Why Japan’s new home run king forebodes the biggest default in history

Posted October 6, 2013 at 10:00 am

By Simon Black

Suicide has long played a bizarre role in Japanese culture.

In feudal Japan, for example, dishonored samurai would often commit seppuku, a suicide ritual that involved ceremonial disembowelment. It was torturous pain lasting for hours.

In World War II, the Japanese military churned out suicide attackers known as the kamikaze that routinely antagonized allied warships in the Pacific.

And of course, citizens in Hiroshima and Nagasaki simply went back into their homes and waited to become burnt toast despite ample warnings from the US military.

Even after the Fukishima disaster, TEPCO employees went rushing back into deadly levels of radiation exposure in what could only be characterized as a suicide mission.

Despite the obvious prospect of certain death, the Japanese collective still did what was expected of them by the state. Even if it meant roasting alive under a mushroom cloud.

This fierce commitment to the nation has often been abused by the Japanese government which disposed of its people like kindling. It’s the same today.

Looking purely at the numbers, Japan’s medium-term fundamentals are among the bleakest in the world.

Total government debt amounts to over 200% of the country’s entire GDP– a figure so large that the Japanese government spends 51.5% of the 43 trillion yen ($430 billion) they collect in tax revenue just to pay interest!

Perhaps even more astounding is that ‘primary balance expenses,’ i.e. normal government expenditures, totaled 70.3 trillion yen, or 163% of tax revenue.

The only way they’ve managed to stay afloat is by issuing more debt, which makes the problem even worse. In fact, 46% of the 2013 budget is being financed by debt.

These guys are running out of rope. And fast.

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New $100 Bills Worth up to $15,000

Posted October 4, 2013 at 8:00 am

By Alan Farnham | ABC News Blogs

When the Federal Reserve Board releases its new, redesigned $100 bills on October 8, how much do you suppose they’ll each be worth? For some of them, much more than $100.

Depending on their serial numbers, their value to currency-collectors could go as high as $15,000 each, according to the Boston Globe.

The Globe explains that collectors view certain 8-digit serial numbers as “fancier” (meaning more rare, and thus more collectible) than others. The fanciest numbers, according to collectors, include ones exceptionally low: A new $100 bill with the serial number 00000001, for example, might fetch up to $15,000.

There will be more than one such bill, because each issuing Federal Reserve Bank prefaces the serial number with a letter code designating which bank produced the bill.

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5 ways the federal shutdown affects you

Posted October 2, 2013 at 12:48 pm

By Quentin Fottrell

The federal government is closed for business due to the inability of lawmakers to reach a deal before Monday’s midnight deadline. As a result, hundreds of thousands of federal workers will likely be put on unpaid leave. (In 1995, 800,000 federal workers were told to stay home.) “If you get your paycheck from the government directly or indirectly as a contractor, you might get furloughed,” says Charles Sizemore, a financial adviser based in Dallas.

Despite a suspension in so many government jobs, others will continue without much interference. For instance, the U.S. Postal Service — which is not funded by the Treasury — will still send out mail. Social Security, Medicare and Medicaid will also continue as they are considered essential services by the government.

The State Department will also continue processing foreign and U.S. applications for visas and U.S. applications for passports, according to an internal memo. The shutdown is only partial and could be a lot worse, says David Hefty, CEO of Hefty Wealth Partners in Auburn, Ind. “Essential emergency support services will also be available,” he says. “This isn’t a default.”

Here are 5 ways a shutdown could impact you…

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Singapore Central Bank lost 87% of GDP growth fighting Bernanke

Posted September 12, 2013 at 10:00 am

By Simon Black

Signapore's Central BankA few months ago, the Monetary Authority of Singapore (MAS), the country’s central bank, released its annual report for the fiscal year ending 31 March 2013.

And the results were ‘shocking’, at least for those of us who read central bank annual reports cover to cover like a Harry Potter novel.

The bottom line for MAS showed a mind-boggling S$10.2 BILLION loss (roughly $8 billion USD), about as much as General Motors lost in its worst year.

This is the antithesis of what one would expect from Asia’s dominant financial center. And it begs the question– how can a central bank, which has the power to conjure money out of thin air, even suffer a loss, let alone such a heavy one?

