The Buttonwood Agreement was signed in 1792 near Wall Street, creating what is now the New York Stock Exchange. For two centuries after that, the industry lived with a “rational man” theory. Recent research by behavioral economists and neuroscientists proves conclusively that investors are actually quite “irrational and woefully uninformed, especially when they’re betting against Wall Street. Wall Street’s theory of the “rational investor” was actually pure propaganda, purposely intended to mislead investors. Today, the new theory of the “irrational investor” has set the “law of unintended consequences” into motion—instead of helping Main Street investors get a grip on their irrational behavior, it has opened new opportunities for Wall Street to exploit and turn the research, tools and technology of behavioral finance against investors, putting Main Street investors at an even bigger disadvantage than they were before, because Wall Street’s arsenal is growing stronger, while Main Street is last in denial.

The English playwright Harold Pinter, well-known for his long mysterious “pregnant pauses,” won the Nobel Prize in Literature a few years ago. A rarity, only the third playwright in a century. Equally rare, a few years earlier Princeton psychologist Daniel Kahneman won the Nobel Prize in economics. What do the two have in common? (More)

Remember Charlie Ellis’ famous 1975 classic: “Winning the Loser’s Game: Timeless Strategies for Successful Investing?” Like Napoleon Hill’s “Think & Grow Rich” everyone on Wall Street has read it. Well, guess what: Charlie failed us the past decade. Wall Street lost trillions, lost 11% of your money. Adjusted for inflation, Wall Street lost 20% of your money. Warning: Wall Street will do it again by 2020.

First, let’s review Ellis’ famous 10 strategies for winning at Wall Street’s casino: “Never speculate. Your home’s not a stock or piggy bank. Save more money. Your broker’s not your friend. Never trade commodities. Don’t chase hot stocks. Bonds also ride up and down. Don’t invest for tax benefits. Write goals and stick to them. Never trust your emotions.” You probably knew them by heart. What happened? This insider gave you ten rules for beating the Wall Street casinos … and still you lost 20%.

But in your defense, even if you broke all ten of Charlie’s rules the past decade and lost 20%, it still wasn’t your fault. Wall Street was conning, scamming and manipulating you all along, all day, every day for the past decade. And yet I’ll bet you’re still an optimist, gullible, trapped in Wall Street’s seductive pseudo-optimism, one of the majority of Americans who believe the market will go up 20% or more in 2010, “confident better times are ahead.”

Best advice today? Burn Ellis’ book. His next edition should be titled: “Losing the Loser’s Game: How Wall Street Got Rich Between 2000 and 2009 Because Main Street Investors Are So Gullible, Stupid and Predictable Irrational.” You cannot win at Wall Street’s “Loser’s Game.” The past decade proves it. The “house always wins” in Vegas and on Wall Street.

How not to lose 2010-2020? Avoid Wall Street. Don’t play by “their rules.”
So why bet on the house? Why bet with the Wall Street casino for another decade? Why? You’re betting in a rigged casino. Worse, they keep adding powerful new tools, scams and algorithms to their “financial weapons of mass destruction” arsenal, as Buffett calls this mysterious $670 trillion global shadow banking world of derivatives. You cannot win.

Statistically, the odds now predict Wall Street losing another 20% of your money in the next decade. The momentum’s headed down. So why risk it when the odds are you’ll lose another 20%? Why keep gambling when you know the “house always win,” when inflation increases your losses, when Wall Street controls the tables in this “Loser’s Game?” So, what should you do if you believe they’ll lose another 20%? Sell all your stocks, ETFs, bonds funds. Get out of commodities and gold. Sell. You think I’m crazy? Imagine: You’re a 50-year-old boomer. Flash forward to 2020. Retirement time? But you’ve lost another 20%, while those Wall Street fat-cats will be paying themselves record bonuses averaging half-a-million annually for all ten years from 2010 and 2020 … but you can’t retire. They got their bonuses siphoning money out of your accounts. What do you expects some kind of divine intervention will save you? Get real, consider the “Swiss Family Robinson” scenario. (More)

“One of the disturbing facts of history is that so many civilizations collapse,” warns anthropologist Jared Diamond in Collapse: How Societies Choose to Fail or Succeed. Many “civilizations share a sharp curve of decline. Indeed, a society’s demise may begin only a decade or two after it reaches its peak population, wealth and power.”

