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FX BLog - While Rome BurnsWhile Rome Burns
February 20, 2009
|While Rome Burns|
|The Risk in Europe|
|The Euro Back to Parity? Really?|
|Back to the Basics|
|Living in Paradise|
|The 20-Year Horizon|
|If I Had a Hammer|
|New York, Las Vegas, and La Jolla|
I sit down each week to write, I essentially do what I did nine years ago when
I started writing this letter. I write to you, as an individual. I don't think
of a large group of people, just a simple letter to a friend. It is only half a
joke that this letter is written to my one million closest friends. That is the
way I think of it.
week's letter is likely to lose me a few friends, though. I am going to start a
series on money management, portfolio construction, and money managers. It will
be back to the basics for both new and long-time readers. I am not sure how
long it will take (in terms of weeks), but it is likely to make a few people
upset and provoke some strong disagreements. Let's just say this is not stocks
for the long run.
because many of you want some continuing analysis of the current crisis, each
week I will throw in a few pages of commentary at the beginning of the letter.
But first, and quickly, I just
wanted to take a moment and remind you to sign up for the Richard Russell
Tribute Dinner, all set for Saturday, April 4 at the Manchester Grand Hyatt in
San Diego -- if
you haven't already. This is sure to be an extraordinary evening honoring a
great friend and associate of mine, and yours as well. I do hope that you can
join us for a night of memories, laughs, and good fun with fellow admirers and
long-time readers of Richard's Dow Theory
A significant number of my fellow
writers and publishers have committed to attend. It is going to be an
investment-writer, Richard-reader, star-studded event. If you are a fellow
writer, you should make plans to attend or send me a note that I can put in a
tribute book we are preparing for Richard. And feel free to mention this event
in your letter as well. We want to make this night a special event for Richard
and his family of readers and friends. So, if you haven't, go ahead and log on
and sign up today. I wouldn't want any of you to miss out on this tribute. I
look forward to sharing this evening with all of you.
now, let's turn our eyes to Europe.
The Risk in Europe
mentioned last week that European banks are at significant risk. I want to
follow up on that point, as it is very important. Eastern Europe has borrowed
an estimated $1.7 trillion, primarily from Western European banks. And much of
Eastern Europe is already in a deep recession bordering on depression. A great
deal of that $1.7 trillion is at risk, especially the portion that is in Swiss
francs. It is a story that could easily be as big as the US subprime problem.
Poland, as an example, 60% of mortgages are in Swiss francs. When times are
good and currencies are stable, it is nice to have a low-interest Swiss
mortgage. And as a requirement for joining the euro currency union, Poland has
been required to keep its currency stable against the euro. This gave borrowers
comfort that they could borrow at low interest in francs or euros, rather than at
much higher local rates.
But in an echo of teaser-rate subprimes
here in the US, there is a problem. Along came the synchronized global
recession and large Polish current-account trade deficits, which were three
times those of the US in terms of GDP, just to give us some perspective. Of
course, if you are not a reserve currency this is going to bring some pressure to
bear. And it did. The Polish zloty has basically dropped in half compared to
the Swiss franc. That means if you are a mortgage holder, your house payment
just doubled. That same story is repeated all over the Baltics and Eastern
banks have lent $289 billion (230 billion euros) to Eastern Europe. That is 70%
of Austrian GDP. Much of it is in Swiss francs they borrowed from Swiss banks.
Even a 10% impairment (highly optimistic) would bankrupt the Austrian financial
system, says the Austrian finance minister, Joseph Proll. In the US we speak of
banks that are too big to be allowed to fail. But the reality is that we could
nationalize them if we needed to do so. (And for the record, I favor
nationalization and swift privatization. We cannot afford a repeat of Japan's
problem is that in Europe there are many banks that are simply too big to save.
The size of the banks in terms of the GDP of the country in which they are
domiciled is all out of proportion. For my American readers, it would be as if
the bank bailout package were in excess of $14 trillion (give or take a few
trillion). In essence, there are small countries which have very large banks
(relatively speaking) that have gone outside their own borders to make loans
and have done so at levels of leverage which are far in excess of the most
leveraged US banks. The ability of the "host" countries to nationalize their
banks is simply not there. They are going to have to have help from larger
countries. But as we will see below, that help is problematical.
