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If I bet against the analysts, I will stand hire chance of making money.

 

2011 Roundup

 

Source Taken: http://marketwizardsllp.blogspot.com

 

 

The Air Force Just Bought Its Biggest And Fastest Armed Drone Ever

Image: General Atomics

The Air Force just bought itself the next generation " hunter-killer" drone, and at nearly 16,000 pounds and 44 feet long the Avenger is now the largest UAV in the U.S. arsenal.

 

William Hennigan of the LA Times reports the $15 million drone is one of the models in consideration to replace the aging Predators and Reapers in use for the past several years (via Stars and Stripes).

Made by General Atomics, the Avenger is powered by a turbofan engine, has internal weapons storage, and an " S" shaped exhaust for minimal heat and radar signature.

Though it carries the Lynx Synthetic aperture radar and a version of the F-35's electro-targeting system, the craft will use the same ground control as the MQ-9 drones currently in operation.

The new drone won't be able to fly as long as the Reaper, 20 hours compared the the Reaper's 30, but it will reach a top speed of 460 mph, more than 120 mph faster than its predecessor.

After reports earlier this month that the drone would be sent to Afghanistan, Air Force officials now say the Avenger may be years away from active duty.

 

Is Lady Gaga Seriously Buying This Frumpy House In Amish Country?

Image: via Realtor.com

 

OOPS! 9 Monster Mistakes That Almost Broke The Financial System In 2011

 

Here Are The Stories That Shaped China's Economic Climate In 2011



As the year comes to a close, and we look forward to 2012, I continue the tradition I started last year and offer a brief look at the top stories that shaped China’s business and economic climate in 2011:

1. High-Speed Rail. It was the best of times, it was the worst of times — China’s ambitious high-speed rail program embodied the highest highs and the lowest lows the country experienced this year. In January, President Obama cited the planned 20,000km network in his annual State of the Union address as a prime example of how America need to catch up to the Chinese. As if to prove his point, June saw the grand opening of the much-heralded Beijing-Shanghai line, timed to coincide with the Communist Party’s 90th anniversary celebrations. But even before then, there were signs of trouble on the horizon, starting in February when the powerful head of China’s railway ministry — the project’s godfather — was abruptly fired as part of a massive corruption scandal. Then a crash on a line near Wenzhou, in which at least 35 people were killed, unleashed a wave of fury on the Chinese internet, forcing the government to re-think the entire project amid charges of cover-up and sloppy construction. By November, with high-speed trains running at chronically low capacity and construction debts piling up, the railway ministry was asking Beijing for a rumored RMB 800 billion (US$ 126 billion) bailout just to pay the money it owed suppliers.

2. Inflation. Few issues preoccupied the average Chinese citizen — or Chinese policymakers — this year as much as rapidly rising prices. The consumer inflation rate, which began the year just shy of 5%, rose to 6.5% by July. The increase was led by food prices, particularly pork – a staple part of the Chinese diet — which skyrocketed by more than 50%. Keenly aware of the potential for popular unrest, Beijing made containing prices its top economic priority — even if that meant reining in growth. Throughout the year, the central bank repeatedly raised interest rates and bank reserve requirements, in an effort to bring the pace of credit expansion back under control. The powerful state planning bureau leaned heavily on Chinese companies not to raise prices, and even hit consumer goods giant Unilever with a stiff antitrust fine for publicly discussing possible price hikes. While CPI did decline to 4.2% by November, China still did not see a single month in 2011 in which inflation did not exceed the government’s 4% target for the year.

3. Real Estate Downturn. This fall, something strange began to happen. Real estate prices in cities all across China, which have risen phenomenally in recent years, began to drop. Property developers — who had borrowed heavily to pile up large amounts of unsold inventory, in the face of tightening credit conditions – began offering steep discounts (30, 40, even 50%) to get their hands on much-needed cash. Recent homebuyers, furious at having paid full price, demanded refunds and in some cases trashed developer showrooms. One property agency estimated that new home prices in Beijing plummeted 35% in November alone. Transactions volumes in cities across China have stalled, and local governments — dependent on land sales to fund their operating budgets and repay debt — are starting to panic. Chinese investors, many of them holding several empty units as a form of savings, are looking on anxiously, wondering whether the bubble has popped, hoping the government will somehow engineer a rebound in 2012.

4. Wenzhou Credit Crisis. In September, reports began circulating in the Chinese media that dozens of business owners in the southeastern coastal city of Wenzhou had fled for parts unknown, leaving behind a shambles of unpaid debts and ruined companies. Two had even killed themselves by jumping from their office towers. Facing pressure from rising wages and input costs, as well as a less competitive Renminbi, these entrepreneurs had apparently gotten themselves enmeshed in informal lending schemes that had gone belly up — China’s own version of a “subprime” crisis. After Premier Wen arrived on the scene and directed local banks to extend emergency loans, many were quick to call it an isolated instance of Wenzhou’s trademark brand of seat-of-the-pants entrepreneurship gone awry. But others saw it as an alarming example of a much larger trend: an explosion in risky, off-books ”shadow” lending as a way around the government’s efforts to rein in runaway bank lending, a hidden, casino-like money market Fitch estimated at RMB 10 trillion (US$ 1.5 trillion). If so, they argued, Wenzhou’s woes could be just the tip of the iceberg.

