The true numbers. Shadowstats.com, and some Recap to round up the Year 2009

I have been very interested in subscribing to shadowstats.com, run by John Williams, but the fee is too high for me right now. Anyway, this guy seems to be a respectable economist/statistician in the Austrian economics circle. And from what I've seen and read so far from numerous sources, his numbers are definitely very different from the official numbers that the US government provides.

I've also read another book called the Dollar Crisis by Richard Duncan. It's a book full of such data as well, and the numbers from these 2 guys agree with each other. Those numbers are compelling, and using them, one can can explain past economic booms and recessions very very very well, and needless to say, predict the future.

And oh, one more guy: Gerald Celente from trendsresearch.com. I've already subscribed to his newsletter. Got a 50% discount from his website!

These people have been predicting economic activities for years, with great accuracies. If they've been wrong, they would have been out of business by now.

One wonders how the mainstream economists and analysts get to retain their jobs over all these years, considering how wrong they had been. You need not do more than to search for a few Youtube videos, and look at the wrong predictions that they've made over and over again over the years. One suggestion for your Youtube search engine: "Peter Schiff was right".

These great teachers of mine ( Jim Rogers, Gerald Celente, Peter Schiff, Ron Paul, Richard Duncan,  Tom Woods, Marc Faber) follow Austrian economics. Our current system of Keynesian economics is ultimately unsustainable, and highly damaging to society, as I've repeatedly explained in my earlier posts. Also, one has to keep in mind that our current monetary system is less than 40 years old. Already, there're way too many loopholes. Unprecedented number of bank failures, unpredictable business environment, huge fluctuations in FOREX, the too-big-to-fails, are just some of the results of this system. Austrian economics can explain these perfectly. Keynesian economics, on the other hand, will strive to explain that this is part of the process, not wanting to confess that Keynesianism was what created all these mess in the first place. One just needs to understand Austrian economics to realise how simple economics really are overall. As I've mentioned before, a good place to start will be: http://mises.org/money.asp 

I love quotes, and here's a nice one:

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or a later as a final and total catastrophe of the currency system involved."
                                                                                 Ludwig von Mises – Austrian Economist (1881- 1973)

Happy New Year Everyone

US is at the mercy of China, and our current economic/financial system

This video just about sums it up. The US, being the largest debtor nation in the history of mankind, has no hope of financing its activities once the world stops buying up its treasury bonds, or in other words, stop lending money to them. The US owes $800 billion to China, and China being US' largest creditor can stop lending to the US any time. In fact, its US reserves holding have been flat since March 2009. There are so many people (on youtube for eg.) who still try to argue that China has no choice but to keep on buying US debts, because otherwise the USD will fall and China will lose all its money since it is holding on to so much USD. Well, if I were China, I will rather exit now, salvage whatever value I have left in the USD now, rather than keep on buying the USD and eventually let it fall to zero. It is really choosing between the 2 evils, and I believe China is smart enough to choose wisely. They have been making  a lot of noise about the USD recently, and are diversifying into gold.

It is unbecoming that the great empire of US has to get FED to buy its own treasury bonds. The govt issues debt and the govt buys up its own debt?? Anyway, it's not like the FED has the money to start with. The FED can only buy the bonds by printing more money out of thin air. In any case, the US is essentially funding its cash shortfall by printing money and therefore further eroding the value of the dollar. To attract foreign buyers of its debt, the US has to raise interest rates a lot. But in doing so, its short-term interest payments to creditors will also balloon. Talk about being in a quagmire.

The US is just like any other empire in the ebb of time. Great empires rise and fall. They achieve awe-inspiring technological, economic, social and military advances. And then they start to weaken. That has been the case for all the great empires of the past that I've studied. The great Roman, Maya, Aztec, Mongol, Ottoman, Byzantine, Greek, Persian, Chinese empires are just a few example. The 18th century belongs to France, 19th century belongs to Spain, 20th century belongs to the US, and now the 21st century will belong to China.

So put into the perspective of history, I don't find the US really that special. The fact is that they've way over-extended themselves for several decades, and the time of reckoning is very very near. Please note that I have nothing against the US people. I care for the people of the US, but I feel that the politicians have really let them down.

The US' great experiment with socialism and Keynesian theories have failed.

You can't just steal wealth away from parts of the population and give benefits to the other parts of the population (eg. education, health, farming subsidies). Why would 300 million people pay money to subsidize  a few farmers?? Like Jim Rogers love to say, the US will be better off if those 300 million people guarantee the farmers a life-time of salary, a car, and a house, and in return, the farmers quit farming. Allow foreign crop produces to compete. The Americans will have lower prices and a much better life.

You can't just steal wealth away from the population and give them to the bankers, those people who don't produce real tangible goods. The stimulus package is just to save the jobs of a few people in Wall Street, that's all. Talks about saving jobs with the stimulus package is ludicrous. Obama said that without the package, unemployment will rise above 8%. Now it's 10%, and he's left scratching his head as to what went wrong.

You can't just keep on throwing money into the unproductive parts of the economy. For decades, people have been going to college, getting degrees that will get them into Wall Street. That is an unproductive sector of the economy, which produces no tangible goods. There's a real shortage in the productive parts of the economy, and one which stands out is agriculture. Producing and saving gets a nation out of trouble, not consumption and bad debt. Note that I used the word bad debt. Because that's what the US has in huge unpayable quantities. It borrows, and squanders all those money away. So little money went into improving its productive capacity. All those money went into unproductive sectors (eg. education, healthcare) and senseless projects designed to stimulate public consumption (eg. cash-for-clunkers, housing rebates), and of course, money went to the foreigners as well. The FED gave away money to foreign banks, foreign companies which are counter-parties to the US institutions in derivatives trading. The ultra-secretive FED won't even reveal to whom those money went to. It's public money, and they have the rights to know!

That's essentially what the US has been doing. No wonder there's no growth, no wonder there's high unemployment. Money is invested so wrongly.

Seriously, if people really understand the financial and banking system of the world, they'll see how unfair it is, and how morally wrong it is. Bankers can just create money out of thin air, they can inflate money at will, they can charge interest on those bogus money, and the most evil effect of all these is that they erode the public's wealth. They steal the public's wealth not by making you buy from or pay to them, but just simply by the act of creating money out of thin air. The full explanations can be found in my first 3 posts in this blog I believe. It doesn't take a rocket scientist to figure all these out.

Henry Ford, the founder of the Ford Motor Company, have a quote which I like:

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

Well, the reason why I focus so much on the US is because their downfall will really rock the world. There'll be a period of hardship.

Our current system is unsustainable. This system requires that we have a consumerism culture, that we have perpetual and increasing debt in the world, that the public's wealth be eroded over time, and that the earth's resources are used up at an exponential rate. In the end, all the earth's resources will be used up. There'll be no where to run to, and the system will finally implode on itself, if it hasn't already earlier. There needs to be a real fundamental change, which I can't see occuring in my life time. Perhaps a hundred years from now, things may be different.

Always Improve, Don't stay stagnant

This post is a bit personal. But I hope it gives you some insights too.

.

.

.

Am i still improving? The past 5 months had been a whirlwind of absorbing new knowledge, especially Austrian economics, politics, and history, and the investment opportunities that come along with the understanding of these topics. This blog has been one which I use to consolidate what I've learnt. While I still consider my knowledge in these areas basic at best, I am nevertheless steadfastly devoting time to study them.

However, I'm increasingly realising that I am actually being stagnant instead of progressing. I want an exponential learning curve, not one which is steep at the beginning and tapers off after that. This seems like the case to me now. Although I've been reading lots of news and watching documentaries/debates/discussions online, come to think of it, my learning curve is not going up as greatly as it was 4-5 months back.

If everything becomes easy to understand and doesn't induce me to think deeper or question, then I'm most probably just adding similar knowledge to what I already have. So I have to move on from here. It's so easy to fall into a comfort zone.

