Sunday, September 30, 2012

The Limerick of Finance for 09/30/12

Euro leaders face heavy unrest
Unity will be put to the test
Countries that have no cash
Will see their bonds crash
It's no plan to just hope for the best

Saturday, September 29, 2012

Friday, September 28, 2012

The Haiku of Finance for 09/28/12

Wall Street forecasts vote
Four more years of the same stuff
It can't be all bad

Thursday, September 27, 2012

The Haiku of Finance for 09/27/12

If you like bad debt
Europe has plenty to sell
Dumb funds buy it all

European Turmoil Gets Entertaining

I can find amusement in just about anything, especially financial follies.  Europe's move to curb high-speed trading comes after years of allowing a few dozen hedge funds to magnify market volatility.  I'm glad I won't be anywhere near European stocks when that music stops.  

Spain is about to go all-in on austerity on direct orders from Angela Merkel, probably risking civil disorder on a scale that will tempt Catalans to secede and right-wingers to call for a counter-revolution in the name of forced national unity.  I'm glad I won't be traveling to Spain in 2012 or 2013, no matter how many euros my dollar will buy.  

Europe's creditor nations threw the proposed bank bailout agreement into a tailspin again, proving that the ministers who actually have to fund the bailout are far more reticent than the national politicians who endorse bailouts for the purposes of pumping markets.  I'm glad I don't have money deposited in European banks.  

S&P is gently reminding us that European corporate defaults on debt payments just might possibly be higher because of all the problems people are having paying their bills and getting along with each other over there.  I'm glad I don't own any European corporate bonds.  

One amusing thing in all of this bad news is that the U.S. isn't doing any better.  Our GDP in Q2 was much lower than what we were told at the time.  That's not enough to keep pace with population growth so of course median income will keep declining; watch for the fake numbers on that score which will be revised downward themselves when you're not looking.  

This is only news to people who think we live in a magical candy-land where life gets better just because we elect leaders who say it will.  People fall for that every time.  That's what's really so amusing here.  

Wednesday, September 26, 2012

Tuesday, September 25, 2012

More Alpha-D Option Updates for 09/25/12

The options trades I tried to execute yesterday didn't get accepted.  I have no idea why nothing worked but I tried again today and they went through just fine.

I wrote covered calls on my long GDX position, some of which were very close to at-the-money and others that were farther out.  I do this to gradually whittle down my gold position as inflation ramps up.  This may seem odd to those gold bugs who are convinced that gold is always and everywhere the best possible hedge against inflation.  I am not similarly convinced, and I do not regard gold with religious fervor.  It has its use in an era of generally rising prices but it is of limited use in true hyperinflation.  That's where the U.S. is headed eventually thanks to the Federal Reserve's permanent stimulus and the government's unfunded entitlements.  I'm reducing gold as it rises to make room in my portfolio for other hard asset equities that will keep pace with hyperinflation.

I also renewed my cash-covered short put position under FXF, a currency ETF I wouldn't mind owning.  The Swiss central bank can't hold down the franc's value forever.  Maybe I'll just go ahead and buy some FXF next month.

I did not renew the options positions I've recently had around FXA and FXC.  I'd rather just watch them while the euro's pending self-destruction forces the U.S. dollar higher and plays havoc with other primary trading currencies.  

Monday, September 24, 2012

The Haiku of Finance for 09/24/12

Sold off all China
All of their numbers are lies
No transparency

Alpha-D Update for 09/24/12

Let's make this as quick as possible.  My GDX holdings rose through the strike price of the covered call options I wrote last month.  I bought some back and let some go.  Gold stocks are rising again thanks to QE3 hurting the dollar so I'll be trimming my position as it rises.  Remember, gold and other precious metals  respond positively to the beginning of hyperinflationary periods but they are poor long-term hedges against the entirety of a hyperinflationary period.  That means I'll be looking to buy other hard asset equities pretty soon.

I sold off the last of my FXI, just as I said I would do for the past few weeks or so.  My FXI holdings have greatly diminished since I opened the position a couple of years ago, and they did quite well much of that time.  I have since come to my senses on the China story now that their economic figures are pretty much known to be fabrications.  I won't return to any more non-U.S. indexed equity investments for the foreseeable future.  The world's biggest economies have not decoupled and they'll all head down the slope together, at some point.

