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1. The Student loan bubble
2. The credit card bubble
3. The Treasury bond bubble
I am not saying these are the only the bubbles in the US economy, I am just saying these are the three most obvious bubbles, that anyone with half a brain should be able to see.
When one discusses the 1920’s people think of the roaring twenties, a time of prosperity, speak easies, dancing, and singing the night away. But contrary to popular belief, that wasn’t always the case. In the beginning of the decade a depression was on the horizon, one where the first year was worse than that of the Great Depression. This depression is often referred to as the forgotten depression.
In the first year of the 1920 depression, production fell 21%, GDP (Gross Domestic Product) fell from 91.5 billion dollars to 69.6 billion dollars, and unemployment went from 4% to 11.7%.
When Warren Harding took office in 1921, he knew he had to act. But, Harding didn’t take action in the same manner as FDR, Bush, or Obama did. He used a different approach.
Here are some quotes from President Harding that sum up his actions. “We must deflate in deliberation”, and “we will attempt intelligent and courageous deflation and strike at government borrowing.”
When President Harding initially took office, the first action he took was to slash, not cut, but slash spending, from 18.5 billion dollars to 6.4 billion in the first year of his presidency. No, they weren’t spending cuts that were going to be made three years from now as in the debt ceiling compromise, they were immediate cuts. During the next three years, the amount of government spending went down from 6.4 billion dollars to 3.3 billion.
As a result, unemployment lowered from 11.7% to 6.7% in the first year, and the next year the unemployment rate dropped even further to 2.4%.
What also made this recovery possible was the fact that the Federal Reserve didn’t interfere with the markets until 1922.
In 1913, Japan’s economy began its boom, which was fueled by cheap credit policies and WW1. The wholesale price index finally reached 322 points by the end of Japan’s boom period in 1920. This was a sure sign that Japan’s credit expansion was out of control. But in April of 1920, the wholesale price index finally dropped to 190 points. This brought Japan’s prices back in line with its trading partners.
During Japan’s boom period, the central banks of Japan created cheap credit, which was then loaned out at rates which were below the market rate. This caused firms to engage in projects and investments that were unprofitable due to their dependence on unsustainable low interest rates. These projects couldn’t be completed because there was an insufficient amount of capital goods available, and businesses were unable to cover the rising costs that low interest rates always create.
As a result, Japan’s government froze its banks and large industries, and didn’t permit the adjustment process to take place. As a result the Japanese economy did not recover, it went into economic stagnation, and resulting in Japan’s first lost decade.
This series of events shows that the government and the Federal Reserve cannot spend, or print their way out of a recession. The market must be allowed to run its course and permit bad businesses to fail. Low taxes, little or no intervention, and letting the market run its course is how to have a growing and thriving economy.
Currently, the unemployment rate is at 9.1%. However, the official unemployment rate doesn’t include the underemployed, part time workers looking for full time work, and people who have voluntarily left the work force, because they’re unable to find work. An Under employed worker is one that’s working a job which is below his or her skill set.
People are saying last month’s job report is just a hiccup on the road to recovery, and it is only natural that a disappointing jobs report would follow after such a positive one in April. But April’s job report wasn’t really as positive as the media portrayed it.
Regardless of what the mainstream press tells you, things are not looking good. Right now our economy is based upon consumer spending, with a consumer that’s broke. Student loan debt, credit card debt, mortgage debt, state and local government debt, as well as federal government debt is astronomically high. This economy can’t sustain itself, we are broke, we can’t spend anymore money.
In order to turn around this economy, we need to fundamentally restructure it back to a goods producing economy, like what we use to have.
Unfortunately in order to do that, things have to get worse before they get better. The service sector, particularly finance, the public sector, higher education, and the retail sector have to contract first, in order to have a real recovery take place. After these sectors contract, we then have to create goods producing jobs such as mining, Oil and gas, Manufacturing, etc. That’s what we need to do to turn around this economy, and it can’t be done overnight without some pain.
What people fail to realize is that, Jobs per say don’t grow an economy, its goods producing, productive jobs that grow an economy.
