Tuesday, October 14, 2008

What is Happening In Our International Political Economy?

We are living through some very interesting days, particularly when it comes to the rapidly changing landscape of the international political economy.

For some pretty cool picks on what is happening in the International Political Economy, check out this link:


posted by Ruel Haymond of Project Liberty

Read more!

Monday, October 6, 2008

Are We Headed for another Great Depression?

Posted by Dean Morgan of Project Liberty

Some say we are, so at the end of this message I will discuss what you can do to prepare for it.

But first, what I am about to tell you may shock you. In short:

1. Government intervention made the Great Depression worse, not better. Depending on who’s elected President, the same could happen again.

2. Too much government intervention, not a lack of regulation, caused our crisis.

3. The government is to blame, not irresponsible borrowers or greedy executives.

4. California is next in line for a government bail out.

5. Things will get much worse because of a game of financial chicken.

While we aren’t anywhere near another Depression (25% unemployment then vs. 6% now), some experts say a Depression is actually possible, especially if government makes the same mistakes it made trying to fix the Great Depression which started in 1929. As a result, the stock market didn’t recover to it’s pre-Depression level until 1954!

***Government Regulation Made the Depression Worse, Not Better***

Contrary to the popular belief that President Roosevelt’s big government programs caused a recovery, the Depression actually lasted much longer than it should have because President Roosevelt raised taxes and many businesses had to shut down leading to more unemployment.

***Too Much Government Intervention CAUSED our Current Crisis!!***

Will the Government save us this time? Don’t count on it. You simply cannot legislate a recovery. In fact, while many are calling for more regulations, if history is any indication, government intervention is likely to make matters WORSE.

And more to the point, the current financial crisis was actually caused by TOO MUCH REGUATION, not a lack thereof like most people assume. Here’s why:

Most of you know that lots of bad mortgages owned by Freddie Mac and Fannie May and other banks and brokerage firms is why we have a credit crisis. But exactly WHO is to blame?

DON’T BLAME THE BORROWERS: Sure, people shouldn’t borrow beyond their means, but let’s be real. When someone hands people free money for a house, car and anything and everything else, people will simply take it! It’s human nature.

DON’T BLAME GREEDY WALL STREET EXECS: Yeah, sure they ARE greedy, but greed is an unavoidable in a capitalist society. Fear and greed drive free markets, and always will. The FBI is investigating some firms, and they might find a few instances of fraud, but the fact remains that if you allow people to make easy money without breaking the law, they will!

DO BLAME THE GOVERNMENT!!: Not only was what the wall street companies doing legal, but the government encouraged it! Even worse, some in congress prevented attempts by those who saw the writing on the wall to pull the reigns.

Yes, blame the Government, because well-intentioned politicians, starting with Bill Clinton who enacted some low income lending policies, FORCED Fannie & Freddie to increase their portfolios of sub prime debt to unprecedented levels so that poor people could own homes.

And to ensure banks were loaning to people who couldn’t afford to repay the loans, a liberal group called ACORN, funded by Congressional Democrats, went around suing banks that refused to make what they called “financially irresponsible” loans.

In 2004 the Bush administration sounded the alarm and proposed legislative changes to reel in Freddie and Fannie that were voted down strictly along party lines in the Congress. In 2005 Josh McCain made another attempt, but the reform never made it out of the Democratic controlled committee to the Senate floor for a vote.

To ensure these bills would never pass, Fannie and Freddie spent hundreds of millions of dollars on lobbyists to ensure they could keep loaning to everyone and anyone. Senator Chris Dodd (D) Chairman of the Senate Finance Committee received the most campaign contributions of anyone in Congress throughout his many years. Barak Obama is #2 on the donation list after only 3 years in the Senate.

Here you can watch a bunch of politicians in one party saying Fannie & Freddie are just fine, while others try to sound the alarm unsuccessfully: http://tinyurl.com/3nkrp7

So, in the name of “fairness”, bad loans were made to people who couldn’t afford them, and the institutions doing the lending “kicked back” money to the politicians who protected them.

