April 18, 2013

April 18, 2013

It’s Old News that Problems abound — but It’s Current News that Money is Being Made in Real Estate and Stocks

The old news is:
1)  The world’s banks remain in difficulty,

2)  The potential for worldwide deflation remains

3)  The fight against deflation via the mechanism of a huge quantitative easing continues in many countries.

4)  The potential for a global currency war and “beggar-thy-neighbor” policies exists.

All of these negatives are true and will someday lead to a very big decrease in the wealth of those who have not prepared.  But in our opinion, the timing for that is not now.  For many years, we have discussed the potential for major world economic problems, and how they may occur.  The key point is not if — but when — the above will occur.

In our opinion, the answer is not this week, or soon.  We believe that today there is opportunity for profits in stocks.  Many tailwinds exist to create that alternative. The message is to expand your asset base by making money. Let’s enjoy and make money when it’s easier to make than it has been for years.

Where is money being made?

The movement of cash flowing into investment dominates world attention.  Opportunity is to be found there...

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Immigration Reform: More H1B Visas, Please

Immigration reform appears to be on the horizon in the U.S.  The proposal will allow many millions of illegal immigrants to find a path toward citizenship.  Many of these people will add to U.S. economic growth by working in fields, and other jobs that do not require strong academic preparation.  The problem is that today the business world — especially technology industries where much of the U.S. growth and comparative advantage operates — requires knowledge of STEM fields (science, technology, engineering and mathematics).  What the U.S. desperately needs is an expansion of the H1B visa program, which would allow more highly educated foreign workers in STEM fields to work.

With half of Silicon Valley startups founded by Chinese or Indian-born entrepreneurs, according to the Financial Times¸ a crucial immigration reform would be to expand and rationalize the system that grants visas to this demographic.  Only 65,000 such visas are given out annually with a small additional supplement for those with advanced degrees.  This year the quota was filled in 5 days.  65,000 is a mere drop in the bucket for the U.S. workforce.

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Mis-Underestimated: China’s Official Stats May Downplay Consumer Spending

We’re used to thinking about China’s developmental imbalance between capital-intensive heavy infrastructure on one hand and consumer spending on the other.  China, we’re told, can’t continue its growth without rebalancing its investment towards the meeting of consumers’ needs.  Some recent analysis, however, suggests that for once, China’s unreliable official statistics may be telling a story that’s more unfavorable than it should be — in fact, consumer spending may be a lot higher than the official stats show.

At the end of February, Morgan Stanley published a report by two analysts, Jonathan Garner and Helen Qiao, which makes the case that private consumption accounts for 46 percent of Chinese GDP, rather than the 35 percent suggested by the government’s figures.  They arrived at this conclusion by working up from data down in the weeds — company reports, data on internal tourism, e-commerce, e-gambling, and other sectors they believe the official stats have neglected or underestimated.

China’s Rebalancing Act May Already be Underway

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Cyprus the Template: Will There Be a Push for Bail-Ins?  

After the confiscation of depositor assets in Cyprus, we see trends that suggest this may occur in countries that are not tax havens and that perhaps are located much closer to home for large developed countries.  Some countries are saying that instead of deposit insurance, there should be other forms of “resolution.”  New Zealand believes that deposit insurance increases moral hazard, by reducing risk management incentives.  Toby Fiennes, an official at the Reserve Bank of New Zealand, says, “We believe it is better to keep the risk of failure very low through a strong regulatory framework rather than to build structures that can distort incentives and behavior.”  According to Bloomberg:

“The central bank is proposing a system of open bank resolution as a better tool to manage a bank in the event that it fails.  That system uses a form of statutory management to freeze a bank’s accounts, then release a proportion of those accounts the next day with a government guarantee to prevent further runs on the bank.” (emphasis ours)

That sounds a little too much like a complete bail-in regime for our taste.

Canada is likewise mooting “bail-in” programs…

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Guild Basic Needs IndexTM

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To track the effects of rising prices of basic, essential needs, and our discussion of how it affects American policy and society, visit www.gbni.info.

In this week’s Premium Global Market Commentary available to Gold Subscribers, we discuss:

  • More on Cyprus, Greece, Europe, Russia

  • The Fragility of Power — Are Big Powers losing their Mojo?

    Thinking about global political, economic, and social trends

  • Guild’s Premium Global Market Summary

    We discuss our investment strategy and also have an update to our recommendation tracker.

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Guild Recommendation Tracker

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