Posts
So what is a Ponzi Scheme?
In the early 1920's Charles Ponzi successfully convinced a large group of people that he was an investment genius. His supposed investment vehicle of choice was postal reply coupons, with which he claimed returns of 400%. Postal reply coupons where postage stamps purchased in another country and redeemed in the target country whose currency was stronger than the country in which they were purchased. In short he was supposedly playing a currency exchange program. Essentially an early type of Forex trading.
What he was really doing was paying returns to earlier investors with the deposits from new investors. There were no real returns from the initial investors deposits. Those and portions of subsequent deposits were skimmed off by Ponzi to fund a lavish lifestyle and continue the illusion of success. As the mania grew and grew, people were throwing money at Ponzi to cash in on his promised riches. At one point taking in $250,000 a day.
Eventually, of course, the pyramid scheme crashed and investors were financially destroyed.
Ponzi schemes are simple to pull off if you have no moral compass. They are also extremely easy to detect if you have the desire and easier yet to avoid if you apply the common sense.
How many times have we heard the mantra, "if it sounds too good to be true ..."? You know the rest.
Bernie Madoff pulled it off for years before the end came. In fact his scam would probably be rolling right along still if the markets hadn't tanked. These scams are always out there in one form or another. In fact our government is running two of the biggest Ponzi schemes in the history of the world. In broad daylight none the less!
Social Security and Medicare. The scary part is that we know there is no money in the Social Security "Trust Fund" Yet we let politicians get away with that term and the term, Social Security "Lock Box".
The money just ain't there.
If nothing is done to change these pyramid structures they will fail. Unfortunately the political will to accomplish those changes, doesn't exist.
And yet there is one more Ponzi scheme developing out there that will dwarf these two government mandated schemes. The US Economy.
I know that sounds hysterical and unpatriotic, but bear with me for a moment longer.
This is the greatest country the world has ever seen. We have been a force for good throughout the world. Whenever a disaster hits anywhere in the world we are the first to offer assistance, even to our enemies.
Our workers are the most productive, innovative and determined people on the planet.
Medically we are second to none. Our compassion for and reverence of life is a wonderful thing to behold. Even our pets and livestock enjoy a quality of life seldom seen anywhere else.
When we defeat an enemy we give back the territory as long as they demonstrate that they will play nicely with the other kids in the sandbox. Germany, Japan, Italy, half of Korea and Grenada. We are attempting to do the same with Afghanistan and Iraq.
Of course there are exceptions to all of these. However the vast majority of the time these statements hold true.
The one thing that makes this possible is wealth and the promise to attain it. That is the American dream. The American Capitalist is the reason we can be philanthropic as a nation.
The reason we make advances in medicine, quality of life, even environmental awareness.
It is the reason we conquer our enemies but don't expand an Empire.
All of these things make good business sense.
Take away that dream and you take away our greatness as a nation.
The financial world knows this is true as well, that is why the dollar is the reserve currency for the world. For now.
If we continue to try and print our way out of this financial crisis and into even more and more international debt, there will come a time that the international financial community will see the Ponzi scheme that is building in our economy and want out. Even if we reverse course right now, the national debt, if applied to every household throughout the country, would be around 500 thousand per household.
There will be only two ways we can pay off that debt. One is to grow our way out of it and, at the same time, have the politicians stop spending our money. That is apparently, not going to happen. The other way is through hyperinflation.
If you borrowed 100 dollars 20 years ago and had to pay it off today, no big deal right? back then you could have dinner and a movie for 2 for around 25 bucks. Today it's about $75-100 . That's mild inflation. With hyperinflation, foreign creditors would be lucky to receive 10 cents on the dollar, return on investment.
Will hyperinflation happen?
I believe it is already a done deal.
Bernanke has stated that he will print his way out of a deflation, to whatever extent that is required. He is in the process of doing just that.
So where does all this leave us average Joe's and Josephine's? Out in the cold, unless, , ,
We buy real, tangible assets.
In addition to our core holdings of real gold and silver, held in our own possession, we should be acquiring food and energy related stocks, various mining companies as well as shares of companies that provide products, which will be required no matter what happens with the economy. These will hold their value as the dollar drops. The more indispensable the commodity, the more it will hold it's value.
The unbelievable part of all this is that these things are on sale right now.
