My resolution for 2013: Profit with the rulers of the universe
Bengt Saelensminde Jan 07, 2013
How are we to invest our money in 2013? Well, we can start with recognising a simple fact – we can no longer rely on the old rules of investing.
In the past we had an idea that investors were rational. It was thought that we all took on board all the information that was available to us before we invested. That we were calm, reasoning individuals – completely impervious to the influence of other investors, not to mind the actions of central banks and the City.
Because investors were rational, the financial industry was able to come up with all sorts of sophisticated models for pricing assets. These models were largely created during a scientific renaissance that saw NASA put a man on the moon.
But today, who needs to know about internal rates of return and the capital asset pricing model? Heck, even Black and Scholes’s theory on options pricing that belies much of the modern banking industry is under threat.
The actions of the central banks have laid waste to all of this pseudo-science. It turns out that human action can override any natural laws of economics and finance.
Today investment comes down to expectations. Specifically, what do we expect the central elite to do?
Because as an investor, it comes down to how can you piggy-back on what the big boys are up to. It’s the masters of the universe – an elite of bankers, hedge funds, and speculators who largely determine whether your investments will make money or not.
For instance, towards the tail-end of last year, the best performing asset class was – wait for it... Greek government bonds. Incredible... where did that come from?
It was of course the policy of Europe’s central bank that ultimately put a rocket under what had been a terrible investment. The hedge funds and speculators that predicted ECB policy made hundreds of millions by buying up Greek debt for cents on the euro.
Going into 2013, I want to spend more time helping you to get in on these big deals. I want to spend more time interpreting central bank policy and less time using the classic financial rules that I grew up with. And I’ll make a start today.
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My New Year’s resolution
Just look at the early trading days in January. The markets have been all over the place.
First off, it was Obama’s relative victory in fiscal cliff can-kicking (of course, we’ll be coming back to that very soon!). The markets whooshed into a frenzy.
And barely a day later, the precious metals markets took a pasting – volatility like I’ve never seen before. Why? Because the Fed published some notes on its supposed policy to rein in its money-printing antics. Of course it’s rubbish. The Fed won’t give up on money printing any more than I’m planning to give up hot dinners for the new year.
The Fed’s statement was all about modelling expectations... and sending the opposition the wrong way.
We also know that Japan’s elite is going to make its presence felt this year. No wallflowers they. Japan isn’t going to see its phenomenal industrial base slide under without a fight. And ever since the government started muttering about what is effectively money-printing to infinity, it's put a rocket under the Nikkei. It’s now up over 20% since mid-November. That’s serious money! Here’s the chart that proves it...
Japanese stocks are on fire
The point is that today we need to know more about politics, about the intentions of the elite and all that follow them, than we need to know about traditional finance.
MoneyWeek has been talking about the impact that the British government will have on our wealth this year. If you haven’t read their End of Britain report… well, you really should just read it.
My own New Year’s resolution is to follow government and central bank moves more closely. And more importantly, I want to predict their moves – and how it affects markets. It seems kind of tawdry – but it’s nonetheless a necessity.
On Wednesday, I’ll give you my thoughts on the big moves that I see shaping up for this year.
And, to be honest, I won’t apologise too much for spending so much time thinking about the dark art of political prognostication this year. Because heck, that’s where the money is!
The early days of January have an eerie way of foretelling what the year will bring. And the markets are feeling jubilant – all off the back of our ebullient leaders. Expect Japanese-style central action to ripple across the globe.
2013... yeah... bring it on.
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