Here's how the Alpha-D looks right now.  I'm long GDX, FXA, and FXC.  I tried to renew the short option positions that expired for those two currency ETFs (and also FXF, which I'm not holding right now) but the orders wouldn't execute.  I couldn't even write short options on GDX.  What is up with that?  I'll try again tomorrow.

My pile of cash awaits deployment after the inevitable crash.  If I'm lucky, and the market crashes before the Fed and Uncle Sam launch their coordinated wage-price spiral, I may be able to buy U.S. equities at lifetime low prices.  If I'm unlucky, and hyperinflation hits first, I'll buy a basket of hard asset equities I've been tracking and hang on for the ride.

BTW, you may have seen an excess of haiku and a dearth of analysis on my blog for the past few months.  I am heavily engaged with several other projects that have come to dominate a huge amount of my time.  You'll just have to deal with what I publish until I'm finished doing some important work.  I'll tell you all about it when I'm done.  I promise.  

Sunday, September 23, 2012

The Limerick of Finance for 09/23/12

The Fed has a new lease on life
With tools to fight financial strife
Well-intentioned but wrong
This bold style won't last long
When inflation sticks it with a knife

Saturday, September 22, 2012

The Haiku of Finance for 09/22/12

Central bank folly
Currency intervention
Destroy its value

New Zealanders Threaten Competitive Currency Devaluation

Count on silly politicians somewhere to argue for the wrong way to promote exports.  Some New Zealand politico wants to force that country's central bank to devalue the New Zealand dollar.  Cooler heads are likely to prevail through simple political strength and solid arguments that the Swiss haven't been able to hold their currency down.  The risk for currency investors is that these pro-stimulus sentiments can catch on among people desperate to revive economic growth.

New Zealand is doing the right thing by maintaining a normal interest rate policy.  Central bank intervention destroys a currency in the long run.  Proof will come in a year or two when the euro will have dissolved and the dollar will have begun its own devaluation.

Full disclosure:  No position in the New Zealand dollar, although I am considering buying some as a hedge against the U.S. dollar.  

Friday, September 21, 2012

The Haiku of Finance for 09/21/12

Goldman hedge platform
Another waste of money
Banks should not do this

Recession Signs Abound For Dummies

The "Dummies" book series is popular because it doesn't insult it's readers intelligence.  I don't insult my readers because they're intelligent enough to get my analysis and humor.  The people I do insult are too dumb to ever read my blog.  This post is about them; more specifically, it's about a few signs of a renewed recession that they'll probably miss, because they're dumb.

The WTO is downgrading its global trade forecast for 2013.  I'm puzzled by their continued insistence on some growth rather than none.  They've caught on to all the noise made by doom and gloom prognosticators who will soon be hailed as prophetic.  It's funny to recall the chatter from a few years ago about how the world's economies were supposed to decouple, mainly from portfolio managers looking to validate their theories about geographic diversification.  The only useful diversification for the next few years will be in currencies not linked to the dollar or euro, or in countries with economies focused on natural resource production.  Everything else remains coupled due to central banks' foolish penchant for monetary stimulus.

A majority of U.S. states is now reporting rising jobless numbers.  These numbers won't be counted in federal unemployment statistics because the DOL's economists are more skilled at massaging unpleasant data than the amateurs in state capitals.  Look for more dine-in restaurants to start accepting EBT payments, because catering to welfare recipients is a growth industry.

Every baseless rescue announcement in 2008 pumped the stock market up until the unavoidable liquidity crisis hit in September.  The same nonsense is happening now, with European stocks rising on pump promises that can't be fulfilled without destroying the euro.  Equity markets move in one direction while macroeconomic data moves the other way.  Only dummies would ignore these clearly marked warning signs of a big fat global recession.  Count on Wall Street analysts to stay bullish and money managers to keep buying equities and fixed income.  They're dumb.  

Thursday, September 20, 2012

The Haiku of Finance for 09/20/12

Cut backs coming hard
Wall Street knows pre-select list
Three banks will survive

Bank of America Prepares To Fire Your Teller

Bank of America is one of the systemically important financial institutions that has not been pre-selected to survive the next phase of the financial crisis.  That's why it has to cut 16,000 employees and close branches to survive.  They can start with any fraudulent mortgage document processors and loan-origination idiots left over from their takeover of Countrywide.  The good news for BofA is that the most recent quarter shows it can be profitable on lower revenue.

