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Guest Post: Out Of The Frying Pan And Into The Frying Pan

Tyler Durden's picture




 

Via Tim Price of Sovereign Man blog,

The groupthink in the world of finance is some of the worst on the planet. It’s incredible how such an educated, experienced group can willfully ignore reality, stick their heads in the sand, and repeat the same mantras over and over again until they become axiomatic.

Home prices never fall. The economy is recovering. Governments in the developed world won’t default. Conjuring money out of thin air, infinitely, has no consequences. Etc.

The desire to be accepted by one’s peers is part of human nature. And when it’s one’s peers who are rigging the financial system, the pressure to adopt industrial groupthink is enormous.

The note below, from Tim Price, just such an original thinker, highlights a critical lesson: despite the steady aural drubbing from financial media that we should all go buy stocks with wanton abandon, this is one of the most difficult times in recent history to invest. And investors may need to realign their goals from capital appreciation to capital preservation.

The dawning of a new year is invariably a time for forecasts. One of our New Year’s resolutions for 2013 is not to join the crowd in issuing them. Another is not to waste any time in reading them.

Having spent the past decade honing an investment approach designed to be proof against the very worst that an imperfect world of politicians and bankers can throw at it, it would be a capitulation to suddenly subcontract asset allocation to someone’s subjective assessment of the world.

And yet, we still devour investment commentary as if there were some unfound nugget of wisdom and insight that, once located, would finally reveal all the investment answers…

One British personal finance journalist confessed last week that he had sold all the bonds in his company pension to buy shares instead. His arguments are all rational:

- He expects bond prices to fall when interest rates rise, (nearly a mathematical certainty);
- Interest rates have sunk to derisory levels and can barely go lower;
- Most bonds are by no means as riskless as conventional thinking dictates;
- Most bonds are by any sensible analysis ridiculously overvalued.

But we have some reservations about the binary decision to ditch bonds and put the proceeds into the stock market, as if these are the only two asset choices in town. And while his decision may lead to a very comfortable retirement, we will now deploy two words that most professionals will never use: nobody knows.

The reason for our caution lies with a healthy respect for the volatility of the listed stock markets, especially at a time when the prices of all financial assets are being fundamentally distorted through the mechanism of money printing by the world’s major central banks.

Western government bond markets may blow up this year, or they may yet see their yields creep even lower, courtesy of a sudden wave of risk aversion, fears of deflation, state coercion and financial repression, or some other strange cocktail of the surprising.

The future, of course, is not known to us, or to anybody else. But there is a possibility (a possibility too heavy for us to entirely ignore) that equity markets will disappoint, perhaps at a profound level, those investors for whom they have become a panacea out of desperation at any obvious alternative.

To put it more plainly, ditching bonds to buy stocks may be jumping from the frying pan into another frying pan. To put it more plainly still, stock markets are only cheap by reference to grotesquely expensive government bonds, and the risk of significant price falls is ever present, especially at what is likely the tail-end of a multi-decade expansion in credit.

A falling tide might sink more than one type of boat.

As a result, the only true conviction we have is in capital preservation. For us, this includes a four-fold, multi-asset approach in cash (including exposure to non-western currencies), defensive equities, gold, and judicious exposure to one type of actively managed fund.

Kyle Bass, a fund manager for whom we have extreme respect, quotes Dick Mayo, founding partner of fund management group GMO, who recently said that it was the most difficult time to invest in his lifetime. We concur.

That markets remain weirdly ebullient doesn’t discredit our thesis. The reality is that we’re shepherding the irreplaceable assets of our clients. And if we weren’t pursuing a mandate of capital preservation in extremis, we would simply be pursuing the wrong mandate.

 

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Tue, 01/08/2013 - 12:24 | 3133055 Shizzmoney
Shizzmoney's picture

I like to fry tulips.