Even small amounts of tangible stock can become very valuable in a hyper inflationary market.
I'm building that house brick by brick, as we speak.
Even if I'm wrong about all this, these sectors should, at the minimum, hold their value or return to it, first as the economy turns for the better.
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Saturday, December 27, 2008
Thursday, December 11, 2008
The most common mistake.
What is the most common investment mistake that people make?
"This time it's different"
That's it. Ask any investor, either amateur or professional, if they have said this before and then ask them how it worked out for them.
My guess is that, if they were being honest, they would tell you, overwhelmingly, that it was a failure as a strategy.
Things do repeat themselves in the markets. That's because capitalism is predictable, with known outcomes. And while history doesn't repeat itself precisely, the frame work remains constant. It is mostly the timing and intensity that varies.
The LAW of supply and demand.
This really is a law. You can't screw around with one and not effect the other. This is one of many things that Capitalism teaches us. And it is born out time and again.
But don't confuse capitalism with democracy. That is also a common mistake. Capitalists have existed in every form of man made government since the beginning of time. Some systems of government tend to promote capitalism, like democracies and some try to crush it, such as socialistic systems. Both systems of government will, however, ultimately fail in their efforts to manipulate markets either up or down, because market forces will always prevail in the long run and overthrow the forces of governments, whether well intentioned toward capitalism or not.
Our government has forgotten that market down turns are corrections, necessary corrections for a healthy economy. They balance out supply and demand.
After the Internet crash in 2000 the Fed came in and re inflated the economy by lowering rates and pumping up the housing markets sky high all the while congress was pushing banks to make as many high risk, low reward, loans as possible. They should have let the markets correct.
Why the attempted lecture on Social Sciences? And what does this have to do with investment mistakes?
The answer is that we are in the middle of major market forces at work and, unfortunately, the collective wisdom of our government is to move toward socialism in an attempt to prevent natural market forces from reaching their inevitable goals. By nationalizing some banks, insurance companies, even mortgage rates and apparently to some degree the auto makers, they are trying to stop those forces from doing what they have to do. Which in this case is a long overdue and massive correction of those market places. Will they succeed?
Not in the long term. We have the ability to look into the past at 4000 years of monetary history. But much to my dismay no one in the halls of power has the desire. Or maybe I should say the intelligence or the integrity.
That history, were it heeded, would tell the tale that NO country, state or empire has ever successfully devalued their currency without destroying it. We began devaluing our currency under FDR around 80 years ago with the complete conversion to fiat currency occurring in 1971 when Nixon closed the gold window. Fiat money is money that is backed only by our faith in government, or more accurately money created by government decree. Since 1971 we have steadily been creating money out of thin air.
The framers of our constitution and overall government, were students of history and they knew the dangers of fiat currency. In fact they specified what a dollar was, and that was Silver. A very specific weight and purity of silver. Furthermore they imposed a penalty against anyone who devalued that currency and as penalties go, it was a little severe. Death.
I am not saying we should ship off our elected officials to the gas chamber, although I'm sure there are those who would disagree, but we should look at how serious they felt about this and why, instead of doing what our politicians have been doing. Which is saying "This time it's different".
People tend to look at the time in which they are running around in this world as the most important time in history. In doing so, they over emphasize their importance in the world and forget that in the context of all of human history, their time on this earth amounts to little more than flea flatulence in Yankee Stadium. Thinking that we are larger than this, is delusional and it leads one to believe that, "this time it's different" because "now I'm here".
Socialism has never worked in the past but it's sounds so compassionate and noble that it has to succeed now because "this time is different".
Printing money will stave off deflation and save the economy but it won't cause inflation because "this time is different".
I know I should buy Silver and Gold to protect my wealth, but I don't believe that inflation is a problem and I don't believe that Gold and Silver are valuable as money anymore because "this time is different".
As historians look back on this time, with the clarity of hindsight, I believe that they will scratch their heads and say, "How could they ignore 4000 years of monetary history? All the clues were so obvious, how come they couldn't see it coming?".
And I will answer for them one more time.
Because they thought that "this time was different".
Good Luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
"This time it's different"
That's it. Ask any investor, either amateur or professional, if they have said this before and then ask them how it worked out for them.