What I think this means for the stock market is that the free market forces are calling for an economic contraction, and deflation, but unfortunately Ben Bernanke thinks deflation is evil, and wants to fight it. According to Bernanke cheaper prices at the store are bad, but 4 dollar a gallon gas prices are just awesome. So I don’t think a 2008 stock market crash is likely, because at any sign of deflation, I think the Federal Reserve will inject as much liquidity into the market as possible to keep the stock market afloat.
But the market has a weird way of doing things, and some say that the credit contraction is going to be much greater than the money supply increase. I don’t believe so, but just in case you’re worried about a 2008 crash happening again, I would recommend you hedge yourself with these two inverse ETF’s.
I recommend the inverse financial etf (symbol FAZ), because I think the financials are going to be the first sector to go bankrupt due to inevitable higher interest rates, and the inverse small cap ETF (symbol TZA), because generally speaking, the small caps get hit harder than the large caps during a market crash, so you would make more money off these ETF’s in a crash.
In closing, here’s some statistics for you about the US economy. Over 500 wealthy Americans have become expats in the first quarter of this year. Over 70% of Wealthy Americans have moved 1/3 of their money out of the US and say they will be investing in China, India, and or brick countries.
The big news in the energy world has been the rise of gas prices, and were there going. In the short, I am not too sure, but in the long haul, I think they are heading up. If you want to know why, here are the reasons.
1. The Federal Reserve is still printing money.
2. The next reason is the federal and trade deficits. The less a country produces the lower there currency will be valued, because when a country isn’t producing, the demand for their products is low, and as a result, no one will need their currency to buy their products. That’s why trade deficits lead to a lower currency value. And federal deficits lead to bad credit, which results in a lowered valued currency. That’s a simple reason why federal deficits lead to higher prices.
3. Growing world population demand
One of the biggest suppliers in the world is also running out of Oil. If you look at this wiki leaks article here you would see that Saudi Arabia has grossly overestimated the amount of Oil they have in reserve.
So over the next couple of years, I see Oil prices going higher, and Oil stocks doing really well.
The safe way to play this, is one can buy an Exxon or a Chevron, and it will do well. But if you want dividends I would buy Canadian Energy trusts.
Two small Caps I have my eye on is Mart Resources and Canacol Energy. These stocks both have a good amount of reserves, and are well positioned for growth.
One last thing, if you think the Oil companies are ripping you off at the pump your dead wrong, if you look here, you will see that Oil companies like Exxon Mobil only make 2 cents a gallon in profit at the pump, and that governments make 48 cents a gallon, so if you want to blame someone for pirate profiteering, it is the government you should be outraged at, not the oil companies.
Its not speculators reguardless of what Obama says, because my question is where do they get the money to speculate with. I’ll tell you, the Federal Reserve prints it, than loans it to Wall Street at interest rates that are next to nothing, than they use that money to speculate.
First off, I said I would write an article about the Vanadium and Oil market, which I will next week, but right now I wanted to do some venting about the government shutdown. If you just heard the news, the government will be open for one more week, big deal, who cares; they are just going to continue this nonsense for next couple of weeks. My first comment is about the abortion issue that they were fighting about. First off, it doesn’t matter if you’re pro-choice, pro-life, or neutral, they should have eliminated funding for abortions, if you want an abortion, you should have to pay for it yourself, if you can’t afford it you don’t get it. If you can’t afford the abortion, than put the kid up for adoption.
Now people generally ask me, John you seem really excited about a government shutdown, can you tell me some negatives. Normally I would say no, but I was just thinking about the negatives and I have come up with a couple.
1. The government shutdown doesn’t prevent the Ben Bernanke and the Federal Reserve from printing money, because the Federal Reserve is a privately owned banking cartel. So that’s one negative.
2. It doesn’t shut Obama down, and stop him from enacting anymore insane policies, as well as the rest of the congress.
3. US soldiers will be in a grave danger, rather your for or against the wars, you shouldn’t want to see our soldiers harmed. Personally, I think we need to rebuild our country, and stop nation building abroad, but that’s just my opinion.
So there are some negatives. What this shutdown does show is Obama is a complete joke, he is continuing two wars, and has started another one (unconstitutionally), but has a hard time keeping the government open. For the mess we are in, I blame both parties, and the Federal Reserve, but when it comes to the government shutdown, if someone is going to get blamed, I am putting the shutdown blame, solely on the Democrats, and no one else and here is why.