European banks have been very aggressive in lending to emerging market
countries worldwide. Almost 75% of an estimated $4.9 trillion of loans
outstanding are to countries that are in deep recessions. Plus, according to
the IMF, they are 50% more leveraged than US banks.
the euro rallied back to $1.26 based upon statements from German authorities
that were interpreted as a potential willingness to help out non-German (in
particular, Austrian) banks.
this more sobering note from Strategic Energy was sent to me by a reader. It nicely
sums up my concerns:
is East Europe that is blowing up right now. Erik Berglof, EBRD's chief
economist, told me the region may need e400bn in help to cover loans and prop
up the credit system. Europe's governments are making matters worse. Some
are pressuring their banks to pull back, undercutting subsidiaries in East
Europe. Athens has ordered Greek banks to pull out of the Balkans.
sums needed are beyond the limits of the IMF, which has already bailed out
Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan -- and Turkey
next -- and is fast exhausting its own $200bn (e155bn) reserve. We are
nearing the point where the IMF may have to print money for the world, using
arcane powers to issue Special Drawing Rights. Its $16bn rescue of
Ukraine has unravelled. The country -- facing a 12% contraction in GDP
after the collapse of steel prices -- is hurtling towards default, leaving
Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn.
Latvia's central bank governor has declared his economy "clinically dead"
after it shrank 10.5% in the fourth quarter. Protesters have smashed the
treasury and stormed parliament.
is much worse than the East Asia crisis in the 1990s,' said Lars Christensen,
at Danske Bank. 'There are accidents waiting to happen across the region,
but the EU institutions don't have any framework for dealing with this. The day
they decide not to save one of these one countries will be the trigger for a
massive crisis with contagion spreading into the EU.' Europe is already in deeper
trouble than the ECB or EU leaders ever expected. Germany contracted at an
annual rate of 8.4% in the fourth quarter. If Deutsche Bank is correct,
the economy will have shrunk by nearly 9% before the end of this year. This is
the sort of level that stokes popular revolt.
implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece
and Portugal as the collapse of their credit bubbles leads to rising defaults,
or rescue Italy by accepting plans for EU "union bonds" should the
debt markets take fright at the rocketing trajectory of Italy's public debt
(hitting 112pc of GDP next year, just revised up from 101pc -- big
change), or rescue Austria from its Habsburg adventurism. So we watch and
wait as the lethal brush fires move closer. If one spark jumps across the
eurozone line, we will have global systemic crisis within days. Are the firemen
While Rome Burns
hope the writer is wrong. But the ECB is dithering while Rome burns. (Or at
least their banking system is -- Italy's banks have large exposure to Eastern Europe
through Austrian subsidiaries.) They need to bring rates down and figure out
how to move into quantitative easing. Europe is at far greater risk than the
Britain and Europe as a whole are down about 6% in GDP on an annualized basis.
The Bank Credit Analyst sent the next graph out to their public list, and I reproduce it here.
(www.bcaresearch.com) In another longer
report, they note that the UK, Ireland, Denmark,
and Switzerland have the greatest risk of widespread bank nationalization
(outside of Iceland). The full report is quite sobering. The countries on the
bottom of the list are also in danger of having their credit ratings downgraded.
has the potential to be a real crisis, far worse than in the US. Without
concerted action on the part of the ECB and the European countries that are
relatively strong, much of Europe could fall further into what would feel like
a depression. There is a problem, though. Imagine being a politician in
Germany, for instance. Your GDP is down by 8% last quarter. Unemployment is
rising. Budgets are under pressure, as tax collections are down. And you are
going to be asked to vote in favor of bailing out (pick a small country)? What
will the voters who put you into office think?
going to find out this year whether the European Union is like the Three
Musketeers. Are they "all for one and one for all?" or is it every country for itself?
My bet (or hope) is that it is the former. Dissolution at this point would be
devastating for all concerned, and for the world economy at large. Many of us
in the US don't think much about Europe or the rest of the world, but without a
healthy Europe, much of our world trade would vanish.
getting all the parties to agree on what to do will take some serious
leadership, which does not seem to be in evidence at this point. The US almost
waited too long to respond to our crisis, but we had the "luxury" of only
needing to get a few people to agree as to the nature of the problems (whether
they were wrong or right is beside the point). And we have a central bank that
could act decisively.
understand the European agreement, that situation does not exist in Europe. For
the ECB to print money as the US and the UK (and much of the non-EU developed
world) will do, takes agreement from all the member countries, and right now it
appears the German and Dutch governments are resisting such an idea.
