The Fed Taper

The Fed 'finally' taper to the tune of $10 billion. Many economists now think that they will continue to taper and end QE in 2014. In my opinion, this is impossible. Technically, they may end "QE" but they will start another program with another name. The money-printing still goes on. Many think the Fed's policies are about improving the economy, but that's not the priority at all. It's about the bond market. It's about propping the government and big financial institutions up. As I mentioned before, the Fed will use the "low" inflation rate and the unemployment rate as an excuse to continue printing. Ben did exactly this in his press conference 3 days ago. I suspect they will continue to tout the "low" inflation rate and unsatisfactory unemployment rate as an excuse in future meetings. As I've mentioned before, the Fed may start to taper but the pain will be too great further down the road, and they will be back with more QE again. Ben emphasized that monetary policy will continue to be highly accommodative till 2015. Interest rate will remain at rock-bottom zero. First, it was 2013. Then it was 2014. Now it's 2015. What next? Will Ben really taper come January? That remains to be seen.

2014 Gold outlook

Gold has had a good 12-year run in its cyclical bull market. 2013 seems to be a down year. This is of course, very normal in all asset classes during a bull run. As Jim Rogers said, the anomaly was that gold went through 12 years without a down year.

I suspect that gold will continue to go sideways or down in the next few months or maybe through 2014. This will be great for me as I continue to pool income each month and buy the metals up. Hopefully the prices go down enough by the next coin fair in Singapore. I hope to secure myself a North Korean gold coin.

The Indian politicians are trying hard to prevent their citizens from buying gold, and they may even succeed in making them sell gold. If this happens, it is likely that gold will go down a lot. Who knows how much lower it will go to? Many, many gold believers will give up and sell their gold. 

I welcome and love this from a long-term investment point of view. The fundamentals for gold have not changed since the time I bought my first oz at around US$950 and my silver at around US$14. In fact, the fundamentals have gotten better. With all these crazy currency debasements around the world, gold and silver will go up tremendously after this period of correction.

Currency swaps

Overheard: 23 countries, and 60% of the world's GDP, are right now setting up new currency swap lines. The list of the 23 countries which are creating new swap lines outside of the dollar include China, Russia, India, Germany, France, and the United Kingdom. What started in September of last year between China and Russia had turned into quite a movement towards setting up the infrastructure to replace the USD in global transactions.

Fed Taper Likely in Coming Months?

Today's article on Bloomberg:
Fed Taper Likely in ‘Coming Months’ on Better Data
http://www.bloomberg.com/news/2013-11-20/fed-taper-likely-in-coming-months-on-better-data.html


How many months? Fed to taper voluntarily? No way. Only the market will force them to taper.
Better data? That's a joke. That's mainstream headlines.
Why the mainstream news and traders are not looking at government bonds data continue to amuse me.

Perspective on bitcoin

Bitcoin went close to $1000 yesterday. That's about a 50x increase this year. Percentage-wise, it's 5000%! It was a great opportunity to short, because in the short-term, I think this is a huge mania. Even when the Cisco stock went up 100x (or 10000%), it did so over a period of about 10 years. The current bitcoin mania looks similar to the tulip mania in 1637. Anyhow, I promptly shorted bitcoin 2 days ago. Of course, I'm using my speculative account to do this, not my main investment account. I do not understand Bitcoin enough even though I followed it in the past 2 years, so it will not be part of my investment portfolio.

Bitcoin is an amazing money born in the private sector. For me, the best money is made in the market, not by governments or central banks. Wouldn't it be great if this becomes reality?

Unfortunately, history doesn't offer us much hope on this matter. Private, 'virtual' money has come and gone for thousands of years. Whenever it becomes lucrative and becomes a serious competitor to the currencies issued by the government, the government will slap regulations on it or control it. A very recent example is the QQ coin in China, which I doubt many people are aware of. Because the QQ coin got so popular, the government and central bank moved in to limit its use. If my information is correct, QQ coin is now not allowed in transactions of real goods, but are only allowed in transactions of virtual goods such as online-game items.

Assuming that governments and central banks allow competition to their own fiat currency monopolies, Bitcoin faces another headwind in the form of competition. There are already several virtual currencies in existence. What if the costs of mining for other currencies are lower? What if other credible institutions or companies issue their own virtual currencies? If private currencies are allowed to compete freely with central bank currencies, "Facebook" coins can become big quickly and compete with Bitcoin. Or better yet, "Ebay" coins. Ebay sees a huge volume of transactions involving real goods. It will not be hard for people to adopt Ebay's own virtual currency. 

One reason why gold and silver survived competition for thousands of years is because, well, there is lack of competition. Other metals are either too abundant, or too rare, too hazardous, or too reactive.

What will it take bitcoin to be a real currency? It will take a world-wide collapse in all major currencies. It will mean governments repeal their legal-tender laws and allow for competition to their monopoly in the ultra-lucrative currency-issuance business. It will mean middle-aged people like my parents become tech-savvy enough to use it. It will mean people will rather not store their wealth in gold or silver, the traditional haven. All these may happen, but it is very unlikely as of this point in time.

There are lofty predictions that a Bitcoin will be worth $10,000 or $100,000 or $1,000,000 in the future. I don't know. It may or may not happen. All I know now is that this is a mania in the short- to medium-term. Going up 5000% in a year is no laughing matter. In my mind, this rapid rise is caused more by speculators than by people who really want or are desperate to use the coins in daily transactions. There are multi-million dollar funds on wall street that have sprung up to take positions in Bitcoin. But as always, all speculative frenzies will crash in the end.

