Financial topics

Investments, gold, currencies, surviving after a financial meltdown
John
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Re: Financial topics

Post by John »

From a web site reader:
> John, I really appreciate your latest weblog entry, which makes
> it clear that the problem we are facing is much larger than the
> financial markets. Generational Theory says we're in a world of
> shit right now that will not resolve without a MAJOR geopolitical
> conflict (right?). In a nuclear era, this scares the living hell
> out of me a lot more than losing the rest of my 401k. Please help
> us to understand the warning signs for international or (I
> believe) intranational conflict.

> (I have a feeling that in the US a hell of a lot more people are
> going to be clinging real damn tight to guns and religion soon.)

> Right now I see Russia taking moves to assert military dominance
> over oil shipping lanes and the inevitable US pullback leaving a
> power vacuum worldwide. I also have to assume some major
> reluctance of nuclear powers to engage one another directly. What
> does Generational Theory say about where we're headed?
All that Generational Dynamics can do is identify major
discontinuities based on long-term generational trends. Thus, we
know that there'll be a major financial crisis, and there'll be a
major world war, but all we can only make intelligent guesses at the
details, based on trends and previous crises.

A lot depends on the order in which crises occur. Right now, it
looks like the financial crisis will come first, but there are also
very serious situations in Pakistan and China, so that isn't certain.

On my web site, I've identified eight individual crises areas (West
Europe, Arab-Israeli, Russia-Caucasus, Kashmir (Pak-India), China,
North Korea, Financial, Bird Flu.)

These crises are like dominoes, in the sense that when any one
occurs, I would expect the others to occur within a couple of years.

In the world war to come, I expect the main protagonists to be China
and the U.S., and in Asia I expect China to be allied with Pakistan
and Bangladesh, while the U.S. is allied with India and Russia.

People sometimes ask me where they should live, and I would guess
that any sparsely populated region would be safest, provided that
you're capable of surviving without public infrastructure.

On the other hand, you probably wouldn't be protected from a bird flu
pandemic, no matter where you lived.

There are a number of other details that I could suggest, and I do
sometimes discuss these details on my web site, but basically the
world has never seen anything like this before, so beyond a few broad
generalities, very little is absolutely certain.

I hope that helps at least a little.

Sincerely,

John

John
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Re: Financial topics

Post by John »

From a web site reader:
> I would like to know what you expect the real PE ratio of the DJIA
> in 2009 will be. I do not think any of the charlatans and shills
> on Wall Street will tell us. If a realistic analysis of projected
> earnings could be made, factoring in the worsening recession, one
> could easily estimate where the DJIA will be by comparing it with
> previous ratios that occurred in the midst of previous recessions.
> I think an objective analysis would show that we only went through
> a massive 'sucker rally' and that the DJIA will only be 4000 or so
> next June.
I expect the P/E ratio in 2009 to be around 10 and falling,
considerably lower than where it is today (around 20).

What's interesting about this is that you don't have to go back to
the Great Depression to see a P/E ratio that low. It's happened
several times in the last century, most recently in 1982.

Here's a graph from August 2007 that I've posted many times:

Image

(S&P 500 Price/Earnings Ratio (P/E1) 1871 to August 2007)

This graph really proves the point.

