Marc Faber on CNBC 02/02/11

Must Read: Standard Chartered Issues The Definitive Report On Global Inflation And Its Miscontents

Tyler Durden
Zero Hedge
Feb 4, 2011

Every now and then, Standard Chartered has a knack for coming up with that one report that is miles ahead of the competition and promptly becomes the definitive guidebook for the industry. Its most recent one: “Inflation: illusionary, inflammatory” is arguably one of the most detailed and comprehensive reports to come out from an institutional entity in a long time, dealing with the ever so sensitive topic of, you guessed it, inflation. And while it is guaranteed that the Fed will read neither this report, nor today’s earlier announcement that food prices hit another all time high in January, we urge all readers to at least familiarize themselves with the contents herein. In addition to providing a case by case geographic atlas of which the next riskiest Tunisia-like countries are, the report includes a unifying thematic overview that explains not only why the global liquidity glut is long overdue to be pulled back, but what the next (and last) steps available to central bankers are before a wave of global unrest undoes 100 years of failed Federal Reserve policies. An absolute must read.

The key points in the report:

• We see three broad themes over the coming months: (1) a burst of strong US growth near-term followed by renewed disappointment; (2) periodic waves of concern over European debt as austerity bites; and (3) rising inflation in emerging economies that threatens to bring sharp monetary tightening and socio-political instability.
• Of these three themes, rising inflation in the emerging markets (EM) – especially countries in the Middle East and North Africa – complicated by political and demographic challenges, could risk inflaming socio-political tensions and destabilising growth.
• Even in Asia, where fundamentals are strong and consumer price inflation should be contained below 2008 highs, the risk is that governments may act too late – or worse, mis-diagnose and make the situation worse. Among those running higher risks are Vietnam, China, South Korea, Indonesia and the Philippines.

The report conviently lists the types of countries that will suffer the most:

1. Economies with large food and energy components in their consumer price baskets, such as the Philippines, China, India, Indonesia and Vietnam
2. Those that suffered less in the Great Recession or rebounded strongly afterwards, and therefore have small or even negative output gaps and little spare capacity to buffer growing demand. In addition to the five countries mentioned above, which all escaped recession during the crisis, Singapore and South Korea – both of which enjoyed quick and sharp recoveries – are high on the list.
3. Countries whose central banks are slow or late to act – such as Indonesia and the Philippines, where policy rates are still at their post-crisis lows – are running an increasing risk of falling behind the curve, or at least of being perceived that way.
4. Governments that focus on addressing the symptoms rather than the sources of their problems, or put emphasis on the wrong places.

Our advice: call your broker tomorrow, and load up on as much CDS as you can for each and every liquid name that conforms to these criteria.

And most notably, why non-core really is core, especially in Asia:

• An obvious source of the recent acceleration in CPI inflation is higher food and energy prices, driven partly by  improving demand amid the global recovery and partly by supply disruptions due to poor weather. While the West treats food and energy prices as ‘non-core’ given their volatile nature and relatively small weightings in consumer baskets, for Asian consumers, a much larger 30-55% share of expenditure goes towards food and energy. Non-core inflation in the West is core inflation in Asia. It is therefore risky to focus too much on conventional ‘core’ inflation as the yardstick for policy action

In other words, when Bernanke is waving his hands in the air screaming “non-core” like a delirious imbecile, while Asia is burning, it really won’t help anyone…

Pissed Off!: 67 Percent Of Americans Are Dissatisfied With The Size And Influence Of Major Corporations

The Economic Collapse
Feb 4, 2011

The American people are becoming increasingly angry about the extraordinary amount of power and influence that corporations have in the United States today.  A new Gallup poll found that 67 percent of Americans are dissatisfied with the size and influence of major corporations in the United States today.  Not only that, the most recent Chicago Booth/Kellogg School Financial Trust Index found that only 26 percent of Americans trust our financial system at this point.  The mainstream media is acting as if this is a new phenomenon, but the truth is that a dislike of giant corporations goes all the way back to the founding of this nation.  Our founders held a deep distrust for all big concentrations of power, and they intended to set up a nation where no one person or no one institution could become too powerful.

Unfortunately, we have very much strayed from those principles.  In the United States today, the federal government completely dominates all other levels of government and mammoth international corporations completely dominate our economy.

If our founding fathers could see what is going on today they would probably roll over in their graves.

The history of the corporation can be traced back to the early part of the 17th century when Queen Elizabeth I established the East India Trading Company.

