Financial topics

[freddyv]

History tells us that this new issue is sure to be a winner for President Obama. Whereas his health plan was wildly unpopular, the public hatred being directed at banks is growing palpably each day.

History is repeating itself. As I've pointed out several times, when I was growing up in the 1950s, my parents and my teachers all hated bankers. I didn't understand it then, but I understand it today. Bankers in the 1930s perpetrated the same kind of fraud and extortion that they're practicing today, as standard operating procedure.

The fury directed at banks is going to grow, and will be around for decades. President Obama will do much better politically with this issue than he did with health care.

Finally, it's worth saying again that from the point of view of Generational Dynamics, the attitudes and behaviors of politicians are irrelevant; what's important are the attitudes and behaviors of the great masses of people, entire generations of people. These attitudes and behaviors follow generational trends that are completely independent of the wishes of the politicians. We're seeing this happen now, as Obama abandons his health care agenda and takes up his war against bankers.

Very good commentary, John. I can almost visualize the turn into the Fourth Turning as we begin to tear down some of the old in order to build a new, safer world. There will be a lot of pain as we dismantle things, in fact the stage will be set to have the whole disgusting system come crashing down as we start to really face the fact that we can't afford the things we have purchased. Things like Social Security and Medicare and unending unemployment benefits and bailouts for all. The truth is that so far we have made things worse by trying to prop things up, now that Barack the Great is on the side of the people I expect the crash to accelerate very rapidly.

Up until now we have largely followed Japan's path by bailing out and propping up, but Americans are different, we are impatient and independent and won't likely be content to just wait around to see what happens. From here on, I hope, we will diverge from the Japanese path and start to really deal with our problems.

Fred
http://www.acclaiminvesting.com/

[jwfid]

Freddy,

I sense a change too. I think it was the election of Senator Brown in Massachusetts. The politicians have noticed the change as well. I'm in utter disbelief that Obama finally turned his back on the people who got us into this mess.

Up until now we have largely followed Japan's path by bailing out and propping up, but Americans are different, we are impatient and independent and won't likely be content to just wait around to see what happens. From here on, I hope, we will diverge from the Japanese path and start to really deal with our problems.

I hope this is what happens too. I was resigned to our Japanese-like fate, but now maybe we'll be able to finally be able to write off the bad debts and begin anew. It'll be a long hard road like the 1930's with terrible deflation, but at least we (taxpayers) won't be burdened with the debts caused by the greedy banksters.

Higgy,

In my last post, I was convinced the government was going to continue the con and the bailouts indefinitely. Now, I'm thinking this election might be the turn we have all been looking for. We'll see.

Joe

[Higgenbotham]

Higgy,

In my last post, I was convinced the government was going to continue the con and the bailouts indefinitely. Now, I'm thinking this election might be the turn we have all been looking for. We'll see.

Joe

I also believe we may finally, finally be there. But let's see what happens to "Helicopter" Bernanke next week. I had speculated awhile back that he might have trouble getting confirmed and now all of a sudden there has been a huge withdrawal of support for his reconfirmation and the odds presently stand at about 50/50 that he will lose reconfirmation, according to this afternoon's reports.

http://www.cnbc.com/id/35012053

Americans will have had quite enough of glitz and roar, of celebrity circuses, of living as though there were no tomorrow. Forebodings will deepen, and spiritual currents will darken. Whether we realize it or not, we will be ready for a dramatic event to shock the nation out of its complacency and decay.

The Fourth Turning will be at hand.

From The Fourth Turning by Strauss and Howe, p. 253

PS In reading back through the preceding 3 or 4 pages, the word "complacency" has come up several times. I had mentioned a few things last week that could shock the market and the country out of its complacency (at the same time): rogue nuke, pandemic, earthquake, or a bond market panic due to default fears. We'll have to see how it goes, but if Ben Bernanke is not confirmed, that could definitely shock the market out of its complacency, causing a deflationary panic since "Helicopter Ben" is the spokesman for inflation and how to avoid deflation (as he said, to drop money from helicopters - not literally, but by doing what he has been doing). Any deflationary panic could then shock the country out of its complacency, generally.

[Higgenbotham]

I've been posting these updates for a couple reasons. One is to see if the theory of Maximum Ruin would hold. Another is to create a record of what happens when somebody speculates.

One way I understand the theory of Maximum Ruin is that a lifetime of experience becomes null and void near the cusp between a Third and Fourth Turning. This causes everyone to lose money, or nearly everyone. So far, in my estimation, the theory is holding true. The shorts have taken a beating for months and most have given up. The stock market has risen faster than at any other comparable time in history. It did rise faster off the 1932 low, but that is not comparable since stocks had been knocked down in valuation. The rally has convinced almost everyone that stocks can only go up from here. Various reasons are given for that.

