The US government has added trillions of dollars in debt and this is causing the US dollar to fall.
Our good value portfolio is gaining dramatically because all shares held are in non US dollar markets.
How much money can be dumped into a national (or the global) money supply before there is rampant, runaway inflation?
Answering this questions is perhaps the most important economic question we can face in the decade ahead.
The answer can help us prepare for either a deflationary or inflationary scenario.
A reader recently asked this question: Here’s a quick question I’ve been puzzling about… so we’re all very aware that the US, UK and many other governments have been borrowing literally TRILLIONS of dollars to support their economies during the pandemic – but where is that money all coming from? Who, even collectively has trillions sitting around waiting to be loaned? I cant imagine banks, investors, funds etc have that just waiting around to be loaned? So where does that come from ? Sorry if its a silly Q. I presume the answer is something along the lines that money just gets moved around and pulled out of lower return investments and loaned on better rates in bulk to governments. But then I wonder how they can do that so quickly. Presumably agreements in place mean they cant just pull trillions from one sources and reinvest it in another at the drop of a hat. But seemingly they can? Thanks!
This is a good question and the answer is not one that’s much understood, partly because it seem so outrageous.
That money is created by the Federal Reserve Bank or the Bank of England or the EU central bank, mostly by the push of a button.
The US the government gets money in three ways; tax, borrow or print (ie push a button nowadays).
When it needs more than borrowers (such as Japanese, Chinese, Middle Eastern, US investors and governments) have available, they use a technique called “Fed Accommodation”.
In simple terms the Fed just increases its balance sheet by entering that fact into its computers. In other words it says… “we have more money”.
Then with this new money it created out of thin air, it buys the government bonds.
There is more sophistication to this as the Fed also creates money by lowering reserves that banks have to have or lending the banks money (again by simply entering into their computer that they have more money). The banks then lend this on to the public which increases the money supply.
This week’s Wall Street Journal article “Behind the Vast Market Rally: A Tumbling Dollar” (1) shows how this creating of many makes the US dollar fall.
Investors are ramping up wagers on the falling currency, believing the surge in coronavirus cases will hamper U.S. business activity and drive even more government spending. The dollar has made a sharp U-turn this summer following a long rally, confounding many traders but potentially adding fuel to this year’s surprising stock-market rebound.
The ICE Dollar Index, which measures the dollar against a basket of other major currencies, in July notched its worst month in nearly a decade and recently hit a two-year low. The fall extended a reversal that began in late March, spurred lately by ballooning worries that mounting coronavirus cases will stall the U.S. economic rebound, even as growth accelerates in countries from China to Germany.
Big-name investors such as Ray Dalio and Jeffrey Gundlach have recently said publicly that the flood of U.S. government spending being injected into the financial system could eventually stoke inflation, eroding consumers’ purchasing power. Surging budget deficits tend to make investors less likely to hold a country’s currency. Fitch Ratings on Friday revised its credit rating outlook for the U.S. to negative from stable, though it maintained its top, triple-A rating.
At the same time, the currency’s slide is adding further support to the booming market rally, lifting stocks and commodities. A weaker dollar boosts multinational companies, which see their products get more competitive abroad and can more easily convert overseas profits into dollars. It also makes products and investments that are priced in the currency cheaper for overseas investors, supporting demand for a host of financial assets. U.S. stocks have climbed near five-month highs recently, while raw materials are paring much of their 2020 decline.
“These things are denominated in dollars, and the dollar is getting crushed,” said Christopher Stanton, chief investment officer of Sunrise Capital Partners. He expects the trend to continue and is directly wagering against the currency, betting on gains in the euro against the dollar and buying gold, which some investors are using as an alternative store of value. Gold recently climbed to all-time highs for the first time since 2011.
The US is a poor value market, so all of the investments in our Good Value portfolio are in NON US dollar markets. This is adding extra profit, that’s safer because of the value and because this portfolio pays a much higher average dividend than the US market.
Protect Your Wealth From a US Dollar LossHere are three steps to multi currency profits. Seek value. Cut losses. Take profits.
Quotes from three great value investors support this thought.
“Be fearful when others are greedy, and greedy when others are fearful.” Warren Buffett
“In the short run, the market is a voting machine, but in the long run it is a weighing machine.” Ben Graham
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” Charlie Munger
We do not have to be brilliant to preserve and increase our wealth. When it comes to investing, discipline can make you smarter than the smartest man in the world.
Sir Isaac Newton is widely regarded as one of the most influential scientists of all time. His role was key in the scientific revolution.
His book “Mathematical Principles of Natural Philosophy” laid the foundations for mechanics.
He supplied a foundation to optics.
