11-17-08

The Madness of Crowds

A friend of mine works at Disney. She and 6 colleagues had a photo shoot inside the theme park one day. The photographer asked them to form a single-file line. She turns around no sooner than a minute after the line is formed and a growing number of park visitors have started making a line behind her and the colleagues waiting for the photo.

These people didn't know what they were lining up for; they just saw a line and joined it. I've always held this theory to be the case and she proved it for me. These tourists weren't foreign, they weren't mentally handicapped, they were just average American Joes.

One can't resist wondering how long they would have stood there for. What was going through their minds?? It all comes down to a grim reality. A reality that causes chaos, but also opportunity for the few who are informed and motivated...

The masses just blunder through life with their heads firmly up their ass.

There's no kinder way of saying it- it's the truth. That theme park incident is indicative of how people are. Of course, members of the League of Power know this is to their great advantage. Each and every day, their behavior gives rise to opportunity both in business and investing.

A simplistic example: Did you know night-clubs will deliberately cause a line outside even though the club isn't full? The madness of crowds is widely documented throughout history. It's the cause of booms and busts- like the one we're 'enjoying' now.

If you're one of the poor folk in the retail business today, get a bunch of buddies to form a line outside the store and see what happens.

"What are you guys lining up for?"

"I just asked the guy in front that and he doesn't know."

"Oh, okay. It's a nice day anyway- I'll wait. So who'd you vote for last week...?" 

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The Big Picture

This is a suggestion only- not a specific recommendation. The League of Power and its subsidiaries are not affiliated with any broker recommended. The editor and proprietors of The League of Power are not allowed to make these trades. Trading options is considered high risk and The League of Power takes no responsibility for any loss incurred. The trade suggested is in such a high volume market, Freedom by Friday subscribers trading it could not move the market.

Clarification: when I speak about GOLD, it's not something to trade with. Not something where you sleep with a computer under your pillow and watch the price constantly. And I don't mean having a gold futures contract (IOU for bullion). (Incidentally, physical gold is quietly being swept off the market as we speak).

What I mean is holding physical gold to protect against inflation and currency collapse.

The Federal Reserve is now printing money at a rate never seen before in history. You or I would go to jail for such activity, but the government can do this at will to pay off their debts. Whatever.

What does this mean? Like anything, paper currency (also known as fiat currency) too is subject to the forces of supply and demand. If the supply of anything goes up, the demand (or price) of that item goes down, right? And vice versa.

Gold moves in the exact opposite direction to the value of the dollar. Dollar down, Gold up and vice versa.

More specifically, the less the value of the currency, the higher the rate of inflation. There's no such thing as a free lunch. A government can spend like crazy and print money like it's going out of fashion, but the consequence is everything will cost more. Gold defends against that. Many consider 20% of your savings in gold to be a suitable hedge against inflation.

Interestingly, the price of gold and the Dow Jones (stock market) have crossed in their value twice before in this century- usually during recessions/depressions; that's to say, the price of one ounce of gold and the value of the Dow have been the same. The price of Gold is currently hovering around $750 an ounce. Where will the Dow and Gold meet this time? Let's hope it isn't at 750. Something has to give.

I'm watching Rhodium and Platinum closely. Both metals are used in car production which is why they've been beaten down. All it would take is a slight disruption in supply to make the price jump. In fact, Platinum mines have already started closing due to the low price making it uneconomical to mine in certain cases.

The trouble with precious metals though, is that they don't pay any interest. With saving rates plummeting, property tanking, the stock market not seeming to have a floor, Treasury Bills paying virtually nothing, what's a saver to do??

Well, I've noticed some safe-haven anomalies appearing with ludicrously high returns. For example, Altria (formerly Phillip Morris) is a tobacco company (it has addicted customers) with no debt and is currently paying 10% (no, that's not a misprint: TEN percent) on its corporate bonds. It's hard to see this company defaulting on this 'loan' (when you buy a bond you are lending money to an entity).

I'm also still hearing constant talk of the stock market bottoming and to jump in now. Whilst there may be some bargains and the odd scalp-trade here and there, from a longer term perspective (precious 401ks etc) history and the most trusted stock market indicators say no such thing. Jumping in prematurely is precisely what did the most damage in the thirties and took down even some of the best investors- Jesse Livermore was one such case. In his day, he was as revered as Warren Buffet is now.

How safe is your bank? Check out IRA Monitor Reports- they have a grading system.

More next time. I know it all seems dark out, but we'll be lighting a path for you to the other side of this storm. And when it comes, there will be opportunities abound that will set you up for life. The trick is to stay solvent until then and even better, accumulate cash for that time using recession-proof strategies like the ones we'll be showing you here.

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A number of promising recession-proof opportunities are currently being reviewed while we speak, so watch this space.

Sincerely,

Mark Patricks

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