Silent Archimedes

Posts Tagged ‘gold’

Is gold ready to break out after today’s rise?

Posted by silentarchimedes on January 23, 2009

What’s going on with gold today? Gold prices touched above $900/oz today and by mid-noon was trading over $40 higher to $899 an ounce on February deliveries. The highest levels since October of 2008. As of 12:52pm, the SPDR GLD is up over $4.00 to above $88 (4.00+%). The volume of 24 million at 1pm is already twice as much as the average daily volume of 12 million. What is also surprising is that the EURO to Dollar index is dropping today, signifying a strengthening US Dollar. In most cases, these two measures should move inversely proportional to each other (Well, technically, gold rises when the EURUSD=X also rises). So what to make of this move today?

One, it’s easy to say that the huge movement up is all due to the stream of negative economic news. Most daunting was the release of Britain’s GDP, showing the country’s most severe contraction in nearly 29 years. Which also officially pulled the UK into a recession. Additionally, bad earnings from a stream of companies have made today a safe-haven buying day, which lends credence to why both the gold and silver prices are rising, and why the US Dollar is also rising, due to an influx in US Treasuries buying.

However, there are two technical signals that are also resonating quite nicely with the tech gold bugs. Let’s first look at the trading band GLD has been trading in since it’s low back in Nov 2008. I have drawn in the magenta bottom trading boundary which GLD prices essentially hit three times (11/08, 12/08 and 01/09). I have also drawn in the magenta top trading boundary which GLD prices hit twice (end of 11/08, 12/08). In order to keep within this linear rising trading band, GLD would have had to make a move to the upside in the next week or two. Today’s rise only keeps GLD within this trading band and does not signify a breakout. However, because it is a rising trading band, then that bodes well that GLD will continue to rise in the coming weeks. Should it break above the top trading band, we might see a very strong move upwards and well past $100/share. If it breaks below the bottom trading band, then the fundamental breaks and we can see GLD once again test its lows in Nov 2008. Because there is strong buying interest today, this bodes well for GLD.

GLD trading band since Nov 2008 low

GLD trading band since Nov 2008 low

The second bullish signal might prove stronger than the above signal. Let’s look at the 50-day EMA and the 200-day EMA for GLD since 2005. Something is happening here that hasn’t been seen since September of 2005 when gold began it’s next bullish leg up from the $400s/oz to $1000/oz. The 50-day EMA breaking above the 200-day EMA. Although the below chart does not show it, today’s bounce up definitely will push the 50-EMA above the 200-EMA. This is a strong signal and it is coupled with strong volume, which shows buying conviction on the upside. When two long EMAs cross each other they signal long-term trends. You can see that when the 50-EMA crossed under the 200-EMA back in Sept of 2008, GLD dropped for a few months. This break back above 200-EMA could signal strong upside for GLD prices. Coupled with the trading band shown in the first chart, and we major bullish signals for gold in the next few weeks. As in my 2009 Predictions in my previous post, I expect gold to top $1000/oz at some point this year, possibly in February.

Have fun!

GLD 50-EMA ready to pass 200-EMA

GLD 50-EMA ready to pass 200-EMA

Posted in Economics, Observations, Opinion, Science and Math | Tagged: , , , , , , , , , , , | Leave a Comment »

My 2009 Predictions

Posted by silentarchimedes on January 22, 2009

Here are my 2009 predictions. None that are too far out there. Just a basic assessment of what I think might happen in 2009.

POLITICS

Barack the Celebrity

Barack the Celebrity

Obama’s approval ratings remain historically high but lower than the inauguration euphoria – Obama’s ability to inspire change and leadership at such a dour time in America gives him public leeway not seen since, well, 9/11. However, Obama’s pragmatism will help him keep the country on course and inspired throughout 2009. He has already made key changes in ethics regulations and state diplomacy in his first days in office. The only thing that will stop him will be… Congress.

Don’t expect much from Congress – Congress had lower approval ratings than President Bush in 2008, even with the Democratic majority and push for change. Expect the same from Pelosi and Reid, who are not strong leaders and have plenty of personal ambitions to prove Congressional strength to the Executive strength. Couple with the Republicans fight for relevancy, expect a 2009 of posturing and tit-for-tats. 2010 seems like a better year for Congress because the public will side with Obama over the frustrating bureaucracy in Congress in 2009.

ECONOMICS

The market moves sideways – There will be strong forces pulling the economy from both the recession side and the growth side. It is what I call the economic paradox. As the economy falls, oil prices drop and the US Dollar rises (somewhat surprisingly). However, as global growth resumes, oil demand and  commodity prices rise again and the US Dollar falls (since investors will begin investing in riskier assets instead of US Treasuries). Both are problems for America. Obama seems focused on passing bills and bailouts that will help light a fire under the economy, especially job market. However, the more he does the more inflation becomes a risk. Expect several major rises and several major slides, but by the end of 2009, the Dow Jones will still be in the 7500-9000 range.

Gold surpasses $1000/oz again – Because of the economic paradox, gold will continue to maintain its safe haven status in 2009. One of these days, gold will surpass $1000/oz again. In looking at the GLD chart, gold hit a low in mid-Nov 08 and has since built a nice rising linear resistance that it bounded in early Dec 08 and mid Jan 09. If gold breaks the upper linear resistance of $900/oz expect $1000/oz in Feb 09. If it does not expect a pullback. Aside from the technicals, 2009 is still a year of unforeseen economic strife and that will keep the price of gold high. Depending on where the economic paradox is at the end of 2009, gold will either be well above $1000/oz or testing it’s multi-year lows of $700/oz again.