He helped develop modern calculus.
Newton formulated the laws of motion and gravitation and confirmed the heliocentric model of the cosmos.
Newton built the first practical reflecting telescope.
His theories about color and cooling and the speed of sound were spring boards in physics.
In math, Newton contributed to the study of power series, the binomial theorem to non-integer exponents, and a method for approximating the roots of a function.
He is said to have been the greatest genius who ever lived!
But Sir Issac Newton also lost his shirt in the stock market. His comment was “I can calculate the motions of the heavenly bodies but not the madness of the people.“
Sir Issac forgot the intelligence of value. He ignored the fact that buying and selling discipline is more important than being smart.
How can we gain this discipline? Discipline comes from simple math which is why the data we use in my Purposeful Investing Course (Pi) is created by mathematicians not economists.
I am happy to introduce an investing math program that instills investment discipline so you can use math, not emotion to protect and increase your wealth.
There are time tested mathematical systems that can help you know when to take profits that maximizes gains and minimizes loss.
These systems help you seek value but also create disciplined exit strategies because one of the toughest decisions most of us have is to know when to sell a rising or falling share.
Human nature makes it harder to let winners run, than to cut loses.
To easily spot good value and stick to it, we use Keppler Asset Management as our first source of data.
Keppler’s analysis begins with a continual researches of corporate information on thousands of shares in 46 major stock markets. Keppler compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.
Michael Kepler CEO Keppler Asset Management.
Keppler explains why a Top Value Country Selection Strategy for equities is important and says in his analysis: Among the generally accepted reasons for taking a global perspective in investments is the historical fact that no nation can maintain economic and political pre-eminence ad infinitum.
Studies have shown that, regardless of the investor’s national market and currency, diversified global equity portfolios, over longer periods, offer higher returns at lower risk than investments in national markets.
Keppler Asset Management Inc. (KAM) was founded by Michael Keppler in 1992. KAM is an SEC–registered investment advisory firm dedicated to finding and exploiting investment opportunities in the global equity markets. Based in New York, they advise institutional investors worldwide and help manage published mutual funds with total assets exceeding two billion US dollars. Plus they advise many private pension funds by specializing in active quantitative portfolio strategies that aim to deliver superior long-term performance and seek to limit risk through a firm commitment to value.
Starting in 2009, KAM was named Best Fund Company in the Fund category, five years in a row, by Capital, a leading German business magazine.
That’s my simplicity secret for keeping track of where to invest. Using Keppler’s data has served me well for 25 years. This is an effective easy system that does not requires a lot of time and avoids being drowned in a sea of conflicting opinions about what investment to make next.
More good news is that Keppler does not manage individual accounts and though SEC registered and headquartered in New York, does not mange funds for US customers. That means that not many US investors are tapped into the information we use.
That’s why I created our Purposeful Investing Course, one of the few, if not the only sources of Keppler analysis for individual investors.
Here is how to tap into this valuable information on a no risk basis right now.
The Purposeful Investing Course combines Keppler analysis with research on low cost, good value country ETFs.
This is why my core stock portfolio consists of 16 country ETFs, along with precious metals. This is also why this position has hardly changed in the past five years. During this time we have been steadily accumulating the same 16 shares and have traded only six times.
This portfolio above is based on stock price-to-value analysis built around 91 years of stock market data.
The value analysis is used to create a portfolio of 16 country ETFs. Each ETF covers one of the stock markets that are undervalued.
This is an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required. You are investing in a diversified portfolio of good value indices.
A BUY rating for an index does NOT imply that any one stock in that country is an attractive investment. This eliminates the need for hours of research aimed at picking specific shares. It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries. Investing in the index is like investing in all the shares in the index. You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.
Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country. ETFs do not try to beat the index they represent. The management is passive and tries to emulate the performance of the index.
A country ETF provides diversification into a basket of equities in the country covered. The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.
Here is the Pifolio I personally hold now.
70% of the equities is diversified into iShares ETFs that represent Keppler’s nine good value (BUY rated) developed markets: Austria, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.
30% of the equities are invested in Keppler’s good value (BUY rated) emerging markets: Brazil, Chile, China, Colombia, Malaysia, Mexico and Taiwan.
iShares Country ETFs make it easy to invest in each of the MSCI indicies of the good value BUY markets.
For example, the iShares MSCI Australia (symbol EWA) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Australia Index which is composed mainly of large cap and small cap stocks traded primarily on the Australian Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Australia.
iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.
The big bonus. You get paid more now!
Current markets have turned economic history upside down. Normally bonds pay the highest interest rates and add safety to a portfolio. Not right now.
