Posts filed under 'Most Read Posts'
July 16, 2008
There are two rules that every investor should abide by not only in volatile markets, but in any type of market: (1) Keep your losses small and cut your losses early and (2) Let your profitable investments ride. So why is it so difficult for the average investor to abide by these rules? With so much information so easily accessible today, the internet was supposed to level the playing field between the big boys and the small retail investor. It has, but conversely and unfortunately, it has also provided a medium for the big boys to mercilessly manipulate the inexperienced retail investor into making poor investment decisions as well. When you consider the vast ocean of information out there, at first glance, the task of sorting the very few gems of good information from the mountains of rubbish appears to be a daunting, nearly hopeless task.
During the last 12 months, for every person that said that U.S. and Shanghai markets were going to correct heavily, there were ten others that said that these markets were about to start another monumental bull run. For every analyst that said oil was heading to more than $100 a barrel when it was still trading at $60 a barrel, there was another analyst stating that $30 a barrel oil was just around the corner. For every person that said gold was heading to $1,000 an ounce when it was trading at less than $700 an ounce, there were ten that called gold bugs lunatics and said that gold would crash to $300 to $500 an ounce within a year. In addition to these heaps of conflicting reports, numerous investment letters actually employ analysts that take opposition views, with one analyst calling for $30 oil and another calling for $100 oil, with one calling for a gold bull run and another calling for a gold crash, so that no matter what happens, they can spam thousands of people and falsely exclaim, “We were right again!” Finally, thousands of bloggers state opposing viewpoints about everything from stock markets in India to platinum and palladium markets, and thousands more agree and disagree with these bloggers’ opinions.
So who is one to believe and how is it possible to ever employ the two rules above when there are thousands of people in the media that provide conflicting advice and persuasive arguments to support their views?
The answer believe it or not is actually very simple. Read more …
July 16th, 2008
July 10, 2008 -
If you’ve suffered stock losses this year, this will be the most important article you will read. Back on April 23, 2008, I wrote an article called “Will the U.S. Markets Crash Now – Or Later?” and I opened the article with the statement: “Every time I’ve written about the imminent disaster that awaits U.S. stock markets, and subsequently global markets, the response has been overwhelmingly negative.” In that article, I further stated, “People seem to forget one central and critical point. Most people seem to believe that they have to lose a great deal of money when crises materialize and forget that it is absolutely possible to prosper during crises as well. Thus, because they feel they must suffer during a crisis, the “shoot the messenger of bad news” syndrome commences. That said, I’m still going to state my utter lack of faith in this mini-rally that the U.S. markets are currently experiencing. Due to the huge levels of unaddressed and unsolved risk that still simmers quite potently beneath the surface, with the current “solutions” being implemented today, I honestly can only see two outcomes. Crash now or crash later.”
I suggest that you follow this Seeking Alpha link and read this article, and then read all the comments that followed my article (remember that I wrote this article two and ½ months ago). Because I often take a stance so contrary to the mainstream financial media, criticism of my articles doesn’t bother me. In fact, I expect a lot of criticism because I know that the overwhelming majority of people, the people that constitute the investment herd, follow the guidance of the commercial investment industry and consequently will always disagree with me. At about the same time I wrote that article this past April, the financial press inundated newspapers and financial websites with the following headlines: “IMF Chief Says Worst of Financial Crisis is Over”, ” [U.S. Secretary of Treasury] Paulson Says Worst of Financial Crisis is Over”, “Citigroup Chief Says Worst of Credit Crunch Crisis is Over”, “Financial Crisis Mostly Over, [JP Morgan CEO] Dimon Says” and “[James Finucane says] Are You Ready for Dow 20,000?”
