What do the most successful investors do differently from the masses? Oddly enough, most people simply do not ask. (They also probably do not ask “exactly how much more successful are those investors?”)
By most successful, I mean the largest long-term profits. We can measure that as a multiple of typical gains. Let’s look at typical gains compared to a simple alternative.
Above is an actual example of 33 years of trading results for two methods. On the left is the final balance that would result from a starting balance of $10,000 placed in to a mutual fund modeled on stock prices of the top 500 companies in the US (which would include different companies over a period of several decades, but a mutual fund investor or 401k investor would not need to pay attention to that detail).
The nominal gains are almost $212,000 (beyond the initial $10,000 invested). That is a very common method. The percentage gained is 2,120%. Sounds pretty good, right? How open are you to even better results than that?
On the right above are the results of a method that is only slightly less simple. The same $10,000 managed with just a bit more care (only a few transactions per decade) produced actual gains of over $427,000, a gain of 4,270%. In other words, the gains on the right ($427k) are over twice as large as the gains on the left ($212k). Now, are you interested yet in learning exactly how easy it has been to produce results that are at least twice as good as average?
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> How easy is it to produce results that are far above average?
> Why are the 2,120% gains not as good as you might presume?
Of course, you might think that the “typical” results are pretty good. In 33 years, the value of the balance multiplied by over 20 times. Pretty successful, right?
One problem with that presumption is that the gains were not constant across the 33 years. The charts above and below show that almost all of the gains were in the first half of the 33 years. Compare those two time periods and then we will review how inflation and taxes have further reduced the success of that method.
For comparison, note that the method that gained 4,270% did so well largely by exiting the stock market prior to ALL of the biggest declines of the last 33 years. By occasionally using select mutual funds and the safest bonds, that strategy even produced gains while most stock market investors were losing money year after year. The total number of transactions were just a few per decade. Sounds pretty easy, right? It has been.
(Further, the investment advisor whose results are shown above actually had much better results than what are shown above. I am showing those results here because that is the simplest and safest strategy of that advisor. It is very easy to do AT LEAST that well.)
How about taxes? While there could also be significant taxes on the amount of dollar increase, there are ways to avoid capital gains taxes and income taxes. Though most investors only delay taxes (like through IRAs and 401Ks), it is a simple thing to use tax-exempt investment shelters. However, most people do not know much about tax-exempt shelters (but do know about inflation). So, let’s ignore the tax issue for now and just focus on the unavoidable issue of inflation.
The black areas above show the actual purchasing power of the original investment (adjusted for inflation). In terms of purchasing power, the method on the left produced more than a 500% increase (but almost all in the first half of the 33 years). The method on the right produced over a 1000% increase, plus it was much more consistent (far safer) than the much more common method.
Again, the results on the left are for a method which would be recommended by most any mainstream financial advisors. Those people are usually just commission-earning salespeople who have a large financial incentive to give advice that is good for the companies that hire them, (but may be not all that great for naive consumers, especially in the last 15 years).
One issue ignored by many advisors (salespeople) is tax-exempt gains. In the chart below, we see that, after taxes (in red below), many investors would only make about a 400% increase in purchasing power from the common method.
That 400% increase is a long way from the gains of 2,120% that many investors might think they have gotten. Inflation results in “false profits” that produce tax liability but no increase in purchasing power. Even with interest income on some bonds, there can be income tax liability. When thinking about multiple decades, we see that inflation can create inflated investment gains that, through taxes, will create a massive transfer of wealth from investors to governments. (The same thing applies to real estate, etc…)
If not using tax-exempt sheltering, the method on the right would produce an after-tax increase in purchasing power of about 800%. By using tax-exempt sheltering, the gain in purchasing power would be over 1000%.
> To let us know that you want to know more about investment shelters that are tax-exempt in the US, click here.
One simple point is that most “average” investors are unaware of what results are realistic to expect from using the most common long-term investment strategies. They may be totally unaware of the many cases of long-term negative results, like the last 26 years of decline in the entire stock market of Japan:
The most popular strategies are not the most successful strategies. In fact, they are often not successful at all (at least not unless you are the salesperson piling up commissions from selling those methods to some naive mainstream investors).
Using the most common investing methods during periods of weak markets will consistently produce huge losses that can take several decades to recover. In contrast, the most successful investment methods are either designed to work in absolutely all market conditions or adjust along with changes in market conditions.
In the next presentation, one issue that we will explore is the fact that investment markets serve to transfer wealth. Who receives the bulk of the wealth being transferred (and how do they do it)?
Of course, governments benefit enormously from the fees on every trade and the taxes on taxable gains. But that is probably not as relevant to you as making sure that you are one of the “smart money” investors who are receiving the bulk of the wealth that most investors are complacently pouring in to investment markets. All you have to do is let us better position you to receive much more of that flow of wealth.
