Dan Tohatan - Finance

Gold and Silver - Time to Sell?

Dan Tohatan (Admin) — Sat, 04 Sep 2010 02:13:56 GMT

It appears that gold and silver have been doing amazingly well this year. From the 2008 lows, gold is up about 80% and silver is up 125%. This is in US dollar terms.

In addition to that, gold is now near an all-time high in US dollars (about $1250), and silver is just about to break the $20 mark and possibly overtake its all-time high of $21 (reached back in March, 2008).

All of this begs the question - if the smartest thing to do as an investor is to buy low and sell high, is this one of those times when selling some gold & silver might be a good idea?

After watching more than a few videos and reading a few articles online to try to get a balanced point of view, I am somewhat leaning toward the idea that selling now would be a rather foolish thing to do.

Bulls vs. Bears

The consensus view among respected "contrarian" investors (like Marc Faber) is that the US dollar is headed for a 40-60% devaluation in the immediate future. This devaluation will be swift: it will happen virtually overnight. That would put the gold price up at $1750 - $2000 in the bullish camp.

In the bearish camp, we have those who say that gold is overvalued. I am one of those people right now. Yes, you read that right. I think that gold is overvalued. I think a "fair" price for gold - based on historical average salaries - would be closer to $900 now.

Based on historical average wages in the United States - data which is available to anyone - it appears that the gold : wage ratio is almost at the same level as it was in 1980, when gold reached a historic high.

Gold: Overvalued?

Strictly by looking at US wages in relation to the price of gold, one would conclude that the bull market in gold has pretty much run its course, and that it's downhill from here.

However, when you realize that interest rates are now at all-time lows (whereas in the 1980s they were at all-time highs), you begin to readjust your attitude slightly. The talk of the town now is "deflation." In the 1980s it was "inflation." This means that, if gold was able to reach $1250/oz in this environment, just imagine how high it could go in a truly inflationary environment which I believe is coming.

So while I think that gold is overvalued, I think it would be foolish to buy dollars (instead of gold) based on that fact alone. The US debt:GDP ratio has never been higher since World War II. The Dow:gold ratio is 8.5 - well above the historical minimum of 1 reached in the early 1980s.

If anything, what gold is showing us now, through its extraordinary strength, is that upside potential is enormous - higher than anyone would dare predict. It is also showing us how awful the US job market is: if gold has already reached a historic high ratio with respect to salaries, it means that if anything downward pressure on salaries is enormous, not necessarily that gold is overvalued.

Buy, buy, buy

In the end, my recommendation is to continue buying on any weakness in the gold market. The same goes for silver.

When you contemplate selling, you are faced with the obvious question - and buy what? The answer is, you can't buy anything other than gold & silver at the moment. Real estate is still declining, stocks are overdue for a correction, and bonds / money market accounts are yielding 2% or less.

I am expecting a sizable correction in gold & silver in the near future (up to 6 months). However, it could start at any price point ($1200 or as high as $2100). It's hard to predict when the correction will start, and until that point comes the only way is up (given that we are entering the classic period of positive seasonality for gold).

Again, my recommendation is to throw caution to the wind and just buy. Not because there is any particular reason to do so, but because those who sell right now (or don't buy enough) will regret it.

Getting over the fear of asking

Dan Tohatan (Admin) — Tue, 13 Jul 2010 08:34:15 GMT

I have a strong feeling that for most people, the biggest reason for business failure or personal stagnation is due to the fear of asking. This applies to me, so it must apply to others out there.

Let's examine this for a minute. What are some fears that people have when it comes to asking?

Asking to be treated fairly in a relationship
Asking for what you feel you deserve to be paid, instead of what you think you can get
Asking others to allow you to speak & make a point
Asking the people you have wronged for forgiveness
Asking that your government representatives actually represent your interests for a change
Asking a girl out on a date

The list goes on...

It has always been a weakness of mine. I'm sure others are in the same boat. Why else would it be that so many people are having trouble making ends meet? They clearly accept their precarious financial situation. It's as if they are content with being poor. Just as in centuries past, people were content with being slaves.

The reason is always the same: they are afraid to ask.

Well, I don't know about you all, but as far as I'm concerned, I'm determined to get over my fear of asking. Whatever it takes.

This new modus operandi is called "being assertive." It is now my new quest.

I will start by getting over my fear of asking for $300/hr as my consulting rate. This is how it begins.

Stay tuned for status updates on my quest. This blog will be my journal on this exciting shift in paradigm.

Economic Update

Dan Tohatan (Admin) — Sat, 05 Jun 2010 23:23:44 GMT

It was April 29, 2010 when I called a top in the Dow. It looks like I hit the nail on the head there. Since the top (11,205), the Dow has plunged more than 1200 points. I think it's safe to say now that a bear trend has started that will continue well into 2011.

Now for my latest market call, buy silver now. The gold-silver ratio has just hit 70:1 after being in the low 60s for nearly a year. It's time to buy some silver.

In other news,

Sell in May and go away? Not this year!

Dan Tohatan (Admin) — Tue, 11 May 2010 23:56:16 GMT

Gold has just reached a new all-time high today. It looks like gold is breaking out like a true champ.

There is an old adage among hard-core gold bugs: "Sell in May and go away." There is some truth to that statement. Gold's seasonality is such that the summer is usually a bad period, where gold does nothing and sometimes actually falls quite dramatically in price.

Well, this year is shaping up to be very different. This is a May breakout. I've never seen anything like it. It is totally counter-seasonal. This indicates enormous strength in gold right now.

What does this mean for the coming months? I think gold at $1800 before the end of 2010 is not out of the question. In fact, the likelihood of that is about 70%.

There is dollar devaluation afoot. The Euro is no longer a safe haven. Where do you put your rapidly-depreciating dollars? The stock market casino? Bonds that yield less than 3%? No. Real estate in a time of recession? No. Gold is the only thing left.

Maybe the old adage should be changed to "buy in May and go away."

That's It - I'm Calling a Top

Dan Tohatan (Admin) — Fri, 30 Apr 2010 01:47:38 GMT

The chief US economist at Deutsche Bank, Joseph LaVorgna, has just stated, "we're out of the woods for good." Apparently, the recession is over. People are spending, companies are making strong positive earnings, and it's "not just an arithmetic story. It's a story of legitimate growth."

OK. That's it. I'm calling a top. We're at Dow what now, 11,200? Well 11,200 is the highest it will be for a long time to come.

Where is the money supply recently? Let's see... the M3? Oh that's right, it's SHRINKING!

http://www.nowandfutures.com/key_stats.html

We are shrinking at a rate of -7.7% annually! Yikes!

Oh, and let's not forget the 9.7% unemployment rate that hasn't budged at all. How on earth can this be a real recovery?

Not only that, but recently I've noticed that a lot of bears have turned bullish.

But guess what, people ARE spending! Consumers ARE buying stuff, despite being unable to pay for it. Delinquencies are at all-time highs! This at a time when interest rates are ZERO!

What else? Oh, the Dow has been rising non-stop since March, 2009. We are now 13 months into this crazy rally, which is nothing more than a bear market rally.

So, to conclude, I'm calling a top. 11,200. This is it. Expect some big downward moves in the coming months.

P.S. My track record speaks for itself: in March, 2009 I called the bottom with my infamous post "Bottom". Then I qualified that by saying it WOULD get worse, in the long term. Well, now is the time for the resumption of that long term trend.

Significant Probability of Dow Correction

Dan Tohatan (Admin) — Tue, 23 Mar 2010 04:29:12 GMT

I'll be brief. We are now at a point where the Dow Jones Industrial Average (DJIA) is likely to correct substantially over the coming months. I assign this outcome a probability of over 40%, with a probability of virtually 100% that the DJIA will make a substantial correction by November of this year.

What do I mean by "substantial correction"? I mean 10% or more. This means about 1000 points or more. Likely far more.

So now where do I place the probability of a gain of 10% or more? That would mean the Dow hitting at least 11,800. I would put that at about 40%. The irrational euphoria has a high chance of going on much longer & much higher than anyone expects it to.

So given that, how should you act in this market? It is my belief that, at this point, buying the Dow is no longer worth the risk of it going down, possibly as much as 50%, over the coming months.

It is certainly time to sell the Dow, but not short sell it (yet). When it is time to short, I will post another announcement on my blog that we have hit the top.

Once again, to summarize, this is not the top. But at this point you should be cashing out & sitting on the sidelines.

Buy two lottery tickets every week for the rest of your life

Dan Tohatan (Admin) — Fri, 05 Mar 2010 01:35:49 GMT

This was originally posted over on my other blog (thelogicspace.blogspot.com) but I think it's important enough to post it here as well...

"
I've recently developed a phrase I like to use to remind myself to take the time to invest in myself. It's called "Play to Win": You've got to PLAY to WIN. Think of the lottery: you MIGHT win IF you play, but you CERTAINLY won't win if you don't play.

You've got to think as if every action you take will result in the most spectacular success even if it won't. Think of yourself as if you're constantly buying lottery tickets. Every minute you spend is productive only if it has resulted in you buying another lottery ticket. This idea is also sometimes called "planting seeds." In the sense that, a tree will not grow unless you plant a seed. Planting a seed takes very little time, but could potentially result in a big reward later on.

Have you ever found yourself thinking, "this is a waste of time. It hasn't worked before, so why would it ever work?" I find myself thinking that a lot. When I release a new product, when I write a new blog article, I think that constantly, because I don't want to feel like I'm wasting time.

Whenever you find yourself thinking that something is a waste of time, you've got to ask yourself two things:
1. What have you got to lose?
2. What have you got to win? What is the biggest potential win?

If the potential win (regardless of probability) is large enough, and the potential loss is almost insignificant (e.g. a few minutes of your time), then why not do it?

You would happily buy a lottery ticket every week. Yet in all logic that seems like wasted money & time. But it's not. You have to apply this same idea to every action that you take. Invest in your future. Plant seeds. Play to win -- emphasis on the "play" part.
"

So now you should understand why you must buy two lottery tickets every week for the rest of your life. I'll be doing that starting this week. It's less than the cost of two subway rides, but the payout could be substantial. I plan to play only when the jackpot exceeds $10 million. I think that's a big enough payoff to be able to retire and live well, but any less than that doesn't seem worth it to me.

Interesting fact: if you buy two lottery tickets every week for 50 years, your chances of winning lotto 6/49 are 1 in 2700 lifetimes. On the other hand, if you never play, your odds are ZERO. I'll take 1 in 2700.

Ominous Sign: SEC Restricts Short Selling, Again

Dan Tohatan (Admin) — Wed, 03 Mar 2010 05:34:59 GMT

Last week, the SEC voted in favour of limiting short selling on stocks that have fallen by more than 10%. This latest move echoes previous attempts by the SEC in 2008 to limit short selling, during the collapse that occurred in September and October of 2008.

Are we in for another stock market crash?

While it's impossible to say with certainty, I think this is an ominous sign that we may be headed for another rapid decline in the US stock market over the coming months. We've certainly had the longest recovery rally since the Great Depression. No uptrend lasts forever, and when this one turns around, we can expect nothing less than a spectacular and terrifying decline.