1. They had a majority in the house and senate, and control of the white house, yet they were unable to pass a budget last year. What a joke, for two years they had super majorities, well until Senator Kennedy died, yet they were unable to come up with a budget for the year 2011. What a joke.
2. Obama said he was going to unite everyone in 08, yeah really united; he is the most divisive president I have ever seen. Obama is such a bad president he is the only president that could make George Bush, look like a fiscal conservative, and a man of peace.
If they can’t drastically cut spending, and shrink the size of government; I hope there is a shut down.
Also I hope people learn this from the shutdown.
2. Our government is stretched way to thin, and we can’t just cut spending, we need to shut down whole departments, and we can start with shutting down the department of Education, Homeland security, department of energy, housing and urban development, the TSA, the SEC, and the EPA. That would be a great start, will this happen, I highly doubt it.
In closing, if the government doesn’t shut down, and we continue on this path of reckless borrowing and spending, than the country will shut down, and instead of having a self imposed debt limit, we will soon have a foreign imposed debt limit by China and Japan, and that will be a much harder pill to swallow, than what we would have to swallow now, if we continue to keep the government open through reckless barrowing.
P.S. I am sorry I haven’t written in a while, I have been busy doing my taxes (blah). I hate taxes, and tax season.
Currently my labtop doesn’t work and is in the shop, but once it is fixed, I will be writing about the Oil and Vanadium markets.
If one were following the news lately, they would talk about Egypt, Libya, and the other protests-riots in the Mid-East. But what I thought was bigger news, which would affect Americans in a way that is unseen, is this
That’s right, South Carolina wants a new currency as insurance just in case the dollar collapses, or hyper inflates. This currency, according to the yahoo article, would be backed by Gold and Silver.
Now I believe that Silver will be the most profitable investment of the decade, but the reason one should by bullion isn’t just because of profitability, but for insurance. I believe the insurance aspect of buying bullion is a much bigger reason, than the profitability one. Think of it, you insure your car, your health, your home, why not insure your money.
Congressman Ron Paul has proposed competing Currency bills to congress, and is a stark supporter of a competing currency act. In the past these bills haven’t gained any traction, but now things might be changing. Thanks to Ron Paul and South Carolina.
“A single journey begins with one step.” The reason I quote this, is due to the fact that when things change, they don’t happen overnight, if you look at the USSA, that didn’t happen overnight. In fact, if you look here, the big government anti-capitalist movement started in 1898, and is now just manifesting itself. I believe that competing currency will be done in the same way, but this time, unlike big government progressive politics, this will be a change for the better, and done at faster rate.
A more free market approach to currencies is the wave of the future, and the Federal Reserve is one big dinosaur, that will hopefully go extinct.
Last night as the Packers were crowned Super Bowl champs of the world, Aaron Rodgers was presented the world heavyweight championship belt. If one were to look at the 20th century, the heavyweight economic champion of the world was clearly the United States of America.
The Economic Heavyweight Champion of the world, became that way, because if was a society that was based off of rugged individualism with free market principles.
How did America, a once mighty nation, become reduced to economic chaos. Easy, America has lost its way. It’s no longer a nation built off of rugged individualism, but it’s now based off of a collectivist state. All you have to do is look what’s been happening over the years. During the great depression, FDR introduced Welfare and Social Security, instead of people having to plan for their own retirements, the government is now doing it for them. Instead of having to work, the government is now acting like their nanny. In the 60’s the government than introduced Medicaid and Medicare, instead of telling people they have to work harder, and become more motivated, and save their money for a rainy day, the government told them they will fix it for them. By the way, Medicaid and welfare is such a waste of money, these are young able body people, and they should be made to provide for themselves.
The US government also enacted the department of education, department of energy, we have extended unemployment drastically; Americans can no longer suck it up, put on their work boots, and fix their own problems. By the way before the US government created the department of education, we had the no.1 school system in the world, now we don’t even place or show. Before the US government created the department of energy we only imported 50% of our energy, now we import over 70%.
Because of these social programs and new government agencies, taxes are now higher than ever. We use to not have an income tax, now were the highest taxed nation in the world. Since the 1960’s, the US has passed 30 new regulations. We are now becoming the USSA (United Socialist States of America).
