I honestly can’t believe how many people think the economy is going to recover in short order because the government is going to spend some more money it doesn’t have. As far as I’m concerned the government has been spending a HUGE amount of money and it hasn’t done much good. The last eight years the budget has soared and look at the state of our economy. I’m no prophet but even I can see that this is a dangerous road to allow our politicians to take. I get a little scared at the thought of politicians holding blank cheques with promises to spend. We should be marching in the streets to stop the madness.

Now the “experts” and “economists” say we must allow our government to run massive deficits. I don’t buy it and neither do many of the economists that follow the Austrian School of thought (thank God I’m not alone!). There is no fundamental change coming that can drive a recovery in short order without first having a recession to get rid of the false economic growths we experienced. In fact, for many the recession has not yet hit; It has just begun. Demographics will also play a huge part.

One doesn’t have to go far to see all the bad economic news. Personally, I think it will get much worse, but we’ll save that debate for another time. Many now want Washington politicians to “do something.” We wait anxiously to see what Obama will say or what Helicopter Ben is whispering. So many people now expect Washington to fix this mess. Well I have news for you, Washington can’t fix this entire mess.

This isn’t just a problem in Washington or on Wall Street. This problem exists on Main Street as well. We save no money, we spend every dime we earn - we spend money we haven’t earned! We allocate far too much of our capital to buy consumer items that are gone far too quickly instead of spending that money in developing new technologies and funding startup ventures to fix problems that exist in the world. We spend too much money on homes to live in. (An aside: Politicians for years have implemented programs for “affordable housing” by increasing capital available to people so they could buy homes, but they never made it affordable. Now that home prices are falling, they are worried sick - even though it will finally give them the affordable housing they have yearned for).

I finally read an article that made absolute sense, “Why Bailouts Are Not The Answer” by Peter Schiff. Not only is the article brilliant, so are many of the comments. Here is a small quote from the article:

The brutal truth that no one in Washington dares acknowledge is that our systemic economic problems can only be solved by a reduction in consumer borrowing and an increase in savings. We must repair our national balance sheet and a painful recession is the only path to achieve this. By interfering with the market’s attempts to bring this necessary change about, all the proposals currently coming from Washington or bubbling up from think tanks and Nobel prize-winning economists, will only exacerbate the imbalances and lay the foundation for even greater losses and a larger crisis.

I just read a MUST read article on Bloomberg! every reader must check out. If you thought the $700 billion bailout was big news…

The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. (C) debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

I recently stumbled upon a site called The Coming Depression. On the site there was a recent article about Peter Schiff that also contained a video you must see. In the video, Peter Schiff is on the show Fast Money and is dubbed, “The Man Who Called the Recession.” He was publicly calling the recession in 2006 & 2007. I love what he has to say! It is so on target.

He explains that this isn’t just a financial crisis, it’s an economic collapse (yup!). The entire phony economy is collapsing. There is nothing the government can do to stop it, they should get out of the way and let it happen. AMEN!!! Finally… An expert that is in the industry and gets it! He goes on to explain that the world thought we had an economy, but for the last few years all we had was a bubble where we borrowed trillions from around the world, and that isn’t a real economy. Now we can’t pay the bills and the assets that we used to secure the loans are going down. We now have to build a real economy and it won’t be easy - a lot of companies will go under and jobs will be lost. It has to happen because we have to go back to a sane economy. A economy where we save money and make stuff.

I recently read a book titled, Alcohol Can Be a Gas! It is an excellent 600 page book. A lot of time and research went into it. The book teaches almost everything you’d need to know to produce ethanol. I highly suggest you read the book if you’re at all interested in learning more about the ethanol industry, especially if you’re interested in investing in the industry. It might teach you something that could help you decide which ethanol companies are on the right track. I for one, won’t invest in producers using corn as their primary feedstock. There are many other efficient crops that make economical sense and don’t depend on government subsidies.

There are a lot of myths circulating about ethanol, so I thought I’d briefly show how the book debunks some of them.

There should be a wider debate on economic principles and what the role of government is. We’ve become confused about the role of government in the economy - and the role of individuals and corporations. This is a big debate that isn’t taking place at the forefront of the media. Instead, the media is too busy talking about what the government can do to fix these economic problems - but they usually focus on “fixing” the symptoms, instead of focusing on the real problem; An economy financed on debt is unsustainable and only masks the true problems of competitiveness and sustainability. We should not be relying on consumers’ spending of debt dollars in order to be economically prosperous!

No amount of government bailouts, stimulus packages, or increased taxation to allow more government “spread the wealth” programs, will ultimately deal with the underlying economic issues. They only mask the issues and lead to greater problems in the long haul by delaying the economy from answering them. We need to become competitive again through innovation, invention, progressing technology forward, increasing efficiencies, etc, etc, if we are to solve our economic problems.

