John Maynard Keynes: A General Theory of Lying, Swindling, and Hustling

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Some revealing excerpts from “Keynes, the Man,” by Murray Rothbard (thanks to the Mises site), which describes the intellectual roots of Keynes’ discounting of empirical evidence or principle. Perhaps this explains Paul Krugman.

DISREGARDED EMPIRICAL EVIDENCE

“To destroy any possibility of applying general rules to particular cases, Keynes’s Treatise [On Probability] championed the classical a priori theory of probability, where probability fractions are deduced purely by logic and have nothing to do with empirical reality. Skidelsky makes the point well: Keynes’s argument, then, can be interpreted as an attempt to free the individual to pursue the good…by means of egotistic actions, since he is not required to have certain knowledge of the probable consequences of his actions in order to act rationally. It is part, in other words, of his continuing campaign against Christian morality..

By limiting the possibility of certain knowledge Keynes increased the scope for intuitive judgment.

Suffice it to say that Keynes’s a priori theory was demolished by Richard von Mises (1951) in his 1920s work, Probability, Statistics, and Truth. Mises demonstrated that the probability fraction can be meaningfully used only when it embodies an empirically derived law of entities which are homogeneous, random, and indefinitely repeatable. This means, of course, that probability theory can only be applied to events which, in human life, are confined to those like the lottery or the roulette wheel. Incidentally, Richard von Mises’s probability theory was adopted by his brother Ludwig, although they agreed on little else

VENERATED EXPEDIENCE AND ELITES

“What Keynes took from Burke is revealing……There is, first, Burke’s militant opposition to general principles in politics and, in particular, his championing of expediency against abstract natural rights. Secondly, Keynes agreed strongly with Burke’s high time preference, his downgrading of the uncertain future versus the existing present….. ……..

Thirdly, Keynes admired Burke’s appreciation of the “organic” ruling elite of Great Britain. There were differences over policy, of course, but Keynes joined Burke in hailing the system of aristocratic rule as sound, so long as governing
personnel were chosen from the existing organic elite…..

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

LIED AND MISUSED STATISTICS

….Indeed Keynes displayed a positive taste for lying in politics. He habitually made up statistics to suit his political proposals,
and he would agitate for world monetary inflation with exaggerated hyperbole while maintaining that “words ought to be a little wild—the assault of thoughts upon the unthinking.” But, revealingly enough, once he achieved power, Keynes
admitted that such hyperbole would have to be dropped: “When the seats of power and authority have been attained, there should be no more poetic license”

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

ARROGANT,  BOMBASTIC  AND IRRESPONSIBILE

One striking illustration of Maynard Keynes’s unjustified arrogance and intellectual irresponsibility was his reaction to Ludwig von Mises’s brilliant and pioneering Treatise on Money and Credit, published in German in 1912. …The book, he wrote condescendingly, had “considerable merit” and was “enlightened,” and its author was definitely “widely read,” but Keynes expressed his disappointment that the book was neither “constructive” nor “original” (Keynes 1914). This brusque reaction managed to kill any interest in Mises’s book in Great Britain, and Money and Credit remained untranslated for two fateful decades. The peculiar point about Keynes’s review is that Mises’s book was highly constructive and systematic, as well as remarkably original. How could Keynes not have seen that? This puzzle was cleared up a decade and a half when, in a footnote to his own Treatise on Money, Keynes impishly admitted that “in German, I can only clearly understand what I already know—so that new ideas are apt to be veiled from me by the difficulties of the language”…

********

CORRUPT IN PUBLIC OFFICE

In the fall of 905, he wrote to Strachey: “I find economics increasingly satisfactory, and I think I am rather good at it. I want to manage a railroad or organize a Trust or at least swindle the investing public”

Keynes, in fact, had recently embarked on his lifelong career as investor and speculator. Yet Harrod was constrained to deny vigorously that Keynes had begun speculating before 1919. Asserting that Keynes had “no capital” before then, Harrod explained the reason for his insistence in a book review six years after the publication of his biography: “It is important that this should be clearly understood, since there were many ill- wishers . . . who asserted that he took advantage of inside information when in the Treasury (1915–June 1919) in order to carry out successful speculations”. In a letter to Clive Bell, author of the book under review and an old Bloomsburyite and friend of Keynes, Harrod pressed the point further: “The point is important because of the beastly stories, which are very widespread . . . about his having made money dishonorably by taking advantage of his Treasury position.”

