However to visually understand what the economic repression looks like, this website might be a little hard to stomach.

26. Breathing in large amount of dust into the lungs, people gets sick after working there for 1-2 years. Most of these migrant workers come from area of poverty. April 10, 2005

Gold is obviously in the midst of a bull market. Here is the Eric Janzszen from iTulip.com perspective.

During the period from after WWII until the U.S. abandoned the international gold standard, food prices remained steady while personal incomes increased. Then, from the late 1970s and again since 2000, food prices increased faster than personal income. That inflation era is seared into the memory of anyone who was high school age or older at the time. Since late 2007, personal incomes plunged while food prices, after a brief decline, continued to rise — no wonder we have 40 million Americans on food stamps. Today’s inflation is experienced more by lower income groups rather than society as a whole. This disparity will be relevant in future elections and is likely to result in demands for compensatory tax cuts for lower income groups and higher taxes at the top.

A well engineered asset price inflation is a political checkmate for its instigators and beneficiaries. Politicians whose elections are financed by the investment banks that trade in asset price inflation, such as the sellers and raters of mortgage securities — the asset price inflation industries of the FIRE Economy — turn their sometimes opponent, sometimes friend, the central bank, into an agent of wealth transfer by forcing them to either directly bear the risk of loss or take responsibility for the collapse of the financial system. Only the issuer of the world’s reserve currency can behave this way and get away with it, although I’d argue that this last time was the last time.

Spain’s is an example of a poorly engineered asset price inflation by a country that is not the issuer of the world’s reserve currency. The result? An economy in recession and 20% unemployment. Now Spain’s creditors demand austerity, as if the nation was flying high on an inflationary boom. Far from it. Austerity programs sink over-indebted countries by reducing economic output and the ability to repay debt. Default now and get it over with, is my advice, because once the IMF is done with you and the capital and entrepreneurs leave, there will be no one left but the oligarchs to run things.

If government spending in response to financial crisis is the primary source of currency risk today, who is the source of demand for gold as a currency hedge that is driving gold prices to new highs?

The great central banking paradox

Central banks are in theory politically independent from national legislatures, but not insulated from government largess. To protect themselves, they hold gold.

Who are the world’s largest gold hoarders? Governments.

Central bank holdings of 31 countries plus the IMF with gold reserves in excess of 100 tonnes each

I found this most curious of all the facts I came across back when I did my original research into gold in the late 1990s before taking a 15% gold position in 2001, a year after liquidating technology stocks in the spring of 2000. All of the papers written by economists on a central bank payroll asserted that gold no longer had any role as a monetary unit backing any national currency—not dollars, nor deutschmarks, nor yen.

Gold was unplugged from the global monetary system by the Fed in 1971 like a toaster on fire when the US found itself unable to make foreign debt payments in gold. Yet even as I’m reading these central bank protests against gold in 1998 the Bank of International Settlements data show that three decades after spurning it central banks still owned 25% of all of the gold ever produced since the birth of Christ. And not only a few of them held a metal they professed to be of no value as money, but nearly all of them did so, and still do.

Now, most articles you’ll read about gold claim that it is just a commodity whose value is levitated artificially above the level justified by jewelry and industrial demand by the religious fervor of mystics and fruitcakes known as “gold bugs.” The theoretical price of gold as determined by demand for industrial uses is the real and rational price and the incremental price produced by the demand for gold by gold bugs is an unreal and irrational gold bug premium, so the argument goes. Once the magic disappears and rationality returns, the gold price will collapse along with the gold bug premium. Maybe by 70%.

The first to put a version of this argument forward was Chairman of the Bank for International Settlements William White. In 1972, a year after the international gold standard ended, he proclaimed that gold without central bank demand as a monetary asset was free to fall from its then fixed price of $35 to its true market value as an industrial commodity to “…around $7.50 per ounce.” Then, over the eight years that followed, the gold price proceeded to rise to more than 100 times the Chairman’s price forecast. Gold has proved similarly uncooperative since 2001, rising more than four fold despite dozens of articles by various flavors of William White since then predicting an imminent price collapse.

