In a recent post I posited that there is nowhere to invest right now that makes any financial sense. Not in bonds, stocks, real estate, commodities and most certainly not in digital "assets" like cryptos and NFTs. A reader asked if there is nothing at all to invest in, and I replied with an old Wall Street dictum: "When in doubt, stay out". But, that's not very helpful, is it? So, I've been thinking about it a bit more...
In my considered opinion, the more relevant question to ask presently is: "How can I protect myself from what is likely coming?" Meaning, switch focus from making money to protecting money/assets.
The easy answer would be "stay in cash"... but, right now, cash is indeed trash since it yields nothing or nearly: around 1% at best if you are an individual or 2.30% if you are a large institution with access to the Fed's O/N reverse repo. With inflation at 8.30% your cash is depreciating at a furious, historically unprecedented rate. Sure, it's less trash than anything else, but losing 6-7% per year is no way to protect yourself.
Ah, but cash carries an opportunity premium: you can quickly invest opportunistically when things bottom out. In other times I would agree, but since I believe we are in for a long, drawn out bear market in everything instead of a sharp drop and even sharper rebound, the opportunity premium is, in fact, a very heavy discount given the very negative real interest rates. So, cash isn't it.
Alternatively, you could keep your assets and use hedges as protection. But hedging comes at a premium, the time/interest cost of futures, options, credit derivatives, etc. As interest rates rise, this cost goes up as well. Also, as with any hedge, it matters most who you buy it from - as buyers of CDS quickly discovered during the 2007-09 credit meltdown (Lehman, AIG Financial...). You hedge is only as good as the institution who underwrites it, and during times of turmoil those institutions become very vulnerable. Yes, I even include the likes of derivatives exchanges/clearing houses in this category because they are certainly not immune to systemic risk.
The Fed bailed everyone out last time as lender of last resort, but will it this time? Can it, this time? Its balance sheet assets have now reached an astronomic 36% of US GDP, up from 7% in 2007. One way to look at this 36% vs. 7% is as a measure of how much the dollar has been watered down, and within a very short time.
At which point does the world stop trusting the dollar as a global reserve currency? Ask Putin, who is demanding payment in rubles for Russia's oil and gas exports - and the many countries who are doing so, without exactly advertising the fact.
No cash, no hedge... what is left to protect ourselves, at least longer term?
The answer is this: forget ALL financial "assets" and focus on real, productive assets.
I shall continue with ideas fitting the bill in a follow-up post.
....but just to clarify, Putin demanding rubles is no reference as to the state of the dollar... he's doing it just out of spite. The dollar still remains the 'cleanest dirty shirt' among all others, no?ReplyDelete
No it’s certainly not spite. It’s a shrewd way to strengthen the ruble and maintain the buying power Russia’s importers. It’s working, too.Delete
Well, the value of the ruble is just too manipulated currently to actually discern. Way too many controls and what not. It's a Potemkin currency nowadays.Delete
its not easy to manipulate your own currency ... especially with the whole world as your enemy... in 1997, south korea could not stabilize the won, even with the whole world helping... Putin is smart.. have to give him that... and be wary about the news... Putin has a serious chance of winning in Ukraine...ReplyDelete
The ruble is being manipulated through heavy currency controls and regulations that impose ruble buying on energy payments since the invasion. Putin is ruthless, not smart. He has zero chance of winning in Ukraine long term.Delete
don't quite agree... but hey, I am just happy to see you around. =)Delete
I have said quite a lot about the corruption in academia.ReplyDelete
The corruption in journalism is quite bad too.. I think... this guy was fired from the newyork times for speaking up about the Iraq war... even when everything he said was correct... =)
Anyway... his take on the Ukraine situation.
Always glad to see you around here too akoc :)Delete
As for the Chris Hedges link, suffice to say he worked for Russian State television (RT), so his views are highly compromised ;) Ukraine has been doing good lately, hopefully Putin receives his well deserved comeuppance.
The NATO expansion excuse he uses is classic Kremlin propaganda... just look at Putin's "meh" reaction when Finland and Sweden announced their intention of joining NATO. Ukraine is textbook Russian imperialism, plain and simple...Delete
dunno... usually I would prefer to rebut the point, rather than the person... anyway,... Nato expansion feels like a valid reason... hell, you would not want Mexico and China to sign a defense alliance with China... =)Delete
remember the Monroe Doctrine?...
Finland and Sweden?... more of Putin can't do anything... rather than does not want to do anything...
This is Hell :)… my take on the aboveReplyDelete
The ruble is definitely centrally manipulated.
Putin is definitely incredibly ruthless - and smart. That makes him very dangerous.
Russia under Putin is definitely seeking to rebuild its global relevance.