Goldsilver.com has been a big source of my reading materials. Now I'll treat it as a site for news updating instead of one which gives me new, unfamiliar knowledge. So my focus should shift a lot to reading books at a faster rate. Been a tad-bit slow in reading books recently.

.
.
.

Keep on improving! And an early Merry Christmas to you.

Investment Biker, and some personal thoughts

It's time for another book review. I've just finished reading Jim Roger's Investment Biker, about a week ago.

In around 1990, Jim set out with his then-girlfriend Tabitha to travel around the world on motorbikes. The first leg of the journey started in Dunquin (Ireland), through to Vienna, Istanbul, Ankara, Tashkent, Beijing, and finally to Tokyo. The second leg took them through the Siberian wilderness, all the to Moscow, through Warsaw, Berlin, London, and back to Dunquin again. The third leg took them to Amsterdam, Tunis, Algiers, Tamanraset, Kano, Bangui, Kinshasa, Harare, Johannesburg, all the way to Capetown in South Africa. From Africa, they flew to Perth in Australia, and started the fourth leg of their journey which took them from Perth to Darwin to Hobart to Sydney, and finally to Auckland in New Zealand. From there, they flew to Cape Horn in the southern tip of South America, and started the fifth and final leg of the journey to Buenos Aires, Punta del Este, Santiago, Lima, Cuzco, La Paz, Bogota, through the nations in Central America, to Mexico, New York, Alaska, and finally back to San Francisco. If I remember correctly, it took them about 2 years to complete the journey, covering a total of 60,000 miles on their bikes.

The book detailed the various forms of governments that Jim saw around the world, the various economic policies that these governments had in place, and the various investment opportunities that had presented themselves to him. I'll try to recall some notable things that he mentioned. Note that all these were in the context of the year 1990.

Russia: A statist government. State-controlled economy. Businessmen were given quotas to fulfill. Eg. You have to produce a certain amount of oil in a given year. The result: these people just strive to fulfill their quotas. They do not plan for the long term. Oil fields were not maintained properly. After all the easy oil near the surface has been extracted, and after these people have fulfilled their quotas, the oil fields were stripped of whatever they can get their hands on to sell. There're still more oil deeper underground but the oil fields were no longer working. Compare this to a capitalist: A capitalist will strive to squeeze every single penny that he can from the oilfield. The oil field would have been maintained properly, and he would have planned long-term and extracted oil till the last drop.

China: The Chinese has great work ethics. The government is loosening economic policies. Compared to the Russians, the Chinese are far more efficient. Farmers plant crops right to the last centimeter of their farms. Everything was economical. However, Western China was far underdeveloped compared to Eastern China. Jim also had dealings in the black market. One good way to judge a country is through the black market. Eg. If you can exchange your dollar for more renminbi in the black market than  in a bank, it means that the government has artificially kept the renminbi low. This is not good for the economy in the long run.

Siberia: Jim and Tabitha went from town to town across this vast land of emptiness. The towns were like ghost-towns. The local people had nothing to do. Their favourite past-times were drinking and sex. Shops were open but no goods were found inside. Why? Because of the statist government. Prices of goods have been kept artificially low for years and years. They did not change at all! The result was that entrepreneurs found no incentive at all to start businesses. What's the use, when you can't make a profit? Again, Jim turned to the trusted black market. The townspeople figured that people travelling across Siberia would need gas, and Jim were able to buy from them. Jim had arrived in a town where he witnessed a great scene. The locals had swarmed a shop which has a new stock of a gold jewelry. Gold is such an honest money, Jim wrote. Nobody wanted the rubles. Paper money based on nothing. All paper money loses its value over time because of the government. Gold doesn't, because governments can't print gold.

Poland: Poland used to have a statist government too, but the country had since embraced capitalism, and it is prospering. There is free trade, and capital flowed into the country.

Africa: Diseases, corruption, famine, wars, statist governments. Super rich elites, super poor ordinary people (America is going in this direction at neck-breaking speed). Jim travelled through the Sahara desert, where dozens of adventurers perish every year, war zones, ghost towns, etc. He saw first hand the fight between capitalism and statism side by side. There was a nice tourist attraction shared by 2 countries, Zambia (statist) and Zimbabwe (capitalistic). The capitalistic side of the tourist attraction has many resorts, hotels, and lots of tourists. On the Zambia side, there was only one hotel (why waste money and build more? They all serve the same function) and very few tourists. I know what you're thinking. Zimbabwe?? But hey, it's not capitalism that has caused hyperinflation in Zimbabwe today. It's the government's foolish printing of money out of thin air. Anyway, capitalism clearly brings wealth. Government-controlled economies are just failures. Unfortunately, just as Africa is learning from this and starting to emerge out of statism, America is falling right into statism in our world today. It was not all gloom and doom in Africa. Botswana and South Africa were the jewels in this continent. The government did not control the economy, and allowed capitalism to work to its full glory. Jim started a stock trading account in Botswana and bought all (if i remember correctly) the shares.

South America: Similar to Africa, in that it has tried to be statists, but failed. Now they're also slowly converting to a free market-based capitalism. A great potential in this continent. Chile was the crown jewel here. A vibrant economy! Peru, on the other hand, was embroiled in a bloody civil war. The opposing faction to the incumbent party had resorted to violence, in an attempt to cause disorder. They're called the Shining Path. These extremists had shot down all tourists that visited Peru. As a result, tourists were a rare sight in this country, Jim and Tabitha being one of them. Despite the turmoil, Jim felt that a fundamental change was imminent, and proceeded to set up a stock trading account here.

The Darien Gap: No road had connected South and North America. Jim reasoned that anyone who can build such a road will be fabulously rich. This will be something like the Silk Road which revolutionalised travel between 2 parts of the world.

North America: Mexico has also learned its lesson, and is embracing free-market capitalism. The USA, unfortunately is going in the opposite direction, as you would have noticed from my consistent rants in my previous posts.

From the reading, here're the few things about Jim's investment philosophies which I picked out:

1. Look for something which is very depressed (yeah, a no-brainer, you say). On Youtube, Jim often says that he doesn't like to jump on something that has started moving upwards in price. Jim invested in wool in New Zealand, because years of government-controlled prices had kept supplies low, insufficient to satisfy demand. He invested in Botswana as well, and one South American country which I can't recall. Right now, silver is still very depressed, 70% below its all-time high. Some agricultural products are even more depressed.

2. Do not lose money! What I've been taught in school is that it's okay to lose money, just make sure that you earn more than you lose. I found this kinda weird, and it definitely is a no-no strategy for Jim. If you don't lose money, and can invest at 10% returns per year, you'll be rich. Compounding is the magic of investment. The mistake that most investors makes is that once they had gained some returns from an investment, they immediately look for another investment to dump their money into. For Jim, it is wiser to let the money sit in the bank and do nothing first, and only invest those money when you're very sure that you will not lose them.

3. It all boils down to supply and demand. Government intervention in the economy distorts this delicate balance. As a result, there'll be years of under-supply and years of oversupply of commodities. This equates to fabulous profits, if you can figure out demand and supply.

4. In an emerging market with a new stock exchange, and where a fundamental change is imminent (eg. change from a statist to a capitalistic govt), it is often safe enough to buy stocks of the big companies. They are much more stable, and their stock prices are still depressed anyway. This was why Jim bought all the stocks in Botswana (7 of them if I remember correctly!!)

Jim also wrote that no borders between 2 nations stay constant for over a 100 years. They are always changing. Economic conditions will be the dominant determinant of the constant re-drawings of borders across the world. Civil wars and people's revolts will keep occurring, as they have since the dawn of history. Over the past few days, I've watched tons of documentaries on previous empires. The empires of France, Rome, Byzantine, Ottoman Turks, Persia, Mongol, Chinese, Greece, Aztecs, Maya, Franks, Huns, and the Goths. It seems like there're revolts in each of them! When people are oppressed long enough, and pushed to their limits, they will revolt. It is already happening in America like I have mentioned in my preceding blog post, just that nobody is noticing it. No one wants to. Note: America had civil wars and revolts before. Its currency has failed twice before. These will happen again. Maybe not the civil war part but there'll definitely be more violence. Gun sales has increased a lot over the past year.

