Monty Pelerin's World

Economic, Financial and Political Analysis

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WEBSITE ISSUES

Website issues continue and they are theme-related (I believe). A temporary new theme appears until a more permanent solution can be found. Unfortunately, I am gone for the weekend so it will likely not be before Monday when I can get back to this problem. 

For some reason, posts are shown not from the beginning. They begin somewhere part way into the article.

Until this problem is solved, this new format will be used and posting will be light.

Market Commentary In Advance of May ETF Selections

marketanalysis(2)The ranking of the ten basic asset classes as of Friday, April 26 was as follows:

InvestingAssetClasses

These rankings are provided as a measure of relative strength in different asset classes. Premium members may want to utilize these ratings to assist in their portfolio allocation weightings when the new selections are available. They will be available the morning of May 1.

EFA, the International component, heads the list, based on the proprietary momentum-volatility selection algorithm. SPY ranks third. Both rankings suggest favorable expected performance in these categories in the month ahead.

It should be noted that bond ETFs fill out the remaining slots in the top five. That itself is usually a negative sign for stocks. The returns for the MidCap and Russell ETFs were strong, but volatility was also high, lowering their rankings as a result.

Emerging Markets, Commodities and Precious Metals had negative returns and high volatility. Caution is warranted regarding these areas.

International

EFA produced nice returns recently. In the two return measures utilized by the model, EFA led all other asset categories. From a technical standpoint, it deserves its number one ranking. Fundamentally, there are many concerns for International worry both with respect to deteriorating geo-political conditions and worsening financial problems in Europe. The negative returns from Emerging markets, some of which could be selected in the International category, should add some additional concern.

Normally, a portfolio weighting shift toward International would be warranted by its ranking ahead of the US. It still may be despite the fundamental concerns. I probably will not increase my weighting toward International based on my expressed concerns. Others should do as they see fit. Trying to out-think the model usually doesn’t work very well, but you have to do what you are comfortable with.

Inflation-Hedge

The last two ranked ETFs are both Inflation-hedge related. Commodities and Precious Metals rank last, a position they have not wandered far from this year. The Inflation-hedge selections which will be made will represent the best of a poor lot. You might want to either ignore these selections or tread lightly at this time. I probably will tread very lightly in this area.

These categories will not remain at the bottom forever. Unless you don’t mind trying to catch falling knives (or you believe there is a turnaround beginning), it is probably best to stay away from these selections at this time.

Stop-losses will be provided with the May selections. They will be suggestions which you should ignore, tighten or loosen depending upon your risk tolerance and market expectations.

Changeover To New Site

This post is appearing both on Trading To Armageddon (TTA) and Monty Pelerin’s World (MPW). This duplication will appear for a while as the intricacies of switching everything over to MPW takes place. The May ETF selections, available only to premium members, will only be accessible at TTA. I am hopeful that by June the transfer is complete. In the meantime, if you are a premium member, continue to use TTA especially for the May selections. If you are not a premium member and want to become one, you may sign up at TTA and then be switched over (hopefully) automatically before the June selections.

Modification in ETF Pools

The selection process will choose from a new pool for International for May. Regular readers know of the dissatisfaction with this pool. I think finally the issues have been solved and better performance is anticipated. The US pool remains as is. The algorithm has performed superbly in this area. For year-to-date (through April 26) the small US portfolio earned 18.1% while the large portfolio earned 17.6%. SPY, the domestic benchmark, earned 11.6% for the same period.

Good luck and good investing.

May selections available AM of May 1 at the TTA site.

 

Will America’s Lady Thatcher Show Up In Time?

thatcher(2)I have little admiration of politicians in the same manner that I have little respect for slave masters. On a relative scale, one can rank them from worst to less bad. It is unnatural for men to rule other men. As Lord Acton said: “Power corrupts and abolute power corrupts absolutely.” The rise of the modern state grants any sociopath willing to run for and win office something approaching absolute power (and absolute corruption). There are few exceptions to the Acton axiom. And even these are eventually corrupted from whatever ideals they may have held.

Lady Margaret Thatcher was one of these. She was not perfect and eventually she was influenced by her power. Yet, it can be argued that she saved Britain and in this respect was at least as important figure as Winston Churchill. In the Statist world in which we reside, the previous comment may be ridiculed as Ms. Thatcher was the polar opposite of everything that our modern day progressives believe and try to implement. But ridicule is no substitute for facts and argumentation. Our current mountebanks cannot defend their nonsense with anything but ridicule and ad hominem slurs.

Paul Johnson, noted British historian, puts Ms Thatcher’s accomplishments into historical perspective in an important piece in the Wall Street Journal. His evaluation:

Margaret Thatcher had more impact on the world than any woman ruler since Catherine the Great of Russia. Not only did she turn around—decisively—the British economy in the 1980s, she also saw her methods copied in more than 50 countries. “Thatcherism” was the most popular and successful way of running a country in the last quarter of the 20th century and into the 21st.

Mr. Johnson notes the influence of Frederich Hayek on Ms. Thatcher and outlines her core values as follows:

This was a blend of Adam Smith and the Ten Commandments, the three most important elements being hard work, telling the truth, and paying bills on time.

