Update No. 31 – 30/10/11

Stocks moved sharply upward this week, fellow owners and regular followers will have noticed our portfolio is generally much less volatile than the broader market. When the market declines sharply, we rarely decline as fast, unfortunately, when the market rises sharply, we usually fail to keep up as we have this week.  The Europeans seem to have developed a ‘solution’ the market likes – for now…

I have talked a little over the past few weeks about my view of the difficulties faced by the Euro-Zone countries and about the hobbling effect on the weaker economies of a common currency (there is a correspondingly ‘undeserved’ boost to the stronger economies which is less mentioned). I mentioned in Update 28 that absent the ability for the currency underlying a weak economy to weaken, the prospect for recovery is severely muted.  Among my daily consumption of financial reading is Paul Krugman’s blog, ‘The Conscience of a Liberal’, many of Krugman’s views are at odds with mine (though he’s the one with the Nobel Prize…), but his writings are always eminently readable and wonderfully considered.  Though he stridently disputes it, Krugman is prone to ‘cherry-picking’ data that tell the story as he sees it (though if we’re honest, I think we’re all guilty of that).  In order to demonstrate my view about the importance of a sovereign currency I will cherry-pick this post, which shows how Iceland, which was probably the worst economy in the world during the GFC is in what could only be described as a state of rudely good health.  Well, rude good health could be an exaggeration, but many factors that point to economic strength are much better than the three comparison countries Krugman uses (Latvia, Ireland & Estonia) which either use the Euro or have their currency pegged to the Euro.  It is a short, sharp reminder of the importance of a (freely floating) sovereign currency as a defence against the economic cycle.  There have been a few follow up posts which give more detail to the story, also well worth reading.

Something else very much in the news (at least the finance news, which is where most of my attention goes) is the ongoing OWS (Occupy Wall Street) protests.  I must be honest; I don’t share a lot in common with many of the sentiments expressed by protesters.  I can appreciate the perception that the financial world occupies an unfairly privileged space that seems to have enormous upside and government backstopped downside.  I also understand the concerns about executive salaries and the high proportion of national earnings earned by ‘the 1%’, I’m pretty sure it isn’t ‘the 99%’ who have driven house prices in the Hampton’s up by 22% last year, while the rest of the US housing market is basically wrecked – and some executive salaries are indubitably obscene, but it is the shareholders (mostly) who get burnt by that.  To me though, a central tenet of living in a capitalist economy is that if I covet what my neighbour has, I can work hard and obtain the same level of income or power or whatever thing that he has that I covet.  The thing for which OWS is most widely criticised is having no particular goals.  The closest I have seen to a coherent aggregation of the feelings behind the movement was presented here by ‘Lemony Snicket’; my personal favourite is number 7:

7. Someone feeling wronged is like someone feeling thirsty. Don’t tell them they aren’t. Sit with them and have a drink.

It is for this reason that provided the protests are peaceful, I see no harm in them whatsoever. I maintain that if the movement provided a coherent plan to resolve their issues, I would give them a great deal more respect, as Benjamin Franklin said “Any fool can criticize, condemn and complain and most fools do!”

While I’m directing blog-readers to my ‘liberal’ information sources, I should direct you to one more here, the site ‘macrobusiness’ aggregates the writings of a variety of economists writings with, as I mentioned, mostly left-wing in their views, but invariably well written and comprehensively explained.  The article linked briefly details a county in Georgia (near Atlanta), which ‘incorporated’ its local government with considerable success.  It must be noted that this is much easier to do successfully in a relatively affluent area, but the results appear to have been so good they certainly warrant further examination.  Most interesting is the leftie columnist (perhaps unknowingly) praising the work of a libertarian mayor. Tony Hansen 30/10/11.

EGP Fund No. 1 Pty Ltd. Down by 4.93%, lagging the benchmark by 1.03% since July 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 3.05%, leading the benchmark by 10.87% all-time (April 1^st 2011).

EGP 20.  The EGP20 index is Down by 5.30%, lagging the benchmark by 1.34% since July 1^st.  Since inception the EGP20 is Down by 16.31%, lagging the benchmark by 8.49% all-time (since April 1^st 2011).

S&PASX200TR  The benchmark index is Down by 3.96% since July 1^st. The benchmark is Down 7.82% all-time (since April 1^st 2011).