Quick Cash Access (Online Payday Loans) When Working and Travelling Abroad

The best-laid plans when doing business or just travelling for pleasure in other countries can be way-laid quickly when you suddenly need a spot of quid. This is one reason why online payday loans have increased enormously in popularity in recent years.

When you get a payday loan, you are basically obtaining cash from your next paycheque. The lender looks only at your pay rate – not your credit history scores and not some property you would offer for collateral – to determine your loan worthiness. The application is completed online (no faxes required) and the money is sent to your bank account in about an hour – which you can withdraw from any ATM.

The conveniences that payday loan companies supply are what enable them to grow in the current economy:

Simple application – Online payday loans mean you need not go to a payday loan store. You do not even need to talk to anyone on the phone. It is just a matter of logging on to the lender website, completing a 5-10 minute loan application, then getting confirmation.

Fast turn-around – If you apply before 22:00, your loan will be deposited into your bank account in about one hour (later and it gets there by 4:00 the next day).

Can actually improve a credit score – Everyone worries about their credit score, and we all know that a missed payment on a bill can throw their score into a tailspin. By accessing some quick quid online, regardless of where you are at the time, you can keep up those pay schedules. And by successfully paying off the payday loan , it is another plus for your score.

You’re wise to have this as a backup when doing business or travelling by yourself. It’s the smart way to keep your plans on track.

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Live A Better Life

This post has nothing to do with making money, but life isn't all about making money. It's about being happy. And most of us make money with the end of achieving that goal. So this post is about being happier.

Make Life Simple Again

When we were young life was easier, right? I know sometimes it seems that way. But the truth is life still is easy. It always will be. The only difference is we’re older, and the older we get, the more we complicate things for ourselves.

You see, when we were young we saw the world through simple, hopeful eyes. We knew what we wanted and we had no biases or concealed agendas. We liked people who smiled. We avoided people who frowned. We ate when we were hungry, drank when we were thirsty, and slept when we were tired.

As we grew older our minds became gradually disillusioned by negative external influences. At some point we began to hesitate and question our instincts. When a new obstacle or growing pain arose, we stumbled and a fell down. This happened several times. Eventually we decided we didn’t want to fall again, but rather than solving the problem that caused us to fall, we avoided it all together.

As a result, we ate comfort food and drank alcohol to numb our wounds and fill our voids. We worked late nights on purpose to avoid unresolved conflicts at home. We started holding grudges, playing mind games, and subtly deceiving others and ourselves to get ahead. And when it didn’t work out, we lived above our means, bought things we didn’t need, and ate and drank some more just to make ourselves feel better again.

Over the course of time, we made our lives more and more difficult, and we started losing touch with who we really are and what we really need.

So let’s get back to the basics, shall we? Let’s make things simple again. It’s easy. Here are 60 ways to do just that:

Life is not complex. We are complex. Life is simple, and the simple thing is the right thing. - Oscar Wilde

1. Don’t try to read other people’s minds. Don’t make other people try to read yours. Communicate.
2. Be polite, but don’t try to be friends with everyone around you. Instead, spend time nurturing your relationships with the people who matter most to you.
3. Your health is your life, keep up with it. Get an annual physical check-up.
4. Live below your means. Don’t buy stuff you don’t need. Always sleep on big purchases. Create a budget and savings plan and stick to both of them.
5. Get enough sleep every night. An exhausted mind is rarely productive.
6. Get up 30 minutes earlier so you don’t have to rush around like a mad man. That 30 minutes will help you avoid speeding tickets, tardiness, and other unnecessary headaches.
7. Get off your high horse, talk it out, shake hands or hug, and move on.
8. Don’t waste your time on jealously. The only person you’re competing against is yourself.
9. Surround yourself with people who fill your gaps. Let them do the stuff they’re better at so you can do the stuff you’re better at.
10. Organize your living space and working space.
11. Get rid of stuff you don’t use.
12. Ask someone if you aren’t sure.
13. Spend a little time now learning a time-saving trick or shortcut that you can use over and over again in the future.
14. Don’t try to please everyone. Just do what you know is right.
15. Don’t drink alcohol or consume recreational drugs when you’re mad or sad. Take a jog instead.
16. Be sure to pay your bills on time.
17. Fill up your gas tank on the way home, not in the morning when you’re in a hurry.
18. Use technology to automate tasks.
19. Handle important two-minute tasks immediately.
20. Relocate closer to your place of employment.
21. Don’t steal.
22. Always be honest with yourself and others.
23. Say “I love you” to your loved ones as often as possible.
24. Single-task. Do one thing at a time and give it all you got.
25. Finish one project before you start another.
26. Be yourself.
27. When traveling, pack light. Don’t bring it unless you absolutely must.
28. Clean up after yourself. Don’t put it off until later.
29. Learn to cook, and cook.
30. Make a weekly (healthy) menu, and shop for only the items you need.
31. Consider buying and cooking food in bulk. If you make a large portion of something on Sunday, you can eat leftovers several times during the week without spending more time cooking.
32. Stay out of other people’s drama. And don’t needlessly create your own.
33. Buy things with cash.
34. Maintain your car, home, and other personal belongings you rely on.
35. Smile often, even to complete strangers.
36. If you hate doing it, stop it.
37. Treat everyone with the same level of respect you would give to your grandfather and the same level of patience you would have with your baby brother.
38. Apologize when you should.
39. Write things down.
40. Be curious. Don’t be scared to learn something new.
41. Explore new ideas and opportunities often.
42. Don’t be shy. Network with people. Meet new people.
43. Don’t worry too much about what other people think about you.
44. Spend time with nice people who are smart, driven, and likeminded.
45. Don’t text and drive. Don’t drink and drive.
46. Drink water when you’re thirsty.
47. Don’t eat when you’re bored. Eat when you’re hungry.
48. Exercise every day. Simply take a long, relaxing walk.
49. Let go of things you can’t change. Concentrate on things you can.
50. Find hard work you actually enjoy doing.
51. Realize that the harder you work, the luckier you will become.
52. Follow your heart. Don’t waste your life fulfilling someone else’s dreams and desires.
53. Set priorities for yourself and act accordingly.
54. Take it slow and add up all your small victories.
55. However good or bad a situation is now, it will change. Accept this simple fact.
56. Excel at what you do. Otherwise you’ll just frustrate yourself.
57. Mature, but don’t grow up too fast.
58. Realize that you’re never quite as right as you think you are.
59. Build something or do something that makes you proud.
60. Make mistakes, learn from them, laugh about them, and move along.