Even if you think that I'm a "panic monger" because I talk about the
Great Depression, the fact still remains that 1982 was not the Great
Depression, and neither were 1919 and 1950. The rise and fall of the
P/E ratio is on a 31-32 year cycle of its own, and it's due to fall
to off a cliff soon, bottoming out in a few years.
> Greetings, I happened to come across your website and I have
> been reading your site with fascination. I had discovered the
> concept of generational dynamics on my own and I had realized it
> was a major force but I could find no authorative info on the
> subject. You the first person I have ever seen who has actually
> gone in an analyzed it. You are brilliant. I began reading some
> of your info from your online manuscript and I see that you
> predicted that the DJIA will fall to 3000! That was exactly where
> I was predicting it will go within 2 years. But I could not find
> one conventional analyst saying what I believe. I have a degree
> in Business and completed the College of Financial Planning's
> certificate program of studies. Glad to see I have finally found
> some one who knows what he is talking about. I knew we were
> doomed financially through my work in the financial services
> field. The present powers to be have no 'institutional' memory of
> the Great Depression. As a general rule I would classify most of
> the financial types in this country as BS artists, charlatans and
> shills. They are like pigs with nose rings being led around with
> by a demon whose name is GREED. They basically built a very
> complex phoney financial system in their own image which was based
> on greed and lies. But reality caught up to them after years of
> obfuscation and the whole illusionary financial system which they
> made finally imploded. The Congressional bail out is horrible in
> that it is really an attempt to put new life into a parasitic
> financial system that just bankrupted the nation. The problem is
> Washington is made out of the same material as the pig with ring
> nose. They will blindly squander whatever credit worthiness is
> left in the nation to bail out their cousin piglets on Wall
> Street. In short our whole economic system is going to go under in
> my opinion. Any thoughts?
Unfortunately, I tend to agree with you, although I've described it
more in generational terms.

Sincerely,

John

John
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Re: Financial topics

Post by John »

From a web site reader:
> Found your website purely by "destiny" about a year ago when the
> DOE was in the 14,000 range peaking-range. As a government
> employee with a TSP fund nearing retirement, and based on your
> warnings, I moved all my monies out of stocks and into our "safe"
> (for now I hope/guess) G-FUND where it has been protected ever
> since (made a few thousand here and there too). Thanks for all
> the "obsessive" work you do sir, for it's protected my family and
> I from sure ruin.
Thanks very much for your comments. It's hearing from people like
yourself, who were able to prepare and save themselves, that make it
all worth it.

Sincerely,

John

Matt1989
Posts: 170
Joined: Sun Sep 21, 2008 12:30 am

Re: Financial topics

Post by Matt1989 »

John wrote:From a web site reader:
Buy of a lifetime???? Can you believe it, and '87 is the justification.

CNBC, Buffett, pundits, analysts...one after another on all the media.

Maximum ruin is very near now.
Warren Buffett appears to have lost his mind completely.

http://www.nytimes.com/2008/10/17/opini ... tt.html?em

John
I had a pro-Obama friend tell me a day earlier that he felt that the financial crisis would subside as a vast vortex of hope surrounding the election would revive the housing market, increase corporate profits, and get banks and individuals lending again.

I don't think a two year old would be so naive.

John
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BBC Interview with economist Mark Gertler

Post by John »

-- BBC Interview with economist Mark Gertler

I just heard a BBC interview of Mark Gertler, an economist who's
worked with Ben Bernanke.

It was the usual nonsense by an economist, but what was interesting
is that the interviewer, Owen Bennett-Jones, asked some very
difficult and pointed questions, much more penetrating than you ever
hear on CNBC or elsewhere.

The interview can be heard online for a week - see the info at the
end of this message.

The three pointed questions that I wish to mention are these (not
exact quotes, but from my notes):
  • "Will all of this happen again in 70-80 years, when everybody's
    forgotten the current crisis?"

    This is a truly remarkable question in the mainstream media. (Do you
    suppose that Bennett-Jones has seen this web site?)

    Gertler totally evaded the question, by saying that we didn't learn
    enough from the 1980s, and he hopes that we'll learn enough from the
    current crisis. Gertler is totally clueless about what's going on.
  • "What really happened in the Great Depression?"

    The answer was so incredible, I could barely believe my ears. He
    said that what happened was this: There was a recession in 1929-1930,
    and the Fed didn't move fast enough to prevent bank failures in 1931.

    I've heard economists say really dumb things before, and I've quoted
    many of them on my web site, but, to paraphrase Matt, no two-year-old
    would be a naïve as this guy.