In any conflict, be it war or otherwise, truth is not usually to be found in media analysis. In the Age of FB, Twitter, and free access to all manner of “news” it is almost impossible to form a rational opinion about anything that is less than extremely obvious.
But, one thing is certain: Germany et al willingly and stupidly gave Putin the keys to the (energy) vault. Now, they are crying wolf… what WERE they thinking?????
And some historical context: Germany collapsed after WWI and went through a period of social, economic and political upheaval until a ruthless, populist and manipulative dictator was almost entirely accepted with relief by the vast majority of Germans (with obvious exceptions).ReplyDelete
Hitler then proceeded to expand Germany’s Reich by using various pretexts based on “security” and/or “ethnic” reasons. Rhineland, Austria, Czechoslovakia and, finally, Poland (with the USSR as an ally, no less).
The similarities are much too obvious, with one exception: Hitler was monomaniacal, evil and certainly not as intelligent as Putin. Which makes Putin MUCH more dangerous.
Two useful links as to what Russia does: Spent 300 million dollars supporting the extreme right in other countries since 2014 https://www.theguardian.com/world/2022/sep/13/russia-foreign-election-interference-state-departmentReplyDelete
Here's the 2nd one https://youtu.be/tR_6dibpDfo Operation Infektion, a classic example.ReplyDelete
And yes, the US has behaved equally bad in the past, we in Mexico lost half our territory to the US in an unprovoked war too. But that was in the 1840s. Putin is behaving that way today! As for his intelligence, going into Ukraine displayed great hubris, which is not a sign of intelligence. At least not in the present time. Senility maybe? He will, however, weaponize everything from immigration to energy and food.
And I agree totally Hells, what were there germans thinking!? Fukushima had a great impact on them, and then they turned a blind eye to what Putin really was. What he did in Syria, systematically bombing hospitals, etc. was a clear indicator since 2015. Of course, Putin also lobbied German officials... Schroeder for example. A former head of government.ReplyDelete
hmzz... ok, I have a very different view... I think Putin is not currently an enemy; need not become an enemy; and must be prevented from becoming an enemy.ReplyDelete
At the heart of it, I believe that an alliance between Russia and China must be prevented at all cost. If such an alliance occurs, my estimate is that it has a superiority in conventional forces that can take over western Europe. With that will come Africa, the middle east and south-east asia... This would leave the U.S. two choices... Nukes?... or isolation...
There are many reasons why an alliance between Russia and China might not take place... top of the list being mutual mistrust... But the economic situation in China is getting so bad that they may try it... similarly, if Putin is pushed into a corner, he might try it too... This unholy alliance must be prevented.
Therefore I say, it is in the West's interest to make peace with Putin... He has legitimate grievances. These should be aired in the media, instead of the simplistic narrative that Ukraine is good and Russia is bad... That in turn will create a public opinion in which peace becomes possible...
Russia should be considered part of the Western house... a cousin twice removed... sometimes unruly and troublesome... but family nonetheless.
or to put it into a one sentence slogan... let Russia join Nato... =)Delete
The ship for bringing Russia (Putin) into the fold has sailed a long time ago akoc... The germans tried it with their "wandel durch Handel" (change through trade) policy with Putin. Look what it got them? Nothing but being energy dependent on Putin, and now he's weaponizing that dependence against them. Putin never got over the cold war mentality being a KGB agent. His paranoia and hunger for imperial ambitions (Russkiy Mir / Russian World) got the best of him. Now Russia is on its way to be another North Korea. And that alliance between Russia and China has already happened, at least on paper. Though fortunately Xi seems more level headed, up to now, than his tin pot neofascist dictator buddy Putin.Delete
Putin?... Putin wants respect not money... my gut feeling is he will be reasonable if approached reasonably... and it starts with acknowledging that Russia is the pivot that it is...Delete
Putin could have waged the Ukraine war far more viciously than he is currently doing... for example, firebombing cities? ... that he is not doing so indicates that he wants a rapprochement with the west... give the man a chance... =)
In honour of the Queen on this day, I agree that Putin's primary objective right now is R-E-S-P-E-C-T (Rolling Stones), to get Back To The USSR (The Beatles) that used to be before its demise. He's doing it the wrong way IMHO, but perhaps he tried other methods and failed, who knows...?Delete
Longer term... maybe global domination is indeed Russia's goal, along with the Chinese..
discovered I like Back to the USSR.. =)Delete
Considering the atrocities uncovered in Bucha, Kharkov, etc. And the wanton destruction of Ukrainian cities, Putin has hardly shown restraint in Ukraine. Respect? All he's achieved with this war is walking Russia back from a "respected" global "superpower" status to small time terrorist state in 6 months. I must say i`m impressed. No matter how drunk I get, I don't think I could screw up a country this quick. Putin has some unique talents.Delete