Despite Harrod’s insistence to the contrary, however, Keynes had indeed set up his own “special fund” and had begun to make investments by July 1905. By 1914, Keynes was speculating heavily in the stock market and, by 1920, had accumulated £16,000, which would amount to about $200,000 at today’s prices…..

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

INDIFFERENT TO IMPERIAL EXPLOITATION

Maynard,” Skidelsky points out, “always saw the Raj from Whitehall; he never considered the human and moral implications of imperial rule or whether the British were exploiting the Indians.” In the grand imperialist tradition of the Mills and Thomas Macaulay in nineteenth-century England, moreover, he never felt the need to travel to India, to learn Indian languages, or to read any books on the area except as they dealt with finance. Keynes praised the Indian standard [Lila: a gold exchange rather than a gold standard] as allowing a far greater “elasticity” (a code word for monetary inflation) of money in response to demand. Moreover, he specifically hailed the report of a U.S. government commission in 1903 advocating a gold-exchange standard in China and other Third World silver countries—a drive by progressive economists and politicians to bring such nations into a U.S. dominated and managed gold-dollar bloc

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

MANIPULATED, SLANDERED, AND HARASSED COLLEAGUES

But Keynes used tactics in the selling of The General Theory other than reliance on his charisma and on systematic deception. He curried favor with his students by praising them extravagantly, and he set them deliberately against non-Keynesians on the Cambridge faculty by ridiculing his colleagues in front of these students and by encouraging them to harass his faculty colleagues. For example, Keynes incited his students with particular viciousness against Dennis Robertson,his former close friend. As Keynes knew all too well, Robertson was painfully and extraordinarily shy, even to the point of communicating with his faithful longtime secretary, whose office was next to his own, only by written memoranda. Robertson’s lectures were completely written out in advance, and because of his shyness he refused to answer any questions or engage in any discussion with either his students or his colleagues. And so it was a particularly diabolic torture for Keynes’s radical disciples, led by Joan Robinson and Richard Kahn, to have baited and taunted Robertson, harassing him with spiteful questions and challenging him to debate……

[Note: I’ve created subtitles, omitted citations and cut out intervening passages for the sake of clarity].

Comment:

Keynes was one of Time Magazine’s top 100 Men in 1999. They claimed he was the man who saved capitalism. And yet, from his writing, it’s clear that Keynes was clueless about the dynamism of genuine free enterprise. His vision is static, rigid, almost feudal. He divides the world into 4 classes:  the consumer (driven mechanically by consumption, as though he had no free will); the evil saver (who embodies all the despised middle-class  and Christian virtues of hard work, thrift, foresight*) whom he conflates with the rentier class; the admirable but boisterous entrepreneurs, also driven to and fro by swings in moods; and at the top, the only really virtuous and reasonable class – the intelligentsia, which rules through intellect, the philosopher-kings – of which he, of course, was one.  This is a feudal and essentially medieval viewpoint, for surely one of the great achievements of  modernity was to understand that money indeed has a rightful price – the interest rate, which is the price of time and deferred gratification.  Keynes instead clung to an ossified pre-modern collectivist mind set. He’s the very antithesis of progressive thinking and yet he is a hero to progressives.

*Protestant Christian virtues, I should add.

