I finally decided to move to an independent hosting platform. The new blog is called Living Off Dividends.
I've been working on it for the past several days, which is why I haven't been posting. I'm still working out some of the formatting issues, but all of the old posts have been ported over. Please check it out and let me know if they're are any obvious bugs.
Next I'll be adding in the advertiser's links, who will be enjoying links on both sites for the time being. After that, I'll add the blog roll. Bloggers, please update your links to reflect the change.
Gouging At The Pump?
Isn't it funny how the ruckus about high gasoline prices has disappeared? I no longer hear anything about it on the news, the politicians haven't taxed Exxon-Mobile's record profits, and I don't get idiotic emails asking me to boycott gas stations for one day in a year.
Yesterday I was filling gas and I decided to actually calculate how much tax I pay on each gallon. Regular was $2.99 of which about 7.75% is sales tax, but there were a few other taxes added. All told, $0.92 was taxes, which works out to about 30% taxes on each gallon.
Sounds like the government is already getting the lion's share of profits and they didn't want anyone else to get in on the action!
Since I hate paying any form of taxes, I think I'm finally motivated to reduce my driving to cut down on my gas usage!
Yesterday I was filling gas and I decided to actually calculate how much tax I pay on each gallon. Regular was $2.99 of which about 7.75% is sales tax, but there were a few other taxes added. All told, $0.92 was taxes, which works out to about 30% taxes on each gallon.
Sounds like the government is already getting the lion's share of profits and they didn't want anyone else to get in on the action!
Since I hate paying any form of taxes, I think I'm finally motivated to reduce my driving to cut down on my gas usage!
Housing Continues To Get Worse
Housing continues to get worse. According to a recent article in BusinessWeek:
This is another example of the fact that real estate agents don't often know much about real estate cycles or investing. Never ask an agent if its a good time to buy. They don't know and its not really their job. Their job is to help you select your perfect home based on your criteria and budget and their knowledge of the local neighborhoods. More importantly, they take care of the paperwork that most homebuyers find imtimidating and incomprehensible. Their job profile does not usually include providing investment advice, even if they claim they're investment experts.
A strong job market, the thriving casino and convention industry, and the highest population growth in the country made Vegas a boomtown for builders. Sin City represented one of the top five markets.
Today, new homes are empty and communities half-built. The number of unsold homes has reached as much as 48,000, by some estimates, up from a more or less steady level of 10,000 over the last several years. "Builders have a glut of houses that's going to weigh on home prices for awhile." says Dennis L. Smith, president of Home Builders Research Inc., a local consultancy.
Mike Alley has gotten whacked hard by the area's declining housing market. In the spring of 2005, Alley, an independent real estate agent in Racine, Wis., moved to Las Vegas, lured by the warm weather and the strong real estate market. He quickly found a sales job with Pulte, where he says agents were pulling in $500,000 a year for basically taking orders. "It was nutty," says Alley. "Houses were flying off the lot."
A year later, he decided to jump into the market himself and buy a home. He spent a month searching, settling on KB's Huntington subdivision. The neighborhood attracted a mix of folks, from couples just starting out to empty nesters. More important, there were a lot of families with young kids the same age as his. The $86,000 worth of upgrades, including higher-end cabinets and granite countertops, thrown in by KB Homes at a discount clinched it. Alley thought he was getting a deal: In August, 2006, he paid $360,000 for a three-bedroom home in Quayside Court, which was appraised for $415,000.
Yet even Alley, who made his living in this industry, says he was blindsided by the markdowns. Today he reckons his home is worth around $300,000. "I didn't quite keep my finger on the pulse of what [KB is] doing in this community," says Alley, who's largely gotten out of the real estate business. "I'm looking at the sales data, and they were selling my model for $50,000 less even months after I bought it."
This is another example of the fact that real estate agents don't often know much about real estate cycles or investing. Never ask an agent if its a good time to buy. They don't know and its not really their job. Their job is to help you select your perfect home based on your criteria and budget and their knowledge of the local neighborhoods. More importantly, they take care of the paperwork that most homebuyers find imtimidating and incomprehensible. Their job profile does not usually include providing investment advice, even if they claim they're investment experts.
Australian Dollar To Hit Parity With US Dollar.
I sold my long position in CurrencyShares Australian Dollar Trust (FXA) today. I made a nice 6% in about two weeks on it. I sold it because it gapped down and looked like it was going to drop futher in the next week or two.
The US Dollar is due for a short-term bounce which will cause the price of FXA to drop, but thinking long-term, I think the Australian Dollar will hit parity with the USD within 18 months. It isn't a far fetched idea when you consider that 1 AUD = 1.20 USD in 1981.
Others agree with me. According to Chris Gaffney of Everbank.com:
"Fundamentals suggest the Aussie dollar will continue to rise in 2008. The economy is expected to expand by more than 4% next year, and inflation will accelerate. Overseas shipments of raw materials, which contribute about 14% to Australia's economy, helped drive 4.3% growth in the second quarter from a year earlier, the biggest increase in three years."
A technical analyst at Goldman Sachs suggested "a close above the resistance level 89.25 would set the Australian dollar free to reach parity".
The Aussie buck traded at 88 cents this morning. Parity is only 13% away.
But in the short term I'm looking for a bit of a pull back.
The US Dollar is due for a short-term bounce which will cause the price of FXA to drop, but thinking long-term, I think the Australian Dollar will hit parity with the USD within 18 months. It isn't a far fetched idea when you consider that 1 AUD = 1.20 USD in 1981.
Others agree with me. According to Chris Gaffney of Everbank.com:
"Fundamentals suggest the Aussie dollar will continue to rise in 2008. The economy is expected to expand by more than 4% next year, and inflation will accelerate. Overseas shipments of raw materials, which contribute about 14% to Australia's economy, helped drive 4.3% growth in the second quarter from a year earlier, the biggest increase in three years."
A technical analyst at Goldman Sachs suggested "a close above the resistance level 89.25 would set the Australian dollar free to reach parity".
The Aussie buck traded at 88 cents this morning. Parity is only 13% away.
But in the short term I'm looking for a bit of a pull back.
How Does Your 401k Compare?
I have a 401k from a previous employer. With only a dozen mutual funds to choose from, it doesn't have very many investment choices. I've done the best I can from these choices and have selected 8 of them, with 75% of my 401k invested in just 3 funds. And I've managed to eke out a very respectable 17.4% for the first 3 quarters of the year.
On the flip side, my 401k with my current employer has about 3 dozen options. However, there's less diversification amongst them than with the previous employer! It lacks a REIT fund (not that I'd invest in it, since I'm heavily invested in Real estate on my own), a health care fund, and a technology fund.
Instead, some moron set it up with 4 bond funds, 2 small-cap broad market funds, 2 small-mid cap value funds, 2 small-mid cap blend funds, 4 mid-large cap equity funds, 4 mid-large cap value funds, 3 international funds, and so on.
So despite the wide selection of funds, they're less diverse than the 401k with only 12 options. Instead of choosing the fund with the least management fees, the lazy (or maybe inept?) administrator just included 3 or 4 similar funds so the participant can make his own decisions.
And despite having so many options, I only managed to make 14.05% in the current 401k for the same time period, which is basically a reflection of the broad market indices minus the management fees.
Sometimes fewer, more well-thought out options are better!
On the flip side, my 401k with my current employer has about 3 dozen options. However, there's less diversification amongst them than with the previous employer! It lacks a REIT fund (not that I'd invest in it, since I'm heavily invested in Real estate on my own), a health care fund, and a technology fund.
Instead, some moron set it up with 4 bond funds, 2 small-cap broad market funds, 2 small-mid cap value funds, 2 small-mid cap blend funds, 4 mid-large cap equity funds, 4 mid-large cap value funds, 3 international funds, and so on.
So despite the wide selection of funds, they're less diverse than the 401k with only 12 options. Instead of choosing the fund with the least management fees, the lazy (or maybe inept?) administrator just included 3 or 4 similar funds so the participant can make his own decisions.
And despite having so many options, I only managed to make 14.05% in the current 401k for the same time period, which is basically a reflection of the broad market indices minus the management fees.
Sometimes fewer, more well-thought out options are better!
Pictures of An Investment Property
After spending the past 12 months lightening my holdings, I currently have 5 investment properties left. 3 of them are in Salt Lake City and 2 are in Indianapolis.
Of the ones in SLC, two are located in Saratoga Springs with spectacular (spectacular to Californians who are used to "desert views" and dried-out shrubs) views Lake Utah. Here's what one of them looks like.
And here's the kitchen.
Its about 10 times nicer than my place in San Diego; at 1800 sq ft, its twice the size and and (with a 20% drop in San Diego prices and a 30% rise in SLC) only about 10% more expensive. But unlike my condo in SD, it sits on a quarter acre of land.
Of the ones in SLC, two are located in Saratoga Springs with spectacular (spectacular to Californians who are used to "desert views" and dried-out shrubs) views Lake Utah. Here's what one of them looks like.
And here's the kitchen.
Its about 10 times nicer than my place in San Diego; at 1800 sq ft, its twice the size and and (with a 20% drop in San Diego prices and a 30% rise in SLC) only about 10% more expensive. But unlike my condo in SD, it sits on a quarter acre of land.
How Traders Make 28% Returns In A Day
Friday's stock market had a distinct sense of deja vu about it. Even though it was down overal, I was reminded of the crazy dotcom days in late 1999 when any tech stock could rally 25-50% in a single day!
One of my friend's subscribes to a stock newsletter. Periodically he gets an email alert informing him when a stock is about to make a significant jump. He often sends them to me and I usually look at them and then ignore them. Yesterday he sent me an email about a China Clean Energy Inc (CCGY.OB).
By the time I got the email, it had already jumped 30% that day, but I really liked the chart. It had retreated about 15% from the highs of the day and looked like it was ready to make a move back up to the $2 range.
This is what the chart that I follow looks like.
The image is bit hard to understand since they're aren't any notations on it. The first chart is the intra-day stock price of CCGY.OB for September 28th 2007 using Candlesticks. It also has the bollinger bands and exponential moving average lines.
The 2nd chart with red and blue vertical lines denotes the volumne. The 3rd chart is the Relative Strength Index (or RSI) with oversold and overbought indicators.
The 4th chart is the Moving Average Convergence/Divergence indicator orMACD.
The last chart is the Slow Stochastic.
From these charts I felt that there was sufficient momentum in the stock to carry it higher, despite it having already jumped 30%. I was able to buy in at $1.73 around 12 pm EST (which was 9 am for me) and sure enough it continued higher throughout the day.
It closed the day at the highest price of $2.23, for a stunning 28.9% one day gain! Although the stock was up ~60% for the entire day, I was very happy with my 28%. Made me feel like I was reliving the good old dotcom (or dotbomb) days.
Here's a much better daily chart.