Gold cannot be “just a commodity” if gold is the only metal owned by central banks

Central banks don’t own silver, or platinum, or copper, or lead, or aluminum, or zinc, or nickel, or any other metal for that matter but only one metal, gold, and not a few pounds but 30,000 tonnes of it. So the next time you come across the uninformed opinion that gold is a commodity like platinum and over-priced due to the irrational enthusiasm of crackpots, kooks, and cranks, remember that gold is the one and only commodity owned by central banks and in monumental quantities. Literally.

Why do central banks still own gold? I wondered back in 1998. Why didn’t central banks sell the useless yellow metal and use the proceeds for more constructive purposes than hoarding?

So I began to look for a credible explanation for this apparent contradiction. The only argument I could find that had any merit was that central banks did not want to disrupt the gold mining industries of gold producing countries, such as South Africa’s, where Brazil is playing North Korea not talking rabbits from Burundi at the World Cup is as I write, by dumping large quantities of gold onto the global market.

The argument is not baseless. Even if central banks dis-hoarded the 36 thousand tonnes of gold reserves they had in 1971 at the rate of only 1% per year, that represented 25% of the 1,500 tonnes of total gold production that year. The sudden addition of 25% to the supply in any commodity is guaranteed to depress the price, unless demand picks up to absorb it. And even if central banks maintained a rate of sales of 25% of production for the past 30 years, by 2001 they’d still have 22,000 tonnes of the gold left. Selling that much gold without wrecking the gold market for gold producers and exporters indeed appears impossible.

Since 1971 when the international gold standard ended, central banks have managed to sell off more than 6,000 tons, and approximately 2,500 tonnes of reserves, or about one year of global production, since 2001 when we took our gold position.

That works out to 10% of annual production, in rough numbers. Yet over that nine-year period, the price of gold increased more than four fold. Presumably if sales increased several times that average since 2001 the gold price might not have gone up as much, but the assertion that central bank divestiture of gold cannot be accomplished without materially undermining gold producers is not supported by recent history.

Even as central banks lightened their load of gold since 2001, not everyone sold, particularly since the start of Gulf War II in 2003.

China and Russia have been major gold buyers since 2003

From a geopolitical perspective it doesn’t take a rocket scientist to understand why China and Russia in particular started buying gold while other counties, though not the US, sold it since 2003: as the largest lender to the US, it is imprudent for China to not insure against the risk of a devaluation of America’s $60 trillion and growing contingent liabilities. The fact that the dollar is a reserve currency is the one and only reason that the dollar has not already weakened precipitously. Primarily via swap agreements and purchases of dollar denominated debt, foreign lenders have kept the U.S. government and its currency afloat. The dollar is not a market-priced currency any more than the U.S. housing is market priced. The latter is a ward of the state, 90% maintained by government subsidies of the mortgage credit market, and the former by foreign and domestic subsidies, by official and “private” sources, of the U.S. government credit market.

Central bankers worldwide are in the awkward position of needing to profess 100% confidence in a hopelessly flawed and outdated international money standard while simultaneously hedging its potential demise with a reserve asset that they claim to have abandoned nearly 40 years ago. On the one hand they are all-in on global monetary system based on a fiat currency issued by a single nation with a declining global output share, an unsustainable structural fiscal deficit, $60 trillion in total contingent liabilities, and dependence on asset price inflation for economic growth, with no path out of any of them under a political system dominated by special interest. On the other hand they have to hedge the risk that some day systemic flaws are expressed as a currency crisis. The only way to do that is with the only international currency in existence that does not have national origins: the fourth currency, gold.

Who’s got the gold?

At north of 8,000 tonnes, the United States government is by far the world’s largest gold hoarder. By way of comparison, the 484 total pallets of $100 bills shipped from the Federal Reserve Bank of New York to Iraq on C-130 transports in 2003 were worth $12 billion and weighed only 363 tonnes, according to a Majority staff memorandum to the House Committee on Oversight and Government Reform, Feb. 6, 2007. If the pallets were piled with gold instead of $100 bills, at 363 tons they’d carry 11.7 million ounces. That works out to $14.4 billion at today’s $1,233 per ounce gold price but only $4.2 billion at the 2003 price of $363 when the payment was made, the authorization and use of which remains a mystery. Since then, a pallet of $100 bills has plummeted from a value of three times its weight in gold to 83%. The decline is not coincidental. That $12 billion was minuscule compared to the trillions squandered on war and financial mishaps since. The Iraqis should have demanded the $12 billion payment in gold. Today they’d have $41 billion.

