NOURIEL ROUBINI: 6 WORRIES THAT MAY HURT OUR ECONOMIC RECOVERY

The world is often messy and sometimes a horrible place. If we’re going to be investors we have to get used to this reality. In an uncertain world it might be hard to find certainty, but as investors our job is to operate with certainty.

 

Nouriel Roubini, economics professor at NYU, called the real estate crisis and financial crash in 2007 and has these 6 things to warn us about in our economic recovery (from a June interview on CNN):

6 World Events That Could Hurt Our Global Economic Recovery

1. Economy of China is heading for trouble and will surprise investors to the downside. This will create problems in Asia (See #6).

2. The Fed moves too fast, normalizes interest rates too soon and crashes the market.

3. The Fed moves too slow, normalizes rates too late and creates asset bubbles.

4. Emerging markets will suffer as the US raises interest rates, global demand for raw materials wanes and China slows.

5. Ukraine-Russia conflict becomes a war and involves Europe and the US; Russia cuts off gas supplies to Europe and sends it into a depression.

6. Rising Asian nationalism leads to conflict between Asian powers – a real shooting war.

 

Read the Article Here at CNN Money.

 

There was a song back in the late 50’s when I was a kid that was apropos for the cold war duck and cover nuclear holocaust on the horizon world we were in:

They’re rioting in Africa
They’re starving in Spain
There’s hurricanes in Florida and Texas needs rain

The whole world is festering with unhappy souls
The French hate the Germans
The Germans hate the Poles

Italians hate Yugoslavs
South Africans hate the Dutch
And I don’t like anybody very much

But we can be tranquil and thankful
And proud for man’s been endowed
With a mushroom shaped cloud

And we know for certain that
Some lovely day someone will set the spark off
And we will all be blown away

They’re rioting in Africa
There’s strife in Iran
What nature doesn’t do to us will be done by our fellow man

——Kingston Trio – Merry Minuet

Thoughts on Nouriel Roubini’s Predictions

It and Roubini’s concerns remind me that the world is rarely a tranquil place. People aspire for more. “More” can mean more freedom but usually does not. It usually means more good ole fashioned religion, the kind that tolerates nothing.

 

Our forefather’s came to America to practice that sort of serious type religion because they weren’t being allowed to do so in Europe. It seems most people in Europe didn’t want to hear that they shouldn’t drink, dance, date, party or play cards.

 

When surveying the world today we might want to remember that our ancestors wanted everyone to worship exactly the same way and live in theological communities too and went to a lot of trouble extinguishing the locals so they could worship god the right way. And, as I recall my history, they were quite willing to kill you dead even if you weren’t a local if you didn’t get with the program.

 

In fact, the only state that didn’t have an enforced state-wide religion in the original 13 was Rhode Island; everyone else had their own version of Christianity and those state religions were enforced to varying degrees depending on the level of seriousness. The Puritans of Massachusetts were very high on the seriousness scale and seemed to feel it was useful to hang the occasional Quaker to get everyone’s attention, particularly if they could also see some witchcraft going on behind the scenes.

Investing in the Real World

Point being, if you’re going to be an investor, get used to the world being a messy place. You’re going to be operating without certainty in the big wide world for your entire investing career.

 

Which is why it’s nice to be an American investor. We’ve pulled through so many crises so many times that it’s a good bet that whatever is happening out there, the USA is going to prevail, and dominate.

 

So while the world may be blowing up, America isn’t and won’t and it will pay in the future to invest your money on that long-term certainty.

 

Now go play.

 

Learn the Basics of Rule #1 Investing HERE

About Phil Town – Phil Town is an investment advisor, hedge fund manager, two-time NY Times best-selling author, ex-Grand Canyon river guide and a former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence. You can follow him on google+, facebook, and twitter.

  • Garrett

    Rulers,

    36 out of 37 companies on my Watch List are below their one year peak. Hmmm…..
    The only one that is higher is Coke.

