The past weeks have witnessed more elements of the tectonic shifts I have been commenting on over these 18 months: the Fed's hand has been forced, Bernie Madoff made Ponzi proud, and our debt has begun to spoil on the shelves of the global financial supermarket.
The Fed has retrenched interest rates to near zero in an effort to stimulate lending and now has resorted to what is called in sugar-coated terms 'Quantitative Easing'. Don't be fooled by this innocuous facade: this is the denouement in our own government's climatic war to destroy the US dollar, which has lost 95% of it's value over long term charts. Quantitative Easing is a veiled way of saying 'turn on the printing press' in order to get more dollars flowing through the economy. I will remind you that the Fed intentionally chose to cease publicly releasing the M3 number in 2006, which is the best gauge of the total dollars in circulation. Now with quantitative easing officially in place, that move prevents us from knowing how much monopoly money is now floating around, but sadly that currency is not a board game, but the game of our lives with our dollars. This affects all of us who earn dollars, who might be in the minority of Americans who actually save dollars, as each one of those dollars will doubtlessly lose value as the Fed puts more and more of them into the fiscal engine. The best part is the veil of secrecy is equally wrapped around the $2 Trillion in lending the Fed and Treasury have imparted as they refuse Bloomberg's Freedom of Information Act inquiry to name the recipients! Mind you, the American people had no vote on that spending of their tax dollars even though we were so up in arms over the measly $700 Billion bailout!
We are facing short-term deflation because huge financial institutions and businesses are having to sell everything to raise cash to pay off loans they can't afford. This massive sell-off leads to a drop in prices for everything, especially as noted in the recent price of $1.65/gal for regular unleaded I saw yesterday. This global deleveraging will abate however in the coming six months yet has lead to a temporary rally in the value of the US dollar. As the dollar gets stronger, the price of dollar-denominated items drops, hence the retrenchment in oil, gold, corn (down 55%), steel, copper and the rest of the commodity complex. But 2009 and 2010 will most likely see hard assets shoot up again in dollar-terms precisely because of the quantitative easing that the Fed has embarked upon. The Central Banks of the World are doing their best to 're-inflate' the prices of hard assets' values, yet the effect will be the decimation of the value of the US dollar, and with it the purchasing power of all of our retirement accounts. Gold should hit $1500 by the the middle of 2010 from its current $820. Oil will breach $100/barrel by then again, if not higher. The longterm fundamentals of an infrastructure boom will rekindle global demand for steel and other metals such as copper, even if China and India have a bumpy ride over the next two years. $1.65/gal will seem godsend in a few years.
This week also saw the revelation of the scheme by Wall Street Broker Bernie Madoff who made Ponzi proud: by his own estimates, investor losses hover around $50 billion! "All Praise Deregulation" since Reagan has been the Mantra! Clinton didn't do much to abate the slide and Bush certainly put pushovers in charge of oversight and now foundations like the Lappin Foundation have instantly shuttered their doors and fired their employees while cancelling all programs because of 100% losses while in Bernie's care. I note this because our government has consistently failed to protect us and continues to do so: how can a scheme get that big and not come onto any watchdog's radar? How many scandals of excess and greed can occur, how many retirements must be decimated, before the people demand real accountability? I won't recount all of the scams and abuses of the past decade but suffice it to say, the average investor has been brutalized when we look at the returns of the Dow over a ten year span, yet economists and traders have acted like omniscient sages who should now admit one thing which is that they don't actually know anything and if they did, they should be hat in hand admitting either their wrong-doings or their blindspots. This system is broken and Bernie Madoff knew it.
Finally, Bloomberg reported yesterday that Foreign Buyers greatly reduced acquisition of our corporate debt, agency debt, and stocks! This may not seem like such a big deal but it is like calling a bluff in poker: the US NEEDS foreign investors to buy our IOU's! Without that, the system is exposed for the proverbial House of Cards it is. Agency debt is government debt issued via Fannie Mae and Freddie Mac. To explain further, Fannie and Freddie buy mortgages from US lenders and then packages them into bonds and sells them to Foreign Investors, which in turn allows the US lenders to write more mortgages. If the investor community stops buying our debt, or worse starts selling our debt, the value of our IOU's diminishes greatly which in turn puts significant pressure on the value of the dollars those debts are denominated in.
In short: quantitative easing, deregulation, and decreased demand for US debt is a disastrous concoction for the value of the US dollar. Don't be fooled by the recent strength of the dollar. Obama has a tantamount proposition in front of him, and I wish he would truly herald change with faces other than those littered in the Clinton era, especially Rubin and Summers who championed deregulation. Secretary of State Clinton could lead us into war with Iran to protect Israel, which, when combined with the aforementioned pressure points on the US dollar, could see $200+/barrel of oil in the not so distant future.
It is time for accountability. It is time for the republican free-marketers to relinquish control and stop shouting that regulation is bad. Deregulation as it is manifested now is much worse and has destroyed many lives. We must stand up for the purchasing power of our saved dollars or shift those assets into gold and foreign dividend paying companies. Either way, complacency can not be an option.
Tuesday, December 16, 2008
Monday, November 10, 2008
China's Big Move and the Fed's Catch 22
The two topics I want to investigate today are China's big move and the Fed's Catch 22 of lack of transparency in it's bailout.
Yesterday, China made a mammoth announcement that is a key maneuver I have been watching for: their own $568 Billion 'bailout'. This stimulus package is important for a number of reasons. Firstly, the directives involved stand in stark contrast to its US cousin: instead of bailing out banks (which China doesn't have to do because Asian banks on the whole only wrote down $27 billion as opposed to US bank losses of $660+ billion), the Chinese plan to invest heavily in infrastructure which will create jobs, low-rent housing to stabilize the falling housing market, and correct environmental challenges, while eliminating caps on lending to small businesses for banks.
From Bloomberg's article:
Yesterday, China made a mammoth announcement that is a key maneuver I have been watching for: their own $568 Billion 'bailout'. This stimulus package is important for a number of reasons. Firstly, the directives involved stand in stark contrast to its US cousin: instead of bailing out banks (which China doesn't have to do because Asian banks on the whole only wrote down $27 billion as opposed to US bank losses of $660+ billion), the Chinese plan to invest heavily in infrastructure which will create jobs, low-rent housing to stabilize the falling housing market, and correct environmental challenges, while eliminating caps on lending to small businesses for banks.
From Bloomberg's article:
The package earmarks 100 billion yuan of central- government spending this quarter for low-rent housing, infrastructure in rural areas, roads, railways and airports. Investment by local governments and companies may boost that to 400 billion yuan, the State Council said.
Cutting Taxes
The government will also allow tax deductions for purchases of fixed assets such as machinery to stimulate investment, a move that will reduce companies' costs by an estimated 120 billion yuan.
Grain purchase prices and subsidies for farmers will be raised, along with allowances for low-income urban households. The government also said it had scrapped loan quotas, which limited lending by banks, to help small businesses.
http://www.bloomberg.com/apps/news?pid=20601068&sid=ajVKL6h0rTVw&refer=home
or Marketwatch.com:
This is a far cry from the US attempts to stimulate the economy which have not lead to job creation, a floor to the housing market, or more credit flowing to small businesses.
I note this move by the Chinese government because it is a vital moment in the transition of Empire. The shift of power from West to East is not going to be a smooth baton handoff in an Olympic relay: growth in the US has ground to a halt and might even contract; conversely China's growth, while slowing slightly, is still upwards of 8.5%, down from 10%. China's exports have been hurt by the decrease in consumption by the global economy. This stimulus package is part of China's plan to buy their way through this moment of transition: the Chinese consumer will eventually replace the US consumer as the global economic engine. This will occur as the yuan is allowed to appreciate against the dollar giving the Chinese the purchasing power the US currently enjoys. China is sitting on a mountain of cash and therefore has the ammunition to bail its way through this turbulent patch.
On the other hand, we find the US in a massive Catch 22: the Fed is being far from transparent on the $2 TRILLION of lending it has done of tax payer money. The claim is that if the Fed disclosed to whom it gave loans, against what collateral, at what value for said collateral, it would show those institutions asking for the loans to be weak, resulting in a run-on-the-bank or short-selling explosion.
This is from another Bloomberg.com article:
``You have to balance the need for transparency with protecting the public interest,'' Talbott said. ``Taxpayers have a right to know where their tax dollars are going, but one piece of information standing alone could undermine public confidence in the system.''
http://www.bloomberg.com/apps/news?pid=20601087&sid=aatlky_cH.tY&refer=home
The US Government's handling of this financial crisis is only staving off the inevitable. By lowering rates to close to zero, by bailing out AIG to the tune of $120 billion alone, and the scores of other actions, the US is now so much more indebted to the rest of the world, most significantly China.
Our infrastructure is crumbling: reports show that highways, bridges, and the power grid are in serious disrepair. Our jobs data show the nation heading towards the highest level of unemployment in decades. CEO's of our manufacturing sector have actively shipped American jobs overseas causing our workers to shift into being service sector workforce that spends too much and saves less than zero (living off credit from China and elsewhere).
The Chinese on the other hand do 95% of their transactions in hard cash, not credit. They save a vast amount of their income and don't live beyond their means. Their middle class is the size of the entire US population and they are a nation of producers.
Both countries are trying to spend their way out of crisis, but one is clearly in a much stronger position than the other. The baton of empire is clearly being passed from West to East.
