Investing for stable, steady growth

When people are interested in improving their investment results, what do they want more of? Typically, they want more of two things: stability and total gains.

Stability means that the total value or account balance will consistently rise with only very small declines. (That is also known as “wealth preservation” and the most common strategy for preserving wealth is diversifying across the most stable trends and markets.)

Total gains of course means that whenever you choose to withdraw money from your investment accounts, there is a lot more money there then what you put in. So, in summary, we value gains that are not just consistent, but also large.

Now, for some added perspective, let’s look quickly at the best-performing group of stocks in the US stock market last decade: the HUI sector. Note that most investors and even investing professionals have never heard of that group of stocks (because most people including financial professionals have not been focusing on the best results that are easily available to them- they either try too hard or not hard enough).

The above chart shows the performance of the stock prices of that group of 15 US companies. From a low of $35 in late 2000, the price of the HUI sector increased tenfold by 2006, gaining over 1600% by 2010.

Did your stock market investments grow that much last decade? Most investors (including in the US) experienced little or no gains overall in their stock investments last decade. In the case of US investors who had been heavily concentrated in US high tech companies such as are found on the US NASDAQ stock exchange, typical returns for the decade were losses of 50% or more. (See chart below.)

In other words, rather than witnessing consistent gains, many investors experienced continuing losses. Still, many of them continued to stay invested in losing methods and strategies for most or even all of the decade.

In fact, you may even be one of them. Whether or not you experienced disappointing investment results last decade, you may be quite interested in producing investment results that are both more stable and more profitable.

However, you may not know how to produce the results that you would value enough to alter your investing method. That is why you are reading this, right?

Before I say more about a simple strategy to consistently produce large gains (while maintaining a stable balance), let’s combine the two charts above to make something very clear. Here are the two charts shown together:

While the large gains of HUI (the tan line) are obviously far better than the large losses of the NASDAQ composite index (“COMP”), we can notice periods when HUI did quite well and periods where it did not gain. In the years 2000, 2004, & 2008, HUI lost value for the year (especially in 2008).

Why do I emphasize this? Because even when investing in 15 companies (which might seem like a lot more diversification than investing in only 1 or 2), there can still be long periods of no gain or even large losses (just like when investing in a bundle of 100 or more stocks like in the US NASDAQ).

Diversification itself does not provide for stability or wealth preservation. The specific method of diversification must fit the goals of the investor, or else that method should be discarded or at least revised.

So, if you want a stable balance or market value (with only very small declines), that requires WISE diversification. Further, that may even mean avoiding illiquid markets like real estate (markets that can be very hard to quickly sell, often taking weeks or even months to exit from the investment).

Wise diversification means having a group of investments that are all consistently increasing in value. If one or two of them briefly fall a few percent or even more than that, that still will not effect the total balance much. Why? because the majority of the investments are still making consistent gains!

Imagine a real estate investor who loses even 10% or 15% in a particular year. If that investor is also investing much more net worth in other investments that are all making large gains (like the best stocks, the best commodities, and the best currencies), then even losses as large as 10% in a year in one investment will not produce an overall net loss. Why? Because that investor was wise enough to diversify in ways that profited from consistent trends in other markets besides real estate.

Now, let’s review my personal background a bit. Then I will reveal the other issue besides diversification that is essential for vast improvements in your investment results. Let’s read a paragraph from an investment commentary published in 2003 on March 3rd:

“Yes, we can profit from the collapse of the credit bubble and the subsequent stock market divestment. However, real estate has not yet joined in a decline of prices fed by selling (and foreclosing). Unless you have a very specific reason to believe that real estate will outperform all other investments for several years, you may deem this prime time to liquidate investment property (for use in more lucrative markets).”

I wrote that. Here is the link to the full article: http://www.gold-eagle.com/editorials_03/hunn030303.html .

Is it interesting to you that in early 2003, I was referencing that real estate markets would eventually decline in price because of an increase in foreclosures? Is it intriguing to you that I was referencing a collapse of the credit bubble (which means a decrease in the total amount of borrowing and lending, like for mortgages)?

I referenced it being “prime time” to liquidate (sell) property. I emphasized that other markets might be “more lucrative” (more profitable).

What investment markets were I emphasizing in early 2003 as more lucrative than real estate? If you click the link above and scroll down to the end of the article, here is the last image you would see:

That is a chart of the performance of the HUI sector in the two years prior to March 2003. That sector, which went on to gain over 1600% last decade, is the one that most investors ignored in favor of things like real estate and stocks from the US NASDAQ (both of which had their worst decades in a very long time).

I strongly recommended against real estate. I emphasized the gains of over 200% in the prior two years in HUI (which I knew would accelerate if commodity prices continued to outperform most stocks).

What else did I recommend? I noted the multi-year rallies in commodities like Gold and Oil. I also emphasized why I expected most US stocks to do less well than commodities.

“easy credit fed the stock market hysteria…. Many even rushed to refinance homes again (trading equity for cash) to create the final wave of the 90s stock mania.”

Of course, that wave of real estate borrowing did not end in 2003. As it continued, many US stocks eventually recovered from their declines- but not all.

Except briefly before crashing in 2007, the high tech sector of the US NASDAQ exchange was down more than 50% from it’s 2000 peak almost the entire time last decade. The housing sector plummeted in 2005 (“HGX”) and the financial sector (“XLF”) plunged in 2007 (shown below).

So, that is a little background on why you might be especially interested in what I personally can tell you about extraordinary investment strategies. In addition to diversifying, the other simple key to consistent profits is to analyze trends and exit from trends as soon as they weaken.

As an example, let’s look at HUI in 2003. First, here is the “raw” chart:

Here I add one trendline:

 

Here I add another:

The two lines are obviously parallel, right? That is called a trendchannel. They form very frequently in many price charts, including for bundles of stocks like the HUI sector of 15 US companies.

To a trend analyst, I would notice that when HUI rebounded in early October, that rebound was at a parallel slope (angle) to the three weekly highs from mid-August to mid-September (the green line). So, I would buy HUI and hold it as long as that established uptrend continued.

I would buy between 190 and 200 in early October, then hold and watch very closely in the first week of November for a possible exit at 200. That was the second test of the lower (red) trendline.

In late November, I would exit between 245 & 255 when HUI “broke” out of the trendchannel. I might sell “conservatively” when HUI reached the green line (depending on what other opportunities I noticed in other markets). Or I might hold on while HUI surged up above the trendchannel briefly and only exited when HUI penetrated back in to the trendchannel.

In any case, that would be a gain of over 20% in several weeks. That is better than most people do in a year. Are you interested in results like that?

Then, in December, when HUI reached the lower trendline again, I would be looking for buying in again- but ready to exit with a small gain or even small loss if prices did not continue the upward trend. Here is the same trendchannel plus the next two years of HUI:

Depending on what I saw in other markets, I might not be interested in HUI again until mid-2005 when HUI fell toward 160 (a prior low) or even in November 2005 when it broke above 250 (the brown line).

Maybe you understand the trend analysis referenced above. I picked a relatively simple example, but the point is that there are lots of trends happening all the time. If I find a few of them and trade them conservatively, I will keep my account balance growing steadily. Any particular day or week, there could be a small loss in one or two of the positions, but with several positions all in clear uptrends, the account balance would consistently increase with occasional slight declines (triggering “trailing stop orders” to protect the prior gains).

Why don’t more investors do this? Because it is unfamiliar to them- even complicated and stressful. The research of comparing several markets can be time-consuming and tedious.

Why don’t more professionals offer this? Most investment professionals earn commissions from selling investments, not a percentage of any gains. They have no vested interest (profit-sharing), so their motivation to perform well is minimal if any. They do not suffer any great loss when their clients lose money. They are salespeople, not business partners.

What is different about me? I am open to offering you access to being a partner in my trading business. I am so confident in my results that I only ask for a share of the profits that I will consistently generate for you. Contact me if you are interested in partnering with me so that you can watch your investment account balances consistently multiply.

