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The Death of the Euro

Posted June 27, 2011 at 10:30 am

via RMG Special Reports

It was a noble experiment. A confederation of nations with a history of making war comes together in peace to create a monetary union and share a common currency.  All constraints to trade within the union would disappear.  Populations and goods would cross borders and the result would be prosperity for everyone.

And it seemed to work…until now!

Unfortunately, the founders of the euro failed to take into account politics, geography and Europe’s history of nationalism. They failed to predict that differences in culture and language would keep the European economy fragmented and unequal despite a common currency and open borders.  Ask a Texan his nationality and he will inevitably say, “American.” Ask a Californian hers and she’ll say the same. But ask a German or Frenchman and the odds are good he or she will say “German” or “French”, not “European.”

Americans move all over the 50 states in search of work. And while Europeans can theoretically do the same, differences in language, culture and skill-sets make this kind of economic flexibility rare in practice. The problem with the European Union and the euro is simple: Greeks and Portuguese won’t move to Germany or France to capitalize on the booming sectors of the European economy and, more importantly, the Germans and French don’t want them to.

Before the euro, the weaker nations of Southern Europe would do what weaker nations always do: lower interest rates and weaken their currencies. This would accomplish two things: (1) make their debt cheaper in real terms, and (2) increase exports, boosting their domestic economies while providing more cash flow for debt service.  But, Portugal, Ireland, Italy, Greece, and Spain (the PIIGS) can’t do this anymore because they are not in control of their currencies. The European Central Bank (ECB) is.

The ECB is controlled by the two strongest members of the euro-zone: France and Germany.

France and Germany do not want a…

 

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Has the Bitcoin World Gone Crazy?

Posted June 20, 2011 at 3:56 am

by Jon Evans

I last wrote about Bitcoin less than a month ago. (If you’re one of the people who admitted in comments “I still don’t get it,” here’s a terrific and detailed explainer from The Economist.) Since then the value of Bitcoins has quadrupled—and then halved. The founder of Sweden’s Pirate Party moved all his savings into Bitcoin (which disappoints me; I had hoped they were buried on Oak Island) just as US Senator Charles Schumer attacked it as “an online form of money laundering.”

Malware designed to steal Bitcoin wallets has been seen in the wild, and in possibly related news, 25,000 Bitcoins were stolen a few days ago. Meanwhile, the virtual currency’s long-term stability has been seriously questioned … but does it really make any sense to think about any “long term” at all for Bitcoin, given the insane volatility of the last month?

Well, sort of. I concede it does look a bit like the lunatics, black-hats, and bubbleheads have conquered the asylum, but there’s nothing inherently crazy or shady about a distributed online currency.

What is kind of crazy is assuming that the first one that comes along will last and retain its value indefinitely, which is what almost everyone investing in Bitcoin is doing. (The rest are hoping to sell out to a greater fool, a strategy which admittedly made a few people wealthy during the South Seas tulip bubble and the dotcom boom, but—pretty much by definition—was a loser for most.)

Does Bitcoin have a long-term future? I strongly doubt it … but I expect that something like Bitcoin eventually will.

Right now, though, the fools and crazies are muddying the water, and inspiring somewhat-justified contempt like…

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With a rising dollar, do gold bugs need to seek cover?

Posted June 15, 2011 at 3:55 am

by Alexander Schachtel

The US dollar continues to sway in trading this week, down big against the Euro today after posting substantial comparative gains through most of last week.

Gold (NYSE:GLD) and Silver (NYSE:SLV) prices, which are generally thought to move inversely with the dollar, have shed some value in trading in that span of time.

Combine indicators signaling a possible slow-down in the Chinese Economy and an increasingly likely Greek -default scenario in Europe and you may see the dollar continue to rise against two of the world’s leading currencies.

So if the dollar finally starts to gain significant momentum, do the gold-bugs have reason to seek cover and latch on to other commodities? George Soros, the investment tycoon and philanthropist, recently sold the large majority of his funds’ holdings in Gold, having opined that the gold market is officially in a bubble.

As QE2 nears its end expect more inflationary pressure on the dollar to be lifted leading to further appreciation in the value of the greenback. It is starting to look like Soros is on the money once again.

All told, the future market prices for Gold (NYSE:GLD) and Silver (NYSE:SLV) may hinge more on the success of the current economic recovery than anything else.

Dollar prices will be more swayed by…

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Gartman Feels Party is Over For Gold

Posted June 12, 2011 at 7:45 pm

by Nicholas Larkin
via June 3rd Bloomberg Article

Dennis Gartman, the economist and editor of the Gartman Letter who correctly forecast 2008’s commodities slump, cut his gold position by half today and said yesterday’s drop makes him “nervous” that it may keep falling.