Saturday, September 20, 2008
Reflections on Recent Government Market Intervention and the effect on the US Dollar
It is evident that free markets are finally dead, as noted in the recent string of US Government interventions in the highly-touted free markets. The argument goes that taxpayer dollars must be spent now to prevent a further erosion in the financial markets that would lead to a credit-freeze of lending by banks which in turn would spur the continued downward plunge in home prices.
The two primary actions of the government this week were to a) agree to purchase upwards of $1 Trillion in toxic assets from the very banks who profited from the real estate boom, and b) ban short-selling of financial stocks. I want to explore both of these ideas:
Short-selling is the act of borrowing shares of x company, selling them, with the assumption the price would drop, allowing the borrower of those shares to buy them back on the open market at a lower price, and return the borrowed shares, pocketing the difference between the original price they sold them at and the new price for which they were purchased. Financial companies have been the targets of late, with share prices of many of the largest firms cascading 50-90% this year. Some forms of short-selling are already illegal, but in the end, market participants should not be forced to only bet in one direction (buy) and should be able to benefit in the other direction. Furthermore, it is rare that sound companies can be annihilated by shortsellers because as the price might be pressured to drop, savvy investors would buy the shares at lower price. Case in point, it is extremely unlikely that Warren Buffet's Berkshire Hathaway could be bullied by shortsellers, given the quality of the underlying assets owned by the firms. Conversely, it was easy for shortsellers to see their bets against Fannie Mae, Freddie Mac, Lehman Brothers, and Bear Sterns become profitable because those firms held incredibly toxic assets on their books and had inflated their values and balance sheets improperly. The roll of shortsellers must not be limited as the scapegoat for the falling values of vulnerable companies.
To speak to the first point: the use of taxpayer dollars to purchase toxic mortgage assets will only prolong the agony facing the US economy. The heart of the problem is NOT those assets themselves, but instead is the fact that homes across the US are OVERVALUED nationally based on the easy credit supply in the form of low-cost, low standards mortgages over the past 10 years. Instead of allowing the market to painfully correct these excesses, the US goverment is going to spend incredible and today-unmeasurable ammounts of everyone's dollars to artificially attempt to create a floor for the drop in prices, buy assets from the banks, and hope they again lend freely to potential home buyers which should lead to further inflation of the very home values at the root of the problem.
There is an enormous question that must be asked, however: if the Treasury and the Fed are going to buy these toxic assets from the banks, these mortgage backed securties, CDO's, and other pools of mortgage debts, what price should the government pay for them? The primary dislocation in the market is that these banks CAN'T put a value on these assets themselves because there are no buyers willing to pay for them. If you are holding a bag of apples that originally cost you $20 but the fruit market is empty today and tomorrow and the next day, how do you know what the value of apples are? You don't. So if the free market can't put a price on these assets, how will the government be able to come in, put a price on them, buy them from the banks, purging them of the toxic sludge, while assuring the American public that it didn't just overpay for terrible assets that NO ONE in the free market wanted to buy themselves?
I heard a price quoted on Bloomberg Radio yesterday speculating that the government would buy these assets for 65 cents on the dollar, meaning the government would buy them for 65% of what the banks thought they were worth, mind you, through the banks internal models of valuating these pools of mortgages. That price sounds high to me, if the free market wouldn't even pay that much. At most the government should pay a price like 10 cents on the dollar for banks to have that right to cleanse their balance sheets. Yes, that would mean banks feel the pain but at least they could start fresh.
The pricetag ventured by Paulson and Bernanke is $700 Billion. But what it doesn't take into account is the fact that there are estimates that not only subprime, but now Alt-A and Prime mortgages could begin to default as well, as more Americans lose their jobs. These will increase the amount of toxic asset pools on banks' balance sheets and lead to more purchases of such assets with tax payer dollar. Where does the government draw the line?
The larger reality that NOT ONE politician will discuss, when touting the merits of the largest bailout in history: the effects of these massive expenditures by government entities on the value of the US dollar!
Is anyone asking where these massive amounts of dollars are going to come from? Is the government also stating that it will increase taxes to increase revenues into the government coffers so that it can increase spending to increase its purchasing of these mortgage pools? No. Instead, the government is going to print dollars buy taking on more federal debt and borrowing from abroad most likely. Today the government announced it is raising the limit of US Federal Debt to over $11 Trillion to finance these bailouts.
Do these amounts seem surreal? They should. What does it mean if the US is $11 Trillion in debt to you and me? Does it mean anything? It should because I venture the results will be like partaking in a game of monopoly: we all know that as more and more dollars are supplied into the economy, each individual dollar is worth less and less. This downward trend in value for what is known as our 'fiat' money, or dollars that are backed by nothing other than the obligation of the US taxpayers to pay back the loans from wence those dollars came, has been in place for the last 40 years.
So let's put the pieces together: the government takes on more debt now to prop up artificially the values of assets that need to drop further in price, while those very actions lead to a decrease in the value of the dollars saved by the very Americans the government is trying to protect. Retirement accounts are valued in dollars, along with savings accounts, and most other forms of dollar-denominated assets. As the government prints more dollars to 'buy' these devaluing assets, it will become inevitable that the dollar itself will get pummeled.
This is of course good for our exports which will be cheaper for the strengthening Chinese citizen to buy but as noted in recent reports made public, our manufacturing base continues to erode, as the US continues to shift towards a service-based economy from a producer-based economy.
Instead of printing dollars to bailout banks and their bankers who made huge fees by creating these toxic pools of assets, the government should invest that money in US infrastructure projects and other such efforts to actually create jobs! That is the cornerstone of rebuilding the economy. These bailouts will probably cost $1-2 Trillion, plus the $1.3 Trillion for the wars in Iraq and Afghanistan. That is over $2 Trillion conservatively that could have been spent developing jobs here in the US, allowing workers to have the opportunity to save again and eventually buy homes, which would eventually lead to the much-desired end result of a bottom/turnaround in home values. Instead, these bailouts will lead to more risk-taking by bankers, knowing that if they only make the problem large enough, the government will socialize all the risks to the 300 million taxpaying Americans.
Where are all of the free-market pundits now? Show me a free market. They only exist when the US needs to pilage a country of all of its natural resources and doesn't want any protectionist regimes getting in the way. The rest of the world should be grinning now as the US government has effectively dissolved any notion of a 'free market'.
I reiterate that buying gold, betting oil up, the dollar to fall, longterm, and taking stakes in Chinese and Indian companies that pay dividends is the way to protect against the effects on your family's life savings by the current government's fiscally irresponsible policies. Don't be fooled by the cloak of national security in which these policies are enshrined: the consequences will actually be worse when the rest of the world realizes that the IOU's of the US Federal Government can never be paid back and the value of the dollars they are sitting on will have far less purchasing power in the years ahead. The yuan will become the Reserve Currency of the world overtaking both the Dollar and the Euro.
The two primary actions of the government this week were to a) agree to purchase upwards of $1 Trillion in toxic assets from the very banks who profited from the real estate boom, and b) ban short-selling of financial stocks. I want to explore both of these ideas:
Short-selling is the act of borrowing shares of x company, selling them, with the assumption the price would drop, allowing the borrower of those shares to buy them back on the open market at a lower price, and return the borrowed shares, pocketing the difference between the original price they sold them at and the new price for which they were purchased. Financial companies have been the targets of late, with share prices of many of the largest firms cascading 50-90% this year. Some forms of short-selling are already illegal, but in the end, market participants should not be forced to only bet in one direction (buy) and should be able to benefit in the other direction. Furthermore, it is rare that sound companies can be annihilated by shortsellers because as the price might be pressured to drop, savvy investors would buy the shares at lower price. Case in point, it is extremely unlikely that Warren Buffet's Berkshire Hathaway could be bullied by shortsellers, given the quality of the underlying assets owned by the firms. Conversely, it was easy for shortsellers to see their bets against Fannie Mae, Freddie Mac, Lehman Brothers, and Bear Sterns become profitable because those firms held incredibly toxic assets on their books and had inflated their values and balance sheets improperly. The roll of shortsellers must not be limited as the scapegoat for the falling values of vulnerable companies.
To speak to the first point: the use of taxpayer dollars to purchase toxic mortgage assets will only prolong the agony facing the US economy. The heart of the problem is NOT those assets themselves, but instead is the fact that homes across the US are OVERVALUED nationally based on the easy credit supply in the form of low-cost, low standards mortgages over the past 10 years. Instead of allowing the market to painfully correct these excesses, the US goverment is going to spend incredible and today-unmeasurable ammounts of everyone's dollars to artificially attempt to create a floor for the drop in prices, buy assets from the banks, and hope they again lend freely to potential home buyers which should lead to further inflation of the very home values at the root of the problem.
There is an enormous question that must be asked, however: if the Treasury and the Fed are going to buy these toxic assets from the banks, these mortgage backed securties, CDO's, and other pools of mortgage debts, what price should the government pay for them? The primary dislocation in the market is that these banks CAN'T put a value on these assets themselves because there are no buyers willing to pay for them. If you are holding a bag of apples that originally cost you $20 but the fruit market is empty today and tomorrow and the next day, how do you know what the value of apples are? You don't. So if the free market can't put a price on these assets, how will the government be able to come in, put a price on them, buy them from the banks, purging them of the toxic sludge, while assuring the American public that it didn't just overpay for terrible assets that NO ONE in the free market wanted to buy themselves?
