Education & Learning

Current Events / Issues - Law

"The Defense Authorization bill--a "must-pass" piece of legislation--is headed to the Senate floor with troubling provisions that would give the President--and all future presidents--the authority to indefinitely imprison people, without charge or trial, both abroad and inside the United States." Especially egregious are sections 1031 and 1032. They: (1) Explicitly authorize the federal government to indefinitely imprison without charge or trial American citizens and others picked up inside and outside the United States; (2) Mandate military detention of some civilians who would otherwise be outside of military control, including civilians picked up within the United States itself; and (3) Transfer to the Department of Defense core prosecutorial, investigative, law enforcement, penal, and custodial authority and responsibility now held by the Department of Justice.

Current Events / Issues - Things are bad now

In 1981 we came about that recession, preceding it, 1981, with six to eight percent economic growth. Here Obama is touting two percent economic growth and it's not even real economic growth, it's just an increase in spending. That's all he can get by spending all that money?

Education & Learning

What are the components of the following Different sectors of the market Different asset classes. I'd allocate assets but not select securities within those asset classes. Know the macroeconomic variables and how asset classes correlate with those Know the fads of institutional investing in equity and fixed income. - synthetic CDOs Top down (my approach) versus Buffet's (bottom up—he looks at individual company. I see See's company and they're going to sell 10% more candy every year into the future)

Current Events / Issues - WM: Random Data, Recent Call/Meeting Notes, Learnings

You can merge 403B and 401K into a 401K. Getting all statements consolidated is called getting your statements householded. You can borrow against a 401K but not against an IRA If all funds in a 401K come into your IRA, it can be rolled back. If some funds in the 401 were from anything other than an IRA, it's considered commingling and can't be rolled back. WE SHOULD never have cash in a retirement account. Check clients account regularly to see what they're invested in. q: how do you know that everything gets transferred over: a: sweeps on account, so if divident or interest rate takes it over'i interbroker dealer network brings securities over. we have statements from schwab that tells us what you had. if total comes over. we check them one-day-day. for exiting account, managed accounts are free Duration: sensitivity to interest rates. how long before you get your money back TIPS: % increase in inflation raises the principle, not the interest. So, if you have a 5% coupon and inflation rises by 2%, you're get 5% on $1,020, instead of 7% on $1,000. What retirement accounts can be transferred into what? Roth IRA must go into a Roth IRA Roth 401K "" Traditional IRA "" Traditional 401K "" Leverage = assets / liabilities once money is in a custodial account, it can't be moved to a trust; it's the kids. LINUX advisors- group that does cash management services for ultra-wealthy. Each increase of 1 percentage point in interest rates adds as much as 19 percent to the total cost of a home, according to Mr. Mayer. $180 billion poured in to rescue AIG post office will have 3rd consecutiv eannual loss this year, after losing $3B last year EU: give us a reason for $ and we'll give it to you for free Greece put $ into Titlos Titlos used new SD (sovereign debt) to invest in risky assets Titlos told others that the assets they sold were backed by a country since countries are seen as riskless investors. Not all of it was classified as debt, since to be part of the EU, debt can't exceed given % of GDP So, they converted their debt.

Reference Info

ZipGroup offer Research and execution The Prime Broker handles: Sec lending/ Margin lending Cash mgmt Back office processing Cap intro's (intro's to potential investors ROLES AT A BANK @ brokerage firm Traders exist at a bank, typically on sell side Analysts typically sell research to clients. Institutional clients pay money for analysts' research. Brokers will call clients and make suggestions based on analysts. Wealth Mngrs are essentially high net worth brokers. You also have institutional brokers. Banks, pension funds, mutual funds, corporations with pension funds. @ bank, all of above, plus: - product specialists: - investment banking division: raise money with me, institutional brokers and syndicates (they help sell chunks of new equities) - support to manage huge transactions - back office to send papers back and forth Sales and traders work together. Proprietary traders trade on their own/their banks account. DIVERSIFICATION 2 different business models: - "managed money" uses 30-40 managers - bloomberg screen and changing your picks yourself (as Chris, Brad's partner, does) For philanthropy, know what GRATs and CRUTs are for philanthropy. Glide Path: how asset allocation changes over time diversification deficit disorder: stock index funds or bond funds not enough. to effectively diversify: going beyond stocks and bondsà currencies, commodities, real estate, private equity, as broad a set of asset classes if your horizon is less than 10 years, shorting may further help you diversify VOLATILITY How much volatility do you seek? If you want only 10%, it's hard with just managing money in passive rebalancing 1x/quarter. Mutual fund products are emerging with hedge fund beta replication that replicate these exposures; these'll serve investors as long as they understand what they're being subject to? PHILOSOPHIES Momentum investing (aot Value investing) challenge is that it relies on the greater fool, where it's only worth what somene will pay for it. Made the right decision for the right reasons—it's process that matters, rather than just returns. TYPES OF INVESTMENTS Target date funds: name reflects retirement date; fund manager reallocates the fund as retirement date nears. Spread over major asset classes: stocks, bonds, and cash. FACTS Earnings drives the market. Credit Default Swap A specific kind of counterparty agreement which allows the transfer of third party credit risk from one party to the other. One party in the swap is a lender and faces credit risk from a third party, and the counterparty in the credit default swap agrees to insure this risk in exchange of regular periodic payments (essentially an insurance premium). If the third party defaults, the party providing insurance will have to purchase from the insured party the defaulted asset. In turn, the insurer pays the insured the remaining interest on the debt, as well as the principal. Old approach: brokers or investment reps who'd sell stocks; current approach is wealth manager who plans comprehensively Credit default swaps: 2 parties. 1 type: you get x amount of payments on debt. (e.g., as if you were worried about default and you bought insurance). They exchange part of those payments in return for protection in the event that those repayments can't be made. People bought homes w/o putting money down; they wouldn't make a single payment; they'd wait 8 months to flip the property and take the gains—and this was working fine for a while. Then, the Mortgage-Backed Securities (one example of CDOs) were sold by banks. Prime mortgages and subprime mortgages, auto-loans and all these types of debt were bundled together. INSTRUMENTS 2 classes: - fixed income and equity -gov't debt -T- bonds (beyond 10 yrs) - T-bills (up to 270 days) - T-notes (up to 10 years) Primary banks tell banks how much they'll pay in interest.. Treasury says, next weeks, we'll auction $20B in T-bonds To move beyond a threshhold level of debt, they need Congress's approval By issuing and buying back debt, we can change the interest rates Chinese gov't, on other hand, holds exchg rts fixed by law (communism) - corporate debt - - municipal debt General Obligation Bonds (guaranteed by creditworthiness of municipality that issues them) Revenue bonds (tied into performance of some specific project). E.g., tunnel, airport, Etc. Coupon payments made from revenues generated by these projects. Municipals exempt from taxes eQS- derivatives

