Speculation RulesThe Contrary-Investments Blog

Government Finance Change

2010-07-08T07:48:00.000-07:00

"Away with the whims of governmental administrators, their socialized projects, their centralization, their tariffs, their government schools, their state religions, their free credit, their bank monopolies, their regulations, their restrictions, their equalization by taxation, and their pious moralizations!

And now that the legislators and do-gooders have so futilely inflicted so many systems upon society, may they finally end where they should have begun: May they reject all systems, and try liberty; for liberty is an acknowledgment of faith in God and His works."

Claude Frédéric Bastiat 1801-1850

Twilight Zone Economics; four indicators of collapse

2010-06-08T09:54:00.000-07:00

If what you read in the press seems surreal, if each item reported is isolated from each other item like trees considered separately from their forest, if chicken heads are commenting on television while their bodies run around in thoughtless panic ...

You have entered the Economic Twilight Zone.

Twilight calls to mind:

the end of visibility
Vampire Regulations
emerging phantasmagoria
a one way trip

There is other twilight imagery that could be called up, but the primary issue is the last. It has been pointed out that governments have sucked so much blood from their citizens that it will take generations to rebuild a healthy victim stock. This is an error.

The parasites have killed their victims, there will be no third or fourth generation to bleed. All that remains is for the nation states to not waken after this sickly nightmare reaches its conclusion.

Is there a solution? Or at least a dim candle we can light against the encroaching phantoms playing at the edge of our vision? The funky music has started, the first commercials are selling the pleasures of whistling while walking past the tombstones of failed governments. The show is about to start -- your life is a twilight zone script.

There is the start of a solution; we can rethink our thinking. We can probably not stop politicians from destroying the world. We can however write a sequel by planning what sort of world we will rebuild once this long night of destruction has passed. There is a better world management system than our current win-kill philosophy will allow.

For survivors: Interactions in our social world are related. It is not a single oil spill, a dozen or two individual wars, separate tragedies and triumphs by the score -- our world is one interrelated system. Our social perception systems are obsolete.

Twilight Zone Economics has us camped exposed at the edge of a forest of protection, dismayed by the shadows cast by individual trees. We can enter the forest, and discover the trees are ourselves. It is we as individuals striving in competition for the sun that may allow economic ecosystem survival or re-creation.

Passing beyond Twilight Zone Economics.

How 'bouts a fictional hacker escape?

DRM busted again - Bad Investments (click this title for DRM free works)

2010-03-05T14:32:00.000-08:00

Boing Boing gave space to the debate on digital copyright. There is logic, emotion, idiocy, and infantile weeping - and that describes the folks that bothered putting expensive and always ineffectiveDRM controls on the buyers of products they sell.

Boing Boing also printed the code used to break the unstoppable DRM by Ubisoft. AC2, Assassin's creed 2, is now a free willy. Normal buyers rights have been restored to purchasers that know how to insert the code.

Copyright on digital media never works - never.

Yet companies spend millions, and waste developers that could create products to please customers, on trying to frustrate customers. Sometimes the Million dollar DRM protections take minutes to break -- this unbreakable DRM took less than a day. And they will do it again - how do you explain such idiotic investments to your stockholders? "We want to teach the nameless hoards a lesson."

And you call yourself business people? Or worse you call yourself gamers and create a game you can't win? Save money - invent and play Tic-Tac-Toe.

"Strange Game Professor. The only way to win is to not play." about nuclear war, from the movie War Games

imagine book publishers (they are working on their own ways to go out of business) trying to:

get all libraries closed

create books that self destruct unless they read your fingerprint.

file punitive law suits if you let a friend read part of *your* book

Throw you in jail if you sell or buy a used book.

And waisting millions inventing new chastity belts for lock smith's girlfriends. Locks that use antique skeleton keys.

The best part of the comment debate on Digital Rights Management comes from Cory Doctorow. For those of you unfamiliar with Doctorow, he is a best selling author, and also publishes all of his books online in many downloadable formats. Very good books. Free Downloads. And he still sells many traditionally published and marketed copies.

Cory gets it - and he's quoted it somewhere. The vast majority of book readers know only a few authors, and buy few books. An author's enemy is not the copy machine, or lending libraries, or friends passing books to friends. An author's enemy is obscurity.

Here is Cory's comment answering a prior childish comment rant:

First of all, the reason people stop at stop signs has nothing to do with the law. That's just a dumb thing to say. 99% of the time, people could *not* stop at stop-signs and not get arrested. The reason people stop at stop signs is that stopping at stop signs is a reasonable social contract.

As to being nice to old people: if you believe that the reason people are nice to old people is that the law compels them to:

a) You are making reference to a nonexistent law

b) You are possibly a sociopath

The reason people are nice to old people is that people are generally nice to one another.

DRM has no connection with preventing piracy. Pirates download the DRM-cracked versions. DRM on music is there to reduce the rights that you get in copyright -- the right to play your music on a competitor's device, the right to sell or give away your music, and so on. These rights are enshrined in law, but DRM is a loophole to copyright law, since breaking DRM is prohibited even for people who are making otherwise lawful uses.

The reason people break DRM is that is makes unreasonable, unilateral incursions on your property rights: your right to lawfully enjoy the products you purchase, in lawful ways. The reason I celebrate breaks to DRM is that they show:

1. That the technical hypothesis that DRM will prevent piracy is ridiculous

2. That the public has the capacity to reassert its rights under law and practice and restore the reasonable social contract between creators and audiences.

You tell 'em Cory!

If you are thinking, "I'll bet you wouldn't say that if it was your art, art you had created, others were using without permission."

Read Hackers End Game - Complicit Simplicity. That's my book, a hacker's novel, all free, all online. Use it, copy it, send it to your friends. There are at least three prequels, and a dozen or two stories of minor characters you can use, or make movies, paintings, or games from Complicit Simplicity. Make it yours.

I would like a shout out if you like it, but it's your choice. I've even put the back story, Complicity Universe online. Dig in, play, create, craft. explore.

I can see a value in patents for inventors, give them a year or so to profit from their invention before others make a profit improving it. If other's can't improve it, they have a Kleenex - a first mover advantage that will run for years.

But copyright?

Over 50 years ago Walt Disney drew a mouse. Walt's dead. The bloated and arrogant company that now manages the mouse is still making hundreds of millions from his creation. And effectively suing nurseries that have the audacity to paint cartoon characters on their walls. There's an idea. Proclaim you are the company the owns cave wall drawings and you want credit for every drawing since.

That's copyright. Oh you might have to add an extra line to the original Buffalo's tail every 50 years. But all drawings now belong to you - Pay up Picasso.

Now I'm starting to rant. Back on point - DRM as a concept shows its flaws in the mirror of reality. DRM as a business proposition should get all senior management fired.

For obsessively nursing the equivalent of:

"I'll show that English teacher, I'll missspeel a werd."

Don't Trust People That Wear Ties

2010-03-04T07:04:00.000-08:00

The general rule is to not trust people who feel a need to wear ties, or white lab coats, or designer dresses to impress or fit in. This advice works on many levels.

If you trust someone because they are dressed up, or drive a BMW, it is easy to be fooled by con men. Putting on a tie and a suit is an easy way to fool fools. Some folks wearing ties may have integrity, but why take the chance. Talking heads selling financial advice wear ties - 'nuff said.

Ties are uncomfortable. If your performance and value are high enough you will be sought out even if all you wear is a toga or a kilt. A tie identifies you the same way a uniform with a name tag identifies you -- as part of the homogeneous heap of humble humanity. Wear a tie to show herd think rather than real thought, it's a symbol of the success of your coercive schooling.

Ties are required by bosses. If someone bends to the will of another so easily, they will bend in other ways too. That tie shows they are not after your best interests, but their own; by pleasing a third person -- not you.

Ties help people fit in with other tie wearers. If fitting in is so valuable to them, their advice and help will not vary from the crowd they hang with. Save time and frustration, read a magazine article and find what the crowd thinks. There is no need to seek advice from those with executive hair and business like pant suits - they all share common words and outlooks.

Every year tie wearing economists guess where the economy will be at the end of the year. Almost every year the economists guess wrong, and they are closer to each other's guess than to the real outcome. Don't consult one, read an economic summation, then ignore it. Observe life's ebb and flow, and think.

A red power tie does not show power, it shows weakness trying to camouflage itself. People that spent high school trying to impress the in-crowd now wear ties. The guys that wore pocket protectors in high school still wear them, and own their own companies. If a $5,000.00 suit and a $200.00 tie make you feel like you can conquer the world - you have deep insecurity issues.

Door to door salesmen know a No Solicitors sign means the occupants have no sales resistance. A person wearing a tie to show their power, has none. Politicians wear ties, to hide their corruption. That tie shows they are not after your best interests, but their own; by pleasing party bosses and special interests -- not you.

Leave the herd. Just like Native Americans used to stampeded entire buffalo herds over cliffs to gather a few pelts and some meat, so tie wearing politicians are stampeding their nations. It's better to be an elk wandering free in the mountains. You were trained to be part of the herd, but you don't have to follow the cow with the bell or the suit wearing a tie.

Lack of a tie is no guarantee of integrity, but the presence of a tie or equivalent displays mixed alliances.

You can be human. You can be an individual.

"Civilization's development has always been initiated by individuals balancing demands within their intimate groups against personal needs for independence and identity. Social engineers and planners always err at this point. What they endeavor is to convert humankind from small, intimate, flexible tribes to a collective with one mind (their mind of course).

They want to make all the complex human herds and packs of individuals into a single hive of drones. They have always failed, they will always fail; for outstanding individuals will continue to emerge - imagining and accomplishing exceptional goals - changing everything." - Allan R. Wallace

I guess it might be okay to wear a tie to a funeral as a token of respect. But if you respect yourself, don't wear a tie while you yet live.

Those Who Can't Do, Teach - internet business startup ideas

2010-03-03T12:55:00.000-08:00

That is the reason I've re-started this blog, and soon the main Speculation Rules website. I've enjoyed teaching many subjects, many of them business, investment and speculation related.

I remember when I was selling real estate. A Realtor came up to me after I had put my fifth or sixth sale on the board, still early in the month. He asked "Are you the one that taught the Closing The Buyer course." I admitted to the charge. His reply changed how I started my courses in the future: "If I had known you were good, I would have listened."

I'm Good.

Now that we have that out of the way, there is an area where my results have been spotty. As a consultant to small businesses I've investigated the best ways for my clients to use the internet. Most methods, most programs, and most gurus are worthless. You know that.

I've found a few that serve a specific purpose quite well, and I've shared that knowledge with others - earning a bit of a commission as an Affiliate Marketer, and helping those looking to start or grow a business on the internet. Of course my clients knew I was getting a referral fee, and knew they could earn referral fees as business affiliates in the future.

Some of my web sites bring in occasional money - but I haven't pushed it. My Squidoo lenses make money, but by my choice it all automatically goes to micro-finance solutions for world poverty provided by the Grameen Foundation. The Grameen Foundation is creating a rising tide of positive influence upon our world.

That makes me feel good, although I wouldn't share it unless I thought you might like to earn some of the sweet taste of giving yourself.

What I haven't done is try to create a steady income I can point to as proof of the validity of an Internet business. I've been happy with what I've been doing as a business consultant. I've seen people create internet businesses, I've helped them succeed, I logically know I can do it too, but I haven't done it until now.

What changed?

The economy changed, permanently. The coercive education system that trained cogs for factories and political parties has prepared people for exactly the wrong future.

A new future started yesterday. Good jobs are disappearing, good businesses are closing. Middle class cogs are being replaced. A third or more of the country is lying in rusting piles of human cogs, cogs buried under the sand, and cogs being used as paper weights (if the government still used the same statistical measures it used during the last depression).

It's nobody's fault the world is changing, but the response governments are making will hurt even more people. Extending unemployment benefits beyond two years for people waiting for jobs that will never return - insane. They should have retained the original 28 weeks of unemployment coverage, offering job seekers training to join the new middle class: technology empowered individuals.

I imagine when guilds started collapsing guild member's unemployment benefits were extended, at least until the effects of factories destroying their middle class jobs blew over. Oops. Now we are making the same mistake with middle class factory and office workers. Oops again. Neither guild smiths, nor high paid union jobs, nor middle management serfs will rise again.

Back to the start. I've restarted Speculation Rules to show that good money, more than enough money to pop above middle class, can be made on the internet. I will prove it.

I've found people start a business for different reasons.

I'll provide links here to what I have found to be the best opportunities on the internet for people wanting to create cash flow from their own business - for each of their reasons. there are only a few online resources I can recommend, so some of these links may repeat:

I'm Broke (broke is better than poor, it's temporary)

I don't want a boss (Let me be independent, with some time to enjoy the money I make)

I want to work from home (I will find time to work, and want time for family and friends)

I want to earn money while I travel (ONE) & (TWO) (I may relocate permanently)

I'm a professional or local business (somebody build me a site that gets more clients)

I'm willing to work smart - for long hours - for a chance to get rich (but no scams allowed)

These reasons of yours, and others I haven't mentioned, are not mutually exclusive. Pick more than one if you wish.

But get started right now! Make mistakes so you know what you need to learn. Then fail, each time you fail get up with more knowledge and attack again. You can soon be part of the new middle class, and perhaps become wealthy.

I'll be proving it right alongside you. If you want to contact me, use the contact link in my bio on this business ideas lens.

The Pregnant Pole-vaulter and the Assassin

2010-03-02T17:07:00.000-08:00

My note before you consider this.

The USA has 12.5 trillion in debt. This year we will add at least another 2 trillion in debt. GDP is falling quickly, and may soon be under 14 trillion. That's over 100% debt/GDP. As I read in a comic the other day, don't tell the president and congress what number is bigger than a trillion.

I heard a congressperson assure us there is no debt problem, "There are three types of congresspeople, those that don't understand math and those that do. I'm one of them." He/she may be the same presidential hopeful that thought we could revive the economy by raising the minimum wage to $2,000 per hour, "Then everyone will have lots of money."

Let's go watch an interview that makes all of this clear.

Somebody is preparing to kill America.

Back At Speculation Rules - Educational Importance

2010-02-28T19:08:00.000-08:00

I've been away for a year or two.

After my warnings and futurist ramblings began to pay fruit, it was time to depart. The worst of the beginning of the depression is past.

Unfortunately the tools used to paper over the problems will make the start of the middle of this depression much worse. We should be entering that this year, perhaps soon. The next few decades will not be pleasant for the majority of those that were brainwashed in compulsory schools.

Pick up Seth Godin's book Linchpin, it will tell you of how and why you were trapped, and give Seth's vision of a way out. I have many pages on the 'net where you can get similar information, but he is a better writer than myself.

Here we will talk about investments and the future, that combination is what defines speculation. The definition of investment is someone speculating for you, you take the risks, they make a sure profit. Those gambling on the effects of government interventions may be called speculators, but they are gamblers - unless it's a bankster with government guarantees and taxpayer bailouts when their gambling addictions go wrong. That's not investment, speculation, or gambling -- that's government corruption.

Here you will sharpen your very human aptitude to analyze the future. We live in interesting times, we may as well enjoy and profit from them.

Let's make it official

2008-07-17T09:42:00.000-07:00

As you've seen in recent posts I keep writing more and more on Squidoo, and less and less here.

Squidoo has more tools than a blog, and each entry grows in readership over time, instead of disappearing into the archives. I've tried various archiving methods on other blogs, but with few exceptions, older posts just sit there unread. If you want to try Squidoo too, there will be a link on my "lens."

It does take more time to build a quality Squidoo lens about finance, but over time readership increases. It is fairly easy to find and improve what I've written, something that rarely happens to these journal posts.

A recent lens to support my daughter in her new frugal family business is a good example, I amplified the bits about living in simplicity days after it was written. The page is generating a steady growth of interest.

Here is the new style I'm going to test for a while. I have a Squidoo lens that lists what I've written there. At the top of the page I will list my most recent pages, the others will be grouped by category. If you want to treat it like a blog, just look at the most recent entries.

If you find something interesting, say about finance or investing, scroll down to the "pursuit of property module" and find more on the managing your money. I will be playing with the format - over the next few months it may change occasionally.

Go take a look, the page is (currently) titled:

"An eccentric old fellow who trains visionaries." - a lensography

From Speculation Rules to building wealth

2008-05-21T01:22:00.000-07:00

Squidoo has been putting together some interesting tools. I've been doing most of my writing over there, the pages don't seem to suffer from aging as much as web posts, and they are easy to keep up-to-date.

Squidoo now has a voting widget that might just allow me to show off what I have there. If this works you will be able to look at my Squidoo pages and vote on which page you like most.

Click through to see the plexo

The pages with material most like what you have found here will be scattered throughout the list (PT- Perpetual Tourist, how to build and protect wealth, etc). Read the titles and the brief summary and pick what you would like to review. Read it and then vote.

Your vote on any connected page should show in all locations that have "grabbed" my list.

I will soon be adding more pages to the list, called a plexo, and they should also be added to the list available here. If you haven't given squidoo a try, it's both easy and fun - especially once you get used to their module page construction tools. They keep trying creative ideas - that keeps it interesting. It also has a web 2.0 community type of feel if you go for that.

Here is an invite to try Squidoo.

Squidoo is better than free - they have an ad share program that kicks back a small amount of money on each page. If you make $15.00 there we both get another $5.00 (mine goes to Bastiat Free University).

Squidoo also shares Google love well - links from there will help your other web sites. Link your "squidoo lenses," together and multiply the effects.

Click through to see the plexo

There are quite a few nicely presented finance and business lenses - go take a look.

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Three Steps Forward, Two Steps Back

2008-01-24T12:08:00.000-08:00

This is not quite the revival of the Speculation Rules anti-investment blog mentioned in the prior post. It is however a wonderful summation of current market activity by Robert Prechter, the analyst that called three of the last two market crashes.

That means Robert Prechter is not perfect in his calls, no one is, nor does he claim perfection. In fact for someone with a long and great record he is surprisingly humble. History shows that when Bob Prechter does issue a warning, it is worth listening, and worth being extra cautious.

Watch this short introductory video of an interview of Robert Prechter of Elliott Wave International from October 19th of last year; it's presented on YouTube.

Since his club EWI is free, it makes it a no-brainer to explore all he has to offer. The free Elliott wave tutorials, videos, e-books, etc. can do much to add balance to your speculative tool kit.