Very rarely do I buy stocks based on tips and without looking at any underlying fundamentals. Usually, the newsletters that I subscribe to, will recommend a stock based on good, solid fundamentals and I will use the charts to determine the market sentiment for that stock and a good entry point. Recently, Freight Car America (RAIL) was recommended, but the chart looked terrible and I didn't buy it. Sure enough it dropped from it's recommended price of $48 and is now trading at $38. Here what the chart looks like. I'll wait until the technicals improve before I jump in on that one.
Sometimes this strategy will backfire because some breaking news will come out that will send the stock shooting the opposite direction than expected, but it doesn't happen often enough. And unexpected news can make value investors look like fools too!
Most traders use some form of technical analysis. Many investors believe that technical analysis is rubbish and doesn't work, but they probably feel that way because they don't understand it. Its basically a representation of the current market sentiment based on price and volume action.
Most traders use some from of it and it can get fairly complex. Studies have shown that currency traders use it a lot (or atleast the successful ones!). I've attended several currency traders meetup sessions and they all use some sort of technical analysis to trade in and out of their positions. That and proper money management is the key to succesful trading.
I strongly recommend at least learning the basics and deciding for yourself whether to use it or not. Getting Started In Technical Analysis
is a really good book that's fairly easy to read.
If you're interested in learning about trading, I strongly, strongly recommend Trading for a Living: Psychology, Trading Tactics, Money Management. By far one of the best introductory books on the subjects. You'll get more out of it than a $5,000 seminar!
If you like to day (or swing) trade, you'll also enjoy An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund. A fascinating story about Timothy Sykes, a college student who made a million dollars day trading and started his own hedge fund.
![p[Get 77% returns with this stock newsletter]](http://i243.photobucket.com/albums/ff92/reallykool/AD_newsletter.jpg)
One of my friend's subscribes to a stock newsletter. Periodically he gets an email alert informing him when a stock is about to make a significant jump. He often sends them to me and I usually look at them and then ignore them. Yesterday he sent me an email about a China Clean Energy Inc (CCGY.OB).
By the time I got the email, it had already jumped 30% that day, but I really liked the chart. It had retreated about 15% from the highs of the day and looked like it was ready to make a move back up to the $2 range.
This is what the chart that I follow looks like.
The image is bit hard to understand since they're aren't any notations on it. The first chart is the intra-day stock price of CCGY.OB for September 28th 2007 using Candlesticks. It also has the bollinger bands and exponential moving average lines.
The 2nd chart with red and blue vertical lines denotes the volumne. The 3rd chart is the Relative Strength Index (or RSI) with oversold and overbought indicators.
The 4th chart is the Moving Average Convergence/Divergence indicator orMACD.
The last chart is the Slow Stochastic.
From these charts I felt that there was sufficient momentum in the stock to carry it higher, despite it having already jumped 30%. I was able to buy in at $1.73 around 12 pm EST (which was 9 am for me) and sure enough it continued higher throughout the day.
It closed the day at the highest price of $2.23, for a stunning 28.9% one day gain! Although the stock was up ~60% for the entire day, I was very happy with my 28%. Made me feel like I was reliving the good old dotcom (or dotbomb) days.
Here's a much better daily chart.
Very rarely do I buy stocks based on tips and without looking at any underlying fundamentals. Usually, the newsletters that I subscribe to, will recommend a stock based on good, solid fundamentals and I will use the charts to determine the market sentiment for that stock and a good entry point. Recently, Freight Car America (RAIL) was recommended, but the chart looked terrible and I didn't buy it. Sure enough it dropped from it's recommended price of $48 and is now trading at $38. Here what the chart looks like. I'll wait until the technicals improve before I jump in on that one.
Sometimes this strategy will backfire because some breaking news will come out that will send the stock shooting the opposite direction than expected, but it doesn't happen often enough. And unexpected news can make value investors look like fools too!
Most traders use some form of technical analysis. Many investors believe that technical analysis is rubbish and doesn't work, but they probably feel that way because they don't understand it. Its basically a representation of the current market sentiment based on price and volume action.
Most traders use some from of it and it can get fairly complex. Studies have shown that currency traders use it a lot (or atleast the successful ones!). I've attended several currency traders meetup sessions and they all use some sort of technical analysis to trade in and out of their positions. That and proper money management is the key to succesful trading.
I strongly recommend at least learning the basics and deciding for yourself whether to use it or not. Getting Started In Technical Analysis
is a really good book that's fairly easy to read.If you're interested in learning about trading, I strongly, strongly recommend Trading for a Living: Psychology, Trading Tactics, Money Management
. By far one of the best introductory books on the subjects. You'll get more out of it than a $5,000 seminar!If you like to day (or swing) trade, you'll also enjoy An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund
. A fascinating story about Timothy Sykes, a college student who made a million dollars day trading and started his own hedge fund.PetroChina & BHP Rock
PetroChina (PTR) has been on a tear recently. Since bottoming around $125 a month ago, its risen exponentially to $175 today. That's a 40% in about 30 days! And thats despite the news that the 2nd largest shareholder Warren Buffett has been busy liquidating small amounts of his holdings. Its up solely on the news of its IPO in China.
BHP Billiton (BHP) has also jumped recently on news that its Olympic Dam site is the world's largest resource for uranium, the fourth-largest deposit for copper, and ranks among top-producing Australian mines in gold and silver production. Its currently at 27 year highs. Its also up 45% in the past month and nearly 100% in the past year.
While I didn't panic and sell liquidate my holdings during the sell off in July, I did use that opportunity to buy more of my favorite Canroys. Most of them are flat to barely up since then. But they're still paying dividends so I expect them to continue to chugg along.
Most of my porfolio is heavily wieghted towards oil/gas and commodity stocks. One of the few exceptions is SRS which I been trading in and out of and FXA which is an Australian currency ETF that also yields just over 5%.
I'm thinking of buying some Berskhire Hathway B shares (BRK-B) since they're looking a bit week technically right now. I've been watching them for a while. The last time I was going to pull the trigger they shot up 10% so I'm waiting for a slight pullback.
Did any of you make a killing in a stock you've purchased in the past month? Let me know.
BHP Billiton (BHP) has also jumped recently on news that its Olympic Dam site is the world's largest resource for uranium, the fourth-largest deposit for copper, and ranks among top-producing Australian mines in gold and silver production. Its currently at 27 year highs. Its also up 45% in the past month and nearly 100% in the past year.
While I didn't panic and sell liquidate my holdings during the sell off in July, I did use that opportunity to buy more of my favorite Canroys. Most of them are flat to barely up since then. But they're still paying dividends so I expect them to continue to chugg along.
Most of my porfolio is heavily wieghted towards oil/gas and commodity stocks. One of the few exceptions is SRS which I been trading in and out of and FXA which is an Australian currency ETF that also yields just over 5%.
I'm thinking of buying some Berskhire Hathway B shares (BRK-B) since they're looking a bit week technically right now. I've been watching them for a while. The last time I was going to pull the trigger they shot up 10% so I'm waiting for a slight pullback.
Did any of you make a killing in a stock you've purchased in the past month? Let me know.
What Would Your Last Words Be?
Here's an inspiring story about Prof. Randy Pausch. At 46, Dr Pausch has pancreatic cancer and only a few months left to live. He gave a speech about achieving his childhood dreams.
Why are we all concerned with making money? So that we can get out of the rat race and achieve all the dreams we had as kids.
I believe its not the quantity of life but the quality that matters. Dr Pausch has definitely lived a great life, fulfilling all of his childhood fantasies.
Make sure you achieve yours!
Here's the full article at WSJ.com
Why are we all concerned with making money? So that we can get out of the rat race and achieve all the dreams we had as kids.
I believe its not the quantity of life but the quality that matters. Dr Pausch has definitely lived a great life, fulfilling all of his childhood fantasies.
Make sure you achieve yours!
Here's the full article at WSJ.com
Greenspan On Comedy Central
Jon Stewart interviews Alan Greenspan on The Daily Show. Greenspan has been busy promoting his new book, The Age of Turbulence, and has been talking to anyone willing to listen.
Here's an excerpt from the interview:
Greenspan also goes on to admit that quality of forecasting hasn't improved in the past 50 years and that basically they're clueless about preventing economic bubbles and human nature is to blame for that!
Anyway, check out the video. It's pretty good.
Also check out Minyanville's opinion on the rate cut.
Here's an excerpt from the interview:
Stewart: So they've made a choice, we would like to favor those who invest in the stock market and not those who invest in the bank; that helps us.
Greenspan: That's the way it comes out but that's not the way to think about it.
Stewart: It seems to me that we favor investment but we don't favor work. The vast majority of people work and they pay payroll taxes and they use banks. And then there's this whole other world of hedge funds and short betting and...it seems like craps. And they keep saying, "No no no, don't worry about it, it's free market, that's why we live in much bigger houses. But it really isn't, it's the fed, or some other thing, no?"
Greenspan also goes on to admit that quality of forecasting hasn't improved in the past 50 years and that basically they're clueless about preventing economic bubbles and human nature is to blame for that!
Anyway, check out the video. It's pretty good.
Also check out Minyanville's opinion on the rate cut.
Investing In Oil
I spent most of Saturday listening to an investment presentation by some oil guys from Texas and Oklahoma. I come in contact with them on a previous deal. At that time I had shown their investment presentation to my CPA (who usually turns down every investment I show him) and he was so impressed, he decided to fly out and meet them. He's become their accountant and is investing heavily in their current deal.
Incidentally, in the previous deal where I came across the oil guys, they were also investors like me in a gas pipeline deal in Texas. It was a pretty sweet deal and we should've gotten cashed out with a 30% profit after a year. Unfortunately our partner, Grant Wilson III, decided to swindle us out of the profits. After spending over a year with this jackass, subsidizing his travel and living expenses he just decided that he deserved all the profits and he's disappeared. Luckily we got all our principle back.
We talked to a lawyer about our legal options. Apparently it'll cost $25,000 to get a judgment against this crook and if he's spent the profits, we won't be able to collect anything. Spending $25,000 to maybe get around $60,000 doesn't sound very appealing. Anyway, if you come across anyone called Grant Wilson III in Houston, who's lived in Southern California and is originally from Boston, you should definitely keep your hand on your wallet at all times! The only positive thing in the whole deal is that I learnt a very important lesson about trust in business, and luckily it didn't cost me much money.
But back to the original discussion about the oil men. Unlike Grant, who's background is swindling people, oops, I meant to he was a lobbyist in Washington, these people actually have worked for decades in the oil industry. One of the principals has several patents and they all are extremely knowledgeable in various aspects of off-shore and on-land drilling and exploration.
They've basically put together a partnership deal where they find under-valued oil & gas producing properties with at least 10-12 years of production left. Usually its a distressed situation like an estate sale, lawsuit or defect in the title where the production has been stopped.
In the current "fund" (its called a fund but its really a partnership), they have 19 producing wells and will drill 2 more infill wells.
In normal deals that are "securitized" (sold as a security and governed by the SEC), dealer-brokers are involved and usually 30% of your investment goes to overheads like commissions, fees and marketing. Since only 70% of your investment actually gets invested you typically get low returns - in the range of 7-10%.
