Mike Stathis

What, If Anything, Are CDS Spreads Telling Us?

What I find remarkable is how the same guys who missed this financial apocalypse continue to follow useless theoretical risk models based on math. Too funny. I suppose they have little choice since they have no other training. In this case, myopia can be disasterous.

You can neither measure nor control risk using mathematical equations. The best risk managers have real trading experience. More important, they are leaders in thought.

Most Wall Street professionals have been fooled by these highly flawed risk models because they do not have math degrees. So when exposed to the intricate theorums and equations, they become hypnotized into thinking they have found some Holy Grail.

The few of us out there with a math background, real investment experience, and who are also thought leaders understand how to measure and manage risk. And we certainly don't use VaR and other bologna. We simply wait around to collect huge profits when these models fail. This is the easiest way to become very wealthy; that is, if you really understand things. Since very few individuals truly understand how this all works, you can imagine how much money is available for a select few.

The global investment community did not learn their lesson after LTCM. And they won't learn it after this crisis. The same cycle will repeat indefinately. And those of us who understand the various flaws buried within the models used by credit risk managers will continue to make huge profits, quite easily I might add.

Stay Clear of Traditional Asset Classes

Dogtownsurf, I tried to warn investors the market was going to sell off. Since the article was posted a month ago, the Dow is down by nearly 900 points. Yet, as you can see, rather than take my advice and sell, many of these people would rather take cheap shots at me. This gives you an idea about the general audience on Seeking Alpha and it is one reason why I don't even bother to waste my time posting here anymore. The other reason is due to the fact that SA censors articles. They will only post material that has daily trading implications, which prevents any commentary about bigger picture events or things expected down the road. In short, I have come to realize that SA caters to the same people who waste time watching Cramer and other trash on CNBC, and I want to distance myself as far from that trash as possible.

You are right on both accounts - I try to be conservative so as not to disappoint. I find my success rate on predictions is extremely high when I am conservative. Yet, to many I seem extreme. remarkable isn't it? And yes indeed - no one in the position to fix things is. Indeed, I am sure Volcker is puking in disgust as he watches Bernanke intentionally destroy the dollar, along with the opportunities Americans once claimed made this nation filled with hope. At least you have the California coast to enjoy - something the Fed cannot easily destroy.

Stay Clear of Traditional Asset Classes

Wrong Middle. Healthcare is NOT going up due to boomer demographics. Boomers have not even turned 65 yet. Boomer demographics over the next 20 years WILL make the problems worse, namely due to the crisis in chronic disease management, which already constitutes over 70% of all healthcare expenses. But right now the costs are due to the excessive profiteering by the healthcare mafia – HMOs, drug companies, device makers, etc. This is a fact.

How is it that the U.S. spends 18% of GDP on healthcare and has the highest rate of medical errors, 50 million without coverage, nearly 1 million medically-related bankruptcies each year, and a ranking of 37th by the WHO – yet, most of the rest of the world has healthcare expenditures ranging from 6-8% of GDP, with virtually no fraud, less waste, much fewer medical errors, and much better rankings? Answer: a healthcare "free-for-all" among the providers who focus on profits and often sacrafice quality care.

In fact, according to studies from John’s Hopkins (Dr. Starfield--google it), due to medical errors, physicians are now the #3 cause of death in America.

Stay Clear of Traditional Asset Classes

In response to fredlee....I appreciate your comments, and I agree with most of what you said - in all 3 of your comments...Except the part about me being naive about the effect of lobbyists on the healthcare industry. My core technological expertise is healthcare. Understand that I was limited to what I could mention about it without distracting too much. As you can see, my article was quite long as it is.

The problems with healthcare are numerous; so much in fact that most people think they realize what the problems are, yet they overlook so many others. Without addressing all of the core problems, can't possibly understand potential solutions. But certainly, the healthcare lobbyists - the largest most powerful lobbyists groups in Washington - have a big role in the healthcare crisis; namely, making sure that Washington stays away from price controls. And cost containment is perhaps the biggest problem in healthcare because high costs limit access which prevents more from having coverage, which increases the number of medical bankruptcies. You point about eating healthy is well taken and I completely agree. The food industry must be held more accountable for poisoning the food supply.

That said, I feel that I do understand the full complexity of the problems that have created a healthcare crisis. And am currently working on what I hope to be a groundbreaking book, geared for investors that introduces telemedicine as part of the solution. Perhaps in the future I will address healthcare as it relates to investments.

As far as investing in physical gold, while I do see value in that approach, I did not feel it was relevant to most readers of Seeking Alpha since the site appears to be geared for stock market investors. I guess I was wrong!

buying and holding the physical gold has both advantages and disadvantages. First, you have to worry about storing it in a safe place or else you will have to pay to have it stored. Second, you won't be able to take advantage of the tremendous volatility swings. If you are a good trader you can make alot of money trading it. Finally, it is not nearly as liquid as gold ETFs and you have to pay a spread to buy and sell it.

HOWEVER, the great thing about holding physical gold is that it prevents one from trading it. Even the best traders can get shut out after failing to get back in right before a huge rally. And it could soar from there. In addition, trading it will create a big tax liability which some won't be prepared to meet without hardship.

Finally, you should understand that the gold ETFs are supposed to be buying the physical gold in accordance with demand for the ETF. So buying the physical gold yourself won't increase the price due to a supply-demand imbalance.

HOWVER, no one really knows for certain whether or not the ETFs really hold all the gold they claim since the audits only check for paperwork.

In conclusion, for some, holding physical gold is the best way to go. For others, managing a gold position in ETFs is preferred. As for silver, I actually think it has more upside at current levels than gold. But I think it will heat up later. Right now, gold is on fire due to the banking crisis.

For those of you who feel I've understated the potential disaster, you should know that I try to make conservative forecasts. For everyone else, I appreciate your comments and feedback, especially the generous compliments.

Stay Clear of Traditional Asset Classes

Magman, just so there is no confusion, SKF is an Ultrashort Financial EFT. Hence, to take a short posture in financials, one would buy (not short) it.

As for the treatment options to avert this potential economic catastrophe, Washington must restructure free trade and healthcare, America's biggest problems. To enable this, voters must demand an end to lobbyists donations. As long as money flows from corporations to Washington, America will be controlled by corporate America and working-class Americans will suffer.