Here is the Elliott Wave International blurb, and some good advice:

Everyone wants to know, "Is the worst over for stocks?" If you're familiar with Bob Prechter and his work, you won't be surprised that his short answer is "NO." But ... it's his long answer that is much more compelling, including insights into what you should be doing NOW to prepare for what's still to come.
You just watched Bob’s short answer. For his long answer, you must join his free community, Club EWI. CLICK HERE TO JOIN NOW

Take a look, join the club (no credit card required), and do some preparation. Don't try to avoid risk, you can't. Instead embrace risk and learn to control it.

You have been warned about the dangers ahead.

Again.

Now it is time to consider possible profits.

What is Robert Prechters' latest free Elliot Wave offering?

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A Speculation Rules blog comeback?

2007-10-25T05:28:00.000-07:00

In 2008 this finance journal may come back to life.

It will never be the most popular of blogs - it is a bit too cautious during good times, a bit too hopeful during bad times. We may be entering some bad times - and no one wants to read about finance when their net worth is dropping, so why re-start now?

As Doug Casey says "recessions are when money returns to its rightful owners."

Those that ate from the easily digested advise of mass market salespeople will be wiped out, again. Those that realize there is a time and a purpose to everything under heaven will continue accumulating the resources necessary to live the life they desire.

Perhaps you are one of those people. You felt uncomfortable with the crowd chasing easy money and conspicuous consumption. Those crowds will soon be dissipated. A quality life awaits those that are guided more by their inner compass than herd behavior. It will be your time to prosper.

Just remember that because the compass points North that may not be the best direction to travel. You probably won't need me, but it might be nice to speak once the screaming hucksters have left the stage.

Another option is to sell this blog, the Speculation Rules website, and several related business and speculation / investment blogs and internet properties to someone wanting to enhance their financial guru status. Any offers?

Any third options?

enjoy life,

Allan

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The Future In One Lesson

2007-01-28T13:56:00.000-08:00

The Speculation Rules main site will remain open and will grow, the archives here will still be available - but - I am now retired.

If you want investment and speculation information, money making and business ideas, or some speculation vs. investment philosophy head over to SpeculationRules.com.

With so many projects before me I have had to cut back. Most of my blogs and journals will no longer be updated. I will concentrate on research and of course keep Bastiat Free University growing. There will be finance ideas woven into the texture of The BFU Journal blog, you might just enjoy it as you have these posts.

An interesting read if you have a moment would be the news item on the login / no charge registration page for BFU titled The Future In One Lesson.

Also take a look at Seth's reminder to consider new opportunities in light of the future - not the past. This applies if you are just looking at future jobs, or building your future company to ensure your personal freedoms. Aaatack!

May you find the best in your life.

Sincerely,

Allan

A tale Of Two Markets

2006-12-09T19:14:00.000-08:00

We are either at the start of another bull market, or at the end of the world as we know it.

We do know that eventually this market and the world economy will experience a long bad stretch of very unpleasant times. We also know that inevitable does not necessarily mean immediate, or even soon.

I can remember when total US debt passed one trillion dollars and thinking "this can't last." We now can add a trillion more a year, and we have stayed afloat.

I have a very bad feeling about this.

Living by the ocean and watching waves I see one sucked off shore and both resisting and contributing to the next wave. When a tsunami or megatsunami comes however those unfortunate enough to watch see the whole ocean draw back as it is sucked into the incoming trough of a single massive wave.

What I feel tugging at the ocean of finance right now are two tsunamis. One is the end of the experiment of the Federal Reserve system that started in 1913. The other is the end of even larger consequence - the end of the industrial age.

The Federal Reserve has almost destroyed the value of the dollar under the guise of protecting it. I have heard there is now legislation to pass the treasury department's control over the mints to the non-governmental Federal Reserve. Why let a private bank like the Federal Reserve take even more control? Some would say it is panic.

Why did California pretend to privatize electrical service? They had screwed it up so bad they needed to blame privatization for the problems politicians had created. Is the Federal Reserve the next So. Cal. Edison, and are hedge funds and derivatives the next Enron?

An even greater problem is the transition from big to small brought on by the ending of the industrial age. Big bureaucracies are doomed by their own clients that are being empowered by technology to seek individualized, disintermediated solutions.

The big markets deal in just the sort of organizations that will deflate and implode as the netcohort slices and dices their operations.

The question now is, are we seeing the waters drawing out in response to these two perhaps distant earthquakes? There will be peace after the dual financial tsunamis subside, but little will be left standing.

Now we know from experience that the stock market anticipates normal recessions by six months or so, and we are likely to feel that pullback start soon.

How will the stock market anticipate the final destruction of the dollar and the dismemberment of all those huge institutions? And by what amount of time will it anticipate such huge disasters?

It might be time to look for a route to higher ground.

And now a switch of metaphors, because it is easier to reuse one of my quotes than rephrase it into tsunami speak.

"IT has not happened, does not mean IT will not happen. When the fire department tells you your untrimmed weeds are a fire hazard, they are not wrong because your house has not yet burned down." - A.R. Wallace

be careful out there

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Elliott Wave Futures - Wide Open Free Week of futures trading analysis

2006-12-01T16:38:00.000-08:00

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In the meantime take a free tutorial to help you understand all the Elliott Wave information you will receive:

1) Elliott Wave International's tutorial is a comprehensive introduction to the Elliott Wave Principle. All ten lessons have been adapted from Robert Prechter Jr. and A. J. Frost’s Wall Street bestseller, Elliott Wave Principle - Key to Market Behavior.

To start your Elliott wave education now, click here.

For me the greatest value of Elliott Wave is in entering a trade. If you have a high level of confidence that once a market breaks a certain price level the move will continue, you have a good entry point. If the market then retraces back past that entry point, you now have a good exit point.

This helps with the most basic of speculation rules -- keep your losses small, let your profits run.

When we say wide open free week, we mean no Free EWI Club sign up is required. All visitors to Elliott Wave International from Speculation Rules will have direct access for one free week of valuable Elliott wave analysis. We recommend you sign up for the free EWI club anyway, there are a lot of insightful articles and the powerful documentary Histories Hidden Engine that will be made available for free.

Use this free Elliott Wave week of Futures Junctures to see if Elliott Wave trading can help you.

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From Warren Buffett to Benjamin Graham on Speculation.

2006-11-28T12:46:00.000-08:00

John Hussman of the Hussman Fund has done an excellent job of building on Warren Buffett's talk at the Columbia Business School.

Hussman's relates a couple of passages from Buffett's mentor, Benjamin Graham. Graham and Dodd are the foundation of understanding every investor needs to build on.

Of particular interest here are two passage's Hussman pulls out of Ben Graham's work.

"I should greatly welcome an effort by security analysts to deal intelligently with speculative operations. To my mind the prerequisite here is for the quantitative approach, which is based on the calculation of the probabilities in each case, and a conclusion that the odds are strongly in favor of the operation's success. It is not necessary that this calculation be completely dependable in each instance, and certainly not mathematically precise, but only that it be made with a fair degree of knowledge and skill. The law of averages will take care of minor errors and of the many individual disappointments which are inherent in speculation by its very definition."

Elsewhere, he warned, "but there are many ways in which speculation may be unintelligent. Of these the foremost are: (1) speculating when you think you are investing; (2) speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and (3) risking more money in speculation than you can afford to lose."

Graham defined investment differently than I do, in essence he thought of investment as an almost sure thing. His idea of buying a business for under its value based on historical performance is diametrically opposed to the modern use where you pay someone to speculate for you based on a guess of future value.

Salesmen love the newer version. If they can convince you to trust them to gamble with your money, they will call you wise and conservative. I define investment as a subset of speculation, if you reread the Graham quotes above you can understand what I mean.

The key to success in speculation is many small losses more than offset by a few huge gains. To achieve this you will have to follow two speculation rules:

Keep losses small

Let profits grow

In any case you will be well served by reading John Hussman's article. He starts with Buffett, goes to Graham, and then gives a nice shot of Hussman to finish it off.

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Squidoo for Building Wealth

2006-11-21T13:18:00.001-08:00

Just a quick note from vacation about a new Squidoo lens about building wealth; creating wealth - growing wealth - and protecting wealth.

This was a fun few hours putting down some recommendations on books and some links to help folks manage their financial risks and get wealth. If you have read this blog for a while you will recognize my voice in the short passages.

Drop by and take a look. Please give me a comment or suggestion - a little help is always appreciated.

You might want to make a lens yourself - it's free, and you might even make some money for yourself or charity. I'll be using any money made to help re-engineer education over at Bastiat Free University. The education industry needs to be re-built from the bottom up - each college donation to BFU will help.

The full name on the one page about wealth building; a Squidoo lens used to focus attention on one idea, is:

Building Wealth - create and preserve your own wealth.

I had created other Squidoo lenses including one for Bastiat Free University and a niche market test about Swiss watches, Swiss gifts, and other Swiss goodies.

I've now created several other focused pages such as one on bureaucrat tipping adventures and another on becoming a permanent tourist. It has been fun.

Back to vacation

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It's Time For A Blogging Vacation

2006-11-17T08:56:00.000-08:00

I 'm off on a Hobbit adventure - don't hold dinner.

In the meantime take a look at the archives or our main site. The dominate investment and speculation philosophy is not about yesterday's trades - but about surviving and thriving in difficult markets. It would be nice to have you around at the end of next year also.

The markets appear ready to become far more difficult. Be careful out there.

I should be back writing by early December, If you use RSS for this site you will be one of the first to know.

May you discover the best in your life,

Allan

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Doug Casey - Are His Advice And Picks Worth Considering?

2006-11-16T07:43:00.000-08:00

The short answer about Doug Casey's picks and advice is -- subscribe to the International Speculator.

I am not a paid shill for Doug Casey, I am a long term satisfied customer.

Doug has done me a favor in the past. He helped create a master's course for Bastiat Free University. The course is not based on his top selling books, it is based on the books that helped influence him as he was becoming a success. He has freely helped BFU students to look behind his intellectual development and offered tools to assist in their development.

But that is not why I am writing this.

I saw an article disparaging Doug Casey because of the extraordinary gains he proclaims in his advertising. While there is a good marketing and sales reason to make those claims, with Doug there is one added comment - he has actually accomplished those gains. Unlike the con-artists and scam boys however - he does not claim to have made those gains overnight.

There is a reason those kind of numbers are thrown around by every marketing guru, inflated claims work. The difference with Doug Casey's numbers is that Doug takes a very informed, long term, fundamental view - and he is frequently too early.

An example was in the Doug Casey uranium picks. It was five or more years ago Doug started talking about uranium. He gave specific picks, I bought a couple based on his reasoning and my subsequent research. Uranium was hated, Europe and the greens were talking about shutting down all nuclear generators, and the price had gone down to no-where.

I held for probably six months to a year, that is very long term for me. I got out with a sizable profit on a short run. After their run the stocks settled back down again. I should have held. Doug was still recommending and accumulating uranium companies.

A couple of years latter the stocks started their major run. I watched from the sidelines. eventually the stocks bypassed my exit point - but I had my money elsewhere and was happy I had made a quick profit. Then the stocks doubled, and over time - doubled again, and again.

Those claims of 1000% profits are not made up. They were also not made on a lucky stab at a hot market. They were made by research, walking moose pasture talking to geologists and company management, and by sitting.

Doug will get you out of his stock and land picks at the mania stage - when everyone is claiming huge profits and stocks are jumping. That is; he will tell you when he exits, and you can follow if you have not joined the crazy mob.

Doug Casey will then be putting his money into the next boring thing that hasn't moved in a very long time, something people hate. This is not exciting investing you can talk about at a cocktail party, but profitable? Oh my yes!

The report that bad mouthed Doug did so on the basis those huge gains came in the energy sector, that is a hot sector - and a lucky guess can create big gains. If the writer would have investigated he would have seen the start of those energy picks was well before the markets took off. You can say the same about gold stocks, property in Aspen (he was there too early, left too soon), and the other markets Doug discovers or uncovers.

Being too early and leaving too soon are speculation rules that can help you gain and keep wealth.

I don't make a cent by recommending Doug Casey. But I would suggest you pick up one of his news letters. If you are able to sit on an opportunity of great value and wait for it to mature, pay close attention to his next recommendations of an out-of-favor sector.

Doug does not call his picks "reccomendations," he just states that they are records of what he is thinking and doing at that moment. He both thinks and works very hard at his speculating.

You will learn a great deal more from Doug Casey than just speculating - but I will let you discover that bonus for yourself.

Try The International Speculator today, at any price it is a bargin.

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Very busy at BFU - a bit off topic

2006-11-14T13:13:00.000-08:00

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I of course take the time to manage my speculations, but I have slacked off a bit from blogging as I work on some other projects. As an on topic aside, your own business can be an excellent speculation in its own right.

"What projects" you ask.

Well since you insist I've been working around the Bastiat Free University concept and adding some new touches.

We have started on two rather exciting new projects. The first is packaging classes into an Achievement Certificate Program, but others have done that before. Our first offer package is an Entrepreneurial Achievement Certificate. We also have another project that we don't think has seen the light of day in centuries - a subscription college.

The idea in the subscription college is to pay one low monthly fee, and take as many college courses as you think you can handle. There are no administration fees, unit fees, or other costs - just one low automatic monthly charge.

As part of the marketing for Bastiat Free University I have created a couple of Squidoo lenses, that has actually been a fun exercise. While they will need a bit of polishing they are up and running. Once polished a bit, they should be easy to maintain. The second is a concept test - a niche market lens on Swiss Gifts.

I will try to remember to come back here and post about alternatives that are available in finance, but those type of posts may be infrequent for a while. In the meantime I've given you lots of links to click above, and there are the archives to the right.

I'm enjoying life, it is my sincere wish that you will also find the best available in your life.

Allan

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Algorithmic trading

2006-11-08T06:44:00.000-08:00

By definition an algorithm is simply a rule set, instruction set, or an established procedure for solving a problem in a limited number of steps.

Algorithmic trading is a marketing buzz phrase for an idea that has been with us for decades. If you want to try algorithmic trading check here; if you want to learn more, read on.

Why call it algorithmic trading? Because it sounds sophisticated. Non-math or non-computer types are unlikely to understand the phrase - so brokers and salesmen sound competent when they say it.

The odds are you say algorithmic trading occasionally so you sound knowledgeable too. I am using it in much the same way right now. The key is that algorithmic trading is not new, it has had its components jiggled a bit, but it is still just speculating rules directly managed by a computer.

In the past we used marketing phrases that denoted the same idea - program trading, computerized trading, portfolio insurance, scientific investing, and others. Once they were too well known, or discredited, they dropped from the investment lexicon.

So, exactly what is algorithmic trading and why are investors excited by it?

It is the, as yet unfulfilled, promise to make everyone's dream of automatic money making come true. In prior decades it was touted under those other names; names like portfolio insurance, computerized trading tools that were supposed to automatically gain profits and protect wealth.

Portfolio insurance blew up and took the market with it - they had the wrong algorithm. Today algorithmic trading is bigger than portfolio insurance, and we don't yet know why it will fail. It has a larger share of the market than prior computerized trading tools, but in essence it is still the same idea.

As an aside, what the exchanges and the press will say was the cause for market failure is unlikely to be the real reason.

Ah, I hear the common man say - "but we are more sophisticated now." That's true, but we also thought we were sophisticated scientific traders when we believed portfolio insurance would work. It did for a while, then once it reached a certain size and event it imploded.

The most accurate pricing mechanism is still open-outcry, the sort of trading that transpires on the floor of commodity exchanges.

We are still as ignorant as prior generations - wait ten years and read what we will write regarding what we think works now. We will then claim our new phrase is real sophistication.

In brief: life is not linear. computerized trading assumes that life can be captured in a mathematical formula and emulated. Somehow they can never allow for lemmings.

The following is adapted from a story at Bastiat Free University, who adapted it from somewhere else. I'm sure we could find the original source if we just had the right algorithm.

An investment quantitative analyst came to a horse handicapper and said he had found a mathematically sound way to predict the winner in horse races. The gambler became excited; no more reading stats, comparing jockeys, watching weather, etc. In other words, winning could be done with a sophisticated formula and would no longer be hard work and risk. The bookie took the algorithmic trading quant off to one side and asked for a hint to the process. The Nobel prize winning genius said:

" well, first we assume all the horses are ellipses."

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Are you worried about your investments?

2006-11-07T08:57:00.000-08:00

If you are not worried -- your money is already in danger.

Worry is a sign of respect for risks that threaten your future. Don't try to hide from what are unavoidable risks, instead embrace and manage risk. If you are not worried, you probably are not risking enough.

There are many comforting investment rules and guidelines, most of them are reasonable sounding, many of them are traps. Investment allocation models, economic models, and general advice have little personal value. You are unique, your holdings are unique, your needs are unique.

As an example a government bond is sold as a secure, blue chip, safe investment by most advisers. They may even quote investment "rules" that suggest the bonds allocation for your portfolio should be the same as your age. Age thirty = 30% bonds -- age seventy = 70% bonds.

Government created money growth is usually far greater than their bond's yield. Government induced money growth is a hidden tax, decreasing the purchasing power of your cash and raising the prices of goods.

Excess money growth causes inflation to be greater than your bond's return. That solid, safe, respectable government issued bond loses value every year. This is not often mentioned by investment advisers.

Bonds and government notes may be an excellent speculation during periods of decreasing interest rates or in special circumstances. However as a long term secure investment all they offer is: The investment safety of a guaranteed loss.

Most investments are like that, they seem safe, but undisclosed and hidden risks are stealing your money. other costs include fees and commissions your investment manager charges for leading you to these dangerously conservative investments.

Develop an understanding of the speculation rules that determine the outcome of your investments.

Most investors lose in the long run.

Most investors follow advisers.

To succeed in investment, learn to think like a speculator. Follow a system of reasoning trying to discover opportunity from within inconclusive evidence -- act upon that reasoning - and then react quickly to fresh information.

Follow the speculation rules of successful speculators.

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Investment Surfing, Don't Eat Sand

2006-11-04T11:41:00.000-08:00

That great surfer dude Bill Shakespeare said it right when he talked of how you have to be set for a wave before it comes - then paddle like all get out to catch it, riding the sweet middle section, getting out before it hits the beach.

It does not matter if it was the blow off in stocks in 2000 or the blow off in housing in 2006, the vast majority of those involved in markets wipe out.

The cause is riding emotion, the excuse to start investing will almost always be research. The research will usually boil down to:

historic trends

tips from acquaintances and friends - equally as ignorant of reality as the majority

believing those providers of research with a vested interest in motivating the investor to act.