Tue, 01/08/2013 - 12:35 | 3133083 TerminalDebt
TerminalDebt's picture

Stocks are better than bonds when Uncle Tim drops his helicopter load of trillion dollar coins

Tue, 01/08/2013 - 12:48 | 3133123 takeaction
takeaction's picture

Sorry about the "Thread Jack" but I thought you should see this.  Alex Jones explains what happens after the insane interview.....Producer Crying. I hope Tyler will post this.  It is important.

http://www.youtube.com/watch?v=v0sE9hAXXB4

 

Tue, 01/08/2013 - 13:16 | 3133223 Buckaroo Banzai
Buckaroo Banzai's picture

Sure hope he doesn't get "Breitbarted". Wouldn't rule it out, these guys are playing for keeps.

Tue, 01/08/2013 - 14:36 | 3133547 piceridu
piceridu's picture

This guy is probably right about his assertions but comes off like a crackpot. Wondering if he helps the cause of liberty or does he do more harm?
Is the jury still out on Alex Jones? 

Tue, 01/08/2013 - 18:35 | 3134336 koncaswatch
koncaswatch's picture

Much like Ron Paul, eh? Probably right about his assertions and called a crackpot by those of an opposing view. I do have to admit, to those who are unaware of the depth of our caustic corruption (worldwide btw), AJ will present himself as a tin foil hatter.

Tue, 01/08/2013 - 12:27 | 3133059 buzzsaw99
buzzsaw99's picture

quotes Dick Mayo, founding partner of fund management group GMO, who recently said that it was the most difficult time to invest in his lifetime...

What an idiot. I made 20% in less than a year. Just BTFD artard.

Tue, 01/08/2013 - 12:25 | 3133060 SuperDeDuper
SuperDeDuper's picture

Invest in beer.  Everyone needs beer.  Everyone will want beer when they lose all their money. 

Tue, 01/08/2013 - 12:33 | 3133079 Cognitive Dissonance
Cognitive Dissonance's picture

It seems no matter how much money we lose we never lose our beer money.

Funny how that is. :>)

Tue, 01/08/2013 - 13:14 | 3133217 Ghordius
Ghordius's picture

one of the most important statistics in Weimar Germany during hyperinflation was beer consumption

which skyrocketed thanks to the wage increases the unions were able to force in an economic climate of full employment - making the German (Industrial) Worker very, very happy - particularly because his rent did not raise at the same pace

Fräulein, noch ein Mass, bitte!

this in stark contrast with his union's bosses who got murdered in the hundreds

and the urban/professional middle class that lost nearly everything and became fascist

Tue, 01/08/2013 - 13:33 | 3133293 Winston Churchill
Winston Churchill's picture

I made a very detailed study of that Republic back in the sixty's.

Never heard that fectiod mentioned.

I cannot believe its veracity during the hyper stage,probably in the buildup, maybe.

Tue, 01/08/2013 - 12:38 | 3133092 DeadFred
DeadFred's picture

There's a good chance that when things get dicey .GOV will subsidize beer and pretzels to keep the sheep happy. Just use your Obamaphone to find the best deals.

Tue, 01/08/2013 - 13:47 | 3133375 TuesdayBen
TuesdayBen's picture

ObamaLite. Less Satisfying. Tastes Like State.

Tue, 01/08/2013 - 12:41 | 3133101 Stuck on Zero
Stuck on Zero's picture

Beer is just one element of a winning portfolio of sin investments.  Bank on sloth, envy, greed, etc.  Buy into gambling casinos, sex parlors, tobacco, drugs, etc.  Always winners.

 

Tue, 01/08/2013 - 13:01 | 3133168 fuu
fuu's picture

So a CIA ETF?

Tue, 01/08/2013 - 16:22 | 3133929 poor fella
poor fella's picture

lol! that was effing awesome.

2013 - another year of record poppy production in Gannie?

Tue, 01/08/2013 - 18:41 | 3134359 hoos bin pharteen
hoos bin pharteen's picture

Don't forget the RPG and mortar aisle!

Tue, 01/08/2013 - 18:48 | 3134373 koncaswatch
koncaswatch's picture

Anecdotal experience: Talking to my mom who grew up during the Great Depression, discussing the optimal business to be in during hard times; she said "men will always have money for beer and women will always have money for make-up". My wiseass response was to suggest I start a liquor store that sells cosmetics.