Oh, and enjoy life’s simple pleasures. They’re free and better than anything money can buy. ;-)

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Tax Havens For Retirees

When I retire, I plan to live off my dividends and other passive income. California, which is basically broke, which has pretty high state taxes is not the most optimal place - especially once you don't have a job and have the flexibility to live in cheaper places. Some states like Nevada, have on tax on personal income, while some like New Hampshire only tax interest and dividends (definitely retiree unfriendly). Forbes recently had an article about states Wooing Retirees With Tax Breaks.

Last month, even as they slapped a new tax on hospitals, raised dozens of
user fees and eliminated a low-income tax credit, Georgia legislators passed
income tax relief for one group: well-off retirees. For residents 62 or older,
Georgia already exempts from its 6% tax all Social Security and $70,000 per
couple of income from pensions, retirement accounts, annuities, interest,
dividends, capital gains and rents. But in 2012 the exemption for couples 65 and
older will rise to $130,000, and by 2016 all their retirement income will be
exempt--a break Governor Sonny Perdue championed as a lure for well-heeled
seniors.

If you're looking for a domestic retirement tax haven, Georgia is hardly the only place worth considering. Seven states--Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming--don't tax personal income at all. New Hampshire and Tennessee tax interest and dividends but not other income. The rest of the states have broad income taxes but give old taxpayers breaks, some quite generous. A recent study by Karen Smith Conway of the University of New Hampshire and Jonathan C. Rork of Georgia State calculates that retirees pay, on average, only half the state income tax of working folks with the same income.

So depending on whether you have w-2 income or 1098-int income, you might want to consider different states to live in. Of course, higher rates of real estate taxes and estate taxes will complicate things further.

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Buying Silver Coins

Gold hit a new high today, closing around $1,237/ounce after trading at almost $1,250/oz during the intraday session. Silver, which is already up 30% since its lows of $15.13 in February followed to $19.56/ounce.

I've been collecting both gold and silver coins since late 2005, during which time gold was trading for $495/oz and the price of silver was under $10/ounce. I currently own over 50 silver coins. Before you get all excited, the value comes to around $1,000 and it's a big hassle to store them. But, being a big fan of shiny objects I still like to buy coins now and then.

My favorites are the 1 ounce Australian Lunar Series, the Peace silver dollars and the Morgan silver dollars. But this time, I thought I'd try something different. I bought a couple of the Nazi 5 Reichmark silver coins. No, I'm not a big fan of Nazi memorabilia or anything like that. It's just that these coins are 90% silver and each one contains about 0.40 ounces of silver. Considering that silver bullion coins sell for about $22 right now, the silver in those coins is worth about $8.80. I just spent about $10.50 for each coin or about $1.70 more than I would've paid for a silver bullion coin.

Not bad for a piece of history!

Historically, silver has traded for about 1/15th the price of gold which means it would be trading around $75/oz today. Even if we consider that it trades for 1/50th, it should still be at $25/oz. I think we'll see silver at $25/oz within 12 months, which means it has to jump another 20%. Let's see how that works out. It will probably pull back a little before it makes any major moves to the upside. I'll be buying more silver coins if that happens. Although I'm not sure what I'll do with them. I might have to start burying them!

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How To Nail An Interview

The best investment you can make is in yourself. Check out this great video by Bob Parsons about nailing an interview. Despite coming from a guy who's built a web development company, it's equally applicable whether you're going to work on Wall Street or an SEO agency.

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The Power of Dividend Investing

Here's an interesting snippet about the benefits of dividend investing:

"A recent Associated Press report noted that Apple (Nasdaq: AAPL) CEO Steve Jobs has only earned $1 per year since he returned to the CEO post in 1997.

That seems to beg the question how does someone live on $1 per year? Steve is able to enjoy a very lavish lifestyle, but not because of his large salary. His lifestyle is funded by his dividend income. Yes, Steve Jobs is probably one of the biggest dividend investors that you've never heard of.