A wave is always most exciting where it crashes on the beach or in the rocks.

Speculation will be blamed when the emotional mass throws their money at the waves most dramatic moments - just prior to the roaring finale. That is not speculation, that is gambling in a casino where the financial news media makes noises like chips hitting the tray of a slot machine.

Soothing voices will call the emotional frenzy "investment" and urge all to come aboard. After the waves crash responsible voices will proclaim everyone was duped by manipulative speculators. In reality the frenzied mass did not need to be manipulated - they have willingly manipulated themselves.

Some will proclaim "truths" such as for any five year period in the years 1975 to 2000 the market always rose. These are in reality no different than stating a ball at roulette dropped into red three times in a row; there are many that will now be assured that it can't happen again or is a trend and must happen again. In reality the odds remain the same as before the trend, or after it ends.

The third wave set is always biggest - trust me dude.

You will hear that the crowd is always wrong, that is not exactly true. The crowd, your friends and acquaintances, can be right for quite a while in the middle of a wave - they just wont be able to cut out and exit when the wave ends. The crowd is only always wrong at extremes.

Those most prone to manipulation would be professional advisers. They make money off the crowd - and an excited feeding frenzy gets them excited also. There is a proverb that it is always easiest to sell to salesman, they will convince themselves a product is good before they sell it.

The honest ones sincerely believe what they tell you - but they can be sincerely wrong. A broker understands selling his product - if he understood the markets he could make more speculating himself. As Mark Twain said "A gold mine is a hole in the ground with a liar standing next to it." The salesmen can sell even better if they ignore reality and choose to believe the lies.

Speculators don't need to manipulate markets - the crowd will manipulate themselves, the speculators just need to position themselves for profit. Enter a market when it is boring, get out prior to the peak of excitement. The sunsets are beautiful when the chop and surf quiets down and it is time to wait for sunrise to re-enter the markets

As Surfer Bill said:

"There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures."

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Start An Investment Blog

2006-10-27T14:47:00.000-07:00

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You probably have a unique viewpoint on personal or professional finance - why not start an investment blog?

Beside the information I drop into Speculation Rules; I also rant about things economic at A Sovereign Speculator, I display relevant money making information at my Small Business Ideas blog, and I throw out interesting financial tid-bits at the Bastiat Free University blog.

If I can find the time to do this, and a readership can find time to enjoy it - I'm sure you could profit from time spent blogging.

Profit from blogging? You probably won't find another substantial income in blogging, at least I haven't yet. It however does help indirectly with creating traffic that I can redirect to my other ventures.

The real benefit of blogging is that it helps you crystallize your thoughts and learn those truths you follow more deeply. There is really no better way to learn than teach. Starting you own investment blog will help you learn.

How to go about it?

For a nice list of 25 suggestions from the Blue Print For Financial Prosperity site on starting your own investment blog:

25 Steps To A Wildly Successful Personal Finance Blog

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Six Reasons To Invest Offshore

2006-10-27T12:21:00.000-07:00

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The following offshore investing information is taken from the excellent Sovereign Society Newsletter. The "A" newsletter is free and is always full of great information.

I know I've written on these matters before, but this is probably more balanced.

Some in the US and UK will usually call going offshore unpatriotic. They seldom realize that the UK and US are the biggest offshore tax havens - for the rest of the world. There are a lot of reasons to send money offshore other than legally delaying tax payments, asset protection from frivolous law suits being one.

Here are six reasons the Sovereign Society found compelling.

Six Reasons Why Offshore Funds are an Excellent Long-Term Investment

Greater choice. The United States is the world's biggest securities market, but the overwhelming majority of mutual funds traded worldwide aren't available on U.S. exchanges. Indeed, of the more than 54,000 funds trading worldwide, only about 8,000 are registered in the United States.

Offshore funds offer a greater margin of safety than most U.S.-based mutual funds during bear markets. Although bear market or reverse-index mutual funds have been available to retail investors in the United States since the beginning of this decade, offshore funds provide a greater spectrum of alternative mutual funds offered to retail investors that can utilize popular hedge fund trading tactics, including short-selling and long/short global equity strategies. In the United States, individuals must be high net-worth accredited investors to buy alternative mutual funds employing defensive market hedging techniques. In the offshore context, that's not the case. Many of the world's leading hedge fund organizations require only $25,000 - and sometimes much less - to get started.

Offshore funds can offer foreign currency diversification. Most offshore mutual funds are denominated in euro while some products are also sold in Swiss francs and British sterling, in addition to the U.S. dollar. In the United States, the mutual fund industry only offers products denominated in dollars.

Offshore funds offer privacy. As with any non-U.S. investment, offshore funds make it impossible for the small army of professional asset trackers, information brokers and corporate espionage specialists that advertise their ability to uncover assets in U.S. bank and securities accounts to track your wealth. That's because when you buy an offshore fund through the auspices of a foreign private bank, that institution acts as your nominee on the transaction, protecting your privacy in the process.

Offshore funds are suitable for certain structures. There are no restrictions on placing offshore funds in retirement plans, offshore annuities, or offshore life insurance policies.

Offshore funds are a hedge against a sudden U.S. market disturbance. For five full days following the terrorist attack of September 11, 2001, the U.S. markets were closed. When the markets finally re-opened, the Dow had dropped 7%. Terrorism isn't the only risk - there are many other reasons why U.S. markets could shut down, such as a potential computer virus or a New York City wide blackout. Access to global trading markets and foreign currencies in an account beyond your home borders will give you added protection should disaster strike.

Making Money Is Not A Zero Sum Game

2006-10-25T16:32:00.000-07:00

Most people think of creating wealth as a zero sum game.

That would be like playing Monopoly with only $500.00 dollars available for all players. If someone gains -someone else must have lost.

If you think about it, there is a great deal more wealth in the world today than there was a thousand years ago. Even calculated by toilets per capita - there are more than just two hundred years ago - and today they are inside.

I am not talking the funny money created by governments - and the inflation they create as a tax that hurts those on fixed incomes. Governments will keep printing more money until no one accepts it.

Some forms of managing money are a zero sum game. A venture into the commodities markets is entering a zero sum game. You have a contract - if you win they lose, if they win you lose - less a bit of vigorish from both of you for the facilitators.

If you start a business however, you can create products and generate wealth that does not take from others. In fact as Bastiat said:

"By virtue of exchange, one man's prosperity is beneficial to all others."

A growing capitalist tide can raise all boats.

Many in fact talk about the raising gap between the rich and the poor. That is happening - but far more important is the fact that under capitalism the poor are also raised. There are a lot of poor. In a post-capitalist country like the United States the status of the poor steadily increased, until that was stopped by an increase in government instead.

"The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery." - Winston Churchill

When a government takes money out of circulation for their own purpose it is not available for building general wealth. In fact we are now discovering that wealth can shrink as the various levels of government add their weight to the economy.

Shrinking wealth is not zero sum - it is also not pleasant.

If you don't have any money there are a lot of things you will not be able to do.

However if you create a lot of wealth, you can help yourself, your family, people that are important to you, and society at large.

If you don't have money you will have to hope others will help you.

There are many ways to create wealth, use them to help yourself and others.

"The risks and rewards for you from creative entrepreneurship are greater, and of far more value to society, than illusions of security that enslave a human cog in a social machine." - Allan Wallace

enjoy life - live long and prosper

Successful Speculation Rules - The Small Loss

2006-10-24T00:21:00.000-07:00

Achieving success at speculation is a matter of (almost) always obeying your speculation trading rules.

The least understood successful speculation is the small loss.

Every investor hears stories about the huge profits won through a successful speculation and dreams off pulling off such a coup themselves. They never quite give themselves the opportunity for a huge speculative win because they don't have rules that allow them to reach that level.

It comes down to speculation rules like the ones on those wonderful small losses.

Psychologically it is hard to take a loss and walk away - most people won't do it. It is no coincidence that most people also lose when they invest. The standard response to a small loss is to hang on hoping you will get back to even. Unfortunately sometimes that happens - that is just encouraging enough to teach folks that it was right to hold on and hope. Then it is just a matter of time until they hold onto the wrong investment for too long and lose all their money.

While they were waiting for that first investment to come back they may have missed successful speculations that could have made them nice profits.

Plan your trade before you make it - than follow your trading plan.

If you reasoned your risk at 2% before you pulled the trigger - there is no reason to have a 10% stop loss built in. Even worse is not knowing your risk and mentally planing to get out if things "get bad." Worst of all is thinking how much money you will make and having no idea of what to do if the trade goes against you.

Simplistically, think of making ten $100.00 speculations and you lose 3% on nine of them - and get out. You have lost $27.00 of your original $1,000.00. If the tenth one doubles or better - you clear $73.00 on the whole venture. Now do it again next month.

Notice that you spread your risk, you cut your losses short, and you let your profit run. Those are some of the speculation rules - like the ones you can use to plan your trades. (I'm writing an in depth e-book on the speculation rules - it should be available before year's end.)

The key to the successful speculation was all those wonderful small losses. A small loss is a successful speculation - it allows the big win. You should be able to do better than one big return in ten - but you can do well with that.

Small losses are just one part of successful speculation.

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The Big Real Estate OUCH Is Yet To Come

2006-10-21T20:10:00.000-07:00

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I wrote a piece a few weeks ago about how Realtors should prepare for the real estate slowdown and collapse.

The collapse is picking up speed. The destruction of real estate values starts with new homes, and then it effects the used home market. There will be plenty of vacancies and foreclosed properties in a short while to satisfy, and trap, over eager investors looking to snap up deals.

You can afford to wait.

Over at Mish's blog Mike got Mike to give a streets eye view of the home builder's implosion. It is not pretty.

In my article I made two points to Realtors, the first was to not go into denial.

If you own a home, sell homes, build homes, sell mortgages, or are otherwise involved in the real estate industry you need to read Cool Aid & Krispy Kreams.

If you are still in a trailer, your don't need to read the article, but you do need to know that jobs are going to be hard to find.

Now might be a good time to start your own internet business - internet real estate is far less regulated and manipulated, for now. Expect taxes and regulation to increase as government windfall tax thefts from the real estate boom decrease.

Our governments don't know how to cut back - they only know how to bleed more and different citizens. Start up costs on the internet are still amazingly low.

Get your internet business started now and beat the rush.

If you are still in real estate - there are already a lot of people rushing the exit, you may want to go out a (first floor) window.

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Top Investment Blog For Your Money

2006-10-21T06:45:00.000-07:00

Or if you wish this is a top investments blog.

My choice was in the blog's title - this is an anti-investment blog.

"Top investments blog" was one of the search engine entries displayed in Hit Tail as helping someone to discover the Speculation Rules investment and speculation resources.

That does make sense in a way - I view investment as a subset of speculation. My definition of investment: a product or asset that someone sells by stressing it is safer for them to speculate with your money than for you to do it yourself.

An investment is therefore a way to make money on commissions and management fees while letting the investor take the speculative risk.

Does that make Speculation Rules a top investment blog? It does if you are trying to figure out how to make some money with money, and reduce the risks of having your capital disappear.

No one cares more about your money than you do, unless they want to use your money, tax your money, charge fees on your money, or just plain steal your money.

Look through our archives, or go to our main site and find more speculation resources there. I do like the plural, investments, because we deal with all sorts of asset classes and ventures.

You will not find specific investment or speculation advice - I'll leave that to those that are well paid to guess for you. What you will find are resources and tools to create and profit from your own investment analysis, and warnings about how to protect your capitol.

If that is what it takes to be a top investments blog - consider this puff piece your introduction to: Speculation Rules - The Top Investment Blog!

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Money, Investments, Fear and Greed, And More Money

2006-10-16T11:51:00.000-07:00

I have decided not to write an entire book about money, investing, speculating and you - at this time.
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I am instead working on an e-book that will give you the speculation rules to acquire wealth - and that if ignored lead to poverty. I only have about twenty pages done so far, but I hope you will enjoy the following taste. This is the introduction to that speculation rules, anti-investing, e-book:

Introduction

Money is a tool – nothing more.

If you don't have any money there are a lot of things you will not be able to do.

If you make a lot of money, you can help yourself, your family, people that are important to you, and society at large.

If you don't have money you will have to hope others will help you. It is the love of money that is the root of all evil – not the money itself. Both poor and rich can be trapped by love of money.

Money is a neutral tool - like a crowbar. Some people will use it to open things – others will drop it on their toes. Your first step in successful investment is to decide if you want to make enough money to have personal freedom of choice.

If you do not want to be rich because you have been taught that money is evil and the people that have money are evil – you will subconsciously sabotage your own efforts to create wealth.

Money is just a tool.

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You can help me out.

Let me know at arwally at gmail dot org if you have an investing or money question you would like addressed.

What do you most want or need to know about money matters -- right now? I'll send you a final copy of the finished $50.00 e-book in appreciation.

Best,

Allan

Honest Investment Advice

2006-10-15T00:31:00.000-07:00

If you want honest how to invest advice I'll be happy to direct you.

Right back to yourself.

For honest investing advice without conflicts of interest - you are your own best chance. Yes, we can lie to ourselves and even fool ourselves - but we usually work to our own best interests. It might take a bit of courage - but we can listen when we are honest - if we really want to.

Anyone else has an agenda when offering advice. They may honestly believe the advice - but they would probably not give it if it would hurt them.

A financial planner may have taken several courses in financial planning, but that usually means they have learned how to sell insurance, mutual funds, and other financial products. Whether flat fee or commission, they are working to feed themselves first, and they may even hope you do well also.

Brokers, accountants, college finance professors; they earn their living providing directions. They are not going to tell you to read a few books and handle your own money. By the time they are done talking, speculation will sound complicated and dangerous - "better let the professionals handle it" (them).

Start small, give honest investment information to yourself, learn as you go. Take a look at some of the finance book reviews at our main speculation rules site.

You can do this.

No one honestly cares more about your investment money than you - unless they plan to use or steal your money.

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Dire Predictions

2006-10-11T11:36:00.000-07:00

John Greer starts and ends with peak oil, but the route he takes in between reveals a dream picture hung in front of a window to hide poverty.

Take a look at his interesting read. To find where I diverge from his views - take a look at my rant blog, Speculation Rules. You will find the first few paragraphs mirror this post.

Greer does a great job of entertaining with analogy as he points out what he calls Hallucinated Wealth.

He got me thinking along the same lines.

In our "let them eat cake" economy -- statistics and political pronouncements hide and disguise the unraveling real economy. Crashes of one bubble lead to the immediate inflation of the next bubble. Each bubble is of necessity created a bit larger and more unstable than the prior one.

The old saying that a broken clock is right two times a days is frustrating those of clear vision. They pronounce the end of a bubble and position themselves to profit from the pop, and frequently do make huge profits.

The problem is encountered in retaining the profits. Because their clear vision has shown them the bubble rests on a house of cards, they expect the bubble's burst to blow down the weak structure supporting it. They then bet accordingly.

A new bubble's emergence lifts the weakened house of cards structure and the new imbalance comes into play.

Greer's analysis if good and worth watching and considering.

That brings us to a speculation rule:

Success is dangerous. Just because you won big does not mean your next idea is brilliant. Take money off the table, protect most of that huge gain.

Wealth is made through concentration, preserved through diversification.

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The Real Estate Slow Down - What Is A Realtor To Do?

2006-10-07T22:04:00.000-07:00

With the real estate market changing there are two important thoughts for a Realtor to consider.

Don't slip into denial.

Change your techniques as the market changes.

I was a Realtor during the last great inflationary period. Interest rates on a new mortgage were at 15%. Real estate offices were closing, companies were going broke, Realtors were going extinct.

The company I worked for closed dozens of offices - including the one I managed. Rather than continuing managing I went back to selling - and had some of the best months of my career. In one month I put together 12 single family home transactions.

In fact during that time I referred to myself as a Jack of all trades & a master of one - real estate. I've since been humbled. I guess now I could refer to myself as a Jack of all trades, and I've been mastered by many.

There is one particular pleasure I enjoyed in the real estate profession - constant change keeps you fresh. It is fun evolving with the new rules, laws, regulations, court decisions, and market conditions. The pendulum however can swing a long way.

What happened?

As good as many Realtors were, they only evolved with markets, revolutionary change created a die off. Unable to adapt they kept doing more and more of what they had done successfully before - and disappeared.

Let me suggest two thing with hard times possibly ahead for Realtors.

Keep on keeping current in the real estate industry, but dabble in other knowledge and technology also.

Make some big changes if what you were succeeding with is starting to fail, there are some powerful tools to make revolutionary changes in your capabilities, use them.

Real estate markets can go up or down, I've watched as houses went down by double digits for years. I've seen bankers offering terms of no payments for a year on a property well under appraised value trying to unload foreclosed (REO) inventory - and having no takers.

Under these conditions, Realtors can still make good money, you will just not be able to make it the same way you did last year.

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Algorithmic Trading vs. Program Trading vs. Portfolio Insurance

2006-10-01T23:31:00.000-07:00

Shades of 1987. The computers will make everything ok.

In 1987 the computers protected everyone's accounts with portfolio insurance. We were of course highly sophisticated and nothing could go wrong - go wron -go wro

Latter with LTCM we had Nobel prize winning financial wizards setting the programs.

When LTCM blew up all the kings horses and all the kings men created the huge bubbles we have been popping recently trying to convince the world that Humpty Dumpty was ok.

Here is a recent juicy piece from Yahoo News about an IBM report:

A report launched today by IBM suggests that nine out of ten traders employed in the City of London will have lost their jobs by 2015 as all-electronic “algorithmic trading” is adopted by their employers.

Algorithmic trading is carried out by computers largely unsupervised by human beings and reacting automatically within a split-second to price movements. It is one factor that has sent volumes on all world exchanges rising dramatically in recent years.

Nevertheless, London will continue to be a key international financial centre, IBM concludes.

We are of course very sophisticated today, and even though the programmers may not be Nobel prize award winners, we are sure nothing will go wrong -

Playing With A Top

2006-09-28T11:22:00.001-07:00

Not the kids toy that you spin across the floor, the specialist's toy that they spin on the media.

It is at times like this that I miss Richard Ney, the author of a best selling book, The Wall Street Jungle, and many following tomes. Mr Ney had both a sharp wit and an insightful view of what he called "merchandising operations" by the specialists on the floor of the New York Stock Exchange, (NYSE).

