Silent Archimedes

Posts Tagged ‘dollar’

Opinion: It’s time for Dick Cheney to just leave quietly

Posted by silentarchimedes on January 8, 2009

The VP and P

The VP and P

Another story from the arrogance and incompetence of the Bush administration. Today, Vice President Dick Cheney was quoted in an AP interview,

In an interview with The Associated Press, Cheney also said that Bush has no need to apologize for not foreseeing the economic crisis.

“I don’t think he needs to apologize. I think what he needed to do is take bold, aggressive action and he has,” Cheney said. “I don’t think anybody saw it coming.”

The last part is what really got me mad. A LOT, and I mean A LOT of people saw this economic crisis coming. Let’s take a quick look at some of the groups of people that saw this coming:

1. Gold bugs – Gold investors have been preparing for this economic crisis since the crash of the dot com era. Gold has steadily risen from the mid $200s/oz to a high of $1000/oz, and now at ~$850/oz today.

2. Currency investors – The euro to dollar ratio was at 0.85 at the beginning of the dot-com crash in 2001. Since then it has flipped and risen so quickly to 1.60 in early 2008. Most people familiar with the dollar index, fiat currencies and supply/demand saw this as a huge omen of future economic turmoil. It was only a matter of when.

3. Housing investors – The term housing bubble was surmised to be occurring well before the height of the housing bubble. Many people burned by the dot-com era and became fiscally responsible saw the non-stop rise in housing prices as a major deja vu.

4. Economists – There have been so many books written on this exact economic crisis in the past ten years, of which two have been reviewed on this blog (Crash Proof, The Coming Economic Collapse). Anyone who has read one of these books realized that the American economic system has been living on borrowed time and money.

5. Historians – History comes in cycles because the leaders don’t learn from history. The Iraq War and the recession afterwards first played in the first Bush administration. Instead of learning from it, the younger Bush repeated the exact same historical events.

6. Most sane people – I saw this economic crisis coming a few years ago when I started reading about the US economic system. A lot of my friends saw it coming. A lot of people knew that we only got out of the tiny recession after the dot-com crash and 9/11 because Greenspan and the Feds loosened the credit spigot and money-printing machine. What ensued was the housing bubble and more mortgaging of America’s future.

If all these people, including lots and lots of Americans saw the economic crisis coming, you are telling me the Feds and the economists that govern this country didn’t see it coming? Please… They just chose to look the other way. Why not? They are rich. There is no accountability. Leave it to the next administration or future generations to clean up the mess.

It’s really absurd that Dick Cheney deflects the Bush administration’s responsibilities by claiming that NO ONE SAW IT COMING. To put it nicely, the arrogance, narrow-mindedness and stupidity of the outgoing administration continues. The Bush administration continues to hope that in time history will judge them nicely, but I believe this second recession under their watch pretty much locks in their incompetence regardless of how well Iraq or Afghanistan turn out.

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Posted in Economics, Opinion, Politics | Tagged: , , , , , , , , , , , , , , , , , , , , , , | 2 Comments »

Commentary: What’s next for gold, the Dollar, U.S. economy and inflation?

Posted by silentarchimedes on October 28, 2008

Gold, Gold, Gold

Gold, Gold, Gold

The economic turmoil the past two months has sent some very mixed signals to people who do not fully understand the commodities market cycles and global economic forces. The global economic train is now in the midst of a long and dark recession tunnel. The actions taken by the large economies of the world, such as the United States, and European countries, the past two months have made the average investor skittish and scared. They see stalwart financial companies like AIG, Wachovia, Washington Mutual and General Electric either crash and burn or bought out by other companies or halved in price.  Their 401Ks, Roth IRAs and other investment accounts tumbled. To make matters worse, they see high crude oil prices that had peaked above $140/barrel go on a crash dive to barely above $60. Wasn’t the global demand of oil, especially from China, India and other emerging markets suppose to keep gas prices above $4.00 for good? Now they are back well below $3.00. Other commodity prices, such as silver, copper and platinum followed suit. All tanked from multi-year highs just reached not long ago this year.

