This is just going to be angry rant, so I don’t rally care if you agree with me or not.

It’s funny how the media and the financial advisers all over the country had been preaching (more like shouting), how Americans are not saving enough; how we’re spending more than we produce; how average American has more that $16,000 in debt (not counting the mortgage). They have been shouting to us how we need to save more and spend less. They have been indoctrinating this religiously into our heads for the past 15 years. That’s all you‘ve been hearing in the papers and news. I think it’s a sound strategy. They were really onto something. And I mean this without a shred of sarcasm.

Well, what do you know. As luck would have it public is finally starting to listen and is starting to save while cutting back on consumption. Result? Whole fricking system is collapsing. Bottom falls out. Retail is hanging on a thread. Auto industry is probably going to collapse or go bankrupt. Banking has already collapsed (if you didn’t get bailed out by the Government of course) .Even gas prices are plummeting. Because of all this, people are loosing their jobs and cannot afford to go out and spend money on useless crap. Lot of them cannot even afford necessary things. It looks like a total collapse.

Now, the same people in the media and financial advisers are asking, in fact begging, Americans to start spending again to prevent economy from total collapse. They even talking about giving you another stimulus and tax cuts, which is essentially your money you earned, which it turn you will spend and will get circulated back to the stores and businesses, so they can keep their poor run and already failed operations going.

These are the same people that few months ago were bitching about Americans spending too much and not saving enough. Are you fucking kidding me? Two words to them: fuck you!

The fact is (and there’s really no way of getting around this) that the whole system got accustomed to the standard of living that was unsustainable for more then two decades or so. Now, when everything is getting back to where it should’ve been long time ago (back to living within or below means), analysts and media are talking about the collapse and how we need to start shopping again for the things you’ll never need, so retail and corporations can start making profit again. Again, fuck them. The only way these motherfuckers can survive is if you start spending more while getting deeper into debt. Otherwise they cannot exist. If most people in The United States lived below or within their means, and were trying not to get into debt, half of these corporations wouldn’t even exists. There’s simply not enough purchasing power without using borrowed money; which are credit cards and loans.

This is not the collapse. It’s a severe correction with justice. I say fuck them. Keep your money, don’t buy unnecessary things, build up your savings and let whoever was leeching off of you go under. That goes for banks, auto industry, retail and other bloodsuckers. Don’t give them a dime. Yes, it will be severe and lots of people will loose their jobs, but it will happen anyway. I’d say we bite the bullet now and start letting everything unsustainable fails. We will be much better off later. Not sure who said this but was right on the money: “If corporation is too big to fail (AIG anyone), it is too big to exists.”

Just think about this: auto industry has been making crappy products for years, and now when people are starting to turn to foreign cars, auto industry and media have nerve to call you unpatriotic for not purchasing their crappy product. They’re using patriotism to lure you into buying their crap. Short of going to people homes and making them purchase their product under the gun point, that is as low as they can go.

And more importantly: don’t ever let any financial analyst, adviser or media tell you what to do and how to spend/save your money. Use your good judgment and logic. These bloodsuckers care only about their ratings and making profit off of you. Not only that but they’ve been wrong on not only things that they predicted but on the things they were happening in the present. How stupid or dumb you have to be to accomplish that?

Strive for anxiety free life. That means: no debt, no mortgage and hefty savings. Only then, loosing a job that you don’t like will seems like blessing instead of hardship.

This article will explore my own observation if capitalism really works or not. Famous saying is that capitalism brings prosperity and wealth to the people. Lets see if that’s really true. I’ve lived in Europe for 20 years and currently am living in U.S for 13 years. That gives me objective perspective on economic conditions from the layman’s point of view.
Here’s a startling fact: Currently most of the worlds countries are one or another form of capitalist economies; and most of the world is poor. That’s a fact. Those who resort to no welfare and social programs usually have greatest class divides and poorest standards of living. Some of those countries are: India, Indonesia, Thailand, Mexico, Russia, Brazil etc..

