"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey
I was watching George Carlin (comedian)on HBO the other day. I realize he has made his fortune by being cynical, but some of what he says makes you think.
While I don't agree with being cynical in everyday life, when it comes to your money you should be skeptical and lower your eyebrows every time Wall Street opens their mouth. Always keep in mind what's in it for them before committing capital.
The financial markets were not designed by people who were interested in making you rich. Investors who do their homework can certainly get rich in the financial markets.
The scandals from 2000 (analysts and corporate executives lying, investment banks, etc) should be proof enough that the markets were not designed with our best interests in mind. Warren Buffett knows this, and explains why he is a value player, and not a momentum trader.
Don't you find it odd that at the root of every financial scandal, or economic crisis, there is the involvement of a Wall Street investment bank?
-The 1987 market crash happened because of over speculation, overvaluation, and an attempt by the US to prop up the dollar to fight inflation.
While this is not happening right now, you've got to believe that once the banks and brokers are re-liquefied, interest rates have got to go up.
-as an example, the 1994 collapse of the hedge fund, Long-Term Capital Management happened uner the watch of a former vice-chairman of Salomon Brothers.
Hedge funds are imploding all around us, and at the epicenter of this destruction are some of Wall Street's top investment banks.
Before I escaped from the brokerage business, we had sales meetings where we were encouraged to put a portion of our clients’ assets in hedge funds. I did not bite from this poison apple since I didn't think HF’s were a smart investment for Mom & Pop investors. In addition, HF fee's are outrageous, and I never really trusted the bas***ds.
-Also in 1994, Orange County, California was forced into declare bankruptcy after losing $1.6 billion in an investment pool. Once again the advisors for Orange County was the investment bank Merrill Lynch .
Amazingly similar to today's carry trade problems, Orange County Treasurer Bob Citron tried (and failed) to enhance returns by borrowing more than $12 billion at low interest rates, and invested the money in high-yield securities.
Yesterday, Carlyle Capital Fund was rumored to be on the brink of collapse after missing margin calls and defaulting on $16.6 billion in debt.
-In 2000, Wall Street bankers and analysts issuing questionable research reports on some of the companies they were paid to cover. Mom and Pop investors drove stocks higher by following the advice of these bogus reports. While Mom and Pop was buying, corporate executives were selling, and investment banks were rewarded with banking fees for issuing rosy reports.
Once again, at the epicenter of this scandal were of course Wall Street’s top investment banks.
So, where does it all end? Well, I hate to tell you, it never will. The crisis hitting the investment banks will end because they always take care of their own, and always have the help of the politicians in Washington.
This morning news broke that JPMorgan Chase & the Federal Reserve Bank of New York will provide capital to Bear Stearns. See what I mean?
To make sure you never get caught up in "the next crisis" always remember to Sell Euphoria, and Buy Hysteria.
Prior to the 2000 NASDAQ crash the euphoria was obvious. Prior to the 2007 Real Estate crash, the euphoria was obvious.
After the World Trade Center attacks, hysteria was obvious. Today, given all that has occurred with real estate and the credit crisis, hysteria is once again becoming obvious. As is the case with every crisis, sooner or later it will end.
Numerous misleading stories are circulated daily about stocks, world events, politics, and the economy.
This morning’s release of the CPI numbers should be proof of that. I find it amazing how the CPI numbers always run counter to what you and I experience on a daily basis.
The February CPI and the core CPI numbers were spun as positive news as both were reported as unchanged. The estimates called for an increase of +0.3% and +0.2% respectively.
Oh, okay... whatever.
Given the magnitude of what is happening in our economy, I would not be surprised to see a decline of 25% (10,600) from the highs set in September 2007 (14,124). Given that markets overshoot to the downside as well as the upside, a brief visit below 10,000 wouldn't surprise me either.
Going forward, future purchases in my accounts are based on various downside targets on the DJIA.
They are...
% Declines from DJIA High of 14,198:
10%= DJIA 12,749
15%= DJIA 12,041- 1/3rd purchase
20%= DJIA 11,332- 1/3rd purchase
25%= DJIA 10,624- 1/3rd purchase
