[LINK] Advice from a dotcom loser...

[Kevin McKern]

I think commodities are a good investment!!! Including Aluminimum!
But I don't think the US is in for a good time and about ten thousand
websites are banking on it. Look at the price of Silver. this is something
I've reasearched but don't want to represent myself as an expert, but, I'd
bank on it!
I lost 6000.00 on Davnet and told myself it would never happen again!

Energy, precious metals, things!

Subject: Listen closely: The next crash is coming ... it is coming!

If Elliott and the bears are right it will start in Europe and take out the
US. America ugly sister according to the economist, Australia, will be hit
hard, and this is not me talking, but I am quite right. Expect a rally in
the First half of April and then Down, Down, Down. It doesn't matter what
era of history you study, or what country, or what market, fair-value always
seems to gravitate to around 14x earnings and 7.1%, probably due to our
finite mortal lifespans.


By Paul B. Farrell, CBS.MarketWatch.com
Last Update: 7:57 PM ET March 24, 2004

LOS ANGELES (CBS.MW) -- Back on March 20, 2000, just before the Nasdaq
peaked, I wrote column titled "Next crash? Sorry, you won't hear it coming."
You didn't have to be a psychic to know the crash was coming ... and yet
people didn't listen.

Yes, some Americans did hear the crash coming. The signals were unavoidable.
For example, the astronomic price/earnings ratios, like those no-earnings
Nasdaq heroes with 100 percent annual growth. But nobody wanted the party to
end. So nobody listened then ... and nobody is listening now.

The new science of investor psychology, behavioral finance, tells us why:
Investors tend to minimize or totally deny bad news, like a coming crash. We
have an "optimism bias," with a mental valve in our brains that actually
filters bad news out of our ears.

Listen closely: The next crash is coming ... it is coming!

I'll bet your filter's working. I could almost hear you call me a nut!

Notice, I'm not referring to the current mini-correction because technical
indicators suggest the bull should snap back soon. Also, I don't need any
psychic powers. And I don't even need to use any psychological analysis or
behavioral finance research.

I do know I was on target in 2000, before the market crashed and moved into
a long bear market, a loss of $8 trillion. And I'm sticking my neck out
again.

Read my lips: The next crash is coming, and it could kill your retirement if
you don't start planning ahead now.

Signs point to trouble

I admit I don't want to believe it. But the warning signs are all over, in
spite of the pep talks we're hearing from the Fed chairman and the
administration.

This time the reasons for the crash scenario are not internal to the
structure of America's stock market, although the federal and Medicare
deficits increase our long-term vulnerability. That's crucial to
understanding the prediction: You can analyze the domestic economy, interest
rates and markets all you want -- it won't matter.

Why? Because the reasons are external. Remember, shortly after 9/11 both
Donald Rumsfeld and Warren Buffett publicly said that the question is not if
we are going to have more attacks on U.S. soil, but when. That may not be
news, but it is clear Americans are in denial about this truth, and that
denial, unfortunately, will set you up for failure in your personal finance.

As a result of the Afghan and Iraq wars the global political landscape has
become more destabilized than before. The Israeli roadmap for peace has
collapsed. The Pakistani offensive against al-Qaida now looks like a farce.
And the post-Madrid television warnings from bin Ladin's mastermind
al-Zawahiri that "death brigades" are 90 percent in place to carry out new
terrorists' attacks inside America's borders have an ominous promissory ring
to them, as did the warnings of the blind cleric during his trial after the
1993 bombing of the World Trade Center.

So the "when" we heard from Buffett and Rumsfeld appears much closer on our
radar than a few years ago. Indeed, the current 9/11 hearings reveal an
inept government intelligence system that can easily be outwitted by
determined terrorists armed with low-tech weapons focusing on new and
unsuspecting targets.

Moreover, the Madrid bombing and subsequent threats telegraph the likely
timing of the next attacks. The enemy is clever at changing tactics, to
mislead us. Not planes nor trains, but a different venue next time. Madrid
taught the terrorists that they can influence elections. The likely timing
will coincide with a significant political event this year: The Fourth of
July, a political convention, the 9/11 anniversary or the November
presidential election.

Bears will have their day

This forecast was already well formed although unarticulated when I read in
Barron's: "We are coming into one of the worse bear market in history." The
prediction was made by Richard Russell, the highly respected publisher of
the Dow Theory Letters. He has a solid track record predicting market turns
since he launched his newsletter in 1958.

His dark omen reminds me of similar warnings from super-bears like Robert
Prechter, the long-time publisher of the Elliot Wave Theorist. Prechter has
also been sounding the alarm in recent months, reinforcing Russell
predictions.

Prechter's solutions are drastic. In an earlier newsletter he offered many
radical 'Bear Market Strategies:' Get out of stocks and funds and park all
your money in Treasuries and money markets. Cash out insurance policies and
stop looking at your home as an investment because that market's bubble will
burst.

While I dismissed Russell and Prechter earlier, today the contrarian in me
(the one discounting all the hype about the economy and market) is telling
me to pay a lot more attention to them, telling me that unpredictable events
can easily erase all our domestic successes in a flash.