When Ms. Thatcher took over, Britain was a basket case. The highest marginal tax rate was 98%. It had been transformed from a world superpower into little more than a third-world country with past glories. Britain was a Socialist dystopia and thought to be unsalvageable. Recognizing the problems, Thatcher denationalized industries and freed markets. She did just the opposite of what the intelligentsia of the world thought proper. Did it work?  The results, according to Mr. Johnson, were pretty dramatic:

As a result Britain was soon absorbing more than 50% of all inward investment in Europe, the British economy rose from the sixth to the fourth largest in the world, and its production per capita, having been half that of Germany’s in the 1970s, became, by the early years of the 21st century, one-third higher.

Ms. Thatcher returned Britain to relevance and prosperity.

The United States is going through the same ruinous policies that pre-dated Ms. Thatcher. If continued long enough, we will become a third-world nation. We will become the faded Hollywood star, living only on past glories.

We have a poseur for a leader whose ideology has destroyed every country where it has been applied. We need our own aberration in political events. We need our own Lady Thatcher, assuming it is not too late to repair the damage.

Unfortunately, even Ms. Thatcher could not ensure that her successors would carry on her policies. That is the reason why I despise politicians. As Hayek wrote, the worst rise to the top.

A Comment From Plato

greece5086There are many things said by Plato worth disagreeing with. The following is not one of them:

Photo

H/T Reader Glenn

The Statist of the Union Address

obamamuslimRon Hart closes his recent column with this:

Al Qaeda could not have done as much damage to the U.S. as this administration has, working to destroy our economy with a morass of entrenched bureaucracies. The terrorists can now retire. They set about to weaken and destroy America, which task is now in the capable hands of the Left.

Here is the article in its entirety:

Jewish World Review Feb. 13, 2013 /3 Adar 5773

The Statist of the Union Address

By Ron Hart

http://www.JewishWorldReview.com | In his State of the Union address Tuesday, President Obama did what he does best: blame others to divert attention from his own failings on the economy. Every ill we have, per him, is because of a bill of his Congress won’t pass. Where is that “you lie” when you need him?

Democrats closed the Kabuki Theater called the “Jobs Council,” an Obama-appointed group of business CEOs that had not met in a year. While unemployment is still very high, Obama recently disbanded the Jobs Council. To be fair, the Council attained its goal of saving one person’s job — last November. Mission accomplished.

His speech started by saying they were cutting spending; then he spent 90% of his talk laying out more spending plans he cleverly calls “investments.”

Obama is not economy friendly. He led the charge on unprecedented government overreach in the form of punishing regulations, spending and intrusion into our lives. Jobs, other than his union supporter’s, matter little.

Somali pirate style, he commandeered one-seventh of our economy with ObamaCare. It was recently estimated that the third-rate “Bronze” ObamaCare insurance plan will cost each American family $20,000 per year. Yet he said ObamaCare was already lowering healthcare costs. Remember when he told us, “If you like your healthcare plan you can keep it”? Well, you can’t.

He unleashed his EPA to all but kill the coal industry and to hamper oil drilling. Gas prices were $1.65 a gallon when he took office; now they are tickling $4.00 We have an epic U.S. opportunity in natural gas production, so Obama’s EPA go after fracking –based on the vast scientific expertise of Matt Damon and other Hollywood knuckleheads.

In spite of Obama’s abysmal economic record and with the persuasion of the lapdog media, uninformed voters could not follow the “Three-card Monte” of the Democrats. They reelected him. Why should Obama care if he is not held accountable? He won 303 electoral votes by only doing interviews on sports radio, “ET,” “The View,” and “Pimp with a Limp.”

Obama has Nancy Pelosi and Harry Reid with him; together they have a Mike Tyson-level understanding of economics. Cutting spending around them is like inviting your drug dealer to your intervention.

He is a Chicago politician. He thinks that everything in Washington is a zero-sum game. One side wins, the other loses. He has the same view of the economy. If Apple succeeded, the company must have screwed over someone.

Obama only knows politics, and he only has one go-to reaction: campaign mode. He does not persuade with better ideas; he blames and then destroys his enemies. Remember the Boy Scout Romney?

The hypocrisy of a man who has his Nobel Peace Prize on his wall next to his drone kill list is astonishing. His odd enthusiasm for killing with drones, which mystifies the left, speaks to his “destroy others” mentality. A picture recently released by the White House showed Obama firing a shotgun. No doubt he was heroically protecting our country from low-flying skeet.

He applies to politics the business model of Chicago street gangs: destroy rivals to gain turf. But the economy does not work that way. Apple does well with Verizon’s success and in spite of AT&T’s failure. They depend on each other, with mutually beneficial and enlightened self-interest in a growing economic pie. One person’s economic success multiplies into greater wealth for others.

The recession he “inherited,” ended July, 2009, months after he was sworn in. Since then we have had the worst economic growth of any so-called recovery in 65 years.

All recessions end. Of the ten recessions of the past 65 years, economic growth for the following three years averaged 4.6%. GDP growth under Obama’s “recovery” has registered a tepid 2.2%.

The White House finds it comforting to say that this was a bad recession. But as any sober economist will tell you, the worse the economic downturn, the more robust the recovery (historically 5.9%). The difference between 5.9% historic growth and Obama’s 2.2% would mean $1.6 trillion more over three years, or $7,000 per working American.

Al Qaeda could not have done as much damage to the U.S. as this administration has, working to destroy our economy with a morass of entrenched bureaucracies. The terrorists can now retire. They set about to weaken and destroy America, which task is now in the capable hands of the Left.

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