Category Archives: Economics

Cognitive Dissonance and The Markets

Okay. It’s not my term (cognitive dissonance) but I like it. Dr. Jim Willie has used it in reference to what he believes to be malaise and the failure of 90 per cent of us who are failing to connect the dots in respect of the current shift underway pertaining to the economic “reset”. In his August 4th interview with X22 Report Spotlight, Jim metaphorically and substantially and endearingly refers to dialogue with his father as being someone as part of the 90 per cent group. As a music hobbyist, I’m familiar with dissonance as being a sound which clashes within a key and I relate to its contextual use. Jim displays noticeable frustration by those who have difficulty seeing the implications of events simply as they are with perhaps the luxury of not having lived through the great depression. One particular example of dissonance is official government statistics of inflation compared to your neighbours street feel assessment of inflation. 

At every turn in the news right now we are inundated with the political bizarre and I can’t help but wonder if folks have become so distracted with the Washington drama that they’ve been numbed by potential underlying distress of the financial system.  Consider this. Is it possible that there is actual good work going on in Washington unbeknownst to you and withheld from you because of the larger implication of crisis which could unfold should you be notified? Have you been prepared by your system of education to understand risks inherent to the financial system? If the system is in fact at risk and the risk has grown, what do you know about how to protect yourself? What about 2015 Greece, 1923 Germany, 2002 Argentina, 2018 Venezuela? What did their citizens believe regarding their economies prior to dramatic negative economic events. 

I’m writing about this because it’s not that difficult to create a hedge against something bad happening. Remember what your investment advisor said when your portfolio collapsed 30 per cent back in 2008? Don’t worry, it’ll come back. Well it may have taken 10 years so I guess they were right. Have you ever heard an investment advisor talk about the opportunity cost of 10 years of lost compounding?

   

Gold Swaps

Follows is a discussion of gold swaps. Over the past week or so, the S&P 500 has been forming a topping chart pattern and today has seen simultaneous down moves in both the S&P and the gold price. Gold price suppression theorists will cite this day in their argument that there are artificial forces working on the gold price. Apparently a down move in the indexes back in 2008 during the financial crisis correlated similarly with today’s gold action.  

Inquiries made by the Gold Anti-Trust Action Committee toward the Federal Reserve and the Bank of International Settlements regarding the derivative trading of Gold Swaps conducted from underlying U.S. gold inventories have not been absolutely transparent. On the one hand, the Federal Reserve has responded with “in connection with your appeal, I have confirmed that the information withheld under exemption 4 consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you.  (letter dated Sept 17, 2009 from the Federal Reserve is associating with Freedom of Information). On the other hand, they have recently made a simple assertion that gold swaps are not executed with U.S. inventoried gold reserves.   

Bill Murphy of Lemetropole has been beating the drum of gold price suppression since 1999. Although not a subscriber to this site over at Lemetropole, I have had the privilege of witnessing his fervour in person at conventions here in Calgary over the years. In fact, he was instrumental in a presentation showcased by the Gold Anti Trust Action Committee to congress some ten years ago regarding evidence of surreptitious trading patterns associated with the gold price.

 Through my own education of derivative markets, I came to learn of short selling and naked options.  Gold swaps fit right in to this category of financial instruments. Chartered accountants certainly didn’t Know much about them during the 2008 financial crisis having failed to ensure disclosure during audits. What if the U.S. government has over extended itself in its interest in gold swaps when inventories don’t support the trades? Then what?  

Jim Rickards has recently been leading the charge to help the public understand surreptitious gold trading through his most recent book “The New Case for Gold”.     

Being In The Know

We often think we’re in the know when we really aren’t. We come to know because of what we’ve been told but who has been doing the telling and why? In spite of the profligacy of information on the internet, we are deservedly suspect. The question becomes “what do we do and where do we turn?” if information has relevance in designing our lives. 

Conspiracy theorists appeal toward our insecurity of knowledge. Through their inflammatory portrayal and oftentimes sharpness in intellect, they can even dislodge us from sound judgment. We can only harbour outlook through experience, education, reason, and observation. However; what we lack is information deliberately kept from the public domain.

From the period 2004 to 2007 I took the time to digest insights from speakers adept in the field of Austrian Economics. Having studied basic economics through my financial education, I have been rather fascinated about the contrast in the Keynesian model versus this Austrian model and whether there would be any implication to me directly in the context of these models duelling alongside future economic events.

This brings me to Jim Willie of his Golden Jackass website. Jim is a no nonsense fellow with a P.H.D. in statistics. Jim showcases himself as an economist without the credentials of an economist. He has an interest in world affairs as they relate to our monetary system and speaks with an inflammatory style typical of someone imbued of conspiracy yet logical and charismatically intelligent. His stories mostly correlate to postulations. One wonders about the worthiness of his sources but his ability to incite in my estimation supersedes any laxity inherent to his research. 