I mentioned above that surviving institutions have been pre-selected.  Goldman Sachs has been pre-selected because it tells governments and central banks what to do.  JPMorgan Chase has been pre-selected because many political leaders put their assets there.  Wells Fargo has been pre-selected because Warren Buffett owns its shares and raises lots of money for certain incumbent politicians.  Any bank other than those three will be subject to forcible seizure, liquidation, and/or consolidation if it can't meet its required capital adequacy ratios in the event of a credit market seizure.

Bank of America's executives should be running scared, as should those of any other bank I didn't mention in the above paragraph.  I wonder how many Merrill Lynch people would love to IPO themselves away from the BAC white elephant.

Full disclosure:  One credit card account at Bank of America.  One cash account at Wells Fargo.  No relationships with any other firms mentioned.  No equity positions in the stocks of any companies mentioned.  

Tuesday, September 18, 2012

The Haiku of Finance for 09/18/12

Peregrine chief thief
Admits fraud in guilty plea
Many more go free

Congress Grasps for Financial Transaction Tax

I'm skeptical of new federal taxes given my preference that the U.S. government reduce its spending as its main deficit-reduction method.  Today I learned of a proposed tax I can tolerate, deficit or not.  The House of Representatives will push a tax on stock, bond, and equity trades.  I'd like to see that tax on stock trades come down from 0.5% to a more reasonable 0.1% just like for bonds, but that can be worked out in committee once Wall Street lobbyists start screaming.

I can live with this tax because it will be a smack in the face to high-frequency traders that currently drive the vast majority of the volume on the major exchanges.  The small investor who socks away a few hundred a month won't miss an extra buck or two, but the hedge funds gambling with endowment money will have to seriously redesign their algorithms.  A transaction tax will probably destroy strategies that seek minute pricing differences every split second.  It will probably not hurt event-driven strategies like merger arbitrage or news release plays that don't require constant churning, but those strategies are far simpler to execute than something requiring math wizards.

The only drawback is that an additional 0.5% tax, on top of the potential increase in taxes on dividends to fund the inexorable deployment of nationalized health care, will reduce the after-tax return on equity investments to just about zero in a low-growth, low-interest rate environment.  I don't believe low interest rates will hold if the bond market revolts against the dollar, so a spike in real rates would immediately crash U.S. stock markets and the housing market.  Suckers who buy stocks now can look forward to zero or negative returns for a long time, but hey, at least their financial transaction taxes on their vastly reduced capital will be negligible.

BTW, this tax wouldn't be so necessary if Washington would cut unsustainable spending first, but that won't happen with so many Americans now addicted to EBT, disability pay, Social Security, and Medicare.  Transaction taxes will be popular with the proles who want to stick it to fat cats.  America - love it or leave it.  

Monday, September 17, 2012

The Haiku of Finance for 09/17/12

Quant easing won't work
Input prices will spike up
Looming shortages

Financial Sarcasm Roundup for 09/17/12

I never have a hard time seeing the silliness in business.  Here comes proof.  Check it out.

The Fed's QE3 does a funny thing to commodity prices.  It can't magically create more supply to satisfy demand, so any new demand is panic buying by hedge funds and other money managers who stampede into hard assets.  That's happening in the oil markets now.  Blame Helicopter Ben for making your driving addiction more expensive.  There's plenty of blame for hedge funds too; their HFT algorithms play so much havoc with prices that they probably caused a flash crash in oil prices today.  The onset of hyperinflation often brings uncontrollable swings in short-term input prices that make it impossible for producers to reliably plan production.  This eventually hits the real economy with shortages of finished goods.  People will be queuing in line at your favorite grocery store, hardware store, appliance store, and car dealer to draw lots for the chance to buy goods that might become available with no notice.  Once again, thank Helicopter Ben for making your life more difficult.

The slowdown in U.S. manufacturing activity is coming just in time to make the national election season interesting.  Hardly any Americans work in manufacturing anymore so they won't see the effects until their service jobs stocking shelves at Wal-Mart are eliminated.  You can't put stuff on shelves if it's not getting made.

