 |
GLOBAL CURRENCY WARFARE IN FULL MOTION: A GLOBAL BATTLE IS RAGING BEHIND THE OFFICIAL SMOKE-AND-MIRROR SCENES
A government which robs Peter to pay Paul can always depend on the support of Paul.
~ George Bernard Shaw (1856-1950)
Dear Mountaineers,
I will have to be quite brief in this commentary today. The markets are keeping us on our feet and I´m finding it difficult to find the time to sit down and write.
Last week, one of our clients said this to me: "Frank, I don´t get it. We both agree on the fact that this global economy and the financial markets with it are headed for more trouble. This recovery story is not sustainable, nor is it real. Therefore, why on earth are we still investing in stock markets when we know full-well that we are headed for disaster?!?!"
In essence, this client does express a question we are now constantly grappling with here at BFI. However, the path toward "disaster" may be long and slow. I came across a report by Morgan Stanley which pretty much sums up my thoughts in this context:
"We´re playing a dangerous game: investing in equities despite a laundry-list of medium-term concerns. We may be picking up pennies in front of a steamroller - and last week´s wobbles show the risk of picking up one penny too many - but for now we see too many short-term positives to turn negative.
"We think this will be a Hobbesian macro cycle: nasty, brutish and short. Private excess has swapped to public stress, and sovereign risk rarely ends well. Equity valuations don´t offer much compensation for this risk; indeed they point to low medium-term returns.
"However, this may take longer to play out than the average investor is willing to wait. The ten years from 2000 saw the worst-ever ten-year return for US equities. But that ten-year drought included a splendid five-year rally. In short, our framework may be correct, but there is a lot of room for tactical finesse."
Obviously, the Greek debt crisis has shaken financial markets. Banks and governments in the five shaky PIGS economies (Portugal, Italy, Ireland, Greece and Spain) owe each other many billions of euros and have even larger debts to Britain, France and Germany.
The following diagram courtesy of the New York Times (click on the New York Times for a clearer picture) provides an interesting overview of the web of sovereign debt in Europe. The arrow widths in the graph are proportional to debt amounts in US dollar terms. Admittedly, this picture looks a bit frightening. It´s quite obvious that Greece is a mere "piglet" compared to its bigger brothers and sisters.
The concerns of this debt crisis spreading to other PIGS are understandable.
However, in the big scheme of things, I wonder about the panic and hype that has been created around this situation. To me, I find the Greek debt crisis leaving my mouth with a bad taste of a scapegoat scenario. I will try to comment on this a little more next week.
For starters, consider this: Greece´s GDP is approximately US$ 76 billion per annum. Very recently, an economy with US$ 2 TRILLION (!!) went bankrupt and the media seemed to hardly notice. Americans know which economy I´m talking about: California.
Greece´s entire economic output comes to less than 3.8% of the California economy. Greece´s GDP makes up a similar fraction of the EU economy. In the big scheme of things, what is really the big deal?
I am not trying to sound jovial or sarcastic here. With all due respect to the Greek people, Greece does not appear that relevant -- at least not at first sight. Why and how has Greece become so important so suddenly?
This is certainly not a time to be complacent in your investments. It is possibly also not a time to be writing commentaries... I need to check out now!
Sincerely,
Your "Swiss Mountain Guide"
Frank R. Suess
|
|
|
|
 |
|
|
RON´S PANORAMA - COMING SOON: THE FOOL´S GOLD SPECIAL REPORT!
Maybe I Was Wrong About the Risk of Gold Confiscation. For 25 years, I have considered the threat of another Roosevelt-style gold theft to be minimal and practically non-existent because most of the private wealth in the United States is not invested in gold. After all, why should Washington steal your gold when they can easily confiscate most of your retirement benefits, "means test" middle and wealthy Americans out of their promised Social Security benefits, and continue to raise tax rates on successful, productive Americans?
As I discussed last week, Obama and the leadership of both parties are now building public support for a VAT (Value Added Tax). This is a general sales tax added to the price of goods and services at every level step of production whenever value is added to those goods and services. This hidden tax will dramatically increase the cost of every good and service while generating massive amounts of revenue to a bankrupt federal government.
I Believe Every American Should Own Gold! I´ve always been a believer in the ownership of gold as a hedge against crisis, uncertainty and the paper dollar since reading Rothbard and Mises while at the University of South Carolina. I created the first gold IRA program back in the late 70´s.