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To hear that presentation now, click here: https://jrfibonacci.wordpress.com/2015/06/25/benefiting-from-the-constant-transfer-of-wealth/
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To receive an email with a link to that presentation, click here.
Well, except that inflation has fallen to historic lows from 2005 to 2013. Rising prices of grocery items is not evidence of inflation.
In 2003, I published forecasts of a DE-flating of global credit markets (decrease in total outstanding debts or A/R). Many others did as well. We were proven right within the next few years and there is much more to come. In 2004, I also forecast a CONTINUING rise in fuel prices and how that would de-stabilize many spending trends in Europe and the US. By the time a gallon of gasoline cost more than $11 per gallon in the UK in 2008, shipping costs to bring food from far away places reached all-time highs. That, however was not because of inflation of their currency. That was just an increase in fuel prices and food prices.
No, the government took skyrocketing food and fuel out of the inflation tabulation to hide the truth.
JR replies:
F.L., yes, there is more than one price index. That is not hiding the truth though.
That is increasing the precision of what is published. You can track the sub-categories or the cumulative Consumer Price Index. There are many other tracking measures as well, like the PPI, the CRB, and the CCI, not just the CPIs.
Further, there are issues like the increasing prevalence of “discount prices” and coupons and so on, at least in some areas. If you want to measure “purchasing power” of a currency, there are many ways to do it.
First, the whole idea of a currency having some inherent value is nonsense. Currencies are all paper. Their value is from the violence of the court system behind them. The court system demands the payment of invented taxes (protection rackets) and the court system dictates the currency in which tax payments MUST be made.
So, the first issue to notice when considering purchasing power of a currency is demand for that currency. Higher tax rates mean higher demand which means higher purchasing power (at least when the coercive threat of the taxing racketeers is stable).
You do not create currencies. Court systems of organized violence create currencies. So, you cannot be “robbed of” purchasing power when currencies fluctuate in value… since currencies are a SERVICE to you, not a productive business venture that you created and that you sustain through a productive contribution.
The “robbed” language is just the mainstream guilt-rage complex trying to rile the masses. Further, currency inflation is at historic lows while credit markets are deflating (as in decades of credit market inflation are reversing suddenly or deflating).
As the global “supply” of credit is plunging (as in the activity of lending), then demand for cash (currency) tends to rocket, creating a huge increase in purchasing power. It started in Japan in 1989. In spread to Europe by 1999 and the US by 2007.
I wrote about it extensively starting in 2003. However, many people may prefer their illusions and delusions (and rage and guilt) over clarity and calm and adaptiveness. Of course, that preference is programmed by media and public schools and churches, right? 😉
First published on August 6, 2010 (here: https://jrfibonacci.wordpress.com/inflation-deflation-and-credit/ )
1st video (of 2):
I am clear that many people do not understand the basics of what inflation is nor how a deflationary credit crisis forms. In fact, I did not understand this for years myself, even when I identified it as happening (without understanding the mechanics).
Briefly, there are two very distinct kinds of inflation: inflation of the supply of a currency and inflation of the the supply of credit and debt. Many people do not distinguish between the two. The distinction is simple, but huge.
Increasing or inflating of the supply of currency permanently reduces the purchasing power of all of the rest of the currency. This is what people classically think of as inflation. More bills are printed and added to circulation (and without removing equal units of old bills from circulation). Currency inflation permanently increases prices in general, with all prices moving up quite evenly.
Currency inflation does not result in an eventual deflation (which is a reduction in the total circulation of currency PLUS credit). Currency
Image via Wikipedia
inflation just means there are more units of actual currency in circulation. The only way for the currency supply itself to deflate, hypothetically, is for the issuer of a currency to permanently remove cash bills from circulation and not replace them.
Credit inflation is an entirely distinct process. It does not involve printing more bills of cash. It involving only accounting.
If I sign a contract to rent a house for 12 months, I just entered a contract for future payment of debt. The landlord can write down in their accounting logs that I now legally owe a bunch of money to the landlord. No new cash has been printed. However, new accounting entries of debt have been created.
Next, I may sign more contracts to take home some furniture and electronics without paying for them yet. I am “renting to own.” The owners of the stuff that I am renting to own is issuing me credit, which means I promise to pay them over time. They make new accounting entries in their ledger. No new currency has been printed.
I may buy a car or a house with borrowed funds. Again, no new funds have been created. My parents could be loaning me the money, or my employer, or a financial institution (like a credit card issuer). The lender has provided cash that was already printed and owned by them. They write down that I owe them whatever they lent me plus interest. No new cash has been printed. Where the cash to pay for that interest will come from, no one knows.
