Image via WikipediaToday there are so many financial pitches in video, on the web, you need a score card to tell just who the Charlatans are and who are trully legitimate financial advisors with good intentions for their clients and prospective clients.
I have posted here the thoughts of other writers with regard to the massive printing machine that is the U.S. Federal Reserve Bank, and it's enormous influence on world markets, not to mention the United States dollar.
For almost 300 years, the U.S. buck has been the international reserve currency. That is to say, many world prices of goods and commodities are set in U.S. dollar values, forcing the governments of the world to buy those U.S. dollars to just be able to purchase on the world markets.
That huge advantage for the U.S. economy may now be in jeopardy.
Here is a video presentation by Martin Weiss of Weiss Research Inc (40 years in business) which should scare every investor reading and listening to it, into action.
I make no further comment except to say I have no association with Mr. Weiss, nor do I benefit in any way from his company. The video presentation is in fact a lead up to joining his firms news letter. I do not encourage you either way, except to say read, listen and make your own decisions.
The link: http://finance.moneyandmarkets.com/reports/SMR/4349/vsp-smr.php?s=BFPUB&e=4483104
Well, if the choice is between the Euro and gold, I say gold, hands down!! If the choice is between the U.S. dollar and gold, I still say gold. However, there is a growing chorus singing the praises of dirty old coal, as a solid, short term (6-12 month) investment for your retirefund, possibly, even better than gold.
The Euro is suffering because of the initial reluctance of the EU countries to take action regarding the Greek debt crisis. A devaluation of the Euro is overdue, and necessary. It will actually strengthen the Euro's trade deficits over time, and bring prosperity (eventually) But forget Portugal, Ireland, and Spain. In the greater scheme of the international markets, they are small fry.
However, it is the eventual devaluation of the U.S. dollar that should have Americans much more concerned. Beware of what is happening in California, Florida, Illinois, Ohio, Michigan, North Carolina, New Jersey and even Texas. These states have all spent over 1 billion on their unemployed alone, bankrupting their unemployment budgets. They also have between 13.7 and 17% unemployment, huge debts and deficits, and in some cases, housing prices have been cut in half.
Like the "Pigs" of Europe, these states also cannot print their own money, thereby inflating their way out of the current malaise. As the PIGS of Europe are having a huge, negative impact on the Euro, these states, (the HUGE federal debt notwithstanding) will have the same affect the U.S. dollar. It is a certainty. The only question is, how long can "king dollar" (as Larry Kudlow likes to call it) remain king. It currently is only king because there are no princes in waiting (as regards other world currencies). So, is "Prince Gold" quietly mounting a coup against the King. How about "King Commodity" who is somewhat weakened right now, but will be gathering strength as 2010 progresses.
Many developing countries, including China, India, Indonesia, Russia, South Korea, Brazil etc. are already looking to gold as a substitute for the prominence of the U.S. currency. Many individual investors and fund managers in these countries and throughout the west, have also moved into gold and commodities as a hedge against the demise of the usd. Some have recently added the Canadian and Aussie dollar to their international currency accounts as these two countries are considered "commodity rich"!
Whether they are right or wrong, sentiment is what moves the market. Anyone who thinks that gold, oil, uranium, titanium, natural gas, copper, diamonds, platinum, palladium, REE's or Lithium are not good places to put your money in this environment, just isn't paying attention. We are taking advantage of the current market disarray and buying these commodities
The U.S. dollar is a bubble waiting to explode into hyper inflation. Cash is a trap waiting to be sprung, and the current downturn is just that, a downturn that was expected and somewhat welcome by smart investors. Being in cash at the beginning of May was smart. Being in cash in June won't be.
Last year we told you to "hold on to your Loonies" as the Canada buck was trading around .77 usd at the time. Needless to say, we told you so! This week both the National Post and RBC are telling you the same thing, forecasting that by the end of the second quarter, the Loonie will trade "above" the U.S. dollar.
There has even been a spike in put options of late which allow the buyers to sell Aussie dollars for the Canada buck (Loonie). As the world searches for more places to "stash their cash", Canada has been at the forefront. The soundest banking system on the planet (Four of the five major banks just reported profits above analysts expectations) coupled with many natural resources, makes Canada a good bet for foreign investors and with the latest Canadian budget, that outlook brightens further, as the Canadian Government has done away with restrictive bureaucracy that kept, especially, American V/C firms from investing in Canada. With those restrictions gone, more capital is looking to Canada for safety as well as innovation in energy, bio tech, mobile web technology and numerous other businesses.
