Market Perspective

Repricing – Financial Markets – Week 1

Posted by on Feb 28, 2018 in Ned Massie, Perspective | 0 comments

When QE Stops: Starting in 2011 enormous amounts of money have been pumped into the world economy. The balance sheets of central banks around the world have increased by four times to around $14T. Never before in the economic history of the world have we seen Quantitative Easing (QE) on this scale, much less the removal of QE on this scale. In the past when a country has used QE, one of three things happened when the QE ended: The economy collapsed; That country defaulted on all of its bonds; Or both. This increased risk will eventually be “repriced” into all financial assets....

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The Impact of Bubbles – Week 8

Posted by on Feb 21, 2018 in Ned Massie, Perspective | 0 comments

Conclusions and Recommendations: We have laid out for you in this series of blogs what we see as the most significant positive and negative economic forces that will impact the USA in 2018 and late 2019. Here is a brief summary of what we believe will occur: 2018 will see significant economic growth because of the new tax law; We will enter 2019 with a full head of steam in our US economy; The Fed will continue to raise interest rates as they “normalize” the financial markets; Significant inflation will occur to thereby relieve the pressure of our debt; Ultimately, The Fed will have to harness inflation with a recession as a part of that process. The wise investor will: Recognize that not all land is equal in quality; Recognize that Quality tracts will benefit the most from inflation; Use the “Up” economy of the next couple of years to prune their portfolio and accumulate cash; Thereby get in position to buy discounted land assets in the recession that will occur. It is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is land....

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The Impact of Bubbles – Week 7

Posted by on Feb 14, 2018 in Ned Massie, Perspective | 0 comments

Negative Force – The Fed Will Ultimately Cause a Recession: Recessions are a normal stage of the economic and business cycle. It is the way that excesses are corrected. The first three recessions I experienced in my career were less difficult than The Great Recession of 2008-2009. None were pleasant. The definition of a recession is when the economy experiences two consecutive quarters of negative growth. However, the pain of a recession lingers for longer than six months. The timing of the next recession will determine its severity. The earlier it occurs the greater the number of bubbles mentioned earlier will burst. If the “Up” economy lasts long enough, some of the bubbles in our economy may be corrected by positive economic growth. But by definition, during a recession it is difficult to sell assets. Could this phase be catastrophic? Yes, if it occurs in conjunction with the global tapering of QE. Hopefully, the US will muddle through. But to my knowledge in economic history: Every previous Quantitative Easing (QE) by a government ended in abrupt economic disaster; None of the previous QE experiences were anywhere near the size of this global QE event. The key point to remember is that recessions are a great time to buy assets but an absolutely horrible time to try to sell… anything. Never bet against The Fed. It is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is land....

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The Impact of Bubbles – Week 6

Posted by on Feb 7, 2018 in Ned Massie, Perspective | 0 comments

Negative Force – Inflation: In a discussion of bubbles, one has to understand the significance of the size of the debt of the USA. Under President Obama, USA’s debt went from a nominal value of $10 Trillion to $20 Trillion Dollars in eight years. Our USA annual GDP is approximately $20 Trillion Dollars. There are estimates that the sum of our unfunded liabilities such as government pensions, Social Security, Medicaid, ObamaCare, and Medicare approach around $85 Trillion. Simply stated, our country has way too much debt and neither political party seems to really care. In economic history, the problem of too much government debt is resolved in one of two ways: Complete economic collapse; or, Inflation. If the USA experiences 100% inflation (which means that the American Dollar in the future would have half of its value today), our debt would become a lot easier to service. In turn our GDP in nominal Dollars would soar (double) resulting in the ratio between the size of our economy (GDP) and our debt would diminish. It would have the same ratio as existed pre-Obama. That is why I believe the second of the two alternatives (inflation), is what we will experience. After World War II the USA had a similar ratio between GDP and debt. Inflation restored the ratios. While there are many dangers associated with inflation, The Fed can more correct inflation by raising interest rates to the point that it slows the economy. The result is called a recession. For any remaining skeptic, my first new car (Chevy Monte Carlo Sport) cost $4,800 in 1972. My first home cost $38,500 in 1975. Multiply by 5 to get to today’s value. This is 400% inflation. It is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is...

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The Impact of Bubbles – Week 5

Posted by on Feb 1, 2018 in Ned Massie, Perspective | 0 comments

Negative Force – Bubbles: December of 2008 was a very scary economic time and The Fed correctly dropped interest rates down to almost zero that month. Reducing the cost of borrowing money is one of the key tools of The Fed when it is trying to encourage economic growth. You may remember that by 2011, the American economy was experiencing good economic growth. However, The Fed failed to begin to normalize interest rates in 2011. There would have been a lot of benefits if The Fed had started raising rates in 2011 but they did not. Instead The Fed launched Quantitative Easing (QE). Fast forward to 2018 and there are a multitude of bubbles in our economy. My favorite economist, Dr. Kindleburger, wrote a book titled “Manias, Panics, And Crashes” in which he chronicled and explained the various bubbles that have burst in economic history since Tulip Mania. In an interview, Dr. Kindleburger was asked “How do you identify when an asset is experiencing a bubble?”. His answer was “Any asset that doubles in value in less than 12 months is a bubble.” Bitcoin anyone? The economic danger is not limited to the asset that has bubbled to an unsustainable value. The real danger is the ripple effects that occur after the bubbled asset burst. Not only do the investors in that asset experience real financial loss, but to cover debts they dump “good” assets to raise the cash they need. The result is an economic implosion. Recently, I read that margin debt (the money stock brokers lend to customers so the customer can buy more stock) is at an historic high. Bitcoin isn’t the only bubble in our economy as a result of interest rates having been too low for too long heightened by Quantitative Easing. It is way past time for investors to start being cautious. It is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is...

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The Impact of Bubbles – Week 4

Posted by on Jan 24, 2018 in Ned Massie, Perspective | 0 comments

Positive Force – The Fed Raising Rates: Those of us who survived the early 1980’s remember mortgage rates being 18%, and the interest rates on prime loans being in the low 20’s % annually. We fully understand that a normal mortgage rate is 6% to 8%, not 3.5% to 4%. Fortunately, the banking industry did not follow The Fed all the way down as The Fed dropped interest rates to zero. While the banks not following The Fed reduced the positive impact of their dropping interest rates so low, it also means that as The Fed raises interest rates there will be a lag before increased interest rates force up mortgage rates. That lag has occurred over the last year. As The Fed continues to “normalize” interest rates, those individuals and couples that have retained some of their money in savings accounts will begin to enjoy increased interest income. Many of those savers in the United States are seniors who have built up savings accounts in order to fund their retirement. That increased income will be a positive force as it is circulated into the economy as seniors spend their increased interest income and is a positive force. There is a point, however, where The Fed normalizing interest rates will raise interest rates to a level where the higher cost of money to borrowers will become a negative on a American economy. That will be discussed in the next portion of this blog. But for right now, focus on the fact it is a positive economic force that increasing interest rates is a way of increasing income into the households that have been savers. It is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is land....

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