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Investing for the Fall of the American Empire
Adrian Day of Adrian Day Asset Management says that you should be restructuring your portfolio to reflect the ongoing economic decline of the West and the rise of the East. The US is now in a period that historically parallels Great Britain at the end of WWII, when a pound cost $5, on its way to $1, some 37 years later.
While we are seeing some dollar strength now, this is only a fleeting move in a secular bear market (UDN). Central banks have cut their holdings of the greenback from 70% to 65%, and we could be on our way to 50% or lower. They no longer wish to hold such a heavy weighting of the currency of a country with such a large and worsening structural deficit. This will not be achieved through some great cataclysmic sell off, but a slow and steady diversion of new money into other assets. Adrian especially likes the Singaporean and Hong Kong dollars and the Chinese Yuan (CYB). Ownership of Canadian and Australian dollars, and gold, is rising. He is not a fan of the yen or the euro.
Day is extremely cautious about global stock markets for the time being, but likes emerging markets long term, which will be driven by a rising middle class in the decades to come. Brazil (EWZ) is a top choice, with vast improvements in governance since the bad old days of the eighties, and one of the world’s strongest currencies. He’s out now, awaiting an election that could bring a leftist tilt. He likes real estate mortgage lender Gafisa (GFA), in which Chicago mogul San Zell is the largest investor (click here for more depth at http://www.madhedgefundtrader.com/july_30__2009.html ). Adrian clearly adores Singapore (EWS), where companies have believable accounting and super strong balance sheets. Day has nothing in Africa or Eastern Europe.
Adrian is also a big gold bull (GLD), as it now is a defensive holding that does well in every economic scenario. He doesn’t see the retail rush to buy the barbaric relic as a fiat currency replacement any time soon. And then there’s the central bank bidding war. Ben Bernanke and Alan Greenspan are in denial, still don’t understand the Fed’s role in creating the credit bubble, and until they do, investors have no reason to trust in paper currencies.
The cerebral Englishman wants to buy oil and gas during the traditional summer weakness, as well as commodity producers. He worships Freeport McMoRan (FCX), the top copper miner, as one of the best managed companies in the world. He is bullish on food (CORN), ags like Potash (POT), and water (PHO) (click here for my piece on H2O at http://www.madhedgefundtrader.com/september_17__2009.html ). He also likes business development companies such as Apollo Investments (AINV) and Ares Capital (ARCC).
After getting a degree from the prestigious London School of Economics, Adrian devoted a lifetime to uncovering undervalued investment opportunities around the world. Today Adrian runs his own money management firm which focuses on global diversification for institutional clients. He is about to release a book entitled Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks. You can learn more about Adrian’s firm by visiting his site at http://www.adriandayassetmanagement.com/ .
To listen to my interview with Adrian on Hedge Fund Radio in full, please click here at http://www.madhedgefundtrader.com/july-6-2010-adrian-day.html and then on the “PLAY” arrow at “Today on Hedge Fund Radio.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two and a half years of research reports available for free.
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A currency decline of $5 to 1$ from today in real worth = leave the US.
This type of decline would tip many states into forced exit from Federal Programs like Medicaid. The state's would have to fend for themselves. Taxes would cripple growth.
Mark Beck
A "run-of-the-mill worker bee" doesn't make $300k in income.
Good point. I mis-labeled. Call it "run of the mill, working their ass off, aspiring to be productive and become wealthy". In silicon valley, it is typical, for a two income family, living in an average $1.8 million house (all 2300 sq feet) to fit this profile. I certainly would not call them rich. They are no where close to level of their Congress person (Anna Eshoo in Atherton) or the VCs that rake in millions....and these are the folks that invent the computer we are all using, the wifi you are using, and every single other invention you love....and we want to tax them more.....it is just nonsense. that is my point.
CPL,
Thanks for the insights. I read a lot of Canadian blogs and though I want to invest in Canada, I just can't bring myself to take the risk. I think the biggest risks are: 1) Housing bubble 2) Dependance on US as export market.
That being said, I think that Canada has some significant advantages and while the economy and currency may suffer, it may out perform relative to the US dollar and economy. A small investment in Canada may make sense, especially in tar sands and miners.