Let’s see simple example of capitalist economy in action.
In a capitalist economy, labor (working class) is working for the owner (capitalist class) to produce goods. Labor is selling their work abilities in return for wages. With those earned wages, labor goes out and consumes products of their own making, but at much higher price. For example: A person who labors in a production factory could make 200 products an hour, lets say of 1$ per product ; but I guarantee you that he is not getting paid $200 an hour. In an 8 hour shift he can make as much as 1600 products. That’s $1,600 worth of products while taking home (before tax and all deductions)maybe $100 a day, if he’s paid really well. So, he will earn his day pay in about half an hour. He also cannot just stop working once he reaches $100 a day in products; which is within half an hour. But it doesn’t end there. He will then go out and buy some of those products at much higher price. Owners are the only ones who truly benefit. Labor will just survive and have a big choice of products to consume. Not much more. If laborer complains or demands higher wages, he will be immediately replaced by another one waiting in line who will work longer hours for less pay. Capitalist class knows this, and they’re counting on it. That’s called exploiting working class, but I could be wrong.
Let’s look at the United States.
Let me first say that U.S is not a pure capitalist economy. U.S used to be pure capitalist economy 100 year or so ago, and guess what? U.S was considered a third world country at that time. Things have changed since then, but only on the surface, and only thanks to working people who fought for their rights. If capitalists had their way, U.S would still be a third world country.
U.S has now what’s called mixed economy. It’s based on profits but some of the things are regulated. In a true capitalist economy you would not have: Medicaid, Social Security, Labor Unions, workers rights, child labor laws, affirmative action, welfare and other socialized institutions. In capitalist economy everything is privatized and people work for wealthy few who own most of the industries. And I mean everything! Pure capitalism can be illustrated by simple picture like this:

Simple but it’s worth thousand words.

Even though U.S has mixed economy, the whole system is still based on making profits; lots of it. That’s one of the core attributes of capitalism. Every business of course strives for huge profits, but even institutions you would not expect are also in competition to make huge bucks. Media cares about ratings; big ratings bring big bucks from advertisers. Hospitals and the whole health care industry are also striving to make profit for their shareholders. Doctors are accepting large amounts of patients to maximize their bonuses and salaries. (They also accept vacation packages from the drug industries in return for testing few drugs on their patients). FED (Federal Reserve System which is privately owned) are lending money to business, while making huge profits of interest which businesses pay back. Even our government is trying to make profit. I dare you to find me an industry that works for good of the people, instead for profit.
In capitalist society, profit comes before people, education, health, environment and other life’s basic necessities. Oil companies will drill in the wild if it makes them profit. Lumber companies will cut down the whole forests if thats the only way for them to grow and make profit. In the US we indeed see all of this even though it’s not a true capitalist economy; it’s much more subtle but damaging to the people nonetheless.
If business grows to the size, where the only way to sustain itself and make profits is to start hitting work force on their backs, while passing costs to consumers (notice work force and consumers are the same people actually), while at the same time destroying competition at any cost, they will do it; we see them doing it every day.
Average American is then pushed into the corner. He has to compete with his fellow Americans for a better job and better pay, so that he can pay his mortgage, send his kids to school, buy health and life insurance, secure his retirement and basically just survive. Who has time for fun! He has no choice. He will often resort to stumping over his morals and ethics just to get one step ahead. Good people will resort to all kind of innovative ways to make money and survive. We see that in all kinds of scams around us.
He is also constantly bombarded by media and reminded by employer (capitalist class) that giving 110% at work and not complaining a lot is the best way to get ahead. Those who complain get fired really quick and get replaced by other ambitious laborers. Be competitive and have good work ethics and everything will work out they say. Add to that, constant avalanche of consumer products being shoved up his butt, and what you got here is a obedient consumer/worker robot. That’s a person who works as hard as he can, while consumes as much as he can while keeping his mouth shut. Not a bad deal for the capitalist class eh?
If working class is just working and not buying, then whole system breaks down. Opposite is also true. So capitalist class needs obedient worker whol will also consume lots of its products.
Capitalist class these days have yet another weapon to maximize their profits. Offshoring and globalization. Owners will abandon their already overworked and underpaid local labor in return for cheaper and even more overworked labor overseas. Any way you look at it, average American will get short end of the stick every day and twice on the Sunday; and the only thing he really wants is little piece of mind; or as it’s popularly called American Dream.
Every person in US strives for that piece of mind that will never come. It’s a never ending struggle between anxiety and labor, until the day he dies. He just doesn’t know it while he’s in his 30’s or 40’s.
Even if he’s on the right track of fullfiling that dream, something else along the way always comes, just to set him back or place him right back at the beginning. It’s like running in the sand. A true checkmate. Even if he accumulates material goods, anxiety will always be there.
Lets say he has million dollars saved by the time he retires; he’s feeling good and has all these travel plans; but what he doesn’t realize is that all it takes, for him (or a family member) to get really sick and all of that could be wiped out by medical treatments, and if he doesn’t get really sick he will turn in all that wealth to a retirement home. Next time you see him, he will be greeting you at wall mart or bagging your groceries.
Example: Friend of mine was in a car accident and he suffered spinal injury which left him almost paralyzed. He underwent couple of surgeries and he has to be under physical therapy constantly. Let me just say that medical insurance company stopped paying his bills after $300,000. Right now I think his medical bills are over six million dollars! Yes that’s US Dollars.

