Sunday, February 28, 2010

I Feel Uncomfortable About This

I've had the opportunity to travel to many different countries and see what they watch on television. Unfortunately, I only speak english so much is lost in transalation but "pictures do speak a thousand words".

Here is a news clip from IRINN [IRINN stands for Islamic Republic of Iran News Network and is a full news channel, part of Islamic Republic of Iran Broadcasting corporation, headquartered in the Jame Jam Park in Tehran, Iran. The main programs are political, but sports, science and medical news programs also exist. Its language is mainly in Persian but there are special programs in English and Arabic.]

The news feed is courtesy of RIANOVOSTI [A Russian News services that provides much of its content in english]. There is no speaking so you won't need translation.

Tuesday, February 23, 2010

Buying Greek CDS and Watch Citicorp

Two things... really important... double check my data because I can't tell when I get a really independent, second opinion on the data or if I have a person that is simply repeating what I have already heard. Confirming sources is getting really, really difficult.

  1. Legislation is pending in front of the US Congress allowing money market companies to delay withdrawal requests for up to 7 days after a customer request has been entered. In addition, Citibank sent notices to customers that they are not obligated to honor customer's withdrawal requests under certain circumstances. I have seen the legislation mentioned, but I am not a Citi customer so cannot substantiate the latter. However, I firmly believe that controls are being put in place so as not to expose the banking system to the "run of withdrawals" experienced shortly after the Lehman collapse. If you don't know what I am talking about, post a comment to this post and I will re-post the links.
  2. If you are a bond fund holder in funds managed by companies similar to G.Sachs and Pimpco (these are only metaphors- since holdings change by the second) don't worry about any Greek Government Credit Default Swaps (CDS) held by similar institutions. The US Federal Reserve (central bank of the U.S.) has reasserted its authority to either buy Foreign Sovereign debt directly in order to provide stability to world financial markets or to buy CDS instruments from US holders. This, of course, is done at the US Taxpayer expense eventually.

So here's the tip to make money. You always need to be on both sides of any deal. For example, US Gasoline prices will be at $3.00+ within the next 6 months. If you want to hedge your increasing gasoline costs as a consumer, then you need to own some oil company investments. That way when prices do rise, and everyone is moaning, you can moan right along with them knowing all the time you are covered.

Same with Bond funds held by too big to fail financial institutions. You need to be in the game on both sides. If you are a US citizen then you are already a taxpayer and you will be bailing out everyone world wide. You must get in on the other side of this hedge. One way to do this (and I do not recommend this) is to buy foreign bond funds sponsored by too big to fail institutions knowing the Fed will bail you out at taxpayer expense when things go bad.

I know what you are thinking...this not a way to make money, this is a way to lose less than the next person. That is right. Capital preservation is about you and I meeting a hungry bear in the woods. I don't need to out run the bear. I only need to outrun you.

This means, if we are all heading towards zero, then my plan is to be the last man there. However, if we are all going higher, the I plan to be the first horse out of the gate.

Saturday, February 20, 2010

Thanks to all my readers!

Every year around my birthday, I reset the visitor counter on this site. I would like to take this time to thank my many readers around the world for their frequent visits, comments and emails (click to enlarge).Blogging is my therapy. I feel better after I post. Please know that have tried to make the material interesting, entertaining and intellectually challenging.

In 2010, you can count on Finance, Economics and Government Policy to continue to be the predominate topics. I will try to be as global as possible. Also, I have no interest in blogging about "politics" - there are enough people doing that.

In closing, here is the visitors by country/region sorted by most visits.

One again, thanks to everyone.

