I caught Robert Kiyosaki’s article tonight called Preparing for the Worst. An excerpt:

“Is the crisis over?” is a question I am often asked. “Is the economy coming back?” My reply is, “I don’t think so. I would prepare for the worst.” Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money. The stock market has been going up since March 9, 2009. Talk of “green shoots” fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons: 1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market. Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking… and I don’t blame them. A global panic would be ugly and dangerous. 2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem. Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog. In the 1980s, our government’s hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines. While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, “Sometimes the cure is worse than the disease.” I say the government stimulus cure is killing us frogs.

Do I think Kiyosaki is right? He makes some damn good macro arguments, but you can’t use his wisdom for trading advice! Meaning, across what markets are the exact ins and outs that he recommends? Do you exit everything now? If you do when do you get back in? Kiyosaki may be right in the long run, but then again in the long run we all die.

Some feedback in today:

Hi Michael, Hope all is well and you are enjoying your summer. I have a quick question for you. I was explaining the concept of Trend following to someone the other day and explaining how it is far superior to buy and ‘hope’ and buying mutual funds and blah blah blah. We had a very interesting conversation and I think he has seen the light, especially since he managed a high frequency trading Froex arbitrage fund. Needless to say, he is not the manager of that fund anymore since his ‘edge’ has disappeared. I showed him the results of my Trend Following system on 8 currency pairs and the results are and have been spectacular…it has had 1 losing year being down 7.5% outside of this year so far being down 5% so far. The average annual return is around 29%. After I explained about some potential deep draw downs, and why they happen and how they are made up for he is starting to turn the corner. His last question to me, which I now propose to you is: what gives my model an advantage/edge assuming we are all looking at the same data no matter how we break the time frame? The system I showed him was nothing more than what I learned from purchasing your course and tweaking it a bit.  I know it sounds like a basic question that any trend follower should know, but my mind is blank right now. Would you mind sharing some input please? Thanks, XXXX

I asked for clarification as I wasn’t sure the point. He added:

What is the edge in trend following if everyone is looking at the same data? For example when this person was managing money his edge was that he would trade against the spread of the different bank rates.

I responded that I don’t understand why the data has anything to do with the edge. The edge comes from your trading system. He added:

That was what I was thinking. The edge is that I have the discipline to follow my rules, cut loses and let my winners run…My edge is that I use a simple indicator to make sure I am on the right side of the trend and only take signals in that direction and ignore the opposite signals…kind of like a filter. I suppose I just answered my own question…I was trying to over complicate my answer, and I should have simplified it much like the simple system I use to trade.

I added: was your friend trying to ask, “what happens if everyone is a trend follower”? Maybe that was it?

I think he was just having a hard time with how easy and simple it is to be a trend follower. His system that he traded was very complex with algorithms. He also made 125 trades a day in the hopes of having a profit. So when I showed him a system that trades 60 times a year with the winners being twice as big as the losers and an average gain of 25%…he thinks there must be something super complicated going on. Needless to say, he is not on the same page as me, and I cannot have him as an investor…He will ask too many questions and then pull his money when I have a 25% draw down…Thanks for the help. On a side note, I love trend following and I am trying to implement it into my career as a financial adviser but at XXX where I am [working] they like to push products like mutual funds and the like. I love it when a wholesaler comes in and gives us a song and dance on how they are value investors or like to buy low and sell high, blah, blah, blah…I pepper them with questions and they fold. We have a systematic futures fund that we can offer our clients and it is a managed futures fund of funds. ALL of the managers are short to long term Trend Followers with the biggest allocation going to Jerry Parker at Chesapeake. ALL of my clients have a portion of their portfolio in this fund, it is a no-brainer.

Thanks for the dialogue!

After my presentation in Brazil I received many questions. One in particular stood out for me. After the audience of 600 had just listened to me preach about the negatives of media and press (in my film), I was asked how I was different. Actually, it is a great question. It really comes down to fundamentals versus trend following. If you watch Cramer, CNBC, etc. the idea is that you will forever watch because the fundamentals are always changing so you must always tune in to stay current. I don’t do anything of the sort. I write and teach trend following subjects. Once you know it, you don’t need me. That is a huge difference. Of course I would like to teach as many people as possible and yes I am a capitalist, but CNBC I am not.

The other issue is the one of “tips”. The entire financial news media is focused on either tips or some other form of analysis to get you to take a direction. Once again, if you are going to follow the advice of some fundamental analyst you are stuck connected to them forever. On the other hand I show people a strategy. Once you learn it if you are still coming back to me looking for “hot tips”…I dare say you missed the point of trend following!

Best and simply said: “Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime.”

Apparently, 57% of U.S. voters would vote to to unseat Congress. Are these the same people who are 100% long mutual funds and believe Social Security is a solvent program that will enable them to retire? My point: enough with the damn politicians! They are there in office because they groove on power, not because they are “working” for you to make your life better! Representative government? No way. Bottom line, Bush, Clinton, Bush Jr., Obama, Congress and whoever follows them all next are not the path to your financial freedom. I of course acknowledge my minority view on this stance because Americans on the left or right all cling tight to the fantasy of a political savior coming to the rescue. This notion is as popular as junk food, reality TV and soap operas. This theme runs through my film.

I hope to post my presentation today in Brazil soon!

You have to be kidding me. This is nuts.