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• American Capital Fights Fed Exit Worry as Investors Flee (bloomberg.com)
• Pittsburgh Based Real Estate Investor’s Club to Co-Promote New Investment Model (virtual-strategy.com)

When will the US recover… and is it guaranteed?

published Aug 14, 2010

Sometimes people ask me what I do. If I give them a short but explicit description, it is common in recent years for them to ask me as a follow-up question: “so when will there be an economic recovery?” Maybe you have heard that question or even ask it yourself.

I have been asked that particular question, perhaps in slight variations, literally hundreds of times. In contrast, I have never been asked- again literally never, to the very best of my knowledge- “will there be an economic recovery?”

Apparently, almost no one questions that a recovery must be inevitable. They only want to know if it will arrive in weeks or months or what (like perhaps only hours or minutes).

Further, they want me personally to tell them in advance now my answer to their question of “when will there be a recovery.” They obviously recognize that the recovery that they used to think was already happening… might not be yet. I think what they are really asking is how soon do I think that the US economy will recover- or at least might. In other words, they may not want to know how long it may be until a recovery (a “worst case scenario”), but how soon a recovery might happen (a “best case scenario”).

So, for those of you who share that question, I have some good news and I have some bad news. The good news is that the recovery has already started. Isn’t that wonderful? The bad news is that the recovery that has started is not the recovery that people have been asking about.

I can explain. First, though, I’d like to comment on the recovery that they are talking about: the recovery of the US economy. The US economy is based on the actions of the population of the US [and all international transactions involving the US or even just involving US Dollars]. In fact, the US economy is nothing other than the actions of people of the US.

So, the US economy will recover when the people adjust their actions. The recovery will not be delivered by anything other than a revision of the actions of the people of the US. If there were to be some huge technological advance in the US, that would still be based on the actions of the people of the US.

The recent de-stabilization of the prices of various markets was simply a fluctuation in the behavior of people. Any future stabilization will simply be a fluctuation in the behavior of the people.” The economy” is the behavior of the people.

So, when will the US economy recover? It will recover when the masses of people adjust their behavior toward much more economical investments of time and talent. If the people do not invest their behavior toward economical investments of time and talent, there would be no return to economical investments of time and talent, no return to economy, no return of a thriving economy.

A thriving economy is purely behavioral. It is also not guaranteed. There may be no return to economical behavior in the US and thus no return of a thriving US economy.

Now, what are economical investments of time and talent? Which ones are economical can change over time. Economical just means an efficient method of producing the valued result. So, what people are telling me when they ask the question “when will there be a recovery” is that they are waiting for one to arrive (like a package to their door).

They are not producing an economic recovery. They are not economically adjusting their investments of time and talent, or not intentionally. They may be waiting for a thriving economy to be delivered by a politician or a bureaucracy or by the Federal Reserve or by Federal Express.

“No, sir, you won’t have to sign for the brand new thriving economy to be delivered directly to you. We’ll just leave it at your front door if you are not home.”

So, back to the good news: the recovery has already started. Again, the bad news about this good news is that the recovery that has already started is not the one you ordered to be shipped directly to your door from Washington, D.C. Further, since this one did not come by Federal Express, you cannot return it. You are stuck with it. Here is the nature of the recovery that has already started:

The purchasing power of the US Dollar is already recovering. Wait: that sounds like it might be good news, actually? What could be so bad about the US Dollar recovering purchasing power? Well, that is also pretty simple.

When the US Dollar recovers purchasing power, that means fewer dollars can buy more stuff. For instance, US Dollars can buy more US real estate now than the same number of dollars would buy a few years ago. Or, US Dollars can buy more of the stock shares of most any US company. Or, US Dollars can buy more of most any commodity than the same number of dollars a few years ago, with the notable exception of gold.

“Ah,” some say. “Even more wonderful!” After the immense decline in the purchasing power of gold from 1980 to 2000, the purchasing power of gold has been recovering for nearly ten years now. However, that trend may have already ended, too. Trends do have that tendency: they eventually end.

So, let’s imagine that someone- perhaps you- were to ask me the following questions: “when will the ongoing recovery of the purchasing power of the US Dollar end? When will the US Dollar resume it’s long decline of purchasing power? When will prices of real estate and stocks and commodities rise against the US Dollar again?”

To those questions, I can give a clear, simple, and definitive answer: “not yet.” More specifically, when the people of the US change how they use US Dollars (or, since a lot of people outside of the US also use US dollars, when humans change how they use US Dollars), then their change of behavior will be a change in their economy. The economy of all of these people is “the economy.” The behavior of the people is “the economy.” There is no other economy but behavior.

So, in the last few years, people are being more economical with their dollars. This is the recovery. This is the increasing of the valuing by the people of the US Dollar by their actual behavior.

This is also the decreasing by the people of their valuing of debt and credit. They value actual cash dollars. They are reserved- in terms of their actual behavior- about getting deeper into debt and also about giving other people more credit. They want other people to pay off their old credit. They value cash way more than IOUs.

In prior years, there had been much more aggressive chasing of new debt and issuing of new credit to others. The behavioral trend of “pay for it later” has peaked and reversed. The behavioral trend of “pay for it now” has resumed… or “recovered.”

Again, this is the recovery! By the way, it is far from over.

The “recovering” or strengthening of the purchasing power of the US Dollar is both incredibly obvious but amazingly unrecognized.Lots of people actually are witnessing the ongoing recovery of the purchasing power of the US Dollar and then calling it a collapse in the purchasing power of the US Dollar. While that mislabeling is totally absurd and silly nonsense, it is also quite popular- more and more popular month after month recently. In fact, you may know quite a few people talking about an emerging threat of inflation and you may even have been one of them.

Most people do not recognize the simplicity of it because they do not even consider the possibility that the US Dollar could simply be recovering purchasing power. Most people did not know that they may have been grossly under-valuing cash because of easy access to credit.

Most people are probably concerned because they are still grossly under-valuing the US dollar and still grossly over-valuing real estate and stocks and so on, perhaps because they own lots of those still grossly over-valued assets and hope that some government or central bank can save them from the behavior of all humans in relation to their new increasing preference for actual cash US Dollars over accountings of credit, such as those denominated in US Dollars.

“When will the next political savior protect us from the recovery of the purchasing power of the US Dollar? When will the savior correct this horrible recovery, fix it, interrupt it, stop it, cancel it, and guarantee in writing that the credit bubble of the US economy will resume it’s inflating and stop deflating?”

Okay, fine. Let’s just get this over with….

I hereby admit publicly that I am your personal savior, if you really want one at least. Now, as your new savior, I promise you- yes, in writing… this very writing which you are now reading- that no matter what investments you already have, they will produce the best results ever and you do not have to change anything. You do not have to sell things that are over-valued. Just forget I ever said anything about that. In fact, that wasn’t me.

So, instead of you adjusting your behavior, I will arrange for all the rest of humanity to adjust their behavior… so that their behavior makes the specific investments that you already have increase in purchasing power. If your investments have lost value, I hereby guarantee that the recovery has already started of the lost value and further that a continuous and accelerating increase in the the purchasing power of those specific investments you already have is underway and eternal and unchangeable.

Yes, this goes for all of you, no matter what your various investments. If you have a bunch of cash, I guarantee that your cash will increase in purchasing power more than anything else. If you have a bunch of real estate, I personally guarantee that your cash will increase in purchasing power more than anything else- oops, no, I mean your real estate!

Or, if you own stock market investments, I guarantee that those will increase in purchasing power more than anything else, again, no matter which specific stock investment you may already have: US, Mexican, Chinese, Japanese- whatever. Oh, and if you own a bunch of bonds for any government or corporation, I guarantee that those will be the best possible investments for you to already have.

In other words, whatever investments you already have, I personally guarantee those to be the very best investments of all possible investments, and not just temporarily, but forever. However, I did say that there was some bad news, right…?

Well, once you elect me Holy Roman Emperor, in addition to relieving you of any concern for personal responsibility regarding the future purchasing power of whatever investments you already have, I also promise to relieve you of your ownership of them. Remember, that is just what Emperors do! Seriously, what did you expect?

You may know the proverb that God helps those who help themselves. Obviously, that is just wacky. Worship me, your personal savior, Satan. I guarantee that whatever you think you want to hear, I will tell you.