I know that many people called me an idiot, agreed with the theses that were put forth in this deluge of optimism and started pouring money into the U.S. stock markets preparing for a monumental rise that the pundits had promised them was to come. How am I so sure of this? If you follow the above link to my referenced article, you’ll find 29 comments. Of those 29 comments, 9 people agreed with my views while 20 people, or 69%, of all those that left comments basically called me a fool for believing that U.S. markets were going to decline sharply. Everyone has a right to their opinion, even those that called me foolish for believing that the greater crisis was yet to come. And I accept all criticism because to be fair to those that criticize me, they do not have the benefit of access to my much higher level and more specific subscription material, so again, I accept that they can only partially understand my reasoning though my overall sentiment for U.S. markets was quite clear in that April article. However, the point of this article is not to provide a rebuttal. I am writing this article because there is an important lesson in all of this that will save your financial life if you’ve suffered significant losses in the stock market in 2008 because the worst is still not over. I truly believe that is still not too late and even if you’ve suffered 20%, 30%, or even 40% losses in the past year, it is still possible to recover all of those losses over th next two years and be strongly positive if you change your strategies now. Read more …
July 10th, 2008
May 11, 2008
There has been a lot of speculation for many years now that during extreme financial crises, the U.S. Federal Reserve and other entities intervene in free markets from behind the scenes and do not allow free market forces to operate. There are usually two schools of thought that dominate this hotly contested issue. One group of people asserts that free market interference is entirely acceptable because the alternative of allowing free market conditions to create a market crash is not an option. Another group of people asserts that interference in free markets is undemocratic and self-destructive as intervention in free markets do not solve problems but only cover-them up and delay them, thereby only allowing the elite money who truly understand such actions to exit stock markets at the heights of these artificially manufactured rallies while laying waste to the wealth of the common investor when things inevitably fall apart in the near future.
Those that argue that free markets are dead state that free markets ended when U.S. President Ronald Reagan signed Executive Order 12631 into law on March 18, 1988, establishing the Working Group on Financial Markets, known as the Plunge Protection Team (PPT) in more conspiratorial circles. The Working Group’s members consist of the most powerful men in global finance - the U.S. Secretary of the Treasury, the chairman of the Board of Governors of the Federal Reserve, the chairman of the SEC and the chairman of the Commodity Futures Trading Commission. Reagan’s decision to form the Working Group was inspired by Black Monday, a day when U.S. Dow Jones index shed an incredible 508 points, or 22.6% of the index’s value at the time, in a single day.
The Working Group was assigned the mission of ensuring that such an event would never happen again. Instead of addressing the root causes of Black Monday such as money supply growth that encourages the formation of speculative stock market and real estate market bubbles that lead to inevitable crashes, many have contended that the Working Group instead operates by intervening in the free markets Read more …
May 11th, 2008
May 11, 2008
In Part I of this two-part article, “Has Executive Order 12631 Effectively Ended the Era of Free Markets?” I discussed publicly made statements by various officials of the U.S. Federal Reserve that indicated they would resort to free market intervention and manipulation “if necessary”. Since many of those statements have been made, there have been fierce arguments about whether or not the U.S. Federal Reserve takes such actions during periods of crisis. Such behind-the-scene actions, were they to occur, would certainly bring into question numerous legal, moral, and ethical issues. Just because former Board Member of the U.S. Federal Reserve Robert Heller stated that it is quite easy to manipulate stock markets and reverse free-market behavior through the purchase of stock futures, does this mean it happens? Of course not.
But a quick glance at market behavior ever since the Working Group has been formed, especially in the past several months, seems to indicate that some form of behind-the-scenes free-market interference occurs at regular intervals during crises. In past articles on my blog theUndergroundInvestor.com, I have reviewed statements of finance ministers from the G7 nations in which they admitted they were undertaking secret actions out of the public eye for fear that public knowledge of their actions would destroy the very effectiveness of their actions. To me, this sounds like an incredible admission of propping up action. Recently, “the SEC said it aims to slash margin requirements for institutions and hedge funds on stocks, options, and futures to as low as 15%, down from a range of 25% to 50%.” At a time when overleveraged funds have collapsed and created great stress in the global financial markets, a decision to allow funds to increase their leveraged positions seems not only foolish but seems to have no purpose but to prop up stock markets. Read more …
May 11th, 2008
May 5, 2008
Just a couple of days ago, the financial media rejoiced over a prediction made by the Omaha oracle, Warren Buffet that “The worst of the crisis in Wall Street is over,” disseminating this declaration across the world in the hopes that it could continue to fuel what will go down as one of the most foolish stock market rallies in history. However, in all the articles I read that covered his declaration (and there were many), I couldn’t find one that actually discussed in detail any of the reasons why Mr. Buffet believes that recent actions taken by the U.S. Federal Reserve are sustainable. It seemed that most journalists were quite content with applying the logic of “if Mr. Buffet said it, it must be true.”
