Wednesday, February 24, 2016

David Stockman's Dangerous "Best Strategy"


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Financial Safety Services commentary : 

Both good and bad news in a recent "interesting" article by David Stockman: "The Best Strategy for the “Bubble Finance Era”" 

First, the good news:

"Money You Can Afford To Lose"

What's interesting to me is the fact that at least he has had the sense to imply that the saver/investor divides his/her money into 2 categories, as he states [using exactly my own words no less, but purely by coincidence, I'm sure :-) ], that a person should use "money you can afford to lose" to make bets with:

".....On the wealth-building side, you should consider deploying your discretionary capital — money you can afford to lose — by betting against vastly overvalued stocks. This could reap huge rewards during this unfolding market crash. ....."

My Question: So What About Money You Cannot Afford To Lose?

If you separate out the money you can afford to lose, as he suggests [assuming you are lucky enough to have some, that is :-) ], then the money left [presumably the bulk of your savings], must be money you cannot afford to lose.

And now, the bad news:

About this precious money/savings, which Mr Stockman labels "wealth preservation" money, he says:

"....On the wealth preservation side, you should buy the one asset that will be left standing tall when the central bank money printers finally fail: gold." 

So basically, he's telling the reader to put all of the money they cannot afford to lose into one "investment",  gold bullion, and then any money that they can afford to lose into puts [i.e shorts] on certain "overvalued stocks" [or is he talking about the entire market?]

This Just In: Nobody Can Consistently, Reliably Predict Future Economic Events

Unfortunately, because no one can reliably predict future economic events and scenarios, putting all of one's money you cannot afford to lose into one investment [gold] is an attempted predictive [and therefor very dangerous] move; that is, he is stating unequivocally that one type of economic future is "on the cards" for sure, that is inflation, as gold, although it does OK in times of unrest [e.g. bank instability etc.], only really does really well during inflation; that is, when the world's No.1 reserve currency, the $US, is losing purchasing power at an increasing rate.

Image source

 Or, if you believe he is not predicting inflation in yours/ my lifetimes,  then he is "merely" predicting  [1] the collapse of the US banking system, and [2] that gold will be the best bet when this happens, in yours and my lifetimes.

Bottom line: he's advising the reader to make a predictive bet on the unknown [and unknowable] future, with gold, using money that you, the reader cannot afford to lose.

Is The End of the Federal Reserve and $US System Coming Soon?

Like Mr Stockman, I believe that at some point, the Federal Reserve system might collapse, or at least change drastically.


 [1]: there is, and can be, no guarantee that this might happen within yours or my lifetimes.

[2] if it does collapse, there is no guarantee that the system will collapse or change in the manner that  either you, I, or Mr Stockman or anyone else imagines, nor that what replaces it would be what he, you,  I, or anyone else imagines "should" or "would" replace it. 

Again, the economic future is largely unknowable to us.

Therefor, using only money you can afford to lose [ or some of it, assuming you have any in the first place], it might make sense to buy puts  [i.e "shorts", or "short positions"],  on bank stocks, instead of using all of that money you could afford to lose to buy puts on US stocks, as Mr Stockman suggests, if you believe that the banking industry is in for  rough[er] times in the future.

As to his prediction of large,  imminent stock market losses, I have no idea, although I do currently lean towards there being a significant correction in the current deflationary environment- but at least he's telling you to bet with money you can afford to lose, so that if he's wrong, then no real damage is done to your savings, which is very much in contrast to what might happen if you bet all of the money you cannot afford to lose [i.e long term savings] on one investment vehicle, gold, as he advocates in the article. If he's wrong about that bet, you could be in serious trouble.

Regards, onebornfree.
email: onebornfreeatyahoodotcom

Financial Safety Services Long Term Savings Plan Results Update [1972- 2011] 

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Tuesday, October 27, 2015

The Fed Can’t Raise Rates, But Must Pretend It Will

[ Financial Safety Services commentary: I don't care  what the Fed does/does not do, nor whether, according to Mr or Ms. highly esteemed  investment advisor or economist with a claimed "near perfect prediction record" [insert  name of choice here ] , we are supposedly in for more recession, depression, deflation, hyper inflation, a stock market boom, or whatever . 

Because, regardless of what happens to the economy, my extremely simple, entirely self-managed, fully diversified, once per year adjusted long term savings plan will be safely protected, and will , 9 times out of 10, grow at an average of 8% per annum over and above the prevailing inflation rate, year in, year out, as it has since 1986 when I started using it.
  Savings plan results 1972-2011:  Regards,onebornfree ]

The Fed Can’t Raise Rates, But Must Pretend It Will 


Waiting for Godot is a play written by the Irish novelist Samuel B. Beckett in the late 1940s in which two characters, Vladimir and Estragon, keep waiting endlessly and in vain for the coming of someone named Godot. The storyline bears some resemblance to the Federal Reserve’s talk about raising interest rates.

Since spring 2013, the Fed has been playing with the idea of raising rates, which it had suppressed to basically zero percent in December 2008. So far, however, it has not taken any action. Upon closer inspection, the reason is obvious. With its policy of extremely low interest rates, the Fed is fueling an artificial economic expansion and inflating asset prices.

Raising short-term rates would be like taking away the punch bowl just as the party gets going. As rates rise, the economy’s production and employment structure couldn’t be upheld. Neither could inflated bond, equity, and housing prices. If the economy slows down, let alone falls back into recession, the Fed’s fiat money pipe dream would run into serious trouble.

This is the reason why the Fed would like to keep rates at the current suppressed levels. A delicate obstacle to such a policy remains, though: If savers and investors expect that interest rates will remain at rock bottom forever, they would presumably turn their backs on the credit market. The ensuing decline in the supply of credit would spell trouble for the fiat money system.

To prevent this from happening, the Fed must achieve two things. First, it needs to uphold the expectation in financial markets that current low interest rates will be increased again at some point in the future. If savers and investors buy this story, they will hold onto their bank deposits, money market funds, bonds, and other fixed income products despite minuscule yields.

Second, the Fed must succeed in continuing to postpone rate hikes into the future without breaking peoples’ expectation that rates will rise at some point. It has to send out the message that rates will be increased at, say, the forthcoming FOMC meeting. But, as the meeting approaches, the Fed would have to repeat its trickery, pushing the possible date for a rate hike still further out.

If the Fed gets away with this “Waiting for Godot” strategy, savings will keep flowing into credit markets. Borrowers can refinance their maturing debt with new loans and also increase total borrowing at suppressed interest rates. The economy’s debt load can continue to build up, with the day of reckoning being postponed for yet again.

However, there is the famous saying: “You can fool all the people some of the time and some of the people all the time, but you cannot fool all the people all the time.” What if savers and investors eventually become aware that the Fed will not bring interest rates back to “normal” but keep them at basically zero, or even push them into negative territory?.........."

Rest of article here

Regards, onebornfree

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