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Old April 21st, 2012 #1
Alex Linder
Join Date: Nov 2003
Posts: 45,382
Blog Entries: 34
Alex Linder
Default Getting Richer Through Speculation

[Wealth is a form of power that is open to Whites and should be exploited as much as possible. Earn money, save money, speculate to make more money. Look around for people who are successful speculators, and consider their tips. Many good tips are to be found among the writers posted at . Bolding and underlining are mine. Speculation teaches you how to think because it punishes you when you're wrong. Religion is popular with inferior minds because there is no right and wrong, so the ego of the nigger (and most whites are niggers) can never be bruised by being shown to be wrong. But when you speculate and lose money, the loss isn't deniable. The fact that your thinking was shown incorrect gives the speculator two great gifts: 1) it teaches him the true value of his opinion (in 99% of cases, less than the owner-operator thinks); and 2) it shows him that if he can learn to think more carefully, more precisely, he can not just lose but win. Man progresses through daring, and risk and disbelief - these are the source of civilizational development. Religion's natural and ineradicable tropism is back into the warm, soupy swamp of animal nescience and fixedness.]

How To Speculate Your Way to Success: Doug Casey

by Doug Casey
Interviewed by JT Long of The Gold Report

Recently by Doug Casey: Sociopathy Is Running the US

So far, 2012 has been a banner year for the stock market, which recently closed the books on its best first quarter in 14 years. But Casey Research Chairman Doug Casey insists that time is running out on the ticking time bombs. Next week when Casey Research's spring summit gets underway, Casey will open the first general session addressing the question of whether the inevitable is now imminent. In another exclusive interview with The Gold Report, Casey tells us that he foresees extreme volatility "as the titanic forces of inflation and deflation fight with each other" and a forced shift to speculation to either protect or build wealth.

The Gold Report: You told us about two ticking time bombs last September, Doug – the trillions of dollars owned outside the U.S. that could be dumped if the holders lose confidence, and the trillions of dollars in the U.S. created to paper over the 2008 liquidity crisis. It's been six months since then. Have we averted the disaster or are we closer than ever?

Doug Casey: Things are worse now. The way I see it, what's going to happen is inevitable; it's just a question of when. We're rapidly approaching that moment. I suspect it will start in Europe, because so many European governments are bankrupt; Greece isn't an exception, it's the norm. So we have bankrupt governments trying to bail out the European banks, which are bankrupt because they've loaned money to the bankrupt governments. It's actually rather funny, in a perverse way.

If it were just the banks and the governments, I wouldn't care; they're just getting what they deserve. The problem is that many prudent middle class people are going to be wiped out [Creating an opening for our politics, if we have solid economic policies to match our racial]. These folks have tried to produce more than they consume for their whole lives and save the difference. But their savings are almost all in government currencies, and those currencies are held in banks. However, the banks are unable to give back all the euros that these people have entrusted to them. It's a very serious thing. So European governments are trying to solve this by creating more euros. Eventually the euro is going to reach its intrinsic value – which is nothing. It's the same in the U.S. The banks are bankrupt, the government's bankrupt and creating more dollars so the banks don't go bust and depositors don't lose their money.

I'm of the opinion that if it doesn't blow up this year, the situation is certainly going to blow up next year. We're very close to the edge of the precipice.

TGR: Is the problem the debt, or all of the currency that has been pumped in?

DC: It's both. We have to really consider what debt is. It's the opposite of savings because savings means that you've produced more than you've consumed and put the difference aside. That's how you build capital. That's how you grow in wealth. On the other side of the balance sheet is debt, which means you've consumed more than you've produced. You've mortgaged the future or you're living out of past capital that somebody else produced. The existence of debt is a very bad thing.

In a classical banking system, loans are made only against 100% security and only on a short-term basis. And only from savings accounts that earn interest, not from money in checking accounts or demand deposits, where the depositor (at least theoretically) pays the banker for safe storage of his funds. These are very important distinctions, but they've been completely lost. The entire banking system today is totally corrupt. It's worse than that. Central banking has taken what was an occasional local problem, a bank failing from fraud or mismanagement, and elevated it to a national level by allowing fractional banking reserves and by creating currency for bailouts. Debt – at least consumer debt – is a bad thing; it's typically a sign that you're living above your means. But inflation of the currency is even worse in its consequences, because it can overturn the whole basis of society and destroy the middle class. [Again, this could be our chance, as it was in Weimar Germany, where Hitler capitalized on people made willing to listen to radical explanations since the System had destroyed their lives]

TGR: What happens when these time bombs go off?

DC: There are two possibilities. One is that the central banks and the governments stop creating enough currency units to bail out their banks. That could lead to a catastrophic deflation and banks going bankrupt wholesale. When consumer and business loans can't be repaid, the bank goes bust. The money created by those banks out of nothing, through fractional reserve banking, literally disappears. The dollars die and go to money heaven; the deposits that people put in there can't be redeemed.

The other possibility is an eventual hyperinflation. Here the central bank steps in and gives the banks new currency units to pay off depositors. It's just a question of which one happens. Or we can have both in sequence. If there's a catastrophic deflation, the government will get scared, and feel the need to "do something." And it will need money, because tax revenues will collapse at exactly the time its expenditures are skyrocketing – so it prints up more, which brings on a hyperinflation.

We could also see deflation in some areas of the economy and inflation in others. For example, the price of beans and rice may fall, relatively speaking, during a boom because everybody's eating steak and caviar. Then during a subsequent depression, people need more calories for fewer dollars, so prices for caviar and steak drop but beans and rice become more expensive because everybody is eating more of them.

Inflation creates all kinds of distortions in the economy and misallocations of capital. When there's a real demand for filet mignon, there's a lot of investment in the filet mignon industry and not enough in the beans and rice industry because nobody is eating them. And vice-versa. And it happens all over the economy, in every area.