I may even be sued and have a judgment recorded against me by a court. Maybe it is for a parking ticket. No new currency has been printed. However, new accountings of debt are recorded. The owner of the debt (the owner of the court judgment) can take that court judgment or “account receivable” and borrow money against it. It is credit. It is a legal asset. It is not cash. It does not involve the printing of new money. It is not currency inflation to obtain a court judgment in a lawsuit, nor to rent to own a TV on credit, nor to borrow to buy a house or car or anything else.
There is only one form of currency inflation: increasing the volume of actual currency. Credit inflation has many forms… and ALL of them eventually deflate completely. Legally due interest beyond the total amount of currency actually in circulation may not be paid. They may eventually be written off like other legal debts. Debts generated by credit are only charges, not currency- only accountings of debt. Those accountings in excess of the actual supply of currency may be written off or discharged as worthless, paid in part, or paid in full.
So, in an environment of “ridiculously” easy credit, people may forget the distinction legally between cash and credit. I can use either to buy groceries, right? We may presume that lenders will always offer us credit, and will offer us more and more over time. That is, however, absolutely false.
If lenders “withdraw” a credit line, the actual volume of currency in circulation does not change. If a creditor writes off a debt due to a bankruptcy proceeding or otherwise, the actual volume of currency in circulation does not change. However, when legally accounted credits (accounts receivable) are removed, the false de-valuation of the currency reverses. That is called deflation.
If real estate is typically bought with 10% cash and 90% credit, and then the market for credit collapses, all that is left is the “intrinsic CASH value of the property.” The 90% drop in price is just the removal of the credit portion of the market.
Same for stocks and gold whose prices are inflated due to “secondary” credit inflation. All credit inflation eventually disappears, sometimes very quickly. Credit inflation develops slowly, but collapse rather suddenly.
Examples: Japan in 1990s, US and Europe in 1930s, & any individual bankruptcy ever. When an individual goes bankrupt, that means their access to credit collapses, as well as their capacity to issue credit to others, right? Also, if the bankrupt person used to think “I have a credit line of $50,000 in credit cards, so this other $5,000 in my pocket really isn’t worth much,” guess what happens to the perceived value of the $5,000 in pocket when the $50,000 credit line is withdrawn?
Bankruptcy Filings… (Photo credit: MyEyeSees)
On a related note, I know of several other people who have said things like “the US government just promised to pay out an additional 783 trillion dollars next month. That is inflation.”
No, a government promise is just a government promise, especially if stated by a candidate during an election campaign. Inflation is an increase in the supply of cash in circulation PLUS the supply of credit. That RESULTS in rising prices. Government promises and statements of the Federal Reserve and advertisements of “no payments until next year on a brand new color TV” are all not currency inflation.
In other words, the authorization for the government to spend money is not the printing of money. It does not even mean that the government has that money to spend. A new authorization to spend suggests that tax revenues or other collection activity are predictable, but that has nothing to do with printing of new currency for circulation, unless there is a specific provision for issuing more treasury bonds (an authorization for the US Government to go deeper into debt, if it can only find someone to lend it money- but lately, lots of investors have been very willing, driving open market interest rates on lending to the US Treasury to ALL-TIME lows).
2nd video:
Remember, by the way, that the US Government has no power to issue Federal Reserve Notes. Federal Reserve Notes are private currency contracts issued by the private Federal Reserve based on the Federal Reserve’s claim over the assets of the US government, such as future tax revenues. The US Treasury sells bonds on the open market and promises legally to repay them plus interest by taking wealth from it’s underwriters (such as taxpayers) with or without the consent of taxpayers.
Holders of Federal Reserve Notes are counting on the organized coercion of the US Government (and the Federal Reserve) to maintain the exchange value of the FRNs. Holding a FRN (US Dollar) is holding a share or secondary claim on the Fed’s primary claim against the assets and operations of the US Government, including national parks and missiles and the “accounts receivable” of relevant courts and perhaps of the IRS and of course yes also any gold stored in Fort Knox. Ultimately, the underwriters of the purchasing power of the FRNs are the US citizenry (and their current and future assets).
Again, in summary, there are only two kinds of inflation. There is credit inflation, which always deflates (collapses), and always faster than the preceding credit bubble inflates. There is also currency inflation, which never deflates.
After Germany lost the “great” war in the 1910s, it was charged or assessed huge reparations. In order to dramatically reduce the value of the reparations, Germany printed tons of new currency bulls, hyperinflating the currency. This was financially very detrimental to the German citizenry who held that currency, but only secondarily, for the primary target was the British Empire (to whom the reparations were due). That was not a credit inflation, so it did not deflate. That was a currency inflation of printing new bills.