He was one gentleman that struck me the deepest during this period of my economic inquisition. This weekend with the Dow Jones Industrial Average approaching a double topping chart formation, I wonder if elements key to Jim’s world view will trigger the next market correction.

During the past two weeks, I have immersed myself in learning specific market trading mechanics pertinent toward portfolio protection. I’m happy to share. Simply subscribe.      

 

           

What Is A Hedge?

A hedge is a position taken in the financial markets for the purpose of protecting against an unfavorable move against ones’ portfolio. The term “hedge” can be used in other contexts but I bring this financial usage to your attention because of the unfortunate absence of its deployment generally speaking by individual investors.

When the typical Canadian makes his/ her annual trip to the bank for transferring funds into the RRSP fund, the banker who really doesn’t know much about investing simply cycles the money into mutual funds. There’s no reason for the banker to do any differently because typically the portfolio holder knows no different either. Banks are in the business of not losing you money because they wish to retain your business. Mutual funds are convenient for them because they can rely on diversification through a professional fund manager. The trouble one encounters is back end fees, mangagement fees and “over-diversification”. Yes, being over-diversified has the effect of dumming down returns.

In my accounting practice, I frequently remind my clients to spend a couple of hours per week delving into financial education while learning about stock market investment opportunities. I believe that nobody is more concerned about your net worth and your retirement than you. Hence; you need to be in charge and fully accountable to your own financial growth.

Now back to hedging. You may have heard the terms “inherent risk”, “systemic risk”, and “geopolitical risk”. They are all fancy terms akin to abstract art and I’m certainly not going to spend time expounding upon the ultimate essence of their meaning. However; I am going to refer to the ever present matter of monetary stability and its lack thereof as a good reason in itself to be “hedged.”

First world countries have become more and more indebted. You thought the U.S. was bad. Well, in the U.K. every man, woman, and child owes some other country $127,000 USD. It kind of puts all the fuss around Princess Kate in perspective.  While the English pander to the residents of Buckingham Palace and obsess over pregnancy rumours, each and every Englishman, Scot, Welshman, and Irishman wake up to a future of financial bondage.  Per capital, the U.S. is at a mere $58,200 per citizen.

Here’s what’s weird….there’s really no record of reconciliation of these debt obligations with creditors available in the public doman. You see….governments issue debt instruments like bonds and treasury notes in the context of their borrowings so one would expect to see these all accounted for by a reporting body such as the International Monetary Fund (IMF). Hence; the settlement of such instruments and the creation of new ones could be viewed with transparency.

What about gold? Does gold still play a role in the creation of debt instruments? Well, no. However; countries around the world still view gold as a financial instrument. It used to be the case in the U.S that the production of a dollar bill could only be undertaken by assigning a gold unit concurrently. This is no longer the case since the Nixon administration. Fractional reserve banking today does not utilize gold as a variable in the production of new money.

What has been the reaction by the IMF in a culture of debt proliferation? Well, they created their own monetary unit called the “SDR” (Special Depository Right). It’s reasonable to derive that the unit was created in the context of currency mismatches, unreconciled debtor/ creditor accounts, and imbalances in sovereign gold reserves. Could the SDR become a material talking point in place of rumours around Kate’s next “baby bump”? I’m not certain that that populous has the appetite for reality TV to go along with milk and morning corn flakes.

Hence; you might learn more about hedging and what it can do to protect your portfolio.

Twenty-Five Per Cent of Canadians Say They Face Economic Hardship

This is what an Angus Reid poll has concluded from a sampling of 2,542 Canadian adults. I’m not surprised and below I make some attributions for the troubling statistic:

1.       Trade school not seriously introduced to 16 and 17 year olds in our           system of education

2.       Liberal culture unsupportive of propelling the individual toward                 entrepreneurship

3.       Propensity to defer responsibility

4.       Proliferation of employment agencies and head hunters buffering             effect of take home pay

5.       Opportunity cost associated with young adults pampered at home             by their parents

6.       Inconvenient and costly legal system incapable of expeditiously                 handling contract disputes

7.       Poor partnering of industry and education system

8.       Absent household budgeting / undisciplined allocation of after tax             dollars

9.       Psychological compulsion to showcase lifestyle undeserving of                   income

10.   Employer payroll costs effect on tempering wages

Widespread Derivative Use

The use of derivatives in industry can be used to mitigate risk faced by companies exposed to underlying commodity price fluctuations. However; under the authority of banks blessed with oligopolistic privilege, derivatives can be abused thereby directly jeopardizing the financial system. 

Short selling is the sale of a borrowed security in anticipation of a market price decline.  The trouble with the short sale phenomenon is one of title. Regulators permit the usage of such transactions in absence of security title.  In fact, the owner of the security may or may not be privy to the fact that his / her shares or certificates had been loaned since such are typically held in trust by brokerages. 