Questions

is this the crash of 1987? Trend: continued growth of automated trading (algorithmic trading). 40% of all trading on NYSE and Nasdaq. This trend dovetails with Market Crash in '87. In '87, people started offering Portfolio Insurance. They'd hedge the market with synthetic put options. They used equity futures to create SPs. As market goes down, you sell part of your portfolio of futures. Computer programs would do dynamic hedging of portfolio. This involves selling more futures. Oct '87 (day of reckoning): Market was overvalued. people start selling. Program trading kicks in. Stocks went down 20% in 1 day. Stocks can be subject to forces other than fundamentals of company.

Finance Vocabulary

leverage: if a bank is making more on its assets than on its liabilities, it's going to want to get as much leverage as it can. For $300 of equity, it'll want not just $1,000 of assets, but even more. illiquid- unable to pay liabilities at this time insolvent- liabilities exceed assets Stop loss: sell if it goes DOWN to 50 Sell limit: sell if it goes UP to 60 Buy limit: buy if it goes DOWN to 55 Buy stop: buy if it goes UP to 60 With above 4 orders, specify whether "good for day" or "GTC" ('til cancel) Carry Trade: borrowing at low 'r' and pay back at profit - borrow from US at 1% by shorting Treasury/fixed income - covert to currency (S. African Rand) (e.g., by buying sovereign debt of other country) - at T(1) receive 10% 'r' in Rand and pay 1% 'r' in USD. - if USD appreciates faster than Rand, you're screwed. This blew up Julian Roberts. A forward currency swap is kind of like that except you're charged a fee. Clearing Corp: traffic cop, ensuring everyone who gives stock gets cash and vice-versa. PM Account: Portfolio Management Backwardization: future price is lower than today Generating alpha: finding underpriced securities to buy or overpriced to sell. SAAR- seasonally adjusted annual revenue (e.g., $15M/yr SAAR) S.P.A.C.: Special Purpose Management Team ISM (Institute of Supply Mgmt)- measures whether you're growing. If over 50, you're growing. (comes out 1st biz day of month at 10am) Corporate Actions: stock splits, special dividends, dutch auctions, M&A, anything where you trade shares for something else. PIKs (payment in kind): warrant structure in which borrower has option to pay in cash or in more debt What Does Non-Purpose Loan Mean? A type of loan that uses an investment portfolio as loan collateral and the proceeds of which can not be used to purchase, carry or trade securities. This type of loan allows investors access to funds without having to sell their investments. Regulations require financial institutions to disclose whether a loan is a non-purpose or purpose loan, and borrowers are required to indicate the purpose of the loan. http://ads.forbes.com/RealMedia/ads/adstream_lx.ads/investopedia.com/trading/763773385/x85/OasDefault_v5/default/empty.gif/6e7a55756a45776150434941436f4a69?IPCT_Active_Trading=IP_contentTag&IPST_Dictionary=IP_sectionTag Investopedia explains Non-Purpose Loan With a non-purpose loan, investors continue to receive the benefits of their portfolio holdings, such as dividends, interest and appreciation. If the value of the pledged securities declines, however, the lender may require that additional securities be put up as collateral or that part of the loan be repaid to make up for the decrease in collateral. This type of borrowing is considered an alternative to traditional margin borrowing because it allows multiple investment accounts to be used to secure a loan.

Books - Need To Read

From CrashProof 2.0 Recc's: How I Found Freedom in an Unfree World: A Handbook for Personal Liberty Browne, Harry The Federalist Papers Hamilton, Alexander; Madison, James; Jay, John Knowledge And Decisions

