In Search of the Perfect Investment

Nassim Taleb defines a Black Swan as an event, positive or negative, that is deemed improbable yet causes massive consequences. Black Swan events explain almost everything about our world, and yet we — and especially the experts (who often have an agenda to push)– are often blind to them. Black Swan events are most often negative events which cause major financial crises. I’m reading the second edition of Taleb’s fabulous book The Black Swan. He has a new postcript essay, On Robustness and Fragility.”

I’m thinking to myself, what could precipitate the next financial crisis? Here are some possible Black Swan Events:

1. When sovereign wealth funds dump Euros. The most interesting aspect of the Euro’s fall to date is that it has been orderly, which implies there have been dip buyers, but why do I get the feeling this is gong to be disorderly as sovereign wealth funds dump Euros? — Charlie Aitken, head of institutional dealing, Southern Cross Equities, Australia.

2. When a country’s bond auction fails. — Nassim Taleb, author of The Black Swan,

3. Failure of a major bank, e.g. Citibank. See below.

4. Bankruptcy/default of a major state, a major city or a major county. They’re all pretty precarious. It won’t take much to push one over the cliff.

5. Another computer glitch on Wall Street. We’ve had two big ones — 1987 and last Thursday week. Read the Wall Street Journal on How the ‘Flash Crash’ echoed Black Monday.

Richard Russell issues his strongest ever plea. Get out of the market NOW.

Just as for years I asked, cajoled, insisted, threatened, demanded, that my subscribers buy gold, I am now insisting, demanding, begging my subscribers to get OUT of stocks (including C and BYD, but not including golds) and get into cash or gold (bullion if possible). If the two Averages violate their May 7 lows, I see a major crash as the outcome. Pul – leeze, get out of stocks now, and I don’t give a damn whether you have paper losses or paper profits!

Question — Russell, if you’re so damn smart, then how is it that most of the economists and analysts disagree with you? The fact is that most experts are now bullish on both the economy and the stock market.

Answer — I think Washington and the economists have brain-washed themselves. They are so blasted anxious to be optimistic, they are all listening to each other and all thinking alike. And when everybody is thinking alike, nobody is thinking. …

Gold — I just talked to Leon, my old and trusted friend and coin dealer (858 459 2228). I asked Leon about Krugerands. “Can’t get ’em,” he said, “Europe’s cleaned ’em out — they’re buying all they can find.” But American Eagles are still for sale.

America’s greatest fear is deflation, as per the 1930s. Germany’s greatest fear is inflation, as per the 1920s.

Headline in the May 16 Financial Times — “GERMANS LEAD GOLD RUSH FRENZY. We have some extraordinary sales to German customers,” says Deborah Thomson, the Rand treasurer. “The refinery which usually sells 2,000 coins to each customer at a time, said that last week it received an order from a German bank for 30,000 coins. Another banks requested 15,000 coins.”

Commodities are not doing well this year. My ex-commodities fund (the one I used to be in)  is down 6.1% so far. Gold is the exception.

The implosion in banking values. A smallish bank has lost two-thirds of its value in the past year. Reason: Its loans are under water. and the Feds insist that the bank repair its capital. This means stop lending, hoard cash. With no lending there’s no earnings. Hence lower valuation. Most banks have serious loan problems, especially in commercial. The play here is to short key banks. As an example, look at Citigroup:

We get the politicians we deserve? From today’s New York Times, amazing stuff. I can take pretty well anything, except being lied to.

At a ceremony honoring veterans and senior citizens who sent presents to soldiers overseas, Attorney General Richard Blumenthal of Connecticut rose and spoke of an earlier time in his life.

“We have learned something important since the days that I served in Vietnam,” Mr. Blumenthal said to the group gathered in Norwalk in March 2008. “And you exemplify it. Whatever we think about the war, whatever we call it — Afghanistan or Iraq — we owe our military men and women unconditional support.”

There was one problem: Mr. Blumenthal, a Democrat now running for the United States Senate, never served in Vietnam. He obtained at least five military deferments from 1965 to 1970 and took repeated steps that enabled him to avoid going to war, according to records.

The deferments allowed Mr. Blumenthal to complete his studies at Harvard; pursue a graduate fellowship in England; serve as a special assistant to The Washington Post’s publisher, Katharine Graham; and ultimately take a job in the Nixon White House.

In 1970, with his last deferment in jeopardy, he landed a coveted spot in the Marine Reserve, which virtually guaranteed that he would not be sent to Vietnam. He joined a unit in Washington that conducted drills and other exercises and focused on local projects, like fixing a campground and organizing a Toys for Tots drive.

Many politicians have faced questions over their decisions during the Vietnam War, and Mr. Blumenthal, who is seeking the seat being vacated by Senator Christopher J. Dodd, is not alone in staying out of the war.

But what is striking about Mr. Blumenthal’s record is the contrast between the many steps he took that allowed him to avoid Vietnam, and the misleading way he often speaks about that period of his life now, especially when he is speaking at veterans’ ceremonies or other patriotic events.

Intel looks more stupid and more arrogant. Intel CEO Paul Otellini is dong what no CEO of a big public company should do — pick a fight with a blogger, i.e. yours truly. What’s even worse is the subject of this “fight.” I’m a happy customer who’s being given the run-around. Background: Intel has woefully neglected to expand its factories to meet new demand for popular Intel chips, like the i7-620M.  I’m trying to buy this chip in a new Lenovo ThinkPad X201. Lenovo can’t sell me the computer, because Intel can’t deliver i7 processors to Lenovo.

I complained to Mr. Otellini via snail mail. He replied a couple of times by email. He said he would check and get back to me. He never did. Finally, after many begging unanswered emails from me, I tried a new tack: “Please Mr. Otellini, sell me one 17-620M chip (price — about $330). Send me the chip. I’ll then send it to Lenovo and they’ll build me my new laptop.

Again, no reply from Otellini, who has now slipped to “jerk” in my estimation.

CEO Otellini, world’s most unresponsive company executive.

I emailed my friend, the semi-conductor analyst whose firms has zillions of dollars of Intel stock. Can he help me find a “responsive person at Intel?”

He emailed back, “None of the people I know are going to be able to get you an i7.  I guess they never imagined anyone would ever want one, huh?”

Favorite sick New Yorker cartoon.

Boy, has BP screwed up bigtime. And apparently, it’s not the first time. BP has a bad safety record.