Friday, March 30, 2007

Engines of Inflation

Puru Saxena on the true nature of inflation:

Central banks are the engines of inflation. Whether it is the Federal Reserve in the US or the Bank of England in the UK, the sole purpose of these institutions is to inflate. At the same time, they understate the ongoing inflation problem and manage the public's fears. Therefore, in order to protect your wealth in this era of constant inflation, it is absolutely essential that you properly define and understand inflation. In other words, you need to distinguish between "cause" and "effect".

Today, most people have been conditioned to believe that inflation is an increase in prices as captured by the official "Consumer Price Index". However, the truth is that inflation is an increase in the quantity of money and credit. As the supply of money and credit are inflated (the cause), prices of goods, services and assets rise within an economy (the effect).

This is inflation as it is classically defined. Unfortunately, in the minds of the public, the effects of inflation (rising prices, etc.) have been mistaken as the cause. This has led to a great deal of confusion and the resulting misdiagnosis of many economic problems.

For further explanation, see Puru's article,
"Engines of Inflation".

Tuesday, March 27, 2007

Gold commentary

We've got some gold-focused commentary to share with you today. Let's get to it.

This first piece is an editorial from I.M. Vronsky of the Gold-Eagle website, entitled, "Echoes From The PastMay Illuminate Your Future Path To Wealth".

This article was mentioned by Richard Russell in a recent commentary to his Dow Theory Letters subscribers, so I figure we ought to take a look at it too. And from what I gather, Mr. Vronsky is bullish on gold...

The next piece comes from John Mauldin's "Outside The Box" letter. In, "Macro-Markets: Gold Trading Boot Camp", Greg Weldon talks about his new book and the importance of gold.

Here's an excerpt:

In my new book, "Gold Trading Boot Camp: Master the Basics and Become a Successful Commodities Investor", I cite four 'realities' around which ALL of the current macro-market movements occur. They are:

Every single day for more than thirty years, since the abolishment of the "gold standard" (and before), global imbalances that are linked to trade, savings, reserves, exports, output, consumption, income, and credit-debt, have intensified, and, have reached a new peak level of imbalance.

The global economy is incestuously codependent in its reliance on the US consumer, and thus the health of the global economy is now dependent on the health of the US housing market, and continued creation of credit.

The global economy is thus dependent on a perpetual debasement of the US Dollar, which leads all paper currencies to devaluation relative to gold, as the only means to avoid a catastrophic debt deflation, credit contraction, and global recession-depression.

Someday, things will change.

Want more? Follow the links to see the rest, and good reading!

Sunday, March 25, 2007

Social Cycles and the Coming Golden Age

I saw something very interesting the other day while I was walking through the museum.

In the corridor housing the Art Institute's Amerindian collection, I noticed a round mosaic disc covered with small turqoise-colored tiles. The differently-shaded color tiles were arranged in such a way that would reveal an image to the knowing viewer.

Although some small pieces of tile were missing, a placard next to the object reproduced the design in detail and identified it as an image depicting the importance of the 52 year cycle and the longer-run cycles tracked by the Mixtec calendars.

These cycles were said to be of great importance to the Mixtec culture; their beginning and end symbolized a change in the social order and influenced their outlook for their civilization and the world.

With this in mind, it was interesting to see M.A. Nystrom's recent article at Safehaven.com regarding a similar subject, "Social Cycles and the Coming Golden Age".

In this piece, Nystrom relates some of the ideas presented in Ravi Batra's new book, The New Golden Age. He finds that many of Batra's predictions are based on a Law of Social Cycles, and that these cycles greatly influence the interaction among various classes of people and the direction that society follows.

In Nystrom's opionion, we are nearing the end of our current cycle (characterized by acquisitiveness and a breakdown of the traditional moral structure), and preparing to sow the seeds for the next. As one cycle ends, another begins.

Any opinions on how it will turn out? Have a look at this interesting article and see if it stirs up any thoughts on the future.

Update: Part 2 of this article series is now posted at Safehaven.

