Will President Obamas plan work?

Will President Obamas plan work?



It depends on how you measure success.
If you want to re inflate the bubbles, then yes it might possibly. The amount of money we are looking at is truly mind wrenching. This has never been done before. At least on this scale. But what are the longer term ramifications?
Ken Gerbino writes an excellent article, that lays out the details but his overall conclusions are very plausible. While the collective wisdom is that, this is the collapse that all the gold bugs have been waiting for, Ken believes that there is one more recovery before that happens.
I have been pondering this for some time.

This is how I see it panning out;

As this year unravels there will be ups and downs in the market at various levels of volatility. essentially a sideways market. Strangely, times of violent sideways action.
As the "stimulus" money works it's way into the market and these new funds are monetised and ultimately "realised" by the economy. There will be some measure of recovery. This is when I believe inflation will begin. The stock markets will recover much of their losses, but commodities will begin to soar as the supply pendulum swings from over supply to under supply as a direct result of this current climate of demand destruction (people and companies belt tightening). As money floods the system and economic activity returns, companies will rush to ramp up production and the supply will be strained. We still have China and India to deal with. They have had a taste of a higher quality of life and it would be naive to think they are going to give this up.

Here is where my cracked crystal ball, begins to distort the image of the future and it all hinges on time. How long and how far will the recovery go?
Who knows. But I do believe that commodities will soar and the dollar will suffer hugely.

What is the ultimate end game?

Whatever it is, it'll be one for the history books.
And most likely it will be something no one expects, including myself.
But if you stock up on tangible assets now while they are incredibly cheap, you will be in a position to take the best advantage of the situation when the direction becomes clear.

Take a look at MOO, it's a play on Agri-business. And again this is a long term buy and hold.



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.

Is buy and hold, a bad strategy?

With the recent collapse of so many icons of American capitalism, is a strategy of "Buy and Hold" such a good idea?




I think that taken by itself it is more important now than ever.




If taken in the context of buying and holding Blue Chip stocks, I am not so sure anymore.




My approach to navigating this market, while I've been unconsciously doing it for some time, is to buy and hold real tangible assets as my core portfolio. I didn't realize that I was doing this until I went to analyze my over all position and portfolio allocation, which I do periodically to check my"investor psychology".




This is really a 180 degree shift.




The collective wisdom of the past was to buy and hold blue chips and speculate with risk capital(money you can afford to lose), in other markets such as commodities, energy, tech and Bio-Tech.




As it stands now I find that I sleep better at night knowing that my real wealth is protected by hard assets. When you look at some of the monsters in the financial industry teetering on the brink, I wonder if they are in any stronger position than Bernie Madoff was prior to his collapse.
Take for instance B of A, a year ago they were trading at 40 bucks now they are worth 5 and standing under the bailout TARP



Yeah I know that Bank of America deposits are insured by the Government, but who insures the Government?



We do, the people, with our tax dollars. And despite what some politicians believe, that is a finite and unpredictable number. It is a dangerous merry go round that the Government is on. As the economy worsens, they continue to bail out failing companies. Companies that still cut jobs and production with the end result being a smaller tax base.



Fewer workers, fewer payroll taxes.



Less production, less profit for the corporations and therefore less corporate taxes.



Less sales, less sales tax collected.



President Obama has stated that he is not concerned with deficit spending, but I am and we should all be. With foreign nations less willing to buy our debt, the only other way to fund his stimulus plan and various other programs is through the printing press.



Sure he could raise taxes but I doubt that he will do this. Despite the rhetoric the Democrats know that tax hikes in this financial environment would be a disaster.



So that leaves increasing monetary supply as the only avenue.



This is the big picture; Monetary supply has doubled from this time last year, which means that you have half the spending power that you had a year ago.



Don't let the fact that we have had a dramatic drop in the price of fuel as well as other commodities, lead you astray. These things take time to work through the system.



In fact this lag is itself the very opportunity that we should be looking at.



I am looking at this sale in precious metals the way I would have looked at a major pull back in Boeing two years ago.



Or Johnson and Johnson, Dow Chemical, Lockheed Martin even Exxon. Had someone told me last year that I would be able to buy these names at the current prices, I would have thought them insane.



But now, looking at precious metals, I see that they must rise in price and I don't have to know when, I just have to know when they are on sale and then buy and hold.



A very good analyst that I trust, points to a possible, further pull back in metals before they take off to new heights. It's possible. I don't think it will happen, but because I trust his conclusions, I am putting some extra cash aside in case it does. And no, I'm not selling my real metals. Those I will hold for the foreseeable future. Don't try and time this market it is still way too volatile. Buy the dips and hold. Build your positions.



Another position that I will be hanging onto is the short position on treasuries(TBT)(see Obama Bounce? Dated 1/08/09) Again I don't know when these things will happen but in the big picture they must happen.








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.

TEOTWAWKI?