You see, it wasn’t a lack of regulation, but government interference in the private market FORCING banks to make bad business decisions that caused this mess.

***California may be Next in the Government Bailout***

Because of the current credit crisis, the State can’t get the loans it needs until tax time. The Governor has sent a letter to US Treasury Secretary Paulson stating that if things don’t improve by the end of the month, the State will need $7 Billion. 15 other states are in the same situation!

***Chicken or Egg? A Nasty Game of Chicken***

Banks are simply unwilling to lend until home prices start to rise. But it’s the availability of credit and loans that cause home prices to rise and fall! So banks and the housing market are playing a nasty game of chicken. And there’s a lot more properties in foreclosure that will get dumped on the market adding to the current supply, with few who can get loans to buy them, even if they qualify.

Unfortunately, the “bail out” bill won’t spark a recovery. It’s simply a plug in a leaking dyke. Even worse, some experts say 1 in 8 jobs are related to housing. Plus people aren’t spending, either because they won’t or they can’t. A new report says 1 in 5 car dealerships are about to fail.

***Prepare Yourself***

So what can you do? First, ensure you have reliable sources of income. Since anyone who has a job is susceptible to a layoff, ensure you have other methods for making money. In a down economy most people get hosed. Only a few prosper.

If you want to prosper too, determine who they are and do what they do!

In that regard, SOCALCIA has scheduled 2 of the most successful money makers in SoCal to speak: Jeff Adams and Bruce Norris. Jeff Adams will be our keynote speaker at this Thursday Oct 9, and Bruce Norris is coming November 20. Learn more at www.socalcia.com

Any other comments related to preparing yourself? Read more!

Wednesday, October 1, 2008

Should Investors Use Gold as Hedge During Times of Financial Uncertainty?

“It is well that the people of the Nation do not understand our banking and monetary system, for it they did, I believe there would be a revolution before tomorrow morning.” –Henry Ford

Yesterday when the House of Representatives voted down the financial bailout package,
the Dow Industrial experienced its biggest one-day drop in the Index's 102-year history falling 777.68 points.

And there still is no financial plan in place to help revive the economy.

Historically during times of financial uncertainty, investors have turned to Gold as a hedge. This is because gold is the type of investment that is always an asset. (not simultaneously someone else’s liability).

"Investors are leaning toward it as a hedge against what could happen next,” says Carlos Sanchez, a precious-metals analyst with CPM Group.

But, according to the author of an article I found at www.InflationData.com , Gold is actually a “crisis hedge’ not an “inflation hedge.”

During times of crisis, governments tend to lose control over the price of Gold. However, during more peaceful times, governments are able to keep a ceiling on the price of Gold. This causes Gold to move up in a “stair step” manner.

The author of this article at inflationdata.com also says that gold as an inflation hedge has “a very spotty record.”

But is Gold is a bad investment now? Of course not. However, I do tend to agree with the author’s notion about why the price of gold has not done well over the last twenty years. (See image: price of gold over last 20 years).

The author infers that Governments have historically been known to buy and sell Gold on a whim to create an a sort of “illusion of stability.” The low volume of the gold market compared with say the stock market also lends to it being seemingly easily manipulated by governments.

Most investors in my circle don’t know that, up until about five years ago, it was illegal to invest in gold in China. When that market opened up, obviously there was an increase in worldwide demand for gold when China was free to buy Gold. (See image: price of gold over last 8 years) By 2006, the Shanghai Gold Exchange had become the world’s largest trading exchange for gold bullion with its trading volume well ahead of London, New York, and Hong Kong! Now that’s an incredible fact to ponder on when looking at the price of gold.

But if not Gold as an effective inflation hedge then what are some other inflation hedges?

Commodities ?

Price Inflation is defined as the increase in the costs of various commodities. (Although it is also caused by an increase in the money supply). The idea is that, by investing in various commodities, you should be able to at least break even. What commodities have historically done well in times of inflation? Oil. And oil is also a primary component of the increase in the consumer price index. Also, think about the fact that China is also increasing the global demand for oil along with gold. China will also increase demand for other precious metals. And what about world demand for food and what that will do to its prices? Yippee.