However, if you get an opportunity to invest directly with in a fund like this, where they aren't paying any broker commissions, you can get a much better return. Assuming oil stays at $65 and gas stays at $6, my CPA thinks we can get a 24% annual return. If oil goes up, our returns go up too! And since about 40% of the return is considered return of principle, its not taxable. (Although it does lower your basis in the investment).
Unlike my other investments which have taken quite a while to start producing, this is supposed to start generating income with 60 days. Of course, I'm not holding my breath. But the fact that my CPA is investing alongside me and I felt I could definitely trust them gives me a lot of confidence.
I let you know how it goes.
Incidentally, in the previous deal where I came across the oil guys, they were also investors like me in a gas pipeline deal in Texas. It was a pretty sweet deal and we should've gotten cashed out with a 30% profit after a year. Unfortunately our partner, Grant Wilson III, decided to swindle us out of the profits. After spending over a year with this jackass, subsidizing his travel and living expenses he just decided that he deserved all the profits and he's disappeared. Luckily we got all our principle back.
We talked to a lawyer about our legal options. Apparently it'll cost $25,000 to get a judgment against this crook and if he's spent the profits, we won't be able to collect anything. Spending $25,000 to maybe get around $60,000 doesn't sound very appealing. Anyway, if you come across anyone called Grant Wilson III in Houston, who's lived in Southern California and is originally from Boston, you should definitely keep your hand on your wallet at all times! The only positive thing in the whole deal is that I learnt a very important lesson about trust in business, and luckily it didn't cost me much money.
But back to the original discussion about the oil men. Unlike Grant, who's background is swindling people, oops, I meant to he was a lobbyist in Washington, these people actually have worked for decades in the oil industry. One of the principals has several patents and they all are extremely knowledgeable in various aspects of off-shore and on-land drilling and exploration.
They've basically put together a partnership deal where they find under-valued oil & gas producing properties with at least 10-12 years of production left. Usually its a distressed situation like an estate sale, lawsuit or defect in the title where the production has been stopped.
In the current "fund" (its called a fund but its really a partnership), they have 19 producing wells and will drill 2 more infill wells.
In normal deals that are "securitized" (sold as a security and governed by the SEC), dealer-brokers are involved and usually 30% of your investment goes to overheads like commissions, fees and marketing. Since only 70% of your investment actually gets invested you typically get low returns - in the range of 7-10%.
However, if you get an opportunity to invest directly with in a fund like this, where they aren't paying any broker commissions, you can get a much better return. Assuming oil stays at $65 and gas stays at $6, my CPA thinks we can get a 24% annual return. If oil goes up, our returns go up too! And since about 40% of the return is considered return of principle, its not taxable. (Although it does lower your basis in the investment).
Unlike my other investments which have taken quite a while to start producing, this is supposed to start generating income with 60 days. Of course, I'm not holding my breath. But the fact that my CPA is investing alongside me and I felt I could definitely trust them gives me a lot of confidence.
I let you know how it goes.
Canadian Dollar Hits Parity With US Dollar
Today the Loonie achieved parity with the US dollar for the first time in 30 years. Five years ago, 65 cents could buy you 1 Canadian Dollar. Since then the Dollar has devalued 50% against the CAD and nearly 100% against Gold. This has been partly due to a massive increase in the number of Dollars floating around, and partly because of the low interest rates which no longer attract much foreign interest.
![[Image of Ben Bernanke Action Figure and included Helicopter]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFsUlKiRDxCZlIeMLVVg_CqOQ1vXA3kOyPU6zfPPGXO_yk7DylPbVz4ijPfaO2P6hHEkM5Oec7n5eQNWqv-DsSTNJWpW2LxVuzA0QspQR6GvprqbrAbfLmry2Wv_XoQW6HvfsQNn-9d58/s320/helicopterben.bmp)
The 50 basis point cut in the Federal Funds rate isn't going to save us from recession. What it definitely did do is weaken the dollar further against all major currencies.
How are you going to Hedge against a weakening dollar?
I been a strong advocate of investing in Gold and Silver for 2 years. Today Gold hit $735 after trading around around the $665 mark for the past year.
I realized that the Feds were going to drop the rate last week and put in an order to buy FXA. FXA is the CurrencyShares Australian Dollar Trust, an ETF that tracks the price of the Australian Dollar. Immediately after the Fed rate cut it jumped 3% and is up 4% for the week. It also pays an annual yield of approximately 5% on a monthly basis.
As the Dollar continues to weaken, I expect FXA to keep on appreciating. The question is how low do you think the Dollar will go?
![[Image of Ben Bernanke Action Figure and included Helicopter]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFsUlKiRDxCZlIeMLVVg_CqOQ1vXA3kOyPU6zfPPGXO_yk7DylPbVz4ijPfaO2P6hHEkM5Oec7n5eQNWqv-DsSTNJWpW2LxVuzA0QspQR6GvprqbrAbfLmry2Wv_XoQW6HvfsQNn-9d58/s1600-h/helicopterben.bmp)
The 50 basis point cut in the Federal Funds rate isn't going to save us from recession. What it definitely did do is weaken the dollar further against all major currencies.
How are you going to Hedge against a weakening dollar?
I been a strong advocate of investing in Gold and Silver for 2 years. Today Gold hit $735 after trading around around the $665 mark for the past year.
I realized that the Feds were going to drop the rate last week and put in an order to buy FXA. FXA is the CurrencyShares Australian Dollar Trust, an ETF that tracks the price of the Australian Dollar. Immediately after the Fed rate cut it jumped 3% and is up 4% for the week. It also pays an annual yield of approximately 5% on a monthly basis.
As the Dollar continues to weaken, I expect FXA to keep on appreciating. The question is how low do you think the Dollar will go?
Can't Stop Global Warming!
From the Yahoo message boards for James River Coal Company (JRCC), which I had sold some naked puts on a few months ago, by some poster named Ross_Perot4President
I just farted a real loud wet one.....I just contributed to global warming....
Whoops, I just barbecued some ribs.....more global warming...
I just opened up a beer (i.e. a carbonated beverage), I just contributed to global warming.
I just let out a big friggin belch (methane gas -- holy @#$%, I just killed a tribe of pygmies tied to global warming)
I turned on the faucet to run water, the water treatment plant runs a generator which emits carbon fumes.....
I just turned on the lights which in turn comes from the electricity plants which spew carbon stuff
I just watched that Fat Bitch Rosie ODonnell on TV, her Fat mouth just spews greenhouse emmissions as well as rancid spew
I just watched Hillary Clinton on TV, the clothes she wears come from farm animals which intoxicate the atmosphere with methane gas and toxic emmissions, and her face comes from Satan's bunghole.
I guess its safe to say anything you do in American life spews some form of carbon dioxide. Maybe if we stop killing the rain forest and stop ugly people from breeding we can stop carbon from spewing onto the planetary surface
Until then, I will burp, fart, barbecue, run my water, heat my house, use electricity, and hate stupid liberals who think they know what's best for me -- they can shove it up their methane spewing asses.
Of course, if you're Al Gore, you might think you can solve the problem by taxing various businesses. Of course, Al Gore doesn't want to solve the issue, he only wants to profit from it.
I just farted a real loud wet one.....I just contributed to global warming....
Whoops, I just barbecued some ribs.....more global warming...
I just opened up a beer (i.e. a carbonated beverage), I just contributed to global warming.
I just let out a big friggin belch (methane gas -- holy @#$%, I just killed a tribe of pygmies tied to global warming)
I turned on the faucet to run water, the water treatment plant runs a generator which emits carbon fumes.....
I just turned on the lights which in turn comes from the electricity plants which spew carbon stuff
I just watched that Fat Bitch Rosie ODonnell on TV, her Fat mouth just spews greenhouse emmissions as well as rancid spew
I just watched Hillary Clinton on TV, the clothes she wears come from farm animals which intoxicate the atmosphere with methane gas and toxic emmissions, and her face comes from Satan's bunghole.
I guess its safe to say anything you do in American life spews some form of carbon dioxide. Maybe if we stop killing the rain forest and stop ugly people from breeding we can stop carbon from spewing onto the planetary surface
Until then, I will burp, fart, barbecue, run my water, heat my house, use electricity, and hate stupid liberals who think they know what's best for me -- they can shove it up their methane spewing asses.
Of course, if you're Al Gore, you might think you can solve the problem by taxing various businesses. Of course, Al Gore doesn't want to solve the issue, he only wants to profit from it.
Japanese Housewives Burned By Forex Trading
The New York Times has an interesting article, Japanese Housewives Sweat in Secret as Markets Reel about housewives losing a lot of money in trading forex.
While a lot of people have made fortunes trading forex (like George Soros), when a large number of housewives enter the market, its a sure signal that the market top is in. The lay people are always the last people to enter any bull market and like we saw in the internet bubble in 2000, mark the last phase of speculators to rush to profit from quick, easy money.
Apparently this greed-driven mania manifests itself regularly, prompting Alan Greenspan to observe that humans might never be able to protect themselves from bubbles. The history of manias has been well documented going back hundreds of years in Extraordinary Popular Delusions & the Madness of Crowds. If you haven't read it I strongly recommend you pick up a copy at your local library. Another new book on the subject is Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics, which is on my long and never-ending list of books to read and has come highly recommended.
Related Readings:
1. How the carry trade really works.
2. Turning Japanese.
Since the credit crisis started shaking the world financial markets this summer, many professional traders have taken big losses. Another, less likely group of investors has, too: middle-class Japanese homemakers who moonlight as amateur currency speculators.
Ms. Itoh is one of them. Ms. Itoh, a homemaker in the central city of Nagoya, did not want her full name used because her husband still does not know. After cleaning the dinner dishes, she would spend her evenings buying and selling British pounds and Australian dollars.
When the turmoil struck the currency markets last month, Ms. Itoh spent a sleepless week as market losses wiped out her holdings. She lost nearly all her family’s $100,000 in savings.
While a lot of people have made fortunes trading forex (like George Soros), when a large number of housewives enter the market, its a sure signal that the market top is in. The lay people are always the last people to enter any bull market and like we saw in the internet bubble in 2000, mark the last phase of speculators to rush to profit from quick, easy money.
Apparently this greed-driven mania manifests itself regularly, prompting Alan Greenspan to observe that humans might never be able to protect themselves from bubbles. The history of manias has been well documented going back hundreds of years in Extraordinary Popular Delusions & the Madness of Crowds
. If you haven't read it I strongly recommend you pick up a copy at your local library. Another new book on the subject is Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics, which is on my long and never-ending list of books to read and has come highly recommended.Related Readings:
1. How the carry trade really works.
2. Turning Japanese.
The Rich Are The New Disenfranchised Segment Of America!
The New York Times had an article about the working class millionaires living in San Francisco. According to WSJ, "you know a media-generated controversy has reached it's peak when it lampooned by The Onion".
Here's a spoof segment from the Onion News Network. Apparently the gap between the rich and the super-rich is widening and they're feeling disenfranchised.
“The average investment banker is only able to afford one boat. But the super-rich family will have upwards of five, six, seven boats. You have to have a decent yacht.”