Nothing can be more evident of this, than last year’s health care debate. Supposedly there were forty million people uninsured. They were screaming that they need health care, instead of the government telling them what they need to hear, which is, you are young able body working people, find it yourself; they were told, okay we will throw you another carrot. When Businesses and banks failed, instead of telling them tough luck you had a bad business model, now you have to suffer the consequences of running a bad a business model, we bail them out instead; people lose their jobs, they now get unemployment for 99 weeks instead of the normal rate. Americans can no longer suck it up. Rugged individualism in America, is now dead.
As a result, America went from being the largest creditor nation in the world, to the largest debtor nation in the history of the world. American citizens no longer have sufficient savings, and are up to their eyeballs in debt. Prices have gone through the roof, the value of the dollar has dropped drastically, manufacturing and industry have left the US, entrepreneurship is dying, and things don’t look good for the foreseeable future in the US. Taxes, regulations, an ever growing government, and social programs have destroyed the US economy.
On the other hand, the eastern hemisphere of the world is embracing capitalism, while the West, especially America, is running from it. My favorite saying is this one, China is giving communism a good name, because their claiming their communist, however, their running their economy like capitalist; meanwhile the US is claiming that their capitalist, but are running their economy like communist.
In China, there is no SEC (Securities and Exchange Commission), there is no social security, Medicaid, Medicare, welfare, none of that. In China, if you don’t work, you don’t get paid, it’s that simple. China has free markets, while in America, everything is so heavily regulated you can’t get anything done. In fact, my dad made a comment the other day, that when setting up one of my brother’s close friend’s business in China, he said that it was a breeze. China also has lower taxes, and their businesses are far less regulated than the US ones are. Not only that, but China is encouraging their citizens to save their money, while the US is telling their citizens to spend it like drunken sailors.
Now most people think that the reason China is eating our lunch right now is because they have slave wages that America can’t compete with. Contrary to popular belief that isn’t the case at all. The real reason their eating our lunch is that the China is embracing capitalism, while the US is running away from it. In fact, Germany and Japan have trade surpluses with China, while paying higher wages than we do. There are also countries that have cheaper labor costs than China, yet they don’t export anything.
The real reason that China is growing, while the US is declining, is that China is embracing Capitalism and free markets, while the US is running away from it. Also China is telling their citizens to save their money, while the US is trying to get them to spend it. China is becoming what the US use to be, and that is a nation that is based off of production, savings, and under consumption.
No matter what country, what hemisphere, or what continent an economic battle is fought in, it is Capitalism, that was, is, and always will, be the heavyweight champ of the world.
Recently I wrote two articles, one was about food inflation, and the other about, why Inflation is coming to America. The traditional way to prepare for, and to profit off inflation, is to buy Gold, Silver, Oil Stocks, Metal Mining stocks, and other commodity stocks. Unfortunately, for whatever reason it is, some people just can’t invest in commodity stocks, or buy a massive amount of Bullion. This may be because, commodity stocks are too expensive, as an example one can look at Barrick Gold
Does this mean that since you don’t have a sufficient amount of wealth right now, you’re doomed to suffer from painful inflation that will soon come to America. No, because I am going to outline some simple necessary steps for you to profit off inflation, as well as ease the pain for you.
As you can see from my first article about food inflation, I gave out stocks for people with a huge amount of savings, aka Agrium, Mosaic, and Potash, as well as stocks for people with little savings aka Western Potash, Allana Potash, and I think Potash One. For people with big savings, I just gave out three stocks, that I currently own, (Silver Standard, Chevron, and Barrick), which will rise in value due to inflation, as well as solid supply and demand fundamental aspects. So if you have big savings, these are three stocks, you would want to look at. Below I am going to outline some simple, cheaper strategies for one to prepare for inflation, and profit from it.
This first strategy, is for people with small amounts of savings, and want to buy a plethora of stocks that will rise in value due to inflation; but due to work, family, school, or other obligations, one just doesn’t have the time to research enough stocks to diversify. One can buy the Junior Miner ETF. If you click on the Junior Minor ETF, you will see their holdings. Buying this ETF gives you exposure to numerous junior miners, reducing the normal risk one would have in investing in a single small cap or penny stock, and will help you profit from the rising price in precious metals.