Canada projects (and so do many economists around the world) that it will be first mature economy to emerge from deficit spending. As the largest supplier of oil to the United States, and with an abundance of Natural Gas, hydro power and recently wind power, Canada is well positioned in the energy sector, with the largest consumer of energy right next door.
Add to that the fact that Canada holds over 20% of the worlds fresh water supply while it's citizens make up only .03% of the worlds population, and the outlook becomes brighter still. Oh yes, have I mentioned Canada is the #2 suppler of diamonds to the world, (the #1 supplier of "non-blood" diamonds) and is in the top 3 % of suppliers of Potash, gold, copper, nickel, uranium, platinum, etc. It's known reserves of natural gas is second only to the United States at present, but will probably take the number one spot as exploration ramps up for shale gas.
Even manufacturing is flying in Canada as Bombardier of Montreal takes on the Giants of Aerospace, Boeing and Lockheed Martin, at least in the regional jet space, while it's rail car division signs more new contracts in Europe and Asia for high speed rail in the $Billions. Ballard Power Systems, the granddaddy of fuel cell technology is signing contracts in Europe and especially India to supply those areas with clean tech portable power for their mobile web expansion. Ottawa based Wilan Technologies has signed 212 licenses for it's mobile web technology and on March 11th, it stands to reap even more rewards from it's patents as Apple and 18 other tech giants face a Markham hearing in a Texas court to determine how much they have infringed on Wilan's patents.
Magna International, Inc. is an Ontario, Canada based company, which produces a massive amount of auto parts for many players in the auto industry. It also has a new division, Magna E-Car Systems, that provides integration of components and systems, as well as the development and production of innovative complete-vehicle solutions, from engineering to turnkey systems, for all hybrid and electric vehicle programs around the world. Magna also manufactures other automotive systems, assemblies, modules, and products.
Encana is a major natural gas supplier, with huge investments in shale gas from Texas to New York, from Vancouver to Nova Scotia besides it's already extensive regular natural gas projects. Encana recently split into two entities, leaving most of it's oil business to a new company Cenovus a now lean oil player based in Calgary Alberta. As two separate entities since November 2009, these two companies figure to factor in to the North American energy market in a big way over the next decade.
TD Bank, Canada's second largest bank, is expanding into the U.S. market at a time when many U.S. banks are ripe for the taking, and it expects that it's U.S. arm may outpace it's Canadian system of 2,000 branches in the not too distant future. Currently, without that growth, it already stands at North America's 7th largest bank by capitalization.
In 9 out of the last 10 years, Canada has not only been in "the black" but has actually paid down debt in each of those years, while the rest of the G20 sank deeper. Even with this years deficit, caused by international events rather than domestic, Canada's "per capita" debt is less than half that of America.
The Loonie is outshining the usd for good reason. Natural Resources, Natural Gas, Oil, Aerospace, mobile web technology, Clean Tech, energy, auto, bio science and banking are only some of the strengths of the "True North strong and free", so as we said before, hold on to your Loonies, and reap the rewards of years of restraint and good management. Canada's investment landscape is becoming a lot less boring, and a lot more profitable.
Updated Dec 18th 2009 -The price of Gold is going up again, even though the talking heads (cnbc etc) are starting to tell us that King dollar is coming back. They must be only looking at their 3 month charts because they couldn't be more wrong about the dollar or about Gold (or other commodities for that matter) and here is why!
The elephant in the room is this: America is over $12 Trillion in debt and climbing. Check out the U.S. Debt Clock! If America does nothing to stop the bleeding, it will be $23 Trillion in Debt by the year 2020, more than 100% of GDP (that's only 10 years out). Now consider these 800 pound gorillas in the room trying to make space around the elephant:
1. The U.S. Fed is still propping up markets, and making massive asset purchases like mortgage backed securities while fully 25% of mortgages are underwater, and that number will increase through 2011 by all projections.