This leads us once again back to the one and only rational explanation why so many central banks still hold so much gold so many years after official use of gold to settle international payments ended.

Gold is the one and only pure-play insurance policy available against a disorderly disintegration of an outdated, US-centric global monetary order straining under the weight of government debt taken on to keep angry voters off the streets. Gold remains on the balance sheets of central banks as insurance against a global currency crash. As long as it does, it remains on our personal balance sheets, too.

Countdown to crisis

As the risk of the kind of currency crisis that gold insures against rises, so does the price of that insurance. When we bought gold in 2001 the market priced the risk at $270, and as of today June 18, 2010 at $1,259. This year central banks became net buyers.

Gold prices do not float on a sea of liquidity, as Ruchir Sharma claims. They float on a sea of dangerous fallacies — that asset bubbles don’t cause lasting damage to economies, the Keynesian multiplier, that the U.S. can continue to borrow to finance its fiscal deficit, and the invulnerability of the dollar as a reserve currency.

We are not willing to bet against global central banks. They’re betting on gold. We don’t blame them, and everyone is catching on.

“All is mine”, says gold;
“All is mine”, says steel.
“I buy all”, says gold;
“I take all”, says steel.

Now the changes in the IMF gold arsenal:

The IMF has announced its gold reserves declined to 2,966.4 in April from 2,981.5 tonnes in March, a 15.1 ton decline. And while the IMF sold well over half a billion worth of gold in April, Russia was once again taking advantage of what some are calling firesale prices, bulking up its gold holdings by 5 tonnes, which increased from 663.7 to 668.7. Russia has now been adding gold every month since February. As has long been known, in 2009 the IMF announced it would sell 403.3 tonnes of gold, of which 212 was purchased in prearranged deals by India, Mauritius and Sri Lanka. This means the IMF, after accounting for all disclosed sales, has 152.1 tonnes of gold left to sell from its original quota. Bloomberg discloses who has been doing the most buying recently: “Central banks and governments added 425.4 tons last year to 30,116.9 tons, the most since 1964 and the first expansion since 1988, data from the World Gold Council show. Official reserves may expand by another 192 to 289 tons this year, according to CPM Group, a research and asset-management company in New York.” Keep your eyes on Russia: “Russia’s central bank bought 142.9 tons of gold last year, raising its holdings of the metal by 29%, RIA Novosti reported last month, citing Bank Rossii’s annual report submitted to parliament.”

I wonder if the IMF selling Russia this gold this has anything to do with the recent coordination on Iran sanctions?

However, many European governments are successfully passing spending cuts, tax increases, and even talking of raising the retirement age in France.

I wonder how long it takes for Iceland’s Comic Party to go international.

REYKJAVIK—Voters here blew a loud raspberry at Iceland’s political establishment Saturday, handing victory in the capital’s municipal elections to an upstart political party that ran a blatantly satirical, humor-based campaign.

After promising a polar bear for the Reykjavik zoo and making other unorthodox proposals, the six-month-old Best Party won 34.7% of the vote, securing six of the 15 seats on the city council. It was closely followed by the Independent Party—the traditional powerhouse in the city—with 33.6% of votes and five seats. The Social Democratic Alliance, which currently governs Iceland in coalition with the Left-Green Movement, won three seats while its coalition partner was left with one.

The win for the Best Party—whose slogan loosely translates to “Whatever Works!”—puts its leader Jon Gnarr, Iceland’s best-known comedian, in a strong position to become mayor of Reykjavik, a post that is sometimes a launching pad for national politics.

While the Best Party’s critics implored its team of comedians, actors and musicians to end their campaign, Mr. Gnarr insisted he would follow through to the end. It was the best way to expose the “ridiculous” state of traditional politics, he said.

The Bests’ victory comes at a pivotal moment for Iceland’s 320,000 people. Their tiny economy was arguably the hardest hit by the 2008 global financial crisis, which devastated a domestic banking system that had swollen to 10 times the country’s gross domestic product.

The meltdown left Icelanders mistrustful of traditional politicians, even more so after a parliamentary report exposed close ties between the previous Independent Party government and the brash bankers who had fueled Iceland’s giant credit bubble, as well as widespread corruption.

Many have seized upon the Best Party as a means to overhaul that system, even if they aren’t sure what it will do once in government.

