QE4

Many analysts are going to be surprised when the Fed announces QE4.
All the previous inflationary policies did not work, as predicted. If it fails, try the same thing again. And that is what the Fed is going to do. But for now, the market believes that QE3 worked. They will be in for a shock.
When that happens, will China do a Switzerland? Or continue to bleed their citizen's wealth propping up the dollar?

In the past few years, analysts say that if China were to dump the dollar, they will lose big time, so they have no choice but to keep buying US bonds. Well, the former is somewhat true, but the latter is false. Sure, they will lose out on their existing holdings. They made a bad bet. And they know it. It is probably done to gain political influence and friendship, although the citizens have to foot the bill. But will they go on buying US debt indefinitely? Not in my opinion. They may lose money if they stop buying, but they will lose even more money if they continue buying. So which is better? In the past 22 months, their treasury holdings have already tapered off and started dropping. Whether this will continue to be a trend remains to be seen.

With China out of the picture for now, Japan the Fed, and, mysteriously, Belgium, have been soaking up all these US bonds. No one can predict how long this will go on. But pretty soon these bond holders have to start cutting their losses. Treasuries have had over 30 years of bull run. It had a 30-year bear run before that. The next 5 years will be truly exhilarating in the financial markets. But my thoughts are with the hundreds of millions or billions of innocent citizens across the globe who have been footing and will continue to foot the bill.

Singapore's inflation

Singapore's inflation. Is cost of living going up 5-10% yearly?
Singapore money supply (S$ million)

Sep 2008
M1: 75,633.7
M2: 324,687.2
M3: 333,807.8

Sep 2014
M1: 156,503.7 (106.9% increase, 12.9% annualised)
M2: 505,032.8 (55.5% increase, 7.6% annualised)
M3: 516,912.6 (54.9% increase, 7.6% annualised)

Source: MAS

The forgotten depression — 1921: The crash that cured itself

Academics should study this. Seriously. Why it's left out of econs classes confounds me. I wrote a summary of it before at http://silvernjin.blogspot.sg/…/1920-depression-that-no-one… but this video contains more details.

Hayek on Keynes

Here are links to 2 videos of Economics Nobel Prize Winner Hayek on Keynes, the guy whose ideas form the basis of the world economic model today.

Hayek on Keynes' ignorance of economics:
https://www.youtube.com/watch?v=y8l47ilD0II

2nd Video:
https://www.youtube.com/watch?v=VqU-AZh-wqU

4:00 onwards in the 2nd video. Keynes is against the inflationary policies that we have in the world today, as I've always suspected so. Nevertheless, politicians used his ideas and make them highly destructive. The world is fixated on inflation, spending and consumption as a means to cure the ills of the economy, when in fact inflation, over-spending and over-consumption were the causes of those ills in the first place. The next 1-3 years will be very interesting for the financial community. We should probably see the full-blown problems caused by Keynesianism, especially in the West. Big symptoms have emerged in the past decade but politicians and central banks managed to cover it up. When Keynesianism will be banished forever is a question mark. But it won't be in the foreseeable future. I'll be really happy if I'm wrong in the preceding statement.

Russian Fear

-Low debt. Huge reserves. Debt to GDP of 9.2%. Oil revenue denominated in USD.
-Natural-resource-based economy + commodity boom for forsee-able future.
-Great balance sheets in energy companies. Tremendous assets.
-The p/e ratio of the largest oil company is lower than 3!
-Apple alone is valued more than the entire Russian stock exchange.
-Why own 1 company rather than an entire country?
-The Russian Central Bank just raised interest rates to 17%.
-A number of major economies cannot even afford 1% !
-Why do people short Russian rubles and stocks so much?
-Anyway, bought myself a significant bunch of RSX yesterday at $13.18.
-As global economy slows, it may drop back down to its 2009 lows.
-Who knows. I'm in for the long haul. The fundamentals are good.
-And also, Putin has opened up the economy more in the past few years.
-But if Russia invades Europe, then I may have to panic sell.
-Also, I wish to buy rubles but have not done so yet.

Update 18/12/14. The mainstream media has been talking about Russia selling its gold. I think this is unlikely. From the russian point of view, they have a huge foreign reserve that they can tap into. I think they are more likely to sell their USD and US treasuries than to sell the gold that they have worked hard to stockpile over the last few years. In fact, this year, they bought the most gold on record - almost twice of last year's amount. I was telling my friends yesterday about this, and soon enough, it was reported that Russia sold some of its foreign reserves to buy up the rubles. But what if Russia really sells its gold? Then gold is likely to go down, and we may finally see a bottom in the gold market as some staunch gold-supporters give up their holdings. I am still thinking of getting more North Korean gold coins in March. So if gold goes down, it will help! In the meantime, my RSX is up a whopping 20% in 2 days. I won't be surprised if it goes to its 2009 lows though, when a financial crisis hits the world in the next few years. I took the chance to buy up these RSX for the long term, seeing that traders are mass-selling it without any regard for fundamentals. But again, if Putin invades Europe or make some other major mistakes, I would have to sell my holdings.

Warren Buffett's networth in commodities, 2000-2013

Where is US stocks going next?

It seems like there's some sort of correction going on. I've been watching the small caps and their junk bonds. The Russell 2000 has fallen 10% since March this year. DJIA and S&P500 fell today too.

Since 2009, I have been maintaining the position that stocks may well rise due to the Fed's money printing. But I am more than willing to sit out the potential gains because there is no economic fundamentals behind them. Stocks are simply going up because of the cheap money sloshing around the world. That is also the reason why I did not short any stocks at all. Going forward, my thesis remains the same. As the economic weakness becomes more apparent to the Fed and the market, the Fed will come in with a new round of QE, or whatever they call it. Stocks may then rise again and have their final hurrah. Till then, it's entertainment for me as I watch the events unfolding.