It is very difficult, while searching all the resources on the net, to avoid all of the analysts that believe that this is "The End Of The World As We Know It". But in some ways, I think that they are right.
"The times, They are a changin'"
As those of you who read my stuff regularly know, I think that the dollar is in serious trouble. At the very least I believe that in addition to some really awful times ahead for Real Estate, Auto Makers and Financials, I see some scary hyper inflation in the future.
But do we need to employ the bomb shelter mentality?
In my life time I have experienced several times when this was the "fringe" tendency. While growing up it was The Cold War, with the policy of "Mutually Assured Destruction".
When that threat ended, it was time to create another, Y2K. Remember when the computers were going to ruin the world because they couldn't count from 1999 to 2000?
Then came the very real and frightening 9/11. And now we have the, also very real, collapse of the financial system.
But the question remains, Is this financial Armageddon?
I don't believe that it is, yet.
and I don't really believe that it will be.
It all depends on what Washington does in the next few months.
But, have I stocked my shelves with a few extra cans of Beenie Weenie?
Maybe.
Being prepared is not the same as being paranoid. Having been part of a disaster response team I have been at ground zero for some serious events. Hurricane Ofa, Typhoon Russ, and the Loma Prieta earth quake in San Francisco in '89. I've had to eat MREs, out of necessity before. Here at home, I have also seen a time when our rivers flooded and took out bridges, leaving us isolated for days. So I do believe in being self sufficient and managing risk. That is a crucial element of investing, as well as surviving in any situation.
So let them call you paranoid, stock up on the Beenie Weenie and SpaghettiOs (and maybe some silver and gold) so that if something does happen, be it a man made or natural disaster, you can say "I told you so", as you toss your neighbor a spare can.

Good Luck and Godspeed

JT

Re: Obama Bounce

I received a comment on my latest blog(see Obama Bounce below). When this person read that I was interested in Proshares Ultrashort Lehman 20+ year treasuries. Symbol TBT. They asked me "Didn't you know that Lehman Brothers went bankrupt?".
My apologies to any of you that had the same concern. I should have explained. Yes I did know that Lehman Brothers no longer exist. Their Index, however, lives on. The company that manages the fund in question is Proshares, part of the ProFunds Group. The reference to Lehman is simply an index, collection or list of stocks in a sector or in this case, treasuries. Just like the Dow Jones industrial average or Standard and Poors.
Kudos go out to the reader that pointed out this concern, because in times like these we need to beware and ask questions, keep it up!

Ah yes, another question was raised about my sign off slogan "Godspeed"
Here's the Wiktionary definition that most describes my intent in using the term;
An expression of good will when addressing someone, typically someone about to go on a journey or a daring endeavor.
Or from Wikipedia; Godspeed, as a word, is a wish for a prosperous journey, success, and good fortune.

The key here is that educating yourself is a journey and becoming financially liberated is one of the best gifts that you can give yourself and your family. Please keep the comments coming, because they help all of us on that path to freedom.
Email me at Torocreekinvest@aol.com

Good Luck and Godspeed

JT

Obama Bounce?

The other Night, while chatting with some friends over a couple of drinks the topic of the latest stock market rally came up and someone asked me what I thought (always dangerous when I've had a drink). My answer was, "If you've made a profit, sell". Another friend, who had the good fortune and sense to buy silver around it's current lows, asked if that advice applied to silver as well (I think she was testing me). My answer of course was no. And here is why.


This is not a market that any of us has ever witnessed before. I am even questioning my decision to buy and hold blue chips. So many people have made comparisons to the Great Depression, but there are too many differences to think that we would follow that pattern exactly. I don't know what is going to happen, nobody but God knows that, but here's the thing, if you walk out your door in the morning and the sky is cloudy and dark, grab your raincoat.


The sky is looking very stormy. In fact it looks more like a hurricane is right on our doorstep.


Many people are predicting an Obama bounce in the markets and I think they are right, in fact I believe that is what is happening right now. How high is the bounce? Who knows. But when Mr. Obama says that we are looking at "trillion dollar deficits for years to come" I pay attention.


He is going to kill his own rally.



That is a really negative thing to say to Wall Street. They hate uncertainty. They know how to make money in any environment, the trouble is in determining what your environment is. That statement, so emphatically stated, is not uncertain, it tells Wall Street exactly what environment that they are in and it tells them exactly what to do.


Bet against the dollar.


The President elect has told us exactly what he is going to do. Print more money and sell more debt. Without real economic growth, there are no other real options for generating revenue. Sure he could sell some stuff, like maybe Air Force One, some presidential ash trays or Hawaii or something, but why bother when you own the printing press.


Here's how to bet against the dollar;


Of course buy real silver and gold, but you can also short US Treasuries.


Well how do we do that and what does it mean? First going short or shorting something is just a another way of saying that you are betting that it will fall in value. You can short something by borrowing shares from your broker and sell them, then hope the value will drop so you can buy them back on the cheap, repay your broker the shares and pocket the difference. But you really can't do that with treasuries. For you and I it's not all that easy to take a short position in the US Treasuries market but thankfully there are some ETFs out there that will fit the bill perfectly.

Pro shares Ultra short Lehman 20+ year Treasury Symbol TBT and Pro shares Ultra short Lehman 7-10 year Treasury symbol PST.



Both are designed to move opposite the treasuries. And right now Treasuries are expensive and extremely over bought. There has been a flight to safety which has caused this bubble and that bubble will burst at some point in the future. When? who knows. So, as with other things I'll be buying slowly and building a position.

Remember I'm not advising you to do this, I'm just sharing my strategies. Do your own homework and check with your financial advisor before buying anything.



And 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.

Who Madoff with the Dollar?

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.

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.

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.