Long-term I'm still an optimist: "Betting against America was a bad bet in
the past. It'll be a bad bet in the future," said Peter Lynch shortly after
the 9/11 attacks: "In the last 50 years we have had many periods of economic
prosperity and many periods of uncertainty. Despite nine recessions, three
wars, two Presidents shot (one died and one survived), one President
resigned, one impeached, and the Cuban Missile crisis ... stocks have been a
great place to be."

This time it is different. A couple quick wars in Afghanistan and Iraq? No,
we are already mired in World War III, a global cultural war that has been
accelerating for over a decade, and we must fight enemies who have made it
clear in no uncertain terms that they will be trying to kill us and our way
of life for generations.

So please, listen closely: "Next crash? You won't hear it coming." Or will
you?

This is why you should only ever buy very cheap stocks.

It is generous to assume that an average investor only has four short
decades to invest.  If he starts investing in his mid-20s and retires at 65
to start cannibalizing investments to live, that leaves only 40 years to
attempt to multiply wealth in the markets.  If this average investor is
suckered into paying prices too high for the earnings streams that his
corporations are actually spinning off, he will simply not earn enough
returns in these four decades to retire.

 The historical average price-to-earnings ratio is 14 times, meaning that,
on average, over centuries the fair value of stocks in general is a price
that is 14x higher than the annual earnings that the underlying companies
can produce.  At this average P/E ratio, discounting potential growth, it
takes a company 14 years after an investor bought it to earn back the
original price that the investor paid.
Stated another way, using the reciprocal (1/14) of this historical average
fair-value 14x P/E ratio, an investor can expect a long-term 7.1% annually
compounded return in the stock markets, which is a fair level of
compensation for risking scarce capital.  This 7.1% return and 14x P/E ratio
over 40 productive years in an average investing lifespan ends up
compounding to 15.8x or so, illustrating that over 40 years at fair
valuations an investor can expect to multiply his capital by almost 16x, not
bad at all.

With only four decades or so in which to invest, accepting returns lower
than these due to high valuations can devastate an investor.  There is
simply not enough time in our short and fleeting human lifespans to wait for
overpriced companies to earn us a decent return.  If an investor purchases a
stock when general valuations are far too high, paying too much for
earnings, the mathematics of compounding and our short lives doom him to
mediocrity at best and terrible losses at worst.
On the expensive end of this valuation scale, the historical mania-bubble
valuation level is 28x earnings in the general stock markets.  The
reciprocal annual return (1/28) implied by this high valuation is only 3.6%
or so.  If you compound this kind of return over the same 40 years that we
are allotted to invest in our adult lives, your final multiplier is only 4x
your original capital.  Just by paying a price for your stocks that is twice
as high as the long-term 14x earnings average, you lose over 75% of your
ultimate gains!  Ouch.

Conversely, the hardcore contrarian approach is to not even settle for fair
value, but to patiently wait until the general stock markets are undervalued
in historical terms.  If you are like Warren Buffett and buy at one-half
historical fair value, or 7x earnings, your reciprocal annual return (1/7)
is a whopping 14.3%!  This huge number compounded over four decades yields a
final capital multiplier of a staggering 209x!

That's right, just by buying stocks at historically undervalued levels you
can potentially multiply your capital by almost 209x in 40 years!  This
compares to 16x for buying at fair value and a dismal 4x for playing the
fool and buying at historically expensive levels.  It truly boggles my mind
that anyone ever buys stocks at expensive levels when they are virtually
guaranteeing themselves pathetic long-term returns.

With only about 40 productive years in which to earn returns in the stock
markets for most of us, there really isn't much time to mess around which is
why I believe fair-value valuations around a 14x P/E are so constant
throughout all of market history.  It doesn't matter what era of history you
study, or what country, or what market, fair-value always seems to gravitate
to around 14x earnings and 7.1%, probably due to our finite mortal
lifespans.


US deaths in Iraq

http://www.ac.wwu.edu/~stephan/USfatalities.html

-----------------------------------------------------------------------
Kevin Sydney McKern
spacerkev at iinet.net.au
Telephone: 061-02-97978310
Cell: 0411796277

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-----Original Message-----
From: link-bounces at anu.edu.au [mailto:link-bounces at anu.edu.au]On Behalf
Of r.polanskis at uws.edu.au
Sent: Friday, 2 April 2004 8:17 PM
To: link at anu.edu.au
Subject: [LINK] Advice from a dotcom loser...


More Friday sillies....

> Subject: Investment advice.

If you had purchased $1000.00 of Nortel stock one year ago, it would
now be worth $49.00.

With Enron, you would have $16.50 left of the original $1,000.00.

With WorldCom, you would have less than $5.00 left.


But, if you had purchased $1,000.00 worth of Beer one year ago,
drank all the beer, then turned in the cans for the aluminum
recycling price, you would have $214.00.

Based on the above, current investment advice is to drink heavily
and recycle.


--
Rachel Polanskis		Systems Admin, University of Western Sydney
V1-37, Kingswood Campus		(+61 2) 47 360 291 <r.polanskis at uws.edu.au>
        "They who would give up an essential liberty for temporary security,
        deserve neither liberty or security" - Benjamin Franklin, 1759

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