United States (US) Europe (EU) Canada (CA) Belgium (BE) Germany (DE) Spain (ES) United Kingdom (GB) Australia (AU) Switzerland (CH) France (FR) Malaysia (MY) Netherlands (NL) Singapore (SG) Hong Kong (HK) Hungary (HU) Sweden (SE) Korea, Republic of (KR) India (IN) New Zealand (NZ) South Africa (ZA) Croatia (HR) Brazil (BR) Romania (RO) Jamaica (JM) Mexico (MX) Japan (JP) Chile (CL) Iraq (IQ) Poland (PL) Russian Federation (RU) Iceland (IS) Costa Rica (CR) Norway (NO) Czech Republic (CZ) Italy (IT) Dominican Republic (DO) Asia/Pacific Region (AP) Thailand (TH) Greece (GR) El Salvador (SV) China (CN)

Thursday, February 18, 2010

Some Carry on while others get Carried away

There is a delicate line between "carry on" and "carrion".

The Carry Trade is when financial institutions borrow money from the FED at like .25% and then use that money (not to make loans) but rather buy something else that has a higher yield like US Treasury Bonds. It is a way to make tons of money without risk.

Now you probably think that only the big institutions can do that but you are wrong. The common person can too! But there is a lot more risk involved. In fact, what I am going to tell you I don't recommend. So take this as an exercise in mathmatics not an a discussion about investing.

So here goes and I will use round numbers for convenience.

  1. There are 600 or so stocks traded on the New York Stock Exchange that have a dividend yield of 5% or greater.
  2. If you can gather up enough resources to open a brokerage account with, let's say round numbers of $100,000; A brokerage will allow you to borrow up to $500,000 or more on margin @ 1.25%.
  3. So let's say you buy $500,000 in stock and after a year you will have $25,000 in dividends @ 5%.
  4. Now you have to pay the broker back interest, so you owe them $6,235 leaving you with $18,750 in profit pre tax.
  5. Now current tax rate on dividends is 15% so you owe Obama $2,812.50 tax on your dividends. You do get a tax credit for your margin interest (assume 25% tax bracket) of roughly $703; so your net tax is $2,110.
  6. Subtract the $2,110 from your $18,750 pre-tax profit (step 4) and you get a cool $16,640 in your pocket to spend.
  7. Now the tricky part. The brokerage also wants their $500,000 back. If those stocks you bought with the original $500,000 tanked then you are in big financial trouble and this normally results in people jumping out of windows al a 1930.
  8. And that is why you never want to do this.
  9. Unless of course, you knew the government or the Federal Reserve were going to do their level best to ensure the stock market doesn't crash again.

The banks get away with this because they are not worried about the implications of step 7. The US government will use tax payer money to cover any losses in step 7 that they cannot absorb. That is why many free thinking people firmly believe that Washington is concerned about Wall Street and not Main Street.

This not a US phenomenom. This is being done by central banks all over the world.

Financial institutions all around the world have been taking advantage of the "carry trade" made possible by their country's central bank.

Which means they have all been buying assets to capitalize on the yield differential.

Which means all this buying has been inflating asset prices.

Which means someone at sometime will start selling.

Then they will all start selling.

What will you be doing?

What will your pension plan be doing?

Monday, February 15, 2010

China Currency Revaluation

China may revalue its currency soon. The Yuan does not float like most currencies but is rather "pegged" by the government. A 5% increase vs. the dollar is speculated- this will weaken the dollar. This is at a time when a stronger dollar will be better for the next treasury auction now that the US Government (via the executive branch) just raised the debt ceiling so the US can borrow more money.

However, a 5% increase vs. the dollar, while weakening the USD does make US exports look more attractive. That is if we were actually exporting anything anyone wanted because not much is actually manufactured here anymore. Hence, the conundrum from the state of the union speech calling for doubling US exports in 5 years. I am sure what the president meant was that we would be at 2X the amount of actual exportable products in 5 years allowing for adjustments in things we don't export anymore. This is mathematics similar to jobs created vs. jobs saved. My point being that success is defined as exporting 2X the amount of things we would of have been exporting if no action was taken. Are you following this? Cause that was the easy part.

