Group Think

Turning your growth trade into a value trade is the quintessential sign of a losing trader on Wall Street. 

One cannot see clearly while in the midst of the madness using only the cognitive tools and worldview assumptions supported and promoted by the madness.

A complete & thorough explanation of how many (if not most) levered college diplomas are overvalued assets with fictitious values - that's including you too HBS and the ivy league! No wonder the education bubble in the US is about to collapse.

While a gold standard could work, we remain sceptical that it will be considered (barring a serious financial crisis, perhaps associated with highly volatile inflation). In large part we blame the low probability on culture. The world economy has, over the past century, morphed into a highly integrated, government dominated system guided by conventional wisdom (group think). The self-reliant, individualism of the free market has been left behind in favour of a ‘new age’ of coddled consumerism. Culturally this represents a very powerful force in our view, one which minimises creative options/solutions to economic impasses. On this basis we are cautious of predicting such a radical solution to monetary imbalances.

Gold may have its worst week in 2012 as it is currently down 3.5% for the week in dollar terms and nearly 3% in euro and pound terms. However, gold is still higher so far in June and the fundamentals suggest we have bottomed or are very close to a market bottom prior to a summer rally.

However, further short term weakness is possible as speculators go to cash and support is at $1,540/oz (see chart above).

GroupThink! GroupThink! GroupThink!

Imagine pensions not paying retiree funds, insurers not paying claims, and banks collapsing everywhere. Sounds like fun? I will be discussing this live on RT's Capital Account with the lusciously locquacious Lauryn Lyster at 4:30pm.

Bond King's cardinal sin at the Treasury market analyzed..... 

Credit markets continue to signal either a weakening economy or outright recession yet equities refuse to pay attention. With daily market volume dominated by intraday traders with no concern about macro data this comes as no surprise. The danger becomes that equity markets have no ability at forecasting any longer. The Great Recession saw equities peak just two months before contraction began. We may in fact be watching the same horrific forecasting ability play out if the credit markets are accurate. Below are three charts signaling trouble ahead for both the economy and the equity market. Equities have diverged from almost any correlation that existed for years. With a divergence you never know who is wrong. When countless relationships breakdown though and equities are always involved it becomes easier to say truly that "it's not you it's me."

Anything that can empower or free us is removed, restricted or demonized, thus severely limiting our innate and natural ability to heal, grow and flourish. At best we are told we should restrict ourselves to applying band aids and hydrogen peroxide. Anything more than this should be left to the professional mind magicians and the grand keepers of the public myths.

Our collective insanity will only provide us with answers that sustain and validate our insanity. To assume that we can apply the same thinking processes and so-called logical train of thought to unravel the insanity is to believe that the insanity itself has the capability to be sane, an obviously insane conclusion. So what do we do?

Lee: Think like a criminal. Look, it’s a matter of knowing what the Fed’s next move is going to be, and knowing the investment implications.

Ask a fund manager with $5 billion in assets under management (AUM) if the economy is recovering and they will say yes. They will say this soft patch is transitory, it is a function of Japan and the revolution in MENA (Middle East and Northern Africa). They will tell you Greece is contained. They will tell you housing is bottoming. They will tell you stocks are cheap. Do they believe that? Aside from group think I certainly hope not but if the group says that red shirt you are wearing is in fact blue well dammit that shirt is blue. No one believes they are a lemming, that they are part of the herd. The word sheeple does not include them. Then why does history always show the majority to be wrong? As the market rolls over investors are beginning to question the color of that shirt. Perhaps it is red after all. The Federal Reserve has a horrible record at economic forecasting, absolutely horrid yet with each new forecast we are expected to believe "this time it is different." With each passing day more data tells us they are wrong yet again. As investors we must be diligent in our work, diligent in understanding the issues. We must think for ourselves, beyond the noise, beyond the pressure to conform.

We hosted Tiger Management’s John Townsend at the Grandover Resort in Greensboro yesterday evening, for CFA North Carolina’s Annual Meeting. Member feedback suggests it was our best yet.

Is it ethical for the American homeowner whose mortgage has been securitized to default, even If they are not financially distressed? First, consider it is unlikely that marketable, fee simple, insurable title can be obtained as a result of fulfilling the obligations of the related promissory note. On the contrary the titles to some 60 million homes in America are badly clouded. Secondly, encouraging investment in an asset class that has been artificially inflated, then deliberately destroying the price of the asset, as part of a separate profit making scheme is unethical, and any agreement based on this type of fraud is grounds to consider the original debt instrument used in the agreement null and void. Fortunately these grounds are unnecessary, as increasingly US courts are ruling that these mortgages are already invalid for numerous other reasons.