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the failure of markets and behaviors as speculators

April 25, 2010 8 comments

2010.04.25

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“All truth passes through three stages.  First, it is ridiculed.  Second, it is violently opposed.  Third, it is accepted as self-evident” – Arthur Schopenhauer philosopher

The Federal Reserve Corporation (FED) today regularly intervenes in the currency markets via swaps, open market operations. etc. with other global central banks and other market participants.

The short term interest rate is regularly set and maintained by the FED and it’s open market operations.

The FED now also openly admits buying their own debt as quantitative easing. This serves to suppress long term interest rates thus, directly influencing the long term interest rate markets, and the real estate market.

Thus, the FED today manipulates the prices of assets from currencies to real assets.

In some circles (mostly only in the corporate media where board members are also wall street executives) it is still a subject of debate whether or not the FED and the Treasury have adopted a policy of intervening in the stock market to promote stability and market confidence.  From stories about the PPT,  to the FED stating that they would use “any means necessary” to stabilize the economy.  From huge market rebounds 5 minutes after a call from the Secretary of the Treasury to the people who profess to be doing gods work, to the CEO of trimtabs stating that he sees no other possibility than government intervention, people will still debate this topic, in the corporate media at least.

Out in the real world, “Don’t fight the FED” extends to market operations in any or all asset classes. The debate is confined only as to how much, when and who.  On the floor, the only entity who isn’t aware of anonymous accounts that can make the market turn at will in Chicago are the regulators. Then again, the regulators are the graduate alumni of the people who appear to need regulating.

The debate doesn’t stop at the share markets however. Recent on the record revelations from a metals trader allege what the so called conspiracy theorists have been saying all along, that there is a conspiracy among the centrals via their member banks to manipulate the price of gold and other metals.  The corporate media chose not to discuss the subject at all.

In looking at the markets as a speculator, the conclusion is that there is more than enough evidence that the FED, the Treasury and the large banks all operate with increasing influence and heavy handedness in all markets.

It has become required to stabilize an unstable system, first as an emergency measure then now as a matter of course and necessity. On the FED’s visible balance sheet there are toxic mortgages and on the invisible balance sheet it is impossible to ascertain what assets they own since they won’t say and have never been audited to force any disclosure.

A larger point, and the subject of this thought experiment is to think about the effects of managed or buffered markets on the psyche of the market participants.

The obvious reflexive idea at work here is that if the market participants believe the system is inherently stable or priced at a certain level on it’s own accord, then confidence in it would be far higher than if the participants believed that it needed intervention to keep it stable. This increased confidence could in itself affect the behavior of the markets when they are exposed to crisis or stress situations.

By reducing the interest rate to and below the real rate of increase in the cost of living, a negative savings rate discourages and even penalizes savings. It makes saving money a guaranteed loss and encourages speculative risk taking with non risk capital in search for a return.

If the market had dived during the 2008 period this could have permanently altered risk models and permissible leverage going forward. It could have reduced investor risk tolerance. It could have caused an even greater loss of confidence in the US capital markets resulting in unacceptable side effects from insolvency to failure of the entire system.

Knowing all this, is it possible that the FED or the Treasury have introduced a false sense of investor security by financing open market operations via a printing press? The implied assumption of course is that the printing press can run forever and as powerfully as necessary to fix any problem that might arise. The current FED chairman stated explicitly and now infamously that the FED could do just that by dropping money(debt)  out of helicopters if necessary.

The reality however is that the printing press cannot print more debt than the capacity to finance it.  We must recognize that reality in the same way that we recognize the FED and the banking system is not a goose that lays golden eggs.  In spite of what the FED chairman would have you believe, it cannot fix any problem by printing any necessary quantity of money, because that is the same as increasing the debt up to and infinitely beyond it’s ability to be repaid.

Because of these facts, it is arguable that both investor psychology as well as quantitative risk models have become skewed and are now RELIANT on the previously mentioned assumptions for it’s continued existence. The implication is that if investor psyche has been manipulated or altered along with the markets, it is not a reliable indicator of future market direction or market stability.  All forward looking indicators could be entirely wrong as a result of reflexive policies and it’s resultant social engineering.

The idea of markets that discount the future by a market consensus based on reliable information becomes flawed. Recognizing the markets are managed is no different than recognizing that investor psyche is also managed. One is a reflection and a reflexive view of the other.

In thinking about all of the above, the next obvious question is, how does an eventual convergence of reality (the FED cannot create an infinite amount of debt to fix any problem) with a belief in golden eggs (the belief that they can and enabled only by the illusions of manipulation) manifest itself?

The answer lies in this fact:

The amount of debt is continuously increased into a geometric progression of diminishing returns as the capacity to buy the ever increasing amount of debt moves ever smaller as a fraction of the debt required to maintain and inflate the balloon.

Thus it can be argued as it was in two possible paths with the same endpoint that we have an unstable and technically defunct system masquerading as a stable system. This current divergence can be reconciled either through asset value inflation, or through failure via mass insolvency. If it is reconciled through inflation it will appear as decay over a long period of time leading to chaos and civil instability due to a standard of living collapse. If it is reconciled through mass insolvency it will appear as a rapid onset of the same thing.

