Forex Pips – Guide To Profitable Forex Spread Betting Rotating Header Image

World

UN Strongly Recommends SDRs Over Dollar as World Reserve Currency

Jun 30th, 2010
by admin.
No comments yet

Yesterday, the United Nations released a new report suggesting it’s time to stop using the dollar as the world’s single major reserve currency, noting it has shown “not to be a stable store of value,” and recommending its replacement with the IMF’s currency basket, called special drawing rights (SDRs).

The report came out of the UN Economic and Social Council and, according to Reuters, here’s what they said:

“‘The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency,’ the U.N. World Economic and Social Survey 2010 said. The report says that developing countries have been hit by the U.S. dollar’s loss of value in recent years.

“‘Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s,’ it said.

“The report supports replacing the dollar with the International Monetary Fund’s special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies. ‘A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency,’ the U.N. report said.”

The UN now joins several vocal critics and nations, especially Russia and China, who have been expressing a strong desire for reserve currency options other than the dollar. Who can blame them? Since the inception of the Federal Reserve the dollar has lost well over 90 percent of its value.

When it comes to stable stores of value, particularly in a time of extreme money printing all over the world, it would make sense to see gold more actively discussed in this type of report. Central banks have certainly noticed gold is beholden to no nation’s printing press and lately have been doing some “peacocking” of their yellow metal assets. Saudi Arabia, for one, recently “restated” its gold reserves… so that they more than doubled in value overnight.

You can read more about the story in Reuters coverage of a UN report on scrapping the dollar as the world’s sole reserve currency.

Best,

Rocky Vega,
The Daily Reckoning

UN Strongly Recommends SDRs Over Dollar as World Reserve Currency originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”


Daily Reckoning
gold

Bending to the Modern World

Jun 25th, 2010
by admin.
No comments yet

J.P. Morgan rose to influence in an era when the accumulation of great wealth began to astound the ordinary man.

As Nassim Nicholas Taleb observed in his book, The Black Swan, life is unfair, a theme the economist Sherwin Rosen, author of studies about the economics of superstars, develops as credited by Taleb.

Rosen bemoans the high salaries of basketball stars and TV personalities, which he attributes to the “tournament effect,” wherein someone who is marginally better can win the whole pot, leaving others with nothing. Taleb reminds us how this is so: We would rather buy a recording featuring the renowned Vladimir Horowitz for .99 than pay .99 for one of a struggling pianist.

However, ordinary men through democracy can band together to not only ostracize the J.P. Morgans from the village, but to strip them of tournament winnings.

Just as important, they can redistribute them to those who struggle in the .99 bin. On the other hand, in the world of credit, democracy is a stranger. Should the rules be short circuited, wealth need not participate.

Share prices for implicitly government-backed mortgage agencies can plunge from to less than in months. The Soviet Union learned this the hard way.

Europe’s unemployment rate during the boom times prior to 2008 stood at its 1932 depression level, its countries having not created more than a few million jobs in the last three decades. Yet somehow many think its system is still functioning relatively well.

By 1913, when J.P. Morgan appeared in the Pujo hearings, the era of lending money based upon character was beginning to have this determinant completely removed from the process, and the pendulum would shift 100 years later toward the ordinary man collectively mandating loans for everyone, eventually without even documentation or down payment.

Or worse, smothering documentation would lend an air of legitimacy. Loans would be sliced and diced for general consumption, surrounded by the safety of telephone-book-sized prospectuses, overseen by thousands of regulations, and monitored by intricate risk models, none of which could put Humpty Dumpty back together.

In the era leading up to Morgan, when character was put foremost, America had seen small percentages of banks fail in great panics, only to have most of their assets recover in value when liquidity returned.

Now, thanks to modern practices, great numbers of giant-sized financial institutions have essentially failed. They must be kept on life support; because their assets are so tainted they may never recover in value.

Regards,

Bill Baker,
for The Daily Reckoning

[Editor's note: This passage is reprinted from William W. Baker's book, Endless Money: The Moral Hazards of Socialism, with the permission of John Wiley & Sons, Inc (©2010). You can get your own copy here.]