Thursday, March 22, 2007

Debating global climate change

The idea that man made pollutants and carbon dioxide emissions are directly affecting our planet's climate is a highly controversial issue, one that's taken center stage across the globe.

This topic is still shrouded in debate. On one side, are those who have come to believe in a scientific consensus that says global warming/climate change is real and is undoubtably caused by humans and our industrial development. Another side claims there is no real scientific consensus on this issue, and that many dissenting opinions on the subject of man-made global climate change are being suppressed.

In fact, these global warming "deniers" say the changes in climate we constantly monitor are part of longer-term shifts in the earth's climate and environment that have occurred for as long as we can imagine.

As media coverage of the issue and the surrounding debate grows, one thing is certain; the rhetoric has become increasingly alarmist and ever more divisive. Will we be able to weed through the deceptive claims and find some measure of the truth?

For those of us who do not claim scientific expertise in the fields of physics and atmospheric science, it is imperitive that we try to seek out information from all sides and critically digest what we can. Some of what's being offered to us might pass the test of being easy to understand, but it does no good if what we're really taking in is sensationalism and propaganda. An interested person needs to sift through the garbage and the fluff to find real information.

I don't fully understand the issue of "global climate change" and I'm uncertain that I'll ever really know if these changes in climate are anthropogenic, or simply part of the normal pattern of events on planet earth. All I can do is try to understand what's in front of me.

So in the interests of kickstarting this learning process, let me offer up a couple of video clips that might spur your interest in uncovering both sides of this debate.

I'll start off with the efforts of our most famous global warming campaigner, Al Gore.

You can watch him in this interview with Charlie Rose on the subject of global climate change and the ideas presented in his documentary, "An Inconvenient Truth".

Here he is charming the crowd at the TEDtalks conference with his ideas on how to mitigate global warming. In a rather ironic turn of events, Gore has recently been attacked for his own energy-intensive lifestyle and his hypocrisy on this issue.

On to the skeptics. Here's an interesting video that's recently been making the rounds on Web 2.0 and fueling some debate: "The Great Global Warming Swindle". As this film asserts, "global warming has gone beyond politics - it is a new kind of morality".

So for some of us, the learning process begins, while for others, the debate has raged on for a long time. There have been reports of defections from both camps, "skeptics" and "believers", but one thing is certain: this debate is far from settled.

Wednesday, March 21, 2007

Stocks and commodities positively correlated?

There has been growing acceptance lately for including commodities in the average portfolio because of their inverse correlation to stocks. In simple terms, this means that one asset class (commodities, for example) tends to well in periods where the other does poorly.

This idea has become one of the more widely-held notions among investors and investment managers. But does it stand up to closer examination?

Steve Saville has written an article for Safehaven entitled, "Stocks, Commodities, and Inflation", that tackles this subject. Here is an exerpt from that piece:

Continuing with the "sometimes things are different" theme, during the current cycle there has clearly been a change in the relationship between stocks and commodities. Stocks and commodities have traditionally been either inversely correlated or uncorrelated asset classes, and as a result there has been a general tendency for professional money managers to use commodity-related investments to hedge their equity exposure.

However, the following chart shows that over the past seven years there has been a strong positive correlation between the S&P500 Index (SPX) and the Industrial Metals Index (GYX). The GYX has clearly been the superior investment in that it fell by a much smaller percentage during 2000-2002 and rose by a much greater percentage thereafter, but the SPX and the GYX have essentially become plays on the same underlying global growth trend. Therefore, the idea that commodities in general and the industrial metals in particular can be used to offset stock market exposure needs to be binned, or at least re-considered.

So in Steve's view, at least one group of commodities (the base or "industrial" metals) seems to be positively correlated with US stocks. His conclusion is that the commonly espoused view of negative correlation between stocks and commodities needs to reexamined.

Saville is not the first to voice this opinion. Last year, Societe Generale and Legal & General both came out with reports that warned of lower returns from commodities and an end to the low correlation environment between commodities and stocks.