As we play around with new highs and round numbers, Mr. Ney would have been watching the volume moves in the few key stocks of the Dow Jones Industrials. His primary argument was that while exchange spokesmen will say "it takes someone selling their stock and someone moving their stock to make a market," in reality it may be someone selling short. M.r Ney pointed out that frequently that someone selling short was a market making specialist.

Mr Ney was not against short selling - he knew its value to markets. He was against the hidden actions of specialists that have enormous power to set the price of any issue. His contention was that they used the emotional greed and fear generated by price moves to move their merchandise in a profitable fashion.

Regarding price and volume, he analyzed it far differently then you will see in the financial press. The NYSE will provide press releases during and after the day highlighting how new highs were accompanied by huge volume. The financial media will repeat this "news" with the implication that volume drove the price higher.

Observation will show what Mr. Ney continually pointed out, prices are moved on low volume - they reach extremes on high volume. He presented evidence that at the lows the specialists and market insiders were buying strongly as the public sells in panics. He then would follow the progression as the prices were moved up on lower volume to an emotional trigger point where high volume was once again used for those insiders to first sell the stock they had purchased, and then sell much more stock short into that topping volume. The prices would then be dropped again on low volume to where the shorts could be profitably covered and long positions re-established.

Richard Ney's books give far more depth and insight than I can apply to his well substantiated theories. That is one of the reason's I miss him today.

I also miss his elegant presentations of reality, his obvious concern for the truth, and many other reasons. You should miss him because he would have written this journal article much better than myself.

Find one of his books in a used book store - and read it.

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The Elliott Wave International Bookstore

2006-09-25T11:29:00.000-07:00

This journal entry is only incidentally touting the Elliott Wave International Bookstore.

Yes, if you love to read, and you love to read a good financial book in particular, you should go take a look right now.

I have been contacted by someone - for someone - that would like to put one of the Elliott Wave International's bookstore graphics in their blogspot blog. I could offer to host it on one of my sites, Elliott Wave International could host it on their site, or the guy could put it on something that allows picture and graphics hosting.

I wanted to see if I can drop it in here and get blogspot to host the Elliott Wave bookstore graphic. Yeppers - it just dropped into the top of this entry.

My next step is to drop it into the sidebar by referencing this particular bookstore graphic. If that works I'll send the information back through the six degrees of separation to the original requester.

We will now return to our normal financial journal programing, if there had been a real Internet or financial issue you would have been directed to our rant blog - A Sovereign Speculator.

If you can't wait for the next installment of this journal - go visit that (by now) highly touted Elliott Wave International bookstore.

If you just want to explore things Elliott, including a wonderful free Elliott Wave tutorial, there is a lot of information on the main Elliott Wave International site.

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Entrepreneurship Is To Business What Speculation Is To Investment

2006-09-22T05:31:00.000-07:00

You have a great idea, you research it thoughtfully, you invest yourself in pursuing success.

Is that being an entrepreneur -- or a speculator?

Yes it is. ;-}

Huge corporations are like huge investment firms. Its their way or the highway - they have no room or appetite for creativity. No one can say you made a bone headed mistake if you do what everyone else is doing. You compare yourself to other professionals in huge bureaucracies - and you did ok -- even if you failed.

A bureaucrat will understand "the operation was a success - unfortunately the patient died."

An entrepreneur embraces risk as a reality - and then tries to control it by flexibility, character, and creativity. So does a speculator.

If you have an entrepreneur's mindset you will not do well in a bloated organization - they tend to promote folks that are not threatening, average easy to get along with slugs with executive hair.

If you have a speculator's vision, you will be attacked and ridiculed by investment professors that want everyone to follow their instructions - just as they are following along with the rest of the sheep.

Speculation comes from the Latin Speculari - the basis of the word for eyeglasses - spectacle. It means to investigate, in this case with the realization that you will never, even after the fact, have conclusive evidence.

Speculation is to follow a system of reasoning trying to discover opportunity from within inconclusive evidence -- and then acting upon that reasoning.

Another factor is flexibility. As more evidence is revealed - acting quickly to change course if a change is indicated.

Your investment adviser assures you everything is ok, and you are stuck too long in a fixed venture.

Instead bring an entrepreneurial mind set to your investing - make strong well reasoned moves - and stay flexible. Listen to sound advice from many advisers, but make your own decisions - and change them as necessary.

Speculators and Entrepreneurs are cut from the same cloth - and both deserve honor as risk takers and producers that positively contribute to society.

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A Great Speculator Reveals Some Tools

2006-09-18T05:05:00.000-07:00

Read the following report:

A Case Study In Political Risk And How To Profit From It - by Doug Casey.

This is well worth the read.

Those that would tell you investments are safe and speculations are dangerous are trying to sell you something. Both investment and speculations are dangerous.

The real difference is that an investment is sold to you - and someone else says they will manage it for you. A speculation is sought out, analyzed, and as much as possible understood. Your investment market entry and exit strategy is your own - based on reason not emotion.

With an investment you trustingly turn over your money and wait - watching passively as it raises and falls, waiting for your adviser to tell you to unload so they can sell you something else.

With a speculation you watch not only your money, but you follow guidelines you have established to protect your wealth. Guidelines such as:

No one cares more about your money than you do - unless they plan on stealing your money.
Let your profits run
cut your losses short while they are still small
start with a small investment and phase in as you win

Manage your own money - make your own decisions - develop, or borrow others speculation guidelines.

It's your money - you want to be in charge.

Quoting Dr. Kurt Richebcher Quoting the IMF

2006-09-16T01:53:00.000-07:00

From A Daily Reckoning article:

"Most housing price busts clustered
around 1980-82 and 1989-92, while equity price busts
were more evenly distributed across time..."

"Housing price crashes differ from equity price busts
also in other three important dimensions. First, the
price corrections during house price busts averaged 30%,
reflecting the lower volatility of housing prices and
the lower liquidity in housing markets. Second, housing
price crashes lasted about four years, about 11/2 years
longer than equity price busts. Third, the association
between booms and busts was stronger for housing than
for equity prices."

Read the full article.

I seldom count on others work - but I often find myself agreeing with much of what Dr. Richebcher says. He is an economist from another era - one that valued reality over political and personal gain.

Read his peace and see if you don't agree.

There is also a fourth difference between equity and housing busts given in the IMF report and expounded upon by the good doctor - it is worth your serious consideration.

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Pop Goes The House Bubble

2006-09-07T12:34:00.000-07:00

For a long time, a lot of people have been saying the housing bubble will pop - I'm just one of many.

The problem is that all of the money the governments of the world created to stop the collapse of equities and deflation flowed into real estate. The housing collapse is like the feared end of a huge Ponzi scheme. Real estate is such a huge market, there is no next market I can see that will allow a new even larger bubble to replace this one.

Commodities may benefit if economies manage to keep growing, an unlikely prospect.

The money may flow into the one huge market left - currencies. Precious metals may increase relative to fiat currencies - at least holding their value while dollars, yen, and euros drop.

The flood of money may be offset by the loss of value in real estate - but there will probably still be way too much cash slopping around the world.

When you read that next article about inflation being caused by business or workers - don't believe it. Inflation is too much money - created by politicians and their appointees.

The battle is on.

The war between collapsing economies and real estate fighting against governments eager to keep spending money they don't have will not end well.

What will happen when the inflating hurricane surge of loose cash hits the flood waters of selective deflation is not yet apparent. However this is probably not good news for the stock market.

A time to increase hedges may be at hand.

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Making Money With An Online Business

2006-09-01T23:01:00.000-07:00

Making money business ideas does not sound like investment information.

Not surprisingly I see similarities.

The hype you get from money making online business sites is not unlike the hype you get from financial advisers.

Both sound so simple and so easy. Send in your money - make more money. The more you send, the bigger your profits will be. Do it today - tomorrow may be too late.

The advisers and scam artists have a great deal in common with the economists listed in the prior blog entry. To believe their money making projections you must suspend rational limitations.

you have to surrender to greed.

There are learning curves to investing and to running an online business. Like most such curves they travel through three major stages.

1) You know you don't know.
This is where we all start. We can learn for ourselves, or we can rely on experts. If all we do is rely on experts, we run into risks we can not understand. To grow and increase the safety of our money we must gain knowledge and experience - do it yourself.

2) You know but are unsure of how to apply your knowledge.
If you grew a bit in the first phase you can now scale up your investment size. Learn about new techniques and classes of money making. Dig in to uncover the knowledge of how the markets work, learn those realities that will never make the front page - start small - scale slowly.

3) You know and are sure of your knowledge and yourself.
You have explored a lot of areas and found just a few that fit you very well. You have developed your own winning style. Money is no longer the object, it is a product of your passionate understanding - keep learning.

These points are of course simplistic - but it is not yet time to write the book.

If you are looking to make money in any venue, from investing and speculating to harvesting money making business ideas, there are but three starting rules.

Do it yourself.

Start small - scale up slowly.

Keep learning.

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Dentists Would Make Good Economists

2006-08-25T23:51:00.000-07:00

The reality of economics is what sounds good in the short term is almost always bad in the long term.

Most of what passes for economics is like a bad dentist prescribing candy bars to cure hunger. Since hunger and nutrition is not his field - the results will cause pain and loss latter.

We have been told that the fix for a slowing economy is "borrow more money and spend it on SUVs and big houses." Lots of money is provided cheaply by government - lots is then borrowed - and tomorrow the economy is hungry again.

And weaker.

And sick.

A good dentist tells you candy is bad for you. He tells you to brush your teeth and do other unremarkable and steady tasks. The dentist will also grind away at decay. A dentist's methods are not very pleasant at all.

But your teeth will be stronger, and brighter, and last longer.

A good economist would be someone you should see once a year, not daily on TV as financial entertainment.

Those economic prescriptions that lead to a healthy and strong ~~teeth~~ economy are frequently unpleasant in the short term.

avoid debt

save money regularly

invest knowledgeably

start your own business

create long term business goodwill

engage in free markets and free trade

The short term results may not be sweet, but long term results will continue to shine brightly.

The bad economist would leave in dead teeth and rotting decay believing that perhaps the other teeth can support them. They ignore the bad apple and pretend it won't ruin the whole bunch.

The good dentist knows that removing dead teeth and restoring rotting gums will not be pleasant - but the durability and beauty of your bite is a long term proposition. Even more important is the information provided on how to extend the life of your teeth.

Sound procedures applied with a view to the future.

Not quick fixes that meet momentary desires.

Smile for me.

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We Will All Be Wrong - Frequently

2006-08-18T12:37:00.000-07:00

If you don't like the implications of the above title - don't invest.

The first requirement of successful wealth creation is to realize it is far easier to lose money than to make money.

Those not infrequent times when it becomes easy to make money are short lived and dangerous. Four letter stocks in 1998 and 1999, housing in 1981 or 2004, perhaps commodities in 2010 or 2012.

Make your bundle - but keep taking chips off the table. When the run ends it is likely the chips you removed from the main game are all you will retain.

Look to the next market that will move and put in a few of those chips too early.

"When I've heard all I need to make a decision, I don't take a vote.
I make a decision." - Ronald Reagan

Hedge your bets - you will be wrong more often than you will be right. Even if you guess right better than fifty percent of the time - you have to be right on several investing components, price, time, size of move, etc to win. Being wrong on just one can cause you to lose.

That is why we have speculation rules like cut your losses short and let your profits run. It is the guideline of rules that keep our money growing.

When money is laying on the ground - pick it up. You should be aware though that there is a time limit and if you overstay your grabbing at dollars you may lose them all.

Frequently we keep more if we want less.

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Evaluating Your Risks - Risk Management

2006-08-12T12:34:00.000-07:00

Many of our speculation rules deal with risk management.

There are many risks you can strive to understand before you enter your trade, this constant evaluation is an important part of speculation. You can then weigh these anticipated risks against potential gain and decide to pull the trigger.

Then everything changes.

Before the trade you knew there was no way to find all the risks, you just considered ones that you could locate and understand. After you are in the trade your personal psychology tries to take over.

"It's just a small drop - it'll come back."

"I have a profit - no one goes broke taking a profit."

"I've been in this a week and nothing has happened."

"The government did what? - Maybe I'll just sit and wait."

Your decision making process is always the least clouded when you are out of the trade. That is the time to make your important trading decisions including:

When will I enter

At what point, time and price, will I know I was wrong

What is my target for the move

At what exact point will I exit if I am right

what would be a good distance for a trailing stop loss

Write this down in a personal trading journal before you trade - and follow your own clear headed decisions.

If a major surprise happens in the investment landscape - consider exiting and subsequently evaluating without having your money in play.

When you are out of the trade - write down the results, what you did right, where you can improve. Your trading journal may become one of your most valuable trading tools.

A couple of old investment saws that you can use as speculation rules:

If you fail to plan - you are planning to fail.

and

Plan your trade - then trade your plan.

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Using A Futures Trading System

2006-08-03T10:41:00.000-07:00

A Futures Trading System Can Make You Rich!

Some of the most popular futures trading systems today deal with specific futures markets such as foreign exchange (forex trading or fx). Most forex trading systems are a black box - they give you frequent signals you are expected to follow blindly.

An upfront warning - any futures trading system can be very dangerous to your wealth. Standard warning - this is not trading advice - I am not a trading advisor - the risks are all yours. Past results will not be duplicated in the future - future results are always an unknown.

There are extremely successful and wealthy futures traders that use systems - but with systems they developed and understand. Your competition in futures markets will be:

well financed - trading millions of dollars

experienced - years or decades of trading

math and computer savvy - with full time main frames available to drill deep in statistics.

Someone that developed a system on their home computer and then optimized it for past data may never make money with it - unless they sell it to you. That is the black box they ask you to buy. They may believe in it - it may work for a while - but it will eventually lead to disaster for those that buy it.

The frequent trades recommended by a futures trading system lead to profits for a saber toothed broker, not for his clients, or for you.

Over a period of years, a low leverage, longer term and fewer trades futures trading system can make you rich. But be honest - is that what you really want?

Most investors enter futures markets for a quick financial kill, and the excitement of trading. They only get the excitement. Do you remember all those articles about ex-taxi driving, stock market day traders, that retired to their dream homes in 1999? Most are back washing taxis today.

The desire to trade frequently and big will doom most futures investors. Another danger is the need to over ride a system that actually works based on a "gut feeling."

Do you really want to know how to start and be successful with a futures trading system?

start very small - use mini contracts if necessary

Buy Jim Rogers' book and read it - several times

start your trading in one less volatile agricultural commodity - say wheat or corn

use the seasonal charts to enter a planned purchase or two - in the annual bottoming area

use a trailing stop loss to exit the trade - automatically

In the second or third year add another agricultural commodity to your system

Will this be exciting?

No

Will it make you good money?

Very good money - perhaps wealth within ten to twenty years.

If you trade small and closely observe your entry points and stop losses, this simple futures trading system may make you rich - get your excitement somewhere else. Maybe play rugby or drive race cars - something safer than any futures trading system.

Everyone gets what they want from speculation - do you want to go broke in an exciting way - or -

do you want to build true wealth with your own futures trading system?

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Long Tail - The Great Unraveling

2006-07-30T15:01:00.000-07:00

For those of you that are generation X or older - the long tail may mean nothing - yet.

Chris Anderson has written a good book on the subject -

The Long Tail: Why the Future of Business Is Selling Less of More

Business has been changing furiously as technologically empowered individuals bypass standard distribution channels and order directly from a particular source.

New technology based businesses are springing up that offer specifically tailored merchandise to ever smaller niches. The industrial age efficiencies of mass marketing and economy of scale are collapsing. The new marketing power is in the thin long tail extremes of the bell curve.

The Internet provides a world wide market of billions of people - a small niche that would not support a local business is large enough to make a global Netcohort netrepreneur wealthy.

In speculations we have dealt with fat tails for years - the chances of a big move in the markets are far greater than usually anticipated by mathematical models. We now also have to concern ourselves with the implications of a long tail. Notice with both the emphasis has shifted from the comforting center of the bell curve.

That long tail will effect your speculations and your investments. If you want to see an entertaining presentation of the sort the Netcohort network is creating ever more frequently - watch this short video on UTube:

The Night Of The LongTail

Ivan Illich - An Unusual Biography

2006-07-28T18:56:00.000-07:00

I prefer to write my own posts - but sometimes others share wonderful stories that I may not be able to pass on easily.

Ivan Illich (1926-2002)

“Illich a one-man melting pot, a Jewish-Catholic-Croatian-Mexican-American social philosopher and one-time priest, wrote a number of books, now all but defunct, that were classics of alternative thinking in the 1970s. Two of the most influential were "Medical Nemesis" (1971) and "De-schooling Society" (1975), which proposed that the experts who manned our schools and hospitals were actually getting in the way of education and health.

"Medical Nemesis" describes how medical institutions turn people into

consumers of health-care products, rather than healthier people. And

"De-schooling Society" shows us how educational institutions turn them into consumers of higher degrees, rather than smarter people.

Indeed, universities might actually make people stupider than they were before they entered, because they now know more of what isn't so. In economics, for example, much of what is taught at university is

wrong - and wrong-headed in the most profound way. The graduating economist is actually stupider than the man on the street. What he thinks he knows for sure...ain't necessarily so. And the institution in which he learned what isn't so, like the Soviet economy, has become a value-subtracting enterprise.

Illich might have been describing the financial industry. If ever there

were men whose expertise subtracted from the sum of human knowledge, it is the savants of finance, those whose keenest ambition seems to be to sell investors products, rather than make them money. Who really makes money, after all, in hedge- funds or mutual funds? We know the answer - the people who run them. For everyone else, funds - whether hedged or mutual - are generally a value-subtracting business; investors who make their acquaintance, even passingly, end up with less money.

What about stocks and bonds? There, too, the only people who make money are those who push the products or run the corporations.

But today we point the finger not merely at Wall Street. All institutions
are subject to corruption, not only those that grub for money. In time,
all institutions get hollowed out."

Some great stuff. There was more - get the newsletter and enjoy their insights.

I'm not qualified to comment on the medical issues - but they do sound worth considering.

For a bit on unschool and de-schooling you can check out a couple of articles at the BFU journal. The first compares Bastiat Free University with the Thunderbird, Garvin School Of International Management - a top MBA graduate school.

The second compares Bastiat Free University with the fictional South Harmon Institute Of Technology in the soon to be released movie Accepted.

On the financial stuff, you can read anything here or our main site and find a concurring opinion of mutual funds, hedge funds, and stock brokers.

That gives us something to think about.

I would be remiss if I did not tell you how to get the free Daily Reckoning newsletter.

Enjoy it.

