Posted by on March 13, 2017 2:37 am
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Categories: Bond Book Value Business capitalism Central Banks Dow 30 Dow Jones Industrial Average Economic history of the Dutch Republic Economy European Central Bank Eurozone Finance Financial history of the Dutch Republic Front Running Greece Hedge fund International Monetary Fund Investor Ireland italy money None Portugal Quantitative Easing Recession stock market

The world is filled with intelligent people in finance.  Unfortunately, being intelligent doesn’t
always mean you are smart.  To make sound
investments, you need to be looking forward and constantly coming to rational
conclusions.  One has to avoid sheltering
oneself in a herd of backward focused investors taking comfort in performing in
line with the masses.  Patting yourself
on the back as all markets are trending higher and wallowing in ignorant pity
as markets drop lower saying “who would have saw that coming” is shamefully
common and accepted.  I bring this up
because mainstream financial news constantly encourages the belief that markets
are void of opportunity. Investors must accept 5% expected returns on equities
in the long-run, right?  Start thinking
for yourself and you can see some broadly diversified country specific equity
markets still hold astronomical return potential.  You just have to look where most have been
conditioned to avoid.

Markets move with asymmetric skews.  Markets seem to slowly grind higher for a
protracted cycle as investors begrudgingly invest at higher highs hoping for
pullbacks that do not materialize.  This
is due to hyperactive central banks doing all they can to keep economic cycles
extending longer and high-volume traders and others front running longer
focused investors.  This is a short-sited
byproduct of political pressure to keep the good times rolling on for current
politicians.  What this means is that
when there is a downturn or recession, it will be a dozy.  Shorter economic cycles ensure the upswing and
downswing are mild as excesses have difficulty building up.  But these long protracted economic cycles lead
to many excesses being subsidized.  When
the downswing comes, the market is in for a protracted difficult period.  Therein you can find significant upside
potential when a market leaves this protracted down cycle and turns for a long
ascent higher.

When these asymmetric down cycles hit, they can be
devastating and take a long time to form a bottom.  But when those markets do find footing, the
upside is enticing.  Most developed
markets hit their downside in 2009 and stayed near those levels for a while.  But as money from central banks started to flow
and percolate in the system and the wounds from the downturn turned to scars
and finally forgotten, many of these markets have gone on to reach new highs.  If you invested in these markets at the lows,
such as the Dow Jones Industrial Average in 2009, you would have made a 300%
return.  If you talk about making a 300%
return today, you’ll be dismissed as a traveling snake oil salesman.

Now I ask you to think of a market that had a similar
downside to the Dow Jones in 2009 but has not recovered.  The conclusion is obvious: PIIGS!  Yes, that lovely acronym that so negatively
and recklessly contributed to such a deep correction represents none other than
Portugal, Italy, Ireland, Greece and Spain.  Lambasting such negativity with a cheeky acronym
encouraged limited liquidity and deep recessions.  Traders and investors had to evacuate those
markets or pay the price of public humiliation when simply making a value
trade.  When negative media lasts for so
long, investors figure it will last forever, forgetting the potential upside
embedded in these markets.

This is where you have to think for yourself.  Instead of avoiding a market because other
investors have no interest or being influenced by the onslaught of negative
media constantly singing the same tune of dire conditions, take a deep look.  This comes back to my point of intelligent
people.  Intelligent people can make a
deeply analytical and compelling argument why to invest in or avoid a market.  Careers have been made with articles and
speeches about the problems of these countries.  For over a decade, there has been a plethora
of negative news and a dearth of positive news.  But as these markets finally turn and overcome
the last of their economic hurdles, first a few, then many intelligent people
will come out of the woodwork expounding the positive virtues of these markets.
 And taking a deep dive into these
markets reveals abundant reasons to be ecstatic.  One glaringly compelling reason is that many
companies trade at deep discounts to book value – some as low as 20% of book
value!

Taking a look at these countries, the potential returns if
the main benchmark equity indices revert to their prior high water mark are:

Portugal 160%

Italy 250%

Ireland 160%

Greece 1,000%

Spain 160%

These countries have overcome their deepest economic hurdles
and are now positioned to begin their ascension to a long and protracted
upswing.  Even Greece seems to be less
than a month or so away from finalizing their debt financing from the Eurozone
and IMF and having their debt included in the ECB’s quantitative easing program.
 Greece is starting to experience and
expected to continue to experience what is considered robust GDP growth. The
latest Industrial production for January 2017 showed growth of 7.2%! This is
hardly the dire conditions priced into the market. Yes, the proverbial punching
bag that everyone likes to beat has turned the corner.  I’m not sure what negative news the media will
focus on next, but soon these countries will be out of vogue.  Just remember: when nurtured and cured for a
prolonged period, like making prosciutto from a pig, great price appreciation
can occur.  After curing for almost a decade
and as these indices recover and show some stellar returns that we have been
relentlessly told don’t exist, just hang in there.  Those stellar returns are just the beginning.  So keep being intelligent, smart and invest
looking forward with a PrOGRessive SPIRIT (my positive, cheeky acronym – hope
it catches on!).

 

by Michael Carino, 3/1/17

Michael Carino is the CEO of Greenwich Endeavors, a
financial service firm, and has been a fund manager and owner for more than 20
years. If you are smart, you have surmised correctly he is invested in Greek
equities.

Investment veteran and
published author, Michael Carino, prophetically called the timing and amplitude
of the recent move in global bond markets publishing “Global Bond Markets –
Skydiving Without a Parachute.”  Michael
has spent the last 25 years managing fixed-income hedge funds and trading of
over a trillion dollars of investments.  He
is the CEO of Greenwich Endeavors, a financial service firm.  He feels compelled to get his unique and
under-reported views on the markets out to the public.  He hopes to assist your readers’ creation of
wealth and limit your readers’ destruction of wealth.  It’s time a voice contrarian
to other self-interested, behemoth Investment Managers’ voices are heard.

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