From the June 2006 FT.com report:

Both Société Générale and Legal & General said that the traditional view that commodities were a viable alternative investment because of their low correlation to equities and bonds was no longer valid.

That was because commodity prices had moved in tandem with equity markets and therefore had a closer correlation to equities. That in turn would have a negative impact on asset allocation towards the sector.

What's interesting about this principle of gearing investment decisions around reports of low/high correlation, is that it seems inevitably voided by the bandwagon effect.

In other words, as more investment managers spot low or high correlation between assets and then act to take advantage of this relationship, the relationship changes. Instead of diverging, asset prices may actually begin to converge and move higher or lower together.

It seems an interesting example of the idea that observing an event/phenomenon is enough to change it. Or am I misusing that scientific principle by incorrectly applying it to this aspect of investment decision-making?

Update: For more on this theme, see FT Alphaville's recent entry, "Uncorrelated assets are now correlated".

Tuesday, March 20, 2007

Bob Hoye on Fed intervention

An interesting little audio segment from HoweStreet.com in which Bob Hoye, of Institutional Advisors, gives his views on interest rates and intervention into the economy and the markets by the Federal Reserve.

I thought there were some really interesting insights here. You might want to give this a listen and hear them for yourself.

More derivatives, not less?

John Mauldin's latest "Outside The Box" letter focuses on the writings of Woody Brock, who argues the financial system needs more derivatives, not less.

Here's John's introduction to Brock's article:

An all too common myth is that the total value of derivates is in and of itself dangerous because they are a form of leverage...but that is not the case. Derivatives, per se, are not a form of leverage; rather they afford the opportunity and make it easier and less risky for others to use leverage across many different assets and instruments (i.e. - mortgages, insurance, etc...).

It is the leverage which is then the issue, as paradoxically, the decreased risk (hedging) aspects of derivatives allows investors to feel more comfortable with increased leverage, which sends a variety of signals to market participants.

The problem lies not in the instruments but in how the risk is distributed. While many of the larger, institutional players have used the offshoots of derivates to better hedge themselves, much of the smaller investor community has unwisely used the medium in a speculative manner.

If a small homeowner is in trouble because of leverage on their mortgage, there just isn't anyone left to bail them out. Just as in the greater fool theory, the party only continues while someone is more foolish and irrational than the last fool.

Have a look, and see if you agree with Brock's assessment.

Monday, March 19, 2007

Web censorship grows

Our brush with web censorship in China was followed up last week by a Financial Times report that shows web censorship is growing globally.

Here are some key excerpts from that article:

Internet censorship is spreading rapidly, being practised by about two dozen countries and applied to a far wider range of online information and applications, according to research by a transatlantic group of academics.

A recent six-month investigation into whether 40 countries use censorship shows the practice is spreading, with new countries learning from experienced practitioners such as China and benefiting from technological improvements.

OpenNet Initiative, a project by Harvard Law School and the universities of Toronto, Cambridge and Oxford, repeatedly tried to call up specific websites from 1,000 international news and other sites in the countries concerned, and a selection of local-language sites.

The research found a trend towards censorship or, as John Palfrey, executive director of Harvard Law School’s Berkman Center for Internet and Society, said, “a big trend in the reverse direction”, with many countries recently starting to adopt forms of online censorship.

A very disturbing trend, especially for those who view the spread of online information as a catalyst for liberty and free expression.

Be sure to see the article and the related reports in the "Editor's Choice" sidebar.

Iraqis say they are worse off

A new face-to-face poll conducted in Iraq finds most Iraqis pessimistic about their lives and the war's outcome.

Continued violence and disruptions to most aspects of daily life have defined the instability and uncertainty that many Iraqis live with.

An excerpt from an AP/MSNBC article:

The number of Iraqis who say their own life is going well has dipped from 71 percent in November 2005 to 39 percent now.

About three-fourths of Iraqis report feelings of anger, depression and difficulty concentrating.
More than half of Iraqis have curtailed activities like going out of their homes, going to markets or other crowded places and traveling through police checkpoints.