I heard a price quoted on Bloomberg Radio yesterday speculating that the government would buy these assets for 65 cents on the dollar, meaning the government would buy them for 65% of what the banks thought they were worth, mind you, through the banks internal models of valuating these pools of mortgages. That price sounds high to me, if the free market wouldn't even pay that much. At most the government should pay a price like 10 cents on the dollar for banks to have that right to cleanse their balance sheets. Yes, that would mean banks feel the pain but at least they could start fresh.
The pricetag ventured by Paulson and Bernanke is $700 Billion. But what it doesn't take into account is the fact that there are estimates that not only subprime, but now Alt-A and Prime mortgages could begin to default as well, as more Americans lose their jobs. These will increase the amount of toxic asset pools on banks' balance sheets and lead to more purchases of such assets with tax payer dollar. Where does the government draw the line?
The larger reality that NOT ONE politician will discuss, when touting the merits of the largest bailout in history: the effects of these massive expenditures by government entities on the value of the US dollar!
Is anyone asking where these massive amounts of dollars are going to come from? Is the government also stating that it will increase taxes to increase revenues into the government coffers so that it can increase spending to increase its purchasing of these mortgage pools? No. Instead, the government is going to print dollars buy taking on more federal debt and borrowing from abroad most likely. Today the government announced it is raising the limit of US Federal Debt to over $11 Trillion to finance these bailouts.
Do these amounts seem surreal? They should. What does it mean if the US is $11 Trillion in debt to you and me? Does it mean anything? It should because I venture the results will be like partaking in a game of monopoly: we all know that as more and more dollars are supplied into the economy, each individual dollar is worth less and less. This downward trend in value for what is known as our 'fiat' money, or dollars that are backed by nothing other than the obligation of the US taxpayers to pay back the loans from wence those dollars came, has been in place for the last 40 years.
So let's put the pieces together: the government takes on more debt now to prop up artificially the values of assets that need to drop further in price, while those very actions lead to a decrease in the value of the dollars saved by the very Americans the government is trying to protect. Retirement accounts are valued in dollars, along with savings accounts, and most other forms of dollar-denominated assets. As the government prints more dollars to 'buy' these devaluing assets, it will become inevitable that the dollar itself will get pummeled.
This is of course good for our exports which will be cheaper for the strengthening Chinese citizen to buy but as noted in recent reports made public, our manufacturing base continues to erode, as the US continues to shift towards a service-based economy from a producer-based economy.
Instead of printing dollars to bailout banks and their bankers who made huge fees by creating these toxic pools of assets, the government should invest that money in US infrastructure projects and other such efforts to actually create jobs! That is the cornerstone of rebuilding the economy. These bailouts will probably cost $1-2 Trillion, plus the $1.3 Trillion for the wars in Iraq and Afghanistan. That is over $2 Trillion conservatively that could have been spent developing jobs here in the US, allowing workers to have the opportunity to save again and eventually buy homes, which would eventually lead to the much-desired end result of a bottom/turnaround in home values. Instead, these bailouts will lead to more risk-taking by bankers, knowing that if they only make the problem large enough, the government will socialize all the risks to the 300 million taxpaying Americans.
Where are all of the free-market pundits now? Show me a free market. They only exist when the US needs to pilage a country of all of its natural resources and doesn't want any protectionist regimes getting in the way. The rest of the world should be grinning now as the US government has effectively dissolved any notion of a 'free market'.
I reiterate that buying gold, betting oil up, the dollar to fall, longterm, and taking stakes in Chinese and Indian companies that pay dividends is the way to protect against the effects on your family's life savings by the current government's fiscally irresponsible policies. Don't be fooled by the cloak of national security in which these policies are enshrined: the consequences will actually be worse when the rest of the world realizes that the IOU's of the US Federal Government can never be paid back and the value of the dollars they are sitting on will have far less purchasing power in the years ahead. The yuan will become the Reserve Currency of the world overtaking both the Dollar and the Euro.
Saturday, August 30, 2008
The Effects of America's Myriad Debtloads
I write today about the larger problem masked by the subprime mortgage crisis: America is awash in debt and has shifted from a country of producers to one of consumers. I want to lay out the effects of over-consumption and debt as I understand it:
We have shifted to a service-economy from a producing economy, importing many of our goods, and buying them on credit, with a savings rate that has turned negative. This means Americans spend more than they earn. 'The System' would collapse if people stopped consuming, so the system funnels more and more credit to the consumers. This comes in the form of mortgages, creditcards, auto loans, and student loans primarily.
Alan Greenspan lowered Federal interests to near-zero to add liquidity to the markets, meaning to create more easy credit. As home values went up, because more and more amounts of mortgage credit became available to an increasing number of unqualified buyers, consumers used home equity to pay for their mounting debt bills.
Many of us are familiar now with the 'subprime mortgage crisis', but I am also sure each of us knows at least one person who has a good credit score who is struggling to make their house payments, creditcard payments, and student loans! These are prime mortgage holders, many of whom have more than one car, a large house, and multiple credit cards. The picture I am laying out is that the problem here isn't simply the unqualified subprime borrowers.
What did bankers do: they packaged subprime mortgages into financial products that paid x yield based on the interest rates being paid by the mortgage holders. Those new products were sold to huge institutional investors like other banks, insurance companies, and pension funds, to name a few, who liked the fixed interest they received. It is well-documented that those assets now have deteriorating values because people are defaulting on those underlying mortgages, causing enormous 'write-downs', which are the differences between what the institutions thought the bundled mortgages were worth v.s. what they could actually sell them for. Banks and other institutions have thus far written off $500 billion of such assets.
But what about the prime loans that are headed for default which were packaged into those new financial products? Even worse, bankers have ALSO packaged creditcard and autoloan assets into similar financial products. Now that home equity has dried up, there are predictions that creditcards will be the first item people default on, followed by the car loan, and lastly the home mortgage.
My point is there are still massive waves of debt-based losses coming. But what does this mean on a macro-level?
I have previously written about the flow of capital, wealth, and power to the Far East. I stated that the American worker would one day be working for foreign owners: case in point, Budweiser is now owned by Inbev, a foreign entity, and no longer a bastion of American-worker-based pride.
Another element of this shift has to do with China: the Chinese goverment keeps the value of its currency pegged to the US dollar, making its goods cheap for Americans to buy, when it is widely understood that if it was allowed to float, the yuan might rise by 40% against the dollar. Because it is held artificially low, the yuan that Chinese citizens earn with their hard work and savings has 40% less buying power. The Chinese buy US treasury bills to lend us money and then sell us cheap goods, and that has been the status quo.
But take this into account: the Federal Reserve has stopped publically publishing the M3 number, which is the total number of dollars in circulation because it doesn't want anyone to know the extent they have been running the printing press! Eventually, China is going to stop buying Treasuries with the savings of its citizens, let the yuan float freely against the dollar, which will cause the saved yuan of all those workers to skyrocket in value and gain major purchasing power for themselves to buy things like dishwashers, cars, and other consumer goods mirroring the expected living standard of most Americans. In turn, the dollar will continue to fall in value and buy less goods, because precisely there are too many dollars in circulation.
THIS is precisely the major mechanism of shift of empire.
Read the headlines, its all right there: Americans aren't saving, we are a service based economy, our manufacturing industries have deteriorated, our recent GDP growth was from exports (goods made here but bought by foreign consumers), homes are deflating in value, credit is getting harder to get, and the yuan is gaining value (even if slowly) against the dollar. Inflation, even if under-reported by the government, is skyrocketing at the fast pace in 17 years in the US eroding the purchasing power of the average US citizen. You don't have to believe me.
The investment advice I give and am adhering to is the following: I sold my home, am renting a nice apartment, am buying gold, am buying stock of companies in the east, and will now again be selling the dollar. As noted in a recent post over the past months, for the short term, I was betting the price of oil would drop and that the dollar would strenghten, which happened. I am beginning to shift those positions for the long-term which is dollar-negative, gold/silver positive, real estate negative, financial companies negative (more losses to come, $1 trillion more estimated by PIMCO's Bill Gross), industrial/infrastructure positive.
It is not about doom-and-gloom, it is about understanding the Ponzi scheme that America's economy has been functioning on. Think about it: if, let's say, no one could get a mortgage for whatever reason, how much would x house be worth? Much less than the pricetag it has today. Same goes for tuition at most universities if most of the students couldn't get student loans.
I recommend watching: "In Debt We Trust" and "I.O.U.S.A", and reading Schiff's "Crashproof".
Goodluck.
We have shifted to a service-economy from a producing economy, importing many of our goods, and buying them on credit, with a savings rate that has turned negative. This means Americans spend more than they earn. 'The System' would collapse if people stopped consuming, so the system funnels more and more credit to the consumers. This comes in the form of mortgages, creditcards, auto loans, and student loans primarily.
Alan Greenspan lowered Federal interests to near-zero to add liquidity to the markets, meaning to create more easy credit. As home values went up, because more and more amounts of mortgage credit became available to an increasing number of unqualified buyers, consumers used home equity to pay for their mounting debt bills.
Many of us are familiar now with the 'subprime mortgage crisis', but I am also sure each of us knows at least one person who has a good credit score who is struggling to make their house payments, creditcard payments, and student loans! These are prime mortgage holders, many of whom have more than one car, a large house, and multiple credit cards. The picture I am laying out is that the problem here isn't simply the unqualified subprime borrowers.