Bending to the Modern World originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”


Daily Reckoning
gold

Debunking the Prediction of a Huge Gold Decline Before the World Cup Ends

Jun 24th, 2010
by admin.
No comments yet

A recent article by Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, predicts a possible 70 percent decline in the value of gold… just like what was seen in the 1980s. Eric Janszen of iTulip persuasively argues against his logic by describing how it’s the role of central banks to show confidence in flawed fiat currencies — especially the reserve US dollar — while hedging against inherent weaknesses in paper money with gold, which is dismissed as out-of-date… and yet still hoarded in massive quantities on government balance sheets.

Here’s what Sharma wrote in the Times of India:

“The daily turnover in gold ETFs — now at – billion a day — is up nearly 10-fold from levels of three years ago. Investment demand currently represents the largest component of overall demand for gold compared with a mere 4% just a decade ago. Some gold bugs are throwing about very aggressive price targets of ,000 or ,000 an ounce, from levels of just over ,200 an ounce now.

“If the yellow metal does reach those levels, it would form a bubble of epic proportions. Gold’s peak at 0 an ounce in 1980 marked one of the biggest bubbles in post WWII history and the yellow metal then fell by more than 70% in the following two decades as real interest rates rose and the global economic environment improved significantly. At ,800 an ounce in current dollar terms, gold would be at the same level as at the absolute peak in 1980.”

Janszen allows for the fact that Sharma is quoting some statistics that are indeed related to gold. However, they are not what he views as the key drivers of gold’s current price level and trajectory.

According to Eric Janszen of iTulip:

“The author makes a number of valid points, such as the high level of money flows into gold ETFs, but he misses the single most important contributor to the extraordinary event of gold’s continuous nine year rise, and it’s not gold bugs. He, like most analysts, does not understand the role gold plays as a sovereign global financial asset and currency.

“Gold hedges currency risk, and currency risk is rising. Gold hedges the second order effect of bad fiscal policy, a weak currency…

“…The U.S. government has over the past ten years financed two seriously expensive bread and circus events, first the technology stock bubble, second the housing bubble. They first allowed asset inflation to get out of control and then, after the bubbles collapsed, dipped into the public till to bribe the public with their own money to keep quiet about it. Ten years after the tech bubble popped, the NASDAQ remains 50% below its peak. Ten years from now, so will housing…”

As he points out, it’s difficult to argue gold is only a commodity when it’s the single metal owned — and perceived as a monetary instrument of value — by central banks themselves. As Janszen writes, they “don’t own silver, or platinum, or copper, or lead, or aluminum, or zinc, or nickel, or any other metal for that matter.” Instead, what they do own is 30,000 metric tons of gold. Essentially, its value as a nation-less currency is best proved by the fact that most nations would like to hold it in their reserves.

The piece makes for a compelling read, and can be found at iTulip’s response to how gold could decline 50% before the World Cup is over.

Best,

Rocky Vega,
The Daily Reckoning

Debunking the Prediction of a Huge Gold Decline Before the World Cup Ends originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”


Daily Reckoning

World Spotlight on South Africa

Jun 13th, 2010
by admin.
No comments yet

South Africa takes to the world stage today as it hosts the first World Cup to be played on the African continent. For the next 30 days, the eyes of the globe will be watching Rooney, Cristiano Ronaldo, Maicon and Messi battle it out for world soccer supremacy.

South Africa’s 7 billion economy is already the largest in Africa and it’s estimated that the World Cup will generate 400,000 jobs and contribute .3 billion to the country’s GDP, according to research firm Grant Thornton. It estimates 450,000 tourists will visit the country spending a total of .1 billion.

In preparation for this event, South Africa has given itself quite the makeover. This infographic from MENA Infrastructure details how South Africa has made substantial upgrades in its infrastructure (click to visit larger version).

A reported .2 billion was spent on 10 stadiums that will host the matches. Some of these, like the 46,000 seat Nelson Mandela Bay stadium in Port Elizabeth, the first stadium in the world to be completely powered by green energy, were new construction while others, like the 95,000 Soccer City stadium in Johannesburg, received major upgrades.

Another .1 billion was invested in the country’s road systems, .4 billion in airports and billion on a new commuter rail. In all, the World Cup infrastructure program is estimated to have brought billion in investment.

Once the games are over, the South African government hopes the investment will continue to pay dividends. World Cup hosts have experienced increased economic growth in the two years following the event. Analysis from Credit Suisse shows the host countries experienced 2.7 percent and 2.6 percent growth, respectively, in the years leading up to the World Cup but saw 3.2 percent and 3.7 percent economic growth in the two years after.

