We’ve outperformed over the long term by being conservatively contrarian during booms and aggressively contrarian during busts. Investors must never forget: the economic cycle includes contraction as well as expansion. Downturns usually don’t last nearly as long as upswings, and since the Second World War they’ve become even less frequent. Perhaps that’s why, as it seems to … [Read more...] about How we prepare for – and profit from – recessions
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Are Australia and the US heading for severe recessions?
Their money supply’s shrinking and yield curves have inverted. This confluence of events always precedes slumps; can this time be different? In “Dude, Where’s My Recession?” (The New York Times, 14 July) Paul Krugman noted: “almost a year has passed since the U.S. Bureau of Economic Analysis, which estimates gross domestic product, announced that real GDP had declined over … [Read more...] about Are Australia and the US heading for severe recessions?
The Myth of Small-Cap Outperformance
“Investing” in Aussie small-caps is like gambling: the longer you play and the bigger your bet, the more you’ll underperform the house. “Small-cap stocks tend to outperform big-caps,” asserts Investopedia (“Understanding Small-Cap and Big-Cap Stocks,” 4 August 2022), “ ... because they are able to grow more rapidly than larger companies.” It’s an oft-made claim. “Small-caps … [Read more...] about The Myth of Small-Cap Outperformance
How Canberra’s finances have worsened – and why it matters
Analysis of its monthly financial statements since 2005 uncovers trends that commentaries about its annual budget downplay or overlook. For more than 20 years, it’s been a basis of Leithner & Company’s operations: as a conservative-contrarian value investor, we think for ourselves – and thus always discount and often reject conventional opinion and behaviour. Warren … [Read more...] about How Canberra’s finances have worsened – and why it matters
Why America’s now in recession – and what it means for Australia
Leading indicators, weekly earnings and hours worked, GDI and productivity are all falling. That’s bad for Aussie as well as U.S. equities. In Should we be in a recession already? (2 June), Roger Montgomery wrote: “given the slumping credit demand and tightening lending standards in the U.S., which typically precede or accompany a recession, one wonders why we aren’t in a … [Read more...] about Why America’s now in recession – and what it means for Australia
Is Australia Risking a Debt Crisis?
Probably not – but high and rising debt will boost CPI and interest rates, and stifle GDP growth and investors’ returns. In America’s real debt crisis (15 May), I wrote: “The choice is stark: Americans must either undertake radical budget reform and (public) debt deleveraging, or accept continued economic stagnation – and if current trends worsen, eventually risk a debt … [Read more...] about Is Australia Risking a Debt Crisis?
America’s real debt crisis
The exponential rise of debt is stifling its economic growth. It thus takes ever more dollars of debt to generate an extra $1 of GDP. In Fortune magazine on 22 November 1999, Warren Buffett recounted to Carol Loomis: “Someone once told me that New York has more lawyers than people. I think that’s the same fellow who thinks profits will become larger than GDP. When you begin … [Read more...] about America’s real debt crisis
Does the RBA’s “negative equity” matter?
It admits it owes more than it owns, and if it were a company it’d be bankrupt, but insists this doesn’t matter. I’m sceptical. In Why the RBA should be abolished – and what could replace it (10 April) I demonstrated that, for more than a century, central banks haven’t fostered stability. Quite the contrary: they’ve created inflation, which has destroyed currencies’ … [Read more...] about Does the RBA’s “negative equity” matter?
Why the RBA Should Be Abolished – and What Could Replace It
Central banks’ inflation destroys currencies and worsens the boom-bust cycle. Milton Friedman reckoned that computers would do far better. In What Causes – and How to Prevent – Bank Crises (27 March), I showed that there’s a straightforward way – which entails no change of legislation or regulation – virtually to eliminate the probability that a bank fails. Unfortunately, no … [Read more...] about Why the RBA Should Be Abolished – and What Could Replace It
What Causes – and How to Prevent – Bank Crises
Duration mismatch regularly causes some banks to fail. Matching the duration of short-term assets and liabilities will eliminate failures. In my previous wire (The Risk of Higher Rates the RBA’s Overlooking, 21 March), I noted that the failures of the crypto-friendly Silvergate Bank and the tech-centric Silicon Valley Bank (America’s 16th-largest), as well as the forced … [Read more...] about What Causes – and How to Prevent – Bank Crises