GOLD CHART outlook
What Investors Should Learn From Bernie Madoff
Russel Kinnel: Hi. My name is Russ Kinnel. I am director of mutual fund research for Morningstar, and today I’m going to be talking with Diana Henriques, author of The Wizard of Lies, a book about Bernie Madoff who pulled off the greatest Ponzi scheme ever.
The first question I want to ask you is about some of the research you did looking into his early life, and it’s really striking to see the signs of what would later become a giant Ponzi scheme were really there early on if you knew where to look.
Diana Henriques: That’s true, Russ, and I was quite surprised at that, as well. One of the mysteries I’m afraid, that will live as long as Madoff does, is when exactly the Ponzi scheme started. But I was able in my research to uncover an incident in 1962 when he was a very young over-the-counter trader with his own little firm.
He had invested money that was given to him by friends and family in very speculative, risky, over-the-counter stocks. In a market air pocket in May 1962 the bottom just dropped out of those stocks, and they lost all their money. But rather than confess that to them, he covered it up. He bought the shares back from their portfolios at what they paid for it and didn’t reveal but for that they would have been completely wiped out.
Now, he insisted to me, after the prison interview I had with him in August of 2010, that he kept it a secret from the investors because he knew that if he told them about it, they would insist that they take the losses and that he not nearly bankrupt himself to cover them up for him. But I don’t really buy that. I think he burnished his own reputation as the boy genius in the family and managed to hang on to those investment clients by lying to them about what he had done to prevent those losses in their accounts.
Now, that’s not the beginning of the Ponzi scheme, there’s no doubt about that. But it certainly was a very telling experience in the young life of the young Madoff.
Kinnel: You certainly get the sense that he, and maybe even his father to a degree, were trying to put a veneer on things that made things look better. And maybe all along he was trying to make it look like maybe he was a little more skilled investor than he was and that everyone was better off than they really were?
How much money can banks create – Banking 101 (Part 4)
Published on Jan 18, 2013
What does actually limit the ability of banks to increase the money supply?
In this video you’ll see that the type of reserve ratio that’s discussed in the textbooks has never even existed in the UK. We’ll see that the liquidity ratios that did exist have been reduced and eventually abolished, and that even when they did exist, they only limited the speed that the money supply could increase, but put no limit on the total size that it could grow to.
You’ll learn that the Capital Adequacy Ratios and Basel accords are about preventing banks from going bust when loans go bad, rather than limiting their dangerous lending or limiting how much money they create through lending. And although the capital adequacy requirements can restrain lending after a banking crisis, it doesn’t do anything to restrain lending in a boom.
You’ll also see that there is no natural limit on how quickly the banks can create money. They know that even if they don’t have the actual central bank reserves to make payments, they’ll be able to borrow those reserves from other banks, or even the central bank.
All this comes together to imply that the only thing that truly limits the creation of money, is the willingness of banks to lend. And their willingness to lend depends on their confidence.
In other words, the money supply of the nation depends on the mood swings of banks and the senior bankers that run them. This is surely an insane way to run an economy.
If you’d like to translate this video into other languages, please let us know. We’ll send you the transcript with timecodes.
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Animation by Henry Edmonds
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3. Expectations And Speculation…. The Failure of the “New Economics”
Friday, January 08, 2010 by Henry Hazlitt
Must Watch. DOW 14,000, A Grand Deception. By Gregory Mannarino
Published on Feb 1, 2013
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7th January 2013
Out of the frying pan into the frying pan
“The skill of the sports player is not the result of superior knowledge of the future, but of an
ability to employ and execute good strategies for making decisions in a complex and changing
world. The same qualities are characteristic of the successful executive. Managers who know the
future are more often dangerous fools than great visionaries.”
– John Kay, ‘Only fools claim to know the future’.
Only fools and economists, that is (this is known as tautology). Of the money routinely misspent
in the financial markets, that misspent on economists is surely the most egregious. Any strategist,
investor or fiduciary knows that he may be wrong – but only the economist has the potential to
be wrong at least twice. Once in the overconfident forecasting of future economic trends, and
once again in extrapolating from those dubiously forecast economic trends to make deductions
about the likely investment outcome. “I may be only a fish and chip shop lady,” said Pauline
Hanson, “but some of these economists need to get their heads out of the textbooks and get a job
in the real world. I would not even let one of them handle my grocery shopping.”
The dawning of a new year is invariably a time for forecasts. One of our new year’s resolutions for
2013 is not to join the crowd in issuing them. Another is not to waste any time in reading them.
Having spent at least the last decade honing an investment approach designed to be proof against
the very worst that an imperfect world, politicians, bankers and other investors can throw at it, it
would be a capitulation at this stage to suddenly subcontract asset allocation or investment
selection to somebody else’s subjective assessment of the world or any given asset class, worse
still to any economist. And yet, we still devour investment commentary as if there were some
unfound nugget of wisdom and insight that, once located, would finally reveal all the investment
Personal finance journalist Ian Cowie last week confessed (in his article ‘Bond bubble fears and
why I took the biggest bet of my life’) that he had sold all the bonds in his company pension to buy
shares instead. His arguments are all rational:
He expects bond prices to fall when interest rates rise, which is almost a mathematical
Interest rates have sunk to derisory levels and can barely go lower;
Gilts are by no means as riskless as conventional thinking dictates;
Gilts are by any sensible analysis ridiculously overvalued.
Director of Investment
PFP Wealth Management
7th January 2013. Follow me on twitter: timfprice
Email: firstname.lastname@example.org Homepage: http://www.pfpg.co.uk
Weblog: http://thepriceofeverything.typepad.com Bloomberg homepage: PFPG <GO>
Prophet Muhammad’s (SAW) Last Sermon
This Sermon was delivered on the Ninth Day of Dhul Hijjah 10 A.H in the Uranah Valley of mount Arafat
“O People, lend me an attentive ear, for I don’t know whether, after this year, I shall ever be amongst you again. Therefore listen to what I am saying to you carefully and take these words to those who could not be present here today.
O People, just as you regard this month, this day, this city as Sacred, so regard the life and property of every Muslim as a sacred trust. Return the goods entrusted to you to their rightful owners. Hurt no one so that no one may hurt you. Remember that you will indeed meet your Lord, and that He will indeed reckon your deeds. Allah has forbidden you to take usury (Interest), therefore all interest obligation shall henceforth be waived…
Beware of Satan, for your safety of your religion. He has lost all hope that he will ever be able to lead you astray in big things, so beware of following him in small things.
O People, it is true that you have certain rights with regard to your women, but they also have right over you. If they abide by your right then to them belongs the right to be fed and clothed in kindness. Do treat your women well and be kind to them for they are your partners and comitted helpers. And it is your right that they do not make friends with any one of whom you do not approve, as well as never to commit adultery.
O People, listen to me in earnest, worship Allah, say your five daily prayers (Salah), fast during the month of Ramadhan, and give your wealth in Zakat. Perform Hajj if you can afford to. You know that every Muslim is the brother of another Muslim. You are all equal. Nobody has superiority over other except by piety and good action.
Remember, one day you will appear before Allah and answer for your deeds. So beware, do not astray from the path of righteousness after I am gone.
O People, no prophet or apostle will come after me and no new faith will be born. Reason well, therefore, O People, and understand my words which I convey to you. I leave behind me two things, the Qur’an and my example, the Sunnah and if you follow these you will never go astray.
All those who listen to me shall pass on my words to others and those to others again; and may the last ones understand my words better than those who listen to me directly. Be my witness oh Allah that I have conveyed your message to your people.”