    To him, there was no 1920s bubble, there was no 1929 crash. It was
    just an ordinary, run of the mill recession that the Fed mismanaged.
  • "Why weren't economists able to prevent the 15 year long economic
    crisis in Japan that began in 1990?"

    Gertler gave a long garbled answer, essentially saying the same
    thing, that the central bankers in Japan didn't move fast
    enough
When I was growing up in the 1950s, everyone "knew" what caused the
Great Depression: it was greed, it was everyone buying on margin, and
it was the bubble. Today, these economists think that it was just a
bad day at the beach. Do you see why I keep calling these people
morons?

It really is depressing and frightening that our nation's leaders and
experts know absolutely nothing about what's going on and what's
coming.

For those interested in what happened in Japan, see this:

** Japan's real estate crash may finally end after 16 years
** http://www.generationaldynamics.com/cgi ... 20#e070220


Here's the information from the BBC web site on the interview,
including the link where you can hear the entire interview for the
next week:

> Last Updated: Saturday, 18 October 2008, 06:32 GMT

> Date of first transmission: 2008-10-17T23:32:00-00:00 (audio
> available for approximately 1 week)

> Mark Gertler

> American economist Mark Gertler talks to Owen Bennett-Jones on
> The Interview

> Professor Mark Gertler is one of the few people who is thriving in
> the current turmoil in the financial markets.

> As a top American economist he sees the current crisis as an
> amazing challenge.

> And he has an inside track on events -- for years he worked with
> Ben Bernanke, now chairman of the Federal Reserve, looking at how
> a shock to the system can rapidly spread.

> So does he have any answers for the current crisis?

> http://www.bbc.co.uk/worldservice/progr ... view.shtml
Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.GenerationalDynamics.com/forum

John
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Re: Financial topics

Post by John »

From a web site reader:
> I super impressed with your website and weblog. I'm retired and
> have lost 40% in the market in the last year. I'm down to a point
> where I can't afford to lose any more and still stay retired.
> I've been almost 100% invested in the market since 1991 and I did
> well until this year. I have serious concerns about selling at
> the bottom. Should I get out now and if so, what to do with the
> money.
I really hate to give short term investing advice, especially when
the market is so volatile right now.

The trend is downward, as it's been for some time. So you should
plan on getting out as early as possible.

But keep in mind that you might pull out one day, and have a
temporary rally the next day.

One thing's for sure: The market is nowhere near the bottom.

Sincerely,

John

John
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Re: Financial topics

Post by John »

From a web site reader:
> I stumbled across your site a few weeks ago and read your weblog
> daily. I also read your responses in the forums. I actually
> look forward to reading your weblog every night! I totally agree
> with what you comment on.

> I wanted to ask your opinion. The only debt I have is a mortgage
> for approx $200K. I have liquid assets (CDs, savings, all under
> $100K FDIC insured limits in different banks). In your opinion,
> would it be best to pay off my mortgage now, or keep in dollars
> due to the deflationary environment? I don't want to risk losing
> money in FDIC accounts if things turn severely, which it looks
> like they will. I know it is not the wisest decision to leave so
> much liquid money sitting idle, but we are in very SCARY times!

> Thanks in advance, John, it is appreciated! Keep up the GREAT
> work!
Thanks for the nice words. I very much appreciate them.

You have $200K, and you wonder whether to leave it in the bank or pay
off your mortgage.

It's hard for me to see how you have anything to gain by paying off
your mortgage right now. In some scenarios, depending on how bad
things get, you may have to leave your home, and you'd be better off
having sunk less money into it.

So now you have $200K cash. Make sure that some of it is easily
accessible -- say, buried behind a wall of your basement.

There's no way to predict the exact sequence of events that you'll
face, and no matter how clever you are, there's always a sequence of
events that will ruin you. But that seems to me to have the highest
probability of allowing you to survive.