Recently, I had a sudden realisation too. It seems like the number of billionaires in our world today are increasing, and this gives people the illusion that we are having unprecedented wealth and prosperity, that money is everywhere! I think caution needs to be thrown into the wind here. What have increased may not be the wealth of the population as a whole, just that purchasing power has been transferred from the population to this elite group of people. If you had lived 1000 years ago and you had, say, $10,000 (not a big sum of money to a lot of Singaporeans today?) you may be a millionaire or a billionaire by today's term. There are many millionaire- and billionaire- equivalents in the ancient world. There are many million- and billion-dollar building/megastructure equivalents in the ancient world. So don't be fooled into thinking that this billionaire trend is a new phenomenon, that money is everywhere and everyone can be rich. The fact is, given our current economic and financial system in place, this is IMPOSSIBLE. The middle class will continue to lose wealth as the elites suck them dry. Today we see billionaires in the world because our paper money supply has exploded exponentially over the past few decades. The purchasing power of these billionaires may be similar to the purchasing power of the elites who had lived in the ancient world hundreds or thousands of years ago. Well, this looks like a reasonable guess to me.

Anyway, back to the book: I've learned a great deal of things from this book. An understanding of history, politics, economics (Austrian!!), and philosophy will go a long way in making one wealthy. I've also learned how one should tackle border-crossing problems, corrupt officials, bribery, and all the little details that will make such a trip around the world possible. It is definitely a very difficult challenge, which I may attempt in the future!

The next book I'm reading would be Adventure Capitalist, another book by Jim Rogers on his 2nd attempt to travel around the world (around the year 2000) in a custom-made Mercedes, with his then-girlfriend and current wife Paige Parker.

Austrian Economics vs Keynesian Economics

Here's a great video of Peter Schiff vs some Professor. Austrian Economics vs Keynesian Economics. Naturally, Peter steam-rolled the Prof. The prof was reduced to small, pitiful comments (Don't get me wrong, I have great respect for profs. One of my great teachers, Jim Rogers, is a prof too). I've been watching such long videos a lot, and although I've absorbed and understood much of the stuff in these videos, there're still new things to learn each time!

I would venture to say that > 99% of the population somehow believe in or support Keynesian Economics. That's what the media, politicians, and schools (refer to the video above) have taught us for the past few decades. Every time I go to a bookshop, I'll take a look at the econs textbooks, and I will not find any mention of Austrian Economics in the glossary pages, only Keynesian Economics. 

Of course the politicians love it. It gave them control over the nation's money, over people's money. They can create money out of thin air to fund their agenda, and it gives them good GDP figures. But there's no such thing as a free lunch, the public will have to pay for it in the form of taxes or inflation (devaluation of the currency). Short-term phony gain, long-term real pain.

Austrian Economics will eventually triumph, as history has shown repeatedly. Keynesian Economics will most likely lead politicians to print money and cause hyperinflation. They are too afraid to sit by idly and let deflation set in (this will be healthy for the economy in the long run). Hyperinflation around the globe in the recent past: Argentina, Mexico, Taiwan, Germany, Zimbabwe, Zaire, Ukraine, Iceland, Austria, Bolivia, China, Brazil, France, Japan, Vietnam, Yugoslavia, England, Greece, Angola, and many, many, many more.

I've recently studied some history. I've watched documentaries on the French Revolution, the Roman Empire, the Byzantine Empire, the Persian Empire, the Mongol Empire. All of them have hyperinflationary periods where the rulers debase their currencies. 

History will repeat itself. No nation is exempt from this universal economic law. That's why it's a LAW. In the next few years, we can expect a very tough economic time, equal and very likely worse in magnitude to that of the Great Depression in 1930.

Unless the US creates some kind of a miracle during this Obama's term, equal in magnitude to the phenomenon of the internet revolution, it has no bullet left in its armoury to fight the inevitable doomsday.  It needs a real big boom in productive capacity. The internet revolution back then created real jobs, real products that are demanded by the whole world. The US may try to push their luck in green energy, but it has to be something really revolutionary, it has to be something more than wind power, solar power, nuclear power.

Unfortunately, the current administration are only interested in making people spend. and taxing them more. Cash-for-clunkers, housing rebates, the Health Bill, the likes! It's common sense that if we're in debt, we should start saving, and produce more. Instead, the govt is encouraging people to spend more, take on more debts, and consume more. The US people are up to their eyes in debt, and their revolt is only going to intensify. The govt has taxed the people through various channels. In fact a few months back, 700 demonstrations erupted nationwide against taxation without representation. The media simply dismiss this ominous sign as just some group of dissidents creating trouble. But be warned! The American revolution has already started!

The world has become police states. The govt try to control everything that people do, from drugs to flu vaccinations to money. They do this with the pretext of looking out for terrorists and ensuring public safety. There is no more liberty now. Fascism is beginning to spread.

Anyway, here's a good place to start understanding Austrian Economics: http://mises.org/money.asp
Start with understanding the Austrian Economics. In the past 3-4 months, I've been studying this, clarifying my doubts and questions. I've learned much more during these months than what I've learned in the 4 years in university x 100. The revelation is nothing short of phenomenal. It's like attaining Nirvana :)

What's the use of all this knowledge? It will translate to $$$, and protection of wealth, of course!

Jin ~ We live for the joy of learning

Gold correction, US Unemployment Data

Gold has been hitting record highs day after day. In fact, in the past month, I can count on 2 hands the number of days that gold has fallen. The rest of the days, gold has been rising! Because of that, we're bound for some sort of corrections as investors pile in for profit-taking. Nothing goes up in straight all the way. As I've mentioned before, this will just be a temporary dip in a bull market. And gold is not just rising in USD, but also in other major world currencies. The whole world has printed currencies like mad. Cheap paper money, backed by nothing, producing nothing. If this is a way to wealth, it would have been discovered eons ago.

Anyway, recently we've been hearing from the mainstream media about the improving situation in the US. Unemployment is 10%, down from 10.2% (This is what they call the U3 measure of unemployment). Well guess what, the U6 measurement of unemployment - which includes discouraged workers, and people holding part-time jobs but are looking for perm jobs) is still above 17%. And here's a link to some real numbers:

http://www.businessinsider.com/the-real-state-of-the-us-labor-market-2009-12#to-start-the-us-population-is-only-going-up-its-quite-steady-1

During Obama's election campaign, he warned that unemployment will rise above 8% if there's no stimulus package. Sadly, even with the Obama stimulus, unemployment rate rose straight up above 10%.  The govt is still left scratching their heads as to why the stimulus is not working. If you look deeper into the recently published govt figure, you'll realize that most of the jobs created were in the healthcare and education sectors. These are services sectors, sectors that drain a country's coffers. On the other hand, the US has lost 45,000 (if I remember correctly) manufacturing jobs! You don't get out of debt by consuming more and producing less (common sense!). This certainly is not a recovery. It's a cover-up.

Well, one may argue that this is a jobless recovery. Seriously I wonder who coined this term to fool the public. It's like saying 'almost pregnant' (Gerald Celente's favourite phrase). There is no such thing! Speaking of Celente, I recently subscribed to his trends journal. This guy has been correct in predicting so many major trends, including the start of the gold bull run around 2000, the terrorist attack in the US in 2001, housing bubbles, the dot-com bubble, economic and financial crisis, etc. Proof: http://trendsresearch.com/forecast.html

This is not fear-mongering or alarmism. It's better to prepare oneself than to take it for granted that things will be rosy and alright. Anyway it doesn't take a genius to really figure out that things are really not alright in our world today. When the greatest depression - which is bound to hit the world - happens, we can expect worldwide trade to drop 30% or even more. There'll be untold hardship around the world. I've read a few newsletters that he has sent to me, and they're really great information that the public will never see (until it's too late). It only cost US$99 for 1-year's subscription. I managed to get it for $50 with a good reason (Yes you can get a discount if you write to him). I will be eagerly awaiting for his Trends 2010 report, which is due to arrive in early January 2010. Among his major forecast for 2010 is the US commercial real estate collapse, which I mentioned in earlier posts, and a high probability of a terrorist attack of 9/11 magnitude.