Anyway, now that we have got all of that out of the way, who  is going to be next to personally adjust to the emerging recovery of the purchasing power of the US Dollar? Who is ready for me to assist them in investing safely and wisely, receiving easy gains consistently? Anybody? No one? Anyone? Hello? Is anyone there? Is this microphone on? Can you even hear me?

What’s that? You want me to tell you what? Oh, first you want me to tell you when the US economy will recover. Ah! Well isn’t that an unusually interesting question?

So, when will your investments recover- no, sorry… “when will the US economy recover?” Right- I apologize if I ever implied in any way that you were actually interested in the value of your own personal investments. Obviously, given the last few years of complacency, you have no personal interest in the value of your own investments. You just want to know- like any good nationalist patriot dependent ward of the bank- when the US economy will recover. Okay, let’s just take a quick little peak at a chart of the last 18 years of the US stock market:

By the way, I’d like to apologize about the chart. Just ignore that blue line. Just pretend it is not there. I’m so embarrassed about this….

No, of course, you don’t want to know about stock markets that are currently making all-time highs, like the blue line charted above of the prices of the stock market of Mexico. You just want to know when the recovery of your own personal- no, right, I mean the recovery of the US stock market and US economy and so on, yes, when THAT recovery is going to happen- precisely how soon exactly– and when the horrible recovery of the purchasing power of the US Dollar will end. (Keep in mind, by the way, that we know that the recovery in people’s demonstrated behavioral valuing of cash cannot actually be happening because, um, because, um, because, uh… oh: our personal savior on TV said that she is really concerned about inflation, so we should be, too.)

Okay then: the red line is for the US. Again, I am so sorry about confusing things by showing you the data for the ongoing strong activity of the Mexican stock market, up a measly 2,600% in the last 18 years.

So, back to the red line for the US, I will personally let you know when it recovers to a new high. Yes, just as soon as it recovers to a new high, I promise that I will personally let you know.

Just a moment, please. Thank you so much for your patience. We apologize for the delay and while you are on hold we’d like to remind you how much we value your loyalty as our customer. Yes, I’m still watching the line very closely. Again, thank you for doing business with the US economy.

Hmmm… you know it does not appear to actually be recovering right at present moment. But… let’s just give it another few seconds. Oh, I know: have you checked to see if your unit is plugged in to the wall?

HEY! I think we may have something here:

Oh, again- very embarrassing. My mistake. I have no idea how THAT chart got in to this presentation.

Yes, the yellow line down there- that is the US NASDAQ stock market. It’s still down about 50% from it’s peak in the year 2000, you know, basically in the same range it has been since, um… shortly after that peak in early 2000.

Oh, are you raising your hand? Okay, you have another question? Sure, go ahead, yes, you can ask a question… even a stupid question. In that case, I’ll probably just give a stupid answer!

Ah, what about the other lines on the chart? Yes, my mistake. Please do not bring that up again- it such a shame that they accidentally got put on that chart of the 50% decline in the US NASDAQ in the last 10 years. Sorry for any confusion. Again, just ignore them. They are not important at all.

You do? Really? Well, alright: just for no reason at all, here are what the other lines show:

The green line, up by about 100%, is the stock market of Korea (as in South Korea). The blue line, up by over 200%, is the stock market of India. And the red line, hmm, what IS that red line?

“HUI?” Now, why does that sound familiar to me?

Oh, right: HUI is the sector of the US stock market that I featured in my first published investment commentary in early 2003! Well, look at that: hasn’t it done rather well!

However, again, please ignore all of those other lines. Those are only important to people who are asking questions like “which markets have recently been strongest” or “which investments have been profitable?” Those kinds of questions are for people who take a personal interest in the actual consequences to them personally of their investment choices. You just want to know when will the US recover, right?

I mean, if you wanted to know which investments are the current focus of competent investment market forecaster with an established track record of predicting and explaining in advance all the major changes in global financial trends for the last several years, well then you would not still be exploring this presentation, would you? You would be contacting me about partnering with the reality of the immense opportunity emerging, wouldn’t you?

By the way, the US Dollar is not really recovering. The US Dollar does not actually do anything. People have just changed their behavior in relation to the US Dollar.

Oh, and investors have changed their behavior in relation to selling out of US real estate markets and selling out of US stock markets, but as investors have been selling or de-valuing certain investments, many of them have continued their patterns of increasing their investments into the stock markets of Mexico and India and Korea. But, seriously, what kind of person would be interested in investments that are actually gaining in purchasing power?

Obviously, those people clearly lack faith in the false prophet, the great Satan. It’s just shameful, isn’t it- actually caring about the personal consequences of one’s actions, the personal consequences to one’s self and family and nation and so on? I hope those people all move to Mexico… or India… or Korea, don’t you?

I mean, seriously, are you STILL exploring this presentation instead of contacting me personally right now? That’s just plain wacky, isn’t it!

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• Is America’s Economic Recovery Real? (jobmarketmonitor.com)
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• A Crash Warning Has Been Issued For The Economy; Buy Gold and Silver (GLD, SLV, IAU, AGQ, TZA) (etfdailynews.com)

Related articles

• Economic recovery stagnates – NZIER (stuff.co.nz)
• The US Dollar’s Triffin Dilemma Adjustment Disorder (minyanville.com)
• Can the US Economy Recover Without a Housing Recovery? (minyanville.com)
• Home Purchasing Power Jumps To New Highs (mikeduggan.wordpress.com)
• Infosys likely to cut FY13 revenue growth forecast (profit.ndtv.com)
• America’s Uneven Economic Recovery: The 10 Best and 10 Worst Cities (dailyfinance.com)
• Economic Recovery: Car Sales Rebound (wire.kapitall.com)
• Did Obama break his promises on economic recovery? (theblaze.com)
• A Crash Warning Has Been Issued For The Economy; Buy Gold and Silver (GLD, SLV, IAU, AGQ, TZA) (etfdailynews.com)

Bakken, oil, crisis, & prudence

This is an exchange between myself and “DK.” She sent me a broadcast email with a subject like this: “OIL – You better be sitting down when you read this !!!!!!”

Her email is about the Bakken oil field in the US. Her email referenced two figures as the total estimated amount of oil there: 503 billion barrels and 2 trillion barrels. She cited an article from the USGS indicating that the accessible, useful oil was more like 3-4 billion barrels:  http://www.usgs.gov/newsroom/article.asp?ID=1911 

Image via Wikipedia

Here was my initial reply:

According to the USGS article that you cited at the bottom, only a few
billion barrels are currently classified as recoverable, or less than
1% of the 503 billion barrels referenced elsewhere.

Let’s put that in perspective. 3 billion barrels of oil is
approximately an extra 16 months of oil at the current rate of
production in the US (which has been near 6 million, but may have gone
up in recent years).

So, if oil production is up in the US already and even if the US
doubles production for 16 months, yes that will be a[n]… increase in
the global economic balance of affluence. 3 billion barrels of oil
does correspond to an extra 300 billion dollars or so of value.

However, what was the US government‘s spending in 2011? $6 trillion,
as in 20 times as large as the extra 300 billion dollars of economic
affluence represented in the USGS article.

Is that 300 billion dollars of value trivial? No! Does it
fundamentally change ANYTHING long-term? Not yet!

DK replied back to me:

JR,
Thanks for your insight.
What can the average person do to pressure them to do the right thing?
D.

Hi DK,

Respectfully, I do not know who you mean by “them” (or what you mean by “the right thing”). [I now presume that she meant the US government.] Let me give you some of my perspective on the general subject.

Starting in early 2003, I have invited people to consider the actuality of trends and to adapt to those actualities, such as the shift in the long-term price of fuel. For the last several centuries, fuel prices have dropped dramatically (in “real” terms as in after adjusting prices for the fluctuating purchasing power of currency).

