiding large losses.

Behavioral finance research has identified many emotion-driven tendencies of investors that lead to suboptimal returns – overconfidence, chasing the herd, holding onto investments too long or holding onto them not long enough, and many more.

Marc’s points above are common-sense basics that investors should be reminded of every so often to help them make better long-term decisions.

I was talking with a friend who was telling me that it was the absolute perfect time to buy a house because housing prices have tumbled and interest rates are low. I asked him, “What happens to housing prices if there is inflation and rates go up?” “Housing prices should go up with inflation as they do for all goods. Housing is a natural hedge for inflation” Did my friend have a point? Yes and no. Yes, he was right that in a high inflationary environment, housing prices should rise with all other assets. Rents will go up, as will the price of all the inputs into housing such as lumber and labor costs. Obviously, housing prices will go up to reflect this reality. But no, when inflation and thus nominal interest rates increase, housing prices tumble. When rates fall, housing prices tend to increase.

….read more How Increasing Inflation Could Affect Housing Prices

The Significance of the Transaction[s]

What is significant about this or these transactions is that gold is being used in international settlements after so many decades of being sidelined in the monetary system!

The transaction itself confirms that gold is being used in this manner, which is a dynamic confirmation of gold’s return to the monetary system.   A “Swap” might be the first desperate step in such a transaction with the swapping bank hoping to repay the foreign exchange, but should it fail, the B.I.S . would have to decide either to keep the gold on its books or to sell it.   Again, keeping it on its books is part confirmation that gold is active again on the monetary system, a big boost by itself!

….other topics discussed in this article:

Swaps – What are they and who does them?

Why use gold and not currency?

Gold is back and alive in the monetary system!

….read more BIS gold swap – best news to hit gold in 30 years

 

See Also Peter Grandich’s recommended article Gold and Silver Good and Bad News (There is no bad news, Less than 1% of total global assets in 2009 were in gold-related investments)

Update – Stocks Bonds Gold Oil US Dollar…..the works

Posted by Peter Grandich - Grandich.com

on Friday, 9 July 2010 13:53

Update – July 9th

U.S. Stock Market – While I don’t believe I could be any clearer on my outlook, some people still don’t seem to grasp my view (their constant emails suggest this). While there shall be rallies and sell-offs, it’s my belief that the U.S. stock market will go nowhere fast and end up like the Japanese market did from 1989 on. That’s why I haven’t shorted the market despite signalling the end of the counter-trend major rally. It’s just mainly an avoid as far as I’m concerned until further notice.

U.S. Bonds -I wouldn’t touch with a ten foot pole

Gold – I couldn’t agree more with this article that this BIS news is actually tremendously bullish. Gold is indeed the most valuable asset over paper. As note previously, the $1,185 was the downside risk and we traded there twice and held. While we’re not out of the woods yet as the summer doldrums continue for several more weeks, the constant chatter gold is dead once again has allowed for a pause that refreshes.

And speaking of useless chatter, our old friend Tokyo Rose, a man who when you look up the words always wrong his picture is there, was beating his chest again in hopes after years of being on the wrong side of gold, this time it will be different. He tries to hide his distaste for real ownership of gold but every once and awhile he clearly lets his dress down and openly declares where he stands. In this article, you can actually see him note how the news was bad for the bulls. Notice he’s not including himself in that group (surprise, surprise).

BullTossAP_468x585

He and other perma-gold bears and the media that constantly feature them will all once once again be gored by the mother of all gold bull markets. And remember, when we hit $1,300, you’re to donate $1 to the “Help Tokyo Rose” Campaign.

U.S. Dollar – The right shoulder to a major H & S top is forming. Once again, Canada has great economic news. The Loonie is not only going to par, but to at least a 10% premium. Canada may need to build a wall to stop Americans from fleeing there before it’s all said and done (I’ll be the guy wearing a Canucks jersey but scratching himself a lot).

Oil & Gas – Don’t see any major up or down move worthy to get involve with at this time.

Nice article on Taseko’s CEO
Very good article on gold
This can only help the cause at KMK
Remembering my friend the “Hawk”

On Major Moves, Peter Grandich has been very right and not only saved many investors fortunes, but expanded them dramatically. On November 3, 2007 at the MoneyTalks Survival Conference, Peter Grandich of the Grandich Letter warned that “an unprecedented economic tsunami will hit American beginning in 2008”.   Peter advised publicly to short the US market two days from the top in October, 2007 and stayed short until the last week of October, 2008. He began to buy stocks in March 7th,  2009. He also bought oil and oil related investments near the lows after the dive from $147.
….go to visit Peter’s Website

To HERE Peter speak and others speak on Trading go HERE:
allstar2

 

  • Canada added a whopping 93,200 jobs in June, adding to previous gains and coming close to recovering jobs lost during the economic meltdown, according to Statistics Canada on Friday.  The unemployment rate unexpectedly dropped to 7.9 percent from 8.1 percent in May.  USDCAD falling sharply on the news.

 

Quotable

“If a man will begin with certainties, he shall end in doubts; but if he will be content to begin with doubts he shall end in certainties.”  – Sir Francis Bacon

FX Trading – Is the “recovery” back on track?

There has been a lot of double-dip talk in the market, and a lot of it from us.  But, we remain open to being very wrong.  Quite possibly, if the recovery is back on track, the US dollar will get smoked on yield and growth differentials; a couple of key factors that not too long ago appeared to favor Mr. Greenback.

….read more  Is the “recovery” back on track?

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