I really, really want to get most of my investments out of the US (for one reason, I think it may soon be difficult or impossible to invest overseas as capital controls are put in place). Also, I think it is quite likely all IRA's and 401k's will be "nationalized" in the next few years (Obama admin is already in favor of this) and forced to invest in Treasuries. However, except for those young enough, and wealthy enough to move to places like Singapore, I don't think investing overseas will prevent the eventual theft of the middle classes' wealth by the govt.
I've read that Canada has a strong cross Pacific Rim business relationship with China. I was considering the Canadian banks, esp those on the West Coast. Canada also has plenty of water resources. The only thing I am curious about is their Pot laws. I think Pot is going to be bigger than solar. Regulations on pot is akin to regulations on stem cells, which may be one reason the US has fallen behind, as Bush tried to block research, and certain prominent NeoCons like Forbes use their position to play down the industry. Reseach into THC will revolutionize the pharma business in the next twenty years, as most man made substances are more toxic, addictive, and non specific toward the various types of pain. The right wing has ruined this country, doing nothing to stop deficits and speculation, while restricting vital R&D on advanced bitotechnology.
I also expect some water recovery technology to make that problem go away. But such technology would benefit Middle Eastern countries more than it benefits the US, so forget that for the time being.
Yo Canada!
I would like to know how bad your taxation really is. Here in the high tax states (NY, CA, etc) of America, a run of the mill worker bee gets the following taxation relative to income($300k in income assumed):
Fed w/ deductions is about 30%...28% min with AMT
state is 10%
property is about 10%
social security and medicare and all the rest is around 10%
In addition, you have to buy medical insurance which runs about 3 or 4% of income for a typical family...
And to top it off, the remaining 40% which is not taxed, is devalued 10% with sales tax on what you spend....
So consider that we actually pay high taxes, but don't get jack in return. I have not even mentioned that our public schools suck so bad that you have to pay another 3-4% tax for private school.....
Please give me the total tax numbers! Simply looking at the federal bill is a waste of time.
Thanks! Party on Wayne!
Updated DOW charts etc.
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
"Phil (Bill Murray): You want a prediction about the weather, you're asking the wrong Phil. I'll give you a winter prediction: It's gonna be cold, it's gonna be grey, and it's gonna last you for the rest of your life. "
(C) "Groundhog Day" movie, 1993.
All the advice here is considerably dated information. Go to this link which is to Doug Noland's excellent weekly round up and commentary in the Prudent Bear
http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10403
and you will see that this "brilliant" advice is a compendium of articles straight out of Bloomberg of at least a week ago and as original as a cheap knock-off of a cheap Chinese knock-off.
WALL STREET VIEWED FROM SPACE:
http://williambanzai7.blogspot.com/2010/07/wonders-of-world-of-fraud_12....
I think saying Bernanke and Greenspan are in denial of their accidental roles as bubble designers is denial of their actual roles as purposeful architects of bubbles and collapses which were designed to bring it all down, man.
Exactly. Whenever I see anyone imply, suggest and/or assert that the power-elite and their minions (such as Ben & Tim) don't understand I just immediately skip & ignore. You know, it's not like there are 5,000 years of recorded history detailing out exactly what we are experiencing on fairly regular inter-generational cycles. (Long enough for prior generations to die off taking their first-hand memories with them.) Nooooo, it's all just a big fucking mystery.
Sho 'nuff. They know what they've done. I would believe that they don't know what to do about what they've done!
How can there be any doubt that Bernanke and Greenspan were purposeful bubble designers? I find this assertion ludicrous.
+1 SheepDog-One
"Gold is money and nothing else" JP Morgan
Exactly. Both Greenspan and Bernanke both knew what they were doing. It is incredible that someone who gets regular posting space in ZH is capable of writing a comment that unsophisticated or even incautious.
Gafisa's tickers are GFA (US ADR) and GFSA3.BS (Brazilian ordinary), not GFE
How about the 350 metric ton sale of gold by European banks last week?
That should put a lot of pressure on the gold price I think.