Only 18 percent of Iraqis have confidence in U.S. and coalition troops, and 86 percent are concerned that someone in their household will be a victim of violence.


Full article available at the above link.

Also should point out that a conflicting poll is being covered at the Times Online.

That poll, conducted by ORB, finds that only 26% of Iraqis preferred life under Saddam Hussein's regime, despite the current widespread violence and atrocities.

Sunday, March 18, 2007

Ah, Green Sunday

Harry Eyres writes the "Slow Lane" column in the Financial Times' Weekend edition. Anyone extolling the virtues of the quiet life is generally my kind of person, but I've become particularly fond of Eyres' column lately.

The following is an excerpt from his latest piece, "Ah, Green Sunday":

Surreptitiously, without any formal announcement, some time in the late 1970s or early 1980s, Sunday was abolished. The day remained on the calendar, of course, but it was transformed from a day of rest, or boredom, into a day of shopping and driving, getting and spending. The time has come to reverse this process.

That, at least, is the refreshingly heretical view of my friend Satish Kumar, former Jain monk and editor of the bimonthly ecological magazine Resurgence. In a letter to me Satish comments that most of the proposals to counter global warming suggested in Sir Nicholas Stern's review are technological and long-term.

We can't immediately switch to renewables or hydrogen. But there is one thing we could do immediately: we could "declare Sunday to be a fossil-fuel free day or at least an energy-saving day". Sunday could be once again "a day of rest, a day of spiritual renewal, a day for families to come together". In the process, we could save one-seventh of our carbon emissions.

Read on at the link above, and enjoy.

Friday, March 16, 2007

Jim Rogers on Russia, emerging markets

Noted investor Jim Rogers is making some headlines this week, as he warns of a bubble in the Russian stock market and an end to the global "liquidity party".

Let's focus on Russia first. Rogers does not like what he sees in Russia, and thinks that the overvalued Russian stock market could be headed for a bust, "sooner rather than later".

Reuters article quote:

"I wouldn't put a nickel of my own money in Russia, and I wouldn't put a nickel of your money there either," Rogers, a long-time commodities bull, told Reuters by telephone from New York on Wednesday.

"Everything about Russia is one big bubble, and it's going to pop. It's going to happen sooner rather than later," said Rogers, who co-founded the Quantum Fund with George Soros in the 1970s and has focused on commodities since 1998.

"When that happens, people will look around and say, how did that happen? That's when we'll find out about all the skeletons in the cupboard."

The article goes on to mention the Russian state's intervention into business deals with foreign companies and state confiscation of assets. Rogers also calls into the question the quality of many recently listed Russian companies, and says many of the shares trading on the Russian market could decline significantly or disappear in the event of a shakeout.

So I guess the question here is this: is Rogers short the Russian stock market? I know that he's always had a bearish view of their "outlaw capitalism" and has stayed away from their market in the past. Maybe he's just taking the time to voice his concerns again, now that a bust seems closer at hand.

He's also been out front this week on the possibility of a crash in emerging markets and the US property market. In fact, Rogers says the fallout of a real-estate bubble could lead to a financial crisis.

The fund manager, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s and has focused on commodities since 1998, said the crisis would spread to emerging markets which he said now faced a prolonged bear run.

"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess," he said.

"Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets.

Rogers says that he's sold off his emerging markets investments, except for shares in China, where he is willing to sit out a potential 30-40 percent decline.

"This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."

He's definitely sticking his neck out here, but it's always interesting when you're reading or quoting Jim Rogers. His latest call is reminiscent of Marc Faber's recent cautionary stance against over-inflated asset markets worldwide. We'll keep our eyes peeled.

Thursday, March 15, 2007

Political risk in emerging markets

Excerpts from a Financial Times article on rising political risk in emerging markets:

Political risk in emerging markets has risen sharply amid rising expropriation risks, regulatory uncertainty and a worsening credit outlook, according to a report out on Tuesday.

