Financial mayhem

[Brant Gaede]

So, what should a guy with about $20,000 or so do right now? I have subscribed to Doug Casey's newsletter for several years. I'm about ready to throw it in the garbage. I like Doug Casey's insights, but the bottom line is that his advice has completely tanked.

I also subscribed to _Prudent Speculator_ just recently. The longer I stay in the investment game, the less I trust people.

I don't think investment is luck. I believe that a person can do well if they know what they are doing or if they follow people who know what they are doing. I don't plan on being a full-time investor--thus I have to follow the advice of others. Who knows what they are doing?

Mutual funds are a sucker's bet.

Keep saving.

--Brant

[merjet]

Mutual funds are a sucker's bet.

If one had invested in BPTRX 5 years ago, despite the plunge the past few months, the return would have been more than 16.65% per year. Yup, it takes a real sucker to accept that.

[algernonsidney]

If one had invested in BPTRX 5 years ago, despite the plunge the past few months, the return would have been more than 16.65% per year. Yup, it takes a real sucker to accept that.

I am on an Objectivist board, so I should have anticipated that someone would have the need to show everyone else just how "clever" he is. It's my fault for forgetting where I am. Most Objectivists I've known simply can't resist the temptation to make a smart-aleck remark. They make an effort to be disagreeable.

Not surprisingly, too, is that my question was never answered. Who does know what they are doing? What investment advisors are actually worth listening to?

Edited September 10, 2008 by Chris Baker

[merjet]

I am on an Objectivist board, so I should have anticipated that someone would have the need to show everyone else just how "clever" he is. It's my fault for forgetting where I am. Most Objectivists I've known simply can't resist the temptation to make a smart-aleck remark. They make an effort to be disagreeable.

What kind of remark do you call "Mutual funds are a sucker's bet." ?

Not surprisingly, too, is that my question was never answered. Who does know what they are doing? What investment advisors are actually worth listening to?

I don't rely on advisers as to what to do. If you want to invest in stocks, then I recommend mutual funds. $20,000 is not enough to invest in individual stocks with any diversification and transaction fees. Do your homework. There are plenty of websites that offer screens to focus on what you want. Morningstar, Fidelity, Charles Schwab, and more. Charles Schwab's is quite good. You don't have to pay to use them.

If you are fond of gold check out PRPFX. Look at its holdings. Warning: Past performance is no guarantee of future results.

Edited September 11, 2008 by Merlin Jetton

[Brant Gaede]

If one had invested in BPTRX 5 years ago, despite the plunge the past few months, the return would have been more than 16.65% per year. Yup, it takes a real sucker to accept that.

I am on an Objectivist board, so I should have anticipated that someone would have the need to show everyone else just how "clever" he is. It's my fault for forgetting where I am. Most Objectivists I've known simply can't resist the temptation to make a smart-aleck remark. They make an effort to be disagreeable.

Not surprisingly, too, is that my question was never answered. Who does know what they are doing? What investment advisors are actually worth listening to?

When I said "Keep saving" it was because it will be at least another year to go long with investments. He's not an investment advisor, but you could do worse than read Bill Fleckenstein.

--Brant

[Michael Stuart Kelly]

Greenspan, at the time of his book's release, said he advises to keep some money in the USA and put some overseas.

Michael

[algernonsidney]

I'm beginning to think that keeping money overseas is a pretty good idea. But that raises a few questions: how do you manage it once it is overseas? How do you get it overseas? And how often do you have to go there?

Obviously the Internet has made all this easier. But is not much investing or saving going to require some travel?

I know a guy who keeps some wealth in Belize. That's not too far away. He travels there once a year by cruise. He does that because cruises aren't subject to all the police state tactics that planes are. He does talk like his bank is quite helpful. He even says that the bank sends a cab to the cruise ship for him. He also pays a lawyer about $1000 a year to take care of everything.

I'm not sure how much money this guy does have. I do hear that he still lives like a pauper, though.

If I had enough money that managing it overseas was a viable solution, I might very well leave the whole country anyway.

Edited September 17, 2008 by Chris Baker

[Brant Gaede]

Dow down 500 today and will be down even more at open tomorrow. Foreign markets down. Primary culprits are financials. AIG is being destroyed.