2. There are 2.4 $Trillion in ALT-A (Liar) Loans and sub-prime mortgages still out there and most don't reset until 2010 through 2015. If the Fed was not propping up this market including Fannie Mae and Freddie Mac, it would start another stampede for the exits. If they continue, then add that $2.4 Trillion to the debt numbers above. If they don't, just watch as millions more lose their homes.
3. As commercial real estate companies loans come due this year, they will run into a wall of re-financing problems as their lenders won't want to extend more credit, or will demand more security, or both. Only the strong will survive.
4. The banking industry expects up to 1,000 bank failures in 2010, because of the mortgage fiasco. Not last year, next year!
5. Many big financial institutions (remember all those who were "too big to fail") are still virtually ignoring the massive derivative debt on their books as they pay back those Government loans. (Yes, they leave them off of their books as if they didn't exist at all) They will have to be accounted for at some point. As that reckoning occurs, this problem all by itself will cause the dollar to drop.
6. The USA is still fighting two wars, on three fronts, after the President who launched both of those wars did not raise taxes to pay for them but, on the contrary, made two massive tax cuts in the middle of those two wars, something no other U.S. President had ever done throughout it's history.
7. The new health care bill will cost at least $1 Trillion dollars over 10 years.
8. Americans pay about 25% of the cost of Gasoline that the rest of the world pays.
9. The price of Gold is denominated in U.S. dollars.
The above really only addresses the American market, but the world of business has grown much larger. India and China are increasing their Gold reserves by huge amounts as they no longer trust the value of their U.S. dollar reserves. Brazil and Russia are doing the same. Russia has even added Canadian dollars to their reserves as the world tries to diversify around a falling U.S. buck.
These rising powers are also buying up commodities, oil, gas and mining companies. China has told all of it's 1.3 Billion citizens to also buy gold for their savings. India used to be the largest retail gold market (for it's dowry practices etc) but now China has taken over the number 1 spot.
Some market bulls believe Gold will top out somewhere between $2,000 and $5,000.
An inflation monster is coming and most of all the gold in the world is already above ground. That makes producing gold miners, expecially the juniors, takeover targets for the big dogs.
The American dollar has taken a hit against every major currency this year, and there may be more pain (or gain depending on your view) to come. From the Euro to the Yen, the greenback has taken a beating. Even the Canadian dollar and the Australian dollar have gained 25% or more on the greenback this year. $500 bucks ain't what it used to be.
Back in January, $500 usd would buy approx $625 Canadian or $375 Euros. Today that same $500 buys only $535 Canadian or $333 Euro. As Americans continue to travel abroad, they are painfully reminded of their reduced (and still reducing) purchasing power. As 2010 progresses, I believe that the non traveling U.S. public will become very aware of their reducing wealth as denominated in the greenback. Smart Americans are in this stock rally or invested in gold and other commodities, or both. Better stores of value are sought in the market every day and this trend will continue, albeit with some hiccups, as 2010 becomes even more of a watershed year for the giant U.S. economy.
The Elephant in the room is the giant and growing U.S. Debt which now exceeds $12 Trillion dollars and is growing daily, with no end in sight. It is why the dollar is still declining and will through much of 2010. 30,000 more troops for war in Afghanistan, $1 Trillion over the next 10 years for medicare, bailouts and bombshells and the list goes on, with nothing to stop the bleeding at this point. Here is the daily update on the U.S. deficit clock.
India is buying up Gold for it's foreign reserves. China is following suit. Russia is adding Canadian dollars to it's foreign reserves. Individual investors and investor groups from Beijing to Brazil are stocking up on gold and especially gold stocks. This does not bode well for the greenback, or for the standard of living in the good ole U.S. of A. At over $12 Trillion in debt (and counting) and with two unfunded wars being prosecuted on three fronts, not to mention the health care debacle, both spending cuts and new taxes are the medicine needed to stabilize this sick fiscal patient, before he goes into a coma for the next ten years.
Doctor Obama, it's time for your Uncle Sam to take his medicine and there is no sugar to sweeten the taste. Let's get on with it, before it gets any worse (unless of course, the medicine is hyper inflation over the next three years or so). If that is the diagnosis, then gold will double in the next 12 months.
This week, India purchased 200 metric tons of gold from the IMF (International Monetary Fund). It amounted to half of all the gold the IMF placed for sale. India bought it to bolster it's foreign reserves account. China is strongly expected to buy up the other half. What does that tell us about gold prices and the decreasing value of the U.S. Dollar. Well, it tells us a lot, and many Americans are not going to like the answer.