In contrast, the credit bubble (credit inflation) of the last few decades, which is prominent still in the US and UK and EU, is now deflating. It will be quite the opposite of hyperinflation. Holders of currency will be greatly benefited, and to a lesser extent creditors will benefit (at least creditors of debtors who can pay them back in the full amount of the deflating currency). Marginal debtors will be bankrupted, and many debtors who are not marginal yet will soon be marginal and perhaps then bankrupt. Most creditors also carry debt (like banks) and may also go bankrupt.
A deflation is the fastest possible transfer of wealth, with the obvious exception of invasion or what is otherwise known as theft. Deflation is a sudden redistribution and concentration of affluence like no other.
Stocks markets fell 89% in the US from 1929 to 1932. The current credit bubble is much larger than the one preceding that decline. Accordingly, I expect stocks and real estate to all drop in price by more than 90%. many companies will go out of business or be nationalized by governments. I expect commodities (because they are global markets) to drop in price slightly less in total price change in terms of US Dollars, Euros, etc, but to drop even faster than US stocks or US real estate, just not as far ultimately because of foreign demand for commodities. Also, many lower levels of government in the US, UK, and EU will go bankrupt and may cease to function completely, such as Greece or California, led to glory by that famous and brilliant student of long-term economic cycles demanded by what are obviously the smartest voters in the world, Governor Arnold “I’ll be back” Schwarzenegger. 😉
Note, the Great Deflation already started in 2007 and 2008. It is simply about to dramatically accelerate.
Nations to watch that may prosper from this historic redistribution include: Korea, Taiwan, India, Indonesia, Malaysia, Pakistan, and Mexico. In contrast, I expect the European Union to dissolve within a few years.
The long-term stability of the US may be eventually questionable, but that is probably several years away. First, expect huge advances in taxation as well as classic communist and socialist policies of confiscation (like from “suspected terrorists” in particular and “anti-government rebels” in general). Standard business practices of the 1990s will likely result in civil and criminal lawsuits. The people will be thirsty for scapegoats… oops I mean villains, and if Governor Schwarzenegger recognizes that in time to avoid being targeted as the villain, I’m sure he can find some alleged evil-doers toward whom to point a finger, even if the actual court proceedings are political theatre designed to distract from the primary parties involved in controversial activities. Remember, the US President can legally pardon ANYONE of most anything- yes, legally. However, first there must be a conviction and prior to that a prosecution. If you believe that “attorney general” is not a politically-charged office, I invite you to study the history of the USSR first and then the US.
Also, note that while the presidency of George W. Bush ended with record low approval ratings, his distinctive conspiracy theories involving Al Queda are still generally accepted worldwide. People trusted him at the time he made the accusations. “Mission accomplished!”
Official, popular versions of history do not ever exactly conform with how the past actually happened. History does not exist until someone creates it. Some things are left out, some things are added, and if, in 1000 years, people believe a conspiracy theory about Al Queda, then that will be considered history, not speculation or propaganda or diversion or trivia or myth. It will be “the actual reason why we entered the civil war” (or whatever).
Note, for reference, that if Stalin or Mao or Hitler promised 783 trillion dollars of spending next month, that did not equate to currency hyperinflation. They just seized the accounts and real estate of the jews or the “bourgeois.”
If you believe that hyperinflation is inevitable in 2010 and/or in the relevance of blaming politicians for their politics, thank you very much. Your docile participation in the credit bubble of Great Deflation is making a lot of people very rich very quickly- well, maybe not a lot of people, but at least a few of us. 😉
One Krone-note from 1919 (overprinted on 1 Krone of 1916) from Austria (text in german and hungarian language) (Photo credit: Wikipedia)
Deutsch: Wappen Griechenlands seit 7. Juni 1975. Ελληνικά: Το εθνόσημο της Ελλάδας , καθιερώθηκε στις 7 Ιουνίου 1975 English: Coat of arms of Greece since 7 June 1975. (Photo credit: Wikipedia)
The core issue is the rising cost of non-renewable fossil fuels, especially crude oil. High fuel prices crippled Japan since the 1990s and now are crippling Europe (especially in certain regions of Europe) and, to a lesser extent, the US. I’ll say more on that in a moment.
By the way, Japan’s GDP to debt ratio is much higher than Greece, but they have not defaulted and their interest rates are down around 1%. The idea that deficits and inflation are two sides of the same coin is obviously false, since bond interest rates reflect not just expectations about inflation, but expectations about possible default on the debt, which is the connection to deficits. Defaulting on debts is DEFLATIONARY, not inflationary.
So, back to the simple and obvious issue, with improving technologies to access and refine crude oil, real prices of oil and gasoline (real prices means after adjusting for inflation as in across a variety of currencies) were flat or dropping for almost the entire 20th century. The exception was in the 1970s when the USSR first surpassed the US as #1 producer of oil in the world, plus the OPEC nations began their inevitable rise toward economic and political superpower (following in the footsteps of the two other countries that rose to global notoriety as the #1 and #2 producers of oil- the US and the USSR).