For Bitcoin proponents, a big and prolonged crash should really be welcomed if Bitcoin is to be a stable long-term alternative currency. Then the speculators will be flushed out. Right now, though, it remains a mania. 

US Fiscal Year 2013

Forget about the debt-ceiling. When will the lenders impose a lending-ceiling is anyone's guess. Imagine this happening in Singapore:

For fiscal year 2013,

Tax revenue is about $2,700,000,000,000.
Spending is about $3,500,000,000,000.

To keep the government in cash during fiscal 2013, which ended on Sept. 30, the Treasury had to borrow $8,323,949,000,000 in new debt.

The government's single largest expense in fiscal 2013 was paying off $7,546,726,000,000 in debt that matured during the year.

For the first 6 weeks of fiscal 2014 (started Oct 1, 2013), the Treasury had already borrowed $1,014,215,000,000. It needed to redeem $879,734,000,000 in maturing debt during the first six weeks of the fiscal 2014.

Fed trying to do the impossible

Peter Schiff said something like this: A hard trick is like pulling the cloth out from under the dishes on the table. What the Fed is trying to accomplish is to pull the table out from under the cloth and leave the cloth and dishes suspended in mid-air. 

Where is the exit strategy that for years, so many have touted is possible?

Fed Ponders How to Temper Tapering Without Rate Increase
http://www.bloomberg.com/news/2013-11-19/fed-ponders-how-to-temper-tapering-without-rate-increase.html

GST in singapore

Many people love the government to provide lots of services - education, healthcare, housing, transport, etc - which are better provided by the private sector. But many people do not want to pay for it? Take away the GST and we're talking about a $6.5 billion deficit for the government. Be realistic!

Also, consumption tax such as GST is better than an income tax. You want to tax spending and consumption, and encourage savings and hard work.

Former Fed Official says sorry to America

A former Fed official says sorry to America and confesses that QE doesn't work and the US economy is fundamentally unsound. He tells his story in this article. 

Need to verify this.

Andrew Huszar: Confessions of a Quantitative Easer:
http://online.wsj.com/news/articles/SB10001424052702303763804579183680751473884

People hope for a recovery

There sure are a lot of good news over the years about recovery, including in recent months. Unfortunately, recovery is not built based on mere hope and gut feelings.

When confronted with inconvenient truths such as this data, many simply brush it aside, and fall back to their favourite tactic of name-calling, in the hope of discrediting the person who show this data.

Bailouts don't make economic sense

Smaller, more prudent banks should be buying up failed companies' assets and gaining market shares when a financial crisis bankrupts big banks. But as usual, people will ask for bailouts because the world is going to end. 

Fact: Prior to the 2008 crisis, there were more than 7,000 commercial banks in the US. So the world isn't going to end when the big banks fail. It just means that the services will be done by someone else. This is what happens in sound economies throughout history.

One hundred big banks could go, warns McKinsey:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10431438/One-hundred-big-banks-could-go-warns-McKinsey.html

Twitter

It seems like traders are so hungry for yields, that they are willing to price twitter at 20x of revenue (note: revenue, not profit). This is a company that has not made any profit! I started shorting quite a lot at $49. Will stay in for a while and see how it goes.

Update 19/11/13: Closed all shorts at $40.

Crazy debt

It took 40 presidents 193 years to put $1 trillion of debt on the nation. The current administration has managed to repeat this feat 7 times over in only 5 years.

Wrong call on taper

Singapore's top bank: We got our Fed call wrong:
http://sg.finance.yahoo.com/news/singapores-top-bank-got-fed-055000336.html

A lot of market participants got it wrong in September. They were all expecting the Fed to taper by an average of $10b. In August, I was saying that it is more likely that the Fed will continue/increase QE rather than taper. Turns out that they couldn't even do a token $1b or $5b taper!

To reiterate, the Fed's priority is the bond market! They want to keep the government afloat.

Now the market is expecting the Fed to taper later this year or early next year.

The next surprise for the market will be when the Fed does not taper or when they increase the size of QE. Even if they do taper, they will return after a few months, because the pain will be too great.

Nobel Prize in Economics

44 years of Economics Nobel Prize, and only 1 winner from Asia. Meanwhile, Asia has been booming and the other nobel-winning regions have been declining on a relative basis. What a sham!

N.Korean Unification

According to Jim Rogers,

-Kim Jong Un is educated in Europe.
-The Lieutenants and captains have lived in China, Moscow, and other cities, and now they are Generals.
-They have seen changes elsewhere and want to replicate it in their country.
-The N.Koreans are educated and know about the outside world.
-There're lots of propaganda about reunification.
-N.Korea is opening up economically.
-Lots of Chinese are moving goods into N.Korea - like mobile phones and Dvds.
-There's a huge black market in N.Korea

These are signs that North Korea will open up soon, and don't be surprised that both Koreas merge in the next few years. The current S.Korean regime can be less hostile and do more to aid the process. The Japanese and US won't like it, of course. Lots of mainstream news on N.Korea are from them.

One way to invest is to buy N.Korean gold coins or stamps. When there is no more N.Korea, these stuff will become valuable.

Super Austrian to Super Keynesian

http://goldsilver.com/video/guess-who-said-this-santelli-s-find-of-the-day/

LoL

In 2006, then Senator Obama spoke like a true Austrian champion.
Ever since being elected, he has turned into a super Keynesian. 