The United States dollar has been the worlds reserve currency for the past 50 years, even before the gold standard was dropped. That gold standard, or some form of it, is creeping back into the international psyche as governments and individual investors buy up gold and gold miners in record numbers. There is a very basic, common sense reason for this. The United States dollar is headed lower, maybe a lot lower. It has to. Here's why.
At the start of the George W. Bush administration, the U.S. economy was in the black. Bush was handed a "surplus", the first one in 30 years. During the next 8 years of his administration, the U.S. went into debt to the tune of $10 Trillion by the time Obama took office. In the midst of two wars being fought on two different fronts, W. did what no other U.S. president had ever done at such times of crisis. He cut taxes. Not only that, he did it twice. The result is the debt and deficits the United States have to this day and unless there is a sea change in spending and the tax regime, it will get a lot worse.
This year alone, the U.S. will add $2 Trillion more to their debt. If there are no changes, economists predict that by 2015, the United States will be $23 Trillion in debt. Even the powerful American economy can't take a hit like that. A devaluation in the dollar is probably one of the few ways the U.S. can pull itself out of this mess. In the mean time, other countries, and the citizens of other countries, looking for a better store of value, are turning to the one currency that has been in place for over 6,000 years. No fiat currency has ever replaced gold, although the USD tried very hard, becoming the reserve currency for the world and replacing the gold standard. That gold standard is creeping back, in some form, at this writing.
China has doubled it's gold reserves over the past few years. India just did the same and they both will no doubt continue to buy as their foreign exchange reserves shrink with the U.S. dollar. They want to hold value, not lose value! The Hong Kong government recently moved it's entire gold reserve to a domestic location from London where it was held. China is not only investing in gold, but it is telling it's citizens to do the same. India's citizens have long done this and are the biggest buyers of gold jewelry in the world.
As the U.S. dollar dives, it's stock market is gaining daily. After a recent pullback last week, the U.S. market is again going gang busters. It has to. As the dollar drops, people are investing in good companies as stores of value and their stocks are going up correspondingly, with the dollars demise.
Publicly traded Gold miners have a unique position in all of this. They are stocks and they produce pure gold, thereby gaining from both sides of this gold buying bull market.
Over 95 % of the worlds entire gold supply is now above ground. No wonder, after 6,000 years of mining. Canada, however, is one of the few countries with a number of producing gold mines.
Here are our top picks of these gold miners in order.
The United States dollar is going down! The U.S. Government will be over 13 $Trillion in the hole by the end of this year. Unless something drastic is done to reduce the slide, by 2015 it will be 23 $Trillion in the hole. This summer rally , (some green shoots aside) was predicated on the back of a sinking u.s. dollar . Many American investors are so busy getting angry and waiving the flag to prop up King Dollar , that they are blinded to one of the best investment plays this year and probably through 2010.
Smart Canadians are ignoring the whining from their own Governments and businesses about a high Canadian dollar being bad for exports and they are taking advantage of a situation that Ottawa doesn't want to acknowledge. The Canadian buck will outstrip the U.S. buck over the next year. So how can you play this for the betterment of your Retirefund?
Back in January, when the Canada buck was trading for around .77 cents U.S. I traded my u.s. dollars into Canadian dollars. I have gained about 20% with this simple strategy, however there is another good market strategy that I, and many others, are making some money with. Commodities such as oil, gold, natural gas, are denominated in U.S. dollars. If you bought some of these commodities, with your Canadian dollars, back in March, you have no doubt made good money.
Now, many Americans, whose pride (and pocketbooks) have taken a big hit during this dramatic downturn in their economy, are championing the return of King Dollar. Can't blame them. If your house is losing value, and your dollar is losing value, and the Gluttons of Wall Street have swallowed a good portion of your retirement funds, you are definitely in jam. However, average Americans are once again being led down the garden path into believing their dollar will go higher over the next few years. Feeding those false hopes, every time the dollar goes up a bit (as it did on Monday) the talking bull heads on CNBC (Kudlow, Kneale etc) waive the flag and declare the return of King dollar. I believe they couldn't be more wrong.
