What is the greatest disconnect in the investment world today?
History is riddled with the remains of empires whose leaders failed to understand the revolution that took place beneath them.
When Sacha Baron Cohen (watch video), playing the archetypal Dictator, took a swipe at America he did so by noting the similarities with the very dictatorships they despise. The rise of Trump may in fact be a symptom of a revolution taking place under the very noses of those who fail to understand they are perceived to be the source of the problem and not its solution.
The following text is taken from a recent research report suggesting the most profitable investment in 2016 may be the one that backs an outcome that is least expected.
“As we make our way across Asia, one theme stands out—a remarkable, almost unshakable, confidence in the U.S. economy, dollar and equity markets, which of course is mirrored in the rest of the world and to an almost record degree in the U.S. itself. One frequent question: wouldn’t the dollar soar in a severe downturn like it did in 2008? Our answer: the USD was weak from January 2002 to June 2008 but until a few months ago it was very strong. Everyone who wants to invest in the U.S. has already done so. There are no more buyers— only sellers.”
But the great disconnect is this: some 60 per cent of American voters are angry. Do prosperous and economically-satisfied consumers vote for radical change? Isn’t the resounding message from voters one of enormous economic frustration? The promise that a “rising tide will lift all boats” has not materialized, leaving the electorate deeply cynical of political promises.
Add to this the remarkable analysis by the Fed—which we wrote about last week:
“47% of those surveyed could not raise $400 for an emergency except by borrowing or selling assets. If this weren’t disturbing enough, we also cited numerous surveys on the declining inflation-adjusted net worth of the average family. One harrowing statistic by the Russell Sage Foundation—supported by many other surveys—shows the inflation-adjusted net worth of the typical American household fell 40% between 2003 and 2013.”
And this is the basis for many trillions of dollars of investment in America? That somehow this impoverished, angry American consumer will power the U.S. economy and hold up the global economy?
Newt Gingrich has an astute political mind. He recently wrote some hard truths on the inability of the establishment to understand the Trump phenomenon. We have no political axe to grind. We only look for answers to the “why”. We quote as follows:
Why, since Trump defined the race from the day he announced, did almost no one in the media and political elite believe that he could win the nomination— even long after it became clear he was dominating the field? What was it they failed to recognize? The answer is simple. It wasn’t Trump that the media and political elites failed to understand. It was the American people.
The American people were dramatically more fed up with Washington— with the incompetence, the arrogance, the corruption, and the failure—than Washington could begin to understand. Americans increasingly saw that normal politicians on both sides of the aisle could at best only manage the decline. The country was concluding that real change would require real change: someone who was different enough and daring enough to force genuine reforms. And over the course of the campaign, more and more Americans came to believe that only a personality as bold and revolutionary as Trump could, in fact, make America great again.
The elites could not (and still cannot) understand this appeal because they do not recognize the problem—namely, themselves. For the same reason, they didn’t understand it when every single candidate with a traditional political message failed to gain traction. Nor did they understand the appeal of Trump’s greatest rival for the nomination, Ted Cruz, whose message was “defeat the Washington Cartel.” “Washington Cartel?” they wondered. “What is he talking about?”
And of course they didn’t get it. If the media and political elites had enough self-awareness to fully grasp why the American people might support Trump, Cruz—or for that matter, Sanders—the vacuum for these candidates might not have existed in the first place.
Trump’s skill and personality enabled him to become a serious candidate. But it was the American people’s desire for fundamental reform that propelled him to the nomination. It will now be up to Trump to expand on the base he built in the primary to earn the support of every American who believes we need fundamental reforms, and that the risks of predictable decline are greater than those of unpredictable renewal.
As you hear many of the same people who said Trump could never be nominated prognosticate about his chances in the general election, ask yourself: have they learned enough about the American people to understand why a political revolution could seem the safer route? If not, they still don’t get it.
[With negative interest rates trying to ignite demand that may not exist] Is the strange inability of the establishment to understand the revolution taking place beneath them, a sign that the universal belief that America is the best place to invest is also misplaced?
Roger Montgomery is the founder and Chief Investment Officer of Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Umberto Mancinelli
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I heard it recently said by American actor Tom Hanks that in the USA “the mob” covers about 25% or 30% of the vote for presidential election. It’s now clear that Trump has won over this segment of the vote. It will be interesting to see how Trump’s message of change can attract enough votes beyond the mob to win the presidency. I think key will be who he gathers around him as possible advisers in a Trump White House.
xiao fang xu
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mankind’s great siren song :
salvation by government
salvation by state
salvation through politics
“I’m from the government, and I’m here to help you.”
what all of us need is freedom
small limited government
very little regulations
simple laws ( 10 commandments are enough )
taxes of max 10 % levied on local level ( if God asking 10% no Government should ask more )
neutrality and peace no alliance with any one
German had big and powerful government and strong leaders and what good they did for german people.
so did Japanese, Russians, Chinese …
Roger Montgomery
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There are those who steal to get. Then there are those who work to get. And finally there those who work to get to give.
Give when asked, give what you can and give generously.
xiao fang xu
:
this is good way to do, same as this:
FIGHTING POVERTY
Which would be the better policy to fight poverty:
Invest 10% of all profits?
