It Is Called Cognitive Dissonance

Cognitive dissonance is a feeling of uncomfortable tension that occurs when one holds two conflicting thoughts in the mind at the same time.

For example, we are currently being bombarded with the notion that the current administration has everything under control. They know what they are doing and they know that their solution is the best for you and I going forward.

That thought is comforting for millions of Americans. It allows us to go to work every day and work hard to provide for our families. It allows us to continue to put money into our 401ks and IRAs with the expectation that a comfortable retirement is just down the road. If we truly believe this thought, it makes it a lot easier to coast along knowing that everything will be just fine.

The reality that is unfolding before our eyes seems to be hinting at another outcome. Our 401ks and IRAs are down over 50% since 2000. We seem to be running out of money before we run out of month and this is happening more and more frequently. We have a sinking suspicion that we couldn't sell our houses if we had to. More and more people are talking in quiet tones about what is going to happen to our country.

The government has injected all of this money into failing banks, brokerage firms, and insurance companies in an effort to restart the economy and we find out that these same companies are paying their top people huge bonuses with that money.

And then yesterday, the Fed announces that they have started purchasing U.S. Bonds. Does anyone besides me wonder how a government can issue bonds for sale and then turn around and purchase those same bonds? Does that make sense to you? What kind of message does that send the rest of the world who, by the way, has been buying all of these bonds in the past?

You begin to get a very uncomfortable feeling that the leaders of our country are becoming desperate. In spite of the happy face they put on every morning, you can start to see more worry lines around their eyes. Their body language doesn't quite seem to match the happy words coming out of their mouths.

The public is slowly awaking to the fact that things are not as they seem. That's cognitive dissonance. A new reality is taking shape in the minds of millions and the tension that is causing is starting to show itself everywhere you look. To see it, all you have to do is sit back and observe.

The current business model of continual growth and prosperity is starting to fade. We have hit the wall. We can look around us and try to blame the greedy bankers for loaning us money for a house that isn't worth 50% of the loan value or the greedy Chinese for selling such cheap stuff and paying such horrible wages to their own people, but the reality is, our government has done this to us.

They have implemented a strategy of steady currency devaluation and it has been going on since 1913. Checking with the government's own inflation calculator over at http://data.bls.gov/cgi-bin/cpicalc.pl shows me that what would have cost me a dollar in 1913, would today cost me $21.43. That explains why it now takes the income of two to make ends meet. It also explains why it is cheaper to buy foreign made goods, even after adding in shipping costs.

To be sure, all of the major countries in the world are constantly devaluing their currency through the printing of money, it is just that we are so much better at it than most.

So, what good is this bad news if all it does is cause stress and worry over the future. Well, it is no good if we continue on our merry way and ignore the facts that are continually staring us in the face. If however, we take some time to develop a plan of attack for what is shaping up to be a rough couple of years, we can hopefully ride out the coming storm without ending up in a soup line somewhere.

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Madoff Goes To Jail

This of course was the news of the day yesterday. Justice prevailed. Not that investors will get any of their money back, but at least the mastermind behind the $50 billion ponzi scheme was handcuffed and taken away to jail.

Next on the list, R. Allen Stanford, the Texas Business man who has been indicted for fraud for running an $8 billion ponzi scheme. What is going to make this case interesting is the large number of Washington lawmakers who accepted campaign contributions. That should be an interesting one to watch, and besides, it takes our mind of the more important matters of the day, like the unfolding depression that is settling in on the world.

We Are Big Hypocrites

Don't get me wrong. It is against the law to set up and operate a ponzi scheme, but let's take a look in the mirror. The US government is operating what will undoubtedly be the biggest ponzi scheme in the history of mankind...the Social Security, Medicare, Medicaid trust funds. Estimates of total liabilities range in the $50 to $70 trillion range. That's trillion with a “T.” Kind of makes Madoff's little scheme look pretty tame.

All ponzi schemes rely on a continual supply of suckers to keep the game going. Once you have everyone in the scheme, the pyramid collapses and everyone except those at the top that got in early lose their investment.