In fact, I am so convinced of this that, when I see a rise in the U.S. dollar, and a corresponding drop in our commodities market, I see it as a great buying opportunity for those commodities, especially if you are paying for your shares in Canadian dollars. As I have pointed out before, we have had the best balance sheet of the G20 for the past 8 years (We've been in the black until the crisis hit this year) Our banks have stayed conservative, avoiding the toxic Derivatives debacle and have entered this summer rally strong. We have the second largest deposits of oil and natural gas in the world, the largest deposits of potash, lumber, gypsum, seafood, nickel, uranium and arguably, diamonds. We own 20% of the worlds entire supply of fresh water, with only .03% of it's population. We own the largest claim to the arctic, which is suspected to harbor 25% of the total world's oil supply, and finally, the largest consumer on the planet, is right next door.
Don't get me wrong though. The Canadian dollar and commodities market is by no means the only place with good value these days. They will go sideways for the next month or so, but by the end of the year the Loonie will approach parity. The BRIC countries , or at least two of them, are good investments. (Except China for the rest of this year) The Australian dollar, who's commodities feed into the Chinese economic realm may also be a good bet. We have some excellent, small Canadian companies that are basically overlooked south of the border, until they dominate a market (RIM). They are essentially, under the radar, so to speak. Find them, research them thoroughly, ensure they have good management, good science and technology , and then don't be afraid to invest. You could hit the RIM of 2010-2011!
If you are American, you should be in the stock market right now. Having cash, or cash equivalents sitting on the sidelines for any length of time is a recipe for losses, period! Sadly, the gluttons of wall street are the ones who will actually benefit from the dollar crisis they have caused. Stock Markets go up as currency devalues. It is actually that simple.
The Canadian Government and Canadian manufacturing don't want a strong Canada buck, but they won't have any choice in the matter. It is time our manufacturing and export companies grow because of innovation instead of a weak currency. Those days are gone.
A Canadian buck with a 5-8% premium over the U.S. dollar (a la the 1950's and 60's), is a Loonie I can live with. All of our retirement funds, and our travel budgets, have gone up over 20% this year because of it. The Loonie now buys 20% more than it did 6 months ago. It will go higher still. Here is a quote from Warren Buffett from his "The Greenback Effect"!
"The world "properly" worries about greenhouse emissions causing global warming", says Buffett. "Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar's destiny lies with Congress."
The Great Wall of China was built to keep out invading Mongols. It is not, however, keeping out billions of United States dollars. Those billions started flowing over the great wall, and into the great red business machine, shortly after George Dubya Bush was handed the first United States surplus economy in 30 years. It started when Bush 2 made his first massive tax cuts. It went on for the entire eight years of his presidency, accelerated by an unprecedented second set of tax cuts in a time of war on two fronts, something that no other President had ever done before It continues today, unabated and now, is actually accelerating.
Consequently, the worlds number one engine of growth, the good ole U.S.A. is in more debt than any country in history has ever been. (There may be an exception: Germany after WW1 when the allies demanded war reparations. During the 1920's and 30's, during the resulting hyper inflation, the average German would literally bring a wheel barrell full of German marks just to get groceries. The result was the rise of Hitler and world war 2)
Before last weeks massive sale of United States Debt in the form of Treasury Bills, China had accumulated foreign reserves of $2 Trillion. Of that, $1.6 Trillion was in U.S. Debt for which they made a return (direct payments from the U.S. Treasury) of over $40 Billion dollars last year. I repeat, that was before Tiny Tim went to China to sell another boat load of dollars in June, before last weeks summit (No not the beer summit, the "Chinese Money Monster summit") and it was before this weeks record breaking sale of U.S. Treasury Notes.
There is a saying that, if you borrow some money from the bank, it is your problem, but if you borrow a lot of money, it is the banks problem. In this case, the "bank" is the People's republic of China" which has been buying U.S. Government debt at an alarming rate. The borrower is the average American, their children, and their grandchildren, because it will take at least three generations to pay it back (expect a number of tax increases). The bank (read China) is getting nervous. They are demanding the U.S. provide insurance against a falling dollar to protect their investment. On top of that, there are rumblings that China has a debt problem of it's own as it's many local Governments are utilizing a loophole in their own banking system to siphon off equity from their own banks to pay for services (and graft which is rampant). Those banks will never see that money again.
