We’ve spent the past week moving house and family from Sydney to Melbourne.
We don’t recommend the experience.
You spend weeks packing all your belongings. Then some blokes come along and squeeze it all into a shipping container in a matter of hours. A few days later some other blokes unload the container in even less time, leaving you swamped with boxes and stuff you forgot you even had…and can’t find any room for.
Our wife and daughter flew down yesterday. Melbourne welcomed them with a pleasant blast of Antarctic air and persistent rain. We welcomed them with a wall of boxes and a lounge room that looked like a Picasso painting.
As much as we wanted to continue to find space for things we don’t need and don’t use, we couldn’t neglect our Markets and Money duties any longer.
So we came into DR headquarters in St Kilda this morning to reckon. But about what? We’ve had no time to keep up with the world this past week. We’ve slipped into ignorance.
And, as the saying goes, ignorance is bliss. We have worried less about the world this week. Everything seems fine when you’re not looking too hard. Sound bites and headlines only make you think you know what is happening. They provide no context, no details.
Here’s our impression of the world following a week of ignorance.
- The Labour government is an ongoing train wreck
- The Opposition is invisible and would probably be just as ineffective
- All is OK with the Aussie economy because interest rates fell 0.5 per cent. Homeowners rejoice…
- House prices fall across Australia (according to the ABS). Homeowners cease rejoicing…start selling
- Europe is still a mess, but it doesn’t really affect anyone here
- The Dow Jones Industrial index reached a four-year high the other day – things must be going alright in the States
- China’s having some power struggle issues but whoever is in charge, they won’t let the economy go off the rails
- Banks continue to make loads of money
Of course these points tell you nothing. They’re simply statements. That’s the problem with living in a world that fires information at you 24/7 at 360 degrees.
Which is where the Markets and Money comes into your life. We aim to piece the absurd and nonsensical together and give you some context. You may not always agree with what we say, but if we make you think each day then we’ve done at least part of our job.
Because the informed and thinking investor is much better equipped than the ignorant investor. Ignorance breeds complacency. Complacency leads you to put off making important decisions about your finances. And you generally remain complacent until it’s too late.
Back in late 2006, we moved our parents’ superannuation portfolio into cash. That was after speaking to their financial adviser whom we concluded was ignorant about the market and therefore complacent.
We didn’t want him advising our parents in what we saw was a highly riskly environment. So we sold and moved into cash. The trick is to panic before everyone else…or at least before the complacent investor.
So, what is going on in the world? Financial markets are grinding higher…feeding the complacency.
Well, nothing has really changed, dear reader. Put simply, too much unproductive debt is weighing on the global economy. It’s ‘unproductive’ because the projects the debt helped to finance don’t generate enough cashflow to even service the interest repayments, let alone repay the principle.
It is ‘bad’ debt. Instead of recognising this and liquidating these ‘bad’ investments, governments and central banks prop up the system through the creation of even more debt. It is a policy based on hope. We would suggest it’s a policy bordering on insanity.
Which brings us to Marcus Aurelius. He was Emperor of Rome from 161 to 180AD. According to Edward Gibbon, author of the Decline and Fall of the Roman Empire, the decline started following Marcus Aurelius’ death and the ascension of his son, Commodus.
We bring up Marcus Aurelius because we stumbled upon some of his writings when unpacking. And instead of getting on with the job, we sat on a box and flicked through them. The following quotes from Aurelius are worth pondering in today’s complacent environment.
They serve as a reminder that wisdom is not evolutionary. It is timeless. Despite all the ‘progress’ humans have made over the centuries, we are just as dumb as we’ve ever been.
‘The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane.’
When really pressed to think about it, even the ignorant observer would acknowledge that the creation of ever greater amounts of debt to solve a crisis caused by too much debt is insane.
‘Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.’
Truth, like beauty, is in the eye of the beholder. There really is no such thing as the truth in financial markets. There are lies aplenty…but the truth?
‘Look back over the past, with its changing empires that rose and fell, and you can foresee the future too.’
This is practically our mantra at the Markets and Money. We look to the past to give us a guide to the future. Without knowledge of history you’re flying blind in today’s investment world.
Armed with just a little history, a few things are certain. That is, today’s policymakers will continue to make the same mistakes made in the past – just under a different guise. And gold will continue to fulfil its role as the ultimate form of money.
Until next week…
for Markets and Money