Forget your lust for the rich man's gold
All that you need is in your soul,
And you can do this if you try.
All that I want for you my son,
Is to be satisfied.
And be a simple kind of man.
As I try to survive and prosper in such a complex world, I constantly remind myself to be "a simple kind of man". It's easy to get caught up in the flood of news and opinions, and lose sight of the big picture. Sometimes we search for more clarity only to find that the picture is never clear. Investing is like that, you never know all the answers, and if you wait for clarity you will be paralyzed into inaction.
Greece is simple...they are going to default. Below is the yield on two year Greek bonds. One year bonds yield over 100%. Default is a certainty. What's next?
When Greece defaults the Euro banks will take hits on their Greek debt, the stronger ones will be fine, the weaker ones will get support from their governments, and the weakest ones will fail.
The Greeks will do what we all do when we can't pay our bills, they'll sell stuff and be willing to work for less in order to move forward. It will be a good time to vacation in Greece.
If the bankruptcy is handled in an orderly fashion, then the template can be set for the rest of the PIIGS. If not, then we may have some chaos.
Will we see Greece kicked out of the Euro? I don't think so. A more effective solution would be to create a new Euro for those countries that will actually honor their fiscal commitments. The old Euro would be allowed to devalue relative to the new Euro. In a complex world the simple solutions are generally the best.
Here is a great (simple) video that describes the Greek Crisis:
"The Buffett Tax"
President Obama's new class warfare tax on millionaires is interesting. While pandering to the populace is always a politicians first instinct, these idiotic proposals often have unintended consequences.
While we don't have details yet, it seems that Obama wants to raise the tax on those earning a million or more to 35%, no matter where that income comes from. If the income comes from wages it is already taxed at 35%, so it appears that he is seeking to tax that portion of income that comes from capital gains. Currently the capital gains tax rate is 15%. Here comes the unintended consequence. If you have large capital gains and you know that the amount you will have to pay the government is about to rise from 15% to 35%, you might be inclined to realize those gains sooner rather than later. Generally large amounts of selling translate into falling stock prices and a lower net worth for all of us. This seems to fly in the face of Ben Bernanke's two and a half year project to raise equity values and thereby create a "wealth effect".
In the spirit of keeping it simple, higher taxes on capital investment lead to less capital investment. It's that simple.
Where we stand:
Even after the equity markets short-covering 5% rally last week, we are still very defensively positioned. Cash equivalents are at 38%, and are probably headed higher before they go lower. US and International equities remain at our minimum 5% targets.
I simply don't want to lose much money here.