I think it's a matter of weeks before some major downward moves in the stock market. The probability of a crash is high enough to warrant evasive action.

Japan's Deflation Explained

Dan Tohatan (Admin) — Wed, 03 Mar 2010 03:23:27 GMT

Here's a handy chart that explains exactly why Japan had "deflation" for nearly 30 years, and why the US will not experience deflation anytime soon...

Original Article: US Not Going Down Japan's Road (Safe Haven)

I suggest you read that article for more in-depth analysis. Here's my quick summary:

Look how slowly Japan's M2 grew from 1992 until 2004. The average rate of growth is just 2%.

How can you have inflation without monetary expansion? You can't. Japan clearly proves it.

So when you hear a deflationista argue that Japan pumped money relentlessly into the economy, that is simply not true. If they had done that, there would have been inflation. But they didn't.

Now look at the US. Different story entirely. The US money supply expanded at a rate of nearly 10% in 2008.

Bottom line, watch the money supply. If it grows, inflation will soon follow. It's a law of nature. Like gravity. You can't argue against it and make it go away.

Update: It turns out in 2009 the US money supply (M2) only expanded by about 2%. Could this be the start of a long term trend, or just a temporary anomaly?

Toronto residents must earn minimum of $35,000 per year

Dan Tohatan (Admin) — Sun, 28 Feb 2010 19:35:52 GMT

Toronto residents must pocket $35,000 per year just to stay afloat.

Yes. Anyone in Toronto who is earning less than $35,000 (net) per year is falling behind and will be unable to retire.

This shocking conclusion is based on a careful calculation of required retirement savings based on the cost of living. In Toronto, the typical cost of living is $2000 per month (including food & housing).

For someone who earns $35,000 per year, what is left over after paying off living expenses is just $10,000.

Now, assuming you are 25 and plan to work until 60, that means you can save up $350,000. Assuming you've paid off the mortgage at 60 and your living expenses are reduced by $1200, to $800 per month, that amount will allow you to last 36 years.

That should be just enough to get you to age 96.

The math is more forgiving if you increase the retirement age from 60 to 65, or to 70. However, even if you were planning to work until 70, you would still need to save up $6,000 per year for every year you work (assuming you start saving at 25).

Even in this most forgiving case, you would still need to earn a net income of $31,000 per year. Still very close to $35,000 per year.

How much is $35,000 per year in terms of gross salary? $45,000. Yes, $45,000. That's $23 per hour based on a 40-hour work week with two weeks vacation. $23 is more than double the minimum wage.

Effectively, $23/hr ought to be the minimum wage in Toronto, because it's impossible to get ahead on anything less than that (unless you continue living with your parents).

Do Repeat Yourself... If It's Easy

Dan Tohatan (Admin) — Tue, 23 Feb 2010 05:34:18 GMT

Here's an article I've posted over on my other blog. It's worth a look so I'm cross-linking it here:

Do Repeat Yourself... If It's Easy

"How many times have you thought of a great idea only to discover that somebody else has already done it?"

(read the full article)

Upward Mobility is Dead: How persistent unemployment will shape the next decade

Dan Tohatan (Admin) — Sat, 20 Feb 2010 19:11:20 GMT

This is a follow-up article to this majestic piece of writing: How a New Jobless Era Will Transform America (The Atlantic)

After reading the above article, a few ideas popped into my head which may not be known to the writer, given that the writer (and his/her sources) are probably members of an older generation. However, since I am a member of the so-called "generation Y" or the "echo boom" generation, I may be able to shed some light on what I am thinking (and maybe what other members of my generation are thinking) with respect to this issue.

First, it's evident at this point that the idea of upward mobility - the idea that you could work your way up the corporate ladder - is no longer an idea that can be embraced. It is far too risky. It used to be that if you worked hard enough, you would eventually end up in a highly-prestigious position, earning lots of money, and having a fair amount of authority (all of which are highly potent aphrodisiacs to undisciplined individuals).

OK, I said a mouthful so let's backtrack a little. What is an "undisciplined individual"? Put simply, all humans have instincts and most humans make decisions solely based on feeling (emotion), rather than rational thought. In basic sociology, a human has several aphrodisiacs which elevate his/her sense of self-worth. These are (to name a few): power, wealth, and social status. Most individuals act as robots seeking these three aphrodisiacs for their entire lives. Unless you are aware of this fact of nature and discipline yourself to be content with seeking happiness in other forms, you are considered an "undisciplined individual," who is purely seeking to maximize one's social status, power, and/or wealth. The vast majority of Americans are what I consider "undisciplined individuals."

Now, believe it or not, there are many people in the world who define themselves largely by the position they hold, or by the organization in which they are members. This is one way you can define yourself, but what happens when you lose your position, or the organization you are in collapses and you're left without a position? It is my belief that if you define yourself in such a way, you will suffer enormous emotional scars resulting from your "break-up" with your organization. In fact, it is almost identical to the break-up of a marriage. In a sense, many people are "married" to their jobs.

So what is the antidote to this madness? And why do I consider it "madness"? Well, it's madness because first of all, you are probably not a founder of the organization in which you are a member. Quite probably you have a very low-ranking position within that organization and even more probably you will never reach the level of power / control that the founding member has. That's number one. Number two, it's madness because in this economic environment, anybody can be fired from any position for any reason (or no reason at all!). While this has always been the case to some extent, it is only now that it is happening on a mass scale, reaching levels where the risk of being fired from a position to which you are married actually exceeds the benefit of "becoming married" to that position.

So what is the antidote to the madness? You have to think clearly and look at the facts. The facts are that these worker-organization relationships are becoming increasingly more transient. This idea was put forth by Alvin Toffler in his 1970 book "Future Shock," in which he describes a condition where relationships (of any kind) become increasingly more transient in the not-too-distant future. This has come to pass in the form of increased divorce rate as well as increased job insecurity. I think there is no question at this point that Toffler was right and that this trend will continue for a long time.

So given all that, it is far more rewarding to think of yourself in terms OTHER THAN your relationships with other organizations. When I look at myself, I value myself based on my ability to solve problems creatively, or by my ability to think logically. These are attributes that are fundamental to survival, but which have been almost eternally ignored at the societal level. I believe these attributes are far more fundamental than anything else. You need to define yourself based on your fundamental attributes that make you a resilient individual in the face of any natural or environmental situation. Always avoid the trap of thinking that your identity is defined by what others think of you. This is a fundamental shift in mentality that needs to occur on a massive scale. This shift is what separates a "disciplined individual" from an "undisciplined individual." We, as humans, need to become far more self-disciplined and far more aware of the destructive aphrodisiacs I mentioned earlier.

As an aside, two things I try to avoid constantly are:
1. Believing (or becoming attached to) others' opinions of me.
2. Following popular beliefs or behaviors unquestioningly.

Coming back to the idea that upward mobility is dead, imagine you start out your career as a Walmart cashier. Then, 20 years later you're back at Walmart as a cashier. If you grew attached to the idea that you would advance over time, you would be devastated to find yourself 20 years later in exactly the same position. However, if you defined yourself by other characteristics which may not be as socially respectable (yet) as the idea of career advancement, you would be relatively unaffected by your career path, however erratic it may be. It is an idea from many oriental religions which must be embraced: "avoid attachment to things which are invariably transient."

Sadly, many are refusing to accept the new reality and construct a belief system which is more consistent with it. Instead, it appears that many are resorting to having children as a way to escape their insecurities and gain social approval. It's understandable that we are social beings. And it requires an enormous shift in thought patterns in order to avoid the common traps that cause us to do undesirable things purely for social approval. Yet, in order to evolve as a species, we must engage in precisely this sort of detachment from the base aphrodisiacs that have driven society for generations. So if you find yourself unemployed, become a Buddhist monk. It's a step in the right direction.

To close off, I will give one last example which illustrates what can happen when jobs disappear but the parasitic aphrodisiacs of power and social approval remain. In Philadelphia, white neighborhoods are now becoming increasingly black. White males, who have held blue-collar and even white-collar jobs have now been unemployed for years. Some are now resorting to precisely the same kind of behavior that blacks have been struggling with for decades: fathers abandoning their children, drug dealing, violent crime, and domestic violence. This is all because, fundamentally, blacks are no different from whites. It is only the economic circumstances which produce a difference. Now that the differences in economic circumstances between blacks and whites are beginning to narrow, we are seeing a convergence in terms of behavior patterns. Unfortunately, this convergence is happening in the wrong direction: instead of blacks becoming more affluent, whites are becoming poor.

All too often, persistent widespread poverty results in a loss of dignity among members of a society. This is certainly understandable, but there are many societies which, by our definitions of wealth, are extremely poor. Yet, these societies are very cohesive and peaceful. We do not have to go through a break-up of society as a whole as a result of increased overall poverty. In fact, the society of the 1930s was very cohesive and generally in good spirits. People helped each other. We should work toward a healthier society, by valuing those things which are fundamental to survival: knowledge, and creative problem solving, rather than those things which are the primal aphrodisiacs of undisciplined individuals.

13% of US population on food stamps

Dan Tohatan (Admin) — Sat, 20 Feb 2010 18:23:01 GMT

The latest food stamp report is out: 38 million people in the US are now (October, 2009) on food stamps.
Here is the stunning part: "an increase of nearly 6.9 million people compared with the prior October."

Questions arise:
- How is it that 38 million people in the US are on food stamps yet only about 20 million are considered unemployed?
- 7 million more people are on food stamps now than in the fall of 2008. Where is Obama's recovery?
- What are the social consequences of having one eighth of the US population on food stamps?

For the social consequences, I will write up another blog post shortly, as things are quite troubling.

Mediocrity: The Lifeblood of Modern Businesses

Dan Tohatan (Admin) — Wed, 10 Feb 2010 00:49:28 GMT

Have you ever woken up one morning thinking you deserve a raise? Well, if you think logically, if your performance has been excellent (praised by your boss), you'd think you definitely deserve a raise. Not quite. This type of logic no longer applies in today's business environment. Shocked? Confused? Don't worry - I'll elaborate.

Imagine a stellar employee, praised often by his/her manager, is working at a salary of $60,000/yr and gets called into the manager's office for a talk. The talk is about how the employee is exceeding the employer's expectations and the employer wants to assign the employee duties that will be more challenging and possibly more useful for the business. The employee is certainly excited, thinking he/she might end up getting a raise. The employer finally reveals the key figure: the salary. It's $45,000/yr and requires that the employee sign some additional restrictive agreements that are not applicable in the employee's current position.

Is the employee being promoted or demoted?

From the employer's perspective, the employee is being promoted. Duties are being expanded and greater responsibility is placed on the employee. But, from the employee's standpoint, things are not quite so rosy. The employee sees a decrease in salary, and an increase in work and in restrictions. What benefit is there for the employee? ... Give up? There is no benefit!

That's right, the employee is being demoted for achieving excellent performance. Outstanding performance is being punished rather than rewarded. I would be willing to bet that this is happening in a lot of companies these days. In fact, I'd go as far as to say it's becoming a market-wide phenomenon.

