Today our President acted to freeze pay across the board for federal workers. The analysts estimate the savings will be $60B over 10 years…..The daily deficit is $4B…..So in 15 days the govt. will borrow what they save by freezing wages for 10 years…..15 days of borrowing equals 10 years of saving. In addition, there were a couple of other gems…..The Obama panel on deficit reduction decided to delay their report. They want to make sure they have their airline tickets and bullet proof vests purchased first. And lastly, drum roll please………………………………Our President and the Congress agreed to negotiate on taxes…..They actually released news to this effect. That is like me saying, “I will go to work today”.
In order to get out of the mess we have made there are ONLY 2 choices – Declare default on national debt or Print and Pay. Neither course of action is good, but inevitable. And you know what? Under either course of action we must pave the road of the future to make sure we do not end up here again. Like a company going through bankruptcy. So here are my recommendations: 1. This year - 10% across the board spending cuts. No exceptions for any programs – applied to every single budgetary department. 2. Next year – same thing. 3. The year after that – same thing…..This continues until the budget is in balance. 4. Thereafter, in order to spend more money than we take in, a vote of the people in the form of a constitutional amendment is required.
-Michael
Tuesday, November 30, 2010
Thursday, November 18, 2010
Conspiracy? No, I'm from the 60's.
My son must approve my blogs, ain’t that special……He thinks I am too conspiracy oriented, too radical…..And I tell him it is the 60’s…..I am a product of the 60’s.
Under the 2010 HIRE ACT the United States Treasury Dept. was granted the authority to collect withholding taxes from foreign financial institutions. Under a new Chapter 4 foreign financial institutions with US account holders may be subject to a 30% withholding tax on income from US financial institutions unless they agree to disclose the 1. Identify of any US person, 2. Account number, 3. Account balance or value, and 4. Gross receipts and gross withdrawals. Another Code Section imposes new reporting requirements on individuals who hold more than $50,000 in any financial account. And lastly, the statute of limitations is suspended.
So the United States of America is tightening the noose…..They are laying the foundation to prevent or reduce capital flight…..Capital flight….Something countries like Argentina have dealt with forever…..When economies face huge debt loads which must result in increased tax rates, and citizens want to move their money, powers that be work to prevent that. Capital flight exacerbates economic trouble. So how does a Govt. prevent its citizens from moving their money to another country? First they have to find it…..Then they have to tax it…..Not easy to do in a hurry, so they are paving the road now…..
We will not go gently.
-Michael
Under the 2010 HIRE ACT the United States Treasury Dept. was granted the authority to collect withholding taxes from foreign financial institutions. Under a new Chapter 4 foreign financial institutions with US account holders may be subject to a 30% withholding tax on income from US financial institutions unless they agree to disclose the 1. Identify of any US person, 2. Account number, 3. Account balance or value, and 4. Gross receipts and gross withdrawals. Another Code Section imposes new reporting requirements on individuals who hold more than $50,000 in any financial account. And lastly, the statute of limitations is suspended.
So the United States of America is tightening the noose…..They are laying the foundation to prevent or reduce capital flight…..Capital flight….Something countries like Argentina have dealt with forever…..When economies face huge debt loads which must result in increased tax rates, and citizens want to move their money, powers that be work to prevent that. Capital flight exacerbates economic trouble. So how does a Govt. prevent its citizens from moving their money to another country? First they have to find it…..Then they have to tax it…..Not easy to do in a hurry, so they are paving the road now…..
We will not go gently.
-Michael
Tuesday, November 2, 2010
GOLD!
As many of you know, we have been extremely bullish on Gold for a few years now. Why? Where does it go from here? And doesn't $1,400/oz sounds really expensive?
The economic collapse has spurred unprecedented action by governments across the globe. To aid domestic recovery, governments have injected money into their economies and artificially devalued their currencies. The former action aids domestic consumption while the latter boosts export demand. The trick is that the value of a currency is relative. The Yen is strong or weak only in comparison to something else. So what happens if the Euro is artificially devalued to the same extent? The Euro/Yen ratio would remain the same. That is why gold (and other commodities) have sustained such long term growth. Commodities don't change in value, they reflect the value of the currency in which they are priced. And with governments continuing to print money, gold has no reason to lose "value."
Take a look at these stats from Agora Financial:
"Let’s take a look at some of the great gold bull markets of the last hundred years:
From 1920 to 1923, the price of gold in German marks rose from 160/oz. to 48 trillion/oz.
From 1945 to 1950, the price of gold in Japanese yen rose from 140/oz. to 12,600/oz.
From 1948 to 1967, the price of gold in Brazilian cruzeiros went from 648/oz. to 94,500/oz.
From 1970 to 1980, the price of gold in US dollars went from 35/oz. to 850/oz.
From 1982 to 1990, the price of gold in Mexican pesos went from 8,000/oz. to 1,025,000/oz.
From 1989 to 2000, the price of gold in Russian rubles went from 1,600/oz. to 8,120,000/oz."
Each of these periods is a time when that currency collapsed.
So how do you value gold and where does it go from here?