When Mr. Obama became president in January 2009, the total federal debt stood at $10.6 trillion. Now it has surpassed $16.7 trillion — an increase of 57 percent. This is not counting unfunded liabilities which dwarf the official debt figure.

Sometimes I feel bad for the Singapore government.

http://www.youtube.com/watch?v=xvzvUgoZnK0

This is just one of the many amusing stuff happening in another country right now. It was once the land of the free, with the most sublime piece of Law of the Land ever written in history.

Some people question why I criticise other governments but not the Singapore government. Well, I do disagree with certain policies. Some government policies infringe on rights and discourage free-market competition, but in this messed up world today, this country is a haven. 

Put into perspective, the Singapore government, in comparison to other governments, is way better. If the world monetary system changes to one backed by hard money, we will really see Singapore shine. Without inflation, there will be more babies, more wealth, less welfarism and less stress. Too bad it has to play by international rules. Some things are just out of the government's control, and they've been unfairly blamed on certain issues.

Is savings money bad for the economy?

http://mises.org/daily/6547/Is-Saving-Money-Bad-for-the-Economy

I posted a piece in the past touching on this issue as well. It can be viewed here: http://silvernjin.blogspot.sg/2011/12/economics-in-5-pages_16.html

We must get back to Austrian-style world, where thrift and savings are rewarded; a world where hard-money reigns and where there is a steady price deflation.

We have seen a few decades of Keynesian-style consumption and spending and money-printing and artificially-created low interest rates and massive inflation, which punish savers.

How much longer this current system can last is anyone's guess. It didn't last long when empires and nations in the past did it. Now we have the whole world doing it for the past 3-4 decades, and the problems are becoming very apparent, as the Austrians have warned.

Fiat vs Precious Metals

Race to Debase. The annual result of fiat vs precious metals is out.
In the 21st Century, fiat currency has lost an average of 78.16% of its value to Silver. 
In the 21st Century, fiat currency has lost an average of 81.04% of its value to Gold.
http://goldsilver.com/article/race-to-debase-2000-to-2013-q3-fiat-currencies-vs-silver-and-gold/

Just like the Fed's record of forecasting.

Hilarious Charts Of The Day: IMF's "Growth Forecasts" Over Time

http://www.zerohedge.com/print/479889

China and Japan will not dump treasuries!

http://www.bloomberg.com/news/2013-10-08/china-and-japan-aren-t-going-to-dump-treasuries.html
Wrong. People are still making this kind of argument. Fact is, pretty soon, China and Japan will not worry about that few trillion they've spent, but the trillions in the future that they need to spend to prop treasuries up.

US default on 17 Oct? Nah.

The market is fixated with and nervous about the idea that the US may default come 17 Oct, if the debt ceiling is not raised.

I disagree with this view, simply because the Fed can print more money and kick the can down the road, and because the government may decide to reduce spending on other programs and actually pay the interest incurred on the debt. 

If the US government do default, it is a deliberate choice. As of now, their total annual tax revenue is about 10 times more than the annual interest payment on their debt. So, they can pay the interest on the debt if they really want to. The problem is that they would have to cut spendings on other areas and infuriate a lot of American voters. If this persists, we will see the type of riots on the streets that is happening in Europe right now.

Enter the Fed. The Fed will use the excuse that the economy is not growing up to their expectation yet (for the record, they've been wrong in every single forecast in the past decade... and by a large margin), and that inflation is still low enough (of course it is not low). In fact, the likelihood that the Fed will increase the size of the QE is much greater than the likelihood of the US defaulting on Oct 17. The Fed will print money to bankroll the government further. Janet Yellen is likely to be appointed as the next Fed chairman. They're all the same - advocates of money-printing.

What we're seeing now is political-brinkmanship in the US government. The Democrats think that they have pushed the Republicans into a corner and force them to eventually drop any attempt to defund the (unlawful and very wasteful) Obamacare. The Republicans are hoping that the citizens will come to realise that it is Obama and the Democrats who do not want to negotiate with them and that they're the ones responsible for the government-shutdown debacle. In fact, the Republicans have sent many bills to Senate Majority Leader Harry Reid to reopen certain parts of government, but he refused to entertain them.

This debt-ceiling issue is a charade. Obama is lying when he says that raising the ceiling will not cost taxpayers a single cent and that the US has never defaulted and that the US always pays its bills. What he doesn't mention is that it is precisely because the government doesn't pay its bill that it has to raise the debt ceiling so that it can borrow more money from the same lenders to repay their existing debts. The self-imposed-but-never-observed debt ceiling is not the problem. The real problem will come when lenders impose a lending ceiling, as Peter Schiff likes to say.

This is just another political game. Almost the entire market were expecting the Fed to taper last month, but were caught by surprise when the Fed did not do it. Eventually, the market should realise that this is all about keeping interest rates low for government bonds and large financial institutions that hold toxic bonds and mortgages. It has got less to do with the real economy.

The situation in US is very unstable now, as I've been warning for the past 4 years. The government bubble is too big and it will find a pin to prick it rather soon. The world is slowly moving away from using USD as the main reserve currency, and there will come a time when people panic and dump USD and US debt in droves. Don't get me wrong. The US is still the world's largest economy and it will not fall off the cliff tomorrow morning. It is, however, in a decline relative to the other parts of the world and investors should position themselves accordingly.