So don't be shocked if an employer offers you a demotion for exceeding expectations. The world is, as they say, a little more complicated than it appears to be. This paradox is, like most paradoxes, a mind-boggling one. And its implications are huge. It means that the best employees are those who walk the fine line between doing too little and doing too much. They are those who stay inside the box, and live a life of mediocrity.

In the world of business, mediocrity is rewarded. Creativity is punished. I've just given a concrete example based on personal experience. Yes, it's based on a true story. When you add it all up, isn't it better to just mind your own business?

Savings = Power

Dan Tohatan (Admin) — Mon, 04 Jan 2010 01:56:55 GMT

It was about 4 years ago when I started saving money for the first time. I opened an ING Direct savings account. Didn't know what I was going to do with it all, but I knew one thing: nobody was saving their money. There had to be a reason. Not only that, but saving was frowned upon. It still is. "Live your life, man!" is what everybody would say. But no. I was saving every penny.

At times, I found it somewhat absurd. Why should I keep saving? What's the point? Why not live for today? Life is short, after all. But I kept saving. I decided to treat it like an experiment. I wanted to find out where it would take me. What advantages would I gain (if any) from saving as much as I can?

Mind you, 4 years ago I was 19 years old and was just becoming acquainted with the vastly complex world of finance. I didn't even know where exactly to put my savings. CDs? GICs? RRSPs? What does it all mean?

So 3 years ago I started researching finance, in depth. I started reading online materials on stocks, bonds, GICs, money markets, and everything else. Basically, I wanted to become aware of all the options I had.

A few months passed, it was July of 2007, and I was observing the stock market. I observed one thing: stocks had been rising since 2002. So, it had been 5 years of continuous rise. If I put my money in stocks now, I reasoned, I would probably lose a whole bunch of it when the stock market crashes (at the time I figured it was a matter of months before the next crash).

So I decided to hold off on buying stocks and keep exploring. Maybe there was something I could put my money into that wasn't just a plain vanilla savings account. I turned my eyes toward inflation. At that point, my only recollection of inflation was the disastrous hyperinflation that my parents experienced in Romania during the 1990s. I remembered clearly that there was a time when every week the price of bread would double. I wondered if something like that could happen again, in North America.

After doing a bit of research on the CPI and noticing that inflation had been going on, though at a slower pace, in the western world as well, I realized there was really no difference between Canada and Romania in terms of currency. Fundamentally, the currency system was exactly the same. So, technically, even though my savings account was CDIC ensured, the purchasing power of that money was not.

I decided to look for ways of protecting against inflation. Initially, my idea was to actually start an inflation insurance firm. Yes, I was determined to sell inflation insurance!

But there already was inflation insurance - and in October, 2007, I finally found out what it was. Gold. My research quickly took me on the path of precious metals, which had been inflation-proof for thousands of years. A good enough track record, I figured.

Great, so I decided to move some of my savings into gold. Of course, I realized it must not be too much, because gold is extremely volatile. Not only that, but gold had been going up for 6 years - longer than the stock market. Surely it was due for a correction. I started small, and moved slowly, making sure that my bullion position never exceeded the "safe" limit that I had set for myself.

But how did we end up talking about gold? The topic was savings. In general. And why it's important to have savings.

Well, first I must make it clear that gold is the only true form of savings. Paper depreciates, and is vulnerable to political turmoil. Stocks are risky - companies go under all the time. Real estate also depreciates and is vulnerable to political turmoil. If you want something that can withstand many generations and has a track record of preserving value through time (which is what savings is), that something is gold, and silver. Precious metals.

Now we can talk about why savings is power. What does it mean to have savings? It means you have the power to readily take on adversity, for a prolonged period of time, in the hope of achieving a greater income. For the individual, it means you can go without a job longer, so you have the latitude to negotiate higher pay in full view of the risk of remaining unemployed, because that doesn't bother you, because you have savings. It means you can explore new business ideas and have no fear of failure, because you know you have savings.

But this applies not only to individuals. Savings is power for countries as well. You see, the country that is able to take on the greatest adversity for the longest period of time will come out on top. Wars are won by those countries that have accumulated the greatest savings. In World War II, the US had the most gold of any country in the world. The US won the war and continued to dominate the world for decades thereafter. Remember: gold is savings, and savings is gold.

Now, 4 years after I started saving, I think I can finally appreciate the power of savings. I see now that debt is servitude, and savings is power. For you see, those who are in debt are subservient to those who have the savings. This has always been the case for all of time. Which side are you on?

Predictions for 2010

Dan Tohatan (Admin) — Thu, 31 Dec 2009 22:02:46 GMT

My 10 predictions for 2010:

Inflation will surprise everybody. Watch prices carefully. Everything will be up 10-15% by summer. Your lunch will no longer be $7, but $10, and soon $12. Your bus ticket will no longer be $3, but $4 and soon $5. All in 2010.
Revolution will surprise the powers that be. The US is ripe for a revolution. Especially when it becomes perfectly clear that Obama has done nothing but lie, and that the propaganda machine around Obama is more powerful and more terrifying than what Bush could've ever dreamed of.
The big important theme for 2010: Cost cutting. The words "budget" and "low cost" will be what keep most businesses alive. It'll be about stretching every dollar, stretching every penny, despite the growing unacknowledged inflation.
China will be a big story in 2010, specifically recognition that China is now the world's dominant economic superpower and that US treasuries will soon be liquidated en masse. Furthermore, China will be a story because all of the inflation we'll be seeing will be originating directly from China!
Not to be outdone, mobile phones will go big in 2010 (or rather, small). There will be a surprise in the mobile market that neither Google nor Apple will appear to have prepared for - and that will come from Microsoft. Google, Apple, you have been warned! Yes, we're talking about Windows 7 phones.
Steorn, and a few others, will surprise the oil companies. Yes, free energy will arrive in 2010, if you know where to look. Steorn will be doing a demo early in the year, so it's pretty much a foregone conclusion. The human race has reason to celebrate, and reason to rise up!
Electric cars will reach power parity with gas-powered cars. Range will be hundreds of miles on a single tank. Batteries will charge in seconds! You have been warned...
Government will expand to take over every aspect of our lives. Yes, this is a sad one, but as private sector jobs disappear due to income tax bracket creep caused by inflation, government will expand to take over nearly every aspect of industry. We could see 90% of jobs becoming government-run or government-backed in some way.
Masses will be waking up, in a surprising way. TV will have a decreasing influence in everyday life, and you will become surprised to know that your next-door neighbor knows as much about the New World Order as you do, plus a lot of other things about free energy, UFOs, and other "black-listed" knowledge.
Wage inflation, yes wage inflation, will begin. Your salary will probably be up 50% by the end of the year, but inflation in everything else will have been closer to 100%.

Overall themes for 2010: surprise, reform, and revolution! Change will come, but not because of Obama.

Dan's Gold & Silver Alert

Dan Tohatan (Admin) — Tue, 22 Dec 2009 02:17:58 GMT

Dan's Gold & Silver Recommendation: Buy (with caution)

We've now corrected 10% in both gold and silver, from the top reached a few weeks ago.

I think it's time, given the speed and severity of the correction, to start buying again.

However, I do think that further downside is possible. So cautious buying is advised.

I will try to have this segment at every major turn in the market so that you can stay up to date with the latest market movements.

So stay tuned for more of "Dan's Gold & Silver Alert."

Where's Bob Prechter Now?

Dan Tohatan (Admin) — Thu, 05 Nov 2009 00:41:47 GMT

So gold just shot up above $1090 today - a new all-time high, oil is up above $80 a barrel again, and I'm getting emails in my inbox about contract opportunities with rates of $60+ an hour. So what does all of this have to do with Bob Prechter?

Who is Bob Prechter anyway? For those who don't know, Robert Prechter is a semi-popular financial analyst who occasionally pops out of his wooden shed to warn us all about the impending danger of deflation. Much like Mike "Mish" Shedlock of globaleconomicanalysis.blogspot.com, he was right in the fall of 2008, when the price of everything collapsed spectacularly. However, most prices have pretty much recovered since then and some (like gold) are actually making new highs!

Robert Prechter has an interesting theory, however: that short-term market movements are entirely random - influenced by a recurring cycle known as the "Elliott Wave," which is based on the Fibonacci ratio of 1.618. In short, markets are irrational, but predictably so - they can be predicted by applying this Elliott Wave theory.

I agree with Robert Prechter on the "markets are irrational" bit. I even think he might be on to something with the Elliott Wave theory. But as far as deflation goes, I am strongly against it. I do not believe deflation can happen in a system of fiat currency (where money is created out of thin air).

One example that deflationistas often like to bring up is the case of Japan in the 1990s, and how allegedly Japan experienced deflation from 1990 to now. That is just totally wrong. Japan experienced roughly -0.5% inflation for 3 years. That's it. That's all the "deflation" it ever experienced. Japan is not a valid example of deflation.

One other example some deflationistas hearken back to as a last resort is the Great Depression. However, during the Great Depression the US was still on a gold standard, so that example is totally invalid in today's fiat world.

So given the track record of these "deflation" predictions, why does Robert Prechter think that "this time is different"? And where is he now, when his predictions appear to be falling apart by the day?

I was wrong

Dan Tohatan (Admin) — Mon, 21 Sep 2009 03:00:14 GMT

OK, remember this article?
"Imminent Stock Market Crash"

On August 24, I warned that a stock market crash is "imminent" and that the "coming weeks" would be "turbulent to say the least."

Well, I was wrong.

The market did dip on August 28 and fell a few hundred points but has since rallied to a new 2009 high.

Where did I go wrong?

I got the timing wrong. That's all. The crash is still coming. The Dow is still going to 2000.

At this point, I think the Dow will probably reach 11,000 before the crash begins. The peak will come in October.

Only suckers are buying now.

That's all I'm going to say.

Inflation? Deflation? It don't matter.

Dan Tohatan (Admin) — Mon, 21 Sep 2009 02:15:45 GMT

I want to draw your attention away from the talking heads on CNN/FOX/CNBC (who are all shouting "recovery") and toward a recent video by TheModernMystic:

Apparently, M3 - a measure of US money supply - has been declining now for over a year.
Credit as well as money has been declining at an annual rate of at least 5%!
In other words, we are in deflation (in the US) since March of 2008.

Banks are being paid to hold money in reserve and NOT lend. Why is the Fed doing this?
Could it be that China now has enough power over US monetary policy to prevent inflation (and thus devaluation of their dollar assets)?

Additionally, consumer attitudes toward credit & spending have changed dramatically. This has been pointed out by Mish on his blog many times.
High & rising unemployment has forced people to save (US savings rate now 7%) and has driven salaries lower (people taking 30%-50% pay cuts).

The big question is whether deflation can/will continue.
I believe that it can, and it will. It all has to do with what is in the interest of those who control the money supply.

Let's look at it this way. If you're a bank, and you've given out $5 billion in loans,
you would ideally want to be paid back in full (with interest) on those loans. What happens if there is a sudden 50% inflation?
You get 50% less than what you gave out in loans. That is, you are not paid in full, because the dollar has lost 50% of its value.
So, given this reality, you would ideally want the dollar to maintain its purchasing power or even gain in purchasing power.
In other words, the ideal condition for banks (and other lenders) is deflation!