5. Muddy Waters. When research firm Muddy Waters, founded by former journalist Carson Block, accused Chinese timber company Sino-Forest of exaggerating its land holdings and profits, it set off an avalanche. Not only did it cost hedge fund manager John Paulson — famous for betting against U.S. subprime mortgages – up to $500 million after the stock plunged over 85%. It also sparked a widespread hunt to identify — and sell short – other overseas-listed Chinese firms that might have something to hide, particularly “backdoor” or “reverse merger” listings which had avoided prior scrutiny. It signified a sea change in market sentiment: investors who, absent any direct knowledge, once assumed that all China stocks were winners, now feared they were all outright frauds. In November, when Muddy Waters turned its guns on Chinese advertising seller Focus Media, the stock plunged 66% at one point due to short-selling, leaving Chinese overseas-listed firms feeling bruised and battered, and wondering which of them could be in the cross-hairs next.

6. RMB Internationalization. This year saw numerous high-profile predictions that China’s currency, the yuan (CNY) or Renminbi (RMB), is destined to supplant the dollar as the world’s leading reserve currency. As if to realize this aim, the Chinese government embarked upon a number of steps intended to increase the use of the RMB beyond China’s borders. It expanded its currency swap arrangements with other countries, authorized more dim sum and panda bonds to be issued in RMB, and encouraged Chinese exporters and importers to settle their trade bills in yuan. One result was a dramatic expansion in holdings of offshore RMB in Hong Kong (CNH), which doubled to RMB 620 billion by October. Critics, however, counter that the yuan is still a long way from free convertibility — a prerequisite for any truly international currency — and point to a late-year fall-off in CNH deposits as evidence that willingness to hold yuan was primarily driven by short-term speculative interest, rather than longer-term faith in the RMB.

7. Eurozone Crisis. The frantic efforts by European leaders to stave off a debt meltdown and save the Euro may have unfolded in Athens and Frankfurt, but all eyes were on Beijing. After an emergency summit in October agreed to expand the Eurozone bailout fund to €1 trillion, the head of that fund flew immediately to Beijing, hat in hand, to ask the Chinese to chip in from their massive foreign reserve holdings — a move some said marked China’s emergence as the world’s top economic power. Earlier, Italy had floated the idea that China’s sovereign wealth fund would step in and rescue its bond market, and make much-needed investments in its economy. The Chinese, while undoubtedly flattered, in the end were cool to the notion of “saving the world,” insisting they had their hands full with their own problems. Among them: fears that a renewed downturn in Europe would hurt demand for Chinese exports, and slow China’s growth. By the end of the year, however, China did make at least one major acquisition in Europe, when its Three Gorges power company bought the Portuguese government’s 21% stake in Energia de Portugal (EDP) for $3.5 billion.

8. U.S. Currency Threats. Despite the fact that China’s currency steadily appreciated throughout 2011, ending the year up nearly 5% against the dollar, the sluggish U.S. job market ensured that the exchange rate remained firmly in Congress’ political crosshairs. In October, the U.S. Senate finally passed a long-threatened bill to impose wide-ranging trade sanctions on China in retaliation for its currency policies, by a vote of 63-35. Chinese spokesmen reacted with predictable fury, but Speaker Boehner prevented the bill from reaching a vote in the House, saving President Obama from an awkward election-year veto decision. While Boehner called the bill “dangerous,” the front-runner for the Republican presidential nomination, Mitt Romney, racheting up his rhetoric on China, promising to declare China a “currency manipulator” on his first day in office – all of which suggests a rocky road for US-China relations as the U.S. enters next year’s election season.

9. National Social Insurance Law. Last November (2010), China passed a national social insurance law – a major milestone that replaces a confusing and inadequate hodgepodge of local programs and taxes. However, when the law went into effect this July, foreign businesses in China had an unwelcome surprise: a little-noticed clause that required foreign expats to pay into the system — despite the fact that no collection mechanism had been set up, despite the fact that in most cases it would be all-but-impossible for them to collect any benefits. Then the northeastern city of Dalian — at the prompting of China’s Ministry of Finance — suggested it planned to lift the cap on income subject to payroll taxes, effectively subjecting foreign expats and other MNC employees to a 30% tax on top of China’s 45% income tax rate. So far, appeals to modify the policy have gone unanswered, even though more labor-intensive foreign-run businesses, like international schools and hospitals, say it is a deal-killer for operating in China. The new taxes, along with a secret circular restricting the ability to foreign firms to reinvest profits within China (which has since been scrapped), and an apparent crackdown on a commonly-used investment structure known as Variable Interest Entities (VIEs) all have contributed to a climate of growing concern and uncertainty that may help explain, at least in part, the recent decline in Foreign Direct Investment (FDI) into China.

10. Telecom Antitrust Investigation. In November, China’s two state-owned telecom giants, China Telecom and China Unicom, admitted fault and reached a settlement with antitrust regulators in an investigation into price-fixing and other anticompetitive practices in their broadband internet access business. The case, which was brought by the powerful National Development and Reform Commission (NDRC) — and according to earlier reports involved billions in potential fines — was the first under the country’s new Anti-Monopoly Law (AML) that targeted a Chinese state-owned enterprise (SOE). Previous cases had uniformly focused — many argued unfairly — on acquisitions or pricing behavior of foreign firms, despite the fact that Chinese SOEs often occupy semi-monopolistic positions in protected markets. The investigation and its outcome, which the NDRC says will save consumers money, raises the encouraging prospect that Chinese regulators may — at least in some circumstances — be willing to impose discipline on powerful state companies, which often behave as a law unto themselves.

