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Del Lindley

 
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  • The Big Short - The Need For An Externality In A Short [View article]
    Basic economic theory informs us that the concept of intrinsic value is flawed. Value is something we project onto goods; it is not an inherent property of the good that we can measure. The way I value a good (or a stock share) is ultimately personal and subjective. The fact that others can value the same good at the same time allows a market to form, and the supply and demand for that good will determine a more objective exchange value or market money price. This is the voting machine in action.

    The fact that I can make assumptions about a stock’s future earnings (or dividends) and discount them to the present to compute a “fundamental” value makes my estimate no less subjective. After all, there is no objective way to estimate future earnings or to know the appropriate discount rate. The only way to objectify these “fundamental values” would be to create a tradable market in these estimates between analysts (as an example), but to me that seems pretty pointless. Given Buffet’s track record he may be justified in saying that the market eventually conforms to “his” weighing machine, but that says nothing about whether it will conform to anyone else’s.
    Aug 9 09:54 PM | 2 Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    I am going to take you up on your challenge to contest this article’s methodology, but let me first make a few points clear:

    1) I am not a “gold bug” and I have no position in the metal as of now.
    2) I am pleased to hear that you have enough humility to maintain an open mind.

    Just to summarize, you are claiming that a long-term relationship must exist between the free-market price of gold and some fiat currency-based “price level” measure (e.g. via CPI or PCE growth) for the current array of goods and services, and that the expected future return for gold can be estimated by assuming that the price of gold will revert to this relationship’s mean over some sufficiently long period of time.

    There are many problems with this framework. Perhaps the most basic is that the concept of the price level is meaningless because its measurement is entirely arbitrary. The array of goods upon which it is based is constantly in flux and so there are no objective means to compare what the price level is from one interval to the next. As a simple example, how much do you think the equivalent of today’s internet access would have been worth in 1980 if you could have somehow obtained it? $10,000 per year? $100,000 per year? Clearly there is a missing “price deflation” component in the CPI trend for all the goods and services that simply never existed in the past. Furthermore even simple commodities such as corn and wheat aren’t the same goods they were in 1980.

    The next point, which I won’t dwell on, questions the “free” nature of the gold market. How free can it really be given the outsized influence of the world’s central banks in the determination of its price? Furthermore can’t we say that it should tend to be undervalued (at least in the US) where gold trading profits are taxed at the punitive 28% “collectibles” tax rate?

    The concept of mean-reversion is an intuitively pleasing concept because it allows one to think one understands the problem at hand better than one really does. It is ultimately an outgrowth of a probabilistic model for market price evolution, and these models cannot be justified on the basis of (correctly understood) price formation theory. Therefore in spite of the fact that some set of historical price data may demonstrate statistical evidence of mean-reverting forces, this in no way “proves” that the model will have any predictive power in the future. The seat of predictive power ultimately comes from one’s superior understanding of how the subjective valuations of all of the market participants will change in the future, not on the number crunching of historical “data.”

    Even if you want to dismiss all of the above you still have the problem that you are implicitly giving gold the status of money when in fact it is not (in the US anyway). You commit this error when you claim that there must be a historical relationship between the purchasing power of gold and the dollar (since it became a fiat currency). Gold has lots of non-monetary utility (jewelry, dental work, industrial uses) but it pales in comparison to gold’s utility as money (i.e. “money proper”).

    A better (but still simplistic) model for gold’s exchange value would be to say that its non-monetary exchange value forms a flexible base upon which the potential for gold’s return as full-fledged “money proper” must be added. This is sort of the way the Jim Grant views the problem when he says that the price of gold is inversely related to the world’s confidence in fiat currencies. If dollar convertibility into gold would require (for example) a price of $5000/oz, then the current price of around $1250/oz indicates that the world’s esteem (and demand) for the fiat dollar is still very high. But if the dollar demand were to collapse (hyper-inflation) then some residual demand could be restored by making the dollar a money-substitute for gold.
    Jun 2 07:42 PM | 5 Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]
    The comment above is directed at Reel Ken, of course.
    Mar 12 09:41 PM | Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]
    Nice try, but your comments continue to be riddled with errors, and I no longer feel obligated to correct them.
    Mar 12 03:02 PM | Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]

    <
    Herbalife withheld material information that would have allowed Bostick to determine that he was participating in a pyramid scheme and not a legitimate business opportunity.
    >

    Again, mere assertion. What court has determined this?
    Mar 11 11:04 PM | 2 Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]
    Reel Ken,

    Let’s see whose mind is closed and whose eyes need to be opened:


    <The premise of the article is “Are Pyramids Inherently Fraudulent”?>

    Here is the first mistake made. The title is a question, not a premise.

    <
    From that starting point you detail several components of a Pyramid, let’s call them X, Y and Z. You then posit, what you claim is a logical and legal argument….. that if “Z” was really “Q” and “Q” is not fraudulent then the Pyramid XYQ, is not a fraudulent Pyramid. Therefore Pyramids are not inherently fraudulent…QED.
    >

    Mistake Two: I detail the components of fraud, not the “components” of a pyramid. I use the Wikipedia definition of a pyramid, and give a detailed discussion of how the simplest possible pyramid (one with no or token product) could grow in the absence of fraud.

    Mistake Three: At no point do I identify some aspect “Q” which could serve to “bless” an otherwise fraudulent scheme to magically make it non-fraudulent.

    Mistake Four: Because of Mistake Three, the remainder of your “proof” is a pathetic distortion of my analysis.

    Obviously if you want to decompose an actual scheme into some component form, then if one component is fraudulent then the whole scheme must be fraudulent, so your representation of my argument is complete nonsense.

