Deviant Investor March 22 2013

What is more likely to hurt you is what you think you KNOW that is WRONG. What you don’t know is often not that important. Consider a few examples:

Cyprus Bank Accounts – Depositors believed their accounts were insured up to 100,000 Euros. According to the news, they are insured unless the EU, the IMF, Cypriot Bankers, the Parliament, or whoever chooses to “tax” (steal, appropriate, bail-in, confiscate) perhaps 10% of those accounts. Ouch! A 10% (maybe nothing, maybe 15% – still negotiating) theft of “insured” assets and pension funds is being discussed now. Could a 10% or 20% confiscation occur when the next crisis strikes? (This is not the first theft of deposits or pension assets – there have been other examples throughout history.) If you have money in Spanish or Italian banks, you might want to reconsider its safety.

MFGlobal – Customer assets were supposedly insured, segregated, and protected by the exchange. Apparently not! Jon Corzine “has no idea” where the assets went. Most clients had believed their accounts were safe, and they were wrong.

Social Security – It will provide for us in our old age – the politicians told us so. The fund is paying out more than it takes in and is guaranteed by an insolvent government that is nearly $17,000,000,000,000 in debt. It might still provide recipients $1,000 or so per month, but how much will that amount purchase in consumer goods in five years? Inflation has already diminished the value of the social security benefit, and worse, consumer price inflation is likely to accelerate, further reducing the purchasing power of social security benefits.

Retirement Accounts – Most people assume their 401(k) accounts are secure. The employees of Enron with retirement funds invested in Enron stock received a nasty surprise, even though Wall Street analysts assured investors that Enron stock was a good investment – until near the end. What Enron employees thought they knew (retirement assets were secure) turned out to be false, and it hurt them.

Real Estate – It was widely believed that real estate prices always went up. The National Association of Realtors assured us it was true. We all know how that worked out.

Europe in 1913 – In 1913, it was widely believed that the governments of Europe would not go to war since there was no need or desire for war and because European economies were generally doing well. The situation rapidly changed, and a destructive war occurred in spite of the common knowledge that war was very unlikely.

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