 

Here Are The 8 Big Things Wall Street Will Still Be Freaking Out About In 2012

Image: Flickr: Mister Bombay

 

After All Those Ups And Downs The Market Ended 2011 Right Where It Started

Image: AP

The stock market ended a tumultuous year right where it started.

 

In the final tally, despite big climbs and falls, unexpected blows and surprising triumphs, all the hullabaloo proved for naught. On Friday, the Standard & Poor's 500 index closed at 1,257.60. That's exactly 0.04 point below where it started the year.

" If you fell asleep January 1 and woke up today, you'd think nothing had happened," says Jack Ablin, chief investment officer of Harris Private Bank. " But it's been up and down all year. It's been crazy."

It was a year when U.S. companies were supposed to run out of ways to make big profits. But they didn't, and in fact generated more than ever. It was a year when the U.S. lost its prized triple-A credit rating, which should have spooked buyers of its bonds. Instead investors bought more of them and made Treasurys one of the best bets of 2011. It was a year when stocks caught fire, then collapsed to near bear-market lows.

Among stocks, there were some surprising winners. Scaredy-cat investors who bought the most conservative and dullest of stocks — utilities — gained 15 percent this year, the biggest price rise of the ten industry sectors in the S& P 500. Other winning groups were consumer staples, up 11 percent, and health care companies, 10 percent.

Other market curiosities:

— Bad year, great quarter. Despite disappointing returns in 2011, the last three months of the year were impressive, which could bode well for the new year. The S& P 500 rose 11 percent. The Dow Jones industrial average, comprising 30 big stocks, climbed 1,344 points, or 12 percent. That was the largest quarterly point gain in its history. The Dow closed up 5.5 percent for the year.

— Best of the bad. U.S. stocks delivered little this year, but other markets did even worse, including ones in fast-growing economies. Brazil's Bovespa index fell 18 percent in 2011. Hong Kong's Hang Seng dropped 20 percent. In Europe, many of the biggest markets ended down in 2011. Britain's FTSE 100 lost 5.6 percent, Germany's DAX 14.7 percent.

— Buy American is back. A broad index of the Treasury market gained 9.6 percent, despite the fact that the U.S. government is now slightly less likely to repay its debt, at least according to Standard & Poor's. In August, the rating agency stripped the U.S. of its triple-A rating, citing mounting U.S. debt and political squabbling over what to do about it.

For stock investors, 2011 wasn't supposed to end this way.

At the start of the year, the Great Recession was officially 1½ years behind us and the recovery was finally gaining momentum. The economy added an average of more than 200,000 jobs a month in February, March and April. And U.S. companies kept reporting big jumps in profits, defying naysayers.

The stock market roared in approval. On April 29, the S& P closed at 1,363, double its recessionary low of March 2009.

Then manufacturing slowed, companies stopped hiring and consumer confidence plummeted, taking with it those hopes of big stock gains for the year. Adding to the misery, Japan was rocked by an earthquake and tsunami. That shut down factories run by crucial parts suppliers to U.S. firms, in particular auto makers.

Gridlock in Washington didn't help. After much squabbling, politicians eventually decided to raise the cap on how much the federal government can borrow in early August. But the heated debate took its toll. The Dow Jones industrial average swung more than 400 points four days in a row — down and up and down and up.

Overhanging it all was fear that the debt crisis in Greece had spread to Italy and Spain, countries too large for other European nations to bail out.

Talk of another blockbuster year for stocks turned to dark musings about the possibility of another U.S. recession. And so stocks kept falling. On Oct. 3, stocks had dropped 19 percent from their April high. That was just one point short of an official bear market.

Since then, U.S. housing starts have increased, factories are producing more, unemployment claims fell and U.S. economic growth rose. And companies are still generating impressive profits. Those in the S& P 500 have increased profits by double-digits percentages for nine quarters in a row.

The good news pushed stocks up in the closing months of the year.

The biggest winner in the Dow was McDonald's Corp, up 31 percent for the year. Bank of America Corp. was the worst performing stock, down 58 percent.

Including dividends, the S& P 500 returned 2.11 percent for 2011. That means investors lost money after inflation, which was running at 3.4 percent in the 12 months ending in November. At least they're getting more than investors in the benchmark 10-year Treasury note, which currently pays a yield of just 1.88 percent.

The outlook for stocks in the new year is either great or grim, depending on your focus.

Italy has to repay holders of $172 billion worth of it national bonds in the first three months of 2012. It will do so by selling new bonds. The question is how much interest they will demand to be paid to compensate for the risk they're taking on. If they demand too much, fear could spread that the country will default. That could sink stocks.

After Italy was forced to pay unexpectedly high rates in a bond auction earlier this month, stocks fell hard around the world.

There are also questions about whether China's economy is slowing too much and whether the U.S. politicians will agree to raise the debt ceiling again in 2012 or extend Bush-era tax cuts.

