Warren Buffet recently had excellent quote about the debt ceiling during an interview on CNBC:
“I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.”
Excellent article last week in Lifetime Income Report (7/23/15, AgoraFinancial.com) on how to evaluate when to get out of an investment that’s making money. Many investors hang on to long and end up giving back some or all of their gains.
How do you know “when” it is right time to sell?
You’ve made an investment. It’s shot up quickly. Oh crap, is it getting overpriced and ready for a downward adjustment? Or has the rally got more legs to run?
KEY: How much is the investment worth now? How much are you getting paid to hold it?
Warning signs: Are analysts getting pessimistic about future earning (real analysts, not talking heads on TV.) Is investment getting pricey historically? Dividends just average?
When you meet your “exit price.” What’s an “exit price”? The day smart investors buy an investment, they set the price at which they plan on selling. The “exit price” that meet their objectives. Smart investors have a plan when they “buy” on how they expect the investment to perform. They stick to that plan.
The rest of investors? Everyone buys with the expectation the price will rise. Majority of investors fail to evaluate their investments using the keys above. Nor are they watching Warning signs. Therefore they don’t know when to sell.
What not to do
Lifetime Income Report pointed out that investments are nothing more than a piece of paper we trade. Don’t become attached to specific company or position. As soon as you do you will likely make mistakes and lose money. (If your gain has dropped from 50% to 25% you’ve still lost 25%.)
Never lose your objectivity. If investment has one or more of the warning signs above, set your exit price.
Dictum Number 1: People do not get what they want or what they expect from the markets; they get what they deserve.
Dictum Number 2: The force of a correction is equal and opposite to the deception that preceded it.
Dictum Number 3: Capitalism doesn’t always take an economy where it wants to go; but it always takes an economy where it ought to be.
Dictum Number 4: The severity of a depression is inversely correlated with government’s efforts to stop it.
From Bill Bonner onThe Daily Reckoning, Oct. 31, 2014.
To listen to the media it appears that Quantitative Easing (QE) is a thing of the past.
According to Jonas Elmerraji that’s not the case at all.
The Fed fears deflation. Turns out the forward inflation is only 18 basis points above the level that started Q1, QE2, and Operation Twist. Forward inflation has not fallen below 2.2% since Post-2008.
When the Fed fears deflation they give the economy another round of QE. Next QE program could start in 2015, perhaps earlier. The Fed will start talking about it before implementing it. Talk is cheap. Another QE program is expensive. Previous QE’s have not boosted the inflation rate as much as the Fed had hoped, nor as quickly.
What’s the implication for your business?
What’s the message in this? Watch for inflation rate to fall below 2.2%. Then step back and think about businesses that will benefit from another round of QE. How can your business offer more to attract customers from companies/organizations/governmental agencies? What can you implement to get more of that business.
Next how will QE affect your business. Which vendors will it benefit that you need to leverage on price? Which vendors will be adversely affected? What’s your plan? Would another round of QE help or hurt your prices? If it will hurt what can you offer as inducement to maintain your prices and margins?
What’s the implication to you personally?
QE always increase some prices and decreases others. Historically it seems to increase prices on the basics we all buy. Big ticket items typically don’t increase as much. Likewise, QE has implications for your personal investments. Spend few minutes evaluating your investments to see which will benefit. Be sure the benefits of selling assets will more than offset the tax consequences.
QE isn’t just a Fed program. It has important implications for your company and for your personal finances. Histrorically we know that inflation dropping below 2.2% historically has triggered another round of QE (regardless of what the government calls it.)
We are all aware of self-serving nature that fill politicians minds, and how dysfunctional our government is.
But the larger picture is pretty good and we each need to remind ourselves and the pessimists of the world how good we have it.
- We have a stable “democracy.”
- A military power that is the primary defender of the free world.
- Our economy is still the largest.
- Our dollar is still involved in 87% of currency transactions.
- Our financial markets are the freest.
- Our free enterprise system is still envied.
- Our economy is expanding more than 4%.
- Unemployment just hit a 5 year low.
- New technologies are driving additional and new manufacturing.
US became a world power based on our manufacturing prowess. Our world role as a manufacturer of products has greatly decreased.
This recession is the first instance that the government is creating most of the jobs (since the Great Depression.) Their attempt of course is to restart the economy.
Unfortunately, the loose spending policy and stimulus by the Federal Government, and the willingness of State, County, and City Governments to continue overspending does not contribute to a sustainable recovery. Our government continues to deal in microeconomics instead of macroeconomic fundamentals. The governmental policies continue to create asset bubbles. Sooner or later, like all bubbles, they will pop.
How do we protect our businesses?
Understanding the above is the first step. Second step is protecting our companies by minimizing the business we do with asset categories that are bubbles, like commercial backed mortgage securities. If we have to deal with them, then we each need to recognize we are dealing with risky markets and we need to develop alternatives as fast as we can.
There’s nothing wrong with doing business with risky sectors of the market as long as we understand them and don’t depend on them.
How do we protect our businesses? If government at all levels is taking a larger role in all aspects of society, then we need to structure our businesses to attract more government business.
Some of that business will be directly from the government. More business can come from various businesses and organizations that do business with governmental agencies close to you. Identify and market to those companies to encourage them to do business with you when they are in town.
Be proactive identifying business opportunities based on today’s market conditions.