Market Meltdown Books and St. Timothy

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Chris Droker has a list of bust books:

 

Panic

 

Meltdown

 

Mr. Market Miscalculates

 

Financial Shock: A 360 Degree Look at the Subprime Market Implosion

 

Empire of Debt: the Rise of an Epic Financial Crisis

 

The New Economic Disorder

 

Plunder and Blunder

 

Bailout

 

The Origins of Financial Crises

 

The Gods that Failed: How Blind Faith in Markets Has Cost Us Our Future

 

The Coming Economic Collapse

 

The Coming Generational Storm

 

The Return of Depression Economics

 

Agenda for a New Economy: Why Wall Street Can’t Be Fixed and How to Replace It

 

Guide to the End of Wall Street As We Know It

Comment

Interesting.

“Mobs, Messiahs and Markets” – (Bonner & Rajiva, 2007) –  which actually gets it right about empire, debt, the housing and credit bubble, the war/propaganda, and was spot on in timing, and won a major business award, is not around.

I wonder why that is.

“For the time will come when they will not endure sound doctrine…”  (2 Timothy 4:3)

Maybe that line from the Gospel has some sense to it.

But it’s how state propaganda works. Propaganda is not simply what government does to us. In fact, that’s the most obvious part of it. The really interesting part of propaganda is what people do to themselves.

“They will not endure…”

You have to know how to endure what you hear…not run away from what’s emotionally disturbing..or cognitively dissonant.

Growth is not a linear and time-bound development. You don’t grow just because the minutes pass.

Pasternak said something similar: To live your life is not as simple as to cross the street (I may not have got that quite right. It’s in one of Yuri Zhivago’s poems).

When I read this in school I thought it was trivial. It took me a couple of decades to figure out how profound it was. In fact it ought to replace e pluribus unum – a motto we don’t need nearly as much.

Gold Above 940

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Wow. Bernanke opens his mouth and the dollar sinks to 84.5.

Can’t he read a RED STOP sign?

And this weird thing here: I saw a  piece on bond yields and when I looked it up on yahoo, it’d been removed.

/cnnm/090318/031809_credit_market.html http://news.yahoo.com/s/ynews/ynews_bs262‘

Here’s  the URL for the original site:

CMWire – The Capital Markets Newswire

But when I looked through Capital Markets wire just now I couldn’t find it.

Here’s a copy of  the google search result for the piece:

Mar 18, 2009 … Yields plummeted by the widest margin since 1987. … 14:41 AIG chief asks execs to return bonuses» CNN.com. AIG chief Edward Liddy told lawmakers ….. (

Corrects the headline to reflect that Treasury yields plunged). …
cmwire.com/ – 39 minutes ago – Similar pages –

(http://www.google.com/search?hl=en&q=yields+plunge+1987+cnn&btnG=Google+Search&aq=f&oq=)

Update:

OK – I found the piece. It’s by Deborah Levine and I found it at Market Watch.

I think the original wire report on CMWire and Yahoo might have been taken off to make the headline look less alarming, so that the reference to 1987 didn’t spook stock investors – the media’s target patsies.

You can see that the article now reads – “Treasury prices soared Wednesday, sending yields plummeting….”

The powers that be want to keep the poor Dow’s chin up at least for today before the big bad short sellers come out in droves…

“Treasury prices soared Wednesday, sending yields plummeting by the largest amount since 1987 after the Federal Reserve surprised bond investors by saying it would buy $300 billion in longer-term Treasury securities over the next six months.”

http://www.marketwatch.com/news/story/treasurys-soar-after-fed-says/story.aspx?guid={7DB91E8A-FD87-4BD4-9296-3C6EA402C920}&tool=1&dist=bigcharts&

Meanwhile here are the details at Bloomberg  on the FOMC decision:

” This Wednesday, the Federal Open Market Committee of the United States’ Federal Reserve made a unanimous decision to keep the Fed Funds rate unchanged at the 0.25% to 0% range. The rate decision was not a surprise for a good number of investors since the Federal Reserve stated clearly on its last FOMC statement that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time”. Even so, today’s FOMC statement sounded a bit more dovish than expected, not reflecting the positive performance of the U.S. stock, bond and credit markets over the last two weeks. The Federal Reserve said “it sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term”. In addition,  “to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.” So once gain, the Fed said it will employ all available tools to promote the resumption of sustainable economic growth and this makes us believe that the Fed will continue to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets. In other words, the Fed will use quantitative easing. Currency traders reacted very negatively to the FOMC statement driving the U.S. dollar lower against the world’s most heavily traded currencies.”

