Wednesday, September 5, 2012

Good Gamblers Never Take Gambles

Very often, as a former poker player, I used to run into situations where all of the marks or pigeons in a game had gone broke and had been forced to leave the table. Generally this meant that the remaining players were all equally matched and winning money now- was hard and very often- simply a matter of luck. Not to mention that the game gets boring.

Without a significant and proven edge, in any game, you cannot win over time. Often, the losers don't want to come to grips with why they lost. They simply leave and they don't come back.

If I had to play in a poker game with a bunch of people like me- I wouldn't play.

Imagine a casino that offers all kinds of games. Roulette, blackjack, craps, pai gow. One day the casino informs it's customers that they will no longer offer all of these other games any longer. "We can't make enormous profits on those games like we used to because of the overhead and because all of our customers have turned into misers and cheapskates. From now on, we will only offer keno."

The casino helped kill it's customer base. I hate keno. By the way, keno was invented in Butte, Mt.

That's what bankers have done to the investment world. You can't make a dime anywhere else. Bankers and their fiat money have ruined all other forms of investment. Even real estate. They have funneled every last investment dollar into the stock market desperately trying to keep it alive.

Simply stated, when the Federal Reserve loans member banks all of the money they want at 0%, why would banks need or want your money? Why pay any interest? Why make any loans when they can repair their balance sheets with bond interest? Why indeed. 

It's no wonder banks aren't lending. They don't need to. They have a constant supply of free money with which they can buy bonds and fleece taxpayers who have to pay interest on that bond debt. We'd call all of that theft- if it wasn't so ingenious.

So people looking for a return on capital have one choice left. Equity markets.

It's like a giant keno game. Players are encouraged to pick some numbers or stock symbols. Some numbers win, most lose. Our entire way of life is hinged to that keno game right now. Millions of people are betting that their stocks will go up- that they have some significant and proven edge over the other players. Maybe that edge is the right sector, the right fund manager. Perhaps their edge is that they work harder and smarter than all of the other players.

Whether they know it or not- they are all relying on one huge assumption. That somebody will be available to buy what they need to sell.

We are at the end of the poker game. The easy money is gone. All we are left with is this giant keno game where the only players left are professional investors and bankers. They keep trying to lure some pigeons back into the game. They change the rules once the pigeons figure them out. And in 13 years time, the stock market is still at about the same levels as it was in 2000. Perhaps a little higher. This after they threw some bankrupt companies out of the Dow Jones Industrial Average like GM and added companies like Microsoft. We have been at these same stock market levels for the past 13 years. With dollars worth far less than they once were. It begs the question. Is our market actually higher...priced with dollars worth fractionally less than the dollars of 2000? If we have an annual 2.5% inflation rate multiplied by 13 years...have we not lost a collective 32.5% in buying power since 2000? Is this market actually higher? Probably not.

But more importantly- in a world full of debt and increasing taxes- where the richest demographic just happens to be the largest demographic- just who are the boomers going to sell price inflated stocks to? It is the law of supply and demand. Boomers had the same dilemma with housing. Over supply and low demand. That's what's going to happen when younger folks realize that the stock market presents far more risk than potential compensation. Far more supply than demand.They aren't going to buy.

I simply can't see this market going higher unless it does so with inflated currency as the Fed continues to print. You can't repeal the laws of supply and demand. Retail investors cannot compete with algorithms. They can't navigate inflation and taxes. They have to respect a predatory government that will change rules and confiscate property to survive. Sooner or later, the players will leave this game. The wisest ones will leave far sooner than the rest.

Sometimes the only win- is simply not to play. The best gamblers never gamble.

2 comments: said...

Yes, you are right, i agree with you, this is because they now everything.

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Irish said...

Good morning Brian,

I just wanted to let you know that I forwarded this to one of my friends that works in banking and finance in Boston. I got this back:

"johnny, did you write this or clip it from a blog?
it is very well done."

I told him I got from your blog here.