Those of you that are SmartKnowledgeU™ Platinum Members know that Mr. Buffet’s declarations of the fallout that likely would have ensued had the U.S. Federal Reserve not bailed out Bear Stearns could have been lifted almost verbatim from my bulletin I had sent to you over a month ago. Recently, Mr. Buffet reiterated exactly what I had told all of my Platinum Members in that month-old bulletin, that if Bear Stearns had gone bankrupt, other Wall Street firms and banks would have failed within a matter of days and the Dow would easily have shed another 1,000 points also in a matter of days. But here’s where I believe Mr. Buffet is wrong. At his annual meeting of his Berkshire Hathaway company, he stated, “ I think the Fed did the right thing in stepping in on Bear Stearns.” So why do I think he’s wrong if I think Bear’s collapse would have created much sharper pain in the U.S. stock markets and the collapse of other financial institutions? Read more …
May 5th, 2008
April 23, 2008
Every time I’ve written about the imminent disaster that awaits U.S. stock markets, and subsequently global markets, the response has been overwhelmingly negative. In 2007, when I warned of steep declines in U.S. markets that were on the way in 2008, I was called everything from unpatriotic, to un-American, to even unholy. When steep declines indeed hit the markets to begin 2008 and gold soared to $850, (fulfilling my September 2007 prediction of $850 gold by January 1, 2008), the name-callers merely disappeared. It’s not that I revel in markets struggling and the still very real possibility of it shedding great value. In fact, I’d be ecstatic if the U.S. markets looked healthy and an imminent rise to a 16,000 Dow was realistic, with an upward surge taking all global markets along for the ride. Good money can be made in great markets or terrible markets so it doesn’t really matter either way. It’s amazing that people think I have an agenda for wanting markets to crash, oddly connecting my market sentiments to arguments about patriotism or religion. It’s just that I feel obliged to report what I see, because so few nuggets of reality trickle through the mainstream information filters and reach larger audiences.
People seem to forget one central and critical point. Most people seem to believe that they have to lose a great deal of money when crises materialize and forget that it is absolutely possible to prosper during crises as well. Thus, because they feel they must suffer during a crisis, the “shoot the messenger of bad news” syndrome commences. That said, I’m still going to state my utter lack of faith in this mini-rally that the U.S. markets are currently experiencing. Due to the huge levels of unaddressed and unsolved risk that still simmers quite potently beneath the surface, with the current “solutions” being implemented today, I honestly can only see two outcomes. Crash now or crash later.
Should an extended rally of the Dow above 13,000 occur, it will serve no purpose other than to create the illusion of wealth, as opposed to the creation of real tangible wealth. The higher U.S. markets rise in today’s environment, the more likely it is that they will fall even harder in the future. Here’s why. Read more …
April 23rd, 2008
April 17, 2008 -
On April 15th, the U.S. markets rallied, with the DJIA adding more than 250 points (2.08%) and the S&P 500 adding more than 30 points (2.27%). Of course, this brought out the mandatory Wall Street cheerleaders and numerous stories that FINALLY, it appears that the U.S. markets are starting to turn the corner. As could be expected, other major global markets with close ties to the U.S. markets followed suit the following day as they also rallied by about 2% or more. Numerous stories appeared in the media extolling the resiliency of global stock markets and the “upbeat” earnings of U.S. companies that propelled this big one-day rally. Stories soon followed of “super-cycle” bull markets in the U.S. still being intact, and that this one-day rally is the impetus that would propel the U.S. DJIA to 14,000 or possibly even 16,000 points and take the rest of the global stock markets along for the ride. My response? Don’t believe the hype.
If we take a closer look at the headlines that sung the praises of “upbeat” earnings of U.S. companies such as J.P. Morgan, Intel, and Wells Fargo, we’ll discover that the word “upbeat” has been changed in meaning. “Upbeat” in the financial world does not conform to the Webster dictionary definition of “cheerful”, and “optimistic”, but instead has been distorted to mean “bad, but not as bad as the expectations that have been carefully created and molded by CEOs just prior to earnings releases so that earnings can beat expectations”. Even then, this modified definition of upbeat for the expediency of the financial industry may not stand the test of time as most companies still seem to be less than forthcoming about the problems that continue to plague their companies and the overarching economy. Read more …
April 17th, 2008
March 25, 2008 -
Dark pools are pools of stocks listed on private or proprietary electronic exchanges that allow a buyer or seller to move large blocks of stocks anonymously without causing the bumps in the price of a particular stock as would happen if an investor were to buy or sell a large position of a stock in a publicly followed exchange. For example, if an individual or an institution wanted to offload a block of 2 million shares in a dark pool, this transaction could be executed without affecting the stock’s trading price that day whereas normally such action by an influential individual or institution would cause the stock’s shareprice to fall. Erik Sirri, Head of the Division of Market Regulation for the U.S. Securities Exchange Commission, stated that “while the increasing use of hidden orders may be troubling,” the SEC plans to do nothing until it is clear that the use of hidden orders in dark pools is damaging the individual retail investor’s ability to buy and sell stocks at a fair price.