Thoughts on gold and silver

Gold and silver finally seem like they are ending a year down in price. Like Jim Rogers said, given their unusual 12-year straight bull-run, they are likely to have an unusual process of bottoming too. In my post on 22 Aug 2009, I made some predictions just for kicks. They can be viewed here:
http://silvernjin.blogspot.sg/2009/08/greatest-wealth-transfer-ever.html.

In my mind, I wish the bottoming process takes a longer time to complete. Given that the fundamentals are so good, the longer it is that prices stay this low, the more opportunity there is for one to buy. This year alone, I've increased my position by 50%. If prices continue to go sideways or fall in the months ahead, I hope I can increase my gold/silver holdings by another 50%.

Anti-gold bugs everywhere, however, continue to criticise this investment. When asked why it is a bad investment, the answer is always the same - that they think the metal is useless. They better hope that the market also think the same way in the years ahead. Other than this bit of argument, there isn't any other thoughtful analysis by them. History, fundamental economics, and the way currencies work are totally ignored. These people will rather attack precious metals investors than focus on their own money-losing investments. They are the only source of headache (but yet, fun) for me. I guess I have no choice but to put up with it, given that I am so outspoken about precious metals and the evils of central banking and market interventionism.

The price of silver continue to be irresistible for me. I am looking to start buying big-time into agriculture as well - starting from sugar probably. In the next few months, I am producing some nice reports on precious metals and agricultural commodities for those who are interested.

Immense pain ahead.

This is obviously sustainable in the long-term!

S&P vs Uncle Sam

Will S&P dare to downgrade the US again, when it has been slammed with a $5 billion lawsuit by Uncle Sam for downgrading the US slightly back in Aug 2011?

Then again, another feeble downgrade is still not reflective of the true value of the govt debt.

http://www.businessinsider.com/sp-qa-on-the-debt-ceiling-debate-2013-9#ixzz2gPKK92I0

No taper.

Back then when everyone believed that the Fed will taper in sept 2013... only to find out that the Fed is not even doing a token $1b or $5b of taper.

Ben's deep thoughts

I don't mean to inflate the issue, but I can't taper off my criticism.

Dishonesty

http://www.bloomberg.com/news/2013-09-20/buffett-says-federal-reserve-is-greatest-hedge-fund-in-history.html

Good comments from the readers.... this comment sums it up nicely:

"Buffet is a cunningly dishonest man. He is conveniently not telling us, 1. The purchases of those bonds were paid for by the people's money being debased and worth less against our will. 2. As interest rates rise, which they already have begun to do, those profits will turn into losses. I would bet that happens by the end of the year. Of course the Fed does not care, because as Buffet says, the Fed has no need to deleverage, it can force us to pay as much as it needs to bail out the banks because we have choice but to use it's (sic) debt as our money. This is freedom?"

Immorality of inflation

Dr Paul: Think about it in a moral sense. What if he gets his 2% (inflation)? What right does the Fed have to take away 2% of their purchasing power automatically? What right does they have to punish the elderly who save money? I asked Bernanke and Greenspan the question and they throw their hands up and say that they feel some people will benefit from this.

Keynesians wrong once again

Mainstream economists.... wrong about bailouts and stimulus.
This is the real sentiment on the ground:

"A Feb. 2012 survey found that 52% of Americans thought bailing out the banks through the Troubled Asset Relief Program (TARP) was the wrong thing to do, while 39% supported the action. That was a big turnaround from 2008 when the crisis hit in 2008 and 57% had said TARP was the right thing to do."

I'm sure it'll be more than 52% as it becomes clearer that things are going awry.

Watching Ben's Q&A now. Oh wait, why am I doing that?

Why bother questioning Ben... he's bluffing all the time. Or he's just simply incompetent. Anyone can dig up his record and see for himself/herself. Has been great fun betting against his Keynesian policies in the past few years. But this is really destroying America. That was why we Austrian economists were so mad about their destructive policies right from the first QE and bailout.

Implicit value of gold in SGD, under Bretton Woods System

Fun Fact: Taking Singapore's M2 money supply and dividing it by its gold reserves, and if the world were to return to the Bretton Woods System with 40% gold backing, the implicit value of gold will be some SGD 61,000. Even if we use the much lower M1 figure, we will get a figure of about SGD 20,000.

Agriculture is a No. 1 on a list of "useless" college degrees?

I remember our geography textbooks in sec school, where agriculture was classified as a 'primary' industry. It gives us the impression that it is low-paying and not lucrative. While that is true in certain periods of history and is certainly true in the past 3 decades, it is beginning to change, and should continue to do so in the next decade or two. 

The average age of farmers in the US is now 58 years, in Japan it's 67 years. More than one third of European farmers are older than 65 – technically retired. Less than 5% of farmers in analysed (by IFAMA) countries are younger than 35-years-old! All OECD countries show similar trends.

And just for LoL from this article below:
"Aside from trying to stem the graying of America's farmers and ranchers, her mission is fueled by a recent blog posting that put agriculture at No. 1 on a list of "useless" college degrees."

http://www.huffingtonpost.com/2012/04/04/average-farmer-age-rising_n_1403542.html

"You hope for the US to crash so that gold will rise"

Contrary to the favourite rants of antigoldbugs, I do not buy gold/silver and then hope for the US economy to crash. In fact, I buy gold/silver because of the foolish things that policymakers pursued and are still pursuing. The crash is inevitable. Many are also not comfortable with the fact that I'm so confident of the inevitability of the crash. But believe me, if the antigoldbugs really studied Austrian Economics in depth instead of just reading opinion articles about it, they will be way more confident in predicting the crash than I am.