Allan

More On Old Books

2006-07-28T10:55:00.000-07:00

A consistent theme of our speculation rules is that knowledge is less expensive if acquired through investment books than through experience.

Our immediately prior post was on the virtues of reading old investment books. Old financial books have a different perspective than we have acquired in the modern age.

An old stock market book author's investment blind spots are different than our investment blind spots. If we read these insightful investment books with an open mind we may discover not only an ancient view point - but errors in our modern analysis.

There is a source for many older and downright old investment books that are being reprinted.

Fraser Publishing - Books for the Serious Investor.

There are discounts and distressed financial book deals at their Internet site - although if you are like me there is something to be said for having a book catalog in your hand. Many of these books eschew investment for the financial control offered by speculation - a definite plus in my book.

I ordered their "serious investor" book catalog.

today's Speculation Rule:

Buy and read some serious investor books before making the investment.

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Important Stock Market Research

2006-07-18T11:15:00.000-07:00

If you are planning on investing in the stock market, or any market, start with this important research.

Read old books.

By the time a book is written on "How I Made A Million Investing In Buffalo Chips," the market for buffalo chips is almost over. It works the same for housing, the stock market, and commodities.

Your average investment book author got lucky at the start of a market move - and the trend is mature by the time you read about it. While the "bandwagon crowd" may join a trend and profit from it for a while - they normally just start to enjoy the ride right before the wagon drops off a cliff.

A cure for this is to read old books.

Find a guru that did well during the end of the 1960s bull market, or right before and after the 1987 crash - and pick up their used books on Amazon. You will also find several investment books that have been reprinted several times - because they hold enduring value.

We as investors are moved by the same emotions that move the herd, a distant viewpoint may help you see the cliffs ahead so as to avoid the next stampede.

Old books can provide that distant viewpoint.

Allan

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The Fallacy Of Following Finance Gurus

2006-07-13T17:25:00.000-07:00

Finance Gurus tend to cluster around inaccuracies.

It is so safe when you are wrong and can claim "so was everyone else." Economists, market analysts, and their ilk will still get their paychecks - you however may lose your nest egg if you listen to them.

Your future may depend on your seeing the world more clearly than mere economists can imagine from the distance of their ivy covered towers.

Two names that many of you will recognize, Taleb and Mandelbrot, put together an article last year that challenges many soothing scenarios spewed by pseudo- scientific soothsayers.

I found this on the entry page to the College Of Human Interaction at Bastiat Free University. BFU, Taleb, and Mandelbrot all like to pop the balloons of soft sciences like economics that try to derive credibility from obtuse math.

The point for you of course is that it is safer to speculate and embrace risk than try to escape risk by following the investing alchemists of finance that pronounce long term investing as safe.

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How Do You Define Financial Success?

2006-07-11T15:41:00.000-07:00

For some financial success is just being able to afford enough to eat.

For others financial success may be having enough that you can't give it all away - it grows too quickly.

In fact financial success for most is a moving target. Just as in psychologist Abraham Maslow's Hierarchy of needs - once one need is satisfied we move up to a greater need. Psychological self actualization could be compared to achieving impregnable financial independence.

If you are concerned where your food or shelter will come from - neither education nor stock markets will be of any interest.

For yourself:

Look at where you are financially, and look at what stage you next want to reach.

Determine which tools will fully secure the current level - then move on.

There is no gain in staying in the same uncomfortable spot your whole life

There is also too much stress in trying to advance too soon.

Only you can make that choice for yourself.

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The Beauty Of The Sky Scrapers

2006-07-08T16:08:00.000-07:00

Trees never grow to the sky.

There are periods when certain market analysts, specific stocks or asset classes, and general market moods follow a strong trend. There will be analysts in these areas that develop a huge reputation - sometimes even moving markets with a word.

Neither the analysts nor the markets they cover will grow to the sky. There are natural limits on growth - the few short term exceptions are unstable and they are prone to sudden collapse.

Go-go stocks in the sixties, the eighteen year American stocks blow off top from the early eighties until 2000, and the prior and similar roaring twenties.

This is not a revelation to anybody that studies history, it is instead a caution that the present enthusiasms may be just as dangerous as past excesses.

We can present and leave this subject easily. Be cautious.

Follow a market analyst while he seems to have a finger on the pulse of the market - but realize one day their wisdom will fail. Invest in market trends realizing that they can last much longer than you might expect, and end much faster than you can believe.

As you are admiring that tall thin structure - think of the damage an ill wind can cause.

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What Is Seen And What Is Not Seen

2006-07-02T15:16:00.000-07:00

C. F. Bastiat, an economic philosopher, wrote articles we all can understand.

What follows is the introduction to one of Bastiat's most quoted pieces What Is Seen And What Is Not Seen.

"In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil."

This alone should be enough to entice a speculator in search of knowledge to dig deeper.

Enjoy!

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Acknowledging A Resource - Bastiat Free University

2006-06-29T11:35:00.000-07:00

.

Bastiat Free University is One year old today - this is also birthday 205 for the great economic philosopher C. F. Bastiat.

The courses at Bastiat Free University are chosen for learning about the real world - not for the self aggrandizement of professional students that became university professors.

Of interest here are the Bastiat College Of Human Interaction and the BFU Master's Courses.

The college of human interaction eschews complicated math and emphasizes rational thought - a much better process for understanding our world. The soft sciences are best treated as what they are - social interaction - rather than cumbersome and inaccurate number problems. BFUniv does just that.

The Master's Courses are a real treat. Here successful masters of their subjects share what has influenced them in their route to the top. You will not be reading their books - although their books are recommended - you will be reading what they read on their own journey to success.

When a best selling business writer and thoughtful speculator like Jim Rogers offers to pass on his illumination of the path to investment success - it is worth taking the torch he offers.

When a serial entrepreneur such as Dottie Walters ascribes her success to more than the obvious talent and hard work - any business person would be remiss to ignore her hard won insights. "Success is not a doorway, it's a staircase."

There are others - take a look.

College Of Human Interaction

And

The Master's Courses

Happy Birthday Bastiat - and many happy returns.

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Did Mr. Market Get A Sex Change?

2006-06-27T12:26:00.000-07:00

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If you read Bill Bonner's humorous indictment of market analysts you might conclude that rather than being trans-gender, analysts have just been confused about Mr. Market's sexual identity.

Just one more error on their part.

Of course I too try to analyze the markets for my own profit, and hence I'm prone to being wrong quite often. I am secure in my own analytical sexuality - but I'm amused at rumors about Mr. Market's new sexual orientation. But that is not the type of speculation this journal exits to pursue.

If you know you will be wrong almost as often as you are right, why go to the trouble at all?

If you work for a brokerage the reason is simple - that's how you earn your living. Each time you guess in public someone will follow your advice, the resulting sales and purchases of securities results in commissions for your company. You keep your job.

If you are a speculator, you guess according to rules. If by your rules you will discover quickly if you are wrong - the speculation just might make sense. You can then get out with a small loss if you are wrong - and let the profits run if you were right.

A few independent analysts might be worth reading - as long as they do not attract too many followers. Once they become too big they become part of the market psychology - their authority is soon to evaporate.

Like a long run on a craps table in Vegas - they may defy odds for a while - but eventually they will lose. If someone seems to have a winning streak - follow along - but don't over commit.

The speculation rule of the day is a bit more complex than usual:

watch the correlations between your speculations - you do not want one event to severely damage your wealth.

If the advice you get all follows the same investment fashion trends - your speculations may be over correlated.

With sufficient wealth - anything more than 2 or 3 % of you money in one type of investment may be too much.

Big name analysts tend to spout the same ear pleasing advice - this alone should be enough correlation to raise a danger flag.

If Mr. Market is female, expect the nonlinear event.

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Wealth Is Preserved Through Diversification --

2006-06-25T10:36:00.000-07:00

but wealth is created through concentration.

Do you really want wealth?

That is not a rhetorical question. You, not society, should decide where success exists for you.

Wealth is sometimes earned by accident but is seldom retained if that is its source. Dot Com millionaires disappeared and now housing flippers have had a day in the sun - most will soon be back where they were.

(my guess is gold still has a huge bull market ahead of it - this is my guess, not a recommendation. I will not be financially destroyed if I am wrong)

You alone must decide if success is worth the risk. Real success carries with it a substantial danger of failure. If you are willing to dedicate yourself - to focus yourself - you can overcome many of the dangers by sheer determination.

And the journey will be exciting.

Michael Dell is a good example, Dell provides a decent product and fair service in a very crowded field with narrow margins. Focused on innovation with his products and their overall systems he has pushed many companies out of the field that just dabbled to see if they could make a buck.

Innovation by the entrepreneur, argued Schumpeter, led to gales of "creative destruction" as innovations caused old inventories, ideas, technologies, skills, and equipment to become obsolete. The question, as Schumpeter saw it, was not "how capitalism administers existing structures,... [but] how it creates and destroys them." This creative destruction, he believed, caused continuous progress and improved standards of living for everyone.

But the key too see here is what Michael Dell apparently also understands -- wealth is made through concentration and preserved through diversification. Dell made regular sales of his Dell company stock during the dot com madness - he potentially diversified his wealth so no single event could undo him.

If you have dabbled in investments, following a tip here, an analyst recommendation there, it is time to concentrate. Find a part of a market that you can appreciate and learn how to play that market. Knowledge of the underlying fungible security is important - far more important is knowledge of the interaction of the players themselves.

With such knowledge you would soon discover that most option models price options for the players on the floor. Once you develop an option model for yourself that follows different constraints regarding time and correlation - you may start to win.

Here is the speculation rule:

There are a million ways to make money in the markets - all of them are hard to find and short lived.

Only those with focus will be able to both profit - and to move on when the time comes.

Once wealth is secured - diversify to protect it.

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The Wrong Investment Rules

2006-06-23T14:16:00.000-07:00

Investment rules will get you in money trouble.

Percentages of this - success in that - fundamental trends - the type of fancy investment rules that lull you to sleep while your wallet is being emptied.

All of these are spoken knowingly by analysts on TV. The important point to realize is that analysts on TV work for investment companies - not for you.

If they suggest something, or provide an investment rule, it is to make money for their employer -- and themselves.

"No one cares more about your financial future than you do - unless they can use your assets to improve their financial future." - Allan Wallace

Mutual Funds tell you to invest for the long term - while they create short term profits with your cash.

There is an alternative.

Learn to manage your own money. Don't follow financial rules put forth by closet salesmen. Learn to speculate to protect your wealth. (financial analysts don't like speculation because you won't need them.)

Instead of investment rules use the principles of mass psychology.

Psychology is what moves markets. -- How do you parse The/Masses?

The best independent market analysts use psychology in one way or another. Instead of investment rules they use procedures to limit losses when they are wrong - they speculate.

Go to a used book store or Amazon and pick up a book by Richard Ney or Doug Casey - the basis of their logic is psychology. Use Elliott Wave Theory, cycles, or Dow Theory - the basis of their long term success is the ability to recognize psychological patterns.

Make the study of group dynamics the key to your success.

As a first lesson in mass psychology bear in mind the description of the masses can be parsed as the/masses or far more accurately as -- them/asses.

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Your Own Business Can Be An Excellent Speculation

2006-06-16T19:24:00.000-07:00

A primary set of Speculation Rules is

keep losses small
&
let profits run

When trading the markets this usually means taking a bunch of small losses quickly while letting the fewer winning trades keep growing. In balance this has proved to be a winning formula overall.

Now suppose that you could start an international Internet business with no up front costs, very low overhead, and great potential. An added plus is that this business can be run from virtually anywhere in the world.

If you want to read a free e-book as a part of judging a prospective business, read this.

As to my new business -- was it worth the better part of a day setting it up so I could explore the potential?

Ya Betcha!

I've looked at hundreds of programs and businesses opportunities for my daughter and I to start. This is the one we have chosen. There is a full marketing system included ----

well if you want the whole story visit my personal small business story.

If you want to take a look at the business for yourself or a friend - check it out here.

All I can add is that I am real picky - this meets my conditions for being a worthwhile use of my very limited time.

It may well be worth your time also.

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The Power Of The Individual Investor

2006-06-16T13:41:00.000-07:00

As an individual investor you have many advantages over asset management professionals and mutual fund management.

An individual investor that eschews packaged investments and pursues research on personal speculations has a huge advantage.

Individual investors don't have to invest - cash is a valid asset class for you
time is on your side
you are not limited in style
you are not limited by geography
you are not judged on a monthly or quarterly basis

There are other individual investor advantages also, some of which I've covered in previous investment articles.

Professionals get their MBA and dive right into a specialized financial niche. As a private investor you will not be better at analyzing bonds than a bonds pro, or better at trading wheat than a wheat specialist. You can be good at guessing what's next, and learning how to profit in the almost now best sector to invest. If you think metals will take off as China's growth accelerates, you can research iron, gold, and uranium. The bond and wheat trader will still be great at their niche, but that's it. When in a decade or two you decide everyone hates stocks and bonds, you can switch back and by some stocks. If the professional bond trader is still in business, he'll still be great at bonds.

Cash is an asset class. In times of inflation "cash is trash" is a popular phrase - but there are many ways to hold cash - and many currencies to hold it in. A public fund manager normally is expected to be close to fully invested even in dangerous times - as an individual investor you can pick your own exposure and times.

Instead of being committed to investing, you can taste of many styles and markets, small sums that teach you the risks. Each book you read amplifies your knowledge over time - increasing your effectiveness. We are seeing a sea change in investment today by asset class - you can rise and fall with the tide while professional investment managers may be swept out to sea due to inflexibility.

There are many more benefits - start small and learn them for yourself.

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The Problem With Mutual Funds

2006-06-10T15:14:00.000-07:00

We can describe the major problem of investing in mutual funds with just one speculation rule.

No one cares more about your future than you.

A mutual fund manager will run their mutual fund with one goal in mind - their income.

Yes their future income is enhanced if they can create higher returns and so grow the fund, but they have outs if they don't succeed with your money - you just lose.

survivability is the name of the game for the mutual funds themselves. They can take risks to grow, and if those risks hurt the fund, they can play games and hide the losses.

If a fund family has one hundred funds, and ten of them beat the averages, these mutual funds will draw most of the new investment dollars. Those that lose will not be closed - their investors will be transferred into the "successful" mutual funds - the losing funds thus disappear from statistics. New mutual funds will be created to replace those that were absorbed - hoping the new ones beat the odds and the markets.

There are other games to be played - but taking risks with your money for short term gains - while telling you there is safety in a long term investment approach - is where most their profits originate.

Mutual fund investments are very risky because they seem very safe.

All investment is dangerous, big or small, managed investment or self directed speculation. All investment has layered risks, some visible -- some hidden.

As Shrek might have said, "Mutual fund investments are like onions. Of course some of them stink and can make you cry - but that's not the point." There are layers of expenses, dangers, and bureaucracy to be peeled back before considering investing in a mutual fund.

To speculate is to acknowledge investment risk and try to manage the dangers. To blindly follow an investment plan is trusting others to protect your assets -- rather than consistently profit themselves.

Any bureaucracy always seeks to insure its continued existence before it deals fairly with its constituents.

There are tools, asset management software and online advice, that will help you take control of your own finances.

Read some good books on investment and keep your money out of the markets until you know how to let profits run and cut losses short. Keeping your money in cash is also a form of investment - and at times a much better strategy than mutual fund investing.

No one cares more about your money than you -- unless they intend to take some of your money.

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iBanking - Investment Banking Basics

2006-06-05T12:01:00.000-07:00

Investment banks may not effect you directly - but the actions they perform are large enough to effect the world economy.

Without getting too specific, investment banking salesmen create and distribute "asset management product" to huge investors. Government agencies, international corporations, hedge funds, and very wealthy investors are parties, and counter parties, to these special products.

Quantitative analysts, or quants, play with finance numbers and relationships so as to match products with a client. Investment banking traders take positions and dissolve them as they seek optimum return with minimal capital exposure - they hope.

Occasionally some of the products or the parties to the products blow up and there is a scandal or major bankruptcies - or both.

As sophisticated financial products are traded some of the parties may not understand all the consequences of unraveling their positions. Some of the positions may not be able to be unraveled in a timely manner. If your counter party fails, your position may drag you under also.

There have been major disruptions in the past decade with derivatives created and traded by investment bankers - but no first world countries have collapsed in the modern era.

Yet.

Some of the major bank mergers over the last few years may have been engineered by investment bankers to decrease counter party risks between the banks, or to rescue a bank in trouble due to derivatives. We do not know - they would not tell us.

If you think the quants and the government can control this huge, unbalanced system, keep in mind that no one fully understands it.

Two or more parties frequently enter into a product swap engineered by investment banks - and all the parties show a profit on their income statement. Is it worth spending a million of real cash to show a twenty million paper profit - even if you do not understand the convoluted math? Many companies think so. There is no real way to value these illiquid investments, so i-banker quants invent numbers that make everyone happy.

Until the next implosion.

This web of relationships creates extremely complex systems - even if each of the concepts and relationships seem straight forward when established (they aren't) - over time they change. With the end of the Glass-Seagall act in 1999, the levies have been lowered, a class 5 financial hurricane may be overdue.

If you want a job as an investment banker doing financial research and asset management for an investment bank; it is a very well paying job with lots of challenges. There are occasional large layoffs that sweep the employment field clean - so timing may be important. I'm sure any MBA college will offer you information on investment banker training.

If you are an investor, be aware that large shocks to the investment landscape are inevitable. Consider speculations and protective positions before an investment banking engineered earthquake hits.

The next one may be "the big one."

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Doug Casey And The Greater Depression

2006-06-02T21:38:00.000-07:00

I don't know when I first read a reference to a greater depression.

It is a safe guess that I did not invent the phrase "Greater Depression." It is also a distinct possibility that I read it first from one of Doug Casey's best selling investment books. The phrase has seemingly been around for decades.

The concept though is sound.

Depressions are caused by egotistic government officials thinking they can control a complex system like the economy with a few poorly understood tools. Their ignorance, and a firm belief that they know how to run your life better than you, leads them to pursue power. That power perverts their judgment even further as they pursue financial manipulations - and the rewards they think they have earned.

Governments today can make larger errors than their predecessors, and can also compound those same errors faster. These are dangerous and interesting times - it is unlikely we will muddle through successfully.

Back to the potential for a greater depression.

Doug has shared with us his views on a coming unpleasantness and a possible greater depression. He is of course more balanced in his delivery than myself - but the point is much the same. Reading of his ideas is highly recommended.

