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Joe Barbieri has Bachelors' degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 13 years, with over 10 years on the institutional side of the business. He has covered positions from Fund Accounting to Investment... More
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  • Does China Joining The Currency War Change The Game?

    The "global currency war" has been going on for a number of years, defined as each country trying to devalue their currency to obtain greater exports through cheaper prices. Since currencies are relative, this will not work if every country is doing it. China is one of the last countries to officially devalue its Yuan. Does this matter? China's economy has been growing relatively slowly over the last year or so at 7% versus the 10% that people have grown accustomed to. The real estate sector and stock market have also taken it on the chin, leading to action by the Chinese government to limit short selling, IPOs and propping up the economy using different methods. The Yuan devaluation is said to be the latest strategy to prop up the Chinese economy. Why is there concern if China is doing what most other countries have done?

    China is the manufacturing capital of the world so what they do makes a big impact on markets. The commodity markets have been tanking over the last year partly because of China's slowing demand. What else can be going on that is unique to China? Unlike most countries, the Chinese Yuan is highly controlled and is not subject to volatile swings by speculators as much as most other currencies. This means that the Chinese government alone can have a big impact on the market for the Yuan. The US government can do the same, but currency traders and speculators can thwart these attempts if they have the access to enough capital to do so.

    The Chinese government has a large war chest of foreign exchange reserves that can be used to fight a currency war that indebted western countries would not have. Should these currency reserves be utilized, there will be effects on the currencies and debt of other countries. Yes, money can be printed by anyone using more debt, but there are negative effects from having too much debt. If a currency war becomes a battle of "who has the best access to capital", China would also have an advantage as they have more capacity for producing goods at their disposal than most western countries. China wants to make the Yuan a world reserve currency. What better way to do this than to create a huge supply of Yuan which would make the currency more liquid than ever before? The Chinese also have powerful friends in the other BRIC countries, Brazil, Russia and India which who would back them if necessary.

    China entering the currency game does not appear to change much, but China may be able to win the war more easily due to its greater access to capital, greater control over its currency and greater influence over the physical goods markets.

    Aug 18 2:52 PM | Link | Comment!
  • Does It Matter If Commodities Pay Dividends?

    Whenever physical gold or related commodities go down in price, the argument that they do not pay a dividend is trotted out as the reason why commodities or gold in particular is out of favour. Why does this matter? Many investments do not pay dividends: Most companies, venture capital, some real estate, collectibles, private companies and possibly cash investments in bank accounts. Why is the dividend argument so persistent? Many investments are based on capital gain potential or the expansion of equity. Assuming dividends are required for an investment to be favourable is true only if stable income is necessary.

    The idea that commodities do not pay dividends is sometimes extended to include that commodities have no fundamentals. The word "fundamentals" in this case refers to the idea that if someone is not willing to pay for a commodity than it is worthless. Is this not true with any product or business? Commodities are used to produce many goods that are used every day and are considered essential to the well- being of society.

    An expansion of the "commodities do not pay dividends" argument is the fact that commodities cost money for storage. Yes this is true, but idle businesses, vacant real estate, collectibles and start-up companies also have ongoing costs that are there whether the investment produces revenue or not. Any investment that requires ongoing maintenance has these same costs but this is not cited as a reason if the price goes down, real estate or venture capital being examples.

    Gold and commodities have been out of favour recently. Every investment goes through periods like this - what I am suggesting is that the lack of dividend is not the reason why.






    Jul 27 1:27 PM | Link | Comment!
  • Why Is Greece Not Settling Their Payments?

    There have been ongoing talks between the Greek government and the lenders (the Eurozone, IMF and World Bank) on how the Greeks should pay back their loans. The dispute has recently led to talks breaking down (1). The disagreement is not about whether the loan should be paid back or how much is to be paid, but about the priorities of each party.

    From the viewpoint of the lenders, if you borrow money you must pay it back in the currency of the loan. If you have to choose between paying back the loan and anything else, the loan must be repaid first. If this repayment means that the people have no pensions, no jobs or no assets, it does not matter. Since the country's assets and the taxation powers of the country have been pledged for collateral, everything is fair game.

    From the viewpoint of the Greek government, the priorities are to take care of the basic needs of the people first and then pay back the debts. This means that pensions and social services are being paid first instead of the debt payments. The debate about the privatization of government assets is basically the foreclosure of public goods for the private lenders - which is based on the same difference of priorities. A private partnership or privately run social service will prioritize profit before service because this is the mandate of the ownership. The profit in a privatized institution is embedded in the fees charged to the public or the taxes charged to the public which get funneled into the institution via government spending. It is for this reason that people largely do not know what comprises government spending and it is one of the reasons why costs of government services are rising so quickly.

    What the Greek crisis is highlighting is: What should be the priorities of the government? Are they paying the lenders at all costs or serving the people at all costs? When should there be exceptions? Since the ultimate mandate of all institutions is to serve the public, the answer should be obvious. The complication arises when the issue of how the public should be served comes into play.



    Jun 25 8:37 AM | Link | Comment!
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