Vitaliy Katsenelson's blog

A greater government involvement in the financial sector is not something I thought I’d ever ask for, but it has turned into a necessity in order to preserve, not destroy, capitalism.

The Chinese economy must be getting out of control, because the Chinese government is doing the unthinkable: It is desperately trying to put the brakes on the economy. When you pump a stimulus package that represents 14% of GDP through a fire hose into an economy, which was already on shaky bubble foundation, in a very short time you’ll have some serious unintended consequences -- you’ll get super bubbles.

Pfizer also fits the profile of a stock that should do well in our steroidally challenged economy, as its revenues are unaffected by economic cyclicality. In case of inflation it has significant pricing power to pass cost increases to consumers (yes, and even the government). In case of deflation it should be able to maintain prices, and its ample cash flows will allow Pfizer to pay off its debt in a few years, if it chooses to. It is priced like a very safe bond with an embedded nonexpiring, free call option, yielding 4%. If Pfizer doesn’t come up with a single new drug its price will not change much; it will be where it is today. Any new drugs are just an added bonus.

The stock market’s performance over the next decade will be very similar to the one since 2000: the WSJ appropriately named it “the lost decade.” Stocks will go up and down (setting all-time highs and multiyear lows), stagnate, and trade in a tight range. At the end of this wild ride, when the excitement subsides and the dust settles, index investors and buy-and-hold stock collectors will find themselves not far from where they started in 2000.

the dichotomy between how investors look at China and the rest of the world

This paragraph, taken out SoGen’s Dylan Grice research report, sums up the dichotomy of how investors look at China and the rest of the world.

Virtually unlimited access to cheap money blurs lines between what makes economic sense and what doesn’t. If it can be financed it will be built. Dubai’s plan to diversify away from petrochemicals made sense. Maybe it is even destined to become the Las Vegas of the Middle East, the Mecca of business travel and luxury. Dubai, however, is like NASA; both have proven that anything is possible when you ignore economic costs.

Birds are singing, the sun is shining and life is beautiful again. On the surface, the vital signs of our economy are improving with every economic report. In some areas, like unemployment, the rate of decline is decelerating; in others, like GDP, decline is turning into growth. The stock market is behaving as if the history of the last twenty years is about to repeat itself: recession will turn into a robust expansion.

I originally wrote this list of recommended books last year; recently I updated and added a few more. I hope to keep adding to it every year. It contains six sections: Selling, Think Like an Investor, Behavioral Investing, Economics, Stock Market History, and Books for the Soul. Due to its length, I divided it into two parts. Here is part 2. I hope you enjoy it.

In crazy times like today, all one could and actually should ask for is sanity. Yes, sanity – a clear mind free of noise to deal with the insanity that is thrust upon us by a volatile and noise-making machine also known as the stock market. We find ourselves glued to the computer screens or CNBC waiting to find out what the Dow’s next tick is going to be. Unfortunately, we are left with only a headache and wasted time. OK, what’s next? Here is my advice: read. Read books that will bring you sanity, the ones that will snap you back into the shell of investor and out of the sorry shell of nervous observer of the daily stock market melodrama. The following books are excellent choices and come with plenty of sanity and sage advice.

Russia shot itself in a foot last year when in dispute with Ukraine, it shut off natural gas supplies to Europe. That experienced was very unpleasant for Europe and underlined its dependence on a single nation.

Russia: "primitive resource-based economy, systemic corruption, lack of pluralistic democracy"
Russia's President Medvedev

In the 1980s, in Soviet Russia, a few times a year, my class walked to a movie theater, where we were shown a documentary. Attendance was mandatory. The documentaries were different but the themes were the same: to the accompaniment of patriotic music, we learned about the righteousness of socialism, the greatness of Mother Russia, and the intelligence and foresight of our great leaders.

I was on CNBC a few days ago discussing the Japan debt situation, here are my talking points and some additional thoughts a lot of them I did not have a chance to cover in the previous note or the interview.

In investing, it's important to think unconventionally and creatively while at the same time considering risks - no matter how remote or unmanageable they are. I keep thinking: What would drive our interest rates up in the US?