Books - Ivy Portfolio

From The Ivy Portfolio: how to invest like the top endowments and avoid bear markets, by Mebane Faber and Eric Richardson -p3- 16.62% - That figure is the annualized return the Yale University endowment has returned per year between 1985 and 2008. To put that number into perspective, the S&P 500 Index returned 11.98% a year over the same time period in one of the greatest bull markets in US History. Not only did the Yale endowment outperform stocks by over 4% per year, but it did so with 33% less volatility and only one losing year (a measly -0.2% in 1988). Similarly, the Harvard University endowment returned over 15% a year with less than 10% volatility. When the S&P 500 declined by 30% from June 2000 to June 2003, the Yale endowment gained roughly 20% and the Harvard endowment returned 9%. A $100,000 investment in the Yale endowment in 1985 would be worth $4.0 million by June 2008, versus only $1.5 million invested in the S&P 500 and $950,000 in US 10-year government bonds. The same amount invested in the Harvard endowment would be worth a respectable $3.0 million. -p4-5 Endowments are a little different from the average investment portfolio. First of all, they don't have to pay any taxes to the US gov't. This enables the endowments to pursue asset classes and strategies that vary from taxable accounts since they do not have to make investment decisions based on considerations of long-term vs short-term capital gains. To keep the endowment from dwindling, the endowment manager aims for portfolio returns that outpace inflation (historically around 3% per year but it has been much higher) and university spending rates (4% to 5%). Inflation is the endowments worst enemy, and ideally an endowment would like its performance chart to look like Yale's with the endowment's growth handily outperforming the ravages of inflation over time. 13 The target asset allocation for an endowment is referred to as the Policy Portfolio. The salient conclusion ois that compared with the smaller endowments, the Super Endowments have Fewer stocks (equities) Fewer bonds (fixed income) More real assets (real estate, timber and commodities) More alternatives (hedge funds, private equity and venture capital) 14-15 Asset Class 1998 Allocation 2007 Allocation Percent Change Equity 63.5% 57.6% -9.3% Fixed Income 25.6 18.6 -27.3 Real Estate 2.1 3.5 66.7 Cash 4.3 3.5 -18.6 Hedge Funds 2.8 10.6 278.6 Private Equity 0.4 2.3 475.0 Venture Capital 0.7 0.9 28.6 Natural Resources 0.2 1.6 700.0 Other 0.4 1.4 250.0 17 Except for the past 22 years Swensen has also managed the Yale University endowment. Since Swensen took over the reins of the Yale endowment in 1985 it has returned more than 16% per year. To put that figure into perspective, the S&P 500 index has returned about 12% in one of the greatest bull markets in United States history. Even more impressive, Swensen has accomplished this feat with 33% less volatility than the S&P 500. The Yale Endowment recorded a worst year of only -0.20% versus -17.99% for the S&P 500. GET: Asset allocation targets of Yale, table 2.1 in this book - source here, 2005 Yale endowment report. 30 Rewarding investments tend to hide in dark corners, not in the glare of floodlights -2005 Yale Annual Report Over the very long run risky assets will return more than less risky assets, but not too much or they will attract a flood of money thus bidding up prices and lowering future returns. 34 Yale 2007 Policy Portfolio Domestic Stocks 11% Foreign Developed Stocks 6 Foreign emerging stocks 9 Domestic bonds 4 Real estate 14 Commodities 14 Private Equity 19 Hedge Funds 23 Cash 0 83 Just ask Andreas (Andy) von Bechtonsheim. Andy is a serial entrepreneur (he fo-founded Sun Microsystems along with others ) but his biggest claim to fame may be an early investment in Google. In 1998, Andy reportedly handed the Google founders Sergey Brin and Larry Page a $200,000 check made out to Google, Inc.—a company that didn't exist yet—and didn't even have a checking account. Ten years later his stake is worth over $2 billion (that's a 150% compound return per year for those counting). 97 As a client recently said: " There are about 8,000 planes in the air and 100 really good pilotsI - Bridgewater's Ray Dalio in 2020 Vision 135 The first rule is not to lose. The second rule is not to forget the first rule. Warren Buffett Many global asset classes in the 20th century produced spectacular gains in wealth for individuals who bough and held those assets for generational-long holding periods. However, most of the common asset classes experienced painful draw-downs, and many investors can recall the 40% to 80% declines they faced in the aftermath of the internet bubble, and most recently the global equity market collapse in 2008. All of the G-7 countries have experienced at least one period where stocks lost 75% of their value. The unfortunate mathematics of a 75% decline require an investor to realize a 300% gain just to get back to even—the equivalent of compounding at 10% for 15 years. There have been more tha 30 declines of greater than 20% since 1900 in the Dow, and 10 declines of greater than 40%. Individuals invested in US stocks in the late 1920s and early 1930s, German asset classes in the 1910s and 1940s, US real estate in the mid-1950s, Japanese stocks in the late 1980s, emerging markets and commodities in the late 1990s, and global equities and commodities in 2008 (to name a few) would conclude that owning these assets was a decidedly poor course of action. Buying asset classes for the long run is a good idea if you are a Sequoia tree, a giant tortoise or an endowment, but individuals usually do not have a 20-year time frame to recover from large drawndowns. 139 Information Overload - More information often decreases accuracy of predictions, all the while increasing confidence in those predictions. Paul Andreassen, a psychologist formerly at Harvard, conducted a series of laboratory experiments in the 1980s to see how investors respond to news. He found that people who pay close attention to news updates actually earn lower returns by excessively trading than people who seldom follow the news. Herding- From 1987 through 2007, the S&P returned more than 10% per year. However, the average investor in a stock mutual fund earned only 4.48%. That means that over these past 20 years, the average equity mutual fund investor would have barely kept up with inflation (Dalbar, 2008). This underperformance is mainly because investors exhibit poor market timing, buying at the top and selling at the bottom. Avoiding losses- People feel pain of loss twice as much as they derive pleasure from an equal gain (Tversky, 1979). More than 40 years ago Philip Fisher wrote in Common stocks and uncommon profits "there is a complicating factor that makes the handling of investment mistakes more difficult. This is the ego in each of us. None of us likes to admit to himself that he has been wrong... more money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason" 163 The time to buy is when blood is running in the streets - Baron Rothschild 175 Download all of the 13F quarterly filings IF there are more than 10 holdings, simply use the 10 largest holdings as the majority of a manager's performance should be dd

Current Events / Issues - Top Investors & Blogs

From notableandquotable.blogspot.com http://www.grantspub.com/ http://www.marcfaberreport.com/ http://dailyreckoning.com/category/bill-bonner/ http://articles.moneycentral.msn.com/Commentary/ByAuthor/BillFleckenstein.aspx www.gmo.com (Jeremy grantham) http://blogs.marketwatch.com/greenberg/ http://www.neurosoftware.ro/finance/tag/seth-klarman/ http://www.gurufocus.com/commentary.php?GuruName=Robert+Rodriguez Jim Chanos barrons.com look for alan abelson Fred Hickey Tony Deden Stephanie Pomboy Rodriguez, Bob Rogers, Jim Shilling, Gary Tice, David Zulauf, Felix OTHERS TO READ: John Dessauerà also, predicted crash and pinpointed companies that would crash. Read him.