One of our standard speculation rules is: inevitable does not imply immediate.

Eventually the inevitable will happen.

It is time to prepare - just in case.

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To Thine Own Self Be True

2006-06-01T13:09:00.000-07:00

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Neither a borrower, nor a lender be;
For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.

This above all: to thine own self be true, And it must follow, as the night the day, Thou canst not then be false to any man. - William Shakespeare

Modern western society now lives on borrowed money and time.

A reckoning is due.

Now is a great time to cut yourself free from financial entanglements that would drag you down in a recession or a world wide depression. Do not take on any new liabilities that will not show an immediate return justifying the risk.

This is not the time to buy gratification through conspicuous consumption. This is a time to store up food for a long financial winter.

The purpose of a depression is to take money from the fools and knaves of easy money and return it to its proper owners - those that know wealth quickly gotten is a vapor quickly lost.

The governments of the world have printed easy money to their own ends. Those that have profited from it have believed in their brilliance based on the short term success of a financial Chimera about to meet its Bellerphon.

It is not yet too late to prepare.

Above all - to thine own self be true.

Best,

Allan

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The Anti-Investment Blog

2006-05-31T02:26:00.000-07:00

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Notice the name change?

We are now: The Anti-investment blog.

If you want deeper understanding of the why and wherefore of this attitude read our archives or check out our Speculation Rules anti investment advice site.

We can state it simply.

Investment is dangerous because it seems safe.

Investments are a sub class of speculation - the blue chips are still gambling chips.

If you speculate you know there is a risk, and you protect yourself from the risk.

Yes people lose money in the futures markets, in forex, shorting stocks, or playing with options. They also lose money in IBM, government bonds, and soon probably in housing. The key is not to avoid risk - you can't. The key is to manage the inevitable and inescapable risks that come with life. Manage risk to have the best opportunity to win.

If you are lead by an adviser to an investment; they lead you to believe that you are making a wise long term choice. They pocket part of your money as a commission. You take a risk until they tell you to change your asset allocation - and they pocket another part of your shrinking wealth.

Learn to speculate instead of only investing. Play on the big kids playground.

Make investment decisions yourself, you want to be in charge of your own future.

No one cares more about your investments than you do - unless they plan on stealing your money.
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'Evils' that lurk in the speculative swamp

2006-05-18T12:10:00.000-07:00

I'm not back yet, but as you know the difference between speculating and investing is dear to my heart.

The Fleck, Bill Fleckenstein, turned that "speculative swamp" phrase in a recent article at MSN.

This is a guy that has paid the dues, and survived due to cautious speculating.

This is worth the read.

I'll be back in a week or two with regular updates. You will find some new material - and some interesting navigation and organization at the new Speculation Rules main site.

As an example check out the sovereign individual pages and liberty links.

Best,

Allan

It's Tough To Leave

2006-05-10T12:21:00.000-07:00

Leaving for even a short time is difficult.

Normally is "so much to do, so little time to do it." As of today, for the next few weeks or so, it will be "and no time to do it."

I will be keeping an eye on Gold and the other futures markets - Gold seems to be in a true bull market - it will probably have violent, short reversals. It will be difficult to buy, hard to sell.

There will be work being done on our new Speculation Rules main financial resource site, visit it, or those favorite posts to the side if you want more speculation insights.

Best to ya.

I'm off----

--

Very Scary News For The Dollar

2006-05-09T01:02:00.000-07:00

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A weak Dollar, still supported by the world, has allowed the USA to export inflation, and import deflation.

Inflation is a hidden tax. Governments create excess money which drives down the value of cash -- pulling money out of everyone's pockets to support politico's pet projects.

Real inflation in the USA has probably exceeded 10% - the amount of money growth. Some of that inflation has been shipped overseas. Governments in the rest of the world have been willing to take USA bonds that are losing value - so they can sell products to the USA - so they can build more factories and improve their infrastructure.

The USA has devalued the dollar so much that the rest of the world is getting scared. If major parts of the world abandon the dollar, it is the USA that will be burned first. A fear that has been shoved aside for years may now happen.

That makes the following quote from a Bloomberg article very timely.

Korea, Japan and China agreed in Hyderabad to ``immediately launch discussions on the road map for a system to coordinate foreign exchange policy.''

This could make for some very unpleasant consequences in all sorts of financial markets.

It may also be one reason gold has been climbing versus the dollar. China recently opened up gold trading in their country, I'm sure you can see many reasons they may have done this.

A diminishing roll of the dollar as the world's major reserve currency could see a large flow of dollars back to the USA. All of that exported inflation may return very quickly.

It may even hasten the greater depression.

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The Decision Matrix

2006-05-06T12:45:00.000-07:00

The first time I saw a decision matrix used, it was before personal computers.

George Morrisey led a group in an executive decision making seminar and demonstrated this effective little tool, the decision matrix. George is a wonderful speaker - we all gained from his insights into decision making.

I have used George's decision matrix since and have taught it to others.

It takes a multi faceted problem, compares each choice to each of the other choices, and presents an optimal decision. You will experience a coolness factor when using a decision matrix, it allows a lot of adaptable comparisons.

A related decision matrix has been used as a one dimensional sales closing tool - in a simpler do it - don't do it guise, but that is not where its strength lies. While I wouldn't use it to decide affairs of the heart; it works well for decisions as diverse as vacation destinations or business decisions.

There is now a free downloadable version, and it works quite well.

The important news is that it works for many complicated financial decisions, and can also solve complicated allocation problems so you can dedicate more time and thought to your speculations.

The catch is very small.

The company promoting the software, SiteSell, uses their website building and hosting tools as a simple example - that is the only catch.

SiteSell's software, prices, and support are excellent - so a soft pitch should work well for them. They probably ran their decision to offer the software for free through the decision matrix.

If you are considering building or buying a web site consider purchasing their well priced, clean and powerful software.

If you are not in the market for an improved web presence, follow their SiteSell decision matrix example as a short tutorial and download this compact decision tool for free.

Whether you call it a decision matrix, or Choose It! as SiteSell does, this is a tool that may be valuable on your personal computer desktop.

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Real Estate Investing - Boom or Bust

2006-05-04T03:07:00.000-07:00

Most realestate agents today do not remember a real estate investment bust.

For instance if you have San Diego real estate you would have to go back about twenty five years to find the most recent real estate bust.

I went through the last real estate investment boom and bust while managing real estate offices. There was a significant decrease in the number of real estate agents as real estate speculation decreased. Right now in California the police ask for your real estate license - because not everyone has a drivers license.

How does a real estate bubble burst?

Last time it happened very slowly.

At first you are not even sure the market has slowed down, then you wait for the market to recover.

Real estate is not like other investments for several reasons. There is no daily price list showing the value of your property, so panics start slower. Most owners of single family dwellings don't have to sell, so they can just let their houses sit on the market. Once prices start to drop a bit - buyers hang back waiting for even better deals.

As prices drop a bit further - owners that borrowed too much against the value of the property may give their house back to the bank - many today already owe more than their house is worth.

The banks don't want to own property - it interferes with their ability to make loans. At first the banks put a fair market price on real estate and hope to make a profit. As the bank's real estate portfolio increases in size, they start cutting prices hoping to break even. Eventually they offer all kinds of special credits and inducements to try and unload their real estate.

In the last real estate crash you could pick up nice houses for a third of what they had once sold for, and sometimes with no payments for a year. There were frequently no takers even at these terms - everyone knew realestate prices were dropping.

Banks will create Real Estate Owned (REO) departments charged with dumping the unwanted housing.

More folks now find with the dropping prices that they are upside down in their loans, they walk away and give the homes back to the banks. The REO departments will get larger, even as the mortgage origination departments shrink.

Banks will quit investing in real estate loans and fund something they perceive as less risky. At this point only perfect applicants will be approved for new real estate loans.

Mark Twain said " History does not repeat itself - it rhymes."

This real estate investment bubble will be different than the last one - it may even deflate much faster.

This realestate down turn will have to deal with adjustable rate mortgages, mortgage backed obligations, and a huge host of esoteric derivatives. If those phrases don't mean much now - they will after the financial press starts looking for villains to blame.

Speaking of blame, expect the banks to file lots of law suits against appraisers and property owners for fraud - even though it was the banks that encouraged "liberal" qualifying so they could make more loans.

The real estate market boom may not yet be over, but the hand writing is on the wall.

The bubble pop might have already begun, and it could be dozens of years before real estate may recover.

There is not even any assurance this real estate bubble's burst will be accompanied by deflation or inflation. Absolute real estate prices may increase if the government insists on continuing to print mountains of money - but the prices of everything else will increase even more as cash becomes trash.

As incomes go up slower than expenses - real estate investment properties would still be thrown at the market.

Real estate investments should now be examined - and perhaps sold - before the slowdown accelerates.

If you wait until you are sure the real estate market has turned - it may be too late.

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A New Speculation Rules Coming At Ya

2006-04-28T11:28:00.000-07:00

Not quite ready for the financial prime time.

Sometime in the next week there will be a switch over at the personal financial resource site - SpeculationRules.com. The Spec has been a simple holding site with a few investment articles until this speculation journal got established here.

The new site will organize our journal entries and articles into an easy to retrieve whole. There will also be tools available to help you with your speculation decisions.

Take a look at the current site and you will get a feel for what basic is all about. Come back to it in a week and you will see the framework of a solid financial, speculation, and investment resource.

Over the next several months the site should fill up with helpful material, let me know if there is a speculation topic that you would like addressed. We will try to make the Spec easy to use and navigate - let us know how we fare.

Once you look at the framework you may also have some suggestions on improving the financial usefulness of Speculation Rules - I would love to hear them.

It will be fun - when SpeculationRules.com is done.

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Online Future Trading

2006-04-26T02:20:00.000-07:00

The first thing you will hear is that online future trading is risky.

Online future trading is risky.

But then it is risky to drive down the street or go to work.

Everything - including doing nothing - has a risk attached. Bury your money in the back yard and it is at risk both to gophers and the Federal Reserve inflation machine.

The key is not to avoid risk - you can't. What you can do is embrace risk and learn to manage it.

Your first online futures trading risk management decision is to get the book Hot Commodities by Jim Rogers that I reviewed in a prior post.

The second step is imperative - don't get greedy.

You have to limit your exposure in - the currency or forex markets, commodity future trading, future option trading, and in fact all future markets - or your speculation life span will be very short.

Be wary of any futures trading system - they are almost guaranteed not to work - except to bring revenue to the person selling the future trading system.

Here are some key points:

you can't win if you do not play

you can't play if you don't have chips

keep your bets small

keep your losses small

maximize your profits - let them run

You do not have to use maximum leverage - you do not have to keep all your money in play.

If you are considering online future trading start small after you have read the book.

I'll repeat that important speculation rule - one that particularly applies if you are considering online future trading:

Always read the book before you make a speculation.

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Stock Market Newsletters

2006-04-25T03:03:00.000-07:00

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Find your own financial service advisers. If they call you first, hang up.

You want a financial service adviser picked by you for price and quality.

If they call you, an "investment adviser" wants a quick commission, and then it's on to the next prospect. These are salesmen - you probably already know more about investments than they ever will. Do your own research, or pick a financial adviser after you have researched them. You should to be in charge.

I currently have only two financial advisory services where I am quite comfortable using their newsletters as a starting point in my speculation thought process.

There used to be three – sadly you can no longer profit from the Ney Report by Richard Ney.

Richard Ney was author of several useful books in the 1960s including The Wall Street Jungle, Mr. Ney is no longer with us; look for his books in a used book store. His unique insights are well worth considering as you make your investments.

The other two are the Elliott Wave Theorist and the International Speculator. Look at these and get some of their great information.

Join Club EWI from Elliott Wave International for free and read their articles and get free speculation training. Elliott Wave International also provides fresh and insightful financial market news of an unusual type.

Doug Casey has several services besides the International Speculator, but it is is a good risk free place to start. You will learn much more from Doug than just market knowledge.

No one cares more about your personal finances than you. You have a huge advantage over professional investors.

Professionals get their MBA and dive right into a specialized financial niche. As a private investor you will not be better at analyzing bonds than a bonds pro, or better at trading wheat than a wheat specialist. You can be good at guessing what's next, and learning how to profit in the almost now best sector to invest.

If you think metals will take off as China's growth accelerates, you can research iron, gold, and uranium. The bond and wheat trader will still be great at their niche, but that's it.

When in a decade or two you decide everyone hates stocks and bonds, switch back and by some stocks. If the professional bond trader is still in business, he'll still be great at bonds.

You can be a generalist, you can switch asset classes at will - you can succeed.

It is a great advantage.

Remember to think for yourself. Many advisor's ideas will be good, and some will be timely; but only a few will be both good and timely for you.

Make up your own mind.

No one cares more about your money than you.

The Economic Aspects Of Financial Planning

2006-04-18T13:46:00.000-07:00

Financial planning itself is a very slippery subject - trying to slide it successfully into the protean aspects of any economic model is often a futile effort.

Of course we can pretend it works, talk about various financial aspects of our projections, and make some pretty graphs.

I don't remember which economist said a truth that went something like the following " All economic models are false - but some are useful."

If your base assumptions are false, each level of abstraction built upon them becomes more ephemeral. On top of this loose structure of shifting sand we are then expected to commence financial planning.

We can assume that inflation will be low, that the stock market will grow at 8% per year, and the dollar will remain stable. We could possibly be wrong on all counts - although it might be useful as an exercise.

tomorrow is an unknown.

Not only can no one predict the future, we don't understand the present – and there isn't even any certainty about the past. – Harry Browne

Therefore the economic aspects of financial planning are also an unknown.

To pretend we know the future is dangerous and leads to complacency.

Far better than considering the economic aspects of financial planning is too consider the current economic climate and cautiously speculate. Keep that fear of loss as a sharp pain.

If you are not worried - you are in danger.

Remember the standard speculation rule:
Keep your losses small - let your profits run.

Leave the Economic Aspects Of Financial Planning to the financial news and to investment focused magazine articles.

The pretty graphs and accompanying projections will still be impressive - the long term conclusions will be very dangerous.

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Financial News and Speculating

2006-04-15T22:51:00.000-07:00

Most financial news is repetition of sound bites provided by the stock exchanges and brokers.

If you are watching the financial news as it happens you will see “reasons” for the market's activity rise and fall with the markets.

An event happens – the market goes up – positive spin is generated. The same market then drops quickly – the spin stops and reverses. By the end of the day the market is back up – and the nightly financial news spins the old positive take on the markets one more time.

You will not learn why the markets are acting a particular way by watching financial news.

On the bottom of this page you will find a different style of financial news.

These are headlines you will not find elsewhere. This set of financial news is not necessarily correct – but it will help you balance what you receive from the mainstream sources.

You may want to bookmark this Speculation Rules journal just for that financial news -- and return to it often.

If you do watch the financial news pay attention as the excuses journey back and fourth. The market moves create the financial news – the financial news does not create the market moves.

If you would like a more in depth discussion of how public mood creates the market moves that create the financial news – watch the free documentary History's Hidden Engine.

The Other Side Of Phinance

2006-04-15T12:23:00.000-07:00

One of the pleasures of speculation is the crisp and clean reality of interacting on a level playing field.

Of course there are cheats and inside dealers - but you are aware of their presence and can defend yourself. Remember our primary speculation rule:

No one cares more about your money than you do - unless they plan on stealing your money.

Using that speculation rule as groundwork we can set some guidelines to protect ourselves

contact the brokers you have researched - hang up on unsolicited calls

start small with new accounts - see how they are managed before you commit more

don't trust huge promises - if someone recommends 1000 penny stocks - a few will probably give a basis for great profit stories

use independent research - a broker's analyst is there to make money for the broker

and other logical controls - you want to be in control of your own money

A much nastier felon exists that wants to steal from you - the identity thief. As can be seen from the comment on this Trans Union credit report article, you do not have to be rich to be attacked.

But wealth does make you a bigger target.

One of the reasons to take assets offshore is to protect yourself by geographical diversification, the others include asset protection from aggressive law suits and finding the internationally competitive balance of lower taxes on business.

Finance or Phinance - the eventual return of your money is more important than the promised return on your money.

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Investment Ideas Inspired by Monkeys

2006-04-11T11:28:00.000-07:00

.

That at least is the subtitle of a news letter, Capuchinomics, that has some valuable speculation insights this week.

The article is based on the housing bubble and the excuses made to support it. What it is in reality is a short lesson in keeping your head when everyone else is losing theirs.

The author never quotes the infamous line that appears so often at market tops "Its different this time," but you can feel his understanding of why it isn't different.

Housing is a regional phenomena - so it is more like soap suds than a single balloon.

He compares housing with the stock markets in 2000, not a novel comparison, but here it is a well done comparison with some novel insights.

This of course does not mean all the housing soap suds bubbles will pop tomorrow.

Just because we become aware of a danger does not imply the danger will soon increase, subside, or destroy.

Read that article - it has information that will help you understand speculating.

That brings us to a true Speculation Rule:

inevitable is not the same as immediate.

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The Egg Man - A Peter Schiff Story

2006-04-10T01:46:00.000-07:00

Peter Schiff has a cute story I have heard before in many forms - but that does not keep it from being true.

This is actually one of the best forms of the story I have heard, and it requires no further explanation.

------------------------------

A client called his broker inquiring about egg futures and is quoted a price of 25 cents per contract. Having a hunch about the egg market he buys 100 contracts. A week later he calls his broker to get a quote. Pleased to learn that the price of eggs has risen to 35 cents he decides to buy another 1,000 contracts. A few days later, eager to check on the progress of his investment, he is amazed to learn that the price has now risen to 50 cents per contract, twice the price he paid for his original 100 contracts. Sensing a trend, he steps it up, this time buying 100,000 contracts. The next day, ecstatic to learn that egg prices have now risen to 65 cents, he gets even more aggressive, buying 1,000,000 contracts. Sure enough, the following day the price of eggs rises to 95 cents, prompting him to order an additional million contracts. The day after that, as rising prices further validate his intuition, he buys yet another million contracts, this time paying $1.25.

The next day, with egg contracts trading at $1.75, he senses that the market has risen too far too fast, and places an order to sell 2,000,000 contracts. After a pregnant pause his broker replies, "Sell to whom, you're the egg man."

--------------------------------

For the rest of the article, and the relevant conclusions Peter Schiff draws from the story this time -

visit The Egg Man story at 321Gold.

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Root In People - Not Things

2006-04-08T21:21:00.000-07:00

Avoid putting down psychological roots.