The Alliant Emerging Markets political risk index climbed 5 per cent in the year to February, its biggest since the aftermath of the September 2001 terrorist attacks.

Underpinning the rise were increasing government action against foreign investors in Latin America and central Asia and credit risks in Eastern Europe.


The article goes on to detail the growing trend towards resource nationalization, state expropriation of assets, and contract and regulatory disputes with government. These factors make business all the more treacherous in "emerging" nations.

But given the fact that we've seen clear evidence of these trends unfolding over the past several years, should much of this come as a surprise?

In aiming to quantify risk for their clients, Alliant tries to gauge these concerns through their risk index. As the FT article points out:

Alliant’s political risk index rose to 76.1 from 72.5 last March. Early in 2001 it stood below 68.

What I would be interested to know is whether the risk index is a forward-looking indicator, or more of a (realistically speaking) backwards-looking indicator, like the VIX.

In other words, is the index rising or falling on the back of events that are currently taking place or have already occured, or will it be able to accurately forecast political risks ahead?

Tuesday, March 13, 2007

Heavy hitters of finance discuss regulation

Bloomberg has posted a video panel discussion on US competitiveness and financial regulation, featuring a high-profile cast of speakers that includes Warren Buffett, Jamie Dimon, and Jeffrey Immelt.

The panel is moderated by Treasury Secretary Hank Paulson and SEC Chairman Chris Cox. Will rotten tomatoes and cabbage be thrown at the mention of the words, "Sarbanes-Oxley"?

Tune in and find out, and see which way the wind is blowing with regards to the US' current regulatory environment.

Britain sets emissions standards

Reuters reports, "Britain proposes legal limits on carbon emissions".

Here's an excerpt from that article:

Britain on Tuesday became the first country to propose legislation setting binding limits on greenhouse gas emissions as it stepped up its campaign for a new global warming pact to succeed the Kyoto Protocol.

In its draft Climate Change Bill, the government said carbon dioxide emissions had to be cut by at least 60 percent by 2050, set out five-year carbon budgets to reach the target and created an independent monitoring committee to check annual progress.

Personally I'm not a proponent of government-mandated goals and restrictions, preferring instead the infinitely more dependable solutions provided by freely thinking companies and individuals, but we'll see how it works out for them.

It should be noted however, that even if industrial pollution and emissions are not directly responsible for global climate change, we should have recognized their harmful effects on our environment and our health long ago.

I'm done spouting my two cents, go ahead and read the article.

Banned in China

I was checking out a recent article by Marc Faber over at the Daily Reckoning's Australia site, when I glanced in the sidebar and noticed the title of one of their recent posts.

The title read, "The Daily Reckoning Has Been Banned in China", and it began with the following information:

We are sorry to inform you that if you are in China you will not be able to read this. We’ve recently learned that the Daily Reckoning Australia web site is banned in China.

They went on to reproduce a screenshot from a site called, Greatfirewallofchina.org, which claims to show a real-time test of web addresses censored in China. I decided to try the site for myself yesterday (and once more today) to see how it works.

Of the ten or twelve URLs I entered into their test bar, I'd say half were blocked and half were available. It was an interesting test; Wall St. Journal's web site was blocked, while The Financial Times home page sailed through with no problem.

The same pattern held for other similarly focused financial sites; Financial Sense Online was blocked while Safehaven.com was available. This is interesting, because the two sites are not only similarly styled, they even carry some of the exact same content from writers contributing to both sites (myself included).

So is it site content that prompts this web censoring, or is there something else that trips the censorship alarm on these blocked sites?

I decided to run the test for our site. It turns out Finance Trends Matter is blocked, so I decided to try a few other Blogger hosted blogs as well.

The other Blogger sites, including a value investing blog and a blog devoted to fashion (decadent!), seemed to be available, so we know it isn't strictly a problem with "blogspot" domain names. I see from the comments on Daily Reckoning's post that they tried this angle and found the same.