Sincerely,

John

John
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Re: Financial topics

Post by John »

From a web site reader:
> I was wondering if you have an explanation you could provide me
> (or recommend a book) which explains the impact of puts / calls
> and OPEX on the SP500 futures market.

> A number of trading boards (10/16/2008) currently say you
> shouldn't be long the market because of all the puts. Yet IMO, I
> would think if the market went up, this would decrease the value
> of the put, consequently the market would move this direction to
> eliminate the put value -- consequently saving money for those
> making a market in options. Confused?
I am among those who believe that the current excitement directed
against rumors, speculators and option traders is nothing but
hysteria, unrelated to anything that's really going on.

I wrote about this a few months ago:

** SEC blames stock market problems on 'false rumors' and 'naked short selling'
** http://www.generationaldynamics.com/cgi ... 16#e080716


On the other hand, as I've been saying for a long time, the market is
nowhere near a bottom, and if you go long you're going to lose money.

Sincerely,

John

John
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Re: Financial topics

Post by John »

From a web site reader:
> I've attempted to follow the movements of Andrew Lahde ever since
> I learned of his hedge fund that made approximately 1000% annual
> gain from shorting the housing market in 2006. He's decided to
> quit the biz apparently; wise move. From everything I know about
> him, I find him to be a really impressive and refreshing person
> for his intellectual acumen as well as his circumspect wrt to the
> US.
Here's Andrew Lahde's farewell letter to his clients:
Andrew Lahde wrote: > Letter: Andrew Lahde, Lahde Capital Management

> By Andrew Lahde

> Published: October 17 2008 19:09 | Last updated: October 17 2008
> 19:09

> October 17, 2008

> Today I write not to gloat. Given the pain that nearly everyone
> is experiencing, that would be entirely inappropriate. Nor am I
> writing to make further predictions, as most of my forecasts in
> previous letters have unfolded or are in the process of unfolding.
> Instead, I am writing to say goodbye.

> Recently, on the front page of Section C of the Wall Street
> Journal, a hedge fund manager who was also closing up shop (a $300
> million fund), was quoted as saying, “What I have learned about
> the hedge fund business is that I hate it.” I could not agree more
> with that statement. I was in this game for the money. The low
> hanging fruit, i.e. idiots whose parents paid for prep school,
> Yale, and then the Harvard MBA, was there for the taking. These
> people who were (often) truly not worthy of the education they
> received (or supposedly received) rose to the top of companies
> such as AIG, Bear Stearns and Lehman Brothers and all levels of
> our government. All of this behavior supporting the Aristocracy
> only ended up making it easier for me to find people stupid enough
> to take the other side of my trades. God bless America.

> There are far too many people for me to sincerely thank for my
> success. However, I do not want to sound like a Hollywood actor
> accepting an award. The money was reward enough. Furthermore, the
> endless list of those deserving thanks know who they are.

> I will no longer manage money for other people or institutions. I
> have enough of my own wealth to manage. Some people, who think
> they have arrived at a reasonable estimate of my net worth, might
> be surprised that I would call it quits with such a small war
> chest. That is fine; I am content with my rewards. Moreover, I
> will let others try to amass nine, ten or eleven figure net
> worths. Meanwhile, their lives suck. Appointments back to back,
> booked solid for the next three months, they look forward to their
> two week vacation in January during which they will likely be
> glued to their Blackberries or other such devices. What is the
> point? They will all be forgotten in fifty years anyway. Steve
> Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I
> do not understand the legacy thing. Nearly everyone will be
> forgotten. Give up on leaving your mark. Throw the Blackberry away
> and enjoy life.

> So this is it. With all due respect, I am dropping out. Please do
> not expect any type of reply to emails or voicemails within normal
> time frames or at all. Andy Springer and his company will be
> handling the dissolution of the fund. And don’t worry about my
> employees, they were always employed by Mr. Springer’s company and
> only one (who has been well-rewarded) will lose his job.

