YOUR MONEY

YOUR MONEY

Looney Tunes, 3 Stooges and the World of Finance

The world’s finances are getting weirder and weirder by the day!

Yesterday, March 11, 2013, the share price of RIM/Blackberry soared 13% on the TSX because the Blackberry Z10 phone is about to be released in the U.S. and the physical keyboard model Q10 is due very soon as well.  Meanwhile Apple is going into free fall as its shares have dropped from it being the most valuable company on the planet to middle-of- the-pack after losing 40% in value since September!           And word on Wall Street is that derivative/hedge funds are now bailing out big time (G&M, March 12, 2013, p. B4) as no sign of a new, blockbuster product is in sight – at least not until Apple’s standard fall announcements.

So, since the U.S. and corporate and government America are key Blackberry users, what a surprise the company is launching in the U.S. as promised.     And what a surprise that Apple’s share price, like Facebook’s IPO share price insanity, was and continues to be based on ‘speculative fantasies’ of new and more frequent super-inventions.  Steve Jobs, in his prime,  released  an ‘upgrade’ once a year at best, and a new product only every few years.   So why are the ‘great minds’ and analysts expecting ‘breakthroughs’ every 6 months or less?    That’s stupid and assumes an exponential pace to technological innovation.

Meanwhile, Ian Campbell in the G&M today, B11 encourasges the European Union Central bank to reduc4e its 0.75% prime rate even LOWER and consider going into NEGATIVE PRIME RATES -- to spur on a continent  in recession and possible deflation.  He is not alone in this advice as Maclean's magazine (March 18, 2013, p. 52 ‘Upside Down Interest”) recommended the same strategy for the U.S. , following the Bank of England which is toying with the idea.  Precedents by Sweden in 2009 and Denmark in 2012 are admired,  as are two (unnamed) Swiss Banks who began to CHARGE INTEREST for large institutions who kept money in their accounts.

So the logic is as follows:  You have given banks billions of super cheap or near free money (M1) for 4 years now but your economies are still at minimal growth and massive unemployment. So now let’s try something else, something new and against all capitalist economic market theory!

Force banks and large companies with cash to spend it by penalizing savings, pressure them to create jobs when they see no new markets to justify major capital outlays – and all will be well!   

So, in brief, if the free cash carrot didn’t work, hit them over the head with a stick!  To hell with the risks of over-expansion by companies and their collapse into  bankruptcy!!!  Central bankers know more about running successful businesses than corporate leaders who have survived the worst Great Recession since 1929!!! 

Let the dice be thrown and hope for the best!!!

Oh, and by the way, expect Warren Buffet and his company to flee your jurisdiction because Buffet believes in storing lots of cash : for a rainy day or future ‘opportunities’ that he likes; not what some Central banker will force him into.

Meanwhile, gold bullion’s steady drop to $1550.00 or so an ounce (at this second) from over $1,800.00 -should suggest the end of a long ‘bull run’ as some analysts are warning, this drop is being praised as  and a ‘buy opportunity’  by  others who envision a $2,000.00 an ounce price soon.   The fact that gold bullion prices have had no connection to the actual cost or volume of gold that miners produce for over 2 years is ignored by one and all!!!   (As highlighted in a previous bog, gold should be going for only $800.00 a ounce – if the speculative elements were not allowed to run wild.)

Then too, instead of the great economic crash and ‘disaster’ predicted by all pundits due to The U.S.’s January 1 sequestering – i.e., automatic cuts to federal spending of  (a mere) 2% and small tax rate increases for people in general,  The Dow Jones index is on a tear ever since, reaching new record highs every day!!!

So the great political and partisan standoff that paralysed the U.S. Congress and government for months – resulting in the automatic changes --  without ‘playing politics’ and ‘pork barrel favoritism’ have been the best thing Washington has done for the U.S.  economy – at least in the eyes of Dow Jones investors.

 

Finally, as highlighted by David Berman in the G&M today, citing The Economist, new studies have shown that stock market trajectories (up or down) are unrelated to the actual state of the economy from the GDP standpoint.   Citing Robert Shiller and a Bank of New York Mellon study, “[There is] no relationship between U.S. gross domestic product growth and the S&P 500 between 1970 and 2012.    

Wow!!!  So much for rational economic theory and stock market investing – or should I say SPECULATION!!!

 

In the light of all the above ‘irrationality’ and ‘illogic’, there is a ray of hope for a return to normalcy from the auto industry:  Chrysler Corporation is finally returning to leasing vehicles as in the past (G&M, March 12, 2013, b1).

Now all 3 U.S. auto manufacturers are back to the financial health and optimism of the past. Truck sales are booming, oil and natural gas are spewing forth across America, and all may yet turn out well for the U.S. (and by extension, Canada) – if politicians, central bankers and pundits stay out of the way.

And, of course, never trust your money to stock market indices, just to companies that give good dividends and have a track record of SLOW and STABLE growth.

Leave the Apple and Facebook stocks to their real market: high rollers, speculators, and the occasional individual who, like Forrest Gump, lucked in.