Long Walgreen's?

Tue, 01/08/2013 - 12:28 | 3133066 tooriskytoinvest
tooriskytoinvest's picture

Another Perfect Storm Brewing: 4th Quarter Earnings Will be an Unmitigated Disaster, Obama’s $264 Billion Tax Bill for 2013 May Spark New Recession, China's Inflation Is Spiking, Eurozone Unemployment Hits All-Time Highs, AND A Gigantic Asteroid Barreling Towards Earth In Mid-February!!!

http://investmentwatchblog.com/another-perfect-storm-brewing-4th-quarter...

Tue, 01/08/2013 - 12:28 | 3133069 Snakeeyes
Snakeeyes's picture

Has it dawned on anyone (outside of ZH) that the US and Euro are on a death spiral of spending, entitlements and debt. Throw Japan in too.

No wonder the Fed wants to mint trillion dollar coins. Zimbabwe Ben. WilliamBanzai?

http://confoundedinterest.wordpress.com/2013/01/06/pennies-40-ton-trilli...

Tue, 01/08/2013 - 18:50 | 3134386 hoos bin pharteen
hoos bin pharteen's picture

The Fed probably would have a cow if the Treasury did this. Effectively, this is just another way to nationalize the Fed to extinguish Treasury debt.

At this point Treasury and the Fed are chained together in deep water. If one drowns, the other goes down with it.

Tue, 01/08/2013 - 19:18 | 3134446 flattrader
flattrader's picture

Japan is involved in a different kind of death spiral.

http://enenews.com/category/location/japan

 

Tue, 01/08/2013 - 12:32 | 3133074 Cognitive Dissonance
Cognitive Dissonance's picture

"The groupthink in the world of finance is some of the worst on the planet. It’s incredible how such an educated, experienced group can willfully ignore reality, stick their heads in the sand, and repeat the same mantras over and over again until they become axiomatic."

A conflicted codependent mind is not a free mind. The severely addicted mind is a virtual slave to its addiction. And the most powerful drug in the world is the denial of the addicted.

Tue, 01/08/2013 - 12:41 | 3133102 DeadFred
DeadFred's picture

If he thinks financiers are bad let him try to publish a scientific journal article that steps outside the box.

Tue, 01/08/2013 - 12:46 | 3133119 Cognitive Dissonance
Cognitive Dissonance's picture

All praise the almighty Gods of science, physics and finance.

To challenge the Gods is to be stoned as a heretic witch.

Tue, 01/08/2013 - 13:07 | 3133190 Sturm und Drang
Sturm und Drang's picture

Bears a striking resemblence to the mythological Cerberus.

Tue, 01/08/2013 - 14:29 | 3133526 laozi
laozi's picture

Science is nothing like finance. In science people will regard anything that is backed by data. If the conclusion is new, other scientists will try to repeat the experiment. If the experiment is repeatable you will be a hero, every scientist's dream.

But to convince the unthinking masses, that is the true obstacle, because THEY fear change.

Tue, 01/08/2013 - 13:22 | 3133254 youngman
youngman's picture

I would love to get me one of them FREE Government Loans for college and go back in the Economics classes to see what they are teaching now...it has to be totally different than when I went....or do they just call it Central Banking 101 now...back in the ole days...we had balance sheets...not off balance sheets....we had a market..not a dark pool...we had a ticker tape..not an HFT computer....we had savings..not a loan to value...

Tue, 01/08/2013 - 13:54 | 3133400 TuesdayBen
TuesdayBen's picture

It is now known as Propanomics, Henny. A greasy blend of propaganda and old economics. Useless. Enjoy ogling the co-eds.