Look him up on youtube, he's really great to listen to!

Gold Record High, Silver Breakout, Bad investment adviser, UK Debt

(Picture from Goldsilver.com)

As expected, gold surpassed $1,200. It has gone up $250 in the past 3-4 months, an impressive run! Peter Schiff says that in the future we'll see much larger daily price fluctuations as gold become more popular as an investment asset. The technical bugs out there say that $1,200 is the next level for gold (sort of a support level, a floor on which gold can stand on and shoot for higher prices).

Silver looks set to break through $20. It has already risen by about $6 in the past 3-4 months, outperforming gold by a long way. Even so, it is still more than 60% below its record high set in 1980. If you adjust this record high for inflation, the number will be several times higher.

Today I came across an article in the Malaysian papers on commodities investment. Well, all I can say is that if people blindly follows this investment adviser's advice, they won't make much money. His article is just scratching the surface on this asset class, and he made simplistic arguments, the kind of arguments that I was also taught to in NUS. It just goes to show how bad our education system is in preparing people to play the game of money. Anyway, he ended by saying the upside potential for gold investing may be limited, given that the world economy is showing signs of recovery. I have to applaud his careful wordings, the use of the words "may be" and "showing signs". But if you were to invest, shouldn't you be more sure?

Anyway, I will argue that there's still a good upside potential for gold. Inflated adjusted high for gold is more than $2,000. It'll be more than $6,000 if you use the older (and more accurate) way of measuring inflation. Moreover, central banks around the world have become net buyers of gold for the first time in decades. India may yet again buy 200 tonnes of gold from IMF, China is still stealthily buying, Brazil and Chile should be joining in -given that they have a minute % of their reserves in gold - and there are reports that Germany and Russia are also set to join in on the gold rush. I'm mindful of a gold bubble, but the fundamentals are just too strong for gold.

What about the US? It is staring at a real prospect of its commercial real estate and bonds bubbles bursting. When the time comes, the govt will do what it does best: print more money. There will be another rocking of the economic boat, and the whole world will pump in even more money into the system. Already, the US government had allocated $11 trillion to weather the recent financial crisis. Take this number and divide it by all the gold in the world, and that works out to around a rise of $2,200 per ounce of gold. What about inflation of this $11 trillion through the fractional reserve banking system? Yesterday, under pressure to fight deflation, the Bank of Japan pumped in another 10 trillion yen into its system, and it is still keeping interest rates at  the ridiculously low level of 0.1%. When will politicians learn their lessons? They have been doing the same thing for years, with no result to show. Like Albert Einstein said, doing the same thing over and over again and expecting different results is insanity.

Yesterday, Morgan Stanley said that Britain faces a full-blown debt crisis over the coming months. Will it be next after Dubai? It is increasingly becoming a question of when this will happen, not if.

To round this up, I came across a simple phrase "Gold is such an honest money" in a book I'm currently reading. It's called Investment Biker, written by Jim Rogers. He used that phrase when describing how some Russian folks in a remote village in the former Soviet Union rushed to buy a gold jewelry that had just arrived at their village. The Soviet Union were in shambles then, and nobody wants the rubles. This scene was documented in his trip around the world on a bike in 1990. It is an exciting book, full of adventure, historical,  political, social and economic education. All these translate to investment education.

"Gold is such an honest money" explains why people have been piling money into gold in the past 9 years. It is not just another commodity. We have to understand that it is the oldest, most stable and reliable form of money. Why do people still invest in this 'ancient metal' till today?

As I finish up this post, a glance across to my TV screen shows gold at $1,214.70  :)

Gold futures hit $1,200, Gold Spot hitting same level any time soon

For the Dollar Bugs out there, it is still not time to join the Gold Bugs yet?  I'm not a gold bug, but at least it's a far better place to be than the dollar. The rise of gold prices is a reflection of a rapidly weakening dollar (which will continue for years, until the dollar's eventual collapse).

Relentless march of gold bugs. Be warned!








(Picture from extremescience.com)

Debate: Are Obama's Economic Policies Effective?

I just watched a 1-hour debate on bloomberg. The motion: Obama's Economic Policies are Effective.

Before the start of the debate, the audience takes sides with the following breakdown: 32% are for, 28% are against, and 39% are undecided.

The debate is rather interesting. The opponents made some good points, but I feel that they could have been more persuasive. What really surprises me is that they did not mention the issues of inflation,and currency debasement, something that will definitely strike a deep chord with the audience. The proponents, needless to say, made short-sighted arguments for the motion. They believed that the worse is over.

The result at the end of the debate: 46% of the audience are for the motion, 42% are against, and 12% are undecided. The proponents won the debate.

The opponents either do not understand the issue deeply enough, or they did not articulate their points properly. Inflation and currency debasement were their biggest and most crucial weapons, yet they did not use them. The proponents, on the other hand, are articulate, just like the mainstream media. Pure propaganda and brain-washing, without any deep substance to it. Unfortunately, the public only wants to hear good things, and they are not critical enough in their thinking.

Many other people would have done the job of the opposition much better. Guys like Peter Schiff, Ron Paul, Jim Rogers, Marc Faber, Gerald Celente, Robert Kiyosaki and Richard Duncan. Come on, these are the only few visible people who had correctly predicted the economic and financial crises over the years! I would rather listen to these people and learn from them! These people speak the simple truth, anyone can understand them, with some effort and due diligence.

On the one hand, I symphatize with the public, that they will soon face the greatest depression in history. On the other hand, I gawk at how ignorant they are about the world's economic and financial problems. On the one hand, I don't feel good seeing people go bankrupt, but on the other hand, it's a great chance for those who understand the great opportunity to profit from this.

Sigh =.=

The Dollar Bubble

This is a really superb video, which nicely summarizes my previous posts

Explosive 2010. US commercial real estate, bond bubbles

The US faces a real danger of its commercial real estate bubble bursting, its residential real estate prices still have a long way to fall, and also it has a real big US bonds bubble. Also, the world, particularly the Asian exporting nations, have to keep on printing and buying US dollar to prevent their own currencies from rising too fast and thus hurting their exports (this is a wrong assumption by economists). The money supply will be crazy, not just in the US but the entire world. Well, it has already been crazy for the past 4 decades.

I think 2010 will be a really explosive year for gold and silver. Gold is already up 30+% this year, silver up 70+% (get your money out of banks, they give you way less than 1%, and you lose out to 7% inflation on average). Both have been in a 9-year bull run, and they still have a long way to go. There will be minor corrections along the way as investors cash in for profits, but those will just be minor blips in this bull run.

Very soon, we won't be able to see spot price of silver at below USD 20. Grab them by the truckloads while you can!

If the world is REALLY recovering, gold prices will crash. It has been setting record highs on almost a daily basis recently. Funny how it has gone up from $250 to $1170 now and people still think the world economy is good. Some argue that the gold is in a bubble, but it's far from the case.

Excess reserves in the U.S. banking system stood at an unprecedented $855 billion recently, up from $2 billion last year - according to Hayman Advisors, a Dallas, Tex.-based hedge fund firm run by Kyle Bass. Wait till they unleash these cash into the market in the form of loans. We'll see the multiplier effect of the fractional reserve banking system at work at full steam. Eventually, the $855 billion will balloon by several multiples (theoretically a multiplier of 9-10 if the reserve ratio is 10%, historically it's about 7). With a multiplier effect of 7, about $6 trillion will end up in the system. That's massive inflation.