Being Levered

BEING LEVERED $1,000 deposited. I loan out money with fractional reserve system. I loan out 2 sets of $500 loans. Each bank has an account at the Federal Reserve. If $900 gets deposited in the "Josh Bank," Josh Bank has to hold $90 (10%), and it's kept in the Fed Reserve. You have an account at another bank. You need $810. I wire that to the bank you do your business with, from which you'll buy an over you need for your bakery. I'm levered 10 to 1 if I have $1000 in assets assets / equity (ownership) Assets = [$100 cash on hand + $810 loans + $90 in reserves] / [$100] Business deals with left hand of balance sheet (assets) and Finance deals with right side of balance sheet and how you pay for things. 90% is financed by debt. Equity is the residual claim on the assets. Assets = Equity + Liabilities If a borrower pays back only $330 of our $400 loan to him, our leverage changed from $1000/100 to $930/30. If we had only $50 in equity, we'd be out of business. S&Ls were making loans but didn't have enough equity backing them. So, they went out of business. They were making consumer and commercial loans that they hadn't made before. The most important number for a bank is the Net Worth Ratio (opposite of leverage) = equity / assets BUY SIDE VS SELL SIDE Broker dealer has his own money at stake and finds buyer/seller. "Sell Side" means you have nothing at risk. You're just an intermediary. Sell side can't be hurt by a bad pick. "Buy side" can be hurt by a bad decision. Sell side research: You want guy to buy or sell something. Make a compelling case through data manipulation. Sell side: will make best case for whatever he's asked to do. Buy Side: You want to pick the best security. You want the truth... the best stock. Sell side: I-Bank: call hedge funds with their ideas. The more they sell, the better. Sales side research: Investment research provided to banks' clients; Buy side research: used by banks or investment managers Sales side research: Hedge fund raises $500M. They manage $. Hedge fund. They have pile of money and want to buy best stuff. Buy side "F-You. then hang up the phone. Sales side: "Hang up, then say F You." Sales side: I try to sell new issues to a hedge fund. HF will decide whether to buy and from whom.

Current Events / Issues - S&L

Banking Industry was heavily regulated in U.S. after stock market crashed: - Banks could only make certain types of loans, only do business in 1 state. - in early 80's they started de-regulating the banking industry to let lower prices in. - people running S&L's (federally chartered thrifts—like community banks but more limited) They made bad loans that government had to bail them out. Keating 5: the 5 senators that Charles Keating had in his back pocket. He was face of the scandal who controlled S&Ls. He headed Lincoln Savings & Loan (1989à 23,000 customers left with worthless bonds, cost gov't $3B). $160B total cost, $125B of which was paid by U.S. gov't. Caused budget deficit of early '90s. $1,000 deposited. I loan out money with fractional reserve system. I loan out 2 sets of $500 loans. Each bank has an account at the Federal Reserve. If $900 gets deposited in the "Josh Bank," Josh Bank has to hold $90 (10%), and it's kept in the Fed Reserve. You have an account at another bank. You need $810. I wire that to the bank you do your business with, from which you'll buy an over you need for your bakery. I'm levered 10 to 1 if I have $1000 in assets assets / equity (ownership) Assets = [$100 cash on hand + $810 loans + $90 in reserves] / [$100] Business deals with left hand of balance sheet (assets) and Finance deals with right side of balance sheet and how you pay for things. 90% is financed by debt. Equity is the residual claim on the assets. Assets = Equity + Liabilities If a borrower pays back only $330 of our $400 loan to him, our leverage changed from $1000/100 to $930/30. If we had only $50 in equity, we'd be out of business. S&Ls were making loans but didn't have enough equity backing them. So, they went out of business. They were making consumer and commercial loans that they hadn't made before. The most important number for a bank is the Net Worth Ratio (opposite of leverage) = equity / assets

Questions for Eugene/Maja

Explain MLP's as for Sedergren, client meeting coming up Buying into a shell of cash is great. Reversing into these things are great. Will this be on the pink sheets? No. used to be a nasdaq-peer 2 (it's not pink sheets at all—doesn't carry that stigma). Do you have any MLP- (master of limited partnerships) I have some co-cap and agic. Do you have any U.S. stuff? Do you have anally mortgage capital—16% yield. All they do is buy u.s. agencies. How did you learn about this IPO in REITs. why others don't start a PM fund with their own money (adam said 'they trade too much for their own account and it's the largest one they manage)

