The Optical Illusion

Ever look at something thinking its something, then realizing it’s something completely different? Then try looking at it the way you saw it before. You can’t. Your mind has reprogrammed itself to think the right way. But what if you couldn’t see the second picture in the first place. Frustrating, no? Try this one!

Now you won’t believe me if I told you this, but the squares A and B are exactly the same shade of gray! The same! I didn’t either believe it, so I had to prove it for myself. Try this link.

Now imagine if every day it changed. Each day another two squares were matching and you had to figure out which two. Welcome to the world of speculation and investing.

So where is the safest place to be right now financially? I just finished reading a phenomenal book written by one of the most brilliant minds in investing, The Intelligent Investor by Benjamin Graham. (For those of you who don’t know Ben was the mentor of Billionaire Warren Buffett).

Ben was known much for his patience in the buying of securities, but more for his “Margin of Safety” in doing so. As Warren Buffett once quoted “Better to buy a great company at a fair price, than a fair company at a great price”. Simply put, gamble when the odds are in your favor, or not at all.

It’s not often however that we find an investment that stands for both its security as well as its growth potential. But it’s all been pretty much set up.

Real Estate: We’re about to bring the house down. Really. Prices have already begun to decline. And for all those who believe its only a correction: Where were the corrections on the way up?

Stocks: The Stock Markets, particularly in the US, have pushed their limits. How they’ve bounced back since 9/11 is a simple matter of sentiment. People got worried to act. The selling stopped; sure enough buying began, especially with large amounts of equity coming out of mortgaged homes. I believe stocks won’t gain momentum again until p/e levels are back down to their historical averages of about 17.

Bonds: Most of the Treasury-Security buying has come from oversees from countries such as China. There is fear however that this buying may come to a halt, especially in the case of an economic slowdown in GDP or a decline in consumer spending resulting in a strong recession.

Cash: “Cash is King” the saying goes. However I’m not too sure it’s all that safe. You see one fight that’s almost impossible to beat is the inevitable “Inflation”. Inflation means that your dollar is now worth less due to the amount of money in circulation (just for the record the Central Banks recently announced that they will no longer be publicizing the numbers for M3 – the total amount of money in circulation. Not a very good sign). If the US starts printing money to pay back an unbelievably high debt, then Inflation, and by default Interest Rates, may soar tightening the entire financial system.

The only case I can be sure of is in commodities. See the price of commodities cannot go anywhere. Money decides the price of commodities. They are of limited quantity and cannot be manipulated or increased without sufficient input. In times of peril commodities rise, (people will always need wheat and lumber).

Jim Rogers, an experienced commodities expert has claimed that commodities should outperform stocks over the next few years. And he has good support to back him up. So hold onto your E-Trade accounts, but this “corny” party’s for the Farmers and cattle rearers.

My pinpoint investment is on a commodity called “argentum”. More on that in the coming articles.



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