Sunday, 13 January 2013

THE FUTURE

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One Vision of THE.FUTURE (Eden Project Cornwall UK)
THE.FUTURE "Contender I'm out to get ya! Yeh I'm watching you, I'm your shadow, I'm your worst nightmare!
THE.CONTENDER - nice bloke THE.FUTURE time to put him in his place.

THE.PAST - is a has been, in THE.PRESENT we enjoy the things we do each day. Now for THE.FUTURE! What is he up to in the investment world? Lets try to forecast guess a few things. What may happen across the planet in 2013? What can we work on on this blog this year? Let's guess.

Guessing THE.FUTURE and Redundancy

Contender used to forecast the sales of a very well known billion dollar brand consumer good. Forecasting as it turned out was educated guessing. As an engineer making a "Best Guess" versus an accurate answer was a bit of a change in mindset.

To counter error in engineering you "add" a bit of redundancy in-case the calculations or assumptions are a little bit out. Forecasting THE.FUTURE on the other hand is guess work based on observations, thoughts and inherent human biases.

Being incorrect with a sales forecast is countered by holding safety stock. You have options - plan for the best case scenario, make the stock early in case you need to make more, have idle machine capacity to "turn on" if required as a few examples. All redundancy and risk mitigation.

So is forecasting about where redundancy is required? Savings are redundancy, food in the house is redundancy. Heating oil / lumber in the shed is redundancy. THE.FUTURE holds many surprises and cannot be forecasted accurately; so where shall our tribe add some redundancy this year?

THE.FUTURE

CONTENDER 2013 Ramblings Forecast Guess

UK: In good old blighty QE will re-start hitting the pound and driving inflation higher. Economic growth will come but in the wrong areas creating new bubbles in the UK economy. What happens when they pop this time? George Osbourne will continue to say how well Austerity is going but knows differently ;)

GDP Growth forecasts are only a representation of the money printing not real GDP growth. Inflation will stay high although it will be reported low (just what they really want - how is the UK going to get out of its debt trap otherwise?)

More rain? - It is getting wetter in this country? The weather more extreme each year. One year a massive heatwave and the next year the country is underwater. Time for a heatwave?

The UK Populus starts to make more noise about the financial systems confiscation of their wealth. People will continue to scale back on expensive consumer goods and move to own label products. The own label products do the job at a much lower price.

In realising that they need to be "savvy" consumers all areas of spending will start to be scaled back.  Holidays aboard, expensive fashion, gadgets, eating out, entertainment. All GDP negative.

Riots in London are unlikely (we had them at the end of our street in 2011) but inflation is pressuring the population all it needs is an increase in interest rates to make times much harder for people.

More people start to move out of poor performing "active" investment funds (who charge high fees) into  low cost tracker funds or invest directly themselves. The cities lavish fund industry marketing teams go into overdrive to save their jobs.

The economy shows some signs of life after all of the money lavished on it but is held back by tail winds from the continent.

Please read on for Continental Europe, China, Japan and the USA, our investment approach, What is going on with the blog this year and some closing thoughts....


Continental Europe: This is getting silly, Europe will do what ever is necessary to prop-up countries that have free loaded on the Euro currency and are doing it by smoke and ACRONYMS (ESM, EFSM, ...

I think you will find it is this way (Bloomberg Business week)
Germany is on the hook for significant bank loans to the PIIGS so doesn't want to see them go bust. It will continue to push for reform of the peripheral countries.

Merkle will resist free money handouts so no real changes will happen.... until that is another countries bond market is "attacked" (but some German rules may start them on the road to some good habits ;).

Promises will come and go. Nothing will be fixed and more elaborate terms and schemes will be devised to hide the truth. Europe is stuck in indecision and self interest. Too many cooks in the kitchen. The big important decisions will be kicked down the road until the bridge ahead collapses.

Unfortunately more protests will be seen in Europe as the youth ask why are there no jobs for them. The average working age population will continue to increase as more people have to stay in work to support their families instead of retire. This exasperates the lack of hiring of the young. Promotion which used to be a given right is further slowed for the middle aged workers. Times are tough on the continent as well as UK who will fare better?

Austerity will slowly reduce the role of state in Europe as government spending as a percentage of GDP shrinks (only a good thing in the.contenders opinion). More money will find its way into productive industries and green shoots of a recovery start to appear.

Japan - PM Abe starts Japan QE to Infinity AND Beyond to get one over the US dollar. We have the start of a proper currency war that is not hidden by smoke and mirrors. Purchasing foreign assets will result in tit for tat interventions in Japan assets. Equities which continue to show some life due to the decreasing value of the Yen (more exports and higher profits).

PM Abe (source WSJ)
The only question is how long until the Japanese bonds finally get dumped causing rapid inflation on an unsuspecting public? A rush to tangible assets will happen while the Japanese government print and inflate to avoid a depression. They have printed and sustained the status quo for 20 years another year should be a doddle.