Our founders were not too fond of the East India Trading Company.  In fact, it was their tea that was dumped into the harbor during the original Boston Tea Party.

In his book entitled “Unequal Protection”, Thom Hartman described the great antipathy that our founders had for the East India Trading Company….

“Trade-dominance by the East India Company aroused the greatest passions of America’s Founders – every schoolboy knows how they dumped the Company’s tea into Boston harbour. At the time in Britain virtually all members of parliament were stockholders, a tenth had made their fortunes through the Company, and the Company funded parliamentary elections generously.”

So a disgust for great concentrations of financial power is built into our national DNA.

Many people today think of giant international corporations as being synonymous with “capitalism”, but that is just not the case.

Our founders envisioned a land where free enterprise could flourish in an environment where no institution held too much power.

So this false left/right debate about whether we should give more power to the government or more power to the corporations is largely a bunch of nonsense.

If the founders were around today they would say that we need to take a lot of power away from both of them.

Fortunately, it looks like the American people are starting to think the same thing.  Not only are the American people dissatisfied with government, they are also becoming increasingly dissatisfied with big corporations.

As mentioned above, according to Gallup two-thirds of Americans are now dissatisfied with the size and influence of major corporations in America today….

As you can see, the gap between those in favor of the size and influence of major corporations and those not in favor has been significantly widening over the past decade.

That is a good thing.

Not only that, but the latest Chicago Booth/Kellogg School Financial Trust Index shows that Americans have very little trust in the financial system at this point.

The following are some of the key findings from their most recent report….

*Only 26 percent of Americans trust the nation’s financial system.

*Only 13 percent of Americans trust big corporations.

*Only 16 percent of Americans trust the stock market.

*Only 43 percent of Americans trust the banks.

These numbers are staggering, but they should not be surprising.  The American people were not pleased at all when the major banks and big financial institutions were showered with bailouts during the recent financial crisis.  A lot of that anger is still simmering.

The recent housing collapse, which is still ongoing, was caused in great part by the behavior of the major banks and big financial institutions, but it is the American people which have suffered the most from it.  The following very brief animation from Taiwan demonstrates this very humorously….

The American people are still wondering where their “bailouts” are.  Most of the big banks and big corporations seem to be thriving even while the number of Americans slipping into poverty continues to grow.

According to Calculated Risk, approximately 15 million Americans are unemployed, about 9 million Americans are working part-time for “economic reasons” and approximately 4 million American workers have left the labor force since the beginning of the economic downturn.

When you total that all up, you get 28 million Americans that wish they had full-time jobs.

Ouch.

There are other numbers that are very disturbing as well.  In the month of November, the number of people on food stamps set another new all-time record: 43.6 million Americans.

So we have tens of millions of Americans that can’t get the jobs that they want and we have tens of millions of Americans that can’t feed themselves without government assistance.

No wonder so many people are angry at the big corporations!

The U.S. government has showered the big corporations and the big banks with bailouts, tax breaks and cheap loans and yet the big corporations and the big banks are not coming through for the American people.

Meanwhile, food prices continue to go up.  According to the United Nations food agency, global food prices set another new all-time record during the month of January, and they are expected to continue rising for months to come.

That certainly is not going to ease tensions in the Middle East and elsewhere around the world.  When people are not able to pay for the food that they need that tends to make them very, very angry.

For now we are not likely to see food riots in the United States, but as food prices rise all of those food stamp cards are not going to go as far as they used to.  Average American families are going to feel more strain at the supermarket.  There will be less money available for other things.

A key indicator to watch is the price of oil.  The price of oil is one of the key components of the price of food, and if we see the price of oil go up to $120 or $150 a barrel that could mean really bad things for both the U.S. economy and the overall global economy.

If we do see another financial crisis like we did in 2008, is the U.S. government going to rush to bail out the big corporations and the big banks like they did the last time?

As we have seen from the numbers above, that certainly would not sit well with the American people.

And Now, for Something Entirely Different: Excerpts from the notebooks of Lazarus Long

Robert Heinlein

(Editor’s Note:The following “aphorisms” come from the “Notebooks of Lazarus Long” in Robert Heinlein’s 1973 novel, Time Enough for Love. These notebooks are called “Intermission” (pp. 240-251) and “Second Intermission” (pp. 346-353) and are full of pithy insights and opinions of Lazarus Long, the central character in this classic science fiction novel. Some of the aphorisms can be readily agreed with…while others might provoke disagreement. Yet, all of them generate thought about our own time (my own personal standard concerning “science fiction”). They are presented here in that spirit…thought-provoking observations from an author, Heinlein, who has never been bereft of such insights in any book he has written…and who never forgot who he was writing for…and when. – JSB)

Always store beer in a dark place.