The metal fell as much 1.3 percent yesterday after earlier this week trading within 1.8 percent of the all-time high a month ago. Gartman cut his gold holdings in all currencies. Gold in euros and British pounds rose to records since last week.

“For the first time in a very, very long while, we are a good deal more nervous than we have been about the trend,” Gartman said in his Suffolk, Virginia-based Gartman Letter. “We fear that yesterday’s sharp break that took gold down to $1,520 in the veritable twinkling of an eye was the harbinger of even more severe weakness that might soon develop.”

Gold may fall “swiftly” to about $1,480 an ounce as early as the next few days, he wrote. Gold for immediate delivery dropped $6.27, or 0.4 percent, to $1,527.30 an ounce by 1:07 p.m. in London.

Gold has gained 7.4 percent this year and touched a record $1,577.57 an ounce on May 2 as faster inflation, Europe’s debt crisis, a weakening dollar and unrest in the Middle East and north Africa boosted demand for a protection of wealth. European Union and International Monetary Fund officials today complete a review of Greece’s plan for 78 billion euros ($113 billion) in asset sales and austerity measures as they prepare the nation’s second bailout in little more than a year.

Full article…

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A Formidable Doomsayer Who Sees Another Market Crash Ahead

Posted June 7, 2011 at 2:37 am

He’s the mutual fund manager with the best record in the past quarter-century, and he correctly predicted the last two stock market crashes. So why aren’t people listening when Bob Rodriguez says another calamity is looming?

by Mina Kimes

You have to see it from Bob Rodriguez’s perspective. Twice he has spotted an approaching storm. Twice he has warned the world. Twice he has been pooh-poohed and seen investors abandon the two mutual funds he managed. Twice he has taken steps to shield his clients from the coming crisis.
And twice — first with Internet stocks in the 1990s, and then with the financial crisis of 2008 — Rodriguez has been right.

As the latter cataclysm unfolded, the man once mocked for missing out on the hottest markets of his lifetime was anointed as a seer. The Wall Street Journal pronounced Rodriguez one of the “doomsayers who got it right.” Barron’s labeled him a “prophet.” MarketWatch described him as one of the “four horsemen of the market.”

Rodriguez, the CEO of $16 billion money management firm First Pacific Advisors, isn’t the type to be satisfied with being right (though he’s certainly not above that particular pleasure). He’s seemingly compelled to share the hard truth. It’s as if he has this terrible gift, and with that comes the obligation to tell the world when calamity is on the horizon.

So when he was invited to address more than 1,000 mutual fund managers at a conference held by Morningstar in May 2009 — just when it looked as if the crisis had finally abated — Rodriguez gave himself only a brief pat on the back. Then he launched into a tirade, ripping into all of the parties involved in the meltdown.

Fund managers, he said, had “stunk.” The federal stimulus programs were foolish and shortsighted, and regulators had lost all credibility. Worst of all, he said, was the ballooning U.S. debt, which had prompted him to stop buying long-term bonds from the “irresponsible and fiscally inept government.”

He continued in that fiery vein for almost an hour. When he was done, he stared out into an awkward and complete silence. Then it came: a thunderous standing ovation from the very fund managers he had just excoriated.

Rodriguez is an anomaly in the sunny world of mutual funds, where the typical manager is…

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When to Sell Gold or Gold Shares

Posted June 7, 2011 at 1:17 am

by Emily Knapp

This year, market-guru George Soros dumped around $800 million of Gold (NYSE:GLD). Now people are wondering if it might be time to jump ship. If Soros is getting out now, what does that say for the future of the gold market?

While it’s true gold (NYSE:GLD) has been bullish for a 12-year run now, and that one should expect the floor to fall out at some point, that’s unlikely to happen before it hits its blow-out phase, when share prices will go through the roof. Until that happens, there is still more money to be made.

In July 1999, gold (NYSE:GLD) hit a 20-year low at $252.80 an ounce, but since then it has steadily recovered, reaching a record high of $1,575.79 an ounce — that’s a 623.23% increase in value over 12 years.

If you bought in in 1999, maybe you’re ready to sell as you kick back on your yacht in the south of France and fan yourself with crisp hundreds. Selling too soon at least avoids the risk of selling too late.