Jobs owns approximately 138 million shares of Walt Disney (NYSE: DIS) stock that he received from the Pixar Animation Studios sale back in 2006.

Disney has paid out dividends of $0.35 per share each of the past three years. Owning 138 million shares results in over $48 million received each year in dividend income." -SeekingAlpha

I believe that dividends are also subject to the 15% cap on income tax, making that a pretty low tax rate for Mr. Jobs.

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Bull Market In Bureaucracy

According the interesting guys at Agora Finance, the all industry thats in a bull market is government employment!

Not sure why increased government spending is touted as a good thing. Sure it helps the economy from spiralling into a depression, but shouldn't there be some limit on it? Its not like we have any savings. We're just borrowing from foreigners who are happy to send us back their surplus-export-dollars in order to keep their currencies in check to prevent their exports from decreasing. At some point we might become like Japan, with a debt that's nearly 200% of GDP!

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Fed + Treasury = Inflation

I read an interesting article today from a commodities trader:

The following comments come from a Merrill Lynch publication today.

“To repeat our Mantra:
1) Whatever MUST happen, WILL happen.
2) In a debt crisis, inflation is the ONLY solution.
3) The FED + US Treasury can create inflation.
4) As such, there WILL be Inflation.

In this light, we will remind you that whenever you hear someone whisper to you that “It is different this time,” we urge you to grab your wallet and run. It is never truly different, only the flavor and the timing have been altered. Concurrently, we will note that “Pigs can fly, when shot out of a large enough cannon”.

As such, the ability of the FED+US Government to simultaneously print money and lower interest rates can only end in tears. If this were NOT the case, then Zimbabwe would be a paradise and the Weimar Republic would still exist.”

Commodities like gold and silver have been historic stores of wealth. Rich people understand this and use them protect themselves against inflation. You may not get rich buying gold and silver, but you will definitely retain your buying power. Investments in real estate should also do well - eventually, although its likely to do poorly in the short term.

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Is Gold Too Expensive?

Last week, gold prices hit nearly $1,200/oz. Most people think that this is a bubble and that gold prices are due to drop. I'm really not sure what to make of this, but I feel that in the long run (3-5 years), gold prices will keep going higher. But let me quote someone who's credibility and investing prowess far exceeds my own, Richard Russell, 85-year-old author of the Dow Theory Letters. He said:

There’s still loads of scepticism about the rising price of gold and the bull market in gold. It’s been so long since the US public (since 1971) realized gold was real Constitutional money that they don’t know what to make of the gold action. They think gold near $1,200 an ounce is expensive and they’d rather have dollar bills.

I’ve coined the phrase, ‘dollar-bugs’ for these ignorant Americans. I guess they’ll have to get educated the hard way, which means holding on to their fading Federal Reserve Notes, no matter what. As far as I’m concerned, it’s an amazing example of mass brainwashing. ‘Hey, I’d rather have junk paper turned out by the Fed than the real thing - gold.’ Pathetic. And the happy thought is that you can (legally) still swap your junk fiat paper for gold.

What do you guys think?

If I had to make a recommendation today, I'd rather buy silver than gold - but I'm still holding on to my gold coins right now.

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What Grows Faster Than Than Inflation?

If we knew what would grow faster than inflation, we all could just plonk our retirement money in it and be assured of safe leisurely life in our old age. So what has been proven to grow faster than inflation over the past century without fail?

Government Spending! According to the Privateer, "In 1909, the US federal government had an annual budget of $US 0.8 Billion. With this it governed a population of just over 90 million people. The cost of government was about $9 per capita. In 2009, the US federal government has an annual budget of $US 3,550 Billion. With this it governs a population of just over 300 million people. That's a cost of about $11,675 per capita."

Now if there was only some way to invest in government spending, we'd all be rich!

Another fact is that you could buy an ounce of silver for a dollar. Now it'll cost you over $17! Are you going to wait until its over $50/ounce before you start buying? For an interesting read check out Why $1,000 Gold is Now Significant

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Hiring Mercenaries To Run Public Companies

Here's an interesting article about how CEOs today don't have a stake in the companies they manage. Since they don't have a stake and are only focused on their take-home salary their interests are not aligned with those of the shareholders.

Over the past few decades the spread between the salaries of the lowest paid employees and the C-level employees has been growing further and further apart. It's as if we're just hiring mercenaries to run the companies.

Follow the Scent
By Chris Mayer

I often think of good investing as the accumulation of small advantages. You want as many of these advantages working for you as possible. So here is one that a lot of investors don't pay any attention to -- insider ownership -- and it turns out that it has a big effect on returns over time.

A new paper by Ulf von Lilienfeld-Toal and Stefan Ruenzi states: "Firms in which the CEO voluntarily holds a nontrivial fraction of the company's stock outperform the market significantly…. The effect is most pronounced among firms that are characterized by large managerial discretion of the CEO."

They go on to conclude:

"We find that value-weighted portfolios consisting of S&P 500 stocks in which the CEO holds more than 5% or 10% of the firm's outstanding shares generate statistically and economically significant abnormal returns of 9.2% p.a. and 13.0 percent per annum, respectively. For S&P 1500 firms, the effect is only slightly smaller, with abnormal returns of 8.5% per annum and 12.1% per annum, for a 5% and 10% cutoff for managerial ownership, respectively."