Men are more sentimental than women. It blurs their thinking.

Certainly the game is rigged. Don’t let that stop you; if you don’t bet, you can’t win.

Any priest or shaman must be presumed guilty until proved innocent.

Always listen to experts. They’ll tell you what can’t be done and why. Then do it!

Get a shot off fast. This upsets him long enough to let you make your second shot perfect.

There is no conclusive evidence of life after death. But there is no evidence of any sort against it. Soon enough you will know. So why fret about it?

If it can’t be expressed in figures, it is not science; it is opinion.

It has long been known that one horse can run faster than another – but which one? Differences are crucial.

A fake fortune teller can be tolerated. But an authentic soothsayer should be shot on sight. Cassandra did not get half the kicking around she deserved .

Delusions are often functional. A mother’s opinions about her children’s beauty, intelligence, goodness, et cetera ad nauseam, keep her from drowning them at birth.

Most “scientists” are bottle washers and button sorters.

A “pacifist male” is a contradiction in terms. Most self-described “pacifists” are not pacific; they simply assume false colors. When the wind changes, they hoist the Jolly Roger.

Nursing does not diminish the beauty of a woman’s breasts; it enhances their charm by making them look lived in and happy.

A generation which ignores history has no past… and no future.

A poet who reads his verse in public may have other nasty habits.

What a wonderful world it is that has girls in!

Small change can often be found under seat cushions.

History does not record anywhere at any time a religion that has any rational basis. Religion is a crutch for people not strong enough to stand up to the unknown without help. But, like dandruff, most people do have a religion and spend time and money on it and seem to derive considerable pleasure from fiddling with it.

It’s amazing how much “mature wisdom” resembles being too tired.

If you don’t like yourself, you can’t like other people.

Your enemy is never a villain in his own eyes. Keep this in mind; it may offer a way to make him your friend. If not, you can kill him without hate – and quickly.

A motion to adjourn is always in order.

No state has an inherent right to survive through conscript troops and, in the long run, no state ever has. Roman matrons used to say to their sons: “Come back with your shield, or on it.” Later on this custom declined. So did Rome.

Of all the strange “crimes that human beings have legislated out of nothing, “blasphemy” is the most amazing – with “obscenity” and “indecent exposure” fighting it out for second and third place.

Cheops’ Law: Nothing is ever built on schedule or within budget.

It is better to copulate than never.

All societies are based on rules to protect pregnant women and young children. All else is surplus age, excrescence, adornment, luxury or folly which can – and must – be dumped in emergency to preserve this prime function. As racial survival is the only universal morality, no other basic is possible. Attempts to formulate a “perfect society” on any foundation other than “women and children first!” is not only witless, it is automatically genocidal. Nevertheless, starry-eyed idealists (all of them male) have tried endlessly – and no doubt will keep on trying.

All men are created unequal.

Money is a powerful aphrodisiac. But flowers work almost as well.

A brute kills for pleasure. A fool kills from hate.

There is only one way to console a widow. But remember the risk.

When the need arises – and it does – you must be able too shoot your own dog. Don’t farm it out – that doesn’t make it nicer, it makes it worse.

Everything in excess! To enjoy the flavor of life, take big bites. Moderation is for monks.

It may be better to be a live jackal than a dead lion, but it is better still to be a live lion. And usually easier.

One man’s theology is another man’s belly laugh.

Sex should be friendly. Otherwise stick to mechanical toys; it’s more sanitary.

Men rarely (if ever) manage to dream up a God superior to themselves. Most Gods have the manners and morals of a spoiled child.

Never appeal to a man’s “better nature.” He may not have one. Invoking his “self… interest” gives you more leverage.

Little girls, like butterflies, need no excuse.

You can have peace. Or you can have freedom. Don’t ever count on having both at once.

Avoid making irrevocable decisions while tired or hungry. N.B.: Circumstances can force your hand. So think ahead!

Place your clothes and weapons where you can find them in the dark.

An elephant: A mouse built to government specifications.

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded – here and there, now and then – are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as “bad luck.”

In a mature society, “civil servant” is semantically equal to “civil master.”