Gold (GLD) prices from Jan 2008 to Jan 2009

Gold (GLD) prices from Jan 2008 to Jan 2009 (12-EMA green, 50-EMA red)

There will only be one viable American automaker by year’s end – The Big Three is already, in essence, the Small Two. Chrysler’s recent gift of 35% stake to Fiat for its access to technology and services is a desperation move to prove to the U.S. government that it has a viable plan to survive. However, the U.S. government is not going to perpetually support a half-foreign owned company at taxpayers expense. As for GM and Ford, 2009 will still be a very tough market. Any uptick by buyers will simply be for fuel efficient cars built by Toyota, Honda and even Hyundai. GM is effectively surviving on federal assistance, which runs out every few months. A radical solution has to found soon. Don’t fret though, because of the uniqueness of this market, hopes abound for small automakers that can make a difference in “green” vehicles.

SPORTS

yankeesYankees back in business – Sorry non-Yankees fans, but 2009 is appearing to be the Year of the Yankees. A new stadium, a team salary in excess of $200 million, a re-focused Arod with Mark Texeira pushing him, injury free Posada, Matsui and Chamberlain? It’s gonna be a great three-team AL East battle all summer. Yankees will win the division and make it to the World Series once again.

Posted in Economics, List, Opinion, Politics, Sports | Tagged: , , , , , , , , , , , , , , , | 1 Comment »

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.

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

2008 Year in Review – Top 10 in Finance

Posted by silentarchimedes on December 22, 2008

Let’s get right to it.

10. Yahoo rejects Microsoft’s $45 billion takeover offer – February 11, 2008. This one has to rank as one of the most stupid business decisions ever. Since Yahoo practically started the internet search business back in the 1990s, they have quickly given up their dominant position to Google in the past ten years without a major fight. By the middle of 2007, Google had a 53.6% market share of the search engine business, versus Yahoo’s rapidly shrinking 19.9%. Microsoft’s $44.6 billion in cash and stock offer was literally a lifeboat and gave Yahoo the best chance for long-term survival. Yahoo rejected the offer and a later offer in May valued each Yahoo share price at $33. Yahoo’s share price had been languishing around $19 in recent years. Yahoo’s CEO and founder Jerry Yang demanded $37/shr! Eventually Microsoft got tired of Yahoo’s demands and pulled all negotiations off the table. What is Yahoo today, end of 2008? The share price is $13.03 and Yang was ousted in November. Although Microsoft still has lukewarm interest in Yahoo’s search business, the main opportunity for Yahoo has passed.

9. Housing prices continue to go down town - It’s amazing how so many analysts and normal people knew that the meteoric rise of housing prices was due to risky ARMs and other loans that were impractical and ticking time bombs. It’s amazing the federal government did not see this coming or chose to not do anything about it. Because of the dot com bust from a few years ago and the recession soon after, the Feds turned a blind eye and let free credit run rampant. The bomb went off in 2006, and median housing prices have gone on a free-fall from an inflation-adjusted high of $275,000 in 2005 to near $200,000 at the end of 2008. It will take a good while to sort this thing out. Housing prices are still historically high and with high unemployment rates, increasing foreclosures will continue to flood an already over-supplied realty market.

8. Unemployment rate - The United States has been pretty lucky in terms of unemployment rates for the past two decades or so. Ever since the recovery from the high inflation, 9.0+% unemployment rates of the early 1980s, the rate has stayed well below 8.0%. Since 1995, the rate has performed even better, only touching above 6.0% once during the short recession recovery in 2003. In January 2008, the rate was around 5.0% but had already been steadily rising throughout 2007. Since this January, the rate has put on the rocket boosters and is now at 6.7% nationally, with no signs of slowing down. Several states, such as Michigan (9.6%) and Rhode Island (9.3%) already have unemployments rates above 9.0%! Another five states have rates above 8.0%! Stats were from Nov 2008 and look to be higher when December stats come out.

7. What happened to the commodities bull market? – Oil, gold, silver, platinum and copper. All were at multi-decade highs in 2007 and even in 2008. Since then? Crude oil prices have dropped from $150+/bl to $37/bl! Most commodities lost more than half their values. Exchange-traded funds such as SLV, GSG, and XLE all dropped more than 50%. The one exception so far has been gold. Although gold prices have dropped from a high over $1000/oz, they have not dropped below $700/oz, and have recovered into the $800s since then. Gold is an unique commodity and it appears that it mostly trades as a safe-haven currency than a physical commodity. In looking at the chart of GLD (below), gold prices have solidly bottomed out at $70/shr and is looking like it will have a strong 2009.

SPDR Gold Shares (GLD) Performance since Jan 2007.

SPDR Gold Shares (GLD) performance since Jan 2007

6. Remember the $168 billion original stimulus package? - That amount seems so little nowadays especially when Obama is bandying around an $800B to $1 trillion stimulus package. Add to that the $750B bailout package given to financial companies and automobile companies. This is a year of bailouts and stimuluses and so far they have not helped the economy. Instead, the state of the economy is at its worst at the end of 2008. The expected package by Obama will be an early focus of the Obama administration. I think most people could use an extra few hundred dollars in their pockets.

Pixar's Mater - Help me!!!
Pixar’s Mater – Help me!!!

5. The survival of American automobile companiesGeneral Motors, Ford Motor Co. and Chrysler became the poster child of the current economic crisis hitting main street. On display was the millions of jobs, especially blue-collar jobs, in America at risk of disappearing due to the recent decades of mismanagement, overhead and foreign competition of the US auto industry. With the finance industry easily getting a $750B bailout, it seemed absurd that an industry that for decades represented hard working Americans and unions had to literally beg for a few billion dollars to survive. It was obvious where the attention of politicians were. Although Bush recently said that $18B of the $750B bailout would be immediately used to prop up GM and Chrysler, the long fought battle was wasted time and energy by the attention garnering and bureaucratic Congress.

