Today, I am analyzing how a conscious effort to track history can serve as an intelligent guideline for future investment behavior. More than 18 months ago, I wrote an article on my investment blog, the Underground Investor, called “The Coming Investment Crisis: Beware the Turbulence that Lies Beneath the Surface”. Since my commentary in this article regarding the foolishness of calls for a new bull market materializing back then, even taking into account this latest market rally, the DJIA is still down 40.87% while the S&P 500 has lost 42.99%. I have not changed anything about the below article that I wrote on October 15, 2007, so as you read it, please remember that this article was referring to the state of the US markets on October 15, 2007, NOT the state of the US markets today.
Still, the important point I want to make by republishing one of my old articles is that many times, many relevant lessons can be applied to today’s markets by studying past market behavior. It is very difficult to ignore the parallels and similarities between the optimism stated by the bulls on October 15, 2007 and today. Read more …
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The Biggest Investment Myths (62 articles) – All investment professionals, from investment firms to financial consultants to the financial journal purposely spread tales of lies and deception. Jim Cramer, an investment professional that amassed a fortune as a hedge fund manager, recently stated that the last thing he ever wanted to do is to tell the truth. Find out why deception is part of the game in the investment industry. Click the category link above to access the full database, including the most recent articles that may not be listed below.
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More than 2-½ years ago when I predicted a global stock market crash on my investment blog, even foreshadowing the duration and the severity of the impending crisis by naming it the Peak Investment Crisis, many called my predictions ludicrous and far-fetched. In that article, I specifically stated that the declines in global stock market indexes could easily “dwarf the pullbacks that caused a 10% decline in the London FTSE, a 35% decline in the Indian markets, a 30% decline in the Brazilian markets, and 20% decline in the Japanese markets over a several week period in 2006” and that “it [was] a potential disaster that 99% of people [were] unaware of.” Today, I foresee another enormous disaster with far wider-reaching and more serious implications than even our current global financial crisis. Read more …
Last week, when almost every major US bank manufactured profits out of thin air by changing their regular reporting periods to exclude months in which huge losses occurred, by changing their definitions of bad debt, and by revaluing their assets at fantasy land valuations that they will never receive in the open market courtesy of FASB, this event was a non-event to me because it merely continued the process known as the Enronization of America. This event, the systemic injection of fraud and deceit into nearly every aspect of American life, has been unfolding for decades, even prior to the Enron scandal itself.
Recently, Bank of America CEO Ken Lewis testified that former US Treasury Secretary and ex-Goldman Sachs CEO Hank Paulson instructed him to disobey securities law and conceal material losses in the Merrill Lynch merger from investors. Lewis additionally testified that Paulson threatened to fire him and his entire board if he tried to back out of the Merrill deal. These revelations, too, did not surprise me Read more …
The recent comments of many on our nation’s top banking executives have been so consistently disingenuous that the subject of this article has been long overdue for some time now. On March 20, 2009, Citigroup CEO Vikram Pandit issued a memo to all Citigroup employees in which he stated, “Our industry has recently seen a tide of negative sentiment rising in Washington, D.C. regarding compensation. Of course, some of it is warranted. But I take exception when there is a discussion about spreading the blame to each and every employee in the financial services industry. At our company, we removed the people responsible for Citi’s financial distress and acted fast to strengthen and streamline the business, and install new risk processes and new risk personnel. You have been invaluable in our collective efforts to put the company on solid footing… please rest assured that senior management and experts in Washington are focused on these developments and trying to address issues raised in the debate with clarity about the real facts.”
I take great offense to Mr. Pandit’s willingness to remove all responsibility for this crisis from “each and every employee” in the financial services industry. What made America a great country in the past was each and every American citizen’s willingness to take personal responsibility for his or her mistakes instead of sloughing the blame onto someone else. What made America a great country in the past was the courageous transparency of American leaders to discuss the truth with her citizens, as painful as that truth may have been, versus the cowardice of deception to dishonorably fool the masses into believing a picture of reality that is a lie. Read more …
With FASB demonstrating no backbone this Thursday and voting to change mark-to-market rules with not a single dissenting vote (demonstrating that not a single FASB board member has the guts to stand up for what is right), the Big Deception is now in play for earnings season which starts tomorrow on April 7th. Despite the fact that the consensus is for earnings to be brutal and consequently, for the global stock market rally to end, here’s what I think will happen.
The timing of FASB’s ruling was in no part coincidental. There was a rush to approve the suspension of mark-to-market rules that allows US financial companies to use their “significant judgment” to value illiquid assets such as mortgage securities and mortgage-backed securities. I’m sure investors appreciate that valuation will be left to the significant judgment of financial executives since it was their fine judgment that helped fuel many of the steps of this global economic quagmire we find ourselves in at the present time. Read more …
If there is a silver lining to this crisis, it is that most of the investment scams for the past two decades have now been exposed and the search to find solid investment guidance has genuinely become easier. The dirty secret of Wall Street and many commercial investment firms was that their hiring processes were never about hiring the most talented people that truly understood stock markets and macroeconomic trends. Instead, their hiring processes were more about identifying psychological profiles that would produce the best salesmen and saleswomen. The industry’s endless TV and magazine advertisements that revolved around messages of trust and records of operational longevity, in the end, only meant that they were able to perpetuate their scams for several decades longer than the now infamous Bernard Madoff Ponzi scheme. But for the firms that have survived, you can be assured that they will not give up the scams that they’ve perfected for the last several decades. So how can you use this crisis to your advantage Read more …
Forget about the $50 billion Madoff Ponzi scheme. Forget about the $8 billion Stanford Ponzi schemes, forget about the $3.6 billion of bonuses paid to Merrill Lynch executives after the firm’s failure, and forget about the $200+ millions paid out to AIG executives. The biggest stock market scam of the century is now underway, hatched, given the stamp of approval, and about to be executed by Central Banks worldwide. Though this scam will undoubtedly be bigger than the all revelations of previous scams combined, this scam will engender less public anger, less disbelief, and less protest than any one of the recent individual scams, because very few people will understand it.