What did bankers do: they packaged subprime mortgages into financial products that paid x yield based on the interest rates being paid by the mortgage holders. Those new products were sold to huge institutional investors like other banks, insurance companies, and pension funds, to name a few, who liked the fixed interest they received. It is well-documented that those assets now have deteriorating values because people are defaulting on those underlying mortgages, causing enormous 'write-downs', which are the differences between what the institutions thought the bundled mortgages were worth v.s. what they could actually sell them for. Banks and other institutions have thus far written off $500 billion of such assets.
But what about the prime loans that are headed for default which were packaged into those new financial products? Even worse, bankers have ALSO packaged creditcard and autoloan assets into similar financial products. Now that home equity has dried up, there are predictions that creditcards will be the first item people default on, followed by the car loan, and lastly the home mortgage.
My point is there are still massive waves of debt-based losses coming. But what does this mean on a macro-level?
I have previously written about the flow of capital, wealth, and power to the Far East. I stated that the American worker would one day be working for foreign owners: case in point, Budweiser is now owned by Inbev, a foreign entity, and no longer a bastion of American-worker-based pride.
Another element of this shift has to do with China: the Chinese goverment keeps the value of its currency pegged to the US dollar, making its goods cheap for Americans to buy, when it is widely understood that if it was allowed to float, the yuan might rise by 40% against the dollar. Because it is held artificially low, the yuan that Chinese citizens earn with their hard work and savings has 40% less buying power. The Chinese buy US treasury bills to lend us money and then sell us cheap goods, and that has been the status quo.
But take this into account: the Federal Reserve has stopped publically publishing the M3 number, which is the total number of dollars in circulation because it doesn't want anyone to know the extent they have been running the printing press! Eventually, China is going to stop buying Treasuries with the savings of its citizens, let the yuan float freely against the dollar, which will cause the saved yuan of all those workers to skyrocket in value and gain major purchasing power for themselves to buy things like dishwashers, cars, and other consumer goods mirroring the expected living standard of most Americans. In turn, the dollar will continue to fall in value and buy less goods, because precisely there are too many dollars in circulation.
THIS is precisely the major mechanism of shift of empire.
Read the headlines, its all right there: Americans aren't saving, we are a service based economy, our manufacturing industries have deteriorated, our recent GDP growth was from exports (goods made here but bought by foreign consumers), homes are deflating in value, credit is getting harder to get, and the yuan is gaining value (even if slowly) against the dollar. Inflation, even if under-reported by the government, is skyrocketing at the fast pace in 17 years in the US eroding the purchasing power of the average US citizen. You don't have to believe me.
The investment advice I give and am adhering to is the following: I sold my home, am renting a nice apartment, am buying gold, am buying stock of companies in the east, and will now again be selling the dollar. As noted in a recent post over the past months, for the short term, I was betting the price of oil would drop and that the dollar would strenghten, which happened. I am beginning to shift those positions for the long-term which is dollar-negative, gold/silver positive, real estate negative, financial companies negative (more losses to come, $1 trillion more estimated by PIMCO's Bill Gross), industrial/infrastructure positive.
It is not about doom-and-gloom, it is about understanding the Ponzi scheme that America's economy has been functioning on. Think about it: if, let's say, no one could get a mortgage for whatever reason, how much would x house be worth? Much less than the pricetag it has today. Same goes for tuition at most universities if most of the students couldn't get student loans.
I recommend watching: "In Debt We Trust" and "I.O.U.S.A", and reading Schiff's "Crashproof".
Goodluck.
Monday, June 30, 2008
A Roadmap for Investing Your Money
In a past posting, I argued that investing money in mutual funds was a massive mistake, given the immense fees that funds and fund managers charge, and that those excessive fees erode returns over time substantially. In this post, I want to pursue this argument and offer low cost alternatives that capture the same effects as mutual funds while further clarifying the case against mutual funds.
A mutual fund is simply a basket of stocks that a fund manager selects. Its that simple. There isn't inherent magic associated with owning a mutual fund and if the value of the stocks in that basket decline, you lose money. Fund managers are paid generally a percentage of the amount of assets they manage. Typically, a fund might have 20-40 stocks in it, depending on the appetite of the manager at the helm. The concept of the mutual fund was a brilliant tool in years gone by for the average investor to gain exposure to multiple stocks without incurring the fees of buying each one individually through a broker.
The advent of the internet and technology, however, have greatly changed the opportunities afforded to the average investor and I urge you to rethink your portfolio if you are one of the millions who own mutual funds. The main aspects of trading in today's climate are: where do you trade (which brokerage firm) and what do you own in those accounts.
Instead of owning mutual funds (and therefore paying unnecessary fees for the fund manager's salary), I recommend purchasing similar ETF's (exchange traded funds) that hold almost identical baskets of stocks with much lower fees. For example, rather than purchasing a mutual fund that mimics the S&P500, purchase the S&P ETF just like buying a single stock (ticket symbol SPX).
If you want to buy gold, no need to go to Fort Knox: buy the ticker symbol GLD which tracks the exact price of gold.
DIG: Oil up
DUG: Oil down
FXI: China
IIF: India
EEB: Brazil, Russia, India, China (aka BRIC countries)
GLD: Gold
SLV: Silver
SLX: Steel
NRG: Natural Gas
HHH: Internet stocks
There are ETF's for almost any industry such as telecom, home builders, financials, consumer staples, commodities and many more. A great place to start is:
www.ishares.com
Along the left side of that page is a list of the major categories you can chose from to learn more. Click on one of the ETF offerings and it will show you the major holdings in that ETF, which is how you can compare and find similar ETF's to your current mutual funds.
Online brokerage firms are NOT created equal:
50 years ago, one would have to call a broker to buy a stock, pay a huge fee, and then repeat that process to sell that stock (or a portion there of). Mutual funds came along and allowed people to buy the fund, gain exposure to that basket of stocks, and add or subtract to their holdings at set times. Presently, there are a plethora of discount online firms that have greatly lowered the costs to make a trade, as noted in the June 2008 issue of Smart Money magazine. You may note that Charles Schwabb, Etrade, and others tout their 'low fees' ranging from $10-15 per trade with Scottrade being as low as $7/trade.
I recommend, however, using:
www.foliofn.com
They only charge $3/trade which is roughly 80% less expensive than Schwabb for the exact same service. More importantly however, for an annual fee of ~$300, one can instead do unlimited trading in their 'window' system, which basically means that all trades placed before 11am or 2pm are free. That annual fee may seem daunting but consider that with Schwabb that would only afford you 20 trades a year!
At Foliofn, you can build your own folios of stocks and ETF's, and add or subtract funds from the folio virtually as much as you like, avoiding the immense fees associated with traditional brokers and mutual funds. They also offer preset folios that you can chose from, that include baskets of stocks, just like many mutual funds, WITHOUT the excessive fees!
My suggestion is to open an account with foliofn, choose preset folios you like or create your own filled with ETF's that include the stocks you want from sectors, industries, or geographies.
Remember to diversify. I recommend a newsletter called 'The Oxford Club'. They suggest following a strict asset allocation formula: in simple terms this means owning x percent US stocks, x percent foreign stocks, x percent gold, x percent bonds, and so on. They also make and track stock recommendations and adhere to firm rules: always use a 25% trailstop. PLEASE learn from my mistakes: although I have soundly beat the market in the past 3-5 years soundly (more than double, in fact), my returns suffered because I was not mechanical. By this I mean, always SELL a stock if it drops 25% from its last high. Do not be emotional and say "I know the stock will rebound".
Minimizing losses and high fees will maximize your returns in the long run.
Good luck in taking control of your assets and please let me know if I can be helpful in any way.
A mutual fund is simply a basket of stocks that a fund manager selects. Its that simple. There isn't inherent magic associated with owning a mutual fund and if the value of the stocks in that basket decline, you lose money. Fund managers are paid generally a percentage of the amount of assets they manage. Typically, a fund might have 20-40 stocks in it, depending on the appetite of the manager at the helm. The concept of the mutual fund was a brilliant tool in years gone by for the average investor to gain exposure to multiple stocks without incurring the fees of buying each one individually through a broker.
The advent of the internet and technology, however, have greatly changed the opportunities afforded to the average investor and I urge you to rethink your portfolio if you are one of the millions who own mutual funds. The main aspects of trading in today's climate are: where do you trade (which brokerage firm) and what do you own in those accounts.
Instead of owning mutual funds (and therefore paying unnecessary fees for the fund manager's salary), I recommend purchasing similar ETF's (exchange traded funds) that hold almost identical baskets of stocks with much lower fees. For example, rather than purchasing a mutual fund that mimics the S&P500, purchase the S&P ETF just like buying a single stock (ticket symbol SPX).
If you want to buy gold, no need to go to Fort Knox: buy the ticker symbol GLD which tracks the exact price of gold.
DIG: Oil up
DUG: Oil down
FXI: China
IIF: India
EEB: Brazil, Russia, India, China (aka BRIC countries)
GLD: Gold
SLV: Silver
SLX: Steel
NRG: Natural Gas
HHH: Internet stocks
There are ETF's for almost any industry such as telecom, home builders, financials, consumer staples, commodities and many more. A great place to start is:
www.ishares.com
Along the left side of that page is a list of the major categories you can chose from to learn more. Click on one of the ETF offerings and it will show you the major holdings in that ETF, which is how you can compare and find similar ETF's to your current mutual funds.
