Tuesday, June 10, 2008

Future History - an oxymoron? Cheap Money

Two headlines* caught my attention

“US rogue trader jailed for 10 years”

“Mexico issues shark warning – for swimmers”

Following on my “ideas” concept this started me thinking on how far up the line in companies and institutions the idea of jailing the Chairmen and COEs goes.

My conclusion – not very far. Normally they leave with fat lump sums and inflated pensions.

Scams and incompetence – or downright fraud - have been around since fiat money was invested but the last 100 years, should cause us to stop and think.

So is there any way the individual investor can spot the dangers?

I remember a London Stockbroker friend telling me many years ago that when a company paid consistently high dividends and came to shareholders frequently for funds – watch out!

His recommendation was to sell Rolls Royce which, in less than a year, went bust!

Has this lesson been learned by Banks around the world? – look at the billions of rights issues by British, European and American banks.

Will Government always bail out offending funds and financial institutions? Think of a list - Northern Rock (UK), ICI (Ireland), Bear Sterns and LTCM in the US and many others.

But the opposite also applied when the thousands of banks failed in the US (in the early thirties) and in the UK in the ‘70s and ‘80s. The US and UK governments were then in no position to help or perhaps, in the UK, a conscious decision was made not to intervene.

Much has been learned by Governments since the Depression but for all the studies of the period by “Helicopter Ben” the current situation in the financial world is bad and most likely will get considerably worse As we know the current solution is to paint the world with US$, £stg or Euros (which provides cheap unending money to the banks) but this will either work or lead to ever increasing inflation.

Investors should opt for safety over return for the bulk of their monies. As suggested in my latest blog the way to leaven this caution is to put a portion in precious metals, commodities, and food and certain energy related investments.

Robert Mooney, contributor to Zignals.com the free stock alerts, market alerts, and stock charts website

* Sunday Tribune 1/6/08