This really isn't being written for the small handful of people on this forum who are still holding short positions in the stock market. Everyone who is left already knows what is going on. But for anybody else, there is an ongoing record here that describes why most people should never speculate. Even those who have the talent, training, and temperament to speculate will perhaps find that in many ways it is like being an emergency room doctor. Despite everything you know, some patients (as in speculative trades) will not pull through and some who do may just do so barely. For those who don't have the talent, training, and temperament to be an emergency room doctor, well, it wouldn't make any sense to try to do it. But in our society anybody can speculate. In fact, in our casino economy, everything is speculative because the Fed under Bernanke and others have absolutely refused to create a sound money alternative (or specifically a stable dollar) for savers who do not want to speculate. And the reasons for that are very deep and intractable. The solution is much more complicated than removing Bernanke, but doing so might indicate that there is a vague recognition of the problem.

I started shorting the stock market in July and gave up in mid September. At that point, I had lost 8% of my money. I vowed to stop there and never speculate again (this was after speculating full time for several years). I sat it out for a few weeks, then changed my mind and started shorting again from a slightly higher level (not a lot higher). I continued to lose money as the market inched higher.

This week, the market reached a new closing high on Tuesday after the Brown victory. At that point, I had lost slightly over 14% of my money (that would be an additional 6% on top of the 8% I had already lost between July and September). That night, for the first time, I was unable to get to sleep and slept for only about one hour. I could feel sweat coming out of the bottoms of my feet all night. Having lived through similar speculative situations before, I realized that the point of maximum pain for the shorts had probably been reached. Knowing that doesn't stop the pain, though, because you never know for sure. The pain is inevitable and must be lived through. The next day, the market started coming down and continued down the rest of the week, losing all of its gains for the past 2 months. Again, for those who may read this and think speculating is a good idea, there is no solace in watching that. All you're thinking about is whether you should cover. A lot of people do cover just as the point of maximum acceleration down is being reached. I know an old speculator from another forum who did just that last week right before the market fell hard. Can you imagine the pain he is feeling? That's what markets do to people and that is why they are able to ruin the maximum number of people, especially in an insane time like this.

I was able to hold on. By the end of the week, my 14% loss had been reduced to a little over 7%. I also cut my position back at the end of the week, which means I am now taking on less risk, but it will take a larger drop in the market than what we had last week to recoup the rest of my money.

For the young people out there. Don't ever speculate. If you're going to buy a stock, research it carefully and only buy stocks that pay good dividends (5-10% depending). Nothing like this even remotely exists today. Push for sound and stable monetary policies because that is the only way your savings can be safe. Your savings can never be safe when insane monetary policies reduce the value of savings and consequently force speculation. No speculator, no matter how good and how tough, is ever safe.

[reviresco]

Ladies and Gentlemen:

For months now the financial situation in general has reminded me of the scene in the first Alien movie where the captain is crouched inside the intersection of the ships air vents, the alien is fast approaching, and he’s receiving conflicting, rapid-fire, and panicked guidance on which way to turn to fight, or to run, or to at least face the situation… until it’s too late.

Personally, I’m tired of crouching, and yet…

The recent posts on John’s site are rife with speculation and worry and I must admit to also having an irksome feeling that the game is afoot once again.

Let’s imagine for a moment that no vote takes place on Mr. Bernanke’s reconfirmation at all. Unlikely, but a good place to start the discussion. His term is simply left to expire with no politician having to commit themselves publicly one way or the other. What decisions would that force upon the common investor?

Also causing trepidation these next couple of weeks are:

• Why are the G7 members meeting in a godforsaken little outpost above the tree line in the dead of winter in Canada on Feb 5-6 when there are so many beautiful venues in the country that can be easily secured against the anarchists, anti-globalists, and other sponsored protestors? The Canadian finance minister claims it will help them better concentrate.

• How is it that the Omaha Chamber of Commerce was able to score Warren Buffett and Hank Paulson to jointly address their annual meeting on February 9? To get either man to address a local chamber meeting is a coup (though admittedly it’s not such a stretch for Omaha to get Mr. Buffett to address them, though I’m not sure he ever has). To have both at the same time is amazing. Is it because it would be a good opportunity to have two respected men jointly offer reassuring guidance from America’s Heartland?

• Why did Mr. Buffett decide to go to the expense and trouble to split the baby Berkshires 50-1? Was it just to help Burlington Northern’s small potato’s investors with their taxes as was stated? Or could it in fact be that he really is a nice guy and wants to help not only Burlington’s small shareholders, but other average investors as well? To toss a financial life preserver like Berkshire Hathaway within reach to ride out a coming storm?

I just don’t know. But after bothering you with all the absolutely unconnected and (except for the Bernanke situation) mundane information above, let me say that I have found over the years that inaction is usually a good course to follow when I worry about things, since most of what I worry about does not come to pass, and to make changes on the fly, especially to carefully crafted portfolios, is often not a good thing.