“If the rich were just a little bit more motivated,” one says, “they wouldn’t be such a drain on society.”
Here's a spoof segment from the Onion News Network. Apparently the gap between the rich and the super-rich is widening and they're feeling disenfranchised.
“The average investment banker is only able to afford one boat. But the super-rich family will have upwards of five, six, seven boats. You have to have a decent yacht.”
“If the rich were just a little bit more motivated,” one says, “they wouldn’t be such a drain on society.”
The 17 Year Old Adsense Millionaire!
Here's another depressing story of some 17 year old millionaire who makes $70,000 per month selling myspace templates. Did I say depressing? I meant inspiring!
Ashley Qualls, founder/CEO of Whateverlife.com doesn't actually make money from the templates, but rather from adsense ads! Apparently her first adsense check from Google was for $2800, which is more money than Google EVER sent me. Of course, I haven't filled a need (which she obviously did extremely well) but atleast I'm getting some remuneration (if you consider minimum wage to be any form of remuneration) for voicing my irreverent & often irrelevant opinions.
You can read the entire article online at Fast Company. She's a pretty amazing teenager.
Ashley Qualls, founder/CEO of Whateverlife.com doesn't actually make money from the templates, but rather from adsense ads! Apparently her first adsense check from Google was for $2800, which is more money than Google EVER sent me. Of course, I haven't filled a need (which she obviously did extremely well) but atleast I'm getting some remuneration (if you consider minimum wage to be any form of remuneration) for voicing my irreverent & often irrelevant opinions.
You can read the entire article online at Fast Company. She's a pretty amazing teenager.
Homes For Everyday Heroes?
![[Image of First Home Builder's Website]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqDBzKacbjHY_-2xd2N8L1dac3685mPBBh0y25twctExuDY39pCBcgmsh5elQKqMijuiNoXT1yVmgpsyyEO7Duzsm4wCmIKm9oVdWgG6uSKyEuPBdT-UWcvb45UAKMnEn32T34K9xb-vw/s1600-h/firsthomebuilder+website.PNG)
According to the FirstHomebuilders.com, based out of florida, they're selling homes to everyday heroes. You can buy one of their brand new homes with $500 down and as little as $795 per month.
Considering that the cheapest homes are in $150,000 range, thats sounds like 102% financing with an Interest-only payment and it probably an adjustable interest rate too.
That sounds like a loan program they've been advertising for the past 4 years to people who can't afford a home in the first place? Since when did we start calling these people "everyday heroes"?
New Coin Purchase
![[Picture of 1 Oz Silver Eagle]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqyskSPL9YlbQy0zhOT0rlE3-RFTgwDPX8s5PitHX8I91_wAZKw6evkiZj30gi_GP5cxKcw0dOzW3KFiPIzvgm_wW-JwWj_H_TZPcPOB33WbY0kHOoupqVTP67GEtudU0DBJtzNNnBYps/s1600-h/silver+eagle1.jpg)
I recently mentioned that I made $500 dollars last month from online advertising. Rather than use that money to expand or improve my lifestyle (also knows as "buying crap"), I decided to invest it in something that has intrinsic value.
The US Dollar has losing value over the past 2 years. Just today the Dollar index dropped to its lowest recorded value of 77 and I think its going to keep on dropping. Typically precious metals like Gold, Silver and Platinum do well in times of a weak currecny.
Why do I think the Dollar will continue to weaken?
Because the economy sucks and is being manipulated in wierd ways. To quote someone quoting the late Dr. Richebacher, a smart and wealthy economist,
"All this emphasis on statistics and calculations.," he went on, rapping his silver-handled cane on the table for emphasis, "without a proper theory, it is all nonsense. And your economists seem to have no theory at all.they just think they can manipulate the system in order to get whatever outcome they want. They think economic growth comes from consumer spending and that they can control consumer spending by adjusting lending rates. It is unbelievable that anyone takes this seriously. It is capital formation that really matters. A rich society is one with a great stock of capital. One that builds capital and puts it to work to create more capital. A rich society is not one where people consume. Just the opposite. It is not what is consumed that creates wealth; it is what is NOT consumed. Yet, all the Anglo-Saxons focus on motivating consumers to consume. And now they are consuming more than they make. I tell you, in 70 years of studying economics, I have never seen such nonsense."
![[Picture of 1 Oz Silver Peace Dollar]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLezD0ANLzevhWMaa7KwsFpvFKUUCEyGHeCb9oQY3XBTY_EbpUMQx26rNNe86maP7QjmFf0p7gejp4ukRvIMYQQqdo4TGLnH0n3kblLBGCrFejrrQVUeMzi_U9zSH4huxyu1T5Ff1pUQs/s1600-h/PeaceDollarO.jpg)
And in order to "save the economy" the FED is going to cut the interest rates, which will increase inflation and weaken the dollar. Even the Governor of the Bank of England, Gov. King said yesterday that "If central banks cut interest rates in the current environment, they run the moral risk of rekindling speculative risk-seeking, i.e. supporting the very behavior that caused the current market crisis, namely the underestimation of risk."
A country's currency is an indicator of its economy. If the country has a good balance sheet, positive flow of funds, a good business plan, strong leadership the currency will be strong. Right now the US has none of those qualities.
Anyway, I spent the $500 on some silver coins. Regular readers already know I like buying gold and silver coins. I bought about a dozen each of the perth mint silver tigers, 1920s Peace silver dollars & 2007 silver eagles. They're beautiful coins, make good gifts and hopefully will continue to appreciate as the Dollar keeps losing value.
![[Picture of 1 Oz Perth Mint Silver Tiger]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRX5oL7BVoReCR0rMZYLOctBw9PyK9ldFNBWxyX_a-fdQ90RGAQkSzXK80DGz-0bv349SZZPQJHbtCt5B9bjYdccseMxjZYK3FEpsd265U2_uUhSBEcwl4npdNtRPd1B9y48x_uCZfMXE/s1600-h/silver+tiger.jpg)
Russians get the day off to make babies
The Russian government is sponsoring a "Day of Conception" today. Officials in the Volga River region (a demographically deficient zone about 550 miles east of Moscow) are giving couples a half day today to go home and make babies. Couples that give birth to a child nine months from
today, a Russian national holiday, are eligible to win cars, cash & even a shiny new refrigerator.
Since the Soviet collapse in 1991, population has been in steady decline thanks to lower birth rates, shorter life expectancies, emigration surges and a truly horrible health care system.
The world's largest country by land mass is inhabited by only 141 million people. AP predicts that number could shrink to 100 million by 2050.
Putin has already installed cash subsidies for couples giving birth to more than one child. Last year, he went on record saying this demographic crisis is the country's most severe predicament.
today, a Russian national holiday, are eligible to win cars, cash & even a shiny new refrigerator.
Since the Soviet collapse in 1991, population has been in steady decline thanks to lower birth rates, shorter life expectancies, emigration surges and a truly horrible health care system.
The world's largest country by land mass is inhabited by only 141 million people. AP predicts that number could shrink to 100 million by 2050.
Putin has already installed cash subsidies for couples giving birth to more than one child. Last year, he went on record saying this demographic crisis is the country's most severe predicament.
Funny Kitty Video
Here's a funny video. Make sure you've turned up your speakers or you won't fully enjoy it.
Linkworth's New Referral Program
Linkworth is a site that offers bloggers and website owners the opportunity to monetize their site via paid ads.
Originally they only offered referral commissions for advertisers, but since July they've been tracking publisher referrals and will pay you for those too!
Advertiser Account Referrals
>> $25 payout once the advertiser spends a minimum of $100.00
>>5% payout on all recurring charges for the life of the advertiser account
Partner Account Referrals
>> $25 payout once the partner earns a minimum of $100.00
Combo Account Referrals
>> $25 payout once the advertiser side spends a minimum of $100.00
>> 5% payout on all recurring advertising charges for life of account
>> $25 payout once the partner side earns a minimum of $100.00
I made $144 last month from Linkworth, which is about 1/4th of my monthly online revenue, which I discussed here. If you haven't signed up for it already, you can do so via this link.
Originally they only offered referral commissions for advertisers, but since July they've been tracking publisher referrals and will pay you for those too!
Advertiser Account Referrals
>> $25 payout once the advertiser spends a minimum of $100.00
>>5% payout on all recurring charges for the life of the advertiser account
Partner Account Referrals
>> $25 payout once the partner earns a minimum of $100.00
Combo Account Referrals
>> $25 payout once the advertiser side spends a minimum of $100.00
>> 5% payout on all recurring advertising charges for life of account
>> $25 payout once the partner side earns a minimum of $100.00
I made $144 last month from Linkworth, which is about 1/4th of my monthly online revenue, which I discussed here. If you haven't signed up for it already, you can do so via this link.
How To Make An Easy $25 & Other Blog Monetizing Tips
AuctionAds is running a promotion. Just sign up to display Auction ads on your site and you'll get $25. Not only that, if you refer anyone, you get 5% of their income for the first 6 months too.
It takes less than 5 minutes to sign up and you can modify the code to suite the layout of your site. You can also mention which keywords you'd like to target so that you get relevant ads (Note: this does NOT interfere with Google Ads). Somehow it integrates with Ebay's affiliate program and you earn a referral fee anytime you sign up a new user or someone wins an auction after clicking on your link.
If you sign up a new ebay user, you get $25. If you generate a sale, you get 50% or more of the commission that Ebay makes. Since ebay has increased its fees and commission structure in the past year, this bodes well for publishers like us.
So what are you waiting for? If you haven't already signed up, claim your free $25 right now!
AuctionAds is actually a sub-division of Text Link Ads, which also offers bloggers an opportunity to make money by selling ads on their site. If you haven't signed up for Text Link Ads, I suggest that you do that as well. [continued below ad]
You might be wondering if its worth putting up all these ads? After all, your site might not be attracting a lot of traffic and you may not feel the income is worth the effort.
I actually do not get a lot of traffic (less than 10,000 hits per month), especially compared to entertainment-related blogs or blogs about getting out of debt, but the traffic that I do get is highly targeted and results in high dollar-value conversions. As a result I'm still currently pulling in between $400-500 per month.
I'm making money from various different sources so that if the guidelines change for one, it doesn't completely stop the income. Also, over 50% of my traffic is organic in nature, coming mostly from Google.com searches.
Here are the various programs (in no particular order)
While $500 isn't enough to live on (atleast not in the US), its one of several income streams that I'm trying to develop. I'll try to post a monthly update on the passive income growth in future.
It takes less than 5 minutes to sign up and you can modify the code to suite the layout of your site. You can also mention which keywords you'd like to target so that you get relevant ads (Note: this does NOT interfere with Google Ads). Somehow it integrates with Ebay's affiliate program and you earn a referral fee anytime you sign up a new user or someone wins an auction after clicking on your link.
If you sign up a new ebay user, you get $25. If you generate a sale, you get 50% or more of the commission that Ebay makes. Since ebay has increased its fees and commission structure in the past year, this bodes well for publishers like us.
So what are you waiting for? If you haven't already signed up, claim your free $25 right now!
