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well - honestly I've lost more...
on a percent basis - but still have quite a bit since made a bunch over the last few years.
As you know, Schiff promotes a fairly balanced approach to investing - some in cash, some in precious metals (stocks and actual bullion), some in foreign stocks - mostly stocks that pay high dividends which alleviates some of the loss as stock price drops. Below is link to one part of his recent radio address where he talks about your situaion and advices you to hold on.
lentiman - just not entirely true...
what you're saying - although your point is well taken. But having read his books - he recommended only a portion of ones money be invested in foreign stocks.
People who followed his advice would not even have come close to losing 70% of their life savings. He promotes a fairly balanced approach to investing - some in cash, some in precious metals (stocks and actual bullion), some in foreign stocks - mostly stocks that pay high dividends which alleviates some of the loss as stock price drops. Below is link to one part of his recent radio address on the part you are focusing on - his investments in high dividend paying foreign stocks which he explains that he still believes is a valid investment - even though he admits he was early. He, or no one, can predict with certainty what comes next - but he has been right more often than not on getting to where we are now. He made a bad call on the decoupling degree - but the game is not over and he may ultimately be more right than wrong. Still extremely creditable IMO.
and the thing I like about...
Schiff is he admits he didn't see the rise in the dollar and massive drop in oversee stocks. He readily admits he was wrong - but believes it is only temporary:
read his first book...
(I just finished his second) he nailed the crisis to a tee - amazing call on numerous levels. Out of the 40 things he got right, he got at least one wrong - but he says it's temporary - and that's the extent of the deflation, rise in the dollar and the crisis' impact on foreign economies and stocks. He states the unraveling of the U.S. will have some impact - but not near the level it has. That said, he claims it is temporary and that the dollar will drop dramatically in the near future while gold skyrockets.
At the very least, our leaders should be listening to those who predicted the crisis and it's cause for guidance on how to dig our way out of this - but I see no signs of this. Instead, it appears we are following the "cure" prescribed by the very people who played a major role in causing the crisis. That is a recipe for disaster IMO - although I hope their measures work.
http://www.europac.net/books.asp
you're being more reasonable...
and level-headed than Citigroup - ain't it amazing.
interesting website...
for info on the crisis and tracking it: http://itulip.com/
biggest gold bull of them all...
I just finished reading The Coming Collapse of the Dollar and How to Profit From It By James Turk & John Rubino published in 2004. James Turk is founder of GoldMoney.com, the leading digital gold currency payment system. John Rubino is the author of How to Profit from the Real Estate Bust.
I've posted a lot about inflation and gold, the Federal Reserve, and the destruction of the US Dollar. I have read about the inflation that Germany experienced after WWII, the devaluation of the Mexican Peso and the Argentine Peso. If that is our future, I wanted to have some idea of what is in store for us and. The book is divided into four parts and is well written and difficult concepts are explained well:
Part One - Why the dollar will collapse
Part Two - Money Then and Now
Part Three - Why Gold Will Soar
Part Four - Profiting From The Dollar's Collapse
In part one we learn that we have a fiat currency, backed by nothing except a decree that the US Dollar is legal tender. Throughout history, in order for governments to satisfy demands without raising taxes, a government not only begins to debase its money, but inflates as well. Both are happening in the US and no government has been successful. We have a history of that in this country with the Continentals and the Confederate currency, both worthless.
Another fact that dooms our currency is that we have too much debt. Total unfunded liabilities of the US are in excess of $43 Trillion, as a society we owe another $37 Trillion and Derivatives are in excess of $200 Trillion.
Then we have a trade imbalance which just topped $800 Billion for 2005. We have been up in arms lately by the Chinese wanting to buy Unocal, then Dubai wanting to own our eastern port management companies and Dubai wanting to own some of our critical defense industry by trying to buy Doncasters Turk and Rubino point out on p31:
Foreign investors now own about $8 trillion of U.S. financial assets, including 13 percent of all U.S. stocks, 24 percent of corporate bonds, 43 percent of Treasury bonds, and 14 percent of government agency debt. By the end of 2003, about a third of Fannie Mae's mortgage-backed bonds were being sold outside of the U.S.
That was in 2003 and it has gotten considerably worse. What's in store for us:
Over time, the gap between tax revenue and the demands placed on government tends to grow, and spending, borrowing, and currency creation begin to expand at increasing rates. Inflation accelerates, and the populace comes to see the process of "debasement" for what it is: the destruction of their savings. They abandon the currency en masse, spending it or converting it to more stable forms of money as fast as possible. The currency's value plunges (another way of saying prices soar), wiping out the accumulated savings of a whole generation. Such is the fate of every fiat currency.