One of the ways that economists (as distinct from accountants) have measured the cost of fuel is this: how long does it take the average person to earn or produce the capacity to produce an hour’s worth of candlelight? You may have heard of measuring the brightness of light in “candles” and that is what I am referencing. The time-cost of producing an hour of one candle worth of light has gone from a large fraction of an hour centuries ago to under one minute and finally to under one second. The same kind of measurements can be done in regard to one unit of “horsepower.”

Human civilization has radically altered in recent centuries with the collapse in the cost of energy (fuel). Amish people and others have not participated much in the “boom” related to the huge decline in energy costs, but the huge ballooning of human population in recent centuries is the direct result of the huge decline in the cost of energy/fuel.

So, in 1999, that multi-century trend of declining cost of energy may have reversed. Starting in 2004, I wrote and published articles referencing the reasons that energy costs were rising and the predictable consequences of any continuing rise, which I did predict would continue.

I have noted that the average decline of 40% of the stock prices of the US airline industry in several months in 1999 [red line above] went along with a quick doubling of global oil prices [blue line above]. [Also, the green line above shows the simultaneous decline of the financial sector of the US stock market.] Further, I have consistently documented the general shift in the economies of Japan, Europe, and the US toward the economies of OPEC and other oil-producing regions (including places like Alaska, North Dakota, and the province of Alberta).

Japan’s decline started in 1989. The USSR, which was the #2 oil-producing region on the planet (and still is), has also collapsed politically since then (dissolving in to smaller political units). The EU (including the UK and Germany, etc) as well as the US have been declining now for over 10 years at least, depending on the exact measures used. [Below is a long-term chart of the UK stock market, which peaked at the end of 1999.

My assertion is that the global political history of the 20th century can be summarized in a few words: the rise of oil. Next are a few paragraphs summarizing the 20th century:

The prior two major powers, Great Britain and Germany, fought two massive wars against each other (world war one and world war two). In ww1, Britain won. In ww2, Germany lost.

But who won world war two? The USSR and the US did. In WW1, those two countries were not even major powers. However, after ww2, those two countries dominated much of the world and they even split Germany right in half between those two allied victors.

Britain did not get occupied like Germany did, but Britain did not get a portion of Germany either: just the US and the USSR. Britain did not win ww2. Germany lost (along with Japan and Italy) and the winners were the US and USSR. Further, lots of other folks (France, Poland, etc) could also be said to have lost or at least not to have won.

So, those two “superpowers” of the US and USSR had very different political systems and very different cultures, but those two nations rose from relative obscurity in the 19th century to become the top two global powers in the 20th century. What did they have in common was oil. In the 20th century overall, the US led the world in oil production (and consumption). In the early 1970s, the USSR surged past the US in oil production, leading to a significant power shift and the rise of OPEC to prominence.

In the latter decades of the 20th century, as the USSR and US slowly fought over regions like Afghanistan and Central America, the USSR eventually lost and crumbled. One of the most devastating economic events for the USSR was the joint effort by the US and OPEC to drive down global prices of crude oil, which was the main source of revenue for the oil-exporting USSR.

Normally, when a company produces something, then want to sell it for maximum profit. However, with the US and OPEC colluding to drive down oil prices, US and OPEC companies (like Aramco, the Arab American Oil company which controls much of the oil industry in the Middle East) sold oil for much lower prices than they could have. Governments may even outright subsidize oil production so that private companies can sell oil at a loss, but still receive tax incentives or other incentives so that the governments can drive down international prices of oil for political purposes.

Image via Wikipedia

So, what is there to do about any of this? Recognize it. Adapt to it. Benefit from change. Reduce exposure to risk (like protecting assets using the fullest extent of the law while those laws still exist, settling debts rigorously, and investing wisely).

This is a time of unprecedented opportunity. Why? Because so many people who are currently so wealthy (in the US and EU) are so naive (if not arrogant) in regard to what is happening.

The mainstream middle class (not just in the US) have been taking immense financial risks with no appreciation for the basics of economics or investing. Most people do not understand the simple ponzi scam of the insurance industry and thus consider casino gambling and state lotteries to be less risky than their investments in ridiculous long-term annuity contrasts. There is nothing as risky as the global insurance industry, which is the largest concentration of financial risk in human history. AIG was not a fluke. The 2008 financial crisis in the US and EU was not a fluke. Myself and many others predicted it. People see the financial issues with the government of Greece or of the US, but a glance at most any insurance company might reveal a much less favorable long-term financial stability.

So, The investments that will be most valued in the next few years are almost completely ignored by the mainstream as of now. That will change and suddenly, which can produce huge increases in price.

By huge, I mean larger than the 1200% increase in the price of oil from 1999 to 2008. I mean larger than the 1600% increase from 2000 to 2010 in the stock prices of the HUI index of 15 conservative gold and silver mining companies. Those were certainly quite large gains. Some gains, however, are huge, like historically unique.

So, I am not especially interested in speculating as to what is they right thing that other people could do (such the US Congress or the leaders of OPEC or AIG or NATO). I am interested in identifying what I could do, in what results I can help individuals to produce with me, and in then producing the results that I value.

Related articles

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• 5 Things You Didn’t Know About The Cold War (libraryindus.wordpress.com)
• OPEC Text:Recent Econ Setbacks Push 2012 Oil Dmd Outlk Lower-1 (forexlive.com)
• OPEC Raises Oil-Demand Forecast (online.wsj.com)
• GSP: ‘My Training Is Based on Experiments from the Communist Block in USSR’ (bleacherreport.com)
• Opec sees downside risk to oil demand from euro crisis (business.financialpost.com)
• WELCOME TO THE EURASIA: The 7 Countries You Need To Be Watching (businessinsider.com)
• Iraq Says 2012 Oil Output to Reach 3.4 Million Barrels a Day and USA, Canada, Brazil, Kazakhstan and China will Lead non-Opec Oil Increase through 2013 (nextbigfuture.com)
• OPEC Oil Outlook Forecasts Big Demand Increase (247wallst.com)
• Oil and gas: Roll on the barrels (economist.com)
• Iran issue needs diplomacy, not crude weapon (thehindu.com)
• OPEC to Hold the Line (247wallst.com)
• Setting the Stage for Change: Big Picture Energy Trends (insightadvisor.wordpress.com)
• Soviet collapse more costly than WWII – Primakov (rt.com)
• Three Major Journals Publish Articles on Limited World Oil Supply (ourfiniteworld.com)
• Petrol price not cut by oil decline (confused.com)
• Guest Post: Dangerous Ideas (zerohedge.com)
• EIA estimates California Monterey to have four times the technically recoverable oil of the North Dakota Bakken oil field (tarpon.wordpress.com)
• Debunking Republican Junk Economics: Canadian & Bakken Formation Oil Feed Record Fuel Exports (treehugger.com)
• PetroBakken jumps on strong results (business.financialpost.com)
• Bakken shale and U.S. oil production (energybulletin.net)
• The United States has 3 to 5 trillion barrels of oil in place and possibly over 1 trillion barrels could be recoverable (nextbigfuture.com)
• Bakken Formation – Oil in N Dakota and Montana (jlue.wordpress.com)
• Pioneer Bets On West Texas Shale Oil To Rival Bakken (mb50.wordpress.com)
• Fixes for US financial problems – a little austerity and a lot of oil (nextbigfuture.com)
• The Peak Oil Crisis: Parsing the Bakken (energybulletin.net)
• Continental buying Bakken acreage from CEO Hamm (newsok.com)
• Scarce Oil? U.S. Has 60 Times More Than Obama Claims (tarpon.wordpress.com)
• Canada’s ‘Cushing moment’: A northern pipeline crisis looms (business.financialpost.com)
• More Resources That the Government Won’t Use to Lower Gas Prices (sfcmac.wordpress.com)

best case planning (like HUI’s 1600% rise and a 90% reduction in credit card debt)

Credit Card (Photo credit: 401K)

BEST CASE
Planning

Once you know what is best,

you stop doing any less

BEST CASE INVESTMENT RETURNS:	BEST CASE LEGAL PROTECTIONS:
Could you produce gains of at least 1600% per decade?	Could you protect your assets, reduce taxes and legal fees, & even settle debts for as little as 10% of what you owe?

 After the two graphics below, more details follow:

Below are a few quick details relating to the 1600% gains.