Tue, 01/08/2013 - 12:45 | 3133105 francis_sawyer
francis_sawyer's picture

 "A conflicted codependent mind is not a free mind. The severely addicted mind is a virtual slave to its addiction. And the most powerful drug in the world is the denial of the addicted."

~~~

which is why if you type 'clownbux' or 'bennybux' you get no junks, but if you type 'joobux' it's the end of the world... [even though they're all the same thing]...

Tue, 01/08/2013 - 12:53 | 3133130 Cognitive Dissonance
Cognitive Dissonance's picture

There are so many deliberately implanted memes with regard to the subject of Jews and Zionists that it is very hard to understand what is really going on in that area. What I do know is that whatever it is, it works in favor of the mind controllers and manipulators.

Tue, 01/08/2013 - 13:22 | 3133256 Sturm und Drang
Sturm und Drang's picture

"There are so many deliberately implanted memes with regard to the subject of Jews and Zionists that it is very hard to understand what is really going on in that area."

Not really.

Tue, 01/08/2013 - 13:45 | 3133360 AgAu_man
AgAu_man's picture

It wasn’t till page 7 of Google, that I found a German “DIY” store by that name http://baumarkt.joobux.com/  Who said they have no sense of humor or irony?

Tue, 01/08/2013 - 13:55 | 3133405 Sturm und Drang
Tue, 01/08/2013 - 12:36 | 3133081 AccreditedEYE
AccreditedEYE's picture

Stop the fancy vocabulary and extravagant explanations, stop the 1+1=2 logic, stop the "end of the world" mentality... JUST BUY THE F-ING DIP. It isn't supposed to be logical or make sense. It just works. Buy. The. Dip. Fed moving assets up, not earnings or growth, just buy.

Tue, 01/08/2013 - 12:37 | 3133087 SuperDeDuper
SuperDeDuper's picture

Sell now, come back after the debt ceiling.  They'll make an 11th hour deal.  Make money.  Retire early. 

Tue, 01/08/2013 - 12:38 | 3133089 Winston Churchill
Winston Churchill's picture

Be very careful .

Got to keep the livestock calm before slaughter.

Any farmer will tell you that,or else the meat is tainted.

Tue, 01/08/2013 - 12:39 | 3133095 buzzsaw99
buzzsaw99's picture

The irony is that it doesn't even matter what you buy on the freaking dip. Stocks, bonds, metals. Just pick something. If that dumbass can't make money in this market he is in the wrong freaking business!

Tue, 01/08/2013 - 12:44 | 3133111 AccreditedEYE
AccreditedEYE's picture

Indeed... and after 4 yrs, people still aren't getting the message!

Tue, 01/08/2013 - 12:52 | 3133125 SheepDog-One
SheepDog-One's picture

I wouldn't touch this clownshow with a 10 foot pole myself, I don't need to play a rigged casino I do fine otherwise...but hey more power to the triumphant rear-view mirror traders. I just hope they don't come around here crying on the next giant market swoon which of course 'no one could have seen coming' because I'll just be laughing...dance with the devil dont be surprised when you get 3rd degree burns.

Tue, 01/08/2013 - 12:53 | 3133135 buzzsaw99
buzzsaw99's picture

haterz gonna hate

Tue, 01/08/2013 - 12:55 | 3133141 SheepDog-One
SheepDog-One's picture

Yea sure....sudennly everyone rear-views and says 'Hey, I bought that'! Whatever, have fun out there in delusion, or dancing with the devil in the rigged casino, whatever makes you feel better after all thats what america is about.

Tue, 01/08/2013 - 12:55 | 3133142 buzzsaw99
buzzsaw99's picture

even if i posted my trades in real time you would still say that.

Tue, 01/08/2013 - 12:57 | 3133150 SheepDog-One
SheepDog-One's picture

No I would say 'Hey have fun degenerate gambling in the rigged casino and further enabling the scam'. 

Tue, 01/08/2013 - 13:12 | 3133210 buzzsaw99
buzzsaw99's picture

If I could get out of the rigged casino I would. There is a certain amount that I am stuck with. I can either actively manage it or watch it rot. No matter what happens I doubt it will be worth much of anything when I finally can move it so please don't be so quick to judge because i like your comments in general.