 Comment:

What are they doing? Blowing smoke in everyone’s eyes pretending they see deflation in store in order to throw everyone off the inflationary scent?  Hoping meanwhile that gold doesn’t pop up too much and give the game away before they finish the next mighty round of mortgage hot potato? (Most plausible scenario).

Or, are they really terrified of having so destroyed the capital base of the economy that they think something, anything (maybe another financial instrument’s been discovered we haven’t heard about)  has to be done. And since all they have is a printing press., well why not use it? Off with the heads of the middle class, the thrifty, the savers, those who have no debt, the creditors!  (Also plausible, though probably only if combined with the theory above).

There’s a third option, but I’ll explore that in another post.

And why is Bill Gross pumping this whole business to the public?

“You want to continue to buy what the government will buy,” Pimco’s Bill Gross told CNBC.

From now on, it will be Pimpco to me. Sorry.

Gold Below 885

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Gold has gone sharply down below 900.  Already I feel better, although it puts my SLV nibble in the red.

I held off buying because I thought GLD showed more strengths on its down side moves – but recently I was just wondering if I was wrong after all and whether it was making a solid base at around 900-920.  Good thing I held off. That plunge down was sharp and shows that the corrective thrust is stronger than the upthrust still.

The propaganda effort on behalf of the fiat money regime started up last week and this latest onslaught by General Bernanke has the market up and  sentiment more optimistic.  So some faithless money is finding its way back into equities.

Global Super-Currency To Flood the World

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Edmund Conway

The Telegraph, London

Monday, March 16, 2009

The International Monetary Fund is poised to embark on what analysts have described as “global quantitative easing” by printing billions of dollars worth of a global “super-currency” in an unprecedented new effort to address the economic crisis.

Alistair Darling and senior figures in the US Treasury have been encouraging the fund to issue hundreds of billions of dollars worth of so-called Special Drawing Rights in the coming months as part of its campaign to prevent the recession from turning into a global depression.

Should the move, which is up for discussion by the summit of G20 finance ministers this weekend, be adopted, it will represent a global equivalent of the Bank of England’s plan to pump extra cash into the UK economy.

However, economists warned that the scheme could cause a major swell of inflation around the world as the newly-created money filters through the system. The idea has been suggested by a number of key figures, including billionaire investor George Soros and US Treasury adviser Ted Truman.

Simon Johnson, former chief economist at the IMF, said: “The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them.

“The objective is to create a windfall of cash. However, if everybody goes out and spends the money it could be very inflationary.”

Comment:

The Gold Anti Trust Action Committee (GATA) (which has this article on their website) has been one of the first groups to allege manipulation of the gold price. They’ve launched a Freedom of Information Act (FOIA) inquiry into the actual quantity of gold reserves held by the US, and they allege that it’s likely to be half the official amount because of secret sales, leases, and other arrangements promising it out.  Rising gold prices indicate an erosion in savings, so a stifled gold price is part of government “propaganda” to keep people from figuring out that they’re losing their savings.

I also found an excellent piece by Antal Fekete on their site. Fekete, a renowned Hungarian mathematician, critiques a recent article by NY Times columnist and rock-star Keynesian, Paul Krugman, in which Krugman blames Asians for the financial crisis. The article,   “Revenge of the Glut,” claims that Asian savings caused excess spending and debt. Fekete correctly calls this a piece of nonsense.

