Year of Dali

"There is only one difference between a madman and me. I am not mad."
- Salvador Dali

A realistic assessment of today is required for any assessment of the future. However, in the current hypercharged media climate, it is perhaps too much to expect a normal construct of arguments culminating in a series of ideas.

As always, the usual health warnings apply here: don't act on anything you read here unless you get proper advice from a qualified professional; and if you do act on some stuff that leads to huge profits, please take out a nice ad in Asia Times Online thanking the newspaper.

Twelve investment themes for 2012
1. The broad construct is that nothing has changed in 2011, therefore the overall volatility surface will remain "spiky" for want of a technical term.
2. Sell all your euro holdings, in every format. If you can, buy real income-earning assets in Germany, the Netherlands and Norway.
3. Add to your stock positions of financially strong companies in Europe and the US to eke out some dividends. This is a strategy that will produce a lot of headaches but there really is nothing else out there.
4. Sell all non-dividend paying stocks, wherever they are in the world.
5. Sell all government bonds in every country imaginable. No, really: including that one.
6. Sell all financial stocks. Once done, sell them all again.
7. Buy all the physical gold you can comfortably store; but do it gradually (as I expect significant price variations for the first few months of next year).
8. A Chinese slowdown in already priced into stock prices, so its not news. Start buying Chinese stocks once every commentator appears to be spelling nothing but doom for the country.
9. Indian assets (stocks, real estate) have further to go down.
10. Banks and real estate are screaming sells in the following places: Australia, Singapore, Hong Kong and South Korea.
11. I still don't know what to do with Japan.
12. At some point in 2012, you may well have to do the opposite of all the 11 ideas above.

I will not offer a lot of explanations but rather point readers to some of my articles from earlier this year wherein the core concepts that underpin the above ideas have been explained in greater detail. For the relevant posts, see accompanying "Related articles".

Assessing what was
This is the year that will be forever associated in my mind with splitting aches in my neck, for that captures vividly how many times I have had to shake my head vigorously at the sheer stupidity of it all. This doesn't pertain just to the follies of those in finance (I am well used to that by now) but broader streaks of humongous nonchalance bordering on the murderously stupid that have been apparent over the course of this year.

What is the volume of naive behavior that could possibly tell an engineer to situate a nuclear power plant right on a fault line? Is that not the same behavior that engendered the amazingly comfortable assumptions behind expected defaults and the like in the financial world before the 2007 crisis wiped the floor of finance with the dead ideas (but not bodies) of statisticians and mathematical modelers?

What committee of idiots decided that the cure to a financial crisis caused by excessive leverage would be to add further leverage; and hopefully no one would notice? No, its not Paul Krugman alone but rather an entire phalanx of people who have worked in a proper job all their lives who somehow decided that the world sinking in debt needed a debt lifeline.

What risk manager decided to award all their key supply contracts to a small group of assembly plants situated right in the middle of a flood plain in the middle of Thailand? Did not anyone learn the lessons about correlation from the financial crisis?

Where is the proverbial genius who decided to create a currency union among a bunch of liberal democracies without much thought to the idea of graceful exits? At least I am thankful that this person chose Europe as the place for his experiment; for we have not lost much in the long term by losing Europe and its denizens now. Particularly the French.

Can someone please identify the people who thought the Arab world needed democracy, or that it could even handle the concept? Weren't these folks around when Saddam Hussein was toppled from power in Iraq and utter anarchy ensued, with a predictable end result of lower standards of living and even less freedom for women?

So somehow they took those lessons and decided to roll on in a country where al-Qaeda's remnants freely walk around (Libya), not to mention a giant country on the edge of poverty and famine that has already contributed hundreds of soldiers to fighting the West (Egypt)?

Then there is the genius who thought that a bipartisan committee of politicians in the United States could be trusted to usher in a period of smaller government all on their own by agreeing to a budget deal that would help cut all the pork out of the world's singularly gargantuan exercise in economic imbecility. I didn't know the human mind was capable of such utter flights of imagination.

Not to mention the economic guru who figured out that the best way of dealing with uneducated, unemployed youth in Europe was to give them some pocket money in order to purchase small arms and other stuff which would help make them the thuggish youth on our screens all over August. Nice thinking that, leftie.

All of these folks have nothing on the guys at the International Monetary Fund and elsewhere who thought that they could usher in a period of self-administered austerity in places like Greece without a shred of public annoyance. Now that the walls of governments have been broken across the poorer countries of Europe, fascism beckons yet again; so good thinking there genius.

Perhaps it also time for some honorable mentions:

The Russian megalomaniac who wants to stay president for life because he kind of likes the lifestyle. The Indian politicians who shrugged off all their corruption scandals by exchanging positions all the while dragging the economy into the mud. The Australian leaders who decided to impose new tariffs for climate change even as one of the other biggest exporters of resources (Canada) decided to quietly stage a wake (walk...ed) out. The Chinese oil folks who decided to make a last stand with Muammar Gaddafi, betting that the North Atlantic Treaty Organization wouldn't dare attack them. The Federation Internationale de Football Association (aka the International Federation of Association Football, or FIFA) and its president since 1998, Sepp Blatter. Surrealism as a way of life I recently read an article by an American humor columnist (I believe it was Andy Borowitz) who suggested that Republican supporters believe that their "real" candidates were being held in captivity. One line in particular was memorable: "This is a like a show with no main characters but just a bunch of weird neighbors." If that is indeed the case - for I do not know for sure whether US Republicans are making errors of omission or commission in this regards - then the US presidential nomination race resembles the rest of the world for its sheer wackiness.