When a place gets crowded enough to require ID’s, social collapse is not far away. It is time to go elsewhere.

A woman is not property, and husbands who think otherwise are living in a dreamworld.

The second best thing about space travel is that the distances involved make war very difficult, usually impractical, and almost always unnecessary. This is probably a loss for most people, since war is our races most popular diversion, one which gives purpose and color to dull and stupid lives. But it is a great boon to the intelligent man who fights only when he must – never for sport.

A zygote is a gamete’s way of producing more gamete’s. This may be the purpose of the universe.

There are hidden contradictions within the minds of people who “love nature” while deploring the “artificialities” with which “Man has spoiled Nature.” The obvious contradiction lies in their choice of words, which imply that Man and his artifacts are not part of “Nature” – but beavers and their damns are. But the contradictions go deeper than this prima-facie absurdity. In declaring his love for a beaver damn (erected by beavers for beaver’s purposes) and his hatred for dams erected by men (for the purpose of men) the “Naturist” reveals his hatred for his own race – i.e., his own self-hatred. In the case of “Naturists” such self… hatred is understandable; they are such a sorry lot. But hatred is too strong an emotion to feel toward them; pity and contempt are the most they rate. As for me, willy-nilly I am a man, not a beaver, and H. Sapiens is the only race I have or can have. Fortunately for me, I like being part of a race made up of men and women – it strikes me as a fine arrangement and perfectly “natural.” Believe it or not, there were “Naturists” who opposed the first flight to old Earth’s Moon as being “unnatural” and a “despoiling of nature.”

No man is an island – ” Much as we may feel and act as individuals, our race is a single organism, always growing and branching – which must be pruned regularly to be healthy. This necessity need not be argued; anyone with eyes can see that any organism which grows without limit always dies within ïits own poisons. The only rational question is whether pruning is best done before or after birth. Being an incurable sentimentalist I favor the former of these methods – killing makes me queasy, even when it’s a case of “He’s dead and I’m alive and that’s the way I wanted it to be.” But this may be a matter of taste. Some shamans think that it is better to be killed in a war, or to die in childbirth, or to starve in misery, than never to have lived at all. They may be right. But I don’t have to like it – and I don’t.

Democracy is based on the assumption that a million men are wiser than one man. How’s that again? I missed something.

Autocracy is based on the assumption that one man is wiser than a million men. Let’s play that over again, too. Who decides?

Any government will work if authority and responsibility are equal and coordinate. This does not insure “good” government; it simply insures that it will work. But such governments are rare – most people want to run things but want no part of the blame. This used to be called the “backseat-driver syndrome.”

What are the facts? Again and again and again-what are the facts? Shun wishful thinking, ignore divine revelation, forget what “the stars foretell,” avoid opinion, care not what the neighbors think, never mind the unguessable “verdict of history” – what are the facts, and to how many decimal places? You pilot always into an unknown future; facts are your single clue. Get the facts!

God is omnipotent, omniscient, and omnibenevolent-it says so right here on the label. If you have a mind capable of believing all three of these divine attributes simultaneously, I have a wonderful bargain for you. No checks, please. Cash and in small bills.

Courage is the compliment of fear. A man who is fearless cannot be courageous. (He is also a fool.)

The two highest achievements of the human mind are the twin concepts of “loyalty” and “duty.” Whenever these twin concepts fall into disrepute – get out of there fast. You may possibly save yourself, but it is too late to save that society. It is doomed.

People who go broke in a big way never miss any meals. It is the poor jerk who is shy half a slug who must tighten his belt.

The truth of a proposition has nothing to do with it’s credibility. And vice versa.

Anyone who cannot cope with mathematics is not fully human. At best he is a tolerable sub-human who has learned to wear shoes, bathe, and not make messes in the house.

Moving parts in rubbing contact require lubrication to avoid excessive wear. Honorifics and formal politeness provide lubrication where people rub together. Often the very young, the untraveled, the naive, the unsophisticated deplore these formalities as “empty,” “meaningless,” or “dishonest,” and scorn to use them. No matter how “pure” their motives, they thereby throw sand into machinery that does not work too well at best.

A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects!

The more you love, the more you can love – and the more intensely you love. Nor is there any limit on how many you can love. If a person had Time Enough, he could Love all of the majority who are decent and just.

Masturbation is cheap, clean, convenient, and free of any possibility of wrong-doing – and you don’t have to go home in the cold. But it’s lonely.

Beware of altrusim. It is based on self-deception, the root of all evil.