TGR: But inflation rates don't seem to reflect the vast amounts of currency that central banks have injected into the U.S., European and other economies. The U.S. inflation rate was 2.93% in January and 2.87% in February. We haven't seen signs yet either of a hyperinflation or a serious deflation that we were warned would come with quantitative easing (QE). Does that mean QE is working after all?

DC: No. It's not just the immediate and direct consequences of what they do – everybody loves it when trillions of dollars are created. It feels good to have lots more purchasing media. The problem arises with the indirect and delayed consequences. All these dollars and euros – and Chinese yuan and Japanese yen – that have been created have basically gone into the banks, but the banks are not lending them out. The banks are afraid to lend and a lot of people don't want to borrow because they're afraid of taking on more debt. So the dollars that have been created, mostly invested in government paper, sit on the banks' balance sheets. They are not circulating in the economy at the moment. That's why prices aren't skyrocketing right now.

That's point number two, though. Point number one is that I wouldn't trust those inflation figures in the first place. The governments of Western Europe and the U.S. fudge inflation figures as certainly as the Argentine government fudges them, just less overtly and outrageously. They do that because they want to keep the perception of inflation down; they don't want people panicking, which is a pity, because the public should urgently do something to protect their capital. They also don't want to see Social Security payments and other payments that are tied to the consumer price index go up. They don't have the tax revenues to pay for them and will have to print even more money, which just exacerbates the problem. Official inflation numbers are unreliable; only somebody very naïve – like a TV anchorperson – could possibly believe them.

If you think of inflation as an increase in the money supply above the increase in real wealth – which is actually what the word means – the inflation rate is actually quite high at the moment. Real wealth is being created at lower rates than it historically has been, while the money supply is increasing tremendously. It's just a question of when that inflation rate manifests itself on a retail level. You've got to think like a real economist, not a political hack like Joseph Stiglitz or Paul Krugman. You have to see not just the immediate and direct consequences of something, but the indirect and delayed ones.

TGR: Given that this is an election year in the U.S., won't the government do everything possible to maintain a stable market and stop inflation?

DC: Sure, the government wants things stable. I have no doubt it is trying to keep the stock market up. It wants the stock market to stay high because pension funds and insurance companies and the public at large are invested in the stock market. It wants interest rates low, although artificially low interest rates are an economic disaster in that they encourage people to borrow more and save less. It would prefer to see precious metals, and all other commodities, at low levels. The argument is made that the governments of the world, especially the U.S. government, are manipulating the prices of gold and silver to keep them down, because when they increase, it's like financial alarm bells going off.

But they can't control the prices of the precious metals. In the real world, cause has effect. When you create trillions of currency units, eventually the price of those currency units relative to other things will go down. That's called inflation. Whether he's lying or he really believes it, Fed Chairman Ben Bernanke said he can control the levels of inflation. When it gets too high, he thinks he can rein it in somehow.

The current world monetary system is going to come undone. That's my prediction, and I'm betting on it massively, personally.

TGR: You've talked about the possibility of abandoning paper currency altogether and going to a digital system.

DC: The most important thing is to get the government out of money. There should be a high wall between the state and religion and an equally high wall between the state and the economy. I don't even like to talk about what governments "should" do as far as money is concerned because the governments shouldn't be involved in money – period. Money is a medium of exchange and a store of value. It shouldn't be a political football, nor should it be used as an indirect form of taxation, which is what inflation is. It should be a pure, 100% market phenomenon. Central banks should, therefore, be abolished. Paper currency should cease to exist – except as a receipt for money held on deposit. Historically, that's how it originated.

You could use any kind of commodity as money, but gold has proven since the dawn of civilization to be uniquely well suited for use as money. It's a market, which is to say a voluntary, phenomenon. Whether you represent that gold with bank notes printed by individual banks or by digital currency – which I'm sure the world is going to – makes no difference. But having the state in charge of currency is idiotic.

TGR: You've written about China moving away from the dollar. Do you see that happening gradually or all of a sudden? And would it be in favor of its own currency or more investment in gold? What impact would that have on gold prices?

DC: First of all, I think the nation-state as a form of organization is on its way out, and that a 100 years from now people will look back at countries like China and the U.S. the way we look back at medieval kingdoms today. In the meantime, the dollar is important because it's the numéraire for trade all over the world. At the same time, fewer and fewer people trust it, and they increasingly realize that it's the unbacked liability of a bankrupt government.

Eventually, it's going to be replaced by something else. India and Iran are trading between each other using gold and oil. Why use a piece of paper issued by a hostile and unreliable third party? The Russians and the Chinese can see how crazy it is to trade between each other using dollars, which all have to clear in New York. But people are still accustomed to using currencies issued by nation-states, and the U.S. dollar is everywhere and is therefore convenient. But it's a hot potato. People no longer trust it. I suspect the Chinese yuan will replace the dollar gradually – assuming the Chinese don't destroy the yuan as well. They're also creating trillions of the things to keep the economic bubble in China from imploding.

Before the Chinese yuan can replace the dollar, people must have confidence in it. The best way they can gain confidence in it is if the volume of yuan is limited and redeemable by the issuer in something real, something tangible. That's going to be gold. So I expect China will continue buying large amounts of gold to back its currency. China is already the world's largest gold producer. Considering that only about 6–7 billion ounces of gold have ever been mined in all the world's history, China alone could drive the price of gold much higher.

TGR: At your Recovery Reality Check summit in Florida April 27–29, you'll be talking about how business cycles have been turned on their heads. Is this the time for investors to sit tight, making only small adjustments to portfolios, or must they take more drastic action to protect their wealth or, better yet, profit from volatility?

DC: I think volatility is going to go way up in the future as the titanic forces of inflation and deflation fight with each other. This is a very poor time to make big bets in almost any conventional market because it's impossible to tell how things will finally settle, where the next major war will be and so forth. Stock markets around the world are not cheap now and bond markets are fantastically overpriced. Currencies are no more than floating abstractions. Commodities have been in a long bull market, so they're no longer a low-risk bet. Real estate – the most obvious thing for bankrupt governments to tax – is dangerous. In the developed world – especially in the U.S. – it floats on a sea of debt, which has driven it to artificially high levels. It's coming down as we speak, but it's nowhere near a bottom.