The basic reason markets are going down is liquidity is drying up. There is a lot of cash on the sidelines which might cause a bump up later this week or next, but that won't last. That cash is too smart. No new government money is availble for equity prices. It's all being sucked into the bottomless financials.

It's going to get worse for the next year, at least. The big grind down starts with the new year as earnings collapse and the economy enters blatant recession.

I still anticipate an 8-9000 DOW and massive devaluation of the dollar and recommend buying gold using dollar cost averaging even as/if gold continues to decline. The lower it goes, short-term, the more you can buy. Since physical gold is hard to come buy, one might buy the GLD until market supply loosens up. Note: buying gold is for savings and capital preservation. Such purchases, absent an emergency, are not to be sold. Gold stocks should not be purchased in this primary bear market. They go down and up overall much more than gold.

--Brant

all cash except one stock not traded, no gold (I want the money to trade and sell short at this time).

Edited September 16, 2008 by Brant Gaede

[algernonsidney]

Here is an interview with Jim Rogers:

http://www.business-standard.com/india/sto...p?autono=334370

[Roger Bissell]

Dow down 500 today and will be down even more at open tomorrow. Foreign markets down. Primary culprits are financials. AIG is being destroyed.

The basic reason markets are going down is liquidity is drying up. There is a lot of cash on the sidelines which might cause a bump up later this week or next, but that won't last. That cash is too smart. No new government money is availble for equity prices. It's all being sucked into the bottomless financials.

It's going to get worse for the next year, at least. The big grind down starts with the new year as earnings collapse and the economy enters blatant recession.

I still anticipate an 8-9000 DOW and massive devaluation of the dollar and recommend buying gold using dollar cost averaging even as/if gold continues to decline. The lower it goes, short-term, the more you can buy. Since physical gold is hard to come buy, one might buy the GLD until market supply loosens up. Note: buying gold is for savings and capital preservation. Such purchases, absent an emergency, are not to be sold. Gold stocks should not be purchased in this primary bear market. They go down and up overall much more than gold.

--Brant

all cash except one stock not traded, no gold (I want the money to trade and sell short at this time).

If you own a house (i.e., are buying it) and can afford to keep it, keep it. If you have available cash, buy gold.

There's nothing wrong with recession. It's a necessary corrective to mal-investment -- in this case, trillions of dollars of it. Many houses of cards will fall. Try not to be caught in one of them, if you can help it. Diversify your financial holdings, so that you don't get burned by the $100,000 FDIC limit of protection. Etc. Above all, don't hide your head in the sand. This one is going to be very nasty.

My fondest hope is that Disneyland will cry "poverty" and lay off me and the rest of the Disneyland Band, so I will have a good excuse (no more insurance benefits and steady paycheck) to move back to Nashville and tough it out near my kids and grandkids (which I plan to do 6 years from now, when I formally retire). For now, I will smile and be a good Mouskateer.

REB

[william.scherk]

It's intriguing to see what John McCain has to say about the financial crisis that has been brewing . . . below are the first few paragraphs from his statement released today.

What I find mind-boggling are the financial instruments that seem to have exacerbated the meltdown: CDOs (Collatoralized Debt Obligations) and varied other little-known acronyms. I had assumed that the credit crunch of 2007 was a simple, inevitable result of the housing bubble, and that a shot of foreclosures would put the game back on earth. But I learned that there is nothing simple about finance, and that the debt effect would ripple outward into securities based on that debt.

It is surprising to read McCain today -- a fierce partisan of the financial deregulations that began under Carter, accelerated under Reagan, and maxed out under the leadership of Phil Gramm.

Today he speaks of greed, as if the freeing of the financial markets had nothing whatsoever to do with the present crisis. Since he has been a player in Washington for 26 years, can he not have seen the so-called greed in action before today?

What am I missing in his political statement -- should I be wondering what he thought of the awful things he writes about below -- the abuses, greed, self-interest, corruption, etcetera -- when they were possibly a result of the freedom from oversight that he championed in the past?