So, there is no rescuing Greece or the EU. They must reduce consumption of energy, just as Japan and the former Soviet Union have, and just as the US will, unless there a huge technological innovation replaces fossil fuels. Otherwise, the oil age is in the process of ending. As it does, the still oil-rich middle east will rise to dominate global economics and politics.
Published on: Jun 29, 2011
(Green) Greece. (Light-green) The European Union (EU). (Grey) Europe. (Light-grey) The surrounding region. See also: Category:SVG locator maps of countries of Europe (Photo credit: Wikipedia)
Comedy (?): How to adapt to changing economic seasons- whose advice to follow?
People sometimes ask me: whose advice should I follow in regard to adapting to changing economic seasons? You tell me: should you focus on the advice of people who have a significant shared interest in your results, like profit-sharing partners who make money and lose money with you, on the advice of people who have no interest in your results, or on the advice of people who have a vested conflict of interest with you?
As soon as you know the answer, then contact me. If you don’t know the answer yet, then keep listening and I will explain.
In particular, some people get really interested in what I mean by a conflict of interest. It means that someone else’s economic interests are directly conflicting with yours. Here are some examples.
Go to a car wash and ask the attendant which service to buy: the $5 car wash or the $50 make-over, wax, massage, pedicure, and anti-rust treatment
art gallery and ask the painter what to buy: $500 piece or the $5,000 piece?
car lot and ask the sales mgr what car to buy: $5,000 used car or the $50,000 new foreign car with horrible mileage and super-expensive to maintain?
realtor: $50,000 home or $500,000 home?
annuities: insurance co. promises to pay a set amount no matter how well the underlying investments do
(and people wonder how AIG went bankrupt, like it was all on real estate speculation…
guess what: the insurance agent makes a huge bonus for selling you that! )
Professional experts promote the things that benefit them to sell (things with big commissions and big profit margins). That’s it!
When a farmer grows corn, someone might buy $5 of corn from the farmer, then package and sell that same amount of corn for $50. So much was that amount of corn worth: $5 or $50? To the farmer it was worth $5. To the consumers who bought it, it was worth $50. It’s the same corn!
However, if the car sales manager or the insurance agent or the realtor or the painter or car wash attendant could get you to pay $5,000 or $5,000,000 for that same amount of corn, then they would be doing their job well, right? Now we are talking about some BIG profit margins, right? If I pay $5 at Starbuck’s for some coffee and some farmer in Central America would charge me 50 cents for the exact same coffee from the exacts same beans that the farmer grew, then that farmer would probably be making a lot more profit than they are by selling the coffee beans to Starbuck’s!
So, what’s the difference in value between a $500 piece of art and a $5000 piece of art? $4500! However, the same piece of art could be sold for those two prices at different times, right? The artwork does not change when the price changes, right? What REALLY changed? What changed is how much someone valued the money that they used to buy the art. Maybe one person had more money available at a particular time, maybe they had a brand new credit card account and felt rich. However, it is the same piece of art, just like the same amount of corn or coffee beans.
Now, if I buy a home for $100,000 and a decade later, after making virtually no improvements to the house, I sell it for $500,000, great: that is a big unearned capital gain for me. However, that change in price does not mean that the actual functional value of the home changed much. It means that the price changed. The value of the dollars used to buy the home may have changed a lot, like due to expectations of continuing inflation. If inflation rates drop far enough then expectations of future inflation may also drop, and eventually, housing prices could drop.
So, what’s the difference between the $5 cup of coffee and buying the same cup of coffee for 50 cents? $4.50! It means the purchaser values their dollars more and the coffee less.
What’s the difference between paying $10 for a new DVD and then selling the exact same DVD still in the wrapping for $1 at a garage sale a year later? $9. It shows the difference between how much different purchasers value the DVD and the dollars are various times.
What’s the difference between paying $100,000 or $500,000 or $200,000 for a house? It shows the difference between how much different purchasers value the house and the dollars are various times. With housing, the dollar issue is not just about cash dollars, but debt as in mortgages or borrowed dollars.
Now, let’s quickly go back to the issue of why the insurance company would give the insurance agent a huge bonus for selling an annuity that sounds too good to be true because it is. Why do they give such a big bonus for selling that? Because selling that gives the insurance company a huge profit, since actual practical value of the annuity contract may be so much less than the price that some consumers are actually willing to pay for it.
It’s like owning a home and saying to a realtor: here is a home that cost exactly $100,000 to build last week. However, if you can sell it for $200,000 or even $500,000, then we the owners will give you a huge bonus- in proportion to the amount that you can sell it for. So, whether the realtor sells it for $200,000 or $500,000 or does not sell it at all, that does not change the fact that the home cost exactly $100,000 to build or that the farmer only got $5 for the bag of corn, does it?