If I really love to see the US crash, I would have advocated for these very same policies that the policymakers are making. Bailouts. Stimulus. Money printing. Deficit spending. More wars. But I don't. I hate what they are doing, because they are destroying the livelihoods of so many ordinary people. And that is why I can't hold myself back but to use strong words in my rants against these policies.

Careful with your bank deposits.

http://www.youtube.com/watch?v=jPsOopzp7e4

True and scary. This is in the US. It has already happened in Cyprus. Depositors lost up to 60% of their deposits.

What about Singapore? The last time I checked, the Singapore Deposit Insurance Corporation (SDIC) - which was set up in 2006 to insure bank deposits to assure people and make them trust banks - only has about $130 million in the fund. Only $7.4 million are in CURRENT assets, the rest are in NON-current assets (god knows what kind of assets they are).

Hope my numbers are correct. Felt like calling them up and ask if this is a joke, but haven't got about doing it. Come up with your own figure of the number of bank accounts, and divide $130 million by your number and see what result you get.

Free-market economists will say that such government insurance schemes make people less cautious about their banks. This is very true and is one of the causes of the 2008 financial crisis. After all, we all do more research on the smart phones that we want to buy, rather than research on the banks that we want to put our deposits in.

Just a few years ago, Singaporeans lost money in the banks' investment funds and it was big news. About 10,000 Singaporeans lost all or a large part of their investments totalling over S$500 million in products linked to Lehman Brothers. Only part of the money lost was compensated.

Note: This is not fear-mongering. It's a good practice be careful with your accounts. It may not hit us but it may hit future generations.

MAS losses

Singapore’s central bank, MAS:

2012/2013: S$10.61 billion net loss
2011/2012: S$2.77 billion net profit
2010/2011: S$10.9 billion net loss

MAS incurred the losses because it is trying to prevent the SGD from rising. 
Strong economies are supposed to have strong currencies!

No inflation? No way.

http://goldsilver.com/video/fast-food-workers-strike-nationwide-asking-for-wages-to-keep-up-with-inflation/

This is why I kept saying... don't believe those headline inflation numbers (and therefore, GPD numbers). The methodology for calculating it has been changed time and again to reflect low/no inflation.

Strikes in 60 cities.

Why Do Education and Health Care Cost So Much?

http://www.bloomberg.com/news/2013-08-26/why-do-education-and-health-care-cost-so-much-.html

Simple.. if any objective person is willing to look into it, he/she will find that it's because of government involvement with regulations/subsidies/taxes. There's no private, free-market in these sectors.

The author totally missed the point. The commenters below the article got it right.

Syria

An illegal war by the West against Syria is brewing. Just like the illegal war against Iraq.

"Warplanes and military transporters have begun arriving at Britain's Akrotiri airbase on Cyprus, less than 100 miles from the Syrian coast, in a sign of increasing preparations for a military strike against the Assad regime in Syria." ~Guardian

Facebook Valuation

Speculators are valuing facebook as a more-than-$100 billion-worth company, based on a $53 million profit last year.

Facebook has an estimated P/E ratio of about 60 (or 193 for ttm). People are willing to pay for 60 years of forward earnings in order to buy a share of their stock.

Using this kind of valuation, Apple will be worth something like $3 trillion.

Speculators in real estate

-picture from www.zerohedge.com.

2 possibilities:

1. Someone is lying about the figures, or
2. 60% of homes sales are paid fully in cash.

#2 is more likely. If so, either

a. Low-wage, part-time workers are buying them, or
b. Lots of speculators are buying.

#a is unlikely because they couldn't even afford the homes when prices were lower, what more at these elevated prices. #b is the most likely explanation, in which case huge losses can be expected soon.

Flee bonds!

Bloomberg ~ Investors yanked $30.3 billion from U.S.-registered bond mutual and exchange-traded funds this month as dollar-denominated, investment-grade debt posted its biggest loss in at least three decades.

The withdrawals for the month through Aug. 19 are already the third-highest on record, following $69.1 billion of withdrawals in June and $42 billion in October 2008.

3rd bailout for Greece

"There will have to be another programme in Greece," Wolfgang Schaeuble, Germany's Finance Minister.

Of course Greece "needs" a 3rd bailout. Who in the right mind will believe that the problem of debt can be solved by more spending and debt? But why admit this right before the German election in a few weeks' time? If anything, the Germans will be even more pissed with Merkel.

Abenomics Utter Fail

Abenomics Utter Fail: Japan’s Crazy Exploding Trade Deficit. 

It's about time economists understand what trade is all about. Devaluing one's currency doesn't help increase wealth. There's no historical precedence for it. Sure, it helps exports, but it only means you pay more for imports too. 

Also, the ultimate reason for a nation to export is to IMPORT. 

Devaluing one's currency simply TRANSFERS wealth from the currency holders (this includes the population) to that FEW exporting companies, because there'll be inflation at home, and people/other companies have to pay more for imports.

A strong nation has a strong currency, not a weak one.

Noooo, I'm not a gold bug.

Most of my posts about gold in the past 4 years is to show what money really is, where it comes from, how it ought to behave to ensure FREEDOM for people. Gold just happens to be a very good example to use, because it has been chosen by mankind for 5000 years. 