I have been focusing on that top-performing US stock sector (HUI) since March 2003:

 

HUI had already risen 250% in the 18 months from late 2000 to mid 2002, then it faltered and next recovered to be just below the prior highs by early March 2003 when I was preparing that article. Here is another quick highlight from that early 2003 article:

As for the $20,000 reduction in credit card debt, here is the full settlement offer from the credit card company. You can zoom in on this page or click on the image to open it in another window.

 In the next set of images, I highlight the basics of the discounting of the debt, plus at the end I show what the credit card company specified in regard to consequences for the credit record of the debtor. Since the debtor had been quite delinquent with over $22,000 owed, that reduced his credit score, so to have the total debt drop by over $20,000 might have improved his credit-worthiness quite a bit.

 

Image via Wikipedia

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first harmony then prosperity

Harmony internally, then prosperity externally

Yes, “there is more to life than money.” Also important, “a fool and his money are soon parted.”

So be aware of the possibility of being foolish about wealth. Be aware of the possibility of being foolish about all of life or any of it. Then be aware of the possibility of being calm and clear and courageous about life, including the aspect of life regarding wealth.

Lately, many people are talking about financial risk and results that they have called surprising. Many of them have been investing their trust in mass media or massive bureaucracies like the insurance company AIG or the Federal Reserve or the government of the USSR– you thought I was going to say US, didn’t you?

What have been the consequences of investing trust in the mass media and massive bureaucracies? Have those results (perhaps such as being unpleasantly surprised) raised the question as to whether those methods might have been foolish? Is it possible that foolish methods of investing trust may produce the result of financial losses, rather like the saying goes that “a fool and his money are soon parted?”

What about discounting the importance of financial realities? Are finances suddenly important to you or were they always important and only recently recognized as important? How about this: are gasoline or electricity suddenly important to you or were they always important and only recently recognized as important because we could take them for granted until prices reached a point that we altered our perspective and our behavior based on things like rising gasoline prices.

For many years, I have been focusing on the possibility of rising fuel prices and their consequences on the economies of Japan, the USSR, Europe, and the US. My publication in 2004 of “the Real US Deficit: OIL” featured a section called “the DominOIL effect” relating to why I expected fuel prices to continue their dramatic rise that began in 1999 and what consequences I expected in the US, which I expected to be similar to what had been happening in Japan since 1989 and the UK and EU since 1999.

The next chart shows the all-time low of inflation-adjusted prices of gasoline in the US in 1999. Global oil prices also made a major low in 1999.

The last chart is a chart of the stock market of the UK. Next, here is what gas prices in the US were near the time of that article in 2004:

My central question (in this 2004 publication: www.gold-eagle.com/editorials_04/fibonacci110704.html) was “how many dollars will it cost to buy a gallon of gasoline next year?” Here is an 8-year chart of what happened:

(from here: http://www.indexmundi.com/commodities/?commodity=rbob-gasoline&months=120)

Some people have questioned my logic because of oil and gasoline prices falling sharply in 2008.  However, for those that have the courage to read my old articles, I did not say that demand for fuel would never drop or that prices would never drop.

On the contrary, I simply said that diminishing supplies (since the easily predictable peaking of global oil production in 2006) would raise prices enough to slow down the global economy, including that of the US. That predictable slowing of economic activity would predictably reduce demand for fuel, which would predictably drop prices. The drop in 2008 does not disprove the accuracy of the logic, but establish it. I may have even published all of that content, but it is pretty easy to see the logic one’s self if one is willing and able to face the simple facts.

How can the global economy expand after the 2006 peak in oil production? It must contract. Economic activity drops as fuel supply drops. Things like currency inflation or credit deflation are secondary financial measures relative to a primary tangible economic issue like an empty fuel tank in your car. Having lots of cash or credit but being out of gas in the middle of a desolate highway do not make a fool into a genius. Primary functional economic tangibles like gasoline and food are the things that we value having currency to access. No one cares much about currency (or gold) when they are starving, right?

So, it was the spiking of fuel prices by 2007 that were accompanied by the steep decline of global stock prices in 2008. After stocks began to plummet, fuel prices did too eventually- all as I predicted. Further, real estate borrowing had predictably diminished considerably as well, so real estate prices predictably declined dramatically, which resulted in financial trouble for many financial institutions, such as FNMA, AIG, and WaMu, as I specifically predicted in a video that has been online since 2006. (I can send a link to those interested.)

Once fuel prices fell, the global stock market began to recover. However, gasoline prices in the US recently approached their 2008 highs again (in red below).

In 2007, stocks peaked while gasoline (and silver) rose. Then silver peaked next in early 2008), then gasoline. Doesn’t that imply that rising fuel prices may have been the cause of the decline in prices of stocks (in the US and globally) and even of silver? Or maybe it was the high silver prices that brought down everything, right? 😉

When gasoline prices in the US reached a high enough level in April to reverse the spending behavior of the US economy, dropping demand enough to reduce purchases and bring down gasoline prices. However, that reduction in a fundamental behavior within the US economy also brought down the prices of the US stock market (blue above) and even of silver (green above).

In fact, those three things peaked on the exact same day: April 29th, 2011 (close-up shown below). But no one could have predicted that rising gasoline prices would have in any way effected the US economy or spending habits or stock prices or even silver prices, right? Rising fuel prices could not really have any effect on popping bubbles of speculative mania, would they?

Then again, maybe the cause was President Bush or President Obama, not gasoline prices. Or maybe they are personally responsible for gasoline prices- like maybe whether the prices of gasoline rise or fall is totally dependent on the choices of exactly one person.

But why did the Japanese economy slow down in 1989? Why did European economies begin to slow in 1999? Did $11 gallons of diesel in the UK in 2008 have any effect on the spending behaviors and economic activities of business and consumers within the UK?

Possible? Yes.

Predictable? Yes!

So, what is coming next? More selling of stocks and real estate. I’ve been warning of that since before 2004. I knew that the speculative bubbles would not last forever and were nearing their extremes. Real estate began peaking in 2005 (in places like Phoenix) and soon extended to most of the US (and much of Europe etc).  Stocks began peaking in the US in 2007 (at least for most sectors, excluding high tech, which peaked several years prior).

Of course there were a few exceptions, like the US stock sector HUI (shown above). However, the mining stocks of HUI are part of the same economy, too. They actually peaked in early April this year (pink):

What has done well? Here are a few examples of gains approaching 100% gains in the last 10 days:

What else did well lately? I sold a put option for $1.07 today that closed Friday at $.17. That change (up over 400%) is a pretty decent increase for a single day, right?

But remember, the mass media and massive bureaucracies may indicate that there is no such thing as predictability, or at least not in certain instances. Even notice that as you are reading this sentence, there is absolutely no way to predict that this sentence is going to end with a punctuation mark, is there?

No one could have predicted any of this. The future is completely unrelated to the past- not just your personal future, but even the future of how this sentence is going to end.

Nature does not have any patterns in it. And that, as always, is entirely the fault of the US President. Or the Federal Reserve. Or OPEC. Or this sentence.

So how are we going to fix the problem of nature not having any predictable patterns in it? First, let’s blame someone else because that has always worked marvelously in the past, right? Then let’s wait for the person that we blame to save us from them. Finally, let’s complain about how waiting for them to save us from them is still not working again as usual as always.

Just do not adjust. After all, adjusting could effect your actual results, and no one is interested in financial security or economic prosperity because that would be evil and shameful and of no functional relevance whatsoever. So, is any of this fooling you?

Keep in mind that sometimes translations can shift the implication of a message. If someone were to suggest that proudly foolish naivete about financial speculative bubbles was a major risk, deserving great caution, do you think that message might be translated like this: “proud attachment to ideals about wealth is dangerous” or even “the love of money is the root of all evil?”

It’s not ignorance that is most risky. It is believing that something is so when in fact it is not.

From an emotional or irrational attachment to false presumptions, blame and anger and grief and agonizing and proud argumentativeness and shame all may arise predictably. Learn that, either the easy way or the hard way, but learn it fast.