Now, let's look at China. China has at least $1 trillion in US bonds. They've lent out $1 trillion to the US. They would ideally
want to be paid back in strong dollars so that they can purchase US assets on the cheap. They want to maximize the bang for their buck!
China wants deflation. How much control does China have over US monetary policy? I would argue that, since they are the biggest exporter to the US
and the biggest supplier of cheap labour to US companies, they have at least a tangible influence over what Ben Bernanke decides to do at the Fed.

Clearly, US banks and China want deflation. The US government, however, wants inflation because they have no way of paying their gigantic debt burden.
How much say does the US government have in monetary policy? None. That is just a fact. The Federal Reserve is a private institution, independent of the
US government. The US government has no control over monetary policy. No matter how much inflation they want, they aren't in charge of the printing press.

Now a clearer picture starts to emerge. The picture is a little shocking for those who have been led to believe that the US dollar is headed for hyperinflation.
The picture shows what is likely to happen for the next 5-10 years, and it ain't pretty. The US dollar is likely to maintain its purchasing power or even gain
purchasing power. What is likely to unfold is another depression, similar in magnitude and character to the Great Depression. Prices of all non-essential items
will fall or remain stagnant. Wages will fall or remain stagnant. The stock market & real estate market will collapse.

So what can you do to come out ahead? First, if you have a job and can save some money, save it in gold. Have enough dollars to get by on for a few weeks but
beyond that all savings should be in gold. Why gold? Gold maintains its purchasing power. The likelihood that the dollar will gain significantly in purchasing
power is very low, simply because it's a fiat currency - its supply can be increased arbitrarily. Even if the dollar does not inflate over the coming years, you
will not have lost anything by owning gold, because gold never loses its value. Additionally, gold has no counterparty risk. It's not a loan or a promise to pay.

Secondly, get out of stocks and real estate. Real estate prices are going to continue to collapse. The Dow will go to 2000. Real estate will probably go back to
1980s price levels - $100,000 for a house. The time to buy these assets for the long haul will be in 3-5 years when the lows have been hit. However, these assets
will not perform well for the next 10+ years, so you have plenty of time to wait before getting back into "the market."

Third, bonds are going to be problematic. In a deflationary depression, first comes the stock collapse, then the bond collapse. The bond market collapse will be
far more painful than the stock market collapse. US treasury bonds are in a bubble. Bonds are the last thing to peak after a speculative mania. 0% yields are not
sustainable for more than 2 or 3 years. I've said it before and I'll say it again: owning US treasuries now is like owning dot-com stocks in 1999.

Finally, consider owning some silver. It's more risky than gold but has the potential for higher returns over the long term. Silver outperformed gold from 1932
to 1979 by a significant margin. If gold is your rainy-day fund, silver is your 401k. Regardless of whether there is inflation or not, silver will gain in value
relative to every other asset. That's what's important.

Again, let me emphasize that the inflation/deflation debate has no bearing on whether precious metals will continue to gain in value over the coming decades.
That question is answered by looking at supply & demand over the long term. The same goes for stocks, bonds, and real estate. What matters is the relative
performance of one asset compared to another.

The future of the dollar only concerns those who hold dollars and those who owe dollars. It concerns China and US banks. They wish for deflation.
The Federal Reserve, being in bed with US banks like Goldman Sachs, will probably grant them that wish. The US government will probably continue to borrow and hope for inflation. They will probably just default, like Russia in 1997.

Weekend Summary - IRS Panic; Washington March; Gold

Dan Tohatan (Admin) — Sun, 13 Sep 2009 19:30:48 GMT

Here are some stories I found very interesting:

Rich people panic over new IRS rules
"2 million" march in Washington, DC
Barrick Gold will cut its short position in gold

My comments:

The first story explains the rise in the gold price. If companies can't keep dollar-denominated assets in foreign offshore bank accounts, they will just move those assets into gold in undisclosed locations. If it can't be audited, it can't be taxed. Problem solved.

Barrick Gold is reducing its short position in gold, which it has been keeping for at least the past 5 years. This is short-term very bullish for gold. In addition to this, many central banks have stopped selling gold and China wants to get out of the dollar.

If you are a gold investor, I think it's time to seriously consider "selling the news" after buying the rumour for the past 10 years. This gold bull market is about to come to an end, or at least cool off for the next 3 years. Take advantage of the big gold rally coming this fall to liquidate some longs.

Update:

I have to comment on the Washington march story, because apparently there were nowhere near 2 million people at the march. Regardless of how many people there were, the fact that many signs praised FOX News is a giveaway that this rally was staged by FOX News and its minions. Edit: BBC confirms "tens of thousands" attended the protest, not millions.

Sadly, a legitimate point of view about the importance of the US constitution has been hijacked and turned into a freak show of uninformed "morans" who can't even put together a coherent thought. It's a fake revolution. All efforts toward an intelligent debate about the role of the US constitution have been stifled by the controlled corporate media.

I'm still waiting for the REAL revolution.

Some Recommended Reading

Dan Tohatan (Admin) — Wed, 09 Sep 2009 00:12:23 GMT

The following articles discuss (in different ways) the demise of the dollar:

1. TIME - America and Its Deficits

2. Bloomberg - UN Says New Currency Is Needed

3. iStockAnalyst - China Now Net Seller of US Treasuries

Still bullish on the dollar?

Americans Getting Fooled...Again

Dan Tohatan (Admin) — Tue, 08 Sep 2009 23:39:23 GMT

Article: Up to $3,800 fine for failure to get health insurance

"WASHINGTON (AP) - A top senator is calling for fines of up to $3,800 on families who fail to get medical insurance after a health care overhaul goes into effect."
...
"The plan from Democratic Sen. Max Baucus of Montana would make health insurance mandatory, just like auto coverage."

I'm not going to comment too much other than to say that this just another example of fascism in the US. Public-private partnerships. Government subsidizing private industry. And guess who gets stuck with the bill? The dumbed-down American people, that's who.

The American people lost their country in 1913, when the government took over the financial industry via the Federal Reserve and declared a monopoly on money creation. The US at that point became a fascist state. Ever since 1913, America has been nothing but a banana republic, ruled by brute force rather than law.

I will leave you with this alleged quote from Woodrow Wilson:

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson, after signing the Federal Reserve into existence

Another Shocking Chart

Dan Tohatan (Admin) — Sun, 06 Sep 2009 19:46:00 GMT

Cut my pay... all the way to slavery!

Dan Tohatan (Admin) — Wed, 02 Sep 2009 06:53:44 GMT

"Cut My Pay" Nonsense

Inquiring minds may want to read the following article:
Cut my pay... please! - CNN Money

Apparently workers in the US are taking 30-50% cuts in salary in order to get jobs. This is grim, folks. Really grim.

"Rebecca Eason, who used to make a comfortable $33,000-a-year living in Tennessee."

Hmm... $33,000 was a comfortable living? I wonder how that's possible. If you just take rent, add food and electricity, and sprinkle a dash of transportation costs on top of all that, you can easily get up to $1800 a month in living expenses! Now suppose you want your "comfortable" lifestyle to include some savings for retirement ($400 a month), plus a few nights out ($100 a month), a small vacation ($300 a month) and a very limited clothing budget ($200 a month) and you get to $2800 a month necessary for a comfortable lifestyle. $33,600 in annual cost. Assuming a very modest tax rate of 15%, you would need almost $40,000 for a comfortable lifestyle.

But now Rebecca isn't even making $33,000. Apparently she's making $18,000/yr in a temporary position! You can't even survive on that kind of salary. Or if you do, it's in a very compromised lifestyle. The economic situation in the US must be extremely dire for people to resort to such madness!

Downsizing of the American Lifestyle

It's now become quite clear that the American dream is finished. The US is rapidly devolving into a third-world country. That has been the plan all along, at least since the 1970s when manufacturing jobs started moving to China. Slowly, the US became a hollowed out consumer-driven "service" economy (in reality, the vast majority of wealth was concentrated in the financial sector, which was just a money-laundering front for the arms & drug trade).

But no matter how it happened, it's clear that the American lifestyle has been downsized. In the 1960s, the average salary for 2 years was enough to afford a house. Now, it takes at least 6 years worth of the average salary to buy a house. The real wage has declined to a third of what it was in the 1960s! No wonder it takes 3 salaries nowadays to support a household!

The average CEO makes up to 500 times what the average worker makes. The difference was 10 times smaller in 1980! Times have changed. The rich have gotten richer while the poor have gotten poorer.

Power Corrupts: US as the Lone Superpower

The only reason why US society was so equitable, just, and civilized 30+ years ago, post World War II, was because of the cold war. The cold war was the main reason why the US maintained such an elevated standard of living for its citizens. Social decline could not happen in the US, as it would immediately show the "weakness" of the capitalist system and, as a result, give credence to the socialist system. As long as these two rival systems fought for supremacy, the US had to maintain an image of prosperity and fairness.

The Soviet Union collapsed in 1991 for economic reasons, and since then the US has been the lone superpower in the world. As the old saying goes, power corrupts. No longer charged with maintaining an image of prosperity, the US gradually declined into a society of poverty and inequality, which is the typical outcome of a capitalist system. Capital concentrates increasingly into the hands of the few, the well-connected, the corrupt few who have absolutely no morals and total self-interest. Power begets power. Money begets more money. Influence begets more influence.

To give credence to this theory all you have to do is look at the evidence: the decline in US standard of living from 1969 (the peak of US-Soviet rivalry as exemplified by the moon landing) to today. Nothing could be clearer than the steady downward trend in real wages and upward trend in income inequality that started in the 1970s.

The Future: Economic Crisis, Followed by Revolution

The US will follow the path of the Soviet Union in its final decline from its throne of global superpower. The first signs are already occurring. The economic crisis that the US is now seeing is far different from previous recessions. There is a deep, fundamental problem with the US economy that was caused by 30 years of easy credit, corruption, and out-of-control unproductive spending.

This economic crisis will only deepen, and it will deepen as a result of present policies being put in place to "stimulate" the economy. The current policies only serve to increase government spending, expand military operations, and continue the unsustainable American empire. The collapse of Empire America is what is necessary for the US to begin recovery.

There will come a point when Americans will become so sick of the injustice which is currently occurring that they will rise up in a new American revolution. This time, it will be a revolt against every single unconstitutional policy that has served to destroy the foundation upon which America was built. America was once a land of opportunity, and there was great prosperity because the government adhered to the US constitution and was not in bed with giant multinational corporations or hostile faraway nations.

Silver: The Opportunity of a Century

Dan Tohatan (Admin) — Mon, 31 Aug 2009 06:42:21 GMT

A Look Back

Go back to 1932 and imagine that you saved a year's salary ($600) worth of silver, a total of 2400 oz. Now suppose you did not touch your stash of 2400 oz until 1979, when you decided to sell it all for $30 an ounce. How much money would you have earned?

Answer: $72,000

You could have bought a decent house with that money in 1979. $72,000 was 9 yearly salaries in 1979. Good investment, I'd say.