Over the years I've gotten a lot of arguments and name-callings from the anti-gold bugs. My posts on gold is not meant to turn everyone into an investor or speculator. I don't expect that to happen, and neither do I want that to happen. My foremost concern is to shed light on central banks (combined with government regulations - a real potent team indeed) - the real source of a lot of our displeasures today.

'Safer' Treasuries

http://www.bloomberg.com/news/2013-08-05/treasuries-proving-safer-than-aaa-two-years-after-s-p-cut-1-.html

If 2 planes are falling from the sky, and one is falling slower than the other one, do you call the slower one 'safer'?

omg?

GIC said that while the global economy was facing challenges, it took a more bullish view on the United States as a major investment destination because of the improving economy there.

Farming

Farming has been a disaster for 30 years. The average age of farmers across the world is in the 60s. How much do agriculture commodity prices have to rise to entice a new generation of young people - or you for that matter - to enter the industry?

Current selected agricultural commodity futures prices:
Corn: $215 per metric ton
Wheat, No.1 Hard Red Winter: $307 per metric ton
Coffee, Robusta: 107 cents per pound
Coffee, Other mild arabicas: 123 cents per pound
Sugar No.11: 16.30 cents per pound
Cotton: 86.5 cents per pound
Soybeans, U.S. No.2 Yellow: $548 per metric ton
Cocoa beans: $2360 per metric ton
Rice, 5% broken milled white rice: $550 per metric ton
Beef: 180 cents per pound
Chicken: 106.5 cents per pound

Mention of gold and silver investment in books

This graph shows the frequency of appearance of the phrases "gold investment" and "silver investment" in 5 million books over the past 6 decades. At present moment, it looks like we're still quite far away from the bubble period of 1979/1980. Lots of books about these investments have been published right after the bubble burst in 1980, as we can see from the graph. Maybe lots of authors were late to the party, considering that it takes a few months to publish books. 

Debt ticking time bomb.

As of July 12, the Treasury had redeemed/repaid approximately $5,848,194,000,000. 

How is that possible considering the annual tax revenue is roughly $2,500,000,000,000? 

Ans: An additional $6,477,293,000,000 was borrowed/printed from the public/world/Fed. Net increase in publicly circulated debt has increased by $629,099,000,000 so far this year.

Ponzi Scheme! Bernie Maddoff would have been proud of this achievement. They should have made him secretary of the treasury instead of throwing him behind bars.

Thoughts about Gold price correction

When will gold hit bottom? I have no idea. A 50% correction, which is normal in a long-term bull market, will put gold at about $950. So far it has corrected 37%, the biggest correction in its 12-year bull run. As Jim Rogers have been saying since 2011, what is abnormal is not the correction, but the decade-long winning streak. A correction must come for gold to make a nice solid bottom, from which it can take off again.

I have taken this opportunity to increase my silver holdings by a further 50% so far. I am getting more very soon. I can't get enough of it. Prices may fall further, but then I'll just buy more.

Given that such price movements are normal in markets, Gold-bugs and anti-gold-bugs alike still try to justify it with various reasons. The gold-bugs say there is price manipulation in the market. The anti-gold-bugs say "Aha! I told you gold is a bubble!"

Manipulation may be successful in the short run, but I imagine it is impossible in the long run. One will simply lose too much money trying to manipulate the market. When I ask conspiracy theorists to explain to me step-by-step how manipulation works, they are at a loss of words. Gold is exchanged in more than 10 independent exchanges worldwide. In the long run, prices are set by supply and demand of gold, not some wall street guys shuffling paper around. If the government has been manipulating the gold market, they have failed horribly. Gold has risen more than 4 fold in the past 12 years.

As for those crying that gold is a bubble, it is weird to hear this coming from them, considering that they missed the ride from $250 to the current price of $1250 (it hit $1900 in 2011). It's also amusing that they are not detecting the mother of all bubbles - government bonds, especially the US long-term government bonds.

In the mean time, continue accumulating!

NYT 1976

Gold rose 800% back then, shortly after this piece of article was published. Overall it rose 2400%, before the bubble popped.

New York Times, August 29, 1976:
"Two years ago gold bugs ran wild as the price of gold rose nearly six times.  But since cresting two years ago it has steadily declined, almost by half, putting the gold bugs in flight.  The most recent advisory from a leading Wall Street firm suggests that the price will continue to drift downward, and may ultimately settle 40% below current levels. 

The rout says a lot about consumer confidence in the worldwide recovery.  The sharply reduced rates of inflation combined with resurgence of other, more economically productive investments, such as stocks, real estate, and bank savings have combined to eliminate gold's allure.

Although the American economy has reduced its rapid rate of recovery, it is still on a firm expansionary course.  The fear that dominated two years ago has largely vanished, replaced by a recovery that has turned the gold speculators' dreams into a nightmare."

So. No more exit strategy.

Ben doesn't even dare to talk about exit strategy (i.e. selling bonds) now, after all the rhetoric in recent years. Over the years, people were arguing with me that he has an exit strategy. But if one really does his homework and look at the actual numbers, one will realise that it's not tough to call his bluff. 

A mere mention of tapering (i.e. stop buying so much bonds) has already made bond holders so nervous. I started shorting bonds in March, and so far it has been profitable. Didn't expect bonds to fall so early. I was thinking it will fall towards the end of the year, and wanted to stick a foot in. Fortunately, I entered the trade early.