Filed under: markets

For nations living the good life, the party’s over, IMF says
By Howard Schneider
Washington Post Staff Writer
Saturday, April 24, 2010
Address

Greece hit by new riots as pressure grows to quit euro
By Christopher Leake
25th April 2010
Support for the bail-out of debt-ridden Greece was in doubt last night, leaving the country on the brink of financial meltdown as top German politicians said it  should be forced to quit the euro. Riots erupting during workers’ protests over planned public spending cuts, just hours after Greek Premier George Papandreou sought emergency £35billion of loans from eurozone countries and the International Monetary Fund. The Greek government was finally forced to ask for international help after the cost of its borrowing spiralled to a new high, making it prohibitively expensive to borrow money to service existing debts.
Address

Lawmakers: Military could quell Chicago violence
CHICAGO — Two Illinois lawmakers say violence has become so rampant in Chicago that the National Guard must be called in to help. Chicago Democratic Reps. John Fritchey and LaShawn Ford made a public plea to Gov. Pat Quinn on Sunday to deploy troops.
Address

From the Sky, Detroit Looks Like Sarajevo
Chris Hansen traveled to Detroit, Michigan for a Dateline special that aired tonight on the state of what is probably America’s most desolate city. And in aerial footage—devastation porn at its best—Detroit’s grim plight was revealed. Video inside. “Today, from the air, parts of Detroit look like a war zone,” Hansen said in a voiceover near the beginning of the special, before he listed some of the most shocking facts about the city’s current state—the population is less than half of what it was decades ago; there are 400 liquor stores there, but only eight supermarkets—all while panning shots of the consequences of its deterioration flashed on the screen.
Address

Marc Faber – Governments are Going Bust!
Address
Greenspan Wanted Housing-Bubble Dissent Kept Secret
05- 3-10
As top Federal Reserve officials debated whether there was a housing bubble and what to do about it, then-Chairman Alan Greenspan argued that dissent should be kept secret so that the Fed wouldn’t lose control of the debate to people less well-informed than themselves. “We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand,” Greenspan said, according to the transcripts of a March 2004 meeting.
Address

ECB President Favors Global Governance
April 29, 2010
The President of the European Central Bank, Jean-Claude Trichet, told Forbes that global governance is extremely necessary if we want to prevent another financial crisis. In his prepared printed and spoken remarks to the Council on Foreign Relations, Trichet emphasized that politicians, economists, and financiers must work across the Atlantic and collaborate on methods to create an international set of standards.
Address

Rigged-Market Theory Scores a Perfect Quarter: Jonathan Weil
by Jonathan Weil
May 13 (Bloomberg) — Score another triumph for the rigged- market theory. In a feat that would seem to defy the odds, Goldman Sachs, JPMorgan Chase and Bank of America this week each said its trading desk made money every day of the first quarter. Goldman said its daily net trading revenue topped $100 million 35 times last quarter out of 63 trading days. JPMorgan and Bank of America disclosed similar eye-popping stats. Citigroup, too, recorded a profit on each trading day, Bloomberg News reported, citing unnamed people who knew the results.
Address
Exclusive: The Bank Of England Engaged In Flagrant Gold Manipulation In The Interwar Period Via The New York Fed; Does History Repeat Itself?
Tyler Durden
02/13/2010
An article written by University of Tennessee professor John R Garrett, “Monetary Policy and Expectations: Market-Control Techniques and the Bank of England, 1925-1931”, which describes in exquisite detail the gold falsification measures undertaken by the Bank of England in the interwar period in order to impact interest rates in a favorable direction, performed with the full criminal complicity of the Federal Reserve Bank of New York, may mean paranoid “gold bugs” could soon be forever absolved of their “tin hat” wearing status as outright gold, and other data, manipulation by a major central bank is now proven beyond doubt. The implications regarding the possibility of comparable deceitful and treasonous acts by modern central bankers are staggering.
Address
German Economics Minister Confirms Fed Manipulates The FX Market
by Tyler Durden
ZeroHedge
05/28/2010
The German Economics Minister Rainer Bruederle has just confirmed precisely what many have known and said for years, namely that the US Federal Reserve is active in the secondary markets, in this particular case in FX.
Address

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balloon theory

April 14, 2010 18 comments

By Craig Harris
4.14.2010

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History and Background

In 2008, the peoples capacity to finance the debt they carried was exceeded. A global balloon of debt burst causing the largest financial crisis in world history. As articulated by the former Secretary of the Treasury to the US congress, a near cataclysmic chain reaction breakdown of the entire global financial system occurred. With the near systemic failure of the existing financial system, the Keynesian economic model was exposed as a fraud, and other theories and ideas are now emerging in an attempt to better explain past events as well as to offer predictive value that the now discredited Keynesian model will surely fail to predict.

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.  – John Maynard Keynes

It is a current subject of debate whether the debt was intentionally inflated to an unsustainable level or not  by the FED for the purpose of consolidation of wealth, power and control of it’s shareholders, because that has surely been the effect.  Since 2008, ever fewer, ever larger and ever more powerful financial institutions exist, wielding enormous power and control over political bodies and entire populations.  We have anonymous owners of a powerful banking syndicate and non transparent accounting. They claim immunity from any kind of audit. They are granted immunity by their employees (the US congress and Senate).

“And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place” – Senator Dick Durbin on WJJG 1530AM’s Mornings with Ray Hanania

With the worlds assets defined as the marked to market value of all the currencies in existence (the debt) viewed as a balloon, this balloon popped in 2008. As the balloon burst (as money was lost),  more money (debt)  was created in an attempt to reinflate the balloon, but the total balloon size is now much smaller and even more importantly the composition of the balloon has changed. The post crisis actions have amounted to a wealth transfer from (John Q Public not too big to fail lost money) to (too big to fail got money). The trillions of dollars in losses were socialized, but the profits have all been privatized. Bailout capital was directly skimmed off the top by the people who caused the crisis and euphemistically called “bonuses” by their media sponsors.