However, contradicting this gloomy wave of news was the ‘strengthening’ of the U.S. dollar and the 30%-plus drop of gold prices. Gold was supposed to be seen as the safe haven when things go bad.  Well, now things are really bad so why is gold also dropping? And why is the dollar strengthening when the U.S. economy is tanking? How can this be? In the simplest explanation, although quite wrong and unsubstantiated, was that the commodity bubble had bursted. Gold dropped because the demand for commodities was over. Many people began believing this and even some gold bugs were confounded by what was going on.

Their is a very simple explanation for it, and all the reasons for the dollar strengthening and gold prices crashing are all temporary. As a matter of fact, it provides the best opportunity to buy gold in several years. The recession is in much deeper quicker than anyone thought. Many investors are being forced to sell even their safest haven assets in order to cover for their losses on the risky side, such as stocks, houses, hedging, etc. This includes the liquidation of gold. They do not want to do this but are forced to. This is a major factor in the instability on the down side of gold. Second, the safest non-gold haven for money is U.S. Treasuries. They are one of the only things that guarantee still a net positive return, albeit a small interest rate, at this juncture in the economy. Countries have no choice but to buy more Treasuries because the faith in other fiat currencies is still not strong enough since this is a global recession. This temporary strength in the dollar against other fiat currencies also has a downward push on gold prices and other commodity prices since they are all priced in the dollar. That means $100 now buys more gold than before.

The thing is these two actions are only temporary. These actions are only to save the global recession from a global depression right now. These are short-term reactions to a longer term problem. These actions are known as deleveraging. It is allowing the new economic state to take root. It is a finite process and will soon come to an end. Why? The federal reserve continues to pump lots of new unbacked dollars into the economy. And the $700 billion dollar bailout begins this week. The Feds announced that they will give the initial $125 billion dollars to nine banks. What does this all mean? INFLATION! And soon, HYPER-INFLATION. U.S. Treasuries will have no choice but to increase their interest rates in order for countries to continue buying them. Mortgage rates will rise, as they already are, even though recession takes root. The dollar will reverse trend and weaken due to inflationary pressures. More dollars will come home to roost from other countries. What does all this mean? Gold will rise, rise, rise.

Update 6:15pm: So the Dow Jones goes up 890 points (10.88%) today, with the NASDAQ and S&P500 posting similar percentage increases today. The two main reasons for such a historic rise (second largest point increase of Dow Jones ever) is due to bargain hunters and an expected interest rate cut by the Federal Reserve. Although the cut might help in the credit and liquidity crisis, this is another long-term inflationary signal. If Treasuries have lower interest rates, who will buy them? More Dollars will come back to America, which means a weaker dollar. Although this might help the current local minimum (credit and liquidity), the entire graph continues to head towards a weaker dollar and a continuation of the commodities bull market and a rise in gold prices.

Disclaimer: This is a commentary by an amateur investor and is not meant to be taken as professional advice.

Posted in Economics, Opinion | Tagged: , , , , , , , , , , , , , , , , , , , , | 2 Comments »

Book Review: Crash Proof

Posted by silentarchimedes on July 10, 2008

Book Review: Crash Proof

How to Profit from the Coming Economic Collapse

Author: Peter Schiff with John Downes

After seeing the striking similarities between Stephen Leeb’s The Coming Economic Collapse: How you can thrive when oil costs $200 a barrel and Jim Rogers’ Hot Commodities: How anyone can invest in the world’s best market, I decided to read one more book on this topic to verify the similarities. The first two books, in simple terms, describes the American economy as teetering on a precarious cliff due to horrible economic policies that have stripped it of its purchasing power and flexibility from a mountain of debt. With the growth of China and the East, prices of raw materials such as oil and metals are skyrocketing. This will only hurt the American economy as our current standard of living requires huge amounts of oil and imports. However, we are required to use our future earnings to continue this consumptive economy.

In all likelihood, this book will basically say the same things as the other two books. However, it will be interesting to see how it is presented and if a more convincing argument is used.

THE AUTHOR: PETER D. SCHIFF

Peter Schiff doesn’t have as much clout as a Jim Rogers, but nonetheless is well-known in the business world. He has the nickname “Dr. Doom” because of his extremely bearish views on the U.S. economy and the U.S. dollar. He is currently the president of Euro Pacific Capital Inc., a brokerage firm that specializes in international investments. Schiff became the economic advisor to Ron Paul in his presidential campaign because of Paul’s commitment to constitutional values to stimulate savings and production.

