vendredi 25 août 2006

Speculation and politics

I recently discovered that the investment in gold is closely associated with political and almost philosophical ideas.

The "gold bugs" don't trust the Federal government and it determines in large part their thinking. This is something you have to take into account when you decide whether or not one follows their advice.

Personnaly, I find their ideas quite interesting because I am very disillusioned with the US Government as well and especially with the current administration. I am also disillusioned with the "American Way of Life", and its extreme materialism, the recourse to debt and the lack of ethics.
I used to be a great admirer of the US when I was a teenager and a young adult, until I really lived and worked there.
I saw so mush dishonesty and so many lies in 2002-2003, that I could not believe my eyes.
In a way, it was the perfect period to discover all this. There were all these financial scandals and the ensuing Stock Market slide, and then the preparation of the opinion for the War against Iraq, playing on the fear of terrorism.

When people link all this to the hidden inflation and the balloning deficits of America, I can really see what they're talking about

Psychology and investing (2)

Since last may, I made so many mistakes that I would have saved a lot of money just by doing nothing.
And I'm convinced a large part of these losses come from psychology.
Of course, bad luck and bad judgement also play a part.
But basically, this is the stress and the instability of opinion tha create all these losses.
Investing is really not that complicated. But you need to do it with serenity.
Right now I am convinced that I should simply stop.
But even this decision should not be rushed.
It's just that the pressure I am under is increasing.
I need to build confidence back gradually, by making a good decision at least once. Even if it does not make that much money.

Psychology and investing

Some recent "mistakes" have led to fresh doubts about my fundamental analysis of the economy and my strategy.

These are of course short term and specific mistakes (meaning specific stocks), so they should not divert me from my long-term strategy (which is actually not so long-term, but more over a few months.)
Basically the goal is to find the kind of trend that has given me the kind of returns I had from January to April.

Right now there is not really a confirmed trend for a 3-6 months horizon.
The stocks are in a range , the gold trend is in a range, and the EUR/USD is in a range as well.

These three assets should go up in the medium term, especially if they break some major obstacles.

Actually of these three asset classes, gold in $ as a way to go, but might most probably go down within a few months.

EURUSD is the one that is closest to the resistance, and if and when it breaks will be a huge signal, that might give the direction to the other markets.

In the mean time, we can stay bullish on stocks who don't have a resistance in the short term and sit on our hands about gold.

Actually it might be reasonnable to stick also with the gold mine stock , since it seems to have found a floor and is going up relative to the gold price.

When the EUR/USD breaks its resistance, I can focus on shorting european stocks and buying gold calls and eurusd calls.

mardi 22 août 2006

The Mogambo Guru

http://www.dailyreckoning.com/Issues/2006/DRUS082106.html

Funny how this article adresses exactly the same point that I made yesterday.
Logically the threat of inflation should encourage us to borrow more. But as this article mentions, there might be a housing bubble bursting in the mean time.
If you borrow against a declining asset, it will hurt anyway, and the real interest rate will keep on going down anyway, so it will be better to wait.

lundi 21 août 2006

A preliminary answer

Answering the previous question, I would say, basing myself on may recent reading and the latest that today I favor the deflation scenario. It won't be a deflation that can be compared to the thirties, but it will be a serious slowdown and a bursting of the real estate bubble. Actually I think the real estate, more than the oil price, will be the trigger to the slowing down of the economy. The logical consequence will be that there won't be too much inflation, but a serious crisis in the US instead. This crisis will then be exported to the rest of the world through the slide in the value of the dollar. China will be hard hit, but it might be a blessing in disguise since it will allow it to cool an overheated economy and redirect its exports and diversify its reserve towards the euro. The world stock market might crash or slide as a consequence, including the european stocks where americans are heavily invested. But the european economies will be less hit than the rest of the world, because it will simply stagnate. As far as I'm concerned, real estate will also be hit in europe, especially in Spain, France and, most of all Britain. But this scenario has to be confirmed. I will update it later. In any case we cannot have a spiralling inflation and a bursting of the real estate bubble at the same time. Moreover, if I focus on the European Union, I have trouble imagining that the ECB would let the inflation increase that much.

Inflation or deflation ?

