Posts filed under 'The Peak Investment Crisis'
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
There’s a saying “Fool me once, shame on you. Fool me twice, shame on me.” Our motto at SmartKnowledgeU is to never be fooled. We are at a crossroads today where things are going to get a lot better or they are going to get a lot worse. As the permabull sales culture of the commercial investment industry dictates, the practical deluge from the commercial investment industry about the worst of the crisis being over has been almost non-stop for the past several weeks. Here is just a sample of numerous recent headlines that have crossed my desk in the past several months that proclaim or support that now as the best time to buy stocks in a long time.
“Are You Ready for Dow 20,000?”
“IMF Chief Says Worst of Financial Crisis is Over”
“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”
Astonishingly, the person that inspired the Dow 20,000 headline, James Finucane, was predicting this mark within a timeframe of just one year and called today’s markets, in his words, the “perfect” setup, implying that this is about as risk-free opportunity as you will ever receive in your lifetime to make a fortune by investing in the U.S. DJIA index. Numerous other journalists seem to agree as evidenced by the latest headline I read just four days ago in the New York Times that boldly announced:
” An Alarm is Blaring: TIME TO BUY” (emphasis mine).
Besides the fact that the commercial investment industry will always utilize any rally to inform their clients that a massive bull run is coming and to stick their clients with the “better invest now if you don’t want to miss out” sales approach, perhaps some of these extremely giddy predictions about the imminent future of stock markets are also based upon a look back at history. I’m guessing that within the past few weeks, the hundreds of people in the commercial investment industry that have presented their case for an imminent monumental bull run in U.S. markets have gathered their courage from previous times in recent U.S. stock market history when a contrarian few predicted market crashes that never happened. For example, in 1979 BusinessWeek ran a story called “The Death of Equities” due to raging double-digit inflation in the late 1970’s that caused a Paul Volcker Fed to raise the Fed Funds rate to over 19% by mid-1981. Read more …
May 22nd, 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
April 17, 2008
Consider this. If you owned a prime piece of real estate in 2001 that was valued at $1.8 million that cost 7,200 ounces of gold to buy it back then (at a price of about $250 an ounce), and if you could now sell that same property and receive $2.6 million for it, even at this inflated price, it would now require less than 2,800 ounces of gold (at about $930 an ounce). So while you may have become richer in the paper currency of U.S. dollars, this increase in paper dollars does not mean much if this increase in paper will enable you to buy less “stuff” today. Certainly, despite the inflated price of this property in paper dollars, you have become much poorer in ounces of gold (real currency). Thus, Central Banks, by inflating money, create the illusion of growing wealth when in fact they are stealing wealth from right underneath our very noses. This is EXACTLY what Alan Greenspan meant when he said “deficit spending is simply a scheme for the confiscation of wealth”. By the way, Mr. Greenspan was only bold enough to make such a statement in 1966, decades BEFORE he knew that he would eventually became the Chairman of the U.S. Federal Reserve.
Perhaps, an even easier way to understand the above illustration is as follows. Read more …
April 17th, 2008
March 9. 2008 -
Diversification: The World’s Worst Investment Strategy
Diversification, cash and AAA-rated instruments with exposure to Mortgage Backed Securities – If you’re deep into all three, these are three definite signs that it is time to let your advisor go. Many “professional” advisors today argue that diversification is a reason to stay fully invested through bear markets. After all, if your advisor had diversified your portfolio into a bunch of housing and financial stocks that are all sitting on 40% to 70% losses right now, he or she would probably tell you that the bottom is certain to be near and that the worst performers of your portfolio this year will be the best performers of your portfolio in the years to come. Well, here’s a news flash. The time to sell out of these stocks was 9 months ago, and if you’re still holding on, the odds are that you will be hurt even more.