On the bright side, stocks seem to be well-priced.

The S& P 500 is trading at 12 times its expected earnings per share for 2012 versus a more typical 15 times. In other words, they appear cheaper now. Partly based on that many strategists, stock analysts and economists expect the index to end next year at 1,400 or more, up 10 percent or so.

The Standard & Poor's 500 index rose 5.42 points, or 0.4 percent on Friday. The Dow Jones industrial average lost 69.48 points, or 0.6 percent, to 12,217.60. The Nasdaq composite index fell 8.59 points, or 0.3 percent, to 2,605.15 The Nasdaq is down 1.8 percent for the year.

Trading has been quiet this week with many investors away on vacation. Volume on the New York Stock Exchange has been about half of its daily average. Markets will be closed Monday in observance of New Year's Day.

 

Europe Predictions 2012-1013,Prophecies Italy, Germany, France European Countries

Some of The European Countries will see their Economy getting weaker with a slowdown in 2012 and people protesting against their own governments shameless and immoral government heads who will mismanage the country. Unemployment will increase in Europe & people will suffer due to low incomes and higher taxes. Many Politicians will loose elections with humiliating defeats.European countries will face much extreme weather conditions of Cold, Heat, Fires and Volcano Eruption bringing life to standstill and economic loss. European economic outlook will get better in later half of 2012 and 2013.There will be new scientific discoveries in medicine and technology. Medical science will progress in finding cures in some types of cancer.

 

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India Predictions,Prophecies 2012-2013,Horoscope India,Future Indians

India Will Be The Great Power by 2035 Spiritually, Economically and Militarily. Popularity and strength of India will soar.India's Yoga, Spirituality and Saints will influence the world. Indian Economy Will Have Slowdown in 2012 but will Begin to rise in later part of year.Indian Economy will grow and strengthen again at around 6.75% (GDP) in 2012.Gold and Silver will be strong in 2012 and 2013.With India's Help, and kindness Asian countries like Pakistan, Afghanistan, Nepal, Srilanka, Bangladesh, Bhutan, Burma, will ever prosper have will have Progress, prosper and have peace.Terrorism will start to decline in coming 10 years. Any country hurting India will invite much destruction & ruin by natural causes.No world peace will ever come without India's help as it will have much credibility and integrity.Indians will become wealthy and Rich will largest number of millionaires in the world till 2016.



There will be great awakening among the masses. Great positive changes will be brought about most honest, credible, wise, spiritual and patriotic people who will shake the country and government.Selfless works done by the great patriotic nationals who Will Strengthen the Nation and democracy in India and will go a long way to make India great power in times to come as it will grow from strength to strength. Bollywood movies will flourish and its films will become world class and popularity soaring.It will become richest country of The World and its power and influence will increase tremendously around the world. Brilliant people of India will do wonders around the world with great scientific discoveries in science, space, medicine, economy, military, technology, education, spirituality, Ayurveda which will benefit the mankind.Great God Realized Yogis will emerge in coming years by 2050 who will shake the world and prove gods existence.Swami Ram Dev will be the True Bharat Ratna of India who will bring great social awakening in times to come


Advanced Yogis Of India and Spiritual Human beings Will be able to travel to and forth in Astral Universes by 3050 AD when Treta Yuga Will arrive. Great saints and people of ethics and morality will bring grace of god and protection on this nation. As India and world enter more and more into Dvapara Yuga or Great Scientific and Atomic Age :Life span of humans will increase, People who are Evil, Immoral, Corrupt will suffer, Jailed, Die with Diseases with short span of life. Dharma and forces of justice will get stronger and people will begin to understand spirituality in true sense and superstition will begin to vanish. There will be no Kalki avtaar not any avtar will come in future. Expansion of our universe and species of solar system will start to contract and growth rate of population will start declining.

Prime minister of Indian will be a Dummy puppet who will align with corrupt and will be imposed on the people of India which will be unacceptable to Indians.Corrupt politicians and bureaucrats will be the biggest obstacle for India to become regain its greatness.Many of the corrupt will be jailed but government agencies will weaken the cases to let them escot free.UPA and congress will loose its credibility. Honest and Patriotic people of India will suffer in the hands of UPA and Congress Government.UPA government will try to silence and harass every citizen with false cases who will try to speak truth and raise its voice against repressive and wrong policies of government.Food Inflation will continue to be high and common man will suffer under price rise and his life and survival will be difficult. Its policies will benefit the rich and powerful industrialists and inequalities of incomes will increase.People of India will protest against the government policies and UPA government will have to bow to power of people and many of the ministers and evil people will suffer, loose elections and imprisoned.



Rahul Gandhi horoscope reveals that he will Be Unfit, Immature and Unwise to be the Prime minister of India. Congress government will not be serious in bringing black money back to India and instead will give enough time to the corrupt to hide their black money so that they can escape law. Corrupt politicians allies in the government will continue to loot, lie and mislead the nation and people of India. It will have the most shameless, anti people government who will not care of its own people and be completely insensitive to people sentiments and the poor and mismanage the economy.Most of Its ministers will not have any credibility or integrity.It will loose election's in many states.Government of India will be unwillingly forced by the people of India to bring positive changes that will uplift and strengthen the democratic institutions.

