“Price is a function of liquidity”: Charles Biderman speaks with Chris Martenson

“Price is a function of liquidity, having nothing to do with value.”

Charles Biderman recounts how he went bankrupt in 1987 even though he had a positive net value in his real estate investments.  Why, because his banks went bankrupt and his loans were called.  If he had had time to sell his properties, he says, he wouldn’t have had to declare bankruptcy.  This taught him the following:

Price is a function of liquidity, having nothing to do with value.

What does this mean for the investor?  Ultimately, in the real world, fundamentals should eventually win, but the market depends not on that value but on the ability of investors to maintain their liquidity.  Thus, the most liquid players during severe downturns will be able to add value to their portfolios.  The real trick of investing is twofold:  (1) Determining what stocks have a real value; (2) being liquid when the vast majority of other market participants are illiquid–only then can the investor be assured of getting the bargain basement price for an asset.  This means keeping a tight lid on one’s use of leverage.  My policy is to keep leverage below 1:1 debt to equity; and to use only a fraction of the bank loan permitted to me.

Another lesson is perhaps less obvious:  Never invest in the company in which you carry your loans.  If that financial institution goes bankrupt, so will your investment.  So you will be hit with a double whammy.  Say you invest in ABC bank where you have your line of credit which is your funding of last resort for your margin account.  When ABC bank goes bankrupt, then your loan gets called.  At the same time, your portfolio takes a hit because your ABC bank investment has also gone down to zero.  This could result in the margin call to which one is unable to respond, except by liquidating the remaining portfolio at severe losses.

How to deflect attention from Jon Corzine and MF Global: Charge a Canadian bank

My motto is this:  Get the United States out of Canadian banks and get the Canadian banks out of the United States.

The Commodity Futures Trading Commission (CFTC) has figured out how to deflect attention from Jon Corzine’s stealing client’s segregated money to cover MF Global’s proprietary trading:  Charge a Canadian bank with a mischief called “a wash trading scheme”.  Such a scheme, whatever it is, is apparently illegal; but see if anyone can explain to you why it is wrong in less than five minutes.  But stealing your clients’ segregated funds, which is a very clearly wrong, is something to which the CFTC turns a turn a blind eye. In my view, this is similar to the situation with US expats becoming the target of tax collection efforts, all while buying votes with tax credits from Americans still in the homeland.  It stinks of corruption.  So CFTC attacks a Canadian bank, and that makes it look like it’s really doing something–meanwhile it lets its friends steal billions from their clients.  It stinks with a great malodorous corruption and decay of a once great nation that has now died.  It is the straining of a gnat and the swallowing of the camel.

Now that the Chicago Way has become the American way, I say it is time to pull all our investments out of the United States; Canada’s banks did not heed my repeated warnings (e.g., here) and now RBC will pay the price. Gerald Celente told the Daily Bell:

Daily Bell: How about the CFTC? Are they doing their job of protection and prosecution?

Gerald Celente: Well who’s the head of the CFTC, Gary Gensler? He was one of the lieutenants for Jon ‘the Don’ Corzine when Corzine was head of the Goldman Sachs gang, before he became senator of New Jersey. You get it?

Who’s Obama’s Chief of Staff? Bill Daley, from that wonderful Daley machine in Chicago. Where did he come from? Oh, vice chairman of Morgan Chase. Who was Bush’s treasury secretary? Oh, Henry ‘Frankenstein’ Paulson. Where was he from? He began as the CEO of Goldman Sachs after Jon ‘the Don’ Corzine left. This is the guy who created TAARP and came up with the BS line of ‘too big to fail.’ Him? Yeah, that’s right.

[snip] …

The moneychangers are taking over the temple; you don’t have to go very far to look. It’s right there in front of everybody’s eyes and no one will call a spade a spade. The Rothschilds would be jealous to see what the Goldman Sachs gang, the JP Morgan Chase criminal operation, the Citigroup crooks, the Deutsche Bank bandits and the rest have pulled off.

When the system is corrupt, the regulatory commission will search far and wide for “criminals”.  This US financial regulatory system has allowed the banksters to go free, but takes down little guys like Jonathan Lebed and Charlie Engle.  See the following Chris Martenson’s interview with Gretchen Morgenson, in which they ponder the question why no major banker has gone to jail for the 2008 subprime mortgage fraud that caused the collapse of the world’s economy:

Rick Rule on resources, especially Canadian Junior Oil and Mining

I’ve been listening to the most recent Chris Martenson podcasts.  In the following podcast, Martenson interviews Rick Rule (December 9, 2011).  Rule recommends investing in undervalued junior oils.  He gives the following scenario:  A junior oil has 1 billion in Net Present Value, a market capital of $300 million.  A larger producer will take out the company for $700 million because of the derisked oil and the larger producer knows that it can make money off the holdings of the junior oil holdings.  This is well worth listening to for all those who are investing in resource companies, as Rule explains how to determine value in the sector.