As I write this (on a
plane on my way to Orlando) German finance minister Peer Steinbruck has said
it would be intolerable to let fellow EMU members fall victim to the global
financial crisis. "We have a number of countries in the eurozone that are
clearly getting into trouble on their payments," he said. "Ireland is
in a very difficult situation.
"The euro-region treaties don't foresee any
help for insolvent states, but in reality the others would have to rescue those
running into difficulty."
That is a hopeful sign. Ireland is indeed in dire
straits, and is particularly vulnerable as it is going to have to spend a
serious percentage of its GDP on bailing out its banks.
not clear how it will all play out. But there is real risk of Europe dragging
the world into a longer, darker night. Their banks not only have exposure to our
US foibles, much of which has already been written off, but now many banks will
have to contend with massive losses from emerging-market loans, which could be
even larger than the losses stemming from US problems. Plus, they are more
leveraged. (This was definitely a topic of "Conversation" this morning when I
chatted with Nouriel Roubini. See more below.)
The Euro Back to Parity? Really?
over six years ago, when the euro was below $1, that I thought the euro would
rise to over $1.50 (it went even higher) and then back to parity in the middle
of the next decade. I thought the decline would be due to large European government
deficits brought about by pension and health care promises to retirees, and
those problems do still loom.
be that the current problems will push the euro to parity much sooner, possibly
this year. While that will be nice if you want to vacation in Europe, it will
have serious side effects on international trade. It clearly makes European
exporters more competitive with the rest of the world, and especially the US.
It also means that goods coming from Asia will cost more in Europe, unless
Asian countries decide to devalue their currencies to maintain an ability to
sell into Europe, which of course will bring howls from the US about currency
manipulation. It is going to put pressure on governments to enact some form of
trade protectionism, which would be devastating to the world economy.
and swift currency swings are inherently disruptive. We are seeing volatility
in the currency markets unlike anything I have witnessed. I hope we do not see
a precipitous fall in value of the euro. It will be good for no one. It is a
strange world indeed when the US is having such a deep series of problems, the
Fed and Treasury are talking about printing a few trillion here and a few
trillion there, and at the very same time we see the dollar AND gold rising in
value. Which all serves as a good set-up to the next section.
Back to the Basics
for the long run" has been weighed in the balance in Baby Boomers' retirement
accounts all over the world and has been found wanting. The S&P 500 is now
roughly where it was 12 years ago, although earnings in 1997 were higher than
those projected for 2009. The Dow closed at 7466 on Thursday, a six-year low,
giving all those who follow Dow Theory a clear bear market signal, suggesting
there is more pain ahead.
I was a young 49. For me to make the advertised 8% average annual returns in my
equity portfolio, the Dow would have had to go on a tear for the next 8 years.
8% compound from 1997 would have the Dow well over 30,000 now. Remember those
silly books which predicted such nonsense? (Seriously, what statistically
flawed analysis, yet people bought it.) Now the market would have to do 18% a
year for the next 8 years to get to 30,000. Anyone want to make that bet? Let's
look at a few paragraphs I wrote in Bull's
Living in Paradise
Would you like to live in paradise?
There's a place where the average daily temperature is 66 degrees, rainy days
only occur on average every five days, and the sun shines most of the time.
Welcome to Dallas, Texas. As most
know, however, the weather in Dallas doesn't qualify as climate paradise. The
summers begin their ascent almost before spring arrives. On some days the buds
almost wilt before turning into blooms. During the lazy days of summer, the
sun frequently stokes the thermometer into triple digits, often for days on
end. There are numerous jokes about the Devil, hell, and Texas summers.
Once winter arrives, some days are
mild -- perfect golf weather. Yet the
next day might be frigid, with snow or the occasional ice storm. That's good
for business at the local auto body shops, though it makes for sleepless nights
for the insurance companies. Certainly the winters don't match the chilly winds
of Chicago or the blizzards of Buffalo, but Dallas is far from paradise as its
seasons ebb and flow.
For the year though, the average
temperature is paradisical.
Contrary to the studies that show
investors they can expect 7% or 9% or 10% by staying in the market for the long
run, the stock market isn't paradise either. Like Texas summers, the stock
market often seems like the anteroom to investment hell.
Historically, average investment
returns over the very long term (we're talking 40-50-70 years) have been some
of the best available, but the seasons of the stock market tend to cycle with
as much variability as Texas weather. The extremes and the inconstancies are
far greater than most realize. Let's examine the range of variability to truly
appreciate the strength of the storms.
