written by reader James Dale Davidson “The Age of Deception”

By xiexgp@gmail.com, August 27, 2015

It seems Mr. Davidson is predicting a Black Swan event soon with the stock market wipeout of 50% or more due to fewer people trading, margin debt, that is, borrowing to invest; stock buy backs that obviously drive stock prices higher for the short term and our overall debt situation. Any thoughts on his predictions and potential opportunities (Other than buying another book and newsletter) since he was correct in almost all the other financial events that have impacted our financial and investing lives.

This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.

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Tom L
Tom L
4 years ago

Confidence is the name of the game, all right. We can all see that this house-of-cards, like an avalanche, is poised for a tumble. Too many of Davidson’s charts are aligned in an undeniable path of severe downward motion. Collapse, correction, adjustment, negative growth (my favorite) or any of a dozen other terms all apply. The problem is that we are turning blue holding our collective breath anticipating the answer to the big question of “when?”
Just like the analogy of a “Big Avalanche”, the smallest flake could trigger the collapse of any of the key indicators on those scary charts noted above. The deafening rumble, financial fallout and societal destruction will be greater than we could emagine, because of the combined effect, one Avalanche triggering yet another collapse.
To make this “potential” Avalanche disaster even more real, imagine the powers that be wanting to initiate an economic crisis just in advance of the Presidential election? This could be to effect the ballot outcome or further burden the next administration. It wouldn’t take much of a “push” in any of a number of areas, to effect the markets.
If we can keep a lid on it till next year, Trump’s team can start backing us away from the fiscal cliff(s) that threaten the very future of our nation for generations to come.
Or maybe it will all blow over and self-compensate back to safer and stable economy and marketplace. I doubt it. Pretty sure it will take a lot of work to turn this ship around and get us back headed in the right direction.

hendrixnuzzles
4 years ago

Here we are 10 months after the thread started on James Dale Davidson, and while the Black Swan has not appeared it seems to me that the instability and uncertainty has intensified. Some may feel justified in saying Davidson is wrong about his outlook; I do not feel this way, I rather feel we have been fortunate that an unspecified Black Swan calamity or secular financial meltdown has not yet occurred.

There is a world of difference in seeing the macro picture accurately, and being able to translate that into specific investments that are timely and that will profit. And unfortunately, putting aside any specific investment recommendations, I find it increasingly difficult to disagree with JDD’s macro outlook. He cites these issues, which are there for everyone to see:

1, The stock market is due for a fall…narrow breadth, high margin debt, declining participation, high PEs. Engineered by low Fed rates.
2. Real estate will tumble when rates go up. Another asset bubble, thanks to low rates.
3. The Baby Boomer generation is retiring and does not need to consume anything.
Good for them, bad for the economy.
4. The economy has been based on debt rather than productivity. We are past the point of no return in being able to pay off national, state, and individual indebtedness.
To say nothing of unfunded future obligations.
5. The politicians will not and cannot do anything about the situation. It is too far gone and there is no political will anyway. The path of least resistance is the printing press/computer entry and we are just getting started.
6. The velocity of money is at all-time lows. Another reason the “stimulus” policies are failing.
7. Despite what the Government says, unemployment is closer to 20% than 5%. Is an economy in good shape when over 40 million people are getting food stamps ?
8. Another nail in the coffin…student loan indebtedness. More large numbers.
Most of the trends cited above have the common effect of reducing government revenue. The government deficits are unsustainable and getting worse.

Are any of these observations inaccurate ?

The Establishment ought to support Trump, then they could let the $&*&$@ hit the fan and have him to blame for it ! As though whomever is in office is responsible for this mess !

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d allen
4 years ago

Just another cycle in the American economy.
No debt or very little gets you thru almost anything.

