Investment Aphorisms

  This is the first part of a two part blog covering some of the best bits of Unconventional wisdom Bagholder has been fortunate enough to obtain in his 30 year investing career. 

1.  The herd always loses.  The value of this cannot be over-estimated, which is why it has been listed first. In my three decades of studying financial markets, there is no easier way to make money, than betting against the herd. Consider this hypothetical.  XYZ has a universe of 100 traders. 98 are bullish, 2 are bearish.  Lets assume the asset increases in price, even though a rising price in that scenario is near impossible - this is hypothetical.The 98 who were long get to carve up the money from the two who were short. Problem is, when you divide the proceeds from the two into 98 piles, the bulls aren't making hardly any money.  Now consider the reverse, XYZ goes bankrupt - the two bears get to carve up all the money from the 98 bulls. In other words, each bear gets paid off by 49 bulls. 49 times your stack - now thats a ripper.  It is also why the masses must lose in the long run - even when they are right there is no money to be made. In the mean time, those betting against the masses only need be right once in a while to multiply their wealth. Still not convinced? In or example, the Bears can be wrong 48 times, right once - and make money. The masses however, can be right 48 times, wrong once - and lose money. The real lesson to be taken from this is being on the right side of a trade is only a small piece of the puzzle. The big piece is having the herd on the other side. While most people in the financial markets spend their time trying to be right, those actually making money - are doing it betting opposite the herd.

2. Markets move in a manner that hurts the most participants possible. In a way, this is a corollary of truth above. Examining the history of financial markets, you see this played out, over and over. The tech mania in 1999 had everyone piling in the long side of the Nasdaq, the few who were short - cleaned up. In the mid 2000's everyone was getting long housing. My plumber had 3 homes, my carpet cleaner had 4. With everybody getting long housing in 2005-06, the market was ripe to crash- and crash it did. Scanning the financial markets today for "lopsided" trades, there are a couple obvious ones. The Bond Market and the Gold Market.  My local Chase branch is offering 13 month CD's with a return of .8%. I hand them a thousand dollars, 13 months from now I get back $1008, and a tax bill for 1/3 of the $8 profit. No rational thinking individual would make that trade.  And yet, pension funds, retirees, foreign countries - just to name a few, are all piling on the long side of that trade. Are they all irrational? In a word, yes.  The reasons are psychological in nature.  Man is a linear thinking individual. This means he looks at the past, and extrapolates it into the future. He sees positive returns for decades, and so he has been conditioned (much like a lab rat) to think the positive returns will continue indefinitely. Anyone looking at the bond market today has watched it go up for so long now, they are absolutely hypnotized. They are like religious zealots, all the contrary evidence in the world (like .8%) won't get them to change their mind. Much like the housing market of 05-06, todays bond market looks ripe to crash. 

3. Conventional wisdom is anything but. All Markets are rigged. Stock market, Gold market, or the market for 1916-D dimes; it really makes no difference. Sometimes the price is rigged too high, sometimes too low. Sometimes the rigging is short term, other times its long term. Make no mistake though, all markets are rigged in a manner designed to pick the pockets of the masses. In any given market, there are players who because of their size and resources effectively control that market. They have an angle. They know before the smaller participants which way a market is headed. When you consider some of the larger markets on the planet (like Gold) the players who control that market have more than enough money to get the MSM to trumpet whatever they want as "conventional wisdom".   Think of the  1970's - mass inflation, oil embargo, energy crisis, sky high interest rates.  You could hardly dream up a more bullish scenario for Gold - or a more bearish one for bonds.  Conventional wisdom by 1980, thanks to a decade of escalating inflation had the effect of getting anybody even remotely interested in the Gold Market onto the LONG side of the trade, while simultaneously scaring them out of their Bonds.  Conventional wisdom was wrong on both counts then, just as its wrong today. Todays wisdom: Gold is in a bubble. With fresh memories of other popping bubbles, joe everyman thinks "I don't want anything to do with another bubble - I better stay away from Gold."  Those of us skeptical of the conventional wisdom have to ask … Is Gold really in a bubble, or are market makers paying their MSM friends to scare people away - thus keeping the trade lopsided? 

4. The key to multiplying wealth is understanding how Bull markets progress.   Bull markets are a product of the paper aristocracy. They create them for the purpose of adding zeroes to their wealth. Since you can't create bull markets, the best chance you have to multiply your wealth is to identify a Bull market early, layer into a position, and sit tight. Bull markets have 3 phases. First is accumulation (buying) by those in the know. Second is the run-up in price which (if properly managed) slowly sucks in the masses. The last phase is the distribution (selling) by those in the know to the ignorant masses. Bull markets tend to run for a generation (18-30 years). The reason is, it takes a generation of paper aristocracy conditioning - to get the masses all on the wrong side of a trade.  When Bulls are first born, they progress at a relatively steady rate - often finding support at the 200 day moving average. . The advances are punctuated by very sharp pullbacks which will often wipeout months of gains in only a week or two. Price action like that shakes out all but the staunchest of bulls, while trapping greedy Bears.  As bull markets age, the rate of price appreciation increases. By the end of the Bull market, participation will be widespread. A deep understanding of how bull markets progress is the key to identifying them while still in the accumulation phase (before the run-up in price). The 21st century Gold bull is now 11 years old & it is still in the accumulation phase. Considering the blueprint laid out here, its easy to see how this Gold bull could easily run for another 15 years.  