Even Wall Street analysts are figuring out that the U.S. is slowing down and that businesses will see reduced earnings.  I'd like to think they all took a break from playing drinking games in the office long enough to read my blog but that would be giving these folks too much credit for original thinking.  Investors who bought stocks on he assumption that the Fed's QE3 can keep the market afloat are in for a rude awakening when the reality of lower earnings becomes official.

The ECB's attempt at QE won't be any more successful than the Fed's at propping up equity prices, given the restrictions on debtor countries' eligibility for the bond-buying program.  I've written quite a bit on the political games European leaders have been playing to make the markets think everything will be okay.  The market loses interest in the shuttle diplomacy of finance ministers if it doesn't produce corporate earnings or restore solvency to bankrupt countries.  The markets can figure this out, unexpectedly.  Politicians can't figure this out, which is expected.  

Sunday, September 16, 2012

The Limerick of Finance for 09/16/12

German savings accounts are the source
For bailouts that will come by force
There's money to steal
Thrifty savers will squeal
Will banks grab that cash?  Yes, of course!

Thursday, September 13, 2012

Wednesday, September 12, 2012

The Haiku of Finance for 09/12/12

U.S. income gap
Now much wider than ever
Feudal life is here

Germany Converts To Pro-Euro Push

Well, color me surprised.  Germany has just pulled out all the stops in favor of saving the euro, with every wing of its ruling elite throwing in behind the currency.  Frau Merkel has reversed her iron-clad austerity posture and given the signal for Germany to dig in behind the single currency.  The EU is moving ahead with continent-wide bank regulation, impossible without German concurrence.  Even the judiciary is falling into line, with the German constitutional court removing some serious legal obstacles to Germany's endorsement of the European Stability Mechanism.

What in the world is going on?  What made Ms. Merkel change her mind?  And what kind of pressure did she put on the rest of her government to do so?  Somehow all of the stars have lined up to enable Germany to keep underwriting the inability of Greece, Spain, and Italy to meet their sovereign debt payments with real cash flow.  Perhaps Germans are now more afraid of losing their export markets than they are of losing their credit rating.  Perhaps they've even forgotten what the Weimar Republic hyperinflation did to their country and its place in the world.  Or perhaps, as hinted in the article about Ms. Merkel's attitude change, she got sick of U.S. meddling after too much shuttle diplomacy from Tim Geithner and friends convinced her that U.S. support from dollar swaps and other methods aren't worth the geopolitical price Germany would have paid.

I can't wonder about motives; I should now consider effects.  A speedy downgrade in Germany's sovereign credit rating is now likely, which will make it more expensive to borrow sums that support further loans to deadbeat countries.  The Germans are about to learn what national-level vendor financing on subprime credit terms will do to the vendor nation's economic viability.

The euro has some life left in it, only because Germany is now willing to sacrifice its own precious fiscal solvency to keep its southern export markets afloat.  The crisis is delayed once again, with final resolution (and dissolution) now postponed into 2013.  I've gotta hand it to these Germans.  They have forestalled a short-term crash in the euro, exchanging it for a much more painful crash later and ensuring their own finances will be severely hurt.  That is a very high price to pay for another year or so of strong current account inflows.  

Monday, September 10, 2012

The Haiku of Finance for 09/10/12

Cubicle dwellers
Avoid controversial stuff
Not the life for me

Financial Sarcasm Roundup for 09/10/12

I love it when I'm right, especially when I'm ahead of the rest of Wall Street.  I wrote a few days ago about the danger to the U.S. economy from the looming ILA strike at East Coast and Gulf Coast ports, and said strike now looks very likely.  I am not alone in noting the severity of what we can expect; Asian shippers are getting very concerned.  The financial analyst community needs to take a serious look at how re-routing container ships to the Port of Oakland leaves the U.S. economy exposed to a shutdown from as little as a few hundred Occupy Oakland idiot activists.  I do not feel sorry for any hedge fund managers who insist on ignoring fundamentals just to pick up nickels in front of this steamroller.  I want professional money managers to keep doing exactly what they're doing now, piling on one bad call after another by following each other in a herd over a cliff.