So since 2008, not only did the FED not “fix” any problems, their global network of central banks, their shareholders, their affiliates and their too big to fails have effected a global wealth transfer from everyone else to them. It is notable that the too big to fail’s margin calls were met by the people of the United States and other countries, instantly doubling 200 plus accumulated years of US debt and globally demonstrating the institutions deemed too big to fail along with the governments themselves now getting even bigger and more powerful. This balloon reinflation was all financed by fiat money in the form of a guarantee to be able to tax the people’s future labor. So looking at any instantaneous balloon size as a pie chart, the capital allocated to the banks increased and the capital allocated to everyone else decreased. That is the definition of a wealth transfer and an explanation for the true state of the economy today.

Whether intentional or not, the creation and then the bursting of this last in a series of ever larger serial bubbles was orchestrated by Alan Greenspan. By suppressing short term interest rates for several years prior to the burst while watching a housing mania develop, the eventual bursting was assured. Mr Greenspan is now quick to deny any responsibility for this obvious cause and effect, as would be expected. As interest rates moved lower during this period, the size of the mortgage people could “afford” was increased and a mania ensued causing real estate prices to spiral higher, thus setting the stage for the housing bubble and it’s subsequent burst. The current steward, Mr Ben Bernanke, has overseen the greatest wealth transfer in the history of the world, from the people, to the banks.  Mr Greenspan and Mr Bernanke’s only remaining defenders are the people in the banking system, their corporate press portfolio, and a few shameless shills who still call themselves professors.

The important point to note is that this bursting balloon of debt was exceeded on 90-100 percent leverage and the assets marked to market is now a loss of some, all or more than the entire individual or corporate net worth. The continued fallout is not at all unlike rolling over a losing position at 95 percent leverage in the futures markets, absorbing the cost of carry at every rollover. At some point, everyone in this position goes bankrupt. Even after the bailouts, today in 2010, there is a suspicion that the banks are still technically insolvent, amid widespread technical insolvency among the population. We don’t know for sure because there is no transparency in the accounting. Assets can be held “off balance sheet” and are not required to be marked to market. Furthermore, the FED claims an immunity from any kind of audit.

Unrelated to balloon theory but important to note, many people realized the housing mania at the time, and yet the responsible parties all argue no one could have seen it in advance. They are still the ones in charge.  That is cause for tremendous concern. Everyone however can agree at least that the bubble did burst.

Balloon Theory Overview

In summarizing the market action prior to, during and after the acute financial crisis of 2008, balloon theory can be used to explain the behavior of the global financial markets.

Balloon theory revolves around the simple idea that the global capital balloon is inflated or deflated by a global reserve currency status and the ground zero creation of the currency (debt) in by the FED NYC. As the balloon expands, the balloon capital is deployed from the US into markets around the world, inflating them as well. As the balloon contracts, the reverse happens. Margin calls in the US are met by repatriating foreign investments back into dollars. During the acute crisis, the US dollar was rising and commodity prices were falling. The corporate media pundits and the people who caused the crisis called it “a flight to safety” and “deflation”. A flight to safety to ground zero of the financial crisis? No, a repatriation of balloon capital back to the US to meet margin calls. So balloon theory says the whole “flight to safety” argument is a red herring or an erroneous explanation for a real event. There is no safety in an unpayable debt, which is what the US dollar and several other fiat currencies now represent.

Balloon theory would argue for a very simple analysis of global capital market flows and investing, at least for the time being until the reserve currency status of the US dollar is lost and a global central bank emerges. It would argue that if the balloon of debt is expanding, then capital is being deployed from NYC into every corner of the world, inflating all asset markets around the world as happened from 2000 to 2008. This explains why you can for the most part overlay an equity index chart from two seemingly unrelated countries and have them look more or less the same. They are both being inflated by the same balloon. When the balloon is inflating, then foreign assets are being bought and US dollars are being sold. When the balloon is deflating, foreign assets are being sold and US dollars are being bought to meet margin calls. The entries and exits with smaller doors experience greater volatility. When the US dollar was rising in the acute crisis phase, commodity prices were moving lower because they are priced globally in dollars and dollars were rising due to repatriation of money (debt) to met margin calls.

Balloon theory also offers a simple explanation for inflation. As money is printed, the balloon inflates, and as the capital is deployed globally, the chief US export becomes inflation. All asset markets around the world become inflated from too many dollars (too much debt). So we currently have a situation where the balloon burst, and an attempt is being made to reinflate the balloon by printing money. All the western central banks are following the same prescription, some more than others.

In the past two years since the 2008 balloon of debt burst, the worlds central banks have all printed money (bought their own debt) to finance it in what has amounted to an attempt to prop up their currencies versus real assets by eagerly buying them. This has been called quantitative easing or debt monetization. This action has now forced long term interest rates to an artificially low level.

Printing money out of nothing on behalf of the people’s future labor and giving the money an artificially high market value has provided the appearance of stabilization, but this is another red herring. In other words, if the people can’t pay the debt, then the current market value of the currency is incorrect. By a fraud, the central banks have all printed money (bought their own debt up to and beyond the people’s ability to finance it) and have all in the process fraudulently priced their currencies. At the present time, artificial relationships are now required to be maintained by brute force clandestine open market activities to coerce markets into established policy ranges. This is a warning sign of future instability. While appearing to be a “fix”, once free markets are now reliant on what are in effect stealth price controls on currencies, equity markets, interest rates and commodity prices.