Instead, he points out something I haven’t seen any other writer talk about – the fact that while low interest rates are a good thing for business, falling interest rates aren’t. What falling rates do is make the cost of old loans more burdensome. A falling interest rate environment raises the cost of debt liquidation and thus erodes  capital. Eventually it eats up the entire capital base of firms and banks, which is why we are seeing an across the board collapse of banks and auto companies.

Low interest rates thus feed the derivative bubble which in turn drives the interest rate lower and lower.  Ultimately the savings and capital of the whole economy are destroyed. That’s what we are living through.

I’m actually working on a piece myself on Krugman’s article and how it ties in with the propaganda of the last two weeks.

I hope to have it ready tomorrow. Meanwhile, here’s a great line from the Fekete article for you to think about:

That’s the nature of the so-called Keynesian revolution. It is not a branch of economic  science; it is a branch of Leninism, a blend of collectivist ideology reinforced with unmatched expertise on conspiracy, street fighting and barricades.

Robert Pirsig On Platypi (Updated)

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“Early zoologists classified as mammals those that suckle their young and as reptiles those that lay eggs. Then a duck-billed platypus was discovered in Australia….

The platypus isn’t doing anything paradoxical at all. It isn’t having any problems. Platypi have been laying eggs and suckling their young for millions of years before there were any zoologists to come along and declare it illegal…

Quality is in the same situation as that platypus.

Because they can’t classify it the experts have claimed there is something wrong with it….

Should reality be something that only a handful of the world’s most advanced physicists understand? ”

That’s Robert Pirsig in “Lila,”

Update: I thought I should add this to make it clear what Pirsig was trying to do. It’s from an Amazon reviewer, Ralph Blumenau, who, from his profile is a retired teacher (his students were lucky – the review is spot on).

“He had felt that the two modes of western thinking, the classical and the romantic, were both unsatisfactory. The romantic, which will not come to grips with the underlying meaning of phenomena, is basically superficial. The classical mode, with its analytical procedures, often destroys what it investigates. The romantic mode stresses the subjective impact on the observer; the classical stresses the objective nature of the things observed. Both are part of what, in Lila, Phaedrus calls the subject-object metaphysic; and the concept that the world can be understood in terms simply of subject and object has been deeply embedded in western thought ever since classical Greek philosophy. However, the pre-classical Greeks, through their concept of arete, held out the possibility of a richer understanding. Phaedrus translates arete as “Quality” (and sometimes as “Value”), and it is by Quality that the conclusions reached by the classical or the romantic processes need to be judged.”

Revisiting the Financial Media, March 2007

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“The DJIA numbers, which is what most people mean when they talk about the market being up or down, are seriously misleading because they don’t represent the whole market — only a handful of very highly capitalized, very unrepresentative stocks.

 

It’s the DJIA that has been hitting new highs since 2006 — to cheerleading and pom-poms from the press. But a lesser-known index, the Standard & Poor 500 (S&P500) shows what’s going on much better. A 10-year chart of the S&P 500 shows that it’s not hitting any new highs but is actually buckling as it struggles to regain its 2000 heights. In the process, it seems to have formed the two ominous peaks that symbolize what is known as a Double Top to stock traders. A Double Top is a classic signal of a potentially drastic reversal in the offing. And as if to underline where things could be heading in a hurry, Goldman Sachs bank, the fountainhead of financial speculation in the economy (Goldman’s former boss, Hank Paulson was hired as Treasury Secretary), has taken a wallop too. Goldman, note, is heavily invested in China and in the US housing market.

 

Moral of the Story: Anyone with their pension funds or children’s college money riding on this market shouldn’t bank on living too happily ever after….”

 

That’s from  a piece I wrote in March 2007:  “Fairy-tales from Grimm that just got Grimmer”

Two years….and how much has changed.

 

Asian Values On Display At Sathyam

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Just to counterbalance my earlier blog post about the “savings ethic” of Indians, I thought I should also add a post on the “scamming ethic” of Indians – which sometimes wears a pretty face: it’s all done for the family. To bad if the family sometimes sounds like its name is Corleone….or in this case…Ramalinga Raju.