If tempted by something that feels “altruistic” examine your motives and root out that self-deception. Then, if you still want to do it, wallow in it!

The most preposterous notion that H. Sapiens has ever dreamed up is that the Lord God of Creation, Shaper and Ruler of all the Universes, wants the saccharine adoration of His creatures, can be swayed by their prayers, and becomes petulant if He does not receive this flattery. Yet this absurd fantasy, without a shred of evidence to bolster it, pays all the expenses of the oldest, largest, and least productive industry in all of history.

The second most preposterous notion is that copulation is inherently sinful.

Writing is not necessarily something to be ashamed of – but do it in private and wash your hands afterwards.

$100 placed at 7% interest compounded quarterly for 200 years will increase to more than $100,000,000 – by which time it will be worth nothing.

Dear, don’t bore him with trivia or burden him with your past mistakes. The happiest way to deal with a man is never to tell him anything he does not need to know.

Darling, a true lady takes off her dignity with her clothes and does her whorish best. At other times you can be as modest and dignified as your persona requires.

Everybody lies about sex.

If men were the automatons that behaviorists claim they are, the behaviorist psychologists could not have invented the amazing nonsense called “behaviorist psychology.” So they are wrong from scratch – as clever and as wrong as phlogiston chemists.

The shamans are forever yacking about their snake-oil “miracles.” I prefer the real McCoy – a pregnant woman.

If the universe has any purpose more important than topping the woman you love and making a baby with her hearty help, I’ve never heard of it.

Thou shalt remember the 11th commandment and keep it Wholly.

A touchstone to determine the actual worth of an “intellectual” – find out how he feels about astrology.

Taxes are not levied for the benefit of the taxed.

There is no such thing as Social Gambling. Either you are there to cut the other blokes heart out and eat it – or you’re a sucker. If you don’t like this choice – don’t gamble.

The first time I was a drill instructor I was too inexperienced for the job – the things I taught those lads must have got some of them killed. War is too serious a matter to be taught by the inexperienced.

A competent and self confident person is incapable of jealousy in anything. Jealousy is invariably a symptom of neurotic insecurity.

Money is the sincerest of all flattery. Women love to be flattered. So do men.

You live and learn or you don’t live long.

Whenever women have insisted on absolute equality with men, they have invariably wound up on the dirty end of the stick. What they are and what they can do makes them superior to men, and their proper tactic is to demand special privileges, all the traffic will bear. They should never settle merely for equality. For women, “equality” is a disaster.

Peace is an extension of war by political means. Plenty of elbowroom is pleasanter – and much safer.

One man’s “magic” is another man’s engineering. “Supernatural” is a null word.

The phrase “we (I) (you) simply must – “designates something that need not be done. “That goes without saying” is a red warning. “Of course” means you had best check it yourself. These small – change cliches and others like them, when read correctly, are reliable channel markers.

Do not handicap your children by making their lives easy.

Rub her feet.

If you happen to be one of the fretful who can do creative work, never force an idea; you’ll abort it if you do. Be patient and you’ll give birth to it when the time is ripe. Learn to wait.

Never crowd youngsters about their private affairs – sex especially. When they are growing up they are nerve ends all over, and resent (quite properly) any invasions of their privacy. Oh sure, they’ll make mistakes – but that’s their business, not yours. (You made your own mistakes, did you not?)

Never underestimate the power of human stupidity!

Tracing the Fed’s Vital Role in the Decline of the US Dollar

Eric Fry

(Editor’s Note: In the following missive, Mr. Fry eloquently describes how the Federal Reserve has managed to destroy the value of the U.S. Dollar. He also contends that the destruction of the dollar is not what they set out to do. I must vehemently disagree. I believe that the destruction of the U.S Dollar is precisely what they set out to accomplish. The Federal Reserve is, and has always been, a criminal cartel made up of self absorbed parasites. These miscreants have feasted on the toil and production of the American Middle Class for 98 years. – JSB)

In 2013, we Americans will commemorate a century of wealth destruction in the United States – the Federal Reserve will be 100 years old.

In 1913, the Federal Reserve Act became law – granting sole authority to the Federal Reserve to “issue legal tender.” Armed with its new power and its good intentions, the Fed embarked on a 98-year process of currency debasement. That’s not what the Fed set out to do; it’s just what it did do.

In the early days of the Federal Reserve, this monetary authority enjoyed the support of a gold standard. Few Americans doubted that the Fed’s new greenbacks would be as good as gold. As such, gold coinage and paper dollars intermingled effortlessly in the US economy for most of the Fed’s first two decades.

