As July 2007 opened, banks and brokerage houses came under increasing
pressure, which I took as a signal that the historic worldwide credit bubble was
coming to an end. In light of the mounting signs of a credit contraction, on July 19th I
sent an issue of The Investor’s Mind titled, “What Is & What Should Never Be,” with the
following note to both our free and paid subscribers:
“Evidence is mounting that we are in the final throes of this worldwide,
credit-fueled bubble. The wobbling dominoes certainly merit the attention
of all investors and advisors.”
While we have seen, and will no doubt continue to see, enormous efforts to try to change
the course of where we are headed, the depletion of half of the Federal Reserve's book
of Treasuries and the severe contractions in the Asset Backed and Structured Invest-
ment Vehicle markets, indicate a change of major significance is at hand.Those who are
only mindful of the major equity index prices or the Fed's decision to lower rates, overlook
the credit crunch occuring within the institutions that fund many of our market operations
and a large part of our economy. Those who deny the systemic risks within our capital
markets and lean instead on central banker's ability to add "liquidity" will soon be forced
to acknowledge what happens when collectively, individuals move away from embracing
debt, to attitudes and actions that seek to REDUCE their exposure to debt, especially
higher risk debt instruments. As investors begin to realize that many complex, exoctic
financial products do not merit the rating they have been given, and that the growth rates
of the same are unsustainable, fear and distrust will replace greed and apathy and, in the
process,will correct such excesses. An obsession with past performance, devoid of
concern for the underlying drivers, is inherent to human nature during secular bull
markets. But if we want to be well-prepared, we must ask, "How have my investements
performed since the credit contraction began, in July 2007, and how should my overall
investment strategy perform in a long-term credit contraction?"
In light of this, I encourage you to consider joining the group of subscribers, who are not
only readers, but are part of The Investor’s Mind. Our subscribers include hedge fund
and institutional managers, retired industry insiders, business owners, and professors,
as well as retail investors from various countries around the world. Why do they sub-
scribe? In short, to gain a better understanding in this period of extraordinary change and
to better navigate the most challenging investment environment any of us have ever seen.
Every investor, manager, trader, business leader, and politician will be forced to deal with
issues that the credit expansion allowed us to deny or at least put off for a “rainy day.”
If you would like to get a taste of The Investor’s Mind before you sign up for a six-month
subscription, scroll down this page to Recent Updates and click on the links under our
latest public article. If you examine the range of subjects covered in
The Investor’s Mind: Anticipating Trends through Lens of History, and Riders on The
Storm: Short Selling in Contrary Winds, you will see that this is not the typical investment
newsletter. If you are convinced that something significant is taking place, I would
encourage you subscribe to The Investoor's Mind. As the aforementioned issues take
their tool on global markets in the months ahead, there will be plenty to think through
if we are to keep ourselves from being swept away along with the crowd.
As each of us assesses our ability to successfully navigate today's markets, consider
Edward Chancellor's words from his book, Devil Take the Hindmost: A History of
Financial Speculation, published in 1999.
"According to the financial journalist Alexander Dana Noyes, the American stock
market boom at the beginning of the twentieth century was 'as much a social and
psychological phenomenon as a financial episode.' "
Since the credit contraction began, in the summer of 2007, our national leaders have
only presented one solution to the public: more government, more spending, and more
debt. At the same time, the general public has shifted towards spending less and
lowering their debts. As any child can see, thesee themes are simply not compatible.
Understanding what is unfolding, is not the challenge. With a little bit of study, it is easy
to assemble how we arrived at this destination in history. The challenge is to have
enough courage to look at difficult scenarios, act accordingly, and deal with the distor-
tions thrown at our thinking and markets as the contraction gains strength.
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