Kashmiris will only prosper and will be at peace when they will merge completely with India and completely renounce wrong extremists leaders, violence and Pakistan or it will face much destruction, suffering and misery from nature. Rogue Pakistan Army and Jealous Terrorist Organization ISI will continue to train Muslims of India for terrorism, mahyem and bombings in India. Pakistan will only be interested in occupying territory of Kashmir land and not in the welfare of kashmiri people. Chinese will try to usurp Indian territory and weak congress government will do nothing to protect the country territory.China and Pakistan will be the most treacherous and deceitful nations that India needs to be careful with in 2012-2013 as they will do everything to harm Indian interests but will be defeated.India will defeat Pakistan in aspect of life and Pakistan people will begin to repent the partition. Indians will also become aware of asking for its looted wealth from the British and ask for its return and an apology from UK government.

 

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England Predictions,UK Prophecies 2012-2013

England Predictions And UK Prophecies 2012 2013

America Predictions 2012-2013, USA Prophecies,American Economy

America will witness its Decline Economically, Militarily and politically. American Economy will struggle and unemployment will remain troublesome in 2012-2013. American government will artificially try to to pep up and manipulate its economy but will fail. USA dominance of the world will be over and shift of power and economic will take place mainly to India, China and Latin American countries. America relations with Pakistan will remain worse due to terrorism and killing of its soldiers by Pakistan based Islamic militants.Pakistani Citizens will plot terrorist acts in America in 2012-2013.There will be protest by Americans against its Government as Incomes and purchasing power of Americans will decline. American Economy will see low growth in 2012 but will do little better in 2nd half of the year.USA will restrict Employment from other countries on the basis of discrimination.Its Space programme will suffer and military expenditure will decrease and it will no more be a superpower anymore in the future with its capitalistic structure crumbling gradually. People of America will loose faith in Christianity and adopt Hinduism and Yoga more and more.There will be No Coming Of Jesus Christ.


India And U.S. will come closer and will make great discoveries in Space, New Weapon Systems and Medicine. India will help USA Economy and gain more employment for its people. Gold prices will remain firm and Rise around the world. Space tourism will grow and more and more people will travel to space for adventure.

America will suffer much damage to its property and lives from Hurricanes, Snow, Storms, Wild Fires, Tornadoes and Floods.


China Predictions 2012 -2013,Chinese Prophecies, Deceitful & Untrustworthy Nations

Asia Predictions 2012-2013,Indonesia, Philippines,

Australia Predictions 2012-1013,Australian Prophecies

Australia will have slow Economic growth in 2012 but will see upward movement in its economy in later part of 2012-2013.Its Prime minister will become unpopular among the masses as it will not have much credibility among its people. Public will protest against its own government. Australia will suffer from man made disasters and natural calamities like Fires and floods.Acts of Racism and attacks on foreigners will negatively impact Australia's image.

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Russia 2012-2013 Predictions,Russian Prophecies, Economy http://world-famous-predictions-prophecies.blogspot.com

 

FINALLY, SOME EXCELLENT INVESTMENT ADVICE: Don't Play The Losers' Game

Image: nozomiiqel on flickr

If you're an individual with some money to invest, the first thing you need to know if you want to invest intelligently is that you shouldn't play the Losers' Game.

 

What's the Losers' Game?

The game that 99.9% of the people who talk about investing appear to be playing: Namely, following global economics and markets and investment advice and trying to make smart decisions along the way.

If you play that investment game, you're almost certain to lose.

And the sooner you understand that, the sooner you'll be on your way to investing intelligently.

In other words, if you want to invest intelligently, the first thing you should do is ignore 99.9% of what you hear in the financial media.

Why?

Because, if your goal is to invest intelligently, what you hear in the financial media is mostly distracting noise that will trick you into making expensive mistakes.

That doesn't mean that the people in and on the financial media are stupid--they aren't. It just means that almost everything they talk about is irrelevant (or worse) if your goal is to invest intelligently.

Specifically, you should ignore:

• Market news
• Market forecasts
• Economic news
• Economic forecasts
• Bull/bear debates
• Stock picks
• Stock pans
• Technical analysis
• Quantitative analysis
• Generic " advice" (buy this, sell that)
• And so on...

Even if what you hear in the financial media occasionally proves to be " right," you should still ignore it. Because as you'll learn the hard way if you consume enough financial media, there will be no way to tell in advance which of the many things you hear will turn out to be right. And the ones that turn out to be wrong will cost you a lot more money than you will make from the ones that turn out to be right.

So that's the first thing you should do if you want to invest intelligently: Recognize the financial media for what it is--financial media.

(And what exactly is the financial media? Play-by-play coverage of the most exciting global sport in the world.)

 

George Soros wins again! (Funny--you could have predicted that.)

The second thing you need to understand if you want to invest intelligently is that if you choose to play this global sport, you will not be playing in a special Little League or low-stakes table with the folks like you who just aren't that good at it. You will play in the same league as the best professional players in the world. And you should expect to do as well against them as you would do against the PGA Tour players at the Masters or the Green Bay Packers in the Super Bowl or the Yankees in the World Series or grand masters in chess.

 

Because the third thing you need to understand is that the only way for you to make money trading versus investing intelligently (owning low-cost index funds) is to out-play these top professionals.