 *Inflation indexed bonds ?

Yes, there is such a thing .These bonds have an inflation adjustment characteristic. But they are not adjusted according to the “actual” inflation rate of course.

Any other suggestions for inflation hedges besides the ones I’ve mentioned in this post? Or any thoughts on utilizing gold as an inflation hedge? Read more!

Thursday, September 18, 2008

Gold Recorded its Biggest One-Day Gain in Nine Years

Is this the start of a new bull market in gold?
The price of gold soared 9 per cent in one session to end the Wednesday trading session at $US850.50 an ounce. This percentage gain was the most in one session since September of 1999.
BGF Equities analyst Warwick Grigor said, “A large move in gold overnight is a signal that times are changing. It is not an intra-market movement — it is more fundamental.” He also said, “This could be the start of a new bull market in gold.”
But why has the price of gold being going down in the last few weeks? One reason is that hedge funds have been getting rid of their gold to raise cash to pay brokers who had lent them money to make investments. However, this was slightly offset by the Fannie Mae/Freddie Mac bailout that actually pushed gold prices up.
Analysts think the price of gold will continue to rise in the next few months. What do you think and why?
Read more!

Wednesday, September 17, 2008

AIG´s $1 Trillion Bankruptcy Would Be World´s Largest Ever

The Fed Comes to the Rescue Again!!
AIG's troubles, similar to its Wall Street peers, stem from guarantees it wrote on mortgage-linked derivatives that have left it with a total of $18 billion in losses over the past three quarters as well as its stock price having fallen more than 91% so far this year.
As of yesterday, the Fed has agreed to loan AIG some $85 billion for a 79.9% stake in the company. Whew! Now that’s what I call a rescue! Get those printing presses running! They say that the loan will be repaid with the sale of AIG assets and not with taxpayers dollars. I don’t agree with this. I tend to think that the taxpayers will just continue to pay for the greed and mismanagement of assets that these companies have been running on for years.
Any thoughts on this?
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Monday, September 15, 2008

Want to Save Money in Taxes This Year?

Tax Deductions That May Surprise You
This post on savingtoinvest.com I passed on to friends as there were some items in there that I was unaware of. Particularly being able to deduct my mortgage insurance premium. I just purchased a house and got an FHA loan so my mortgage insurance is through the roof! Its good to know that I can deduct this. Also, deducting start-up costs for a business is something that a lot people tend to overlook, particularly when they are so wrapped up in getting their businesses going.
A lot of CPAs will not go out of their way to suggest creative deductions, they will just do what you tell them to do. This is why its good to know all of these types of tax loopholes when getting all of your tax stuff ready to hand in to your accountant at the end of the year, or whenever you do your taxes. By the way, one of the biggest tax loopholes of the rich that I had no idea about is called ‘Cost Segregation.’ I did a post about it last month on this blog. Here’s a link to it if you’d like to know more: http://thinktankinvesting.com/how-do-companies-like-trump-realty-and-wal-mart-save-millions-of-dollars-on-taxes/
Any other tax deductions that you’d like to enlighten us about? Please share!
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Friday, September 12, 2008

Bad Business Decision For Apple?

Apple Extends Exclusive Agreement With AT & T

I found this article on localtechwire.com and decided to blog on it because I have been thinking a little about this. I have been wondering why Apple would choose to go exclusive with one carrier in the first place. Any thoughts on why Apple would make this business move given the high demand for the phones? From the article came a few thoughts I agree with (see below).
"If Apple made the iPhone available for AT&T, T-Mobile, and Verizon users, can you imagine the selling frenzy? The company would be at the center of one of the most monumental days in the history of technology. If the iPhone 3G can sell this well on one carrier, I can't imagine how well it would sell on the top three."

”While I don’t think Apple has little faith in its product, I do think this is a poor decision. The iPhone has a chance to become not only the dominant smartphone for the coming years, but also the first real powerhouse in mobile computing. By limiting the device to one carrier, it limits its potential to reach such goals.”
Any other thoughts on this?

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