The government wants to keep this game going as long as possible by issuing phony CPI numbers, then by excluding energy and food, concentrating on a "core" rate. Phoney low inflation numbers keep bond yields down and "COLA" adjustments low. What is the housing bubble, but selling USDs for a tangible asset. Gold is a warning sign and a rising gold exchange rate is fought by capping and leasing gold, until the central banks are short 12,000 to 16,000 tons. And now one of the tools Turk and Rubino use, The Fear Index, to gauge where gold is going in the next few years will be handicapped by the ending of release of M3 data.
Turk and Rubino do an excellent job of instructing you in Part Four. Can you profit from your knowledge of an impending collapse of the dollar? How can you protect yourself? How can you protect your accumulated savings?
I highly recommend this book to professional and novice, alike.
another gold bull...
Amazon.com Review
"Our long history of economic power and wealth is being eroded from within," writes Addison Wiggin, and the result will be reduced foreign investment, slow foreign demand for U.S. goods, and unfavorable currency exchange rates. A heavy debt burden, the trade deficit, and structural imbalances have created an unstable dollar bubble, and according to Wiggin, it's not a matter of if the bubble will burst, but when. That's the bad news. The good news is that hidden investment opportunities are waiting behind the weakening dollar. In The Demise of the Dollar… and Why It's Great for Your Investments Wiggin offers advice to readers looking to capitalize on this reality; specifically, he encourages investing in precious metals, tangible resources, and some select foreign markets.
Along with investment advice, Wiggin provides a brief history of government and consumer spending habits and how they have changed over the past 200 years. In clear language, he states the reasons for the dollar's decline, and provides explanations of the forces behind inflation, modern corporate accounting and adjustment schemes, the parallels between corporate failures and government policies, the implications of the national debt and deficit spending, and the distinctions between productive and consumptive debt. He also discusses how foreign countries, particularly China, are ultimately in control of the U.S.'s economic fate due to the staggering amount of credit they have extended. Wiggin is highly critical of Federal Reserve Chairman Alan Greenspan's policies, particularly the massive shift from production to credit that he has espoused, and calls into question his efforts to manage the dollar's value. Of course, Greenspan was not working alone--every president since Ronald Reagan has embraced his views. Written for lay readers, The Demise of the Dollar offers a practical analysis of what the "twilight of the Great Dollar Standard Era" may bring.
can get the jist of these books...
by reading the reviews on Amazon - most are gold bulls - it's the common theme.
http://www.amazon.com/Americas-Bubble-Economy-Profit-When/dp/047175367X/ref=sr_1_1?ie=UTF8&s=books&qid=1228053685&sr=1-1
WORRIED ABOUT THE HOUSING BUBBLE? You should be, but don't let it monopolize your agita. There are four other bubbles also deserving of attention, according to America's Bubble Economy: a stock-market bubble, a foreigner-supported-dollar bubble, a consumer-debt bubble and a U.S.-debt bubble. When the five collide in a "bubblequake," the book's authors predict, the air will rush out of the pumped-up U.S. economy, deflating the average American's assets and standard of living.
But not to panic. America's Bubble Economy has a subtitle: Profit When It Pops. Eric Janszen, one of its four authors, suggests keeping 10%-15% of your assets in gold, which he sees rising "to a peak price of $2,500 to $3,000'' an ounce. Janszen et al. also recommend eurobonds and euro-denominated exchange-traded funds, because most of Europe isn't as indebted as the U.S. and its main currency should outperform the dollar.
A former venture capitalist and founder of the financial Website iTulip, Janszen says the U.S. is repeating errors of the Nixon era, including massive government deficits, under-funded entitlements and an unpopular war the government can't fund with higher taxes or special bonds. Throw in today's growing global demand for commodities, and "... all roads still lead to inflation, whether due to energy costs, unfunded deficits or dollar-currency risks," he says.
Janszen, who was rightly skeptical of the Internet craze early-on, tells Barron's that the current stock-market bubble is "a reflection of monetary inflation" rather than future earnings. A more normal trendline, he says, would put the Dow at about half its present level, or 6,000. Now, that's something to worry about.
recommended reading - have read both...
of Schiff's books now - and looking to pick another on this list. Want to pick the ones that provide guidance on how to prosper in the future. Will likely order the next one later today.
http://www.europac.net/books.asp
AYSI still own some shares...
although down to almost nothing. Will look into LGDI more. Looks like they are loaded with cash, but no revenues as of yet - so it's a bet on the future. You're right, they need to get to actively mining point to get some clarity. Thanks for the tips.
just transferred Roth IRA...
and money should be in account in 10 business days. Spoke with representative of Schwab who assured me can purchase numerous stocks on Canadian and other exchanges (Australian, U.K., China, etc.). He said if have trouble - to just call him. Currently with Ameritrade and cannot buy on foreign exchanges.
Looking at SMF.to, SBB.v as well as others - including some on ASX.