Current Events / Issues - News Transcriptions

In the free market, bad debts are resolved through restructuring; in today's market, they are only made worse by denial, obfuscation, extend, pretend and government leaders pushing buttons and pulling levers without even the slightest idea as to consequences. As bad as are the resulting deficit forecasts, however, the assumptions behind even these "plausible" scenarios are so far off from my expectations that I am confident they err on the side of being much too conservative. For example, in the Concord Coalition's assumptions, the consumer price index never rises above 2.3% - all the way out to 2021 - and the unemployment rate drops to 5.4% by 2016. Along the same optimistic lines, 10-year Treasury interest rates never climb above 5.3% and GDP will reach 5% in real terms by 2015. While no one can see the future, all of my work leads me to expect much higher inflation, much higher interest rates and a much slower growth of GDP over the time period. Sept 6 America's abysmal economy has President Obama perplexed. According to his statist theology, he's done all the right things: debased the dollar, nationalized and/or micromanaged industries, suppressed interest rates, vacuumed trillions from the private economy to finance new, hastily conceived government programs, everything! And yet, the failures only pile up like a rear-end collision extending from cash-crunched California to mish-mashed Massachusetts. Things became so desperate the president even expanded the ranks of his economics-minded "brain trust" to include a few non-academics (though capitalist, they're mostly of the crony variety). Just about the only thing he hasn't done is listen to those who've been accurately predicting and then explaining these developments from the get-go. gold mining '08 critics said, 'look, it's a gold bubble. It went down 30%. But the highest you could've bought it at 1,000. The lowest it dropped to was 700. So, even if you bought at its high, it's up 80%. But when gold fell from 1000 to 700, a 30% drop, gold stocks... which are measured by the HUE index... droped 70%, from 520 to 150. And here's the opportunity I see... Gold stocks are only 10% above where they were in mid-2008. So the price of gold has gone up 80% but the value of the stocks with all the value in the ground, that mine the gold, and sell it for a profit... have only gone up 10%. Does that sounds like a bubble? If it were a bubble, I think you'd have more froth in the stock than in the metal itself. But there's more fear than greed in the gold stocks. gold Central banks became net buyers of gold last year for the first time in two decades, adding 76 metric tons to their reserves, she said — and in the first half of this year, they bought almost three times that amount. our grandchildren won't believe what happened when we explain how simple it is, how so many didn't see it and how we didn't react. we're in debt. They can't cut rates b/c they're already at zero We're beginning a recession when rates are already at zero. We're replacing the boom bust cycle with the bust bust cycle. We're going from bust to bust without the boom (and the jobs that the boom brings) Normally when economy is growing, Fed is reloading the gun (raising 'r') And when the e contracts they can start firing the gun again and lower 'r'—but the chamber is empty. But you listen to steve lessman and the talking heads on cnbc and Bernanke—they can only inflate. Papering over the problem and making it bigger. depression more people are waking up to reality that we're in a depression or at least going back into a recession a lot of people thought we'd have growth and now their rethinking their forecasts. a lot of weakness in the financials Lots of co's will see decreased earnings. BankCorp, Citi, GS, new 52-wk low impact on companies If we're headed back into recession, how does that impact companies? Their customers won't be buying as much and earnings will fall. If people have fewer jobs, they have less discretionary income, they have less wealth in the real estate and stock market. If credit is contracting around the world, as result of rising rates in Europe, that means European companies can buy less. This means lots of companies will see top line #s fall. What about gold companies? If people are looking to gold as a safe haven, that means the product gold companies carry are going up in price. Their top line revenue will grow, all while their costs will drop. Oil prices are back down to $87/barrel. Fundamentals for gold mining industry are improving—an opportunity for people who can assume the risk—especially when the media is saying, "Ahhhh, you see, gold is not a safe haven." Unemployment #s We created 117,000 new jobs You need 125,000 just to absorb new entrants and keep the unemployment level. But "U" went down from 9.2 to 9.1%; THAT'S because over 100,000 people left the labor force. Had the labor force grown, U would've grown. end July: The average duration of unemployment rose for the third straight month and is now at a record 40.4 weeks—about 10 months and now double where it was when President Obama took office in January 2009. The total number unemployed for more than half a year now stands at 6.18 million, 130 percent higher than when the president's term began. WE'RE IN DEPRESSION- SHRINKING Report released by the Bureau of Economic Analysis last week highlighting the fact that our recession ran deeper then and, in my opinion, continues to run even deeper now than most appreciate. For 2007-2011 end of 1st quarter, in the previously published estimates, real GDP was said to have increased; based on revised estimates, real GDP actually decreased. - Negative real GDP readings to me spell one thing. We have never officially gotten out of recession despite all the sugar highs produced by Uncle Sam and executed by his boys, Ben and Tim. Talk of green shoots, V-shaped recovery, and assorted other tricks were designed by those who are more interested in your vote, your spending, your purchasing overpriced securities, and your daily trading than your long term economic well being. your [$650K] is just burning a whole in Ben Bernanke's pocket. He's itching to find something to spend it on. If I were you, I'd take that cash and invest in something other than dollars for Bernanke to spend. Depression and it's Impact, Gold more people are waking up to reality that we're in a depression or at least going back into a recession a lot of people thought we'd have growth and now their rethinking their forecasts. we're in a world of pretense a lot of weakness in the financials Lots of co's will see decreased earnings. BankCorp, Citi, GS, new 52-wk low If we're headed back into recession, how does that impact companies? Their customers won't be buying as much and earnings will fall. If people have fewer jobs, they have less discretionary income, they have less wealth in the real estate and stock market. If credit is contracting around the world, as result of rising rates in Europe, that means European companies can buy less. This means lots of companies will see top line #s fall. What about gold companies? If people are looking to gold as a safe haven, that means the product gold companies carry are going up in price. Their top line revenue will grow, all while their costs will drop. Oil prices are back down to $87/barrel. Fundamentals for gold mining industry are improving—an opportunity for people who can assume the risk—especially when the media is saying, "Ahhhh, you see, gold is not a safe haven." We created 117,000 new jobs You need 125,000 just to absorb new entrants and keep the unemployment level. But "U" went down from 9.2 to 9.1%; THAT'S because over 100,000 people left the labor force. Had the labor force grown, U would've grown. Greenspan confession- phony #s Most interesting, however, is that Greenspan admitted that Congress, the President were using phony numbers that downplay the deficit problem. Said Greenspan: This deficit problem that sits out there is much larger than we've been calculating, because the actual numbers employed by those who are calculating the