Thursday, October 15, 2009

Prospering During Deflation

"My favorite time to hold a stock is forever"
-Warren Buffett
With prices across America in the first phase of historic collapse, it's essential to reject the conventional "wisdom" that brought us this mess.

First, embrace lower prices. Lower prices are good for everybody. Capital gains speculation is irresponsible (I borrowed that word from modern socialist taking points just to annoy them) and should never form a large percentage of a comprehensive investment portfolio. Note, I'm using the word "investment" correctly, to describe the purchase of cash flow. When rip off artists driving our financial media use the term "investment" or "investor" they really mean someone who tries to attack and destroy companies through capital gains speculation. Let's be clear, ripping off a company is not an investment in that company.

Capital gains speculators are not investors. Speculators are people who want to buy low then sell high. They want to steal a piece of an organization and run. Virtually every educational institution teaches this stupidity as if it is viable method of creating wealth, using a flat broke staff of academic professors. Let's be clear about another thing, if you learned anything about money it in the halls of academia, it is completely wrong.

Capital gains speculation is about as close to throwing cash in the can as you can get, without actually dumping it. In fact, if you dump your cash somewhere you can often deduct it from your taxes, making in far more profitable than placing it with a speculator like a banker or broker, or speculating with it yourself.

The reason is obvious, ultimately, capital gains speculation is nothing more than a pyramid scheme, and you have to be pretty gullible to think any scheme is going to pay out over the long haul. Yet, almost everyone in the modern world is guzzling the pyramid-scheming socialist central bank's Kool-aid. That's exactly why the great majority are buried in incurable debt--the socialist's pyramid is in the process of collapse.
Note: I use the word "socialist" properly too--someone who wants the many to bear an equal burden supporting the privileged few.
You don't need to depend on corrupt government socialists exponentially expanding spending to thrive from their inflation of prices (or suffer as it deflates prices). You can actually make money instead of trying to snatch it via speculative pricing schemes. This is called, "investing."

Happily for investors the seemingly endless era of criminal inflation is over, at least for a few decades. The crime kingpins have once again destroyed their own phony credit for cash pyramid, and that makes investing extremely attractive.

Beat the rush.

Investors buy cash flow, they don't speculate on wild schemes to push prices higher. Investors pass cash flow positive assets on to their children. They intend to hold forever, because they aren't trying to leave some sucker with a wad of worthless paper. Investors want prices to fall, they want paper and real estate assets to become more affordable so they can buy more, at the same time bestowing greater buying power upon existing cash streams.

The key to prosperity for the rest of our lives is understanding the difference between "speculation" and "investment." Build an investment portfolio.

Lucky for people wanting to switch to investing, there has never been a better time to see the light. During Federal Reserve inflationeering (like a Disney Imagineer who can only draw Dumbo), investors are driven away by rising prices. During Federal Reserve implosioneering (kabooms are more interesting than floppy-eared elephants) and eventual bankruptcy, investment is grandly rewarded by falling prices. We live in the world of deflation, a return to the era of investment.

The first thing an investor notices, is that tax policy is sometimes on your side instead of working against you. That's because investors approximate or are businesses and should strongly consider incorporation. As such, capital outlays, or investments, are generally deductible. Cash flow beyond living expenses (salary) can also be taxed at a lower rate. There are a few things our tax policy actually gets right (for the time being), and rewarding investors more than speculators is one of them. Most people don't understand it.

Let's look at one of the most attractive investments during deflation: buying cash. Unlike what most were taught in the womb, cash is an asset during deflation. Plus, it is nearly risk free. It is hard to beat the risk/reward profile of cash. Buying cash as as simple as trading work to obtain it, or trading other assets for it. Once you hold it, cash starts producing cash flow. Yes, you can get a little interest on cash buy allowing the Treasury to protect it (don't risk it in banks, they will speculate it away), but I'm not talking about interest, I am talking about falling prices. As prices fall, idle cash in hand generates a steady stream of positive, spendable, cash flow.

If you have a lot of cash, you might need to protect your cash using Treasuries. Using the Treasury's relatively new C of I is a great way to stay completely liquid while protecting an unlimited number of cash flow notes.

If you work, another way is to decrease your W-4 exemptions to 0, so the government withholds the maximum amount of cash from your paycheck. This pool of government-protected cash isn't liquid after 30 days like a C of I account, but it is effortless and most people's time is worth more than a few pennies of interest. If you bank get's locked in private FDIC legal arbitration, or you are over the insurance limit, they'll mail a tax refund right to you.

The idea here is not return on capital, it is return of capital.

Lastly, there is the perennial favorite fire and water proof personal vault. Don't forget that boobie traps and overwhelming firepower can also function like investments. B e the bank. This one can pay off big when there is no cash accessible, ATMs are emptied by the first 10 in line, the world is in a panic to pay negative yields while migrating vulnerable bank account balances into the Treasury. You'll be growing your own cash at home.


  1. Hey FDRAOA -

    During a deflationary period, would it be better to invest todays dollar in equipment that would hopefully create a positive cash flow in a few years time or just hold the cash. Thanks.

  2. How do you convert treasuries (or the mailed check at maturity) to cash if all the banks are defunct? Please elaborate, thanks.

  3. FDR, I prefer to hold the cash myself rather than decrease my deductions and give the gov an interest free loan. Your thoughts?

  4. Brilliant NY Times article:

    Views from inside a depression - a 30's lawyer'S diaries

  5. I guess no one can argue against the truth.

    Thanks fdr.

  6. Well said.

    Your writings contribute greatly to a small but

    growing momement.

    The movement that wants to take our country back.

    To return to the Constitution and abolish the Fed

    Let's hope that it is not too late.

  7. see this?

  8. FDRA,

    I just noted that EWI picked up your post on fractals and how Primary Wave 2 from March to October 2009 is behaving just like Intermediate Wave 2 from March to May 2008.

    It appeared yesterday on its STU.

    All I can say is Congratulations!!!!!!

    It should be really awesome to get your original work "approved and recognized" in such a manner.

    Thanks for your great job and for sharing your thoughs and ideas with all of us well ahead of time.

  9. FDR, you'll love this:

  10. Deflation ravaging the markets again this morning. The UK deflation is ravaging their real estate market and forcing prices to an all time high

  11. Are your active trading alerts supposed to represent actual trades.

    If so, how deep are your pockets, you have been short equites and gold for weeks and long the $.

    You would have been broke five different ways by now.

  12. FDR- are you alive?

  13. FDR i have noticed that you have changed your dow 800 call from 2020 to 2025? Why is that so?What makes you think that it might take 5 more years than originally envisaged? Apart from that would appreciate if you could throw some light on oil's movement over the next few years.

  14. I can feel it in the air, down we go soon!

    So many Bulls on TV


  16. FDR, did he died? Hey, what happened to you? Where'd everyone go?

  17. With this policy the US environment will be effected a lot.

    - J.
    Web Designing

  18. What up FDR?

    Are you waiting for time to do its thing?

    Like in the movie Force Ten from Navarone when the explosives go off in the dam and nothing happens right away. However, the english gent says to give it time and sure enough it finally gives way.

  19. i think he is back!

  20. Doesn't the fed have more skin in the game this time around?

    They doubled their balance sheet with junk assets.

    Why not re-inflate to capture the gains then pull the plug?


The USA's political-economc system is best described as:

On Nov 2, 2010, I plan to vote (FOR or AGAINST) my incumbent congressman

Free Hit Counter