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eggfaced
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Recent graduate of Penn State Univeristy with an undergrad in Finance. Currently working as an analyst for a Fortune 500 company.
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  • Who Really Pay For Big Government

    In response to the New York Times article which contrasts various tax systems around the world, I would argue the true cost of big government affects taxpayers well beyond the checks they write to Uncle Sam. 

     

    The real cost of big government is not measured with tax rates but rather the stifling effects it has on businesses and entrepreneurs.  While true that successful entrepreneurs enjoy financial prosperity far greater than most of the population, their success is much more far reaching than just that of themselves.   It is also important not to undermine the tremendous risk taken by the entrepreneur when they initiate their venture.  Many businessmen often sacrifice a paycheck for years until they begin to turn a profit.  Their employees, however, receive a paycheck and can gain experience and better themselves in the future.  Businesses also have far reaching benefits to their communities through charitable work and the jobs they create.  By starving the businesses of much needed capital, big government not only hurts businesses but all its stakeholders. 

     

    The true cost of government spending is measured in the amount of capital it diverts away from businesses.  Taking money from businesses and transferring it to someone else through welfare, entitlements, and other forms of spending may benefit one person but devastates an entire network of individuals connected to the business.

     

    Jobs are not created by bureaucrats in Washington but rather private businesses started by entrepreneurs.  While business have been continually vilified through the recession I would argue that they are the only thing that can actually get us out of the recession. 

     

    The time is now to shrink big government before it suffocates our entire economy.  Instead of the government looking for whom to increase taxes for they should focus on clearing the path for entrepreneurs. 



    Disclosure: No positions
    Dec 02 4:04 PM | Link | Comment!
  • The Currency War: Who’s the Enemy?
    Attention Citizens: Though most of you have not yet realized it, war has been declared by the U.S. Government and the Federal Reserve! “On whom?” you may ask, scratching your head wondering if you’ve missed the breaking news story. The answer is us, every single red-blooded American from the blue collar union welder to the white collar executive. From the newly graduated college student to the retired school teacher; no victim will be left unhindered in this absolute onslaught against the American civilian.
     
    Don’t go running to your TV expecting the regularly scheduled network programming to be interrupted for a special breaking news report. Instead you’ll probably find yourself muddling through the normal evening news drivel. Sure, you’ll hear the phrase ‘currency war’ thrown around by pundits and politicians but they’re most likely referring to the unique dynamic that exists today between the U.S. and most other emerging countries.
     
    In the name of ‘stimulus’ and ‘quantitative easing’, the U.S. has embarked on a monetary policy that has left the dollar bruised and battered. American citizens will soon be feeling the same. By printing trillions of dollars and running enormous budget deficits, the dollar index has plunged more than 20% in the past year. Since most countries employ a dollar peg, they are required to adopt the same monetary policies as the U.S. to keep their currency stable. So as the U.S. creates more dollars, China must issue its own currency and buy dollars to its exchange rate from rising. While the media spins this as China trying to manipulate its currency to its own benefit, what most people fail to see is that China’s action is merely the effect of America’s cause.   
     
    It appears that Obama is performing the art of misdirection - a classic war technique that distracts your real enemy by attacking another. While he and Timothy Geithner parade through Asia blaming China and other creditor nations for our problems, other leaders of the G-20 nations ponder their real motives. What Obama and Geithner fail to see is that China’s policies have allowed us to build more debt to preserve our bloated standard of living. China is doing itself a huge disservice by allowing this dynamic to continue. 
     
    As the U.S. economy continues to slog along, the Treasury is auctioning billion of bonds per month to fund our ever increasing deficit. Our creditors, who are mostly foreign central banks, are becoming less and less enthusiastic about buying our debt at current interest rates. To replace our discouraged creditors, the Federal Reserve has swooped in to pick up the slack to the tune of 600 billion. The question is - who will provide the money to fund our profligate spending? 
     
    As any good politician knows, raising taxes is no way to get reelected. With spending cuts almost as equally unpopular, instead of owning up to our debts and restructuring them, the Government has turned to inflation to solve our problems. While you can be jailed for not paying the IRS, inflation is a tax that is much more stealthily enforced. Instead of holding a gun to your head and demanding your wallet, inflation is more like a thief that sneaks in your house while you sleep and robs your piggy bank.
     
    Inflation seeks to attack the money sitting in savings accounts and bonds.   Most people can understand that if you create more of something it is worth less. So, as new money is created, the value of every existing dollar is diminished. As a result, the savings that many Americans will count on in hard times and retirement will have a fraction of the purchasing power it has today. 
     
    As the government continues to lay siege on the hard earned wealth of all Americans, don’t let the political diversion fool you. Americans are under attack. Fight this war by getting your money out of the US dollar by investing in commodities and assets denominated in other currencies. If you don’t, you can surely count on becoming a casualty in this vicious war.
     