This chart from the New York Times article “The Mystery of High Stock Prices” (1) shows that equities pay a higher yield than bonds.
Most Important, Get Paid the Most Now!
Just because US stocks pay more than dollar denominated bonds, does not mean they offer the best income deal. In fact the chart below shows that US shares pay one of the lousiest yields of the 46 stock markets we monitor around the world.
The US MSCI Index pays a modest 1.91%. That’s a terrible yield, but better than the 1.6% you can get in AA rated corporate bonds.
Nine solid, top value stock markets (shown below) not only add diversification and the best long term profit potential, they pay 71% higher yield, 3.27% compared to the US yield of 1.91%.
This is why my core stock portfolio consists of a handful of top value share ETFs and this position has hardly changed in five years.
This strategy adds safety, increases long term appreciation potential and pays almost double short term dividend income right now.
In a moment, I’ll show how to push that yield to 4.07% per annum without adding additional risk.
During the past five years, I have been steadily accumulating the same good value ETFs. I have traded only three times, so my trading costs, my fuss, fiddle and time spent have been kept to an absolute minimum.
I have been investing in iShare country ETFs. Each one invests in the MSCI Index of one of the top (or neutral in the case of Canada and Australia) value markets above.
My strategy protects against stock market volatility and yet has potential for the best gains long term from rising share prices by holding an equally weighted portfolio of the best value based country ETFs.
Value ETFs are Safer
The people who dominate stock markets include a pack of thieves. This fact has always been true. We were recently reminded of this fact when Wirecard AG, one of Europe’s most prestigious companies, listed on Germany’s premier stock-market index, the Dax 30 fooled everyone including its top grade, longtime auditor, Ernst & Young GMBH.
The shares in German fintech company Wirecard AG (symbol WDI fell 63.74% as it filed for insolvency proceedings, after revealing that more than $2 billion in cash missing from its balance sheet was all a fraud. The company’s market value fell to less than €500 million from almost €13 billion in a week.
Investors have seen this type of rip off again and again, really big scams from Enron to Bernie Madoff and these are just the tip of the iceberg.
Shares in stock markets are manipulated all the time. Stock markets (in fact almost all types of markets) are led by sharks plain and simple. Count on this fact. This is the nature of the beast and the number one goal of many big businesses is to take as much of your money as they can to line their pockets.
In the Wirecard AG example many thousands of investors have seen their hard work, their thrift, their security and hopes for the future disappear, even though they seemingly did everything right by investing in a blue chip, new era, high tech company.
A study of 92 years of investment returns shows that, despite the fraud and cheating and deceit, stock markets are still a good way to make your money grow… if you invest long term and diversify.
Our Pi strategy makes it harder for cheaters to grab your wealth because it’s very hard to manipulate an entire stock market, much less a dozen or so stock markets around the world.
Manipulators have a hard time tricking an entire market, especially larger markets. If you get the best value country ETFs, your chances of long term profits improve.
I am updating my plan to increase my average yield to as much as 4.07%.
My developed market portfolio has been diversified into eight developed markets: Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.
iShares Country ETFs make it easy to invest in each of the good value markets.
The average yield of these nine markets combined was 3.27% as of June 2020. By replacing the three lowest yielding markets, Austria (.64%), Germany (1.83%) and Japan (2.51%) with two better yielding neutral markets Australia (4.57%) and Canada (3.54%) the average annual yield on the entire portfolio rises to 4.07%.
4.07% is 154% higher than the 1.6% you can currently earn on AA rated corporate bonds!
The ETFs provide higher income and incredible diversification for safety, plus the highest long term profit potential.
Here’s how you can create your own good value strategy.
I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use. You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.
You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years. Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.
You also receive a 100+ page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets). This analysis looks at the price to book, price to earnings, average yield and much more of all 46 markets.
This year I will celebrate my 52nd anniversary of global investing and writing about global investing. Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades. This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in the Pi course.
Subscribe to the first year of The Personal investing Course (Pi). The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $124.50 off the subscription.
Enroll in Pi. Get the basic training, the 46 market value report and access to all the updates of the past two years, plus all new updates over the next year.
I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.
If you are not totally happy, simply let me know in the first two months for a full no fuss full refund.
You have nothing to lose except the fear. You gain the ultimate form of financial security as you reduce risk and increase profit potential.
Due to the COVID-19 pandemic we have cut the subscription to $174.50. You save $124.50!
Then because this global recovery from the pandemic is going to take years, we’ll maintain your subscription at just $99 a year rather than $299. Your subscription will be autorenewed in 2021 at $99, though you can cancel at any time.
Subscribe to Pi today and you get a year’s subscription to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.