Point is that no matter what the average person does, he will always have that annoying background anxiety. Be that fear of loosing your job, mortgage, medical bills, kids college, health issues or just a feeling of not doing anything with your life, those anxieties will always be there. All of those anxieties are caused and are pure product of pressures of capitalist society and economy. Even if you have everything paid for; secure retirement and piece of mind is not guaranteed. Something always comes along to put you back in your place of being a laborer.

So conclusion of this article is that capitalism does work. It works gloriously, but only for capitalists. It works great for the wealthy. Those who tell you that capitalism and privatization really work are the biggest bullshitors world has ever spat out. Either that or they’ve been persuaded into believing in a dream that will never come. I really cannot believe that there are normal, healthy people in this world who believe that pure capitalism brings wealth and prosperity to the people.
Problem is that there’s not much average guy can do except to vote in elections only for his/hers interests and not against it. I lived overseas and currently am living in US, so I’ve experienced both sides, but I’m still baffled by people who vote against their own interests.
Reassuring fact is, when cup is full, when working class have had enough, capitalist class will hear the rumble of the people (as Nader used to put it). It happened before and will happen again. We don’t have 14 hour working days anymore. We have women voting rights, child labor laws, work discrimination laws, labor unions, welfare programs etc. Every one of those laws was accomplished by working class.
People fought for their rights before, and be assured, when pushed into a corner, they will fight again.

You wake up one morning and walk over to your mail box. There’s a letter in the mail from a broker or brokerage house, lets call it Big Brother, predicting that S&P500 will go up in price this month. You trash the letter assuming it was spam. Within a month you get a second letter, again from Big Brother notifying you that S&P500 indeed went up and that you missed out on large gains if you had enrolled in their 24 month predictions program. Prediction fee is only $1,995 a year. Second letter also makes another prediction stating that S&P500 will still go up next month.
This catches your interest since they already correctly predicted the move one time but you discard the letter anyway thinking it could be just pure luck. Within a month you go online and check out the price of S&P500 now versus one month ago and indeed it went up again.
Next month you receive a third letter from the Big Brother notifying you of their next prediction that S&P500 will go down this month. Indeed, within a month SP&500 goes down. Three correct predictions in a row. Still could be luck so you discard the letter again but your interest increases exponentially, or at least you already starting to have naughty dreams about money.
You keep receiving these letters month after month correctly predicting what the market is going to do with terrifying precision. By the month five, I guarantee you already checking up your savings (or even a home mortgage) to see if you have some money you can spare to loose. By the month 6 or 7 you’re hooked. You cannot just sit and wait idly while all these wonderful opportunities are passing you by. You have signed and enrolled in their 24 month no refunds prediction program for $1,995 a year. You might think, that’s lot of money, but that’s a very small fee comparing what you will make within a year knowing a fricking direction of the market! You already have excel sheet showing all your debt paid off, travel plans and another sheet where you listed all relatives and friends to take care of once you get rich. Or not.

