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Twisted Policy and the Death of the Middle Class

Posted by Mark Motive on January 21, 2012 Documentaries, Economics, Finance, Business, Mark's Blog, Society 1 Response »
Jan 212012

During her term as Prime Minister, Margaret Thatcher broke Britain’s unions and ‘off-shored’ basic industries under the guise of laissez-faire economic policy. While this video is specific to the British coal mining industry, the story has been repeating throughout the western world over the past 30 years – domestic industries and jobs are moved overseas without regard for those left behind. The remaining economy becomes one based on finance and consumption, rather than production, and wealth disparity, rather than equality.

While the owners of capital benefit from cheaper foreign labor, can hollowing out a country’s core industries and destroying the domestic middle and working classes really lead to greater prosperity? For 30 years the middle and working classes (i.e. labor) around the Western world maintained a semblance of wealth by using credit to fill the gaps created by declining real incomes and shrinking savings. But in 2008, 30 years of twisted laissez-faire policies supplemented by debt finally blew up, culminating the labor class crisis.

Since then, millions of American families have walked away from their homes to live in conditions unthinkable five years ago. Over 46 million Americans are currently using food stamps – a 170% increase over the past decade. 2011 alone saw the Arab Spring, Occupy Everything and UK riots – rebellions sparked by relatively innocuous events but fanned by decades of rising inequality and hopelessness. In flauntingly stark contrast, 2010 Wall Street pay packages hit a new record of $135 billion (Source: WSJ).

Like the mining families in the video, anger is growing as people worldwide begin to realize they are getting screwed. Yet, the destruction of the Western world’s middle class is not complete.

Worse than Thatcherism in totality is Thatcherism in partiality. The deregulation of the banking industry, which started in the late 1970s, was simply a facade for a ‘heads I win, tails you lose’ system. Bank deregulation was highly profitable for the banking industry, with the unfortunate side-effect of increased systemic risk. Since crises of systemic proportions are extremely painful, the banking industry has repeatedly been bailed out over the past three decades, only to increase the moral hazard in the system. So much for laissez-faire.

Bank deregulation contributed to, if not created, the 2008 economic near-collapse. Alas, in 2008/2009 the banking system again had its losses socialized. Unfortunately, this crisis was of epic scale and the money required to keep the system afloat was unimaginably large. Now it is time to pay the bill, and most of the world’s leaders are on the austerity trail. As benefits are cut and taxes raised, it will ultimately be the average laborer that again pays for the perverted laissez-faire policies of the past.

(Video no longer available.)

46% Youth Unemployment and Riots in America

Posted by Mark Motive on January 7, 2012 Economics, Mark's Blog, Society, Video No Responses »
Jan 072012

With a real youth unemployment rate around 46%, I wouldn’t be surprised to see more violent rioting across America.

Jobs for teenagers are scarce (particularly now that older workers are willing to accept lower quality employment typically reserved for teens). Over the past decade, the official youth unemployment rate has risen from 17% to 23%. However, if you factor in the stupendous decline in the participation rate, today’s youth unemployment rate would be closer to 46! Over the past decade, America’s youth have abandoned the labor market. When compared to other groups in the labor market (see chart below), the decline is staggering.

With no hope of finding a job, kids aged 16-19 abandon the labor market for more ‘fruitful’ endeavors. Playstation? Drinking? Hanging out? Crime? Ok, some will actually spend time studying to make themselves productive members of society, but many will be left angry, restless and frustrated. Not only is America’s youth bored, the age group isn’t building the experience needed to convert an education into a career. Studies have shown that early employment experience can have a lasting, compounding affect on a person’s lifetime earnings. Consequently, many have called today’s youth the ‘lost generation’.

When youth are unemployed, have few prospects and no responsibilities they have little to lose. When people with nothing to lose are fed up with their predicament they begin domestic rebellions. Youth unemployment is a global issue, and 2011 saw massive youth-led rebellions across the world: UK riots, Arab Spring, Occupy everything!

UK Riots:


Egyptian Riots:

Occupy Oakland:

While the youth actions had many faces, the underlying theme was hopelessness, contempt and poverty. So far, violence in America has been tame. But as America’s youth fall further behind, don’t be surprised to see more riots across the land.