Until the last few years, the effective central bank marginalization and Washington war against gold kept this investment alternative blacklisted by Wall Street and the establishment financial press. General public interest in gold was minimal at best until the success of the Ron Paul Campaign, the financial meltdown, and the triumph of Mises and the Austrian School of Economics over other economic views within the freedom movement.
My recommendation has been to hold some gold in your possession or in a safe deposit box for a short-term financial liquidity or economic crisis situation. This remains my recommendation for small gold holdings but large bullion investors should consider other alternatives due to the growing threat of gold confiscation.
Gold Confiscation Can Happen Again in the USA! Now I increasingly believe the threat of gold confiscation is growing exponentially in the United States due to four important factors:
1) Washington and the Treasury Do Not Have the Gold Holdings They Claim. The US Treasury claims to own 261 million ounces of gold bullion but why should we believe them? Since the government lies about everything today, I seriously doubt they are telling the truth about their gold ownership. A recent poll has shown that 80% don´t trust their government and when you add the 22 million government employees and their families, one could say zero percent of productive Americans in the private sector trust the government...so why should we believe this statistic?
2) Although Gold Hasn´t Been An Important Factor To Central Banks & Governments, It Will Become Crucial In A Future Crisis. As long as the American people and foreign central banks, nations and investors accept our dollar and trust we can service our trillions in national debt and unfunded government liabilities, none of this matters. The situation will turn on a dime when a future run develops on our Treasury obligations and the fiat dollar, probably sometime in the next decade. What happens then to our false gods of unlimited national debt and fiat currency? You know the answer.
3) Washington and the Wall Street Establishment Can´t Allow Gold Investors To Profit At Their Expense. Do you really believe for even a moment that Wall Street and the international banking cartels that own Congress are going to allow gold investors (the sworn opposition and antagonists of fiat currency, the Federal Reserve and everything they hold profitable) to reap 100%, 1000% or 5000% profits when Washington´s government debts and fiat dollars collapse into a hyperinflation nightmare?
4) Massive Gold Profits Will Indicate Victory For Ron Paul and the Austrian School of Economics. The political elites and their failed big government Keynesian policies of central bank manipulation, fiat currency and massive government indebtedness will be shown as a catastrophic Ponzi scheme imposed on the American people. They dare not allow this to happen as the consequences would be loss of political control, public outrage and calls for righteous retribution and a settling of scores.
Next Week, I´ll discuss the Washington solution to counter your opportunity of massive gold profits with confiscation and a non-protective asset tax threat and how you can protect your gold from this coming risk. Then, a few weeks later, the entire "Fool´s Gold Special Report" will be available from BFI.
Ron´s Panorama is contributed by Ron Holland and offers economic, financial and social considerations for Americans, from an American - with a somewhat Swiss perspective. Ron [send him mail] is a retirement expert and consultant, who works out of Zurich and is a contributing editor to the Mountain Vision Newsletter.
|
|
|
|
|
|
NEWS BRIEFS
The Swiss ‘Debt Brake´- Simple, Pragmatic, Effective
If only more countries were built on the solid foundations of direct democracy!!!
When Swiss fiscal policies and government spending get out of hand, the Swiss people rein in their politicians...by vote. In Switzerland, the government is still accountable to the people. In 2001, more than 80 percent of the Swiss electorate voted in favor of a constitutional amendment which aims at stopping the expansion of the public debt. A convincingly simple and seemingly intuitive formula provided an easy-to-implement expenditure rule for the budgetary process.
Swiss officials are making decisions their peers in Greece or Portugal would probably envy: cancelling bond sales as a budget surplus reduces the nation´s borrowing needs. Soaring public debt in the 1990´s prompted Swiss voters to approve a constitutional amendment requiring that revenue and expenses must balance over an entire economic cycle, though the government may run annual deficits.
That restraint has paid off. It has pushed Switzerland´s borrowing costs to the lowest in Europe as investors rush to the safest investments. Switzerland called off bond sales in November and December, saying it didn´t need additional funds to finance the budget!
Go to Story
Brazil Trades on A-Rating
Looking for safety in government bonds? Well, the bonds that may have traditionally been top choice are falling behind...and quickly. Today, the sovereign debt of emerging economies is high in demand, with Brazil being one of those countries.
While Europe and America are struggling with the threat of growing debt and falling ratings, Brazil´s credit rating, raised to investment grade two years ago, is poised to increase even more.
"If you look at the European economies, their credits are clearly in decline and this is a credit on the rise," Sebastian Briozzo, an S&P analyst, said in a phone interview with Bloomberg´s Businessweek. Brazil´s credit-default swaps are less expensive than Bahrain, which is rated A, or four levels higher, as well as South Africa, two levers higher, and Russia, one level. Brazilian swaps point to a ratings increase of as many as two levels, according to Donato Guarino, an analyst with Barclays Plc in New York.