The problem with the government ponzi schemes is that they were counting on a continual supply of workers paying into the scheme so that those who retire can get paid. There is no money in the trust fund. It has all been lent to the government and spent. All that remain are IOUs. That is why as the population ages, and fewer workers contribute, it becomes harder and harder for the government to make good on their promises.

In other words, the scheme collapses under its own weight. We are on the leading edge of that reality now.

That is why it is so important that you build your own private retirement plan and fund it to the best of your ability.

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The Two Biggest Lies About the Economic Crisis

As investors watch the unfolding of our current economic crisis, questions come to mind about where money should be invested safely. Accurate and timely flow of information is essential when investing. Without accurate information, investors end up putting money in all the wrong places and suffering loss.

Our very own government is busy promoting two very big lies that will be devastating for investors in future months and years.

Big Lie #1: A lack of government regulation and free market capitalism are to blame for the current mess.

This is a huge lie. First of all, we do not have true free market capitalism in this country. The amount of regulation is staggering. Secondly, true free market capitalism rewards investors when they make good investments and punishes investors when they make bad investments. Allowing businesses to fail is a necessary part of capitalism. It gives investors feedback needed to make good decisions. When the government steps in and rescues failing businesses, investors are deprived of vital information and end up making more bad investments. We are seeing the results today and will see even more severe results in the near future.

It was the government, not the free market, that passed the Community Reinvestment Act in 1977 that requires banks to lend to high-risk borrowers. All in the name of home ownership.

To facilitate this process, the government, not the free-market, created two huge government sponsored entities to purchase these high-risk mortgages and to facilitate the flow of funds needed to keep the market liquid. By labeling Fannie Mae and Freddie Mac government-sponsored entities, the government created the perception that it would guarantee the success of these two giants, which encouraged investors to buy the stock of these two entities. (After all, how often do “guaranteed” investment opportunities come along?)

Finally, the government, not the free market, lowered interest rates to 1% to encourage borrowing. This has lead to historic levels of debt and it is the unwinding of this debt that is causing all of the problems we are seeing today. By the way, never in history has more debt solved a debt crisis.

So, why would the government tell such a lie when all of these facts are public information? Why doesn't the government admit that this grand experiment has failed and adopt a hands-off policy when it comes to anything related to the free market?

That brings us to lie number two...

Big Lie #2: Only government regulation and intervention can save us.

That explains it all. You see, the framers of our constitution feared this very thing; a runaway government. A government that believes that it knows what is best for us, the citizens. A government that believes that it alone has the power to save us from ourselves, that we are not capable of making smart decisions. And you know what happens when you are told something over and over again? After a while you start to believe it. Most people today do not fear where this mess is taking us because they still believe that the government can and will save us.

The government wants us to believe that free market capitalism caused this mess and the only way out is for the government to step in and take complete control. (by the way, this is the same logic that Germany used in the 1930's to take complete control of the their economy)

The fact is the government led by FDR and his New Deal did not lift this country out of the last depression. It made the depression more severe and longer than any of the previous depressions. (That's right, the world had seen several depressions prior to the “Great” one. The only difference was they were a lot less severe and were generally much shorter.) Roosevelt's own treasury secretary, Henry Morgenthau summed up the New Deal mess this way:

"We have tried spending money. We are spending more than we have ever spent before and it does not work... We have never made good on our promises... I say after eight years of this Administration we have just as much unemployment as when we started... And an enormous debt to boot!"

Does that sound like a policy that we would want to follow today? So, why would our own government want so desperately to follow a strategy that has been proven to fail? Because government is only interested in one thing and that is power. If it were widely known that this plan will fail just as it did back in the 1930's, confidence in the government would fade and individuals would demand a return to small government and true free market capitalism. That, my friends is something that our government is not going to let happen. Be assured, they will fail at this current attempt, but they will not fail without a bitter fight to the end even if it means taking down the entire world's economy with it.

It is truly a bleak picture, but it is a necessary cleansing of the system. Remember, failure gives us valuable feedback so that we might make more intelligent decisions in the future. Pray we all learn these valuable lessons this time around.