Now, Harvard’s Niall Ferguson, one of the world’s leading financial historians, echoes Diamond’s warning: “Imperial collapse may come much more suddenly than many historians imagine. A combination of fiscal deficits and military overstretch suggests that the United States may be the next empire on the precipice.” Yes, America is on the edge. Dismiss his warning at your peril. Everything you learned, believe, everything driving our political leaders is based on a misleading, outdated theory of history. The “American Empire” is at the edge of a dangerous precipice, at risk of a sudden, rapid collapse.

Ferguson is brilliant, prolific, contrarian. His works include the recent Ascent of Money: A Financial History of the World; The Cash Nexus: Money and Power in the Modern World; Colossus: The Rise and Fall of The American Empire; and The War of the World, a survey of the “savagery of the 20th century” where he highlights a profound “paradox that, though the 20th century was ‘so bloody,’ it was also ‘a time of unparalleled progress’.” Why? Throughout history imperial leaders inevitably emerge and drive their nations into wars for greater glory and “economic progress,” while inevitably leading their nation into collapse. And that happens sudden and swift, within “a decade or two.”

You’ll find Ferguson’s latest work, “Collapse and Complexity: Empires on the Edge of Chaos,” in Foreign Affairs, the journal of the Council of Foreign Relations, a nonpartisan think-tank. His message negates all the happy talk you’re hearing in today’s news about economic recovery and new bull markets, about “hope,” about a return to “American Greatness,” from Washington politicians and Wall Street bankers.

“Collapse of All Empires:” 5 stages repeating through the ages … and in 2010

Ferguson opens with a fascinating metaphor: “There is no better illustration of the life cycle of a great power than The Course of Empire, a series of five paintings by Thomas Cole that hang in the New York Historical Society. Cole was a founder of the Hudson River School and one of the pioneers of nineteenth-century American landscape painting; in The Course of Empire, he beautifully captured a theory of imperial rise and fall to which most people remain in thrall to this day. Each of the five imagined scenes depicts the mouth of a great river beneath a rocky outcrop,” If you’re unable to see them at the Historical Society, they’re all reproduced in Foreign Affairs, underscoring Ferguson’s warnings that the “American Empire on the precipice,” near collapse.

First. The Savage State, before the Empire rises
“In the first, The Savage State, a lush wilderness is populated by a handful of hunter-gatherers eking out a primitive existence at the break of a stormy dawn.” Imagine our history from Columbus’ discovery of America in 1492 on through four more centuries as we savagely expanded across the continent. (More)

Jason Zweig is one of America’s top financial journalists. He may be “the best” when the subject demands a psychological slant. He proved it several years ago. I couldn’t resist reviewing one of his books. Here’s my opening lines: 

Are you an “intelligent investor?” Maybe not. “Would you willingly allow a certifiable lunatic to come by at least five times a week to tell you that you should feel exactly the way he feels? Would you ever agree to be euphoric just because he is, or miserable just because he thinks you should be?” “Of course not,” says Jason Zweig in his commentaries to the updated version of Benjamin Graham’s The Intelligent Investor. “But when it comes to their financial lives, millions of people let the stock market tell them how to feel and what to do, despite the obvious fact that, from time to time it can get nuttier than a fruitcake.”

Today we’re not much different, arguably we’re worse off psychologically. We sure aren’t “intelligent investors.” We’re still letting that “certifiable lunatic,” as Graham affectionately called the stock market, run our lives, even though he’s “nuttier that a fruitcake!” How else can we explain the fact that Wall Street lost over 20% of our money the past decade and still expect to gain 20% in 2010. We should be worried that Wall Street will lose even more of our hard-earned money the next decade, as I wrote recently on MarketWatch: “8 Reasons Wall Street loses another 20% in this decade: Warning, you can’t get back to even, cannot win Wall Street’s ‘loser’s game’.” Here’s Zweig’s latest on the same point in his Wall Street Journal column, The Intelligent Investor, titled, “Why Many Investors Keep Fooling Themselves.” (More)