Online brokerage firms are NOT created equal:
50 years ago, one would have to call a broker to buy a stock, pay a huge fee, and then repeat that process to sell that stock (or a portion there of). Mutual funds came along and allowed people to buy the fund, gain exposure to that basket of stocks, and add or subtract to their holdings at set times. Presently, there are a plethora of discount online firms that have greatly lowered the costs to make a trade, as noted in the June 2008 issue of Smart Money magazine. You may note that Charles Schwabb, Etrade, and others tout their 'low fees' ranging from $10-15 per trade with Scottrade being as low as $7/trade.
I recommend, however, using:
www.foliofn.com
They only charge $3/trade which is roughly 80% less expensive than Schwabb for the exact same service. More importantly however, for an annual fee of ~$300, one can instead do unlimited trading in their 'window' system, which basically means that all trades placed before 11am or 2pm are free. That annual fee may seem daunting but consider that with Schwabb that would only afford you 20 trades a year!
At Foliofn, you can build your own folios of stocks and ETF's, and add or subtract funds from the folio virtually as much as you like, avoiding the immense fees associated with traditional brokers and mutual funds. They also offer preset folios that you can chose from, that include baskets of stocks, just like many mutual funds, WITHOUT the excessive fees!
My suggestion is to open an account with foliofn, choose preset folios you like or create your own filled with ETF's that include the stocks you want from sectors, industries, or geographies.
Remember to diversify. I recommend a newsletter called 'The Oxford Club'. They suggest following a strict asset allocation formula: in simple terms this means owning x percent US stocks, x percent foreign stocks, x percent gold, x percent bonds, and so on. They also make and track stock recommendations and adhere to firm rules: always use a 25% trailstop. PLEASE learn from my mistakes: although I have soundly beat the market in the past 3-5 years soundly (more than double, in fact), my returns suffered because I was not mechanical. By this I mean, always SELL a stock if it drops 25% from its last high. Do not be emotional and say "I know the stock will rebound".
Minimizing losses and high fees will maximize your returns in the long run.
Good luck in taking control of your assets and please let me know if I can be helpful in any way.
Saturday, June 14, 2008
The G-8 wants the poor to bare the brunt of higher food prices
I have been writing about the global food supply, inflation, consumption, and the ability of world's most powerful to enrich themselves at the expense of the world's poor. This trend continues to be demonstrated in myriad ways, as noted in a recent Bloomberg article (attached below) regarding the recent G-8 summit (France, Germany, Russia, the US, Canada, Japan, Italy, and the UK) from which the conclusion was made that emerging market economies (India, China, Indonesia, and others) must cease subsidizing the prices of fuel and food.
The argument is that emerging markets are accounting for the largest portion of the 'growth' in demand for fuel and food. By subsidizing the prices for food and fuel, those governments allow their citizens access to these goods at cheaper prices than might otherwise be in place, therefore causing these countries to consume more. The G8 wants these prices to float to dampen that demand. It is obvious the global middle class is growing and with that comes increased consumption as more of the world is afforded access to the American mentality of consumption through growth of international trade and productivity.
But there is no mention of curbing the consumption of citizens and companies of the G8 themselves who doubtlessly account for the vast majority of consumption now.
By requesting the governments of emerging economies to lower their subsidies, the G8 is essentially demanding that the world's poorer citizens handle the brunt of higher prices disproportionately so that the nations in the G8 don't have to see their ways of life change.
(Rerefence a recent article in Foreign Policy "Can the World Afford a Middle Class?")
Indonesia and others have recently announced such price increases and lowering of subsidies. The effects of this are to desocialize those governments' efforts to ensure their citizens access to the very goods (at affordable prices) that Americans have come to assume were a born right. Countries such as Pakistan and China recognize that such price controls keep massive portions of their populations above the poverty line.
I have argued that Americans, and by default the other industrialized nations as well, will have to see their way of life limited, their consumption levels pulled back, as the global middle class increases its consumption.
What is evident however is that the world's richest NEED the ranks of the world's poor to swell. Capitalism thrives on the failures of the masses. Our government doesn't use price controls, it is true; instead we use an arsenal of other mechanisms such as tax credits and subsidies to artificially lower the prices we Americans pay for many goods such as gasoline. Exxon noted that although they are recording record profits, they are 100% reliant on the $28 billion in tax credits they received in order to properly invest in infrastructure.
These policies highlight the shallow arguments about 'Free Markets': There is no such thing. The US subsidizes farming, airlines, big oil, and many other industries so that our companies have an unfair advantage in the global economy yet touts the value of free and open markets and borders for trade?
The world's emerging participants should have equal right to execute policies that most benefit their citizens. The G8, therefore, should focus on policies that lower demand in their own nations, and NOT put pressure on the poorest nations to curb their demand.
As other countries begin to benefit from precisely the rigged structure the US has enjoyed for a long time, we will see more and more language about the 'death of free market ideals' substituted by protectionist ideologies, to best ensure the 'American way of life' for the world's richer citizens.
Rising prices in the poorest economies will only ensure the world's poor stay where they are. It is evident therefore that poverty alleviation is definitely not a priority and that the World Bank's mandate to accomplish this is purely a veil behind which hides the ugly truth that those in power know they actually don't want to see these consumers empowered to consume more. It is a threat to their seats at the top of the world.
We are beginning to see defiant acts of protest around the globe as citizens voice their opposition to the continued divergence between the rich and the poor. I have asked the question countless times before and it is still quite applicable: How far can the gap between rich and poor go before the poor revolt? How many people have to lose affordable healthcare in the US before they demand change? 100 million more than the current 47 million? People rise up when they don't have food and water. We are heading towards a lagerhead and these demands by the G8 highlight the deliberate unspoken agenda of the world's richest nations to keep getting richer at the expense of raising the quality of life for the world's poorer citizens.
What's next? Will the US and others create a body akin to the WTO that will prosecute emerging economies for consuming too much and put consumption caps in place? It is certainly not uncommon for the US to develop mechanisms to allow it unfettered access to consume as much of world's resources as it wants. Now that others in the world seek those same level of consumption, it is seen as unsustainable.
The US consumes $9 Trillion of goods and services annually. Maybe that is where limits on consumption need to begin? A fractional reduction here would certainly balance out the growth in emerging markets' consumption patterns. But can the G8 swallow that, remains to be seen?
Note: I have argued that the US dollar should be strengthened, even artificially through Central Bank manipulation as this is one of the few variables that can lower the skyrocketing prices of oil and other commodities which are traded in US dollars. That theory is beginning to play out and should give the world a short-term breather. Unfortunately, the long term trends remain that these prices will eventually rise much higher than they currently are, unless the world falls into a global recession, which essentially is the event when the world's population independently chooses to consume less and prices will fall, potentially dramatically.
Note: I want to follow up on my piece last week about the Bush/McCain policy of deficit spending, after I received comments from readers. Yes, it is true that the US has used deficit spending (borrowing from the future) in other circumstances such as during the eerily-similar-to-today era of the Vietnam war. But it seems to me the current deficit spending is unparalleled and the benefits are not being distributed to the masses except through the idea that 'We are safer' while private corporations reap the fiscal benefits.
**************
G-8 Urges Emerging Markets to Cut Oil, Food Subsidies (Update1)
The argument is that emerging markets are accounting for the largest portion of the 'growth' in demand for fuel and food. By subsidizing the prices for food and fuel, those governments allow their citizens access to these goods at cheaper prices than might otherwise be in place, therefore causing these countries to consume more. The G8 wants these prices to float to dampen that demand. It is obvious the global middle class is growing and with that comes increased consumption as more of the world is afforded access to the American mentality of consumption through growth of international trade and productivity.
But there is no mention of curbing the consumption of citizens and companies of the G8 themselves who doubtlessly account for the vast majority of consumption now.
By requesting the governments of emerging economies to lower their subsidies, the G8 is essentially demanding that the world's poorer citizens handle the brunt of higher prices disproportionately so that the nations in the G8 don't have to see their ways of life change.
(Rerefence a recent article in Foreign Policy "Can the World Afford a Middle Class?")
Indonesia and others have recently announced such price increases and lowering of subsidies. The effects of this are to desocialize those governments' efforts to ensure their citizens access to the very goods (at affordable prices) that Americans have come to assume were a born right. Countries such as Pakistan and China recognize that such price controls keep massive portions of their populations above the poverty line.
I have argued that Americans, and by default the other industrialized nations as well, will have to see their way of life limited, their consumption levels pulled back, as the global middle class increases its consumption.
What is evident however is that the world's richest NEED the ranks of the world's poor to swell. Capitalism thrives on the failures of the masses. Our government doesn't use price controls, it is true; instead we use an arsenal of other mechanisms such as tax credits and subsidies to artificially lower the prices we Americans pay for many goods such as gasoline. Exxon noted that although they are recording record profits, they are 100% reliant on the $28 billion in tax credits they received in order to properly invest in infrastructure.
These policies highlight the shallow arguments about 'Free Markets': There is no such thing. The US subsidizes farming, airlines, big oil, and many other industries so that our companies have an unfair advantage in the global economy yet touts the value of free and open markets and borders for trade?
