Four Guys Control the Livelihood of Billions of People

Posted July 28, 2013 at 8:00 am

Here’s what happens when
a central bank goes bust

by Simon Black

Over the past several decades, people around the world have become so brainwashed that few people really give much thought anymore to the safety of their currency.

It’s not something people really understand… there’s apparently some Wizard of Oz type figure at the top of the hill pulling all the levers of the monetary system. And we just trust them to be good guys.

This is partially true. Today’s financial system is dominated by central bankers who have been awarded nearly dictatorial control of global money supply.

In allowing them to set interest rates, they are able to control the ‘price’ of money, thus controlling the price of… everything.

This power rests primarily in the hands of four men who control roughly 75% of the entire world money supply:

  • Zhou Xiaochuan, People’s Bank of China
  • Mario Draghi, European Central Bank
  • Haruhiko Kuroda, Bank of Japan
  • Ben Bernanke, US Federal Reserve

Four guys. And they control the livelihoods of billions of people around the world.

So, how are they doing?

Continue reading…

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What Do 13 CEOs Say About the Economy?

Posted July 15, 2013 at 10:00 am

By Morgan Housel, The Motley Fool

Economists aren’t very good at what they do because they deal mostly with theories and assumptions. Businesses are pretty good at what they do because they deal mostly with customers and competition. If you want to know how the economy is doing, ask the business leaders. They have the scoop.

I dug through a pile of conference call transcripts to see what CEOs are saying about the economy. Here are 13 excerpts, all from conference calls and presentations that took place in the last 90 days.

Continue reading…

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What’s up with the Fed?

Posted July 8, 2013 at 1:14 pm

By Doug Roberston
Resident Contributor

As we have seen recently, the Federal Open Market Committee (FOMC) – part of the Federal Reserve Board – holds amazing power over the movements of the markets. The slightest comment from the Fed Governors can send the markets into a massive drop.

On top of this, we have the talking heads and pundits telling us that either the Fed is destroying our country or it is the only thing keeping the markets going up. And – silly enough – sometimes they say both of these things in the same interview.

Honestly, it is very easy to be confused by all of it.

The first thing to remember in all this chaos is that most TV and radio pundits, commentators, and commentators are not paid to give you good financial advice or accurate information. They are paid to get people to watch them.

Just because a person hits a cowbell on CNBC does not mean they are right… just that they are loud.

The second thing to remember is that even though the stock market may go on a short-term rollercoaster ride because of either market sentiment or overblown reactions to rumors, in the long-run, the market value is driven by its fundamental factors:

Earnings, Growth, Cash Flow, Book Value, Etc…

These items are the real core factors of a stock price. Always remember:

“Price is what you pay, value is what you get.” – Benjamin Graham

My Goal Here: My reason for writing this article is to cut through some of the hype about the Fed.

I would like to give you some real data on what the Fed has been doing and what they could do next. With this you should be able to make informed decisions about how their actions may affect your investment portfolio.

First, let’s take a quick look at what the Fed has actually been doing.

Starting in 2008, the FOMC felt that it needed to do something to stimulate the economy.  The U.S. was having a major financial crisis and we were in the greatest worldwide economic slowdown since the Great Depression.

The problem was that the FOMC’s weapon of choice, lowering interest rates, had already been used.  It was impossible to drop the rates lower than the near-zero rates already established.

They therefore decided to use option #2: Quantitative Easing (QE)

This program went out and bought bonds and financial liabilities from financial institutions (i.e. banks).

This is far different from normal Fed actions since they were directly buying debt from the financial institutions instead of indirectly affecting the markets by adjusting rates. This is a type of direct action that is rarely used by central banks.

The following programs were instituted by the FOMC since 2008:

Quantitative Easing (QE) 1 (Dec-2008 through Mar-2010)

During this program, the Federal Reserve bought $1.35 trillion in Mortgage Backed Securities and $300 billion in Treasury Securities from US Financial institutions.