4. Bernard Madoff arrested on $50B Ponzi fraud scheme – When the $50 billion Ponzi fraud scheme by Bernard Madoff was revealed in early December, it was the main headline of major news websites for a mere few hours. Since then, as more details trickle out, the fraud continues to take a back seat to the macro-economic recession covering the globe. In any other year, the news of a legendary and consummate businessman (and a former NASDAQ chairman) being arrested for a fraud-scheme covering possibly the largest dollar amount in Wall Street history would ripple for weeks, if not months. However, with white collar crimes dominating the post-dot-com era (Enron, Worldcom, Martha Stewart, Tyco and the 2008 unraveling of the hedge fund industry), the public is now immune to financial fraud. Quite unfortunate. (See here for What is a Ponzi scheme)

Corporate bankruptcies on the rise in 2008.

Corporate bankruptcies on the rise in 2008.

3. Bankruptcies and those near it - It has been a sad year for many corporations as they head towards bankruptcy. Many of them well-known with years of solid profits. The list continues to grow and the impact of the recession on the consumer and his/her buying habits is only beginning. Circuit City, Linens ‘N Things, KB Toys, Frontier Airlines, Mrs. Field Cookies, Steve & Barry’s, Whitehall Jewelers, Mervyns, Sharper Image and Waffle House are some of the big name bankruptcies. And this list doesn’t even mention financial companies, which I discuss in #2. See this list for a more comprehensive list of corporate bankruptcies in 2008.

2. The demise of the hedge fund and mortgage finance industry – The derivatives market has become a multi-billion (if not, trillion) dollar investment industry that is complicated and largely misunderstood, even by the most astute financial advisors. Derivatives, as its name suggests, are investment products that are created off of actual traditional investment products. That means their intrinsic value is conjured up and their existence puts them closer to full-blown gambling. The current financial laws and oversight are not suited for such trading. Over the years hedge funds and derivatives took on more and more of the investment strategy of major financial corporations. Derivatives that were based on risky mortgages and insurance eventually collapsed as housing prices plummeted with lendees’ inability to pay the mortgages. The result has been a credit lockup unforeseen in decades. Major financial companies toppled and its effects are still not fully known. Major companies that totally collapsed include Bear Sterns, Lehman Brothers, Washington Mutual, ANB Financial, Fannie Mae, Freddie Mac, and AIG.  See this list for a more comprehensive list of financial collapses in 2008.

KBW Philadelphia Bank Index - Collapse since 2007

KBW Philadelphia Bank Index - performance since 2004

US Recessions since WWII (Courtesy of CNN)

U.S. Recessions since WWII (Courtesy of CNN)

1. Recession or Depression – Which leads to the number one financial news in 2008. Are we in a deep and difficult recession or a depression? In early December, it became official that the U.S. went into a recession in December 2007. To some analysts, this is good news because it means we are closer to coming out of it.  As you look at the chart on the right, most recessions last around one year. Based on the official Dec 2007 start date, historically we would already be on the tail end of the recession. However, to other analysts, this is bad news because the worst is yet to come, and we are already twelve months into it. With no light  seemingly at the end of the tunnel, these analysts portend a long recession. Bad news from around the world keep coming in and the bottom of the current economic crisis still has not occurred. Oil prices continue to drop, gold prices have since rebounded (bad for economy), and the dollar index has begun dropping again. Signs of major inflation on the horizon are evident, especially with the massive bailouts and the Feds lowering the overnight interest rate to its lowest level ever, 0%-0.25%.

The entire 2008 Top 10 in Finance is all bad news. Most of them have to do with the current economic crisis. The key hope is that the Bush administration is finally over and 2009 brings a more adept and intellectual administration that will do just about anything to get America out of the economic dump. An administration that seems focused on the middle class and job creation. However, with it comes more and more national debt and the mortgaging of the future. There seems to be no alternative. This will most likely lead to long-term inflation when countries such as China, India, Russia and other Asian countries continue their rise to redefine the existing  economic world order. This is not to say that the United States is doomed to be a second-bit player, as we know that is unlikely. However, the country needs to refocus on what made it a superpower in the first place, investments in technology, jobs, science, and innovation.

Posted in Economics, List, Opinion, Other, Poll, Reviews | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 3 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 »

Michael Phelps or Usain Bolt? Who had the greater Olympic achievement?

Posted by silentarchimedes on August 20, 2008

I’ll put in my two cents on this Usain Bolt versus Michael Phelps discussion.

Michael Phelps

Michael Phelps

MICHAEL PHELPS

8 gold medals (7 world records, 1 Olympic record) (5 individual events, 3 team events)

Men’s 4 x 100m Medley
Men’s 100m Butterfly
Men’s 200m Medley
Men’s 4 x 200m Free
Men’s 200m Butterfly
Men’s 200m Free
Men’s 4 x 100m Free
Men’s 400m Medley

Usain Bolt

Usain Bolt

USAIN BOLT

2 gold medals (2 world records) (2 individual events, 1 or 2 upcoming team events)

Men’s 200m
Men’s 100m

Bolt will most likely run on Jamaica’s 4×100 team, which is favored for a gold or silver medal.

.

.

ANALYSIS

1. Physical toughness of sport - I ran the sprints in high school, and the training for it is pretty straightforward. A lot of one-event-up training for endurance. For example, if you are training for the 100m, you run a lot of 200m and 400m wind-sprints. You also do a lot of leg work, like stadium stairs, stretching and form. Reaction time training is a must to get good starts off the blocks. In the end, it mostly comes down to natural ability plus endurance training and diet. Training will increase your times, but it is not as much of a factor as natural speed. Sprinters with “lanky” builds, such as Bolt and Carl Lewis, have made up for it with natural speed. When you finish a sprint, the body parts that are in pain are mainly your legs and heart. The arms and chest are secondary.