One of the many problems with today's market is the fact that the people running companies are not owners. A typical American CEO owns hardly any of the company he runs. Whatever shares he has he gets through stock options, which he does not pay for. In addition, he gets paid an enormous sum of money in salary and bonus.

I read proxy statements. Very few do. Most investors probably don't even know what one looks like, which is a shame. And it explains why corporate execs lavish so freely on themselves. The owners aren't paying attention.

Anyway, proxy statements reveal to you the compensation of the management team and directors. It also shows you how many shares each of them owns. I'm always amazed at what some of these guys make. And I always get a little annoyed when I see how little they have at risk in their own firms.

There was a time when this situation would not have been tolerated. There is a quote from Frederick Lewis Allen that I like, which I reprinted in my book Invest Like a Dealmaker:

"In 1900, capitalism was capitalism indeed. Businesses were run by their owners, the people who had put or had acquired capital with which to finance them… It would seem wildly irrational that a man should manage the destinies of a corporation while owning only a minute fraction of the stock, as so frequently happens today."

After I listen to some presentation by a CEO telling me how great his stock is, I always wonder to myself: "Then why don't you buy shares?" I never come up with a good answer. If a guy is gonna get all gung-ho on his stock, yet he doesn't own any, then I’ve got a beef with him.

It is true that in our aging modern industrial society, it is hard for a CEO to own a large percentage of some of our multibillion- dollar corporations. But he should own enough relative to his own salary and net worth that it makes him sweat. And he should buy shares out of pocket, and not have shares handed to him for free.

Intuitively, I've long believed that companies with insider ownership do better. I agree with the old money manager Martin Sosnoff, who once observed, “My experience as a money manager suggests that entrepreneurial instinct equates with sizable equity ownership."

Often, the most creative and value-creating moves are made by management teams who own shares. Conversely, the stupid and value- destroying moves are often made by managers who don't own shares.

Thoughts like this are what led me to include "owner-operators" among what I look for when investing in a stock. Most of the stocks I have recommended over the years have had significant insider ownership. The people running the companies have their money at risk just like us.

It doesn't mean that every stock with high insider ownership outperforms. It means that as a group, these stocks have done better than those with little insider ownership.

This trait is something to look for when investing in stocks.

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Can't Find A Job? Sue Your College!

It had to happen sooner or later. Well, it finally happened!

Jobless graduate sues her college

A New York woman who says she cannot find a job is suing the college where she obtained a bachelor's degree, the New York Post reports.

Trina Thompson, 27, filed a lawsuit last week against Monroe College in Bronx Supreme Court.

She is seeking to recover $70,000 (£42,000) she spent on tuition to get her information technology degree.

The ex-student, who received her degree in April, says the college's Office of Career Advancement did not provide her with the leads and career advice it had promised.

What about all those guys who got liberal arts degrees and haven't been able to find jobs for years? Maybe they start a class action lawsuit!

Maybe Trina will sue her student loan lender next.

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The Little Old Lady School Of Applied Economics

Someone sent me a very interesting letter from Bedlam Asset Management, quite an apt name given the economic situation over the past 2 years. Read it and you'll want to go out and buy gold coins!

Depending on where you live and how much you earn, so in the last five weeks you have seen a significant seasonal event, un-remarked as usual. This was the day when employees and employers alike have been allowed to earn some money. For until that day, everything you have earned this year has gone to the government by way of taxes. Now, and for the rest of the year, what you earn you can keep. It is odd that in modern times even the poorest members of society must, for at least the first 20 weeks of each year, work whilst all the income from their labour is appropriated by their rulers. Delightfully it’s even more backwards than the feudal Middle Ages, because then at least the serfs were fed and housed for free - but apparently, this is progress.

Today’s modern feudal treasurers have different problems. For in the small hours of the night, tucked up in their silk covered beds and away from the prying eyes of subservient apparatchiks, chancellors and central bankers writhe in their sleep with recurring night terrors. Occasionally murmuring of forbidden love, their ecstasy is crushed by more frequent groans of utter despair. For their subconscious reminds them that what they most crave they can never have and they are doomed to failure.

The history of money

Pre-history, when homo cave-potato decided he’d rather buy a club than make one, he needed a medium of exchange, and thus experimented with various forms of money including furs, cowrie shells, very large stones with holes in the middle, iron bars and blocks of salt. Each was unsuccessful; so early society soon settled on gold as the most practical medium of exchange, substituting it where supplies were limited, or when paying junior staff, with cheaper metals such as silver and copper. Although paper money has a long history, it was always explicitly understood that banknotes could be exchanged for something more tangible.

Since 1855 the Bank of England has been writing a now historically ironic promise “to pay the bearer on demand….. [in gold]”, even though any payment ceased in 1931. (This confusion is compounded by the fact that the ‘pound sterling’ refers to a weight in silver.)

Almost all countries produce coins which look as if they are made from silver and copper to give them credibility. Early bankers soon worked out that not everyone would want to cash in these IOUs at the same time, so began issuing more notes than were actually backed by physical gold.