Time to party.

The last such car to go on sale though looks to be a classic insurance fraud.

Indeed, the history and mystery surrounding the other Aston Martin seems straight out of an Ian Fleming thriller.

Known as the “effects car,” it was the first Bond car outfitted with an arsenal and the one Q demonstrated for Sean Connery in Goldfinger. Some experts consider it more original than Mr. Lee’s because it was the first to have gadgets. In fact, the debate over which car is the most original has been raging among various Bond car owners for years. The dispute was chronicled in a 1981 article in this newspaper headlined, “Can Three Men All Be Owners of 007′s Car?”

Curiously, after the filming Aston Martin stripped the “effects car” of its gadgets and sold it as a standard used vehicle. (One original gadget survived: the gear shift knob with a hidden red button that activates the ejector seat. It once sold at auction for around $80,000.) The “effects car” traded hands several times. New gadgets were added, but they weren’t made by the car manufacturer, according to Mr. Worrall’s book.

In 1986, a Florida real-estate developer, Anthony Pugliese III, bought the “effects car” at auction for $275,000 and began displaying it. Ten years later, James T. Sandoro, an independent car appraiser in Buffalo, N.Y., valued the vehicle at $4.2 million, and Mr. Pugliese obtained an insurance policy for that amount. “I always thought it was more than just an automobile,” says the appraiser. “It was pop art.”

Then late one day in June 1997, the car disappeared from the airport hangar where it was stored. There was little security at the time and apparently no one in the control tower.

James Grundy, president of Grundy Worldwide Inc., the insurance agency for the policy, says there were tire marks outside the hangar that just stopped and evidence that a plane had taken off that night. But he says an investigation by the police and Chubb Corp., the underwriter, failed to solve the crime.

A spokesman for Chubb, which paid the claim, says the company “thoroughly investigated” and offered a $30,000 reward for information leading to the car’s recovery. It now holds the title to the car.

“I think that car is a pile of deteriorated aluminum in the Gulf Stream off the coast of Florida,” says Mr. Grundy. “I can’t prove it, but I’d bet on it.”

Mr. Pugliese has a different theory. “Why would anyone go to all that trouble to dump it in the ocean? I believe it is still sitting in some Arab sheik’s tent.”

Which leaves Mr. Lee’s car as the only “original” one whose whereabouts remain known.

The new car is estimated to fetch up to $5 million, and anything less would be good evidence that an inflated appraisal figured into the original fraud.

However let’s look at another insurance policy that America wrote but looks tapped out as far as being able to pay out should a claim get filed. This article also courtesy of the WSJ.

SEOUL—South Korea is reviewing its defense policy following North Korea’s alleged sinking of a South Korean naval vessel, a process that could significantly change Seoul’s military alliance with Washington, according to officials engaged in the process.

Over the past week, U.S. and South Korean leaders have outlined plans to conduct war games and strategy sessions to better equip the South for combating the type of submarine attack Pyongyang is accused by international investigators to have staged in March, killing 46 South Korean sailors.

For the longer term, President Lee Myung-bak’s conservative government could seek to alter the alliance’s command structure and Seoul’s weapons arsenal in ways that would affect the Pentagon’s current strategic planning for Northeast Asia, according to these officials.

South Korean defense strategists already are publicly pressing Mr. Lee to delay the planned 2012 transfer of operational control of the combined U.S.-South Korean fighting force to Seoul from Washington, arguing South Korea isn’t prepared yet to oversee American forces.

The agreement between Washington and Seoul has a clause that allows South Korea’s president to formally request a suspension of the transfer. The U.S. currently deploys 29,000 troops in South Korea, and the South Korean military deploys 600,000.

Some South Korean officials involved in the president’s military-overhaul drive also are calling for Seoul to develop more offensive strategic weapons as a means to deter the nuclear-armed North from future aggression. Currently, South Korea’s defense agreement with the U.S. prohibits Seoul from deploying precision-guided missiles with a range of more than 300 kilometers.

“We need to have our own ways to threaten North Korea,” said Kim Tae-woo, a South Korean defense expert who sits on one of two committees President Lee has established to assess Seoul’s military preparedness. “We need to have this dialogue with our allies.”