Do not become tied to a speculation because of misplaced loyalty. If you drive a Chevy, you don't have to keep your GM stock. In fact if you work for GM you probably don't want to own any of their stock. With your pension and your job there - you need to diversify away from the company.

This warning is probably too late for GM employees, but the advice holds with any company that you might work for,

Don't marry your investments, they don't love you.

The stock does not know you bought it, and will not care that you sold it. Take small losses and find better ventures.

Time = Money, don't put them on hold. Never hesitate to abandon a deal if something more attractive comes into view. Jump at the better looking venture.

Don't let short term blips distract you from a formulated goal; know the volatility of an investment before you purchase it.

In fact study your speculations before you enter them. Always buy the book before the speculation.

Let me suggest the Market Wizards books, buy all three at once - once you read the first you will want to read the other two.

On any speculations you make - don't put down roots.

Remember that basic speculation rule :

Cut losses short - let profits run.

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Speculate In What You Know

2006-04-06T12:53:00.000-07:00

Yes speculating is better than investment - but where do you start speculating?

Are you an artist, a doctor, a workman?

Consider speculating first in what you know by analyzing trends in your area of knowledge.

A bricklayer that invests in diamonds is probably buying cut glass. A bricklayer that sees growth in his geographical area and buys a local gravel pit may find it more valuable than diamonds.

When someone calls you about their great opportunity, hang up. Research what you know, and seek out your own opportunity. If someone calls you it is to sell you something to benefit themselves - when you are ready call the best source and control your own transaction.

Plan your speculation, speculate your plan.

Don't suddenly switch due to a news report or a friend's report of success. If everyone that is excited has bought, who will they sell to? Know well in advance what you plan to do, when the moment arrives, do it.

A solid Speculation Rule: Buy when almost everyone has sold, sell when almost everyone has bought.

But what is most important?

Speculate in what you know.

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Our Roots In Poker - Now Growing Macintosh Apples

2006-04-05T10:53:00.000-07:00

As noted in A Sovereign Speculator's title, exploration of fads is one of our objectives - The Sovereign Speculator started as a poker blog.

Back when A Sovereign Speculator was The Tsunami Hitchhiker we compared finance and poker - and we rode the early ripples of poker awareness.

One way to tell when a fad has reached a peak is to visit a large news stand. When we started covering poker the only poker magazines available were the free ones at poker rooms. Today Several new glossies have been started, the fad has taken hold.

(Look for magazines on Precious metals and coin collecting today - when there are three or more for sale it may be time to trim your gold and silver positions.)

Today is past the early days of fad, and that has changed the texture of the poker phenomenon.

Poker is mainly a solitary pursuit, kids are bowling now for community recreation. Poker is however great training for speculating, and you do not have to play for money to learn some important speculation rules.

Understanding concepts such as expected value (ev), protecting your bank roll, and pot odds should make today's youth better speculators.

That brings us to another sign that poker is maturing as a fad - universal access. Apple Macintosh users have had limited options in accessing poker sites - most of the options poor.

That has now changed for the small but influential Mac users group.

Full Tilt Poker has designed a version of their popular online poker room as a poker site for Apple Macintosh users. This is the first poker site with fully functional and compatible online Mac poker. Full Tilt is the first to innovate in this way, but they are one of the best poker sites for a reason.

Reaching to ever smaller market segments means the easily available fruit is vanishing - growth of the poker fad may have passed its peak. The casinos of course will keep building new poker rooms until the floor space is better utilized in other ways.

Banks will of course lend to build poker rooms until they get some back in foreclosure. Banks are usually about as good a contrary indicator as governments - making the right move at the wrong time and in the wrong direction.

I would expect poker to stay around for a long time, I think it will be more like base ball card collecting than tickle me Elmo.

It will be interesting to watch.

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A Major New Documentary On Speculation

2006-03-31T23:16:00.000-08:00

History's Hidden Engine

Watch History's Hidden Engine - watch it online now - for free!

I've just finished viewing this documentary, there is some very good information here.

This is a new production and is enjoyably informative.

The insight History's Hidden Engine offers into the nascent science of socionomics is quite profound.

The online streaming video itself is well worth your time, you will learn a great deal, at the very least you will be exposed to some wonderful conceptual challenges.

This video is available through the same folks that offer the excellent Elliott Wave Tutorial - which is also free.

Elliott Wave International's tutorial is a comprehensive introduction to the Elliott Wave Principle. All ten lessons have been adapted from Prechter and Frost's Wall Street bestseller, Elliott Wave Principle - Key to Market Behavior.

To start your Elliott wave education now, click here.

Elliott wave theory addresses much more than markets, it attempts to find patterns that underlie collective society.

Study of financial market implications are usually addressed under the Elliott Wave moniker. When folks are looking for deeper and broader societal trends they flaunt the socionomics label.

History's Hidden Engine is an in depth, without complicated math, documentary about social patterns. It is well done.

This may be a pseudo-science, or you may be witnessing the birth of a new science.

It is still early in the game - we just don't know yet - I'll consider it a protoscience for now.

I have found however that Elliott wave theory is applicable to speculation - it is a model I personally utilize.

Think about Hari Seldon in the Foundation series by Isaac Asimov. Socionomics may become an accepted discipline for the study of predictive group dynamics.

Watch the video - but don't make up your mind yet.

The field of Socionomics will be expanding.

if you are still interested after viewing the History's Hidden Engine documentary

you can take the free Elliott Wave tutorial

or you can read the two book set on Socionomics

This is worth investigating.

Enjoy.

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Figures Don't Lie

2006-03-31T12:37:00.000-08:00

Figures Don't lie, But liars sure can figure.

There has been talk of tipping points in many areas recently.

A tipping point is that instant where a feathers weight can shift a teeter-totter or break a camels back. Before that point all was stable, after that point all is massively different.

Custom derivative liquidity, stock market valuations, and more - all are capable of sudden and massive swings.

I think we may be close to an inflection or tipping point in the average American's perception of their government. A primary purpose of public schools is indoctrination -- creating a conditioned obedience response to authority. To challenge years of training will require a massive shift of confidence.

Today the average American believes those parts of the government that they don't understand - and seriously doubts the areas with which they are familiar.

As to what will happen if a tipping point of realization happens - we can guess - and we can protect ourselves - at least financially.

Just as a fad - poker, baseball cards, bowling - can suddenly appear or disappear, so can mass perceptions seem to shift overnight.

An overview of what may trigger this realization is available at the link in the headline, or for a cogent synopsis read this short report by Doug Hornig.

This might be another good time for a small bet on volatility, or any of a dozen other interesting plays. This is of course not investment advice - it is just a reflection of what I am thinking. Do your own research - follow your own counsel.

We will repeat an important speculation rule:

Just because something is inevitable does not mean it has to be immediate.

Enjoy Life.

tomorrow our lives may change drastically.

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Stock Market Shorts - A few indicators

2006-03-28T11:16:00.000-08:00

A quick point, a stock can start declining just because less folks are buying it.

There are many reasons a stock can decline.

The first reason is that almost all stocks are declining - a bear market. A standard view is that a declining tide lowers all boats.

A sector out of fashion by definition will effect all or most of the stocks in that sector. (A company that resists its sector trend is showing strength - it may be the first to rebound if the sector comes back.)

The third reason would be company specific. The stock can be in trouble for many reasons, but something will catch the eye of investors and the price will start slipping.

From the Bastiat Free University introduction page - here is a primary reason for a decline in a stock. BFU added a bit about society trends - I've included that also.

In finance there is a rule of thumb for large investors. If they own a great deal of stock in a company and notice the company has not, and will not, repair a flawed business plan; they sell their stock to protect themselves. They will then sell short more stock to profit from the collapse they think is coming. Their sales may alert others to look for problems and the stock may start it's decline.

BFU believes that as the netcohort society takes hold -- our traditional, inefficient, expensive, snobbish, government supported and regulated universities must change. They have a flawed business plan for the information society.

That finance rule of thumb for investor's?

If something is going to fall - it should to be pushed.

I also recommend that you visit the excellent blog of Mark Cuban - Blog Maverick. Mark has shown excellent timing in sports and in business Mark openly shares some great insights in his posts. In this entry he hits at least two indicators of a weak stock, some indicators are obvious - others you may have to think about.

IF you have the ability and the will to follow the speculation rule - cut losses short and let profit run - a few short sales can reduce your overall portfolio risk. This was of course the original idea behind hedge funds.

Stocks will rise and fall for many reasons - the most damaging to the stock will probably be company specific.

Any time a stock falls it could be a warning sign to take a close look at the sector and the entire market.

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Investment vs Speculation - Your Life Insurance

2006-03-25T14:50:00.000-08:00

Most of these journal entries spring from a well founded belief that speculation is preferable to investment.

An Investment is a guided vehicle that plants you in promising soil, for a price. That price is not only commissions and management fees, it is a lack of control as you defer to other's knowledge. Others have their agenda first - can you be sure they are recommending the buy or sell based only on your best interests?

Of course not.

As an example look at life insurance products that are touted as also being investment vehicles. These pay the salesman great commissions, but they provide you with little additional benefit. A term life insurance policy will provide you with far more life insurance coverage - but pays little if any commission.

I was going to grab some comparative numbers, but the old line companies that push expensive life insurance want a rep to talk to you. These following numbers may be way off, they are as I remember them from a brief period after college when I was a licensed life insurance salesman - I had to quit when I realized the only way to do what was best for the client was for me to starve.

I should also add that life insurance is very important in many instances. If you need to pay a huge premium to be talked into protecting yourself - do it.

If not find and act on the information yourself - and get far more coverage for far less money.

As a general rule when I sold Life Insurance, a healthy man age thirty could expect to pay about one dollar a year for one thousand dollars of term life insurance coverage. One hundred thousand dollars of life insurance coverage - one hundred dollars - per year. (not a lot of room for commissions in that)

A whole life policy could be priced any of a hundred different ways, and structured thousands of ways; universal life - term plus annuities - investment life . Think of a comforting word and it will probably have been applied to a life insurance product.

I had one client that had been sold a ten thousand dollar whole life policy. He paid close to three hundred dollars a year for this life insurance coverage - and he was healthy and less than thirty years old. With a term life policy he could have had a quarter million dollars of life insurance. (we did make sure he was approved and had the new policy before he chose to cancel the old one.)

Here are some of the standard objections a life insurance representative will make to the above:

Yes, but the term life policy will go down in coverage or up in price as time passes.

This is true, but total cost will be far smaller. Except for some estate planning issues, life insurance is mostly needed for young families, to decrease insurance latter in life as other assets grow may be a good thing.

Ok, but there is no investment in term life, what will you do when you retire?

Hopefully you learn to speculate, and retire well before your policy matures. If not your uncommitted money sitting in a bank is probably going to yield more than tied up in a whole life policy. Buy the best life insurance policy at the best price - make the best speculations separately - do both under your own counsel.

Sure, if people would save -- but most people need a built in expense to force them to save.

If you are in this position, have 10% of your gross pay removed before you see it - for an IRA - a 401K - or for a stock purchase plan. If you think you can't do that - why would you want an expensive life insurance policy to do it for you? That is a policy you will probably cancel when the bill arrives.

In case of emergency a whole life insurance policy will have built up a cash value available to the holder.

Lets look at this one a bit closer. That cash value is supposedly your money, right? Why if you ask for it does it cost you interest? Why if you borrow it does the value of your policy decrease by the borrowed amount? If you die why is your cash value kept by the insurance company - not passed through to your heirs?

To illustrate this last one. A ten thousand dollar policy may slowly grow a cash value - that is the built in retirement feature. Lets say after twenty years your policy has built up two thousand in cash value - supposedly your retirement fund.

If you borrow the two thousand:

you pay interest on the borrowed amount
you still pay your full policy premium
if you die your heirs only get eight thousand dollars
if you pay it back - your heirs will get ten thousand dollars, not twelve thousand

In essence- you are increasingly self insuring. The insurance company has over charged you and pretended to refund part of the over-charge as "cash value."

If you live to the life insurance policy's retirement age they will hand you this over-charge as your "investment return." Assume however the amount of your cash value is $9990.00 a year before an age 70 retirement. If you die - the insurance company will toss in ten bucks and hand your heirs a check for ten thousand, your cash value was just part of the policy.

Notice that you were still sending in that same payment at age 69 -- in effect for ten dollars of life insurance coverage. The risk to the life insurance company grows as you age and they change the price.

With term life insurance that charge is up front and understood. (as a hint, in the competitive term life market it may pay to shop for a new policy every five or ten years. If you do find a much better deal in the future, be sure to own the new policy before you cancel the old)

Let's expand this discussion back up to investment vs speculation.

When that investment adviser, financial analyst, insurance salesman, hedge fund manager, broker, or other finance professional calls -- they have a huge list of "financial products" available -- some with high commissions and management fees, others that might fit you perfectly.

Which ones do you think they want to talk about?

Learn to analyze and handle your own financial needs.

The first speculation rule:

No one cares more about your money than you do - unless they plan on taking your money.

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Doug Casey - A Mentor On Speculation

2006-03-24T13:19:00.000-08:00

Doug Casey is always worth the read - you can learn a lot and probably make money reading Doug.

Even more important you can preserve capital reading Doug Casey and thinking about the larger implications of his insights.

Doug Casey's most recent warning is a high value taste of using non-standard metrics to analyze a market - in this case the uranium juniors. This is taken from the 321Energy site, a valuable resource for mostly balanced information.

Read this not because you are interested in Canadian moose pasture, but because Doug shows several indicators that a market, any market, is overheated.

If you have very little money - subscribe to Doug Casey's International Speculator - and follow his advice closely. You will probably make money - you will definitely learn a lot about speculation.

(Doug Casey did create a course for Bastiat Free University, but I receive nothing for recommending him, he has taught me a lot and helped me make money speculating, that is enough for me.)

If you have a lot of capital - subscribe to Doug Casey's International Speculator - and several of his other services also. Doug tries to position himself for moves years ahead of the crowd - he did that with uranium when it was a hated investment, I've seen him do it in other markets also.

Doug may also help get you out a bit too early on his market segment calls. That should help preserve your capital.

An important Speculation Rule:

Don't try to get the last 10% of a run.

Learn from Doug Casey - and maybe make or preserve some money also.

I have.

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Pay Me In Silver And Gold

2006-03-20T13:32:00.000-08:00

This is a great little song put out by Steve Dore on the excellent 321Gold site.

He has written several similar tunes recently, this one seems to fit nicely with G.M. and the airlines.

When the four too bigs fail, they get bailed out by hurting the healthy and the small.

Kind of like what Doug Casey said, "Foreign aid might be defined as a transfer of money from poor people in rich countries to rich people in poor countries."

In the same cadence, although not as well written: Large corporate bail outs might be defined as a transfer of wealth from savers and taxpayers to bureaucrats.

An airline goes broke, has its contracts and pensions redone in court, and is now a low cost provider. All the other airlines now lose money and go broke since they can not compete.

Don't expect the politicians to let GM and Ford vanish and by doing so clean up the system. You will pay to rescue them - one way or the other.

A little free enterprise - unencumbered by huge national regulations - and they could be replaced by entrepreneurs with more direct and simpler technology.

It ain't gonna happen.

Maybe it is time to join in the chorus:

Pay Me In Silver And Gold.

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Liquidity - Is It Really Your Money

2006-03-17T20:09:00.000-08:00

The most commonly recognized sign of massive illiquidity is a run on the banks.

That may not happen again in most western countries - anytime soon. It will happen again however.

Each market has their own liquidity issues - peculiar to that market.

One aspect of wealth retention is diversifying your speculations into markets with low correlation to each other.

This starts on the simplest level - don't count on a company you work for to provide your retirement - and also own that companies stock. The correlation of the value of those two positions with each other and the companies long term future is way too close.

Fortune 500 and Dow 30 companies can and have imploded and disappeared.

The currency of the USA has visited worthless a couple of times before. Both the continental dollar and the civil war greenback dollar were sold at huge discounts - or refused acceptance entirely.

We know that today's dollar is being discounted for inflation - with the Federal Reserve printing huge amounts of them for decades - they are not a safe bet to store value.

If everything you own is in USA dollars - you may continue to lose money to the printing presses of the Fed. You are likely over correlated in US dollar exposures.

If you are in another nation - they are certainly going along and following the Fed's lead - you are probably over correlated in currencies for your entire portfolio. A side bet on resources may reduce that correlation.

Banks fail - nations fail - companies fail or have courts reverse their commitments - nothing in our world beyond personal relationships has eternal value. God is only taking one thing off this planet - that is people. All temporal assets are therefore fully correlated at this extreme.

What you can do now if you have wealth to protect - is seek to diversify.

Also important in the long run is not to use leverage in markets where there may be a liquidity surprise. I'll write more on that latter.

For now - just think of how your overall net worth would be impacted if all world markets shut down for the next month. Perhaps only your country's markets and currency no longer trade - will you be left with anything?

A speculation rule:

Wealth is made through concentration - wealth is preserved through diversification.

If there are no markets - is your money really your money?

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The Mine Field Of Custom Derivatives

2006-03-14T11:58:00.000-08:00

I'm not talking about standardized derivatives contracts such as stock or futures options that perform a useful function in risk control.

Consider if major banks, hedge funds, insurance companies, and scores of major corporations have created trillions of dollars worth of complicated and interwoven contracts that no one really understands.

These illiquid contracts are financial land mines that interconnect the financials of major players and are intractably rigged with cross party risks. Not if but when a derivatives land mine field blows up - it will trigger the explosion of other fields, which may trigger the explosion of still other financial mine fields.

When LTCM blew up it admitted a 4.6 Billion dollar loss. LTCM almost took out the world financial system - The Federal Reserve worked a recovery - triggering inflation that is continuing to grow today.

Since LTCM the Federal Reserve has apparently helped quietly orchestrate several mergers of key derivatives players. Banks have combined to decrease over-all exposure - and those contracts where they were effective counter parties to each other were retired.

There are probably far more derivatives today, and they are likely far more dangerous than when LTCM blew up. No one knows for sure.

I think it was Warren Buffett that described these hidden and poorly understood derivatives as a financial nuclear bomb.

I'll quote another Buffett quote:

"A given [derivatives] contract may be valued at one price by Firm A and at another by Firm B. You can bet that the valuation differences - and I'm personally familiar with several that were huge - tend to be tilted in a direction favoring higher earnings at each firm. It's a strange world in which two parties can carry out a paper transaction that each can promptly report as profitable." - Warren Buffett

The truth is neither party may know the value or danger of the contract - but it does instantly improve both of their earnings per share - or so they report.

