Dear Mr. Practical
...I have no debt, for I want control of my assets.
Dear Mr. Practical,
I am truly bearish now, although as you always caution, I am not shorting stocks, for who knows how far sentiment can take prices. Personally, I have taken your advice and sold as much of my inflated assets as I rationally can. I have sold all of my real-estate except for my primary residence and all of my stocks (what little I had) and have put the money into treasuries. I am even getting a little yield now, so I have sold my t-bills and am now in one-year paper.
I still own gold, around 7% of my assets, but have liquidated some profits. That looks to be a mistake as it looks like the Fed has decided to print money at all costs, creating more debt and over-capacity. As a result of that decision, the market will demand higher and higher short term rates to finance our deficits. The market still thinks the Fed will stop raising rates soon, so when that realization hits things could get sloppy quickly.
And of course I have no debt, for I want control of my assets.
So I have about 40% of my money (whatever that is) in treasuries, 15% in real-estate (which I cannot sell, or just will not), around 7% in gold, and the rest in my hedge fund. As you know, our hedge fund is set up for an increase in volatility.
Financial analysis on TV is like watching a game show, except in this game show the contestants have much to lose. Pundits spend no time at all on risk, time horizon, or objective. It is typical of a mania, a socio-economic phenomenon that occurs at market tops where participants are oblivious to risk and only have attention for return. People don't even remember Dan Dorfman, but he is back in another suit.
And so I wait.
Any other input would be appreciated.
I remain in Switzerland as a place of the least evils and have not changed my asset allocation. Around 70% of my assets are in Swiss two-year bonds yielding only 1.8%. Some would consider that irrational, but as I have taught you it is not about the yield (which everyone chases), but about a currency's relative performance.
And of course I remain 20% in gold. This one is a tough call, but even in a correction I will hold it long term.
I have tried to convince you to hedge most of your assets against a fall in the dollar. You may still have some time as nearly every other country is inflating as fast or faster than the U.S. currently is, but it is only a matter of time. A country with as much debt as the U.S. will devalue its currency ever more to pay off that debt. This is a de-facto default and will not be avoided. So you should still consider over time selling dollars to buy Swiss francs. I know your reluctance is borne of sentimentality, but that has no room in protecting your assets.
That being said, I will not admonish you as you have done everything else right and your hedge fund, although it has business and clearing risk (which you have decided to accept and I respect that) should provide some protection of your assets.
The macro environment remains amazing and untenable. As the credit contraction begins in the west, we will see the flip-side of the 90's.
As always, I remain away from the crowd, but not against it.
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