One thing I don't need cluttering my workspace is yet another prediction of monetary easing from the Fed.  These Captain Obvious statements are pointless in the face of Helicopter Ben's repeated statements of intent, plus the proclivity of every academic to spend their entire careers justifying a PhD thesis (go read Ben's "printing press" speech and his Princeton work).  Anyway, those economists are correct about further stimulus doing nothing but they're missing one thing.  Money velocity is at rock bottom.  Steroid injections go nowhere if blood isn't circulating.  That can all change in a heartbeat if politicians force banks to lend.  I am still convinced that some form of forced lending, like the HAMP mortgage modification program but much larger, will be one of the transmission mechanisms for a wage-price spiral into serious inflation.

Germany still wants to put the kibosh on the ECB's newfound willingness to destroy that country's credit rating with unlimited sovereign bond buying.  The German constitutional court may vote to block German contributions to European rescue funds.  That court needs to read Mario Draghi's speeches again, paying particular attention to the enormous caveats he put in about the austerity criteria any destitute country has to meet before getting a bailout.  No way are Greece, Spain, and Italy going to meet those criteria with their economies already in austerity-driven death spirals.  No way will they get more than token bailouts that temporarily prop up European stocks.  No way is the ECB going to save the euro.  

Sunday, September 09, 2012

The Limerick of Finance for 09/09/12

Europe goes for a limitless print
But bondholders can't take a hint
Speculators still buy
They have no clue why
Inflation will cost them a mint

Saturday, September 08, 2012

Thursday, September 06, 2012

The Haiku of Finance for 09/06/12

Will budget balance?
No one wants to do the math
Bring on fiscal cliff

Rhetoric And Reality In 2012

I've listened to what the major party candidates have said in the past couple of weeks.  They deserve our attention and respect.  I do respect their intentions for America, but understanding their plans requires me to parse the rhetoric from their convention speeches.

The main themes I heard from either party touched the grievances of the middle class in an America increasingly bereft of upward mobility and income security.  The Republicans tout seriousness about balancing the federal budget, but it's easy to find independent analyses of how the numbers don't add up.  The Democrats remind us of the automobile industry's bailout but ignore the financial loss the federal government still incurs.

The rhetoric about saving Medicare for future recipients is necessary for votes but mathematically impossible without serious benefit cuts and cost controls.  The rhetoric about making college affordable is useless in an age when more unqualified students take on crushing debt loads and then settle for low-paying jobs.  This rhetoric will set voters up for inevitable disappointment.

There is no intent at present, in Washington or elsewhere, to resolve the federal government's untenable fiscal condition.  The fiscal cliff at the end of 2012 is the last opportunity for our national leaders to accept the necessary short-term pain that will preserve whatever shreds of credibility that U.S. currency and sovereign debts have in the eyes of the world.  Whoever is President in January 2013 can attempt to navigate the country over that cliff and prepare it for the long, hard slog afterwards that leads to a balanced budget.  The alternative is business as usual, which IMHO will postpone fiscal sanity until after a hyperinflationary depression has made further tricks impossible.  That outcome is an event horizon beyond which something unfamiliar to our national character can emerge, to our collective detriment.

Forget the charges of gender wars and missing birth documentation.  Rhetoric doesn't matter.  Reality is unavoidable.  A balanced budget would be as real as it gets for America.

Wednesday, September 05, 2012

The Haiku of Finance for 09/05/12

Facebook is stupid
Fear flippers, ignore owners
Please get a new clue

Facebook Clueless About Its Own Stock

One of Facebook's top honchos recently met with the top dog at BlackRock because Zuckerberg and crew have no idea why their share price is going down the tubes.  If they'd been reading the handful of blog posts I devoted to their company they could have saved themselves the trouble.

Pricing the stock high enough to discourage flippers was a dumb rationale.  No corporate executive should try to outguess what a bunch of random traders will do once shares are in public hands.  Just ask Dick Fuld of Lehman Brothers, who famously told his executive team that he wanted to "kill" short sellers for betting against his company.  Facebook would have been better off leaving some money on the table and pricing its IPO somewhere in the high $20s.  Let the underwriter and initial traders get their pop and then back off.

Morgan Stanley must be one seriously messed up firm for allowing a client to be more concerned with a handful of flippers in the aftermarket than the insiders who have held on since Facebook's beginning.  I've said in the past that FB should be priced in the single digits.  I might as well say the same thing about MS now.  Companies this dumb with business models based on nothing but hype deserve each other.