If as a central banker you can price your currency by taxing up to an infinite amount of the people’s labor, then that poses new future systemic risks. On it’s most basic level, the people do not have an infinite amount of future labor available to tax. Thus on it’s most basic level, the worlds financial system currently rests on the fraudulent premise that the worlds central banks can tax their future labor up to an infinite amount.

The most fundamental problem with the post crisis policies is that although the balloon burst, the debt which has not yet defaulted and the derivatives still exist. So reinflation of the balloon by printing money piles more debt on to the existing debt only to achieve a balloon size smaller than the existing balloon before it burst. Balloon Theory says the instantaneous result of this action will be global asset inflation but at a reduced activity level which is exactly what we have seen. It says the long term result of this action will be decay in terms of a declining standard of living for all of the tightly coupled western monetary system economies. Lower aggregate incomes will meet higher taxes and increased cost of goods and services as the currency (or currencies), which have in effect become tokens of unpayable debts, continues to lose their legitimacy. Some countries will, and are being affected more than others. Social unrest will likely develop and indeed has already developed in some countries like Greece. It is obvious now however, as it was during the real estate bubble, that ever increasing and now in many cases unpayable debts are no kind of fix and must eventually be resolved. It will be resolved sooner, or later, but it will be resolved. Math doesn’t lie. Central Bankers, politicians and their corporate media staff do.

the “long term investing” con – an overview

February 21, 2010 8 comments

By Antecedent Insider
2.21.2010
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con (kn) Slang
tr.v. conned, con·ning, cons
To swindle (a victim) by first winning his or her confidence; dupe.
n.-A swindle.
adj.-Of, relating to, or involving a swindle or fraud: a con artist; a con job.

With relentless enthusiasm, the corporate media extol the virtues of  “long term investing” in Wall Street products which range from a simple savings account to impossible to understand concoctions  that exploded like financial derivative death stars going supernova in 2008. The public is told in print, on TV and on the radio by various “experts” whose credentials all came from within the industry, “if you save your money and passively invest it for the long term,  if you don’t engage in market timing and make regular contributions, you will be rewarded”.

This wisdom is coming from a multi-billion dollar industry where everyone has something in common. None of them make any money unless you invest in their warez. Wall Street and all it’s offshoots have something else in common. They are all parasitic in nature. They don’t make anything, they all rely on money flowing into the system in one way, or another. From a financial publication, to a tv network, to a worldwide lobby of pundits, advisors, consultants, and various other parasites, they all either just skim off the top or take a fee directly.

This essay will challenge the claim of long term investing in Wall Streets myriad of products as a “sure thing” as a patently false, even fraudulent statement…. a con perpetrated by people and institutions that require a continued inflow of  money to support their existence.

We will examine the last 97 years, the modern period from when the Federal Reserve Corporation took command of issuing the money on behalf of the US Government.

From 1913 until 2010, the US dollar has lost approximately 95 percent of it’s purchasing power. This is equivalent to a 3% annual return, after taxes. In other words, over this very long term, an investor had to earn 3% after taxes just to break even in terms of maintaining purchasing power. In easy to understand terms, if you could afford to buy a loaf of bread in 1913 and invested the bread money on Wall Street until 2010 earning 3% per annum after taxes, you would still be able to buy a loaf of bread today. Your wealth would not have increased at all, it would have remained constant.

So the investor had to earn an average annualized return over the last 97 years of greater than 3% after taxes, to actually increase their net wealth in terms of purchasing power. We will use that as our baseline. If you could earn 3% after taxes (4.2% before taxes using a 30% tax rate), then you broke even.

Now that we have a baseline standard, lets define “long term”.  Over the very long term the only guarantee that can be made is that you’ll be dead.  So lets define an “investing lifetime” to mean long term. If you start your career out in your 20’s and retire in your 60’s, that’s a period of 40 years and would be the most generous period.

For practical purposes, people are often operating on a 20 year time line from when they start “investing seriously” meaning that they have accumulated any significant savings to invest. With those assumptions, a reasonable time frame to consider the idea of “long term investing” is 20 to 40 years.

So the question now becomes,  can an investor over a period of 20 to 40 years reliably earn a positive return of greater than 4.2% through  “long term” investing? This is the point where people will start to play with statistics.  The entire industry of wall street will play with the statistics so as to conclude that long term investing is the answer, because they require your money to feed the industry. We are going to take an independent look at that claim.

The researched conclusion is stated in advance, and then backed up by a few examples. The conclusion is as follows. There are periods of time, often long periods of time, as much as 20 years or so where blindly investing in stocks, bonds or some combination thereof would have produced positive returns of greater than the baseline 4.2 percent required to maintain your purchasing power. These are the periods often used for “fun with statistics” that end up in glossy brochures.

On the other hand, there have been periods of up to 60 years out of the last 97 where investing in stocks, bonds or some combination thereof was a money losing idea.

The position this overview will take is that since there have been periods of an “investing lifetime” which have produced extremely negative returns, the idea of “long term investing” is essentially a crapshoot.  Since NO ONE has perfect knowledge about the future, your long term investing success will be totally dependent on the luck of the draw…when you were born, at what point you begin your investing, and what happened in the world during the course of your investing lifetime.

THEREFORE, people who blindly accept the tired old “long term investing” canard coming from brick buildings, expensive mahogany desks and Ferrigamo shoes are likely to be disappointed with their results. Not unlike gamblers funding the opulence of  Las Vegas, those brick buildings, expensive furniture and the Ferrigamo shoes on Wall Street were all paid for with savings.