Serge d'Adesky
4 years ago

Hi, I’m a financial advisor, who struggles with these issues on behalf of my clients and my own portfolio every single day. Generally speaking, I agree with the premise that we are on the cusp of a significant market correction, something on the order of 35-60%. And yes, many of the reasons that Mr Davidson states are accurate causes. Missing from his picture is another source of global malaise: namely the rapid pace of change in technology which is displacing workers in all fields at a faster rate than people can learn new skills and pursue new careers. But I digress…

My first point is that a big market correction need not mean the collapse of the economic system. We’ve had many such events over the last 200 years, and we’ve come out the other end whole. Unfortunately, many such events lead us to war, as brute force is sometimes the only way that global debt resets get settled. Nazi Germany’s bellicose ambitions can in large part be ascribed to their perceived need to find a way out of crushing wartime debts resulting from their loss in WWI. But even in that war, the economy did not collapse, people found jobs (often working in munitions factories) , and life went on.

Of course, that’s if you lived in the US and were not called into the draft. For those living on the losing side it was not so pleasant. Just look at the situation from the perspective of the average German or Japanese citizen in WWII. I wonder what good it did many Germans in Hamburg or Japanese in Nagasaki to have hoarded gold in the walls of their homes when the Allied forces razed those cities in bombing campaigns? And what of those prudent Germans from small towns in the Alps or the Black Forest who decided cash was better than gold and put it all in the safety of Reichsmarks? Those Reichsmarks were worthless at war’s end.

My point is : there’s just only so much you can do to protect yourself economically in the worst case of a global cataclysm, short of selling all your worldly goods and moving to a remote island with good land and water and reenacting Robinson Crusoe. Hoard cash or gold in your home? Be at the mercy of home invaders. Hoard it in banks? Hope the banks don’t collapse or deny you access to your safety deposit boxes AS HAS ALREADY HAPPENED IN LESS CRISES.

So my strategy is to prepare for lesser crises, not global Armageddon. I proceed on the assumption that the US government has not disappeared, that the banking system is still functional, and that the major stock exchanges still exist.

In such a scenario, here are my suggestions for different economic strata:

1) Struggling lower class with no savings and high debt: Don’t invest in the market, in vest in your own education and skills. Learn to live frugally and reduce debts. Consider skills in technology and healthcare, that will be in great demand in the next 2 decades.

2) Average middle class American with small but probably insufficient retirement savings : Don’t believe those who say social security payments will not be honored. They will, problem is, they’ll buy fewer and fewer goods an services. The upside? You can live longer, and healthier if your take proactive steps. This will allow you to produce income for a much longer time. So cancel those plans of early retirement. For your investments, keep it diversified, be nimble, be opportunistic. See specifics below.

3) Upper middle class with adequate savings (rumor has it there are still a few of these about):
Split your investments between some productive farmland, small amount of gold (10 percent max), large concentrations of foreign and domestic bonds of short duration (proportion varies by anticipated retirement day) and strategically invested equity positions (see equity strategy below), and at least 10 percent cash.

4) Wealthy individuals desiring asset preservation and tax minimization:
Consider annuities and insurance products for tax benefits, but only with the strongest insurance providers. If you haven’t already done so, talk to a trust attorney. Avoid the money traps of most muni-bonds. Returns are too poor versus admittedly low inflation to justify investing in safe creditors, and the higher returns often involve opaque financials very difficult to analyse. Exceptions exist, but they are not the norm.

Strategic hedged strategies:
1 ) I have not seen the specific recommendations of the Davidson approach, but the basic approach is sound. One can make great money with options, and an option strategy need not involved undue risk. What concerns me is their claim of 1000% returns. NO COMPANY IN THE HISTORY OF INVESTING HAS EVEN ACHIEVED SUCH RETURNS. About the best track record that I know of is a hedge fund called Renaissance Technologies, (qualified investors with $5 million plus, check them out) which has averaged something around 18% annually over a 30 year period. So no, I would not pony up the $1495 for their annual subscription.

Have you ever wondered why somebody who seriously believes they can average 1000 percent returns would even bother publishing a newsletter. Let’s see , mortgage my house (or hit up my mother-in-law) for $100k or so, invest for 5 years and presto, I’m a billionnaire! Must be their desire to “share the wealth”, or maybe I’m just too cynical.

