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Unforeseen Events

14 March 2011 15 Comments

If you were to go back to the start of the year and were asked to give what you thought would be the biggest sources of uncertainty that was possible for this year, you probably would have not have named Egypt, Libya and Japan.  While I’ve been saying for years that there is plenty of global uncertainty, identifying ahead of time the actual form of it and what it will actually look like is very difficult.

Now, calling for a natural disaster similar to what just happened in Japan is of course impossible to predict, but middle east riots that were caused at least to some degree by food inflation was a little more logical to see coming – although nobody predicted Egypt to be the start of it.

The point here is that there are massive events that will always occur from time to time that you cannot predict or see coming.  It’s important to stay focused on your long-term financial strategy before, during and after such events.  If anything these events can provide some volatility that might bring buying opportunities.

The problem is that most people’s long-term financial plans are just to buy stocks on a regular basis indefinitely.  As you know, this isn’t the plan I believe is correct.  Now, there are some stocks that I do buy on a regular basis – they are my DRIP stocks that I put money into every month and have dividends reinvest over time.  But I don’t buy the general market on a regular basis – which is what most people do via massively diversified portfolios.

I’m somewhat more selective on my overall positions that are adjusted based on some of the macro trends that I believe are in place.  What are these trends?  Well there is a global re-balancing that needs to take place between developed and developing countries.  The US has an unsustainable debt, currency and standard of living where countries like China have the opposite.  There will be a shift and re-balancing.  As such, I want more exposure outside the US, and I want to diversify into non-dollars.

I make my living in dollars, so diversifying some savings and assets into non-dollars – whether it is foreign currencies or precious metals – isn’t exactly crazy although most financial advisers would tell you it is.  I wonder why?

Furthermore, I see the U.S. as an economy with major structural issues that aren’t solved by cyclical solutions (namely liquidity and Fed easing).  Growth will be hard to come by in America, and our policies are pushing us towards inflation.  Stagflation is a very obvious result in my opinion.

Oh the whole, I want to be in defensive stocks, I want cash available to buy assets when volatility hits, I want to have exposure to commodities and precious metals to be hedged against inflation, and I want some exposure to resource-heavy countries and developing countries in Asia.  Asia will have massive volatility, but long-term, their standard of living is going up (while ours is going down).  Also, having some exposure to energy names is a good idea for both an inflation hedge and because energy demand is increasing in parts of the world like Asia.

A Japanese earthquake changes none of what I just said.

15 Comments »

  • localtimezone said:

    "Don't complain about what you have, some people have it worst off, and since life rather unpredictable, you might be worst off soon enough"?

    In other words, if you think you're having a bad day, think about the folks in Japan and how they're feeling about their day…

  • exchangerates said:

    Do Not use your safety net for shallow irresponsible purchase you will regret it later I guarantee it.

  • xfiltrate said:

    Kevin, your statement:

    "middle east riots that were caused at least to some degree by food inflation was a little more logical to see coming"

    I agree! The quantitative easing 1 , 2, and most probably 3 will continue to lower the purchasing power of each dollar, not just at home (United States) but for the world at large.

    Therefore, more and more money (dollars/etc) are needed, but unavailable, to buy food, gas, shelter, and the basics of survival. This is often a cause for what you have termed "riots."

    While those who created the need for quantitative easing continue to enjoy and profit from the fruits of their labor, because of quantitative easing and a fiat currency, the millions of families represented by those who riot suffer and will eventually starve.

    Imagine trying to survive , with no credit available, even for food, when you are hungry, have no money. and no "nanny state" to feed you and your family, in a country with double digit unemployment !!! Try it…. Then you will understand. Then you will have the right to judge those who riot – riot against those who for their own profit have devalued the dollar, or stolen the wealth rightfully belonging to others.

    The challenge of survival is great for those who "riot" in Africa and elsewhere, while the derivative, credit swap, bail out, bubble beneficiaries are buying luxurious toys and whatever else they want….

    I am repulsed and sickened by the recent increase ($$$) in high level white collar crime that continues with no one being held accountable…. OH WAIT, they did scapegoat Madoff …., What a laugh, when the regulators / government and several banks/investments houses knew exactly what he was doing.

    White collar and other crime, is probably enabled of caused by the out of control consumption of mind altering legal and illegal drugs. This in large part thanks to the big drug companies and our own governments documented importation and sale or trade of illegal drugs.

    There , I feel better now , thanks for listening.

  • fxgeorges said:

    Events happen. We know that God only gives us those things which are good. The key word here is "good" for what is "good" in the eyes of God may seem "bad" to us at the time – just as enforced rest and inactivity and bad tasting medicine might seem "bad" to a child who is ill but which is "good" from the point of a parent or physician. Everything that comes to us is "good" (or more precisely "good for our salvation" which is God's measure of "good") if we receive it with humility and faith. In each situation it is not the event that is "good" or "bad" but rather our response to that situation that makes it so.

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  • Ash Sand said:

    This is really important to watch events which are going to happen and affect the economy.

    Regards
    Ash Sand

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