a bunch of thoughts for the new year

I remember back in 2005-2006, it was obvious to me ( and quite a few others..) that we were heading towards a senior financial crisis. I was ready… but when events started to unfold… I was also surprised by some points we were not able to foresee. In my mind, the expected real estate bubble bursting would follow a path similar to the japan bursting.

Why I am thinking about that?  First of all, financial markets have grown so global and complex that it has become quite difficult to understand their riks.  It could be like a Tsunami event which can occur very far from you home on the coastline but still can impact you if strong enough.

Gouvernments, financial authorities have embarked on a series of new big experiments on a global scale that if we had thought about 10-15 years ago…. we would have thought that this would be crazy. Well, we are here and so far markets have not fallen (yet) apart.    Why?   if the EU, The USA and Japan were minor economies whose currencies would not weight heavily in the basket of reserve currencies… I believe that the three of them would have already gone bust with their present policies.  So.. here we are…. we are somehow all tied up to this group of three to some extend and the emerging markets share of global GDP is getting bigger . The drawback is that emerging market… are today quite expensive but I sense that if the block of three would get cheaper…. emerging investors could become the new class of global investors.

The great experiment which is basically kicking the can down the road might buy us some time but… since the essence of money is debt… this debt piling up will reach at some point in time a limit that the market will decide. And then….  the great “reset” will probably  kick in. Is  the recent JPY weakness a first sign of change?  Hard to say but… something is cooking up.

my long term view is that the great experiment is an attempt to contain the incredible credit bubble which took 30-40 years to mature. We knew there was a limit but… we played with it as the current fiscal cliff debate is. This credit bubble has been backed up first by income and then mainly by asset price inflation combined with ultra low interest rate in order to push the limits further. Debt conversion into equity will need to take place, debt write-off too so I expect this process to happen within the next few years  (or… the FED-ECB-BOJ become the biggest HF of all time. buying any type of assets and putting in jeopardy their credibility and mandate).  making money with money has been for many investors relatively easy for the last 30-40years since the fuel was the credit bubble. Believing that  it can keep going the same way for the next 20-40 years is kind of foolish in my sense and more foolish is to believe that what happend to smaller economies (Iceland etc…) cannot happen to the big three.

Asset protection against abusing gouverment policies and financial repression is key in my view. Who will be able to best preserve… will be able to better rebound. Preserving might end-up bringing you some profits (I am not telling you to leverage and short the SPX but you can a bit if you want) but capital preservation is selecting financial and non financial assets, currencies, places etc.. which will suffer the less in case of downturn.  One of my suggestion… is for you to have some plain vanilla cash (yes at home is good too) with financial institution like private bank.  Precious metal… it can be good but the physical handling is always tricky.

If you withdraw precious metal bars… and want to re-sell them…. they will give you a hard time in checking the quality of the metal you offer so.. metals is an option but maybe through some financial institution like ZKB and Julius Baer ETF in switzerland.  Investing in equipment which  verify the gold quality.. might be a good choice too?.  Gold is interesting but.. too highly political! so.. Silver is another option along with Platinum but… be careful if you want delivery of the physical…. sometime their are considered semi-manufactured industrial product and subject to VAT tax  (you have some physical ETF available in CH).

I might be totally wrong in the sense that the new great experiment we’re living in is here forever… and that the best expectation is that we are marching towards the biggest asset bubble in the history of mankind…  anyway.. you’ve read “bubble” so.. i stick to my original thought since bubble tend to pop up.

best wishes and good luck for 2013





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