So there are very few places where people can still attempt to preserve capital. Everybody is going to be almost forced to be a speculator to try to stay in the same place. Speculating means capitalizing on politically caused distortions in the marketplace. That's the proper definition of the word.

TGR: What can people speculate on?

DC: Unfortunately, they have to second-guess where the money will go. I've always liked resource stocks, especially resource exploration stocks. It's a tiny market. If a fire gets lit under gold and silver, and I think it will, companies in this nanosector could explode 10, 20 or 50 times upward in price. It's happened many times in the past. Right now, these stocks are relatively cheap, so I like that as a speculative vehicle.

TGR: Rick Rule has cautioned against generalizing about the entire junior mining sector as a whole, because so many of these companies don't find anything. How do you decide which resource investments are worth looking into? Are there criteria? Is there some kind of a litmus test that you use?

DC: Rick is absolutely correct about that. Although the sector is capable of going upwards 10 or 20 times as a whole, most of the stocks in it are total garbage. The only gold, uranium, silver or whatever appears on their stock certificates, not in the ground they control. There are thousands of these little stocks, and yes, we have criteria we use to evaluate them. We use a tried-and-true due diligence process we call The Eight Ps of Resource Stock Evaluation to separate the wheat from the chaff among speculative investment opportunities.

TGR: Would you share that with us?

DC: Sure. This is a guide to help investors ask the right questions about every individual company they're considering. This list comprehends the essential, but you could write a book about each of these eight points.

People: Who are the key players in the company and what are the track records of the companies they've managed? This is by far the most important criteria.

Property: What resources are in hand, and what (if any) are the additional resources they expect to find? How well proven are they? Assessing this takes geological and engineering expertise.

Phinancing: Does the company have enough cash to meet its next-phase objectives or have the ability to finance the cost of reaching those objectives? It's no longer a case of grubstaking a prospector and his mule.
Paper: Capital is almost always raised from the issuance of new shares. Is there a lot of cheap paper out there that will keep the share price down? Will new or existing warrants or new shares dilute your own shares? Who owns most of the paper?

Promotion: How and when is the company going to get itself (and its stock) noticed?

Politics: Is the country or region mine friendly and stable? Are foreign investors welcome? Is there environmental resistance?

Push: What's going to move this stock? Drill results, merger or acquisition, increase in the price of the underlying commodity, resolution of a legal issue?

Price: What are the potential price moves of the underlying commodity that could have either a positive or negative impact on the value of the company?

TGR: How hard is it to find a company that passes muster on all eight counts?

DC: It's very hard. It's hard enough to look at the basic statistics of thousands of companies. Then you look at the people behind them. Generally, we try to find the people first. We stay away from those who have no history of success and have established that they have questionable characters. We look for people with long histories of success or appear to be about to embark on a lifetime of success. The most important piece is people. That's what we really look for most of all.

TGR: Based on all the calamities that could occur, how will you adjust your investing philosophy?

DC: Let me put it this way. We're going into something that I call The Greater Depression, much worse and much different than what happened in the 1930s. I think my friend Richard Russell said it best: "In a depression, everybody loses. The winner is the guy who loses the least." It's very tough to keep capital together today, much less make it grow in the years to come.

But I think it's possible. The thing to remember is that most of the world's real wealth will remain in existence regardless of what happens. The key is to position yourself so that more of it falls into your hands as opposed to falling out of your hands. That's what we're trying to do, to increase our relative share of the wealth in the world. We're not looking at boom times. What's coming will be the opposite of what we experienced during the artificial inflationary boom of the 1990s, where everything was going up – stocks, real estate and so forth. This is a time when, in real terms, most things will lose value. Most people will experience a real decline in their standard of living.

TGR: As we've discussed, at its root, paper currency is a substitute for something of value. Energy, similar to gold, has intrinsic value. It's always in demand. In the past, you've expressed optimism about uranium, natural gas and oil. As the dollar becomes suspect, do you foresee sources of energy becoming more valuable?

DC: Absolutely. I'm very bullish on oil. The world runs on fossil fuels today because they're ideal sources of highly concentrated energy. Unfortunately, all of the easily available, cheap fossil fuels have basically been found. The low-hanging fruit is gone. This is what the peak oil theory is about. Plenty of oil remains, but it's going to be more expensive to get it. To find oil now requires going to exotic places without infrastructure and with big political problems. It requires going much deeper into the ground, exploring under the ocean, using new technologies, and so forth.

Gas is secondary to oil when it comes to concentrated sources of energy. Of course, with the development of new technologies, primarily horizontal drilling and new fracking techniques, a huge amount of natural gas has become available all over the world. But it takes tremendous capital to retrieve it, and it also faces political problems.

But in summary, I'm bullish on energy of all types. There is plenty of fuel out there. It's just a question of the price level, so it becomes economic to retrieve it.

TGR: So how do you invest in finding the rest of what's out there?

DC: You look for companies that are exploring for it. One of the important things that makes me very bullish on oil is that most of the oil in the world today – something like 80% – is not owned and produced by BP Plc, Exxon Mobil Corp., Royal Dutch Shell Plc and companies like that. It's mostly owned and produced by national oil companies such as those in Mexico, Iran, Saudi Arabia and Venezuela. These state oil companies are universally corrupt and inefficient. The profits from the oil are generally used as piggybanks by those governments, not to build capital and find more oil. Furthermore, where governments allow private exploration, such as Iraq, they take about 80–90% of the potential profits from oil, which of course discourages exploration and exploitation of the resource. The problems are almost entirely political, but they're big problems.

TGR: Speaking of the politics of energy, are you still bullish on uranium in light of the politics of what's gone on since the Fukushima meltdown?