This summer, as the rally picks up on North American Markets on the back of a sinking dollar, and another Trillion or so in Government largess, Newbie Chinese investors are diving into their own stock markets, driving up stock prices to dizzying heights, and that bubble can only end badly too.
Why would anyone think the Chinese might save the worlds economy? It will be hard pressed to save it's own. They do, however, have some padding. 1.6 Trillion in U.S. dollar denominated debt and the interest on that debt has to be paid from the U.S. Treasury. The Chinese fear they may end up with 50 cent dollars and they could be right. What a mess. The toxic Derivatives debacle perpetrated by the gluttons of Wall Street , is still the 10,000 pound gorilla in the room and no one wants to deal with it.
In this summer of 2009, the pigs at the trough are once again feasting on the unwary. In the mean time, we mere mortals have to decide what to do with our meager retirefunds. I can't tell you what to do, but I am in this summer rally and will remain so for now. September and October may be different. Certainly, 2010 is not looking anywhere near as good as the pundits in government or on CNBC would have you believe. Mr. Kneale of CNBC is calling this "The Great Recovery"! I sure wish he was right, but I fear a handle like "The Great Denial" would be more appropriate. A false economy led by taxpayer dollars, borrowed from friends who arn't friends, doesn't bode well for next year, or for that matter, the next 4-5 years. It may be that, hyper inflation will save America's bacon (heaven forbid)
Meanwhile, there are some great companies doing what they do best, no matter what the circumstances and you should be seeking them out during this rally. But don't take your eye off this bouncing ball. If it bounces too high, It may go right through the floor in 2010. Sorry I can't be more cheerful except to say, enjoy the ride this summer. This roller coaster may be the last good ride for a long time. Remember, when everyone else begins laughing hysterically, and pointing up, it may be time to jump to safety once again. But cheer up, 2015 isn't looking too bad.
On the day that President Obama took his oath of office, America was 10 $Trillion in debt. By the end of this year (2009) U.S. debt will surpass 13 $Trillion. By 2017 (8 years out) that debt will surpass 23$Trillion if nothing changes! How did this happen? How will this affect your Retirefund? How can America cope with this huge debt load? What effect will this have on the U.S. dollar?
The trail down this slippery slope of deficits and debt began over 8 years ago. On the day he took the Oath of office, George W. Bush (Bush 2) inherited a "national surplus" from President Bill Clinton. It was the first U.S. surplus in 30 years! Bush 2 campaigned on a promise to cut taxes and reduce Government. Dubya had been there when his father, George Herbert Walker Bush (Bush 1) spoke those now infamous words about not increasing taxes "Read my lips, no tax increases"! He was also there when his father famously recanted on that promise and set in motion substantial tax increases to help pay for the first Iraq War (operation Desert Storm). That controversy probably lost Bush 1 the election to President Clinton and it might be said that it was burned into the consciousness of Bush 2.
After George W. bush took office, he introduced the largest tax reduction in United States History. He and other Republicans looked back fondly at the Reagan years of Reaganomics ie: "lower taxes, reduced Government" which many people believe to this day was Reagan's legacy. However President Reagan was a pragmatist and when recession hit and deficits followed, he went on air to explain to the American people that he was not about to let his grand children pay for his debts and promptly raised taxes in a number of areas. Many of today's Republican politicians like to forget that simple fact, but every President in history acted when the unpopular decision to raise taxes had to be made to reduce the national debt, and they reluctantly did so, knowing full well that American voters want lower taxes, more medical benefits, more social security and high pensions but do not want to pay for them. Sometimes they paid the price at the polls, like Bush 1 did.
Bush 2 was having none of that. He did not make decisions based on fiscal responsibility, but on political expediency. He simply did what he thought the voters would reward him for. Immediately upon taking office, he announced the largest tax cut in American history, albeit, cuts that would benefit mostly rich Americans. When 9/11 hit and America declared it's "war on terror" (actually it is a war on "terrorism not terror", but that's for language critics to debate)President Bush directed U.S. Forces into Afghanistan to route out Al-Queda but at the same time, he and the hawks in his administration looked for a reason to attack Iraq, a country that had nothing to do with 9/11. We all know how that worked out don't we, but I digress. My point here is only financial and I will leave the debate about Iraq to others for now.
