Be Careful What You Listen To

By John Mangun

Since 2008 we have been swamped with investment advice and market predictions. It is certainly important to understand money and what you can do to increase your wealth. But we need to be cautious about what we are being told.

There is little unbiased analysis/advice/forecasting available. It is virtually all agenda driven. The global financial press and media cannot be trusted as its purpose is to support government and central bank policy. The only thing that is keeping the global financial system together is confidence that the governments and central banks know what they are doing.

Any sensible person looking at the data realizes that the debt level of individuals, corporations and governments in the “developed” world is unsustainable. Global economic growth is being funded by government debt and even what growth there is, is insufficient to increase standards of living. So the only factor that keeps the system running is the mantra, “Keep calm and carry on.”

The man who ran the first quantitative easing (QE) operation in the US, Andrew Huszar, recently said this: “The reality is that confidence in markets has been artificially stimulated in the last few years by the Federal Reserve.” The financial markets can operate only when people believe that they are sound and stable, and the only thing that is keeping them stable is government intervention.

The Emperor may be naked but if too many people admit that fact, the kingdom will collapse.

Because people are now more aware of the importance of taking care of their personal finances, after seeing the disaster of public finances, many are almost desperate to increase their knowledge and get some practical advice on how to weather the situation.

While everyone knows that the world changed in 2008, at least the world we knew before in our lifetimes, the personal financial advice has not changed much, if any.

Take saving money, for example. We have always been taught to put a little aside for the future. But following that piece of wisdom today is a guaranteed way to grow poorer. Every peso, dollar, or Japanese yen saved today is worth less tomorrow.

Look at it this way. Would you go to Jollibee (in the Philippines) and buy their gift checks to “save” for the future? Of course not, because you cannot buy a gift check good for a “Two-Piece Chicken Joy” redeemable in 2020. If you would not save a P100 Jollibee gift check (Philippines currency), why would you save a P100 Philippine government “gift check”?

The same applies with the stock market. We are told to put P2,000 in the market every month and in 20 years you are guaranteed to be a millionaire. The reality is that had you done that for the last 20 years, the value of your stock-market investment, at best, would have been better than breakeven with the increase in prices. At worst, you would have lost purchasing power.

Ask this question: “What advice are you giving today that you would not have given 10 or 20 years ago?” If the nature of money has changed, and it has, how can we use the same investment methods that worked before? It does not make sense.

Twenty years ago the Philippine central bank wanted a stable and fairly strong peso. Now a relatively weaker peso is fine because it improves the purchasing power of remittances, supposedly helps exports and may attract more foreign investment.

Be wary of predictions and forecasts that never seem to change. Two years ago I wrote a column entitled, “What $3,000 Gold Will Mean To PHL (Philippines)?” Based on my analysis then, gold should have moved significantly higher but, in fact, went lower. Six months later, I discarded that idea because the situation had changed with more QE. Economist John Maynard Keynes said, “When my information changes, I alter my conclusions.”

The same is true with those that have been saying, literally for years, the debt bubble will burst or that the PHL property sector will collapse. You have to act based on the current condition, not what may happen in some undefined future. If you keep on guard and keep watching, you will have plenty of time to avoid the crash. Do you believe that every investor was wiped out in the 1929 or the 2008 US market crashes? Sadly, it was primarily the ones that listened to the “experts” that lost.

John Mangun is a ex-NYSE stock broker and now a journalist for the Business Mirror in the Philippines. John also runs a market trading advisory firm ‘Mangun on Markets’, please visit www.mangunonmarkets.com.  John can also be reached on Twitter via @mangunonmarkets