Tuesday, March 31, 2009

Real Life Advice Corner: Banker Bob Says

[Based on real-life events this morning]

Banker Bob says "If I were purchasing currency right now and had a no-fees source I would purchase every week to even out the fluctuations!"

Fortuna Says: But if a currency starts to move in one clear direction and is not fluctuating much - as has happened with several currencies in the last year - does a strategy blind to the economic realities make any more sense than one that might objectively consider what's going on in a country?

SHOW ME THE LOGIC. (A la Cuba Gooding Jr.)

I put this one right up there with blindly "buy low!" when it's not impossible there will be at least a few stocks Nortelling it this year. The rules have changed and we treat economic studies as though they're evidenced over a thousand years instead of just over one hundred. Economies undergo major shifts periodically, it's a historical fact. Beaver pelts would have made you a wealthy lady in Canada a couple hundred years ago, today they're nearly worthless.


If when people were starting to see drops a year ago they had pulled the cash off the market and put it into extremely low risk they would have retained forty to sixty percent of their funds. Even if gains were to suddenly turn around within the next year and hit 7% per year it would still take over a decade for those investments to recover to the 2008 level.

I pulled my investments from the market into low risk funds in July, against the advice of "financial experts." You'd be hard pressed to show me the math this was or will every be a bad decision. Millionaire Mommy Next Door is a PF blogger I really admire who trumped the experts by ditching the housing bubble before it burst - when you read what she writes it's clear she went with her own logic and gut reactions and looked around until she found ideas that made sense.

This is a really ugly truth financial experts haven't come to terms with because most of them were relying on Investing 101 rules of thumb learned in B-school to keep their own assets safe and now they're in the same position as their clients - and in an industry about to shed a lot of weight.

I come from an old school profession and most of my social circle are people with multiple degrees. If there's anything I've learned from education it's that people have a hard time admitting they screwed up or they don't know how something works, despite a high rate of error. I watch people screw up at my job every day, most of them aren't aware of it. I probably screw up at my job at least once a week. The meritocracy is flawed and doesn't have appropriate feedback mechanisms.

Those of us in the meritocracy recognize this. I know the system is changing. I stick to my original feelings six months and a year ago when the edges of subprime showed and when the markets started to take their first hard falls.


There is a global power shift going on. This isn't news to anyone outside of North America and it's certainly not news following the test expressions of China and Russia at the G20. The Chinese suggestion of a new reserve currency isn't actually what they want - it's a market test to see what will happen if and when they start systemically liquidating American debt (and dollars). They can't afford rapid currency destabilization. Luckily, all it takes is someone saying "The USD is alright!" to bounce the currency back up.

Here's a tip: China doesn't speak publicly about policy. They don't react like America. They don't have elected officials give soundbites. When you hear something out of the Chinese Government it's probably worth listening to.

One of the most interesting political events the past week has been the barring of the Dalai Lama from South Africa. The unofficial heads of state in SA remain Nelson Mandela and Desmond Tutu. South Africa is the most robust economy in Southern Africa right now and looking at an election in three weeks. Despite the impending election, the current government is willing to do something attracting international media (unfavorably) to placate the Chinese government. Whether this is to protect against further foreign capital outflows (which are quietly gushing from SA for the first time since 1994) or not, this is a fairly dramatic political statement from a fairly important economic power.

China has extensive stakes in Africa and South America the United States relinquished when it turned the majority of it's international power to the middle east over the past two decades. Apparently, the changing world conditions are strengthening rather than weakening these ties.

So What Am I Doing?

Learning and watching. In times of social change there are always opportunities appearing that failed to exist before. I don't know what mine will be yet, I probably won't write about it. I am shoring up my personal financial situation as quickly as possible. But, I'm also refusing to live in fear or deep concern about the future - it's not useful and promotes bad decision making.

I also believe Canada is a good place to be right now.

First, because of extensive untapped wealth, both in human and natural terms.

Second, because all parties in government are essentially and comparatively non ideological. We're all small "l" liberals these days. This means political energy is better spent on real issues and less wasted by arguing about, say, whether or not gay people should be able to get married.

Third, high rates of immigration have made Canada's urban centers super diverse. Human connections to other countries and dual citizens are an advantage in a world with shifting loyalties and demands. Respectful coexistence is economical for many reasons.

Fourth, our currency is undervalued and not a bubble.

Fifth, Canada's diplomatic relations are diversified and low key. The US and the UK became publicly exclusive to their detriment in the last decade. Canada doesn't hold much sway in world politics but it never has and never will (no matter what we tell ourselves about mediating the cold war).

However, whether we maintain these advantages is always open to question.


The National Post is feeling pretty bleak today.

In other news, my NYTimes failed to hit the inbox this morning. What's up?

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