AuctionAds is actually a sub-division of Text Link Ads, which also offers bloggers an opportunity to make money by selling ads on their site. If you haven't signed up for Text Link Ads, I suggest that you do that as well. [continued below ad]
You might be wondering if its worth putting up all these ads? After all, your site might not be attracting a lot of traffic and you may not feel the income is worth the effort.
I actually do not get a lot of traffic (less than 10,000 hits per month), especially compared to entertainment-related blogs or blogs about getting out of debt, but the traffic that I do get is highly targeted and results in high dollar-value conversions. As a result I'm still currently pulling in between $400-500 per month.
I'm making money from various different sources so that if the guidelines change for one, it doesn't completely stop the income. Also, over 50% of my traffic is organic in nature, coming mostly from Google.com searches.
Here are the various programs (in no particular order)
- Google Adsense
- Linkworth
- Text Link Ads
- Amazon's Affiliate Program
- Prosper.com
- Direct Sponsors
Not only do you make money when people click on the sites, but you also get $5 per publisher who signs up. If they earn $100 in the first 6 months, you get an bonus $250! If you're lucky enough to sign up 25 such publishers in a year, you get an extra $2,000!
Linkworth enables you to get sponsors who pay a flat fee to host ads on your ads. They have 2 programs, one with a 50-50 split and another with a 70-30 split. I'd recommend going with the 70-30 split. Get your own sponsors here.
Similar to Linkworth, they also let you sell ad space. The also allow a post-level sponsorship, but this is difficult to incorporate into Blogger.com. If however, you're using wordpress then you're in luck and this might be a better option for you. For advertisers, they're running a promotion where you get $100 in FREE Links.
This is a pretty good program since a lot of people use it anyway. I make enough to buy myself a few books every month myself! So this effectively subsidizes my voracious reading habit. And by setting up an my online bookstore, I don't have to repeatedly send people a list of my favorite books, plus I get a referral if they actually buy any of my recommendations.
This is a new and somewhat temporary referral program. If a new lender signs up, you both get $25. If a new borrower joins, you get $125! I've made nearly $200 bucks from this referral program (which I haven't included in my total, since its a temporary program).
I'm often contacted directly by sponsors wanting to put up ads. Many bloggers don't make it easy for sponsors to contact them by not having comments enabled and not having any email address or website-ownership info visible. They're missing out on potential revenue. I've had internet marketing companies as far away as the UK and Israel send me money via paypal for text ads. If you're interested, you can send me an email at emptyspacesinc@gmail.com
While $500 isn't enough to live on (atleast not in the US), its one of several income streams that I'm trying to develop. I'll try to post a monthly update on the passive income growth in future.
Are Recessions A Good Thing?
Today's post is a follow-up to yesterday's, Recession on the horizon?. Saving Diva asks if a recession is necessary for the economy? And Lazy Man isn't entirely convinced we'll see a recession.
I think a recession is a normal part of the business cycle. Messing with the business cycle in 2001 is what caused the huge housing bubble. When I say messing with the business cycle, I mean manipulating the interest rates to keep them artifically low and pumping the economy full of excess and easy liquidity (which is another way of saying cheap and easy-to-qualify-for loans).
Asset prices shot through the roof (i.e. houses, investments and businesses became insanely expensive to buy) and lending criteria dropped to historical record-breaking lows. (Did you hear about dogs getting credit cards?)
Americans stopped saving money because there wasn't any incentive to (with savings accounts yielding under 2%) and kept refinancing their homes to pay for new cars, vacations and home improvements.
If you've been reading the news, this has already come to an end.
Lax lending standards have caused a flight to safety and a global liquidity crunch. A few hedge funds that speculated in mortgage-backed securities went under which sparked a slew of redemptions causing most hedge funds to sell off major holding and triggered a stock market meltdown.
With over 50 lenders going out of business this year, there have been a lot of layoffs, however the Federal Reserve has largely ignored these numbers. Today's unemployment numbers which were pretty dismal came as a shock to wall street (which leads me to think people actually believe the lies coming out of the Fed). The Bureau for Labor Statistics quietly revised July job growth number down to 68,000 from 95,000. That's a HUGE revision, don't you think?
Countrywide also announced 12,000 layoffs or 20% of their workforce. How exactly are they going to 'gain marketshare' when their market is atleast 25% smaller is beyond me.
Almost a year ago today, I posted an article from Businessweek, saying that "Shilling expects house prices to drop by at least 20%, which will cause a major recession".
There have been record foreclosures in the past few months, "driven by two factors heavy job losses in the Midwest states of Ohio, Michigan and Indiana and the collapse of previously booming housing markets in California, Florida, Nevada and Arizona.
The Midwest has been hit hard by a heavy loss of jobs in manufacturing, especially in autos and related industries".
Auto sales and retail sales are down sharply too.
The only positive aspect right now is that oil at the pump is pretty cheap. But this is an anomaly, since the cost of oil per barrel is near all times highs. Milk, and other basic food items have definitely become more expensive where I live (even the items at Carl's Jr, my favorite fast-food place).
I think we're already in a recession. It just won't be reported for another 6-8 months.
And now we consider if recession is a good thing? Frankly I don't know, but here's what an editor of a newsletter I subscribe to had to say.
I think a recession is a normal part of the business cycle. Messing with the business cycle in 2001 is what caused the huge housing bubble. When I say messing with the business cycle, I mean manipulating the interest rates to keep them artifically low and pumping the economy full of excess and easy liquidity (which is another way of saying cheap and easy-to-qualify-for loans).
Asset prices shot through the roof (i.e. houses, investments and businesses became insanely expensive to buy) and lending criteria dropped to historical record-breaking lows. (Did you hear about dogs getting credit cards?)
Americans stopped saving money because there wasn't any incentive to (with savings accounts yielding under 2%) and kept refinancing their homes to pay for new cars, vacations and home improvements.
If you've been reading the news, this has already come to an end.
Lax lending standards have caused a flight to safety and a global liquidity crunch. A few hedge funds that speculated in mortgage-backed securities went under which sparked a slew of redemptions causing most hedge funds to sell off major holding and triggered a stock market meltdown.
With over 50 lenders going out of business this year, there have been a lot of layoffs, however the Federal Reserve has largely ignored these numbers. Today's unemployment numbers which were pretty dismal came as a shock to wall street (which leads me to think people actually believe the lies coming out of the Fed). The Bureau for Labor Statistics quietly revised July job growth number down to 68,000 from 95,000. That's a HUGE revision, don't you think?
Countrywide also announced 12,000 layoffs or 20% of their workforce. How exactly are they going to 'gain marketshare' when their market is atleast 25% smaller is beyond me.
Almost a year ago today, I posted an article from Businessweek, saying that "Shilling expects house prices to drop by at least 20%, which will cause a major recession".
There have been record foreclosures in the past few months, "driven by two factors heavy job losses in the Midwest states of Ohio, Michigan and Indiana and the collapse of previously booming housing markets in California, Florida, Nevada and Arizona.
The Midwest has been hit hard by a heavy loss of jobs in manufacturing, especially in autos and related industries".
Auto sales and retail sales are down sharply too.
The only positive aspect right now is that oil at the pump is pretty cheap. But this is an anomaly, since the cost of oil per barrel is near all times highs. Milk, and other basic food items have definitely become more expensive where I live (even the items at Carl's Jr, my favorite fast-food place).
I think we're already in a recession. It just won't be reported for another 6-8 months.
And now we consider if recession is a good thing? Frankly I don't know, but here's what an editor of a newsletter I subscribe to had to say.
When house prices come down, it sets off a whole chain reaction of
explosions – in the financial industry...the homebuilding
industry...the retail industry...and ultimately, even the
manufacturing sector! The result is recession...lower consumer
spending...lower asset prices...less speculation...more fear/less
greed.
Is that a bad thing?
"Sometimes it sounds as though you WANT stocks to crash...it sounds as
though you'd be happy if a recession were to hit," writes a concerned
Dear Reader. "Isn't that a little mean spirited?"
Yes, we would like to see a real crash on Wall Street. And yes, we
would like to see a real recession. Is that mean spirited? Not at all.
Au contraire, it comes from the deepest, most public-minded, most
generous impulses of our entire idealistic nature.
This boom is a fraud, we keep saying. The sooner it ends, the better.
It is a fraud because it is not based – at least not in America – on
greater output, capital formation or wealth creation. Instead, it is a
wealth destroying boom...one that rests on consumption, speculation
and debt. Speculators and Wall Street itself get rich. But most people
merely go deeper in debt...and become poorer.
What's worse, the longer this humbug boom goes on, the more popular
attitudes and habits are shaped by it. "Prices always go up," say the
lumpen, "so buy now." "You can't go wrong in stocks and real estate,"
say the turnips. "A nice young man just offered to refinance our
house," say the homeowners. "Don't worry...Ben Bernanke is not going
to let us lose money," say the speculators. "Deficits don't matter,"
says the Vice President.
Corrections, like revolutions, confessions and forest fires, are
unpleasant. But they are often necessary. They clear away the dead
wood.
Recession On The Horizon?
Despite what Bush & Bernanke say to reassure us that the economy is doing well, I don't believe it is. Here are some news stories that support this belief.
The first is from Newsweek.
And this snippet from Bloomberg.com which basically says food is going to get more expensive.
I had previously voiced my concern over whether we were going to go through an inflationary period or a recession. Looks like we're now scheduled to have both!
The first is from Newsweek.
Because home sales and moves stimulate purchases of appliances, electronics and furniture, the giant chains that catered to house flippers and renovators have reported recession-like results. In the second quarter, same-store sales were down 5.2 percent at Home Depot and 4.3 percent at Sears.
Americans who were living high by taking out home-equity loans during the boom have watched their equity drop, and are now faint of heart when it comes to big-ticket discretionary purchases.
The National Marine Manufacturers Association said it expects pleasure-boat sales, down 6 percent in 2006, to fall 10 percent more in 2007, largely due to the housing woes. Boatarama in Ft. Lauderdale, Fla., had to consolidate from four locations to one, and it now sells only used boats.
Brunswick Corp., which makes Sea Ray boats, said in July that it was slashing production due to the housing situation "in Florida and California, which are two of the nation's largest boating markets."
And this snippet from Bloomberg.com which basically says food is going to get more expensive.
Wheat rose the maximum allowed by the Chicago Board of Trade on rising
purchases of the grain by India, the second-biggest consumer, and forecasts for a drop in global supplies to their lowest in 26 years.
Global supplies are expected to decline to 114.8 million metric tons by the end of the marketing year May 31, 2008, the lowest since 1982, the U.S. Department of Agriculture said last month. Unusual weather has hurt crops in several regions, including Europe, the U.S., Canada and Australia.
I had previously voiced my concern over whether we were going to go through an inflationary period or a recession. Looks like we're now scheduled to have both!
American's Better Off Than Ever Before? Yeah Right!
Prof. Perry of economics at the school of Management, University of Michigan has an interesting blog on economics called Carpe Diem, which roughly translated means seize the day. In a recent post, he claims "that despite what many people think, our standard of living is higher now than ever before".
