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.

However:

 [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

Edit: Related article [2017]: "Got Money You Can Afford To Lose?

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