Stream of consciousness post

The idea for this post came after making some notes and observing the stream of consciousness aspect of it all.

It all started yesterday when I couldn't think up anything to write. I started watching movies, free movies on the web. What I watched is unimportant here, just putting things in chronological order.  ( Later note: it was World War II).

I woke up this morning in a suspicious mood.  I started thinking about Romney.

Romney is suspicious for bean bagging the Benghazi thing. He looks like a rich stooge that gave the impression of opposition, but delivered no real opposition at all. This segued into a thought about conspiratorial type thinking. The thought that I could agree with a conspiracy---if provable--- led me to think of one that I do believe:  The conspiracy to keep you poor and stupid, by Donald Luskin.

I figured I gotta to buy his book.  But wait. ( I'm good at that, if you haven't noticed already).

I'm missing something. Going back into my own investing history, I remembered I did something like Luskin.  I invested in JDS Uniphase.   But I did it at the wrong time.  The thing I was missing there was the inverted yield curve and the coming recession in 2001.  I remembered that lesson in 2007 when the credit markets froze as the yield curve had been inverted for a year.  A recession was likely, so when the credit markets froze, that was my signal to get the hell out of Dodge.

So I got out of my long position, went short and made some money. I also bought gold. Gold did well and I made some money there, too.

The thought occurred to me that the thing I am missing is that I'm giving too much credit to others for having a brain.

But wait.  Maybe I'm missing the deleveraging. The deleveraging was said to be undeniable--- that means it was going to happen  regardless of what anybody said or done, it was going to happen anyway.  Yes, and it is happening as I write this. We are still deleveraging.

I learned about leveraging when I traded currencies. You borrowed on a 100 to 1 basis. That means a thousand bucks of your own money controlled 100 thousand bucks.  Now, that's what you call leverage.  As a consequence, there was a chance to make big money, but also to lose your ass fast.  Unfortunately for me, I lost my ass fast.

So, I segued into the general case from my own specific case.  Leverage is bad. The problem with our economy is too much leverage.  If we continue to deleverage towards the complete job, we will be okay.

If we releverage, we will be screwed again. It may seem fine for awhile, but if we releverage, we will fail again.

So, what's the problem with leverage? The same problem I had. The chance to make big money exists with leverage, but the risk of losing big money fast is even greater than any possible reward.  It turns the markets into a casino.  In a casino, only the house wins.

Got that?  The house wins because it is a conspiracy to keep you poor and stupid.