The bottom line is that, in the middle of two extremely costly wars, and after the largest tax cut in U.S. history, Dubya did what no other wartime President had ever done in history. "He cut taxes again"!
This second set of tax cuts were, arguably, larger than his historical cuts upon taking office. No other President in history had ever done this before. In fact every other President faced with such challenges, had always raised taxes, or cut benefits, or both, to pay for war. Americans, and indeed all freedom loving nations know that this is a necessary thing to do at such times. Apparently Bush missed that class at Harvard.
That essentially brings us up to today's gigantic and growing, U.S. Debt! Those massive tax cuts, which mostly benefited wealthy Americans, are still taking their toll on the country. Two wars are still going on, and are being paid for with borrowed money from other countries, the largest debt holder being Communist China at approx. 1.6 $Trillion in U.S. Treasury bills. China has made no secret of the fact it is worried about the possible future decline in the U.S. dollar (and thus it's foreign reserves of Treasuries) As of late, they have been on a buying binge of commodities from oil, to potash, ingredients for making steel, plastic etc as it seeks to diversify the stored value of it's reserves. Now China is openly calling for the establishment of an "international currency" based on five national currencies, the dollar, Euro, Pound, Yen and Renmimbi.
Suffice to say this is not going to happen any time soon, but it should give pause (or even shudders) to America and the entire west. By 2050 China's economy will be twice that of the U.S.A. and that has ramifications far beyond just financial. China is still, after all, a communist, totalitarian country and democracy is a pipe dream still.
Now how will all of this affect the Retirefunds of we mere mortals? Since I brought you to here, I'll give it a shot!
1. Taxes will increase in the U.S.A. and this "must" happen soon.
There should be a new gasoline tax of perhaps 10% instituted now, before gas starts to rise again. This will spur investment in green energy.
The tax deduction for housing (mortgage interest deductions) should be capped at $250,000 so as to allow the deduction for basic housing but not for extravagant housing in the millions.
There should be an immediate 2% "goods and services" tax implemented federally on all goods and services sold/purchased in the United States.
There, now that I've fixed some of the deficit problems, how will all this affect our Retirement funds in the meantime?
1. The U.S. dollar will decline in value over the next three years spurring inflation! 2. As this occurs investors will seek better stores of value and the stock market will rise along with commodities, oil, gas, food etc.
3. The U.S. cost of living will increase reducing the standard of living in the USA for many of those who aren't prepared.
4. U.S. Housing prices will decrease, or at least that market will remain stagnant for years to come.
5. The U.S. national defense budget will be reduced.
6. Health care, (medicare, medicaid, etc) will be drastically reformed, or it will be the ball and chain that drags the U.S. economy ever deeper into the abyss.
And remember this my Canadian friends. When the U.S. Sneezes, we always catch a cold. What will happen if the U.S. catches pneumonia? Here's hoping it won't. Here's hoping the the good ole U.S. of A will lead the rest of the world out of this mess that it led us into!
The U.S. dollar seems to be strengthening this week, but, Don't be fooled. It is going to dive much lower over the next few years. That according to Dow Jones News Wire and even George Soros, who actually doesn't like any currency today. Soros says that:
"the usd is a weak currency, except for all the others"!
Now, how do we mortals interpret that statement? Soros went on to point out that China's currency would be an interesting story if they let it float on international currency markets, but they won't.
If you had almost two trillion dollars in international reserves like China does, and you wanted to try and keep that value in today's market, where would you try to store that value? In China's case, they seem very unhappy that the majority of their monetary reserves are in the usd. So, where do we put our two trillion?
Commodities, that's where! This spring there has been a rally in commodities. Now do you think that China's hoarding of commodities might have a little something to do with that run up? Soros certainly thinks so. I believe a fund manager who made over 1 Billion on the currency market just last year alone should know a thing or two about this subject. The Chinese obviously believe that they will hold more value in commodities than in the u.s. buck. I think they are right, but how can we mere mortals gain from this knowledge.
Back on June 16th, I mentioned in this blog, that a number of hedge fund managers have stocked up on gold as of late. They will probably sell it into a buying binge of scared investors during the next downturn in the markets. If you buy it then you will make them lots of money, and lose your own. There is, however, a silver lining. As I mentioned in that previous blog, I believe silver is undervalued . This week, it appears, Analysts from Dow Jones agree with me. They are calling for a short drop in the price of silver, possible to the $12.90 level, but then call for it to reach $15 over the next few months.