Quantitative Easing (QE) 2 (Nov-2010 through June-2011)

The Fed purchased $300 billion in longer-dated treasuries from financial institutions.

Quantitative Easing (QE) 3 & 4 (Aug-2011 through ….. )

Effectively the FOMC converted to an ongoing policy of buying $40 billion in mortgage backed securities a month plus $45 billion in treasuries a month.  This program is planned to continue until the labor market improves “substantially”.

So why did they do this?

The basic idea is simple: By purchasing risky assets from the banks, they would be pushing large amounts of free money into the financial system.

Banks would then loan out this money to consumers as new mortgages (well… they were supposed to anyway) and also to companies for financing, etc…

All this cash floating around in the economy was supposed to have a profound impact: consumers would buy more, manufacturers would produce more, there would be much more job opportunities available for the discouraged unemployed, and the recession would end.

In short:

>> The Fed implements QE => drops cost of money loaned to banks to near 0%
>> Banks grab as much as they can for free
>> Banks are then supposed to loan money to companies, industries, and homeowners at record low rates
>> Consumer and companies would then be inclined to use the money (spending increases, demand goes up, productivity goes up, etc) => economy gets better due to the increased money flow

Unfortunately (at least from a consumer’s perspective), that isn’t what actually happened.

So, what actually happened?

The money did go into the banks as expected… but…

 

NOTE: The above is a preface a guest commentary, written by Doug Robertston, and revealed to our paid-up members on Tuesday, July 9, 2013. To get the full review of this particular resource, either login, or become a member

 

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Back to Square One in Egypt?

Posted July 7, 2013 at 5:49 pm

 

The Names Have Changed, But the Story is the Same
By Simon Black

[Editor's note: What follows is a letter that Simon Black
wrote from Egypt two years ago after the last 'revolution'.
The names have changed, but the story is the same.]

Originally published September 7, 2011 from Cairo, Egypt

Revolution. It’s a funny word when you think about it. In political terms, ‘revolution’ conjures images of heroes battling tyrants, of all-out forcible insurrection in the name of freedom and change.

From a celestial perspective, however, ‘revolution’ denotes one complete orbit of a planetary body around its center, as in the earth’s revolution around the sun. In other words, after a revolution, you end up right back where you started.

Same word, two completely different meanings– on one hand you have change, and on the other you have more of the same. This is exactly what has happened after Egypt’s revolution this year.

Sure, Hosni Mubarak is now standing trial after 3-decades of looting and pillaging his country’s wealth. For most Egyptians, this is viewed as a major victory; there is a feeling of intense optimism here on the streets of Cairo, and even though nothing is fundamentally different, expectations are high.

Mubarak was a symbol of tyranny, and a great deal of blood was shed to topple his regime. Unfortunately, Egyptians have essentially replaced one form of dictatorship with another.

There is now one person in charge of Egypt– military Supreme Commander Mohamed Hussein Tantawi.

Continue reading…

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A Tale of Two Markets (Guest Commentary)

Posted May 7, 2013 at 1:36 pm

by Doug Robertson
Guest Commentator

“It was the best of times, it was the worst  of times” – Charles Dickens, A tale of two cities  (1859)

Despite being written by Dickens in 1859,  these words seem to be amazingly descriptive of the markets right now.

Every day, I am being inundated with contradictory messages.  Just by flipping between the financial news  networks, I can be told in one breath that the markets are ready to crash down  and in another, that the current run is going to keep going forever.

We’re continuing to hear the extremists claiming,  ‘the world is falling, the world is falling’, yet the markets (most notably,  the S&P 500) are as high as they’ve ever been.

{ EDITORS NOTE: To remind  you of our view on these Chicken Little extremists, click here for an article written by M4 Research Co-Founder,  Barry Goss… }

So  what is it, the best of times or the worst of times?

It certainly can’t be both; and if the  market is going to crash, I want to get  out before it does.

Given the crazy way the markets are  behaving, this is a good question to be asking.