I would not buy just one penny stock or stock in general as a way to play a sector, no matter how good the company’s business model and assets are. When a company is just forming, which can be the case with penny stocks, junior minors, or sometimes small cap stocks, they can be bought out for an undervalued price, screwing over, you the share holder. Theirs also political risk, law suit risk, numerous things can happen, which are hard to predict. When playing any sector, you want to have a couple of stocks to increase your chance of profiting, and reduce the risk of owning a single share.
The second way to prepare for inflation is by buying small amounts of precious metals incrementally. Here is an unbiased Gold and Silver seller review for you, so you can decide which place to buy bullion from. I buy mine from Gainesville coins; I would say the best prices are from Bullion Direct and Gainesville coins. Europac Metals is also a place you might want to buy your bullion. Peter is a reputable and honest man. Don’t buy Nusmatics, Certified Gold or Silver, or any funny stuff. You want Bullion and that’s it. When it comes to Silver, the coins you want are Maple Leafs, or Eagles, those are bullion coins. If you have a sufficient amount of savings and want Gold, you want Eagles, Krugerrands, Maple Leafs, and bars that’s it. If a broker tries to sell you certified, Nusmatic, rare coins, or any other funny stuff, hang up, because you are dealing with an unethical broker that wants to sell you something with a massive mark up. If you have very little money saved to buy Bullion, I would use this strategy as a way of buying bullion. I would first start saving up 30 dollars a paycheck each week (more if you can), and buy 1 oz Silver bars, for every two paychecks you receive, if you want to go the bullion route. A one ounce Silver bar is currently only around 30 dollars each, so if you take thirty dollars out of each pay check, every two paychecks will allow you to buy a one once Silver bar, which will include around a 3-4% markup, sales tax, and shipping and handling costs.
The next way to prepare for inflation won’t cost you anything. This is way is done by collection. This way is implemented by collecting Kennedy half dollars, or dimes that were made pre-1965 when US coins were minted in Silver. This is also known as Junk Silver. But the problem with this strategy is that, these coins were made of Silver, so as a result people have generally kept them, and there’s very little of these coins in circulation. However, if you can find these coins, keep them.
But, another way to prepare for inflation is by collecting pennies that were minted in 1982 or before, because these pennies are made of copper, and the melting these pennies into copper will make you richer. During inflation copper will go up in value.
The next way to prepare for inflation doesn’t involve stocks, coins, or bullion, and is very well strategized. If one looked at my first article on food inflation, they would see that higher costs of food, is going to be in the future. One way to counter that is by value shopping. What I mean is, one can buy things in bulk, and store them to be eaten at a later date. Think of it this way, the rice you purchase, will possibly go up 10%-20% in 6 months to a year from now, and when you open the bag to eat the rice, you won’t have to pay a capital gains tax on the increase in food price.
You don’t have to do this with just food, you can do it with toiletries, clothes, if you need gas for your lawn mower this summer, buy the fuel now, and when you fill up the gas tank this summer and mow the lawn, you won’t have to pay a capital gains tax on the increased gas price you would have payed, had you bought the fuel in May. You can do the same for your gas grill fill up the propane tank now, because it would be cheaper to do it now, than it would in May or June, when BBQ season hits.
Also if you have young kids, and you know they’re going to grow out of their clothes, and into new ones, buy some clothes that are a bigger size, and they will grow into those clothes. This act would have saved you an enormous amount of money, due to the fact that, the price of cotton, and other materials, will be a lot higher in future. You can even buy them shoes that are a little bit bigger, because they will grow into them, and what you would save will be astronomical.
These are some simple steps to help a family save money, and prepare for inflation if they don’t have very much money right now, or for whatever reason, have little savings, or can only save money incrementally, but are worried that inflation will wipe their small savings away.
One last thing, if you like Beer, Wine, or Liquor, and enjoy a drink every now and again, stock up on those, and put them away till next year, or for a later date, because the price of all alcoholic beverages will rise with the price of grain, wheat, etc.
I would always encourage people to live below their means and to save their money, but unfortunately, due to Obamanomics, and Bernanke’s Quantitative easing, there not allowing you to save your money in dollars, and maintain your purchasing power, so as a result, we have to get our savings out of dollars, and into hard assets, commodity stocks, or foreign stocks, in order to maintain your purchasing power.
What I mentioned above are some small steps, someone with a medium or small income can take to help prepare them for inflation.