Plan B Featured in Euro Pacific (Peter Schiff) Newsletter

Posted by Mark Motive on January 5, 2012 Gold/Money, Mark's Blog 2 Responses »
Jan 052012

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7 Ways You've Been Silently Screwed Over

Posted by Mark Motive on January 2, 2012 Banking, Mark's Blog, Society, War 2 Responses »
Jan 022012

America is the most free nation in the world. Or is that what we try to convince ourselves?

Perhaps on a sliding scale much of the Western World is relatively free, but I still think much of it is a facade. What other nations achieve with blunt force America does with surgical precision. American politicians have mastered the art of surreptitious manipulation, leading us to believe we are free. We have our iPods, Big Macs and Dancing with the Stars. And with the brainwashing by mass media, we know our ‘enemy’ – the ill-defined terrorist – and we fight for freedom and democracy. Most are convinced that questioning any of this is unpatriotic.

We have been numbed and re-directed so we don’t see or feel the real pain.

Individually we are satiated, yet collectively we are deficient. Change happens when individuals are hungry or hurt – perhaps this is why we see these injustices as someone else’s problem and do nothing ourselves.

The 7 truths below won’t surprise most. Yet we sit complacently as we’re all silently screwed over.

  1. The big banks run the White House – via heavy lobbying, transplanted personnel and large donations
  2. Salaries at bailed out banks were capped at $500k – more than the average family makes in a decade.
  3. Iraq crusade was based on lies about terrorism and WMDs
  4. Any American can be detained indefinitely at any time for any number of ambiguous reasons
  5. Marijuana is illegal, yet the cigarette industry legally pumps highly addictive chemicals into tobacco
  6. There are no real ‘outsiders’ in Washington: America’s leaders are either family, ex-clients or ex-coworkers
  7. Oil prices are 400% higher than they were a decade ago, yet the government has yet to acknowledge the growing energy crisis

Chart Story: Destruction of America's Middle Class

Posted by Mark Motive on January 2, 2012 Charts, Mark's Blog No Responses »
Jan 022012

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Iranian Wargames, Empire and WWIII

Posted by Mark Motive on December 24, 2011 Economics, Mark's Blog, Peak Oil Watch No Responses »
Dec 242011

Iran has started war games to show the world it holds all the cards. The ace up its sleeve: a rehearsed mock closure of Strait of Hormuz, the only way in and out of the Persian Gulf.

At its narrowest point, the Strait is 34 miles wide. Every day about 13 tankers travel through the strait carrying 15.5 million barrels of oil. This represents about 33% of seaborne oil shipments and 17% of all global shipments. Because the Strait concentrates a huge portion of global oil trade in a very narrow area, it is critical that the shipping lanes remain open. According to Stratfor: “The importance of this waterway to both American military and economic interests is difficult to overstate.” For this reason, the Strait is routinely patrolled by the US Navy’s 5th Fleet. By displaying its ability to close these lanes under the nose of the US Navy, Iran is telling the world it possesses a disproportionate amount of power.

For decades, the West has maintained an antagonistic view of Iran, especially as it pursues its own nuclear programs. And Iran has repeatedly warned that acting on this view would be foolish. An attack on Iran would undoubtedly provoke it to hit the world economy’s Achilles Heel – the Strait of Hormuz.  According to some, this would quickly send oil prices soaring. “One bomb on Iran and oil prices could shoot up to $300 or even $500 a barrel,” according to UPI correspondent Arnaud de Borchgrave.

How willing is Iran to block the Strait? “It would almost certainly lose far more than it gained from such a ‘war,’ but nations often fail to act as rational bargainers in a crisis, particularly if attacked or if their regimes are threatened,” Anthony Cordesman of the Center for Strategic & International Studies in Washington.

Frankly, I don’t have much faith in Iran’s rationality. Iran’s view on the exercise sounds like a teenage boy talking smack about his teachers behind their back:

“Soon we will hold military maneuvers on how to close the Strait of Hormuz. If the world wants to make the region insecure, we will make the world insecure.”

In contrast, I believe those leading the American military are quite deliberate in their actions. Their purpose might be clouded by political rhetoric, but most signs suggest economic and military hegemony is the goal.

Hegemony isn’t free. While the security premium added to oil during the Iraq crusade may be long-forgotten, war in the Middle East would cause the average American to suffer. Gas prices could triple, but that’s just the start. The general rise in systemic risk and risk aversion could compound effects from rising energy prices. Moreover, the cost of such a war could tip America, with a debt-to-GDP ratio of >100%, into fiscal oblivion – especially if China and Russia got involved. Iranian support from China or Russia would mark the beginning of WWIII.