Here's my rough calculation: Take this $6 trillion and divide by the total amount of gold in the world (about 150 tonnes), you'll get about  US$1,244  increase in the price of 1 troy ounce of gold (easily doubling today's price!!!). Just from this 'relatively' small amount of cash that the banks are holding. How about all the money that the country has printed (and inflated further by an average of 7 times) over the past 4 decades, ever since the world currencies ceased being backed by gold? What about the derivatives? The ratio of paper promises (eg. futures, options, notes, ETFs, etc) to physical gold is huge. I've seen varying estimates from different sources, so I can't quote an exact ratio here, but one thing that's certain is that this ratio is really huge. What about the gold supply from gold mines? It has been declining since 2000, and many experts agree that we're already past the peak production of gold. Given all these, gold prices will shoot to the stratosphere. It's an unimaginable number, something I've covered in a post 2 months back. Throw some caution to the wind though, because if the world decides that paper currency is really all good and sound, then gold prices may not go up that high (which is why I favoured buying silver far more than gold, because silver is still way depressed). But given that the governments around the world have "no choice" but to keep on printing, this scenario is unlikely.

It doesn't matter whether the Dow can stay above 10k, bla bla bla. It's the real purchasing power of the currency that matters. Stock market may go up, nominal value may go up, but it'll lose out to inflation. Doesn't matter if the government (by printing money and borrowing from foreigners) can insure every person's deposit in the bank, if those deposits are going to be able to buy less and less. Doesn't matter that the US GDP  growth for the 3rd quarter 2009 is positive, when half of it comes from the cash-for-clunkers program (the govt encourages people to trade in their perfectly fine debt-free old cars for $4,500, those cars get destroyed and then these people go further into debt to buy new cars),  and a significant other % from housing construction (what? they have 20 million empty homes and they're still building more?) .

All these phony talks, fed by the mainstream media to the population, designed to mislead the uninformed public.

When the public comes to its senses, up, up and away the gold price (and silver of course!) will go.

On to Other Commodities Besides Silver & Gold

Peter Schiff: The only thing that the stimulus package has stimulated is the price of gold.

Haha, I like his quote. It's cute when a host on a Fox News program quoted Schiff, and Schiff was just staring ahead matter-of-factly. Anyway, I'm now taking a breather from gold and silver and looking at other commodities.


I finished a book called Commodities for Dummies. It is quite a comprehensive book, introducing readers to the various commodities and how to get involved in this asset class. It starts off with a brief overview of commodities, and why we should have commodities in our investment portfolio. It then goes on and describe commodities exchanges, ETFs, Indexes, Futures, Options, and some Technical Analysis methods (all boring stuff). For those who are already familiar with these financial stuff, you can skip this whole section to the next sections on Energy, Metals, and Agriculture Commodities. The book gave a brief description of various commodities in these 3 sub groups, and the associated technical stuff that an investor ought to know (For eg. trading months, ticker symbol, contract size, etc).

The book also suggest some factors that may affect the commodity prices. Overall, it's a good book for beginners. For those who want to study more on the data and trends, this book has very little of those.What you will need then is the the following book:

The Commodity Yearbook 2009 by the Commodity Research Bureau (CRB). It is quite a large book by dimensions, and is about 322-pages thick, complete with a CD-ROM. A delicious book in every way, it contains hard data for 100+ commodities from A (Aluminium) to Z (Zinc). Apparently Jim Rogers started with this book back in the 1970s, and he has bought one every year since. This book has been dubbed the "bible" by market analysts and traders since 1939. I was really thrilled when it finally arrived at my doorstep from amazon.com. It took only 4 business days because I used expedited shipping. :)

It is much cheaper to get this book from the US. This one I've got is a whooping SGD 150 cheaper than it is in Kinokuniya Singapore!

At first glance, the amount of data in the book is really mind-numbing. According to the product description, the book contains "over 900 tables, graphs, and price charts of historical data, many of which show price history dating back to 1900". There are also some commentaries and descriptions on each commodity. I think it's advisable to focus on one or two commodities first, study them inside out, and then move on. This was how Jim Rogers got started back then in his 20s. By the way, if you haven't already know, he is a billionaire investor who retired at age 37. At 28, he started a hedge fund called Quantum Fund with George Soros, and over a period of 10 years, the returns on the fund was an impressive 4200%!! In contrast, the S&P advanced only about 47% (and we have not considered the devaluation of the dollar yet). After retirement, he has been travelling around the world,  appearing in talk-shows, and has since moved over to Singapore from USA with his family. He believes that the US will not be such a good place to live in anymore in the years ahead.

Jim also started his investment career in the middle of a commodity bull run back then. Right now we're in the middle of one too (I'll say we're about 1/3 through it). But bull or bear, money is there to be made. Read his books and it'll really be a revelation to you.

Good Luck! Time to figure out how to decipher those codes in the CRB Yearbook.

Cheers
Jin

Amusing Comment by a politician

Today, I was browsing through some books in Popular, and chanced upon a book on the financial/economic crisis of 2008. In the book, I saw a comment made by a prominent politician in Singapore. He said that the market is not self-regulatory, and more regulations need to be created by the governments as well as the central banks to ensure that the market is more stable. He argued that the lack of regulations is why we have such a huge crisis as the crisis of 2008.

I find this statement myopic in nature. The fundamental issue is not being considered here. Most people (I would venture to say 99% of the population) are being educated/sold on the idea of Keynesian Economics, and this is the result. To counter this politician's statement, I would say that big government and central banks are the roots of the problem. Easy credit has led to all these bubbles and economic/financial upheavals. But they don't want to admit it! Recently, I talked to a taxi driver. According to him, the Singapore average income has increased 3x since years past, but housing prices have increased 30x in the same time frame! One has to ask how is this possible? I have the answer, but it'll require another lengthy essay. All I can say is that the root cause of this is badddd.

Back to the politician, he is wrong I'm afraid. The market is self-regulating, contrary to his assertion. That is why those bad financial institutions ran into trouble in the first place!! The market is trying to weed out the bad companies from the economy, and shave off the excesses that have built up over the past decades. But time and again, the government and central banks step in to prevent this from happening. They try to be big and control everything. They are the instigators of subsequent bubbles which will be bigger and worse. Look at the US! Big government and central banks take away market stability. And yet they have the audacity to claim that they help stabilise markets. The financial institutions are one of the most regulated group, but yet we still see all these crises over the years. More regulation is not the solution. A smaller government is. Ok with all that being said, at least the Singapore government is doing a way better job than the Western counterparts with its fiscal policies. If I were to choose some nations that can recover quickly from a severe recession, Singapore will be one of them.

Study the Classical Gold Standard, study Austrian Economics, read books like the Dollar Crisis, and I am confident that you will readily agree with me. It just makes so much sense. I tried looking from the point of view of the Keynesians, but there's just no way that it will work out. After getting the basics of Austrian economics, I really recommend The Dollar Crisis by Richard Duncan. It is a heavy (and boring) read for those who are not familiar with financial and economics stuff, but the knowledge gained is invaluable. You will be able to really see how money flows around the world, from its creation to its destruction. Armed with this knowledge, you'll have an idea of how to profit from this money movements. There was a survey done by a Canadian minister a few years back. He interviewed people from all walks of lives, the homeless, the educated, professors, students, professionals, entrepreneurs, and even the bankers. What he found was rather surprising: none of them ( 0%!!) have an accurate picture of how money is created in our world.

Why are costs of living rising? Why is the rich-poor gap widening? Why are the middle classes in developed countries shrinking? Why are families getting smaller and smaller? Why do we need 2 people in the family working instead of 1 like it was in the past? The simple answer, and the root cause: creation of money out of thin air by the governments and the banks.