    Disclosure: Long Gold, Gold Stocks, Silver, Silver Stocks and numerous foreign shares.
    Tags: GLD, GOLD, SLV, PSLV
    Nov 30 3:50 PM | Link | 1 Comment
  • GOLD: Understanding the Changing Fundamentals of the Most Misunderstood Commodity
    Gold, like oil, is a commodity and most people try to mistakenly value gold in the same way they value oil. It seems that the popular consensus is that gold is an inflation story as gold is historically a store of value. After all, central banks are printing huge amounts of paper to fund government sponsored stimulus and deficits that have no end in sight. I believe this is true to some extent as any real asset will increase in price when there is increasing dollars chasing a fixed or declining supply of that asset. This can explain the recent run-up in commodity prices that seem to move in lock step with the falling dollar. The market is signaling that when helicopter Ben stops blanketing the world with free money by raising interest rates, thus, curtailing inflation, this will mark the end of the commodity (and gold) market’s rally. This is shown by gold’s precipitous decline following a perceived positive jobs report that caused a spike in the Fed Funds Futures.  I do not believe that gold will continue this current relationship with the dollar and expect gold to completely disconnect from this paradigm in the near future and rise regardless of the direction of the dollar. I feel that gold is poised to significantly outperform inflation in the next several years.   
    Gold is Money 
    To understand how to price gold you must understand gold’s use to the world. Quite simply, gold is money. It is a medium of exchange that has preceded every currency including the almighty dollar. As I said before, oil is also a commodity like gold. Oil is energy just as gold is money. However you cannot value oil in the same way you value gold. Oil is consumed while gold is (largely) not. It is highly likely that a piece of gold that was mined 2000 years ago is still around today. It can be fashioned into jewelry or pounded into coins and bars but is inert so it cannot chemically react with any other element. This is just one of the many unique properties that make gold the perfect metal to be used as money. It has substitutes just as oil does – gold’s silver to oil’s natural gas. Gold does have industrial use in electronics and dentistry but this only makes up about 10% of demand (we will discuss this in further detail later). Oil’s price is based on basic principles of supply and demand. Its demand is derived from the need to consume energy for all types of things, such as heat and fuel. As oil related products are consumed they are gone forever, demand is satisfied and the cycle continues. Since gold is not largely consumed, its demand is based on much different principles. 
    Demand for Gold
     
    Units in tons
    As shown by the charts, demand for gold comes from three main sources: Jewelry, industrial & dental, and investment. Historically, jewelry has accounted for around 70% of total gold demand with investment only accounting for <20%. Over the past three years, demand for gold as an investment has steadily taken up more of the gold demand pie. Further, gold’s price has been increasing in the wake of declining Indian demand for gold jewelry, which is the primary driver of aggregate gold jewelry demand.   As a smaller and smaller percentage of gold’s demand is derived from jewelry and industry, gold as an investment has become the primary driver for the price of gold. 
     
    Does not include purchases from central banks.
    I believe this trend conveys a fundamental change in the demand for gold. After decades of being removed from the gold standard society is coming to the realization that a fiat money system is doomed to fail. In the absence of the discipline of the gold standard, when money can be created out of thin air, there will be an eventual collapse of the fiat currency as central banks race to print money to solve economic problems. With no end to bail outs and stimulus, these measures are only acting to reinforce the imbalances that lead us down this road so we can expect more bail outs and more money creation. This is leading both central banks and private citizens to hoard gold in preparation of complete failure of fiat currency (or a return to the Gold Standard). This trend is supported by events such as the Chinese allowing citizens to purchase gold for personal investment and countries such as India, Sri Lanka, and China buying up IMF gold and gold mining companies. 
    I believe the price of gold is going to massively surge to new levels in the next few years primarily driven by new investment demand by both private citizens and central banks. The fundamentals of gold have changed from that of the past decade. The bear market in gold that began in the 1980’s, after the peak, experienced reduced demand for investment. These were relatively peaceful times both politically and economically. The world began to believe that a fiat money system could work and gold was not a necessary part of their portfolios. Starting in 2001, after the September 11 attacks many people began to feel uneasy about the potential for an outbreak of major wars. Further, the economic policies pursued by the Bush and Obama administration can be perceived as an all out war on our currency. This has lead people to by gold in droves for fear of total collapse of the dollar.  This fresh new source of demand is going to sop up every ounce of gold that is mined or sold off by the IMF or other Central banks. Production of gold has been flat or declining for the past decade and will severely lag this new demand. This will propel the price of gold to new heights as increased demand cannot be met by a declining and under capacity gold mining industry. 
    The Gold Bubble?
    Every time gold reaches a new all time high there is talk of it entering the bubble area. Based on these new fundamentals I discussed gold is not even close to a bubble as the average person drastically under owns gold. ‘Sell your gold’ commercials that are flooding financial programs are sure sign that many people still don’t understand that gold is money and they should be exchanging their dollars for gold and not gold for dollars. The smart money is buying gold for fear of the inevitable destruction of paper money. The final rush for gold will come when faith in the fiat money system has completely deteriorated and no one wants to touch paper money. This is when gold could be considered a bubble. By this time I predict there will be a massive restructuring of the global economy to a global currency or some alternative to the current system. 
    The gold bull market has just begun. As central banks and private citizen’s rush to buy gold at the same time economic conditions around the world worsen, gold will reach new heights which will dwarf its current price. Since gold has been shunned for so many years, there have a lot of catching up to do. The buying of gold for investment will outpace the massive printing of money as private citizens and central banks readjust their portfolio weighting of gold. This is going to lead to a massive run in gold prices that will significantly outpace inflation. My recommendation is to get in early.   


    Disclosure: Long CEF and various gold mining stocks.
    Dec 10 10:45 AM | Link | 1 Comment
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  • Someone seriously tell me or point to an article that explains why equities are lagging commodities/metals.
    Apr 29, 2011
  • Everytime gold or silver equities look like they want to break out, they pull back. Very healthy, going much higher IMO.
    Apr 7, 2011
  • Dave - it may not be 'QE3' but there is no chance the Fed leaves the treas market. They will find a very sneaky way to continue POMO, etc.
    Mar 18, 2011
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