Some argue that this cost is less than the cost of a nuclear Iran. And perhaps the gains from an American-friendly regime change would provide dividends in perpetuity. After-all, that’s why we went to Iraq, isn’t it?

Let’s look at the numbers: According to the Congressional Budget Office, the cost of the Iraq and Afghanistan wars will total $2.4 trillion, or $6300 per US citizen. Joseph Stiglitz, former chief economist of the World Bank and winner of the Nobel Prize in Economics argued “the figure we arrive at is more than $3 trillion. Our calculations are based on conservative assumptions…Needless to say, this number represents the cost only to the United States. It does not reflect the enormous cost to the rest of the world, or to Iraq.” Other estimates provided by Browns University suggest the cost of the Iraq/Afghanistan war could reach $4 trillion.

Was Iraq a long-term investment made by men with the foresight to see the benefits of free-flowing Iraqi resources? Or was Iraq a desperate attempt to by a dying empire to maintain access to its economic heroin – oil? Yes and yes. But I still question whether the gains outweigh the costs.

Needless to say, a war with Iran is a terrible idea. Unfortunately, as war games staging the potential start of WWIII (i.e. Iranian closure of the Strait of Hormuz) play out within miles of the US 5th Fleet, a simple miscalculation could explode into the very confrontation for which Iran is preparing.

 

Spot the Similarities: Canadian Investment Managers' 2011 vs 2012 Forecast

Posted by Mark Motive on December 21, 2011 Mark's Blog No Responses »
Dec 212011

Another pathetic annual attempt by active managers at justifying their ridiculous salaries…

By the way, year-to-date the S&P/TSX is down 12.5%

Here’s the 2012 forecast summary:

Investment manager sentiment towards Canadian and international equity markets improved this quarter, with emerging markets leading the way. Overall, equities remain by far the most-favoured asset class, with nearly eight-in-10 investment managers forecasting positive returns for the S&P/TSX in 2012.
The investment managers expressed these views in the latest quarterly Russell Investment Manager Outlook poll conducted by Russell from November 15 to November 25th in 2011.
While equity market sentiment was up across the board, it was emerging markets that saw the greatest change with bulls rising from 50 percent to 69 percent of managers, and bears falling by half to just 13 percent of managers.
With energy and materials rebounding strongly, Canada is viewed by most managers as an attractive market overall, with bulls standing at 63 percent and bears at 25 percent. Fifty-five percent of managers believe Canadian equities are undervalued, and about a third expect double-digit returns in 2012.
The outlook for US equities improved slightly, with bulls up a few points to 50 percent and bears down a few points to 25 percent. Meanwhile, the outlook for EAFE markets remains bleak, with just 38 percent of managers bullish and fully 44 percent bearish.
On the fixed income side, we have seen Canadian bond bears decline from 67 percent of managers to 44 percent.
As always, Russell’s advice is to remain broadly diversified among asset classes, investment styles, and investment managers in order to capture the best opportunities for growth and income in Canada, the US, and around the world.

 

Here’s the 2011 forecast summary:

Bullish sentiment towards equities surged in the fourth quarter of 2010 with managers increasingly bullish across domestic, US, international and emerging market equities.
The investment managers expressed these views in the latest quarterly Russell Investment Manager Outlook poll conducted by Russell in November 2010.
Canadian equities were the prime benefactor of improving sentiment, with 77% of managers bullish. This move was lead by the energy sector (80% bullish) and materials sector (72% bullish).
Emerging markets also found favour, with 69% of managers now bullish, and international and US equities saw increases in bullish sentiment as well. Just as importantly, the number of bears were down across virtually all equity markets.
Sentiment towards Canadian bonds slid to just four percent bullish, and high yields fared slightly better at 22% bullish. Nineteen percent of managers have a favourable view of cash right now, and 65% are bullish towards the Canadian dollar.
Assessing the market as a whole, 58% of investment managers say it is fairly valued, about a quarter say it is undervalued, and only 16% believe it is overvalued.
Overall, 82% of investment managers expect positive performance for the S&P/TSX in 2011.

We believe the secret to investment success during this period of economic recovery is to leverage the skill and experience of active portfolio managers. There is currently a 76% gap between the most and least bullish sectors of the Canadian market, and we believe professional portfolio management is the best way to navigate through this divide and achieve solid returns.