For gold (NYSE:GLD) to move into bubble territory, we’ll have to see a…

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The New Banks of America

Posted June 2, 2011 at 2:19 am

As the Feds put the squeeze on traditional banks, payday loan lenders stand to benefit.

by Danny Miller

For some time now we have been big fans of the pawn broker/payday loan lending industry. Often times they get a bad rap (sometimes deservedly) for “preying” on the lower income class who aren’t always able to get a short term loan or open a checking account with a traditional bank.

In recent years the industry has grown by leaps and bounds as the financial crisis spread its tentacles up and down Main St. and unemployment grew. The price increases in precious metals such as gold and silver has been a boon as well.
 
Companies like $EZPW, $FCFS, $WRLD and $CSH have prospered from the current economic climate (in the U.S. and abroad) by stepping in to fill the void left by the “old” banks who have either gone under or made it harder to get a quick loan…and this has not gone unnoticed.

Politicians have always kept a close eye on the payday loan lending industry, and like clockwork have stepped up their game recently, most notably in Austin, TX.
 
With payday loan lenders in the spotlight again, many have forgotten that D.C. has also created legislation to put the clamps down on traditional banks.

Full story…

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Performance, YTD, For The World’s 7 Largest Economies

Posted May 26, 2011 at 3:50 am

by Gary Gordon

Equity market performance for the world’s 7 largest economies hasn’t exactly been awe-inspiring. Then again, it has been far better than a sharp stick in the eye.

Here’s the tale of the tape through 5/25:

7 Largest Economies With Their Corresponding ETFs
Approx YTD %
U.S S&P 500 SPDR Trust (SPY) 5.7%
European Union iShares MSCI EMU (EZU) 8.4%
China SPDR S&P China (GXC) 2.9%
Japan iShares MSCI Japan (EWJ) -8.3%
United Kingdom iShares MSCI United Kingdom (EWU) 3.7%
Brazil iShares MSCI Brazil (EWZ) -6.9%
Canada iShares MSCI Canada (EWC) 4.6%

 

Even reviewing the results leads me back to the oldest financial cliche. Specifically, past performance does not guarantee future performance.

Consider the Eurozone. Initially, investors capitalized on U.S. dollar devaluation against the euro-dollar as well as a modicum of mature stock market resiliency. As the months drag on, however, the region’s string of debt downgrades and back-breaking stagflation are taking a toll; the euro-dollar has lost roughly -5.5% against the greenback in less than 4 weeks.

How confident should an investor be that EZU will bounce higher anytime soon?

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Is the Chinese market nothing more than a gambling den?

Posted May 25, 2011 at 1:50 pm

by Jeff Macke

China’s growth is slowing. At this point even the Chinese are willing to confess to that, albeit to a muted degree.

Alas, first-hand accounts of what’s really going on behind the… ahem… Great Wall are harder to find. That’s why Breakout went to Simon Baker. The original Friend of Breakout is not only a snappy-dressing Brit, he’s also the head of Baker Avenue Asset Management. He is an insightful investor with a track record to prove it.

Baker is fresh back from China, and the message he’s bringing isn’t likely to comfort advocates of the Chinese growth story. Baker “visited 16 companies… Solar companies, chicken companies, cement companies across six provinces. It was consistently the same message:

We were lied to.

For the sake of clarity, the “we” in question consists of Baker and eight other officially “sophisticated” investors; the liars were Chinese companies and their management.

This isn’t jingoism, conspiracy theorizing or xenophobia talking. Baker’s been there, brought…

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A new laptop that has the potential to change the industry

Posted May 24, 2011 at 1:54 am

by  Anton Wahlman

The formal name for the laptop is the Samsung Series 5 Chromebook from Google (GOOG), and it will be available from Amazon (AMZN) and Best Buy (BBY) starting June 15.

The WiFi-only version will be $429, and the version that includes Verizon EV-DO service will be $499.

There are some people in this world who like to spend a lot of time hacking and tinkering with their computers. They take pride in how many hours or days per week that they can tune their application installs, tweak their antivirus settings and re-architect their various backup methodologies. Often enough, these people also wipe their PCs clean and reinstall all of their stuff — and they love it, the more often, the merrier.

These people are equivalent to those in the car world who love to get under the hood and fix problems. If they can spend their entire weekends getting under their cars with tools, fixing and upgrading, they’re in heaven.

We all know who these people are. Some believe they constitute 1% of the population, others estimate they are closer to 20%.

If you’re one of those 1% or 20% of the population, the Samsung Series 5 Chromebook isn’t for you.

But if you are part of the other 80% or 99% of the population, the Samsung Series 5 Chromebook is your dream laptop. You’re the kind of person who absolutely hates things such as car problems or malfunctioning computers.

You would rather go to the…

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