Via Mark J. Grant, author of Out of the Box,
“You know, it's at times like this when I'm stuck in a Vogon airlock with a man from Betelgeuse, and about to die of asphyxiation in deep space, that I really wish I'd listened to what my mother told me when I was young."
"Why, what did she say?"
"I don't know, I didn't listen.”
-Douglas Adams, The Hitchhiker’s Guide to the Galaxy
As we approach the end of the year and the various cliffs, bungee jumps and political idiocy that is in front of us you might want to take some time and pay attention to some friendly advice. Yes, of course you know everything, yes of course there is nothing that escapes your attention and you are personally plugged in to the inter-galactic computer that provides not only financial answers and but divine indulgences but still; keeping an open ear might be a novel experience.
“History often repeats itself. It has to; so few listen!”
-The Wizard
Take some profits. That is my first suggestion. You and I have no idea what these “detached retinas” might do in Washington. They obviously lack clarity of vision and it could be higher taxes or a trade-off for some even higher capital gains tax or an investment income tax or who knows what. We know what we have now and we can be pretty assured that it will be something higher or trickier after the first of the year so locking down some profits now is a decent strategy in these difficult times. One plan is to move from “AA” or “AAA” corporates or asset backed securities and into Municipal Bonds of the same quality where the absolute yield, forget the tax implications, is better than their corresponding taxable bonds. Also if times get tough I point out that Muni’s default nine times less than taxable bonds because they have the ability to tax; if nothing else. Also if there are higher tax rates to come Municipal bonds will become even more valuable and they will compress even from present levels as their value increases.
Video games have not ruined traders. If that assertion was true they would be sitting in darkened rooms, talking to their consoles, pushing buttons on weird keyboards with Jewish names and yelling, “Gotcha.”
In the last year $400 billion has poured into bond funds. This trend is likely to continue as investors prefer the safety of the fixed-income world as opposed to the volatility to be found in equities these days. This has been true for institutions and the public alike and I do not expect any reversal of course as Americans lost thirty-six percent of their wealth during the financial crisis of 2008/2009 and are unwilling to repeat the experience. Coupled with this is the exposure to markets that are confronted with a potentially wider war in the Middle East, a Greek blow-up that could come from the Greeks or from some countries that are funding Greece refusing to waste anymore of their citizen’s money and a Spain/France/Italy debacle that could occur. One thing that is absolutely clear to me is that we have a lot of political risk on the table now and if you want to bet, fine, but if you wish to invest then holding on to your capital should be uppermost in your mind. Profits now, then cash until after December 31 or a weathered eye for opportunities during the rest of this year; both are good strategies.
“I've been things and seen places.”
-Mae West
Finally if you are betting for a living then I would say that the craps table is now safer than Europe. These people have flown over the cuckoo’s nest and have become disoriented by the flight. They print money and claim it is sterilized which is pretty much like a pregnant girl telling her father that she has just put on some weight. They point to debt to GDP ratios as if they were real which is about the same type of math as where two plus two equals seventeen. They count what they want to count and ignore the rest and then convince themselves, because they all chant the Mantra daily, that there must be some truth in their addition because it has been peated and repeated and finally regurgitated so often. The Europeans have also become magicians. They look at Greece and claim that their debt can be paid back; even Houdini could not pull that trick off! Spain claims a “Great Victory for Europe” which is akin to Napoleon making the same statement after Waterloo. The European Central Bank has proclaimed that they are going to “Save the World” but I remind you that the last fellow that made that claim ended up on a cross and crucified and that any sign of “Saving” since then is beyond me. They have grand soirees, drink plenty of Champagne, bathe their vegetables in truffle oil and then demand that the citizens of various nations foot the bill. Parties such as this are funny things; the jesters jest, the Kings lord, the Palace of Versailles is abuzz and it all goes along until someone switches off the lights. Keep your eyes on the switches!
They thought they were the light of the World but then they had been blinded long ago by their ambitions!
***
About Mark Grant
Mr. Grant is a graduate of Occidental College and has been on Wall Street for thirty-seven years in various senior management positions. He has run Capital Markets for four Investment Banks and been on the Board of Directors of four Investment Banks. Mr. Grant was also the President of a public company in the telecommunications field and on its Board of Directors for several years while he continued his work on Wall Street. He currently works at a publically traded Investment Bank and is a Managing Director of the firm. He runs the Corporate Syndicate Department and also the Structured Finance Department. Mr. Grant also writes a commentary on the financial markets, "Out of the Box," that is only distributed to large institutions in money management and is published each day by MTN-I, a very respected operation geared towards structured finance out of London. Mr. Grant is the only market commentator for MTN-I. Mr. Grant is also quoted often in a number of prominent business publications and he can be found, with some regularity, on various TV and radio shows concerning the financial markets. The total distribution of Mr. Grant's commentary is approximately 5,500 financial institutions in forty-eight countries. Mr. Grant runs a team whose associations include a number of Sovereign Wealth Funds, Central Banks, Mutual Funds, Bank Trust Departments, major Insurance Companies and other money managers of various sizes.