Remarks By John McCain On Reforming Our Financial Markets

ARLINGTON, VA -- U.S. Senator John McCain delivered the following remarks as prepared for delivery in Tampa, FL, today:

If Governor Palin and I are elected in 49 days, we are not going to waste a moment in changing the way Washington does business. And we're going to start where the need for reform is greatest. In short order, we are going put an end to the reckless conduct, corruption, and unbridled greed that have caused a crisis on Wall Street.

The working people of this state and this nation are the most innovative, the hardest working, the best skilled, most productive, most competitive in the world. This foundation of our economy, the American worker, is strong but it has been put at risk by the greed and mismanagement of Wall Street and Washington. The top of our economy is broken. We have seen self interest, greed, irresponsibility and corruption undermine the hard work of the American people. It is time to set things right, and I promise to get the job done as your president.

Americans put a lot of trust in the bankers and brokerage firms of Wall Street. They depend on the financial service sector to protect their savings, IRA's, 401k's, and pension accounts. But many leaders in finance have proven unworthy of that trust. Government has a clear responsibility to act in defense of the public interests, and that is exactly what I intend to do. We are going to make sure that American's accounts are protected. I pledge that FDIC and SIPC will have all the support they need to fully back the savings of the American people.

Too many people on Wall Street have been recklessly wagering instead of making the sound investments we expected of them. And when their companies collapse, only the CEO's seem to escape the consequences. While employees, shareholders, and other victims are left with nothing but trouble and debt, the people who helped cause the collapse make off with tens of millions in severance packages. I have spoken out against the excess of corporate executives, and I can assure you that if I am president, we're not going to tolerate that anymore. In my administration, we're going to hold people on Wall Street responsible. And we're going to enact and enforce reforms to make sure that these outrages never happen in the first place.

Too many people on Wall Street have forgotten or disregarded the basic rules of sound finance. In an endless quest for easy money, they dreamed up investment schemes that they themselves don't even understand. With their derivatives, credit default swaps, and mortgage backed securities they tried to make their own rules. But they could only avoid the basic rules of economics for so long. Now, as their schemes unravel in bankruptcies and collapse, it's once again the public who is left to bear the costs. And I promise you that on my watch, we are never going to let these kinds of abuses go uncorrected or unpunished.

[from JohnMcCain.com]

[Dennis Edwall]

First money market fund in 14 years to drop below $1 per share

From Bloomberg:

Reserve Primary Money Fund Falls Below $1 a Share (Update4)

By Christopher Condon

Sept. 16 (Bloomberg) -- Reserve Primary Fund became the first money-market fund in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman Brothers Holdings Inc.

The fund, whose assets plunged more than 60 percent to $23 billion in the past two days, said the Lehman losses forced the net value of its assets below $1 a share, known as breaking the buck. Reserve Primary, the oldest money fund in the nation, fell to 97 cents a share and redemptions were suspended for as long as seven days.

Money-market funds are considered the safest investments after cash and bank deposits, and Reserve Primary's losses come as confidence in financial markets has been shaken by the collapse of subprime mortgages, the failure of 11 U.S. commercial banks and Lehman's bankruptcy yesterday. The only other money- market fund to break the buck was the $82.2 million Community Bankers Mutual Fund in Denver, which liquidated in 1994 because of investments in interest-rate derivatives.

"This is uncharted territory,'' said Peter Crane, president of Crane Data LLC in Westborough, Massachusetts, which tracks money-market funds. "That's certainly a stunner.''

Reserve Primary, run by closely held Reserve Management Corp. in New York, held $785 million in Lehman Brothers commercial paper and medium-term notes. The fund's board revalued the Lehman holdings as worthless effective 4 p.m. New York time, the company said today in a statement.

Spokeswoman Ming Lee Hatch said she couldn't immediately comment on whether the company planned to secure credit to support the fund or wind it down. Investors who requested redemptions by 3 p.m. today will get all their money back.

Standard & Poor's lowered its principal stability fund rating on the company's Primary Fund and Reserve International Liquidity Fund Ltd. to `Dm' from `AAAm' because of their exposure to Lehman Brothers.

S&P also placed nine other Reserve Funds on its credit watch list, it said today in a statement.

Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA, said the fund's failure "exacerbates some of the flight-to-quality into Treasuries.''

Crane said Reserve Management probably was unable to prop up the fund before halting redemptions because it lacked the backing of a large institutional owner.

"Reserve just didn't have the deep pockets to buy troubled securities out,'' he said.

Boston-based Evergreen Investment Management Co. said yesterday it had secured support from Wachovia Corp., its parent, to protect three money-market funds from losses linked to debt issued by Lehman. The funds' Lehman holdings totaled $494 million.

Money-market funds, which are regulated in the U.S. by the Securities and Exchange Commission, strive to preserve a $1 a share net asset value, meaning that investors can always get back their principal, as well as interest earned by the fund on its investments. They are required to hold debt that matures in 13 months or less, with a weighted average maturity of 90 days or less. The securities must have top short-term corporate debt ratings.

U.S. money-market mutual-fund assets were $3.58 trillion as of Sept. 10, just below their peak of $3.59 trillion set a week earlier, according to the Investment Company Institute, a Washington-based trade group.

"The company and its counsel apprised staff of the fund's situation earlier today and discussions between staff and the company and its counsel are continuing,'' Andrew J. Donohue, director of the SEC's investment management division, said in a statement. "SEC examiners are on-site at the fund to monitor activities.''

ICI President Paul Schott Stevens released a statement attempting to bolster investor confidence in money-market funds.

"The fundamental structure of money-market funds remains sound,'' he said in the statement. ``These funds are subject to strict regulation governing credit quality, liquidity, diversification and transparency.''

Federal Reserve spokesman David Skidmore declined to comment.

Bruce Bent, chairman of Reserve Management, often said the best money-market funds should be "boring.'' He derided other funds that invested in securities linked to subprime mortgages and other risky debt.

Reserve Management's assets rose 95 percent in the year ending June 30 to $125 billion, as investors sought safety from falling equity markets. Banks and other institutional investors accounted for 65 percent of total assets.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

-Dennis

[Brant Gaede]

Dow down 450 today. This is not a buying opportunity unless you are a professional trader and know what you are doing. Investors need to wait at least a year. The big real estate bust/recession is just ahead. Do not buy a house now unless you plan to live in it the next 20 years and the debt obligation doesn't exceed 20% of your net worth. Same for paying cash. If you have a million dollars (I sure don't) you can afford a $200,000 house, maybe.

If I had an irrestible urge to invest right now, I'd buy some Altria (MO) and continually write covered calls against it. The income is 6% from dividends.

People who are smart, experienced and knowledgeable are saying or will say buy, buy, buy. They will be proved wrong, wrong, wrong. This is a case where extreme pessimism is not a contrary indicator because it is far from extreme yet and the economy is only tanking in slow motion. It may be slow but it is inexorable.

I want to see 1500-2000 more off the Dow to think it might be time to buy equities FOR A TRADE on the long side except a very short-term trade. I wouldn't touch a mutual fund for two more years--if I were a mutual fund-type guy. It is okay to buy gold or the GLD using dollar-cost averaging. Up big today.

--Brant

BONDS ARE DANGEROUS. MONEY MARKET FUNDS TOO!

Edited September 17, 2008 by Brant Gaede

[merjet]

Brant,

I really don't understand your aversion to mutual funds. They are portfolios of stocks, bonds, or other. Do you feel the same about ETFs?

You suggest MO for somebody with an irresistible urge to invest right now. I can name at least three mutual funds -- balanced or heavily stocks -- that performed better Aug 29 to Sep 17. I spent very little time looking. MO is down a little. The others are all down, too, but not as much as MO. I can name more that have performed about the same as MO.

[algernonsidney]

I really don't understand your aversion to mutual funds. They are portfolios of stocks, bonds, or other. Do you feel the same about ETFs?

I have been told by several people that the overwhelming majority of them underperform the market. I owned three mutual funds at one time in 2001. I have since gotten out of all of them. I looked them up and found that I wouldn't have done any better if I had stayed in them. The funds have went nowhere.