The difference in real value may be huge depending on market conditions - In a meltdown some of these contracts will dissolve and disappear - others will represent huge expenses as they are unwound.

If you wondered how some companies always seem to hit their earnings target - this is just one way - create a custom derivative contract and give it any value you wish. A penny more then estimated earnings per share sounds good.

The FALLStreet article the Buffett quote was taken from, What's New with the Accounting Shell Game? More Shells, is well written and worth the read.

The effect on us?

There is a very real risk of an international financial meltdown. While probably under 30% for the next few years the risk is growing. The short term destruction of economic systems could start today.

Of course my 30% risk assessment is a guess about something seen in the dark, at a distance, behind a curtain.

No one knows the real risks.

Protect yourself.

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In Speculation - Math Is Seldom The Answer

2006-03-11T13:51:00.000-08:00

Using physics theory some solutions are best apprehended considering the universe as two dimensional with another five dimensions as illusionary.

Does that help you decide if IBM is a good short?

Quantitative analysts (quants) are math and science geniuses that are hired by wall street to discover market anomalies that yield to sharp financial finesse or even blunt arbitrage.

We are not likely to compete with these professors that have given over their lives to studying phenomena such as the intersection of Euclidean geometry with quantum theory.

Most of us would not want to be a quant.

If it is not in math we can profit, where in the investment landscape can we survive and thrive?

It is in understanding of the concepts - and then speculating in niches that are ignored by wall street - that we can excel personally.

As an instance take a look at the most pervasive option pricing models. These models were created by quants for specific people - option specialists trading options on the floor for short term profit.

Even if we don't understand the model's math, we can see the concept of a different value based on a longer holding period with different profit goals. pricing on leaps (long term options) has several attributes that allow for novel plays - seek them out.

Get books that explain the markets, like Jim Rogers' book on commodities to the right. If you understand how the markets work, you can find a spot and method that fits your personality.

Trading by concept with personally psychologically comfortable methods may be the key to your speculation success.

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Financial Fairy Tale -- #3 - Humpty Dumpty

2006-03-08T23:06:00.000-08:00

The Humpty Dumpty story fits so many markets we need to start with a caution.

It was Mark Twain that said something like: "History does not repeat - it rhymes."

It is easy, and many do take the easy path, to look at the last depression to predict the next.

there are similarities of the last depression to the coming greater depression - but it will be attitudes more than facts that rhyme.

The Federal Reserve was created in 1913 to maintain a stable currency. The business men and government officials were proud of their knowledge and modern tools that made recessions obsolete. You of course can read similar boasts in today's paper.

There was a recovery after the 1929 crash, the market was higher again just as the Dow Jones is back up today. Everyone patted themselves on the back and assumed that was the last crash ever.

Then the economy went from bumpy to broken eggs ugly.

The recovery came for America when Europe was kind enough to blow up all their manufacturing capabilities during World War Two. The socialist countries helped out by destroying initiative, only big well connected companies and well connected people prospered in much of the world for decades.

That has changed. China is capitalistic, Asia is very productive, and America is borrowing against our aging capital base to buy toys.

The ride is about to get bumpy.

We have a new Humpty Dumpty up on a very high pedestal today. We are assured by our leaders that we have the tools to control the economy.

sadly all the kings horses and all the kings men

are going to watch an omelet created again

How Wall Street Works

2006-03-03T18:43:00.000-08:00

One thing we know for sure - Wall Street does not work the way Wall Street says it works.

How Wall Street works can be seen in two of their business models.

The first method is Wall Street trades for their own account. They do this as specialists, market makers, and traders seeking high returns from small risks with minimal capital exposure.

The second way Wall Street works is by generating commissions. Wall Street gets relatively consistent and predictable cash flow from suggesting and implementing trades for others.

This is not just a broker on the phone, it is also the information on the days action provided to the media. Wall Street also provides analysts that help move investors in and out of investments by their constantly changing recommendations.

They have other business models such as investment banking. The Wall Street business model aimed squarely at your assets however is commissioned trades.

Learn to understand markets for yourself - make your own decisions. This alone will keep your nest egg from shrinking due to turnover.

If someone calls with an investment idea - ask them to mail you the particulars. If they say there is not enough time or they can't do that -- hang up the phone. If they say they will send you material - tell them if and when you are ready you will call them back.

No one cares more about your money than you do - unless they plan to take your money.

Wall Street is very profitable - for Wall Street. If you want to profit in the markets you will have to be in control of your own speculations.

If you have asked how Wall Street works here is your answer - Wall Street works on investors money.

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Hedge Funds - High Risk

2006-02-28T10:53:00.000-08:00

There are many types of Hedge Funds.

Originally hedge funds started as a way to control market risk. Most folks agree it is almost impossible to guess where the markets will go tomorrow. At least honest folks agree.

There are a million ways to make money in the markets - and all of them are short lived and hard to find.

Some money managers decided to hedge their risks - buy companies they liked - fade (sell short) companies they didn't. This theoretically would allow them to make a profit and avoid loss regardless of market direction.

Hedge funds were touted as wealth defense.

Very few true hedge funds were created and then survived. Investment managers soon discovered they could structure a hedge fund around regulation - huge profits for investment management then assured success of the name hedge fund.

There are now thousands of hedge funds. Statistics on their success have a decided survivability bias, even stronger than the regulated mutual funds..

Bill and Martha go to Vegas, Bill lose money all week, and Martha beats the odds and has a big win one day. If you remove the losses - as many people psychologically do - they were big winners. If you have enough Bill and Martha teams - a few will be big winners for many years in a row.

Say you start the year with 3000 hedge funds taking huge leveraged risks. Five hundred hedge funds win big and start attracting hot money. One thousand hedge funds do horribly and close or merge. The 1500 hedge funds in the middle languish and wait for next year. Of course when money managers look at the cash made by the top 500 hedge fund managers - you will have more than 1000 new hedge funds for the new year.

survivability bias looks at the above information and says we have more hedge funds than last year - and the older funds have done fantastic. Avoiding the math, the huge overall gain is largely due to the losing hedge funds disappearing totally or merging themselves into a "successful" hedge fund.

Lets look at the top 500 hedge funds in the above example. Next year assume 100 have a great year, 100 are so bad they close or merge, the other 300 can still brag on their "results since inception." The top 100 managers paychecks and egos are now huge. Continue and after 5 years you will have a few wealthy "superstars of finance."

You could do the same. Maybe that's how Hillary made a hundred thousand in the commodities market and only "invested" once. The broker could have two opposite future accounts opened and leveraged them to the hilt. One account went up $100, 000.00 while the other account went down a similar amount. Surprise - Hillary had the one that "earned" 100k.

The next view of hedge funds is less charitable. The first notice of this type of scam I am aware of is in a book recommended by almost every top investor, advisory, or speculator - Confessions of a Stock Operator.

The latest version of the scam will be in tomorrow's email.

The way con artists can do the same thing is to send out 200,000 emails telling about their "new" program. 100k emails will recommend going long in Soybeans and 100k emails will recommend going short. Half of the recommendations will have big gains and receive a new email - half recommending going long in pork bellies, half of the emails recommending short. After two wins money will start to come in for "investment" in the program. Repeat to the "winners" and the cons are an expert with a great track record according to the "lucky recipients of the offer." Rinse and repeat.

It's a bit like being an economist: if you can't guess right - guess often.

Today almost all hedge funds share one characteristic - high unhedged leverage. Those that blow up will not be around to taint next years graphs of hedge fund returns.

My opinion is derivatives will probably cease to exist in their present form after they are blamed for the next depression. In the interim they are frequently tools of excess leverage that are hidden behind the doors of many huge banks. These banks are counter-parties to largely unregulated hedge funds and overly creative corporate and government finance departments.

This derivative balloon will not end well.

Those that claim nothing has gone wrong since LTCM are like the fellow that jumped off a fifty story building. As the jumper passed each floor folks could hear him saying; "so far so good - so far so good."

Consider the above before you invest in a hedge fund.

The graph a hedge fund shows you is of them as a small percentage survivor, the past is definitely no assurance of next years results. An "unforeseen catalyst" may cause devastating losses.

Heck if it was foreseen the hedge funds would have prepared for it. Bad things will continue to surprise in the future.

Here is a repeat of an important speculation rule that greatly applies to investing in hedge funds:

Life is not linear.

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We Need Government Assistance

2006-02-13T11:59:00.000-08:00

A cry for government help from those that need it most.

Its for the good of the country - for the good of the people. A statement like this and a following rant would normally be on my A Sovereign Speculator pages.

This time I read a well written page over at the 321 gold site. 321 gold and their sister site 321 energy have interesting speculation information, and occasional insight pieces like A Tale Of Two Railroads.

I by no means agree with all the insight pieces 321 gold lists, but I will read and consider the ones that are not bombastic. (I dislike reading name callers - and anyone that shouts "always, should have, never, every instance" and offers no balance or proof for their slanted opinions)

Larry LaBorde wrote a short and informative historical piece that has significant application to current world events.

Take the minute or two required to read A Tale Of Two Railroads.

I'm sure that even though Larry LaBorde does not shout out conclusions, you will be see his point, and give it fair consideration.

Your world view is important in your understanding of speculative markets.

All markets are speculative markets.

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Finger On The Speculation Trigger

2006-02-12T12:00:00.000-08:00

You always pull the trigger without having complete information.

An Investment is a long term bet based on incomplete information.

A speculation is an indeterminate term bet based on incomplete information.

Information will always be incomplete - even after the fact.

With an investment you first discover an opportunity that you think exists. Next you may discuss it with a broker to find a good way to put money behind your conviction. Then you wait and watch as your chosen vehicle raises and falls.

With a speculation, when you pull the trigger and enter the trade - you have a good idea of when and how you will exit the trade. If the trade does not work as anticipated - if there is a loss - you will probably get out quickly.

With an investment it is buy and hold. Most investors will hold until their emotions get too high. They will either sell when the price drops enough to seriously depress them or has risen enough for them to feel good about a victory. With this emotional criteria they tend to let losses run and grab at small profits - they lose overall.

A speculator should understand before they enter how they will know if they were wrong about the market or the timing. Speculators seek to protect themselves from large losses by pulling the exit trigger quickly. The other side is to hold on to profitable positions - giving themselves maximum opportunity for large gains.

When you hear of a big winner in a speculation - it was not that one speculation that made them successful. If they stay successful they will cut losses short and let profits run. This is done most frequently by planning your exit points before you enter.

That large speculation win is the symbol of many victories comprised of cutting losses short. Protecting your chips so you can win big when you are right is a major victory also.

The exit point does not have to be a number, in fact for profits it probably won't be a number.

Pull the trigger to enter your speculation only when you have a way to judge quickly if you were wrong

Pull the trigger to exit the speculation as soon as you know your reason for entering was an error.

Stay in a profitable speculation as long as the reason to pull the trigger in the first place remains valid. If that changes - consider exiting the trade.

Pull the trigger and exit when your target for the move is complete - and - your analysis shows the trend is about to end.

Buy the book before the speculation - know the rules and tricks relevant to that particular market before you commit.

If pulling the trigger is determined by emotions, the investor has probably made a mistake.

Our emotions tend to reflect the emotions of the herd. The herd is right for short periods in the middle of a trend - but emotions are not high there.

The herd is wrong at extremes - emotions will be high - wrong choices will be made. The defense to emotions is to, as much as possible, eliminate emotions as a trading criteria.

An old speculation rule states this quite well.

Plan your trade - Trade your plan.

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On Vacation

2006-02-09T20:17:00.000-08:00

I should be back about February 20.

You will probably enjoy the five page article on speculation rules developed over decades; check the preamble here.

Another article, this one on 8 steps to acquiring financial freedom, is also with reading.

Enjoy life, I'll be back soon.

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Financial Fairy Tales -- #2

2006-02-09T00:33:00.000-08:00

Today's fairy tale: hold investments for the long term - everything will work out.

If we all just believe -- Tinkerbelle will come back.

It makes a great story --but is you retirement tied to wishful thinking -- do you just need to believe?

Those that use this lovely fairy tale to sell investments leave out a lot of the details.

Details hidden by fairy tales like these and the (reality they hide):

stocks always come back (even if it takes fifty years)
its different this time (its always different - but trees still grow - die - and fall)
the government knows how to control the economy (never has - never will)
this is a safe blue chip investment (blue chips are still gambling chips)
buy the dips (great in a bull - disaster in a bear)
buy more and your average price will be lower (think how many shares you can get at a penny each - just before they go to zero)
the price is down due to profit taking (who makes a profit on lower prices?)

Keep the belief in fairy tale endings for the fairy tales.

Think for yourself.

Markets do not always come back - within your lifetime. Even countries and societies eventually fail.

Mere investments are burning matches - don't hold one too long. Don't try to get that last 10%, look instead for a new speculation that has just taken off.

Use that pixie dust to fly with a new trend.

If you are to live happily ever after - prepare for sudden and long term change.

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Elliott Wave Internation Free Week Starts Today

2006-02-08T13:06:00.000-08:00

A quick note - this EWT free week is worth exploring - go take a look.

Look at the excellent and free - Elliott Wave tutorial - while you are there.

Here is their e-mail writeup. All I have done is embeded the link they had as a cut and paste.

Enjoy!

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All week, you’ll be treated to SPECIFIC market forecasts for the DJIA, NASDAQ, and S&P.

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EWI’s Specialty Services US Stocks Forecasts help you identify the best market opportunities by alerting you to dynamic wave patterns and by teaching you to identify them for yourself.

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DON’T KEEP A GOOD THING TO YOURSELF! We encourage you to tell your family, friends and colleagues. Just forward this email to your investing buddies, or post it to your chat groups. They should join Club EWI now so they too can take advantage of FreeWeek. They'll appreciate getting access to all the free analysis and you'll have someone to talk shop with all week. Send them an invitation now.

If you missed the links for the Elliott Wave International free week - click here.

Allan

Financial Fairy Tales -- #1

2006-02-08T00:34:00.000-08:00

Fairy tales of the financial type tend to have unhappy endings.

There is a lot of financial advice that sounds wise - but is the equivalent of nibbling on the witches' gingerbread house.

Our first fairy tale: -- "Don't put all you eggs in Little Red Ridinghood's basket."

The advice, based on the old math based Modern Portfolio Theory, is to diversify into ten or twelve unrelated investments depending on portfolio size.

If we were to pick ten investments - our first three choices will probably outperform the extra seven put together.

The realty is that wealth is usually made by concentration, and preserved by diversification.

Using that guidance it would seem appropriate to put all your eggs in one basket - and then watch that basket very carefully.

We can use Red's basket after all.

If your basket seems at risk - protect it. Cut your losses short by getting out of risky trades quickly.

Once you see a profit - let it grow. Don't be quick to exit with a small profit. As long as the reason you entered the trade is still valid - stay in the trade. Don't however let a profit become a loss - get out if you risk damaging your original clutch of eggs.

If you are already wealthy - you don't need me to tell you to diversify - just do it.

Diversify over time to maturity, over asset classes, in different countries; and any other way you can imagine.

Then send me a check for my good advice (and what big eyes I have).

We can then share that happy ending.

Allan

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Economic News From A Non- Economist -- Good

2006-02-07T11:07:00.000-08:00

Economists exist to make weather men look good.

An old economist saw is since you can't guess right - guess often. Then they can point at a guess that came close and say something like " I told you last August that the number would be down."

Who is worse than a weather man and an economist?

A politician of course. They both guess and lie. It doesn't matter what they said last August - they will still claim to be right.

With that knowledge, what would you say if I told you that I read articles by a fellow that is both a congressman and someone that understands money.

I have a hard time believing it too.

Representative Ron Paul is well worth reading. The fact that nobody in Washington, R or D, seems to appreciate him is a very good sign.

Give Ron Paul's recent article A Real Washington Scandal a look.

This read is a taste of real economics.

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Book Review - Market Wizards - Jack D. Schwager

2006-02-06T15:55:00.000-08:00

Market Wizards is highly recommended reading if you speculate.

There are two other books also: The New Market Wizards and Jack D. Schwager's new book: Stock Market Wizards. Go ahead and buy all three of them - once you read one - you will want to read the others.

Schwager understands markets and traders. Market Wizards is a series of interviews with top traders / speculators that have had remarkable runs of success.

You will want to read the interviews several times. The Market Wizards books can be re-read as short vignettes. After the first read through they are great to leave next to your favorite chair.

What you will notice are consistent speculation rule themes that run through most of the interviews:

keep losses small
let profits run
limit exposure to correlated investments
if in doubt - get out
don't try to capture the first or last 10% of a move

- and a whole bunch more good advice. Notice advice derives from most of the interviews.

You will learn as much from the exceptions to speculation rules as the repetition.

Knowing when to break a speculation rule is an important bit of knowledge - Market Wizards provides some fine insight into that subject.

You may also find yourself drawn to one style of investment - that alone can save you tons of cash and years of time.

I'll insert one of my own speculation rules here: always buy the books before the speculations.

Market Wizards in not one writer's opinion on markets, it is the opinion of the few who have learned how to succeed on a grand scale.

Market Wizards is a compilation of great advice from great traders.

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Speculate In What You Know

2006-02-04T19:46:00.000-08:00

For years Warren Buffet avoided investing in technology stocks.

There is plenty of money to be made in areas you understand. If you buy diamonds on a street corner you will probably end up with cut glass. That gold brick you are offered is probably a lead bar with a thin plate of gold, or maybe even paint.

That leaves you with two choices.

Invest in what you know -- or learn about what you want to speculate in.

This brings up an obvious question, what about expert advice?

If you already are conversant in the asset class, expert advice can help point out new opportunities you might have missed.

Even experts will be wrong - if you do not know why you are in a speculation - you won't know the right time to close your position.

Perhaps you have done well on the long side of stocks, but now feel the short side may make sense. You have some basic skills and knowledge, study to fill in your knowledge.

If however you see opportunity in gold, soft commodities, or currencies and have not played futures markets before -- don't.

At least don't play them until you read some books and understand them. Always read the book before you play the speculation.

When you enter new markets keep your size small, increase size slowly, studying the whole time.

First and foremost - speculate in what you know.

Later learn some tools in other areas.

Don't make speculations in areas you don't understand.

You can't win if you don't play.
You can't play if you lose your chips.

Stick with games you know, be very careful about entering new ones.

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