But as the wheels of progress roared ahead, America’s “hard money” coinage disappeared and soft promises took its place – soft promises and lots of chatter about hard money. As it turns out, chattering about hard money does not preserve wealth as well as hard money itself.

The purchasing power of a one dollar bill has plummeted more than 95% since the Federal Reserve first began printing its legal tender in 1914. Although the dollar’s epic decline began glacially, it has gathered luge-like momentum.

The greenback’s value dropped only 50% during the first 33 years of the Fed’s stewardship – i.e. between 1913 and 1946. But the 1946 dollar would lose half its value in just 24 years, while the 1970 dollar would lose half its value in just nine years. The rate of decay slowed somewhat during the Volcker years, as the 1979 dollar did not lose half its value until 14 years later.

Nevertheless, the dollar’s progression toward zero since 1913 feels more geometric than arithmetic.

In 1914, the year the Federal Reserve began conjuring dollar bills into existence, 700,000 shimmering new $10 Indian Head Gold Eagles rolled out of the Philadelphia, San Francisco and Denver Mints. Once in the hands of a working stiff, each $10 coin would buy $10 worth of goods and services. Likewise, the Fed’s crisp, new McKinley $10 bill would also buy $10 worth of goods and services.

Over the ensuing 98 years, a succession of Federal Reserve Chairmen labored to “preserve” the purchasing power of their McKinleys, Washingtons and Lincolns. The Gold Eagles had to take care of themselves. The results are in; the unprotected Gold Eagles flourished, while the “protected” Mckinleys withered. Based on its metal content, a 1914 $10 Indian Head Gold Eagle is worth $643.45. A 1914 $10 bill is still worth ten dollars.

To examine this contrast from a slightly different perspective, consider the divergent paths of the two $50 bills pictured below.

The first $50 bill is a 1913 “Gold Certificate,” issued directly by the US Treasury and fully convertible into gold. The second $50 bill was issued by the Federal Reserve in 1914 and was convertible into nothing. Both versions of this $50 bill circulated freely in American commerce.

Any holder of the $50 Gold Certificate held title to 2.41896 troy oz. of Gold – at the fixed rate of $US20.67 per troy oz. These certificates could be redeemed at any bank or from the US Treasury itself at any time…until 1933, when FDR outlawed gold ownership.

Notwithstanding this little nuance, let’s consider the plight of two hypothetical buddies from 1914. The first buddy, Caleb, stashes a $500 “rainy day” fund under the floorboards of his house – a roll of ten $50 Ulysses S. Grant dollar bills. The second buddy, Josiah, also stashes $500 under the floorboards – he walks into the neighborhood bank with ten $50 Ulysses S. Grant Gold Certificates and exchanges them for gold. Josiah then takes his gold and hides it under his floorboards.

Both buddies forget about their hidden stashes. Eventually, let’s say 2010, the respective heirs of these two long-deceased buddies happen to conduct simultaneous renovations of their respective residences. Caleb’s heirs find the ten ancient $50 bills. “How quaint,” they think to themselves. Josiah’s heirs find $32,172 worth of gold!

Thus, 98 years of history demonstrates conclusively that a blind monkey could have preserved the dollar’s purchasing power better than a Federal Reserve Chairman. Unfortunately, it’s tough to find a blind monkey who will take the job.

Regime Change – A Global Domino Effect?

Monty Guild

“The superior man seeks what is right; the inferior one, what is profitable.” – Confucius

Tunisia.
Now Egypt.
The cabinet fired in Jordan.
Who is next and where?

Nobody can say for sure, but there are no shortages of possibilities, both inside and outside the Arab world. We see change unfolding and accelerating during the next two years. In addition to Tunisia, Egypt, and Jordan, civil uprisings have also occurred in Morocco, Algeria, Albania, and Yemen.

Often repressed, voiceless, and jobless, public masses are rising in protest against entrenched governments that are corrupt and out of touch with their people. These upheavals are the start of something big, a global tidal wave of anger that will sweep away ruling classes. In this dawn of a season of discontent, generals and presidents-for-life, and all their got-fat-cronies, will be well-advised to prepare departure plans and ensure the safety of the foreign bank accounts they have likely filled with state money and bribes over the years.