Occasionally these ruses were found out, hence bank crashes; but as a global system it worked pretty well until 1913, when restrictions were imposed. Rather than cause a savings panic amongst the newly-monied middle classes, the system was replaced with a “let’s pretend” gold standard, which allowed for intra-government transfers of gold between debtor and creditor nations. This scheme limped along between major nations until July 1944 when, as a result of record wartime paper money printing, it too collapsed, to be replaced by the Bretton Woods Agreement. Now all currencies would be fixed, forever, at an agreed exchange rate to the dollar, which in turn was initially backed by physical gold held in Fort Knox, Kentucky and valued at $35 an ounce.

There is an excess of turgid financial books on this. The facts are really pretty simple.

This scheme survived for an even shorter period, collapsing in 1971 when France’s Général de Gaulle, again in wartime (Vietnam) decided to cash in the excess dollars France had accumulated, in return for America’s gold. This did not run at all well in Washington.

America decided to renege on the agreement (in practice a form of sovereign default).
The next permanent solution was ‘fiat money’, i.e. paper backed by nothing at all. At the core of this structure were the beliefs that (largely elected) politicians would be prudent economic stewards and if necessary could pay any financial obligations through taxing their local populations. The immutable fact about fiat money is that, over time, all paper currencies become worthless. Hence the mighty dollar today buys the same as 3.8 cents in 1900. Sterling is worse, the Swiss franc best, losing only four-fifths of its value in the same period.

The history of gold

Up until 1913, gold could be owned by anyone. Credit availability then was far more limited than now and inflation was self-correcting. So there were few reasons why its price should have varied much, and it didn’t, even when supply surged from new gold fields in the Americas, South Africa and Australia. It was a true store of value – a key purpose of money.

From 1913 onwards, private ownership became more and more difficult. The price was increasingly controlled by various arrangements fixed by a handful of central banks. The collapse of Bretton Woods removed the old $35 per oz. price cap which was then largely set by the free market. As a consequence, central bankers suffered a decade of near panic; for their populations immediately and very rudely showed an utter contempt for their politicians and financial authorities by increasingly referring to own gold rather than the local funny money. Naked emperors do not like being figures of fun, so quietly agreed to regain control of the price. These various changes included taxing gold purchases, making its ownership illegal and, most important of all, prolonged and increasingly co-ordinated attempts to force the price down.

Thus, leaving aside ancient history, unlike all other commodities and currencies gold has only had one full cycle. Once freed in 1971, the price soared to a peak of $832 in 1980 and was then slowly brought back under central control at the turn of the century. A return to suppressing the price worked in part because of unprecedented international co-operation, and more because “new” forms of credit creation seemingly made gold’s monetary role as irrelevant. The collapse of this new credit paradigm in 2008 means it too has become history. Funny money has joined the cowrie shell and large rock with a hole in the middle as socially interesting but failed experiments.

A new cycle begins

May 7th 1999 is a day that Britain’s current “Prime Minister” (the real power is a recent appointee to the House of Lords) would choose to forget. As a truly awful market trader, he widely broadcast his intentions to sell over half Britain’s gold reserves. In the next three years, 400 tonnes were sold between $256 and $296, leaving a mere 315 tonnes. The money raised was about $3.5 billion; its value today would be $12 billion.

Less-widely publicized than his astonishing naivety is that heavy selling of gold by central banks was also a fashionable, pan-European phenomenon. They have dumped nearly 4,000 tonnes in the last decade. Countries as diverse as France, Spain, Netherlands, Portugal and Italy also bought into a novel theory that central banks could be great currency traders and investors. This new idea was not led by Mr Brown at all but surprisingly, the Swiss National Bank. Since 1999 it has sold 1,550 tonnes. In each case it is impossible to prove whether the proceeds of gold
sales actually produced a better return than continuing to hold its reserves against a crisis. In the case of the Swiss, the difference between sales proceeds and today’s price is about $22bn (a ‘loss’ of over $3,000 per yodeller); or to put it into another context, the amount received is about half the direct cash injections, write downs and capital raised by the single Swiss Bank UBS in the last 18 months. So empirically the money has not been well used.

The implication is that, in Switzerland and across Europe, there has been a very high opportunity cost. Slowly realising in 2004 how dumb they were all looking, fourteen of Europe’s central banks agreed a structure to limit how much of their gold reserves each could sell annually (the Central Bank Gold Agreement). With the usual clarity of hindsight, these sales signalled the last hurrah and the failure of a prolonged period of deliberately trying to distort the gold market.

Do as I say, not as I do

Even so, gold still accounts for 60% of Europe’s reserves. Yet the developing world -
suffering a post colonial inferiority complex - saw what their one-time masters were doing, so also eschewed gold. Thus it accounts for only 11% of their reserves. Meanwhile America (which years earlier had already given a strong hint of what it really believed about gold, by reneging on its IOUs to Général de Gaulle), still has 8,133 tonnes. This accounts for 79% of its reserves. For all the central bank learned papers and propaganda¹ that gold should play no meaningful part in national reserves policy, most developed western countries have steadfastly maintained gold at the core of their reserve systems, but the absolute and relative size of these reserves has shrunk considerably. In contrast, the size of reserves in Asian countries has grown like smoke, to the extent that just six ‘countries’² – China, Japan, Taiwan,
South Korea, Hong Kong and Singapore - now account for over half of the world’s estimated $7 trillion of reserves. Of these, 66% is held in dollars, about three times greater than that held in euros; the yen and sterling each account for less than 1.5%.