Here’s the reality. Diversification is the world’s worst investment strategy and has only served to erode a great deal of net worth and purchasing power for both Americans and Europeans alike. During the past 8 years, many of the major indexes in these regions are negative on an inflation adjusted basis. Thus, for 8 years of buying and holding, if your money was invested in funds pegged to the S&P 500 or the FTSE 100 (and 98% of money managers peg their portfolios to the major indexes of their home country), your net worth has been significantly eroded.
The Warren Buffet Argument is a Sham
Financial advisors often praise the benefits of diversification to advocate a buy and hold strategy so that they can continue to earn fees on depreciating portfolios during bear markets. To convince you that doing this very wrong thing is the right thing to do, they utilize the Warren Buffet argument. They argue, “Look at Warren Buffet. He’s a buy and hold guy and he’s one of the richest men in the world”. In a rational world, such an argument would be called a selective reconstruction of reality. What these same money managers fail to tell you is that Warren Buffet built his wealth by concentrating his exposure, not through diversification. At times, Mr. Buffet has held a mere five positions in his entire Berkshire Hathaway equity portfolio. Mr. Buffet did not diversify, because with his level of expertise, there was no need to do so. Mr. Buffet can buy and hold because he is concentrated in positions that will continue to do well whether markets are bear or bull markets.
That’s what anyone that knows what they are doing will do. In bull markets, financial advisors that truly are on top of their game will concentrate to outperform the markets significantly. In this case, since a rising tide lifts all boats, those that choose to diversify can conceal their incompetence as they earn money simply through luck. However, in a bear market, incompetence is much more difficult to hide. Read more …
March 9th, 2008
March 3, 2008 -
Out of Omaha, Nebraska, this story was picked up by the major global news services today:
“OMAHA, Neb. (AP) — Billionaire Warren Buffett said Monday that the U.S. economy is essentially in a recession even if it hasn’t met the technical definition of one yet. Buffett said in an interview with cable network CNBC the reports he gets from the retail businesses his holding company owns show a significant slowdown in purchases. The chairman and CEO of Omaha-based Berkshire Hathaway Inc. said millions of people have also lost equity in their homes because home prices have dropped.
The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation’s gross domestic product. “I would say, by any commonsense definition, we are in a recession,” Buffett said on CNBC.
Four weeks earlier, I wrote an article on this very blog called, “Is Recession in the U.S. Coming? We’re Already in One”, that received almost zero attention even though, in essence, I said exactly the same thing Warren Buffet said. And thus, this is just another example of people needing someone famous to say something to consider it newsworthy or more importantly, trustworthy. I’ve already given you a plethora of reasons on this blog as to why you can never trust the commercial investment industry, yet when Goldman Sachs declared shorting gold as one of their top 10 trades at the end of last year and gave price targets of $600 to $650 an ounce, thousands and thousands of the sheep herd worldwide undoubtedly sold out of their positions in gold upon this stark pronouncement regarding the doomed future of gold by such a huge investment “authority”
As I only have about 10 free minutes today, this will unfortunately be an extremely abbreviated entry; however, there’s plenty more online at this blog to read about the truth of the underlying economy and premium, information here for our subscribers only about how to make a fortune from this coming global economic crisis.
Technorati Tags: economic crisis, U.S. recession, U.S. bear market
March 3rd, 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
February 13, 2008
In January of 2007, I wrote an article called “Ten Reasons Why Dollar Denominated Bonds Aren’t as Safe as You Think.” Here, I’m updating that same article, taking into account what has happened in the past year. Many people think of any type of dollar denominated bonds, whether they are U.S. corporate bonds or U.S. Treasury bonds as a safe place to park your money for reliable sources of income stream. In fact, the U.S. Treasury Department on their own website, even tout U.S. Treasury Securities as a “great way to invest and save for the future.” Many people believe this rubbish because they are advised of this by a horde of financial consultants that provide poor advice. Even today, I still read articles of money being moving into U.S. bonds as a “safe haven” given the continuing volatility in global markets. Many people think of U.S. Treasury bonds as safe because of the “federal guarantee”. The ten reasons below render that federal guarantee irrelevant.