DC: Yes. I've said it before and continue to say it. There's no question that nuclear power is by far the safest, cleanest and cheapest type of mass power generation available. Fukushima survived one of the most severe earthquakes in recorded history with no problem; it's just a pity they didn't adequately plan for a 45-foot tidal wave on top of it. In addition, those plants basically were 50-year-old technology. If it weren't for political obstructions, we'd be using vastly improved technology. But it's not just uranium. Thorium is actually a much better fuel from many points of view and probably would have been used as a fuel instead of uranium except that the governments of the world found uranium useful for nuclear weapons as well as nuclear power.

Nuclear power is definitely the answer, but as you point out, it's a question of political problems. Across the resource industry, in fact, it's all politics. When you find a gigantic resource of some type, you can count on lawsuits, not-in-my-backyard opposition and political theft. Those are among the reasons that I don't see the resource industry as a place to make investments. It's only a place where you can speculate.

TGR: So what should long-term investors do to protect themselves?

DC: Because the big problems in the world today all are political, the critical thing is to diversify politically and internationally. You can't have all your assets under the control of one government or in one country. Then, of course, you have to find the right place to put the money within that framework.

TGR: How do you do that?

DC: I can write a book on that.

TGR: Or stage a summit? You have quite a faculty lined up.

DC: It is an impressive group. Actually, this summit has dual overarching purposes. As we've discussed, the massive amounts of money the world's governments have unleashed in their economies have lit a small fire of recovery. We're going to talk a lot about whether the world is truly on a path to recovery or whether investors wouldn't be wise to develop and implement Plan B now, given that the extreme levels of debt that were such a major factor in creating the current crisis have not been reduced. To me, that strongly suggests that this so-called recovery is unsustainable and calls for moving into Plan B. Part of Plan B involves identifying optimal investment strategies for the markets ahead.

TGR: What sorts of takeaways are in store for people who attend?

DC: Let's have David Galland, who's been instrumental in preparing for this summit, respond to that. (A senior market strategist, Galland is managing director of Casey Research LLC, managing editor of The Casey Report, International Speculator, Casey Investment Alert author of Casey's Daily Dispatch.)

David Galland: We expect the takeaways will be good answers to many burning questions. As Doug has suggested, the government says the recovery is real and your broker will tell you it is, yet the underlying data suggests that it may be a paper tiger. So, what's the hard truth? Should you be moving aggressively into rebounding equities? Or is the recovery a mirage that will dissipate in a second crushing leg down for the economy and traditional investment markets? What are the road signs you need to pay close attention to? How can you position your portfolio to do well in either scenario and, most importantly, to hedge against the worst case? Should you worry about inflation or deflation? Neither? Or both? Will the gold and silver you've been holding turn to lead and pull your portfolio down? Or is loading up on corrections still the right thing to do?

TGR: These summits are always sold-out affairs. Is this one full already?

DG: Just a few spots remain as we speak.

Even if you can't make it to the Casey Research Recovery Reality Check Summit April 27-29, you can still listen to every piece of actionable investment advice attendees will hear with the Summit Audio Collection. This expansive audio set will feature every recorded Summit presentation, including those from David Stockman, director of the Office of Management and Budget under President Reagan. . .Harry Dent, author of The Great Crash Ahead. . .Casey Research Chairman Doug Casey. . .and 28 other financial luminaries. Pre-order before the Summit starts and get the entire collection for $100 off.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

April 21, 2012

Doug Casey (send him mail) is a best-selling author and chairman of Casey Research, LLC., publishers of Casey’s International Speculator.

Last edited by Alex Linder; April 21st, 2012 at 09:03 AM.
Old April 21st, 2012 #2
Rick Ronsavelle
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Rick Ronsavelle
Default I don't trust this guy

If you think of inflation as an increase in the money supply above the increase in real wealth – which is actually what the word means

Doug Casey

I can scarcely believe my own eyes. Wrong, Doug. Wrong wrong wrong.

Inflation is an increase in the money supply. Stop there, you got it. Inflation is adulteration/dilution of money. That is Austrian, and it is right.

This is truly a head-scratcher. You see, Mr. Casey is using Dr. Friedman's definition of inflation. Friedman still defines inflation as rising prices. A stable price level means no inflation. Thereforte monetary policy (is there any connection between policy and police?) should strive for stable prices.

As "real wealth" (productivity) rises, money should also rise- according to Friedman. Productivity used to go up maybe 3% per year (fifties through seventies)- therefore "the money supply should be increased also by 3% for stable prices."

Question: If production goes up 3% in a year, and money increases by the same, and prices do not rise, what is the rate of inflation?

Friedman and Casey: There is no inflation
Austrians: The inflation was 3% as the money supply went up 3%. Screw the general price level, we don't care.

If Friedman had said "The money supply should be INFLATED by the amount of increase in productivity" the cat would have been out of the bag. Friedman succeeded by corrupting language.

The banksters wanted an increase in money- oops they wanted inflation.
Friedman- Dr. Friedman- was a rent-a-whore, whose ideas would disguise inflation by claiming it to be rising prices rather than money corruption.

But wait- doesn't Friedman talk about money corruption? Yes he does.
But the money doesn't become corrupt until it exceeds productivity increases.
THE INITIAL 3% INFLATION IS CONSIDERED GOOD NOT BAD. Any further inflation ("increase in money supply") is called, at last, inflation, if rising prices ensue.

The purpose of this charade is to give a free pass to say 3% inflation (money increase NOT price rises). The special interests still get their inflation (funny money) while the public thinks there is no inflation.


The Casey piece need a full dissection. A few notes here-

I view the guy as another conservative who pretends to be libertarian.
He is like Congressman Rohrabacher who I knew in college. A Republican liar, in YAF (A Buckley group I think). Mises came out to Long Beach for the first Libertarian conference in 1969- he stayed in Rohrabacher's apartment. Now look at Rohrabacher. Another POS politician. I met "Dr. Jack Wheeler" at Dr. Branden's house in 1970, soon after he split with his boyfriend Ayn. Dr. Wheeler now has a site for RATIONAL CONSERVATIVES. He is a fuckoff who likes to parachute onto the North Pole and drink champagne. These bastards are TOTAL CONSERVATIVES claiming to be libertarian!