Merlin, on the WeTheLiving list, you even once pointed out that mutual funds like to play games with the numbers in order to make them look better than they are. They definitely do.

Edited September 18, 2008 by Chris Baker

[Brant Gaede]

Brant,

I really don't understand your aversion to mutual funds. They are portfolios of stocks, bonds, or other. Do you feel the same about ETFs?

You suggest MO for somebody with an irresistible urge to invest right now. I can name at least three mutual funds -- balanced or heavily stocks -- that performed better Aug 29 to Sep 17. I spent very little time looking. MO is down a little. The others are all down, too, but not as much as MO. I can name more that have performed about the same as MO.

It has to do with general market direction, which is down. Just waiting for things to settle down. It will take a little while. At least a year. Your research is too backward looking. As for right now, too much that was once thought extremely safe is going away. That is why these financials thought they could leverage 30-1. They thought it was safe. Good, balanced, low cost mutual funds will be the way to go for those who don't want to devote time and energy to investing. My MO advice is for anybody active in equity markets. It's another thing to think about more than something to do. I don't do it myself nor do I buy gold to preserve wealth. My personal orientation is completely different.

--Brant

[merjet]

I have been told by several people that the overwhelming majority of them underperform the market.

One should expect that about half are going to outperform, and half are going to underperform. That's comparing to them to an appropriate benchmark or index, which has no expenses. Since a mutual fund has expenses, one should expect that more than the majority will underperform. But so what? Suppose the index return is 10% and you invest in a fund that gets 9%. That's not much to complain about.

Merlin, on the WeTheLiving list, you even once pointed out that mutual funds like to play games with the numbers in order to make them look better than they are. They definitely do.

What exactly did I say? Playing numbers games is something far more attributable to investment newsletters. Good data on mutual funds is easy to get.

[algernonsidney]

What exactly did I say? Playing numbers games is something far more attributable to investment newsletters. Good data on mutual funds is easy to get.

When mutual funds publish their "averages" for the year, they actually use the arithmetic mean. The more accurate figure is the geometric mean. You once pointed this out.

Here's an example. If a fund loses 10% one year and gains 10% the next, the mutual fund will make it appear that it broke even over the two years. In fact, the fund lost 1%. If it loses 20% and gains 20%, the loss is 4%.

Edited September 18, 2008 by Chris Baker

[merjet]

When mutual funds publish their "averages" for the year, they actually use the arithmetic mean. The more accurate figure is the geometric mean. You once pointed this out.

Fine. But you can easily find the geometric returns.

Another point about fund performance compared to a benchmark. Investors can drag on a fund's performance by their timing -- buying high and selling low. Hence, it's better to compare "total returns" (geometric for more than one year), which is what benchmark returns are, than "investor returns." Both can be seen on Morningstar.

[Brant Gaede]

It appears the SEC is on the verge of banning short selling. This is a prelude to a disaster in equity markets and speaks of desperation. Equity markets need short selling for information purposes and to stabilize stock prices on downswings.

Please note the title of this thread. It has nothing to do with 1% this or 2% that, arithmetric or geometric calculations or what's for dinner tonight.

--Brant

[merjet]

It appears the SEC is on the verge of banning short selling. This is a prelude to a disaster in equity markets and speaks of desperation. Equity markets need short selling for information purposes and to stabilize stock prices on downswings.

--Brant

It may only be "naked" short selling (source).

[Rich Engle]

Ron Paul just issued a stinging address, talking about a secret government running the economy:

http://www.infowars.com/?p=4619

[Brant Gaede]

It appears the SEC is on the verge of banning short selling. This is a prelude to a disaster in equity markets and speaks of desperation. Equity markets need short selling for information purposes and to stabilize stock prices on downswings.

--Brant

It may only be "naked" short selling (source).

It won't be a blanket prohibition, just brokerage stocks, if approved by five commissioners.

--Brant

[algernonsidney]

Ron Paul just issued a stinging address, talking about a secret government running the economy:

http://www.infowars.com/?p=4619

Here's the Youtube:

I would love to post more of Alex's stuff here. But people will just ignore it solely because it is Alex.

[algernonsidney]

double post

Edited September 19, 2008 by Chris Baker