Lets start out by looking at some long time periods.

If you were unlucky enough to have been fully invested in 1929, it took until 1954, 25 years later,  for the market to regain it’s former levels. Long term investing over this reasonable investment lifetime of 25 years was a losing idea.

Again if you were unlucky enough to be fully invested in 1966, you had to wait 18 years, until 1984 for the market to return to it’s former levels. This of course ignores the 4.2% pre tax return necessary just to maintain your purchasing power.

There was a 57 year period from 1929-1986 where a “long term” investment in the index earned but 1.7 percent per annum. Even considering dividends and dollar cost averaging, there would have been long periods within this “greater than an investment lifetime” period where real returns would have been strongly negative.

In Japan, The Nikkei 225 index peaked around 40,000 in late 1989, and here today in 2010,  20 years later, it stands around 10,000…a loss of around 75% for holding for a period of 20 years. Combined with the increase in the cost to live because of inflation, this represents very close to a total loss for a “long term Japanese investor”.

Thousands of well meaning Chinese retirees were sold Lehman Brothers structured notes that were “guaranteed”. In 2008  those investors experienced a total loss of their retirement savings. US investors who had substantial portions of their retirement savings in Lehman Brothers stock, was confiscated. Then there’s Enron, and Bear Stearns, Fannie Mae, and the list goes on, and on and on. None of these were fly by night NASDAQ names. These were supposedly “blue chip” stalwart investments worthy of your lifes savings. Nothing could have been further from the truth. Many “investors” in these issues didn’t have the pleasure of calculating a return, because they lost their principal.

For decades, the “blue chip” companies were touted as safe, reliable ways for investors to save and accumulate wealth. Taking General Motors as another one of those “blue chip” investments, there is no doubt that General Motors made a lot of  automobiles and a lot of money over the course of it’s existence…and those profits all went to whom? If an investor had dollar cost averaged into these shares for an entire investment lifetime, or for that matter, if  regular contributions were made every month for the entire 97 year period we are considering, any way you slice it, they lost nearly all of their money. Forget about a rate of return on the money, these unfortunate investors didn’t even get a return OF their money.  Over the course of the same time period, there were a lot of GM executives and Wall Streeters who got wealthy off of GM. The point here being that even if you or your “investment advisor” are lucky enough to pick the a profitable “blue chip” company for the “long term”, there is no guarantee whatsoever that as a shareholder or bond holder of that company you will be rewarded. To the contrary, there is a risk that you could save and “invest”, only to lose your hard earned savings.

Today, investing in a 10 year government bond will earn about 3.5 percent. So, if you buy those bonds today and hold them to maturity for 10 years, the only thing you are guaranteed is loss of  purchasing power of at least 0.7 percent per annum for 10 years. If we enter a period of high inflation, the results will be much worse.

Citing examples of  “investment lifetimes” which yielded negative real returns or a partial or even total loss on the investment is limited only by the space available to write them down.

It’s a “stock pickers” market. How many times have we all heard that? Let us demystify that claim and expose one of Wall Street’s dirty little secrets. When the market goes up, 9 out of 10 stocks go up. When the market goes down, 9 out of 10 stocks go down.  Statistically speaking, if you own more than one or two stocks, it isn’t a stock pickers market, it’s 9 out of 10 stocks going up or down. If you do own only one or two stocks, lets hope they weren’t Bear Stearns and Enron.

This overview will conclude the entire Wall Street parade ignores everything outside of their realm. The idea is that Wall Street is the only place to “invest”. Nothing could be further from the truth. The truth is that they are good salesmen and they have entire TV Networks to promote their warez. Given the events of the past two years, it is questionable as to whether the term “investing” or “investment” should apply to Wall Street at all. It appears to operate more like a casino where the house always wins and the rules are changed on the fly for the benefit of the house. Interestingly, with gambling still illegal in most places, the Wall Street casino still opens for business 5 days a week thanks to a bailout from the citizens. We are all speculators now.

“There is only one side of the market and it is not the bull side or the bear side, but the right side.” – Jesse Livermore

You can fool some of the people all the time, and those are the ones you want to concentrate on.” – George W. Bush

“The nature of any human being, certainly anyone on Wall Street, is ‘the better deal you give the customer, the worse deal it is for you’. – Bernie Madoff

Dow Jones 100 yearsDJIA chart

why do the worlds central banks manipulate the price of gold?

February 14, 2010 5 comments

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By Big Brother
2.14.2010
EarthBlog News©
https://earthblognews.wordpress.com/
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There is a social theory called reflexivity which refers to the circular relationship between cause and effect. A reflexive relationship is bidirectional where both the cause and the effect affect one another in a situation that renders both functions causes and effects.

The principle of reflexivity was first introduced by the sociologist William Thomas as the Thomas theorem, but more importantly it was later popularized and applied to the financial markets by George Soros.  Soros restated the social theory of reflexivity eloquently and simply, as follows:

markets influence events they anticipate” – George Soros

This theorem has become a basic tenet of modern central banking. The idea is that manipulation of the psychology of market participants affects the markets themselves. Therefore, if you artificially suppress the price of gold, you reduce inflationary expectations and reduce inflation itself…so the theory goes.

This same idea is applied to other markets as well. In 2010 the Federal Reserve is printing money…monetizing debt; selling debt and then buying it themselves. This has the effect of reducing long term interest rates to levels lower than they would otherwise be, leading market participants to believe that the currency is sound when it isn’t. “How can we be printing too much money if interest rates are low and the price of gold is not soaring?”. The answer is of course, they are manipulating both markets. When combined with government data showing a rate of inflation substantially lower than the real increase in the cost of living, this presents a plausible explanation to a casual observer.