By the way, yesterday at the close of trading (Monday 8/8/2011), I purchased some call options on the US Stock market. Those positions rise in value when stock prices rise. After one of the biggest down days in US stocks in decades, I understood that the panic of the masses after the weekend downgrade of US debt could be a short-term buy signal for US stocks.

So, after stock futures dropped another 2% in overnight trading, they then reversed 4% and are again pushing toward an open of more than 2% up. That should produce overnight gains of well over 100% for those instruments.

UPDATE:

I sold those call options for a gain of only 40% overnight. But that was just the start of the day. It got better…..

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“negativity” about when gas prices will be 65 cents again

Let’s start with an analogy. Then, I will tell you about when gas will be 65 cents per gallon again and when the US economy will recover. Okay?

Do you know how much the speed limit is for a school zone? Many school zones have speed limits around 25 miles per hour, but they can even be as low as 15. Imagine, however, that someone was driving through a school zone at about 50 miles per hour. This was during school hours, but there all that happened in this case was that the driver hit a speed bump pretty hard and was startled to notice that there was a bump there and only then noticed that the speed limit was 25.

Now, I do not know how many of you know any 84 year-old women. However, some 84 year-old women do not like the idea of speed bumps. Some of them say things like “I am concerned that this speed bump could damage my car.”

I might say, “the speed bumps are not likely to damage your car if you drive over them at 15 miles per hour instead of, for instance, 50 miles per hour.” She might say, “yeah, but I do not appreciate those people trying to damage my car like that. It’s just not right!”

So, this is how I found out about the 50 mile per hour race through the school zone and her startling discovery of a speed bump right there in the middle of the school zone. I said to her “wow, you know that driving 50 miles per hour over a speed bump can damage your car, right?”

She said, “Yes, but I do not appreciate your negativity about the subject. Think positive.”

I said, “I am thinking positive. I am thinking that because you like to stay out of jail, then you can observe the speed limit, especially in the school zones, and make sure to slow down before you drive over those speed bumps. It’s just not safe to drive that fast in a school zone.”

“So what you are saying is that should I buckle my seat belt? You always say that and it is so annoying!” she said.

“Didn’t you have it on?” I replied.

“No, I don’t like how they feel. You know that the strap just bothers my neck,” She said.

So, that is sometimes how conversations go. People may categorize as negative something that they would prefer to dismiss.

Categorizing something as negative- other than a negative number or a negative ion– can actually be a process of dismissing it or negating it. The so-called negativity of a recommendation to slow down before driving over a speed bump is not inherent in the recommendation or the speed bump. The label of negativity implies a contrast between positive reinforcement or encouragement and negative reinforcement or discouragement.

Now let’s talk about gas prices. Gas prices used to be 65 cents in the United States. That was many decades ago, but many people remember when prices were around 65 cents or even lower.

Imagine that someone asked in 1980, “when are gas prices in the US going to recover to their prior level of 65 cents?” I might say, “never.” They might say, “do not be so negative. Think positive!”

Next, imagine that someone asked in 1990, when are gas prices in the US going to recover to their prior level of 65 cents? I might say, “never.” Again they might say, “do not be so negative. Think positive!”

In the year 2000 or 2010 or 2020 or 2030, someone might keep asking me when gas prices will recover to their prior levels. I may keep answering the same answer. They may keep dismissing my answer as negative.

Next, let’s talk about stock market prices in Japan. We could be talking about real estate prices in Japan, but let’s talk about stock market prices in Japan.

In 1990, someone might have asked when are stock prices in Japan going to recover to their 1989 high. Someone might answer, “they might not ever recover to that level.” That might be called “negative,” right?

In 2000, someone might have asked again when are stock prices in Japan going to recover to their 1989 high. Someone might answer again, “they might not ever recover to that level.” That still might be called “negative,” right?

In 2010 or 2020 or 2030, someone might continue to ask when will the Japanese economy recover, when will stock prices recover, or when will real estate prices recover. The answer may still be “maybe never.” That answer still may be dismissed as negative.

Consider that one factor in the Japanese economy is the cost of fuel, which was recently over 7 dollars per gallon when priced in US Dollars. As fuel prices rose there, that effected the spending and borrowing behaviors of businesses and individuals. Their economy slowed down, kind of like an 84 year-old woman who was already startled by a speed bump the last time that she drove through that particular school zone. High fuel prices were like a speed bump interrupting the prior economic patterns from when gasoline was 65 cents a gallon.

In 2008, prices of diesel briefly exceeded $11 per gallon in the UK. As fuel prices rose since 1999, the economy of the UK hit a speed bump. People bought less stocks and sold more stocks. Stock prices came down since 1999. Real estate prices came down, too.

Many people asked when would the UK recover. Other people said “maybe never.” Some people dismissed that answer as negative.

(UK stock market prices 1984-2011):

Now, let’s talk about a few price forecasts. In 2004, I published a forecast of rising prices for fuel worldwide and a series of predictable consequences on prices of other things, such as US real estate and US stocks.

These forecasts were based in part on the observation of prior developments such as in Japan or the UK. Even moreso, these forecasts were also based on reports from oil geologists going back to the 1950s.

I first published a warning about a decline in US real estate prices in 2003. I saw the change in lending behavior (in credit markets) and deduced the eventual consequences of it. At the time, I did not connect the change in lending behavior to the change in fuel prices. That was in 2004.

Many people have called my forecasts “negative.” In fact, my forecasts of a drop in price in various markets were forecasts of negative price change for those markets. My forecasts for rising prices for oil and gasoline (when that was my current forecast at the time) were forecasts of positive percent increases as in rising price change.

In my 2003 publication, I featured a US stock sector that was doing much better than the rest of the US stock market at that time. By 2010, the stock prices of that group of US stocks was up over 1600%. That would be a positive change in price. Prices of other things decreased or changed at a negative rate. Some forecasts are negative and some are positive.

Right now, I also forecast that driving over speed bumps at 50 miles per hour can damage a car. We could call that a forecast of a negative consequence. It is not positive thinking to talk about how driving over a speed bump can damage a car. Positive thinking would be something else entirely, like thinking positively of driving 25 miles per hour in a school zone while actually driving 50 miles per hour in a school zone.

So, when will the economy of Japan recover to what it was when gas was 65 cents per gallon? It might not. When will driving over a speed bump at 50 miles per hour be safe? It might not.

“Yeah, but when is someone going to remove that horrible speed bump from that annoying school zone?” They might. However, now the speed bump is there.

“Yeah, but when will gasoline be 65 cents per gallon again?” It might. However, it isn’t that now. It is something else.

In fact, gasoline prices are not the same everywhere. We mentioned that gas prices in Japan and the UK were higher than some other places. There is a table of prices here: http://en.wikipedia.org/wiki/Gasoline_and_diesel_usage_and_pricing

For instance, in Saudi Arabia or Iran or Libya, gasoline prices have recently been about 65 cents per gallon (with prices converted to US Dollars). Those places have a lot of oil and not so much demand from cars. You can imagine how people in Japan or the UK feel about gasoline prices that are less than ten percent of what the Japanese and British pay in those places with high demand for auto fuel and little or no crude oil.

In Venezuela, gas prices have been about 10 cents per gallon for many years (with prices converted to US Dollars). Again, you can probably imagine how jealous the people in Arabia or Libya feel about gas prices of only 10 cents per gallon.

Someone recently asked me “when are prices of gasoline going to be 10 cents again in Saudi Arabia? They are all the way up to 65 cents per gallon now- isn’t that just horrible?” Can you guess what I told them?

Naturally, what I told them is that gasoline prices will only recover after people stop driving 50 miles per hour over speed bumps. Further, US economic growth will not recover to come close to what it was when gasoline here was 65 cents per gallon unless it does. It might. It might not. It hasn’t yet.

It is interesting to note that, in Kuwait, the net trade surplus from oil is over $33,000 per year per person. That is an unusually large transfer of wealth from other nations to that one, like for an infant who happens to be born there.

