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Dear ,
A Tale of Two Recoveries
Before I get into today's topic I want to touch on a conversation I had with a friend of mine in Florida the other day. My friend's name is Bill and he's a really smart guy and I value his opinion. We were talking about how this market keeps levitating in spite of all of the potential financial problems out there. Bill's observation was that people seem to have become immune to the bad news. Call it bad news fatigue if you will.
I think Bill may be on to something there. You can only hear the warnings so often and then it starts to become a bit of the boy crying wolf. Your intellect understands the risks and can see that the markets shouldn't be going up like they are but it's hard to ignore the fact that they keep doing so. There is a hard to resist feeling that you are missing out.
Let me take you back to another time. The mid 90's. Tech stocks were really taking off. They were reaching P/E multiples that were unheard of. Intellectually everyone knew it was insane, but that didn't stop people from feeling they were missing out. It got to the point where little old grandmothers were investing in Internet startups.
And then 2000 hit. Remember how that felt, after the fact? That overwhelming feeling that "I should have known better!". "I had a gut feeling that I shouldn't have invested in that high tech stuff." Now I'll be the first to admit that this time could be different. But what if it's not?
Here is the question you need to ask yourself. Which would make you feel worse, missing out on a potential 20% gain but at least preserving and safely growing what you have or losing another 20% if the market crashes instead of continuing to go up? Your answer to that question should be one of the primary things that drives the development of your investment strategy.
One of the things you can always count on from the No BS Weekly Update is No BS! I'm going to keep calling them like I see them. That's my responsibility. Your job is to decide if I make sense or not. If I do then give us a call and let me help you.
Did Iceland Set the Example?
All across the globe the response to the financial crisis has been the same with one exception. Iceland! While the rest of the world has seen only one solution and that has been to bail out the banking and financial systems because they were "too big to fail", Iceland took a different route. While Japan has been enacting Stimulus (fancy word for bailout) after stimulus for over 20 years and the U.S. and Europe have followed suit, Iceland said "Let them fail!". Take a look at a couple of the articles that I ran across as I did my research.
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Now what was the difference? Instead of taking taxpayer money to bail out private institutions (banks) Iceland took a different approach. First they protected as much of their own citizens savings as possible and then they told the foreign creditors, mostly British and Dutch, to pound sand.
The feeling was that these British and Dutch citizens put money in the Icelandic banks because they were offering higher interest than what they could get in their own countries. Now obviously if the Icelandic banks are paying significantly higher than average interest there must be higher risk to go along with it. That is the same lesson we learned when the ratings agencies were rating sub prime mortgage pools that were paying twice as much as government bonds, as safe as government bonds.
The Icelandic governments feeling was you took the risk and deposited your money in these private banks and it didn't pay off. Sucks to be you. So sorry, and they let the banks default without spending one dime of taxpayer money!
Compare that to Europe.
They have poured multiple billions into Greece and then Greece still failed. And if you are following the headlines today you can see how well that is working. Spain, Italy, Portugal, and the newest country to be added to the list, the Netherlands, are all in trouble. Should Europe and the United States keep sending good money after bad on more bailouts or is there a point where they should cut their loses?
How has it worked out for Iceland? They are recovering much more quickly and stronger that the US or any of the European countries. Their unemployment is down and their growth is above average while most of the rest of the world continues to struggle.
So there is your tale of two recoveries. Which one would you rather see playing out here in this country? Maybe it's time to consider a different approach to "too big to fail".
Now all of this creates some really unique investing opportunities. If you're not sure what they are give us a call and we'll share some ideas with you!
Until next week , Protect Your Wealth!
Sincerely,
  
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