What about illiquid commodity markets such as silver? Should banks be permitted to operate on both sides of the same trade such as possessing long interests and short interests at the same time? It would appear counter intuitive to the profit motive but what if there is a macroeconomic strategy at work activated because of market dominance, oligopolistic privilege, and relationship with central bank authorities?

The Gold Anti-Trust Action Committee (gata.org) for a period of 19 years has been asking questions with respect to the legitimacy of all market trades and whether surreptitious activity has been undertaken by elite players to protect their positions.  Some distrust of the monetary system as it exists today obviously has had something to do with the bitcoin and crypto-currency phenomenon. 

Retailers Losing To Amazon

Now Wholesale Sports is closing down. They needed to build nice pretty looking stores when blocks of strip mall space lay vacant. They needed to carry excessive inventory with an extravagant in store merchandising effort and little public promotion. I think retailers in Western Canada need to rethink the way they do business before Amazon sucks up the whole space and governments better get on board with business before urban centres become boarded up black holes.

As I write this, the Marlborough mall in North East Calgary has no less than six closed retailers in the one wing which used to host Sears. Part of the blame must go to the mall for failing to exercise flexibility in a newer retail environment. Given what merchants are paying for mall space, it seems obvious that the only companies that can make it work are the well financed large establishments which can cross fund from multiple geographic outlets.

Amazon is a success story. I use them and they’ve never let me down. In fact, cities across North America as we speak are clamouring for the opportunity to be chosen as Amazon’s “second headquarters”. What is to become of strip malls and shopping malls if a business friendly environment is not provided to bricks and mortar retail establishments across Canada? Perhaps, they should be shuttered? Perhaps, there’s a social kind of slant on “going to the mall” which we want to uphold? I don’t think I really know the answer for sure but it seems that the destruction of malls in favour of an alternate use may be net negative in terms of economic utility.

Eric Francis Response To Flames Quest For New Arena

I’m not sure that the Sikh, the Muslim, the single low income mother, or the senior on a fixed income get much civic pride out of the Calgary Flames Eric. You’re a hockey fan and I believe someone who has earned a livelihood in one form or another from the good ‘ol hockey game with an apparent bias toward a new rink when this city already has one. The demographics in this city are changing and the aforementioned groups don’t jump like city councillors at some bargaining tactic by Ken King. The utilization of tax money for special interest groups has been with us for far too long and the appetite for tolerating this form of “extortion” has evaporated! Nenshi’s notion of tax money for the public benefit of all is a credible principle of which this proposal breaches. No teary eyed victim like threat from spokespersons of multimillionaire owners are going to trump the spirit of fairness owed to taxpayers.

Reduced Pensions and Lost Severance At Sears

There appears to be some sorrow among the laid off Sears employees who “feel” betrayed by a company in trouble. I have news for all employees.  You have a “job” and you serve at the pleasure of your employer.  By pure definition, if you decide to take a “job” you are giving up some of your autonomy.  If you should so choose to have a portion of your pay handled by a private pension plan, what gives you the right to think that there is no “risk” in having a third party manage those funds or to think that the company will be financially fit to make ongoing company contributions on your behalf?  In socialized Canada we are fed this line that you are marginalized if “self employed”.  I have news for those who believe that your company will be there for you.  You are one bad relationship or two bad performance reviews from the exit sign and if you think you have “job security” think again in the context of a financial system teetering on the brink.  If you worked at Sears and have witnessed a steady decline in retail traffic over a period of years, you should have taken a look at the competition or at the least upgraded in the evening with some career changing course work.  Now is not the time to be looking to a bankruptcy trustee for answers or the CBC for sympathy.  There is nothing more defeatist and sad than the state of a workplace in decline with hangers on sinking with the ship believing that the company will throw a life vest last minute in the form of a “severance”.

Comments On Sears Decline

This is a company that never revitalized in the face of competition. Clerks were indifferent, the computerized check out system was antiquated, and the “Arnold Palmer” brand was mediocre. The company did nothing special to make customers feel welcome. It’s becoming a real blight on the urban landscape with all these empty big box spaces. Bezos over at Amazon has been a big winner and I commend him for creating a web portal that is easy and convenient with an excellent “search bar”.  Over at Amazon, you can travel the shopping neighborhood with a click of a mouse and let someone else take care of the logistics otherwise associated with parking, ambivalent pedestrians in mall parking lots, and service levels deserving of the pay grade.  How many clerks have given you the blank stare once questioned about pitiful inventories in the most popular of sizes?  These mall lease rates are going to start looking pretty hefty once ecommerce and competitive on line pricing increases market presence even more.  Last question – how many folks have you witnessed at your local mall hands free of merchandise filling the food court rather than the tills of starving merchants?