Here’s how the scam is done from Big Brother’s perspective:

Big Brother starts out with lets say 10,000 prediction letters and splits them into two groups of 5,000. First group (Let’s call it UP Group) of letters is predicting that markets will go UP while the second group (let’s call it DOWN Group) is predicting that markets will go DOWN. Big Brother then mails out all of those letters to different households.
Big Brother waits and see what the market is going to do and then mails out conformation letters ONLY to the correct group. For example if markets went UP, Big Brother mails out conformation letters only to the UP Group.
DOWN Group never hears from the Big Brother ever again!
Now they have 5,000 users believing that Big Brother predicted market direction this month.
That’s not enough predictions in a row to convince anyone,so they again split up that group in two. UP and DOWN again with 2,500 customers in each group and do the same thing over and over until some of them take the bait. 2,500 will be split into 1,250 and so on. Eventually they will end up with couple of hundred really trusty customers. If they can do this scam few times over, they can clear few millions of doallrs within two years easily. Interesting part is that some of the customers will actually make money by pure luck so they might sign a contract for another two years not knowing that they’re paying $1,995 a year for essentially a coin flip.

Huge volumes are written about investing and stock picking so my aim in this article is not to write an essay and be preachy, but just to give you something to think about when you investing and show you that lady luck actually plays enormous role even when professionals are playing with money. Especially your money.

Money Managers

Money Manager is a person that is in charge of buying and selling securities with other people’s money. Their client’s money that is. Money Manager can have hundreds of clients with each bringing more than million bucks. Sometimes combined poll of money can be in billions. Money managers invest that money or portion of that money to sell and buy stocks and other securities as they see fit. It’s in their interest to get a big return on investment since they’re usually take a cut in percentage of the total sum, or even have up front fees. We also all know that there’s some money managers out there that are really successful and have 5, 6 or more years winning streaks, but sooner or later (probably sooner) that winning streak will end, and money manager will start performing mediocre or even very poorly.

They will use best technology and information money can buy, but that will not help them. It’s like a clockwork. Check it out if you like. So what’s going on here? How come money manager who constantly made money 5 years in a row suddenly started performing so poorly? Did he get less skilled as years goes by? Or could it be that all those years he was more lucky than he wanted to admit? But how can it be luck, winning that many years in a row? It’s seems like a paradox. Here’s how it can be done just by chance alone.

Making ordinary people into market gurus

Let’s take a pool of 1,000,000 people (one million) that have no idea on how to invest money. Let alone manage someone else’s money. Those are going to be regular, hard working people with no interest in stocks or securities. Give them each certain sum of money to invest by picking stocks and securities they like for period of 12 months. After 12 months each will have to report their losses or earnings.

What do you think will happen here? You might think that they’re all destined to go broke within few months, but that will not happen. Statistical chance alone dictates that at least 10% (100,000 people) will just get lucky and make money regardless of their skills and experience.

Sure, probably 90% will fail and go broke before year is over, but those lucky 10% WILL make money just by pure luck. Remember: they had no skills or any knowledge of anything related to financial markets. Intuition might play some minor role here but it will be very small. That alone will not make them successful money managers who make profits year after year you might say. Well, we’re not done yet.

10% out of 1,000,000 people is 100,000.

Let’s take remaining 100,000 winners and have them invest for a second year. Again, just by pure luck 10% of those remaining 100,000 people will become successful.
10% out of 100,000 is 10,000. So right now we have 10,000 people that had success two years in a row already.

If you take remaining 10,000 winners and let them invest for a third year then you would have 1,000 successful money managers for three years in a row! 100 successful money manager 4^th year in a row and 10 really successful money manager for 5 years in a row. All of them armatures that never seen threshold of financial college.
And that’s how it can be done.

I am not saying that’s how’s done in a real word, but I think that luck plays a way bigger role than people are ready to accept. It’s not easy to detect if your stock picking is just luck or skill, but remember following quote:

“Don’t ever mistake bull market for a skill”

That means that everyone is lucky while investing while markets are going up. It’s not a skill, you just investing at the right time. True skills are seen in bear and stormy markets (like the one we’re in right now at the time of this writing). Just ask any of your friends if they’re making money in todays market or on their 401k plans. By the way 401k plans ARE managed by professional Money managers. To me, it is more important to look at the money manager’s performance during his/hers career then actual fund performance. There’s always a bull market somewhere and you’re depending on a money manager to find it.