It will be interesting to see what he says in the next FOMC at the end of July. I will wager that the rate of money printing (sometimes euphemistically called Quantitative Easing) will be increased in the future. They will only reduce the rate of money printing if they dare to allow the government to default, or if they dare to allow the too-big-to-fails go bankrupt. 

Over the years, I've compiled soooo many news and opinion articles by economic commentators, who have been cheering for economic recovery and cheering on the Fed. In time to come, I will post the links to those articles (hopefully the links are still working). I do this not for the purpose of naming and shaming the authors - not at all - but to show how much irrational exuberance there can be in the market. It is hard to be aware that one is in a bubble. Is this complacency? Over-confidence? In my opinion, not so. It's more about wrong economic theories. I hope that as we see more and more financial turmoil in the world, the world will increasingly be more aware of some basic Austrian Economics, and make some effort to understand it. Only then will things start to make so much more sense.

Hide behind the inflation rate

Bloomberg: "Federal Reserve Bank of St. Louis President James Bullard said the central bank may need to increase monthly asset purchases above the current $85 billion pace if inflation slows further below its 2 percent goal."

May need to increase? More like WILL 'need' to increase! 

But anyway, this is the excuse that they will use to further increase the size of their QE: low inflation rate. But eventually, even the government's CP-lie numbers will no longer be able to hide the rate of inflation. By then, what other excuse will the Fed have?

The world consumes the same corn, wheat, copper, beef, and what not. So it is astounding that nations worldwide report 5-7% inflation rates, but the US only has a 1%+ inflation rate. Education, tolls, transport, healthcare, energy, food, bonds, stock prices have gone up rapidly in the past few years, but the authorities claim to have low inflation?

Global recession

Every credit-fuelled boom ends in a bust. Since 2007, there has been massive money printing on a global scale, something that has never happened before in history. As the Austrian business cycle theory predicts, this causes artificial booms. The day of reckoning is near when the excesses have to be purged. 

Will it start in Japan? China? Europe? US? I have no idea. But the asians are in a much better position to deal with a crisis. The worlds' creditor nations and manufacturing hubs are in Asia. The debtors are in the West.

This time round, it will be weird to see people rush into the perceived safety of US bonds again. This was what happened about 6 years ago. When the US bonds were downgraded, everyone rush into the safety of..... US bonds. How long will the bubble last? It is certainly coming to an end. It'll be weird if this party lasts beyond 2013 or 2014.

FOMC announcement tomorrow

The Fed announcement tmrw, like previous announcements in the past few years, may excite markets in the short term, but in the long term and in the big scheme of things, it's inconsequential. The bond bubble will still burst eventually, whether it's forced by the Fed themselves (highly unlikely) or if it's forced by the market. 

But just for kicks: They are more likely to continue/increase their QE size than to taper, cos they need to cover all those lost bond demands. Even if they announce tapering, the money printing still goes on behind the scenes, as has happened all the time in the past decade. 

If i'm a short-term betting guy (which I'm not), I'll bet that he maintain the QE or even increase it. He may say something like: "The recovery is ongoing but the Fed wants to be extra sure. So we increase the QE."

USDJPY and Nikkei

Both have been rising 8 months prior to May. I started shorting USDJPY in early May, and so far it has been very profitable. Unfortunately I don't have enough capital to short the Nikkei. I'm not doing day-to-day trading, just trying to take advantage of the fact that something has been going in one direction for 8 months, and so there has to be some correction at some point.

This is just purely a speculative short term play.

Global pension funds

The global pension funds of major nations totalled some $30 trillion. Most of them are in bonds and stocks. Here're some examples. During the next currency and bond crisis, I wonder where they will go to.

-Towerswatson

WWE Wrestler Kane!

WWE wrestler Kane. Very impressive!! Hope he gets to senate and does a few chokeslams, and then teach those senators some Austrian Economics and libertarianism.

Tom Woods: 

"Ron Paulian WWE wrestler Kane, who has the longest active career of anyone on the WWE today, is considering a run against Lamar Alexander, Mr. Establishment, for U.S. Senate in 2014. He's smart, too. Even the Daily Caller has to write about him with respect."

Bernanke to exit in Jan 2014?

First it was treasury secretary Timothy Geithner. Now Ben Bernanke wants to leave his Fed chairmanship too. They must know that they have screwed up the country. This is the exit strategy that Ben Bernanke has been talking about for years folks! His own exit strategy, literally.

Last year, I've combed through about 15 possible successors to Ben Bernanke. It seems that all of them love money printing.

Anyway, the time of reckoning is ticking ever so closer.

Bitcoin

I have not posted anything about bitcoin in my blog, but had done so on my facebook. As predicted, those in power always try to control private currencies. This has happened throughout history for thousands of years. Whenever there is a popular, profitable currency, the authorities will try to control it. They are afraid of competition to their fiat currencies.

The Antigoldbugs

Antigoldbugs watched gold go from 300 to 1900 without buying any, and then watch it go through a correction, and then say "I told you so!"

Seems like it's the only bubble in which nobody owns the asset.

If we go back to Bretton Woods...

Here I try to calculate the implied value of gold in USD, if the US were to go back to the Bretton Woods (40% backing by gold). Of course, I don't do my gold (actually silver) investment based on this scenario. Gold should be viewed as an alternative currency -- a super undervalued currency that is. Anyway, just for fun:

From the US websites,

Estimated April 2013 M2 money supply: $10525.9 billion
US official gold reserves: 8133.5 tonnes = 261527331.1897106 troy ounces

We assume that these figures are *cough* honest and accurate.