VMC Junior Minors Board...
for those looking for value plays in this area. Very informative board - highly recommended.
http://investorshub.advfn.com/boards/board.aspx?board_id=5834
Citigroup says gold could rise above $2,000 next year as world unravels
Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world's monetary system with liquidity, according to an internal client note from the US bank Citigroup.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3526645/Citigroup-says-gold-could-rise-above-2000-next-year-as-world-unravels.html
value microcaps still viable??? I say...
YES! But look for value microcaps in gold, silver and commodity stocks in Australia and Canada - even a few in China. Help me find them - please - need help on http://investorshub.advfn.com/boards/board.aspx?board_id=14567
dedicated ihub board to crisis preparation...
and have taken many steps, and will continue to take steps, to address this crisis. Need all the help can get for any who want to research and help develop strategies to prosper.
http://investorshub.advfn.com/boards/board.aspx?board_id=14567
Gold, Silver, foreign stocks with high dividends in certain developed countries - policies suggested by many who saw it coming. As it says on "Economic Crisis Survival Board": Would be irresponsible to not look first to those who predicted the crisis for guidance.
There is a way to prosper in the toughest of times. Have 401(k) and new investments going into foreign fund and money market. Transferred Roth IRA to Schwab to allow purchasing of foreign stocks directly on foreign exchanges. Bought lots of gold and silver ETFs and stocks. Still have some normal value microcaps - but significantly less than year ago.
Go for Gold - he predicted the crisis...
and is firmly in the gold camp.
http://www.mises.org/story/2743
Daily Article by Thorsten Polleit | Posted on 11/1/2007
Since the end of April 2001, the US dollar price of a troy ounce of gold has risen from US$264 to US$747 as of October 1, 2007 (Fig. 1) (November 1 spot is $783); in that period, gold has even "outperformed" the US stock market. To put it in less pleasant terms: the exchange value of the US dollar vis-à-vis gold — the world's ultimate, freely chosen means of payment — has fallen considerably in the time span under review.
Figure 1
US M2, bank credit, S&P's 500 stock market index and the US$ gold price
Source: Thomson Financials, Bloomberg, Federal Reserve Bank of St. Louis; own calculations. — The series were indexed, with 1960-Q1 = 100. — The shaded areas represent recession periods as defined by the NBER.
Why, after years of the market's neglect of gold, is the paper money price of gold now on the rise? Would it be too far-fetched to assume that it could reflect market agents' growing concern about a forthcoming great inflation of government controlled paper money?
Tensions in credit markets might indeed provoke fears that central banks could, by way of lowering interest rates, pump even more credit and money into the economies, in an attempt to fend off a credit crisis and potential losses in output and employment.
Mainstream economists may be relaxed about such a policy provided "inflation" — typically defined as a change in the consumer price index — remains "low." Austrians, in contrast, not only consider an increase in credit and money supply inflationary; they would also point out that the very process of a relentless increase in government-sponsored credit and money supply is a recipe for disaster, that it will ultimately end in the destruction of the currency.
Inflation: mainstream versus Austrian view
It all starts with peoples' understanding of inflation. Today, inflation is commonly understood as an ongoing, persistent rise in the economy's price level. Such a definition is based on the "index regime" put forward by Irving Fisher (1867–1947). Here, price-level stability is understood as a rise in the economy's price level — usually represented by a consumer price index — of less than or around 2% on an annual basis. If inflation remains around this level, people are said to enjoy price (level) stability.
Austrian-minded economists would reject such a definition as erroneous and even denounce it as a deliberate attempt to confuse the public about the very forces at the heart of the erosion of the exchange value of money.
They would point out that money is a means of exchange, and that any change in its supply necessarily influences money's exchange value vis-à-vis goods and services.
Take, for instance, an economy in which the money stock is kept constant. To get hold of additional money, market agents would have to exchange goods and services against money. A growing supply of vendible items relative to the money supply would work towards reducing their prices in money terms.
Now consider the case in which an economy's stock of money can be increased through bank-credit expansion — the feature of today's government-controlled money-supply monopolies. Market agents can obtain additional balances through bank loans without being obliged to surrender scarce resources. The additional demand financed by the increased stock of money would lower the exchange value of money vis-à-vis tradable goods.
It is against this background that Ludwig von Mises not only defined inflation as an increase in money supply (and, consequently, deflation as a decline in the money stock); he also foresaw that the confusion about the very nature of inflation would work in favor of inflationism:
Inflation … means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term "inflation" to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. It follows that nobody cares about inflation in the traditional sense of the term.[1]
A money system doomed to fail
Nowadays central banks, the agents of governments' money-supply monopolies, are willingly supplying virtually any amount of credit and money demanded by market agents as long as consumer price inflation remains close to "target levels." However, such a monetary policy is inflationary from the Austrian viewpoint.