Game Changers

Where is the outrage? 

  In the past week  our Congress has passed legislation (and Obama signed) that permits the US Military to detain whomever they wish indefinitely including US citizens on US soil; provided they think you may have terrorist ties.  In one fell swoop, they have effectively eliminated HALF the Bill of Rights for US citizens. Bagholder can't be the only person who sees the National Defense Authorization Act (NDAA)  as a game changer.  

4th amendment is now Gone - no more judges signature required to detain people, invade their homes & and seize them or their property. Of course, they are required to think you have terrorist ties - before they do any of this. 

5th amendment, Due process is now gone. In fact, how about NO process. They can deprive you of liberty and property as they wish. Of course, they are required to think you have terrorist ties - before they do any of this. 

6th & 7th amendments, your right to a speedy jury trial is now Gone. Nothing ambiguous about the word "indefinite", which is how long the new law allows them to detain you before you see the inside of a court room. Of course, they are required to think you have terrorist ties - before they do any of this. 

8th amendment, restrictions on cruel and unusual punishments are now gone. We can be whisked off to Guantanamo for Big Bob's cockmeat sandwiches whenever Gman decides we need it.  Of course, they are required to think you have terrorist ties - before they do any of this. 

   The puppeteers have grown weary of having the masses enjoy sanctuary within their homes. They no longer want to be compelled to provide us with our day in court. Thats all been replaced with the NDAA. While many of you are thinking Gman has no intention of abusing their new powers, Google Jose Padilla. Gman was a wee bit upset about the people pointing out his illegal treatment of Padilla - so they have simply legalized the treatment. 

   Ther NDAA is arguably the single most important piece of legislation passed (as they have gutted the bill of rights) in the history of this nation, and there is irony in that it merits 20 seconds on the ten O'clock news in between a story on an old couple who got mugged at their ATM - and doctors who scammed medicare for non existent procedures totaling  21 million dollars before finally getting caught. The decision by the local news to sandwich the reporting of NDAA between 2 other crimes on humanity, is very telling.   

**********************************************************

  The second Game changer we will discuss is MF Global. For those living in caves, MF Global was a futures trading firm. They had approximately 140,000 clients with futures accounts. The futures market is not like the stock market. When you buy a stock for $10 and it goes to $20, you make $10 and nobody loses. Futures are different in that every dollar made comes directly out of someone else's pocket. Thanks to lousy management investment decisions, MF Global was forced to claim bankruptcy.  

   In a normal corporate Bankruptcy, clients are made whole first - then creditors & bond holders - then stock holders.  What makes the MF Global story a game changer is they are effectively altering the order of who gets made whole first. The bank (JP Morgue) which was on the other side on MF Globals losing bets, has arbitrarily decided to seize the assets inside the accounts of MF Global Clients. In effect, they are cutting to the front of the line. 

   Jim Willie, aka the "golden jackass" theorizes the Morgue gobbled up MF Global to avoid having to deliver physical on their precious metal paper shorts - which was slated to begin the next day.  The timing IS impeccable. There are other incriminating facts as well which support his theory. Many of the clients with accounts at MF Global were among those who were in line at the comex window looking to take delivery of their Gold & Silver, when MF collapsed. JP was the bank who was going to have to deliver physical metal to those MF clients. Instead, those MF clients have been locked out of their accounts - many with existing open positions they can't access (in the futures world, that means unlimited potential losses). Even more disturbing, is JP registered deposits of physical metal into their vaults equivalent to the amount of metal missing from MF global client accounts. If I'm on a jury - thats enough to convict.

  One of the primary reasons the US is the global power it is today, is because of the rule of Law. We have rules in place designed to protect the masses from the predatory behavior of the JP's of the world. There are really only two possible scenarios from here. The powers that be will make those clients whole - or the system is broken. Either we have rule of Law here, or we don't.  If they can seize 140,000 futures accounts, why not 1/2 million mutual fund accounts, or a couple million brokerage accounts? 

This is a very dangerous fork in the road we stand at today. Bagholder is optimistic in that he believes those clients will eventually be made whole, those running MF Global will be Perp-walked, and JP will cough up the Silver (or default officially). Stay tuned.

Attention Kmart Shoppers

  Kmart Blue-light specials. They came without warning, they didn't last long, were good while supplies lasted,  and were very often ridiculously low prices on something you didn't want (but occasionally needed).   As marketing gimmicks went, It was one of Bagholder's favorites. It was economics in action at a very base level.  Sell shampoo for a dollar that normally cost $5 - and it will fly off the shelf.  Thats how free markets work.  The Gold & Silver market today is reminiscent of a Blue light special. 

  Gold is on special today by any reasonable standard. Relative to its 200 day moving average, its the cheapest its been in 3 years. In fact, It is below its 200 day moving average for only the 3rd time in the last 7 years.  Its trading about 17% off its all time high, only twice in the last decade has it traded lower. As with all blue light specials, this one on Gold won't last much longer. The fundamentals underlying the price advance in Gold the last decade are stronger today than they have ever been. 