> I have no interest in any deals in which anyone would like me to
> participate. I truly do not have a strong opinion about any
> market right now, other than to say that things will continue to
> get worse for some time, probably years. I am content sitting on
> the sidelines and waiting. After all, sitting and waiting is how
> we made money from the subprime debacle. I now have time to repair
> my health, which was destroyed by the stress I layered onto myself
> over the past two years, as well as my entire life – where I had
> to compete for spaces in universities and graduate schools, jobs
> and assets under management – with those who had all the
> advantages (rich parents) that I did not. May meritocracy be part
> of a new form of government, which needs to be established.

> On the issue of the U.S. Government, I would like to make a
> modest proposal. First, I point out the obvious flaws, whereby
> legislation was repeatedly brought forth to Congress over the past
> eight years, which would have reigned in the predatory lending
> practices of now mostly defunct institutions. These institutions
> regularly filled the coffers of both parties in return for voting
> down all of this legislation designed to protect the common
> citizen. This is an outrage, yet no one seems to know or care
> about it. Since Thomas Jefferson and Adam Smith passed, I would
> argue that there has been a dearth of worthy philosophers in this
> country, at least ones focused on improving government. Capitalism
> worked for two hundred years, but times change, and systems become
> corrupt. George Soros, a man of staggering wealth, has stated that
> he would like to be remembered as a philosopher. My suggestion is
> that this great man start and sponsor a forum for great minds to
> come together to create a new system of government that truly
> represents the common man’s interest, while at the same time
> creating rewards great enough to attract the best and brightest
> minds to serve in government roles without having to rely on
> corruption to further their interests or lifestyles. This forum
> could be similar to the one used to create the operating system,
> Linux, which competes with Microsoft’s near monopoly. I believe
> there is an answer, but for now the system is clearly broken.

> Lastly, while I still have an audience, I would like to bring
> attention to an alternative food and energy source. You won’t see
> it included in BP’s, “Feel good. We are working on sustainable
> solutions,” television commercials, nor is it mentioned in ADM’s
> similar commercials. But hemp has been used for at least 5,000
> years for cloth and food, as well as just about everything that is
> produced from petroleum products. Hemp is not marijuana and vice
> versa. Hemp is the male plant and it grows like a weed, hence the
> slang term. The original American flag was made of hemp fiber and
> our Constitution was printed on paper made of hemp. It was used as
> recently as World War II by the U.S. Government, and then promptly
> made illegal after the war was won. At a time when rhetoric is
> flying about becoming more self-sufficient in terms of energy, why
> is it illegal to grow this plant in this country? Ah, the female.
> The evil female plant – marijuana. It gets you high, it makes you
> laugh, it does not produce a hangover. Unlike alcohol, it does not
> result in bar fights or wife beating. So, why is this innocuous
> plant illegal? Is it a gateway drug? No, that would be alcohol,
> which is so heavily advertised in this country. My only conclusion
> as to why it is illegal, is that Corporate America, which owns
> Congress, would rather sell you Paxil, Zoloft, Xanax and other
> addictive drugs, than allow you to grow a plant in your home
> without some of the profits going into their coffers. This policy
> is ludicrous. It has surely contributed to our dependency on
> foreign energy sources. Our policies have other countries
> literally laughing at our stupidity, most notably Canada, as well
> as several European nations (both Eastern and Western). You would
> not know this by paying attention to U.S. media sources though,
> as they tend not to elaborate on who is laughing at the United
> States this week. Please people, let’s stop the rhetoric and start
> thinking about how we can truly become self-sufficient.

> With that I say goodbye and good luck.

> All the best,
> Andrew Lahde
> http://www.ft.com/cms/s/0/128d399a-9c75 ... s01=1.html

John
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Re: Financial topics

Post by John »

The quote of the day from BBC's Gavin Esler:
> "I would have waited for the banks to fail and then nationalised
> them for nothing" - Former London mayor Ken Livingstone, on how he
> would have dealt with the financial crisis.

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