Got that?

The global active trading game is like a big poker game. The " pot" the players are playing for is called " alpha" --the total amount of performance that exceeds the performance of the index. This pot, the alpha, that is won by some players, equals the amount lost by other players. To make it smart to play the trading game, therefore, you have to have a good reason for thinking that you are going to be one of the alpha " winners" instead of one of the losers.

And when you soberly assess your competition--massive global institutional investors with decades of experience and tens of billions of dollars to spend on research, traders, trading systems, information, advice, access to companies and governments, and a hundred other advantages that you've never even heard of--you will (or should) gradually come to the conclusion that this competition is pretty fierce and that your chances of winning that alpha pot instead of contributing to it with losses are small.

And if you don't begin to realize that, you should at least remember the old poker adage:

If you don't know who the sucker is at the table it's you.

And then there's one last thing you should understand about your global trading competitors, folks who are very glad to see you show up (because if you're arrogant enough to think you can compete against them, you're easy pickings):

They're all paid to manage money.

Why is that important?

It's important because, in most cases, it means they will personally do fine regardless of how well they manage money. As long as they don't screw up too badly, they'll be able to collect big money-management fees year after year from suckers like you, even if they do worse than the market index--which, over the long-term, more than 90% of them will.

You, meanwhile, won't get paid a cent to manage your money. You'll invest tons of your valuable time and effort in playing a game you are almost certain to lose. And, over the years, in addition to the amount you lose competing against the world's best investors, you'll lose a ton of money in time and opportunity that could better have been spent elsewhere.

So, then, how do you invest intelligently?

Financial advisor Carl Richards, who just wrote a book about this, explains how here.

Here are the key points:

• Invest in a diversified portfolio of low-cost index funds
• Rebalance automatically when the allocations get out of whack

That's it. That's how you invest intelligently.

But wait.

How can it be that simple? And if that's how you invest intelligently, why don't you hear more about that in the financial media?

The reason you don't hear more about it in the financial media is that it's boring. The financial media need to make a living, too, and covering the 24/7 market game is exciting. And there are lots of people who like following the markets minute-to-minute 24 hours a day, and the financial media competes for their eyeballs and ears.

But that has nothing to do with intelligent investing.

And just because the " magic formula" of intelligent investing is simple doesn't mean it's easy to do. In fact, it's very hard.

 

Image: Carl Richards Napkin sketches by Carl Richards. Click for more >

The reason it's hard is that it's hard to understand and believe that this strategy will guarantee that you will outperform about 75% of all investors, including the professionals, over the long haul.

 

Why will you outperform 75% of all investors using this strategy?

Two reasons:

• Lower costs
• Fewer mistakes

By forever trying to chase the Big Prize--alpha--most investors make lots of mistakes. They buy high and sell low. They pay too much for bad investment advice. They pay big taxes. They get fearful when they should be greedy, and greedy when they should be fearful. They fall in love with assets at the exact worst time (when they've been going up) and fall out of love with them at the exact worst time (when they've crashed). They pay big fees to mutual funds, hedge funds, and other stock-pickers that may turn in some nice returns some years but then will lose all those winnings and more in other years. They " get out of the market" just when things get really scary (cheap) and get in when things seem safe (expensive). They hire and fire a series of financial advisers, incurring huge tax penalties in the process.

And so on.

When you add up all those mistakes and costs over the years, and you include the cost of taxes (which generally make losers out of even the folks who think they've won), the odds are extremely high that you will end up being one of those suckers who gave " alpha" to the winners.

But, for most people, it takes years and years to really understand that--and to believe it and act on it when everyone you know including bad advisors and the financial media are telling you something else.

So, yes, investing intelligently sounds simple. But it's hard to do. And that's why most people don't do it.

So if you are smart and disciplined enough to do it, hats off to you. Enjoy the time and money you would have lost if you had spent your life playing the Losers' Game.

Now read Carl Richards >

 

MARK MOBIUS: Maybe We Should Be More Optimistic About North Korea



The death of North Korean leader Kim Jong-il on December 17, 2011, escalated the uncertainty surrounding the regime change in Korea, which was preparing for a leadership transition in 2012. Very little is known about Kim Jong-un, the young man who is taking on the role of dynastic head. Some analysts feel that the death of Kim Jong-il sharply increases the risks and uncertainties from the secretive Pyongyang regime, which has significant consequences for security on the Korean peninsula and beyond. South Korea and Japan are most immediately threatened, but China and the U.S. are also deeply involved with vital stakes in North Korea’s future.

We believe Kim Jong-un, being untried and young, may not be entrusted with the power his father had, at least initially, and there is a chance that he will be affected by the rest of the Kim family. We think there is a potential risk that the regime may undertake some type of military activity or nuclear tests in an effort by the new leadership to demonstrate to the outside world that there has been no regime policy change, internal strife or reunification with the south.

However, uncertainties and risks in Korea have been with us for a long time, since the end of the Korean War in 1953. There has always been a threat of invasion from the north, and this threat has been amplified by the various actions taken by the North Koreans over the years. Therefore, some foreign investors have become inured to the situation.

