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The U.S. Government Bond Bubble

What follows will read like an indictment on our entire economic system. But underlying my (relatively mild) harangue is an observation that people are ignoring the most obvious bubble out there; that is, the bubble in U.S. government bonds. The following is my attempt to figure out why.

Efficiency Market Theory

Let’s face it, markets are inefficient. The efficient market theory, manufactured from the ivory towers of academia, poses perhaps the greatest threat to the stability of our system. Here’s why.

False assumptions produce false conclusions. The efficient market theory posits that bubbles aren’t recognizable before they pop. The natural consequence of this misguided belief is that government officials will never act to preempt bubbles since they are, by definition, impossible to identify. This is one of the reasons why supposedly “efficient” markets are consistently marked by fat tails, outright panics, and “once in a lifetime” events…

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The Disaster for Retirees

The years ahead are going to be very trying for our country in general and Baby Boomers in particular. I’ve often attempted to explain how this crisis is going to hit Baby Boomers especially hard. When the Fed sets monetary policy, they are putting speculators ahead of Boomers. This is a fact. A major crisis is forming because Boomers are feeling pressure on their investment portfolios at the same time that pensions are underfunded. Where is retirement money going to come from?

Let’s think briefly from the perspective of Boomers as it pertains to the 3 major asset classes of real estate, stocks, and bonds…

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Some Thoughts

This post is going to be slightly different from my normal posts. I feel the readership of this blog has grown quite large and people don’t even know who I am. There may come a time in the near future when I stop writing because of projects I’m working on. I’ll do my best to offer my insights as this crisis unfolds, but I can’t guarantee it.

Well I’m 27 and I am an investor. I grew up in New York City and graduated from Columbia University with a degree in History. I probably took about 2 econ/finance classes in my life, and trust me, they don’t come in handy. I have no “profession”; I don’t work for anyone because I don’t have to. I love reading and thinking. I value my failures much more than my triumphs. I write this blog because I want to warn people, especially Baby Boomers, about what’s coming. I’m not trying to sell newsletters or books. I love having discussions with informed, open-minded people, and this blog affords me that opportunity. I know occasionally people want to bash me and my views as if I committed some unpardonable crime, but remember, I offer my insights for free…

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As I’ve mentioned repeatedly in the past, gold is perhaps the most misunderstood asset in the world. Try to explain to people the true nature of gold and expect to be greeted with petulant disdain. It took more than a little arm twisting for me to convince people that gold is a currency and not a commodity. With a bona fide meltdown hitting Europe, people are starting to wake up and smell the roses.

Gold will eventually trade at obscene levels because of a collapse in public confidence. Only then will people realize that it was only public confidence that propped up our entire monetary system.

The confidence model suggests there will be a day of reckoning. The confidence model is dynamic, for it accounts for the vagaries of human nature. As Newton so famously quipped, “I can calculate the motion of heavenly bodies but not the madness of people….”

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The Debt Crisis: What It All Comes Down To

The thing I value the most in life is freedom- the freedom to do as I choose (as long as I don’t infringe on anyone else’s freedom) and the freedom to think independently. People often ask me why I don’t want to work in the financial industry. My reply is that I relinquish my freedom as soon as I walk through those doors and don’t be surprised if my analysis deteriorates to the level of the average analyst. Doing this is far more rewarding; I can say as I please and don’t have to answer to anyone. I trade real money. I don’t buy into a 401k program with a company match- then turn around and offer stock-specific investing advice. I have a conscience. When I say “buy the dips in gold and take a walk in the park”, I mean it. This is something I literally do.

Sorry, but that was a long-winded way of saying most analysis is perverted by biases. Everyone has an agenda. How brazen do you think analysts will be in predicting a financial collapse if this implies they will lose their jobs and their hefty bonuses? Let’s get real here. They have blind spots the size of planet earth, and I am exposing them in real-time…

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The Case For Depression: Dollar Collapse

The history of the dollar is one marked by a dominance unrivaled in history. Following the Bretton Woods Agreement of 1944, which established the dollar as the global reserve currency, Americans have enjoyed an era of unprecedented wealth and prominence.

The impressive growth in America could not have occurred without a stable dollar. Stable currencies are the unheralded but undeniable foundation of any vibrant economy. Stable currencies allow for longer term transactions and help instill confidence in the public, which is critical, since the value of any fiat currency is ultimately a function of public confidence.

That being said, there are several factors that lead me to believe the dollar is headed for a precipitous decline, and that this decline will exacerbate what I perceive currently as a Depression in our country…

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Learning From Bubble Tops

If my readers agree with everything I say, I am probably doing something wrong. This blog isn’t for people to reaffirm what they already believe; if you carry this kind of mindset, you will not grow as person or as an investor. I hope that I can change people’s views on certain topics and vice versa. There is so much room for growth if we keep an open mind, stay objective, and learn from our mistakes.

I remember reading something along the lines of “the smart person learns from his own mistakes, but the wise person learns from the mistakes of others.” As an investor who is still relatively young, I try to learn from the mistakes of others. I wasn’t even born when gold and silver bubbled over in 1980. When the internet bubble popped in 2000, I was more interested in playing video games than tracking the market. Obviously since I didn’t directly experience these events, I am at a disadvantage. But I also believe that not directly experiencing these events gives me an advantage because I can analyze these events through a clear lens. If I made a lot of money during the gold bubble, I may be biased. The same goes for if I lost my shirt going long gold at the very top…

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Learning How To Invest

I want to take a step back from talking about current events because the short-term trends likely won’t affect the long-term trends in a major way. Debt isn’t disappearing and our politicians haven’t suddenly grown brains. I don’t want to get bogged down in useless day-to-day analysis along the lines of  “unemployment claims went down by 0.1% so the American economy is back and stocks will automatically rise in the U.S.”  This is such a myopic way to view the markets and the world in general. The long-term trends are king, and as I’ve said many times before, the long-term trends are much easier to predict than short-term trends.

I felt like writing about what it takes to be a successful investor and impart some of the lessons I’ve learned over the years. To start, let me just say that I haven’t even come close to learning all there is to learn about investing. I know I have a long way to go and this keeps me hungry to always stay curious, always question, and always try to find an edge. Anyway, here are some of my thoughts…

 

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