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.