If an insurance company can get someone to pay them $100,000 for a particular policy or $1,000,000 for the exact same policy, that does not change the value of the policy, but only the price and profit margin of the policy. If I can get the exact same cup of coffee for 50 cents from a farmer or for $5 from the store around the corner, those are just differences in price, not in the actual cup of coffee, right? If I can get a brand new perfectly good DVD from a garage sale for $1 or the same DVD for $10, which price would I rather pay?
Why are prices of real estate and stocks falling? Because so many people are valuing their cash money more and other things less. Why are prices of corn and coffee and cars and art and gold and silver and platinum and copper all falling? Because so many people are valuing their cash money more and other things less.
So, whose advice is best?
You tell me: should you focus on the advice of people who have a significant shared interest in your results, like profit-sharing partners who make money and lose money with you… or anyone else?
Do any of these folks actually make money and lose money with you: Mass media? Politicians? Popular financial institutions?
No, let’s look at what a guy with a PhD in Economics said, Dr. Paulsen:
Sept 2005:
“when most seem bogged down worrying about when the housing bubble is going to burst or when oil prices are going to cause the consumer to capitulate, investors should be focusing away from such issues towards the many positive things… yet to occur.”
6 years later, he still works there! He’s still the chief investment strategist there! That might be amazing, unless his job is not to give advice that benefits the public, but that benefits his employer, right?
In a separate video, I will say more about what he wrote in September 2005, which I criticized in a December 2005 publication. I will also detail what I recommended and what I recommend. In brief, what I recommend is that people who want valuable advice can focus on the advice of people who have a significant shared interest in your actual results, like profit-sharing partners who make money and lose money with you.
For now, below is an image from Paulsen’s September 2005 publication. Here is a link to my 2005 article:
Again, please share this with others could benefit from it or at least enjoy the humor of it. Also, if you are willing to begin to receive the full benefits available from adapting wisely, contact me now.
By September 2005, I had already identified the beginning of the bursting of the US real estate bubble because I had been looking for it since 2002. It happened in Phoenix and Las Vegas in mid-2005. I had been warning about the global credit crisis since 2003. Since 2004, I had been warning about the effect of rising fuel prices on the global economy, including global trends in lending and borrowing, in real estate speculation, and in stock market speculation. In other words, I saw the global economic crisis coming since 2002, but I did not identify rising fuel prices as the trigger until 2004. By the way, global fuel prices had been rising since 1999.
Why did housing prices begin to drop first in the sprawling desert metros of Phoenix and Las Vegas? Perhaps because those areas are so sensitive to rising energy prices. Many big homes in Phoenix have summertime electricity bills of more than $400 per month just for air conditioning.
He frequently appears on several CNBC and Bloomberg Television programs. BusinessWeeknamed him Top Economic Forecaster. He’s been honored by Money magazine.
Beware of the advice of those who do not have a shared interest with you. Share this and contact me about how you can benefit from a partnership with a competent specialist.
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:
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…..
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.
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.
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.
Responding with a curious courage… to recent financial developments
Quickly, let’s be clear what it does and does not mean to respond with a curious courage. I wonder if you can recall a time when you were not just already curious, but when your curiosity then led you to perceive a risk or danger that you only could have directly recognized through your own exploring, and then, after this discovery that you just made, you courageously redirected your behavior away from the perceived risk and toward a valuable opportunity that, again, you only discovered through the practice of curiosity. Let’s call that time now.
In contrast, what a curious courage does not mean is this: to identify how reality should have been, whether or not it was, then, when some pattern of reality did not fit with how it allegedly should have been, then to identify that pattern of reality as having been a problem, and then choose not to take any new initiative toward personal responsibility for one’s own future, but instead focus anger on whoever was convenient to blame for that problematic reality, and finally, identify whoever first provided you someone to blame for that problematic reality as the one to blindly rely on to almost fix that problematic reality next, since reality may persistently thwart reactive efforts to fix it by first blaming someone else for why it was not how it should have been (according to whoever denied that reality should be however reality actually already is).
Now, with a curious courage, we could be asking how did this particular apparent reality develop- yet with a specific concern for one’s own prior practices and the resulting effects produced from one’s own prior practices. That personal identification of one’s own prior practices as the primary issue related to the results produced by those practices is what may take courage.
So, let’s imagine that someone went to a casino and did very well for quite a while. They soon developed confidence and came back to the casino again and again. They made consistent unearned gains by using a certain method that worked for them over and over.
However, yesterday, they used that same old method but got a different result, that one which they do not value. Then, they kept trying that same method again and continued to get the result that they do not value. Soon, they lost quite a bit of their prior unearned gains- or even all of those gains as well as all of their original investment or even more.