You could further distill this entire idea down to lying in order to achieve a policy objective. The worlds central banks routinely manipulate markets, from the equity markets to the interest rate markets to the currency markets to the physical markets in order to influence investor psychology and achieve policy goals.

The US government is also complicit in the effort by distorting, manipulating and fudging important economic data. All of this is done under the guise of “free markets”, when the reality is that the worlds central banks are at this point engaged in a massive fraud, and endeavor to cover it up by covertly manipulating the markets using high leverage derivatives and what amounts to an infinite fiat bank account.

From the time when currencies were de linked from gold, central banks have enjoyed the freedom to print as much money as they wish, subject only to inflationary concerns (a loss of purchasing power). In other words, the freedom to print money is limited only by indicators and attitudes about inflation, which then feed inflation itself. The money has no actual value, it is redeemable only for more notes which can be printed in unlimited quantity subject only to inflationary concerns. In other words, in a perfect world, (according to the central banks) they would be unrestrained by any inflationary effects of unlimited money printing; they could simply print as much as they want. This is why manipulation of the gold market is critical to the con. If the price of gold were soaring at the same time they were trying to convince the markets that the currency was sound and inflation was low, that story line wouldn’t make any sense. How often have we all heard the commentary “gold is going down so there must not be any inflation?”

It is noteworthy that since the creation of the Federal Reserve in 1913, the US dollar has lost 95% of it’s value. So while in the short term manipulation of the markets may seem like a reasonable approach, the policies of market manipulation have clearly failed in the longer term.

The complicit corporate media are also involved in the fraud through advanced propaganda techniques which portray anyone who favors gold over notes to be somewhat unstable. The term “gold bug” is used with a carefully crafted negative connotation. FED shills who may be employed at prestigious universities are called out to dismiss the notion that the central banks could possibly not be telling the truth in spite of the fact that all of the established players have been caught lying over and over again. The current head of the US Treasury, supposedly a credible figure…a former head of the NY Federal Reserve, got caught cheating on his taxes which didn’t slow down his nomination for the position by the people’s representatives at all. He could have shown up to the hearings with a head in a basket and it wouldn’t have mattered. So this corporate media festival of lies attempts to portray criminals as godlike figures and maligns anyone who might not trust their “money” to be sound. The FED’s fiat money is debt. Fiat money is debt and the two terms are interchangeable.

I will leave you with this, which supports what I have said above.

Exclusive: The Bank Of England Engaged In Flagrant Gold Manipulation In The Interwar Period Via The New York Fed; Does History Repeat Itself?
by Tyler Durden
Zerohedge
02/13/2010
An article written by University of Tennessee professor John R Garrett, “Monetary Policy and Expectations: Market-Control Techniques and the Bank of England, 1925-1931”, which describes in exquisite detail the gold falsification measures undertaken by the Bank of England in the interwar period in order to impact interest rates in a favorable direction, performed with the full criminal complicity of the Federal Reserve Bank of New York, may mean paranoid “gold bugs” could soon be forever absolved of their “tin hat” wearing status as outright gold, and other data, manipulation by a major central bank is now proven beyond doubt. The implications regarding the possibility of comparable deceitful and treasonous acts by modern central bankers are staggering.
more at ZeroHedge

For extra credit, I have this.

TrimTabs and the Plunge Protection Team
Wednesday, January 06, 2010
We haven’t heard too much about the Plunge Protection Team lately, that is, until the folks at TrimTabs talked to the folks at Marketwatch yesterday and this report was filed: The unusual circumstances that led the U.S. market to rally powerfully in 2009 might be explained by secret government moves to buy stocks, according to Charles Biderman, the founder and chief executive of TrimTabs, a research firm that tracks liquidity flows in the market.
more

and finally we have Mr Alan Greenspan who by authoring this back in 1966 has clearly established himself today as the king of fraud.

Gold and Economic Freedom
by Alan Greenspan
1966
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.
more at 321gold

Edit: Add

“The last duty of a central banker is to tell the public the truth” – former US Federal Reserve Chairman Alan Blinder (PBS’s Nightly Business Report, 1994)

We looked into the abyss if the gold price rose further.  A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.  Therefore at any price, at any cost, the central banks had to quell the gold price, manage it.  It was very difficult to get the gold price under control but we have now succeeded.  The U.S. Fed was very active in getting the gold price down.  So was the U.K.” – Eddie George, then Governor of the Bank of England and a director of the BIS

In Deception and Abuse at the Fed, Robert Auerbach, a former banking committee investigator, recounts major instances of Fed mismanagement and abuse of power that were exposed by Rep. Gonzalez, including:
* Blocking Congress and the public from holding powerful Fed officials accountable by falsely declaring–for 17 years–it had no transcripts of its meetings;
* Manipulating the stock and bond markets in 1994 under cover of a preemptive strike against inflation;
* Allowing 5.5 billion to be sent to Saddam Hussein from a small Atlanta branch of a foreign bank–the result of faulty bank examination practices by the Fed;
* Stonewalling Congressional investigations and misleading the Washington Post about the 6,300 found on the Watergate burglars.
address

King World News Interviews Metals Trader Andrew Maguire
Address

A London trader walks the CFTC through a silver manipulation in advance
by cpowell
GATA
Thu, 2010-03-25
Address

BOMBSHELL – Whistle Blower Comes Forward With Solid Proof The Price Of Gold And Silver Is Being Manipulated By Major Financial Institutions
Address

two possible paths with the same endpoint

February 12, 2010 25 comments

By Staff
2.12.2010
EarthBlog News©
https://earthblognews.wordpress.com/
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As we move forward into 2010, it is becoming increasingly apparent to many observers that the financial breakdown which started in 2008 is by no means over.  We are seeing increasing investor concerns regarding the solvency of not just individual corporations, but entire countries. In 2009 Iceland went bankrupt and in 2010 concerns are emerging regarding Greece, Spain and spreading across all of Europe. The long term viability of the Euro is even being called into question as I write this essay today.