I am not making all these arguments because I want to be special and different from the crowd. I have better things to do! Again, study those things that I have recommended and you'll understand why I make these arguments. These are not argue-for-the-sake-of-arguing sort of arguments. I deeply believe that our current economic and financial system are very unsustainable. Our system creates debt out of thin air, to repay previous debts, and on top of that, we have interest charged on those debts. It is a perpetual cycle of debt creation. And it requires that the world keeps growing and consuming more. That is why the world is so obsessed about growth. There won't be an end to this until all the earth's resources have run out. The burden on future generations will be huge.

Do I care? I do care, but I know I can do nothing about this. The system is so deeply entrenched, and I am not some kind of a revolutionary guy to change things. All I can do is to help raise awareness of these issues to the people around me, to the people dearest to me, and to my future generations.

And as I'm writing this post, gold hit a record high (yet again) of > USD1130. Its silvery sister is still way below its record high, waiting patiently for its chance.

Cheers

Losing My Virginity, New Record Highs for Gold

Just finished another book in record time!

This 600-page book 'Losing my Virginity' is an autobiography from the founder of the Virgin Group, Sir Richard Branson.

This is an incredible man. Humorous, adventurous, philanthropic, inspirational and a great business mind. You won't regret reading this book. It's a page turner, and you'll finish it in no time.

This book was a slight diversion to my research into commodities. But it was refreshing and has put some things into perspective for me. Now I'll be back to my commodities books. Just bought a handful of them, plus a new bookshelf recently.

Regarding Gold, it has hit record highs day after day for the past weeks. Just a few days back, it hit USD 1120+. On the other hand, US Dollar index has been dropping. To prevent their currencies from appreciating too fast against the USD (as well as the Euro), some Asian countries with huge trade surplusses with the US and Europe have been buying up those currencies. These countries include Singapore, Malaysia, China, and India. It's adding more oil to fire.

Silver is still languishing around USD 17+. It is way off its record high of USD 50 set in the last bull market in 1980. Adjusted for inflation (using the current flawed inflation measures), this figure is easily USD 100++ today. Using the inflation measures back then, the adjusted silver price will be way higher, in the region of a few hundred USD. For gold, using the current inflation measurement, the 1980 record high of $850 will be $2000++ today.

But then again, we have to throw caution to the wind, and look at the actual supply/demand for silver and gold. Be careful not to get too carried away by the sentiments that gold bugs carry!

Gold futures at Record High

Gold futures hit a record high today, above $1,100! Cheers to the gold bugs out there (I'm a silver bug).

http://www.marketwatch.com/story/gold-reaches-new-record-above-1100-2009-11-06


Jin

Why government intervention in the free market is bad

Excellent Video by Peter Schiff, talking about govt intervention in education




Across the sectors, we see lots of government intervention in the form of subsidies or regulations. Inevitably, prices will rise. If you understand the video, then this shouldn't be a problem to understand.

Several sectors without much government intervention sees prices going down. An example would be electronics.

Medical costs also rise all the time, precisely because the govt interfere. In a free market, costs won't be way inflated like it is now. That said, according to Schiff, there're still certain departments in the medical sectors that have costs going down. For eg, the Lasik eye surgery. Even though medical costs are going up, Lasik surgery costs go down because of lack of govt intervention.

Govt intervention distorts the economy, creating huge imbalances and wild prices.

US 3rd Quarter Postive GDP growth. Trick or Treat?

Here're 2 excellent videos in response to yesterday's news that US had a 3rd Quarter positive GDP growth.

GDP is a very inaccurate measure of wealth anyway. If the governments around the world are going to print money out of thin air and pump them into the economy, of course GDP has to rise. But look at real wealth, it's dropping....in the form of depreciating currencies.

Silver Bullion

New 1-oz and 10-oz silver bars from silverbullion.com.sg (and my nerdy collection of books).

These bars are graduation gifts from my mum. :)

Ordered them on Monday morning. If I had waited 1-2 days longer, I could have saved $40-50 cos silver price dropped. But like Jim Rogers love to say, "I'm the worst short-term trader on the planet." (or something like that).

Anyway the long term fundamentals for silver are very intact. It's a good opportunity to buy at lower prices now.

Below these silver in the picture, you can see the book "Hot Commodities" by Jim Rogers, a billionaire investor based in Singapore. It's really great! Invest some time reading it and it might just be the best investment book you'll read in your life. Seems like I keep saying the same thing after finishing each book. Oh well, there're just so much stuff to learn.

He's bullish for both gold and silver too, but there're other commodities which will do better than these 2 precious metals, according to him. I agree too, but lack of knowledge is preventing me from investing in other commodities for now. This single book of his exposed the reader to so many different types of commodities that it can be rather mind-boggling (in a good way)!


Jin

Dow 10000, Gold $1070, JP Morgan $3.19b profit

Yesterday, the Dow finally rallied to the 10000 mark, inducing cries of joy from the trading floor in NY. It seems like the market is recovering. The V-shaped recovery that many have hoped for seems to be coming true. Most economists say we're recovering.....or is it? Unfortunately, I think they are going to be wrong again. How can we trust these very economists who have been getting it wrong year after year? They did not even predict the current crisis.

Dow at 10000 means nothing. Sure, for the experienced short-term traders who can time the market very well (this is very hard), he can make some money. But if you compare Dow to say, the year 2000, the current Dow at 10000 in real terms is actually only about 7500. That is because since 2000, the USD has dropped by 25%! Back then, Dow was > 10000. So how much has the Dow 'purchasing power' dropped?  Gold, on the other hand, has gained > 300% in terms of USD since 2000. The USD buying power has dropped, is still dropping and doesn't look like recovering, given all the crazy monetary policies that the FED and the government are implementing.

If you price Dow in terms of Gold, the Dow:Gold ratio has dropped from 1:40+ to the current 1:9+. Gold retains its value.

The picture above is the Dow priced in gold, courtesy of Goldsilver.com and  Bloomberg. Rats! How I wish I can still use the bloomberg machine in NUS. Anyway, look at how it has dropped to 9.6.

Gold is the ultimate and best currency that man has ever known. Which is why investors still flock to this 'useless' metal. For the past 2 weeks or so, gold has hit record prices 3 or 4 times. The highest to date is about $1070. It is not even close to its inflation-adjusted high in the 1980s of $2000+ yet. If you use some ratios, as I've done in my earlier posts, you can expect gold to hit USD 5-6k. Recently, an excellent article (it's somewhere in the archive of Goldsilver.com) calculated that if Fed were to back its balance sheet with gold, gold will be priced at $8000. Anyway, given all these, I'm still far bullish on silver than gold. For now, I'm buying silver only. For inexperienced investors like me, the best way to invest in precious metals is in the physicals themselves, rather than paper gold/silver. Look at the derivatives market. When it bursts, there is gonna be mayhem. The current ratio of paper promises to actual physical bullions is in the region of 100:1 each for gold and for silver !! When the bubble bursts and all these people scramble to close their positions, look how the prices of the physicals will shoot to the moon.

What about JP Morgan's $3.19b profit? In fact, the Dow rally to 10000 is caused largely by this company's stellar earnings, and 1 or 2 other companies which I can't remember. I feel that it is gonna come crashing down again. JP Morgan's bulk of the profit comes from investment banking, not from consumer banking. Because of all the ultra cheap credit that Fed is providing, an illusionary rally in the stock market is happening. The US' REAL economy is shrinking, its consumers are suffering. Wall Street is happy, Main Street is miserable. Look at how many troubled states it has right now. California, the world's eight largest economy, may well become the first failed state. Rising unemployment, rising number of homeless people, rising credit card defaults, rising foreclosures. Just look up on youtube videos or read up some articles, you'll get the TRUE picture of the situation in the US right now (Don't believe what the mainstream media is saying!). Yet, stock prices are going up. Sounds funny? Yeah, it's another bubble in the making. According to estimates, for Dow and gold to realign in the median point, Dow must be at around 4000-5000. According to David Tice from Prudent Bear, Dow will only be at its book value at 3100. Now it's just way inflated.

