Party like it’s 1986 people! The S&P 500 reached an intra-day high of 1986.24 in early US trading. It couldn’t hold the high, though, and closed at 1983.53. Still, it’s just a few points off its all-time closing high on July 3rd 1985.
‘Unrestricted warfare’ in the skies of Ukraine? So what! Ultra-low global interest rates producing anaemic real growth? So what! Geopolitics as a factor in stock market valuations? So what!
Markets are treating risk like its cotton candy. Emerging market sovereign debt issuance was up 54% in the first six months of this year compared to last year, according to data from Thomson Reuters. Led by the likes of Mexico, Slovenia, and Turkey, governments in emerging markets are taking advantage of low interest rates to stock up on cash. Global investors have scooped up almost $70 billion in emerging market sovereign bonds so far this year.
Is this the new frontier of investing Kris Sayce is talking about? I doubt it. Kenya’s government issued $2 billion worth of bonds in June. The offering was over-subscribed. Ecuador — a country that defaulted on its sovereign debt in 2008 — sold $2 billion worth of bonds in June as well. That offering was also over-subscribed.
It’s not just emerging market sovereigns either. The so-called developed markets issued $157 billion in new debt in the first half of the year. And that number doesn’t even include Chinese government debt, which is not yet traded in international markets.
Are you starting to get the picture? A low interest rate world leads to risk-taking behaviour by investors. That’s exactly what you’re seeing right now in the S&P 500’s performance and the demand for emerging market bonds. I’d tell you to be alarmed. But don’t take my word for it.
Billionaire investor Jeremy Grantham says the next bust will be ‘unlike any other’. He told the New York Times that US Federal Reserve Chairwoman Janet Yellen is ‘ignorant’. He’s preparing for the crash. Yellen’s rally may lead to new highs in the US. But from there?
Even Reserve Bank of Australia Governor Glenn Stevens concedes there is only so much you can do with low interest rates. You can blow an asset bubble. But you can’t make a business borrow. ‘If people simply don’t wish to take on new business risks, monetary policy can’t make them,’ Stevens told a gathering yesterday.
Stevens also suggested that the RBA’s next rate move could be a cut. That’s if the non-mining part of the Australian economy doesn’t get off its lazy backside, increase productivity, and start creating jobs and profits. A rate cut might take the steam out of the Aussie dollar. But it barely budged this morning.
Into this swirling maelstrom of confusion, you’ll be invited to board a new investment vehicle next week. It’s called the Albert Park Investors Guild, and Bernd and Meagan have spent the last two weeks filling you in on what we hope it can do for you. For my part, I hope our little financial lifeboat is up to the task.
It would be safer to stick to the harbour (cash). But after our Alliance offer last year, we decided to reinvest in publications designed for a wider audience. That may or may not include you. But if I had to sum up the spirit of the venture, I’d put it this way: No geographic space holds a monopoly over opportunity.
I’ve actually borrowed that phrase from my friends at The Oxford Club in the US. Most of them are gathered in Vancouver, British Columbia this week for the Sprott Vancouver Natural Resources Symposium. Rick Rule, who spoke to Diggers and Drillers readers exclusively last year, has organised this year’s line-up. Some of the speakers at the conference are also on the Board of Advisors for the Albert Park Investors Guild.
Rick is the Chairman of Sprott US Holdings. I met him back in 1997 at a lunch with Bill Bonner. We were all trying to figure out what the internet meant for the newsletter publishing business. Because I was just out of college and wore my baseball cap backwards, Rick and Bill thought I might know something.
I didn’t open my mouth and prove them wrong. Instead, I did what my momma always told me, and what you should always do when in the presence of people with a lot more experience than you: Close your mouth, shut up, and listen carefully. That strategy has worked well over the years.
Through my association with Agora Publishing in Baltimore, Maryland, I’ve met many talented investors, economists, and writers over the years. Doug Casey, Dr Kurt Richebacher, Lord William Rees-Mogg, Dr Marc Faber, Dylan Grice, Jim Rickards, Richard Duncan, Rick Rule, Merryn Somerset-Webb, Alex Green, Byron King and many, many more.
I’m not telling you all this to brag. I’m telling you because some of these people have agreed to be part of our new project. They’ll sit on the Guild’s Board of Advisors. That means you’ll occasionally read articles from them that normally only appear to their paying subscribers. They won’t be giving any direct investment recommendations (that’s Meagan’s job), but you will benefit from their insight.
Who’s on the board? Bill Bonner, my mentor and the founder of Agora Publishing (back in 1978) is our Chairman Emeritus. You can think of him as the spiritual Godfather for the whole project. You read his work here in The Daily Reckoning. But we’ll also feature some of his more hard-hitting work from Bonner and Partners (the Family Office service for high net worth investors).
My old pal Byron King is on the Board too. Byron has an exceptional background as on oil man, a geologist, and a former naval aviator. He’s a good friend. But he’s a great mind. His analysis of the resources sector and of military technology will be great contribution to the Board. Hopefully, we can get him down here for our next conference, too.
Karim Rahemtulla from The Oxford Club has also agreed to take a seat on the Board. Everything I know about options trading I learned from Karim. For two years, he and I travelled all across the United States giving seminars on options. My presentations showed you how to use options on exchange traded funds (ETFs) to trade trends. Karim was much more scientific about it, showing investors how to craft strategies that involved selling puts and calls and buying them.
MoneyWeek is the largest personal finance magazine in the UK. That’s why I’m delighted its Editor in Chief, Merryn Somerset Webb has agreed to be on the Board as well. I worked with Merryn when I lived in London in 2005. She’s one of the brightest and most cantankerous financial writers in the UK.
We’re also bringing some analysts from our partners in South Africa. This is mostly to get a better view of platinum and palladium opportunities. But our partners in Johannesburg are also starting to cover Africa’s on-shore and off-shore oil and gas industry. We look forward to their contributions to the Guild.
Plenty of the people you know and read from Port Phillip will be involved. Not on a full-time basis, of course. The purpose of the Guild and its Board is to put that worldwide wealth of knowledge and experience to work for you. We’ve tapped into this behind the scenes for years. The Guild project formalises that relationship.
If it goes the way I think, it will be the best general investment advisory service in Australia by the end of the year. Our existing services are organised around a specific sector, or the views of a particular person (the editor). The Guild is different in that it’s not driven by a particular editorial point of view or a category of investing. It’s a general knowledge publication for the investor who wants his investment ideas, his model portfolios, and his asset allocation strategies — but without the world view, the crusty contrarian/libertarian commentary, or the discussion of ‘black swans’.
It won’t be everyone’s cup of tea. But it might be yours. Feel free to send thoughts, questions, and comments on the Guild project to me at firstname.lastname@example.org. Don’t be shy. And don’t hold back.
For Markets and Money