Swimming is a totally different story. It is a full body work out. Too much muscle will not lead to success. Too skinny will not either. Although natural ability does make a big difference, such as Phelps body frame, the sport definitely requires a harder training regimen. If you’ve ever tried to swim a couple of laps in the pool, you’ll know what I mean. When you finish a swim event, your entire body is in pain… from legs to arms to back to chest to head to heart.

Edge: Phelps

2. Diversity of events - Phelps’ huge wingspan, feet size and body frame make him perfect for the butterfly event. It is also a big advantage in the freestyle. However, the wingspan appears to not be ideal for strokes such as the breaststroke and backstroke. Although he is ranked 11th in the backstroke, Phelps has not swam in either one in his 8 gold medal events. All have either been in the freestyle or butterfly. He also does not swim in events higher than the 200m. In looking at the butterfly and freestyle, they do require a completely different set of skills. The breathing technique is different, the body motion is different, thus stressing different muscles. However, the start of the race begins the same for both races.

Bolt is a natural 200m sprinter. In high school he ran in the 200m and 400m. It is not unusual for a 200m runner to add another event to  his repertoire. If he is known to have good endurance, he might add the 400m. If he is known to have a quick start, he might add the 100m. Carl Lewis was a 100/200 runner and Michael Johnson was a 200/400 runner. No one has ever done a 100/400 pairing before. That wouldn’t make sense because of the attractiveness of the 200 for both 100m and 400m runners. There are only minor differences between the 100m and 200m races. The 100m requires a faster reaction time and quicker burst of speed. The 200m requires excellent turn running, fast finishing speed and a bit more endurance. However, both are still considered all-out sprints with no pacing. Most 100m sprinters also run the 200m at some point in their track careers.

Edge: Phelps

3. Difficulty of reaching finals of events - For each event Bolt was in, there were 3 preliminary rounds and then the final, for a total of 8 races. Each round was on a separate day. The 200m race followed after the 100m final was over, and thus Bolt ran in 8 straight days. The 100m started with 80 sprinters, and the 200m started with 66 sprinters. The times of the prelims are not important, since part of the strategy is to make it to the next round while conserving energy.

Phelps, on the other hand, had a much tougher path to the finals. He had a total of 9 preliminary races to get to the 8 finals. The three relays did not have any prelims in which Phelps swam in. His teammates took care of that. Four of his 5 individual races had two rounds each of prelims. Only the 400m medley had one prelim round. Although Bolt’s races each had 3 prelims, none of his races were on the same day. Phelps 17 races spanned 8 days, with 2 days having one race, 3 days having two races, and 3 days having three races!

Edge: Strongly Phelps

4. Mental toughness required – This one is clearly for Phelps. With 17 races in 8 days. With all eyes on him, it requires the ability to completely focus on the task at hand, while shutting out all the distractions of the media, fans, other athletes, past races, future races, etc. It is unimaginable what he had to go through, pealing a layer off one by one. He must’ve felt a huge mountain on him heading into the Olympics. Bolt had no such pressure on him. Although there was some anticipation of a Tyson Gay – Asafa Powell – Usain Bolt 100m dream final, the pressure definitely was on Gay and Powell to perform. Powell was trying to eliminate the label of choker of big meets and reclaiming the world record that he lost to a pure 200m runner. Gay was trying to overcome his hamstring injury and to reclaim the US waning dominance in the 100m. Bolt had the world record and it was evident in the way he ran and showboated in the 100 that he felt no such pressure on him. Additionally, there just wasn’t that much media coverage of him until he easily broke the 100m record. The pressure he felt in the 200m is still nothing compared to what Phelps had to go through.

Edge: Strongly Phelps

5. Natural ability - This one is somewhat harder to determine. Although Bolt’s natural ability clearly has a profound impact on his performance, it is harder to determine how much of Phelps performance is due to natural ability instead of training. Swimming is more of a learned talent than running is. Although Phelps has an ideal body frame consisting of long arms, big feet, wide wing span and long torso, it’s hard to think he would be as good in swimming if he did not have the muscle and endurance from training. However, Bolt’s build might not be that different to normal athletes without Olympic training. His natural speed, height, quick long strides cannot really be learned in training.

In thinking about this area further, and reading Red’s comment below, I believe there is another component to think about when it comes to natural ability. What makes Bolt’s races so amazing is that he is only 21 years old and has not fully reached his natural potential. As he fills out his body both mentally and physically, it is scary to think what he can accomplish. Phelps appears to have reached his natural ability in this Olympics. Although the question of who had the greater Olympic achievement focuses on current results, the potential factor of the athlete has to be accounted for because of the WOW factor the public and media reacts to such achievements.Thus, I would have to give the edge of natural ability strongly in Bolt’s corner. He is still very raw.

Edge: Strongly Bolt

6. Walking the walk - Although many fans, media and other runners were clearly dismayed at Bolt’s showboating in the 100m final, I personally enjoy seeing that confidence and joy in track and field. I just wished he would have waited until he crossed the finish line. Not really because of the showboating, but because I wanted to see how fast he really could have ran. Blowing past the world record and other runners would have made a much bigger statement than showboating. I also have seen many races in the past where runners ease up too early only to be caught by other runners. However, Bolt clearly walked the walk. He seemed so relaxed and confident during all 8 races. He was clearly ahead of the rest of the field.

Phelps had a different story, however. At least two of his races were down to the wire, and not necessarily a lock for him to win. He clearly had to stay focused, and had no chance of celebrating. However, in the end, he walked the walk and accomplished something no one has ever done before.

Track and field requires a level of confidence and rivalry that borders on conceit. Swimming, however, is more of a fraternity. Where everyone respects each other and would never show up anyone else. It’s just two difference cultures, and neither is better than the other.

Edge: Even

7. Any changes in sport that might increase performance - The biggest swimming story leading up to the Olympics, other than the athletes themselves, was the new Speedo’s LZR swimsuits. It was obvious they were making a big difference in the world of swimming. By reducing drag, and increasing aerodynamics, swimmers in all events were bettering their personal bests. Swimming is going through a major evolution, in terms of science and technology. Suits are better. Technical analyses are better.