  If you understand nothing about the Gold market, Know this: Checking the structure of the market (who is on which side of the trade) we find the most bullish COT report Bagholder has ever seen. Right Now, the Paper aristocracy (banksters) is the longest they have been in decades. Meanwhile, man on the street is the Least Long he has been in decades. We  may have to depart for the emergency room soon - as looking at this weeks COT report gives Bagholder  one of those 4 hour Hard-ons.   

 Gold is a better deal today at $1600, than it was ten years ago at $265. A decade ago Central banks were dumping 400 plus tons a year on the market, today they are net buyers. A decade ago Gman man wasn't  printing $$ with reckless abandon, today - not only is he printing - he has openly admitted it. Ten years ago real interest rates were positive and falling, today they are negative and falling (better yet). Ten years ago, the US Government wasn't obviously bankrupt; today they are beyond bankrupt, both morally & financially.

  The powers that be are running a Bluelight special on Gold, solely to increase confidence, temporarily, in Gmans paper. Do not expect the special to last. Gold has returned 22% per year for ten years running. We here at Mytwocent$ are well aware of how bull markets progress, consequently we know the % return the next ten years will dwarf the 22% of the last ten. For the record, another decade of 22% per year gets us north of $10,000/oz by 2020. Bagholder believes $10,000 will be taken out well before 2020. 

Let's Drain the Swamp!!

I'm Bagholder, and I approve these messages...

Ron Paul Moving up in the Polls!! It seems Ads like this one have created a, well, lets just say - disturbance in the Force.

   We have linked the Enslavement" before - but if you haven't seen it - Take the time now!!

Was that incredible or what?

Poems Everybody, Poems

Poetry is nearer to vital truth than history. - Plato

  Bagholder has always had an affinity for Poetry. Expressing complex thoughts, with a bare minimum of well chosen words can be one of life's great pleasures to behold. Some of the best poets of the last half century have utilized their talents writing lyrics for music. Rocknroll, rap, country - they all have their share of poets. A good poem, just like a good piece of Art, is subjective. The best works speak differently to different people, depending upon what they choose to see.  Todays blog will discuss one of Bagholder's favorite (because of its elegance & simplicity) obscure rocknroll tunes from the 1980's, along with some of the many plausible interpretations. 

There is unrest in the forest, There is trouble with the trees, For the maples want more sunlight And the oaks ignore their please. The trouble with the maples, (And they're quite convinced they're right) They say the oaks are just too lofty And they grab up all the light. But the oaks can't help their feelings If they like the way they're made. And they wonder why the maples Can't be happy in their shade. There is trouble in the forest, And the creatures all have fled, As the maples scream "Oppression!" And the oaks just shake their heads So the maples formed a union And demanded equal rights. "The oaks are just too greedy; We will make them give us light." Now there's no more oak oppression, For they passed a noble law, And the trees are all kept equal By hatchet, axe, and saw.

 Could this be a statement on Republicans (Oaks) who have it all, taking advantage of the poor underprivileged Democrats (Maples)?  The analogy seems perfect when you consider that maple trees need shade to survive, whereas with uninterrupted direct sunlight (which they clamor for) they would die. Life is no different, as Democrats aren't happy unless they are taxing those who produce; and heaven forbid  they ever get the complete control they clamor for, it would literally - kill the country……Or  

 There are a lot of parallels to the feminist movement of the 1970's. Women (maples) scream for equality, while men (oaks) can't understand why women jus don't accept their role - and "be happy in their shade".  The feminist movement, like the maples,  was screaming for something they really didn't need/want.  They fought for the right to abandon their traditional role of stay at home & raise kids, in favor of slaving 40 hours a week for some green paper.   It is difficult imagining any rational group of people wanting to make that trade, let alone marching on DC to get it done……Or

  Could this be a statement on civil rights and the whites (oaks) oppression of the Black (Maples) searching for equality (light). The civil rights movement was a "noble" one, was it not?  The hatchet, axe & saw are the implements of equality in our poem. In the real world, the tool of implementation is  Affirmative action. While the intent was noble, you cannot legislate morality.  Consequently, society (the forest) as a whole is worse off……Or   

 Is this poem an allegory on the failures of communism's never-ending quest to ensure equality for all? History has shown repeatedly, any efforts to create equality where none exists naturally  is destructive for all involved.  True to marxist dogma, the trees are made equal by cutting down the strong. As a result, there is no more rich in the forest, only poor. 

  While republican/democrat, male/female, black/white, rich/poor are all reasonable interpretations of the oaks & maples.  We here at Mytwocent$ believe these are all  false dichotomies created for the sole purpose of shifting focus away from the real enemies, on to false ones.   In every case the two combatants have more in common with each other than they dare admit, all the while the real threat goes unnoticed. It is textbook divide & conquer strategy executed perfectly by the kleptocrats running this country. They keep the masses squabbling over petty differences, as they go unnoticed pillaging the planet. It truly is, poetry in motion.