Inflation has not become visible to many, though. In recent years a strongly growing credit and money supply has increasingly inflated prices for stocks, real estate, etc., and has to a much lesser extent shown up in consumer prices. To make things worse, the ensuing "asset price inflation" has been widely hailed as a "wealth effect," said to be positive for production and employment.
Like traditional consumer price inflation, asset price inflation can be expected to encourage misallocation of scarce resources, inducing malinvestment. What is more, an inflation boom can only be sustained if the illusory stimulating effects inflation provokes remain in place. If inflation slows down, the inflation boom would sooner or later collapse.
Austrians economists would diagnose that the relentless increase in credit and money supply is at the heart of the inflation boom; the rise in (asset) prices is just its symptom. So if credit and money supply growth slow down, it doesn't take much for Austrians to expect a recession, even deflation.
However, recession and deflation — undeniably costly in terms of a loss in output and employment — would be the economic adjustment processes needed for bringing the economy back to equilibrium via changes in relative prices.
It would not take much to expect that government-controlled central banks, when having to decide between keeping inflation in check or preventing recession, would most likely opt for growth, whatever it takes, even at the expense of a loss in the purchasing power of money.
Once the crisis unfolds, or is merely feared to unfold, the public starts calling for even lower interest rates and even more credit and money. "Cheap" credit and money is widely seen as a recipe for avoiding recession and deflation. Central bankers are unlikely to stand in the way of such calls.
All the more so as mainstream economics would consider the lowering of interest rates — whatever the effects on credit and money supply might be — a policy of "best practice" as long as consumer price inflation remains within an "acceptable level."
The real value of gold
Current credit market turbulences are not only a direct result of an (asset price) inflationary monetary policy delivered in the past. The unfolding symptoms of the crisis — that is, growing concerns about the solidity of the banking sector and the outlook for economic growth — are also paving the way for an even more inflationary policy.
Against this background it is no wonder that investor interest in gold has returned. To what level might the paper-money price for gold rise? Those expecting hyperinflation would expect the exchange value of paper money against gold to approach, or become, zero.
What about those who expect inflation to become high, but not so high that it would make paper money lose its money function altogether? Clearly, this question is rather difficult, if not impossible, to answer. The more recent monetary history might provide some guidance, though.
The latest experience with "unacceptably" high consumer price inflation was in the early 1970s and 1980s, when people become concerned about the reliability of the "unfettered" government paper money standard. So what was the equivalent of the gold price in today's US-dollar purchasing power back then?
Mainstream economists would use the consumer price index to deflate the nominal US-dollar price of gold to come up with a "real" — that is inflation-adjusted — US-dollar price of gold. Using the CPI for deflating the nominal US-dollar gold price would suggest a "real" gold price of around US$1,700 in the early 1980s.
However, Austrians may prefer to use the stock of money, or the stock of bank credit, as an appropriate measure of inflation. Deflating the nominal US-dollar price of gold by the stock of M2 and bank credit, respectively, would suggest that the real gold price rose to US$3,000 and US$5,000, respectively, in the early 1980s.
Figure 2
Hypothetical "real" gold price in US$ per troy ounce
Source: Thomson Financials, Bloomberg, Federal Reserve Bank of St. Louis; own calculations. — The nominal gold price in US-dollar was deflated with the various measures of the loss of purchasing power of the US-dollar, using 2007-Q2 as the base year; last data point shown: 1 October 2007.
What Has Government Done to Our Money?MP3CD
Against this background, the current US-dollar price of gold would, despite the recent price increase, still appear to be cheap. Even if hyperinflation seems to be a remote, even unlikely, scenario to many at this juncture, Mises looked through human beings' rational ignorance vis-à-vis the government-controlled paper money — and his words could be taken as a support for the possibility that gold may well continue its appreciation vis-à-vis paper money:
But then finally the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against "real" goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.[2]
Is Inflation coming - and how soon???
"A period of depression and deflation — which would be a direct consequence of the need to bring about a new equilibrium between debt levels, incomes and prices — would presumably be rather short-lived and quickly followed by inflation.
Per Thelloit in 2006 - one predictor of the economic crisis who also forecast the Governments intervention with bailout money and its effects.
http://mises.org/story/2111
Gold is the ultimate inflation hedge.
Understanding the current economic crisis...
http://blogofbile.com/tag/frank-shostak/
Polleit talks...
http://mises.org/story/2111
Note that below was written in 2006!
A period of depression and deflation — which would be a direct consequence of the need to bring about a new equilibrium between debt levels, incomes and prices — would presumably be rather short-lived and quickly followed by inflation. If the crisis unfolds, translating into real income losses and price declines for many goods and services, public calls for a monetary policy "reflating" the economy can be expected to gain momentum. Under today's government controlled paper money standard, it is hard to see that central banks would be in a position to withstand such demands.