(1) The often repeated financial consultant statement that bonds are a “safe place” to park your money, especially if you are older, is a myth.
Think of the losses of the U.S. dollar versus other major global currencies in the past two years. A greater than 8% decline against the yen (which is amazing given that the Bank of Japan had set interest rates between 0% and 0.50% during this time), an 11% decline versus the Pound Sterling; a whopping 19% decline against the Euro. If we look at emerging market currencies, the losses are just as pronounced. In just the past two years, the dollar has lost an incredulous 19% against the Thai Baht and almost 23% against the New Zealand dollar (I mention the New Zealand dollar and Thai baht because these currencies are commonly held currencies in Asian currency baskets offered by major banks as a hedge against the falling dollar). Read more …
February 13th, 2008
February 6, 2008
The other week, a friend of mine sent me an article from a financial advisor in the U.S. asking me for my opinion. In the article, the advisor stated two things that stood out to me like a two-ton boulder falling out of a clear blue sky. They were the following. In response to the short rally that U.S., European and Asian markets were experiencing at the end of January, he stated, “I see this time as a BUYING and repositioning opportunity with great potential gains soon to come”, further clarifying that statement with the exclamation of “It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble.” When I read those statements, I had to read them again to make sure that I was reading them correctly. I thought to myself, What is this advisor smoking? His comment of there is “so little evidence of serious trouble” must have been drawn after scouring the pages of mainstream newspapers and financial websites that merely spit back what the commercial investment industry wants them to say and after studying government statistics that grossly distort the true picture of economic health. Yes, I know that there are certain asset classes that will rise even in bad, terrible markets. In fact there are those that will rise through the roof in terrible markets. But it was clear from the context of this message that this advisor was speaking of mainstream S&P 500 and Dow 30 type of stocks.
A quick perusal of the last six months of my archives here will tell you exactly why government statistics and mainstream financial media never tell the truth about the health of the global economy. Remember, Jim Cramer, a former Goldman Sachs broker, the founder of the Street.com, and host of CNBC’s Mad Money TV show, said, “What’s important when you are in hedge fund mode is to not do anything remotely truthful, because the truth is so against your view”. He claimed that it was easy to plant rumors in newspapers and the medias to drive the prices of stocks down when he had bets on the Read more …
February 6th, 2008
February 5, 2008
Yesterday a 370-point sell off in the Dow triggered monumental sell offs in Asian markets this morning on fears that the U.S. could be entering a recession. Here’s an unofficial official news bulletin. The U.S. is already in one. Yes, I know that the official definition of recession is marked by a decline in GDP for two or more consecutive quarters, and that this hasn’t happened yet as the 4th quarter U.S. GDP was 0.6%. Yeah right. Like I believe that or any other politically manufactured key economic indicator. First of all, the 0.6% is an annualized figure so the 4th quarter GDP growth rate was 0.15%. Anyone out there really think that changing a few numbers here and there won’t change a negative GDP rate into a barely positive one fairly easily? But we need two quarters of negative growth rate for an “official” recession don’t we? Ok, then wait until next June, counting on a bull market to arise from the ashes, and see if this belief won’t cost your stock portfolio dearly.
For anyone that does not know that the U.S. government consistently massages the reporting of key economic indicators, just study the formula used to determine “core” inflation and every other inflation statistic that they report. Did you know that the formula used to calculate inflation today doesn’t even remotely resemble the formula that was used to calculate inflation just fifteen years ago? Under President Clinton, Alan Greenspan, and the Boskin Commission recommendations, the government made many changes to the formula used to calculate the core price index.
Read more …
February 6th, 2008
January 31, 2008
There are at least four economic and stock market crises that I’ve studied extensively that mirror today’s global economic conditions. Only many things today make today’s situation in many aspects much worse than the conditions that triggered past crises. That is why I say crisis is inevitable and great wealth will be destroyed in global stock markets. However, great wealth can also be built during this time as well. You don’t have to be a passive investor whose wealth will be destroyed. Here, I’ll examine just one of these crises - the 1997 Asian Financial Crisis and how the triggers for this crisis do not bode well for today’s situation.