THE REVIEW

As expected, the book’s general cause and effect of why we are in this economic state are the same as other recent books on economic gloom. That is not to say this book is unoriginal, as some people have mentioned in the Amazon reviews. Since this is the third book on the topic I’ve read recently, I might be inclined to label it unoriginal, but that’s being unfair. I could easily have read this book first. Additionally, I am not reading these books for originality. As mentioned, having three experts (and I’m sure lots more because of the books out there) write books on the same dour predictions due to the same causes, should make one take action. I am also interested in reading about the suggestions of each of them; whether they are the same or different.

That being said, this book definitely has its own unique style of conveying its arguments. The first three chapters are very fun to read. This historical perspective on how our country went from producers to consumers, how the government massages economic data to its own benefit, and how the dollar has declined is written with simplicity, logic and a wry humor. Schiff is the master of analogies and simple stories to demonstrate how stupid some of the economic actions are in this country. If you are not an expert at economics these chapters will clear up some confusion you have about debt, economic indicators, and the state we are in. The stories using Farmer Chin and Farmer Smith to explain how China is buying our wealth makes it easy to understand.

On our consumptive behavior, he equates it “to a philandering playboy who inherits a huge fortune and then proceeds to squander it. during the dissipation period, he lives a good life, and by all appearances he seems prosperous. but his prosperity is a function of the hard work of his ancestors rather than his own. once the fortune is gone, so too will be the gracious lifestyle that it helped support.”

In the second chapter, sections are divided by “comforting distortions” and “disturbing realities” to differentiate what the government wants the public to perceive about the well-being of the economy and what the actual reality is.

I’m not sure why, but Schiff goes away from his fun use of analogies and stories. It becomes a little more technical and dry in the chapters where he explains inflation, stock market chaos, real estate, and debt. It’s unfortunate, because the first three chapters rank as one of the best I’ve read. Experts will probably reverse my views with these two sections, but as a pseudo-beginning contrarian, the first three chapters cleared many things up for me.

His last three chapters are reserved for what you should do to protect yourself against the upcoming crisis. Nothing too crazy here, although Schiff is more on the conservative side than a Rogers or Leeb. Investing in gold is still the common theme in all three of them. The other two are less commonly suggested but still make sense. His advice is general and not so in depth.

This book is pretty much in line with other books I have read about the upcoming economic crisis. They help confirm the dire situation we are in. However, there are some negatives about this book that leave it open for criticism. Although this book has lots of charts and graphs, the source of them are all from the same website, prudentbear.com. By using only one source, and that source being well known as always being bearish (their phrase is “The One Stop Shop for the Bear Case”), it leaves an atmosphere of bias. He should have used more sources, especially those coming from the government and neutral sources. Additionally, every few pages in the book, he reminds the reader that he will later give advice on how to protect yourself from the crisis. We know that! Almost everyone reading this book reads it for the advice given. You don’t have to keep reminding us. Finally, during his last three chapters, there is a constant stream of subtle to not-so-subtle pressure to sign up with his investment group, Euro Pacific Capital, Inc. Talking about it once is enough. If we believe in what the book is preaching, we will naturally consider the author’s company when we do invest.

VERDICT

This book is not for experts or those that are already truly in the know about the economic situation of this country. Just from the title, it’s apparent he is trying to capture readers unaware of the situation. If you are still trying to understand the problems, this book is easy and fun to read. The first three chapters definitely stand out; not just in this book but in other books I’ve read. In terms of advice, the Roger’s book Hot Commodities ranks first (although all of them are in commodities). In terms of specific advice, Leeb’s book The Coming Economic Collapse gives more only because he is allowed to legally. Since Schiff is an investment advisor for a specific company he cannot give specific stock advice. Without the first three chapters, I would rate this book lower, but with it, it’s a good book to read overall.

Rating: 8 out of 10 bears

Posted in Books, Economics, Opinion, Reviews | Tagged: , , , , , , , , , | 3 Comments »