Raju is the disgraced CEO of Sathyam computers, an infotech giant. Sathyam was cooking its books on an Enron-esque level and its unmasking has sent sent shock-waves through out India’s ” New Economy.” Here’s a recent post that tries to figure out whether the average Indian is as shocked or more innured to this kind of corruption than the media coverage lets on:

“The corporate malfeasance confessed to at Satyam has shocked the nation with words like “financial 26/11? and “India’s Enron” being used to describe this catastrophe for India Inc. Satyam has been subject to ritual humiliations like having their corporate ethics award withdrawn and being taken off stock indices. The economic pundits are baying for blood. On the board floor.

But what does the man in the street think of all this?

Let’s find out in this exclusive GB TV news report.

[Background music: Satyam Shivam Sundaram. Ishwar Satya Hain. Satya Hi Shiva Hain. Shiv Hi Sundar Hain. A haaa A haaaaaaa]

Samar is 16 years old and is in Class 11. This is what he had to say.

I don’t see what’s wrong in making a few untrue statements in the balance books. I mean come on dude. Everybody does that at school while doing lab reports. I mean how can one really get a straight line graph while plotting V vs I? It never happens. So you massage the data so that it “fits”. The teachers know it. The students know it. The teachers when they were students did it.

Mona is 33. She works in a cell center.

If you don’t have it, you pad it. Be they balance sheets or bra cups. That’s common knowledge. When prospective grooms come to our house, I always wear padded bras. My aunts told me to do so. Are they asking me to cheat? I don’t think so. And just to balance out that exaggeration, I also under-estimate. I say I am 25 years old.

And it’s not just the younger generation who are supportive of the management at Satyam.

Raghavan is 45. He works for the government.

[Angrily]

So what’s the crime here? Using shareholder money to buy shares in the company your son runs at outrageously elevated prices? I mean if you are dragged over the coals for looking after your family, what is a man to do? Apne to aapne hote hain. What next? Ban the Congress Party?

Lalaji is 65. He has run a grocery for 45 years now.

My dad always used to tell me “Before you decide to be Harishchandra, remember what happened to him. And let that serve as a warning.” I have always followed that dictum and every successful business has to. I keep a metal weight below my scales, I put small bits of stone in the rice, I adulterate the cooking oil. I have two ledger books.

It’s not just me. The dairy-boy who my wife buys milk from has more water than milk. The asli desi ghee I buy is hardly asli. Everyone is tampering with numbers and ratios. Thats how it always has been with dhanda-giri.

There is just one crime in business. Just one.

And that’s getting caught.”

More at Great Bong.

 Comment:

*Satyam means truth. And the lyrics in the quote are taken from a famous old Bollywood movie called Sathyam, Shivam, Sundaram  (which you could translate as “Truth, Goodness, and Beauty”)….

*Ghee is melted butter

*Harishchandra is a prince in classical Hindu literature who is renowned for his truthfulness and goes to extraordinary lengths to keep his word and keep his obligations.  Truth- speaking is almost universally posited as one of the two or three highest virtues in classical Indian texts (the others equal to it are equanimity and doing your duty).  Gandhi wrote an intellectual autobiography called “My Experiments with Truth” and the Indian state’s motto is Satyameve Jayate which is Sanskrit for the “Truth Always Triumphs.”

Waves of the Future…

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“It sounds like the plot of a pre-Daniel Craig Bond film: an internet tycoon invests part of his vast fortune to fund a fiefdom afloat in international waters. He is joined by the libertarian grandson of one the world’s most famous economic thinkers and advertises for like-minded citizens “who are dissatisfied with our current civilisation” to join him aboard his brave new world. However, this is not fiction. It is happening now and the group, called the Seasteading Institute, has just released the first detailed plans of what its utopian water world will look like. The first architectural stage is being financed by a $500,000 (£362,000) donation from Peter Thiel, billionaire co-founder of PayPal, the online payments system that was sold to eBay for $1.5 billion in 2002. More funding will follow, and the group hopes to start building a small-scale version off the coast of San Francisco this year.