Mr. Lee took office in 2008 calling for an overhaul of South Korea’s military apparatus, which his party had charged was weakened during 10 years of liberal rule in Seoul. But South Korea’s new government initially agreed with its predecessor’s plans to shrink the size of Seoul’s military ranks while reining in defense spending.

Many in the South have viewed North Korea’s million-man military as largely targeted at the U.S. The South’s late President Roh Moo-hyun successfully pushed for the U.S. to lower its military profile in his country and transfer control of the joint military command to South Korea’s defense department.

The North’s alleged attack March 26 on the South Korean naval vessel, the Cheonan has shaken up Seoul’s strategic thinking, according to South Korean and U.S. officials. A major concern here now is that Pyongyang’s development of nuclear technologies has provided leader Kim Jong Il with a deterrent against the more-advanced militaries of the U.S. and South Korea. This, in turn, could allow Pyongyang to stage more-aggressive conventional attacks on the South, with the belief that Seoul won’t retaliate for fear of an escalation.

This fear seems to have been borne out in recent days as Mr. Lee’s government has shown a reluctance to take some new steps to challenge Pyongyang over the Cheonan incident. Seoul, for example, stepped back from an initial pledge to use loudspeakers to blast propaganda across the Demilitarized Zone between the two Koreas, after the North threatened to attack the broadcasting structure.

South Korea’s leaders also have publicly sought to play down the idea that the North’s two recent nuclear tests have given it a military advantage or that it has succeeded in developing operational atomic weapons.

Still, many leading defense thinkers in Seoul said Pyongyang’s growing nuclear technologies are “game changers” that now require South Korea to significantly upgrade its own capabilities.

In addition to urging the development of longer-range missiles, many experts are calling for the purchases of advanced new strike-fighters and antiballistic-missile batteries. They also say the Pentagon should remain in charge of the joint military command in South Korea beyond 2012, given the lethal effectiveness displayed by North Korea’s mini-submarine fleet during the Cheonan attack.

First off, that country is run by a very small group of thugs in total control. This is the complete opposite of Afghanistan or Iraq. Like any bully, displaying weakness invites more provocations.

Having said that, is America better off packing up and leaving? Yes.

Is America better off selling them the nukes, tanks, and bullets on the way out the door? Certainly. After all, Korea is world famous for building ships and cars, and this could be some of the things we could buy with their money after we sell the military hardware.

More realistically though, after getting a large warship sunk and 45 soldiers drowned, S. Korea is looking to cash in an insurance fund that is looking increasingly tapped out after two quagmires over something far more valuable than Nukes and Insurance: Oil. Denominated in US Dollars. The USD price of oil is the single most important market in the world, and although Korea is great, I bet we pack up long before this escalates.

The last such car to go on sale though looks to be a classic insurance fraud.

Indeed, the history and mystery surrounding the other Aston Martin seems straight out of an Ian Fleming thriller.

Known as the “effects car,” it was the first Bond car outfitted with an arsenal and the one Q demonstrated for Sean Connery in Goldfinger. Some experts consider it more original than Mr. Lee’s because it was the first to have gadgets. In fact, the debate over which car is the most original has been raging among various Bond car owners for years. The dispute was chronicled in a 1981 article in this newspaper headlined, “Can Three Men All Be Owners of 007′s Car?”

Curiously, after the filming Aston Martin stripped the “effects car” of its gadgets and sold it as a standard used vehicle. (One original gadget survived: the gear shift knob with a hidden red button that activates the ejector seat. It once sold at auction for around $80,000.) The “effects car” traded hands several times. New gadgets were added, but they weren’t made by the car manufacturer, according to Mr. Worrall’s book.

In 1986, a Florida real-estate developer, Anthony Pugliese III, bought the “effects car” at auction for $275,000 and began displaying it. Ten years later, James T. Sandoro, an independent car appraiser in Buffalo, N.Y., valued the vehicle at $4.2 million, and Mr. Pugliese obtained an insurance policy for that amount. “I always thought it was more than just an automobile,” says the appraiser. “It was pop art.”

Then late one day in June 1997, the car disappeared from the airport hangar where it was stored. There was little security at the time and apparently no one in the control tower.

James Grundy, president of Grundy Worldwide Inc., the insurance agency for the policy, says there were tire marks outside the hangar that just stopped and evidence that a plane had taken off that night. But he says an investigation by the police and Chubb Corp., the underwriter, failed to solve the crime.

