Category: Richard De Graff

Poor Richards Report
Chapter 12
Computers Gone Wild
Voyager 1 was launched from Cape Canaveral in 1977 and is now at the outermost layer of the Heliosheath- which is in the outer edges of a vast region of our Galaxy! The signal from Voyager 1 takes 18 hrs. to reach Earth. Radio signals travel at 186,000 miles per second. When Voyager 1 took pictures of Jupiter it took about 15 minutes to receive the pictures back on earth. That would be considered ridiculously slow by today’s standards.
With the speed of the internet today it is almost possible to predict the future. We are entering the “fast forward” area of the Heliosheath of the world wide web. We are going where no man has gone before and using other people’s money.
High Frequency Trades (HFT’s) can trade or use critical information in nanoseconds- ahead of legal announcements or orders- to circumvent legal transactions for a profit. They say it is only a few cents worth. Multiply a few cents by several million shares.
A misguided graduate student intent upon making a fortune has discovered or invented the magic formula for making quick profitable trades based upon price only. Little thought had been given to the long term consequences or merits to this program.
DEFINITION of High-Frequency Trading – HFT:
It is a program trading platform that uses powerful computers to transact a large number of orders at very fast speeds. High-frequency trading uses complex algorithms to analyze multiple
markets and execute orders based on market conditions.
Typically, the traders with the fastest execution speeds will be more profitable than traders with slower execution speeds. As of 2009, it is estimated more than 50% of exchange volume comes from high-frequency trading orders.
Let us estimate that just 1 billion shares trade and the cost is .0015 per share. That comes to $150,000 for each billion shares traded that year. That is absolutely gross. Outrageous.
Now let us look at JP Morgan’s manipulation of the silver commodity market, which has been well documented by various respectable research advisors.
Since trades are done in decimals instead of fractions, computers now list all the offerings and bids on a large computer screen. When the bid and offerings match a trade is made. It is done by the computer and each party is informed.
Now as silver starts to move up in price, and in “nanoseconds” a monstrous amount of sell orders appear. There might have been 10,000 contracts to buy and all of a sudden there were 50,000 contracts to sell.
The computer traders see this and realize that they will be swamped with more than they can handle and yank their bids.
We may assume that JP Morgan Chase has sold short at higher prices and at prices before the sell orders were displayed upon the computer screens. Please remember, dear reader, that commodity trades are usually done on low margin requirements and a slight move the wrong way can wipe one out quickly unless you have deep pockets.
So now in mere nanoseconds the offerings are withdrawn after a few trades and the price has tumbled one again.
The fines JP Morgan have received are peanuts to the larger amounts that they have made circumventing the law in the grey area of ethics.
If one doubts what I have been writing about all one has to do is go to Ed Steers’ blog to receive his free daily reports on the precious metals markets. It is one of my first reads every day.

The computer can be used for many positive means, but also must tempered. The police and armed forces are allowed to use weapons for our protection, but bank robbers don’t rob banks with guns anymore. They use computers.

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POOR RICHARDS REPORT

Chapter 11
Pay the Price Now!
When the markets start to crumble that is when one finds out who has done bad deeds. That is when people become hurt financially.
The problem today, in 2014, is that we have been playing by new rules. Interest rates are low and we have been shut out of many other places, which leaves investments; Stocks and bonds.
So the banks, wall street, and other financial organizations have new rules aided by the computers and programs that we can not afford. It is called “We win – you loose!”
Janet Yellen, the current chair of the Federal Reserve is the only person who can change the game.
By raising Margin rates, she cuts off the flow of excess dollars floating around the world for ill begotten means. Forcing banks to increase their reserves means that the most aggressive banks will have to call in some loans. The easiest calls are made on those who purchased stocks. They force sell orders, but those are the most liquid calls.
When margin rates are raised, one can keep their positions intact, and make same day substitutions at the old rate. If one sells and waits one day, then they have to pay the new rate.
Now if one gets a margin call (this means one has fallen below the limits and either has to substitute or add stock or cash) the golden rule in the street is that one should never meet a margin call with cash. The stock is telling you something – sell!
The SEC can pick up the ball by Janet Yellen and do away with the decimal system for stocks and bonds. Fractions create a genuine spread between the bid and ask prices.
This will cut off speculative trading at the knees. One can buy 10,000 shares of a 10 cent stock and sell it at 12 cents and make a bundle if one is lucky. By making a spread between the bid and ask the speculative trader has some positive news to support his position.
The market maker is taking a risk as did the specialist on the floor of the stock exchanges by taking positions in a the security in order to maintain a fair and orderly market. The “spread” between the bid and ask prices is how he makes his money. Those monies also pay for his positions that he has overnight. He tries to provide support to the market place
The decimal system has is for casino’s and they operate with a 90% or more “take.” There is no market maker or support.
Then Congress can pick up the ball and renew the Usury Law. Maximum interest rate is 8% for individuals. Debt instruments for corporations and municipalities and countries will depend upon their credit worthiness. The higher interest rate; the greater risk.
Then the Congress should have a moratorium on debt for two years. If one can pay down the principal during those two years, then the interest rate is zero(0%)! Is it not much better to receive your principal back then nothing at all? Collage loans would be a great example, and it would also help reduce the government debt.
The banks and financial institutions will scream bloody murder, but they are the ones who got us into this mess.
The small corporations of the world are the ones who raised our standards of living and in the US the Securities Exchange Commission (SEC) was created to protect the individual investor from over zealous bureaucrats.
The major problem we all face today is how do we tame the computer?

