“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”
Charles Darwin
One of the most important things that Charles Darwin taught us was that every living organism has a will to survive. Maybe "will" is too weak of a word, "imperative" is a better word. The most basic rule of life is survival, it is hardwired in every organism's DNA to survive, procreate, and further the species. Those that do not succeed in satisfying these imperatives become extinct. This is the way of the world, and not just the biological world, but the world of organizations (corporations, non-profits, governments) too.
As Darwin's quote from above states, survival does not always go to the strongest or most intelligent, but to those most adaptable to change. If an organization fails at its most basic requirement, survival, than it should become extinct. This is a basic law of nature and a core element of capitalism. This is as it should be, and there are no reasons that a dysfunctional corporation (or government) unable to survive should be saved!
Now I've read a lot lately about people trying to identify exactly what the Tea Party Movement is all about, and I'm not sure we'll ever really know all the various facets that make up this organization, but there seems to be one common thread...survival. An inherent belief that individuals, and organizations, that work hard to do the right things to further their survival should be allowed to survive; while those that fail should, well, fail.
I consider myself part of this movement, the survival movement. We're tired of our nations entitlement attitude. We're furious that failing banks and failing auto companies got bailed out with our hard earned dollars, and are again reaping exorbitant profits at our expense. We're furious that individuals living way beyond their means are getting bailed out. All this, while those of us who did the right things to make sure our families survived; things like paying off debts, saving, and living within our means, are now faced with increasing taxes, zero percent savings rates, and a devaluing dollar. This is where the anger comes from, it appears that the laws of nature are being violated, and we know that's not right.
Yes, the laws of nature are being violated, by a government who believes they can create an environment with no losers. We have a government deeply and actively involved in nearly all aspects of our lives, via regulations, taxes, and capital market interventions. But they fail to realize that by making a country where natures losers aren't really losers, we all lose. That is not how the natural world works. We also know it won't last. You can only violate the laws of nature for so long, eventually this will end. How it will end is the great unknown. But nature will be served, failure will eventually be rewarded with failure. Those able to adapt to these rapidly changing times will survive.
Speaking of Government Intervention/Manipulation of the Capital Markets -- The Yield at Recent TIPS Auction is Negative 0.55%!!
Yes, that's right, on Monday the Treasury auctioned off 5 year TIPS at a yield of -0.55%. This is the first time TIPS have ever had a negative yield at auction. What this says is that investors are willing to pay the Treasury money to loan them money, in exchange for an option to make money in an inflationary environment. These are very strange times, with the Fed embarking on a new round of Quantitative Easing, where they will buy Treasuries and TIPS, it is hard to tell what the real levels on securities should be. To me this negative yield means that there is huge uncertainty about the future course of inflation, and that translates into a big value for the embedded option in TIPS.
We've never had a period like this, with such massive government involvement in the capital markets, there's just no telling how it's going to work out. If anyone says they know whats going to happen, run from them.
Where do we stand?
All of our models continue to be in bullish territory, so we are at maximum weight in each asset.
US Equities --
Bullish
Int'l Equities --
Bullish, both developed markets and emerging markets
US REITs --
Bullish
Int'l REITs --
Bullish
Gold -- Bullish, record highs
Commodities --
Bullish
US Fixed Income -- Bullish, showing signs of weakening on inflation expectations.
Int'l Fixed Income -- Bullish, and emerging market debt Bullish
Cash Equivalents -- Nearly 0%
Sound Investment Advise:
In honor of Halloween I thought I would throw this video clip out there as an example of what goes on during a HFT (High-Frequency Trading) induced market crash. Enjoy!
New Bill in the Works: In order to rapidly devalue the dollar, (in order to make our debts worth_less), the Federal Reserve has come up with a new denomination...You Just Fill in the Amount.
One of the Funniest Campaign Ads:
Be careful out there, and keep the light's on,
Chris Wiles, CFA
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This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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