If you are nervous, and don't believe my "favorite company" tech recommendation ( Wilan Technologies ), then silver might be a good place to store some value in the short term, while you "wait and see" along with the other Trillions of dollars sitting on the sidelines.
That is, of course, if you are a U.S. citizen. If you are Canadian however, you might want to sit tight as silver, gold, and commodities are most affected by the decline in the u.s. dollar over time, and what does Canada have an abundance of? You guessed it! And the Canadian dollar will rise because of it, against the greenback.
Though the Canadian Government doesn't want parity, it's coming, and soon.
Predictions: ( I know I shouldn't make them)
End of year - U.S. dollar - Canadian dollar at par
It was not uncommon for my father, who would have been 83 this year, to walk around on a weekday with $10,000 cash in his pocket. He was not a wealthy man, but ran a small business with approx. 20 employees. However he had the mentality of many others of his, the "greatest" generation, when it came to a healthy skepticism of the dependability of banks. The attitude came honestly as many of that generation had suffered through the great depression, and had lost all their savings when banks went bankrupt.
A good friend told me a story about a favorite aunt who always carried a satchel or briefcase, everywhere she went, all the time. When she died, her family was going to throw out that old satchel as they saw it as an eyesore. Before that was done, someone opened it and discovered it was stuffed with cash! Over $100,000 cash!
The same friend also told me that, when her Grandmother died, (the two elderly ladies were sisters), the family were going to throw out her old mattress when someone laid down for a minute and thought how uncomfortable it was. On further examination, they found it was absolutely stuffed with cash.
Now, we all know that this is not a recommended method of savings because of the dangers of robbery, loss, theft, fire etc. But these veterans of the Great Depression did what they thought was necessary to secure some of their future, rightly or wrongly. As I said, they just did not trust the banks.
Why did they lose their trust in the banks? Well, for the most part, many of those banks were under capitalized and when there was a run on the banks, they collapsed under the weight of so many people trying to retrieve their life savings.
Is that starting to sound somewhat familiar? Here in Canada the 5 major banks are well capitalized and in no danger of such an event. They wisely, for the most part, stayed clear of many of the toxic, derivative assets, that U.S. banks so greedily pursued. This was made clear after the downturn when our top two banks, TD Bank and RBC advanced into the top six banks in the world based on capitalization. They had been (I stand to be correct here) approx. 9th and 20th in the world before the downturn.
If you are reading between the lines, you have no doubt already come to the conclusion that many top banks in the United States were cut down tremendously, some to the brink of life support. The same goes for banks in Britain Germany, Spain (and throughout the Euro zone). Throughout this Spring, we heard bold financial results from many U.S. banks which far exceeded analysts expectations. However, can these numbers be trusted? If you take the numbers from these banks, leave out the Trillions in toxic Derivatives they still hold, add in the billions infused by the U.S. Government, then of course, the numbers will look great.
Once the Government largess is gone, and the Derivatives have to enter into the calculation (and these huge losses will have to be shown at some point) does anyone really think things have gotten better? Many banks in the U.S. and Europe are on life support, and will be for years. Our grandfathers didn't entirely trust the U.S. banking system, (or the stock market for that matter) and for good reason. Now it is our turn to make that determination.
Our problem is, What, exactly, do we stuff into our satchels or mattresses (or home safe). If you use U.S. dollars, you can count on a 20% to 40% drop in your assets over the next 3-4 years, and that's after losing what you have already lost. What holds value in these rocky times? Opinions vary on this, but I cannot help but think that Once the dollar continues it's slide (this weeks renewed strength is only temporary) that the stock market will benefit. It has too! And the part of the market that will benefit most?
6. Natural gas is currently undervalued and will be used extensively for the coming fuel cell revolution in power generation.
No, you cannot put these stores of value in a satchel or in a mattress, but you can spread them throughout your portfolio, either as individual investments or through the purchase of targeted mutual funds. If you're really nervous, a little Gold in the home safe won't hurt, and may give you some piece of mind.
Image via WikipediaToday there are so many financial pitches in video, on the web, you need a score card to tell just who the Charlatans are and who are trully legitimate financial advisors with good intentions for their clients and prospective clients.
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