What is more, a broad scale economic crisis as a result of a credit expansion and inflation policy in the past would almost certainly lead to a new wave of government intervention, posing a threat to the idea of a free market oriented societal order. The crisis will be attributed to the failure of the capitalist system rather than the failure of a government controlled monetary system. That said, today's short-sighted monetary policy runs the risk of not only destroying the value of the currency but also poses a serious threat to the free market society.
Shostak talks ecomomic crisis...
http://mises.org/story/3151
Schiller talks economic crisis...
http://americadoomed.com/?p=766
Do you know if DROOY has...
new management since then or what steps were taken to remedy the "cooking of the books".
Curious because I was thinking of buying some more DROOY.
thanks for the list - too many...
to choose from though. Looking for help in sorting through the lot of them to get the cream of the crop.
quiet day for gold - up despite dollar...
gains. Gold stocks doing well. Looking for Australian gold stocks if anyone has any favorites.
A rebuttal of Schiff and Rogers...
but even Mish is bullish on Gold! Gold seems to be the one investment that all (excluding perhaps Roubini) agree on.
Decoupling Is Dead
Decoupling is clearly dead but one would not know it from headlines still preaching yesterday's news. Please consider Decoupling isn't dead: Emerging economies like China continue to cut into US lead.
Decoupling is the theory that emerging nations are increasingly weaning off US economic dependence and, thus, would weather an American economic slump better than in the past.
A retrenching US consumer "is totally irrelevant to China's investments in clean water, improved agriculture and better infrastructure," says Jim Rogers, the former hedge-fund manager turned global investor.
Peter Schiff, president of Euro Pacific Capital, offers a more severe assessment: "Everyone thinks the US is the engine, but it's the caboose just being pulled along. China and the others are healthy economies that foolishly loaned us their surplus capital that we squandered. But that doesn't reflect on the local economies. They're still intact. The factories are still there, the work ethic is still there, and they're not entirely dependent on the US for their own growth."
Question Of Timeframe
It's true that over time, China will become increasingly less dependent on the US. However the key is "less dependent" as it may take decades if ever for China to become independent.
And in the intermediate term, arguably lasting many years, Yuan bulls such as Jim Rogers need address the issue of sustainable Chinese GDP growth which is probably closer to 3.5% than the 8% needed to keep on the pace China wants.
Jim Rogers and Peter Schiff both conveniently overlook the enormous $586 billion in Chinese economic stimulus (printing) while harping on stimulus and printing in the US. In relative terms, the size of China stimulus is roughly 16% of its entire GDP, an enormous sum of money.
Calling the US the caboose at this stage in the game is downright silly. Perhaps that will be true 10 to 20 years from now or perhaps it will never be true, but investing for a long term thesis over the short to intermediate term is a recipe for disaster. Actual results prove as much.
The Shanghai Composite Index after doing a moonshot in 2007 is now back below its 2000 yearly high. That's decoupling in reverse. And with sustainable Chinese GDP growth in question, don't expect another moonshot, although a significant bounce can happen at any time.
Since China removed the peg in since mid-2005 , allowing the RMB to fluctuate at a modest rate, the RMB has appreciated about 18% . If China allowed the RMB to float freely, it rather than the US dollar could conceivably crash.
For more on the China story please see:
* August 24: China's Olympic Sized Bust
* August 26: Is China's Growth Story Coming Unglued?
* September 2: China's Manufacturing Contracts for Second Month
* September 18: China, Russia Intervene In Equity Markets
* November 9: Peter Schiff Hugely Right, Enormously Wrong as Hard Landing Hits China
One simply cannot (rather I mean should not) harp on US economic weakness while ignoring the massive problems in China, the UK, the EU and in fact everywhere one looks.
I remind you of this statement: The State Council has pledged “fast and heavy-handed investment” and a “moderately loose” monetary policy.
I see no reason to be particularly bullish on China at this point. If China tries to expand at the same rate of growth it has for the last two decades, it is going to overheat. There are not enough jobs in China to support 8% growth without the US consumer. And in the near to intermediate term, the US is still the dog and China is still the tail no matter how much some people pretend otherwise.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com/
need list of good Australian gold stocks...
Know about the XGD - a weighted index made up of twenty-four Australian Gold producing and exploring companies in Australia - trades on the Australian Stock Exchange (ASX).
Looking to find a few good ones to put money into.
The XGD is a weighted index made up of twenty-four Australian Gold producing and exploring companies in Australia - trades on the Australian Stock Exchange (ASX)
Australian silver stocks...
what are some good ones???
http://www.the-privateer.com/goldprod.html
Australian gold stocks - anyone...
know of any goods ones? Looking for a few good majors or juniors to invest in.