Eventually, in the immediate years down the road, the great global trade imbalances have to re-balance again. It has been extraordinarily out of whack for several decades. The Western world will see their currencies depreciate by a lot, the Eastern nations will see their currencies appreciate by a lot. The Western currencies will lose their purchasing power, standards of livings will drop. The Eastern nations will see their exports reduced, because of the lowered Western purchasing power and because of the Eastern currencies' appreciation. Both sides of the world will enter recessions that dwarf even the current one. Those who actually saw the current crisis coming say that the recession down the road is going to be the biggest Depression in history. One of them is Gerald Celente, a highly respected trends researcher. He has been right in predicting more than 40 major world events over the years, including financial crisis, economic crisis, issues on politics and terrorism. You can find some videos of him on youtube.

The big nations that we know of: US, UK, Spain, they are all in huge trouble. UK still holds on to its faint hope of regaining its former superpower status with its sterling pounds. That is why it did not join the Euro. Another reason is that UK is US' close ally, and the US asked the UK not to use the Euro currency, for fear that this will further diminish the power of the USD. With a lot of nations increasingly using the Euro as a reserve currency, and with reports that oil will be priced using a basket of currencies, including the Euro, the UK stands to lose out. Recently, the USD only makes up about 1/3 of NEW reserve currencies, down from 2/3 in the past! The Euro and the Yen now makes up the other 2/3. What does this mean? This simply means that central banks around the world are increasingly doubting the USD. They are buying up the Euro and Yen for their reserves, instead of the USD. That said, these banks still hold a large amount of USD reserves though. But clearly we are seeing a trend away from the USD here.

What about Spain? With unemployment of more than 20%, and lots of troubling reports recently about its very bad state of economy. On a side note, I think very soon, the EPL and the Primera Liga are gonna be affected too. With fans' purchasing power reduced, revenue will drop too. These leagues currently look like a big bubble to me, especially the EPL. But then again, they have a huge fan base in Asia. And the entertainment industry tends to do well during crisis (not sure if these leagues are in the sports or entertainment industry, or both?). So who knows.

Ever since I started this blog, gold has gained 10% in USD, about 9.6% in SGD, and silver has risen 13% in SGD. There is more to come! What about copper, nickel, zinc, iron, agriculture, and other commodities? They are going to do extremely well too, according to legendary billionaire investor Jim Rogers. The base metals has risen 100-200% in the past year. Sugar has risen 100% in the past year. Even orange juice has risen 30+ %, according to data I last saw a few weeks back. The world will go back to real physical assets soon. Already, China is buying up huge amounts of commodities, and they are going to buy even more. They also have > 95% of the world's rare metals, metals which are important for use in technology stuff. And they are planning to export only a small amount of those metals, an amount that will not even satisfy Japan's demand alone. Anyway, all these indicators point towards a rise in commodities in the next few years. Ride the wave while you can!

And oh yeah, Happy Birthday to fellow investor Ms.Cheng!

Cheers,
Jin

Gold Jumped to Record High Today

Picture from goldsilver.com

It beats the $1033.90 record set in March 2008.

And we ain't see nothing yet!

“Gold is acting like the ultimate currency,” said Chip Hanlon, the president of Delta Global Advisors Inc. in Huntington Beach, California.

“Gold has just begun its ascent,” said John Brynjolfsson, the chief investment officer of Armored Wolf LLC, a hedge fund in Aliso Viejo, California. “As central banks print more and more money, the private demand for gold as an investment and inflation hedge is destined to grow. It’s pretty clear that gold will be at $2,000 by 2012, and it could happen a lot faster.”

“Gold is not just seen as an inflation hedge here in the U.S. but is rather acting as a hedge against all currencies,” said Dan Greenhaus, the chief economic strategist at Miller Tabak & Co. in New York. “As your currency depreciates in value, the consumer has less purchasing power and therefore it costs more to buy the same number of goods. Gold in inflation-adjusted terms is well below its highs.”

Think everyone is jumping on to the gold bandwagon yet? Unfortunately, (or fortunately for investors), not yet. For every 3 of these dudes above (they're called gold bugs by the anti-gold crowd) supporting higher gold prices, there'll be 1000000000 people opposing them.We will know gold mania has come to town when the media starts to talk about it everyday.

Silver is gonna follow soon. Other commodities will do well too. Read Jim Roger's books if you want to know more. He also talks about why many people shun/look down on commodities. He's a multi-billionaire investor based in Singapore.

The Great Global Trade Imbalances

Gold was a natural balancer for global trade imbalances. Gold forces governments to be disciplined with their budget. No one can print extra gold. But ever since the last of this discipline was removed along with the collapse of the Bretton Wood system, the world has gone on to print an unprecedented amount of currencies, and global trade imbalances have grown extraordinarily wide. I have lots of figures and graphs to substantiate these. Try googling for them, maybe you can find some.

Anyway, here are some harmful effects of global trade disequilibrium:

1. For nations with trade surplus:

Prime examples are asian countries. Asia has been using the model of export-led growth, which is unsustainable in the long run. Trade surplus may mean more currency flowing into the country, but this is highly inflationary. When Asia has a trade surplus with the US, they have tonssssss of USD. There are 2 choices they can make with this USD: convert the USD into their own currencies, or recycle the USD by buying up US assets. If they choose the 1st option, there will be so much credit going into the banking system, and with those credit futher inflated through the fractional reserve banking system, inflation is going to be wild. In fact this was the PRIMARY cause of the Asian currency crisis in the 1990s, and the burst of the Japanese bubble. So much credit flowed into these "Asian Miracle" countries, driving property and stock prices up , giving people the illusion of wealth, until it finally culminated in a burst.

Asian nations favoured the 2nd option more. They recycle the USD by buying up US treasury bonds. Now it is becoming increasingly clear that the US financial health is questionable (in fact I think it's the worst disaster history is going to witness), and less foreigners are buying up the US bonds. They need to find some other places to recycle their USD. They can buy up US assets within the US itself, but with the US in disarray, this might not be a good option too. Or they can dump the US and buy commodities, and GOLD! This is what China has been doing. On a side note, China has yet to see a bubble burst in the country. It will face this problem in the future too. Its huge trade surplus with the US is going to cause it a lot of problems down the road.

2. For nations with trade deficits:

These are mostly the Western nations, especially the US. For decades the US has been consuming what the world produces. How do they do that? By going deeper and deeper into debt. The government has been stepping in during recessions and injecting lots of liquidity into the market, in an attempt to stimulate economic growth. This won't work in the long run. Just look at Japan. Government spending has been so huge that now government(or public) debt in Japan is 200% of its GDP. By doing this, the US government has to sell more and more bonds to keep themselves afloat. And with most trades still denominated in USD, a lot of countries have excess USD, which they will use to buy even more US bonds or assets. This recycled USD, coupled with the crazy amount of USD printed by the government, have been providing the US with lots of credit. So the credit enters the banking system, got even more inflated through the fractional reserve banking system, and voila, you have tons and tons of paper USD.

Some day, the world is going to stop buying so much US bonds. Already, there has been increasing talks on using other currencies as the reserve currency. Without foreigners lending money to the US (by buying up the US bonds), the US will be severely, acutely, don't-want-to-imaginably short of cash. The US will then have 2 options at this juncture:

Option 1. Swallow the ever-increasing bitter medicine. Let the bubble burst, let deflation set in, suffer unimaginable pain, experience a huge drop in standards of living. Recover and then move like how it does during the Great Depression (back then, even though it was really depressing, it was not protracted, because the Fed did not come in and pump money and mess things up). Back then, the Depression was allowed to run its full course, balancing everything up again, cleaning up all the mess. Therefore, the US were able to get out of it after a few years. So that's for option 1.

Option 2. Print money. print print print and try to get out of the problem. We know what will happen here: hyperinflation.


So there you go, a simplified version of what is to come. To explain everything step by step will take another 100000 posts. To end this post, here's a scenario which I conjured, after studying this interesting topic of economics:

A surplus nation, say China, has a lot of USD from trading with the US.