Longer tern their demographics look terrible - can they provide a comfortable retirement for their elderly citizens? If so will the population contract, house prices will slide, GDP will contract.

Wages will relatively strong due to the high tech export business model the Japanese run. How much will be siphoned off by the state? As wages stay strong and property becomes cheaper due to a contracting population will they see a wave of Japanese baby boomers turbo charging Japan back to the "Land of the rising Sun and economic miracle?"

China - Everyone has an opinion on China and rightly so. China with a population of 1.3 billion people is hard for us to truly imagine and understand. Talk of demographics, ghost cities and mis-allocated infrastructure spending beg the question is China a bubble waiting to pop here is a video that says Yes?

China has plans and they are certainly not about their economy going pop. What are they doing to prevent this? How can reach the top and stay there?

Yuan will take center stage as a reserve currency alongside the dollar - this may not happen in 2013 but THE.CONTENDER is sure it is their long term goal. They produce the most gold in the world and none of it leaves their borders. They are now in the top two importers of most gold in the world alongside India. All this gold and yet they have not reported on their official gold holdings for many years (source here).

Why would they hoard gold and not report it? They must be doing this to back the Yuan up with gold (Chinese To Increase Gold & Silver Storage A Staggering 180%).

With the Yuan as a reserve currency they will benefit from the Yuan arbitrage where countries need to convert their money into Yuan to buy their goods and services. Their purchasing power will increase and economy will start to produce goods for internal use.

If this does come to pass (and India is taken along for the ride) commodities are going to stay hot for a long period of time.

China and India will continue to invest in productive assets such as infrastructure. They will dominate certain industries such as solar and electronics.

Their military has its first air craft carrier generally they have a lot of catching up to do in this area. As China gets richer more significant investment in their military will continue.

They drop the one child policy all together.

Impact for the average Joe will be in the increase in price of every day goods here is an excellent insight: The global food Economy from Punk Economics: Changing eating habits, increased demand and higher prices


USA - Still the dominant force on the planet. The US will still spend money, like there is no tomorrow, it doesn't have. THE.FUTURE firmly has his eyes on the US fiscal situation (as do the ratings agencies US or UK downgraded first? naaah France next :)

The fiscal cliff is "delayed" a couple of months as is the debt ceiling (which hasn't been much of a ceiling down the years). Further tax increases and some spending cuts will be made but will not set the country on the path to a balanced budget.

Why would this be the case - politics. Who will buy the debt - the federal reserve? Can THE.CONTENDER bet on that as it sounds like a sure thing ;)

The US will grow, probably better than most countries. Lower energy prices due to the short term fracking revolution (see gas land as it comes at a cost) will help US manufacturing.  The US is still very innovative so what will be the next new industry that arises from the ashes actually more like smouldering wood. Zombies still roam the land (just watch THE WALKING DEAD it is true....or the new drug that turns people into naked cannibals - disturbing) keeping productive people in jobs that should not exist......

With Capital allocation still be skewered to zombie banks et al. These zombies are suppressing the rate of innovation to turbo charge the US economy. Capitalism (not politics or the federal reserve) needs to do its work.

So slow growth and anemic job creation combined with the continued money printing = stagflation (as is the case for most of the west). Living standards will continue to come under pressure.

Will liberalization make a comeback in politics. Will there be a new Ron Paul that someone actually votes for? Could Peter Schiff be the next Nigel Farage (UK Independence Party who is a thorn in the UK political systems status quo between Labor and the Tory party) - will he have another go at politics for the good of the US?

US companies have retrenched and sit on large cash piles - will they go out and spend it. Perhaps there will be some big mergers and acquisitions. Companies will be bought at too high valuations destroying shareholder value. They will be terrible in the medium term.

Investment Themes / Ideas / Trends for the year (Generalizations)

Western government bonds have low returns and historically high prices keep the contender away. They are at the whim of government intervention via QE. A positive gain for the nominal value due to more government intervention. With the yields below inflation net outcome will be slightly negative for the year.

Commodities - hot money has been moving into commodities for some time and will continue to do so as the value of money (US dollar) declines. Farmland and timber continue to be solid investments. Gold to continue its year on year climb (13 years and counting) in line with the increase in the debt ceiling / US money supply. 10% for the year.... again!

Stocks - with the bond market heavily influenced by QE more money into stocks. Another mildly positive year but valuations in India and US are historically very high but can go higher - keep those stop losses in place. less than last year but a 7% return for the year as companies raise prices due to the increase in commodity costs.

Currencies - none to trust here unless you can buy Norwegian Krona (there are a few others like New Zealand and Aussie Dollar as they are not printing yet.....). So the US dollar to strengthen a bit as the TRUST in paper money continues to erode.

