July 19, 2013
By Steve Blumenthal
I have been feeling more and more uneasy; much like I did in 2007 when I got my arms around sub-prime mortgages and those packaged pools of AAA rated sub-prime junk. The liquidity it provided fueled an inflating real estate bubble. “The real estate market had never declined”, they sang. Until it did. It was leverage on top of leverage that ended in crisis.
Today we are moving from the New Normal back again to the Not Normal. This time the bubble is in the bond market. It is supported by global central bankers and their currency creation machines.
Investors have grown deeply dependent on central bank intervention. It is a synthetic drug that feels really good until it is taken away. One quick whiff of pulling the drug from the market sent interest rates up 100 bps most recently.
The cyclical trend remains bullish for now and the trillions of dollars of currency creation can drive equities even higher but more and more it feels like a game of musical chairs. Just like the real estate bubble in 2007 and the tech bubble before it, this one too will end badly.
This week, I highlight three relevant topics:
- Rob Arnott, Research Affiliates Founder and Chairman – “Forewarned is forearmed”
- Dr. Paul Craig Roberts, Former US Treasury Official – What is going on behind the curtain
- From the Economist – European Banks are the heart of the problem
Rob Arnott – “Forewarned is forearmed”
- “The Fed has painted itself into a corner.”
- “Markets are addicted to the newly printed money (like a crack addiction). Asset bubbles fueled by central banks’ currency creation all over the world.”
- “Most investors are unprepared and it is important to get in front of those risks.”
At the 6 minute market, Rob talks about the government’s desire for Keynesian economics – “it doesn’t work”.
Here is the link to the audio interview (note: Eric King is a big gold promoter. If you can, move past the gold promo and simply listen to the interview as Eric’s program provides great contact.)
Dr. Paul Craig Roberts – What is going on behind the curtain
- “There is no recovery and I don’t think there is going to be a recovery.”
- “The long-term effect of printing money is that it is a house of cards. At some point it blows up.”
- “The Fed can’t get out of it.”
Dr. Roberts gives his two cents on timing and talks about the Fed’s motivation behind their intentional shorting of gold paper assets.
More on Europe’s financial system – “it is in a terrible state”
Incorporate risk management into your investment process. For now, the cyclical bullish up trend remains in place (Trade Signals); however, there are ways to get in front of the risk and significantly profit (for you speculators).
Broaden your portfolio construction and include liquid tactical strategies (unconstrained to benchmark investing), reduce fixed income risk exposure and have a focused hedge (risk management) approach on your long-term equity exposure.
I’m heading to the Chesapeake Bay’s Eastern Shore on Sunday and looking forward to some time off next week. I have a great book packed and a beach chair for both Susan and me.
Have a great weekend,
Steve
Stephen B. Blumenthal
Founder & CEO
CMG Capital Management Group, Inc.
Philadelphia – King of Prussia, PA
steve@cmgwealth.com
610-989-9090 Phone
610-989-9092 Fax
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