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Global political and economic events influence financial markets over the long term. The downturn of March 2009 should convince everyone that professional money managers cannot do the job for you. You have to stay informed of key events and have a significant role in the management of your... More
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  • What Fiscal Cliff? Federal Workers Just Got A Raise

    The president just ordered a pay raise for the federal workers by this executive order. All the way from the vice-president to Senators to rank and file federal workers, everyone has got a raise. The president clearly indicates there is no need for spending cuts to solve the budget crises. Even before the tax increases being discussed are put into motion the money is already spent. Happy New Year!

    Dec 31 5:09 PM | Link | Comment!
  • The "experts" got it so wrong......again!
    "Experts" have been recommending stocks and asking to avoid bonds.  Take your pick of the expert, and there he/she was asking to stay away from the bond market.  Reason?  They were convinced that due to the magic of the fed and Ben Bernanke, inflation was around the corner and yields would spike, creating a bear market of bonds.  We all soon have the "good" problems of the developing world of too much growth and fed will be raising interest rates.  How many times have we heard that in the last 3 years? 

    And then this article today where there is a listing of whose who of people wrong on their predictions of the demise of treasuries.  Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School in Philadelphia, said "stocks had risen more than bonds over every 30-year period from 1861 until now".  Wow! what about his previous comments one year ago in this article:  "Anyone that has money in bond funds has to be very cautious" of losses in both the short and long term.  What was a person who followed Siegel's advise retired in 2008 supposed to do?  That person would not have any money in CD's today and he would have missed the golden opportunity to lock in his/her money at an FDIC guaranteed 6% return!

    As I have been writing for several years, park a portion of your hard earned money in CD ladders, which I believe is actually a better strategy than mutual funds dealing in treasury bonds.  The returns are higher and risks are lowest.  A portion goes into precious metals and mining stocks and only then the riskiest part of the portfolio goes into general stocks and real estate.

    One must be very careful of expert advice.  It is best to have a strategy of your investments that you yourself understand. 

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Own CD's, precious metal mutual funds
    Oct 31 11:39 PM | Link | Comment!
  • The tipping point for Treasuries
    So far, precious metals and very high quality bonds, Treasuries or CD's have been the place to be.  Examples: 10 year FDIC insured CD's in Nov. 2008 returned 5.5% safe annual returns.  A Goldman Sachs 7 year bond bought in May 2009 carries a coupon rate of 6%.  Currently 10 year treasury bond is yielding around 3%.  However, the treasuries, CD's and bonds carry risk.  More on that later.

    In October 2009, convinced that the recovery is fake and cannot happen without meaningful job creation in the economy,  I wrote Deflation is the threat, not inflation, hence justification for CD's and bonds at that time.  The Fed's printing presses were of concern, and therefore the justification of precious metals and commodities.

    Since then, on July 21 2010, the Fed warned congress that the Economic Recovery is "unusually uncertain".  This statement is worrying.  Not because of what was said.  The statement was really not a surprise to those of us who believe that bailouts do not work.  Despite the bailout money thrown at the banks, fannie and freddie, and despite the job creation stimulus spending (remember shovel ready projects?), job creation has not materialized. 

    Mr. Bernanke further said: "We have not come to the point where we can tell you precisely what the leading options are. Clearly each of the options have potential drawbacks," he said in response to questions. "They're not going to be the conventional options. We need to look at them carefully to make sure we're comfortable with any steps that we take."  The worry is what he might do.

    President Obama's own debt commision co-chair Mr. Bowles has stated: "We can't grow our way out of this...we could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can't tax our way out. . . . The reality is we've got to do exactly what you all do every day as governors. We've got to cut spending or increase revenues or do some combination of that."

    American people get it.  They are in a savings mode.  As Mr. Mclaughlin points out: Americans are changing their habits. Ninety-three percent of Americans now say they plan to save. Seventy-five percent say they spend less now than last year. Seventy-seven percent save now. They are saving, but the result is a consumption deficit; that is, a deficit of private-sector demand. That deficit of demand kills a strong recovery, some say. Remember the fuel of the new American dream. Saving is in. Consumption is out.

    Problem is the Fed may do exactly opposite of what the American people are doing, i.e. stimulate spending.  Mr. Bernanke is a student of depression.  He has said in the past: "Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you (Milton Friedman), we won't do it again."  Therefore is he deperately trying to create inflation.  This is the only way to avoid depression.  He has already warned us, that the options are not conventional. 

    That could mean further expanding the Fed's balance sheet.  That could mean buying Treasury bonds, etc.  Who knows he may actually dump dollars from the helicoptor! These action will have very serious consequences.  What happens after that?  Commodity suppliers will just stop selling.  They will go into a hoarding mentality.  Zimbabwe anyone?  Then a dollar currency crises will be created.  Unlike the Euro, which had the US to bailout by way of IMF, there will be no final bailout.  That is where the can cannot be kicked further down the road.  Inflation will finally take over.   While the Fed is busy mopping up dollars, gold, other precious metals and commodities will be in the stratosphere.  The decision by the fed will be the tipping point of the High quality bonds and Treasuries.  Interest rates will finally start rising.  But at what cost?  CD's and savings will reduce in value.  This is the big worry.

    While treasuries may still have some legs due to global risk aversion, time may be arriving to increase commodity holdings.  This is really the time to do some serious Fed watching.

    Disclosure: Own Treasuries, CD's, bonds mentioned in this articles. Long Gold, precious metals and mining stocks

    Disclosure: Long Treasuries, Bonds, CD's, precious metals and mining stocks
    Aug 01 2:57 AM | Link | Comment!
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