Now suppose you did the same thing, but with gold. So, you would've bought $600 worth of gold in 1932 (29 oz) and then sold it in 1979 for $800 an ounce. How much would you have pocketed?

Answer: $23,200

OK. Still a decent investment. I mean, that was 3 average salaries back then, but certainly not as good as silver.

Now imagine you did the same thing, but with the Dow Jones Industrial Average, which you would've bought at the rock-bottom price of $40 a share. That's 15 shares. How much would you have gotten for your investment in 1979?

Answer: $13,500

That's still a bit above the average salary. Certainly not as stellar as gold or silver though. And you had to get the market timing exactly right to snap up 15 shares at precisely the all-time low in 1932.

My point should be evident by now. Over a period of 47 years (almost an entire adult life) in the last century, starting in 1932, the best-performing asset class as an investment was silver. The worst-performing was the Dow!

A Multi-Decade Trend is Ending

The last 29 years have been exceptionally good for stock market investors, and exceptionally awful for precious metals investors. This trend will change, just as it has in the past.

Already, the metals have been outperforming the Dow for the past 8 years. However, they are still very cheap by historical standards. Silver is just $0.28 in 1930s dollars, which is close to the actual low of $0.25/oz in 1932.

Even after going up 3-fold in the last 7 years, silver is still undervalued!

The Future Looks Bright for Silver

In 1979, silver hit a high of $50/oz which it has yet to surpass. That high, adjusted for inflation, is $153. However, if I use M3 money supply growth and adjust it for net silver supply growth, I get about $250. Considering that I see gold hitting $5000 and the gold:silver ratio has been as low as 12:1 in the recent past, I don't see why silver can't even go above $400 when the real speculative mania sets in.

Assuming the odds of hitting $8 are about the same as the odds of hitting $500, the midpoint falls around $60/oz. That means, to properly balance out the downside risk & upside potential, the price of silver should be $60/oz right now. That's over 4 times higher than today's actual price.

Warren Buffett, eat your heart out! Silver will likely have incredible returns for the next 40+ years, just as it did from 1932 to 1979. Forget about buying gold. Why not get the best returns? Why not buy silver?

Bank of Canada is Understating Inflation

Dan Tohatan (Admin) — Thu, 27 Aug 2009 19:37:25 GMT

I decided to use the Bank of Canada's Inflation Calculator to see what some prices from 1968 would amount to in today's dollars. I got the 1968 prices from http://www.thepeoplehistory.com/1968.html

The average house in 1968 cost about $15,000. I challenge you to find me a house today (that isn't a dump) that sells for $91,000 (the price given by the Inflation Calculator).
The price of oil in 1968 was about $5 a barrel. Is oil anywhere near $30 today?
Gasoline was 35 cents a gallon (10 cents a litre). Is gas 60 cents a litre today?
A brand-new GM car was $2800 in 1968. Show me ONE new GM vehicle I can purchase for under $17,000 today and I'll buy it.

The CPI is understating inflation (since 1968) by anywhere from 50% to 200%. The CPI should be at least 200, not 114.7.

The consistent understatement of the CPI is causing major problems for savers, retirees, and tax payers. It is essential that this problem be rectified or else the Canadian standard of living will continue to decline.

Bank of Canada, if you keep adjusting the CPI downward (for whatever reason), there will come a time when the CPI will be so out of touch with reality that people will revolt and the corruption that has been going on will become evident for all to see. So I would say it is in your own interest (for the purpose of maintaining credibility) to provide a CPI that is as accurate as possible.

Or maybe I'm just mad that I'm only getting 1.2% interest on my savings account, while the Core CPI as reported by Bank of Canada itself is 1.8%!

Kiyosaki: Prepare for the Worst

Dan Tohatan (Admin) — Wed, 26 Aug 2009 06:17:10 GMT

Article:
Preparing for the Worst - Robert Kiyosaki

"
The stock market has been going up since March 9, 2009. Talk of "green shoots" fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst.
"

He then goes on to outline several reasons why the talk of green shoots is all baloney:

1. Market manipulation, with which I agree 100%. The correlations between the Dow, TSX, and other unrelated indices are just freaky. The mysterious uptick every Friday afternoon just before the close. The signs are there that there's something fishy going on.

2. The Fed caused the problems we are seeing now. I couldn't agree more. The policy of interest rate manipulation by an independent central bank interferes with the free market. This causes all sorts of bubbles and mal-investments leading to a fundamentally weak economy.

3. Demographics. Boomers are retiring, and in the process are becoming more frugal. This is a trend that will continue through the 2010s.

4. Social Security & Medicare are unsustainable and will slowly drive the US into bigger & bigger deficits.

"
Demographics show that we are entering a battle between young and old. I call it the "Age War." The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age.

This war is not coming...it is upon us now. This is one of many reasons why I remain cautious and say, "The worst is yet to come."
"

This is all the more reason to get out of the stock market now, while it's still high.

Imminent Stock Market Crash

Dan Tohatan (Admin) — Mon, 24 Aug 2009 06:03:49 GMT

This is an alert that a stock market crash is imminent in the TSX, Dow, and other global stock markets.

Get out now before it's too late! Safety can be found in gold, silver, and bonds.

It is imperative that you take cover now. The coming weeks will be turbulent to say the least. The crash will start Wednesday or Thursday of this week.

Get out of long positions. REPEAT: Get out of long positions! I don't care if you're invested for the long term.

The Dow is going to 2300. It will be a stomach-churning ride if you have any money in the stock market.

Forget all the rosy nonsensical predictions made by Bernanke & gang. The US is in a depression. 34 million are on food stamps. Dow 9500 just doesn't reflect that reality.

The FDIC went bankrupt on August 14, 2009!

You have been warned.

A Shocking Chart

Dan Tohatan (Admin) — Sat, 22 Aug 2009 23:18:13 GMT

Source: chartoftheday.com

Meanwhile Bernanke is talking about recovery. The same man who never saw this recession coming. Why hasn't he been fired yet?

Abolish the Fed.

The End of Dow Jones?

Dan Tohatan (Admin) — Sat, 22 Aug 2009 22:58:30 GMT

Story:
Dow Jones Mulling Sale of its Indexing Business - FOX Business

Did I not say a few months ago that there won't be anymore Dow Jones?

And I quote...

"There will be no Dow Jones anymore. This will be such a spectacular and catastrophic collapse that it will be talked about for GENERATIONS. It will be written about in the HISTORY BOOKS."

- March 9, 2009

Mark my words, there will be no Dow Jones just like there will be no dollar 10 years from now (probably sooner).

Nothing is forever.

It's Happening

Dan Tohatan (Admin) — Sat, 22 Aug 2009 07:32:31 GMT

China reduces holdings of US debt - BBC
"
China reduced its holdings of US government debt by the largest margin in nearly nine years in June, according to data from the US Treasury.

China holds more US government debt than any other country and cut its holdings of US securities by more that 3% in June, said the BBC's Chris Hogg.

"China has said it would like to establish an alternative to the US dollar as the world's favoured currency for foreign exchange reserves," said our correspondent.
"

Stiglitz sees risk to dollar - Bloomberg
"
The dollar’s role as a good store of value is “questionable” and the currency has a high degree of risk, said Nobel Prize-winning economist Joseph Stiglitz.

“There is a need for a global reserve system,” Stiglitz, a Columbia University economics professor, said at a conference in Bangkok today. Support from countries like China should ensure orderly discussions on a new reserve system, he added.
"

And lastly, a sign of the times... Man Charged For Stealing Railroad Tracks!

So much for green shoots.

Buffett Warns of Dollar Collapse

Dan Tohatan (Admin) — Fri, 21 Aug 2009 05:43:17 GMT

Original Article:
The Greenback Effect - NY Times

"
An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let’s look at the prospects for each individually — and in combination.

The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.

Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).

Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.
"

My Comments:

To say that Warren Buffett's assumptions regarding demand for US treasury notes are optimistic is a MAJOR understatement. You'd have to live in fantasy land to imagine $900 billion in demand for US treasury bonds!

China doesn't want anymore US paper. And it's perfectly understandable. US bonds are currently a non-performing asset, just like US real estate and US stocks. In fact, the whole US stinks. It reeks of poverty and despair. The US lacks prospects for future economic growth. The US consumer, 70% of US GDP, is maxed out and won't be back for at least 20 years. Where am I going with all this? I don't see a single dollar worth of demand for US bonds coming from China.

What about US citizens? They should have some demand for US bonds. How much is a bond yielding these days anyway? 2%? 1%? HA! Even if US citizens HAD savings they surely wouldn't put them in bonds. Sorry Uncle Sam (US). I'm guessing there might be about $200 billion worth of sucker money AT BEST that might make it into bonds.

So, let's see... $1.8 trillion deficit, $200 billion in revenue... That means $1.6 trillion in brand spanking new money, hot off the printing presses! Yikes!

Brace yourselves for inflation.

I've Never Been More Bullish

Dan Tohatan (Admin) — Thu, 11 Jun 2009 06:16:53 GMT

Since 2007 when I first started tracking the price of gold, I have never been more bullish than I am right now.

Basically, I see no downside risk at all. Back in the fall of 2008, there was VERY STRONG buying pressure when gold fell below $900. I mean, so strong that there were gold shortages everywhere. Even the Indians were buying, and buying more than usual! So I can't possibly imagine gold going below $900 ever again.

According to my own research, the right price of gold is somewhere around 2000 current US dollars. That's where the upside potential equals the downside potential.

Basically, to calculate where the price of gold should top out, take the $850 price it was in January 1980, multiply by the change in money supply, and then multiply by the change in demand and divide by the change in supply. This calculation gives me $4700, using the supply & demand data from 1979.

The supply & demand data is available at Kitco's website, and M3 is available at nowandfutures.com.

Now I already identified $900 as a key support level. So now taking the geometric mean of $900 and $4700 I get just over $2000. That's the price necessary for the downside risk to equal the upside risk. Below that, gold is undervalued. Above that, gold is overvalued.

I'm pretty sure I can even put a date to when gold will go above $1000. Gold will be above $1000 by April of next year (2010). My guess is it will happen well before that date. Probably this summer.

Inflation vs. Deflation Debate

Dan Tohatan (Admin) — Mon, 01 Jun 2009 02:37:41 GMT

Let the debate begin!

Here's my 3-part YouTube video series:

Part 1

Part 2

Part 3

"Mish" Recommends Buying Treasuries

Dan Tohatan (Admin) — Fri, 15 May 2009 19:37:08 GMT

Mike Shedlock is suggesting that US treasuries are a good buy at this point. Let's see if he's right...

Currently yields are at 4%. If yields drop to 2%, that means the price of 30-year treasuries would be double the current price. Could it happen? Short-term, based on this chart, it sure looks like a possibility.

Short-term (i.e. within the next 12-18 months), the outlook for US treasuries is quite bullish.

But let's look at the longer term. Since 1980, yields on US treasuries have been going down. We have a 29-year unbroken uptrend (bull market) in treasuries (downtrend in yields). The current bull market in treasuries seems just a tad ancient. When this trend finally reverses, look out below.