Maybe they were afraid to even think about or look at their recent results. They may have been focusing on how much they used to have as if that was somehow more relevant than what they have left.
What would it mean to respond to this situation with a curious courage? Would it be courageous to look for someone else to blame for the recent results? Maybe you blamed the casino itself, or the government regulators, or a certain current or former employee of the casino, or perhaps your neighbor or even your neighbor’s dog.
Now, I might suggest that the particular investing method that you used is what produced the unfavorable result. Of course, it could be possible that the casino or government regulators did change some relevant rule, yet even if that were true, identifying such a change would not make your old method back into one that produces favorable results. If some rule had been changed and that is the single reason why your old method was no longer valuable, then knowing what rule has been changed might provide some insight into what other method might be valuable now, but you may not be interested in that yet.
After all, if the reason the rule was changed is because of your neighbor’s dog, then you could continue to use the method that stopped working but just get really angry at the dog. Or, while you continue to use the method that stopped working, maybe you could kill the dog, and then maybe someone would change the rule back so that your old method that stopped working might work again one day eventually, and you could just keep using it for as long as it takes, even though until that might happen you may be producing results with that method that you definitely may not value, because one day it could work again- you know, hypothetically.
That all could be true. One other thing though that someone with a curious courage might wonder is this: what about discontinuing the use of whatever prior method already stopped working to produced unearned capital gains? Sure, maybe the dog can be killed and the rule can be changed back to how it was and so one day possibly in the not-too-distant future the old method that stopped working may work again, but how about now? Sure, maybe someone can identify the neighbor that might have been in some way responsible for preventing you from continuing to multiply the unearned capital gains that you used to compound, and then maybe someone can get that neighbor to remedy the situation by paying to bail out the casinos that have suffered incredibly all because of that one dog. However, what about reconsidering the investing method which however long ago stopped working to produce the results you value?
Even if you advocate for a possible return back towards the prior situation, another possibility is that you explore modifying your investing method, at least until all dogs are killed so that you can know that no other dogs will ever prevent you from multiplying unearned capital gains with the single method that is most familiar to you, which is probably borrowing money to invest in real estate, but it could also be dumping money into various stocks and hoping that those stocks go up in value at least enough to balance any inflation and taxes.
I know a lot of people who I warned many years ago about the specific market developments that have since rendered their previously valuable methods worthless, resulting in losses of some or all of their unearned gains in real estate equity (or in US tech stocks or UK financial stocks and so on). Some of them even owe more on their mortgage than the collateral property is worth.
I also know a lot of people who have watched me make consistently accurately predictions of a variety of ups and downs in a variety of markets. Some of them may never give up the methods that they previously used to produce consistent unearned gains for them but that recently stopped working. Some of them may not ever explore a principle that works in all market conditions: partnering with the reality of market conditions and even partnering with someone who knows how to find opportunity in all market conditions now.
That might require a curious courage. Not everyone has that. For those of us who do have it, the fact that not everyone else has it is related to what distinguishes our results from their results, which includes the curiosity to be honest about the reality of market conditions, rather than defining some patterns of reality as “problems” to be automatically reacted to with personal blaming and blind devotion in the latest emergency rescue fix proposed, whether that is a political “solution” or some other silver bullet, like, whenever one has been confused, just investing in silver (or real estate etc) as the one magic solution to the persisting problem of reality not being the same as someone told you it should be.
Consider that reality is only a problem for those who insist on investing in opposition to it. For those with a curious courage, reality is an opportunity to partner. Now, with me and the investing methods that fit with partnering with the reality of market conditions, certain people get consistently favorable results in all market conditions. Not everyone will contact someone committed to partnering with reality to let me know that they are interested in consistently favorable results, but what about you?
—
JR
************
“Life is not what it’s supposed to be. Its what it is. The way you cope with it is what makes the difference.” Virginia Satir (1916-1988)
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power of language blog: partnering with reality by JR Fibonacci 
Responding with a curious courage… to recent financial developments
April 5, 2009Responding with a curious courage… to recent financial developments
Quickly, let’s be clear what it does and does not mean to respond with a curious courage. I wonder if you can recall a time when you were not just already curious, but when your curiosity then led you to perceive a risk or danger that you only could have directly recognized through your own exploring, and then, after this discovery that you just made, you courageously redirected your behavior away from the perceived risk and toward a valuable opportunity that, again, you only discovered through the practice of curiosity. Let’s call that time now.
In contrast, what a curious courage does not mean is this: to identify how reality should have been, whether or not it was, then, when some pattern of reality did not fit with how it allegedly should have been, then to identify that pattern of reality as having been a problem, and then choose not to take any new initiative toward personal responsibility for one’s own future, but instead focus anger on whoever was convenient to blame for that problematic reality, and finally, identify whoever first provided you someone to blame for that problematic reality as the one to blindly rely on to almost fix that problematic reality next, since reality may persistently thwart reactive efforts to fix it by first blaming someone else for why it was not how it should have been (according to whoever denied that reality should be however reality actually already is).