If you’ve been following my thoughts lately, you know that I have a lot of opinions that seemingly conflict each other. I believe that many great companies are being thrown out with the bad. I believe we are in a recession. It won’t be easy or short but it will eventually end. That said, I believe the commodity boom is far from over. I think we are headed into a weird time of socialist government policies and a wildly loose monetary policy. I also foresee extreme inflation, or hyperinflation and rising interest rates (once the inflation hits). Some call this stagflation. The world population is continuing to expand and previously impoverished nations are industrializing and beginning to compete with us for capital, jobs and resources. Our economy is unable to compete with others and we are seeing increased outsourcing due to differing labor and environmental laws/regulations, currency manipulation (and arbitrage) and taxes.

Many of the above thoughts may conflict with each other. But in some odd way, they make sense to me. Maybe I’m nuts? But I think you must have some exposure to hard assets as a hedge to fiat currencies and the coming hyperinflation. One way to hedge is to buy physical gold or silver (or other precious metals). That is a really good idea, but holding physical gold and silver, safe as it is, doesn’t actually make economic sense (to me). I’d rather invest in a mining company that holds these assets in mass, but also makes money by exploring and extracting these minerals from the ground. Regardless of how you get exposure to this industry, I think this is a good time to buy.

Many people are using this latest weakness in the price of various resources (gold, silver, oil, and other commodities) to claim that the commodity boom is over. They’re wrong. Resource prices have been declining for a variety of reasons, but all of them appear to be temporary. These same people then point to the recent strength in the USD. I contend that the strength is temporary. How often in history does an economy that’s going into recession, with a policy of lowering interest rates, undergo massive increases in the value of its underlying currency? Only time will tell, but I’m willing to bet my money that this isn’t the last of the commodity boom. I’ll put my money where my mouth is and continue to buy undervalued resource companies at extremely attractive levels as I’m expecting inflation in the long-term. Short-term I do see strength in the USD, but not because it’s fundamentally strong. I could never see any long-term strength in any fiat currency due to inflation.

In regards to recent USD strength (and gold weakness), we’ve been witnessing the de-leveraging and unwinding of many hedge funds. Many of these hedge funds were invested in anything but the USD, and as such, when they are required to sell their assets, they are repatriating them into USD’s to give money back to investors and pay off debt. This buying of USD’s in mass is creating extreme strength when the dollar should be showing signs of weakness.

I have to wonder if Northern Dynasty Minerals [TSX-V:NDM ($1.97); AMEX: [[NAK]] ($1.66)] is now a bargain. Back In December of 2007 I wrote an article titled, “Northern Dynasty Minerals a Take-Over Target?“. I thought it was a take-over target then! For those of you that don’t know, Northern Dynasty Minerals owns 50% the largest undeveloped (but advanced stage) copper-gold-molybdenum deposit in the world which is located in Alaska! It sold the other 50% for nearly $1.5 billion to Anglo American!

Since I wrote my last article, the Company has found more resources on the property and now has a great team together to oversee the completion of the Pre-feasibility Study in the second half of 2009 and ultimately get the company ready for permitting. Permitting won’t be easy in Alaska and a great team will be needed. This is one of the major risks still associated with NAK and can become a thorn in its side if things don’t go smooth.

As everyone panics, this may be the perfect time to buy assets and invest - when investments are at a discount to their underlying value. As far as I’m concerned, any large market decline is just an opportunity to buy quality assets at a discount. It’s bargain hunting time for investors.

You have to view times like these as nothing more than an opportunity. If you don’t view times like these as an opportunity, you run the risk of turning into a pessimist who will not only act irrational (like some people who sell great companies for a fraction of what they bought them for just because the price went down and despite the fact that the company still has great fundamentals - does that make ANY sense?) but may miss many opportunities to make back the money that has been lost thus far.

I get a lot of emails from various investment newsletters. I recently got one from Investment U that was written by Louis Basenese titled "The End Of The Weak Dollar." In his article Louis had ten reasons why the U.S. dollar is headed higher, not lower like many people believe. I can’t publish the entire article, but I can summarize his ten points, and then offer my thoughts on each. That is what I intend to do.

Before I go on, please realize that either Louis or me can be right, but we won’t both be right. I don’t know what will happen in the future anymore than he does.

We all know the baby boomers are going to begin entering retirement. While there are many different styles of investing, I believe that when one enters the retirement stage of life, income investing is by far the best. Investing in companies and bonds that offer high dividend yields can prevent one from being forced to start living off the capital in the portfolio. Nothing would suck more than outliving your portfolio and winding up a 85+ year old with no money and a big burden to your children or your country.

Finding high dividend yields will probably become increasingly hard. Why? As the boomer’s enter retirement they will most likely start searching for high yielding investments in large numbers so they can afford retirement. As the demand for these high dividend yielding investments increases, so too will the price of those investments, meaning that dividend yields may decrease.