A spokesman for Chubb, which paid the claim, says the company “thoroughly investigated” and offered a $30,000 reward for information leading to the car’s recovery. It now holds the title to the car.

“I think that car is a pile of deteriorated aluminum in the Gulf Stream off the coast of Florida,” says Mr. Grundy. “I can’t prove it, but I’d bet on it.”

Mr. Pugliese has a different theory. “Why would anyone go to all that trouble to dump it in the ocean? I believe it is still sitting in some Arab sheik’s tent.”

Which leaves Mr. Lee’s car as the only “original” one whose whereabouts remain known.

Nothing too far fetched with a fraud like that. However let’s look at another insurance policy that America wrote but looks tapped out as far as being able to pay out should a claim get filed. This article also courtesy of the WSJ.

SEOUL—South Korea is reviewing its defense policy following North Korea’s alleged sinking of a South Korean naval vessel, a process that could significantly change Seoul’s military alliance with Washington, according to officials engaged in the process.

Over the past week, U.S. and South Korean leaders have outlined plans to conduct war games and strategy sessions to better equip the South for combating the type of submarine attack Pyongyang is accused by international investigators to have staged in March, killing 46 South Korean sailors.

For the longer term, President Lee Myung-bak’s conservative government could seek to alter the alliance’s command structure and Seoul’s weapons arsenal in ways that would affect the Pentagon’s current strategic planning for Northeast Asia, according to these officials.

South Korean defense strategists already are publicly pressing Mr. Lee to delay the planned 2012 transfer of operational control of the combined U.S.-South Korean fighting force to Seoul from Washington, arguing South Korea isn’t prepared yet to oversee American forces.

The agreement between Washington and Seoul has a clause that allows South Korea’s president to formally request a suspension of the transfer. The U.S. currently deploys 29,000 troops in South Korea, and the South Korean military deploys 600,000.

Some South Korean officials involved in the president’s military-overhaul drive also are calling for Seoul to develop more offensive strategic weapons as a means to deter the nuclear-armed North from future aggression. Currently, South Korea’s defense agreement with the U.S. prohibits Seoul from deploying precision-guided missiles with a range of more than 300 kilometers.

“We need to have our own ways to threaten North Korea,” said Kim Tae-woo, a South Korean defense expert who sits on one of two committees President Lee has established to assess Seoul’s military preparedness. “We need to have this dialogue with our allies.”

Mr. Lee took office in 2008 calling for an overhaul of South Korea’s military apparatus, which his party had charged was weakened during 10 years of liberal rule in Seoul. But South Korea’s new government initially agreed with its predecessor’s plans to shrink the size of Seoul’s military ranks while reining in defense spending.

Many in the South have viewed North Korea’s million-man military as largely targeted at the U.S. The South’s late President Roh Moo-hyun successfully pushed for the U.S. to lower its military profile in his country and transfer control of the joint military command to South Korea’s defense department.

The North’s alleged attack March 26 on the South Korean naval vessel, the Cheonan has shaken up Seoul’s strategic thinking, according to South Korean and U.S. officials. A major concern here now is that Pyongyang’s development of nuclear technologies has provided leader Kim Jong Il with a deterrent against the more-advanced militaries of the U.S. and South Korea. This, in turn, could allow Pyongyang to stage more-aggressive conventional attacks on the South, with the belief that Seoul won’t retaliate for fear of an escalation.

This fear seems to have been borne out in recent days as Mr. Lee’s government has shown a reluctance to take some new steps to challenge Pyongyang over the Cheonan incident. Seoul, for example, stepped back from an initial pledge to use loudspeakers to blast propaganda across the Demilitarized Zone between the two Koreas, after the North threatened to attack the broadcasting structure.

South Korea’s leaders also have publicly sought to play down the idea that the North’s two recent nuclear tests have given it a military advantage or that it has succeeded in developing operational atomic weapons.

Still, many leading defense thinkers in Seoul said Pyongyang’s growing nuclear technologies are “game changers” that now require South Korea to significantly upgrade its own capabilities.

In addition to urging the development of longer-range missiles, many experts are calling for the purchases of advanced new strike-fighters and antiballistic-missile batteries. They also say the Pentagon should remain in charge of the joint military command in South Korea beyond 2012, given the lethal effectiveness displayed by North Korea’s mini-submarine fleet during the Cheonan attack.