What we are seeing is the result of an ever increasing and now unpayable amount of debt which is spreading like a terminal cancer across the entire western world. There have been many fiat currency systems devised throughout history, and they all have one thing in common. They all eventually went bust, because it is human nature to want something for nothing and spend money you don’t have to spend when there is no restraint or restriction against doing so. The total amount of debt has now exceeded the capacity to finance the debt except by creating ever more debt.

The entire western world has been financially controlled and mismanaged by an international syndicate of central bankers for the past several decades. This, along with unrestrained government spending has brought us to a terminal stage of collective bankruptcy as the power and control has shifted from the many, to the few who are now desperately attempting to maintain the status quo with various financial band aids,  shell games,  and smoke and mirrors “solutions”.

The worlds financial markets are now gyrating day by day as market participants move like a flock of sheep or school of fish seeking safety by abandoning one currency after another depending on the day.  The fact is however that in almost if not every Western G7 economy, the government is technically bankrupt, with orders of magnitude more debt than can ever be repaid in constant dollars. Even moreover, there is also massive insolvency among the corporations and the populations of these countries.

Where do we go from here? There are only two possible paths, and they both have the same endpoint which is systemic breakdown and failure.

The worlds central banks can continue printing money (monetizing the debt) in an attempt to keep the western banks solvent and inflate away the unpayable debt, or they can stop monetizing the debt and watch the entire western world collapse into a complete systemic breakdown of insolvency and deflationary collapse. If there was no printing press, if we were not all on a fiat money system, this would be the only choice. With a printing press, which is the only tool they have to attempt to “solve” this problem and save themselves from collapse and insolvency, they are going to keep using it.

The point of this essay however is to argue that whichever path is taken, the end result is going to feel the same for most of the worlds citizens. Whether by deflationary collapse or inflationary depression, the citizens of the western economies are going to experience a rapid decline in their standard of living either because the money they have won’t have the same purchasing power (an inflationary depression) or because they have no money to spend (a deflationary collapse). This will come amid sustained high levels of unemployment, and increasing government authoritarianism to combat increasing social unrest and decay.  It’s not much of a prognostication, because it’s already happening right now in countries like Greece.

I feel strongly that the G7 central banks will continue to take the path they have already embarked on, which is to save themselves by printing money, exacerbating the existing issue which is too much debt. The larger point however is that regardless of the path they take, the Western World is bankrupt from a decades long party of borrowing to spend money they didn’t have to spend. I’m taking cover as the house of cards comes down.

we are all speculators now

January 23, 2010 12 comments

By Self Hating Trader
1/23/2010
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n·vest

v. in·vest·ed, in·vest·ing, in·vests

v.tr.1. To commit (money or capital) in order to gain a financial return

When the Keynesian fractional reserve fiat banking model was sold to the public, the idea was that the citizens would accumulate wealth and prosper, furthering wealth and prosperity among the many and building the nation from the ground up. Using hindsight, we now know it was all a fraud.


The American Dream was sold on the idea that a citizen could work hard and save. You could “invest” your savings and earn a rate of return greater than the increase in the cost of living, thus increasing your real wealth over time with the magic of compound interest. That was the incentive to save. That was the basis for retirement. This could be easily accomplished by investing in government bonds which would yield a rate of return greater than the rate of inflation, plus a risk premium, plus a real return. The return could be calculated in advance at purchase time, and the only risk associated with the investment was a US default, which would have been called “impossible”. A retirement saver or a pension fund could calculate exactly how much the current investment capital would be worth at maturity. This provided certainty, stability and a sound basis for real economic growth, upward mobility and wealth accumulation by the citizens. This was called investing.

When we fast forward to 2010, we having a banking system that penalizes savings and provides incentives to borrow (from them at up to 30% interest) and to accumulate debt. We have a stock market that is artificially and covertly managed by the Government and the Federal Reserve. This sentiment used to be the bastion of “fringe bloggers” until recently when the CEO of Trim Tabs concluded that all data leads to Government manipulation of the stock market, something serious independent market watchers have all known for a long time. This revelation was met with a yawn by the corrupt, complicit corporate media.

We have short term interest rates held effectively at zero and we have a benchmark Inflation rate that is a contrived figure published by the Government to keep their costs down and artificially inflate the GDP. The officially stated rate of inflation, an important number that is used for all sorts of government payouts, does not correspond at all with the real increase in cost of living for ordinary Americans. Everyone who pays bills and lives in the real world knows this, and yet FED shill after FED shill are trotted out by the corporate media to take that number as fact without question. This is called fraud.