We suspect this regime change is unlikely to create any immediate substantive impact on other North Asian financial markets for the moment, but any increase in tension on the Korean peninsula may result in some capital moving from South Korea into markets like China, Japan and Hong Kong. However we do not see that happening at this stage.

On a more optimistic note, we expect the new leaders may be willing to adopt Chinese-style economic reforms, which could result in a much more relaxed political environment. We feel the fundamentals for South Korea remain strong generally and the country has continued to show resilient growth on a longer-term basis. In November, South Korea ratified the free trade agreement with the U.S., which could result in increased trade between the two nations upon its implementation in January 2012.

Read more posts on Investment Adventures in Emerging Markets »

 

Look Where Europeans Are Going In Search Of Jobs And Economic Growth

 

Everyone Is About To Make The Same Mistake They Made In March 2009

Earlier we speculated that the European crisis might in fact be over.

 

The point of the post wasn't to argue that Europe had been solved rather the point was that crises can and do end without the fundamental problems being solved. So if you're waiting around for a " solution" then you'll inevitably end up missing the turn.

The US crisis of '08-'09 demonstrates this pretty nicely.

Back in the thick of the crisis, what was everyone screaming about?

Well, there was the housing collapse obviously. This was probably the essential economic event, as it set off the wave of defaults and foreclosures hit the financial system like a bomb. Closely associated with the housing collapse was the acknowledgment that consumers had drowned themselves in debt during the boom, and that it would likely take years and years to get back to normal.

And the truth is that these issues have not gone away.

Take a look at revolving consumer credit (credit cards, basically).

While the rate of decline has improved a little bit, consumers remain in non-stop deleveraging mode.



Or consider housing.

According to the government's house price index, 2009 was not the bottom there. That index has hit its lowest level yet earlier this year, fully two years after the stock market bottomed.



While we're at it, here's a big, scary looking at household debt (outstanding) vs. GDP.



The bottom line, which you should hopefully grasp, is that there are some big, honking economic overhangs -- trends that have arguably built up for decades -- that haven't gone away or even improved over the last couple of years. We're going to be wrestling with these for awhile.

But the crisis has gone away, because despite these big issues, the market isn't worried that the whole thing is a sandcastle that's about to blow away. So even as housing market and credit trends have gotten worse, the market has had a really nice 2 or 2.5 year-run.

For what it's worth, it's this contradiction of a crisis being over against the backdrop of ongoing fundamental problems that's caused so many experts to miss the incredible comeback in the market.

So what does this mean for the Eurozone crisis? Well, it's the same: You don't actually need to fix all the fundamental problems for the crisis to end you just need to be fairly certain that the whole thing isn't headed for total collapse.

Let's back up...

There's no doubt that the Eurozone is deeply flawed. We talk about the problems all the time here, but there are really two huge issues.

• The competitiveness issue: It's very difficult for less productive, peripheral economies to compete. Greece, Italy, et. al. don't have the luxury of competitive currency devaluation like they used to, and so they run ongoing trade deficits with their core neighbors (Germany, chiefly) and it's not obvious how that gets fixed. So-called " internal devaluation" via austerity hasn't really worked at all, and has produced considerable political and social discomfort (which has further exacerbated economic weakness).
• The lack of sovereign currencies issue: A big problem for Italy and others is not their high debt loads, but that they lack their own currency to print. This is crucial as it explains why the UK is a safe haven and France is not. It explains why Sweden is a safe-haven but Finland is not. It explains why Japan has a monster debt-to-GDP but borrows at rates that are the envy of the world.

How are these big issues possibly going to get solved? It's really hard to wrap your head around that. Nothing we've seen so far from any government meeting has been even close to satisfying.

Any " fix" that you could come up with inevitably runs into the politics problem -- the fact that you have 17 sovereign Eurozone countries and none of them want to spend a dime of taxpayer money helping out their peers, especially the peers who live in nice climates on the beach.

Remember this Venn diagram?

 

Image: Pawelmorski

 

But as we established with the American crisis of 2008-2009, you don't actually need to solve the underlying problems to end a crisis. All you need is for the markets to think that it's not all about to collapse. The solution can then be worked out over years

So what would it take to end the crisis in Europe? Basically just the assurance that there isn't going to be an imminent banking collapse and that the various governments will be able to continue financing their deficits for awhile. And through two years of crisis meetings, and ECB tinkering, it's possible that we're limping towards some point of stability.

At the last ECB meeting, Mario Draghi announced an unprecedented spate of measures designed to pump liquidity into the system. It may turn out that banks can basically pledge very piece of junk on their balance sheets, including individual loans, as collateral for fresh, badly needed cash. In short, the ECB is doing a lot to stave off a banking collapse. And it may turn out that by plying the banks with so much liquidity, governments are then able to finance their deficits -- a form of arbitrage that FT Alphaville dubs " the Sarko trade" , since it was Sarkozy's suggestion that banks use cheap capital to sop up sovereign debt.

There are a lot of problems with this solution: One is that banks themselves have said they don't intend to use cheap liquidity for the purchase of buying sovereign debt, and also the potential size of this trade might not really be big enough.

But this could start to fix the plumbing. And that's key.

Ultimately, the problem in Italy (and Spain and everywhere else) is not that debts and deficits are so big. That's really not the issue.

The problem is that the plumbing is broken...