In the 103 years from 1900 through
2002, the annual change for the Dow Jones Industrial Average reflects a simple
average gain of 7.2% per year. During that time, 63% of the years reflect
positive returns, and 37% were negative. Only five of the years ended with
changes between +5% and +10% -- that's
less than 5% of
the time. Most of the years were far from average -- many were sufficiently dramatic to
drive an investor's pulse into lethal territory!
Almost 70% of the years were "double-digit
years," when the stock market either rose or fell by more than 10%. To move out of "most"
territory, the threshold increases to 16% -- half of the past 103 years end with the stock market index
either up or down more than 16%!
Read those last two paragraphs
again. The simple fact is that the stock market rarely gives you an average
year. The wild ride makes for those emotional investment experiences which are
a primary cause of investment pain.
The stock market can be a very
risky place to invest. The returns are highly erratic; the gains and losses
are often inconsistent and unpredictable. The emotional responses to stock
market volatility mean that most investors do not achieve the average stock
market gains, as numerous studies clearly illustrate.
Not understanding how to manage the
risk of the stock market, or even what the risks actually are, investors too
often buy high and sell low, based upon raw emotion. They read the words in the
account-opening forms that say the stock market presents significant opportunities
for losses, and that the magnitude of the losses can be quite significant. But they focus on the research that says, "Over
the long run, history has overcome interim setbacks and has delivered an
average return of 10% including dividends" (or whatever the number du jour is.
and ignoring bad stuff like inflation, taxes, and transaction costs).
The 20-Year Horizon
But how long is the "long run"?
Investors have been bombarded for years with the nostrum that one should invest
for the "long run." This has indoctrinated investors into thinking they could ignore
the realities of stock market investing because of the "certain" expectation of
This faulty line of reasoning has
spawned a number of pithy principles, including: "No pain, no gain," "You can't
participate in the profits if you are not in the game," and my personal
favorite, "It's not a loss until you take it."
These and other platitudes are
often brought up as reasons to leave your money with the current management
which has just incurred large losses. Cynically restated: why worry about the
swings in your life savings from year to year if you're supposed to be rewarded
in the "long run"? But what if history does not repeat itself, or if you don't
live long enough for the long run to occur?
For many, the "long run" is about 20
years. We work hard to accumulate assets during the formative years of our
careers, yet the accumulation for the large majority of us seems to become
meaningful somewhere after midlife. We seek to have a confident and
comfortable nest egg in time for retirement. For many, this will represent
roughly a 20-year period.
We can divide the 20th century
into 88 twenty-year periods. Though most periods generated positive returns before
dividends and transaction costs, half produced compounded returns of less than
4%. Less than 10% generated gains of more than 10%. The P/E ratio
is the measure of valuation reflected in the relationship between the price
paid per share and the earnings per share ("EPS"). The table below reflects
that higher returns are associated with periods during which the P/E ratio
increased, and lower or negative returns resulted from periods when the P/E declined.
Look at the table above. There were
only nine periods from 1900-2002 when 20-year returns were above 9.6%, and this
chart shows all nine. What you will notice is that eight out of the nine times
were associated with the stock market bubble of the late 1990s, and during all
eight periods there was a doubling, tripling, or even quadrupling of P/E
ratios. Prior to the bubble, there was no 20-year period which delivered 10%
Why is that important? If the P/E
ratio doubles, then you are paying twice as much for the same level of
earnings. The difference in price is simply the perception that a given level
of earnings is more valuable today than it was 10 years ago. The main driver of
the last stock market bubble, and every bull market, is an increase in the P/E
ratio. Not earnings growth. Not anything fundamental. Just a willingness on the
part of investors to pay more for a given level of earnings.
Every period of above-9.6% market
returns started with low P/E ratios. EVERY ONE. And while not a consistent
line, you will note that as 20-year returns increase, there is a general
decline in the initial P/E ratios. If we wanted to do some in-depth analysis,
we could begin to explain the variation from this trend quite readily. For
instance, the period beginning in 1983 had the lowest initial P/E, but was also
associated with a two-year-old secular bear, which was beginning to lower 20-year
Look at the following table from my
friend Ed Easterling's web site at www.crestmontresearch.com
(which is a wealth of statistical data like this!). You can find many 20-year
periods where returns were less than 2-3%. And if you take into account
inflation, you can find many 20-year periods where returns were negative!