    The Russell 2000 had a huge sell-off today. The big guys started sneaking out of the theater because they smelled smoke and today everyone else started to go. As goes the Russell 2000, so goes the rest of the market – probably.

    Think of the Russell 2000 as an early indicator of trends.

    When I teach or introduce “The Tools” to a Newbie Ruler, I use the analogy of a cruise-ship (The Market) and a wave-runner (you)

    When a cruise-ship is powering down the ocean, it leaves behind a big wake. You, being the wave-runner, are happy to just follow this big cruise-ship around the ocean – safely behind its big wake. The cruise ship is bigger than you, smarter than you, has radar and a team of people to help it navigate those enormous icebergs and storms on the horizon.

    You have nothing. All you can see is the back-end of a cruise ship. You have no idea what lies ahead.

    Gradually, the cruise-ship starts to deviate from its straight path and veer left. You don’t know why it’s going left, you just know it is.

    Is a hurricane on the horizon? Iceberg? You don’t know and can’t tell. All you see is the back-end of a cruise ship. But if its turning, it must be for something…so you figure being little, you just do a quick 180 degree turn and head back to safety – find some land, load the wave runner back on its trailer and go watch Monday Night Football.

    That’s like going to cash. Mr. Market is definitely seeing something it doesn’t like. Some may disagree with this and that’s fine – because timing the market is not something people can do. But let’s not confuse that with being little, recognizing our advantages in the market and when something is at fair value or a high PE Multiple…….. – well, there’s nothing wrong in my mind with selling it to get more cash….. to do more investing, at a better price and another day!

    Look, the worse thing that happens is Mr. Market takes off without you. But if you’re a 401K Investor in the S&P 500, when “The Tools” all say “Get Out” on the weekly view, I think it’s just smart insurance to “Get Out” and limit your risk.

    I spend money every month on a supplement life insurance policy. I don’t get all mad each month I’m still alive because I bought the life insurance policy again – and didn’t die.

    Same with “getting to cash” – For me, it’s like spending a little money to get some life insurance. It might cost me a little, but it’s a lot better than either alternative…market up…I can get back in and find bargains somewhere….market down…I can wait until things get priced on sale.

    The Russell 2000 says “Get Out” based on a Monthly View. The S&P 500’s MACD went red today on a Monthly View. The DOW’s MACD went Red way back in July on a Monthly view.

    If you’re still in based on a Monthly view, I would expect the DOW to give all three “Get Out” signals if the DOW drops somewhere between 16,500 – 16,000. Just watch yourself. If your buying something or looking to buy something, make sure you’re at a good floor and notice where the next floor is after that – because if there is a big sell-off, your “Wonderful Company” is going to go down with the herd.

    To Your Wealth!

    Garrett

  • Garrett

    TEST…why won’t the short post I just wrote POST!

    To Your Wealth!

    Garrett

    • Garrett

      Hello Rulers!

      If I were using “The Tools” to dance in and out of the S&P 500 in a 401k plan, I would be taking particular attention right now to a few things.

      I have “The Tools” set up for a “weekly” view.
      …continued…

      Garrett

      • Garrett

        By Aug 8th, 2014, “The Tools” set “Get Out.” Then “The Tools” reversed and the MACD was the last trigger to say “Get In” on Sept 2nd, 2014.

        A week later on September 8th, the MACD reversed and went “red” followed by the MA going red on September 29th.

        Now we’re watching to see if the Stochastic goes red in the next week or so which would be our third “red” arrow signalling our “Get Out.”

        …continued…
        Garrett

  • Hanno

    Hi Jiri,
    well, here in europe we have other basics as in the US. There is no bank account which works like that one if you are an employee in the US.
    You have to make compromises. Go to a cheap broker with low trading costs.
    Unfortunately, today msn money changed their website. So I don’t know how to get the necessary informations too. Since Phil has his great page to help to put a value on businesses, it is not possible to do it for all businesses and also not for businesses outside the US.
    For this case, msn money was very great! But now I don’t know what to do. They completly removed the great chart tool Phil introduced in his first book.
    For me it would be great to have a similar chart tool for technical analysis. Does anybody know where to find one which is similar to that one from msn money (except that one from yahoo or google, they are quite poor)?