Sprinting has had no such evolution. The closes thing to change in the past ten years has been the sneakers. Because the clothing of sprinters is so minimal, and because runners run straight into the wind, it is very difficult to increase aerodynamics. Swimming on the other hand cuts through the water horizontally, thus allowing improvements in friction and drag to be made.

In this rating, the less change in the sport the better. That means the athlete is more comparable to old world records.

Edge: Bolt

8. Domination of world records - Let’s see the domination of Phelps’ and Bolt’s individual world records at the Olympics. We will only analyze individual world records, and not relay world records or Olympic records.

The metric we will use is something I call the record impact. Using the event’s 1990 record as the baseline (0%), and the most recent event record (even if held by Phelps or Bolt) as the topline (100%), how much did the the new record impact this record progression. The record impact is calculated as follows:

((2008 record – world record) / (1990 record – 2008 record)) * 100

Michael Phelps individual world records are based on long course 50m pools only

Event 1990
Record (s)
2008
Record (s)
New
Record (s)
Record
Impact (%)
Men’s 200m Medley
Men’s 200m Butterfly
Men’s 200m Free
Men’s 400m Medley
2:00.11
1:56.24
1:46.69
4:14.75
1:54.80
1:52.09
1:43.86
4:05.25
1:54.23
1:52.03
1:42.96
4:03.84
10.7
1.4
31.8
14

Phelps’ Average World Record Impact: 14.5%

Event 1990
Record (s)
2008
Record (s)
New
Record (s)
Record
Impact (%)
Men’s 200m Final
Men’s 100m Final
19.75
9.92
19.32
9.72
19.30
9.69
4.7
15.0

Bolt’s Average World Record Impact: 9.9%

This is unfortunate for Bolt. His showboating costs him here. If he ran hard throughout the 100m final, he easily gets the edge here. To beat the 14.5% record impact of Phelps, all Bolt had to run was a 9.67. This was easily attainable had he not slowed down. If he ran a 9.62, as some have predicted he could have done had he not slowed down, his record impact would have been 50% for the 100m, and his average world record impact would have been a gaudy 27.5%, putting the edge strongly in Bolt’s favor. Quite unfortunate.

Edge: Phelps

9. Quality of world record – Another thing to look at is how long the previous record was held before being broken in Beijing. If it was broken in Beijing prior to the final, such as in the preliminaries, we use the record prior to the Olympics. We also need to look at how many times the record has been broken since a certain baseline; we will use 1990 again. The final parameter to look at is how many people have held this record since the baseline.

An event that has a high quality of world record means it is difficult to break the world record, only a few athletes have had the world record since 1990, and that the last time it was broken was a while ago.

I calculate the quality of record as:

C – (A + B) = Years since 2008 record – (Unique athletes holding record since 1990 + Times record broken since 1990)

The higher the number the better the quality of the world record. Obviously this is not a scientific calculation.

Event Times record
broken
since 1990 (A)
Unique athletes
holding record
since 1990 (B)
Years since
2008 record (C)
Quality of
Record
Men’s 200m Medley
Men’s 200m Butterfly
Men’s 200m Free
Men’s 400m Medley
10
10
12
11
4
5
5
3
0
1
1
0
-14
-14
-16
-14

Phelps’ Average Quality of Record: -14.5

That’s a funny coincidence that Phelps Quality of Record is the same as his Record Impact Percentage!

Event Times record
broken
since 1990 (A)
Unique athletes
holding record
since 1990 (B)
Years since
2008 record (C)
Quality of
Record
Men’s 200m Final
Men’s 100m Final
3
9
3
6
12
0
6
-15

Bolt’s Average Quality of Record: -4.5

The edge here is obviously in Bolt’s favor. The quality of breaking the 200m world record balances out the ever changing 100m world record. It is obvious that the swimming sprints are going through an evolution, even if a lot of the records are being broken only by Phelps and a select few colleagues, such as Crocker and Thorpe.

Edge: Strongly Bolt

FINAL DECISION

So who wins the award as the greatest 2008 Olympic achievement? Michael Phelps or Usain Bolt?

Strongly Phelps = 2 * 2pts = 4
Phelps = 3 * 1pt = 3
Even = 1
Bolt = 1 * 1pt = 1
Strongly Bolt =2 * 2pts = 4

Final: Phelps 7, Bolt 5

Michael Phelps and his 8 gold medals (SI cover)

Michael Phelps and his 8 gold medals (SI cover)

Winner: Michael Phelps

One interesting to realize here is that the showboating of Usain Bolt actually costs him this contest. As mentioned in the 8. Domination of World Records, if Bolt had not slowed down and ran a possible 9.62, we would move 1 pt from Phelps, and add 2 pts to Bolt. Then the final score is Bolt 7, Phelps 6. Even if  Bolt runs between a 9.63 and 9.66, the edge is to Bolt, and the final score is Phelps 6, Bolt 6. Wow!!!!

What do you think?

Who had the greater Olympic achievement?

1) Michael Phelps
2) Usain Bolt

View Results

My related Olympic posts:

Suggested Phelps vs Bolt webpage:

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Olympics – Usain Bolt and the new generation of men’s 100m sprinters

Posted by silentarchimedes on August 16, 2008

Disappointed at NBC

Before I begin talking about the 100m, I am so disappointed at the NBC broadcasts of the Olympics. How do you not show the Men’s 100m Olympic final live on NBC?? It’s one of the main events of the Olympics. It was scheduled for 10am EST. Instead they are showing a non-medal basketball match between the U.S. and Spain. Atleast switch to the race when it happens! The whole race takes under 10s! Jeesh. After seeing all the headlines of the results, we’re supposed to care when NBC finally shows it tonight? And NBC is acting like it’ll be live the way they talk about it. This is a joke. I already feel sorry for the West Coast population for not being able to see Michael Phelps races live.