Poor Richards Report
Chapter 10
Big is Bad
In June 1913, right after J P Morgan had died, the Congress formed a bipartisan committee to form a new national banking law. It’s mandate was to establish a Federal Banking Authority above politics. It would consist of 3 senators from each party and 3 congressmen from each party. These 12 men were to be the ones held in the highest regard and their mandate was to form a new banking law. The kicker here was that the vote had to be 12 in favor. Imagine that!
It was a real Donny Brook with everyone giving an opinion including President Woodrow Wilson.
On Dec 23, 1913 they agreed. The house voted by voice without a single nay.
In the senate I believe 2 senators voted against it.
That afternoon President Wilson signed the mandate into law: The Federal Reserve Act of 1913. President Wilson appointed JP Morgan’s right hand man to serve as President of the NY Federal Reserve Bank. (That is the main power base since all international transactions are settled through that bank. The Chairperson of the Fed was titular until President Eisenhower became president.)
The Federal Reserve was to remain above politics. It did until Treasurer Donald Lynch under Ronald Reagan refused to reappoint Paul Volker because he was a democrat. In the history of the Federal Reserve that was the worst mistake ever.
With the new chairman came a new mantra; “too big to fail”.
Bigness brings power, power leads to globalization, which can lead to corruption.
Witness all the banking and financial scandals going on today.
The only person capable of shutting the barn door before ALL THE HORSES ARE GONE is Janet Yellen the current Fed Chairperson.
Here is a present day example of being too big.
When William Gross left Pimco, their flagship Bond Fund was swamped with redemptions. Major liquid government treasuries dropped a few basis points as dealers bought back bonds. But, there were smaller illiquid issues that were bought to increase the yield. They probably are secure notes, but now when billions of marketable bonds have been sold, who wants to buy a low rated, or non-rated bond of First Bank of East Podunk NJ?
Vanguard Group has recently closed bond funds to new investors when they got too big. A great example of prudence and caring for the customer.
A banker should be in the business of lending money, period. A savings bank should be in the business of lending money locally for homes. Research firms provide information for a fee to a bank who handle legal trusts and large individual accounts on a fee basis. Then there are regular brokerage firms for commodities, stocks and bonds. Each firm has set fees and no “net” trades. This would be Transparency at its fullest; everyone knows where the money is.
Market makers who take positions in securities should posts their positions and charge interest that the bank charges them on positions held overnight.
Limit money market funds and their size. They should be run by the savings banks only.
Central bankers shall act as bankers between nations. This could stop certain corporations or nations piling up an unfathomable amount of debt that can not be easily paid back on time.
The overriding principal here is that major banks must be reined in world wide before we slip into the abyss. Janet Yellen is the only person that can do it now.
It would take a 2/3rds vote of the congress to impeach her.
She has the chance to become known as ” The Iron Lady of Finance” before it is too late. Right now she has the potential to become the most powerful person on this planet.

POOR RICHARDS REPORT
Chapter 9
Revitalize the Old

There was a gala Halloween Party given at the Plaza in NYC. It was An extravaganza party. Only billionaires were invited by their bankers. As an inside Joke they had to come dressed a politician.
Then the music stopped when the blaring of trumpets sent an eerie chill in the ballroom.
There at the top of the platform was Janet Yellen the currant Fed Chair of the Federal Reserve dressed as Paul Volcker the Former Chairman of the Federal Reserve; her six foot tall frame stood glaring over the crowd as she puffed on her cigar.
The Republicans had just won the US Senate and increased their majority in the House. The Congress was now veto proof. It takes a 2/3rds vote to remove the Federal Reserve chair.
So the music stopped and there were no chairs and their costumes turned to dust.
President Obama did not have the power of persuasion anymore and the unions were powerless to instruct their way upon the people. The country was going back to the people, but there was a price to be paid.
The bankers were finally losing control and the control flow of US dollars worldwide would come to a screeching halt.