Wheeler became an Eagle Scout at a very young age. I recall the Scouts have a "God and Country" award. . .He stated "this country was founded on Christianity"- this weenie in trying to be an "Objectivist" and Christian at the same time.

I view Casey as a jet-set hedonist before anything. Money above all. Who cares about painful stuff like racial survival? Sweeping the stuff like VNN material under the rug so he can plan his Argentinian hideaway.

This requires reality evasion, which I suspect spreads out into all his other analyses. His mind is not as in focus as he thinks. Per above.

>>>I have speculated of and on since 1974. Only recently threw in the towel. (I had some PMs in my hands and didn't throw that money into the broker!) Lost every time. Why? Leverage. Don't do it!

It is very easy to lose half your account when trading commodities- ask anyone who has traded. Here is the rub- a 50% loss is not offset by a 50% gain. To get back to even requires a doubling of the account! Just to get even. . .Doubling a commodity account is very difficult.

There is other stuff from the article that i would like to critique. Later or tommorrow.

ps Dr. Wheeler and Dana Rohrabacher have the same hero- Reagan. Not surprising.

Last edited by Rick Ronsavelle; April 21st, 2012 at 03:19 PM.
Old April 21st, 2012 #3
Alex Linder
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Alex Linder

Appreciate the insight, Rick. Please realize, I'm not asserting that every single thing these guys say is true. First, I don't know enough to judge. I mostly put it there as thought-fodder. Obviously I think the thing is more right than wrong or I would point it out, or not post it. I underline/bold the stuff I think is particularly important and right or close to it. But I certainly can't vouch for every point. It's as much the way these guys think that I think WN would benefit from as their specific advice or conclusions.
Old April 28th, 2012 #4
Alex Linder
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Alex Linder

'permanent portfolio'

For example, the Permanent Portfolio mutual fund (PRPFX), although based on Browne’s strategy, has tweaked his original allocation somewhat. The mutual fund’s allocation is as follows:

20% gold, 5% silver, 35% US Treasury bonds and bills. 10% Swiss government bonds, 15% aggressive growth stocks, 15% natural resource stocks and/or real estate stocks.

This revised portfolio has been more volatile than the original, but it has also delivered greater returns, especially recently. During the last 15 years, for example, PRPFX has not only produced double the returns of the S&P 500 Index, but it has also outpaced the returns of that other permanent portfolio, Berkshire Hathaway.

But that was then. What about now? Is Browne’s original allocation still optimal? Or is the Permanent Portfolio mutual fund’s allocation an intelligent refinement? Or should investors be heading in an even more radical direction?

If, for example, you are very worried about the future of the US dollar, should you be allocating portions of the permanent portfolio to foreign stocks or bonds?

We don’t know. But we’d like you to tell us. What do you think would be the ideal permanent portfolio for the next 10, 20 or 30 years?

Here are the ground rules:

Select three to five investible assets – that means no less than three and no more than five.

Do not include any individual stocks, unless those stocks be an ETF or closed-end fund.

Do not, for example, include Apple Computer as one of your Permanent Portfolio components (no matter how brilliant that allocation might be!)

Make sure the assets you select are public securities or indices. That means they are a mutual fund, ETF, index or commodity.

Design your portfolio with the idea that it would be re-balanced annually.

If you’d care to add a little color behind the thought process that produced your permanent portfolio, feel free.
Old January 9th, 2015 #5
Bread and Circuses
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The Winners and Losers of the Zero-Sum Game: The Origins of Trading Profits, Price Efficiency and Market Liquidity


Trading is a zero-sum game when measured relative to underlying fundamental values. No trader can profit without another trader losing.

People trade because they obtain external benefits from trading. These benefits include expected returns from holding securities, risk reduction from holding correlated assets and gambling entertainment.

Three groups of stylized characteristic traders are examined. Winning traders trade for profit. Utilitarian traders trade because their external benefits of trading are greater than their losses.

Futile traders expect to profit but for a variety of reasons their expectation are not realized.

Winning traders make prices efficient and provide most liquidity. Utilitarian and futile traders effectively underwrite the winning traders’ efforts.
Only force rules. Force is the first law - Adolf H. Man has become great through struggle - Adolf H. Strength lies not in defense but in attack - Adolf H.
Old January 22nd, 2015 #6
Bread and Circuses
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Max Gunther set forth basic trading principles called The Zurich Axioms:

On Risk:
- Worry is not a sickness but a sign of health – if you are not worried, you are not risking enough.
- Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either.
- Resist the allure of diversification.

On Greed:
- Always take your profit too soon.
- Decide in advance what gain you want from a venture, and when you get it, get out.

On Hope:
- When the ship starts sinking, don’t pray. Jump.
- Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.

On Forecasts:
- Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly.

On Patterns:
- Chaos is not dangerous until it starts to look orderly.
- Beware the historian’s trap – it is based on the age-old but entirely unwarranted belief that the orderly repetition of history allows for accurate forecasting in certain situations.
- Beware the chartist’s illusion – it is characteristic of human minds to perceive links of cause and effect where none exist.
- Beware the gambler’s fallacy – there’s no such thing as “Today’s my lucky day” or “I’m hot tonight”.

On Mobility:
- Avoid putting down roots. They impede motion.
- Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia.
- Never hesitate to abandon a venture if something more attractive comes into view.

On Intuition:
- A hunch can be trusted if it can be explained.
- Never confuse a hunch with a hope.

On the Occult:
- If astrology worked, all astrologers would be rich.
- A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place.

On Optimism & Pessimism:
- Optimism means expecting the best, but confidence mean knowing how you will handle the worst. Never make a move if you are merely optimistic.

On Consensus:
- Disregard the majority opinion. It is probably wrong.
- Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.

