By now you've heard about India buying 200 tonnes of gold from the IMF. Alphaville quoted the Indian Finance Minister as saying "the European and US economies had 'collapsed.'" Alphaville also noted that this was "the strongest signal yet that Asian countries are moving away from the US currency."
I have no idea if that is the "strongest signal" or how important it really is in the big scheme of things but it is relevant and there will be more things like this in the news from healthier countries. But it is one small thing, not disruptive in a meaningful way, just part of a gradual move to the USD being a little less important which should ultimately make interest rates a little higher creating something of a headwind to US growth on most fronts. What it will not do, consistent with yesterday's post, is not cause the complete breakdown of US society.
I found this article about how much people need to save for retirement. It was pretty good but I would urge you not focus on replacing X% of your income but instead focus on your expenses. If you make $20,000 per month but live on $5000 then the $5000 becomes a more relevant starting point. From there you'd need to add some padding for one-off items (we had to get tires for our pick up truck last week, ouch!), things you know will get more expensive like healthcare expenses and chances are your tax situation will change.
The other thing, save as much as you can, many people don't and it is such a simple thing to do.
Lessons that Jim Chanos says we've already forgotten;
1) Borrowing short and lending long is a still bad idea
2) Accounting matters...a lot
3) Conflicted Ratings Agencies: Still not unbiased observers
4) Regulate the activities not the actors
5) Black Swans are real
6) Glass and Steagall were right after all
7) Too big to fail=too big to exist
8) Quantitative easing has a cost
9) Insurance without reserves is not insurance
10) Shooting the messenger does not change reality
Nouriel Roubini is all over the place talking about the mother of all carry trades ending badly. Specifically the world is borrowing at "negative interest rates" and betting on high risk assets like emerging markets and commodities.
It will not be very often I agree with him on magnitude, and I don't now either, but one thing is clear which is this is a time of flux. We have just had (or are still having?) and extreme move in one direction that was in some part the result of an extreme move in another direction. More extreme moves that go faster than fundamentals dictate will very likely be part of the landscape for a while longer which is why although I expect to have more foreign exposure I am moving slowly.
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12 comments:
We are doing a good enough job on our own of breaking down our society, lol.
Historical returns and inflation rates used in the maxwithdrawl rules of thumb can be misleading depending on where we are in the cycles....you are right to look at the cost nut of needs vs wants vs vs dreams...along with the probable risks/returns/safty-margins of the investments/mortality at the point we establish a LT plan of action.
Since we will have to "live" with the results we had better each understand all elements including assumptions vs market with periodic reviews.
"The other thing, save as much as you can, many people don't and it is such a simple thing to do."
Yes, so true, it is simple...and
easy. Just pretend you don't make
as much money as you do:-)
There are so many people that don't know HOW to SAVE and cut
corners...so much depends on how
you were raised as they don't teach
saving in schools. Acutally, saving can be fun....make a game of it! Homemade soup is good and good for you:-)
We are retired and our biggest
expense,not planned for, was
having a tree or two removed
from our property...YIKES $$$$
Also, don't forget DENTAL expenses
a root canal etc. will set you back
big time. Oh yeah, don't even
entertain the thought of inheritance as medical expenses
will make it disappear fast!!
If you have any money don't tell
your relatives...they will plan to move in with you...trust me:-)
Just some shared knowledge...
hope it helps.
Thanks for the tidbits Roger.
a loyal reader
Roger,
I think you are right that the devaluing of the dollar won't be a collapse for the US. Look at the British pound as an example. They were replaced as the world currency, and they are doing ok. It certainly isn't a positive development, but it would happen anyway as larger countries increase their standard of living and economic size. If we had the same economic output per citizen as China, we wouldn't have enough dollars to be the reserve currency anyway.
As far as Nouriel, I think he is right in that there is too much risk taking due to a flood of dollars. Since March, every equity asset class has exploded. Certainly, some assets were undervalued in March, but it is hard to argue that this isn't a liquidity event. Every structural inefficiency that existed in March still lives today. In fact, some of them are even worse, especially the "too big to fail." If this turns at all, the move could be larger than most expect just as the 08 decline was.
Yes we are in flux. The flux is the flood of dollars from the fed. The fed wants asset appreciation and they are going to get it!
As a society, we have not been taught or encouraged to "save". Perhaps the government needs to step-in by encentivizing. Tax relief for interest or dividends has more importance than "informing" that we must save. In the area of overspending, we should eliminate tax incentives for high-priced homes....let's put a ceiling on mortgage-interest write-off.
As a society, in general, we like to talk-the-talk but never walk-the-walk.
I think we can throw history out the window right now. Who thinks the US will be stronger in 10 years? I can count the yes's on my amputated hand.
anon 7:00--I'm right there with you, my friend. On my way to the dentist this afternoon. Glad I'm not alone.
My wife must be worried about the dollar since she, too, has bought a ton of gold.
I wish my wife could afford to buy a ton of gold.
HI Roger: I just came back from the "insider commodity conference" on the NYSE and heard some interesting things. I got to speak with the fellow who created RYMFX and then LSC. Apparently LSC has a larger potential energy allocation wheh it goes long energy (which it did Nov 1) vs. RYMFX . The reason why neither product ever shorts energy is b/c they are aftaid of a huge loss should it be short and some kind of event occurs in the middle east, that could spike up the price of oil. In addition, LSC is and ETN (u prob knew this, I didn't) but they are coming up with a new managed futures ETF to be released soon (by Claymore.) ALso, the conensus seemed to be that passively holding a commodity index is NOT the way to go, and active strategies do much better (has to do with contango and backwardation). While I know you don't think managed futures are a good proxy for commodities I found this nonetheless some food for thought. Finally, there were several big commodities players who believe gold is in a bubble, it is a "religion", and it is not trading on fundamentals. Obviously there were those touting gold there , but those that favored the bubble thesis seemed to have more credibilty, at least to me.
Best, Andrew L.
Saving as much as you can while you can trumps many, many other schemes.
I agree from personal experience during my carrer in the previous century as a large high school principal that basic financial literacy should, but is rarely if ever, taught. Many teachers and administrators need to take the course. Ditto, government leaders.
T
Regarding India's purchase of gold;
Nope, it won't cause the unraveling of the fabric of our society...its just another straw...of course, you might recall the thingy about straws and camels' backs.
To the poster who brought up the UK and the pound:
Granted, its not the end of the world (losing the status of being the global reserve currency), but it sure does change the options and the consequences of those options when the factor is lacking, in terms of monetary policy.
Old Trader
All the elderly population with their millions (billions?) of years of experience and we can't tap that? They can't share their wisdom and skills with each other to lower their expenses?? And all it takes is a few clicks on a keyboard..
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