Fundamentally, you'd be mad to own US treasuries right now. The average rate of inflation in the US since 1971 has been 7% per year. A long-term yield of 4% makes absolutely no sense. Ignoring inflation when buying bonds is like ignoring P/E ratios when buying stocks.

Buying US treasuries now would be like buying dot-com stocks in 1999. Sure it might go up 100% in three months, but if you don't time the trade perfectly you'll be wiped out. You better get the timing exactly right, or else you could lose your money.

By 1999, the US stock market had been in an unbroken uptrend for 16 years. In 2000 the trend finally reversed, and all the suckers that got in after 1997 have yet to make any return on their investments.

Don't be a sucker.

Jim Rogers calls for currency crisis

Dan Tohatan (Admin) — Tue, 12 May 2009 06:24:26 GMT

Right after I posted my "worst case scenario" calling for exchange controls by fall of 2009, Jim Rogers (in this Bloomberg article) is basically saying the same thing!

"
May 12 (Bloomberg) -- A rally in the U.S. dollar has run its course and a currency crisis may take place in the fall, investor Jim Rogers said.

“We’re going to have a currency crisis, probably this fall or the fall of 2010,” Rogers, 66, said in an interview with Bloomberg Television in Singapore. “It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.”

Rogers may consider buying the yen and prefers the euro to the dollar or the pound, he added.
"

Jim Rogers correctly predicted the dollar rally last fall.

Preparing for the Worst

Dan Tohatan (Admin) — Mon, 11 May 2009 07:54:06 GMT

I've taken the time to compile a timeline of global economic stats for 2009. It will be an interesting year. I'm not ready to drink the kool-aid that the worst is over. The worst is yet to come. After a quiet summer, the next leg of the collapse will start at some point in August. I really hope what I say does not come true, because if it does, it will be a living nightmare.

Unemployment figures (officially) in the US will hit 10% by July. However - the government may massage the figures, keeping them under 10% until late September.
I'm expecting very little volatility in the markets over the summer, until early August when unemployment figures in the double-digits will be first released. I'm expecting the Dow to continue somewhere between 9000 and 10,000, and gold between $900 and $1000, until at least early August.
Watch out on August 8, 2009. This is exactly a year after the Georgia incident. Russia may again try to attack Europe, in retaliation to growing NATO influence over former Warsaw-pact territory. The men behind the curtain may give Russia the green light, in light of the horrendous economic stats coming out. In other words, to make a quick buck and prevent social unrest, the corrupt banksters may choose to start a third world war.
By fall it will become clear that the world is in total economic collapse. In September, 2009, the Dow will begin to crash violently, along with the US dollar. News will be coming out that US unemployment has just hit 12% and the US economy is expected to contract 15% in 2009.
From a high of 9000, the Dow will end up at 4000 by November. US treasuries will go into hyperinflation in October, 2009. The entire world will enter a World War II-like state economically starting in October.
In October, 2009 a dangerous new influenza virus begins to spread. It begins by claiming 200-300 lives every day. It is clear that it is a bioweapon, because it is spread by way of covert agents, appearing simultaneously on different continents. By December, this mystery flu is killing 1000-2000 people every single day. It has a kill rate of 40%. This means 40% of people who become infected die. The government encourages vaccination, not knowing that the vaccine also has a kill rate of 40%. It will turn out to be the worst pandemic the world has ever seen.
Somewhere in early October, gold will definitively cross the $1000 barrier while the Dow crosses 4000 on its way down. Shortly after that, the COMEX will be shut down and all markets in the US will be closed. All commodities will be declared illegal. The US will be under full martial law. No person will be allowed to own property, and all land will be seized by the US Federal Government. Movement will be strictly controlled with military checkpoints. UN peacekeeping forces will be deployed worldwide to contain civil unrest.
Although no longer reported, unemployment will continue to climb, reaching 16% by the end of 2009 (by official measures) or 30% according to shadowstats.
It will not be visible, but the US dollar will reach hyperinflationary collapse by November, 2009. The US dollar will only be exchangeable on the black market. Exchange controls will be in place worldwide. Gold will sell for over $4000 USD on the black market.
At some point in October, 2009, there will be a concerted effort to take down the Internet. ISPs will be forcefully shut down for allowing "subversive" material to be downloaded. If the attempt is successful, there will be mass riots. 70% of every city's population will be violently protesting. All economic activity will go underground. The Internet may be forced to go underground.
Be prepared for widespread long-lasting power outages starting in August, 2009. Remember what happened in 2003. It will be similar to that, but it will last longer. Blackouts may end up lasting for weeks. It's quite possible that by the end of 2009, reliable electricity service will be a thing of the past.
One also needs to prepare for food shortages and shortages of other essential goods. The government and corporations will hoard all food for themselves and possibly give some out in small rations (e.g. you are allowed 3 eggs per month). The blackouts will make it hard for supermarkets to continue operating. The fixed exchange rate and worthless fiat currency will mean that imports & exports will be impossible.
By November, 2009 nearly every country on the planet will have instated a total military draft. Every single citizen will be openly apprehended and forced into either military service or civilian service (forced labour).
The speed with which all this happens will make "shock & awe" seem like slow motion.

I suggest to everyone (including myself) to prepare for all of these possibilities. What do you do if your city's power goes out for 2 weeks? Or if the Internet is shut down? What if all the local grocery stores close down for 3 weeks? What if all your paper currency becomes worthless, or you're no longer allowed to withdraw money from your bank account? And lastly, what are you gonna do... when they come for you?

Peace. Love. Understanding.
Hope for the best. Prepare for the worst.

Precious Metals Investing

Dan Tohatan (Admin) — Thu, 07 May 2009 04:37:19 GMT

It's tax refund time, and my suggestion to you all (especially US citizens) would be to spend 50% of your tax refund on precious metals. Here's a little known fact: The average rate of inflation in the US over the past 40 years has been 7% per year. This means in 10 years you lose half your money.

The case for precious metals as an inflation hedge really doesn't need to be re-stated. But before you get into precious metals, here are some important things to know:

1. The COMEX price means nothing. Be prepared to set your own price.
The COMEX is just one of many markets for precious metals. Other markets are eBay and Craigslist. The COMEX is in fact a very small market. Use the COMEX price (like all other prices) to your advantage. When the COMEX price is the lowest, buy from the COMEX (or from dealers who base their price on the COMEX price). The primary objective here is to always buy low and sell high.

2. For buying, coin shops and bullion dealers are the most reliable & usually the cheapest.
eBay is very expensive these days, mainly because of cash-back. If you're in the US, take advantage of the cash-back offer. Otherwise, forget about eBay. Craigslist rarely has bullion up for sale and if it is, it's usually local pickup and quite expensive (because the seller knows how valuable bullion really is).

3. Always tally up all your costs (shipping, exchange rates, and other fees) before determining price.
It's often easy to forget about shipping costs, customs fees, eBay fees (for selling), or exchange rate arbitrage. Typically, exchange rate arbitrage is 3% of the price (if you're paying in a currency other than your bank's).

4. Always prefer domestic dealers over foreign. But not necessarily local.
There's certainly more risk involved in sending precious metals across international borders. You could be hit with customs fees or run into some kind of draconian restriction on imports. Now, in Canada, if you choose a dealer within your own province, you'll have to pay provincial sales taxes. So it's usually better to buy from dealers outside of your province (or other regional jurisdiction) to avoid taxes.

5. Do not sell anything unless you must.
Given the uncertainty of a fiat monetary system, you never know if something is a bubble or if it's hyperinflation. There's really no way to judge if precious metals have become overvalued. The best exit strategy is to never sell. However, there are those cases where you desperately need some money. In such a case, you are forced to sell. There are also situations where you may find a better investment (e.g. a stock or a piece of property) but don't have enough money to invest in it. In that case, again, you are effectively forced to sell to raise cash.

6. There is such a thing as having too much.
Keep enough cash lying around so that you won't be forced to sell in the event of some minor setback (e.g. losing your job). The problem with selling precious metals is that in many cases you are hit with taxes & fees, on top of the premiums you paid originally to purchase the metals. Therefore, too much buying & selling will cause you to lose all your money.

7. Keep yourself busy.
Sometimes it's tempting to obsess about the daily spot prices or constantly second-guess your investment decisions. To avoid such foolishness, you should keep your mind occupied. Basically, forget about the fact that you have precious metals and go on with your life.

There is another question precious metals investors struggle with, and that is, "Which metals should I buy?" My belief in this regard is that the oldest metals, those that have been money for thousands of years, need to be given priority. You should have a much larger proportion of gold & silver relative to platinum & palladium.

Deciding between platinum & palladium is quite easy. Palladium can be substituted for just about every use of platinum and it's much cheaper. Plus, Russia controls much of the palladium supply, meaning it could create artificial scarcity quite easily, raising prices dramatically. Palladium can be used to produce the cold fusion effect observed in 1989 by Fleischmann & Pons. There's also a growing palladium jewellery market in Asia. I would recommend palladium over platinum any day of the week.

Now, deciding between gold & silver is more tricky. On the one hand, gold is owned by central banks and is therefore more capitalized. It's more liquid & less volatile. The problem with silver is it's a wild ride. If you don't like wild rides, you should keep more gold than silver. However, silver has the potential to go much much much much higher than gold. Silver can be substituted for all other precious metals, and there's less silver bullion out there than gold bullion! So if you want maximum upside, you should go with silver. And because silver is correlated with gold, you won't miss out on gold's upside by owning silver. However, I would recommend holding some gold because of its low volatility. In cases where you need to sell something, you would sell the gold & keep the silver.

Historically, the best performing portfolio is 50% gold, 20% silver, 5% platinum, and 25% palladium. However, it's also very volatile & illiquid because of palladium and not very well exposed to silver. So instead, I would recommend a portfolio of 40% gold, 40% silver, 5% platinum, and 15% palladium.

In the end it's up to you. Remember: DYODD (Do Your Own Due Diligence).

My word is not gospel. Amen.

Why Real-Estate Will Not Recover

Dan Tohatan (Admin) — Thu, 23 Apr 2009 00:09:58 GMT

The people who believe the worst is over in terms of real estate are completely delusional.

The people who believe real-estate in Canada will continue to appreciate are lunatics.

The truth is simply this: Real estate prices will go to zero. Capitalism is finished.

Suppose you're looking to buy a shitty-ass single-bedroom apartment for $140,000. First of all, good luck finding such a low-priced apartment. However, if you do, what will your monthly mortgage payment be (supposing you take out a $140,000 mortgage)?

A simple calculation using ING's mortgage calculator yields $740 / month (with 4% interest rate). Let's suppose for simplicity that mortgage payments are 0.5% of an asset's price with today's low interest rates. For instance, if you took out a $140,000 mortgage, you'd be paying $700 / month.

Now let's add utilities, property taxes, and condo fees, totaling $400 / month.

Total now is $1100 / month in the "expenses" category of your balance sheet.

In order to be in the black marginally you need to rent out your apartment at a minimum of $1100 per month. Now, considering that you actually want to make a decent profit, let's say you want to make $400 in profit per month, so let's go for $1500 per month rental cost.

Who in their right mind pays $1500 rent for a shitty-ass single-bedroom apartment? The rent would be more like $600 at best. But if I rented out my apartment at $600 I would be losing $500 every month! Clearly not a good investment.