Given that the US remains by far the world’s largest economy and trading partner, and as most commodities are priced in dollars, there is logic to this. Yet there are two flaws to a fiat money, dollar-based reserve system. The first is that, whatever American leaders may occasionally say to placate their allies, both the government and population have almost no interest in the dollar exchange rate against any other currency. As an economy which at a pinch could (apart from oil) be almost entirely self-contained, this too is logical. The second flaw is that, also at a pinch, America could longer term be entirely self funding.

The recent implosion of the international banking system has led to all governments printing money at a record rate. The balance sheet of America’s Federal Reserve has increased by over a trillion dollars since the end of 2007. The target for this year’s budget deficit is $1.2 trillion. The Congressional Budget Office is forecasting a return to a budget surplus in 2019 (one underlying assumption is there will be no further recessions) and that by then, Federal debt will have increased from the current $11 trillion to $21 trillion. This excludes worrisome state (i.e. California) and local (such as school boards) budget deficits. The money printing is by any standard off the scale; one way to put this in context perhaps is that in ten years time, on official - thus optimistic - forecasts, America’s Federal debt will be $3,000 for every person
alive in the world today. Not that America is the worst, it’s just the biggest. That whacky Silvio in Italy has a far greater problem, as does the UK.

Central bankers know of course that all currencies eventually become worthless – it is one of their night terrors - but they prefer it does not happen too visibly or quickly on their watch. Moreover, as most had bought into the mantra of Europe’s industrialised countries that “gold is for girls and wimps” (despite ensuring most of their own reserves remain in that metal), they are embarrassingly naked. Of China’s vast, nearly $2 trillion, foreign exchange reserves, a mere 2% is in gold. China is now in a dollar trap of its own making.

If it seeks to reduce its estimated $1.5 trillion of reserves in dollars (mostly in government bonds) the price will collapse. Worse still, unless it picks up its ‘share’ of newly minted American bonds the price will also collapse.

This explains China’s sudden interest in, and many pronouncements on the international financial system, as well as the lifting of the veil of secrecy over its own reserves. Until this year, it had not commented on these in detail for the previous six. Now its Premier and central bank Governor have become almost garrulous; suggestions have included that the world should establish a new financial order, including perhaps the use of SDRs, lecturing US administration on fiscal prudence and curiously, threatening America that it might diversify and thus collapse the American bond market. (The equivalent of trying to mug someone with a stick of damp spaghetti). This threat included the sudden announcement that its gold reserves – last reported at 600 tonnes in 2003 - have since increased to 1,054 tonnes making it
no. 5 in the world after Italy, and showing it could diversify if America refuses to listen. (There may also be a sub-plot; as the new kid on the block, it could be expected that China wants to be close to the US over time in the absolute level of its gold reserves.)

The dollar dummies

Yet for all the current uncertainty and noise, China and the other large, and largely Asian, holders of foreign currency reserves (or ‘dollar suckers’) have already worked out that they must diversify away from their giant dollar holdings, although they remain uncertain as to how. Their problem is size. Supposing China was to buy all this year’s new mine supply, estimated at 2,500 tonnes. Leaving aside that such action would cause the price to soar, one tonne is worth approximately $30 million at $950 per ounce - so this would ‘only’ cost $75 billion, less than 5% of China’s reserves. It could buy all its oil requirements for the next six months. That would only absorb 8% of reserves. Other Asian countries suffering a similar squeeze have tried other routes: South Korea attempted to buy an area of farm land in Madagascar larger than Wales, until international political and ecological shrieks forced it to withdraw; Singapore’s Temasek (not officially part of the country’s reserve system) made such disastrous forays into buying large blocks of shares, that last year the value of its funds fell by 47% (although it has since clawed some back).

On a much smaller scale, China has also been trying foreign investment and larger political/infrastructure development in Africa, Sri Lanka and Bangladesh. For all the lack of success with these various experiments, the diversification urge will not stop. Moreover, some new policies are becoming clearer. It appears China will look to buy almost all its domestically produced gold production, a pattern which others may follow. From recently being a minnow in the sector, China is now the world’s largest gold producer, outstripping South Africa, Australia or Brazil.

Last year, the world’s central banks sold a mere 246 tonnes of gold, the smallest quantity in over a decade. These sellers were mostly Europeans, for the rest of the world’s central banks were net buyers of gold for the first time in 15 years. Under the various central selling agreements, the latest of which will probably commence in September this year, it is becoming clear that, as these banks watch their own paper money being printed at a breakneck speed and observe their neighbours doing the same, they have become keener to hang onto what gold they still have. Given that, since 1977, Europe’s central banks have been eager to hold the gold price down, their absence as the price fixer is a major change.

An absence of sellers?