And the chart that takes the cake…active management outperformance (with a 51% win rate) since 1999 is a crap-shoot:

3 Reasons to Fade Today's Rally

Posted by Mark Motive on December 20, 2011 Mark's Blog No Responses »
Dec 202011

Today’s rally was built off hope driven by a big 9.3% rise in housing starts. Turns out that hope was more ‘hopium’ than reality.

Read why.

Peak Oil, The New Boom-Bust Cycle and Gold

Posted by Mark Motive on December 3, 2011 Gold/Money, Mark's Blog, Peak Oil Watch 1 Response »
Dec 032011

Mark Motive, www.planbeconomics.com

The world is experiencing the worst economic recovery since the Great Depression. So why is oil hovering around $100/bbl? And as a gold investor, why should you care about oil?

Some might point to developments in the Middle East as the reason for high oil prices. However, I believe the root cause of current Middle East angst is the steady depletion of easily accessible oil and, consequently, government revenues needed to quell the population. Everything that is happening across the Middle East – citizen revolts, government crack downs, production disruptions and oil price inflation – tells me the world may have crossed the point of peak oil.

I don’t think the world will run out of oil anytime soon. However, based on the advice of expert geologists, I do believe that a) the world is running out of inexpensive oil and b) global demand is pressuring oil prices.

Given these pre-conditions, it is my view that the world has entered a new boom-bust cycle driven by oil prices. Oscillating oil prices – as opposed to credit cycles – will repeatedly stimulate and crash the highly levered global economy. Governments have not recognized this new cycle, and as part of a fruitless effort to retain control over deteriorating real growth and rising unemployment central banks will print more and more money, risking a hyperinflationary depression (stagflation at best). The only respite for many investors is gold.

The 2008 Financial Crisis was the First of Many
During the last thirty years debt has spread like a cancer throughout the developed world. Today’s consumption was financed by tomorrow’s higher revenues, creating a vicious cycle between growth and the need for debt. This system worked as long as growth needed to repay expanding credit could be subsidized by inexpensive energy.

Unfortunately, rising oil prices have stealthily and persistently chipped away at the foundation of our heavily indebted financial system. Ultimately, in 2008, oil prices and total debt passed the threshold beyond which the economy could not operate, and the financial system came crashing down. With collapsing demand, oil prices fell.

Many mistakenly point to sub-prime mortgages and CDS’s as the cause of the 2008 crisis – I believe they were merely the transmission mechanisms. In reality, rising oil prices eroded the weakest links in the increasingly levered global economic system.

Enter the Central Banks
As we’ve witnessed repeatedly since Richard Nixon suspended dollar convertibility into gold, the Federal Reserve solves all economic problems with the monetary cure-all. Either by using the proverbial helicopter or the Treasury as an intermediary, central banks have repeatedly pumped liquidity into the economy and bought bad debts from the private sector. This effectively transfers the bad debt to the taxpayer by way of liability and currency debasement. In addition, fiscal policy (which is often the hand maiden of monetary policy) adds additional public sector debt in the name of stimulus. In whole, debt burdens and money supply rise. Of course, all this is done under the assumption that the economy will somehow be able to repay these new debts through future growth.

In the new boom-bust cycle driven by oil prices, the central banks are unknowingly impotent. As the economy crashes, they print money to stimulate economic activity, but it is short-lived and inflationary. More stimulative is the lower oil prices caused by the crash. However, any renewed growth and inflation sends oil prices back up towards another threshold, once again breaking the weakest links of the economy…and the default-bailout-growth cycle repeats.

Right now, oil price inflation is most noticeable when we fill up our gas tanks. But as high oil prices become pervasive throughout the economy the destruction of aggregate wealth will intensify. This will increase the number of weak links throughout the economy. It will also increase the sensitivity of those weak links to higher oil prices – another vicious cycle.

Consequently, as the default-bailout-growth cycle repeats and rising oil prices become more omnipresent, periods of economic growth become weaker, and periods of economic bust more frequent and persistent. Eventually, as the cycle repeats, the sharp economic contrasts of boom and bust blend together becoming a permanent shade of economic grey.

Saved by Gold

As they did in 2008, central banks will print money to bail out collapsing financial infrastructure and support a growing mass of unemployed. While each cycle may begin as a deflationary shock, causing gold prices to decline, the eventual monetary response will destroy currencies and send gold prices soaring. This has already started to happen.