Another quote from the Agora writer:
"The “price of gold” may reach five thousand, ten thousand, a hundred thousand, a million, or a billion dollars per ounce. The gold bubble-callers will be frothing at the mouth, until they finally have the realization that there was never a bubble in gold, but only a crash in paper money."
By no means is anyone predicting a billion dollars an ounce or even ten thousand, but the point is that gold is gold. Its price reflects the value of the underlying currency. So as long as the US keeps running deficits and the Fed keeps announcing "quantitative easing" (printing), why won't gold continue to rise in terms of US dollars? The same goes for other currencies (400 to 1000 Euros/oz in the last 5 years).
Going forward, government policy will be the determinant. With the US having over 111 Trillion dollars of unfunded liabilities (www.usdebtclock.org) I don't see how we can avoid printing currency... a lot of it. And what if there is a full blown collapse one day? Can you afford not to own gold? Right now, we don't think so.
-Sean
The economic collapse has spurred unprecedented action by governments across the globe. To aid domestic recovery, governments have injected money into their economies and artificially devalued their currencies. The former action aids domestic consumption while the latter boosts export demand. The trick is that the value of a currency is relative. The Yen is strong or weak only in comparison to something else. So what happens if the Euro is artificially devalued to the same extent? The Euro/Yen ratio would remain the same. That is why gold (and other commodities) have sustained such long term growth. Commodities don't change in value, they reflect the value of the currency in which they are priced. And with governments continuing to print money, gold has no reason to lose "value."
Take a look at these stats from Agora Financial:
"Let’s take a look at some of the great gold bull markets of the last hundred years:
From 1920 to 1923, the price of gold in German marks rose from 160/oz. to 48 trillion/oz.
From 1945 to 1950, the price of gold in Japanese yen rose from 140/oz. to 12,600/oz.
From 1948 to 1967, the price of gold in Brazilian cruzeiros went from 648/oz. to 94,500/oz.
From 1970 to 1980, the price of gold in US dollars went from 35/oz. to 850/oz.
From 1982 to 1990, the price of gold in Mexican pesos went from 8,000/oz. to 1,025,000/oz.
From 1989 to 2000, the price of gold in Russian rubles went from 1,600/oz. to 8,120,000/oz."
Each of these periods is a time when that currency collapsed.
So how do you value gold and where does it go from here?
Another quote from the Agora writer:
"The “price of gold” may reach five thousand, ten thousand, a hundred thousand, a million, or a billion dollars per ounce. The gold bubble-callers will be frothing at the mouth, until they finally have the realization that there was never a bubble in gold, but only a crash in paper money."
By no means is anyone predicting a billion dollars an ounce or even ten thousand, but the point is that gold is gold. Its price reflects the value of the underlying currency. So as long as the US keeps running deficits and the Fed keeps announcing "quantitative easing" (printing), why won't gold continue to rise in terms of US dollars? The same goes for other currencies (400 to 1000 Euros/oz in the last 5 years).
Going forward, government policy will be the determinant. With the US having over 111 Trillion dollars of unfunded liabilities (www.usdebtclock.org) I don't see how we can avoid printing currency... a lot of it. And what if there is a full blown collapse one day? Can you afford not to own gold? Right now, we don't think so.
-Sean
Monday, October 11, 2010
Social Security turns cash-flow negative.
Social Security paid out more in benefits than it took in during the first half of 2010. The severe economic collapse and sustained unemployment have seriously dented the inflows while some baby boomers have been forced to start collecting benefits early. Some projections estimate that 70% of baby boomers don't have retirement savings. Many people aren't even aware that the social security "fund" was lost long ago when it was decided to lump that money in with with the general fund thereby masking the true deficit/debt problems our country faces.
Of course, if the economy picks up and employment increases, we could see tax receipts bring the cash-flow positive. But that would be just a short term correction. The long term problem can only be solved a number of ways:
-Benefits can be reduced (as well the cost of benefits paid).
-Taxes can be increased.
-The government can print its way out.
Currently, the political will doesn't exist to accomplish the first two options and by the time it does, the problem will probably be too big for it to make a difference anyways (many say it is already). That leaves us with choice #3; print print print (well, these days all it takes is a computer keystroke). So how do investors take advantage of this long term theme? Buy stuff! Tangible assets will be the primary benefactor of an environment in which the value of the US dollar is eroded, especially commodities and foreign companies/currencies. That is the main reason we are so bullish on Gold, but more on that later...
-Sean
Of course, if the economy picks up and employment increases, we could see tax receipts bring the cash-flow positive. But that would be just a short term correction. The long term problem can only be solved a number of ways:
-Benefits can be reduced (as well the cost of benefits paid).
-Taxes can be increased.
-The government can print its way out.
Currently, the political will doesn't exist to accomplish the first two options and by the time it does, the problem will probably be too big for it to make a difference anyways (many say it is already). That leaves us with choice #3; print print print (well, these days all it takes is a computer keystroke). So how do investors take advantage of this long term theme? Buy stuff! Tangible assets will be the primary benefactor of an environment in which the value of the US dollar is eroded, especially commodities and foreign companies/currencies. That is the main reason we are so bullish on Gold, but more on that later...
-Sean
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