My guess is that, if they were being honest, they would tell you, overwhelmingly, that it was a failure as a strategy.
It is what people do when the markets are going up and they should be selling into strength and taking profits because they believe that the bad times are behind them never to return, because "this time is different".
It is also what people do when markets are falling and they should be buying quality stocks when they are dirt cheap. They are selling on the way down because things are awful and they will never recover because, "this time is different".
Things do repeat themselves in the markets. That's because capitalism is predictable, with known outcomes. And while history doesn't repeat itself precisely, the frame work remains constant. It is mostly the timing and intensity that varies.
The LAW of supply and demand.
This really is a law. You can't screw around with one and not effect the other. This is one of many things that Capitalism teaches us. And it is born out time and again.
But don't confuse capitalism with democracy. That is also a common mistake. Capitalists have existed in every form of man made government since the beginning of time. Some systems of government tend to promote capitalism, like democracies and some try to crush it, such as socialistic systems. Both systems of government will, however, ultimately fail in their efforts to manipulate markets either up or down, because market forces will always prevail in the long run and overthrow the forces of governments, whether well intentioned toward capitalism or not.
Our government has forgotten that market down turns are corrections, necessary corrections for a healthy economy. They balance out supply and demand.
After the Internet crash in 2000 the Fed came in and re inflated the economy by lowering rates and pumping up the housing markets sky high all the while congress was pushing banks to make as many high risk, low reward, loans as possible. They should have let the markets correct.
Why the attempted lecture on Social Sciences? And what does this have to do with investment mistakes?
The answer is that we are in the middle of major market forces at work and, unfortunately, the collective wisdom of our government is to move toward socialism in an attempt to prevent natural market forces from reaching their inevitable goals. By nationalizing some banks, insurance companies, even mortgage rates and apparently to some degree the auto makers, they are trying to stop those forces from doing what they have to do. Which in this case is a long overdue and massive correction of those market places. Will they succeed?
Not in the long term. We have the ability to look into the past at 4000 years of monetary history. But much to my dismay no one in the halls of power has the desire. Or maybe I should say the intelligence or the integrity.
That history, were it heeded, would tell the tale that NO country, state or empire has ever successfully devalued their currency without destroying it. We began devaluing our currency under FDR around 80 years ago with the complete conversion to fiat currency occurring in 1971 when Nixon closed the gold window. Fiat money is money that is backed only by our faith in government, or more accurately money created by government decree. Since 1971 we have steadily been creating money out of thin air.
The framers of our constitution and overall government, were students of history and they knew the dangers of fiat currency. In fact they specified what a dollar was, and that was Silver. A very specific weight and purity of silver. Furthermore they imposed a penalty against anyone who devalued that currency and as penalties go, it was a little severe. Death.
I am not saying we should ship off our elected officials to the gas chamber, although I'm sure there are those who would disagree, but we should look at how serious they felt about this and why, instead of doing what our politicians have been doing. Which is saying "This time it's different".
People tend to look at the time in which they are running around in this world as the most important time in history. In doing so, they over emphasize their importance in the world and forget that in the context of all of human history, their time on this earth amounts to little more than flea flatulence in Yankee Stadium. Thinking that we are larger than this, is delusional and it leads one to believe that, "this time it's different" because "now I'm here".
Socialism has never worked in the past but it's sounds so compassionate and noble that it has to succeed now because "this time is different".
Printing money will stave off deflation and save the economy but it won't cause inflation because "this time is different".
I know I should buy Silver and Gold to protect my wealth, but I don't believe that inflation is a problem and I don't believe that Gold and Silver are valuable as money anymore because "this time is different".
As historians look back on this time, with the clarity of hindsight, I believe that they will scratch their heads and say, "How could they ignore 4000 years of monetary history? All the clues were so obvious, how come they couldn't see it coming?".
And I will answer for them one more time.
Because they thought that "this time was different".
Good Luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Monday, December 8, 2008
Santa Claus Rally?
Are we in for a year end rally?
I think so.
Looking at past crashes(I think this officially qualifies as a crash) tells us some very interesting things.
First is that the big ones, have all started about the same time of year. This one falls into that category.
The second is that, within the context of crashes, about this time of the year the markets rally. If you look at charts for broad sectors you will see basing patterns are occurring. This indicates a good possibility for a rally.