I realize now that most of the financial decisions I have to make now for the long term (for example, whether to buy an apartment on credit) depends on what the world economy is going to get in the next few years : inflation or deflation ? In case of inflation it will be better to de indebted at the current low rates. In case of deflation it will be better not to be indebted, especially since in this context, the value of the home will probably go down, or at least not rise further. Of course we can also imagine price stability. In that case the value of the investment alone will have to be considered. Which is an important factor in any case. Economics is a tricky science, and it is very difficult to predict anything in that area. But I feel it is necessary, and it is something that I like to do.

A preliminary answer

Answering the previous question, I would say, basing myself on may recent reading and the latest that today I favor the deflation scenario.
It won't be a deflation that can be compared to the thirties, but it will be a serious slowdown and a bursting of the real estate bubble.
Actually I think the real estate, more than the oil price, will be the trigger to the slowing down of the economy.
The logical consequence will be that there won't be too much inflation, but a serious crisis in the US instead.
This crisis will then be exported to the rest of the world through the slide in the value of the dollar. China will be hard hit, but it might be a blessing in disguise since it will allow it to cool an overheated economy and redirect its exports and diversify its reserve towards the euro.

The world stock market might crash or slide as a consequence, including the european stocks where americans are heavily invested.
But the european economies will be less hit than the rest of the world, because it will simply stagnate.

As far as I'm concerned, real estate will also be hit in europe, especially in Spain, France and, most of all Britain.

But this scenario has to be confirmed. I will update it later.

In any case we cannot have a spiralling inflation and a bursting of the real estate bubble at the same time.
Moreover, if I focus on the European Union, I have trouble imagining that the ECB would let the inflation increase that much.

Inflation or deflation ?

I realize now that most of the financial decisions I have to make now for the long term (for example, whether to buy an apartment on credit) depends on what the world economy is going to get in the next few years : inflation or deflation ?
In case of inflation it will be better to de indebted at the current low rates.
In case of deflation it will be better not to be indebted, especially since in this context, the value of the home will probably go down, or at least not rise further.

Of course we can also imagine price stability. In that case the value of the investment alone will have to be considered. Which is an important factor in any case.

Economics is a tricky science, and it is very difficult to predict anything in that area.
But I feel it is necessary, and it is something that I like to do.

mercredi 16 août 2006

Outlook for the world economy (introduction

This blog will certainly talk a lot about the economy since it is one of my favorite subjects. Since the beginning of the year I have studied the stockmarket intensely and speculated with sometimes spectacular but overall negative results. In any case it sharpens my analysis of the economy because when you invest money you'd better be right about the fundamentals, even though the short term girations are more based on psychology than macroeconomics. This is actually something that I have to keep in mind.

Outlook for the world economy (introduction)

This blog will certainly talk a lot about the economy since it is one of my favorite subjects.
Since the beginning of the year I have studied the stockmarket intensely and speculated with sometimes spectacular but overall negative results.
In any case it sharpens my analysis of the economy because when you invest money you'd better be right about the fundamentals, even though the short term girations are more based on psychology than macroeconomics. This is actually something that I have to keep in mind.

mercredi 9 août 2006

Poor Lebanon

Let's start with the situation in Lebanon.
This is a very sad one, and one which has the potential of making many people angry.
Lebanon was a country on its way to democracy and a prosperity that had previously earned it the nickname of "Switzerland of the Middle East". But everything is destroyed now and it is a considerable waste.
It seems that certain countries are cursed, like Iraq for example. But there's nothing irrational about that. These countries have weak states and a fragmented identity. They are artificial creations, and they have been the toys of foreign powers for a very long time. And they are strategically located, at the crossroad between several bigger powers.

But Lebanon itself is not so important. Iraq is far more important for example, because it has oil and borders Iran, the greatest power in the region. But symbolically it is very important. It confirms the bad reputation of the US in the region, and even the moderates cannot deny it. And so it can only encourage the radicals.
It also comforts the situation of Iran which is in a better position to negociate with the West, about its status, its safety, and, of course, nuclear weapons, which are its guarantee.

Everybody knows by now that the real conflict is between the US and Iran, with Israel as an advanced post of the americans.

Old Europe would like everyone to calm down and Russia and China use this situation to advance their strategic interests.

But, in short, it's going to get a lot worse before it gets better

A new beginning

Today I start writing in this blog again.
As intended, it will be about news, with a focus on international affairs and economics which are two of my favourite subjects.
There will be a little bit of philosohy and history as well, especially as it relates to today's politics.

Also, I am not a native english speaker, so I will concentrate on content rather than style.