This wave of change will shake the world, a political earthquake of a magnitude perhaps equivalent to, or even greater than, the fall of the Soviet Union and its communist satellite states in the late 1980s. Non-democratic institutions all over the world will be vulnerable as the masses rise up in demand of greater individual freedom and more public representation within the political, social, economic, and educational segments of society. Even in democracies, the public will surely make sure its voice is heard. India, for example, is the world’s largest democracy. But corruption thrives at the very molecular level of government, education, business, and military, and the public has begun pressuring leaders for change.

Causes of Public Unrest

There are plenty.

Rising food prices; high unemployment among the poor; large populations of restless young; a lack of jobs for the educated; government repression; corruption; the all-too-common rigging of elections; police abuses; and the majority of the population with believing they have no voice. The list goes on and on.

Corruption and autocracy can be tolerated when the common man has a job and some expectations that he can better himself in the long run; but what happens when he faces a declining standard of living? Does he revolt? Does he throw out the oligarch or dictators who are getting rich on national resources or using political power to maximize their income while cutting off the common man from progress? The answer may soon be evident.

Technology Involvement

The speed of this revolutionary change fascinates us. Never before in history has there been such facility for information flow. We live in an Internet age of instant communication, an electronic hundredth monkey effect borne on the wings of cellular phones and cameras, texting and tweeting, Wi-Fi, iPhones, Androids, and YouTube. Images and messages can be transmitted into the nooks and crannies of all societies, stirring the masses, creating larger ripples in shorter time periods. Information is knowledge, and information today is empowered, magnified, and shared to a level never before possible. And right now, because of technology, the common man is less likely to be alone in his revolt.

The spread of discontent, anger, and outcry has been further stoked lately by WikiLeaks. Details of corruption, shady, self-serving dealings, and meddling in the affairs of other states have been pushed out of the classified closet into the open, often embarrassing the powers-that-are. WikiLeaks and other such Internet whistle-blowing vehicles have opened a whole new industry and the prospects of an endless stream of secret revelations.

We are seeing a quantum leap in the power and sweep of communication and information flow. We saw something similar more than two decades ago when the Communist rulers of Eastern Europe, with all their police state muscle, were unable to deter the influx and spread of ideas, visions of possibilities, and above all, the truth, flowing into their countries via Western television and radio programming. The Workers Paradise Propaganda was no longer a match for what people could see for themselves: an affluent, free world. So Eastern Europeans began to “vote with their feet,” leave for the more affluent West, if possible, and march in the streets. To be sure, some elements of Soviet-style statism and repression remain, but much is gone, including those Communist governments.

Today, communication technology has become a political weapon: a weapon of mass destruction threatening the very power base of despots, and for the common man, a weapon of hope and opportunity.

Investment Repercussions

The fallout from global political upheaval around the world will likely bring palpable benefits for the common man. We expect to see a spreading and redistributing of wealth. New groups will share in the benefits that current power groups have been keeping for themselves. These are profound, fast-moving changes and will create investment opportunities that we can’t yet imagine.

Here is a rundown of initial expectations:

The Positive

The events support all of the sectors we have recommended in the past weeks. In particular, the positive influence is growing stronger for oil, gold, silver, grains and other foods, machinery companies that produce food, oil production or mining equipment, and communication technology companies.

As investors seek stability, we expect to see money flow to the bigger, more liquid countries in Europe, and to the U.S. Capital will flow from unstable nations, industries and companies to more stable environments.

During the coming time of change, some quality investments may be ignored by investors seeking safety, even if they are in a country and industry which is attractive. The positive is that investors who are holding enough cash are well-positioned to capitalize on these opportunities.

The sectors which are hurt by turmoil are those industries in the countries with autocratic governments. We suggest that investors raise cash to be able to take advantage of any stock price corrections. Some countries will lose investment capital simply because of the instability. Over the long-run, more stable countries will see that capital move into their markets.

The Negative

In general, we envision only a short-term negative for emerging markets. Obviously, it is both short and long-term negative for markets in countries which have autocratic and non-representative governments such as Iran, Pakistan, and other parts of the Arab world, as well as Venezuela, Bolivia, Mexico, and some eastern European nations.

Global Inflation Rising – Here’s Why We Expect it to Continue

The last 6 to 12 months have seen inflation ramping up in much of the world. Here are the drivers as we see them:

1. The velocity of money is finally picking up. Think of this as an accelerator and multiplier of commercial activity. As velocity increases, it stimulates growth and demand for products and services. A huge amount of money has been created, the result of QE1 and QE2 in the U.S., QE in Europe, continuing currency manipulation in Japan, and QE activity in many developing nations that are printing their own currency to buy U.S. dollars and thus forcing their currencies down so they can export more.