Unless high ROI replacement energy sources are found, over the long-run this cycle could turn into a hyperinflationary depression, as central banks naïvely fight a losing battle. Savings could be wiped out as the value of paper currency plummets, and in the new boom-bust cycle one of the few ways to protect wealth over the long run may be to own gold.

Mark Motive is the publisher and chief author for www.planbeconomics.com, a contrarian source for economic and market insights. Contact: mark@planbeconomics.com

6 Silver Stocks For The Central Bank Reflation Trade

Posted by Mark Motive on December 2, 2011 Gold/Money, Mark's Blog No Responses »
Dec 022011

With central banks around the world at the start of a globally-coordinated reflation effort, some stocks will benefit more than others.

Here are 6 silver stocks that may benefit most.

Russia’s military chief warns of heightened risks of nuclear conflict

Posted by Mark Motive on November 19, 2011 Economics, Mark's Blog, War No Responses »
Nov 192011

Troubling news out of Moscow (source).

Gen. Nikolai Makarov, chief of the General Staff of the Russian armed forces, cautioned over NATO’s expansion eastward and warned that the risks for Russia to be pulled into local conflicts have “risen sharply.”

Makarov added, according to Russian news agencies, that “under certain conditions local and regional conflicts may develop into a full-scale war involving nuclear weapons.”

A steady decline in Russia’s conventional forces has prompted the Kremlin to rely increasingly on its nuclear deterrent.

Most wars throughout history have had economic roots. And those roots gripped the limited supply of raw resources available to mankind. Attempts to control the supply of raw materials and agriculture, which (no matter how far removed from our daily iPhone-fed lives) are the foundation of our entire economic system, have shaped foreign policy for governments throughout history. Imperialistic nations that have aggressively pursued control of key resources have typically ruled the world. Do you think it’s a coincidence that oil is priced in US dollars?

The next great war is already beginning – the decisions we make today are sending our future down a funnel to an inescapable end point. Our utter dependence on energy has already fueled wars for a hundred years, and today’s lack of energy policy foresight will push the world to another breaking point sometime in the near future. Compound that with the growing possibility of water shortages and crop failures, and we’re left with a geopolitical powder-keg.

World War 1 and 2 both leave long trails that lead back to the desire to control global oil supplies. While Germany’s 1920s hyperinflation and 1930s depression built a social thirst that could only be quenched with blood, those economic conditions were predicated on a four-year hot war and the decades long cold war between Britain and Germany over European, Middle Eastern and African resources. During this cold war, Britain manipulated its hand to the furthermost extent. Unfortunately, like the kid bullied to the edge of the playground, Germany eventually lashed out in the most despicable ways, first by waging the war to end all wars and second by pushing a twisted ideology across the continent.

Mankind does unspeakable things when it is cold and hungry. Civilized society can devolve into animal anarchy within days under the right conditions. This is why today, while we are still warm and well-fed, we need to determine how a world dependent on a dwindling supply of readily-available energy is going to make it through the next 100 years. Because unfortunately, judging by General Nikolai Makarov’s warning, the next war may be our last.

Chart: Household Debt Payments as Percent of Household Income

Posted by Mark Motive on November 12, 2011 Charts, Mark's Blog, Personal Finance No Responses »
Nov 122011

Higher savings rates coupled with strategic mortgage defaults and consumer debt reorganizations have brought the debt payments to income ratio close to 1980 and 1994 levels. The lower this ratio goes the stronger the financial footing of the average American. A couple more years of this trend and we could actually have a consumer that is in good financial shape.

Following the Central Banks to Gold ($GLD)

Posted by Mark Motive on November 7, 2011 Gold/Money, Mark's Blog No Responses »
Nov 072011

When in doubt, follow the big money. And in the gold market the biggest money is controlled by central banks around the world.

Article and charts here…

Worst Case Coming True: Biggest jump ever seen in global warming gases

Posted by Mark Motive on November 6, 2011 Green, Mark's Blog No Responses »
Nov 062011

From the Associated Press:

The global output of heat-trapping carbon dioxide jumped by the biggest amount on record, the U.S. Department of Energy calculated, a sign of how feeble the world’s efforts are at slowing man-made global warming.

The new figures for 2010 mean that levels of greenhouse gases are higher than the worst case scenario outlined by climate experts just four years ago.