Full disclosure:  No position in FB or MS at this time.  

Monday, September 03, 2012

The Haiku of Finance for 09/03/12

Foreign bank account
Pick one in stable country
With sound currency

Financial Sarcasm Roundup for 09/03/12

Another Monday brings more sarcasm.  Were you expecting more Money Show discussions?  Well, frankly so was I but that's taking longer then I planned.  Sarcasm always takes precedence anyway.

Germany says a new Continental banking nanny won't be on the job until next year, or whenever they get around to it.  Normally those Germans are sticklers for timeliness, so this should be a worrisome sign for any hedge fund managers who were dumb enough to buy European debt this year.

That new banking supervisor will have a full plate of stuff to do on day one.  The first task will be to explain Moody's continuing downgrade of the EU's credit outlook.  Even Germany can't escape the harsh eye of Moody's this time.  I like to think that Warren Buffett has admonished Moody's not to miss another brewing debt crisis like it did with the U.S. subprime mortgage debacle.  I'm probably wrong but it's a cute fantasy.

Spain's more intelligent investors aren't waiting for another Moody's downgrade.  They're pulling their savings out of Spanish banks and decamping for more stable climes and currencies.  It's too bad some Spanish folks chose England as their safe haven, because that's one of the countries that just saw Moody's cut its credit outlook.  The coming breakup of the eurozone will leave a lot of investors very sad for not moving out of a worthless currency while they had time.  Americans will have some time to enjoy the dollar's reserve status after the euro dies but this will not be a long-lived reprieve.  I have purchased some foreign currency ETFs and I will definitely open some kind of foreign bank account very soon to hold a stable currency.  The handwriting is on the wall in big bold letters.

I had some fun playing with The Economist's global debt clock.  It's kind of jarring to see both Australia and the U.S. colored red for high debt, as Australia's public debt burden isn't nearly as onerous as ours.  Calling Libya a low-debt country is hilarious.  I would not want to own Libyan currency as a hedge against the dollar, especially given the likelihood of a Muslim Brotherhood takeover there.

The Economist has some other fun signals to send us this week.  "Charlemagne" tells us not to expect any game-changing moves from the ECB as long as national governments (read:  Germany) can veto any pro-euro money printing.  The Economist's regular columnists are anonymous because they are insiders of the highest caliber, so these articles are really quasi-policy statements.  Reading between the lines is a test for those market analysts (like Yours Truly) who add value.  The ECB isn't the only central bank to watch here.  That's the real meaning of comments like "single-handedly" and the passing mention of the Fed's Jackson Hole conference in the second paragraph.  Just because the ECB can't save the euro doesn't mean the Fed won't step in and give it a try.

Here's one more tidbit from The Economist:  Spain is still in line for a bailout after Greece.  Even Captain Obvious can see that.  What we can't see takes some textual analysis.  Greece's tranche payments have been delayed until October, so the "troika" is unwilling to call Greece's bluff and refuse further loan modifications.  This "extend and pretend" playbook is now being handed to Spain so European leaders can pretend to bail out Spain and the Spanish can pretend to remain solvent.  Europeans have thus bought themselves a few more months of breathing room after some hurried shuttle diplomacy from Tim Geithner convinced them not to breakup the Eurozone before the U.S. elections in November.  I hope I haven't confused my dear readers too badly.  The "limited hangout" from The Economist tells me that the euro crash can't be put off much longer than two or three months, so it may even coincide with the U.S.'s fiscal cliff.  Prepare accordingly.

This article needs a rallying cry.  Sarcasm today!  Sarcasm tomorrow!  Sarcasm forever!  

Sunday, September 02, 2012

The Limerick of Finance for 09/02/12

"Brezhnev bonds" are still around
And courts have ruled they are still sound
A full-value pledge
Something Russia can't hedge
Old basements in which bonds abound

The Haiku of Finance for 09/02/12

Greek myth on banknotes
That won't save the currency
An ironic end

John T. Reed's Super-Awesome Seminar At The Money Show SF

Okay readers, prepare yourselves for the first of several Money Show seminar reports I've been promising you.  This one's about my idol, John T. Reed, and his seminar on what he's learned after several decades of investing in real estate.  I like this guy because his writing is clear, honest, and extremely well-researched.  That is a rare set of qualities in the broad world of financial commentary.