In 2007, an estimated 17% to 25% percent of shares listed in the NYSE exchanged hands via dark pools, a significant percentage of the total market. In today’s environment, Sirri’s comments do not bode well for the retail investor. The trading activity of large institutions and influential individuals, and along with it, their real feelings about the U.S. economy, often remain hidden from public view via trades executed within the secretive confines of dark pools. As none of the problems of systemic risk in the financial system have been solved by any of the U.S. Federal Reserve’s actions within the past two weeks, it may very well be that the activity reflected in these dark pools as of late directly contradicts the story being spun to the public. The problems with these dark pools is succinctly summarized by NYSE President Catherine Kinney, who stated that every single share traded in the dark was a share that would not assist the market in determining a fair price for that share. In other words, without the benefit of knowing the extent of buying and selling volume occurring in these dark pools, retail investors would indeed be purchasing and selling the same shares without critical market information, aka, “in the dark”. Read more …
March 25th, 2008
February, 20, 2008
“This is your last chance. After this, there is no turning back. You take the blue pill, the story ends, you awake in your bed and believe whatever you want to believe. You take the red pill, you stay in Wonderland, and I show you how deep the rabbit-hole goes. Remember: all I’m offering is the truth, nothing more.” - Morpheus, from the film “The Matrix”
Simply put, we are at the tipping point of a major investment crisis today and the opportunity to radically reallocate our portfolios to make a fortune is quickly evaporating. Though I offer investors the opportunity to see how deep the rabbit-hole goes, most investors will shy away, gladly ingest the blue pill and remain firmly grounded in Kansas. Why? The secret of building wealth from this coming crisis is not knowledge itself, but rather an understanding of how your brain processes information that is granted to you. Once we understand that we have been programmed to believe certain investment falsehoods, this will clear our path to truly “see” the current investment crisis that is unfolding.
Most of us have no understanding of the triggers that drive our investment behavior. We are like the people that live in the fantasy computer generated world of the Matrix, constrained by the delusional statistics and reports produced by the commercial investment industry and governments that eventually filter down to us through the media. The great majority of us have come to blindly accept certain investment “soundbites” as truth without having questioned the validity of these truths even once. So today, I encourage you to challenge these beliefs if you have never before done so. Read more …
February 20th, 2008
November 2, 2007 -
I’m not really sure how all the “Gold at 27-year high” headlines came to be, but my own calculations tell me that gold would have to break at least $2,400 an ounce to break its supposed 27-year high. When discussing the purchase of a 7-series BMW that sells for a MSRP of $90,000 today, no one ever looks at its sales price from 5-years ago at $35,000 and exclaims “BMWs are trading at a 5-year high!” That would be ludicrous. One would have to factor in the effects of inflation and the decreased purchasing power of the dollar before being able to make a reasonable assessment of how expensive BMWs really are today.
At today’s prices of over $790 an ounce, gold is still cheap. If we experience a correction any time soon, and gold breaks back down to the $720 level again before continuing higher, it will just be really cheap. Here’s why. Read more …
November 2nd, 2007
October 15, 2007 -
I’ve often mentioned that the U.S. stock market can APPEAR healthy even when the underlying economy is in worse shape than an alcoholic on a kidney dialysis machine. And this is just one of those instances right now. As markets continue to climb higher on manufactured, political-agenda serving government statistics and interest rate cuts, rally cries from all the bulls (aka sales people, I mean company men and women) that this is bull run of historical proportions and that you better come along for the ride started already a couple of weeks ago. And how soon people forget the dot.com crash in March 2000 that subtracted trillions of dollars from the personal financial statements of investors. Back then, the exact same statements were being offered to the public masses that will once again be offered in the very near future as the political juggernaut no doubt will try its best to manufacture one last bull run into the 2008 Presidential elections. Remember from the dot.com rally, that irrational movements higher can last an irrationally long time— this, I don’t dispute. I also have no doubt that any rally that is artificially manufactured with loose credit and low interest rates will experience a terrible ending (just look at how the artificially manufactured housing boom in the U.S. is playing out now). Peaks artificially manufactured by bankers are much different than the peaks of normal cycles that occur in the free market. Peaks that are artificially manufactured by bankers will always end up terribly. Read more …
October 15th, 2007
September 27, 2007 - One of the most frequently asked questions I receive from investors is “What is the quickest way to build wealth?” They want to know should they trade options, should they invest in China, Vietnam, and India, or if they should give their money to Goldman Sachs, Citigroup, Bear Stearns, and so on. I answer that question the same way every time: “Learn to manage your own money.” So to let people know why it’s the best way, I’ve compiled 101 Reasons why managing your own money is the quickest way to build wealth. Just click here to read the list.
