This Advice Has Cost Investors a Sh*tload of Money

Capitalist Exploits's picture

By Chris at www.CapitalistExploits.at

Perhaps, like me, you've been hearing "the dollar is going to die" rhetoric nonstop for the last few years.

Our stance, well documented in these pages hereherehere and here, amongst many, many other posts, has been that for the last 12 months we've been long, and remain long - very, very long!

Last week I woke to 3 articles forwarded to me by some friends. I don't typically pay any attention to these particular investment writers, as I categorize them in the "marketers," not "professionals" basket.

The reason they were forwarded to me was to point out the duplicity. All three have been in the "dollar's going to Hell" basket, and equally interesting, literally overnight all three have begun the spin process of changing their tune! The "unexpected" PBOC devaluation of the renminbi has been the catalyst.

Politicians could actually learn a few tricks from these guys! Here are a couple of the rules of their playbook:

Rule number 1: Never admit to being 100% wrong, and;

Rule number 2: Ensure you spin any market event to appear as if, "Why yes, of course we knew all along that the RMB was going to devalue."

Quite frankly, the articles my friends forwarded me are a pig to read. They are filled with emotionally laden sound bytes, arrogance, inaccuracies, and logic which, like a cardboard cutout, simply goes soggy in the rain. It gives me a headache, and as I read through them, I found myself yelling obscenities at my computer.

It's commendable in a morbid, psychologically imbalanced sort of way. A few simple Google searches reveal the deception, but no matter, press on we must, and revel in the fact that the vast majority of sheep will never do any meaningful due diligence.

When I see that sort of duplicity, then all credibility disappears for me. We have to be able to acknowledge our mistakes otherwise we're bound to repeat them.

We've gotten things wrong before and we'll certainly get them wrong again, but I always encourage a debate on the topics. Nothing can be more valuable than a rigorous debate in order to flesh out and better understand. After all, what if I'm wrong?

I have no particular ilk with any of these "investment experts," aka "newsletter writers." As a keen observer of market psychology and history I view them simply as another cog in the zeitgeist wheel which I find fascinating. Wolves will be wolves and sheep will be sheep.

Along the same lines, another tale that's been as popular as a Kim Kardashian nipple slip video, has been this idea that investors should be long the RMB because really, no really, it's going to replace the dollar soon, and possibly even while you sleep this evening. Yep, it's gonna happen that fast. Never mind it'd be the first reserve currency in the history of the world to disappear overnight (and there are sound reasons why this is the case), but let's not let rigorous analysis get in the way of sensationalism.

Before you send me any emails about the insolvency of the US government let me stop you right there. Yes, the US government is bankrupt (I know that "technically" that isn't possible, but you get my drift). Yes, they have a pension nightmare and yes, the country is a police state. But, looking at the world in isolation, together with an oft agenda-driven myopic view, needs to be seen for what it is - marketing - nothing more and nothing less. No different to that "must have" shampoo that miraculously gets you a gorgeous, loving, nymphomaniac girlfriend.

Why?

I never fully understood why people would write such rubbish, and how they get away with it. It wasn't until just the other day, during a conversation with a friend, that it all made perfect sense to me.

My friend, who I'll leave anonymous so as to not get him into any trouble, is a true "professional investor" who authors an investment newsletter (or two). His niche is value investing, and year after year he's soundly beaten the market. All he focuses on is finding great companies that have a high probability of success and capital appreciation. Novel idea.

Our discussion ran to the publishing business, and this is when it all made sense to me. Publishing houses test "copy," and when they find "copy" that works well, they devise a product around it and sell it. Boom!

I remarked how bass-ackward this really is. Marketing hype sans rigorous intellectual and analytical thought. No matter... if the narrative works marketers push it and push it big.

My friend's particular newsletter is less financially successful than many of its competitors, even though, like clockwork, it beats them all hands down on a pure return basis.

Shortly after this conversation I spoke with a long time reader who has become a friend. We discussed a purchase of land in Chile which he made some time ago. I pointed out that he's lost over 50% on his investment in dollar terms since 2011, and over 40% since 2013. It wasn't something he'd thought about, and thankfully he is un-leveraged.

To break even on this investment he now needs 100% appreciation. Think about that for a moment. What's more is I think the Chilean peso goes even lower. In fact, it's just broken a long-term trend line (as have some other LatAm currencies, including the Colombian Peso), and this is where we get big acceleration phases. We think you have to be short. We may be wrong, and of course we have been in the past. Our thinking, if interested, is laid out in our report entitled: USD Bull Report.

CLPChilean peso

My friend (now a bit more depressed than he was before our call) and I discussed what likely lies in store. He was (falsely?) comforted by the idea that this is temporary, a short-term setback for the Chilean economy and currency. I think this is a huge risk. Failing to understand why the USD is rallying in the first place means that the odds of understanding why and when it will end are vanishingly thin.

Part of the disconnect lies in failing to understand global capital flows, why the USD is rallying, and why on the balance of probability we're still at the beginning of this run, not near the end.

Back to China and the RMB

I've heard the argument that China can sell their USD holdings to defend the RMB. Even if that were the case this fails to take into account the entire picture. There are many reasons for China to devalue, not the least of which is that it's politically palatable. They are still an export driven economy who have seen their currency rise substantially against their competitors such as Japan.

Trying to quantify their FX reserves as a % of GDP is nuts. Their numbers are bollocks and can't be trusted. Mark Hart has a more meaningful measure of reserve adequacy. This is FX reserves divided my M2.