So how much do real estate prices have to fall before real estate is a profitable investment again? Let's see... Supposing you'd be happy with even $1 in profit per month, we're looking at mortgage payments of $200 per month (maximum). This means the apartment would have to cost $40,000.

Bottom line is real estate prices need to fall into 5 digits again. It's also not impossible for real estate prices to go to zero or negative. Suppose you have a property that costs $500 per month to maintain (not counting mortgage payments) but only returns $400 per month in rent revenue. How much would you sell this for? Wouldn't it make sense for the price to be negative? You would be willing to pay someone to take the property off your hands. This is already happening in Detroit.

The broader reality is that capitalism is finished. Property taxes have eaten away all incentives to own real estate. Unemployment just puts the final nail in the coffin. Banks can lower rates to 0% and it won't do any good. It's over. We are all slaves. The people who own the government now own everything.

Why It Will Get Worse

Dan Tohatan (Admin) — Mon, 13 Apr 2009 06:04:57 GMT

In this article I will attempt to explain why this is not 1929, and why it will get worse.
Economically, America is on a path toward certain death, if it's not already dead.
The only thing that can revive America is a revolution and a new declaration of independence.

Anyway, let's explore the reasons why it's worse than 1929:

The US is a military superpower
How is this bad? The US is totally dependent on continuing its military dominance over the rest of the world. It forces countries to accept T-bills at gunpoint. Any slight weakness or decline in this military dominance spells disaster. It would lead to hyperinflation and shortages of just about everything. The US imports more oil than any other country. The US economy is heavily reliant on imports, mainly of oil and drugs. These imports usually come from hostile regimes like Iraq, Iran, and Afghanistan.
The US produces nothing
There was a time when the US was a leading producer in the world. It produced automobiles, commodities, and other tangible products. However, partly because of rising taxes, these days hardly anything is produced in the US. Why do that when it's so much cheaper to produce it in China and import it? Of course, when the US was a producer, people had jobs. With jobs, people were able to save, invest, spend, and thus contribute to the growth of the US economy. Nowadays, the only jobs left are government jobs, and the US produces only fiat currency, which is worth nothing.
The US Federal Government is gigantic and wants more
Income taxes are rising. They are already higher than in many of the developed nations (including Canada!). Property taxes are high and rising. The reasons why house prices are falling are two-fold: first, there are no more jobs and therefore rent income has diminished. But also, property taxes are still as high as they were in 2006 if not higher, and certainly rising. So what you have now is houses with negative earnings, selling for $1 on eBay!
The US dollar is worthless
In 1971, Nixon removed any ties between the US dollar and gold. In 1929, the US dollar was still backed by gold. Today, it's backed by nothing. In the absence of a stable currency, all economic activity in the US is distorted, unpredictable, and volatile. Speculation runs wild, and everyone makes miscalculations and misallocations of capital while the Federal Reserve quietly manipulates the markets. The result: through repeated cycles of inflation & deflation, the private Federal Reserve takes ownership of all property and the people are left homeless.
Auto workers no longer make $5 a day
Just to give you an idea of what it was like in 1920s America, Henry Ford established the $5 per day "efficiency" wage. In today's money, this would be equivalent to about $500 per day (or $120,000 per year). This was way above the average, but Ford believed that it would motivate employees and lead to increased productivity. This is the polar opposite of what most employers are doing these days (i.e. slashing wages in every possible way).
Farming has disappeared from America
Back in the 1930s, many people moved back to the countryside where they could live off the land. Nowadays, most people are crammed into cities where everything is 100% dependent on reliable supplies of goods from overseas. If those supplies are interrupted for any period of time, chaos will break out. Just imagine what it would be like in a major city without electricity for 2 weeks.

We need to stop comparing the present situation to the 1930s. Things today are very different, and much more perilous. We are treading through unprecedented historical territory. As I see it, Americans need to reverse the 6 things I listed above. Otherwise, the US is headed for disaster. I believe that, at this point, the US government has become so totalitarian and so unconcerned with the will of the people that only a revolution (i.e. a total overthrow of the government & return to the constitution) would affect any change.

To put things more clearly, the states need to remove their support for the federal government by seceding from the union, citing the 10th amendment.

Everyone Must Watch This

Dan Tohatan (Admin) — Wed, 25 Mar 2009 21:39:26 GMT

An excellent synopsis of what's to come, as predicted by Gerald Celente, and with which I agree 100%.

Hyperinflation Already Upon Us

Dan Tohatan (Admin) — Mon, 23 Mar 2009 20:30:09 GMT

Here's a scary story. This is how hyperinflation (defined here as >20% per year or the doubling of prices in 4 years, as measured by the gold price) has crept up on Canadians over the past 2 years.

It was the summer of 2007. Gold was below $700 US. The Canadian dollar was reaching parity with the US dollar. Thus gold was around $700 Canadian.

Gold shot up through the fall of 2007 until November, when it reached $800 Canadian. The Canadian dollar was stronger than the US dollar!

Through March of 2008, gold was on the rise. Price in March? $1000 Canadian. The Canadian dollar was still close to parity.

Through the summer of 2008, not much change. Still $1000. Then came the great devaluation. The crash of August, 2008.

Gold fell precipitously. But the Canadian dollar was now far below the US dollar. So, in Canadian dollars, gold was still around $900. (At the worst of the Great Collapse in Everything that was the fall of 2008)

Then, gold quickly shot up through $1000. By January 2009, it was $1100.

Today, it's just over $1200.

So the Canadian dollar inflated 71% in 18 months! That's 43% inflation per year!

Still waiting for a correction to buy gold?

What's more is that central banks still haven't raised interest rates!! They're all expecting deflation! What a bunch of fools! Now is the time to take advantage of the greatest contrarian trade in the history of the world. Short currencies and buy gold.

There Is No Fiat Deflation

Dan Tohatan (Admin) — Mon, 23 Mar 2009 20:08:06 GMT

To put a final nail in the coffin of the "fiat currency deflation" argument:

Japan's so-called deflation - the only example of a fiat deflation - lasted 3 years and had a maximum annual decline in the CPI of just 1%.

If we define inflation as the rise in CPI, within a margin of error of 1%, then Japan had absolutely NO deflation.

Of course, there have been short-term periods of deflation in just about every fiat currency. For instance, the year 1970 in the US was a major deflationary year. However, I'm talking here about periods longer than 2 years (length of your average recession). I'm talking about 4 years or more of deflation. There's never been such a case. Not even in Japan.

So again, one only needs to adjust the definition of inflation slightly to mean "net inflation over a period of 4 or more years" to state confidently that all fiat currencies have always inflated.

And what exactly is inflation? The way I define inflation is "a rise in consumer prices without a corresponding change in supply & demand."

Deflation would be the opposite: "a fall in consumer prices without a corresponding change in supply & demand."

The latter part is critical, because prices rise & fall all the time due to supply & demand imbalances. However, when you have the same supply and the same demand and prices are rising, it can only be because there are more dollars with which to denominate the price.

So knowing all this, what would you rather prepare for? Inflation, or deflation? If you say deflation then you're probably also preparing for the second coming of Jesus Christ and you probably already have a bunker set up in preparation for the 2012 arrival of Planet X.

Mish Has Finally Lost It

Dan Tohatan (Admin) — Fri, 20 Mar 2009 21:06:33 GMT

I've been reading Mike Shedlock's financial blog for a while now, mainly to have a contrarian view to the inflationary perspective that the US dollar will collapse.

He posts great news and analysis and always very timely. His deflation thesis always seemed rather bizarre to me. I mean, here you have the US dollar - a fiat currency - and yet his thesis is that because of debt destruction, we're going to see deflation in the US and a rise of the US dollar. Also strange because no fiat currency has ever deflated for more than a few months. Look it up. Prove me wrong.

Anyway, for a long time I gave him the benefit of the doubt, mainly because his arguments all seemed so compelling. But here's what he posted in an article yesterday:

"Hyperinflation?

No, this madness is nowhere close to causing hyperinflation. You do not get hyperinflation with this much consumer and corporate debt when unemployment is soaring globally, overcapacity is rampant, and wages are falling. Please see Fiat World Mathematical Model for more details."

Well, he's finally lost it. There is NO way I'm going to agree with that argument. That sounds more like something Jim Cramer might say on CNBC. Here's why...

In the history of the world, there have been MANY recorded incidents of hyperinflation occurring precisely at moments when there was "overcapacity" in the economy, huge indebtedness, soaring unemployment, and falling wages.

Look at Zimbabwe. How many people have jobs there? How many people can actually spend money on anything but the most basic necessities of life? Yet there's hyperinflation.

Mish, you have totally lost your credibility with this one argument. Maybe it was an honest mistake. Maybe a moment of total absent-minded foolishness. But if your entire thesis of deflation relies on this argument, then you are just plain wrong.

The bottom line is, the value of a currency has little to do with economic fundamentals. If the US dollar went down 50% tomorrow (i.e. prices doubled), you'd say consumers went on an insane over-the-top shopping spree. Maybe Obama finally gave the PEOPLE a stimulus package. But you'd be wrong. The dollar could depreciate 50% without ANY FUNDAMENTAL CHANGE in the economy! This is very important to understand.

For example, you might have salaries $27,000 one day and $32,000 the next. Gas would also go from $2.70 a gallon one day to $3.70 the next. If you were Mish, you would argue, "consumers just got a raise and so they're spending more!" Or, "there's a glut of savings!" In reality, what happened is consumers got a PAY CUT! REAL wages went down. Savings didn't change. The dollar just depreciated nearly 40%. That's what happened.

This depreciation of the dollar thing is very hard to understand intuitively, because it's a complex mass-psychology phenomenon, and because it has never happened in the United States. But it will happen. It's not a matter "if" but "when". All fiat currencies in the history of the world have eventually become worthless. The question is, are you prepared for this eventuality? What good is the FDIC if you have $100,000 in the bank and the minimum wage is $50,000 an hour?

I consider the possibility of hyperinflation in a fiat regime to be far more likely (by a factor of 100) than the possibility of a sustained multi-year deflation. I'm much more in agreement now with Peter Schiff than Mike Shedlock.

5 Companies for the Future

Dan Tohatan (Admin) — Fri, 20 Mar 2009 18:35:32 GMT

It seems that these days every company out there is losing earnings. However, there are some companies that are still making money and will make even more money in the future. These are companies that have restricted themselves to local markets, produce real stuff, and as a result are mainly unaffected by global financial collapse.

In the next 10 years, the following sectors will do well:
- Rail (most cargo will be moved by rail rather than by plane or truck, due to fuel shortages)
- Energy (anything needed for the production or distribution of electricity)
- Minerals (gold, copper, silver, zinc, uranium)
- Agriculture (soil, fertilizer, seeds, and anything else needed for growing food)
- Information (innovative processing & distribution of information; keyword "innovative")

Also, for a company to prosper in the coming decade, they will need to be highly local due to the fact that a lot of political upheaval is coming. Companies that have expanded globally will see their market share shrink dramatically. Companies that have assets in unstable countries will lose revenue.