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Where There's Smoke, There's Fire

On February 7, 2009, wildfires roared across the Australian state of Victoria scorching 1500 square miles of farmland and forest, destroying more than 1,800 homes, and killing 210 people. In spite of numerous government warnings, the fires caught hundreds of people off-guard.

Jill Sanguinetti was enjoying a relaxing day at the pool in the town of Marysville. She later described her experiences on that fateful morning. “A shadow passed across the sun. Cool change at last! Glancing up, I saw that instead of clouds, the sun was obscured by a massive column of grey and orange smoke billowing upwards a kilometre or more and cascading down over itself, as it flowed towards the town from the north. The 30 or so bathers relaxing around the pool seemed oblivious to the mountain of down-pouring smoke that filled half the sky. Nobody looked up or commented and so I, too, despite a growing unease, decided that the smoke must be somehow within the realms of normal and nothing to worry too much about.”

Like Jill, many of the hundreds of guests who were spending a relaxing weekend at the many resorts in Marysville, thought nothing of the spectacular plumes of smoke towering high into the sky. In fact, many mistook the smoke for thunderheads.

It wasn't until clouds of burning bark and branches, driven by the winds, began raining down on the small town of Marysville, that the people were finally awakened from their dreamlike trances. Amazingly, most of the tourists managed to escape just ahead of the flames with nothing more than their flip flops and the clothes on their backs.

The events of February 7^th tell a story of a miraculous escape, but it also teaches a lesson for those of us who will listen. Nature provided numerous signs and warnings that day and almost everyone, so busy enjoying life, misread them.

Today, we find ourselves in a similar situation. Those giant plumes of smoke on the horizon are not thunderheads, announcing the coming cooling rains that we need, but warning signs of a coming economic firestorm that is bearing down on every man, woman, and child in America.

Instead of sounding the warning cry, our government continues to speak to us in reassuring tones that we are in no immediate danger. In fact, we are told, just a few more trillion dollars and everything will return to normal. Our house values will once again rise, our retirement accounts will be fully funded, and we will be able to enjoy the good life, just like those unsuspecting folks in Marysville.

I don't know about you, but I am not listening the reassuring words of our government. I don't believe that they know what they are doing. Instead, I am heeding the warning signs that are even now towering over our heads. Do I smell smoke?

5 Things You Must Do Now To Protect Your Investments

Obama Is Gambling With Our Future

Every now and then, when I have nothing better to do, I will watch poker on television. It is a fascinating game that requires skill, luck, and an amazing amount of nerve. Anyone can learn the basics of poker; which hands to bet and which hands to fold, but successful professional players have an intuition that sets the winners apart from the losers. The ability to know when to go “all in” and when to throw the hand away and take a small loss.

We, the viewers, have the advantage of knowing all of the hands at the table, and that gives us a tremendous advantage. I know from watching many a game that I do not have the nerve to play the game for real money.

What does watching poker on TV have to do with Obama? What we are watching every day in the news is a giant poker game of epic proportion. Obama and his economic advisers are sitting at the final table and they have just moved all in with only a five and a deuce. No professional poker player would ever make such a move, but Obama has just placed everything on the table with only a prayer of coming out on top.

At stake is the future of our entire financial system. That includes our 401ks, IRAs, and pension funds as well. In fact we are not just passive viewers in this mega poker game, we are in it up to our necks.

His odds of drawing a winning hand? I figure somewhere south of 5%.

All of Obama's efforts at stimulating the economy are for naught. Throwing money at the problem is like pushing on a string, it doesn't matter how you push, it just isn't going anywhere.

You see, most of this country's Gross Domestic Product is generated by consumer spending and consumer spending has collapsed. Americans have run out of money, their houses are dropping in value, their jobs are going away, and most folks have pulled in their horns and are hoping that they can hang on until the storm passes. Most of us will not be able to hang on.