Technorati Tags: get rich, wealth literacy, fastest way to build wealth, best investment strategies
September 27th, 2007
People have often asked me how I always pick stocks that end up with 20% gains in a couple of months or triple-digit gains in a year. They ask me is it luck? Maybe with a couple of stocks it may have been luck, but luck doesn’t play a role in buying ten or more stocks in the same year that earn more than 80% returns. The key is not to follow the herd, stop listening to the investment talking heads, and to learn an investment system and then be unwaveringly courageous in applying your system. There have been times family and friends have asked me for advice, and I have told them, “Buy this stock. I guarantee you, you will not lose money.” Now I know that there are no guarantees in the stock market, but if you follow certain strategies, you can be 90% sure that the stock will appreciate. With this particular agricultural stock, it was almost the perfect stock, and I was 99.9% sure that the stock would produce monumental gains. Sure enough, the stock exploded almost 130% higher in about a year. And this stock was not some risky penny stock trading at less than a dollar a share. This stock was trading at about $70 a share at the time I advised my friends to buy it. So below are the 10 surefire rules I employ to build enormous gains in investment portfolios.
(1) Buy When Fear is Rampant, Sell When Mania is the Greatest
Every investing course should be accompanied by a psychology course as well. The most difficult thing to do in investing is to buy more when fear and panic is rampant and to sell when mania is the highest. Stock markets and asset classes cycle in peaks and troughs. Most people will not buy stocks until after stocks are plastered all over the news and after they have just risen by 30%, 40%, 50% or more, believing that they will rise higher forever. Buying at the troughs when nobody is talking about a stock or during steep corrections provides a low-risk/high-reward setup for your portfolio.
(2) Learn What Your Neighbor is Doing, Watch Investment Shows on MSNBC and Bloomberg on TV, Listen to the Recommendations of Your Financial Consultant – Then Make Sure that You Don’t Have a Single Thing in Common With Their Strategies
If you are one of the thundering sheep herd and perpetually follow the mindless actions of others, you are virtually guaranteed to lose money or forever relegate your portfolio to average to below-average returns. The surest way to build an investment fortune is to buy asset classes and stocks when nobody is discussing them and to sell them when everyone is talking about them. This requires a nose for market timing. Is market timing impossible Read more …
September 25th, 2007
September 19, 2007 - “Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights” - Alan Greenspan, 1966, more than 20 years before he served as Chairman of the U.S. Federal Reserve from 1987-2006. Obviously, Alan Greenspan’s feelings regarding deficit spending experienced a 180º reversal once he became the U.S. Federal Reserve Chairman. However, one only need to understand the truth in that comment to understand where your money should be invested and why this mini-rally in global markets spurred by the Fed’s decision to cut the Federal Funds rate by 0.50%, even if it should extend into a larger rally, should cause you to be scared, and very scared at that.
Overshadowed by the Fed’s decision to cut interest rates and the subsequent rally in global stock markets was a much more critical story. U.S. Secretary of Treasury Hank Paulson recently urged Congress to raise the national debt ceiling, stating that the U.S. would reach the current national debt ceiling by October 1st. Read more …
September 19th, 2007
September 15, 2007 -
Everybody is waiting now for this Tuesday’s decision by the Feds to finally learn how much the Feds slash interest rates. This decision is truly not that important for a number of reasons. (1) The Feds have already slashed interest rates in a couple of manners. One, by already injecting billions and billions of dollars into the banking system, they have already expanded monetary supply (which is the effect lower interest rates would have); and two, they have already slashed the discount rate (the rate at which banks can borrow from the government) again expanding money supply. True, the fed funds rate is what matters to the end consumer, but the actions the Feds already have taken will be harmful on the value of the U.S. dollar. It’s just a sneaky way of doing it without announcing to the world that they’ve slashed interest rates.
Thus, the news this Tuesday is likely to be less than overwhelming from the standpoint of the consumer that is looking for a substantial 50 to 75 basis point cut. Furthermore, the Fed has stated that inflation concerns are more worrisome than concerns of slowing U.S. economic growth. This is a curious statement as the Feds are primarily responsible for creating inflation through their easy money, monetary expansion policies. Their solution to any economic problem in the past has always to break out the printing presses and print as many dollars as is needed to provide a band-aid fix to the problem. And they probably will continue to sacrifice the dollar’s value for the sake of keeping up appearances in the future as well. Read more …
September 15th, 2007
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