Give 10% of all profits to the poor?
We know the answer: #1. Capital formation is the most powerful force in man’s history for the elimination of poverty.
The Bible, like all other religious books, does not command the reinvestment of profits. It commands charity.
Is there a cognitive disconnect here?
I regard John Wesley as the person who did more to relieve poverty than anyone in history. He showed the way to wealth to millions of poor people who had not read Adam Smith. He preached this of money: Earn all you can. Give all you can. Save all you can. (Sermon #50, “The Use of Money” [1744], Part 6.)
Wesley preached to the poorest people in the British Isles. He spent most of his adult life on horseback. He preached sobriety, hard work, and thrift to those poverty-stricken people who came to be called Methodists. He changed the face of England. Within a century of his death, Methodists had become middle class. Then the denomination went theologically liberal. This would not have surprised Wesley. He had warned against the effects of riches in Sermon 126 (1790).
His followers experienced what religious orders and monks did throughout the Middle Ages: they got rich by practicing systematic frugality.
Thrift is the key element in the reduction of poverty. Thrift capitalizes the entrepreneurs and inventors whose ideas overcome poverty for the masses.
The fact that wealth corrupts some of those who create it and makes their children feel guilty after four years at an Ivy League school is a valid theological and moral issue. But as to how poverty is overcome, capitalism has proven more effective than any other system of ownership and production.
I argue in many of my books that the worldview of the Bible presents the case for private ownership, which in turn produces the capitalist order. Socialists may disagree. So may Randians. But the fact remains that the capitalist order is what has made the difference historically in the conquest of poverty. Before capitalism, there were many varieties of Christianity, but none of them produced the society-wide cornucopia of wealth that has given us all of those blessings to count.
THINKING STRAIGHT
The ability to think straight is not widely dispersed. The ability to think straight economically is even less widely dispersed.
It was not Adam Smith who convinced the poor Methodist in his hovel to decrease his expenditures and start saving. It was a highly educated man on horseback, who rose at 4 A.M., preached a sermon at 5 A.M., and rode off to the next town, year after year, decade after decade. It was not the case for capitalism in the books of political economy that changed the minds of the poor, but the simple words of a complex man who said to earn all you can, save all you can, and give all you can. He called dissolute people on the fringes of society to straighten up and fly right. Millions of them did.
It never ceases to amaze me that those people who say they follow the same God that Wesley followed don’t understand the message of Wesley and his original followers, just as they don’t understand the logic of Adam Smith, which reinforced Wesley’s words. “Thou shalt not steal” is a good place to begin economics in one lesson. So are the words of the land owner in Jesus’ parable of the complaining laborers, who groused that they had been paid exactly what they had been promised. “Is it not lawful for me to do what I will with mine own? Is thine eye evil, because I am good?” (Matthew 20:15).
We should do our best to think straight. When we do, we will be better able to count the costs, another message of Jesus (Luke 14:28—30).
In my original essay, I spoke of capitalism’s blessings. The loudest of the SFG crowd do not understand history, theology, or economics. Yet they are the heirs of these blessings. We all are. And for maintaining and extending this inheritance, we are responsible.
There are no free lunches, capitalism teaches. If you do one thing with your wealth, you cannot do another. There is a social function of ownership. The owner decides whose demand to fill: the highest-bidding consumer, the poverty-stricken child, or his own desire to consume.
There is a price to be paid, in history and eternity. The free market imposes historical prices most clearly, for it allows consumers and beggars to make their bids and pleas for ownership. No system has empowered consumers and beggars more effectively than capitalism has. Beggars these days would have been rich people in Wesley’s day: used stereos, used color televisions, and warm clothing. There is more wealth in a Salvation Army thrift store than in most shops in London in 1700.
This is not random. It is also not the result of natural resources, all by their lonesome.
CONCLUSION
To be grateful for what we have, we had better understand how we got it. We got it through free market capitalism. God was in charge in 1700, but He has provided greater benefits to more people since 1750 than ever before in history. If those who claim to be Christians cannot understand the difference between medieval guild socialism, free market capitalism, Keynesianism, and communism as ways of allocating resources and responsibility, then they are likely to fall into error: the error of slogans at the expense of thought.
I recommend that people say a prayer of thanks for capital markets. In the providence of God, they keep us alive.
https://www.lewrockwell.com/2004/09/gary-north/advice-for-christian-anti-capitalists/
Roger Montgomery
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And Jesus did have something to say about sound investing, its in Matthew 25:14-30 the Parable of the Talents. https://www.biblegateway.com/passage/?search=Matthew+25%3A14-30&version=NIV
xiao fang xu
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Yes he did.
Nothing wrong with investing — if not rigged.
End the Fed
Private ownership is based on a legal connection between ownership rights — legal immunities from theft — and personal responsibility. In the biblical worldview, God grants ownership to an individual. He hereby increases the individual’s personal responsibility.