    • Erick Lindley

      I Hanno… Schwab is very good at setting up the chart tools phil recommends. You don’t have to keep changing the numbers as you do on yahoo.

    • Ms.MP

      AHHHHHH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
      OMG I HATE the new MSN site. I can’t find ANYTHING on it. I’m so glad they think insipid pretty charts are more important than real data.
      I can’t run numbers on anything now.

  • Jiri

    Hi Rulers,

    I definitely know how it is to live in Europe. I kinda understand the forefather’s. :-)

    I am from the Czech Republic, and would like to start rolling with what I have learned in Rule 1 Conference. I can not get Think or Swim platform over here. Do you guys who are living outside the US have any suggestions of what to use. I know I can get Interactive Brokers over here, but do not know how to set it up the R1 way.

    Thanks for the help.

    Jiri

    • Bradlewski

      Jiri.
      We are next door to you-Poland. We spend most of our time in the States but always enjoy our homeland.
      We can access Interactive Brokers (IB) in Poland. Should be similar in Czech.
      They have tutorials on their website:
      https://www.interactivebrokers.com/ind/en/main.php

      Or we can get together sometime (Poland, state, or online) to go over the platform. We just switched from TD Ameritrade (Think or Swim). They are both great but serve different audiences. For RIA’s with under $25M AUM, IB is great.

      Rule On!!

  • Alon

    Hi

    Is there a way to get RSS feeds via the new blog?

    • Bijan

      Alon, I had been using Feedly in the past and simply did a search there for “Phil Town”. This found the “Rule #1 Blog” which feeds the main blog articles.

      In the past I was also able to track the comments feed from the old blog site. Is this possible on this site? Has anyone figured out how to do this? (I think the blog site needs to set up a “comments feed”, but I am no expert in this…)

      I know folks will typically comment on the latest article, but many times the comments continue being posted on past articles and I don’t want to miss them (I’ve kept up with all articles/comments since the 1st one in 2005).

      Cheers,

      Bijan

      • Alon

        Hi,

        I haven’t found a way to get RSS notifications on comments posted in the new blog site. It makes it almost impossible to follow comments on already available threads.

        I hope that someone will help making this option available, as it was in the old blog site.

  • Garrett

    Rulers,

    “Moncho” had some helpful suggestions in the previous blog headline – so make sure y’all take a look at that.

    Today, BP opened below $45 – breaking a psychological floor. That means there is a higher probability that it will go lower. I’m in a significant cash position and very interested if this drops to $42 and below, however, at the same time with the winds of recession looming on the horizon I’m inclined to wait in cash for awhile and see what opportunities the next year or two brings.

    I suppose at this point I’m more concerned with my return OF my capital then the return ON my capital.

    Some Rulers had some questions/comments about when to buy in tranches and brought up the Rule #1 Conundrum – “I bought some, it went up…and I wish I bought more.”

    That’s a great problem to have. I’ve bought more on the way up and I’ve bought more more on the way down. I think the best answer about what to do is, “It depends!”

    If you buy a company and it goes up – great…you’re making money. It’s a lot easier emotionally to buy more when it’s going up than it is to buy more when it’s going down. And buying more on the way down can kill you financially if you don’t know what you’re doing.

    Remember to begin with the end in mind. If you want to own $20,000 of something, buy $5,000 worth and wait. If it goes up, as long as you’re still below your MOS price, you can safely add to your position.

    But don’t hesitate to take advantage of being “little” – you can get out in the blink of an eye with minor damage if the price you bought shows signs of dropping to the next psychological floor. Those next floors can be 10%, 20% below your current price. And when your investment shows that 20% loss, suddenly you don’t feel so excited about “buying something cheaper and getting more of it!”

    When you’re new to investing and chart reading, it’s hard to see some of the obvious trends because you’re eyes and brain just aren’t trained yet at seeing these things.