In view of the economic crisis facing the American and global markets, the recent strength of the U.S. dollar has confounded analysts. After all, the global economic problems essentially emanate from the United States and one would assume that the collapse of our economy would drag our currency down. That has not, as yet, transpired. The explanation can be found in a financial concept known as deleveraging.
In recessions, cash is short, and businesses and individuals seek to raise cash by any means practical in order to prepare themselves for the tough times ahead. In a world in which U.S. currency is held as the global reserve, cash means U.S. dollars. In short, institutions and individuals are selling any asset that is not nailed down (stocks, corporate bonds, etc.) and buying U.S. dollars. This has resulted in plummeting asset prices and a rising dollar. However, this dynamic cannot exist in perpetuity.
It is completely rational for global financial players to be cautious. The roots of the present economic and financial crisis can be traced to the sort of wild speculation typical of all asset booms throughout history. However, unlike the great speculative asset booms which preceded the Great Crash of 1929/34 or the bursting of the South Sea Bubble in 1720, the boom just recently ended was also characterized by wildly excessive leverage and outright fraud.
Among the financial community, the wild speculation was so reckless that a web of opaque and misleading accounting standards were developed in order to hide the insanity from view. The powerful Wall Street lobby was successful in persuading President Bush to allow it a free hand to push aside the anti-predatory lending rules of some 50 States. This led to an unfortunate marriage of deceptive lending and fraudulent borrowing. Brought to a fever pitch by unbridled speculation, this unholy union gave birth to the sub-prime problem debacle.
Based on the notion that property values would continue to rise while the Fed continued to pump-in U.S. dollar liquidity, even so-called ‘prudent’ institutions such as banks invested heavily. The high returns led to massive executive bonuses. Many of the loans and investments in real estate were hidden further through the use of derivatives and off-balance sheet accounting. This ‘camouflage’ was tantamount to fraud. When these loans began to default a credit crisis was unleashed, as the financial ‘players’ could not trust one another. This led to a credit crisis.
It is wholly rational and necessary that the end of this madness has led to a great deleveraging or economic recession. It is unavoidable that institutions are withdrawing from the market, circling their wagons, and holding tightly to their remaining assets.
Investors, who borrowed cheap and plentiful U.S. dollars to invest abroad, have been forced to sell foreign assets for local currency and buy dollars to repay their debts. Even major corporations are repatriating funds from abroad to meet the domestic dollar cash demands. But the basic cause of the recent asset boom was an excess of U.S. dollars. These opposing forces of dollar demand and oversupply are currently battling for supremacy. At present, demand is in the driver’s seat.
However, when the deleveraging subsides the inflationary effects of massive U.S. Government stimuli take effect and show through as rampant inflation. The dollar is then likely to stall and even plummet. Indeed, it is possible that facing depression, newly elected President Obama may devalue the U.S. dollar drastically against gold, just as his ‘mentor’ President Roosevelt did in 1934, but only after confiscating all privately held gold from American citizens.
In the short-term therefore, the U.S. dollar looks strong, but only in the short-term. Investors should think ahead and not get trapped in U.S. dollars or have their gold holding open to confiscation.
http://www.europac.net/externalframeset.asp?from=home&id=14753
Greetings from RGE Monitor!
It is a short week on the U.S. economic calendar due to Thanksgiving, but quite an intense one, especially if we include the events that are not in the calendar.
The current U.S. and global economic conditions, remain at the very least quite challenging. The good news is that President-elect Barack Obama has unveiled a first rate economic team to drive the economy towards the recovery. Larry Summers, Tim Geithner and Christina Romer are certainly top rated experts and excellent choices to address this most severe financial and economic crisis. The bad news is that the recovery is not in sight yet and won’t be for some time.
The most recent set of events and the string of economic data are a clear sign that the crisis is not over, and the worst might very well be ahead of us. On the one hand, consumer confidence got a boost from falling oil prices and new leadership in the U.S. government. On the other hand, yesterday’s Conference Board report confirms that the economy is in a deep recession (the confidence index is still at the lowest level on record since 1975) and points to further consumer spending declines in the coming quarters. The release of preliminary Q3 real GDP growth in the U.S. (revised down to -0.5% from the initial -0.3%) displayed a downward revision to personal consumption from the original -3.1% down to -3.7%. Consumption is expected to be a significant drag on the economy for a while. Analysts estimate that the fall in energy prices – a reflection of falling U.S. demand and a by-product of the fact that this severe recession is a global one – will boost real U.S. income by roughly $200bn (1.5% of GDP) but it is also. On the back of this, U.S. home prices keep falling, equity prices may still be very far from the bottom and employment losses are mounting.
