Real and imaginary threats to America

These are wild times and there are definitely things to worry about, but unfortunately the rains of misfortune are also bringing many crazy worms to the surface.

For instance, one story doing the rounds is that the 5.8 quake of 23 August 2011 (I was in Long Island at the time and it was mildly interesting) was caused by a nuclear explosion. For some, this segues into talk of a vast secret network of underground tunnels, stolen nuclear weapons and some kind of underground battle. Illuminati, aliens, the lot.

Worse, the excitable conspiracy theorists appear to be doctoring the data. See the alleged seismograph readout in the link above, which looks most odd because (unlike with normal earthquakes) there seem to be no p-wave tremors before the major shaking; then see the actual readouts from the Seismological Observatory at Virgina Tech. To save you the bother, here they are:

What are the nutters thinking when they do this? Are they like those mediaeval monks at St Denis, Naples and elsewhere, who created and manipulated effigies so that they appeared to speak to the faithful? Believers themselves (we must hope they were not simply cynical), they considered it their duty to perpetrate pious fraud in order to foster the faith in others. Is that what we have here, now?

Yet it seems there are more mundane, yet real, threats we should guard against. For example, according to this article (htp: Robert Wenzel) it seems that the United States government is choosing where to hold a trial for Julian Assange, according to vested local interests that may influence the kind of jury he will face. If true, this makes a mockery of justice - and my reading of John Grisham's fiction suggests that such manouevres are quite believable, perhaps common.

Meanwhile, Americans are thrown into a panic by the Islamic bogeyman, who in the worst atrocity on US soil ten years ago claimed under 3,000 lives. Every life counts, and we have New York fire and police in our extended family, so I don't for a moment undervalue the horror of what was done that day. Yet look at the year 2000 for comparison: the 9/11 toll is less than deaths ascribed to asbestos (3,750), medication errors (7,391), chewing tobacco and snuff (7,430), alcohol (85,000), infections acquired in hospitals and long-term care facilities (90,000), medical errors (98,000), adult obesity (111,909) and active smoking (389,290). Should the Patriot Act include provisions for hunting down and destroying brewers, tobacco companies, insulating firms, doctors, nurses and the makers of Twinkies?

The real threat to America is its own government, which uses fright tactics to cause its citizens to abandon their Constitutional safeguards against tyranny. The battle may be lost here in Britain, where our unwritten constitution has been so easily and quickly subverted; but I would urge my American friends to go back to those yellowing documents stored in Washington DC, so that "government of the people, by the people, for the people shall not perish from the earth." If you do not throw down your coat and stand to fight here and now, then where and when?

Who's bailing out Uncle Sam?

Just a couple of graphs to show which foreign countries have most increased their holdings of US Treasury securities.

The UK seems the odd man out, bearing in mind its own financial difficulties, but it is widely suspected that much of the UK's holdings are cat's-paw transactions on behalf of China.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Is gold still fairly priced?

At the time I first accepted Richard Daughty's argument that gold represented a great buying opportunity, I didn't have the money available. So, seeing the phenomenal rise in the price over the last few years, have I missed the boat?

It depends. Yes, if what I want is the chance to buy in well below trend and "make a killing"; but perhaps not, even now, if I'm merely seeking something that may protect my savings against inflation.

There are so many ways to define inflation, especially if you are a government incentivised to keep the official figure low. But let's take a look at one monetarist measure, the Mises Institute's "True Money Supply", and compare that to the price of gold since 1971 (the year of the "Nixon shock"):

According to the above, gold is just about on its long-term trend line; not a bargain, but that's not the issue here. However, that trend does include the dramatic spike of 1980, from which peak it took some years to climb down. So let's re-do the line from 1985 onwards:





Seen this way, we're a little above average at the moment, which is perhaps why Marc Faber is hoping for a near-term pullback of $100 - $200; but it's not egregiously high, which doubtless explains why he still sees it as his favourite investment.

Another straw in the wind is a comment by an investment banker on a recent blog-piece of mine entitled "Cash: the investment of the century". "Wolfie" says (Aug. 17):

"I'm currently 100% cash but I think the time has come to break cover and take a 30-40% gold holding. A storm gathers."