In my last post, I talked about the record setting gold and oil prices.  I also mentioned how well I have done in my Forex broker by investing in silver on margin and achieving over 1,700% return in a little over a year.  Unfortunately, I only invested $100.  It sucks.  I should know!!  If only I had invested $1,000 I would now be able to pay off all my student loans.  Argh.  I did tell you one of my reasons why I only invested $100.  Investing on margin is risky.  And, I didn’t know if I was at an exact bottom in gold - so $100 was all I was willing to bet/speculate at the time.

What I didn’t tell you was why I WOULD NOT put much money into a Forex broker, EVER.  Well, maybe I shouldn’t say EVER.  But I would NOT put much money into ANY Forex broker right now when the financial situation is so shaky.  Why?  Well, I’ve told the story before.  But here it goes.    A few years ago when I first learned about Forex and the amazing leverage and potential gains, I became excited and after a little research, I decided to open a Forex account.  I picked what I thought would be the safest company.  It was VERY large… a multi-billion dollar company with other divisions in the investment field.  I thought it would be the safest bet.  So I deposited ~$2900 USD.  I never made a single trade because I was still trying to make money in the practice accounts with fake money and was having little luck.  After a while I decided that perhaps Forex currency trading wasn’t my cup of tea because I’m a longer-term investor and I can’t predict what will happen in the next five minutes or five days - but 5 years is easier for me. 

On Monday, the TSX fell over 600 points, a 4.75% drop on top of the drop from last week. Canada wasn’t the only market hit: London down 5.48%, Paris down 6.83%, Frankfurt down 7.16%, and Asian markets did much the same. All of this occurred while the U.S. markets were closed for a holiday. It seems that investors don’t think the government will be able to do enough ‘printing/borrowing/or cutting of taxes’ to avoid a recession. Investors fear Bush’s economic stimulus plan won’t work as planned and the Fed’s only weapon is inflation, which also hurts citizens and the large consumer economy.

Tuesday should be an interesting day. Can $145 B worth of tax cuts help U.S. consumers? I don’t know the terms of the stimulus package, I’ll go read up on that shortly. Unless the tax cuts are retroactive to 2007, I don’t see how tax cuts will immediately impact spending in a big way. I also don’t think U.S. consumers should necessarily spend their tax savings. For those with debt, I hope they put the extra money against their loans. A question I do have is, will the tax cut be enough to even counter the rate of inflation from a lower U.S. Dollar in terms of increasing a family’s budget? Also keep in mind, higher deficits will cause more U.S. Dollar weakness and could lead to an increase in inflation.

In regards to my article, Unsustainable Vehicle Prices: Is Tata Onto Something?, I received an interesting comment by someone wishing to remain anonymous on Seeking Alpha. It read:

User 141119: “Uh, excuse me but you said “as the recession worsens” That is a bunch of crap. We are NOT in a recession and whomever thinks so is either a ticker watcher, watches too much news and TV, and believes all the hype in the liberal media. For you to say this just discredits yourself even more. If the US is in such disarray, then how come I can’t find a parking spot at Walmart on a Saturday morning? Recession my butt!”

I have a single friend who is very young. He has an average job, works hard, and has no other assets (remember, he’s young). Here’s the part I don’t understand. How long will people be able to spend more than a year's wages to buy a brand new vehicle, when they don’t necessarily have the money? My friend lives in Canada and spent about $40,000 on a Dodge Ram (approximately what he spent including all extras, taxes, etc. Please realize many fully loaded trucks in Canada can cost $40k to $60k quite easily.).

I did the math on a five year loan from the bank using a 6% interest rate. Do you know what the payments are? $773.31! Then he pays almost $500 a month for insurance (young guy + new vehicle = high insurance premiums (almost criminally high, IMO)). Gas to power the beautiful Hemi under the hood is about $200 per month. I know he works about a 10 minute drive from work, and he works so many hours he doesn’t have time to do many other activities.

Encana (ECA) has a compelling story: It is a North American Energy Giant that derives 100% of its revenue from North American assets, with 80% of its revenue coming from natural gas. Encana is also investing heavily into the Oil Sands. In total, the Company now has more than 9.36 million acres of developed land in North America. Even better, it has 18.96 million acres of land that is yet to be developed, also located in North America. This has given Encana a vast drilling inventory of about 40,000 well locations. Encana is also beginning to reach beyond North America and acquire interests in Brazil, the Middle East, Greenland and France.

Natural Gas Prices Currently Low

During my search for Christmas presents, I came across a new kitchen appliance I’d never seen before - a perfect gift for my Mother. Well maybe I wasn’t searching for presents at the time: I’d just developed an intense interest in learning about how plants grow - via hydroponics.

I know what you’re thinking: No! I don’t want to use it for illicit purposes. I was genuinely interested in using it to grow quality food. If you’ve ever searched for information on hydroponics you’ll quickly find that the internet is full of people using it for illegal purposes… It is VERY hard to find a nice small hydroponic setup for a decent price for growing edible food. That’s when I came across AeroGrow’s AeroGarden. It’s the perfect system for growing real food in a small space for a semi-reasonable price in the range of $150-$200 (depending on the model).