    Let’s share some of what is happening in BP. In one account I had added to my position and bought BP at $48.00-$49.00 thinking it was leaving to go off to higher highs – and I was correct after reading quarterly transcripts, articles, etc…

    Over the summer the trend continued and it peaked at $53 the first week of July. Comfortable with that tend, I was pretty much out of my investing/studying/reading habits because I checked out for most of the summer.

    From mid-July to about Sept 7th, I wasn’t watching BP and really wasn’t reading the news. I was backpacking in Montana.

    What to do now that I have a loss?

    Based on technical chart reading, BP has a higher probability right now of dropping to $42 and below than it does going back up above $48.

    That’s just a statistical probability. It may not or it may!

    I used a Fibonacci chart to help determine that. (Phil doesn’t teach that in his books, however, many investors use them to help them find psychological floors and ceilings)

    Well, buying more of something is AWESOME when the price drops IF, IF, IF you have the money to do it and you know the VALUE of what you’re buying. Suppose you wanted to own $20,000 of BP and after a period of time, you had made your 4 purchases and were now “All In”

    When do you sell if you’re “all in” and the price is now going down – down below your price you bought?

    You sell as soon as the price drops below your basis! Once you’re “all in” if the price drops below your price, the lesson I’ve learned is you SELL to preserve capital and minimize losses!

    “All in” to me, means “I’ve bought as much of this as I’m going to buy and I will not or do not have the money available to buy more in the event the price goes down.”

    If you’re in that situation, you are living in “investor hell” when your investment is tanking and you are helpless to do anything but “hope and pray” the price goes up.

    So to avoid “investor hell” since September 7th, I’ve been gradually getting more into cash and over the last few days significantly more so.

    I still like the long-term, 20 year story for BP. But I’m not afraid to take advantage of being little, cut my losses early and buy more if there’s a fundamental, technical and probable edge that the the price is going to drop substantially.

    If BP floors up then I can double my position I had previously because I have a lot more cash to allocate if I choose.

    So that’s where I find myself with BP. I’ve sold out a portion of BP,and sold come Covered Calls to lower basis on what I do own. If this thing really tanks due to a recession I can stand ready to buy more at a better price and really back up the truck for a 20 year investment. If not, oh well – I have to find another great investment. And I’ve learned that there are always opportunities as long as I’m willing to do the homework.

    Investing your own money will challenge you more than you may ever realize. It’s a lifetime journey of hard lessons paid in real dollars.

    To Your Wealth!

    Garrett

    • AngelaW

      G,
      Awesome post! I am the kind that are reluctant to get out after all those homework. Thanks for sharing your insights.
      Now, I am trying to understand how you figured BP has a higher probability to go below $42 than going up above $48. So I did a FIB, from the low of $22 around June 10 to the high of $51 around June 14. So i saw the 38.2% line around $41 price line. Is that b/c this line or is it b/c you saw more supporting around the $41 line as there were several previous ceilings to now build a more reliable floor?
      Thanks in advance.

      • Garrett

        Hi AngelaW!
        I actually ran the FIB chart for a one year period from about $40 to $52. Once BP broke that $45.00 floor odds were favorable that the price would drop.

        Today “The Tools” on the S&P 500 using a weekly view went “RED” with a “Get Out” Signal on the stochastic.

        If I were a prophet, I’d say we’re getting set up for the next 7 year crisis….2001, 2008…2015?

        Be careful out there! I’m in no rush to buy anything right now.

        To Your Wealth!
        Garrett

        • Jun

          Hi, you said we’re getting set up for the next 7 year crisis….2001, 2008…2015? It is 2016 now. Buy stock or still wait? Thanks.

    • HugoB

      Don’t forget, rule number 1 – Never loose money!!! By selling BP on the dip, you are doing exactly opposite to what Phil advised. You should be buying… That’s why you had to do your homework and now be 100% sure in your investment in BP in the long run…

      Good luck!!!