Need some proof that consumer spending has collapsed? Look at new car sales for the month of February. GM and Ford reported that February sales were down more than half from last year. Industrial production has collapsed as well and not just here in the States, but in most countries overseas. Port traffic is down big as well, which means that Americans are not buying things supplied by overseas manufacturers. It is all a very ugly picture and it is going to get much worse.

Back in October, I wrote to both Obama and McCain, pleading with them that they vote against the bailout package. I explained to them that giving money to failing banks, insurance companies, and auto makers would not solve the problem. That these companies are doomed. I explained that throwing more money at the problem is like throwing gasoline on a fire. It only makes things worse, unless you are building a fire.

Our government is playing with fire and we are all going to get burned.

An Open Letter to Barack Obama

I am writing you once again because I read yesterday that Hank Paulson is asking Congress to release the remaining $350 billion so he can bail out more of his friends. If you keep copies of emails, you can easily go back and find my email from October where I asked that you not approve this bail out plan.

I warned that it was not the right thing to do and I still believe that to be the case. Were there any conditions placed on how the money was spent? No. Has there been any accountability? No. Does anyone know who ended up with all of that money? No. Are the banks willing to talk? No.

Is this how you would run your personal business? I doubt it. Why do we believe that our country should be run any differently?

I read today that “experts” believe that we have a 50-50 chance of sliding into a depression in the next year. Personally, I would put the chance of depression much higher. And here is the scary part for you...there is nothing that the government can do about it. Not only that, but the very actions of the government have brought this crisis upon us. Not deregulation.

Some holiday reading might be good for the coming sleepless nights. Maybe a quick Google for John Law and his grand attempt at a fiat currency in the early 1700's. That experiment ended in financial chaos and Mr. Law fled France to preserve his life.

The definition of a fiat currency, such as the U.S. Dollar, is that there is no intrinsic value to the currency, but that it is a required medium of exchange by order (fiat) of the government. The U.S. Dollar lost it's intrinsic value in 1971 when President Nixon slammed the gold window shut. A quick stroll down history lane will confirm that there has never been an instance where a fiat currency has survived. In fact, all fiat currencies have ended in complete collapse.

Complete collapse is where we are headed in the near future. Bailing out Paulson's cronies is not going to solve the problem, only make it worse. Worse that is, except for his buddies who are getting all of this money. I would sure like to know how much of that money has ended up offshore somewhere.

It is unfortunate that most Americans are going to have to suffer through this mess that was created by a few greedy folks at the top, but suffer we must. We allowed those at the top to do this and we stood idly by let it happen. All economies go through periods of boom and bust. It is as certain as the cycles of the moon. However, any economist worth his salt will tell you that the more the government tries to smooth out the cycles, the more severe they become.

We are headed toward the mother of all busts so why spend any more money that we do not have on programs that will only make the inevitable that much worse?

Stand up for the America that our forefathers created and vote no to more senseless spending.

Turbo Charge Your Investment Returns

Chances are if you have read any of the posts here over the last several years, you know that I am a big believer in proper asset allocation. I don’t mean some combination of stocks and bonds, but a truly diversified portfolio of investments from several different asset classes. If you are not a regular reader of my posts, then spend some time reading my posts about investing and then come back here and read this post.

Today, I offer for you a way to protect your investments and yet provide the potential for exceptional returns. How do you accomplish such a feat without subjecting your portfolio to extreme risk?

It really is quite simple. First, you should always have the majority of your funds invested in such a way that you can survive a major stock market sell-off. You can accomplish this by proper asset allocation.

To boost your overall return, set aside a small amount of money to speculate with. Say 5-10% of your overall portfolio. If you lose some of this money, you will not be wiped out. Your protected investments will be chugging along; earning you a “reasonable” return and you will not be harmed by your speculation.

On the other hand, if your speculative money does well, and by well I mean 20, 50, or even 100% gains, you will improve the return on your total portfolio. All without undue risk.

If you are like me and have limited knowledge about how to invest your speculative money I have a suggestion. Two guys named Michael and Carl created a Stock Trading Robot to identify low cost stocks that have the potential to double in price in a relatively short period of time.

Since the inception of this program, the stocks they recommend have been returning an average of 105%.

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