The computer renderings of this new ocean dwelling, called ClubStead, show a colossal structure similar to an oil rig that weighs 12,000 tons and is supported on four pillars each with a diameter of 30ft. On board will be room for about 270 people to live, including 70 staff, complete with shops, offices and transport. There will also be a hotel and spa facilities.

Although it looks like a fixed structure, the facility will be movable. It will have thrusters powered by four diesel engines capable of moving the whole structure at a top speed of two knots and providing utility power on the platform itself.

The brains behind the project is Patri Friedman, grandson of Milton Friedman, the Nobel prize-winning economist. “If we can open up the ocean as a new frontier where different groups of people can go and set up their own countries and try different systems,” he says, “then the whole world can look at that, see what works and what doesn’t, and everyone can benefit. America was founded by pioneers who wanted to have a different society to reflect their political and religious values.”

More at Times Online.  (thanks to Lew Rockwell for the tip).

Trading: Nadeem Walayat On What to Accumulate

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“Q. Where to invest during 2009 ?

A. Strategy here rather than stock picks. The strategy is clear, to accumulate stocks with stop losses in the decimated long-term growth sectors, the mega-trend sectors remain as I pointed in the October article are the Energy sector, that’s crude oil and natural gas (hit fresh lows), Water and Agricultural Commodities, add to that Biotech, Health and Tech stocks. Continue to avoid the financials, they are insolvent. It appears the central banks are attempting to fiddle the books with regards proposed ‘changes’ to mark to market valuations so as to give the illusion of solvency. Yes financial stocks WILL soar, BUT like the penny stocks that they have become, they will exhibit much volatility where 50% gains one week could easily turn into a 50% loss the following week.

Again remember to use stop losses on ALL positions. i.e. you place the stop under the most significant low where the market cannot trade if you are right ! For you only get stopped out if you are wrong. The maximum for a stop on a stock is 20%, and you never move a stop against your position. ONLY in the direction of the position. It is such a strategy that turns a portfolio to cash during a bear market without seeing bull market profits turn into bear market losses.

Your Stealth Bull Market Accumulating Analyst.

 Nadeem Walayat

Comment:

I’ve followed Walayat’s commentary for some time now and I find him to be pretty useful. I agree with his assessment of the current pessimism about the market and the advice to sell into every rally. That might have been right until now, but about now is probably the time to begin to accumulate. Even if in a worst case scenario, we go down to 5000, the upside from there is a lot greater than the downside. If you aren’t prepared to take that pain, the other thing to do would be to nibble at dips and hold through without selling into the rises. Nibble again when it dips. That way if the rally is just another bear market rally, you won’t have too much pain until the bottom. And if it’s the beginning of something better, then you’ll not have lost out.

Today’s action, GLD and dollar index down, seems to bear him out. With stocks up, investment money (which is largely what’s holding up the ETF) flows out of gold into the market. The same for the dollar, which was at the favorable end of the risk averse trade until now, ever since it became clear that Europe and Asia were slowing down just as fast (or faster) than the US.

I still think the dollar uptrend is not broken..yet…

But I’ve nibbled on Aussi and Kiwi (up today) and may add to my positions. Like Walayat, I think you have to ignore fundamentals and just think of price – it simplifies things a great deal.

(BTW I am not a professional trader but I’ve been managing my own savings since 2004 with no worse results than some of the top professionals around – I beat Peter Schiff hands down last year (not hard to do – a Schiff portfolio would have been down more than half last year) and Bill Miller too  – and with better predictions of price levels than most of them. My worst point is I’m overly cautious, trade only with a very small part of my savings, and have lost out from holding my money in dollars – mainly because, for logistical reasons, I haven’t been able to put down roots anywhere I think is really safe. In other words, I’ve a good idea where things will go but usually fail to act – the Hamlet syndrome…)