Only time will tell if this scenario plays out. Luckily we have the world’s best tournament to keep us entertained in the meantime. Enjoy the Cup!

Regards,

Frank Holmes,
for The Daily Reckoning

P.S. You can visit my blog, Frank Talk, for more daily commentary.

[Editor's Note: Frank Holmes will be offering insight like the above, and more, at July's Agora Financial Investment Symposium, along with Marc Faber, Bill Bonner, and Doug Casey and many others. You can register for the event here.]

World Spotlight on South Africa originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”


Daily Reckoning
gold

Buying Stocks at the End of the World

Jun 3rd, 2010
by admin.
No comments yet

Well, they don’t make it easy for you.

Yesterday, the Dow rose 225 points. Enough to keep people guessing. Enough to keep people in the market. Enough to give the ‘recovery’ spotters something to look at and investors something to hope for.

Is the market really headed down…or not?

Most likely, yes…it’s a real bear market. And it will probably continue for years.

And even if it isn’t, it’s probably best to think it is.

Why?

Because most stocks have still not hit their ultimate lows. If you can’t see the bear market’s final lows in your rear view mirror, they must be ahead of you. Remember, the broad pattern of the stock market is from an epic high to an epic low…with years of up and down movement in between.

When you buy stocks in the middle of the market’s pattern…when they’re not cheap…you’re completely at the market’s mercy. If it goes up, you do all right. If it goes down, you lose money.

Since we don’t know what direction the market is going, we’ll just wait until stocks are cheap. Then, we won’t have to worry about which direction the market takes.

Besides, if we don’t know which direction the market is going, we have to assume that there are even odds it will go down or up. Even odds aren’t good enough for us. We don’t want a level playing field. We want a playing field tipped in our direction. We don’t want an honest card game; we want a deck we stacked ourselves.

Which would you prefer, dear reader: to make a dollar…or not lose one? If the odds are even, it assumes one is as a good as the other. But they’re not. If you hold onto a dollar, you keep 100% of it. If you make a dollar, on the other hand, you pay taxes on it. After tax, it could end up being worth only 50 cents. That means you’d have to believe a bull market was twice as likely as a bear market before you should invest.

Do you think that? We don’t. We think this market is more likely to go down than up. By our reckoning, the bear market began in January 2000. The feds fought it with every weapon in their arsenal. Monetary policy. Fiscal policy. Booby traps. Propaganda. Scorched earth. Everything. And the market responded…for a while. Greenspan’s ‘emergency’ low interest rates caused a huge bubble. Stocks rebounded.

And then the bubble blew up.

The Dow fell below 7,000 in March 2009. This time, the feds brought out another, even more powerful weapon. They blasted away with “quantitative easing” – adding .2 trillion directly to the Fed’s reserves. And once again, the market bounced…until about a year later, when the quantitative easing program came to an end.

You can fight a downturn. You can hold off a bear market – for a while. You can distort a correction – making it much more twisted and nasty. But you can’t stop it. One way or another, mistakes will have to be reckoned with. Markets will eventually discover what things are really worth. And in a real downturn, they’ll always discover that they are worth less than people thought.

History shows that after a peak is reached, stock prices will keep falling until they become bargains again. So, if you knew that a stock would eventually sell for less, why buy now? Why not wait? What’s the hurry?

The reason given for yesterday’s big bounce was a pleasant report from the housing market. More houses are being sold, said the news.

Does that get you excited, dear reader? It doesn’t do anything for us.

Another report tells us that inventories of unsold houses are still building up.

Meanwhile, The New York Times reports that there is a crisis brewing in student loans. We didn’t have to read the article. Students get out of school. They can’t find a job. How do you expect them to pay back their loans?

A report in the local paper tells us that more students than ever are enrolling in community college.

Overall, the economic reports are broadly encouraging…but still consistent with our Great Correction hypothesis. This is NOT a normal recovery. Nor is it the end of the world.

Our strategy is to wait ’til the end of the world comes; then, we’ll buy stocks.

Bill Bonner
for The Daily Reckoning

Buying Stocks at the End of the World originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”


Daily Reckoning
gold

← Earlier Posts