News on home prices is never good these days, but instead of getting better, it may still get worse. The U.S. housing sector is still far from stabilizing. Housing starts keep plunging, and demand keeps following supply downward. As a result inventories are not getting worked off and remain at record highs; downward pressure on home prices continues. Home prices (S&P Case-Shiller C-10) are down 23% from the peak and the pace of decline keeps accelerating every month. The fact that home prices have still a long way to go before reaching a bottom seems to be consensus at this point. Back of the envelope computations suggest that the wealth losses for households related to the fall in home prices are roughly $3 trillion so far, and are clearly bound to increase further – to eventually reach the $6-8 trillion range. With a negative wealth effect of 6 cents on the dollar, the reduction in personal consumption could amount to a whopping $500bn. Things would look even worse if we factor in the losses related to the decline in stock market prices. Retailers including chain stores, luxury brands and online merchandize are taking a hit from declining consumers discretionary spending. Retail sales were already down 15% during July-October period. Moreover, stores expect holiday sales to plunge by almost 50 % this year taking the slump way into 2009.
And after the residential real estate woes, commercial real estate could well be the next shoe to drop. Last week, news that two big commercial mortgages that had been packaged into securities in the past year, were likely to default spooked the $800bn CMBS market that usually follows the fate of the residential mortgage market with a lag of 2 years.
The worsening credit crisis has caused a sudden spike in job losses and filing for jobless claims in November. While a hiring freeze across industries began in late-2007, lay-offs started escalating in Q3 as the credit crunch and demand contraction spread from the housing and financial sectors to the corporate and service sectors, export and commodity industries. Being a lagging indicator, monthly job losses are bound to hit the 300,000-350,000 range in 4Q08 and early-2009, taking the unemployment rate to 8.5-9% by late-2009/early 2010. The slow economic recovery, massive erosion of consumer wealth and demand and double-digit decline in industrial activity could cause job losses to continue for a few years into the recovery. With mounting unemployment, we can expect the contraction in consumer spending to accentuate and defaults on consumer and auto loans, credit cards and mortgages to accelerate.
While easing oil prices provided a breather to the trade deficit, the recent boom in exports is fading in the face of the strengthening dollar, trade credit crunch and more importantly, demand and manufacturing slowdown in export destinations like Japan, Europe, Asia ex-Japan and Latin America. The contribution of net exports to GDP growth of 2.9% in Q2 and 1.1% to Q3 prevented the economy from contracting severely. But net exports will slow to 0.5-1% in the coming quarters led by declining oil and non-oil import demand amid slowing consumer demand and manufacturing activity even as real export growth continues to fall through 2009. This slowing, though still positive, trade contribution poses further downside risks to GDP growth.
After taking a hit from high oil and commodity prices, the manufacturing sector is facing tight credit conditions and slowing domestic and export demand, leading firms to lower the sales forecast through 2009 and scaling down inventories. Declining orders for durable and capital goods indicate that industrial production will decline significantly in 2009. Plunging demand and corporate earnings will also cause a double-digit fall in business expenditure, at least through 2009, given that business sentiment especially for small firms are near record lows. The auto sector is also in a perfect storm amid slumping vehicle sales and tight credit conditions. But the recession might help pave the way for the much needed auto industry restructuring to improve fuel-efficiency and competitiveness of the Big Three automakers.
Fiscal policy will play a pivotal role in 2009 as the Fed Funds rate approaches zero. Significant fiscal stimulus will be needed during these 4-5 quarters to prevent significant growth contraction and deflation. Since any boost from tax cuts to households and businesses will be temporary, raising government spending via grants to deficit states and infrastructure spending would be more effective. While spending on infrastructure and green technology as endorsed by Obama can provide some stimulus during this prolonged growth slowdown, the extent of job creation would largely depend on the reallocation of the unemployed labor between sectors. Democrats are also pushing for unemployment benefits and food stamps which are well-targeted and have the largest bang-for-the-buck. While Obama has prioritized a large fiscal package as soon as he comes into office in Jan 2009, delays in Congress approval and actual implementation will make the stimulus less timely. Meanwhile a $500-700 bn stimulus along with other Treasury bailouts will push the fiscal deficit in the $900bn to $1 trillion range in the next two years, especially as the recent revenue boom in corporate income and capital gains and dividend taxes are fading significantly.
The recent readings of both the PPI and the CPI are showing the beginning of deflation. Slack in goods markets with demand falling and supply excessive, slack in labor markets with sharp fall in employment and slack in commodity markets means lower inflation and actual deflation ahead – with a concrete risk of falling in a liquidity trap. And given the costs and dangers of price deflation and the deadly deeds of debt deflation, central banks have to recur to unorthodox monetary policy to address the liquidity trap and the severe liquidity and credit crunch. The Federal Reserve has reached further into the box of unorthodox tools by announcing direct purchases of $600bn in conforming MBS and agency bonds ($500bn and $100bn, respectively.) Simultaneously, the Federal Reserve is setting up a new $200bn Term Asset-Backed Securities Loan Facility (TALF) for investors of consumer loan-backed securities (i.e. credit cards, auto loans, home equity loans.) The U.S. Treasury will backstop the first $20bn in credit losses.