My forecast continues to be that oil-rich regions like Alaska, Arabia, and Alberta will continue to experience profound economic growth relative to places like the UK or Japan or Nevada. I might be wrong, though. After all, the Soviet Union dissolved even though it was one of the most oil-rich regions of the planet (but not per capita- just overall).

Eventually, one of my forecasts will probably be wrong- even inevitably. So far though, there has been a distinctively positive correlation between my forecasts and actual developments. Many other people have made alternate forecasts based on such methodologies as “positive thinking” and “hope for change” and “irrational exuberance,” but there has been a negative correlation between their declared forecasts and the actual reality that emerged.

Now, I have a few more questions for you. If a person has $50,000 of cash and then they make a new promise to pay $500,000 on a mortgage, then how much additional cash do they have after making that new promise and spending $5,000 as a down payment on their real estate speculation? Did you notice that the question itself reveals a lack of comprehension of the subject matter?

Next, if an insurance company has $50 million dollars and then they make new promises to pay up to $500 million dollars in policy claims, then how much additional cash do they have after making all those new promises and spending $5 million in paying out prior debts? Again, did you notice that the question itself reveals a lack of comprehension of the subject matter?

If a bunch of naive stock market speculators pour millions of dollars in to trading the stocks of various companies, such as AIG (pictured above) how much does that increase the profitability of those companies? In other words, how much does it increase net profits of a company when investors buy and sell stocks of a company? It doesn’t.

Similarly, when investors buy and sell stocks of other companies, driving up those share prices, does that really have any lasting effect on the tangible book value of other companies who also own sharing of, for instance, Enron or AIG or FNMA? How do fluctuations in the market pricing of the stocks for a company filing bankruptcy effect the debt to asset ratio of the company (their solvency)? It doesn’t.

To compute the book value of one thing off of the market pricing and recent comps of another thing is one method of computing a book value figure. However, to do so reflects some fundamental presumptions about prices, the stability of prices, and, in particular, the risk of the sudden deflating of credit bubbles (as in bubbles of legally valid promises for future performance which may or may not actually occur in the future as promised).

I assert that most people are not related realistically to the reality of prices (or speculative bubble of credit promises). For instance, they may not be related to the reality of how gasoline prices vary from place to place and from time to time. They may even call such variations in pricing unpredictable or incomprehensible or horrible or negative or unfair.

Similarly, most people may not be related to a realistic future cash value of their insurance policies or their real estate or their stocks. They may be surprised by future variations in pricing.

Accountants may know the term “Tangible Book Value Per Share.”
http://www.investopedia.com/terms/t/TBVPS.asp

That is a computation of the value of a business based in large part on current assessed value of current assets. Some companies may have a negative “book value,” such as insurance companies who regularly make promises far in excess of their current capacity to pay.

Again, those computations are based on current assessments, including current assessed value of their stock holdings in other companies and current assessed value of their real estate holdings. But that is a problem. “Book values” are being computed based on other assessed values (current market pricing), not on other “book values.”

Accountants may also recognize other ratios such as Price to Book Value. That means a ratio of the difference between the market pricing or assessed value and the book value, which is computed off of other market pricing or assess values. Again, do you notice the irony in this?

How much additional cash does an insurance company have after making new promises totaling $500 million in debt? They might not have any new cash based on taking on new debt.

How much additional cash does a real estate borrower have after making new promises totaling $500,000 in debt? They might not have any new cash based on taking on new debt.

Finally, how much additional tangible book value does a company have if the market pricing of it’s own assets rises by 100%? If those assets with rising market prices are just inflated real estate mortgage contracts or inflated stock prices or inflated promises from insurance policies, there might not be any new tangible value in that company.

New promises do not in themselves produce new tangible value. New debts do not equal new net profits.

Call this comment negative if you like, but going 50 miles per hour does not remove the speed bump from the road ahead or convert the school zone into an abandoned highway. Consider also that there is an immense opportunity present, but it is not available by presuming first that prices never change, and second that when they do, those changes are totally unpredictable.

www.OneEyedKingsWealthClub.com

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the secret to safe prosperity

The purpose of this communication is to introduce you to an opportunity to experience a breakthrough in prosperity as well as in clarity. I promise that, by the end of reading it, you will be grateful for having read it- even changed forever. I am grateful for the clarity that brings me to share this introduction with you, and I am also grateful for your interest in this opportunity which is temporarily available to benefit us enormously, if we are willing.

Simply, there is an immense transfer of wealth emerging. Of course, there is always a shift in wealth toward particular recipients and away from particular sources. In particular, what we are in the midst of in recent years is a shift in an unusually large amount of affluence flowing away from an enormous number of people toward a relatively small number of beneficiaries. This is a transfer of distinctive opportunity, as well as distinctive urgency.

The practical difference is vast between adjusting promptly to the emerging shift or neglecting to adjust. Enormous and easy gains are temporarily available and, once the fastest portion of the shift is complete, those who have neglected to adapt will in many cases be financially ruined.

Next, I’m going to give a few simple examples. Let’s start with one of the most obvious economic developments of recent human history: the rise of the affluence of North Americans.

This chart shows the relatively small but notable advance toward economic prominence of North America from the year 1800 to 1900, followed by the huge advance from 1900 to 2000 toward uniquely disproportionate affluence. The graphics are not statistically precise, nor even close approximations, but only extremely rough estimates for illustrative purposes. However, I do not expect the basic trend would be disputed by anyone.

The simple point of this chart is that North America went from being an emerging market to a developing market to a well-developed market and finally to the leading regional “superpower” in the world. In other words, the percentage of the world’s resources controlled and owned by the North American population has ballooned in recent centuries, especially since the rise of the oil industry in Texas as early as the 1860s.

In contrast, the percentage of the world’s population that inhabits North America has not changed very much in the last few centuries. However, North America went from global distinction in the export of agricultural commodities to global leadership in fuel extraction and refining and then to global dominance in things like the technology of war (nuclear missiles and satellite networks and the internet and so on).

But what is the future of this trend? The trend toward a greater and greater portion of global affluence being controlled by North Americans may have already ended.

In fact, as North America has been gaining in global affluence, it has also come to lead the world in borrowing (indebtedness). While it took centuries for the singular economic dominance of the North American global empire to develop, the recent rise to 50% of global affluence could very quickly fall to 30% or even 10%, as has been the case of many prior empires of singular global dominance.

Note for comparison the last 30 years of the price of the Japanese stock index, which fell by 2/3 from late 1989 to 1992:

I show the chart of Japan’s stock market because Japan also rose to distinct economic prominence in the 20th century. At the time of it’s peak prominence, it had similar affluence to Germany, another leading nation in the manufacture of automobiles. Only Japan and Germany were anywhere close to the disproportionate affluence of the USA.

What if the USA experiences a decline similar to the decline for the last two decades in Japan? How would that compare to the Great Depression?

As shown on the prior chart, 20 years after the peak of the Japanese stock bubble in the late 1980s, prices are nowhere close to a new high. Stock prices in Japan are currently dropping back toward the price levels of the early 1980s.

However, as shown below, stock prices in the US took only 25 years to recover from the 1929 peak to a new high in 1954. Given the current economic situation of Japan, there is no sign of a pending recovery to new all-time highs in the next 5 years to produce a 25-year recovery, as was the case with the US previously.

Japan’s disproportionate percentage of global affluence has never returned to the peak levels of prior decades and shows no signs of recovery, as new emerging powers such as China and India gain in relative economic prominence. So, if the next few decades for North America are anything like they have been for Japan recently, that would be obvious as an enormous decline in the singular global economic dominance of the USA.

We can compare the 1929-1932 decline of 89% in the US stock market to the 66% decline from 1989-1992 in Japan. Given the speed of the decline in the US, I suggest that US stock market investors were even more willing to purchase excessively over-priced stocks than investors in Japanese stocks by 1989.

I also assert that most of today’s investors in the US are even less concerned about investment security than investors in Japan in 1989 or the US in 1929. US speculators today demonstrate with their investment behavior an overwhelming faith (a blind faith) in the future of the US economy, plus the interventions of the Federal Reserve, the US government in general, and, in particular, “socialized” insurance schemes like the FDIC (as well as the Social Security Administration, FHA, etc etc etc).