deficits are based on a level of economic activity which we are not achieving. This is an awesome confession. I have never heard anyone so close to the center of power speak so much truth. Oligarch Warren Buffett, who managed to buy into Goldman Sachs just before the government bailed out Goldman to the tune of multi-billions of dollars, thinks the Treasury is doing one helluva job. Put it this way, he knows who stands ready to bailout his operations, if anything ever went wrong in a part of his conglomerate. DEBT CEILING Congress did exactly what I expected; hand gov't blank check to raise gov't spending with no cuts in gov't spending whatsoever. They'll talk about $2T of cuts. When Congress talk about cuts, they don't talk about cutsomestic investors. Only the part from the Fed could be QE. It's more useful to look at what Bernanke and the FOMC is saying than the Treasury to figure that quantity out. Fed treasury purchases could be a lot less than $331 billion (if most of the new treasury securities are purchased and held long term by private investors) or a lot more than $331 billion (if the Fed starts buying up a lot of the pre-existing $10+ trillion in debt held by private investors). S&P Managing Direction, John Chambers, defends downgrade to AA: - political gridlock in Washington, makes it difficult for elected officials to put the fiscal profile of the U.S. government on a long-term sustainable path - debt accounts for 75 percent of gross domestic product and will "trend up over the next decade unless we get additional fiscal measures - S&P needed to see $4 trillion in budget cuts over the next decade, but the eleventh-hour budget deal reached w/ raising debt ceiling cut only $2.4 trillion over that time. QE3- NEXT QUANTITATIVE EASING Sometime this year, we taxpayers will again receive another 'Economic Stimulus' payment. This is indeed a very exciting program, and I'll explain it by using a Q & A format: Q.. What is an 'Economic Stimulus' payment ? A. It is money that the federal government will send to taxpayers. Q.. Where will the government get this money ? A. From taxpayers. Q. So the government is giving me back my own money ? A. Only a smidgen of it. Q. What is the purpose of this payment ? A.. The plan is for you to use the money to purchase a high-definition TV set, thus stimulating the economy. Q. But isn't that stimulating the economy of China ? A. Shut up. Below is some helpful advice on how to best help the U.S. economy by spending your stimulus check wisely: * If you spend the stimulus money at Wal-Mart, the money will go to China or Sri Lanka . * If you spend it on gasoline, your money will go to the Arabs.. * If you purchase a computer, it will go to India , Taiwan or China . * If you purchase fruit and vegetables, it will go to Mexico , Honduras and Guatemala .... * If you buy an efficient car, it will go to Japan or Korea . - S&P downgraded US sovereign debt from AAA to AA+ with a negative watch. - Aug 5th may live in infamy like dec 7th, 1941 b/c 1st time a rating agency has acknowledged that maybe the emperor has no clothes. - Only thing they did wrong was not downgrade them more. o We don't deserve to be AA+, b/c New Zealand is AA+. Public debt in NZ is 10% of GDP. They're far more solvent than U.S. I'd much rather buy NZ gov't bonds than US Treasuries. o We are in a recession—starting with unemployment ("U") already at 9% and 'r' at zero. aug 3: Debt to GDP The new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, and putting it in a league with highly indebted countries like Italy and Belgium. Layoffs Mass layoffs are continuing. Cisco, Borders, Lockheed Martin, Perkins, and many others are undergoing massive restructuring and laying off employees. Now we have NASA releasing thousands of experienced engineers. Many hospitals and health care organizations are furiously cutting staff and consolidating- circling the wagons in anticipation of the ObamaCare debacle that is almost here. Get ready for the health care shortage that is going to hit us, partially due to a reduction in experienced professionals. 700 new companies like apple this year just to balance the budget deficit this year! It took steve jobs an entire lifetime to build that, and there's just 1. Bernie marcus, the ceo of home depot, couldn't have started his business today. Soros advocated big government and now is closing his hedge fund because of all the onerous regulations For many retail businesses, flat is the new up, but trying to play up the positive of low growth by sloganeering is really unhelpful. We need actual sustained and real growth, not bumping along the bottom. bad debt situation... BEST RANT!! We're ad dicted to low interest. The Federal Gov't is broke. It can't afford to pay the loan interest on principle. If 'r' rises, housing will tank. ... big banks will fail. That's why I feel gold and silver are a 1-way road. We won't do the right thing until we've tried everything else. They're trying to create a little bit of inflation. That's like trying to get someone a little big pregnant. Bernanke looks like a Geiger counter at an earthquake with his lying and sweating. Private sector metric- 9% inflation last year Import price index- 13% inflation last year PPI- 7% Yet the 10 year 'r' is 2.95%, which must be a negative real interest rate. The Fed's B/S is $2T higher over the last 3 years. M2 is up $2T in last 3 years. The Fed has been buying 75% of all new Treasuries issued. S&P has threatened to lower the U.S. Treasury rating from AAA to D, the lowest rating, if we miss principle or interest payment. The interest rate on a 10-year Treasury bond, for instance, is now about 2.8 percent. A 10-year inflation-protected Treasury bond yields about 0.4 percent. The difference between those yields, the so-called "break-even inflation rate," is the inflation rate at which the two bonds earn the same return. That figure is now a bit over 2 percent, a sign that the market does not expect inflation in the coming decade to differ much from that experienced over the last five years. Romney's econ advisor: Mankiw John Allison- BB&T 1.5T deficit 100T of debt failing education system it's certain that we're going broke in the next 25 years. Countries default differently from companies. It's a slow death—like Argentina. Rand said one of the purposes of writing a great book is to prevent a fiasco from coming true. She wrote Atlas Shrugged in '57 and unfortunately it's coming true. Like 1986, we're facing stagflation. What concerns me is less the next 5-10 years and more the long term. Gold- a boom imminent July '11: China, Russia, Brazil, India, the Mid-East petro-powers have diversified their $7 trillion reserves into euros over the last decade to limit dollar exposure. As Europe's monetary union itself faces an existential crisis, there is no other safe-haven currency able to absorb the flows. The Swiss franc, Canada's loonie, the Aussie, and Korea's won are too small. "There is no depth of market in these other currencies, so gold is the obvious play," said Neil Mellor from BNY Mellon. Western central banks (though not the US, Germany, or Italy) sold much of their gold at the depths of the bear market a decade ago. The Bank of England wins the booby prize for selling into the bottom at €254 an ounce on Gordon Brown's orders in 1999. But Russia, China, India, the Gulf states, the Philippines, and Kazakhstan have been buying. China is coy, revealing purchases with a long delay. It has admitted to doubling its gold reserves to 1,054 tonnes or $54bn. This is just a tiny sliver of its $3.2 trillion reserves. China's Chamber of Commerce said this should be raised eightfold to 8,000 tonnes. Xia Bin, an adviser to China's central bank, said in June that the country's reserve strategy needs an "urgent" overhaul. Instead of buying paper IOU's from a prostrate West, China should invest in strategic assets and accumulate gold by "buying the dips". "r" The Fed can't keep just print money and keep 'r' low indefinitely or even hint they will. If they did, there'd be a run on the dollar right now. When we try to monetize our debt and print all this up, nobody is going to