The world's emerging participants should have equal right to execute policies that most benefit their citizens. The G8, therefore, should focus on policies that lower demand in their own nations, and NOT put pressure on the poorest nations to curb their demand.
As other countries begin to benefit from precisely the rigged structure the US has enjoyed for a long time, we will see more and more language about the 'death of free market ideals' substituted by protectionist ideologies, to best ensure the 'American way of life' for the world's richer citizens.
Rising prices in the poorest economies will only ensure the world's poor stay where they are. It is evident therefore that poverty alleviation is definitely not a priority and that the World Bank's mandate to accomplish this is purely a veil behind which hides the ugly truth that those in power know they actually don't want to see these consumers empowered to consume more. It is a threat to their seats at the top of the world.
We are beginning to see defiant acts of protest around the globe as citizens voice their opposition to the continued divergence between the rich and the poor. I have asked the question countless times before and it is still quite applicable: How far can the gap between rich and poor go before the poor revolt? How many people have to lose affordable healthcare in the US before they demand change? 100 million more than the current 47 million? People rise up when they don't have food and water. We are heading towards a lagerhead and these demands by the G8 highlight the deliberate unspoken agenda of the world's richest nations to keep getting richer at the expense of raising the quality of life for the world's poorer citizens.
What's next? Will the US and others create a body akin to the WTO that will prosecute emerging economies for consuming too much and put consumption caps in place? It is certainly not uncommon for the US to develop mechanisms to allow it unfettered access to consume as much of world's resources as it wants. Now that others in the world seek those same level of consumption, it is seen as unsustainable.
The US consumes $9 Trillion of goods and services annually. Maybe that is where limits on consumption need to begin? A fractional reduction here would certainly balance out the growth in emerging markets' consumption patterns. But can the G8 swallow that, remains to be seen?
Note: I have argued that the US dollar should be strengthened, even artificially through Central Bank manipulation as this is one of the few variables that can lower the skyrocketing prices of oil and other commodities which are traded in US dollars. That theory is beginning to play out and should give the world a short-term breather. Unfortunately, the long term trends remain that these prices will eventually rise much higher than they currently are, unless the world falls into a global recession, which essentially is the event when the world's population independently chooses to consume less and prices will fall, potentially dramatically.
Note: I want to follow up on my piece last week about the Bush/McCain policy of deficit spending, after I received comments from readers. Yes, it is true that the US has used deficit spending (borrowing from the future) in other circumstances such as during the eerily-similar-to-today era of the Vietnam war. But it seems to me the current deficit spending is unparalleled and the benefits are not being distributed to the masses except through the idea that 'We are safer' while private corporations reap the fiscal benefits.
**************
G-8 Urges Emerging Markets to Cut Oil, Food Subsidies (Update1)
By Gonzalo Vina and Shamim Adam
June 14 (Bloomberg) -- The Group of Eight nations called on emerging markets to cease subsidizing the price of oil and food amid concern such support was propelling demand and prices higher.
``It is imperative to remove supply side constraints and export restrictions, replace general food subsidies in developing countries with well-targeted help for the poorest,'' G-8 finance ministers said in a statement after meeting today in Osaka, Japan.
Governments in Asia, where about 600 million people survive on less than $1 a day, have been divided between the need to rein in surging prices and to shore up growth. The G-8 today said price rises have ``severely hit many low-income importing countries'' and that they expect demand to stay high.
Price controls on food and fuel have long been policy tools in nations with large populations living in poverty, including India and Indonesia. Reducing support for energy prices would also help the struggle against climate change by sending a ``price signal'' to reduce consumption.
Still, rising energy and commodities prices are increasing the subsidy bill and putting pressure on national budgets, forcing the region's governments to pass on the costs of gasoline, grains and even poultry to consumers.
`Growing Concern'
``There is growing concern on part of the G-8 about the impact of rising food and energy prices,'' said U.K. Chancellor of the Exchequer Alistair Darling. ``Particularly in relation to food, this is something governments can solve.''
Indonesia's President Susilo Bambang Yudhoyono, facing elections in 2009, raised fuel prices in May for the first time in almost three years. The government would have to spend 190 trillion rupiah ($20 billion) on subsidies if fuel prices were not increased, the government said.
Southeast Asia's largest economy may also stop subsidizing makers of soybean-based food products next year and end a policy that helps poor families to buy cooking oil.
In Malaysia, Prime Minister Abdullah Ahmad Badawi's embattled government on June 5 raised gasoline prices by 41 percent and diesel by 63 percent, the steepest increase since May 2004. Fuel prices have been increased seven times since Abdullah became premier in October 2003.
Oil Record
Record oil prices would have increased subsidies by 51 percent this year to 53 billion ringgit ($16 billion), the government said last month. Malaysia has also scrapped a price cap for chickens, the Star newspaper reported on June 5.
India, Sri Lanka and Taiwan have also raised fuel costs in the past month.
``We commend several emerging market economies for their recent moves in this direction,'' G-8 ministers said.
Others aren't budging, choosing to allow deficits to widen to keep food and utility costs affordable for their people.
Philippine President Gloria Arroyo's government last month said it would delay its plan to balance the budget to 2010 as it boosts rice subsidies and investment to spur growth. Arroyo also reduced power, toll and mobile phone rates while creating subsidies for public transport and programs to help the poor buy rice and pay electricity bills.
The Philippines' deficit may widen for the first time in six years to as much as 75 billion pesos ($1.7 billion) in 2008 before easing to 40 billion pesos next year, according to the government.
Subsidizing Food
Pakistan's government in its budget on June 11 said it will spend about 295 billion rupees ($4.4 billion) to subsidize items including food, power and fertilizer in the year starting July 1. Almost half of Pakistan's 160 million people are at risk of running short of food due to rising grain costs, according to the United Nations World Food Program.
China, too, is holding steady, saying last month that it had no plans to lift fuel-price caps. Consumer prices in the world's most populous country rose 7.7 percent in May.
Fuel-price increases in Asian countries such as Sri Lanka, Indonesia and Malaysia are too miniscule to have a ``meaningful'' impact on global oil demand growth, Goldman Sachs Group Inc. said in a June 3 report.
Price increases in China, which accounts for 9 percent of total oil demand, would have a larger impact on consumption and may lower Asian usage by 30,000 barrels a day for the rest of 2008, Goldman said.
To contact the reporters on this story: Gonzalo Vina in Osaka, Japan at gvina@bloomberg.net; Shamim Adam in Singapore at sadam2@bloomberg.net
Last Updated: June 14, 2008 05:44 EDTTuesday, June 10, 2008
Modern 'Taxation without Representation': The Bush/McCain tax policy
Today McCain called for a review of Federal Programs seeking ways to 'reduce spending'. This policy falls directly in lock-step with his mentor, Bush's amazing cuts to hundreds of social services, as military spending surely isn't McCain's target. I raise this because Americans are fooled by the Republicans into believing that lower taxes means smaller government.
The trick that Bush pulled off was to lower taxes for Americans today but funded an ENORMOUS spending habit with our children's tax dollars and their children's tax dollars. How does this work? It preys on Americans love of debt, embracing 'credit cards' at every level. Americans clearly have been programmed to believe that any amount charged to the future is worth the spending that occurs now.
Obama will get pegged in this election of being for 'Big Government' and 'higher taxes'. Please don't be fooled: the Bush/McCain policies are equally 'Big Government' masked through massive borrowing from generations that can't even vote on the issue. Isn't that brilliant? Talk about taxation without representation: Bush could never have paid for his wars with money from current tax payers because he would have had to raise taxes! Instead, he and congress 'requested' the money from future generations through massive debt. What would those taxpayers think if they actually had a voice?
Our children and grandchildren will find their taxes being spent on servicing debt that could have been spent servicing their education, their roads, their electrical grid, their health. Instead, George Bush found the largest credit card in human history: the US tax payer. It is no secret his tax cuts helped the rich disproprotionately while the average US citizen will payoff the long term debts.
Tax cuts do NOT inherently mean the candidate advocates for small government. In the current Republican party, there is no fiscally conservancy except when it comes to cutting social services for the poor or middle-income Americans. McCain will only continue to allow private interest unhindered access to US taxpayer monies.
Obama's policies might scare some people, but please, tell them it is time for Americans to pay for programs as we go, or PAYGO as it is referred to. If Americans truly want to fight wars (which they don't), then let's raise taxes now and fight as much as we want? The reality is, Americans would NEVER have supported Bush's wars if Joe Taxpayer saw the price coming out of his paychecks along with Social Security, Medicare, and War Funding!
(FYI: The theory that Bush was 'mislead by false information into mistakenly taking the US to war in Iraq' has been debunked by the Congressional Five-year report released this week that documents how Bush, Cheney, Rumsfield, Rove and others systematically aggressively pushed the war, ignored intelligence contradictions, manipulated information, and used the media to generate public support')
McCain is looking to appease the wealthy now by supporting the Bush regime. But please: let's be fair and do the Democratic version of the 'flipflop' dance the Republicans used so successfully to kill John Kerry's bid: McCain voted against the Bush tax cuts in 2001 and 2003 yet now has a bearhug around them now?
Obama may raise taxes but he recognizes that social services in the present are important and that spending the next two generations' tax dollars without asking them first is sinister and irresponsible.
