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Thread: Yo, Marvin. Some professional 'advice'..

  1. #1
    Senior Member Uncle Bill's Avatar
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    Default Yo, Marvin. Some professional 'advice'..

    ...that might make sense from a person that has pretty good cred.

    UB

    The Daily Reckoning PRESENTS: The cat is out of the bag. Wall Street has now become the official graveyard for some of the world’s largest financial institutions. But even more disconcerting than the demise of the United States’ five largest investment banks is the subsequent intervention from the U.S. government. Puru Saxena explores...
    SELECTVE SOCIALISM
    by Puru Saxena

    Unless you have been sleeping under a tree over the past month or so, I am sure you have heard about the demise of the five largest investment banks:
    Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman and Morgan Stanley.
    The immense scale of the carnage has been impressive so far, but what is more astonishing is the mind-numbing intervention by the U.S. establishment. Over the past month alone, thanks to the bail-out of Fannie Mae and Freddie Mac, the US has more than doubled its national debt. Moreover, the ‘Troubled Assets Relief Program’ (TARP) would have further increased America’s debt to U.S.$11.3 trillion. And as if this level of indebtedness was not enough, Mr. Paulson has also agreed to insure money-market funds.
    Let there be no mistake; the U.S. has now transformed itself into a great socialist society by using taxpayers’ money to buy-out private companies. In my view, this ridiculous measure is a slap in the face of capitalism and will further promote reckless and dubious practices. Essentially, by bailing out the behemoths (Fannie Mae, Freddie Mac and AIG) and allowing the smaller fish (Lehman Brothers) to fail, the U.S. establishment is sending out the following message:
    “If you want government protection, please become too big to fail. If your demise threatens our entire financial system, we will help you. Otherwise, we will let you fail.”
    There can be no doubt that this policy of ‘selective socialism’ is totally insane for several reasons. First and foremost, who has given these officials the power to decide which company is worth saving and which one is insignificant enough to fail? Next, what kind of message are they giving to the remaining banks – please merge quickly and grow in size or else you will be allowed to fail? Furthermore, America already has a horrendous debt problem (debt to GDP ratio in excess of 400%) so who has given the U.S. Treasury the authority to take on more debt? Finally, who is going to pay for these trillions of dollars of bailouts?
    Although these bailouts may offer short-term respite, I am of the opinion that the recent antics of the U.S. establishment will make matters much worse over the mid- to long-term. History has shown time and time again that no nation has ever printed its way to prosperity. In fact, all the of the nations that have resorted to money-printing in the past, ultimately saw a total economic collapse. Furthermore, the middle-class and the impoverished people in those countries got totally wiped out due to runaway inflation. And apart from a handful of rich people who were able to ride the inflationary wave, everyone else suffered a great deal. I wish I could come up with more cheerful news, but I am afraid the same economic outcome is likely in the United States. If the clowns in Washington continue with their senseless inflation agenda by adding more monetary fuel to an already raging fire, I suspect we will see a massive deterioration in the American way of life.
    Now, I am aware that the majority of commentators and pundits are applauding the recent bailouts. According to these folks, the bailouts were necessary to prevent an outright collapse of the financial system and the government intervention also helped to restore calm in the financial markets.
    For sure, the recent nationalization of assets may have helped the markets in the near-term, however I fail to see how it can be good for the global economy over the long-term. Remember, it was the same reckless money-printing in the aftermath of the NASDAQ bust which caused this massive financial crisis, and now the U.S. establishment is throwing more money into the system! In the short-term, this injection of liquidity may act like a shot of heroin for the desperate drug addict, but in the longer-term, this dosage of monetary poison will end up killing this terminally-ill patient. After all, how can these bailouts be good when they will further destroy the purchasing power of the U.S. dollar? How can these measures be hailed by the investment community when they will cause food and energy prices to skyrocket in the years ahead? How can more monetary inflation be good if it punishes savers at the expense of debtors?
    Make no mistake, this reckless monetary inflation will eventually cause the U.S. dollar to become worthless and America may have no option but to issue a new dollar bill (Figure 1). And if other nations also embark on this inflationary road to nowhere, we will see a terrible hyper-inflationary depression with currencies plummeting against tangible assets.
    Figure 1: US Treasury’s new dollar bill?