Tue, 01/08/2013 - 13:13 | 3133219 AccreditedEYE
AccreditedEYE's picture

If you AREN'T participating, you are losing purchasing power. (Ability to buy food, fuel, 6 pack of beer, whatever) Even if you sit in cash you participate as the dollar gets crushed lower and prices of things you need go higher. No need to get mad at people who want to keep their standard of living.

Tue, 01/08/2013 - 14:20 | 3133495 Panafrican Funk...
Panafrican Funktron Robot's picture

Purchasing power is ultimately maintained via purchase of real assets, not paper assets (or as I like to put it, digital assets, because often even the paper is of suspect origin and location).  If you're playing the paper market, you're playing in a rigged casino.  This is true whether you want it to be or not.  

Tue, 01/08/2013 - 14:40 | 3133555 laozi
laozi's picture

Amen. Buy PMs. Dont trade PMs with leverage. They will burn you if you do.

This is the Poker game where you don't bluff, and you play a tight hand.

Tue, 01/08/2013 - 15:06 | 3133680 SheepDog-One
SheepDog-One's picture

These guys think that if people didn't follow their questionable story that they were all-in the markets, then you've 'lost' something? That's just as ridiculous as saying if you're not going to Vegas every weekend then you're missing out on the jackpots there which you surely would have won. It's ridiculous, thats all.

Tue, 01/08/2013 - 15:08 | 3133686 AccreditedEYE
AccreditedEYE's picture

I'm playing all over the place Funk... phizz Gold, paper stuff, stocks, commodities. To each their own. They too smart for me so I keep some fingers in many pies. Whatever market it may be, just BTFD. See them taking us off the lows and it's only 2:06? Wait till the end of day ramp... we could see a big move up from here.

Tue, 01/08/2013 - 15:04 | 3133670 SheepDog-One
SheepDog-One's picture

Straight-up BULLSHIT! I'm not 'missing' a damn thing, and I could make a strong case that I've done better OUT of the markets than IN them! 

Tue, 01/08/2013 - 13:23 | 3133258 youngman
youngman's picture

to show how interconnected the markets are..all of them were down .51% at the same time....all of them....its just one computer now...

Tue, 01/08/2013 - 12:35 | 3133082 francis_sawyer
francis_sawyer's picture

They're not 'stupid'... They're all just criminals...

Tue, 01/08/2013 - 12:35 | 3133084 docmac324
docmac324's picture

Week of February 11th.

Tue, 01/08/2013 - 12:39 | 3133094 Inthemix96
Inthemix96's picture

Frying pans, I like frying pans.  You can do a whole load of stuff with a frying pan, you can even fry things in them.  In fact, frying pans have more uses than banksters who produce nothing but indentured servitude, out of fucking thin air.

Yes indeed, you would be fucked without a frying pan for eggs.  But would you be fucked without a bankster for your eggs?

And the added bonus is, frying pans make an invaluable weapon should a banker come stalking your house with a filo-fax and a pen, bray the fucker with a nice heavy-duty Tefal frying pan, and he aint getting back up mind.

Yes my friends, there is a lot I like about frying pans, and indeed we couldnt live as humans without them in my humble opinion, but I am more than sure if you heated a banker up on the stove enough to fry an egg, it wouldnt taste the same, so we dont need bankers.  We sure do need frying pans though.

;-)

Tue, 01/08/2013 - 12:46 | 3133110 hedgeless_horseman
Tue, 01/08/2013 - 12:50 | 3133126 Inthemix96
Inthemix96's picture

Now thats a might fine frying pan there Hedgeless.

But I own a selection of Tefal "Hot-Spot" frying pans, and believe this my good man, you can fry an egg in them without any oil at all, not even a tea-spoon full.