The test does not appear to be a definitive, last-word statement on which sites are blocked and which are available (they note that the "testing is only based on one server on one location in China"), but for now it appears we are "banned in D.C.", I mean China.

Note: If anyone is reading this site from China, please drop us a line and let us know. We'd love to know more about how you are accessing information over there. Thanks.

Monday, March 12, 2007

Sears, the Hedge Fund

We've talked in the past about hedge fund manager, Ed Lampert and his drive to transform Sears Holdings into something more than the retail giant it has always been.

Now a new article from the Washington Post zeroes in on Lampert and the changing face of Sears. The company is described as an entity divided into separate parts: Sears the Retailer, and Sears the Hedge Fund.

Will the "Hedge Fund" side of Sears be able to make up for crumbling retail operation ("the softer side of Sears")? That's the million dollar question.

Thanks to Paul at Infectious Greed for the article link.

For more on Lampert and Sears, see the first link ("Ed Lampert") in this post, as well as Andy Kern's articles on Sears Holdings over at Berkshire Ruminations.

Sunday, March 11, 2007

Hitting the wall of misinformation

Peter Schiff is this week's guest expert interview on the Financial Sense Newshour. If you haven't heard the interview, you might want to drop in and have a listen.

Peter has a new book out called, Crash Proof, and he's talking with FSN host Jim Puplava about some of its core concepts.

While the book is specifically designed to steer readers (and would-be clients of his firm's offerings) towards an alternative investment program focused on non-dollar denominated investments, it also serves as a sort of crash-course lesson in real world economics.

The interview brings these lessons to the fore, as Peter discusses some of the commonly held misconceptions about our national economy, and sheds some light on what's really happening in America, financially speaking.

This discussion provides a much-needed counterpoint to the endless drivel and misinformation spouted in almost every forum of economic discussion nowadays.

You don't have to adopt Schiff's investment program, but it can help to at least be cognizant of some of the economic realities we're facing.

Friday, March 09, 2007

Features of the week

Lots to report here, including some additional stories on energy and the environment that we promised you earlier in the week. Let's get started.

1. Journalist killings reach record numbers. The Financial Times covers the findings of an International News Safety Institute (INSI) report which shows "the world to be a more dangerous place than ever for journalists."

More than 1,000 media workers died on assignment between 1996-2006, and a very large part of these deaths were no accident. Unfortunately, the INSI report finds that the killing of journalists is, in large part, a "virtually risk-free" activity. This is due to the fact that many of their killers go unnoticed and unprosecuted.

The full INSI report, "Killing The Messenger", is available for download in PDF format.

2. "Politics and the English Language". An interesting article from the San Francisco Chronicle on the degredation of language and the resulting impact on our view of reality.

Thanks to the Dines Letter for recently highlighting this article.

3. Who wants to be a billionaire? Forbes is out with their latest list of "The World's Billionaires". Forbes counted 946 billionaires in their list, including 178 newcomers to the billionaire club.

It's becoming increasingly apparent that, like joining the swelling ranks of millionaires worldwide, being a billionaire does not represent everything that it used to.

4. Financial Times on, "The rise of sopisticated indices". This article highlights some of the indices tracking volatility and credit derivatives, many of whose names have appeared in the news lately thanks to the recent action in the financial markets.

5. From Bloomberg, "FBI Exceeded Authority in Getting Data, Report Says".

The FBI violated the privacy of U.S. citizens when investigators illegally gathered information using expanded powers granted under the USA Patriot Act, a government report said.

Gosh, what a shocker. Read on for more.

6. Over at The Energy Blog, Jim and the gang are discussing the rising costs of developing Canadian oil sands projects.

This is an issue we covered last fall in, "Oil sands: questions over rising costs".

Although many Americans are counting on the oil sands as a future energy source from a dependable and politically-friendly nation, rising costs and environmental impacts (not to mention high energy use in extracting and refining the product) seem likely to hobble some of the more optimistic production forecasts.

7. "How green is nuclear power?". That's the question posed by The Christian Science Monitor in their recent report on energy and the environment.