2) Keep your “bets” short term, where you have visibility, and hedge them. For example, try to find bonds trading at a strong discount and yielding 8%-12%, but only if you can hedge out the risk of bankruptcy. I recently did this with CHK bonds that were coming due in a matter of weeks and trading in the high 80’s. I was able to sell further dated calls to pay for puts and offer a 110% payment in the event of an expected bankruptcy. To my great surprise, the bond did not default, I collected my principal at par value and was able to close out my options hedge at a minor loss. Return: 9 percent in 6 weeks.

3) Buy CD’s of distressed currencies where you can hedge out the considerable foreign exchange risk. For example, my wife ( a Colombian national) has her money in Bankcolombia (Colombia’s strongest bank – about a BB- rating here) earning 8 percent a year, which I hedge with rolling futures on the Colombian peso at the cost of about 2-3% a year. Net safe return: 5 percent. Unfortunately, the US FATCA regulations now make it more and more difficult for US nationals to find banks willing to open accounts for them, so this strategy can be difficult to implement.

3) Create income by selling far out of the money options straddles around earnings reports, but make sure you have enough margin to buy or sell shares to cover the unexpectedly large swings that inevitably will occur that otherwise will wipe out all earnings.

4) Find a good options advisor, or learn about options yourself (and don’t invest a penny until you’ve simulated trades for at least a year) to construct complicated strategies that reflect your expectations. For example, I believe the stock market is more likely to drop than rise, I do not think it will rise by 15% this year, and do not think it will drop by more than 40% within the year. So I’ve concocted a play that makes 9% minimum and 62% maximum as long as the market remains within that range. Beyond those levels, to the downside though, the losses rise rapidly and would warrant defensive measures.

4) Look into structured CD’s. These are FDIC-guaranteed equity investments of the banks linked to stock bet returns, similiar to some annuities but without the high insurance fees. Your gains are generally capped in the 10% range, but no losses of principal are incurred if held to maturity (3-7 years). Careful, these products are complex and if the banks can outwit you they will.

5) Think we may be headed for 20 plus years of low inflation,low yield returns? Consider a steepener structured CD. Pays you 4 to 7 times the difference between 20 year treasuries and 2 year treasuries. Various products have varying gotcha’s, but some offer a likely average return of 7-8 percent return with guarantee of principal. Biggest risk: future raging inflation and rising interest rates, because the duration on these bonds is very long. If inflation and interest go higher than 10 percent, you’ll be stuck earnings 7-10 percent, unable to sell your bonds at par and stuck earning below inflation rates.

6) Are you a conviction-based, patient value investor? Consider the rich premiums in some put options. At times you can be paid up to 10% a year to be willing to buy a company you believe in at a discount of 30% to 50%. For example, right now you can be paid 6.5% to be willing to buy AAPL stock at 39% discount. If it never drops that low you get to keep the premium.

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SoGiAm
4 years ago
Reply to  Serge d'Adesky

Thank you Serge for sharing your time, talents and strategies. Best2U4U-Ben

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hendrixnuzzles
4 years ago
Reply to  Serge d'Adesky

Thanks Serge. Thoughtful and thorough.

I agree with the thrust of your paragraph on farmland and gold…a page out of Rickards.
But I do not see a suitable way to invest in farmland. Any suggestions ?

And debt reduction is a sure 20% return…at least on credit card debt.

I have trouble with a lot of the financial instruments on account of the “[biggest risk] [of] raging inflation and rising interest rates”. I think these are unpredictable in time, but are ultimately unavoidable given the
policies of the Powers that Be.

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CC
CC
4 years ago

Thank you Serge for your grounded, rational analysis. It took you awhile to put all that together and your effort is appreciated. I got to this thread after a week of Davidson in my inbox with a relentless marketing campaign geared to scare the bejesus out of anyone paying attention for more than five minutes.
Now, maybe he is right about a lot of stuff and he is sincere in helping us all out with his clarion call that the end is nigh. His crack “team” is going to ply us with option picks for the next year at $1495 and “only” 800 people (he won’t take anymore subscribers at that low rate; yeah right) results in a nifty take of about $1.2 mil. Nice work if you can get it.
Maybe the end is nigh. The odds may be tipping that way. But what are you gonna do with your 1000% returns when the world is in chaos and threat’s at your door? Throw a party? Really, people, the only way we get through to the other side of unbridled World Capitalism is with a transformation in human consciousness, and who among us believes that will happen in time to shift the momentum of history.
We have to face it, until now the slow pace at which our species awakens to human values doesn’t keep apace with technology, which only increases in speed because, well, that is what technology is all about.
The lesson of history is that we go from catastrophe to catastrophe battling between those with progressive imaginations and those fearful of change. Our transcendence as humans is a slow process and religions aren’t helping, in case you haven’t noticed.
Bottom line, there will always be the Davidson’s conning the hard earned scraps from the susceptible masses. We can be easy marks. I say: Be wise out there. Trust yourself first. Choose your Masters carefully.

