Change, alongside death and taxes, is one of life’s only certainties. It is ever-present and always evolving.
This transformation can lead to progress, but it can also bring challenges. What remains constant is the inevitability of change. With that in mind, let’s explore a perspective on what lies ahead…
“We should all be ready to adapt to a world that is becoming more difficult,” warned Charles Munger recently in Los Angeles. Munger, known for being Warren Buffett’s right hand at Berkshire Hathaway, made this statement in response to inquiries about the Federal Reserve’s substantial expansion of its balance sheet since the financial crisis of 2008.
“You can expect the purchasing power of money to diminish over time,” Munger added. “And the next 50 years are likely to present even more difficulties than the last.” He emphasized that the past half-century may have been an anomaly… Continue reading
The current state of the U.S. stock market is widely considered overvalued. It’s not only reaching new nominal highs, but its valuations are also at unprecedented levels. So how do we know?
Several metrics are available to clarify this situation. For instance, Shiller’s Cyclically Adjusted Price Earnings (CAPE) ratio stands at a staggering 27.5, which is 65% higher than its long-term average.
Moreover, throughout the last century, there have only been two instances where the CAPE was higher than its current level: once just before the late 1920s market crash and once before the decline of the internet bubble in the late 1990s.
The Buffett indicator, which compares total market capitalization with gross domestic product, also highlights that stocks are significantly overpriced. This ratio is currently about 125%, while a fair value market is typically between 75% and 90%. Anything above 115% is classified as highly overvalued. Continue reading
Recently, Fed Chair Janet Yellen decided to maintain the Fed’s zero-interest-rate policy. Wall Street celebrated this decision, pushing stock prices to near-record levels. After more than six years and over $3 trillion in direct asset purchases, what realistic steps could the Fed take?
They could begin the challenging process of gradually retreating from their excessively loose policies. However, doing so risks dismantling the very structures the Fed has painstakingly built. Essentially, it could trigger a financial catastrophe that collapses the precarious stock market foundation they have created.
This looming threat has led the Fed to carefully choose its words, reminiscent of Bill Clinton at a Congressional impeachment hearing. “Just because we omitted the word ‘patient’ from the statement doesn’t imply we are eager to raise rates,” Yellen stated. Confused? So, they might raise rates sooner or later, but not just yet?
Overall, such ambiguous messaging is utterly unhelpful. In 2015, it is absurd that the financial system hinges on the mixed signals of a frail bureaucrat. Continue reading
Last summer, Hui Ka Yan, chairman of Evergrande Real Estate in China, showcased his negotiation skills by selling China’s favored soccer team to Jack Ma, billionaire chairman of Alibaba Group.
“By chance, I got him drunk,” Yan recounted how the deal transpired with Ma. “I mentioned that my Evergrande soccer team planned to issue shares for funds to support strategic development, and he agreed. We finalized everything within 15 minutes.”
Such impressive business maneuvers have certainly contributed to Yan’s net worth, which stands at $6.4 billion. For Ma, this $192 million investment in a soccer team might have seemed less like a transaction and more like philanthropy, especially considering his net worth of $22.5 billion.
The flow of money in the world is truly fascinating, particularly in terms of who gives and who receives. Continue reading