The very next morning she raised margin rates to 100% .To make matters worse; she raised bank reserve requirements just 5%. This meant if a bank did not have that extra 5% held in government securities that they would have to call in enough loans to meet the requirement.
This in turn sent chills up and down the spines of market manipulators for they knew they would be the first ones called to come up with the monies because they were the most liquid accounts.
Keep in mind that we are in a new ball game, driven by computers – not men with honest intent but greed and power.
The savings Bank industry is whimpering at the feet of an over bloated government and has been forced to hold cash or risk investments in an uneven playing field. Go to for the latest information on really bad days. The bottom line from my humble point of view is that they have no idea how bad the market can react- since the last 45 to 55 years they have destroyed all of the safeguards.

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Chapter 8
The Tenth Commandment:
“You shall not covet your neighbor’s house. You shall not covet your neighbor’s wife, or his manservant or maidservant, his ox or donkey, or anything that belongs to your neighbor.”
Socialism Does Not Work
Socialism is a noble cause but can lead a society to total destruction of morals and ethics. It drains the wealth of nations that formerly were able to fund programs for the needy.
Capitalism works because the individual is able to function without too much government intervention, which allows excess funds to be given by individuals to their favorite charities as tax deductions.
This allows freedom of movement of social classes up or down within a particular society. This allows freedom of movement within a society as one seeks self-improvement with the knowledge that failure means a lower standard of living.
Success breeds success while failure in most cases means demotions. Capitalism helps an individual towards better productivity.
During periods of economic distress government should be able to assist it’s people with educational programs. Education and reading skills are a basis for new ideas. One can not destroy an idea unless one has an opportunity to have “trial by fire”.
Socialism breeds three classes in a society. The upper class which is mainly government workers living off society. Second is the “slobbering class” which is descending into the abyss with the poor class.
Right after WWI the United States suffered a setback as the economy slackened because the economy had to readjust to a slower pace. President Warren G Harding chose to “earn” our way out of it. We did, but all kinds of scandals erupted; some say because of the scandals he committed suicide; although it has not been proven.
At that time there was a candidate that ran as a socialist. He garnered just under a million votes which shocked the politicians of that day.
Gradually some of his ideas were incorporated and 90 years later he would be successful because the lower class had been bought off.

Poor Richards Report
Chapter 7
What are your shoes made of?

A female hummingbird is like a graceful ballerina without the fear of gravity. Hedge fund operators and their ilk wear lead boots!
Since the beginning of the 21st century people are judged by how much money they have, not how they made it. Warren Buffett is revered and idolized because of his investment acumen. He took over a soon-to-be bankrupt company, called Berkshire Hathaway, at $17 in 1967. In August 2014 it has traded over $200,000 a share. Bill Gates pioneered Microsoft Corporation, a worldwide operating system for personal computers (Windows), into a billions dollar corporation. All the single women employees wore t-shirts that read “Marry me BILL”. He did and formed the Bill and Melinda Gates Foundation.
These individuals are icons of the business world and have a million “wannabees” trying to copy them. Most will do anything to acquire their wealth. We have become a society where wealth is admired. It is not important how you made it, only how much you have.
I believe everything goes into cycles. President Herbert Hoover, was the “guru” in the early part of the 20th century along with Thomas Edison and Henry Ford and John D Rockefeller. During THE depression Rockefeller would stand on street corners giving away dimes in order to improve his public interest. When the economy grows too fast certain greedy individuals ignore the teachings found in the Holy Bible. The Old and New Testament is full of stories about greed.
Once wealth has been acquired one wants more. Eventually too much wealth topples the unwary who begin to use devious and illegal means to maintain it.
The same is true for nations. Here in the United States we try to maintain entitlement programs that we cannot afford by taxing the ones who earn it. When an individual senses his tax will increase and his earnings or “take home pay” will decrease; his productivity will come to a grinding halt.
The Federal Reserve has maintained a margin rate of 50% for over a decade. This means you only have to put up $5 to buy a $10 stock. If the stock goes to $5 you lose everything. If the stock goes to $15; you have doubled your money.
The margin rates for commodities are even lower.
Hedge Fund heaven.
I believe the low interest rate policy of the Federal Reserve and the quantitative easing (QE’s) being done is to shore up the financial institutions. The “Fed” then places orders for various indexes to buttress the financial markets legally and illegally. It provides a false picture of the economy that other nations try to copy. I fear the result will be disastrous for everyone. When this happens we will have chaos because we have no bullets left.
Because the hedge fund operators know this they support the persons in power to maintain the status quo because they know everyone cannot shake off their lead boots.
I wonder if there any hummingbirds in New Zealand? Nope…