The evidence he cites is that we're spending less on food, clothing and shelter than in 1901, and we're spending less than citizens of "developing countries" like India or China.
We might have a better standard of living than someone in India, a country where nearly 30% of the population currently lives in poverty. Thats nearly 400 million people or MORE than the US's entire population!!!! How is that comparison relevant? Don't we measure up to the Canadians, British, French, Swiss, Australian, German or Japanese that we have to resort to comparing ourselves to countries that were either socialist or communist-dictatorships for the past several decades. (Incidentally, India has the only democratically elected communist-party in the world).
Also, I would be highly skeptical of anything the Federal Reserve publishes. Their assertion that the average person spends 18% of their income of housing sounds too small. I think the average person in the US spends about 25-30% on housing (although houses have become bigger and much more comfortable from 1901!).
And another factor to consider is that the average family had only 1 working member in 1901 - the male head of household.
Today you have most family with 2 income earners. So two people are now working, but they're not living twice as well.
That doesn't sound like an improvement to me.
However, I do agree on thing, we most undoubted have a better standard of living of anyone who lived in 1901, even maybe robber barons. But I don't think we're living better than ever before.
I think the late 1950s was when Americans were the richest. That was when we had a lot of manufacturing jobs and the government wasn't wasting money on fighting wars in remote places. And the dollar was backed by a precious metal, not just an empty promise.
The evidence he cites is that we're spending less on food, clothing and shelter than in 1901, and we're spending less than citizens of "developing countries" like India or China.
We might have a better standard of living than someone in India, a country where nearly 30% of the population currently lives in poverty. Thats nearly 400 million people or MORE than the US's entire population!!!! How is that comparison relevant? Don't we measure up to the Canadians, British, French, Swiss, Australian, German or Japanese that we have to resort to comparing ourselves to countries that were either socialist or communist-dictatorships for the past several decades. (Incidentally, India has the only democratically elected communist-party in the world).
Also, I would be highly skeptical of anything the Federal Reserve publishes. Their assertion that the average person spends 18% of their income of housing sounds too small. I think the average person in the US spends about 25-30% on housing (although houses have become bigger and much more comfortable from 1901!).
And another factor to consider is that the average family had only 1 working member in 1901 - the male head of household.
Today you have most family with 2 income earners. So two people are now working, but they're not living twice as well.
That doesn't sound like an improvement to me.
However, I do agree on thing, we most undoubted have a better standard of living of anyone who lived in 1901, even maybe robber barons. But I don't think we're living better than ever before.
I think the late 1950s was when Americans were the richest. That was when we had a lot of manufacturing jobs and the government wasn't wasting money on fighting wars in remote places. And the dollar was backed by a precious metal, not just an empty promise.
Paris Paid To Attend Own Birthday Party
![[Image of Paris Hilton]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8KHlJe5kZhpc4m0sa93-HU_Sf39gUoFOaFGMvlvOUwpgGPdeE_ajuu3ZSUVPYCrzsunxeyKNRkLbh2hhqeJFPmwFIHkGGLTsmEX7sv_P0Dj1FprsxWDD0FowSVQmLx-icWw_QIwhTbpQ/s1600-h/Paris+Hilton.jpg)
Its not enough that celebrities people get paid for guest appearances at night clubs and public events. They now are getting paid to host their own birthday parties!
Paris Hilton was reportedly given $200,000 to celebrate her 24th birthday party at "Pure" in Las Vegas. She spent the last 3 at "Light" at the Bellagio, but they were too cheap. They only provided her a free private jet, a free luxury suite, free dinner and free booze. If they didn't pay me $200,000 to celebrate my birthday, I wouldn't go there either ;-)
Apparently its very profitable for the nightclubs to have celebs. One such club paid Brittany Spears a lousy $83,000 to attend a new years party. They then sold 3,000 tickets to the event at $250 a pop, which means they grossed $750,000 and probably netted around $500,000.
Pure nightclub is estimated to gross $53 million this year!!!! Sounds like a great business to be in.
If any of you are interested in getting your own bar, nightclub or gentleman's club here's a list of such businesses for sale.
Become a Better Investor
The Orlando Sentinel has sad story about condo flippers in Miami. They put down $100,000 on a pre-construction condo and now either they lose their deposit or they close on a $585,000 1 bedroom condo thats worth less than $500,000.
The sad part is that people fall for these get-rich quick schemes in every cycle. It happened in Miami during the last boom. It happened in the stock market in 2000. Its been happening regularly for over 400 years in every country. If these flippers had only read Extraordinary Popular Delusions and the Madness of Crowds, they would've realised that they're not geniuses, only the last fools to be left holding the bag.
Unfortunately, I was once such a fool. Taken in by the stock market in 1999 and fooled in 2000. Luckily I learnt my lesson early in life when I had little to risk and many years to implement my new found wisdom. I feel sorry for those that learnt this lesson late in life like the retirees of Enron. Life isn't fair.
But that doesn't mean you do not do your homework. Your job as an investor is to know your investment inside and out. But also you need to understand the psychology of investing. Human psychology is the common uniting thread across all investment sectors. If it weren't for human intervention, stock prices would move only 4 times a year - after quarterly earnings are released.
Read all you can about the economy, the stock market and the world in general. Eventually you will become a better investor.
Related Readings:
1. Books that broaden your mind
The sad part is that people fall for these get-rich quick schemes in every cycle. It happened in Miami during the last boom. It happened in the stock market in 2000. Its been happening regularly for over 400 years in every country. If these flippers had only read Extraordinary Popular Delusions and the Madness of Crowds, they would've realised that they're not geniuses, only the last fools to be left holding the bag.
Unfortunately, I was once such a fool. Taken in by the stock market in 1999 and fooled in 2000. Luckily I learnt my lesson early in life when I had little to risk and many years to implement my new found wisdom. I feel sorry for those that learnt this lesson late in life like the retirees of Enron. Life isn't fair.
But that doesn't mean you do not do your homework. Your job as an investor is to know your investment inside and out. But also you need to understand the psychology of investing. Human psychology is the common uniting thread across all investment sectors. If it weren't for human intervention, stock prices would move only 4 times a year - after quarterly earnings are released.
Read all you can about the economy, the stock market and the world in general. Eventually you will become a better investor.
Related Readings:
1. Books that broaden your mind
How To Start A Vending Machine Business
If you've ever wondered how much money the vending machine guy at your office makes, here's an excellent post by GeniusTypes on how he got into the vending machine business.
It all started with having an open mind and buying a route from someone who had lost interest for well below what it was worth.
You'll see this theme repeated in many successful investment stories.
Every so often you'll see ads in the local paper about the company that sells large office-type vending machines holding a presentation. Apparently, the charge $1000 each and it takes a long time to recoup your investment. Most of the buyers give up and sell them for $100-$200 each and the second owner usually has better luck.
GeniusTypes kept his initial investment low by understanding how to value the business to begin with. He thus guaranteed his success by keeping a large margin of safety.
He immediately saw where he could cut costs to increase his net income. He also followed up on some leads and expanded his route and thus the value of his business.
Also note how he takes the positive aspects from Robert Kiyosaki's books and doesn't dwell on whether the book is based on fact or fiction.
Check out these cheap vending machines.
It all started with having an open mind and buying a route from someone who had lost interest for well below what it was worth.
You'll see this theme repeated in many successful investment stories.
Every so often you'll see ads in the local paper about the company that sells large office-type vending machines holding a presentation. Apparently, the charge $1000 each and it takes a long time to recoup your investment. Most of the buyers give up and sell them for $100-$200 each and the second owner usually has better luck.
GeniusTypes kept his initial investment low by understanding how to value the business to begin with. He thus guaranteed his success by keeping a large margin of safety
.He immediately saw where he could cut costs to increase his net income. He also followed up on some leads and expanded his route and thus the value of his business.
Also note how he takes the positive aspects from Robert Kiyosaki's books
and doesn't dwell on whether the book is based on fact or fiction.Check out these cheap vending machines.
Yield On 10 Year TBill Keeps On Dropping
Even though the past few sessions in the stock market have been rather choppy, the yield on the 10 year treasury has steadily dropped over the past several weeks.
![[Graph of 10 Year Treasury Yield over past 3 months]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAMrkAcKtJtP6UjYUZBQQvwuH2AZZulmMcFahzk1rgl4UaJP93nOm0x4NYf_ufugTPnfbfQiKoMWO0uTV4BLDBcDypJyhPX1eRTVi2S9KzwPqkAK2Re5vN0BTjRQiADpJj3LTCZcl6rPA/s400/10+Yr+Tbill.png)
Ever since the subprime mortgage issue led to a global liquidity crunch and subsequent stock market correction, the yield has been steadily dropping. This means that large institutions have been selling equities and moving money into safe US treasuries. It doesn't matter if they get only 4.5% (as of today's closing price), but at least they know they'll get the principle back.
There seems to be a repricing of risk in the market. Any stock that is deemed to be risky has dropped in the past 6 weeks.
On the other hand, safe stocks like Warren Buffett's Bershire Hathaway (BRK) has been rewarded and its stock price is up nearly 10%.
Lets see how long this flight to safety continues. If you have the courage to be greedy when other are fearful, you can make a lot of money.
Happy Investing!
![[Graph of 10 Year Treasury Yield over past 3 months]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAMrkAcKtJtP6UjYUZBQQvwuH2AZZulmMcFahzk1rgl4UaJP93nOm0x4NYf_ufugTPnfbfQiKoMWO0uTV4BLDBcDypJyhPX1eRTVi2S9KzwPqkAK2Re5vN0BTjRQiADpJj3LTCZcl6rPA/s1600-h/10+Yr+Tbill.png)
Ever since the subprime mortgage issue led to a global liquidity crunch and subsequent stock market correction, the yield has been steadily dropping. This means that large institutions have been selling equities and moving money into safe US treasuries. It doesn't matter if they get only 4.5% (as of today's closing price), but at least they know they'll get the principle back.
There seems to be a repricing of risk in the market. Any stock that is deemed to be risky has dropped in the past 6 weeks.
On the other hand, safe stocks like Warren Buffett's Bershire Hathaway (BRK) has been rewarded and its stock price is up nearly 10%.
Lets see how long this flight to safety continues. If you have the courage to be greedy when other are fearful, you can make a lot of money.
Happy Investing!
How The Carry Trade Really Works
Here's a really, really good video on how the carry trade works and what implications it has on global asset prices and the global financial stability.
I think the carry trade will have to reverse at some point in the near future. Trees do not grow to the skies and financial excesses do not last forever. When the average man on the street with no financial education starts talking or investing in a particular sector, it usually marks the end of that run. (In 2000 I overheard my hair-dresser talking about internet stocks - I should've sold then. In early 2005, I overheard some guys at the movie theater talking about getting into the local real estate market - I sold then and I'm glad I did!)
With Japanese housewives partaking in the carry-trade now, I think its safe to say that we're pretty close to the end of the cycle of cheap, easy money. I sold some USD and bought Yen and I've also invested some money in Japanese investments (a REIT and a stock ETF).
