It’s the end of the week. Emotions are mixed. Half of us wants to throw our lot in with the “She’ll be right” gang, point out that unemployment in Australia has declined to just 5.1%, cite the positive IMF growth forecasts (4.6% for the globe, 9.2% for Chindia, and 3% for Australia) and go have a beer to celebrate how lucky this country is and continues to be.
But the other half just can’t resist watching the slow-motion decomposition that is the Euro and wonder if Europe’s banks are stuffed full of government debt that could make subprime debt look gold-plated. And to be fair, the IMF is also worried that a sovereign debt crisis in Europe is still a threat.
In its updated forecast for everything, the agency said a European debt crisis, “Could lead to additional increases in funding costs and weaker bank balance sheets and hence to tighter lending conditions, declining business and consumer confidence and abrupt changes in relative exchange rates.”
That doesn’t sound good.
Yesterday we promised to be more offensive. That is, we said that despite an outlook for the world that was full of de-leveraging and falling asset prices, there is a time and a place to go on the attack. But is now that time and is here that place? And how would you attack anyway?
Well, there is certainly a place (albeit small) for speculation in any well-diversified portfolio. But it’s important to remember that Black Swans – statistically improbable according to conventional models, but with very large consequences – don’t always have to be bad things. A big oil find by a small exploration company is a low-probability, high-magnitude event.
The same is true with a breakthrough drug by a small bio-tech company. These events don’t have to happen often. They just have to happen once. And if you have a small-portfolio of businesses that are exposed to these kinds of events, you are taking an essentially offensive position. You needn’t bunker down in your cave, at least all the time.
This kind of disposition is another way of telling Mr. Market, “Frankly don’t care what you’re doing…I’m going to own a portfolio of disruptive technologies and businesses with potential for big returns. And also, relax and quit being so manic.”
This, for the record, is our strategy as a financial publisher. We have no idea what will happen as the world wakes up from a hangover from one large leveraged boom, although we know what SHOULD happen. But we have tried to build a team of analysts – Alex, Kris, Murray, and Greg – who have their own ideas, their own expertise, and their own plan. We don’t know who’s right and they don’t always agree. But they always make us think.
By the way, if you replied to our Super request yesterday, thank you very much! The inbox had several dozen thoughtful letters and offers. It’s going to take us a few days to review them. So please be patient. But thanks again. It will be good to have someone on-board who can write about Superannuation.
We’ll be back on Monday with more from the world of finance. But that will it for today. Friday is the day we write a weekly e-mail update for subscribers to Australian Wealth Gameplan. And with mixed signals about whether China’s property sector is headed toward collapse or just slower growth, there’s a fair bit of work to do! Until next week.
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