On Stubbornness:
- If it doesn’t pay off the first time, forget it.
- Never try to save a bad investment by “averaging down”.

On Planning:
- Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own long-range plans or other people’s seriously. In essence these axioms point to the benefit of having an investment strategy and sticking to it, regardless of what other investors say or do. If you don’t have an investment strategy, you could do worse than adopt these principles. However, don’t be afraid to add or subtract ones according to what works for you.
Only force rules. Force is the first law - Adolf H. Man has become great through struggle - Adolf H. Strength lies not in defense but in attack - Adolf H.
Old March 31st, 2015 #7
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Secrets of Professional Stock Market Speculation

One of the best books we've ever read on stock market speculation was actually written about betting on horse races. The book is "Secrets of Professional Turf Betting" by Robert Bacon. It has been out of print for decades, but used copies can be obtained via

Most people who bet on horse races not only lose money, they lose much more money than they should lose based on chance alone. What this means is that someone making purely random bets on horses, or an untrained chimpanzee betting on horses, will, over a long period of time, lose the track's 'take'. The 'take' is a fixed percentage, usually in the 10%-20% range, that is extracted by the track (or jockey club) out of the total amount of money bet on each race. The remaining 80%-90% is paid out to the winning bettors. In other words, if the track's take is, say, 15%, then someone who selects horses based on random guesses alone would, over a long period of time, be expected to lose an average of 15% of the amount of money they bet each race day. However, the average member of the betting public actually loses 33%-100% of the money they outlay over the course of each racing day. It is almost as if they are trying to lose!

While the vast majority of people lose money at the races, some betting professionals consistently win. These professional bettors generally do not have inside information or any resources that are not readily available to members of the public. Nor is it usual for them to be highly educated. So, how do they win? Since the public is usually so wrong that it manages to lose far more money than it should, it stands to reason that those who are able to consistently win do the opposite of what the public does. As Robert Bacon puts it, "These professionals win because they know the "inside" principle of beating the races, the same principle that must be used to beat any speculative game or business from which a legal 'take', house percentage, or brokerage fee is extracted. That principle is: 'Copper' [bet against] the public's all times!"

This principle certainly applies in the stock market and is the reason we spend a lot of time analysing sentiment indicators. If our analysis of sentiment indicators is 'on the mark' then we will know what the collective mind of the public is thinking and can, at the appropriate time, do the opposite. There is, of course, added complexity in the stock market, or any financial market for that matter, since there isn't a fixed pool of money that is distributed at fixed points in time based on a set of clearly-defined rules. There is, therefore, a critical timing element in the financial markets that is not present when betting on horses (as the speculators who 'shorted' absurdly-priced internet stocks during 1998 and 1999 discovered to their detriment).

In horse racing, betting against the public involves the identification of "overlays". These are situations where the odds assigned by the public (the odds at which a horse runs are determined by the amount of money bet on that horse relative to the amount of money bet on the other horses in the race) are longer than what the odds should be. In other words, where the risk/reward ratio is in favour of the bettor. For example, if a professional determines that the correct odds for a particular horse are 2:1 whereas the public's betting puts the horse at 10:1, then the professional has identified an "overlay" and may decide to bet on that horse. If the professional determines the correct odds to be 2:1 and the horse is quoted at 2:1 then the professional would certainly not bet on that horse because, in such a case, the likely upside and the likely downside are the same.

This leads us to another important difference between the consistent losers (the public) and the consistent winners (the professionals). Most race-going members of the general public will bet on every race, whereas the professionals will only bet on those races in which they have identified an attractive overlay. This might result in the professional only betting on 2 or 3 races during a 10-race day. If there are no attractive overlays in any of the races then he/she will place no bets on that day.

The principle of only putting money at risk in cases where there is an attractive overlay applies perfectly to stock market speculation. An "overlay" in the stock market would, for example, occur if the stock of a company is dramatically under-valued based on the cash that it is currently generating or is likely to generate in the future (the market value assigned by the public is low compared to the company's intrinsic value). In such a situation a long-term speculator (also known as a 'value investor') such as Warren Buffett might decide to buy the stock. He does so because he knows that the stock price will eventually return to its intrinsic value and he doesn't really mind how long he has to wait for this to happen. For a short-term speculator a suitable overlay might occur, for example, as a result of a period of panic selling that sets the stage for a sharp rebound. Whether you are a long-term speculator (investor) or a short-term speculator (trader), it is important not to act unless you can identify an attractive overlay, that is, unless the risk/reward is heavily in your favour. This means there will always be periods, sometimes lengthy periods, when you should do nothing.

Another factor contributing to the public's losses in the game of horse racing, and in all speculative endeavours, is something called "switches". According to Robert Bacon it's not the races that beat the amateurs, it's the switches. Whereas the professionals develop a plan and stick to the plan the amateurs are continually changing (switching) such things as the types of bets they make, the amount they bet on each race, and the way they select horses. For example, an amateur might try Method A for a while and when it doesn't appear to be working switch to Method B. As soon as he switches to Method B, Method A starts to win. Not wanting to make the same mistake again he decides to stick with Method B, but Method A continues to win and Method B keeps losing. After a while he can't stand it any longer so he switches back to Method A, just before Method B hits a winning streak.

Most speculators in the financial markets will have experienced the frustration wrought by switches, that is, they will at some point have been coaxed by a market to switch strategies at exactly the wrong time. One difference between the winners and the losers is that the winners have figured out a way to avoid the switches. An important part of this 'avoidance' is to only ever speculate in those instances when you have identified, via a thoroughly-tested method, an attractive overlay.
From the perspective of a stock market speculator the most important chapter in Robert Bacon's book is the one that deals with the "principle of ever-changing cycles".

The Principle of Ever-Changing Cycles

According to Robert Bacon, "There is no danger of the public ever finding any key to the secret of winning. The crazy gambling urge and speculative hysteria that overcomes most players at the track makes that fact a certainty. But, if the public play ever did get wise to the facts of life, the principle of ever-changing cycles of results would move the form away from the public immediately."