want to own U.S. denominated debt except the Fed. Why? b/c they're the only entity willing to buy it because they don't care. It's not the Fed's own money; the Fed just prints it. It creates it own of this air. It has nothing to lose; it's only everyone else who has something to lose. US Debt In 3 yrs, the national debt will be $15T. What if interest rates rise in 3 years to 10%, ½ of what they were in 1980, that's $1.5T This is a teaser rate on an adjustable rate mortgage and we're headed for disaster. It's like a subprime mortgage Gov can borrow for 30 years at 4.5% We're worse with sovereign debt than Greece. We owe most money to most people. The fact that we can print money to repudiate our debts is not a good thing. Greece No bailout best- so Greece restructures their debt, including creditors. Those who loaned money shouldn't get all their money back—they shouldn't have loaned wrecklessly. Maybe Greece cooked its books; citizens might swallow the message if they knew cost was borne by creditors too would send signals to other borrowers that they should be careful. Higher interest rates would encourage others to be more responsible as well. Inflation Normally, banks' principal business is lending, and the interest rate they can get on their loans is more important than the interest they might get on their reserves. Once borrowing resumes, banks will increase loans and expand deposits. The current massive volume of excess reserves will melt into a greater money supply, and later higher inflation. When will inflation start? The date is uncertain. But the triggering event will be either a sustained increase in bank lending or a large increase in Fed purchases of government debt. Perhaps both. Either one would trigger a sustained increase in money growth. Jan 21 Equities: China up beyond 8%, creating expectations of reigning in inflation, which will dampen growth in our markets Bonds: high-yield bonds returned 57.5% in '09 Unemployment #s: Schiff Blog Dropped 85,000 jobs—we'll continue to shed jobs. Losing goods production/mnfg jobs. Gaining jobs in Gov't and svcs. Not as productive. They increase deficit. Real productive jobs are being destroyed. Unemployment held steady at 10% only b/c 600,000 people claim Real unemployment rate is 17.3%-- includes discouraged workers and part-time workers. Better indicator of how things really are. Idea that gov't should stimulate economy doesn't work. The government can create work for us, but we don't want work. We want production. The things we use. When the gov't creates jobs, they destroy productivity by destroying other jobs that were more productive. Creating inflation destroys savings and drives capital out of the country Rescuing Bear Sterns As painful as it may have been at that time, the Committee to Save the World, Version 2.0, could have just as easily sent a very different message, one sent to the shareholders and creditors of poorly managed companies all the time: Too bad. You took risks you didn't understand? Got too greedy? Took your eye off the ball? Kept in place executives and their cronies on the board of directors who should have retired or been replaced years earlier? Well, then, you are about to learn the valuable lesson of American capitalism and what it means to take stupid risks with other people's money. You will lose your investments, your jobs and your company. Sorry about that. Stuff happens. The market understands that message loud and clear. Fannie/Freddie We're paying massive sums, and Obama wants taxpayers to think that these are profit-seeking companies being nursed back to health, like AIG. At least AIG is trying to make money. Fan and Fred are now designed to lose money, transferring wealth from renters and homeowners to overextended borrowers. And it's being done off of the government books. And it doesn't include the $5 trillion in mortgages that F/F own and guarantee, or Fannie and Freddie spending as federal outlays, though Washington controls the companies. The co's have become Washington's ultimate off-balance sheet vehicles, the politcal equivalent of Citigroup's SIVs that are being used to subsideize and nationalize mortgage finance. In today's Washington, we suppose it only makes sense that the companies that did the most to cause the meltdown are being kept alive to lose even more money. The politicians have used the panic as an excuse to reform everything but themselves. Freddie has one of world's highest paid HR exec's Paul George, w/ total comp of $2.7M. It must require a rare set of skills to spot exec's capable of losing billions of dollars. We're paying massive sums, and Obama wants taxpayers to think that these are profit-seeking companies being nursed back to health, like AIG. At least AIG is trying to make money. Fan and Fred are now designed to lose money, transferring wealth from renters and homeowners to overextended borrowers. And it's being done off of the government books. And it doesn't include the $5 trillion in mortgages that F/F own and guarantee, or Fannie and Freddie spending as federal outlays, though Washington controls the companies. The co's have become Washington's ultimate off-balance sheet vehicles, the politcal equivalent of Citigroup's SIVs that are being used to subsideize and nationalize mortgage finance. Schiff Gov will try not to let interest rates rise, b/c that'll mean collapese. The only reason real estate prices aren't falling is that you have: - Gov't tax credits for buying houses - fed buying mortgages - gov't guaranteeing mortgages - 'r' artificially low - gov't intervening in mortgage security market by extending unlimited guarantees to Fannie/Fr Mortgages have to come from gov't. Why won't they come from private sector? b/c they're too risky. Why? b/c prices are too high. Eventually prices are going to have to fall. The only way for them not to fall is if such high inflation causes nominal value not to drop, Domestic Equities over 10 years not good. Dow Jones Industrial Average today stands at just 10520.10, no higher than in 1999. In 1999 dollars, the Dow is only at about 8200 and would have to rise another 28% or so to return to 1999 levels. Dow would have to surpass 13460 to get back to its 1999 level in real, inflation-adjusted terms. In 1997, the Dow looked strong at 40 times the dollar value of an ounce of gold, notes John Hathaway, who oversees more than $5 billion at the Tocqueville Gold Fund at New York's Tocqueville Asset Management. With gold's rebound since 1999, the Dow now is worth about nine times an ounce of gold, meaning simply that gold has performed a lot better than the Dow. Mark Faber Total credit is climbing. Consumer credit is shrinking. Gov't credit is growing. Debt:GDP was 186% during Great Depression Debt:GDP is 375%, over 600% if you consider unfunded liabilities (In 1929 we didn't have social security, medicare and medicaid, and unfunded liabilities, such as Fannie Mae, Freddie Mac). When 'r' rises, interest payments on gov't debt will balloon. In 7 years, 'r' payments on gov debt will be 35-50% of tax revenues. We'll be in huge mess. We'll monetize and create stimulus's that'll lead to high inflation. In 1950's, we were superpower. Emerging economies were down there. We're still [w gesture] up there, but not way up. And emerging economies are closing the gap. China is up there. Our consumption is unprecedented, and China, who saves, will reap benefits in longer-term. We have 20% illiteracy in many states—real challenges. The global economy had $1T in reserves of foreign currencies in '96. Now, we have $7T. In Asia, central banks hold 70% of $7T, yet they have less than 2% of reserves in gold. I believe Car sales and oil consumption in emerging economes (India, Latin America, China) exceed G-16 countries/developed countries (western Europe, U.S. and Japan combined). There's been a huge shift in power. Yields on U.S. bonds will rise in 10 years b/c we have economic recovery, so 'r' will rise or we have more inflation so people will not want to own U.S. bonds (50% of bonds of are in hands of foreigners). The Fed has to monetize MBS's and USGov Bonds... if they do this with monetary injection;