China pegs its currency to the dollar. Why? Because that enables China to enjoy the same biased currency hedge that the US enjoys with having the dollar act as the world's reserve currency without taking accountability for being the world's reserve currency. Very clever. So why increase your currency and make your own product 5% more expensive. Doesn't that mean people will buy less Chinese goods?

Maybe. Or, maybe it doesn't matter if you buy less Chinese goods. Think about that for a moment.

Or maybe the Chinese are pressuring the EU. With the PIGS in near default (Portugal, Italy, Greece, Spain) the narrowing of the gap between Euro and Dollar is closing. Could a Yuan revaluation put so much pressure on the EU that the USG needs to bail out the EU and with what? More US Debt that is, by the way, purchased by China?

Editor's note: Keep an eye on this point. There is a growing drum beat that the EU's problems stem from Wall Street therefore the US (and therefore the US Taxpayer) is accountable to fixing any monetary problems in Europe. This is the same thing that happened when billions of US Taxpayer money was channeled to AIG only to go to EU Central banks.

Given the notion that China can now purchase US Debt in Yuan rather then dollars, this enables them to purchase 5% more of America without actually putting up any additional costs. Are you getting this? 5% is just the shot over the bow. 10% will come very fast.

Or if this happens and the US needs to float more debt then is planned and doesn't want to sell it to China, maybe the Federal Reserve can increase its purchases of US debt to keep liquidity flowing.

But does that make any sense? I mean the USG authorized the Fed to create money. The money created is given to the banks, who in turn, buy US Government debt. That is puting money from the left pocket to the right pocket and calling it a loan.

I am getting nervous that the conspiracy theorist I talked to in July of 2009 was right-- we may be at war and the matter is not made public. It may be everybody against everybody. But that is what happened monetarily just before the great depression.

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**FLASH**: Not to freak anybody out but here is the pop up that I got right after I pushed the "PUBLISH" button on this post. Big brother is out there... no doubt. After all, if it was this easy to send me a targeted advertisement, just guess how good more motivated surveillance is!
http://finance.uncommonwisdomdaily.com/roi/war-on-the-dollar.php?sc=G100&ec=A97650&ga_campaign=uw+content+-+bernanke/obama/rwr+(a97650)&ga_adgroup=dollar-+text&ga_keyword=content&gclid=CKO8wpfH9Z8CFdRM5Qodb2ecfg

Monday, February 01, 2010

Part 2: Pension Confiscation?

The first post on January 8th, 2010 is here: http://tedbits.blogspot.com/2010/01/us-government-pension-confiscation.html

The matter is now officially public.

"The Department of Labor and the Department of the Treasury (the "Agencies") are currently reviewing the rules under the Employee Retirement Income Security Act (ERISA) and the plan qualification rules under the Internal Revenue Code (Code) to determine whether, and, if so, how, the Agencies could or should enhance, by regulation or otherwise, the retirement security of participants in employer-sponsored retirement plans and in individual retirement arrangements (IRAs) by facilitating access to, and use of, lifetime income or other arrangements designed to provide a lifetime stream of income after retirement. The purpose of this request for information is to solicit views, suggestions and comments from plan participants, employers and other plan sponsors, plan service providers, and members of the financial community, as well as the general public, on this important issue. "

Sounds benign. There is almost $4Trillion in privately held funds either in personal IRAs, 401Ks or Employer Sponsored pension funds. There are people who want to take your money and replace it with a promise. How do you feel about that?

If you would like to comment on the government plan you can email your response to:

e-ORI@dol.gov. Include RIN 1210-AB33 in the subject line of the message

If you feel uncomfortable with voicing your opinion you should reflect on why.

You can read the whole US Government Document here: http://www.zerohedge.com/sites/default/files/2010-02028_PI.pdf


Just so you know... you can use holdings you have now to purchase an annuity to ensure an income stream. You don't need government regulation to allow you to do this nor should it require you to do this. Interesting, isn't it?