In the financial markets, what works during one cycle tends not to work during the next cycle. Furthermore, the cycles inevitably change shortly after the public has figured out what is working and has bet heavily on the basis that what is working will continue to work. Taking one example, Warren Buffett accumulated a large stake in Coca Cola (KO) during the 1980s at an average price/earnings ratio of around 15. At the time he was doing his buying most Wall St analysts considered the stock to be over-priced because the company supposedly had no prospect of achieving above-average growth. Buffett completed his buying in the late-1980s and during the next 10 years KO's earnings and stock price grew rapidly. It's stock price actually grew far more rapidly than its earnings because Wall St analysts and the public fell in love with the stock and became willing to pay a lot more for each dollar of earnings. The analysts who hated the stock when its P/E ratio was in the 10-15 range rated it as a "strong buy" when the P/E ratio was over 40. The views of Wall St analysts, by the way, simply reflect the views of the public. In 1997-1998, just after the public had discovered this wonderful stock that was destined to increase in price by at least 20% every year, the stock price stopped rising. KO has not been a lousy investment over the past few years compared to many other stocks, but anyone who bought KO shares at any time since the beginning of 1997, and held onto those shares, almost certainly now has an unrealised loss. KO was a great investment at one time, but the public's discovery of this stock inevitably transformed it into a poor investment.

The principle of ever-changing cycles doesn't just apply to individual stocks or groups of stocks, it applies to investment and trading methods. If you want to know what is not going to work during the current cycle, look at what worked extremely well during the last cycle. For example, the 'buy and hold' approach to stock market investing worked very well between 1982 and 2000 and there are few people today who don't believe that stocks, if bought and held for the long-term, will provide good returns. Unfortunately, most people only became thoroughly convinced that the 'buy and hold' approach was the right way to go during the final stage of the cycle, whereas the approach was only ever going to yield good results for those who bought during the early and middle stages. The current cycle will continue until the 'buy and hold' approach has been totally discredited and most of the long-term holders have sold. At that point a 'buy and hold' approach may once again be appropriate.

One of the most popular trading approaches during the final few years of the last decade was to buy a stock following an 'upside breakout' in the stock price and sell following a 'downside breakout'. It seemed so easy - just pick a tech or internet stock and when it moved above a trendline on a chart or made a new all-time high, buy it, wait for the price explosion that inevitably followed every upside breakout, then sell for a huge profit. Thousands of people thought they had discovered the key to getting rich quickly and quit their jobs to trade on the stock market. They didn't realise that what they were experiencing wasn't the way things normally worked or were going to work for very long. What they were experiencing was the sort of short-lived cycle that occurs only a few times per century. However, the fact that this 'breakout method' worked so well for a while will mean that many people will continue to use it for years to come, even though the results will generally be poor. In fact, it is inevitable that the various momentum-based trading methods that seemed to work like magic during the late-1990s will not yield good returns during the current cycle. (By the way, a relatively small number of people are still able to make good profits every year using a breakout approach (buying upside breakouts and selling downside breakouts). Their success, however, is based much more on their money management ability (their ability to know when to take profits and when to take losses) than on the breakout method itself.)

In summary, what worked during the last cycle is not going to work this cycle. Furthermore, what is currently working won't work indefinitely - it will only work until enough people discover it. At that point, the principle of ever-changing cycles will come into effect.

The Information Age versus the Principle of Ever-Changing Cycles

A question that we've received several times over the past year from readers of our 'stuff' goes something like this: "With the general public now having ready access to far more information than in the past, won't the so-called 'dumb money' make better investment decisions and be less likely to behave in a herd-like manner?"

We've always been somewhat amused by the above question because the recent stock market mania was clearly one of the greatest examples ever of the investing public losing its senses and accepting fantasy as fact. Even the most cursory observation of the goings-on of the past 5 years tells us that the Information Age has not brought about an improvement in the ability of the public to make the right investment decisions. After all, there were record flows of money into equity funds at the bubble peak during the first quarter of 2000 and there were significant flows of money out of equity funds when the market was bottoming during July-October of this year. And based on past experience much greater out-flows will occur when prices drop below this year's low. For all the information that people had access to they managed to embrace ideas that they really should have perceived as absurd. As has always been the case throughout history and always will be the case, they simply got carried away with rising prices and visions of great wealth.

Although the experiences of the past few years provide some empirical evidence that the availability of more information has not increased the investment acumen of the public, it is worth exploring why this is so.

One reason, of course, is that a high percentage of the information to which the public is exposed is wrong, either by accident or by design. So while most people have a lot more information than they had in the past their decisions might, if anything, tend to be even less correct because much of that information is inaccurate. In other words, bad information is potentially more damaging than the absence of information. It is quality of information, not quantity of information, which is important. Thanks to the Internet, high-quality information is now more readily available to the average investor than it has been in the past. But unfortunately, most people have no way of differentiating the good information from the bad or of filtering out the small amount of useful information from the daily information deluge.

Another reason is that the people who are responsible for providing information to the investing public, even if they happen to have the best of intentions, are subject to the same herd-like behaviour as everyone else. This can be clearly seen in the weekly survey of investment newsletter writers conducted by Investors' Intelligence. Most newsletter writers are independent and don't have a vested interest in getting their readers to buy when they should be selling or to sell when they should be buying, yet these investment advisors are invariably wrong at major turning points. As a group they tend to become progressively more bullish as prices rise and progressively more bearish as prices fall. As such they are always extremely bullish at major peaks (great selling opportunities) and extremely bearish at major bottoms (great buying opportunities).