Go to Story
Enviably, Australia Raises Its Rates Again
Australia´s central bank is further pursuing its policy of preventive monetary tightening. It increased the benchmark interest rate for the sixth time since early October after policy makers raised their outlook for inflation and judged the nation as insulated from Greece-sparked debt woes.
Since October, Australia has raised interest rates by 150 basis points. This clearly shows that commodity-related countries are benefiting tremendously from the recovery in China and in emerging markets.
Go to Story
Evaluating U.S. Treasury Auction Distress
In an excellent article, Mr. Ron Hera of Hera Research, LLC reviews the recent increase of "phantom bidders" in US Treasury Auctions. The proportion of so-called ‘Direct Bidders´ has multiplied. And it raises questions as to who is actually behind these bids?!?!
In the context of the Greek debt crisis and the "guerilla currency warfare" discussed earlier, this article and a good understanding of U.S. Treasury auctions are critical.
Go to Story
Shanghai Stock Exchange Going International
A sign of the times! Coca-Cola Co., General Electric Co. and Wal-Mart Stores Inc. are among U.S. companies that have sought listings in China. The Shanghai Stock Exchange is in the process of drafting rules for the board where foreign companies will be allowed to sell shares.
Finance companies were the first to express interest about listing on the board the city is setting up for share sales by foreign companies, Fang Xinghai, head of the city´s financial services office, said in a Bloomberg television interview on Monday. Interest has spread to other industries, he said. HSBC Holdings Plc, Standard Chartered Plc and NYSE Euronext have also said they´re interested in listing in Shanghai.
Go to Story
UBS Announces a US$ 2.8 Billion Profit for Q1 of 2010
UBS reported a first-quarter net profit of 2.2 billion Swiss francs (US$ 2 billion) on a strong performance by its trading division, lower costs and fewer customer withdrawals. The bank´s best results in almost three years beat analysts´ expectations for a net profit of 2 billion francs. UBS had recorded a net loss of 1.98 billion francs (US$ 1.84 billion) in the same quarter last year.
Euphoria was dampened somewhat by the fact that part of the gains came from freed-up reserves, noted analysts at Zuercher Kantonalbank. UBS shares were down 1.8 percent at 16.73 francs ($15.33) on the Zurich exchange.
Go to Story
The Boom in Africa Lures Global Investors
Investment in Africa from countries such as China and India has rekindled optimism in a continent that sits on the world´s biggest deposits of platinum, chrome and diamonds.
While much of the world slid into recession in 2009, Chinese companies were signing deals worth at least US$ 600 million in Namibia, Ghana, Kenya and Mozambique in industries ranging from fisheries to paper. China National Offshore Oil Corp. is now bidding for oil fields in Ghana, Nigeria and Uganda, following investments by other Chinese companies in mining and construction in both Zambia and the Democratic Republic of Congo.
Go to Story
Dire Hurricane Forecasts for 2010
The 2010 Atlantic hurricane season may rival some of the worst in history as meteorological conditions mirror 2005, the record-breaking year that spawned New Orleans- wrecking Katrina, forecasters say.
No, we haven´t emerged as the latest weather channel. However, in times of fickle markets and unstable economics, investors should beware of the unwelcome surprises. In particular, implications of further catastrophes looming for the Southern States of America - after the latest oil spill - should be considered.
The El Nino warming in the Pacific is fading and rain is keeping dust down in Africa, cutting off two phenomena that help retard Atlantic hurricane formation. Perhaps most significantly, sea temperatures from the Cape Verde Islands to the Caribbean, where the storms usually develop, are above normal and reaching records in some areas.
Go to Story
The Greek Banquet has Been Served - Other ‘PIGS´ are Invited to Join In...
|
|
|
|
|
|
| © Copyright 2010, by BFI Capital Group AG, Bahnhofstrasse 29, 6300 Zug, Switzerland, website: www.bficapital.com. The MOUNTAIN VISION UPDATE is published by BFI Capital Group (‘BFI’). Quotation is allowed if credit is given. Although every care has been taken in the preparation of Mountain Vision, BFI does not guarantee and cannot be held responsible for the accuracy of any statistic, statement or representation made. We recommend that you consult qualified professional advisors to determine the applicability of this information and opinion. The publisher is not a registered investment advisor. Readers should not view MOUNTAIN VISION as offering personalized legal or investment advice. |
|
| » Unsubscribe |
|
|
|