    To say something some activity is inherently fraudulent means that there is no way (i.e. it is prohibited on logical grounds based on the definition of fraud) for it to be non-fraudulent. I show this to be the case for the Ponzi scheme, and that is why I elaborate on the details. Afterwards I clearly demonstrate that a pyramid scheme could grow exclusively because of participant error. Once that mere possibility is demonstrated then the “non-inherentness” of pyramid fraud is established. QED. This is why I spent so much time describing the ABC interactions that you ridiculed above.

    Let’s continue…

    <Here’s where you go astray… a Pyramid is always XYZ and is always fraudulent.>

    Mistake Five: This is mere question begging, assuming what needs to be proved to be true, i.e. the pyramid scheme is inherently fraudulent because the law defines it to be.

    <
    So, all these seemingly logical and legal arguments you make are, at the core, neither logical nor consistent with the law. You have distorted the legal meaning of a Pyramid then tried to logically argue that it doesn’t meet the legal definition of a Pyramid.
    >

    Mistake Six: Obviously my logic is not consistent with the law because the law is not logically consistent with itself. I point this out in my discussion of Bostick’s standing before the California District Court. Since he engaged in “inherently fraudulent” activities, and ignorance of the law is no defense, then Bostick is a common criminal with no standing. The fact that he has standing in this matter implies that the court does not abide by its own law.


    <If you can’t see this, then I’m at a loss as to how to help you out.>

    Gee, thanks for straightening me out.
    Mar 11 09:51 PM | 2 Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]
    Reel Ken,

    <I read and re-read your article.>

    Great.

    Now go ahead and read my two previous articles on entirely different subjects.

    Do you notice any similarities between those articles and the present one?

    (Hint: The fact that you find them all incomprehensible does not count.)
    Mar 11 04:56 PM | 2 Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]
    Reel Ken,

    Everything I said in this article had a purpose. Maybe others are not so well informed as you about Ponzi schemes, but I thought a detailed contrast between the two “scheme” types would be helpful to show how sustainability is not the key issue for Ponzi fraud. My discussions of equilibrium, uncertainty, and error all have there place too, as I tried to present a wide view from the perspective of economic theory. Given all this I only needed to use a subset of the possible connections to answer the title and associated questions. Other conclusions can be derived by using other connection subsets, but I left that out because they were not essential to my main points.

    Unfortunately the pedestrian point you make about “intentional concealment of relevant facts” in your penultimate paragraph only relates to specific instances (“some arrangements”) of fraud within a pyramid scheme (which I don’t deny can happen), but it says nothing about what I am talking about, which is the lack of inherent structural fraud in the essential pyramid scheme.
    Mar 10 07:31 PM | 2 Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]
    Contheon,

    Things aren't quite as easy as that. Social Security involves the element of coercive participation, at least if you are on someone's payroll. It also is nice to have some control over the national money supply to keep the scheme rolling in a pinch!
    Mar 10 05:00 PM | 4 Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]


    <
    And how is a high school student, or unsophisticated single mom supposed to figure out pyramid fraud or make sense of this obfuscated 4,629 word essay or when the greatest minds in the country; law enforcement, regulators, financial advisers, stock analysts etc, cannot agree on the legitimacy of Herbalife? That is the relevant question.
    >

    First, Mr. CrimeBustersNow, I always make it a point to eschew obfuscation.

    Second, high school students and “unsophisticated single moms” do not need to understand these matters in the detail I describe. When it comes to investing or choosing a vocation they will do perfectly well so long as they do not involve themselves in activities they do not fully understand.

    I hope this helps.
    Mar 10 04:51 PM | 5 Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]
    Mr. Craig,

    Thank you for this contribution. Would I be correct in saying that “inherently deceptive” is a more inclusive standard than “inherently fraudulent,” given that deception is just an aspect of fraud?
    Mar 10 04:13 PM | 2 Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]
    ProTruth,

    I am not "creating" anything--I am only describing the logic of the law as I see it. The Bostick dilemma is independent of my primary argument regarding the erroneous nature of pyramid schemes. The dilemma just serves to show that the pyramid laws are arbitrary, as they must be.

    So where is the coercion?
    Mar 10 03:26 PM | Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]
    Moon,

    Good comments as always, but the product-specific concerns were beyond the scope of this article. These concerns are "distribution independent," but they do play a role in evaluating HLF's future earnings.
    Mar 10 02:59 PM | 3 Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]

    <
    This is a detailed article that, at its core, obfuscates by confusing the issues.

    First, a Ponzi scheme is inherently fraudulent NOT because the late-comers subsidize the early-arrivers. Your entire argument is off track and the complexity you deduce to prove your point is laughable. A Ponzi scheme is fraudulent because monies received are represented as return on investment and not return of capital. It is further fraudulent because each investor's capital account is fraudulently reported.
    >

    Are you referring to my article? If so, for a better laugh maybe you should call up Evelyn Wood and get a refund for your speed-reading investment.

    As I matter of fact, I do mention the element of fraud by omission in the Ponzi scheme discussion.

    The problem of “sufficient information” is already handled in the context of the elements of fraud that were outlined. The organizational nature of a pyramid scheme cannot be concealed from the participants if in fact it is a pyramid scheme! (If someone is deceptively shunting money away from a designated distributor then you have simple case of theft within the scheme, and it loses its "pyramid" property.) Your premise that it can is false, and so any reasonable conclusions you draw from it are also false.
    Mar 10 02:52 PM | 3 Likes Like |Link to Comment
  • Are Pyramid Schemes Inherently Fraudulent? [View article]
    just2look,

    Thanks for your comments. Like any good ref I just call'em as I see'em.
    Mar 10 01:57 PM | 4 Likes Like |Link to Comment
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