The 1997 Asian Financial Crisis
Prior to 1997, the Asian “tigers”, in particular, South Korea, Thailand, and Indonesia attracted foreign investment in three manners: (1) The liberalization of investment policies and consequent elimination of restrictions on capital inflows; (2) the maintenance of high domestic interest rates to attract capital inflows; and (2) the pegging of domestic currencies to the U.S. dollar to allay fears of volatile currency movements.
Extremely high 8-12% GDP growth rates in South Korea, Thailand and Indonesia in the mid-1990s created rampant foreign speculation in real estate markets and created unsustainable inflated real estate prices. When the real estate bubble burst, a flight of capital ensued. As foreign currencies were withdrawn at record levels, the domestic currencies of the Asian tigers suffered great depreciation in their exchange rates against the Western denominated currencies of the investing nations. To provide stability to the economies of the Asian tigers, the IMF proposed a 3-pronged solution: (1) Cut back on government spending to reduce deficits; (2) Allow illiquid banks and financial institutions to fail, and (3) Aggressively raise interest rates to strengthen domestic currency. Read more …
January 31st, 2008
January 29, 2008-
As those of you that are familiar with my many past writings about precious metal stocks, you may find this article’s headline very curious as I’ve always preached, “Never chase stocks higher, especially precious metal stocks, as their volatility always provides opportunities in the future to buy them at better prices if they have just risen rapidly.” So am I changing my tune now? No. Just modifying my viewpoint as every smart investor never remains steadfast and unchanging in his views in light of new, compelling information.
I’m going to use a couple of charts to make my point today.
If we look at the chart for Newmont, one of the largest gold stocks by market cap, in the world, I’ve pointed out a curious development. When the underlying commodity of gold was trading at $834 an oz., NEM was trading at $56.17 a share. Now that gold has skyrocketed more than 10.67% to $923 an oz., NEM is actually trading at a lesser price, at just $54.49 a share. Read more …
January 30th, 2008
January 28, 2008 -
The most accurate oracle regarding the effects of the rapid U.S. Federal Reserve interest rate cuts is history. The Feds have taken this path before and the results have never been pretty. Not one single time. Though the sentiment on the street seems to be that the Feds may not be inclined to cut interest rates significantly in a couple of days given their emergency rate cut of 0.75% a week ago and the revelation that Societe Generale exacerbated the plunge of European stock markets by recently closing out all open positions maintained by rogue trader Jerome Kerviel. Still, given the Fed’s foolish reactions to every economic problem in recent history, I would not be surprised if they caved to Wall Street interests and cut interest rates by another .50% in a couple of days. However, even if they only cut interest rates by 0.25%, this would still produce a cumulative 200 basis point reduction in the Fed Funds rate in just the past four months. Those are huge rate cuts no matter how you slice it. But no matter the “dead cat bounce” that the Feds are attempting to manufacture right now to provide stability to the markets, their plan will ultimately fail. History tells us so.
Historically Comparable Scenario to today: 2000-2007 U.S Economic Timeline - Dot com crash, U.S. Federal Reserve manufactured real estate bull, subprime mortgage fallout….Next? Real estate bear and depression??
The dot com bubble collapse caused the U.S. NASDAQ index to plummet from a peak of 5,038 in March, 2000 to 1,114 in October, 2002– a decline of 78% in less than three years. Runaway valuations and frenzied buying of a hot sector caused the tech market to collapse as investors and venture capitalists threw money at tech companies, inflating the value of companies that had never declared a single dollar in revenue or profit. Even though revenues, earnings and cash flow were all absent, this didn’t seem to make a difference as a rapidly rising index provided a rising tide that lifted all boats regardless of the missing components of quality or fundamental soundness. Read more …
January 28th, 2008
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