What will be interesting in all of this is the "currency war" potential from the race to the bottom / debase. With the US, Japan, UK, Euro-zone and Switzerland on a race to the bottom but their currencies representing the greater value of the world prices will be on the rise.

Tribe investment approach 2013

THE.CONTENDER is not a financial adviser. He has no professional financial training and has never worked in the "investing" business. These are merely some of my humble deductions from the media and investments that are followed by this blogger. So what does this investment amateur invest in this year?

The Tribes focus for this year is real stuff again. Utility companies, healthcare and energy. They need to pay a good yield and the valuations are fair. This approach is due to our specific need for income to support us when we move to France later in the year. All investments we make are for the long term and protection from now on (not speculative high growth stocks).
“And right here let me say one thing:  After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this:  It never was my thinking that made the big money for me.  It always was my sitting.  Got that?  My sitting tight!  It is no trick at all to be right on the market.  You always find lots of early bulls in bull markets and early bears in bear markets. 

I’ve known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit.  And their experience invariably matched mine – that is, they made no real money out of it.  Men who can both be right and sit tight are uncommon.  I found it one of the hardest things to learn.  But it is only after a stock operator has firmly grasped this that he can make big money.” - Jesse Livermore
The BLOG

He's still there looking over my shoulder. He is still trying his best to mess up things. What an adversary!
  1. The PERL planning tool will be released after the next couple of posts. It requires a lot of development, checking, documenting, checking, re-working, checking.....please add comments below.
  2. The blog will start to publish a load of stuff on career planning and skills - how to get a good income to save more for financial independence and learn skills for life.
  3. Start building a selection of checklists and plans on things such as moving home, creating a simple or complex project plan, frugality, financial black book.
  4. Have a good look at what the kids NEED to learn in the years ahead and what we need to do for them. What do they need to see, hear, say, do and read.
  5. Financial protection and growing our investments. The future in Europe / the world will have its usual bumps to negotiate!
Planning to Win against THE.FUTURE

THE.FUTURE holds lots of challenges for us all. How to feed and power an ever growing population. How to develop cures, vaccines and treatments for our ailments. What are the goals for the human race should we be shooting for the stars instead of being reliant on just this planet?


"Kepler telescope: Earth-sized planets 'number 17bn'"- BBC News

We have ingenuity in spades and yet we waste resources, time and effort on gizmos, plastic throw away goods. We used to build goods that would last into THE.FUTURE now everything is throw away. Can't we make stuff that lasts and have people work on stuff for the future?

If financial independence and "frugality" replaced consumerism? We would no longer be tagged as innate consumers. We would be called Citizens of the planet. Can the financial independence and happiness movement GROW and GROW to touch more and more people and start a cascade effect to all parts of the population. Consumer got into our heads through marketing can the internet be a place to out market consumerism?

We Are THE.FUTURE 

So what could we / do as a result of this post?

Find some opportunities and go after them: What do you think will happen this year? Do you have any opportunities you are aware of? What would it take to go after them? Go for a job interview you don't think you will get? Well why not? Get prepared go and blow the interviewer away. Be positive, hungry and ambitious.

Start down the road to financial independence? Join a financial independence community and discuss with friends? Create a budget and reduce your spending? Start investing? PERL will be available in a few weeks perhaps from this website and pick a fight with THE.FUTURE.

2013 Bring it on!

THE.CONTENDER


Here are a few forecasts for 2013 from around the web:

Charles Hugh Smith The Trends to Watch in 2013
James Howard Kunstler Contraction, contagion and contradiction
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2 comments:

  1. This was a good read! While there are points where might not fully agree, in general very good observations!
    I particularly liked "the future", very funny & gave me a good laugh!

    Cheers,
    Woodpecker

    ReplyDelete
    Replies
    1. It is fun having a think about THE.FUTURE

      Currency wars: the Pound (900% of GDP total debt one of the highest in the world) and the Yen are both being "managed" lower. Which currency will be managed lower next or will some sense prevail and QE etc. stop?

      Continental Europe: The French economy is struggling and Bunga Bunga will not retire in Italy. Unemployment is still very high and getting worse. Germany holding strong but its export markets are reducing their purchases of her goods.

      Gold had a run up pounded back down recently and is currently consolidating. Still at least it cannot be "printed".

      Stock markets that have had a very good start to the year...maybe too good.

      Investing for financial independence: So dividend investing in global companies with real assets is still our strategy and some cash on hand for "opportunities".... This is not investment advice just how we see it.

      Happiness: We cant wait to change our lifestyle to spend more time with the kids and work in our new community. We still see the French countryside as the place for us even though there are challenges ahead for France.

      Any thoughts?

      Delete

Are you planning for financial independence and wondering what to do with it. If so is any of the content on this blog of use to you? I would appreciate any comments you have. All the best C