The hard part is giving a worthwhile answer  without just becoming another opinion in the crowd. Instead of telling you that  I think the market is going to crash or the Dow is going to 20,000, I am going  to walk you through some data and  hopefully get you thinking.

As a smart self-directed investor, I am going to leave you to make up your own  mind about what it means – perhaps with the help of your qualified  financial advisor.

I first want to look at the basic ‘things’  that make up the price of a share of stock – or, the stock’s value. Each share  of stock gives you a small piece of ownership in two things: company assets and  future cash flow.

The assets are easy to understand; just add up all the value in the company, the cash,  inventory, buildings, etc… and subtract out the liabilities.

The cash flow is a little trickier. This relies on people making assumptions about what will  happen in the future and often determines if a stock price is over- or undervalued.

By looking at these basic pieces of  information, we can get a sense of the  current relative value of the market and where it has room to move, either  up or down.

So, let’s take a look at the general  valuation of the S&P 500 Index in two different ways. We want to see how the market measures up today against  historical markets

 

NOTE: The above is a preface of a guest editorial contribution shared with Wealth Vault members on Tuesday, May 7, 2013. To get the full review of this particular resource, either login, or become a member

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Top hedge funds returning 25% to 30%, YTD

Posted November 19, 2012 at 5:44 pm

From MarketFolly
 
A WSJ interview with Greg Zuckerman highlights how hedge funds such as Appaloosa Management, Lone Pine Capital, and Tilden Park Capital are faring this year. 

Zuckerman of course wrote the popular book, The Greatest Trade Ever and has covered hedge funds for some time now.

Hedge Fund Returns Thus Far This Year

Appaloosa Management: Up 25% this year.  Zuckerman points to manager David Tepper’s ability to pivot correctly around bull/bear calls in the market.  While investors often consider him a distressed debt guy, he’s also made money on airline stocks and various equities.  Apparently he’s leaning bullish currently.

Lone Pine Capital: Up around 25% this year as well.  Zuckerman points to traditional stockpicking as Lone Pine’s main success with Steve Mandel owning winners such as Apple (AAPL) and Gap (GPS).

Tilden Park Capital: Up around 30% ytd due to a wager on the housing market improving by manager Josh Birnbaum.

CQS LLP: Up around 27% in their flagship fund.  Michael Hintze’s firm has been playing both debt and equity.

[ Details / Source: Above is our hand-picked KEY excerpt(s) from this full article: "Greg Zuckerman on Prominent Hedge Fund Returns This Year" ]

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19 reasons to be bullish on America

Posted September 19, 2012 at 3:50 pm

by Morgan Housel

What a mess.

More than 20 million Americans are unemployed or underemployed. Millions of them have been out of work for six months or longer.

Millions are underwater on their mortgages. Student loan debt is ballooning. American’s credit was downgraded last summer. The Census Bureau now counts nearly one in six Americans as living in poverty.

You can go on and on.

But, as Oscar Wilde said, “We’re all in the gutter, but some of us are looking at the stars.” Take off the doom goggles and look around, and you might see that America still has a lot going for it.

Here are 19 examples:

Optimism! The Bullish Case for America from The Motley Fool

 

 


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5 key reasons why the market will rise into 2013

Posted September 19, 2012 at 2:55 pm

by Michael Tarsala

Citigroup stock strategist Tobias Levkovich sees the S&P 500 rising another 12 percent to reach an all-time high of 1,615next year.

He still sees “substantive challenges”for the markets, including a shrinking European economy and the looming U.S. fiscal cliff.

Yet his reasons for optimism seem to rest on five key factors:

1) The economy and earnings will expand

Levkovich sees coming improvements in capital investment, industrial production, as well as employment. That should make for modest corporate earnings growth and sustained GDP growth.

2) Washington will find a way to play nice

There will be agreements to address the current fiscal imbalances, pretty much no matter who is in the White House next year.

3) Valuations are OK

Levkovich thinks that valuations support further index gains. His assumption is for forward PEs to rise to 14.9. See a related story on forward PEs that provides a different perspective as to why forward PEs may not stay near that mutliple.