Related Posts:
I think the carry trade will have to reverse at some point in the near future. Trees do not grow to the skies and financial excesses do not last forever. When the average man on the street with no financial education starts talking or investing in a particular sector, it usually marks the end of that run. (In 2000 I overheard my hair-dresser talking about internet stocks - I should've sold then. In early 2005, I overheard some guys at the movie theater talking about getting into the local real estate market - I sold then and I'm glad I did!)
With Japanese housewives partaking in the carry-trade now, I think its safe to say that we're pretty close to the end of the cycle of cheap, easy money. I sold some USD and bought Yen and I've also invested some money in Japanese investments (a REIT and a stock ETF).
Related Posts:
Are Jim Cramer's Stock Picks Worthless?
According to a recent article by Barron's Magazine title The Cramer Effect (& Defect), readers who follow Jim Cramer's stock picks from his show are more than likely to lose money in the long run.
I really don't think people should be taking stock tips from a guy who has about a minute to analyze the stocks on his show. He may be a really smart guy but how can he properly evaluate a stock in the short time period he has?
I hope there aren't too many people who base their stock investing solely based on his recommendations. But if they're that ignorant or lazy, I guess they get what they deserve!
We also looked at a database of Cramer's Mad Money picks maintained by his Website, TheStreet.com. It covers only the past six months, but includes an astounding 3,458 stocks — Buys mainly, punctuated by some Sells. These picks were flat to down in relation to the market. Count commissions and you would have been much better off in an index fund that simply tracks the market.
When we asked Cramer and CNBC for their own records of Mad Money's stock-picking performance, they had more excuses than a Tour de France cyclist dodging a blood test. They complained that the list from YourMoneyWatch.com contained some stocks from the program's "Lightning Round," in which Cramer gives a quick analysis and a buy or sell decision on stocks phoned in live by viewers. These, they argued, shouldn't count in our tally.
CNBC officials also said that viewers should buy Cramer's picks a week after they're aired. They said that the show is mainly educational, and not just about stock-picking. In the end, they said we should focus only on the tiny universe of stock selections — about 12 a week — that Cramer researches the most. And we should do it only for the issues picked this year. CNBC analyzed these stocks, and said that if held for one month, they beat the S&P by 0.8%, or 1.7% after two months. They offered no results for the year-to-date.
It turns out that CNBC did its analysis incorrectly, and that the stocks beat the S&P by 0.4% in one month and 1.2% over two months. CNBC measured the stocks' performance against the average performance of the S&P year-to-date, instead of against the performance of the S&P from the date of each stock pick. Also, it included more than 100 recently recommended stocks that weren't held for the full one- or two-month holding period that CNBC claimed.
More important, the stocks fell short of the S&P by a statistically significant 2.2% through last week.
Our question is: How are viewers supposed to know that they should pay attention only to this subset of stock picks each week and ignore the thousands of others that Cramer makes on his show?
Then there's the day-after-pop phenomenon. Our analysis of Cramer's picks over the past two years, from YourMoneyWatch.com, showed that, on average, the stocks jumped 2% the day after he mentioned them. From there, they usually moved sideways or down for the following 30 trading days (see chart). This offered an opportunity to make money — 5% to 30% a year — by selling Cramer's selections short.
Cramer agrees that there is a shorting opportunity in the temporary effect he has on stocks — a trade that he'd jump on if he still were at a hedge fund. "If you short the bump, you will do well," he said last week. "I've said it on the show many times."
I really don't think people should be taking stock tips from a guy who has about a minute to analyze the stocks on his show. He may be a really smart guy but how can he properly evaluate a stock in the short time period he has?
I hope there aren't too many people who base their stock investing solely based on his recommendations. But if they're that ignorant or lazy, I guess they get what they deserve!
Prosper Update
I started lending money on Prosper.com about 10 months ago. I started out with a total of $1900 in my account. I've been mainly targeting people with D and E credit who seem have steady jobs but got into the payday loan trap and can't get out. My average interest rate is about 19.4% right now and I usually lend out the minimum $50.
I've been reinvesting all the interest payments I've received. So far I've made loans to 40 people and I've had 2 defaults and 1 currently late loan - two of which were from Prosper's auto-pay, which I don't really recommend using. One of the defaults had a B rating!
Currently my account is worth about $2106, which gives me an annualized return of about 13%. Not bad at all.
If I don't have any more defaults, this might increase slightly. Even if I get 1 more default, I should still get an annualized rate of 9%, which is about twice what I get in a savings account.
Why should Visa and Mastercard make all the money!
I've been reinvesting all the interest payments I've received. So far I've made loans to 40 people and I've had 2 defaults and 1 currently late loan - two of which were from Prosper's auto-pay, which I don't really recommend using. One of the defaults had a B rating!
Currently my account is worth about $2106, which gives me an annualized return of about 13%. Not bad at all.
If I don't have any more defaults, this might increase slightly. Even if I get 1 more default, I should still get an annualized rate of 9%, which is about twice what I get in a savings account.
Why should Visa and Mastercard make all the money!
How To Sell a $14 Book For $2,500
Previously, I had mentioned a $2,500 book by Monhish Pabrai called Mosaics:Perspectives on Investing and how I was hoping I could find my own signed copy to hawk on Amazon.
Well, I did find it and after jumping through several hoops I was finally approved as a seller on Amazon.com. (Don't know what the issue was, just some technical difficulties on their end).
Not only did I find a signed copy, I also happened to have an unsigned copy too!
I'm selling the autographed copy for $2,395 (don't want to be too greedy!). Here's the link on Amazon.com. If anyone's interested, contact me directly and I'll let it go for $2,200 with free FEDEX shipping.
I'm not sure what sort of people buy these kind of books. But I know they exist. Someone spent $395 and bought the unsigned edition a few days ago. I know that for a fact because I got a $23 commission from Amazon on the sale of that book(thanks whoever you are!).
I just read Pabrai's latest book, The Dhandho Investor: The Low - Risk Value Method to High Returns and its really very, very good. I'll write a review on it shortly.
And yeah, the title of this post is a bit misleading. ;-)
Well, I did find it and after jumping through several hoops I was finally approved as a seller on Amazon.com. (Don't know what the issue was, just some technical difficulties on their end).
Not only did I find a signed copy, I also happened to have an unsigned copy too!
I'm selling the autographed copy for $2,395 (don't want to be too greedy!). Here's the link on Amazon.com. If anyone's interested, contact me directly and I'll let it go for $2,200 with free FEDEX shipping.
I'm not sure what sort of people buy these kind of books. But I know they exist. Someone spent $395 and bought the unsigned edition a few days ago. I know that for a fact because I got a $23 commission from Amazon on the sale of that book(thanks whoever you are!).
I just read Pabrai's latest book, The Dhandho Investor: The Low - Risk Value Method to High Returns
and its really very, very good. I'll write a review on it shortly. And yeah, the title of this post is a bit misleading. ;-)
The Raging Bull
For all of you that enjoyed (or maybe were horrified by) Jim Cramer's emotional outburst, here's a spoof on that. Its really funny, check it out.
You can catch more of these entertaining videos on Minyanville.com
You can catch more of these entertaining videos on Minyanville.com
Its Official: Hell Freezes Over
Last week, hell froze. The Financial Times reports:
So apparently, math whizzes find they don't know which way the market is going, despite all their fany financial modeling and risk calculation and mitigation through the use of derivates.
No matter what kind of math you do, sometimes things take you by surprise.
According to Nassim Nicholas Taleb’s latest best seller, The Black Swan: The Impact of the Highly Improbable, improbable events with infinitely small odds of occurrance seem to occur every so often, especially in the financial markets. And with disastrous results!
And if this wasn't enough, Sentinel Management Group, with $1.6 Billion under "management" has frozen access to Money Market Accounts!
According to the Chicago Tribune,
What is the world coming too?
Related Readings:
1. The Black Swan: The Impact of the Highly Improbable
2. Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
3. When Genius Failed: The Rise and Fall of Long-Term Capital Management
In a rare unplanned investor call, the bank revealed that a flagship global equity fund had lost over 30 per cent of its value in a week because of problems with its trading strategies created by computer models. In particular, the computers had failed to foresee recent market movements to such a degree that they labeled them a ‘25-standard deviation event’ - something that only happens once every 100,000 years or more.
"We are seeing things that were 25-standard deviation events, several days in a row," said David Viniar, Goldman’s chief financial officer.
Losses in the Goldman fund could go over $1.5 billion. But heck, everyone makes mistakes. And even a great mathematician such as James Simons, founder of Renaissance Technologies, takes a loss from time to time. Simons used to do math for the Pentagon. Then, he discovered that he could make billions running a math-based hedge fund. But last week, Simons was forced to write a letter to his investors. His fund lost about 9% in the first few days of August...and now Simons says, “we cannot predict the duration of the current environment.
So apparently, math whizzes find they don't know which way the market is going, despite all their fany financial modeling and risk calculation and mitigation through the use of derivates.
No matter what kind of math you do, sometimes things take you by surprise.
According to Nassim Nicholas Taleb’s latest best seller, The Black Swan: The Impact of the Highly Improbable
, improbable events with infinitely small odds of occurrance seem to occur every so often, especially in the financial markets. And with disastrous results!And if this wasn't enough, Sentinel Management Group, with $1.6 Billion under "management" has frozen access to Money Market Accounts!
According to the Chicago Tribune,
"If you attempt to withdraw money from Sentinel, they will tell you they will not honor that request," said lawyer Jeffrey Barclay, who represents some of the futures brokers and investment pools whose money is frozen at Sentinel.
With $1.6 billion under management, Sentinel had advertised itself as an ultrasafe cash manager for people in the futures industry, corporate treasurers and well-to-do individuals.
Now the company is saying nothing publicly and has taken down its Web site. "We are not taking any media calls," said a person who answered the phone at Sentinel on Wednesday.
What is the world coming too?
Related Readings:
1. The Black Swan: The Impact of the Highly Improbable
2. Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
3. When Genius Failed: The Rise and Fall of Long-Term Capital Management
Is The US On The Verge Of Collapse?
According to the Financial Times.
Very chilling indeed!
Before you start thinking that David Walker is some crackpot lunatic, here's his bio straight off the US Government Accountability Office website.
Related Readings:
1. Empire of Debt: The Rise of an Epic Financial Crisis
2. The Coming Collapse of the Dollar and How to Profit from It: Make a Fortune by Investing in Gold and Other Hard Assets
The U.S. government is on a burning platform of unsustainable policies, and practices with fiscal deficits, chronic health care underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon.
David Walker, comptroller general of the U.S.,issued the unusually downbeat assessment of his country’s future in a report that lays out what he called chilling long-term simulations. These include dramatic tax rises, slashed government services and the large-scale dumping by foreign governments of holdings of U.S. debt.
Drawing parallels with the end of the Roman empire, Mr. Walker warned there were striking similarities between America’s current situation and the factors that brought down Rome, including declining moral values and political civility at home, an overconfident and overextended military in foreign lands and fiscal irresponsibility by the central government.