The Republicans have found new methods of taxation without representation. But is it surprising that they have rolled back yet another basic principle upon which we live? Not at all. Jose Padilla was already an example of a US citizen held for years with no representation and stripped of citizenry, a right inherent to precisely being a US citizen. Likewise, I feel my children and their children should be able to vote for how their tax dollars should be spent.
Obama agrees and wants Americans to pay for their priorities with current tax dollars. McCain's policies will only bury this country's future six feet under.
The trick that Bush pulled off was to lower taxes for Americans today but funded an ENORMOUS spending habit with our children's tax dollars and their children's tax dollars. How does this work? It preys on Americans love of debt, embracing 'credit cards' at every level. Americans clearly have been programmed to believe that any amount charged to the future is worth the spending that occurs now.
Obama will get pegged in this election of being for 'Big Government' and 'higher taxes'. Please don't be fooled: the Bush/McCain policies are equally 'Big Government' masked through massive borrowing from generations that can't even vote on the issue. Isn't that brilliant? Talk about taxation without representation: Bush could never have paid for his wars with money from current tax payers because he would have had to raise taxes! Instead, he and congress 'requested' the money from future generations through massive debt. What would those taxpayers think if they actually had a voice?
Our children and grandchildren will find their taxes being spent on servicing debt that could have been spent servicing their education, their roads, their electrical grid, their health. Instead, George Bush found the largest credit card in human history: the US tax payer. It is no secret his tax cuts helped the rich disproprotionately while the average US citizen will payoff the long term debts.
Tax cuts do NOT inherently mean the candidate advocates for small government. In the current Republican party, there is no fiscally conservancy except when it comes to cutting social services for the poor or middle-income Americans. McCain will only continue to allow private interest unhindered access to US taxpayer monies.
Obama's policies might scare some people, but please, tell them it is time for Americans to pay for programs as we go, or PAYGO as it is referred to. If Americans truly want to fight wars (which they don't), then let's raise taxes now and fight as much as we want? The reality is, Americans would NEVER have supported Bush's wars if Joe Taxpayer saw the price coming out of his paychecks along with Social Security, Medicare, and War Funding!
(FYI: The theory that Bush was 'mislead by false information into mistakenly taking the US to war in Iraq' has been debunked by the Congressional Five-year report released this week that documents how Bush, Cheney, Rumsfield, Rove and others systematically aggressively pushed the war, ignored intelligence contradictions, manipulated information, and used the media to generate public support')
McCain is looking to appease the wealthy now by supporting the Bush regime. But please: let's be fair and do the Democratic version of the 'flipflop' dance the Republicans used so successfully to kill John Kerry's bid: McCain voted against the Bush tax cuts in 2001 and 2003 yet now has a bearhug around them now?
Obama may raise taxes but he recognizes that social services in the present are important and that spending the next two generations' tax dollars without asking them first is sinister and irresponsible.
The Republicans have found new methods of taxation without representation. But is it surprising that they have rolled back yet another basic principle upon which we live? Not at all. Jose Padilla was already an example of a US citizen held for years with no representation and stripped of citizenry, a right inherent to precisely being a US citizen. Likewise, I feel my children and their children should be able to vote for how their tax dollars should be spent.
Obama agrees and wants Americans to pay for their priorities with current tax dollars. McCain's policies will only bury this country's future six feet under.
Wednesday, June 4, 2008
Bush's True Mandate: Insuring the Rich against the fear of not making enough money
How much would it be worth to spend to have a President write you an insurance policy in case you don't make enough money? That has been the mandate of this president. Use the White House to promote policy to privatize wealth while the taxpayer covers any losses. Brilliant for some I imagine.
I have been writing about the continued vast socialization of risk and privatization of reward extensively and want to lay out the beginning research I am doing for a book to be written over the next two years. It is evident that the Bush years have marked immense economic deterioration of the United States, even if the stock market hit highs. Healthcare, social security, high debt load, falling dollar, and wage stagnation are apparent in spades. The media uses language that infers 'mismanagement of funds', 'errors in estimates of the projected costs of wars in Iraq and Afghanistan', where I contend the powers behind the Bush machine consciously raided the taxpayer. I plan to document this through analysis of the fabled line 'Follow the money': the basic premise I am curious about is who benefited financially from the Bush presidency and how much did they earn?
Recent reports estimate the cost of the two aforementioned wars to top $1.3 Trillion, when interest payments for all of the debt are serviced over x number of years into the future. To clarify: our children and their children's tax dollars will be paying back the loans this government took out to fund these wars. Much of the borrowed funds were then funneled directly into the private sector through massive contracts. Remember those delicious "$7 billion No-Bid contracts" that Halliburton relished, no thanks to an ex-CEO sitting in the VP's seat, of course.
The GAO recently acknowledged that 50% of the monies paid out in military spending in the wars goes UNAUDITED. This leads me to wonder how much of the overall military spending appropriations are audited, given it is 51% of our federal budget.
Our government has been simply writing endless checks of taxpayer dollars into the private accounts of corporations and other groups, in the name of fighting terror, an emotion against whom victory has never been detailed. Who will pay for all of it is clear: the next few generations. Who received these vast sums of money is a far murkier question, will almost zero coverage.
Another key example of this policy of socialization of risk and privatization of wealth is the current stance on disasters and insurance. After Katrina, Allstate and Statefarm wanted to raise rates for home-owners insurance in disaster-prone zones by 300%. Florida in particular limited the increases to 25% to the dismay of the private insurers, who in turn promptly ceased writing policies in those areas. Bush's brother then established a State insurance fund that would write policies for those homes, many of which were $1million or more in value. As this would play out then, if a disaster destroys the home, the State would pay out the value of the claim but if the owner sells, they alone keep any profit.
Likewise, this past week, a bill has been floated for a Federal Disaster Insurance plan rather akin to the Florida plan. Therefore, taxpayers from all state's would now contribute to cover losses of those who lived in disaster areas.
Of course, disasters can strike anywhere, and in theory, it may be a good idea. But shouldn't the taxpayers then benefit from any sales of homes covered by the federal policy? That would be too socialist.
If markets are free like all of the neo-cons want us to believe, then owners on coasts should pay private rates for the choice to live there. Why should the taxpayer cover the losses? Yes, there needs to be some regulation of insurers so they don't universally collude to raise rates indefinitely. But these plans benefit the wealthy whose real estate would be most at risk.
From school vouchers to tax breaks on capital gains, to costly wars, the Bush camp and the private machine behind it have in tandem not simply 'mismanaged the countries economic health' but have instead systematically privatized an never-before-seen amount of the public's money while socializing the risks associated. This is not conspiracy theory: it is in plain view. The numbers are right in front of us.
The debt burden of the US is not sustainable. Rising costs are facts. Rising interest rates on housing and consumer debt are facts. Wages have not increased, fact. Gap between rich and poor has widened, fact. Tax breaks benefited the rich more than the poor, fact, with little trickle down. Bush was not an idiot at the wheel. The benefactors of this unprecedented spending binge has masterfully orchestrated a massive money-grab, using the fear of attack as the premise for the taxpayer to mutely and blindly write the check, while millions are left uninsured or underinsured, food banks are failing, schools are failing (thank you underfunded No Child Left Behind), and infrastructure is cracking HERE AT HOME.
For investors: I am selling oil, buying the dollar, selling gold, in the shortrun. This scenario should lead to a short-term ease in global food prices and commodity prices. It will hurt US exporters/manufacturing which has been the only major support for the economy because of the battered dollar. There is more subprime fallout to be had. The FDIC is bulking up its staff to deal with bank failings they see coming in 2008-2009. Bernanke et al will have to raise rates to battle inflation which will hurt growth in US companies, and heading into Barack's first term, the best pill for the US economy is to swallow the pain quickly, go through a short recession, get all bank write-downs out in the open, and rebuild economic base.
I have been writing about the continued vast socialization of risk and privatization of reward extensively and want to lay out the beginning research I am doing for a book to be written over the next two years. It is evident that the Bush years have marked immense economic deterioration of the United States, even if the stock market hit highs. Healthcare, social security, high debt load, falling dollar, and wage stagnation are apparent in spades. The media uses language that infers 'mismanagement of funds', 'errors in estimates of the projected costs of wars in Iraq and Afghanistan', where I contend the powers behind the Bush machine consciously raided the taxpayer. I plan to document this through analysis of the fabled line 'Follow the money': the basic premise I am curious about is who benefited financially from the Bush presidency and how much did they earn?
Recent reports estimate the cost of the two aforementioned wars to top $1.3 Trillion, when interest payments for all of the debt are serviced over x number of years into the future. To clarify: our children and their children's tax dollars will be paying back the loans this government took out to fund these wars. Much of the borrowed funds were then funneled directly into the private sector through massive contracts. Remember those delicious "$7 billion No-Bid contracts" that Halliburton relished, no thanks to an ex-CEO sitting in the VP's seat, of course.
The GAO recently acknowledged that 50% of the monies paid out in military spending in the wars goes UNAUDITED. This leads me to wonder how much of the overall military spending appropriations are audited, given it is 51% of our federal budget.
Our government has been simply writing endless checks of taxpayer dollars into the private accounts of corporations and other groups, in the name of fighting terror, an emotion against whom victory has never been detailed. Who will pay for all of it is clear: the next few generations. Who received these vast sums of money is a far murkier question, will almost zero coverage.