Ownership provides a test of performance: ethical and economic. The owner has a responsibility to increase his wealth on behalf of God, the original owner This was taught by Jesus in the parable of the talents (Matthew 25:14-30). The original owner delegates the responsibilities of asset management to three men. Later, he returns for an accounting. He sees if each of them has increased the owner’s wealth. Two did; one did not. The two who did are then given greater wealth — redistributed by the owner from the steward who had buried his coin: a zero rate of return.
Jesus used a parable about money as a way to get the main point across: increasing your productivity is an ethical requirement. It is also a judicial requirement. The best way to increase someone’s productivity is to make him an owner. God then holds him responsible. In the parable, God did not hand over ownership to a committee. He handed it over to individuals.
https://www.lewrockwell.com/2015/05/gary-north/taxes-discourage-production/
Pareto’s law tells us that about .8% of the population should own about 51% of the wealth.
So, for 80% of us :
The best place for your money is in yourself. If you invest in a career by serving customers, and you invest your profits in your own business, you will beat the stock market. Even if you don’t, you will not be significantly worse off. You will have a shot at wealth. You don’t with the stock market.
The public has been told that the way to wealth is investing. The way to invest, Ph.D. economists tell the public, is to allocate your portfolio between stocks and bonds.
The way to great wealth is effective service to customers.
The secret is frugal personal spending, efficient service of customers, and reinvesting your profits in the business.
Most people have no money in stocks or bonds. Most of those who do have their money in a pension program run by their employers. The funds invest in stocks. What has been the result of this delegation of responsibility to expert investors? Losses.
The average American has no pension. He has Social Security: a political claim against the future wages of people just like he is, only younger. His security is no better than Federal Reserve monetary policy, Congress’s ability to persuade younger workers not to revolt, and his children’s willingness to bail him out when the first two prove to have been false hopes.
The median net worth of Americans 55 and older is around $200,000.
Think about this number.
This is the reality of pensions and retirement. Yet the people on Tout TV do not tell listeners, “Sell your stocks. Start a home business. There is no way that you can retire in comfort with money in the stock market.”
The basis of prosperity is economic growth and increasing personal liberty.
We are clearly living in an era of decreasing personal liberty. Is increased growth likely to offset or even overcome the decline in liberty?
https://www.lewrockwell.com/2010/07/gary-north/shun-these-two-bad-investments/
Of course there are people as You and Warren Buffett who are followers of Benjamin Graham and know how to make money in the market and that is why i am here on this website
Number of regulatory restrictions
Think you’re going to change this system by voting for Hillary or Trump, Democrat or Republican? Maybe, but there’s no evidence of it in the CFR. The number of pages kept rising, year after year, no matter who was in the White House.
http://www.acting-man.com/?p=44936
Lucien Heffes
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In my opinion, the same disenchantment with mainstream political parties is happening here. We just don’t have a Donald Trump vying for the next election and our Westminster system probably wouldn’t accomodate an independently wealthy celebrity candidate with no party machine. I make no comment on Clive Palmer.
Broken promises abound from all parties, deficits as far as we can see, insufficient infrastructure to support our growing cities and to connect our regions, a chronic handout mentality and bourgeoning victimhood, the tax burden is too narrow and collection inefficient, everything is on the table and then off the table if somebody (anybody) complains.
In my opinion, Australia is run by wishy washy politicians and wishy washy, self interested political parties beholden to sectional interests.
I really can’t see an effective, strong leadership team in any party and this does not bode well for our economy. The forthcoming election will really just grant government to the least worst and it will be a triumph for mediocrity.
Roger Montgomery
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An erudite summation Lucien. Thank you.
Guy Davis
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Thanks for the great piece Roger. Does this mean you are still expecting the Aussie to fall? I guess this is why short term forecasting is so hard, when there are literally hundreds of factors to consider and no cashflows to discount.
You would have also seen Stan Druckenmillers related comments last week about gold being his biggest “currency” exposure right now.
Liz Barrett
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Yes, I agree and it makes sense of something I otherwise thought incomprehensible.
Liz Barrett
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I just read Trump is thinking of making Newt Gingrich his running mate for VP.
Ahh..Living on a farm…being self sufficient…no phones…is somewhat appealing!!
Anthony Walker
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Great read. Perhaps Borat disturbed the blind faith that the Americans have in the land of hope and glory.
Aaron Somner
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One thing that needs to be considered is that you do not need to invest in the US to buy the US dollar. It is a the reserve of the banking industry and the defacto currency of many countries (Zimbabwe, Mexico, Russia). The demand is high in the FX markets and Bond markets which are international instruments held outside of the US. Also you are missing the point that the US compared to Europe, Japan and China is looking very attractive and a rising US dollar will attract even more investment domestically. What also needs to be realized is that the ONLY way the US will sit down at the table to design a new reserve currency is when the US dollar is at extreme highs and they are suffering from massive deflation. Otherwise they will not give up that demand for thier debt.
Joseph Rich
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Brilliant piece Roger. In particular, it will be interesting to see what happens if the unshakable faith currently held in the USD is suddenly put into question. Sooner or later, an alternative reserve currency will become viable and even preferable for many global players. And when that happens the ugly realities that are currently masked by an artificially strong USD will come to light. No doubt, a nasty shock to the US economy is still to come…