That being said, however, I did give credence to a similar level of trepidation during summer 2008, especially after the removal of the uptick rule, and I did in fact make major changes to portfolios (basically selling positions and staying away from the market, which was good for a while, but has obviously generated a lost opportunity cost during the run up since March.)

Now after commiserating with many of you and perhaps making you even more apprehensive, may I suggest that two weeks from now we celebrate my being mistaken once more and convene a GD pizza party and movie night, the featured film being “Chicken Little”?

[OLD1953]

Did someone who posts here write this?

http://www.mybudget360.com/economy-cash ... re-coming/

I'm just curious, since the writer clearly references this recession as a generational change.

[freddyv]

Here's a good article from Comstock Funds on the state of our debt:

http://comstockfunds.com/default.aspx?a ... group=Home

[freddyv]

Roubini: Asset Bubble Is Beginning Now
http://www.cnbc.com/id/35078010

I've lost a lot of respect for Roubini as he tries to make predictions about this market or that. I think he should stick to this kind of analysis.

I think the most telling quote from this article is this:

But the risk of withdrawing the stimulus too soon is falling back into recession

To me this is like me saying that the risk to paying off my debt is that I can't go on an expensive vacation this year. Yet I keep hearing "smart" people say stupid things like this. The people seem to understand that something has to be done but our so-called leaders still are so afraid of losing a vote or a dollar that they just keep playing games that will only make things worse.

About 9 months ago I made the statement that we were entering a new period where we were beginning to deal with reality. I was wrong...about the timing. I think that we are now getting to that point and it won't be pretty. We are beginning to see the facade being torn away from our "leaders", especially Obama and the GS guys. As people become more and more aware that these people are empty suits and/or corrupt to the bone, the destruction that is required prior to a rebuilding will grow in intensity. At least that's how I see it.

Fred
http://www.acclaiminvesting.com/

[jhc811]

That night, for the first time, I was unable to get to sleep and slept for only about one hour. I could feel sweat coming out of the bottoms of my feet all night.

I know how you feel 100% as I went through the same thing several times and it was pure hell. The main (extremely bitter) lesson for me is that long term fundamentals analysis trading/investing is incompatible with futures trading given my size of funds. So I gave up futures completely and only focus on margin-free and expiration-free investment vehicles that is more compatible with my long term fundamental analysis trading.

I lost lot of my fortune in oil futures (you know the $147 oil which is manipulated to the full tilt) and was forced to sell my beloved farmland. I know GS is one of main leaders in outright blatant crude oil market manipulation and they should go to jail for their actions that dearly cost Americans lot of money in unnecessary high energy costs. I won't forget those GS bastards. It is good thing that more and more Americans are starting to wake up and they gonna coming after them eventually.

Anyway, I now put most of my conservative savings into Treasury Bills and some of my speculative money (the money I can afford to lose) goes into about 20+ different ETFs that short on oil, gold, stock and real estate markets (such as FAZ, SRS, TLT, DTO, GLL, SKF and so on). I am shooting for at least 100% returns (at least double the money back) when it is all said and done. The average of 500% return would be nice, but I will be just happy with at least 100% return.

The key thing is to separate the conservative savings/investing and the speculative investing and speculative is something you can afford to lose as you would bring some money to the Las Vegas casino and willing to blow that money away and laugh (don't cry).

I think 80% to 90% being in conservative savings and the other 10% to 20% into speculative investing is pretty good rule.

I just knew that stocks, oil, gold and real estate markets are still in huge bubble territory and I don't know how high it will go up and don't know when they peak and starts to fall en-masse, but I don't bother to know those guesses so thus reason for margin-free and expiration-free investing vehicles.

It looks like those markets are recently peaked and now headed downward, but I could be wrong. If I am wrong on this short term guess, then I just wait longer as all bubble markets ALWAYS reverts to the fundamentals! Even if I am right about the markets, an ETF could implode by itself, so that is why I diversify into 20+ different ETFs knowing that some ETFs might implode for various reasons.

As for conservative savings, T-Bills and cash are very good choices because in this long term deflationary depression, cash improves it's purchasing power as money supply shrinks causing price of all things to go down along with slowing velocity of money. Then we can buy great bargains at the depths of the depression which will be couple of years into the future.

Now speaking of generational dynamics, I always wondering why my dad (passed away 3 years ago at age of 87 as he was born in 1918) always said something like save money, avoid debt, and all of that. He was very thrifty compare with me. Now funny I am already started to do things like my dad did and that explains as he did went through The Great Depression which he said was a very difficult time. Many thanks John for this wonderful site!

[gerald]

An interesting article from Comstock Partners about total debt to GDP, regarding deleveraging.
http://comstockfunds.com/default.aspx?a ... eSupport=1