Yes…worse than the worst case scenario. But aren’t we all ‘doing our bit’ by using ‘green’ products, etc.? Total horse sh!t, I say. Most of the so-called green choices we make are really marketing gimmicks to make consumers feel good about themselves…while families buy biodegradable dish soap they still own two cars and drive half a mile to pick up a quart of milk. Moreover, many of the ‘green’ products out there are in-fact just as bad as the ‘non-green’ products. (E.g. the electric car simply shifts the tailpipe emissions to the smokestack of a powerplant – and I’m not even getting into the battery issues here.)

…the latest figures put global emissions higher than the worst case projections from the climate panel. Those forecast global temperatures rising between 4 and 11 degrees Fahrenheit by the end of the century with the best estimate at 7.5 degrees.

I’m no climatologist, so I don’t get into the debates over the realities of global warming. But I do know human behavior and people will follow the path of least resistance until they are faced with a real shock. By that point, it’s usually too late.

Is Gold $GLD Overvalued?

Posted by Mark Motive on October 31, 2011 Charts, Gold/Money, Mark's Blog No Responses »
Oct 312011

Is gold overvalued?

The great conundrum…answered. Sort of.

Chart of the Day: S&P 500 Q3 Earnings Surprises

Posted by Mark Motive on October 30, 2011 Charts, Mark's Blog No Responses »
Oct 302011

What recession, I dare ask?

{Caveat Emptor: earnings expectations may have been revised down prior to earnings season, making expectations easier to beat. Also, forward earnings expectations may be revised down to reflect current uncertainty. Nevertheless, Q3 ‘adjusted’ and ‘as reported’ earnings have risen year-over-year by 14.27% and 20.02% respectively. Sort of makes ECRI’s “you haven’t seen anything yet” recession call sound like a flop, doesn’t it?}

The Reason the Rich Buy Gold

Posted by Mark Motive on October 24, 2011 Gold/Money, Mark's Blog, Personal Finance No Responses »
Oct 242011

If  you ask the common man in the street about investing in gold (GLD) most will give you a funny look. After all, mainstream investing is about stocks, bonds and term deposits.

If you ask someone with a bit more investing knowledge they will tell you to buy gold during inflationary periods.

If you ask someone with a relatively sophisticated investing knowledge they will tell you to buy gold during deflationary and inflationary periods. Some may even say to buy gold during periods of uncertainty and instability, or when real interest rates are low/negative.

If you ask the world’s wealthy elite about gold they will give you a very different answer. At Plan B Economics, we’ve found that most of the world’s wealthy elite don’t view gold as an investment at all. I would argue these folks have it right. Simply put, they consider gold to be a store of wealth and believe that anytime is a good time to own some gold.

The rich are less concerned with fluctuations in gold prices than most investors. They aren’t trying to profit from gold ownership – they are trying to maintain their overall purchasing power. Since the wealthy have a large asset base, losses in purchasing power add up to big dollar figures. Therefore the protective characteristics of gold are critically important.

Gold can protect real wealth because it tends to move in a different direction than other types of assets. When gold prices are falling, other forms of wealth are usually rising in real terms. When gold is rising, other assets are usually falling in real terms. Gold has an offsetting effect when it is part of an overall asset base.

However, there are other, more important reasons the wealthy use gold as a way to preserve wealth, regardless of its correlation with other assets. As the world sinks into greater financial and political uncertainty, the wealthy want to protect their families if the unthinkable happens. Physical gold can store substantial wealth in a compact, universally-accepted form that can be hidden from the prying eyes of governments. So if/when collapse truly occurs, as it has consistently throughout history, the wealthy can escape with a big portion of their assets.

At this point, many of you reading this may be rolling your eyes, thinking such asset positioning is reserved for conspiracy theorists, but history and current anecdotal evidence suggest this is how many wealthy people think. In fact, through Plan B Economics I have encountered many wealthy people who have caches of food, precious metals and weapons (but rarely admit it). They are acutely aware that if society broke down, they’d be the first scape-goats the masses, and any government filling a power vacuum, would seek.

Ask the rich people who escaped Hitler’s Germany (or many other similar situations throughout history) about gold. These are the people who left behind houses, businesses and paper assets to escape their home country. They may have even left behind assets in savings and securities accounts, the withdrawal of which would have created a paper trail. (Moreover, German currency and securities may not have been accepted by non-German institutions.) They did, however, take as much gold as was physically possible. To these people, gold wasn’t an investment but a way to smuggle a lifestyle across borders in a suitcase.

