The Financial Red Pill (a primer for new recruits)
How We Got Here
It is coming fast and furious now. Just a few short months ago, when making a brief Independence Day commentary I noted "Hard questions must be asked but in typical American fashion, we will roll up our sleeves - after the public becomes fully awake (and they're on their way) - and get on with it."
People are feeling as though a macro rug has been pulled out from under their feet. It is with good reason; all the while that America's true macro-economic fundamentals were deteriorating alarmingly, the pied pipers of Wall Street merrily played their tune, enabled by the 'don't ask, don't tell' mentality of financial television, other major media and the government itself. The public has been let down in a big way. Okay, we all know this now. But what to do about it?
I am often told by friends and family that they don't understand a lot of what I am writing or saying, financially speaking. Therefore, this commentary is written in a manner that tries to avoid overly technical analysis or jargon. I am trying to speak to 'folks'.
It is not too late to get yourself up to speed. But there is much work to do. At this stage you should deal with the fact that things have changed and you may in fact deal with the anger that arises when you realize these changes have been in force for years if not decades. You have just landed in Wonderland, and it is imperative that you deal effectively in this new reality, this new normalcy. Please do not panic. It cannot help.
I am writing on the morning of the day Congress will decide on a giant macro welfare package. In reality, this is a bandaid that will not produce anything but future inflation (increased money supply) in the system - this time potentially of epic (hyper) proportions. That is because what US and global authorities are now fighting is not merely recession; it is a total meltdown of a house of cards that was gamed and leveraged until an ill wind blew it down. The ill wind was not the 'deadbeats' with sub-prime mortgages they couldn't afford. The ill wind was greed on a grand scale; a mentality of 'let's get ours while the gettin's good'. This came at the expense of any remaining trust in the US financial and banking sectors along with those of a good part of the developed world.
I will cease the blame game now because the fantasy of prosperity through credit (debt) creation has now fallen away and the major media are finally on the case. What we need to talk about now are solutions, both personal and global macro-economic. For this essay, we will stick to the personal. There are very definite things you need to know and accept.
As mentioned in previous commentaries, I was engaged several years ago in a personal effort to learn the real truth behind what I felt was a financial facade but I was activated by one person (I'll call him 'J') who slapped me awake, shoving that pill in my mouth and forcing me to swallow. I don't mention him by name because I don't think he would want that. But he was fairly well known among those alert enough to get off the massive and conventional financial services industry grid.
I clearly remember the strange feeling I had in 2004 trying to balance my life with one foot in the Matrix and one foot in this strange new world down the rabbit hole; watching the Red Sox battle their way to their first modern era championship and trying to pretend it was what was really important, but knowing otherwise. These were strange days that produced Biiwii.com and later the Technical Analysis & Commentary blog. Now you are here. It is time to get to work.
Do's & Don'ts
Do be open to new ideas from non-traditional sources and likewise, don't unconditionally accept everything you are told by the financial services industry and the financial media.
Do be open to questions like 'what is money, after all?' in light of the fact that it is created out of thin air and backed by nothing but confidence (and debt). Don't disregard forces that predate the modern financial system and in fact date back to the earliest times in human recorded history; don't disregard honest value and the monetary metal that represents it, gold. After all, the decades long bull market in paper assets and the financial system that created it has programmed the public to believe that this 'barbarous relic' is outdated, outmoded. Well, who is becoming outmoded right before our eyes today?
Do learn to develop your own sense of right and wrong, honest and dishonest, trustworthy and unscrupulous where financial advise and even commentary is concerned. Don't take everything as gospel even if it is coming from an alternative or bearish side. There are bearish pitchmen just as there are bullish ones.
Do become educated on seemingly dry and boring issues like the difference between a treasury bond and corporate bond, or for that matter between a long term treasury bond and a short term or T-bill. Above all, cast aside that easiest of answers peddled by Wall Street and don't blindly accept old nuggets like "60% stocks, 40% bonds adjusted as needed for risk profile and/or investment horizon" with no further question as to the make up of those stocks and bonds.
Do understand that a bond is debt; a T-bill is treasury debt and the currency underpinned by this debt is currently worth nothing more than its ability to be printed into oblivion one day. But don't think it is the only one. The Euro is not a solution as it has many of the same associated problems as the US Dollar. This is global.
Do understand that finance and investment can be a very boring subject for many people but don't discount how interesting it can ultimately be once you gain an understanding of how these areas tie in to the future success of you and your loved ones; how these areas tie in to society as a whole and even geopolitics. You are part of a developed global financial community that is currently in crisis, and you should play the part proactively, not passively.
I am but one individual trying to help in what will likely be a brand new industry built on getting the public up to speed on seemingly new realities. I do this through my free website http://www.biiwii.com, blog http://www.biiwii.blogspot.com and most recently through a weekly newsletter Notes From the Rabbit Hole, which is a premium service that provides detailed analysis, commentary and portfolio composition each week and operates within the simple rule of maintaining balance between capital preservation and capital appreciation.
There are many other sources out there to help in understanding the current financial crisis situation and planning for the future. The first step is to become educated and aware to the degree that you can discern who is providing sincere direction and who is not. For my part, I am providing my email (gt AT biiwii.com) for anyone with specific questions about my services or for anyone who simply has general questions about markets, the financial system, what we call "money" or anything else. All I can promise is that I will provide an honest answer to the best of my abilities. The rest is up to you.
There will be much more to come in the future as we begin the task of getting people up to speed and I promise I will not force you to take a pill. I think you are ready all on your own.