My related post: NBC Olympics equals “No Bolt Coverage Olympics”

Insane Usain

Ok, on to the 100m. I’ll say it right away. Usain Bolt is the most amazing sprinter I have ever seen. He is a man among boys (picture courtesy of Getty Images, left, Dix, center, Bolt, right, Gay). He was utterly dominating throughout the entire 4 rounds. In round 2, he ran a 9.92s after shutting it down at 40m! He had a 5 meter lead halfway through the race and just coasted, looking to the right, then left and then right. The easiest 9.92 ever. When you compare his round 2 race to Asafa Powell’s and Tyson Gay’s, it was pretty obvious who was going to run away with the Gold medal. Powell shut it down at about the 75m mark but still looked like he ran hard. Gay pretty much ran hard all the way, maybe until the 90m mark, and finished second in his heat.

The 100m final was a complete domination:

Medal Country Athlete Final
Gold JAM Usain Bolt 9.69
Silver TRI Richard Thompson 9.89
Bronze USA Walter Dix 9.91
4th AHO Churandy Martina 9.93
5th JAM Asafa Powell 9.95
6th JAM Michael Frater 9.97
7th TRI Marc Burns 10.01
8th USA Doc Patton 10.03

(left, courtesy of Getty Images, from left, Dix, Thompson, Bolt)

Bolt’s 9.69 shattered the old world record of 9.72 he ran in New York earlier this year. He now owns the top two times, and is 0.05s faster than Powell’s old record of 9.74. That’s a mile in 100m terms. What’s even more amazing, is that Bolt didn’t run hard all the way through. With a huge lead at 50m, he once again started coasting, and pounding his chest and spreading his arms in victory. This all with a good 10 strieds left in the race!! What happens when he runs his hardest all the way? A 9.50?? He really should have done that and really shatter the record. Even with that, he beat the field by atleast 0.2 seconds. What hope do other sprinters have now? Powell ended up finishing 5th and his time wasn’t even close. Richard Thompson and Walter Dix (he should cut his hair. Get another 0.03s) looked good in the earlier rounds and deserved their medals. Gay didn’t even make the finals. Bolt was the only one that backed up his words, and fulfilled the hype of a Bolt-Powell-Gay final.

Bolt, 22, at 6ft 5in, represents the coming new generation of 100m sprinters. He is tall, takes huge strides, and has a much lankier build than the traditional muscularity of the past generation. After Carl Lewis’ generation of skinny runners ended in 1990, the next 15 years saw mostly big legged, big upper body runners dominate the world records. First Leroy Burrell, then Donovan Bailey and Maurice Greene. Even Powell has the traditional build.

What is amazing about Bolt is that he has the traditional 200m and 400m build. As a matter of fact, his main event is the 200m and he didn’t even start running the 100m until this past year! After Michael Johnson dropped down from the 400m to the 200m and shattered the world record, you knew other great sprinters would be looking to do the same. Bolt’s success in the 100m will make other 200m sprinters think about dropping to the 100m.

Bolt seems to not have reached his peak yet. He is still a raw 100m sprinter and can improve his technique and reaction times. It will be interesting to see what times he will get at his peak.

What happened to the United States domination?

The next question to ask is, what is happening to the United States domination of the 100m? The top six times and world record times are all non-Americans. Actually, the times are of Powell’s and Bolt’s, both Jamaicans. With Tim Montgomery and Justin Gatlin’s world records erased by doping suspensions, the United States haven’t had a world record holder since Maurice Greene in 1999. With Tyson Gay at 26 years old, it appears he has peaked with no chance of a world record. His greatest showings the past year gave people hope, but his hamstring injury during the US trials destroyed any chance of him winning at the Olympics.

Although Walter Dix, the reigning NCAA champion, won the bronze today, he seems to be flying under the radar and he has a good chance of improving his Olympic time of 9.91. However, to beat the new record of 9.69 would require a lot of him in the next few years.

My related Olympic posts:

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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

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Book Review: Hot Commodities

Posted by silentarchimedes on June 17, 2008

Book Review: Hot Commodities

How Anyone Can Invest Profitably in the World’s Best Market

Author: Jim Rogers

WHY I READ THIS BOOK

This is my second book review on the precarious economic situation in global economics, specifically in America. The first one was The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel, by Stephen Leeb. Now, under the assumption that America is on the cusp of a long recession or some sort of economic crisis, I decided to read a book about a neglected investment area that already is in the midst of a long bull market, commodities. Commodities are the raw materials, natural resources and hard assets that prop up everything in our quality of life, from food such as corn, sugar, and pork, to infrastructure such as copper and rubber, to energy such as oil and natural gas. Without commodities, and a speculative market for it, we would be seeing drastic regional and daily price differences of everything, ranging from televisions to groceries to jewelry.

One funny thing I noticed with these books about economic crises is the required two stage title, the what and then the how. The Coming Economic Collapse: How you can thrive when oil costs $200 a barrel. Hot Commodities: How anyone can invest profitably in the world’s best market. Crash Proof: How to profit from the economic collapse. Mobs, Messiahs, and Markets: Surviving the public spectacle in finance and politics. All the titles could’ve done without the second title. It makes it a little juvenile and commercial, but I won’t judge a book by it’s cover.