See in normal times, government deficits should be self-financing in that the government spends, the private sector gets that money, that money then eventually gets deposit into a bank, which then uses those deposits to buy government debt (presumably because it's risk-free) and the process is repeated and everything works out fine. But clearly in Europe that all broke down. Greece convinced everyone that government debt is not risk free, and money flowed from peripheral banks to German banks (and Swiss banks) depriving the government of natural debt buyers. This is why, for example, Richard Koo has proposed the radical solution of governments only being able to sell debt to their own citizens -- basically so that the plumbing remains intact and money doesn't " leak" out.

If you start to fix the plumbing, you could get to where governments can start financing their deficits at sustainable rates again. Even if deficit targets are missed it can be okay provided that spending gets plumbed back into government bonds.

This isn't a " solution" but it is how the crisis could end.

People are in a state of panic right now. This is nicely illustrated by this recent chart from Nomura, which examines cross-border equity flows: When people start freaking out they dump foreign equity assets. Right now, these flows are at a level that's only been surpassed twice in over 25 years: The crash of '87 and the collapse of Lehman.

 

Image: Nomura

 

Bottom line: It's possible that the crisis/panic we're seeing now could subside long before the core problems in Europe get fixed, a process that at best will take years.

 

REMINDER: Economists And Analysts Have No Idea What Is Going To Happen Next Year



It's prediction time again--the time when analysts and economists tell everyone what they think will happen next year.

And so it's a good time to remind everyone that analysts and economists have no idea what will happen next year.

Well, okay, not no idea. But pretty much no idea.

(And I say this as a former analyst. And it's not some huge revelation or secret. Most professional analysts and economists, if they've been around a while, have learned the hard way that economic forecasting is like driving fast at night. Thanks to your headlights, you can see what's coming a few hundred feet in front of you, but you can't see beyond that. And if you're going too fast, by the time you see the unexpected curve or deer [black swan!], it might be too late).

What analysts and economists do have is a general idea of what will probably happen next year.

Analysts base their forecasts of what will happen next year based on an understanding of what has happened in prior years, with a bias toward what has happened in very recent years. In other words, analysts conclude that next year will be pretty much like the last few years.

And because the range of normal outcomes of what will probably happen next year is relatively tight, analysts and economists have a reasonable chance of not being too far off in their predictions, provided they don't try to be heroes and predict something crazy.

Like a recession.

Recessions don't happen that often. As a result, economists are taking a big risk by predicting them. Especially because, as study after study has shown, recessions are very hard to predict in advance.

At the beginning of this year, for example, the economy was going along fine, so no one was predicting a recession. Then, in the summer, everything started to go to hell, and pretty much every economist concluded that we were definitely headed for another recession. And now, a few months later, the data has suddenly come in better than expected, and now almost no one is saying we're headed for a recession.

It's the same for companies, by the way. Growing companies generally grow every year, so analysts generally predict growth. Of course, every few years, something bad often happens, and companies get clobbered. But you rarely, if ever, see analysts correctly predict the clobbering in advance, because by the time it's obvious, it is already happening.

Anyway, given the confidence with which many economists and analysts speak, it's easy to forget that they have no idea what is going to happen, so it's best to use specific examples to illustrate this.

First, from Bloomberg, here's a chart of Citigroup's " economic surprise index" for the past five years.

This index measures where economic data actually came in relative to where economists thought they were going to come in. When economists are " right," which happens occasionally (a broken clock is right twice a day), the index measures " 0" . The rest of the time, the index shows how wrong economists were. As you can see, economists are usually wrong and often very wrong.

 

 

As you can also see, right now, economists are wrong by being much too pessimistic. While that sounds encouraging--the economy is better than expected--the index doesn't usually remain at this level for long.

Next, from Wall Street Rant, here's a chart showing the range of GDP estimates for 2008 as made by analysts in December 2007 (green line). In 2008, you will recall, the economy collapsed, shrinking -2.5%. In December of 2007, however, not one of 51 economics surveyed by the Wall Street Journal saw a recession coming, let alone a deep recession. Not one!

(The blue line in the chart, by the way, shows economists' current forecasts for 2012. As in 2007, not one economist sees a recession coming. Uh oh).

 

 

And, finally, here's another healthy reminder from James Montier of GMO that economists have no idea what the economy is going to do.

Year after year, as Montier's chart below shows, economists as a group predict that the economy will do what it has always done--grow 2%-6% next year, with a tight range around 4%. And year after year, the economy grows much faster or much slower than that or collapses altogether.

(Yes, economists do occasionally get it " right," but only in the sense that sometimes the economy's performance is actually average.)

If economists can't predict the future, why do they always predict that the economy will grow about 4%? Because that's what the economy's long-term growth average is--and, therefore, that's the prediction that gives the economists the best odds of being generally " right" (or at least not too embarrassingly wrong).

Just as no one ever gets fired for buying IBM or hiring someone from Harvard B-school, no one ever gets fired for predicting that the economy will do about as well as it has always done. And, of course, staying close to the average also gives the economists the best chance of being close to right. So that's what economists predict!

(And the same goes for most analysts, by the way. There's safety in predicting that the future will be pretty much like the recent past and pretty much like everyone else is predicting. It's the outliers who get famous--or fired.)

Here's James Montier:

 

 

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