The banking systems in the U.S. and Europe have survived the first of their financial crises, and are at the stage of lending more to business and to individuals. This is increasing the speed at which money moves through the economy, and where we speak of more rapid velocity of money. When this process acts upon the massive amount of money that has been created in the U.S. over the last 2 years, it will send wave after wave of inflation through the developed and developing worlds alike.

2. Developed world economies are strengthening, led by better exports and demand for manufacturing equipment in places like China, India, and Brazil. Big U.S., European, and Japanese companies respond to strong business trends by spending money to grow. They will build new factories. They will stockpile raw materials. They will buy more manufacturing equipment.

This cycle of increased demand for raw materials and equipment will exacerbate cost-push inflation worldwide. The developing world has already been experiencing demand-pull inflation as the public increases its appetite for more cars, machines, better food, consumer goods, technology products, and infrastructure.

Our Recommendations – In Review

We are bullish for commodities, stock markets, and for income-earning real estate. It will be most felt in those countries where governments are stable and where the political process is somewhat representative of the opinions of the populace as a whole. For stock investments throughout the world, we base our recommendations on careful study of individual companies and industries, always keeping in mind that companies and sectors are at differing stages of growth. We recommend continuing to hold shares of growing companies in Canada, South Korea, and the U.S. We favor technology, metals, auto and auto-related, agriculture-related, and energy, including oil and coal.

U.S. Stock Market

S&P 500 Index (February 1, 2010 to February 01, 2011)

Since September 9, 2010, we have been bullish on the U.S. stock market and will continue to be so. Over the longer-term, liquidity formation through QE will create demand for many assets, including American stocks. We are not removing our buy rating and in fact we continue to own many fast-growing, export-oriented U.S. stocks; we are saying that it is reasonable to expect a correction of 4-10 % in the U.S. market at any time.

U.S. Bonds

Bearish still. We do not recommend them as a safe haven.

Developed Countries – U.S., Canada, Australia and Europe

Canada’s TSX 60 Index (February 1, 2010 to February 01, 2011)

Technology, precious metals, and commodity-producers (food, oil, iron ore, and other base metals) will all benefit from an improving economy and a slowly improving back-to-work trend.

Commodities

Headed for higher ground, pushed by expanding liquidity and the oncoming inflation, already a growing problem in much of Asia and Latin America, and coming to the U.S. and Europe later in 2011 and 2012. Our favorite commodities are coal, oil, and food grains. Investors can trade copper and uranium for a few more months.

Precious Metals

Silver – Comex (February 1, 2010 to February 01, 2011)

Gold – Comex (February 1, 2010 to February 01, 2011)

The correction in gold and silver is about over. Upward global inflation, along with current instability and the potential for more in the future, adds additional allure for gold and silver. Various precious metals, including platinum group metals, may also rise, but gold and silver are our most favored choices. We are buying on the dips, large or small, adding to our holdings. Now might be a good time to establish a stake.

Oil

The correction in oil is drawing to an end. Oil remains attractive thanks to demand from emerging countries as well as the newly vibrant developed world economies. This collective demand for new oil exceeds the rate of discovery. Oil also serves as an inflation hedge. Dips, whether large or small, is a signal for us to add to our holdings. If you have no positions, now might be a time to get in.

Colombia

Due to a strike of truck drivers and a rising tide of labor unrest we are taking profits on half of our recommendation in Columbia.

A summary of our current recommendations can be found in the table below:

Investment	Date Recommended	Appreciation/Depreciation in U.S. Dollars
Commodities
Gold	6/25/2002	312.4%
Corn	12/31/2008	63.6%
Soybeans	12/31/2008	46.7%
Wheat	12/31/2008	37%
Oil	2/11/2009	152.6%
Currencies
Singapore Dollar	9/13/2010	4.9%
Thai Baht	9/13/2010	5.0%
Canadian Dollar	9/13/2010	3.7%
Swiss Franc	9/13/2010	7.7%
Brazilian Real	9/13/2010	2.8%
Chinese Yuan	9/13/2010	2.5%
Australian Dollar	9/13/2010	8.1%
Countries
U.S.	9/09/2010	18.4%
Colombia (sold half of our position)	9/13/2010	3.9%
Canada	12/16/2010	6.0%
South Korea	01/06/2011