News- Countries

May 4th: (www.youtube.com/watch?v=bLfYU2XGX34) Greece: people are rioting b/c gov't is threatening to take away their entitlements, reduce pay packages. They're being asked to give this up so that greek gov't can pay greek bondholders. Many people who own greek bonds don't live in Greece or vote in greece's elections. Who do you think greek politicians want to listen to? Imagine asking the greeks to sacrifice so that germans, americans, Saudis can be made whole and get all their 'r' payments. The only reason greek politicains are even considering repaying the debt is becoming their in the Eurozone b/c they can't print. If they borrowed Drakma, everyone would get paid. No one's benefits would be cut. Greek citizens are protesting that they'll get paid less. But if gov't could print its way out, they'd still be getting paid less. Drakma wouldn't buy as much b/c cost of living would go up. In U.S., when 'r' starts to rise (b/c foreigners aren't willing to loan otherwise) are U.S> pol's willing to tell C's (citizens) that they have to put up with higher taxes and cuts in social security so we can make 'r' payments to chinese and saudi's--- not on your life!! But that's what greek politiicans are proposing at this point. It's only b/c their back is to the wall that they're considering doing the right thing. Best thing would be no bailout at all. If they restructure their debt. Those who lent Greece money shouldn't have loaned money so recklessly. Greek citizens would be likelier to swallow medicine if they knew everyone were sharing the pain, including greek creditors. That'll put restrains on runaway gov't spending in Europe, b/c that way gov'ts may cut back on their borrowing.

Books - Bogles Guide to Investing

NOTES FROM BOGLE'S LITTLE GUIDE TO INVESTING The classic index fund holds all of the $15 trillion capitalization of the U.S. stock market, operates with minimal expenses and without advisory fees and with tiny portfolio turnover and with high tax efficiency. The index fund owns corporate America, buying an interest in each stock in the stock market in proportion to its market capitalization and then holding it forever. The typical investor in individual stocks lags market returns by 2.5%. 12% over past 25 years by S&P 500. Before the deduction of the costs of investing, beating the stock market is a zero sum game. Funds are subject to sales loads and hidden transaction costs as a result of their hyperactive portfolio turnover. The stock market is a giant distraction that causes investors to focus on transitory and volatile investment expectations rather than on what is really important—the gradual accumulation of the returns earned by corporate business. Ignore the short-term noise of the emotions reflected in our financial markets and focus on the productive long-term economics of our corproate businesses. Shakespeare could've been describing the hourly or even yearly fluctuations of the stock market when he wrote, "It's like a tale told by an idiot, full of sound and fury, signifying nothing." Dow Jones Wilshire Total Stock Market Index—4971 stocks, including 500 S&P stocks. It's the broadest of all U.S. stock indexes and the best measure of the aggregate value of stocks.

Books - Thought Leaders

Nouriel Roubini and Nassim Taleb

News- Archive

Pimco The slickest sleaziest government-private sector revolving door has to be run by Pimco. Pimco is the largest bond fund manager in the world. When Federal Reserve Chairman Alan Greenspan left the Fed, Pimco gave him a consultancy contract. Get it? As Fed chairman Greenspan set interest rate policy. Now, he is consulting with the largest bond house on what the Fed is going to do with regard to interest rates. They also hired Neal Kashkari, a Hank Paulson lieutenant when Paulson was at Treasury. Kashkari ran TARP for Paulson. Now rumors are circulating that President Obama may nominate Richard Clarida, an executive vice president at Pimco, for one of the vacant positions on the Fed's Board of Governors. Bottom line, the Fed is starting to look like a bought and paid for branch of Pimco. don't avoid doomsday thinking Some people avoid the debate entirely because they assume the collapse of the dollar will mean the end of the world. It won't! The Real Reason Most People Don't Think the Dollar Can Collapse Is That the Consequences Are Too Terrible to Think About All we ask is that you not let fear stop you from absorbing the facts. Based entirely on logic and the evidence at hand, there simply is no other plausible scenario.