Very chilling indeed!
Before you start thinking that David Walker is some crackpot lunatic, here's his bio straight off the US Government Accountability Office website.
As Comptroller General, Mr. Walker is the nation's chief accountability officer and head of the U.S. Government Accountability Office (GAO), a legislative branch agency founded in 1921. GAO's mission is to help improve the performance and assure the accountability of the federal government for the benefit of the American people. Over the years, GAO has earned a reputation for professional, objective, fact-based, and nonpartisan reviews of government issues and operations.
Related Readings:
1. Empire of Debt: The Rise of an Epic Financial Crisis
2. The Coming Collapse of the Dollar and How to Profit from It: Make a Fortune by Investing in Gold and Other Hard Assets
Are MBA's Over-rated?
According to this interesting article,an MBA isn't all its cut out to be.
It references this article in Businessweek, which is also worth checking out.
While having that M.B.A. might give you a boost, the reality is that the degree generally isn't a guarantee or indicator of your future success. Business success has more to do with leadership, talent and a drive for excellence than it does with having a degree from a prestigious university. An M.B.A. can help you get your foot in the door, but according to Peter D. Crist, chairman of Crist Associates executive search firm, "it's instinct, it's hard work, and it's raw intelligence" that will really help you get ahead.
It references this article in Businessweek, which is also worth checking out.
Counter Argument to China's Threat To Dumping US Dollars/Treasuries/
A few days ago,China threatened to offload its Billions of US Treasuries in retaliation to any US imposed trade tariffs.
One of the newsletters I read regularly is from John Mauldin who doesn't think its likely that China will follow through with their threat.
China has an estimated $900 billion in US dollar reserves. There is no doubt that if they did decide to sell a few hundred billion here or there, they could push the dollar down against all currencies and not just the renminbi. That would also have the effect of increasing US interest rates on not just government bonds, but mortgages, car loans and all sorts of consumer credit.
Given the current state of the credit markets, that is not something that would be welcome. But it is not likely for several reasons. First, it is not in their best interests to do so. It would hurt the Chinese as much as the US, as it would devalue their entire dollar portfolio and clearly do damage to their number one export market - the US consumer.
Secondly, it is unlikely that the US will actually be able to get such legislation passed into law. Even if such legislation passed Congress (an admitted possibility) it would be vetoed by President Bush. That means that any real change would not be possible until some time in the middle of 2009.
The renminbi has already increased almost 10% in the last two years since the Chinese started their policy of a crawling peg. For reasons I outlined at length a few weeks ago, it is likely that the Chinese are going to increase that pace over the next two years, for their own internal reasons. A higher renminbi valuation helps them slow their economy down from its way too fast pace of growth that is evident today. (If you would like to see that analysis, click here.)
By the time any real legislation could get passed, the renminbi will be very close to the level where the China bashers in Congress want to see it, if it is not already floating. Hardly enough to want to start a trade war at that time.
But let's look at what the bi-partisan economic illiterates in Congress are actually advocating. First, they whine about lost American jobs. But a 25% higher renminbi is not going to bring any manufacturing jobs back. China is no longer the low cost labor market. There are other Asian countries with lower labor costs. We just will not be able to competitively manufacture products that have high unskilled labor costs.
But we will continue to manufacture high value added items in a host of industries where skill and talent are required. Even though manufacturing as a percentage of US GDP is down, our actual level of exports and manufactured products is up by any measure. It is easy to write about the closing of a plant, and it makes the headlines, but the fact is that free trade has created more jobs by far than we have lost.
Secondly, if our cost of imports were to rise by 20-25%, that cannot be understood as anything but inflationary. And it would not just be Chinese products, but the products of all developing countries. Many Asian countries manage (manipulate) their currencies to keep them competitive against each other and the Chinese. You can bet that if the renminbi rises another 20%, there is the real prospect that they all will.
And much of what China and the rest of Asia produces is bought by those on the lower economic rungs of the US ladder. So, if Congress gets its way, they would be advocating putting pressure on those least capable of paying higher prices. But no one lobbies for the little guy. Congressional members can pander to their local unions and businesses without having to answer for what would be higher prices.
And higher prices means more inflation which means that interest rates have to be higher than they should, which means higher mortgage rates, etc. Protectionism has a very high cost. Free markets create more jobs everywhere.
Finally, we should hope the Chinese continue to allow their currency to rise slow and steady. Neither country needs the turmoil a rapid rise would induce. The world needs a stable China. We are watching world credits markets freeze up because things went very bad very quickly in the relatively small subprime world. A 20% drop in the dollar in a few months would be even more catastrophic. Senators Lindsey Graham and Chuck Schumer are competing to be this century's Smoot and Hawley that creates a depression from trade wars where none should be.
The danger in all this is that politicians who have little economic literacy create a hostile environment with their rhetorical poison, with both sides feeling the need to play to their "home crowd." That is a very dangerous environment.
It won't happen, but I would like to see the following question asked in the presidential debates to those (like Hillary Clinton, Obama and Dodd, etc.) who basically advocate a weaker dollar.
"Why are you advocating a weak dollar policy? Why do you want American wage earners to pay 25% more for the goods we buy from foreign countries? Do you really think there is no connection between the value of the Chinese currency and the rest of the currencies of the world? Do you think American consumers need to send even more money overseas and get less for our dollars? Do you think the American consumer is so well off they can afford to pay more and that it will have no affect on the US economy? Do you realize that a 25% lower dollar will mean a rise in world oil prices? Do you think there is no connection between the value of the dollar and US prosperity?"
Mortgage Lenders Squeeling Like Pigs: WAMU First To Cry Uncle
Despite Ben Bernanke's optimism that the sub-prime issues wouldn't spread to the rest the of the economy, not only is it spreading to the rest the of the economy, its become our favorite export to global economies too!
The resulting liquidity crunch has already begun. Many banks just announced that they'll no longer accept loans through brokers. This is to reduce the additional cost of having a middle-man.
Washington Mutual also announced that its Jumbo loans would be priced at 8%. OUCH! Basically, WAMU is having a tough time reselling these loans on the secondary market (to unsuspecting pension and hedge funds) so they've jacked up the rates on these.
As of 2007, a jumbo loan (in most parts of the country) is a loan thats over $417,000 for a single-family residence.
Unfortunately, with the median home price in San Diego is over $500,000. (Not sure of the exact figures but its dropping from the peak). This means the average family has a jumbo loan on their median-priced home.
It was ok when rates where 4.5%, but now when rates are at 8%, the corresponding home payment will jump 43%!!!! I don't know about you, but I'd be looking to move if my home payment rose 40%+.
I think as the rates rise and loans become more difficult to get, home prices will start falling faster than they have in the past 2 years. Many people are still in denial about dropping home prices in SoCal - but this looks like the beginning of the end. I wouldn't be surprized if rates fall another 25% of where they are today.
The resulting liquidity crunch has already begun. Many banks just announced that they'll no longer accept loans through brokers. This is to reduce the additional cost of having a middle-man.
Washington Mutual also announced that its Jumbo loans would be priced at 8%. OUCH! Basically, WAMU is having a tough time reselling these loans on the secondary market (to unsuspecting pension and hedge funds) so they've jacked up the rates on these.
As of 2007, a jumbo loan (in most parts of the country) is a loan thats over $417,000 for a single-family residence.
Unfortunately, with the median home price in San Diego is over $500,000. (Not sure of the exact figures but its dropping from the peak). This means the average family has a jumbo loan on their median-priced home.
It was ok when rates where 4.5%, but now when rates are at 8%, the corresponding home payment will jump 43%!!!! I don't know about you, but I'd be looking to move if my home payment rose 40%+.
I think as the rates rise and loans become more difficult to get, home prices will start falling faster than they have in the past 2 years. Many people are still in denial about dropping home prices in SoCal - but this looks like the beginning of the end. I wouldn't be surprized if rates fall another 25% of where they are today.
China Pulls Out The Heavy Ammunition!
According to the Telegraph,
China has been subsidizing the consumption of the US consumer & homeowner to the tune of nearly $1 Trillion. They send us all kinds of stuff and in return we give them pieces of green paper that aren't really backed by anything, except the promise to pay more of the green stuff!
And now, to appease special interest groups clamoring about loss of manufacturing jobs, our 'faithful' senators are trying to pass a bill enacting trade tariffs against China in retaliation for currency manipulation. The good thing about special interest groups are that they are usually represent single-agenda constituents. The politicians give them the one thing that they want, and they're assured their vote. And if they can spread the cost of giving them the thing they desire over a large base, less people are likely complain.
In this case, the cost is higher inflation for all of us. And if China follows through with its promise, you'll see much higher interest rates that will negatively affect the housing industry and the economy pushing us into recession.
We're currently experiencing an economy divergence. A poor country like China is lending money to our government by buying our Treasury notes. You could say its effectively funding our government spending. This is enabling us to enjoy the low-interest environment of the past several years.
This is not a normal occurrence. Typically rich countries lend money to poor countries. This phenomena should result in a natural rebalancing of the currencies where China's currency strengthens against the US Dollar. Given time, this will occur without any help from our politicians.
Yet another example of why the government shouldn't interfere in economic policy. It usually never does any good, it creates friction and the burden always falls on the tax-payer.
Meanwhile, Hillary Clinton in a show of brilliance said
Related Posts:
How Trade Trariffs Hurt The Economy
The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.
Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.
Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
China has been subsidizing the consumption of the US consumer & homeowner to the tune of nearly $1 Trillion. They send us all kinds of stuff and in return we give them pieces of green paper that aren't really backed by anything, except the promise to pay more of the green stuff!
And now, to appease special interest groups clamoring about loss of manufacturing jobs, our 'faithful' senators are trying to pass a bill enacting trade tariffs against China in retaliation for currency manipulation. The good thing about special interest groups are that they are usually represent single-agenda constituents. The politicians give them the one thing that they want, and they're assured their vote. And if they can spread the cost of giving them the thing they desire over a large base, less people are likely complain.
In this case, the cost is higher inflation for all of us. And if China follows through with its promise, you'll see much higher interest rates that will negatively affect the housing industry and the economy pushing us into recession.
We're currently experiencing an economy divergence. A poor country like China is lending money to our government by buying our Treasury notes. You could say its effectively funding our government spending. This is enabling us to enjoy the low-interest environment of the past several years.
This is not a normal occurrence. Typically rich countries lend money to poor countries. This phenomena should result in a natural rebalancing of the currencies where China's currency strengthens against the US Dollar. Given time, this will occur without any help from our politicians.
Henry Paulson, the US Tresaury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".
Yet another example of why the government shouldn't interfere in economic policy. It usually never does any good, it creates friction and the burden always falls on the tax-payer.
Meanwhile, Hillary Clinton in a show of brilliance said
foreign control over 44pc of the US national debt had left America acutely vulnerable.Great, maybe Bill can fork over the $50 million he's made and buy up some of it.
Related Posts:
How Trade Trariffs Hurt The Economy
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