Tons of USD --> enter banking system --> credit explosion due to fractional reserve banking system --> economic boom as businesses borrow money cheaply, stock market and property prices go up because the money needs to find some place to go to, inflation sets in  --> overproduction and overcapacity  --> deflationary pressure on prices of goods --> increasing corporate unprofitability  --> falling wages, increasing unemployment  --> defaults on loans  --> bubble burst

In fact, this is exactly what will happen if Gold is still used as the mode of payment. Countries with trade surplusses will have surplus gold payments from the importing countries. Credit expands in the surplus country, causing inflation, and making the country's goods less competitive in the market. Now the country will be a net importer instead of a net exporter, and gold flows out again.

A country with gold flowing out will try to export more, so that gold will come in again. It will tighten credit, thus putting a downward pressure on prices. This way, its goods become more competitive, and thus the country will be able to export more. Gold flows into the country again.

So there you have it. How gold is such a great natural balancer of trade imbalances. Without this correcting mechanism in place, the world will continue to face financial and economic turmoils in the looonnnggg roads ahead.

Silver Spot Price vs Physical Silver Price

 There seems to be a widening gap between the silver price and physical silver price.

If you have one hour to invest (not burn), take a look at this series of videos. There are 6 parts to it. This is just part 1. You might have to turn on your speaker volume because it's not so clear:






I think silver spot (or paper) prices can be easily manipulated, and some people are trying darn hard to suppress prices. A company can short (i.e. sell) tons of silver futures (futures are just mere promises to deliver silver) to artificially suppress prices. There is, however, a tremendous upward pressure on the physical silver price. So even if spot price were to drop to below $10, it is irrelevant to physical silver price. And from my  observations and personal buying experiences, I find that this is true. I used to compare physical silver prices to the spot prices, and was uneasy when physical silver prices seem to rise faster than spot prices. I thought that the sellers are  taking advantage of the rise in spot prices by charging more and more premium above the spot price for the physical bullion. This is true in a way, but not entirely true now that we know spot prices and physical prices should not be compared like that.

Anyway, the shortage of physical silver is too great. Already, some major mints are running out of stock. With the huge imbalance between supply and demand, the current physical silver price is laughable.

Silver, the Forgotten Metal

Got my Silver 2009 American Eagles today. I'm glad that 3 of my friends are investing with me. I went to Pasir Ris to get the silver coins after my tuition lesson, and was surprised at how heavy those silver weigh!

 

 

These silver coins are beautiful. My camera is really doing them injustice with the lousy resolutions. I went to Chinatown and got them verified to be authentic stuff. Sadly, and not surprisingly, no shops in Chinatown sell .999 silver. Or maybe there's one that I don't know of. Everyone thinks that silver is useless metal.

A week ago, I bought gold from this uncle in a shop. He doesn't sell silver but he has his own personal silver collection. I told him about my silver purchase and he went something like: "Wah! You bought those silver for S$29/oz? You're so street-smart, you can sniff out lower prices. I bought mine for S$31/oz."

Today my friend and I went to his shop again, and asked for his opinion of our newly bought silver Eagles. He thought that we wanted to sell our silver to him. And guess what he said: "Silver no value lah. Each coin (1 oz)  is only a few bucks, maybe around S$6." What !! Apparently, this uncle had forgotten that I was his customer a week before. He was just saying it cost him S$31/oz the week before, now he said it's S$6?

I knew that it serves no purpose to ask these jewelers about their opinion on silver prices anyway. They may be good sellers, but they don't necessarily understand economics. To say that 1 oz of silver is worth $6 is the most absurd thing I've ever heard. Even my young sister can tell you that the market price now is USD 16-17/oz excluding premiums. Just check the internet duh!! Oops... maybe uncle doesn't know how to use the internet, or maybe he thinks I'm just a small kid he can con. Whatever -_-

Anyway, I believe that silver will again be actively traded in the near future. We may well see silver bullions make their way back into these goldsmiths and jewelers in Singapore. But for now, it has been forgotten by many.

Silver is money. We'll see its spectacular comeback soon, in the form of explosion in prices. It is already doing a big comeback in the past few years, but there's more to come.


Jin

Another President not doing it right.....America's days are numbered

When Obama stepped up into the US presidency, the world was filled with hope that he will bring changes for more peace and prosperity. His critics, however, can already see his flaws even before he was elected. Now I am in support of those critics. Obama is not doing it right. He has similar policies to his predecessor Bush's. His foreign policies are still aggressive, his economic policies are as bad as - if not worse - than Bush's. He is just doing what Bush had done, and doing it on a much larger scale too.

The recent financial crisis has provided US with the opportunity to set things right. The US should have let the system crash, to get rid of all the excesses that had been built up over the past few decades, to get rid of all the companies that are bad. Yet, what the US chose to do was to get deeper and deeper into debt to bail out fundamentally unsound companies, and widen the budget deficit to more than US$ 1 trillion. The Obama administration is projecting budget deficit to hit $9 trillion in the next 10 years, up from $7+ trillion. Who can believe them? The real figure might even be higher. The US has missed its chance to apply the brakes. Now it is heading for a crash. Each time it tries to create currencies to 'battle' economic downturns, it is just postponing the inevitable. It is just gonna make future crashes much more painful for itself. Do people actually believe that US will be as strong as ever? Unfortunately yes. But look, who in the right mind will support a company that is saddled with ever-increasing debt, and ever-widening budget deficit? Only an insane person would!

Obama's various programs to stimulate the economy are wrong! He's just pumping in more and more phony USD into the system. He's just encouraging the masses to spend beyond what they can already spend. He's inflating a bubble that is already inflated. To think that the US can grow out of this problem with debts is preposterous. History has shown that this will never happen. Some will argue that without the US to consume Asian goods, Asia will not do well. That may be true in decades past, but it's certainly not true now. The US can only get into so much debt. They won't consume forever. Asians will have a higher standard of living if they kick the Americans off the island. They will have more goods for themselves to enjoy. They need not work that hard. The US is not helping Asia grow. It is in fact holding Asia back. Just look at the current crisis. For the first time, Asia leads the West out of the economic downturn. The US and UK are still in recession, with reports that they will get out of it this quarter. I don't think so. It is just an illusion that they're out of trouble. A bigger crash in the future awaits.

In the early 1900s, Great Britain was the world superpower. It lost its status to the US because of its flawed economic policies. The US has been doing exactly what GB had done wrong back then. People forget history fast. In the 21st century, we are going to see Asia, possibly China and/or India, gain the superpower status. The American Dream is over. Just like how people migrate to the US to build dreams in the 20th century, Americans are going to migrate elsewhere to build dreams now and in the future.

We are already seeing a shift of economic power from the West to the East. The Asian countries have strong economic fundamentals, with good savings and strong production. In the next few decades, Asia is going to shine brightly.

Although US influences are getting weaker by the day, there'll still be severe economic upheavel when the USD finally crashes. That is because the USD still forms 60+% of the world's reserve currencies, and the world is still holding on to so much US debt instruments. And don't forget that the whole world also uses fiat currencies. The whole world had also inflated the currency supplies. This includes Singapore. The East won't escape recessions and crashes. The difference between the East and West is that the East is better positioned to get out of recessions.

China and Russia have seen the dollar collapse coming, and they are already dumping the USD and buying up gold in huge amounts. China is already the world's largest gold producer, and it is fast becoming the largest buyer of gold.

The only safe haven is gold and silver, the best moneys that history has ever seen. The best metals that will preserve wealth. In the next few years, we will see a massive wealth transfer from currency and equity holders (generally) to real asset holders, especially gold and silver. Other commodities will do very well too. I believe agriculture will do supremely well too, given that this sector is way underinvested. Unfortunately, I don't have the time now to research more in-depth on it.

Buy Gold and Silver. It is really a once-in-a-lifetime opportunity. It is a sure one-direction bet for the next few years. It is as certain as the sun that will rise in the morning. Peace.