First off, that country is run by a very small group of thugs in total control. This is the complete opposite of Afghanistan or Iraq. Like any bully, displaying weakness invites more provocations.

Having said that, is America better off packing up and leaving? Yes.

Is America better off selling them the nukes, tanks, and bullets on the way out the door? Certainly. After all, Korea is world famous for building ships and cars, and this could be some of the things we could buy with their money after we sell the military hardware.

More realistically though, after getting a large warship sunk and 45 soldiers drowned, S. Korea is looking to cash in an insurance fund that is looking increasingly tapped out after two quagmires over something far more valuable than Nukes and Insurance: Oil. Denominated in US Dollars. The USD price of oil is the single most important market in the world, and although Korea is great, I bet we pack up long before this escalates.

]]> http://www.gjc.com/?feed=rss2&p=426 0 http://www.gjc.com/?p=421 http://www.gjc.com/?p=421#comments Tue, 01 Jun 2010 15:53:03 +0000 Gerald http://www.gjc.com/?p=421 FoxNews now features intelligent commentary.

Sharing this video with your friends will further that social change already underway.

]]> http://www.gjc.com/?feed=rss2&p=421 0 http://www.gjc.com/?p=408 http://www.gjc.com/?p=408#comments Thu, 13 May 2010 01:10:45 +0000 Gerald http://www.gjc.com/?p=408

Arizona passed a law aimed at illegal immigrants. From the Seminole Chronical:

The broad reaching law gives authorities in Arizona the right to stop people if they have a “reasonable suspicion” that they may be in the U.S. illegally.
Despite its lack of explicit mention in the Constitution, I don’t think the Arizona law is going to hold up anyway. I believe it violates the Fourth Amendment, which protects us from unreasonable search and seizure. In order for a search warrant to be considered reasonable, it has to be judicially sanctioned. A police officer who thinks someone might be here illegally hardly fits that hurdle.

John Stewart said it best when he asked what WWII Nazi movie does not have the direct quote: “Show me your papers.”

It is unfortunate that Arizona passed a clearly unconstitutional law merely to prove a point about illegal immigration. I personally look at the debate through the lens of having immigrant grandparents. Although this was legally in their particular window of time, they did leave behind everything to get a shot at a better life. One could say we have currently even have a de facto open border with South America. I would also expect many 19th and 20th century Anglo Americans were unhappy about the new arrivals like my grandparents.

However similar the circumstances though, the real concern is bigotry and its influence in politics. It is never welcome, and at its worst, will lead to laws imitating the totalitarianism that should be left to black and white war movies.

]]> http://www.gjc.com/?feed=rss2&p=408 0 http://www.gjc.com/?p=391 http://www.gjc.com/?p=391#comments Sun, 09 May 2010 19:26:15 +0000 Gerald http://www.gjc.com/?p=391 Warning: It looks like stocks have reached a meaningful sell-off that will mark a new leg down.

A few months ago, in anticipation of this event, I marked up historic charts of the NASDAQ performance. This is a great barometer of the stock market because this is the marginal demand of “stocks” at its finest. There are stocks and there are bonds. Stocks mean owning the company, and bonds mean owning the company’s IOUs. Broadly speaking, stocks generally pay out more than bonds because a company paying a dividend is hopefully working on ways to pay out more since the managers are probably big shareholders. Because the dividend sometimes gets cut in times of stress, the dividend is riskier than a bond, which pays out a fixed amount for a fixed period of time. Hence the name fixed income for the bond market. Guarantees. In fact, companies subject themselves to lots of scrutiny to prove they have the ability to pay back borrowed money. These are called ratings agencies, and a downgrade is a credible threat to a borrow.

However the stockholders hope to get paid only after everyone else does get paid. And if the company goes out of business, the stocks are worthless. Poof!

NASDAQ 100 is an index of the pricing of stocks for the 100 largest public tech companies in America. This clearly looks like a bubble, but charts only show what the bubble looks like over time, they don’t explain why there is a bubble.