Today, I believe gold can provide the same utility to rich and middle-class alike. Everyone should have a portion of their wealth stored in a fungible, highly-concentrated, portable form. The goal here is to prepare, not to predict. After-all, you buy house insurance but never expect your house to burn down.

So next time you consider gold as an investment, ask yourself why you are buying it. If you’re worried about 20% up and down moves then you are simply speculating on the price of gold. If you’re looking for a portfolio diversifier then you will be willing to accept gold’s counter relationship to other asset classes. But if you are truly looking for a store of wealth, like the world’s wealthy elite, you may want to hold physical gold in a hidden yet easily accessible location.

More:
Is Gold Overvalued?
How to Buy Gold for Under $300
How Gold Performs During a Financial Crash

The Truth Behind the Chinese Video of 2yr Old Run Over and Not Helped by Bystanders

Posted by Mark Motive on October 22, 2011 China, Mark's Blog, Society No Responses »
Oct 222011

You’ve probably seen the video of a 2 year old girl in China run over by a van. About 17 bystanders walked past the girl ignoring her as she lay on the road dying. The video is gut-wrenching to watch, but cases like these are far too common in China.

The first reaction is that Chinese people are heartless. But how can this be so when so many Chinese are just as moved by this incident as non-Chinese? The truth behind this behavior lies in the messed up Chinese legal system.

In 2006, an elderly woman fell to the ground and was helped by a bystander named Peng Yu. At the request of the elderly woman, Peng took her to the hospital. He also gave her 200 yuan to help her out. After the incident, the woman accused Peng of knocking her down and sued him to pay for medical expenses totaling 40,000 yuan (about $6200; Chinese GDP per capita is about $4400). The judge sided with the old woman stating that, according to societal norms, only the person that caused the accident would have helped her out. The judge went on to state that if Peng was indeed doing a good deed he could have let the old woman’s family send her to the hospital after they arrived. Since Peng went out of his way to help the elderly woman, it was decided that he must have caused the accident and was obligated to pay her medical bills.

Many similar well-known cases have occurred in China. Unfortunately, the system is built to discourage good Samaritans.

So I ask you this: how prepared would you be to help someone out if it could cost you more than a year’s income (in a highly competitive country with a weak social safety net)?

If China wishes to change the behavior of those that simply walk past accident victims, the authorities must make it clear that good Samaritans won’t be punished for helping.

A Penny Saved is More Than a Penny Earned

Posted by Mark Motive on October 19, 2011 Mark's Blog, Personal Finance No Responses »
Oct 192011

There is an old saying that a penny saved is a penny earned. The premise of this saying is that an individual can create  as much wealth by saving money as by earning money. Let me add a modern twist.

This saying originated in the days when income taxes and sales taxes were immaterial. Believe it or not, income tax in the US did not become a permanent fixture until it was introduced in a sixteenth amendment to the constitution made in 1913. Prior to that income taxes existed periodically, but usually only during times of war. Also, income taxes were relatively small proportions of total income. Broad-based sales taxes were introduced across different states between 1930 and 1969 (some states still do not have a sales tax).

Prior to the introduction of income and sales tax a penny saved truly was a penny earned. Today, however, savings is even more important to generating personal wealth.

While the calculation varies, let’s imagine a person has a 25% average tax rate and lives in a region with a 13% sales tax. For this person to buy $1 worth of goods he would have to earn $1.50 in income. Clearly, spending money is an expensive hobby – more expensive than most realize.

If one were to consider money as units of effort, it turns out this person needs to work 1.5 units for each unit spent. I think if more people thought of spending this way they’d save more.

Chart: America's Foreign Creditors

Posted by Mark Motive on October 18, 2011 Charts, Mark's Blog No Responses »
Oct 182011


via chartsbin.com

The EU Rescue Bid - What Does It Mean For Investors?

Posted by Mark Motive on October 17, 2011 Economics, Gold/Money, Mark's Blog, Markets No Responses »
Oct 172011

Germany and France have agreed in principle to a 2 trillion euro bailout. What does this mean to investors?

Find out more

10 Companies Added to "Risk List"

Posted by Mark Motive on October 14, 2011 Mark's Blog, Markets No Responses »
Oct 142011

GMI released it’s latest “Risk List”.

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