Look at the 20-year average returns
in the table above. The higher the P/E ratio, the lower (in general) the
subsequent 20-year average return. Where are we today? As I have made clear in
my last two letters, we are well above 20. Today we are over 30, on our way to
45. In a nod to bulls, I agree you should look back over a number of years to
average earnings and take out the highs and lows of a cycle. However, even
"normalizing" earnings to an average over multiple years, we are still well above the long-term
P/E average. Further, earnings as a percentage of GDP went to highs well above
what one would expect from growth, which is usually GDP plus inflation.
Earnings, as I have documented in earlier letters, revert to the mean. Next
week, I will expand on that thought.
And given my thesis that we are in
for a deep recession and a multi-year Muddle Through Recovery, it is unlikely
that corporate earnings are going to rebound robustly. This would suggest that
earnings over the next 20 years could be constrained (to say the least).
In all cases, throughout the years, the level
of returns correlates very highly to the trend in the market's price/earnings (P/E)
This may be the single most
important investment insight you can have from today's letter. When P/E ratios were
rising, the saying that "a rising tide lifts all boats" has been historically
true. When they were dropping, stock market investing was tricky. Index
investing is an experiment in futility.
You can see the returns for any
given period of time by going to http://www.crestmontresearch.com/content/Matrix%20Options.htm.
Now let's visit a very basic
concept that I discussed at length in Bull's
Eye Investing. Very simply, stock markets go from periods of high
valuations to low valuations and back to high. As we will see from the graphs
below, these periods have lasted an average of 17 years. And we have not
witnessed a period where the stock market started at high valuations, went
halfway down, and then went back up. So far, there has always been a bottom
with low valuations.
My contention is that we should not
look at price, but at valuations. That is the true measure of the probability
of success if we are talking long-term investing.
Now, let me make a few people upset.
When someone comes to you and starts showing you charts that tell you to invest
for the long run, look at their assumptions. Usually they are simplistic. And
misleading. I agree that if the long run for you is 70 years, you can afford to
ride out the ups and downs. But for those of us in the Baby Boomer world, the
long term may be buying green bananas.
If you start in a period of high
valuations, you are NOT going to get 8-9-10% a year for the next 30 years; I
don't care what their "scientific studies" say. And yet there are salespeople
(I will not grace them with the title of investment advisors) who suggest that if
you buy their product and hold for the long term you will get your 10%,
regardless of valuations. Again, go to the Crestmont web site, mentioned above.
Spend some time really studying it. And then decide what your long-term horizon
If I Had a Hammer
Let me be very candid. As the saying
goes, if you only have a hammer, the whole world looks like a nail. Many
investment professionals only have one tool. They live in a long-only world. If
the markets don't go up, they don't make a profit. So, for them the markets are
always ready to enter a new bull phase, or stocks are always a good value. That
is what they sell, and that's how they make their money. What mutual fund
manager would keep his job if he said you should sell his fund? Frankly, it is
a tough world.
About half the time they are right.
The wind is at their backs and they look very, very good. Genius is a riding
market. And then there are those times when it is just no fun to be them OR
their clients. Driving to the airport today, I had CNBC on. They had a mutual
fund manager on who was talking about why you should ignore the down periods
and invest today. He used every hackneyed bromide I have heard and a few new
ones. "You have to do it for the long run." "If you aren't invested, you miss
the bull when it comes." (Which is SO statistically misleading! Maybe next week
I will go at that one!) "Long-term valuations are very good." "The economy
looks to turn around in the latter half of the year, so now is the time to buy,
as the market anticipates the rebound by six months." Etc. He was selling his
Again, back to basics. In terms of
valuations, markets cycle up and down over long periods of time. These are
called secular cycles. You have bull and bear secular cycles. In a period of a
secular bull, the best style of investing is relative value. You are trying to
beat the market. These periods start with low valuations, and you can ride the
ups and downs with little real worry. Think of 1982 though 1999.
But in secular bear cycles, the
best style of investing is absolute returns. Your benchmark is zero. You want
positive numbers. It is much harder, and the longer-term returns are probably
not going to be as good. But you are growing your capital against the day the
secular bull returns. And, as bleak as it looks right now, I can assure you that
bull will be back. Some time in the middle of the next decade, maybe a little
sooner, we will see the launch of a new secular bull.
Why? Because low valuations act
just like a coiled spring. The tighter it gets wound, the more explosive the
result. You just have to have patience.