4) The U.S. will remain the relative economic leader

Levkovich sees continued U.S. energy sector expansion, leadership in mobile devices, positive demographic factors and a continued housing recovery.

5) Pessimism reigns

One of the best times to be optimistic is when everyone else is pessimistic.  As Warren Buffett likes to say, be greedy when others are fearful. Levkovich sees no shortage of worries, but he also thinks that many are already priced in.

[ Details / Source:  Above is our hand-picked KEY excerpt(s) from this full article: "5 Reasons Citi is Bullish for 2013"]

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Facebook will thrive, just as Google has

Posted September 6, 2012 at 2:59 pm

by James Altucher

Jimmy Stuart @JStuartTweets: Facebook has an extremely uncertain future, with the outcome teetering from good extremes to bad ones. How does it end?

Answer:

Only the headlines say Facebook has an uncertain future. The headlines also said Fukishama radiation was going to hit San Francisco within days of the tsunami. The headlines also said Avian Flu was going to wipe out the world, or at least be a major epidemic? Well, where is Avian Flu?

And where are the apologies? How come the people who write the headlines never apologize when they are wrong? Thousands of people in San Francisco and the rest of Japan were scared to death because of the headlines created after the tsunami? Where are the apologies to those people? Where is Swine Flu? Where are the weapons of mass destruction?

Ok, and now people are saying a company with a billion addicted users that is also the website that people spend the most time on (compared with a billion other websites) is “teetering” on self-destruction.

I’ll tell you from my perspective. Not only do I spend a lot of time on Facebook but I advertise  on Facebook and I am an advisor or investor in several social media agencies that focus on Facebook and  I was also an investor in the largest social media agency.

Facebook is an enormous success and is going to continue to be. I am seeing them unveil new sources of revenue on a weekly basis. Do you notice the ad that is now there on the login page? It wasn’t there last week. Or the fact that brand pages with over 100,000 fans can now promote specific posts. That’s about a month old. Or the fact that there will be realtime bidding on Facebook ad units. That was mentioned on the conference call but I don’t think has been released yet. And then there’s mobile. Facebook is not going anywhere.

But I still see people saying “Mark Zuckerberg is not ready to be a CEO”. Are you kidding me? How many users did he build the site up to? Has anyone else ever done that in the history of the planet Earth? Let’s look at his latest achievement. The IPO. People say the IPO was a failure. Very funny.

He raised the great amount of money at the highest possible amount, with the lowest dilution, and paid a lower percentage of fees to Wall Street than any IPO before him. That’s a pretty amazing success. If you bought the IPO for a quick flip, sorry. You lost. But if you bought for the long run, you’re going to be a big winner. Even bigger if you buy now.

[ Details / Source: Above is our hand-picked KEY excerpt(s) from this full article: "Ask James: Failure, Success, Facebook, and How to Survive Your Darkest Moments"]

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Senior member of the Rothschild family bets big against the Euro

Posted August 19, 2012 at 2:02 pm

by James Quinn

The member of the banking dynasty has taken the position through RIT Capital Partners, the £1.9bn investment trust of which he is executive chairman.

The fact that the former investment banker, a senior member of the Rothschild family, has taken such a view will be seen as a further negative for the currency.

The latest omen follows news in The Daily Telegraph late last week that the government of Finland is already preparing for the euro’s break-up.

Sources close to RIT suggested that the position was not a dogmatic negative view on the euro as a currency, but rather a realistic approach on a currency that remains relatively weak.

Lord Rothschild is not alone in seeing value in shorting – or selling down – the euro. At a conference organised by business news channel CNBC in July, Mary Callahan Erdoes, head of JPMorgan Asset Management, said “shorting the euro” when asked for her single best investment idea.

[ Details / Source: Above is our hand-picked KEY excerpt(s) from this full article: "Lord Rothschild takes £130m bet against the euro"]

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