So with that, I present to you 5 companies I have selected based on the above criteria:

CNR - Canadian National Railway
ECA - EnCana Corp.
G - Goldcorp Inc.
POT - Potash Corp.
T - TELUS

One for each sector. I would argue that these are the best companies in each of the 5 sectors I described earlier.

The stock prices of these companies may not go up tomorrow, or next year, but perhaps over the next 10 years these companies will provide a very good return on your investment. They should greatly outperform the market.

WARNING: Do not blindly buy the stocks I mentioned above. Do your own research.

Abolish Central Banks

Dan Tohatan (Admin) — Thu, 19 Mar 2009 20:10:22 GMT

Here's a neat little story for you. The Bank of Canada claims that over the past 14 years (from 1995 to 2009), there has been only 28% inflation in consumer prices (Core CPI). That averages out to 1.78% per year. But that's not the most shocking thing about this story. The shocking thing is, they're more or less right!

My own calculation of inflation (using various commodities, housing prices, and wages) indicates that we had just 49% inflation since 1995. That's 2.87% per year. For 14 years.

How can this happen in a fiat currency regime? I mean, aren't all fiat currencies supposed to inflate at faster & faster rates until they become worthless? Isn't growth in the money supply supposed to translate into higher prices?

By that logic, if we look at the Canadian M3 money supply, we should see little growth there as well. But guess what? M3 money supply grew from about $470 billion in 1995 to $1.3 trillion today. That is a 177% growth! That should have translated into 7.55% inflation per year!

We are operating today as if the M3 were just $699 billion. Where did the other $600 billion go?

Why am I saying all this? Because, arguably, inflation is better than deflation for the average person, in a debt-based monetary system, because it reduces the burden of debt over time. We should all be rooting for inflation, especially wage inflation. Everyone should get out there and strike!

But I would go further and say that it is not inflation, but an uncontrollable money supply, that leads to rapidly-changing property ownership and shifting societal structure. It means that few people ever gain the wealth & power to control society. It makes societies more prudent (saving for a rainy day) and leads to a more equitable distribution of wealth, since no one person can amass a huge amount of wealth. It also leads to a fairer distribution of wealth, because only those who are competent will end up retaining their property for any period of time. Therefore, it should be in everyone's interest (except those who wish to control society) to relinquish all human control over the money supply and turn it over to mother nature.

Abolish the Fed.

The Federal Reserve is Private

Dan Tohatan (Admin) — Fri, 13 Mar 2009 18:58:25 GMT

Greenspan admits that the Federal Reserve is a PRIVATE entity.

Historical Turning Point

Dan Tohatan (Admin) — Fri, 13 Mar 2009 05:59:46 GMT

Here's how I see things right now...

If you look at the last 10 years, what do you see? I see a period of little to no change. Just briefly go back mentally to 1999. You had powerful computers, 3D graphics, Internet, Google, hip hop, house music, Seinfeld, and all sorts of things that are (remarkably) still popular today. The Dow Jones Industrial Average hasn't moved in 10 years. Hardly anything has changed.

If you look at history, such long periods of stagnation are usually followed by periods of MUCH MORE RAPID change. I believe we are entering one of those periods now. In 10 years, we'll look back to 2009 as if it were ancient history. Seinfeld will no longer be relevant. "The Simpsons" will be regarded as we regard "I Love Lucy" these days. There will be such a profound change in society that a whole new culture will emerge, which will regard the "old culture" of the 1990s and 2000s as irrelevant to the new present-day reality.

There is the real possibility that THERE WILL BE NO Dow in 10 years, and no US dollar, because the US government will have defaulted on its debt, and the US will have split up into separate sovereign states by 2020. We are at the beginning of an unprecedented period in world history. I expect that we'll see major political upheavals and a major restructuring of the current world order similar to what took place during World War II. Currencies will fall. There will be exchange controls. Countries will cease to exist. Borders will be redrawn. Only gold & silver will protect wealth.

In terms of lifestyle, people will go back to farming and a heavily rural, heavily local way of living. Transportation will be very difficult. Most people will simply ride bikes. Petroleum or gasoline will be a very unusual item to see in the 2020s. This is because the global interconnected system of distribution that currently still (barely) exists will be completely dysfunctional. It's not that there won't be enough oil. It's that it will be very hard to convince countries like Venezuela or Iran to sell it to us or distribute it to us, with global currencies in hyperinflation and price-fixing mechanisms like the COMEX in default.

Traffic will be scaled back to 1920s levels. People who can afford to drive will be regarded as extremely well-off financially. Companies will be forced to adapt to this new lifestyle. People will simply not go to work if it costs them more to get to work than what they're getting paid.

As far as food is concerned, you will only be buying items that are "in season." That means locally-grown produce. For us Canadians, that means no more oranges in February I'm afraid. Although such items will still be available. They'll just be very expensive. Oranges, and other exotic food items, will be given as gifts for Christmas.

There will be a general negative attitude toward debt, banks, and conspicuous consumption. Those who flaunt their wealth will be ridiculed because it will be assumed that they are actually in debt to finance their extravagance. People will work diligently at building up savings. The neighbour across the street might look & behave as if they are poor when in fact they have amassed quite a bit of wealth in the form of savings. But all of this will be known & obvious to everyone.

The era of the full-time permanent job with benefits is over. People will enter labour contracts of a very different form from what they are today. The contracts will be very short-term, very uncertain in their duration, and very uncertain in compensation. They will also often times be quite informal. In other words, nobody will have a guaranteed income. It will be quite common to see one person doing 3 or 4 jobs simultaneously, and those jobs may not all be in the same field. In other words, it will be possible for people to truly do what they love, expanding in multiple dimensions of their personalities, *provided* that they are OK with the fact that they have no guaranteed income.

Incomes will drop dramatically. A worker in China will make roughly the same amount as a worker in Canada. That is, a typical salary for a Canadian worker might be $7000 to $8000 a year (in today's money). Of course, lots of other prices will also drop, so rent would cost only $300 a month or so... and even less if sharing an apartment. To own a modest apartment will cost somewhere between $20,000 and $40,000 in today's money, and I'm more inclined toward the low side.

University will become cheaper if not free. Attendance at colleges and universities will drop off a cliff in the coming years. The reason? Price. And pretty soon professors will realise that if they want to keep their jobs, they better (a) ask the government for assistance by socializing post-secondary education or (b) lower tuitions and accept pay cuts as a result. I'm more inclined at this point toward (a) as the solution that will be sought, simply because no professor would ever ask for a pay cut.

The most secure jobs will be government jobs. There will still be teachers, doctors, police officers, and other government workers. These will be paid the highest and have the highest job security. I would put public school teacher as the top job for the next 20 years. High pay, high security, low stress, and 3 months of summer vacation.

During the tougher periods, there will be shortages of many essential goods. Some people will be prepared to go to extraordinary lengths to obtain certain things. Be prepared to witness more bribery and underground commerce. There will be MANY shadowy deals done under the table. Some may be 100% legit, others may be scams. It will be a dangerous world.

Barter will be an accepted method of exchange. Barter may be in terms of labour (e.g. I will mow your lawn for 2 weeks if you give me 3 cans of coffee), or "I will pay you $50 a month if you let me rent your garage to sell widgets.

How do I know all of this will happen as I described? Well, I've seen it before. I've lived through it. My parents lived through it. This was Romania, from 1978 to today & still ongoing. It is a perfect example of a once-great society destroyed by greed and corruption. It was a *little bit* better than what I think is coming, because you had a lot of government safety nets in place, like guaranteed employment and guaranteed housing, and you had a lot of surplus wealth of previous generations that had been kept and passed down to the younger generations. Plus, you had farms all over the place. Farmers were a major part of society and encouraged and heavily subsidized by the government. People could go to farms to obtain produce that they would not normally find in the city, and many had relatives who worked on farms.

Here in North America the principal difference is that everyone is broke. All the wealth was sucked out by the central bankers. Second difference is there is little or no farming. Food could become nearly impossible to obtain for many people. There's also no safety net in place. Unemployment could easily reach 40% or higher - there's nothing to prevent that from happening. Homelessness could become a major problem. There could also be a revolution, or multiple revolutions where various groups of people take over the government by force. Also, with such bleak economic prospects, crime is sure to rise. The government will be nearly broke, so it will have a very hard time keeping crime in check. See, this is what I mean by "it will get worse."

The 1960s

Dan Tohatan (Admin) — Mon, 09 Mar 2009 22:35:32 GMT

For some reason, I'm in a really revolutionary ("revolted") mood today.

Anyway...

I have a theory:

The 1950s and 60s - an era regarded as an era of "prosperity" by most historians - was actually the EXACT OPPOSITE.

Starting with World War II, and going on until today, the real wealth of Americans has been slowly sucked away, to the point where most Americans today not only have NO wealth but they actually have NEGATIVE wealth, where they are on the hook for hundreds of thousands of dollars of debt which they took out to buy a giant mansion, multiple imported cars, and of course a whole lot of Chinese junk.

The era of conspicuous consumption, starting in the 40s and going on until recently, was actually the slow process of bankrupting America and plunging it into the darkness of the third world.

It was engineered by design, using Nazi-style propaganda...actually even the Nazis would marvel at the American propaganda of the 1950s where the middle class was always portrayed as owning a really large house, multiple top-notch cars, and lots of useless (but expensive) decorative trinkets.

It all started after World War II. Using the savings that Americans had built up over the Great Depression (and in the century prior to that), the international bankers created an incredibly convincing propaganda image of the middle-class American living the suburban lifestyle with a giant house, etc. All Americans of more modest means, who didn't have giant homes but who had savings and maybe even a modest house, were lured into this consumerist materialist lifestyle of "more stuff is better". The result was that Americans gradually slipped from savings into debt, while moving from frugality into conspicuous consumption in trying to keep up with the Joneses (because that's what they saw on TV).

International corporations were fooled too. They were given money and told to expand, just keep expanding. As long as they expanded exponentially every year, everything would be great. So they started out expanding nationally first. Then, once they saturated that market and profit margins started to slip, they expanded internationally, looking for cheap labour and resources. They secured cheaper & cheaper labour for a long time. They harvested rainforests and cleared the Earth of all its precious natural resources, all the while getting deeper & deeper into debt. But finally, the game is up. The bankers have come to collect on their debt. Once-giant international companies are falling into bankruptcy. They have no more rainforests left to exploit. They have no more Malaysian children left to exploit. It's over. Just like the American consumer who was lured into mountains of debt, so were once-respectable American corporations lured into more and more debt. With each generation, as they devised new ways of paying off that debt, they became more despised all over the world and their day of reckoning drew closer.

We're now at the endgame. It is checkmate for the international bankers. The world owes trillions to them, but they won't be able to collect, because the people will revolt and the international bankers will be exposed for the gigantic fraud they created, and for the rigged monetary system that led to unfathomable destruction of the Earth and of the human spirit.

Like they did in the 1960s, we must unite in love & peace. We must maintain solidarity, because the bankers will not go without a fight. We must model heroes like Gandhi and MLK in the struggle for justice. We must not give in to their plan of global despair and poverty. We must fight for a future of prosperity and peace.