By the way, I could list extensive data comparing the stability of various US markets today with 1929 (when US stocks began a fall of 89%) or 1987 (the year in which the US stock market fell 29% in one day). I could also compare the stability of US real estate trends or of borrowing trends or of the prior acceleration of the overall affluence of the US economy relative to the rest of the world.

Consider that what is really odd though is not just what the data would show. What is odd is that the vast majority of investors have never explored how to specifically measure or even vaguely approximate the risk of their investments. Their confidence in the US economy, the FDIC, the Fed, the SEC, and the US Government is so incredibly high that they borrow huge amounts of money to invest in real estate, then paycheck after paycheck dump money indiscriminately into the US stock market and accounts with banks whose finances they have never studied. In other words, most people do not even consider what I am inviting you to consider. By the way, they probably never will.

Most people- at least in the middle class of North America- have a very limited sense of personal responsibility for the results produced by their own financial choices. The herding masses leave it to the government to assess and approve the financial risk of various investments, various banks, various insurance companies, and so on.

They want the government to protect them from financial risk and rescue them from danger as well as save them from personal consequences for their actions. They are unaware that they are gambling on their investments, with increasing confidence each time governments announce a new program for the average taxpayer to bail out the average taxpayer.  😉

Now, all of that was the first set of “simple” examples. Let’s simplify even further.

Imagine an investor named Mr. J.P. Lee. He has earned huge amounts of money speculating on real estate and dumping money indiscriminately paycheck after paycheck into many popular stocks, especially in the high technology industry, just like so many of his neighbors. Mostly from “flipping” real estate, his net worth has grown in only 10 years from 1 million yen to 60 million yen.

He is extremely confident in the economic future of his nation and in the government and in the insurance industry and so forth. He does not even think “can the insurance company actually fulfill the promises that they are making me in this contract?” He just presumes that because the insurance industry is regulated by the government, insurance companies must be very safe.

He presumes the same things about banks and about savings and loan institutions, which he knows are also insured by taxpayer guarantees. He is not especially concerned about personal responsibility for his own investments because he has faith in the nationalized social security insurance program and the pension plan from his prior work in the insurance industry.

He is 45 years old. It’s the end of 1989.

By 1992, in only 3 years, his Japanese stock market investments are down over 50%. His real estate portfolio has gone from a net positive equity of 30 million yen at the peak to 10 million yen now. He still owes 200 million yen in mortgages.

However, remember, he has tremendous confidence in the future of his government and the various investment markets and he has never heard of the “deflation” of the Yen currency from a credit bubble, so when he reads about it online, he thinks “I don’t know what deflation is, and if it was important, I’m sure that the media or the government would handle it for me and then let me know that it is already handled.” The chairman of the Japanese central bank says that it is patriotic to keep investing in stocks and keep speculating in real estate on borrowed money, and Mr. Lee is a proud military veteran, a direct descendant of the Samurai class, so he keeps holding his old investments that did so well in prior decades.

Year after year, the government proposes incentives and rescue packages. Year after year, people get excited, support the latest proposed solutions, then eventually blame the latest politicians, then get angry at some new executive scandal, then get excited about the next proposed solutions and elect some new politicians to go for it one more time again and again.

By 2010, he’s 65. He has been trying to come out of a forced retirement, but the job market in Japan is… not what it used to be. He lives in a tiny government-subsidized urban apartment complex, for which he is very grateful. He’s facing bankruptcy.

His positive equity in real estate did not recover back to 30 million yen after 1992 and instead it then went to a negative equity of being upside down by 80 million yen. He does not have 80 million yen left in his stock market portfolio.

In fact, he does not have a stock market portfolio anymore. When he did, he never had anywhere near 80 million yen in it either.

He never thought, when signing his mortgages: “what will I do if the Yen credit bubble deflates and my real estate drops in value by 50% or more? How will I come up with the money to pay off these mortgages?” He had bought a book from a TV ad about flipping real estate and the book did not mention anything about any of this.

Also, the insurance company he used to work for is now out of business. They got involved in insuring some sub-prime mortgage securities in the USA and went bankrupt in 2008.

So, his life insurance policies have been canceled, plus his health insurance. His pension fund fell 80% from the two-decade Japanese stock market decline and then in 2008 was apparently embezzled by a government bureaucrat who was supposed to protect the pension fund from embezzlement. However, that information is dangerous to mention, so please pretend that you did not just read that.

It is safe to openly say that the government accused some former employees of the insurance company of causing the demise of the pension fund, but the accused were let off with only a civil fine of a billion Yen, which is a fraction of what they were accused of taking. This all happened during the massive central bank rescue program of the insurance industry. A lot of money changed hands very quickly and the records of the transactions unfortunately were all lost in what was reported as a terrorist bombing.

Mr. Lee trusts the mass media in Japan because he went to public school and there he was taught to trust the mass media in Japan. Also, his parents trusted the mass media in Japan, so why wouldn’t he trust them?

Every day, he watches the TV news, sometimes seeing that same old advertisement about flipping real estate. The sexy young lady on TV says that the future of Japan is going to be better than ever before because of the last two decades of dropping prices and corporate bankruptcies and economic de-stabilization and rampant corruption. He says to himself “I like the way she laughs.”

Now, what about that lady on TV? She is 30. What else did you want to know about her?

Yes, she is married. Why do you ask?

Oh yes, of course: her newest husband is that one famous investing guy. He is 45 and he made A LOT of money selling books about flipping real estate, which helped bring buyers in to the real estate market while he was selling out of his real estate investments.

He also exited Japanese stocks in 1989, noticing that the “relative strength index” for Japanese stocks (shown on the middle chart above) was not making new highs by the late 1980s. He looked for stocks that were a better opportunity as indicated by their RSI levels, among many other indicators and statistical correlations that he studied diligently.

So, in the early 1990s, he invested in the US high tech stock sector and the stock market of Mexico. He made immense gains, especially in Mexican stocks: 2,588% (shown here as compared to a popular US stock market index: the S & P 500).

In 1999, he shifted out of US tech stocks to oil. His oil investments rose from $11 in 1999 to over $140 by 2008.

He also diversified into a US stock sector for companies that mine gold and silver (HUI). That made well over 1000% from 2000 to 2008.

He read this article in 2007: http://www.gold-eagle.com/editorials_05/hunn072107.html

So, after reading that, he began to sell out of commodities and stocks, investing in things like the US Dollar foreign exchange market and US treasury bonds, which rose dramatically in 2008. Then he read this one by the same author in 2008: http://groups.yahoo.com/group/redpill_info/message/491

So, he also took some positions “short-selling” the US stock market and made 100% on that as the market dropped more than 50% in about 15 months. He read this update in early 2009: http://groups.yahoo.com/group/redpill_info/message/592

After making 70% in 3 weeks as indicated in that article, he went on to make a few hundred percent in the next several months in FAS and BGU. Today, August 11, 2010, he made 12% on TZA in a single day.

He hopes that all the people reading this stay in their real estate investments and stock market investments. He hopes that they remain confident in their government and the central bankers at the Federal Reserve and the insurance industry and of course the real estate market. He hopes that they focus on sports and sitcoms and personal dramas and Alex Jones and do not consider the future of the singular economic dominance of North America.

He does not just hope, though. He is confident, because he is monitoring the relevant data closely, and indeed he is investing directly in the hopefulness of you, dear reader. He has spent a lot of money advertising in the US mainstream media, plus political lobbying and making campaign contributions through a few US companies that he owns. He was one of the designers of the tax credit for first-time homebuyers. On a related note, his book sales on flipping real estate, after weakening sales in Japan in recent years, have also been doing very well in the US, with sales of the book especially strong right after the initial announcement of the tax credit.

In fact, our old friend Mr. Lee (the one who used to work for the insurance company and who grew his first 1 million to 60 million in only 10 years) has an autographed copy of an old Japanese edition of the book which he bought in 1992, which he recently sold on e-bay to someone in the US for $3, which at current exchange rates is close to the price he originally paid in Yen. It was one of the best returns on an investment that he has made in the last few decades: – 5%.

😉

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