Furthermore, we have long term interest rates being artificially suppressed by so called “quantitative easing” program….selling debt out of one window and buying it from the other window…a classic ponzi scheme which always guarantees a buyer. Beyond that we have the banking system covertly and surreptitiously dabbling in any free market that dares to violate their policy goals. Various markets are regularly attacked by the few remaining large trading houses who have the deepest of pockets, and are backed by the taxpayers. These are not free markets, not in any sense, and not by any recognized definition. This is a financial attack on the American people by criminals who aspire for ever more wealth, ever more control, and ever more power at the expense of citizens and the nation.

We are told by the corporate media Wall Street cheerleaders including media personalities and pundits calling themselves economists and professors, that the FED is saving the economy, when in reality what they are doing is saving themselves and their friends on Wall Street. At the same time they are slowly, steadily and methodically bankrupting the citizens. This statement is reflected by the documented, increased concentration of wealth in America by a select few, and by the decreasing wealth and net worth of the many.

In the United States today there is no way to earn a guaranteed rate of return greater than the real increase in the cost of living. Today the opposite is true. As a saver, as an investor in US government bonds or other “safe” securities, the only thing that you are guaranteed is that you will slowly go bankrupt because the return on your money is less than the real rate of increase in the cost of living. This has the effect of being a wealth confiscation mechanism. It is a continuous wealth transfer from the people to the banking system and as that continues you would expect the middle class to disappear, which is exactly what is happening.

So what can a saver do?

  • Invest in an artificially inflated, manipulated, overpriced stock market and hope it will go even higher? (the greater fool theory)
  • Park your savings in a money market and have your wealth slowly confiscated as the return does not even keep up with the increase in the cost of living? (a certain road to serfdom)
  • Invest in corporate bonds that yield a higher return but put the investor at greater risk of a default?
  • Invest in long term government bonds at artificially suppressed yields and watch your live savings be transferred to the government and banking system through a continuous loss of purchasing power?
  • Speculate in commodities, currencies or other risky and speculative derivative instruments that most people have no business speculating in?

None of these are viable alternatives for an “investor”. “Investors” are forced to speculate and we are all speculators now. We are forced to speculate that a manipulated stock market will move even higher . We are forced to speculate that the FED will continue to be successful in manipulating interest rates lower through the quantitative easing program. We are forced to speculate that one asset or another will move higher or lower amid imperfect knowledge about the future and manipulated markets corrupted by insider trading at the very highest levels.It’s like playing cards at a casino where the only thing you know is that the house is cheating. Why would anyone do that?

The law of large numbers and the laws of probability ensure one thing. The wealth of the citizens of the nation will be slowly, continuously confiscated by a criminal, privately controlled banking syndicate and cheerled by a corrupt, complicit corporate media. Say goodbye to the country you once knew. It’s time to be realistic. There will be no reform because the system has been corrupted, and the highly concentrated wealth now runs the show. It has the politicians dancing like puppets. It has the media in it’s pocket. Say goodbye to freedom and economic prosperity. We have something different now. Something dangerous.

income distribution in America

January 6, 2010 13 comments

By L. Strauss
1.06.2010
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This essay will offer evidence supporting this claim from an introspective look at the future of America.

During 2009, the leadership has taken actions which benefit the corporations and special interests who own them, while showing nothing but wanton disregard for the millions of citizens whose lives their sponsors have destroyed. What we are headed towards in the US if we are not there already, is a Straussian society of ultra rich, ultra powerful oligarchs and a serfish powerless population with no middle class to speak of.”

I would like to start with this chart from mybudget360.com

incomedistribution

The key takeaway from this chart is that 0.1 percent of Americans are making more than twice what the other 99.9 percent of Americans are making, combined.

0.1 percent of Americans, assuming a population of 300 million equals 300,000 individuals, controlling more than twice as much wealth and power as everyone else put together.

An oligarchy (Greek Ὀλιγαρχία, Oligarkhía) (oligocracy) is a form of government in which power effectively rests with a small elite segment of society.

Ideally, in a healthy democracy, income distribution would have a bell curve shape with the vast majority earning a wage that can support a middle class lifestyle…as was the case in America for many decades This would be indicative of a healthy thriving middle class.

I would also like to point out that an oligarchical income distribution is typical of a communist or (other form of totalitarian regime) where you have the serfs (99.9 percent of the population) and the elite (0.1 percent of the population).

If you were to research who this 0.1 percent of people are, you would find that they are the same ones telling you through their media outlets how things are, how to think, what to believe and why you should continue to trust them.

Needless to say, when such a small minority are in control, there is no hope of democracy, or a constitutional republic or anything else you would like to believe this is.

Edit: Add Footnotes

Middle Class Becoming the New Poor as Job Losses Mount
By Mac Slavo
February 23rd, 2010
The American dream is becoming a nightmare for millions across the country as job losses continue to mount, unemployment runs out and new job creation is simply not happening. Millions are facing unemployment for years to come:
Address

Income inequality in the United States
From Wikipedia, the free encyclopedia
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Tour of the US Income Distribution, “The L-Curve”
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Wealth, Income, and Power
Address

The Distribution of Wealth in America
Address

The Middle Class Two Income Trap – Two Breadwinners plus Extra Money to support the Banking Industry. How Middle Class Americans are losing Ground by Supporting the Financial Sector.
Address

43% have less than $10k for retirement
By Chavon Sutton
March 9, 2010
NEW YORK (CNNMoney.com) — The percentage of American workers with virtually no retirement savings grew for the third straight year, according to a survey released Tuesday.
Address

15 Years Ago, the Combined Assets of the 6 Biggest Banks Totaled 17% of GDP… By 2006, 55% … Now, 63%
Monday, March 1, 2010
Address

Food for Thought: A Graphical Peek at Income Inequality in the United States
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