THE AUTHOR: JIM ROGERS

I had heard of Jim Rogers before, but not much about his past. He came to fame in the 1970s where George Soros and him created the Quantum Fund that far outperformed the S&P in the high-inflation oil-crisis 1970s. The Quantum Fund returned over 4200% in that first ten years while S&P returned only 47%. After retiring in 1980, he went on to travel the world many times over… literally. He set the Guinness Book of World Record in 1992 by motorcycling over 100,000 miles across six continents (he details in his earlier book Investment Biker). He has traveled across China multiple times. Then in 2002 he set another world record by driving through 116 countries and 245,000 kilometers with his wife in a custom-made Mercedes. His current claim to fame is creating the 1998 Rogers International Commodity Index and predicting the current commodities bull market in 1999. This was during the height of the dot com when commodities were at multi-year lows and in a major bear market. He has also been a guest professor of finance at Columbia University, a moderator of finance shows on CBS and FNN. Like Soros, Rogers has also moved his entire family to Singapore because of the belief that Asia is the next financial epicenter and America is due for a major economic crisis.

REVIEW

“Commodities get no respect.” The first line in the book. I’d have to say I agree with him. I’ve been investing for less than 10 years and no one talks about commodities the way they talk about stocks and mutual funds. I guess most people only talk about automobiles like Corvette and Accord (stocks) or General Motors and Honda (mutual Funds). Unless you are a true car enthusiast, you leave the details about engines, suspension and chassis to the experts. However, we know that the materials that make up a car or a company’s products are what makes them run and exist. In short, Rogers pretty much expresses in simple terms that the supply and demand fundamentals of most commodities are way out of whack (his words). Supply is on the short side and demand is increasing.

The flow of this book is very good. He first builds his credentials. Then he talks about the history cycles of commodities, specifically the fundamentals of supply and demand. A step back with a primer on commodities and the exchanges that exist is next. Finally, it’s chapter by chapter of specific commodities that stand to gain in this bull market.

As with all these books, there is always an overt or covert “I told you so” in the writing. It is understandable because the authors are usually taking a contrarian viewpoint and in order to build credibility they have to show that their previous contrarian positions have panned out. Rogers is no exception when he describes the track record of his futures picks. Having the Quantum Fund with Soros as part of your credentials sure doesn’t hurt. What is interesting is that Rogers is at an age where he really doesn’t have to prove anything to anyone. His writing style clearly shows this. It is very relaxed and simplistic. He talks about his past and trips around the world in a casual sense as if everyone can do it. He also refers to his mistakes and weaknesses as humourous because they turned out for the better. His attention to detail and research is remarkable.

The primer on commodities is very useful for those that are beginners in the area. Although some might find it too simplistic, “commodities are equivalent to futures“, I found it a necessary part of the book. Since this book was written in 2004, it was unfortunate that current commodities-related exchange-traded funds (right) are not mentioned. I would have been interested to hear his opinions on the Energy Select Sector SPDR (XLE), the Goldman Sach’s iShares GSCI Commodity-Indexed Trust (GSG) and Market Vectors Gold Miners ETF (GDX), amongst others. He does mention that the GSCI (GS Commodity Index) is weighted incorrectly, and thus the creation of his own commodity index.

In short, the commodities he talks about in detail are mostly nothing new. Everyone knows that China is tilting the balance of supply and demand in many key economic areas, such as oil and steel. However, Rogers has been preaching this since 1999 when oil was $10 a barrel and Asia had just overcome the 1997 financial crisis. The last thing anybody was thinking about was a commodity bull market. One viewpoint that was interesting was his lackluster enthusiasm of gold as a commodity. Although he maintains a small stake in it, he views it as something that doesn’t always follow the fundamentals of supply and demand, and that it’s historical cycles are harder to predict. He’s still bullish on it, but not as bullish as more obvious ones, such as oil and certain other metals. His other interesting viewpoint is on India. His first-hand experience in the country leads him to a different viewpoint than the public majority.

Each chapter about a commodity is interesting to read. He describes the importance of it in everyday life and markets and the historical cycles of it. The set up is to show why he thinks it is time again for that particular commodity to be a high-flyer.

Although this book was published in 2004, it is well-known that Rogers has been predicting the current commodity bull market since 1999. Let’s look at the performance of some of his suggested commodities since 1999 and 2004.

Light Crude Oil

Approximate price/barrel and return since 1999

1999 price: $15

2004 price: $35…..133%

2008 price: $130…..767%

Although there are signs of a bubble since 2007, high oil prices are clearly here to stay.

.

.

Gold

Approximate price/oz and return since 1999

1999 price: $270

2004 price: $400…..48%

2008 price: $900…..233%

Rogers is not as enthusiastic about gold. Although it has strong returns, it’s not as strong as the other commodities.

.

Platinum

Approximate price/oz and return since 1999

1999 price: $380

2004 price: $800…..111%

2008 price: $2000…..426%

Low supplies with increasing demand makes this commodity a high-flyer.

.

To be fair to him, I will leave the rest of his suggestions to readers. However, in looking at the monthly returns of most commodities, it is quite apparent that Jim Rogers is on the spot. Check out other phenomenal returns here.

VERDICT

The writing style of this book is so laid back it borders on conversational. However, it works for Jim Rogers because he appears to truly enjoy life like a kid. His wild-child trips around the world are not just rich-man-spending-money trips, but a big part of his research. His first-hand experience in living different cultures surely helps his perspectives. He is known for impeccable research, with simple logical explanations. If you believe the commodities bull market is far from over, as Rogers does, I suggest picking up this book.

Rating: 9 out of 10 corn ears

POLL: Have you invested in commodities (not stocks) since 1999?
1) yes
2) yes, but only gold
3) no, but I want to
4) no
View Results

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Book Review: The Coming Economic Collapse

Posted by silentarchimedes on May 25, 2008

How You Can Thrive When Oil Costs $200 a Barrel

Author: Stephen Leeb, PhD with Glen Strathy

Wow, so where to begin…

When I first saw this book at Barnes and Noble for $5.98 (Bargain Priced) I was very skeptical of its title. Even the three-toned cover art seemed amateur. A quick glance at the Table of Contents and words such as disaster, collapse, collision, blind, madness, dangerous, crisis, havoc, and armageddon are interspersed in the titles! Although I had become an avid follower of the bull markets in gold and commodities, and understood the problems facing America, my first thought was, “This book must be an extreme contrarian’s attempt at scaring the public and consequently helping him profit on the sales.” However, as I was reading this book, with the understanding that the information in there was 2+ years old, I could not help but realize how so many of his predictions have or show strong signs of coming true.