Now, with a curious courage, we could be asking how did this particular apparent reality develop- yet with a specific concern for one’s own prior practices and the resulting effects produced from one’s own prior practices. That personal identification of one’s own prior practices as the primary issue related to the results produced by those practices is what may take courage.
So, let’s imagine that someone went to a casino and did very well for quite a while. They soon developed confidence and came back to the casino again and again. They made consistent unearned gains by using a certain method that worked for them over and over.
However, yesterday, they used that same old method but got a different result, that one which they do not value. Then, they kept trying that same method again and continued to get the result that they do not value. Soon, they lost quite a bit of their prior unearned gains- or even all of those gains as well as all of their original investment or even more.
Maybe they were afraid to even think about or look at their recent results. They may have been focusing on how much they used to have as if that was somehow more relevant than what they have left.
What would it mean to respond to this situation with a curious courage? Would it be courageous to look for someone else to blame for the recent results? Maybe you blamed the casino itself, or the government regulators, or a certain current or former employee of the casino, or perhaps your neighbor or even your neighbor’s dog.
Now, I might suggest that the particular investing method that you used is what produced the unfavorable result. Of course, it could be possible that the casino or government regulators did change some relevant rule, yet even if that were true, identifying such a change would not make your old method back into one that produces favorable results. If some rule had been changed and that is the single reason why your old method was no longer valuable, then knowing what rule has been changed might provide some insight into what other method might be valuable now, but you may not be interested in that yet.
After all, if the reason the rule was changed is because of your neighbor’s dog, then you could continue to use the method that stopped working but just get really angry at the dog. Or, while you continue to use the method that stopped working, maybe you could kill the dog, and then maybe someone would change the rule back so that your old method that stopped working might work again one day eventually, and you could just keep using it for as long as it takes, even though until that might happen you may be producing results with that method that you definitely may not value, because one day it could work again- you know, hypothetically.
That all could be true. One other thing though that someone with a curious courage might wonder is this: what about discontinuing the use of whatever prior method already stopped working to produced unearned capital gains? Sure, maybe the dog can be killed and the rule can be changed back to how it was and so one day possibly in the not-too-distant future the old method that stopped working may work again, but how about now? Sure, maybe someone can identify the neighbor that might have been in some way responsible for preventing you from continuing to multiply the unearned capital gains that you used to compound, and then maybe someone can get that neighbor to remedy the situation by paying to bail out the casinos that have suffered incredibly all because of that one dog. However, what about reconsidering the investing method which however long ago stopped working to produce the results you value?
Even if you advocate for a possible return back towards the prior situation, another possibility is that you explore modifying your investing method, at least until all dogs are killed so that you can know that no other dogs will ever prevent you from multiplying unearned capital gains with the single method that is most familiar to you, which is probably borrowing money to invest in real estate, but it could also be dumping money into various stocks and hoping that those stocks go up in value at least enough to balance any inflation and taxes.
I know a lot of people who I warned many years ago about the specific market developments that have since rendered their previously valuable methods worthless, resulting in losses of some or all of their unearned gains in real estate equity (or in US tech stocks or UK financial stocks and so on). Some of them even owe more on their mortgage than the collateral property is worth.
I also know a lot of people who have watched me make consistently accurately predictions of a variety of ups and downs in a variety of markets. Some of them may never give up the methods that they previously used to produce consistent unearned gains for them but that recently stopped working. Some of them may not ever explore a principle that works in all market conditions: partnering with the reality of market conditions and even partnering with someone who knows how to find opportunity in all market conditions now.
That might require a curious courage. Not everyone has that. For those of us who do have it, the fact that not everyone else has it is related to what distinguishes our results from their results, which includes the curiosity to be honest about the reality of market conditions, rather than defining some patterns of reality as “problems” to be automatically reacted to with personal blaming and blind devotion in the latest emergency rescue fix proposed, whether that is a political “solution” or some other silver bullet, like, whenever one has been confused, just investing in silver (or real estate etc) as the one magic solution to the persisting problem of reality not being the same as someone told you it should be.
Consider that reality is only a problem for those who insist on investing in opposition to it. For those with a curious courage, reality is an opportunity to partner. Now, with me and the investing methods that fit with partnering with the reality of market conditions, certain people get consistently favorable results in all market conditions. Not everyone will contact someone committed to partnering with reality to let me know that they are interested in consistently favorable results, but what about you?
—
JR
************
“Life is not what it’s supposed to be. Its what it is. The way you cope with it is what makes the difference.” Virginia Satir (1916-1988)
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