Take (M2 x 40%) / (oz of gold), and you will get an implicit value of $16,099.12 per ounce. If gold hits this kind of price, silver will be at a few hundred bucks per oz.

The price of gold when I started this blog: $950/oz
The current gold price: $1350
The price of silver when I started this blog: $14+/oz
The current silver price: $22.30

Silver milestone

I've reached my target silver oz yesterday, 15th May. After about 3.5 years of collection! Through those years, I actually sold some 200oz - part of my collection - in 2011, near the peak of the silver bull run. It was going up 60-70% in just a few months. There were too many bullish short-term speculators in the market.

It is very tempting to buy more given that prices have come down substantially recently.
I have been doing research on agricultural commodities. It might be a good chance to start buying when a crisis hits this year or next.

I'll still continue to short the US 30-year bond. Surprisingly my positions have been in the green since I started shorting it a few months back.

Abenomics

Abenomics and currency debasement is nothing new. It has been (literally) tried repeatedly for thousands of years and failed every single time.

What the administration needs to understand is that:
1) Real demand ONLY comes from real supply, not the creation of more currencies.
2) Economic growth is not synonymous with GDP growth. GDP is just another fanciful way of measuring inflation (i.e. money printing). Even the calculation of real GDP is flawed.

US Central Banks

It still surprises people when I mention that the US had 2 central banks prior to the Fed. Those 2 central banks were shut down. At the rate that this current Fed is going, they will disappear in the foreseeable future too. It is unimaginable to most right now. But at the rate it's going, it will disappear.

One thing analysts really need to learn is that there're always unintended consequences to every action that the central bank takes. These people subconsciously thought that this time, it's different. It's as if this is some kind of new age economy. They never study history. And if they do, they studied the wrong history.

History repeats. Or if it doesn't repeat exactly, it rhymes.

Peter Schiff's rundown on the GDP propaganda

Massage the unemployment numbers, massage the inflation numbers, now massage the GDP numbers

Stealthy Yuan

Summary of two years of the Yuan internationalization efforts, due to decreasing faith in USD and china's increasing prominence: 

-"World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", 
-"China, Russia Drop Dollar In Bilateral Trade", 
-"China And Iran To Bypass Dollar, Plan Oil Barter System", 
-"India and Japan sign new $15bn currency swap agreement",
-"Iran, Russia Replace Dollar With Rial, Ruble in Trade",
-"India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees",
-"The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap",
-"Australia And China will Enable Direct Currency Convertibility", and the latest
-"France intends to set up a currency swap line with China to make Paris a major offshore yuan trading hub in Europe, competing against London."

source: Zero Hedge

Traders entertain me more than precious metals price movements

Note: This post is not directed at any particular person. I love you all.

There we go again. It's the time of the bull market when there's a nice correction in gold and silver. As usual, I am inundated with messages from the anti-gold people. I have nothing against them and do not look down on them in any way, and I hope they have nothing against me too. I respect their views with regards to short-term price movements, and have never challenged any of those views.

It's unfortunate that a lot of traders cannot see things from the perspective of a long-term investor. As a long term investor, I understand the actions of short-term traders - why they enter or exit at certain prices, why they follow everyday-news closely, etc - but this understanding is almost always non-reciprocal.

With all due respect, traders focus more on charts than do actual research on market happenings that have occurred in the past. This turns into a big mistake if they then try to predict long-term trends without sufficient data and historical perspective. No matter how I tried to present the macro factors to them, they are just simply and conveniently ignored. To repeat - I know traders live in the here and now and maybe they make lots of money, but to make long-term predictions without adequate data and historical perspective is a mistake.

I would like to point out that there are good traders - they can make money in bull or bear markets. But more often than not, they try to push their views onto long-term investors - when it comes to exit or entry points to the market. I take pains to keep on repeating that I am not concerned about short-term price movements at all. Not at all. Non. Nada. NoNoNo. I'm happy with the way I invest and I'm guessing they are happy with the way they trade too. Unfortunately when I don't follow their sometimes well-intentioned advice, they start making wild claims that I'm too emotionally attached to my investment, or that I'm stubborn, or that I am being slaughtered by the price crash, or that I'm a gold bug - the list goes on.

The reasons why I buy silver have not changed the slightest ever since I bought my first oz. The reasons why I will eventually exit silver have not changed the slightest ever since I bought my first oz. Not at all. Non. Nada. NoNoNo. These short-term price movements are entertaining, but non-events in the scheme of things. Such things should not surprise long-term investors at all.

Anyway, silver's price movements in the past 2 trading days are awesome. Such corrections are perfectly normal and I love it. I just wish I have more cash to buy them up.

While I expect big corrections to happen from time to time, I am not smart enough to know exactly when or at what prices. That's why I do not try to time the market and short sell. That being said, I keep getting "I told you so" messages. If traders really saw this 'crash' coming and acted on their convictions (no conviction = speculation/gambling. well, somewhat.), they would have shorted gold and made $200 x (insert leverage multiple here). Easy.

P.S. I still love you all.

Level 3 Assets

Another example in which a large bank hide stuff under "level 3 assets" These values are "marked-to-belief" rather than marked-to-market. Their public income statements look all nice and dandy but these figures were not included inside.