The Failure Of Special US Federal Reserve Programs
To understand the biggest stock market scam of the century, we must first pause for a moment to understand recent history. US Federal Reserve, in an attempt to turn the US economy around, first extended hundreds of billions of dollars of credit to US financial institutions through facilities like TALF (Term Asset-Backed Loan Facility), TAF (Term Auction Facility), AMLF (Asset Backed Read more …
In an extremely difficult investment environment, it is often difficult to know who to believe. Deflation or inflation? Have financial stocks bottomed or do they have much more to fall? When gold corrects sharply, is the gold bull over or still alive? Is oil heading to $20 a barrel or $80 a barrel? For every analyst arguing one side of the above arguments, you have another analyst strongly arguing the opposite. And often you have the majority of analysts taking one position in the above arguments and then flip-flopping like a politician to the opposite position just two months later if things move the opposite way from their predictions.
For example, when we look at oil prices, oil has plunged from $147 a barrel to less than $35 a barrel in 7 months! During this time, the deflationists have been out en masse in the mainstream media, claiming that plunging oil prices were directly attributable to plunging demand worldwide from economies that were stagnant. For example, here’s a link to a story that seems to infer that plunging oil prices are caused primarily by plunging US demand and growing US inventories. Though it would be ignorant to ignore the affect of a slowing global economy on demand for crude oil and its affect on lower crude oil prices in the futures markets, it would be equally ignorant to attribute the majority of crude oil’s plunge to a shrinking global economy as well. Read more …
A recent story reported about counterfeit £1 coins out of London made me reflect upon the enormous irony of the story given that our current economic woes have been caused by an unsound global fiat currency system in which all currency is backed by nothing. It made me think, “Is there really any difference between “real” and “fake” money?” Though mass production of counterfeit £1 coins in the UK has been a problem for years now, apparently the counterfeiters have stepped up their game in recent months. At the end of September, 2008, the Royal Mint reported that random samples of £1 coins in the UK determined that 1 out of every 50 £1 coins was fake, an astonishingly large percent. However, the most recent assay conducted by the Royal Mint at 31 locations in the UK has determined that 1 out of every 40 £1 coins is fake, with the total amount of estimated fake £1 coins in circulation in the UK now at 37.5 million pieces.
Currently, all major Central Banks have massively increased their monetary base by hundreds of billions of dollars in relatively short periods of time, with some increases in the trillions of dollars. In order to be able to do so, it is obvious that there are no limiting inputs in the “production” of money other than printing presses, paper, ink and manpower. Read more …
Within the past couple of months, there has been a lot of discussion regarding US Treasury Secretary Hank Paulson’s allocation of half of the initial tranche of $700 bailout money, with many describing his spending of $350 billion thus far as appalling, disappointing, and even shocking. During a US Congressional hearing that addressed accountability of Paulson’s choices for spending $350 billion or American taxpayer money thus far, consider the following statements issued by various US Congressmen, Republican and Democrat.
“When the program was passed, very explicit language was included to provide for mortgage foreclosure,” said committee Chairman Barney Frank (D-Mass.). “It is essential that we do something to use some of the TARP funds for the diminution of the rate of mortgage foreclosures.”
“There’s a lack of confidence, it seems to me, both in this body and in the general population,” said Rep. Paul E. Kanjorski (D-Pa.). “Do we have a plan? Where are we going?”
“[Hank Paulson’s use of the bailout money is] the second-largest bait-and-switch scheme that history has ever seen, second only to the reasons given to us to vote for the invasion of Iraq.” Rep. Gary L. Ackerman (D-N.Y.) Read more …
This morning, I saw reports in the media of a large contingency of Americans that were furious at Congress for not passing the Wall Street bailout plan that is now being spun as a “rescue” plan. Yet I am almost sure that if you polled one thousand of these Americans that were angry at Congress, that zero out of those 1,000 people have actually read the actual legislation, and thus, have no idea that Congress is protecting them from the greatest robbery of the 21st century. I have seen many journalists act more like a PR agent for the US government and Wall Street, stating that this plan should immediately be approved because the US Federal Reserve and the US Treasury have claimed that delaying its passage would threaten the stability of the entire global financial system. I have also read articles where journalists stated that this bailout plan is no place for bi-partisan politics.
What a bunch of nonsense. This bailout plan has nothing to do with political bickering or an immediate threat to a global financial meltdown. Americans that are angry at Congress should start by reading the legislation and then formulating an intelligent opinion about whether or not they truly want a quick fix that will sacrifice not only their future but their children’s futures as well.
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J.S. Kim is the Founder & Managing Director of SmartKnowledgeU™, LLC. He attended the University of Pennsylvania, and received a double master in Business Administration and Public Policy from the University of Texas at Austin. Read more...