    Courtesy: Hank & Ben’s Money Printing Corporation
    Despite the horrendous economic environment we find ourselves in, it is fascinating to observe the sheer denial amongst the investment community. Most fund managers, economists and analysts still want the public to believe that the United States is not in a recession and that its housing situation is about to improve! Nothing could be further from the truth. How can the United States not be in a recession when entire industries have been wiped out? Next time, when somebody tells you that the U.S. economy is stronger than you might think, please ask them which industry or group of industries are growing? As far as I am aware, investment banks, automobiles, homebuilders, consumer discretionary and mortgage related businesses are all facing a severe slump. Yet, Mr. Bush and his comrades have no problem in citing the strength of the American economy.
    In summary, I maintain my view that the current crisis is far from over and I suggest that you stay well clear of the financial sector. Although, the financial companies may seem cheap due to the recent declines, I can assure you that they could get a whole lot cheaper. The truth is that nobody knows what is on and off the balance sheets of these institutions and at the very best, we may see a lengthy period of consolidation before we get a sustainable recovery in financial stocks.
    As far as the broad market is concerned, I suspect the stock market is extremely oversold at the current levels and we may get a technical rally over the coming weeks. Unfortunately, our fundamentally superior resources stocks got sold off in the recent stock-market rout and this may be the best opportunity you will ever get to buy solid, viable companies at such fire-sale prices. So, if you have not done so already, I suggest that you invest your capital in energy, food and metals as these assets are likely to move higher when the newly created ‘money’ seeps through the system.
    Regards,
    Puru Saxena


    Editor’s Note: Puru Saxena is the founder of Puru Saxena Limited, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients. He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.
    Puru publishes Money Matters , a monthly economic report, which highlights extraordinary investment opportunities in all major markets.
    When the one you love becomes a memory, that memory becomes a treasure.

  2. #2
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    UB - Thanks for the post, I always enjoy reading professional opinions, & the reasons for their particular assumptions. Remember Elaine Garzarella, called the 87 crash & hasn't been correct since, so there is an element of luck, even for an expert, which I believe her to be.

    Back in the mid-80's I purchased some GSO, a closed end mutual fund run by Charles Allmon. I learned 2 lessons from that purchase: 1st - don't buy the initial subscription from a brokerage, it will go down 10% as soon as trading starts. 2nd - If you don't participate in the market, regardless of what you think of what's happening, your money is not going to grow appreciably. I eventually sold averaging a 2% return.

    Now you've seen my potential purchases on the other forum, I am not selling them as of this time. Do I think they will all prove to be low hanging fruit, NO, but I think enough will work out to give me a better return than savings, CD's or bonds will give at this time. I would note I am probably 75% in stocks at my "full fledged" Geezer status. It's the only way to beat inflation. Our SS checks are going up this year 5.8%, I think - try getting that on any ready money investment.

    But this year I did cash in some gains, I'm still trying to learn when to be a smart seller. So we can buy a couple more cords of firewood & stay warm this winter.

    Now I am concerned about inflation, if you have a way of dealing with that without being in the Market, Please clue me in. But I also believe the lefties party will do something in the interest of self preservation to insure their continued majority. They now have no one to blame but each other.

    On a side note - I can remember when I was at SDSM&T, we had an expected blizzard in February, 4 to 5 foot snowdrifts, a Chinook 2 days later & the ground was bare 4 days later. The February chinook's in SD were always great fun for us at BB tournament time. Planned to go to Mt Pheasant hunting but heard there was a late hatch so will have to content myself with smacking a few quail with my new 28 guage. Not as ardent a hunter as I used to be.

    Have a nice day, UB.
    __________________________

    Marvin S

    Everyone's friend is No One's friend

    Someday your life will flash before your eyes. It's your responsibility to make sure it's worth watching!

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