John briefly recapped his career as a property manager, broker, and author.  Much of his introductory views of real estate are a reflection of what he's written in his free articles online and in his book How to Get Started in Real Estate Investment.  One of his best insights is that real estate investors should follow a strategy comparable to private equity investors by purchasing homes to which they can add value for resale (i.e., turning "disasters into fixers").  Leverage is okay if you can get it on your own terms, with no balloon payments, restrictive terms, or unethical options.

I'm a close reader of John's current articles on the financial crisis and other headline events.  I couldn't pass up the chance to ask him about his endorsement of foreign currency holdings.  He has described in detail his efforts to open accounts in banks domiciled outside the United States, so I asked him what he thought about owning foreign currency ETFs in a U.S. brokerage account.  John was skeptical of the concept on the grounds that even if the ETFs in question (the Guggenheim CurrencyShares ETFs) are held in a custodial account in the UK, that country isn't on his preferred list of safe havens.  John has thought through the legal implications of non-U.S. accounts.  If I were to add one more hedge to my own U.S. dollar exposure, I would hold New Zealand dollars in a bank account domiciled in that country.  John courteously provides his readers with the contact info for a New Zealand banker who is willing to work with us oddball Americans.  I will need a foreign bank account or two if those ETFs don't work as advertised.  Guggenheim has announced the closure of two of its currency ETFs, which means their assets can be forcibly distributed to investors.  That doesn't happen when you hold cash in a foreign bank account.

Aspiring real estate investors will benefit from John's checklist-driven approach to managing risk and hedging against adverse actions.  I suspect his methodology is derived at least in part from the checklists he had to navigate as a West Point cadet and U.S. Army officer.  BTW, John, thank you for your military service, from one who currently serves.  You may not need to hear that, but I needed to say it.  I am very interested in pursuing the investment strategies John identified that fall short of outright ownership of managed property, like liens and easements.

I can't do justice to the enormous wealth of knowledge that awaits real estate investors in John's material.  You folks will just have to buy his books and follow his articles.  I have purchased several of John's books myself:
How to Get Started in Real Estate Investment
- Succeeding
- How to Protect Your Life Savings From Hyperinflation and Depression
- How to Write, Publish, and Sell Your Own How-To Book

I consider those books to be among the most important I have ever read in my life.  I have read them cover to cover several times and highlighted the passages that I use as active references in my financial decisions.  The starter book on real estate gave me some strategies that I'm actively pursuing.  Succeeding is something I wish I had read as a teenager because its points on matching your career to your natural strengths would have saved me a lot of grief many years ago.  The Hyperinflation book is the kind of tome that comes along once in a lifetime and is worth reading if you intend to survive the years of turmoil that have just begun to afflict the U.S. economy.  I have been following John's admonition to "buy everything you need for the rest of your life, right now" since the summer of 2011.  Check out his description of liquid hard assets if you need to start making a shopping list.  I can now ride out several years of product shortages, logistics bottlenecks, and wage-price spirals in the U.S. thanks to John's suggestions.  I still need to find some "junk silver" for my hard asset portfolio.  I really like the self-publishing book but I plan to use it in a different way than what John intended.  You see, the e-publishing revolution means people can buy e-books on impulse for their Kindles and other electronic book readers.  Having an e-book publishing presence IMHO leaves a much lighter burden for the self-publisher by eliminating physical inventory and other headaches.  Hey John, consider writing an updated version of HTWP for the e-book era.

I will disagree with one of John's chapters in Succeeding.  John is a big advocate of marriage and argues that there's someone for everyone.  I simply do not trust anyone enough to want to share my life with another human being.  I cannot afford to waste one more minute of my life with people who treat me poorly or do not want me around.  Some of us were meant to be alone.

I was absolutely thrilled to hear John T. Reed in person and I even praised him to the Money Show lady who was prepping him for a video interview the next day.  I respect this man's diligence and integrity, and that is why I take his writing very seriously.  Please note that he hasn't paid me anything at all to say this, even though his wisdom is priceless.

Full disclosure:  Long positions in FXA and FXC with covered calls; short position in cash-covered puts under FXF.

Saturday, September 01, 2012