Another key example of this policy of socialization of risk and privatization of wealth is the current stance on disasters and insurance. After Katrina, Allstate and Statefarm wanted to raise rates for home-owners insurance in disaster-prone zones by 300%. Florida in particular limited the increases to 25% to the dismay of the private insurers, who in turn promptly ceased writing policies in those areas. Bush's brother then established a State insurance fund that would write policies for those homes, many of which were $1million or more in value. As this would play out then, if a disaster destroys the home, the State would pay out the value of the claim but if the owner sells, they alone keep any profit.
Likewise, this past week, a bill has been floated for a Federal Disaster Insurance plan rather akin to the Florida plan. Therefore, taxpayers from all state's would now contribute to cover losses of those who lived in disaster areas.
Of course, disasters can strike anywhere, and in theory, it may be a good idea. But shouldn't the taxpayers then benefit from any sales of homes covered by the federal policy? That would be too socialist.
If markets are free like all of the neo-cons want us to believe, then owners on coasts should pay private rates for the choice to live there. Why should the taxpayer cover the losses? Yes, there needs to be some regulation of insurers so they don't universally collude to raise rates indefinitely. But these plans benefit the wealthy whose real estate would be most at risk.
From school vouchers to tax breaks on capital gains, to costly wars, the Bush camp and the private machine behind it have in tandem not simply 'mismanaged the countries economic health' but have instead systematically privatized an never-before-seen amount of the public's money while socializing the risks associated. This is not conspiracy theory: it is in plain view. The numbers are right in front of us.
The debt burden of the US is not sustainable. Rising costs are facts. Rising interest rates on housing and consumer debt are facts. Wages have not increased, fact. Gap between rich and poor has widened, fact. Tax breaks benefited the rich more than the poor, fact, with little trickle down. Bush was not an idiot at the wheel. The benefactors of this unprecedented spending binge has masterfully orchestrated a massive money-grab, using the fear of attack as the premise for the taxpayer to mutely and blindly write the check, while millions are left uninsured or underinsured, food banks are failing, schools are failing (thank you underfunded No Child Left Behind), and infrastructure is cracking HERE AT HOME.
For investors: I am selling oil, buying the dollar, selling gold, in the shortrun. This scenario should lead to a short-term ease in global food prices and commodity prices. It will hurt US exporters/manufacturing which has been the only major support for the economy because of the battered dollar. There is more subprime fallout to be had. The FDIC is bulking up its staff to deal with bank failings they see coming in 2008-2009. Bernanke et al will have to raise rates to battle inflation which will hurt growth in US companies, and heading into Barack's first term, the best pill for the US economy is to swallow the pain quickly, go through a short recession, get all bank write-downs out in the open, and rebuild economic base.
Friday, May 23, 2008
The Goverment understates Inflation to its benefit
The government is grossly under reporting true inflation statistics. This may sound abstract but how does it affect us all? Social Security! The US Government has committed to pay people a social security benefit for the remainder of their life, which will come as no surprise to any of us given we all pay into that fund from our paychecks. What you probably didn't know is that the amount of your future monthly payment is prorated each year based on 'cost of living' adjustments for inflation. If the government understates official inflation numbers, it can underpay citizens in social security benefits. The two major issues I see are what Greespan calls 'substitution' wherein someone will buy pork instead of beef if the latter becomes too expensive (too inflated), but will that same person eventually substitute pork entrails for pork and so on and so forth? More importantly, however, Greenspan began to exclude 'volatile items' given they theoretically eventually revert back to a norm.
Therefore, 'official' inflation numbers are calculated by the government WITHOUT food or energy prices! The only thing that will prevent food and energy prices from remaining in the stratisphere is a global recession, which is possible, if prices are unaffordable, people will consume less, and prices will drop (substantially).
It is a joke to tell the American public that their dollar is only worth 2% less than it was last year! The gas tank and grocery store are scary places to be for many Americans who cringe when they see the daily price increases. Yet, the Government pays social security benefits as if the official numbers actually represented the inflated cost of living for most Americans.
The scarier truth is that if the Government accurately reported inflation: the country would be bankrupt, given the current undereporting could mean citizens are due up to 'double' what they have been receiving.
This system is in a lot of trouble and is paving the way for shift of empire. Between, social security, eroding power of the dollar, healthcare costs spiraling, gigantic debt load, financial engineering (subprime etc) and skyrocketing energy prices, the bottom 70% are truly going to see a cut back in quality of life. And as the global middle class whets its appetite for precisely that American way of life, a new balance of resources will shape up.
Price will be the mechanism that makes Americans consume less. Its about time.
Therefore, 'official' inflation numbers are calculated by the government WITHOUT food or energy prices! The only thing that will prevent food and energy prices from remaining in the stratisphere is a global recession, which is possible, if prices are unaffordable, people will consume less, and prices will drop (substantially).
It is a joke to tell the American public that their dollar is only worth 2% less than it was last year! The gas tank and grocery store are scary places to be for many Americans who cringe when they see the daily price increases. Yet, the Government pays social security benefits as if the official numbers actually represented the inflated cost of living for most Americans.
The scarier truth is that if the Government accurately reported inflation: the country would be bankrupt, given the current undereporting could mean citizens are due up to 'double' what they have been receiving.
This system is in a lot of trouble and is paving the way for shift of empire. Between, social security, eroding power of the dollar, healthcare costs spiraling, gigantic debt load, financial engineering (subprime etc) and skyrocketing energy prices, the bottom 70% are truly going to see a cut back in quality of life. And as the global middle class whets its appetite for precisely that American way of life, a new balance of resources will shape up.
Price will be the mechanism that makes Americans consume less. Its about time.
Tuesday, March 18, 2008
Bear Stearns: Tax payers cover private losses again...
In the past week, the venerable Bear Stearns brokerage trading house in Manhattan saw it's business unravel like a whirling dirvish, with an eventual sale to JP Morgan Chase at a 93% discount to its last stock price. Why do I bring this up, given one could chalk it up to a casualty of the credit malaise? Alongside JP Morgan Chase, there sits the Federal Reserve Bank of New York backing the bloody deal to the tune of $30 Billion of tax payer funds. The idea is akin to Vietnam being the domino for Communism: should Bear fall, so would the rest of the financial system.
The rub here is that the Fed NEVER leant to a BROKER before! Only to banks...What does this translate to: Here is yet another case where big money privatizes profits and socializes loses. For years, as the hailstorm of derivatives, collateralized debt obligations, mortgage backed securities, and home prices swirled magnificently, bankers and brokers have pocketed massive fees, incentives, bonuses, and seen the balance sheets of their institutions report record profits.
The name of the game was "repackage anything and everything" into a tradable product, and for this, thousands of these financial players made a killing. Goldman Sachs traders even made a fortune by betting that the very products being sold by another arm at Goldman would go sour. That is unconscionable.
The web of all of these products, however, has become so convoluted and intertwined, the very people who created the problem, now get to cry to Uncle Sam for a publicly funded bailout!
It is bullshit that the private sector regularly gets bailed out by public funds when they NEVER share in the profits with the public, unless the public is a shareholder via a pension fund, etc.
Where is Congress now, who should be demanding that these bankers individually give back the fees they made on these products, that the brokerage houses punish their bankers for making this mess? Instead the public itself again 'has to pay for protection' to the financial mafia!
It is akin to Jed Bush, as Governor of Florida, creating a State-owned insurance company that writes policies for million-dollar-homes on the waterfront: if the owner sells, they get all the profit but if a storm destroys the house, the State will pay them the full value of the loss. Socializing losses while privatizing gains.
The US taxpayer continues to be the hedge against risk that big business needs to rack up more profits. The key is for business to create such a huge disaster that they can't be blamed for it and that 'the whole party will end if our individual company is not saved'.
In this case, Wall Street's continued classless greed will cost the tax payer dearly, again.
The rub here is that the Fed NEVER leant to a BROKER before! Only to banks...What does this translate to: Here is yet another case where big money privatizes profits and socializes loses. For years, as the hailstorm of derivatives, collateralized debt obligations, mortgage backed securities, and home prices swirled magnificently, bankers and brokers have pocketed massive fees, incentives, bonuses, and seen the balance sheets of their institutions report record profits.
The name of the game was "repackage anything and everything" into a tradable product, and for this, thousands of these financial players made a killing. Goldman Sachs traders even made a fortune by betting that the very products being sold by another arm at Goldman would go sour. That is unconscionable.
The web of all of these products, however, has become so convoluted and intertwined, the very people who created the problem, now get to cry to Uncle Sam for a publicly funded bailout!
It is bullshit that the private sector regularly gets bailed out by public funds when they NEVER share in the profits with the public, unless the public is a shareholder via a pension fund, etc.
Where is Congress now, who should be demanding that these bankers individually give back the fees they made on these products, that the brokerage houses punish their bankers for making this mess? Instead the public itself again 'has to pay for protection' to the financial mafia!
It is akin to Jed Bush, as Governor of Florida, creating a State-owned insurance company that writes policies for million-dollar-homes on the waterfront: if the owner sells, they get all the profit but if a storm destroys the house, the State will pay them the full value of the loss. Socializing losses while privatizing gains.
The US taxpayer continues to be the hedge against risk that big business needs to rack up more profits. The key is for business to create such a huge disaster that they can't be blamed for it and that 'the whole party will end if our individual company is not saved'.
In this case, Wall Street's continued classless greed will cost the tax payer dearly, again.
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