I think I will stick to the Tefal frying pan, but your weapon of choice would certainly cause a cerebal problem.  Think outside the box peeps, is all it takes.

Tue, 01/08/2013 - 13:43 | 3133352 kito
kito's picture

Those no-stick.frying plans are not good for your health-just like bankers.....

Tue, 01/08/2013 - 12:59 | 3133156 Cognitive Dissonance
Cognitive Dissonance's picture

Kitchen porn.

And here I thought that just involved making love on the kitchen ta......er.......never mind. :)

Tue, 01/08/2013 - 14:03 | 3133436 TuesdayBen
TuesdayBen's picture

Even I would have to pass on a bankerburger.

Tue, 01/08/2013 - 12:44 | 3133097 Anasteus
Anasteus's picture

The last pearl of wisdom from the former Maoist and currently a brilliant European politician José Manuel Barroso

"The Euro has been saved and the euro crisis is a thing of the past!"

... or a titbit for another ZH article?

Tue, 01/08/2013 - 13:01 | 3133166 Cognitive Dissonance
Cognitive Dissonance's picture

Yes, all fixed.

<NEXT>

Tue, 01/08/2013 - 14:02 | 3133430 knukles
knukles's picture

 

 

 

(Running about nude, pecker flipping up and down, arms waving, screaming)

"HOORAY!"

Tue, 01/08/2013 - 14:15 | 3133481 Cognitive Dissonance
Cognitive Dissonance's picture

Please, I'm asking nicely.

Stop making the print so small that I have to cut and paste it into a word document to read it.........only to instantly regret doing so. :)

Tue, 01/08/2013 - 14:30 | 3133530 fuu
fuu's picture

Try CTRL + or CTRL - instead.

Tue, 01/08/2013 - 12:41 | 3133103 fuu
Tue, 01/08/2013 - 12:50 | 3133129 Everybodys All ...
Everybodys All American's picture

its a 11:30 am in the US. It's become the automatic daily market ramp.

Tue, 01/08/2013 - 12:57 | 3133152 realtick
Tue, 01/08/2013 - 13:03 | 3133173 SheepDog-One
SheepDog-One's picture

AH man! Murcun's don't care about the REAL truth! They just wanna rear-view trade some more and act like hot shit! COME ON daddy Bernank throw me some more chips I wanna gamble in that casino!

Tue, 01/08/2013 - 13:10 | 3133201 Xue
Xue's picture

Physical PM, PM stocks, high dividend yield commodity and energy stocks, and some dry powder.

That's how I hope to preserve my capital.

Tue, 01/08/2013 - 13:51 | 3133390 Bansters-in-my-...
Bansters-in-my- feces's picture

By "defensive equities" you mean Military Industrial complex worker bees,right.?

Tue, 01/08/2013 - 13:56 | 3133404 AgAu_man
AgAu_man's picture

2nd last sentence: “The reality is that we’re shepherding the irreplaceable assets of our clients.”

Tim, so who’s “we”?  LLC name or URL, please.  And what asset classes do you recommend, besides “real assets that CBs can’t print or steal within the US”? 

 

Tue, 01/08/2013 - 13:57 | 3133415 Iam Yue2
Iam Yue2's picture

Here is Goldman's O'Neill engaging in said group, wishful thinking (yea, stocks may be expensive on traditional indicators, but ya never know....)

"Some argue that US equities will weaken if US bond yields rise for the obvious reason that higher yields compete – perhaps on the premise that there is less liquidity. Others throw in that, from a conservative valuation perspective, such as cyclically adjusted PE ratios (CAPE), equities are no longer attractive. On our GSAM CAPE calculations, it is the case that US equities are not cheap, but it is quite conceivable that they could become expensive again (just as bonds have for many years) if the great rotation trade is about to start."

Tue, 01/08/2013 - 14:04 | 3133440 Tombstone
Tombstone's picture

What else are all these good little socialists supposed to do?  Create wealth prosperity? 

Tue, 01/08/2013 - 18:34 | 3133516 WhiskeyTangoFoxtrot
WhiskeyTangoFoxtrot's picture

Where's Simon? Must be meeting with swiss bankers or looking for productive farmland in remote corners of the world.

Wed, 01/09/2013 - 03:19 | 3135507 yang46
yang46's picture

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