加息，不能夠只講現在，不講將來

昨日睇到一篇不錯的文章， 係債王格羅斯Bill Gross所寫，關於現在各國央行在玩的把戲, 他把央行都形容為賭場，他們的行為就像在發行一大堆不打算兌現的籌碼，賭一把經濟會否有起色，08至今已賭了7年多，還未見有勝算，一係市場對呢啲賭場兌現籌碼能力失信心，一係他們在輸光信心前能反勝。大家也有興趣賭一把嗎？

More breaking news – this time on the investment side: central banks are casinos. They print money as if they were manufacturing endless numbers of chips that they’ll never have to redeem. Actually a casino is an apt description for today’s global monetary policy. There is a well-known “foolproof” system in gambling circles that is sophisticatedly called the “Martingale”.  I used to call it “double up to catch up” at my fraternity’s poker table where I was consistently frustrated (loser) – not because I used Martingale but because I wasn’t a good bluffer. Today’s central bankers use both tactics to their success – at least for now. They bluff or at least convince investors that they will keep interest rates low for extended periods of time and if that fails, they use Quantitative Easing with a Martingale flavor. Martingale theorizes that if you lose one bet, you just double the next one to get back to even, but if you lose that one you do it again and again until you win. Given an endless pool of “chips”, the theory is nearly mathematically certain to succeed, and in today’s global monetary system, central bankers are doing just that. Japan for years has doubled down on its QE and Mario Draghi’s statement of several years past, “Whatever it takes” – is a Martingale promise in disguise. It vows to get the Euroland economy back to “even” and inflation up to 2% by increasing QE and the collateral it buys until the Euro currency declines, the EZ economy improves, and inflation approaches target. Currently the ECB buys nearly 55 billion Euros a month, and this Thursday they will up the ante – Martingale or bust!

How long can this keep going on? Well, theoretically as long as there are financial assets (including stocks) to buy. Practically the limit is really the value of the central bank’s base currency. If investors lose faith in a reasonable range for a country’s currency, then inflation will quickly hit targets and then some. Venezuela, Argentina, and Zimbabwe are modern day examples. Germany’s Weimar Republic is a great historical one. Theoretically, if the whole developed global economy did this at the same relative pace and stopped at the right time, they could successfully reflate and produce a little bit of inflation and a little bit of growth and save the globe from the dreaded throes of deflation. That is what they are trying to do – Quantitative Easing, Martingale style – and so far, so good, I guess – although no rational observer would call these post Lehman efforts a success.

That they haven’t really succeeded is a testament to what I and others have theorized for some time. Martingale QE’s and resultant artificially low interest rates carry distinctive white blood cells, not oxygenated red ones, as they wind their way through the economy’s corpus: they keep alive zombie corporations that are unproductive; they destroy business models such as insurance companies and pension funds because yields are too low to pay promised benefits; they turn savers into financial eunuchs, unable to reproduce and grow their retirement funds to maintain expected future lifestyles. More sophisticated economists such as Kenneth Rogoff and Carmen Reinhart label this “financial repression”. Euthanasia of the saver is the result if it continues too long.

But this is theorizing much like Schrödinger’s cat. How many people care about the existence of a quantum feline? (A few, thankfully, but not many.) Market observers say “show me the money” and when they look inside the box, they want to see some, so let’s get down to business.

How does all this play out? Timing is the key because as gamblers know there isn’t an endless stream of Martingale chips – even for central bankers acting in unison. One day the negative feedback loop on the real economy will halt the ascent of stock and bond prices and investors will look around like Wile E. Coyote wondering how far is down. But when? When does Martingale meet its inevitable fate? I really don’t know; I’m just certain it will. Doesn’t help you much, does it. Except to argue that much like time is relative to the speed of light, the faster and faster central bankers press the monetary button, the greater and greater the relative risk of owning financial assets. I would gradually de-risk portfolios as we move into 2016. Less credit risk, reduced equity exposure, placing more emphasis on the return of your money than a double digit return on your money. Even Martingale casinos eventually fail. They may not run out of chips but like Atlantic City, the gamblers eventually go home, and their doors close.

-William H. Gross

Not sure if you fully understand what you posted, at the end of his analysis, he dismissed equity and financial assets. Then where can he put his money? Is he suggesting real estate? I can't think of anything else.

As for Martingale, I am sure he doesn't understand, neither does you. To understand Martingale, you need to know time series. In short, Martingale assumes random walk which basically says future outcomes don't depend on past outcomes. So his "double up to catch up" is a fool's strategy, violating Martingale's concept.

Lot of guys here say "HK property has gone up more than 10 years, it's time to go down". I say HK property is a Martingale game, what is going to come is independent of what happened in the past.

My 2 cents.

長河兄，

Not sure if you fully understand what I posted too.  I am not surprised you CANNOT think of any other alternatives apart from real estate.  The reason is you have never ever got your mind and eyes opened wide enough.

If you have time, you may want to take a look at how other experts are doing on portfolio allocation should you have a portfolio size as you claimed to have.  There is one example below.  But everyone has a different risk appetite, interests and strength profile. There will never be one quick fix formula that fits all.  The key is deleveraging and diversification. 

I never have said don't invest in properties, I just say don't blindly invest in it at whatever costs it takes.  Hope you can get it this time!

~~~

Jim Rickards Personal Portfolio for reference only

My personal portfolio is a blend of cash, fine art, gold, silver, land and private equity. I do not own any publicly traded stocks or bonds, partly due to restrictions under various regulatory requirements applicable to my role as a portfolio strategist and newsletter writer.

The mix in my portfolio changes from time to time based on valuations of the particular asset classes. My recommended mix is 10% precious metals, 10% fine art, 30% cash, 20% land and 30% alternatives such as hedge funds, private equity and venture capital.

Currently, my personal allocation is overweight land, fine art and private equity and underweight cash and precious metals. However, this will change, because the fine art fund is currently making profit distributions, which are being reallocated to gold, at what I consider to be a good entry point, and to cash.

All investors should be able to purchase precious metals and land and hold cash without difficulty. Alternatives such as hedge funds, private equity and venture capital are not open to all investors, because they are frequently traded as private funds limited to accredited investors with high minimum subscription amounts.

There are also publicly traded equities such as high-quality bond funds and companies holding hard assets in energy, transportation, natural resources and agriculture.

“Lot of guys here say "HK property has gone up more than 10 years, it's time to go down". I say HK property is a Martingale game, what is going to come is independent of what happened in the past.”

咁你又成日引經據典？

如果12月就加息, 距離8月大選中間最起碼要決定。我次加唔加第二次息, 所以可能3月先加第一次較好, 第二次留比下一任總統慢慢研究

既然早幾個月冇膽加，我個人看不到12月會加！

但我重伸，加不到絕不是好事。

不過我認同舍神兄所講，唔加息絕對唔係好事，加則是好事。資金一直在等，謀定而後動，一日唔加，一日唔敢輕舉妄動。歐洲減息後歐元不跌反升也是異曲同工。

看不到長期低息的事實，妄談資產配置。

老套一句，有缘千里能相會，哈哈！