Let me sidetrack a little here because I know I haven't done much in the way of discussing charts.
Charts are not the be all, end all of investment techniques. But the interesting thing about charts is that, it is a very technical way to gauge investor psychology. Just that concept alone is enough to make Sigmund Freud shriek from his grave. That aside, human behavior is fairly predictable. Particularly large groups of people. And the larger the group, the more predictable. The investment community is a pretty big community.
What charts do is to illustrate patterns. They point out what the majority is doing and by comparing past patterns they give you an indication of what could happen in the future. But here is the catch. Humans aren't technical creatures.
While we are fairly predictable, we don't always repeat the same behavior. That ability to adapt, invent, innovate and improvise is what makes us so strong. It not only allows us to survive, but it makes us thrive and succeed and it is also what points out the inherent flaw in charting techniques.
The difficulty in charting is in applying the right historical behavior, to the current climate. Therefore the question is; Is this the same environment that existed in the early 1930's?
The fact that so many people are comparing today's markets to those of the Great Depression, makes me instinctively nervous. Group Think is invariably inaccurate.
Group Think makes you reevaluate what you instinctively know and believe and then question it.
Taking all this into account, what my research and instincts are telling me is that, we are in for an INTERIM rally. And the charts confirm it.
And that is what charts should be used for. Do your research, develop reasons, check your fundamentals and then confirm it with the charts.
We are still in a falling market and we have a lot of work to do before we get out of it. But every crash has some up days and I suspect that we are close to those days.
So, if you've been paying attention, you probably already know what I'm going to say.
IF we do get a rally, I'm going to ride it up and then sell, sell, sell. Everything except my core holdings of Silver, Gold, mining companies and blue chips. It is entirely possible that commodities will decouple from the broad market and continue up or stabilize on their own. Watch for this.
In closing I will say that human behavior is unpredictable and history doesn't always repeat itself precisely. The only thing we can do is prepare to the best of our abilities and execute what we know. The outcome is only uncertain to us. It's all part of the plan and our job is to deal with that plan as it unfolds.
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
I think so.
Looking at past crashes(I think this officially qualifies as a crash) tells us some very interesting things.
First is that the big ones, have all started about the same time of year. This one falls into that category.
The second is that, within the context of crashes, about this time of the year the markets rally. If you look at charts for broad sectors you will see basing patterns are occurring. This indicates a good possibility for a rally.
Let me sidetrack a little here because I know I haven't done much in the way of discussing charts.
Charts are not the be all, end all of investment techniques. But the interesting thing about charts is that, it is a very technical way to gauge investor psychology. Just that concept alone is enough to make Sigmund Freud shriek from his grave. That aside, human behavior is fairly predictable. Particularly large groups of people. And the larger the group, the more predictable. The investment community is a pretty big community.
What charts do is to illustrate patterns. They point out what the majority is doing and by comparing past patterns they give you an indication of what could happen in the future. But here is the catch. Humans aren't technical creatures.
While we are fairly predictable, we don't always repeat the same behavior. That ability to adapt, invent, innovate and improvise is what makes us so strong. It not only allows us to survive, but it makes us thrive and succeed and it is also what points out the inherent flaw in charting techniques.
The difficulty in charting is in applying the right historical behavior, to the current climate. Therefore the question is; Is this the same environment that existed in the early 1930's?
The fact that so many people are comparing today's markets to those of the Great Depression, makes me instinctively nervous. Group Think is invariably inaccurate.
Group Think makes you reevaluate what you instinctively know and believe and then question it.
Taking all this into account, what my research and instincts are telling me is that, we are in for an INTERIM rally. And the charts confirm it.
And that is what charts should be used for. Do your research, develop reasons, check your fundamentals and then confirm it with the charts.
We are still in a falling market and we have a lot of work to do before we get out of it. But every crash has some up days and I suspect that we are close to those days.
So, if you've been paying attention, you probably already know what I'm going to say.
IF we do get a rally, I'm going to ride it up and then sell, sell, sell. Everything except my core holdings of Silver, Gold, mining companies and blue chips. It is entirely possible that commodities will decouple from the broad market and continue up or stabilize on their own. Watch for this.