The periods are 1987-2003, Jun 1999 – Aug 2000, Feb 2000 – Jan 2001, Mar 2000 – March 2001, and 2003 – 2010. These charts are a nice way to visualize the influence of sentiment and rumor on a market’s aggregate price level. In this case, NASDAQ stocks are the market. The share price is an aggregate of what people are willing to pay for the shares. Stock markets are great vehicles for price discovery thanks to quick trading and abundant liquidity.

Before houses were a bubble, NASDAQ stocks were the big talk in town. Remember, NASDAQ stocks are the ones that pay scanty dividends. This is typically brushed aside because the companies are fast growing. In essence, 1987 – 2003 saw the implementation of the computer into society. Boy did that make life great. Look what I can do with a blog!

Let’s see how that did for the share prices of NASDAQ stock companies:

Take a look at the current dividend picture:

Lets zoom in on this peak in the valuations that stockholders expected to get out of those obviously growing future cash flows:

Eventually the bubble deflated, but surprisingly, these shares have been fairly resilient:

Given the fact that 59 of the biggest NASDAQ companies do not pay a dividend, and those that do pay one are really skimpy about it, this story is completely reliant on income growth. However, if it is true that these companies are somewhat responsible for a technology driven productivity boom, one reason it would justify someone to own one of these shares, is under the belief that someday there will be some dividends once these companies can monetize those productivity gains. I mean going back to Finance 101, earnings growth and dividend growth are two pieces to the model. However, if no income goes to shareholders, then the only justification to own versus work for the company is the greater fool theory.

In The Seventh Seal, the knight is about to be taken away by the Angel of Death and so offers the grim reaper a game of Chess with his life being the prize should he win. He hides two pieces behind his back and asks the grim reaper to pick the hand to decide color.

Knight: “Black”
Grim Reaper: “Fittingly I suppose”

Tech stocks should be a mature part of the economy at this point in the 1987 to 2010 business cycle. However, the only possible impetus for tech stocks I could see, would be after a massive drop in valuations to a point where there were extremely low share valuations relative to rates of earnings. If these companies do need to retain earnings to grow the company, the multiple of share price to earnings then should be very low, because the paid out portion (relative to human or fixed capital) would be subsequently low in this industry.

Advice: make like Warren Buffet and avoid Tech Stocks. After all, let me jog your memory about stocks supposedly getting the greater than bold yield coupons in exchange for being the residual claimant on earnings in the event of the firm’s insolvency. If you lament at being under the spell of “Tech Stocks” in the past, than console your temporary lack of judgment and read smugly about the massive miss-allocation of capital that took place in the South Sea Bubble.

The South Sea Company was a British Joint Stock company that was granted the exclusive right to the royalties of the New World (what is now South America) in exchange for putting England’s national debt on it’s balance sheet. Naturally, shareholders got more enthusiastic about the upside than they did about the realities of the arrangement, and although the shares went up tenfold in the early 1700s, it eventually became apparent for being an astronomical bubble.

Not for nothing but Obama recent announced proposals to raise the capital gains tax and double dip dividend tax. Even if these West/East Tech Bay companies do start paying out, the needy gov coffers will take a big first bite out of those profits in one way or another.

As a member of society though don’t despair, you are clearly benefiting from this tech bubble because you get to use Google Docs for free thanks to Google not having to pay out the shareholders of Google Search. Think about the relatively cheap thrills of inventions like the mac, iphone, ipod, amazon, gmail, and more! This is round one of the great deflation, round two will be commodity prices. I bought a V8 pickup with conviction in the fall of oil price. Notwithstanding the gloom about seeing oil in the fishing grounds of Louisiana, I heard that there is an Exxon Valdez spill every day in Nigeria. I am still waiting to fact check that, but lets just establish that oil and natural gas is still plentiful, and until we can prove otherwise, by all means diversify, but more for the sake of vigilance than fears about delaying global warming’s day of reckoning for 7 years ala Kyoto Treaty.

Positive: German Bund, Gold, USD
Negative: Stocks

Update, follow up piece by John Hussman goes in to more detail about the fact that the returns to shareholders has been much skimpier than the returns to employees:

]]> http://www.gjc.com/?feed=rss2&p=391 0 http://www.gjc.com/?p=389 http://www.gjc.com/?p=389#comments Fri, 07 May 2010 03:01:24 +0000 Gerald http://www.gjc.com/?p=389
FunnyAnimated.net – funniest gifs online

]]> http://www.gjc.com/?feed=rss2&p=389 0