8. I've been hearing more people talk about biobutanol lately. So what is it exactly? Well, as Autoblog Green tells it, biobutanol is a form of butyl alcohol that is made from biomass and used as an alternative fuel for vehicles.

Is it a better alternative fuel than corn ethanol? Read the above link to find out more and see Green Car Congress for more news on advances in biobutanol production.

Wednesday, March 07, 2007

An American says, "I'm sorry".

Since retiring from the investment management business in the 1990s, Dean Lebaron has had more time to focus on a variety of interests.

He has written and spoken about technology and its investment applications, international relations, solving global problems, and he has also taken time to rethink some of his previously held beliefs.

Dean also maintains a website, deanlebaron.com, where he logs some of his thoughts on technology, investing, his family and lifestyle, and the world we live in.

Recently, he recorded a short video commentary on his view of the world and the shift in how the world views the United States. I found his brief take on the matter, as well as his openness, interesting and refreshing. See: Dean to International Friends: "I'm Sorry".

To view the clip, you'll need RealPlayer, which can be downloaded for free at his website.

You can also visit the site for more on Dean's point of view, or see his most recent interview with Barron's magazine.

Tuesday, March 06, 2007

Hyperinflation in China

After posting earlier about Hugo Salinas Price's editorial on the role of currency, I took a look at some of the other editorials recently posted to Financial Sense Online. Here's another that caught my eye, and it makes a great follow-up to the Salinas Price piece.

Mike Hewitt fills us in on, "Hyperinflation In China 1937-1949", providing a sort of historical setpiece that illustrates the principles of free banking and the dangers of fiat money and government-controlled currency issuance.

In this essay, Hewitt gives an overview of how China's private banking system was undermined by Chiang Kai-shek's Nationalist Party in favor of a Central Bank and fiat money, a situation which eventually led to the great money printing and inflation of the 1930s and '40s.

I found this to be an excellent overview of one of the modern era's less-discussed inflationary periods. And again, I felt that this bit of economic history compliments the Salinas Price article fabulously. If you're a student of economic and historical events, check it out.

A Fairy Tale World

Noted silver money advocate, Hugo Salinas Price, offers up the following editorial on money's current role for Financial Sense Online, entitled, "A Fairy Tale World".

Here is an excerpt from that article:

The World is exchanging goods and services by various national means of exchange. We are using those same means of exchange as a vehicle for savings. We are denominating credit contracts in any one of various national means of exchange. The predominant means of exchange is the US dollar.

However, a means of exchange voluntarily accepted as such, by those who participate in exchanging goods and services, by those who use it as a vehicle for savings and by those who denominate credit contracts in it, is not per se money.

Money must, sine qua non, function not only as a means of exchange, but also as a means of payment.

The world, as of February 2007, does not possess a means of payment. In economic terms, payment is the exchange of something for something. In today’s world, when units of what is called money are tendered in payment of a purchase, or in settlement of a balance after an exchange, or in settlement of debt, there has been in reality and economically no such payment.

We are in these cases using the term “payment” merely as a legal convention and a leftover from a previous era, when payment did in fact exist and govern all economic activities.

What's he on about? Read the full article and find out.

Monday, March 05, 2007

Energy and environment: heads up

Just a quick heads up on some energy and environment - related issues.

We're going to do a more detailed post on issues related to oil production, biofuels and global warming later in the week, but for now check out some of these stories featured in today's edition of The Oil Drum's article roundup, "Drumbeat".

Some of the stories that caught my eye:

1. The New York Times ran an article on oil depletion and advanced recovery techniques that are helping oil companies get more barrels of crude oil out of older, existing fields. Will these technological advancements succeed in pushing back "peak oil"?

Thanks to Paul at Infectious Greed for providing the initial link.

2. The Chinese water shortage is for real. The Oil Drum links us to a Yahoo! news story about a lack of water due to droughts and high temperatures in certain provinces of China.

3. More news of near slave-labor conditions in Brazil, this time in connection with biofuels production. Brazilian sugar plantations are said to be home to exploitative working conditions, and a large threat to the environment.

