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I'm a young active investor that likes to analyze the global macro economic and use those insights to make bottom up stock picks in sectors that I think will dominate over the long term. I'm an avid traveler and enjoy using my opportunities traveling around the world to double check that foreign... More
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  • College Education Can Stifle Economic Growth
    Economists are starting to realize that 4-year degrees are not the right path forward for education and training of youth before they enter the workforce.

    I've been saying this for years and every time I state my position I'm subjected to mass ridicule. I've gotten in many an argument with professors, students, and friends over this very subject. The only person to agree with me thus far is one of my business school professors from France who ironically promoted extremely socialistic ideas (at least he was right on the education issue).

    There is simply no reason for everyone to go to a 4-year college. The majority of colleges that exist today, are simply there to fill the massive demand that our government-sponsored education subsidies have created.

    People that should go to a vocational high school and come out as a highly skilled worker, instead are taking on massive amounts of debt (or we as taxpayers take on this debt on their behalf), to go to a 4-year university -- any university that will take them.

    They graduate from a sub-B school with zero experience and are shocked when they find it hard to get a job. What ends up happening is that they take a job in any industry that will give them one, regardless of whether or not they actually enjoy the work, just so that they can pay off their school loans.

    If instead they had spent their four years gaining experience in whatever labor market appeals to their natural likes and dislikes, then they would be enjoying life and work, and building up a savings that can then be used in the economy to fund growth projects in new industries. Savings, not debt, provides the long-term capital to be used for economic growth.

    Intelligence comes in many shapes and forms that each follow a normal curve like many things in the world. To think that every child has the kind of intelligence required for a "desk job" is absurd. To burden our youth with the notion that they should all go to a 4-year college and get a desk job is just nonsense.

    People should take stock of their natural capabilities and follow the path that will lead to them successfully leveraging their own intelligence, skills, and general interest. For some this is college, for others this is skilled labor, and for others this is ... the list goes on.

    People are not homogeneous! We don't all fit into one category, and there is no one right solution that is appropriate for everyone. Instead of treating everyone as equal, and trying to make policies that force everyone into the same bin, we should recognize the inherent issue that humans are each different and diverse, and we should promote individuality and personal responsibility over mass equality and social support. For all the talk of "diversity", "acceptance", "tolerance" etc. you'd think that people from all circles would agree on this!

    Governments should stop espousing this insane notion that everyone should follow the same educational path. Not only is this a money pit but, as we are seeing, it is also bad for our nations economic growth since it reduces savings and increases debt.

    If you agree with what I've said, then express your individuality by voting your position. This is still the America that was built on pursuing one's dreams. Don't be talked into transforming America into a nation where people pursue what the government thinks their dream should be.

    Disclosure: short many forms of US government debt
    Tags: IPD, APOL, ESI, DV, COCO, CPLA, STRA, TBT, education
    May 15 2:33 PM | Link | Comment!
  • US Federal Reserve Aids in Exchanging US Dollars for Greek Debt
     This is quite possibly one of the most absurd policy decisions ever made for US citizens. As I will explain, this is incredibly inflationary and offers no discernable benefit to US citizens.

    The Federal Reserve has opened up swap lines with foreign central banks around the world in order to provide liquidity[1]. This is similar to what they did during the initial liquidity crisis in 2008 when banks would not lend to each other.

    In their swap agreement with the European Central Bank, the ECB notes this:

    "The Governing Council of the ECB decided to reactivate, in coordination with other central banks, the temporary liquidity swap lines with the Federal Reserve, and resume US dollar liquidity-providing operations at terms of 7 and 84 days. These operations will take the form of repurchase operations against ECB-eligible collateral and will be carried out as fixed rate tenders with full allotment. The first operation will be carried out on 11 May 2010."

    Just last week, on May 3rd[2], the ECB decided that Greek Bonds, despite their ratings downgrades, are acceptable collateral. This means that the ECB will be entering into repurchase agreements with holders of Greek Debt in exchange for US Dollars that were printed by the US Federal Reserve.

    This is extremely inflationary.
    Right now in the US, the M1 money multiplier is below 1. It has been below 1 pretty much since the crisis started. What this means is that no matter how much liquidity the Federal Reserve provides to banks in the US, the funds are not making their way out into the economy. Instead, they are being held as excess reserves. A money multiplier above 1 indicates that new money is moving through the economy.

    This swap deal with foreign central banks is directly injecting US Dollars into foreign economies. By design, this enforces a money multiplier greater than 1. This essentially means that the US has printed new dollar bills, flown them over to Europe, and is exchanging them for newly printed Euros that are backed by Greek Debt. If you think this is going to be good for the US Dollar, please please please leave a comment and let me know what kind of logic you are using. I will be very curious to see how this inflation will manifest itself. Will these new US dollars find their way back to the US Economy? Will they instead be used to purchase US Treasuries?

    Perhaps the US saw this as an opportunity to help boost demand for its own debt. By making available US Dollars to foreign entities, it is increasing the likelihood that those dollars will be used by foreign banks to purchase US Debt.

    Think about it. If you owned Greek Bonds, and someone offered you a way to turn your Greek Bonds into US Treasuries would you say no?

    Would you lend someone money if you know the only way they could pay it back was when their Greek Bond matured? Well, the Federal Reserve did that for you!

    If the US is already printing new money to help bailout Europe from their own debt problems, then I hardly think there is any question around whether or not it would print new money to bailout US States and the US Federal Government from their own debt when it comes due.

    Any lingering questions about whether or not the US will inflate its currency to pay off its large debt have now been answered.


    Disclosure: long GLD, long PHYS
    May 10 12:23 AM | Link | Comment!
  • OpenEconomist Finally Gets Some Forecasting Credibility
    I almost hate to say "I told you so" since it is never fun to be correct about major negative events, but at the same time, today's market reaction gives me some forecasting credibility.  If in doubt, read both parts of my forecasts: Part 1 and Part 2.

    If there is one area I may have fallen short, it is in my forecast of Gold. I anticipated Gold falling with any rise in the dollar against major currencies during a short-term flight to safety. Gold was up $30 dollars today (Thursday, when I wrote this) to a near-term high even as the dollar was up against just about everything.

    This means that Gold is acting as a co-reserve currency along with the US Dollar.

    I've yet to determine if this will be a longer-term trend. I am not planning on selling any of the Gold holdings that I have so far (about 15% of my total portfolio), but neither am I buying more. I was really planning on a near-term Gold correction and was going to use it as a massive buying opportunity -- that correction may not come, and I don't want to pass up my Gold play. I will keep readers informed.

    My previous recommendations to buy puts on the SPY and calls on the VIX have paid off very nicely.

    Disclosure: Long PHYS, GLD, UGL, short SPY via puts, short C, short BAC, long VIX via a variety of september calls

    Tags: SPY, UUP, PHYS, GLD, UGL
    May 09 8:52 PM | Link | Comment!
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