心法

Michael Marcus:

"I learned that if you shoot for what you want, you stand a much better chance of getting it because you care much more"


" The Best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone. First, the fundamentals should suggest that there is an imbalance of supply and demand, which could result in a major move. Second, the chart must show that the market is moving in the direction that the fundamentals suggest. Third, when news comes out, the market should act in a way that reflects the right psychological tone. For example, a bull market should shrug off bearish news and respond vigorously to bullish news. If you can restrict your activity to only those types of trades, you have to make money, in any market, under any circumstances."

The Downfall of the US dollar?

Earlier, Spiegel reported that Chinese car maker, Great Wall, has opened its car factory in Bulgaria.

Economically, it has two significant implications, and a much bigger issue behind it that I would like to share with readers here.

First is the economy of China. Of course there must be many reasons why Great Wall decided to make cars in EU instead of in China. But I think a very probable reason is to reduce cost. We all heard about rising production cost in China, but we just don't know the degree of it. Great Wall just told us. If the cost of making cars in China is at a level comparable to an EU country, does it imply that China's edge of providing cheap labour over the last 20 years is no longer there? What's left to drive the economy now? Technology? Resources? Consumption? It seems that China has hit a wall.

The second is inflation. Back on 21 November 21, 2002, Ben Bernanke made the following statement*:

" The US government has a technology ,called a printing press (or today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost. By increasing the number of US dollars in circulation, or even by credibly threatening to do so, the US government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We concluded that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. "

Under this paper-money system (i.e. the money is not backed by commodities like gold or silver), The US has been printing money in the form of US federal debts since 1971, when the US dollar was unpegged to gold in 1971 out of necessity by Nixon to fund the war in Vietnam. But we have not had runaway inflation that history – Germany in the 1920s comes to mind, has repeatedly shown. Why? 

I remember Alan Greenspan said that one of the reasons that world inflation was 'not severe' for the past 20 years was due to the cheap labour and goods provided from emerging markets like China and India. And he briefed this in his Monetary Policy Report to the Congress on 16 February, 2005.

Now, if the cost of making cars in Bulgaria is at a level comparable to China, what is the implication to inflation worldwide?

Earlier I mentioned that the US has been printing money. So, just how much money has been printed? One major indicator is the federal debt held by foreign investors of the US. If you look at the data from the Federal Reserve Bank of St. Louis, federal debt of US held by foreign and international investors increased from US 12.4 billion in 1970 to US 4,660 billion, an increase of nearly 400 times. 

And the US has actually been printing money in economic downturn since well before the establishment of the Federal Reserve. But we shall skip the history today, and just focus at the rate of increase from 2007 onward. From 1970, it took the US about 37 years to expand its debt to foreigners from US 12.4 billion to the range of US 2,300 billion in 2007. But right after 2007, it only took them 5 years, yes, 5 years, to add another US 2,300 billion. This rate of increase is scary. 

With China now having troubles to provide cheap goods and labour, and the US increasing its rate of money printing, when will runaway inflation come to haunt us as history has repeatedly shown? Now there is an argument that we will have deflation instead , due to the balance sheet recession of the developed world that Richard Koo of Nomura has been explaining for the last few years. But re-read the statement made by Bernanke above: 

"The US government has a technology , called a printing press (or today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost. "

He is Helicopter Ben after all. And remember, he has vowed not to allow deflation to happen again. That's his took from the 1929 Depression. (According to Austrian economists, he is wrong on this, but that's another topic.) 

When a nation starts diluting its currency, using the printing press as in the case of the US, it is actually the beginning of this currency's destruction. And diluting never end up nicely but nasty. Runaway inflation and the down fall of the US dollar is just right at the door step. Exactly when will this happen? I have no idea. We'll find out, very soon.

*Remarks by Ben Bernanke before the National Economists Club, Washington, D.C., November 21, 2002

(Published on vjmedia.com.hk) 

Bloomberg news, trustworthy?

 Bloomberg headline:  Bernanke-Led Economy Shows Critics Wrong About Fed

Inflation under control? Do these people buy groceries?

Trusting mainstream media, is the road to serfdom.

QE3

No doubt QE3 has been launched, as Jim Sinclare recently commented, with the Swap line facility provided by the US Federal Reserve to ECB, accommodated by the Fed's announcement to hold interest rate close to zero to 2014.

What now? The on-going debt and currency crisis in the developed economies, spawned by the unpeg of the US dollar to gold price in 1971, which led to unlimited money printing in the form of US treasuries for the past few decades, will not be resolved by printing more money.

In the short term, with liquidity now flooding the markets, all asset class should continue to rise.

But for how long?

As history has repeated shown, money printing always come with runaway inflation and currency depreciation.

As a result, the trend in the above graph shall continue.

Gold in numbers

From http://www.numbersleuth.org/



From: Number Sleuth

Hugh Hendry's view on China

According to Hugh Hendry, China's 'miracle' growth story might come to an end, an ugly one.

During The Russia Forum 2010, he made some stark remarks and nearly got into a fight with Marc Faber.

"I love Jim O'Neill. I love that Goldman Sachs guy. He says you either get it, or you don't. I don't get it. In the future there will be a Confucius saying: the wise man not invest in overcapacity. The flaw of the business model, at the center of it is a craving for power as opposed to profit." His remarks on China starting at 55 minutes into the clip.

Video here.


Who is Hugh Hendry? From FT:

Mr Hendry’s Eclectica Credit Fund is constructed from a portfolio of short positions against highly cyclical Japanese corporate credits that have high exposure to Chinese demand.

The fund, which raised a modest $150m from a handful of London investors when it launched late last year, is up 38.65 per cent so far this year, having returned 22.5 per cent in August – the hedge fund industry’s worst month since the collapse of Lehman Brothers three years ago.

The news comes as concerns of a Chinese slowdown gather speed. Wu Xiaoling, the former deputy central bank governor and vice director of the finance and economy committee of the National People’s Congress, said the economy would cool next year and efforts to spur growth would be constrained by inflation, in an article published on Monday by the Chinese central bank’s official newspaper.

Mr Hendry’s fund is up a further 11 per cent for September, according to an investor. Mr Hendry declined to comment.

In comparison, the average hedge fund has lost money this year, data from Hedge Fund Research show. The HFRI composite index, which tracks performance numbers from across the industry, is down 1.47 per cent since January.

Mr Hendry, a noted contrarian, began raising concerns about a Chinese slowdown in 2009 – even uploading a homemade video on to the popular video sharing site YouTube based on a visit to deserted Chinese real estate developments.

What we are facng (2)

Marc Faber on CNBC explains.

Global Tactical Asset Allocation

Something to share with you all here.

Second_Quarter_2011_GTAA_Equities

What we are facing.

The development in the US and Japan is not going well. How is that? Read through the two articles.

US: The coming crisis in the US and how we should protect ourselves

Japan: The rising sun is, indeed, falling

And finally, to sum it up, I present here an interesting graph:

Gold trend

RSI and the price of gold shows 4 waves divergence, i.e. gold price has four peaks, one higher than the previous one (except the last one), while RSI also has 4 peaks, but one lower than the previous one. This is a very strong signal of an adjustment of gold price.

But the adjustment might just provides us a good opportunity to buy gold. It seems that gold still has a long way to reach its peak. The current international monetary system that uses the US dollar as the major anchor is breaking down. Confidence in the US dollar is weakening around the globe. That's why we have witnessed price surge in commodities. Before we reach a new international monetary system, gold will protect us from currencies devaluation and the coming inflation.