4. "We don't need no stinking subsidies...yet". A report from New Zealand energy users suggests that, "Renewables don't need help to compete". At least not until 2015, anyway.

That's it for now. More to come, soon.

Friday, March 02, 2007

Features of the week

We've got some great news and interview features for you this Friday. Lot of interesting market-related tidbits here, so let's dive right in.

1. Jim Rogers speaks with CNBC and Maria Bartiromo about the economy, commodities, and the recent worldwide market drop.

2. Noted international investor, Rudolph-Riad Younes chats with Maria about his outlook for investments and opportunities across the globe, and offers some observations on the importance of the upcoming French elections.

3. Marc Faber sits down with Bloomberg for an interesting interview segment. Lots of ground covered here, and I was pleased to hear Marc go into some detail on the issue of Thailand and his investment outlook for that country, so be sure to check this out.

4. The Economist recently took on the topic of tax havens, or "offshore financial centers", and their importance in the world economy. See their online article, "Places in the sun", for an introduction to their coverage of this issue, and the author's view of why tax havens are good for the global financial system.

Note: You may also be interested to hear the brief audio interview with the author, Joanne Ramos.

5. Harry Schultz, editor of the HSL report and one of the deans of the investment-newsletter business, is highly distressed about the future we seem to have carved out for ourselves.

Courtesy of M.A. Nystrom and HSL, "A Warning from Harry Schultz".

6. Jan Morris, writing for The Guardian, wonders what it will take for the US to right itself and return to its former greatness. I was especially interested in some of the comments to this editorial.

7. An article relevant to the week now ending. From The Economist, "Rethinking Risk".

8. "Goldman, Merrill Almost `Junk,' Their Own Traders Say". From Bloomberg.com.

9. In a world of apparent oil scarcity, some investors are bullish on shares of oil drillers.

10. Stratfor's George Friedman on, "China's Engineered Drop". Courtesy of Stratfor and John Mauldin's "Outside The Box" e-letter.

11. Warren Buffett seeks an investment protege. Also, Berkshire Hathaway's 2006 Chairman's Letter to Shareholders is now posted.

Read, think, and enjoy.

Thursday, March 01, 2007

Politics, media, and the drift from reality

Politics. One of my least favorite subjects.

As it stands, politics has a very unifying and universal feel about it; it serves as a great waste of time, money, and resources, while providing an affront to human decency and intelligence wherever it is practiced.

And yet, this noble occupation and artform (hey, pickpocketing is an artform if done well) consumes a great part of our attention and our lives. In America, it seems politics has come to consume a greater share of our daily lives, even as people claim they are feeling increasingly alienated from the political process and everyday "politics" between groups and individuals.

Still, few things have as great a hold on our national attention as the key election cycles. As we enter the runup to the 2008 presidential campaign, let's examine our interaction with the political and media circus/machine. We'll also look at some of the financial and economic trends that are likely to develop with the next election.

Now since I don't like to spend a lot of time thinking about or dealing with these issues (and I'll bet that you don't either), let's have a look at two concise, yet meaningful, articles that examine these subjects.

First, Martin Weiss of the Safe Money Report gives us his view of, "The Zaniest U.S. Election Campaign of Modern Times".

Weiss feels that given the state of our national economy and political situation, we might be headed for a period of greater dollar weakness and an environment of higher taxes and government regulation. Says Weiss:

Yes, it may be too early in the presidential campaign to speculate about who might win. But it’s not too early to analyze the financial consequences, regardless of who wins.

You certainly don't have to jump aboard Weiss' investment recommendations or buy into his economic outlook, but his ability to take in complex topics and trends and boil them down to an understandable level makes this a worthwhile read.

And from Joe Duarte, a thoughtful piece entitled, "Election Obsession: Sobering Thoughts on America".

Hope you are able to get something out of both of these articles. If you feel that you did, be sure to pass them on (you can do so easily by clicking the "email post" icon).