I certainly have to take seriously an industry insider who is clearly as bearish and cash-based as myself, but wouldn't you know it, I've been in the USA for the last fortnight and unable to do anything about it up till now.

Perhaps it's "a sign" that I was in NY for Tuesday's 'quake and had to fly out of Newark two days early, just ahead of Hurricane Irene. In any case, I'm now considering following Wolfie's suit sometime soon, even though I don't like the price much. For in the mass of unused money in bank holdings lodged with the Federal Reserve, and also with the more fortunate of transnational corporations who have been fleecing the American consumer for decades and blaming the Chinese who get to see only 15% of the action, lies true storm force potential.

I think we have some time yet before the cloud of cash makes landfall - I've been eyeing 2016 as the approximate end of the real underlying recession - but I shan't delay my preparations quite that long. As the ancient Greek saying goes, there is no borrowing a sword in time of war.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Nail that journo!

This site allows you to spot lazy journalists rehashing other people's news stories.

Htp: Autonomous Mind.

NY quake explained

Lloyd Blankfein dropped his wallet.

Don't tax the wealthy, use their wealth instead

There's a crisp and witty summation of the fiscal quandary we're in, from our man in San Marcos today.

I'm beginning to wonder whether simply taxing the elite is the best solution. That only means taking from A and giving to B, which A will resist and which turns B into a resentful and useless benefit recipient.

Little wonder that the rich are seeking some other way to spend their assets. The group of billionaires that have pledged half their wealth to global charity are, it seems to me, trying to buy God and our good opinion, but it doesn't quite work for me.

I'd have been more impressed if George Soros hadn't (quite legally, of course) swindled some of his fortune from the British public on Black Monday. I'd be pleased if Bill Gates spent some of his stack on ensuring that his software products work properly, instead of repeatedly launching them with multiple holes below the waterline: it's only a matter of time before my new Windows 7-equipped netbook has its working memory entirely filled with "critically important updates" and "service packs", and meantime it works jerkily as the machine juggles my use of it with behind-the-scenes internet downloads of these monster corrections.

So my suggestion, as I commented on Jim's piece, is to put the rich to work:

"I think the issues are productive employment, the over-concentration of wealth, and the parking of the latter in established (global and foreign) businesses instead of new (domestic) ones.

The wealthy need to start spending - investing in new factories and technologies and getting people back into decently-paid work."

Cash - the investment of the century

There's been comment recently about how the ordinary investor has been abandoning the market, in some cases with an undertone of contempt for the poor saps who are missing out on those incredible gains to be made just around the corner.

The banks who from time to time attempt to poach my clients often use past performance an an indicator of future returns, while of course covering themselves by the usual disclaimers. Typically they cherry-pick among terms of 1, 3, 5 and 10 years.

Let's see how the graph for the Dow would look over various time periods, and compare it with cash in your bedsock. To be fair, let's ignore the interest you could have earned on cash, and the dividends on stocks; as a special favour to the Dow, so being especially unfair to cash, let's also ignore the offer-bid spread and the fees and charges loaded onto the investor.

Over the last 12 months:, you could have made a good profit - well, you could if you'd got out a month early:
... over the last 3 years:
... over the last 5 years:
... and since January 2000:

"Mish" today points out that we are in deflation, if you are a monetarist, since credit and asset values have contracted. Inflation scares suit those who are running what some call a "wolf market" - come out, little pigs, it's all clear now.

What inflation? The consumer - and the inflation indices - may notice a rise in food and energy prices, but that's not what your nest-egg is for. Look at house prices - still going down in the UK and the USA - and all the other big-ticket items that in recent years were purchased with borrowed money.

I think Mish is right, for now. The concern I have - and it's reflected in the soaring price of gold - is what governments will do in their desperation once giving money to busted and corrupt banks (and governments) is finally seen as worse than useless. Can the bond market really dictate terms in an economic collapse, or will governments across the world break their currencies with the final splurge of money-printing that third-party control by central banks is designed to prevent?

Until that time, and despite the temptations of commodities, maybe cash-holders should hold the line while the enemy advances. A lot depends on your personal plans, of course; we're hoping to move house and such cash savings as we have may continue to appreciate against the thing we want. So really it's about relative values - comparing asset A with asset B - decided by you, not some index that doesn't reflect your priorities.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.