In closing I will say that human behavior is unpredictable and history doesn't always repeat itself precisely. The only thing we can do is prepare to the best of our abilities and execute what we know. The outcome is only uncertain to us. It's all part of the plan and our job is to deal with that plan as it unfolds.
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Wednesday, December 3, 2008
Last Chance?
It's always dangerous calling tops and bottoms. So I won't.
OK maybe I will.
I am already on record saying that silver will rise. I have already said that I don't know exactly when.
But what do I really think? you might ask.
I suspect that it will be soon, possibly within the next three or four months. Indeed I would not be surprised if, upon finishing this post, I discovered that the next major upswing in the price had begun.
So why do I believe this? After all I'll be the first to admit that I was completely surprised by the intensity and depth of this pull back (some would call it a price collapse).
The reasons for my confidence are many but here are a few. First is Ted Butlers commentary on the COT structure. I'm no expert on the Commitment Of Traders report and I wouldn't even attempt to explain it to you( I'll leave that to the experts). But it is Mr Butlers opinion that the Big Money is setting itself up to make a killing and he presents a pretty powerful case. His analysis is followed by the analysis of many of the most respected people in the metals market.
I have seen more and more of the experts that I follow, convinced of the very timing I'm sharing with you. Then there is the list of spectacular fundamentals that I've been writing about for some time now. Another piece of the puzzle that has been coming together lately is that the fundamentalists and the chartists are beginning to agree with each other. In fact my own conclusions, after analyzing a multitude of charts, Elliot waves and oversold levels, couldn't be more bullish.
My timing could be off, but if I'm wrong, I have the company of people that are smarter than I and I also have the confidence that, being wrong on the timing really doesn't matter because Silver is such a wonderful buy at these levels, it simply prolongs the buying opportunity.
Could I be wrong about Silver? Of course. There are no guarantees in the market place. The markets are going to do what they do. All we can do is analyze as best we can, make sure we haven't missed anything and have the courage to execute our plans. History will tell the whole story in due time. But I'm OK with that, it's what makes this such an exciting business.
But what if I'm wrong? These markets have been pretty screwy.
I have back up plans and trading discipline to fall back on.
But what if that doesn't work? Everything could fall apart.
If that doesn't work folks, the only thing that is going to help is guns, ammo, food, water, shelter and faith.
I've already gone over that check list and I got 'em covered.
As always
Good Luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
OK maybe I will.
I am already on record saying that silver will rise. I have already said that I don't know exactly when.
But what do I really think? you might ask.
I suspect that it will be soon, possibly within the next three or four months. Indeed I would not be surprised if, upon finishing this post, I discovered that the next major upswing in the price had begun.
So why do I believe this? After all I'll be the first to admit that I was completely surprised by the intensity and depth of this pull back (some would call it a price collapse).
The reasons for my confidence are many but here are a few. First is Ted Butlers commentary on the COT structure. I'm no expert on the Commitment Of Traders report and I wouldn't even attempt to explain it to you( I'll leave that to the experts). But it is Mr Butlers opinion that the Big Money is setting itself up to make a killing and he presents a pretty powerful case. His analysis is followed by the analysis of many of the most respected people in the metals market.
I have seen more and more of the experts that I follow, convinced of the very timing I'm sharing with you. Then there is the list of spectacular fundamentals that I've been writing about for some time now. Another piece of the puzzle that has been coming together lately is that the fundamentalists and the chartists are beginning to agree with each other. In fact my own conclusions, after analyzing a multitude of charts, Elliot waves and oversold levels, couldn't be more bullish.
My timing could be off, but if I'm wrong, I have the company of people that are smarter than I and I also have the confidence that, being wrong on the timing really doesn't matter because Silver is such a wonderful buy at these levels, it simply prolongs the buying opportunity.
Could I be wrong about Silver? Of course. There are no guarantees in the market place. The markets are going to do what they do. All we can do is analyze as best we can, make sure we haven't missed anything and have the courage to execute our plans. History will tell the whole story in due time. But I'm OK with that, it's what makes this such an exciting business.
But what if I'm wrong? These markets have been pretty screwy.
I have back up plans and trading discipline to fall back on.
But what if that doesn't work? Everything could fall apart.
If that doesn't work folks, the only thing that is going to help is guns, ammo, food, water, shelter and faith.
I've already gone over that check list and I got 'em covered.
As always
Good Luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
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