Now let's look at two charts from
Vitaliy Katsenelson. They illustrate my basic point: markets go from high
valuations to low valuations and then back. The first uses one-year trailing
earnings and the second uses a smoothed 10-year trailing earnings stream. But
however you look at them, you see a very clear cycle. By the way, the one-year
chart is a few months old, so the numbers would look even worse after the
horrific earnings from the 4th quarter of last year.
is time to hit the send button. Next week, we will look at a very simple method
for timing the markets within the cycles, which can help you avoid the real
downturns. While it may seem obvious that avoiding bear markets will do wonders
for your portfolio, a lot of investment professionals say you can't do it. To
that I politely say, garbage.
tables above clearly lay out how you can time the markets in broad patterns. You
can't pick the absolute highs and lows, but you don't need to. You just need to
know the direction of the wind and where you want to sail.
New York, Las Vegas, and La Jolla
will be in New York in mid-March. Details are firming up. Then it's Doug Casey's
"Crisis & Opportunity Summit," March 20-22 in Las Vegas, where I get to be
the resident bull! Click to learn more about the Summit.
will then go to La Jolla for my own Strategic Investment Conference, April 2-4.
It is sold out, but as I mentioned at the top of the letter, you can still get
tickets to the Richard Russell Tribute Dinner.
allow me a quick commercial. Not all money managers and funds have had losses
last year, though it may seem like it. My partners around the world can
introduce you to some alternative funds, commodity funds, and managers that you
may find of interest as you rebalance your portfolio this year. You owe it to
yourself to check them out.
If you are an accredited investor (net worth roughly
$1.5 million), you should check out my partners in the US, Altegris Investments
(based in La Jolla) and my London partners (covering Europe), Absolute Return
Partners. If you are in South Africa, my partner there is Plexus Asset
Management. You can go to www.accreditedinvestor.ws and fill out the
form, and someone from their firms will be in touch. All three shops specialize
in alternative investments like hedge funds and commodity funds, on a very
selective basis. We will soon be announcing new partners in other parts of the
world. And if you are an advisor or broker, you should call them (or fill out
the form) and find out how you can plug your clients into their network of
If your net worth is less than $1.5
million, I work with Steve Blumenthal and his team at CMG. I suggest you go to
his website, register, and then let them show you what the blend of active
managers on his platform would have done over the past few months and years.
These are primarily managers who will trade a managed account (using various
proprietary styles) in your name, and they are quite liquid. Again, if you are
an advisor or broker and would like to see the managers on the CMG platform and
how you can access them for your clients, sign up and let Steve and his team
know you are in the business. The link is http://www.cmgfunds.net/public/mauldin_questionnaire.asp.
If you are still here, I assume
that you are still one of my one million closest friends. Have a great week,
and take some time to enjoy life.
Your worried about Europe analyst,
Copyright 2009 John Mauldin. All Rights Reserved
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or directly related websites and have been so registered for no less
than 30 days. The Accredited Investor E-Letter is provided on a
confidential basis, and subscribers to the Accredited Investor E-Letter
are not to send this letter to anyone other than their professional
investment counselors. Investors should discuss any investment with
their personal investment counsel. John Mauldin is the President of
Millennium Wave Advisors, LLC (MWA), which is an investment advisory
firm registered with multiple states. John Mauldin is a registered
representative of Millennium Wave Securities, LLC, (MWS), an FINRA
registered broker-dealer. MWS is also a Commodity Pool Operator (CPO)
and a Commodity Trading Advisor (CTA) registered with the CFTC, as well
as an Introducing Broker (IB). Millennium Wave Investments is a dba of
MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the
consulting on and marketing of private investment offerings with other
independent firms such as Altegris Investments; Absolute Return
Partners, LLP; Pro-Hedge Funds; EFG Capital International Corp; and
Plexus Asset Management. Funds recommended by Mauldin may pay a portion
of their fees to these independent firms, who will share 1/3 of those
fees with MWS and thus with Mauldin. Any views expressed herein are
provided for information purposes only and should not be construed in
any way as an offer, an endorsement, or inducement to invest with any
CTA, fund, or program mentioned here or elsewhere. Before seeking any
advisor's services or making an investment in a fund, investors must
read and examine thoroughly the respective disclosure document or
offering memorandum. Since these firms and Mauldin receive fees from
the funds they recommend/market, they only recommend/market products
with which they have been able to negotiate fee arrangements.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF
LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED
FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS,
YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME
PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT
PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE
ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION
INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS
IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME
REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN
MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN
ONLY TO THE INVESTMENT MANAGER.
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