A few days ago the government was forced to provide a $306bn rescue package for Citigroup whose toxic asset overhang prevents a return to normalcy even after the government’s first $25bn capital injection under TARP. Under the rescue program, Citi will be responsible for the first $29bn in writedowns; after that the losses will be shared between the government (90%) and Citi (10%) who has recourse to a loan from the Fed for this purpose. In return, Treasury will get $7bn of preference shares with 8% dividend rate ($4bn to UST, $3bn to FDIC). In addition, Treasury will inject another $20bn in capital, buying further preference shares under the TARP program. Commentators seem to agree that action was necessary but worry that the terms are exceedingly lenient.
And going forward there is another problem: 8,000 banks that are not ‘too big to fail.’ Many regional banks have important capital concentrations in the next leg of this debt-deflation story, commercial real estate.
The backdrop to the renewed flurry of government interventions remains the completely frozen credit environment that is now gripping the non-financial corporate sector, both high-yield and investment grade. The spreads in the cash bond markets went on to exceed their CDS counterparts and reached new record highs on November 21 as the specter of bankruptcy looms ever larger for automakers and manufacturers around the world. Debt-ridden LBO companies are struggling to refinance or repay their debt while private equity companies face investor flight. Importantly, the record spreads are not only driven by firesales but find some justification in the deterioration of credit quality down the rating scale. Experts such as Edward Altman and also rating agencies predict a record default wave in the high-yield sector above 10%
got it backwards - printing massive...
amounts of money is inflationary by definition. Deflation is occurring, but many who predicted this crisis believe it is only temporary and will soon shift to not only inflation - but hyperinflation.
Here's a quote from Peter Schiff: "Gold's financial role is unique. Money gravitates to gold as a safe haven, a store of value when the purchasing power of currencies is threatened by inflation or economical instability. The United States has both problems in spades."
APB worth a look...
http://www.asiapacificfund.com/newsmedia/docs/2008/0805-Virtual%20Forum.ppt#989,29,Important Information
over halfway through Peter Schiff's new...
book - after finishing his first book a month of so ago http://www.amazon.com/s/?ie=UTF8&keywords=peter+schiff&tag=googhydr-20&index=aps&hvadid=1101315701&ref=pd_sl_8cp6jkczpg_b
New book offers further details into how best to adjust you investments - most of which I have gone over on this board. Nothing like the book though to drive the point home.
Must note that although Schiff has been incredibly accurate in his predictions - he sure did underestimate the decline in stock sectors that he recommends. He also semi-dismisses deflation when deflation is currently ruling the day. That said - he has since admitted to this and advices everyone to hold the course as inflation is inevitable.
Transferred Roth IRA to...
Schwab account today - this will allow me to liquidate current funds that have with a Janus IRA and buy foreign stocks on foreign exchanges in gold, silver and asian-pacific commodities.
Will also have direct transfer each month out of checking account into new Schwab roth IRA. This is one of several moves that have made over the last few months.
Gold at $820 - silver up...
right along with it. Is this the start of the major bull run? Very hard to say.
Marc Faber points to gold miners in...
citing big rally coming:
broker ratings in general...
Interactive Brokers (www.interactivebrokers.com).
Pros: It not only charges the lowest commissions on stocks and options, but also has the lowest margin fees and pays near the top for cash (over $10,000). IB has worked hard to address one of our criticisms, which is the steep learning curve for using its TradersWorkStation platform, by introducing an Order Wizard. The Order Wizard coaches the user through placing a trade, and also shows the 40 order types available with the platform and why you would use them.
The platform has a new look and feel, and is more easily customized than previous versions. A new feature we like is the Contract & Securities Search, accessible from the IB Website. It displays all the futures contracts a user can trade, with an explanation of what they are and why you might want to add them. IB has even created account statements that allow investors to slice and dice their trading activity along numerous parameters to suit their own information needs.
For the international trader, IB recently added Mexico and Spain to its list of overseas exchanges. The firm will enable mutual fund and government bond trading in the near future, filling the last couple of holes in its menu.
Cons: Customer service remains an issue, despite the efforts to improve. This is a platform for traders who don't need much hand-holding.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=33593773
Searching for a broker for foreign...
stock trading - currently have Ameritrade and it doesn't allow. So far believe Interactive Brokers will get my account. Plan to call tomorrow. Transferring a Roth IRA to them and will begin to buy some foreign stocks through their exchange. Looking to buy some gold, silver related stocks to start.
Believe it will take 60 days for the transfer to occur.