WHY I READ THIS BOOK

As someone who is in his early 30s, I still remember the days of $.80/gallon of gas and the dot com indulgence in the late 1990s when I was in college. Things seemed so perfect. It was my first taste of real life, and boy, was it good. Since then I have seen America slide into a quick descent towards decadence. I won’t say who is to blame, as I think many groups are, but nonetheless, I have seen myself becoming more of a contrarian, more disenamored with our future. I wanted to see how this came to be… I started reading James Turk and his gold escapades, Warren Buffet and his beliefs, and the whole Federal Reserve role in society. I realized I had to start looking out for myself, because I didn’t know how much the government would. That’s when I accidentally came upon this book in Barnes and Noble.

THE AUTHOR: STEPHEN LEEB

I had never heard of Stephen Leeb before I picked up this book, but he did publish an earlier book in 2004, The Oil Factor, that predicted the rise of oil prices due to increasing demand and vague supply. In 2004, crude oil was ~$30/bbl, which in an of itself was not that out of the ordinary. He was obviously not alone in that prediction, but was nonetheless in the minority. Leeb has a PhD in Psychology and that definitely plays a role in his analyses.

SHORT SUMMARY

Leeb claims in his book that once global peak oil (when daily global production of oil begins to decrease) occurs, the price of oil will skyrocket and economies around the world, especially the highly oil-dependent United States, will have a very difficult time coping with it. In his worst case scenario, he sees large-scale violence and civil wars that could lead to the collapse of society and the return to self-subsisting 19th century lifestyles. In his best case scenario, governments and industries tackle this massive problem of dwindling energy and dependence on oil by gracefully transitioning society to alternative energies, such as wind, coal, and others. He doesn’t really expound the most likely scenario, but he alludes many times to how it might already be too late, or how dire the situation is. It is apparent that he believes we are closer to the worst case scenario, and it is best for individuals to take actions before it rapidly deteriorates.

REVIEW

The biggest positives about this book is that a lot of what he preaches are coming true. I can’t say how much I would have believed his book if I had read it when it was first published in 2006, although it would have still been an interesting read. As a background, in 2006, crude oil was about $60/bbl, unleaded gas was about $2.00 to $3.00 per gallon. In his 2004 book, he predicted oil would rise from the then $30/bbl to $100/bbl in the next few years. In this book, he predicts $100 oil is now conservative and $200 is likely by the end of the decade! Today, May 25, 2008, light crude oil on NYMEX is over $131/bbl and my local town’s gas just hit $4.00 for unleaded.


Price of light crude oil – [2000-early 2008]

In the first part of the book, he uses his psychology and economics background to show that past civilizations have failed due to exactly the same problem we currently face, decreasing resources coupled with lack of leadership by the government and lack of open-minded thinking by the masses. He uses the word groupthink many times throughout the book. Although this part of the book is hard to disagree with, it is not all that groundbreaking. It is shown many times that the actions of the mass are quite different than the actions of an individual, albeit the difficulty in being a non-conformist. It is also not new to realize that the government and corporation do not act in the best interests of its people and its survival. One can argue that a benevolent leader does not exist.

The second part of the book, lays the oil problem entirely on the table. The high price of oil is here to stay. World supply will reach peak production soon, and demand continues to increase. A lot of good analogies are used to describe the illogical actions of many in society. He compares the U.S. government’s propensity to give Big Oil lots of subsidies as akin to a person stranded in the Arctic in wintertime with only two weeks’ worth of firewood, deciding to burn it all the first night. Then he talks about the repercussions and likely scenarios for a post-oil world. By comparing the current situation with the 1970s oil crisis and the Great Depression, he hopes that we have learned from the past.

In the final part of the book, he offers suggestions on how individuals can capitalize on this increasingly dire situation. This is the part that really seals it in. Although his predictions on oil prices have rung true, the investment ideas he offers greatly supports his hypothesis. For example, he suggests the buying of gold. At the time of his writing, gold was $460/oz. Today, as of May 25, 2008, it is over $925/oz. and breached a high of $1020/oz a few months ago. Then he suggest buying oil service companies, such as Schlumberger (SLB). In 2006, SLB was ~$60/shr. Today it is over $100/shr. There are numerous other investment suggestions he offers, and a quick finance check shows many have rung true. I leave it up to you to read. The only major suggestion that fell hollow was his belief that real estate would remain a viable investment. As we know, the bubble has burst, and real estate has been one of the worst investments the past few years. However, what is interesting is he didn’t think the bubble would burst because he believed the government would chose higher inflation over the more dangerous real estate crisis.

VERDICT

This is a very easy to read book. It offers a lot of historical comparisons, psychological explanations (groupthink, I tell ya!), and blunt analogies to support his hypothesis. It can sometimes feel like he is repeating the same things, and I’m not sure if he is reaching for things to write or if he adamantly wants you to understand the urgency. However, no one can really argue with the facts. The oil crisis is indeed an immense problem facing the world, especially the United States. This book does a good job at laying it all on the table. I recommend picking up this book to read. At best, you become really wealthy…

Rating: 8 out of 10 oil barrels

POLL: How severe do you think the upcoming economic collapse will be?
1) Hah! There won’t be one!
2) Ehh, stop freaking out. It’ll be small.
3) It’ll be a regular recession. Like the early 1990s.
4) This is a long recession, but we’ll be back.
5) Lower quality of life is here to stay.
6) End of society…

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