Simple. MAS was desperately trying to hold back the Singapore dollar’s rise against the US dollar.

Because Singapore is a trade-based economy and the US dollar is so central in international trade as the world’s reserve currency, MAS has been trying to keep the Singapore dollar somewhat restrained vs. the US dollar.

Essentially MAS was buying US dollars and then intentionally selling them at a lower price in order to create artificial demand for US dollars.

This was a completely failed strategy.

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The 12 American Universities That Produce the Most CEOs

Posted September 10, 2013 at 10:00 am

By Peter Jacobs

American Universities that Produce the Most CEOs

If you want to be the Chief Executive Officer of a major company, where you went to school matters, according to a new list from Times Higher Education.

THE recently compiled a list of the universities around the world that produce the most CEOs, based on the alma maters of Fortune Global 500 CEOs.

From the list and speaking with both academics and businesspeople, THE found that — regardless of your major — “the presence of the right institution on your CV reassures potential employers about your likely aptitude for the job.”

According to THE’s methodology, university rankings were determined using “the total number of degrees awarded to CEOs; the total number of CEO alumni; [and] the total revenue of the alumni CEOs’ companies.”

We’ve included all of this information for the top American schools, as well as the U.S. News and World Report’s rankings of undergraduate and graduate business programs. We have also included a few CEO alumni from every school on our list. 

Harvard topped THE’s list — both for international and American universities. The school has 25 alumni CEOs currently, more than double the next American university on the list.

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The 3 Most Dangerous Regions In The World

Posted August 31, 2013 at 10:00 am

By Elliott Morss

Investors should always be looking ahead and asking how foreseeable events will affect their holdings. In this article, I identify three regions where serious trouble affecting the world is most likely to occur:

  • The Middle East
  • India/Pakistan
  • The Eurozone

Conclusions and Investment Implications

The world is a dangerous place. The Middle East is close to getting completely out of hand. India, with its rising population and lack of effective governance, could become a global burden. And Europe is recovering? Nonsense.

My conclusion: the US is the safest place for your money. The market has sold  off a bit recently out of fear the Fed will stop buying bonds. That is completely the wrong way to look at the issue. Look at the Fed’s track record.

It has made tremendous efforts to get the recovery going in the absence of an  effective fiscal stimulus because of D.C. gridlock. It is not going to do anything to imperil this.

The Fed’s decision to cut back on bond-buying should be viewed as good news: it will mean the economic recovery is gaining momentum and is sustainable on its own.

See full article and analysis…

safest place for your money

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What Investors Should Think of Japan’s Gross Public Debt Passing One Quadrillion Yen

Posted August 18, 2013 at 10:00 am

By Fisher Investments

One quadrillion. That’s one thousand trillions. One million billions. One billion millions. It’s also, as of June 30, the size of Japan’s total outstanding debt in yen. Or, based on Monday’s preliminary estimate of Q2 output, 206% of GDP.

Some suggest this is evidence Japan is in dire need of, um, a sales tax hike. In our view, it underscores how vital structural economic reform is to Japan’s future—without it, Japan’s economy and equity markets likely face a tough road.

First, let’s get one thing clear: Japan doesn’t necessarily have a debt problem. For one, that one quadrillion refers to Japan’s gross public debt.

Net public debt, which excludes debt owned by the government and the BOJ, is only about ¥815 trillion, or 166% of GDP. Exclude debt held by state-run banking behemoth Japan Post, too, and the tally falls to about ¥676 trillion, or 142% of GDP (both as of 3/31/2013—the latest available Japan Post data). Still really big, but the cost of servicing it is manageable.

Current yields on Japanese Government Bonds (JGBs) range from 0.2% (two-year) to 1.87% (40-year). Per fiscal 2013’s draft budget, debt service will comprise 24% of the budget—the same as in 2000—and total about 4.5% of GDP. Yes, it is far higher as a share of expected tax revenue (about 51.6%), but with demand for JGBs still robust, the government isn’t in danger of missing obligations any time soon. Or, simply, Japan isn’t Greece.

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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?

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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.

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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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