Think harder? Any large gold "sale" that you read about is no more than a desperate attempt to manipulate the price, and whilst it sometimes drives the price down in the short term, (because there are plenty of people like you who don't understand what's going on) it is bullish for gold long term.
In other news, did anyone read about the massive 350 metric ton gold PURCHASE by the BIS last week. ;)
You are hot on the trail of this one. Did anyone see one molecule of gold actually move? Or was it a paper transfer? (That's rhetorical.) Leases, swaps, and shorting don't constitute sales, as you point out.
I'm not putting a dime in anything related to China as their government is as bad the US. In 2012 I may change my mind but for now my bets are on Brazil, India, and Germany. That's spelled BIG. BRIC is yesterdays news.
Fred,
Until Germany get's off the Euro, I wouldn't touch them either.
Brasil, and Austrailia are in bed deep w/China..........
As far as a currency to convert to, away from USD, your almost forced into one of the Asian currencies.(Hong Kong, Singapore), screw the Yuan...............
Anyone got a better
If you don't believe in China, Brazil is not a good place to have exposure.
And thousands of years later gold is still 'in the news' as a currency. Meanwhile the USA has offered literally hundreds of paper money script currencies and is on their third central banking scheme.
Soon to give birth to their fourth central banking scheme. Can't wait for that WTF moment to arrive.
Adrian devoted a lifetime to uncovering undervalued investment opportunities around the world despite getting a degree from the prestigious London School of Economics. Hats off to AD for rising above and above such an anti-capitalist environment.
Not surprising. How can any financial system, or empire for that matter, exist and sustain itself when producers (ie: engineers, labourers, etc.) can't afford to consume their own creations, while the non-producers (ie: bankers, lawyers, etc.) are enriched beyond everyone's wildest dreams?
Personally, I wonder what the next few years are going to bring Canada. Canada has very little of a wealth gap between the very rich, and the poor, because financial leverage hasn't been a profitable business in Canada, historically speaking (the equity risk premium in Canada has been negative over the past 30-40 years!).
I live here (Canada) and there's a reason for it, taxes. Pure and simple, taxes. I can't begin to explain the level of taxation here without making an American shit the bed. So there really is leverage in Canada, it's on personal income...by the government.
While keeping the north American peso in one's wallet is handy if you are looking for strippers and cheap booze in Montreal. It hardly an investment strategy. Canada has appeared to have a stable unemployment rate, but in Canada we don't count the million plus sitting on welfare or those in the government (like Spain, Greece, Italy, etc) that retire early and collect their pensions. Oh yeah, once you have a business license tied to your SIN you are technically never "unemployed" because you have a business number.
It's flim flam, so be careful, only reason Canada didn't go the route of the mega bank in the States is because the Parliament narrowly knocked it down during the Liberal party occupation. It was pretty close. So, what happens to a country, who's exports and imports happen 80% of the time over the border with our cousins down south. It's fairly obvious what has happened historically, we end up going into a tail spin with the US.
And we are, it's heavily ignored by the media here and unknown outside of the country. It's noticeable though.
Canada did austerty measures during the early 90's to shore up it's debt and it introduced GST. In turn, temp labour is a way of life, getting canned before achieving the required 20 weeks of labour is normal (because you contract, you don't get hired as an employee), there is no manufacturing here it moved from here to mexico then to China thanks to NAFTA.
It's broken, so maintain caution.
CPL,
Thank you for more insight.
Garth Turner does a good job on addressing your RE Mkt, it's just as bad as ours,WAS, and it's just NOW staring to start the tailspin.
Aussies, have the same damn problem. You have to be VERY well heeled to afford a home either place......because the prices are so inflated.(fixing to crash).
Both of you have strong resources, and unlike the wieners here, your people & the Aussies are at least allowed to drill & mine.
We have SUPERIOR natural resources here also, that are untouchable............Green Weenies screw that up.
They would rather people starve, than temporarily move some dirt, or cut a few trees.
Thank you CPL! Someone finally stepped forward and admitted the truth about their own economy. Everyone is willing to sell the US (yes, we do have problems) down the tubes assuming every other country in the world is on an economic tear.
The US has problems, but much of the world has even bigger problems.