There are an estimated 30,000 tonnes of gold above the ground in reserves. No-one has any serious notion of how much else there is elsewhere, on fingers, in teeth, in jewellery or coins and bars. Estimates for the total amount of gold ever mined vary between 250,000 to 350,000 tonnes, of which a significant portion will have been lost (buried hoards, at sea etc.). More recently, individuals have been the net accumulators, central banks the sellers. What exists above the ground is far more important than mine supply, which is likely to remain in a gradual downtrend. Current annual production of around 2,500 tonnes is down by over a third on peak levels of the 1970s and unlikely to rise much. Perhaps new giant deposits will one
day be found but meanwhile, gold mining is becoming more expensive, deeper and more difficult. Thus the only realistic sources of new supply can be America, the IMF or the ECB.

For the US, policy has long been blindingly clear: do nothing. Hence reserves (America has the largest gold backed reserves in the world, albeit small in relation to the size of the economy) have remained unchanged. It is unlikely Congress will allow any change. The IMF has notional control of 3,412 tonnes, of which 400 tonnes is due to be sold this year. Of all major international bodies, the IMF has the greatest, almost visceral loathing of gold, preferring its own whacky SDRs instead. These are the ultimate funny money, being a fiat currency based on a basket of other fiat currencies.

Yet the IMF too may be chary of significant official sales because of its earlier failure.
Between 1976 and 1980 “in a bid to reduce the role of gold in the international monetary system” it sold 1,600 tonnes. About half of this was at the official SDR35 price (about $58) back to underlying central bank owners. (This is so dumb: the ‘Brownian notion’ of prudent finances to an absurd extreme; the market price varied between two and 24 times greater).

The other half was sold through a series of public auctions, initially 150,000 ounces per month rising to a peak of over 850,000. The policy of turning up supply was a poker game, trying to scare the market into believing that demand would be crushed. Yet as supply increased arithmetically, the amount bid for increased geometrically. It actually created a fire storm in the gold market, moving the price from $103 to $832. As abject failures in market interventions go, the IMF was the clear winner. Thus it would be loath to do so again; and it has another problem. The IMF does not own all the gold it holds; it belongs to its member states, which have pledged it to the IMF and could unpledge or replace with paper money. As already mentioned, most members are developing a marked propensity not to sell any more gold. The third potential source is the ECB or its member countries; many are the same nations with egg all over their faces which have been the vanguard of selling a substantial proportion of their reserves at much lower prices. That leaves only Germany (No. 2 gold owner in the world with 3,412 tonnes, 72% of reserves), noticeable only for the government’s inability to agree how much to sell, or what to do with the proceeds. As important, the Bundesbank has always been a reluctant seller of significant quantities of the nation’s gold because of its Weimar hyperinflation history.

Conclusions

Four decades on from a financial experiment with fiat money, the evidence suggests it is failing. Although governments will continue with the current system, relying on their ability to tax future generations, poor demographics alone in all advanced nations mean the odds that the current fiat money regime will survive unchanged for long are worsening. As suggested in previous reports, change may be driven by this recession, followed by years of stop-go economic activity and a series of sovereign defaults – which are normal. The largest central banks have doubled or tripled their balance sheets in the last 15 months. This is an explosion in fiat money. Giant budget deficits and rising unemployment ensure that government money creation will remain explosive for the foreseeable future. These problems are exacerbated by a variety of new events, for instance Asia’s reserve diversification programmes and the marked reluctance of historic sellers to reduce their holdings further. It is simple school economics that a very finite supply of one form of money will respond to an
almost fission-like increase in the supply of other forms of money, such as the amount of dollars, yen or euros in circulation.

It is very easy to make a case that the gold price could enjoy or suffer (depending on your point of view) an explosive run. Given all economies (and businesses) are cyclical, then it is axiomatic that over time they will also revert to the mean. Therefore it can be expected that not just central banks, but also commercial banks and other financial institutions will revert to earlier policies of the 1970s and ‘80s – of holding a proportion of their ‘core’ capital in gold. (Bedlam has 10% of its balance sheet there already, and 10% -12% of all client portfolios are in gold shares.) Governments could try to prevent wider gold ownership as before, but new
forms of ownership - such as gold ETFs - make it difficult to do so unless all leading nations agree simultaneously.

We have commenced only the second gold cycle under fiat money. Whether it has actually peaked already, or will shortly double, we can only divine by looking at chickens’ entrails or throwing our rune-sticks. We use an average price of $850 per ounce in 2010 when valuing gold shares, as that is prudent, yet our damp rabbit’s foot hints at a much higher price before the end of 2010 because the triggers are already in place: the absence of meaningful new mine supply, the cessation of central bank sales, explosive growth in money supply and of course, rising political uncertainty, which is the Siamese twin of recessions. Top economic schools used to train their pupils to sneer at little old ladies who kept their savings in gold coins in a
sock rather than trusting national banks. Today it is clear which group are the financial dimwits; perhaps an inherent understanding of cycles can only be learned through longevity. We subscribe to the little old lady school of applied economics. We are therefore certain that central bankers’ nightmares will worsen as their paper currencies devalue against the most trusted store of value, and in bed, the thing they secretly lust after.

Regards
Bedlam Asset Management plc

This is buy far one of the most interesting emails I've received in a long time. Please keep them coming!

