Dec 14

Interview With Paul Volcker, the Man Who Killed Inflation

Posted by Kristjan Velbri | Posted in Economy | Posted on 14-12-2009

UPDATE! Apparently, WSJ has also done an interview with Volcker. Here it is.

Der Spiegel has done an interview with Paul Volcker that sheds some light on his opinion of the economic recovery.

SPIEGEL: The US has not yet instituted any kind of reform policy. What we see is the government and the Federal Reserve pouring money into the economy. If one looks beyond that money, one sees that the economy is in fact still shrinking.

Volcker: What should I say? That’s right. We have not yet achieved self-reinforcing recovery. We are heavily dependent upon government support so far. We are on a government support system, both in the financial markets and in the economy.

Paul Volcker was the Chairman of the Federal Reserve from 1979 to 1987. During the time he took office, inflation was running at 12% annually and people were buying gold, art, real estate, anything to and everything that had real value because there was no end in sight. When Volcker took office, he raised fed funds rate to around 20%, which plunged the United States into a recession. Truth be told, raising interest rates was the only cure and had to be done sooner or later to cure rampant inflation and put the US back on track. Although Volcker was heavily criticized for his actions, he is now viewed as the only person who had a clear head and the spine to do what he did. The interview is short, but it is well worth reading.

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Dec 08

The Card Game – America & Credit Card Debt

Posted by Kristjan Velbri | Posted in Video | Posted on 08-12-2009

Another great documentary from Frontline, this time about credit cards.

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Dec 06

Gold Investors, Stay Calm – Here’s Why

Posted by Kristjan Velbri | Posted in Gold, Silver | Posted on 06-12-2009

A letter to those savvy investors that are still holding on to their gold and gold mining shares,

I hope you’re not feeling too bad about this sharp correction gold had on Friday. It’s nothing to be afraid of – this is nothing personal. The markets are not personal and sooner or later we’ve all got to deal with it. Gold is in a long term bull and short term corrections like these should not be taken too seriously. For some who are more courageous, this will signal a buying opportunity. For people who can’t sleep well knowing their portfolio is temporarily in the red because they bought where others sold, this is a time to sit on one’s hands and do nothing.

Do you remember the bull run and the eventual bubble in tech stocks? Or this bubble? At first, the bull was also climbing a wall of worry just like gold is right now. There was widespread disbelief but eventually people got around and after a few years it all went manic. Gold is not in a mania phase yet, but it may test the launching pad (ie. $1000) level. I’m not too worried about that. In fact, I like it because I wouldn’t want to see gold going too parabolic. Assets that go up too sharply tend to snap back very fast. If you take a look at previous bull runs that ended in a bubble (like gold will in a few years’ time, but we are far from that right now), then you will see that investors who get shaken out near the launching pad will miss the big moves. You need to ask yourself whether you are in gold and silver stocks for short term gains or for the whole marathon.

If a decline like we had on Friday makes you nervous then I have to warn you – this is just the beginning. When gold reaches new highs, the volatility is going to increase significantly. $100-150 moves will become the norm.  The result will be that small, antsy, caffeine-laden day-traders will be shaken out of their positions. They will fall like leaves off a tree on an autumn day. One of the things that I’ve learned during this financial crisis thanks to the help of many great authors and newsletters is that bankers run the show by buying on the dips. In effect, this is the transfer of stock positions from weak hands to strong hands. Don’t be the weak hand. This is not some” think positive” type of bullshit. I wouldn’t be telling you to be the strong hand if I didn’t know the fundamentals behind gold’s rise (and the dollar’s subsequent demise). Being the strong hand when it comes to the dollar is bullshit because the fundamentals are very bleak. Being the strong hand when it comes to gold is the only way to win this game. You’ve got to acknowledge that bankers still run the game and there is nothing you can do about it. The only way to play this is to ignore the short term dips until the fundamentals and the technicals signal a selling point.

This year another strong fundamental driver has been added to the mix – central bankers have become net buyers of gold and there is nothing Ben can do about it. The fact is that central bankers are printing away our purchasing power. This is not a phenomenon that is unique to the United States. Nobody wants their currency to strengthen in an environment like this so the central bankers just keep depreciating their respective currencies. The only way you can protect your wealth is by buying hard assets, the best of which are gold and silver, because they will not only protect your wealth but they will also gain in value since gold and silver are in a bull market. Have been for quite some time. And there’s no end in sight just yet. So hold on to your metals and keep accumulating.

I don’t know how gold will do next week. The dollar had been setting up for a rally for quite some time now. This might hamper gold’s rise. Or not. But it really doesn’t matter. If you are convinced about gold’s superiority to all the other asset classes then you really shouldn’t worry.

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Dec 04

Sideways Movement is Not Fun

Posted by Kristjan Velbri | Posted in Markets, Video | Posted on 04-12-2009

BKX - RUT - SPXFrom the middle of November, the stock market has been very akin to a staring contest – nobody wants to be the first one to blink, but then again, nobody wants to go on the offensive either. The banking index and small caps have been weak for quite some time now but they are still holding on. In fact, their charts look eerily similar. Even Bank of America’s bailout return failed to spark enthusiasm among investors. Truth be told, the market has had quite a run-up from the lows of March, putting in gains of over 60%. The failure to make new highs and the lack of economic data to confirm the price level of stocks is quite worrying. The outlook is still pretty confusing and making any predictions without a clear technical formation is difficult.

I’ll leave you with this – a video of a staring contest from the BBC (comedy is one thing that the Brits are really good at).

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Dec 02

Real Stories of the Housing Collapse in America

Posted by Kristjan Velbri | Posted in Economy | Posted on 02-12-2009

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