The performance of investment advisors, as a group, highlights a third reason why having more information won't prevent the public from making the investment mistakes it has always made in the past. The people who write investment newsletters generally spend a lot more time gathering and analysing information on the financial markets than the average investor, yet as mentioned above the newsletter writers are invariably wrong at important turning points (some will be right, but more than half will usually be wrong). For example, at the beginning of the great 1995-2000 stock bull-market more than 50% of the investment advisors surveyed by Investors' Intelligence were bearish. The advisors only started to become bullish when the market started to rally, and the higher the prices moved the more bullish they became. As such, it isn't really the quantity or the quality of information that matters when looking at the investment performance of any large group. Some people are able to separate themselves from the investment herd and make decisions based on an objective assessment of the available evidence, but most, including the majority of supposedly well-informed advisors, will simply react to changes in prices.

There is, however, a fourth and even more fundamental reason why more information will never stop the public from ending up on the wrong side of the market, irrespective of how accurate the information was when it was first digested by the public or the public's ability to interpret information. This reason is covered in the following extract from Robert Bacon's "Secrets of Professional Turf Betting" (just substitute the phrase "stock market" for the words "races" and "racing" in this extract):

"The collective "mind" of the public imagines that if it could only once find the "combination" for beating the races, it would be all set for life. The public wants to hit on some simple key, shown by numbers in the past performances, and use this key to get richer and richer as racing goes on. The public believes that if it could only once find that past performance key, its troubles would be over.

But that is not the way racing is at all. There is no danger of the public ever finding any key to the secret of winning. The crazy gambling urge and the speculative hysteria that overcomes most players at the track makes that fact a certainty. But, if the public play ever did get wise to the facts of life, the principle of ever-changing cycles of results would move the form away from the public immediately."
[Emphasis added]

The reason "the form", as Robert Bacon puts it, will always move away from the public is that when the public becomes convinced of something and bets accordingly it worsens the odds (it lessens the probability of success).

Trends in the stock market continue until the public becomes a 'true believer' in the trend. In the real world, where most of the information accessed by the public is unhelpful, it often takes the public a long time to become a true believer. Then, by the time it becomes committed to the trend its own buying has pushed prices to such extremes that the probability of further gains is low and the risk of large losses is high. However, even in an idealised world in which the bulk of the information absorbed by the public was accurate and in which the public had a greater ability to correctly interpret information, the weight of the public's buying would still turn what might initially have been favourable odds into unfavourable odds. The public would still find itself on the wrong side of the market at major turning points, it's just that those turning points would occur with greater frequency.

In a world where most of the information thrust at the public was helpful and where the public's ability to objectively analyse information had been magically enhanced, no investment would stay popular for long. However, we don't think there is any danger of reaching the point where even 50% of the information used by the public to make investment decisions is genuinely helpful. And there is certainly no danger that objective analysis will ever replace emotion as the main driver of the public's investment decisions. As such, it will continue to take the public many years to recognise major trend changes and there will continue to be plenty of opportunities for 'contrarians' to buy well in advance of the public and to sell once the public eventually, and inevitably, becomes a believer.
Only force rules. Force is the first law - Adolf H. Man has become great through struggle - Adolf H. Strength lies not in defense but in attack - Adolf H.
Old March 31st, 2015 #8
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Speculation as a Fine Art by Dickson G Watts

Jesse Livermore Reminiscences Of A Stock Operator

Only force rules. Force is the first law - Adolf H. Man has become great through struggle - Adolf H. Strength lies not in defense but in attack - Adolf H.
Old March 31st, 2015 #9
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Default Phantom of the Pits



Rule Two







1. Phantom's Insights

2. Your Book

3. A Little History

4. Preparation for Trading

5. Rule One

6. Part Two

7. Trading with Rules One and Two

8. Day Trading

9. Options

10. Cloud Hopping

11. Time to Reflect on God's Rules

12. When We Lose One of Our Own (by Harold B. Simpson)

13. Behavior Modification

14. A Wink Is As Good as a Nod to a Blind Horse

15. Quicker Than The Eye

16. Your Comeback After a Big Drawdown

Phantom's Christmas Gift

Rule Three You Say?

Is the Market Always Correct?

The Third Rule

Tie Ribbons on your Trading

Trading and Three Accidents

My Order was Filled Where?

Your Trade Program

Phantom's Chat

About the Author
Only force rules. Force is the first law - Adolf H. Man has become great through struggle - Adolf H. Strength lies not in defense but in attack - Adolf H.
Old July 12th, 2015 #10
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The Battle for Investment Survival

by Gerald M. Loeb

Published November 1911
Only force rules. Force is the first law - Adolf H. Man has become great through struggle - Adolf H. Strength lies not in defense but in attack - Adolf H.
Old August 29th, 2015 #11
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While Many Panicked, Japanese Day Trader Made $34 Million


CIS had been shorting futures on the Nikkei 225 Stock Average since mid-August, wagering it would fall. By the market close on Monday, a paper profit of $13 million was staring him in the face. He kept building the position. When he cashed out late that night, a collapse in New York had caused his profit to double.

Instead of celebrating, he kept trading. He started betting the market had bottomed. When he finally took his winnings off the table on Tuesday, he tweeted, “That’s the end of my epic rebound trade.” His profit, he said, had almost tripled.


Last year, when he was the subject of a profile in Bloomberg Markets magazine, CIS said that in a decade of day trading, mostly from a spare bedroom in a rented apartment, he had amassed a fortune of about $150 million. At the time, he shared tax returns and brokerage statements to back up his claims. One document showed he had traded $14 billion worth of Japanese equities in 2013 -- about half of 1 percent of all the share transactions done by individuals on the Tokyo Stock Exchange that year.

CIS became a cult figure among Japan’s tight-knit community of day traders by trash talking on Internet message boards early in his career. He’s notorious for lines like “Not even Goldman Sachs can beat me in a trade.” Last year he opened a Twitter account, on which he talks about video games and, regularly, his trading. It’s impossible to say how many of his followers are also day traders, and how many of those buy and sell in his wake. Those who do, of course, are quite possibly helping him make money.

Il n’est pire sourd que celui qui ne veut pas entendre.
Old April 27th, 2018 #12
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Only force rules. Force is the first law - Adolf H. Man has become great through struggle - Adolf H. Strength lies not in defense but in attack - Adolf H.


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