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The Biggest Crashes In History

According Bill Bonner:

We've seen the biggest stock crash in history...
..the biggest property crash in history...
..the biggest deficits in history (four times the previous record!)...
..the biggest bailouts in history (we can't even count that high)...
..the biggest bankruptcies in history...
..the auto industry and the finance industry have been largely nationalized...
..the president of the United States of America is now making financial decisions for formerly private industries...
What's left to see?
Oh yes...the depression...and hyperinflation.

Hope you guys are protecting yourself by buying real assets, shorting long-term bonds and buy gold coins.

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Bond Prices Spike

I entered a paired trade in February where I went long short-term corporate bonds and shorted long-term government bonds. This has been doing pretty well so far. Over the past two days however, Treasuries have spiked. Ouch! Check out this interesting article about treasury prices in the latest issue of Barrons.

Treasury Yields Leap to Fair Value
By RANDALL W. FORSYTH

THIS HAS BEEN THE WORST TREASURY bond market ever, at least by some measures. Yet, the reasons aren't what you hear from the Howard Beale-style rants from Chicago futures pits.

While there are legitimate reasons for concern about the Treasury's trillion-dollar borrowing needs, the reluctance of creditor nations to accommodate them and the Federal Reserve's money printing, the recent back-up in yields largely reflects other, less fundamental reasons.

From a hair over 2% at the beginning of the year, the benchmark 10-year Treasury yield surged to a high of 3.70% Wednesday. And the 30-year long bond vaulted more than two full percentage points from their December lows to 4.63% Wednesday.

That doesn't sound like much except to bond geeks, but in price terms, the iShares Barclays 20+ Year Treasury Bond exchange-traded fund (ticker: TLT) lost 25% of its value over that time. That was nearly as big as the plunge in Dow Jones Industrial Average from the turn of the year to its early March lows.

What's extraordinary is that this jump in long-term bond yields came as the Fed pinned its federal-funds rate target at close to zero. Other back-ups in bond yields came when the market anticipated future hikes in the overnight rate, but the Fed has made it clear it will hold its funds rate target at virtually nil for as long as it takes to jump-start the economy.

Moreover, on March 18, the central bank said it would buy an additional $1 trillion of U.S. agency debt, agency mortgage-backed securities and Treasuries to push longer-term rates down to lower borrowing costs, in particular on mortgages.

That clearly hasn't happened; just the opposite. The Treasury yield curve (typically described as the difference between the two- and 10-year note) steepened to a record 2.77 percentage points Wednesday, according to Stone & McCarthy Research Associates.

Part of the back-up reflects the low absolute level of rates earlier this year. Indeed, 10-year Treasury notes yielding only 2% -- as they were around the turn of the year—were attractive only relative to other assets that were collapsing under fear of an economic apocalypse.

With disaster averted and the sighting of the so-called green shoots of growth, stocks had a bungee-jump rebound from their previous nosedive. And low-yielding Treasury notes, which were clutched as life preservers in the storm, were cast off.

But, contends Lacy Hunt, chief economist of Hoisington Investment Management, an Austin, Texas, manager of $4 billion in assets, "The sharp rise in Treasury yields is not a result of an economic recovery. That occurs when income, production, employment and sales, simultaneously, turn higher. Presently, these indicators merely show a lessened rate of decline."

Nor can the burgeoning Treasury borrowing needs fully account for the rise in yield. The ratio of government debt to gross domestic product showed massive increases in the U.S. during the 1930s and 1940s and in Japan since the 1990s, yet yields continued to decline. Indeed, Hunt argues, the shift in productive resources to the government sector from the private sector doesn't stimulate but stymies economic growth.

Finally, the Fed's expansion of its balance sheet doesn't translate into monetary stimulus if the liquidity merely increases excess reserves in the banking system or increases sterile holdings of money balances. Bank credit continues to contract sharply, Hunt points out.

So, what's to account for the sharp rise in Treasury bond yields? Blame it on the intricacies of the mortgage market.

There's a reason that Wall Street hired "rocket scientists" with math PhDs to analyze mortgages. The ability of homeowners to pay off home loans with little or no penalty makes them devilishly difficult to figure out, unlike bonds that commit the borrower to a fixed repayment schedule. Obviously, homeowners will repay or refinance when it's most advantageous for them, which is the worst time for investors in mortgages.

To offset this problem, they hedge with noncallable Treasuries -- buying when they brace for a wave of refinancings and selling when rates rise. Refinancings leave investors with short-term securities when rates fall—exactly what they don't want. Conversely, rising rates encourage homeowners to hang onto their low-cost loans, resulting in the lengthening of the maturity for investors -- again, the last thing they want..

While mortgage investors previously had bought non-callable Treasuries to offset the risk of their mortgages, mortgage investors have unwound that hedge, selling their Treasuries.

This sounds like so much inside baseball but it amounts to huge sums. According to an estimate by mortgage-securities-market veteran Alan Boyce, writing for Drobny Global Advisors, these hedge sales are equivalent to issuance of $1.1 trillion (with a "T") of 10-year Treasury notes, compared to expected sales of $250 billion of that maturity this year.

Clearly, Treasuries were in a bubble when they yielded just 2% for 10 years. Technical factors have nearly doubled that yield from the lows, but not fundamentals -- which still reflect a recessionary economy and debt deflation. As a result, Treasuries are back to fair value for these conditions.

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