arch1
4 years ago
Reply to  CC

I think you have it about right, Thanks.

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Doug McEachran
Doug McEachran
4 years ago

Watching the video and looking forward to getting the book.

Graem
Graem
4 years ago

Bought a lifetime subscription in the 80’s to strategic investment. By the 90’s as he prospered it started coming with an annual maintenance fee that wasn’t mentioned when I helped him get started. When I complained the letter stopped coming altogether. I wonder who died?

Ricardo
Ricardo
4 years ago

I listened to his presentation to the end and he did not mention the currency that would sustain value. Even gold is just gold — it’s uses for jewelry are well-known, but you cannot really do much with it otherwise; more can be done with silver.

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hendrixnuzzles
4 years ago
Reply to  Ricardo

Hi Ricardo… I disagree on gold. Gold is money; silver also. It is only since the rise of the international central banks that the public has been brainwashed to believe otherwise. Currencies come and go.
Gold and silver remain.

James Dale Davidson’s The Age of Deception is extremely entertaining and thought-provoking but does not
provide a lot of practical investment advice. The closing chapter has 20 recommended actions, but only one specific investment: ACCUMULATE GOLD AND SILVER.

I highly recommend The Age of Deception, even though Davidson is sure to be wrong on several things.
He makes so many controversial assertions and arguments that he is sure to be off-base on a number of his claims. But one has to decide for oneself WHICH of his claims and predictions are not credible.
I find some of his arguments astute and accurate, others make me stop and think, and a few I believe are unfounded and erroneous. But for the most part the arguments are pretty interesting, and at the very least you will have to put your thinking cap on to arrive at your own conclusions.

To me he is similar to James Rickards…the book is worthwhile reading, but the investment ideas from the newsletters by the same author can still be duds.

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Ricardo
Ricardo
4 years ago
Reply to  hendrixnuzzles

Hi hendrixnuzzles, thanks for your input. Rickards reports that the Chinese are secretly hording gold; he states on Money Morning back in May 2016 that China ships the physical gold into their country without reporting the amounts anywhere institutionally. The curious thing about any of these metals is that they are only acceptable to someone willing to accept them. You cannot eat them — they cannot sustain one’s health. It seems that much more valuable is food and water, including salt. So, farm animals and securing land and water rights may be even more valuable — if the rights can be legally…but more so, physically defended. If it comes down to metals then this would be a very brief event because it would be soon realized how limited metals are as a valuable trade, particularly if one community — ie. the Chinese government — has most of it. Upon the realization, it will come down to physically defensible land, animals, and potable water, which means local communities of people assembling for the purpose of survival together. Military units are already mentally well-equipped for such an event, because trusting those with whom you sit shoulder-to-shoulder is already established. And speaking of military units, the Chinese have apparently the same volume of persons in their military equivalent to the volume in US population; that is, all the Chinese would have to do to physically overwhelm the US is send ships to the California coastline loaded with Chinese populations — military or otherwise — and basically over-run the US territory. They wouldn’t even have to fight — they could just immediately surrender and inhabit US space(land) by physical occupation. I doubt the US has any answer to this event…and the way the Chinese government is posturing around the globe, a major power-play is in the works. What is odd is that the most recent Chinese military “war games” in the Pacific included the participation of the Russians; not long ago the Russians had outposts in California and had sprinkled their presence all along the coast, from Alaska to California. Things are definitely getting stranger and a great deal more questionable when it comes to the fate of mankind…my optimism is beginning to shred.

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hendrixnuzzles
4 years ago