Thursday, June 19, 2014

Good Morning America, How Are You?

Were you treated to a good day yesterday?  If you were a day trader, your life should have been very good indeed after the FOMC announcement.  Me?  I don't choose to try to guess what investors are going to do when Dr. Yellen says nothing different than she has said before.

So, I spread out a tarp, spread my newest batch of compost to dry, and mowed my 2+ acres of lawn.  Now, I have no idea whatsoever why I was so tired, but I slept well last night.  A good night's sleep is a pleasure for me. 

Have a great day.  Enjoy your food, wine and your family.   

Summary: 

·         When Dr. Yellen said little about anything, the one thing I picked out was her saying that the GDP numbers for the first quarter were an aberration, and the Federal Reserve expects the economy to regain momentum.  Everything is peaches and cream I guess. 

o   She did say the Fed had lowered it projection for near-term growth. 

o   However, employment is to be better than forecast. 

o   Fed-speak is ridiculous.  Do they think that the only ones in the world that understand Fed-speak is the PhD's in Ivy League schools?

o   Basically, what she is saying is:

§  We don't have a clue about the economy,

§  But if all things are equal, and there are no disruptions, and Arab Spring does not turn into Arab Hell (which it is doing), then

§  Interest rates will rise slowly in 2015. 

·         Wow, did the stock market investors ever love what was being said.  On the other hand, the dollar was taken to the woodshed, and the dollar's shellacking continues this morning before the opening.

o   I wonder what the ECB thinks of that, as they tried so hard to drive the Euro down against the dollar (without admitting that is what they were doing).  I do not think Super Mario is a happy camper this morning. 

o   Basically, Europe is in a race with Japan to devalue the currency.  It has not worked for 25 years for Japan, why should it work for the EuroZone? 

o   Gold is finding some love overnight in Europe.  The futures market is up over $15 as I write.  James Grant, in a MarketWatch article yesterday, said that "The Federal Reserve is pouring fire on the glowing embers of inflation. The Fed with a remarkable lack of self-awareness, is now deploring complacency of the capital markets, with the Fed having administered the sleeping potion."   And then he said: " the interventions are like lies - you do one and you need another one. You can't just lie once. You can't intervene once. You must keep intervening to negate or counteract or mollify the effect earlier interventions."

·         Of course, it is not just the Feds' zero interest rates that are damaging the dollar.  As the owner of several small businesses, I talk to people about the economy, but most are ignorant of the devastation of the value of the dollar, and why that is driving consumer prices higher even if the government does not report higher inflation. 

o   The US 1st QTR Current Account Deficit was reported yesterday.  The Current Account Deficit is a measure of the transactions between the US and the rest of the world in goods, services and primary income.  The DEFICIT widened in the 1st QTR by $23.9 Billion, from the 4th QTR, to $111.2 Billion.  This will put downward pressure on the USA dollar.  But you knew that, right? 

o   It is only a matter of time (shorter maybe than many pundits talk about) before the USA dollar is removed as the reserve currency of the world.  The assault on the dollar cannot continue, and have any country taking the currency as a mechanism to trade with any other currency. 

o   Do you understand the game being played out?  I don't.  But I do understand that currency is debt when there is not even one asset that backs it.  If the eurozone attacks the value of the currency, the UK attacks the value of their currency, Japan attacks the value of its currency, and the USA attacks the value of its currency, then what has been solved by devaluing anyone's currency?  The USA crushes the value of the dollar, then Japan must respond or face export problems.  In the meantime, China continues to sign more and more trade agreements in Renminbi / Yaun.  After the FOMC announcement, if you were limited to only one investment in one sector in the USA, what would you buy? 

After the FOMC announcement, if you were limited to only one investment in one sector in the USA, what would you buy? 

I will submit to you that Warren Buffet would probably advise you to buy an index fund an hold it.  But there is one business and sector that offers extraordinary rates of return and that take little material risk to invest in. 

There is only one business that maintains a truly competitive advantage over any other, and studying and investing in these business could make you wealthy (if one invests consistently). 

I point you to the insurance companies.  Are you thinking about health insurance?  Well, they may do well, but they are not the best performing, and the political uncertainty surrounding them makes me anxious.

Ask yourself: Who are the best underwriters in the world across all asset classes?  Answer that question and I submit you will have a competitive advantage in stock market investing.  In the financial world, there is not one thing I can think of that is more valuable than having the skill and discipline to underwrite insurance profitably. 

Over the long term, they make money with very little risk.  Their success is almost guaranteed (as long as there is a USA), and the process is repeatable. 

Do not take my word for it.  Go look for yourself, and try to understand that most of Berkshire's wealth (Warren Buffet) was built on insurance companies.

If you would like me to follow up with a discourse on the top performing insurance companies, leave a comment.  Otherwise, take the time to research my assertions.