This means that with a meaningful capital flight China will NOT have sufficient reserves to defend its currency. The USD will be strong NOT because it's the reserve currency, that has always been the case, but it's NOT the answer now. The USD will be strong principally due to an unwinding of the carry trade. If you don't understand this you'll be lost. If you have to pay back a loan to an individual who is insolvent it doesn't matter a damn. You still have to pay that money back. That the US Government is insolvent is IRRELEVANT right now. The low hanging fruit then?

TRLTurkish lira

Poster child of external debt.

CLP

South African rand

Both of these two currencies are at major long term resistance levels. If they break from here it's waterfall time. 

COP

Colombian peso

KRW

Korean won

Bottom line? Don't go walking into an investment without understanding its context.

When someone (newsletter writer or other "professional") has a vested interest in telling you something, make sure you understand their bias and their agenda. One day, when I'm involved in a fund or funds (soon), please be sure to question me on my bias and my agenda. You'll get the truth.

Until then (soon) I have no stake in the fight, other than to make money by being positioned correctly.

- Chris

 

"Fortunately for serious minds, a bias recognized is a bias sterilized." - Benjamin Haydon

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Winston Smith 2009's picture

More on that "dollar is doomed" stupidity:

Understanding the "Exorbitant Privilege" of the U.S. Dollar

November 19, 2012

http://www.oftwominds.com/blognov12/triffin-USD11-12.html

The Impossibility of China Issuing a Reserve Currency

October 14, 2013

http://www.oftwominds.com/blogoct13/China-reserve-currency10-13.html

Could the U.S. Become the Unrivaled Superpower Again?

January 29, 2015

http://www.oftwominds.com/blogjan15/superpower-US1-15.html

PleasedToMeatYou's picture

Chris, I wonder if Schiff is one of those newsletter writers to which you refer?

Baa baa's picture

If you read any of these news letters, you are bound to have run across the man posting from El Rancho Grande atop the Andes in Chile.

We know your source. Very poor job of protecting his anonymity. I'll bet you are no longer "Friends".

foxmuldar's picture

Our Golfer in chief has been rather quiet about the worlds collapse. Im sure he will use this event to push for raising the debt ceiling. Hey Asshole, were broke, we don't have more money to spend on your social programs. 

Baa baa's picture

Martial Law...Just to maintain the peace in these troubled times you understand...

TrulyStupid's picture

We do however have lots of money for corporate welfare, useless military hardware and war profiteers... can't we cancel the Iran deal and get going with the Ukraine/Putin profit opportunity?

kchrisc's picture

The Titanic was said to be unsinkable; Was built to be unsinkable. Ice could not drift as far south as its route; Never.

Full speed ahead.

Zion is a scheme, not an ethnicity..

 

The thing is, fiat-currencies are not a thing of nature, but a means of plunder, part of the scheme. Fiat-currencies do not ebb and flow, but are pushed and pulled, like marionettes of plunder for the schemers.

EurGold's picture
EurGold (not verified) Aug 24, 2015 3:40 AM

**On Sale** 1 Ounce Silver Vienna Philharmonic €13!

https://www.eurgold.eu/silver/vienna-philharmonic-1oz-silver-coin-1-50-e...

jcdenton's picture

The reason why the current FRN/USD is rallying is because the corpse is inflating in the hot August sun. At some point, maybe soon, it will go pop! And it will be one slimy mess.

Now there is a way for the USD/non-FRN to genuinely rally as a true strong USD. And the method(s) have been presented to the G8. So, some behind-the-scenes miracle may in fact occur. When it happens, you will know what it really is ..

http://wantarevelations.com/2014/01/wanta-plan-macro-financial-economic-...

Now Putin is one who is really, really behind this plan. You see, he gets the biggest prize outside of We The People. $30 BILLION ..

Now $5 billion is not chump change to an EM or so. The following can do a lot of damage with $5,000,000,000 USD (non-FRN)

France

Italy

Germany

Spain

Greece

 and .. our Amero partners ..

Canada

Mexico

 

Know how to call a truce in the ME? You give $5 billion each to:

Israel

Palestine

on condition they leave each other alone. And if either reneges, you just blow them off the map ..

 

PleasedToMeatYou's picture

Good thing your blog doesn't make you look like a nutjob, "Ambassador". 

ThroxxOfVron's picture

"No different to that "must have" shampoo that miraculously gets you a gorgeous, loving, nymphomaniac girlfriend. "

 

Why won't you stop blathering and just tell me the name of the shampoo?!

What do I have to pay you to tell me the name of the shampoo?!

zebrakid's picture

File this with all the others he is complaining about. I think its called a dust bin.

amanfromMars's picture

When someone (newsletter writer or other "professional") has a vested interest in telling you something, make sure you understand their bias and their agenda. One day, when I'm involved in a fund or funds (soon), please be sure to question me on my bias and my agenda. You'll get the truth.

Until then (soon) I have no stake in the fight, other than to make money by being positioned correctly.

- Chris

Surely the truths of your bias and agenda are clearly evident to see for everyone in everything you have freely shared in the article, Chris. Nice cheerleading for the dollar and Uncle Sam, but all the lead action is elsewhere, although to be honest, you do share that news as well in the article.  

philipat's picture

But, but, but.....Jim Willie told me that the USD won't survive 2015. But then he also said that Kerry had not fallen off his bike but been shot in the chest twice by ISIS. Perhaps his was one of the Letters to referred to??

Oracle 911's picture

What if Kerry back than wore bulletproof west?

 

And another thing, what if the Saudis will be forced to accept also RMB for crude? That will be a huge blow for the US Dollar.

Thejackasswhisperer's picture

The dollar will have its day, but not now.

Rhal's picture

That's how I see it too. The $US is the second last safe-haven and more investers in Europe and Asia are going to buy it before they realise the music has stopped.