by Paul Mladjenovic
Copyright 2010. Paul Mladjenovic. All rights reserved.
As we all watch from a distance, Greece is crumbling under the weight of its own spending and statist profligacy. It is important to highlight why Greece is where it is and what it means for the United States:
Greece is in chaos and collapse because in recent years…
• Its government grew too big
• Its public unions demanded more and more resources
• Its private sector was (and is) being taxed more and more
• The government’s deficit is rising and rising
• The deficits were financed by more and more debt
• Higher and higher taxes resulted in less and less tax revenue
• More demand and less supply meant rising prices for goods and services
• The symptoms become chaos, violence, bankruptcy and collapse.
• Reality arrived in 2010.
Now, what are we doing RIGHT NOW in the United States? What is happening for the good ol’ USA?
• Its government is growing too big
• Its public unions are demanding more and more resources
• Its private sector is currently being taxed more and more
• The government’s deficit is rising and rising
• The deficits are being financed by more and more debt
• Higher and higher taxes are resulting in less and less tax revenue
• More demand and less supply will mean rising prices for goods and services
• If we are not careful, we will have chaos, violence, bankruptcy and collapse.
• WHEN WILL REALITY ARRIVE? Stay tuned…it is coming soon.
As all of us watch the federal government spend trillions and forcing the private economy to shoulder more and more burden, the ultimate results will be tragic.
It is time for financial safety. The next issue of the Prosperity Alert will cover simple strategies that should be considered by all…whether you are an investor or not. Buying gold and silver bullion is just one step but all of us need to take more precautions. The picture is not just “financial”…it will be much more serious than mere investments or money.
Watching Greece is personally quite painful because it is nothing more than a re-hash of the same voodoo economics that has destroyed many countries throughout history…including the land of my birth, the former “socialist paradise” of communist Yugoslavia.
Please understand that the recipe for economic collapse really requires two basic ingredients; The economic philosophy of John Maynard Keynes coupled with a “generous helping” of aggressive statism. Statism can range from welfare statism to socialism and right on up to the “high-octane” statism of communism and fascism.
In many essays I have strongly recommended “limited government” because that is what makes sense to a healthy economy. Government…the embodiment of statism…is a tremendous burden on the economy and it must be limited because government does not produce anything…it is a voracious, coercive CONSUMER.
If America is to avert national chaos, it will have to change the recipe as soon as possible. That recipe must start first with debunking Keynesian economics and dramatically shrinking government.
… Before reality hits with a vengeance.
Tuesday, May 11, 2010
Tuesday, May 4, 2010
Investing 101- Bull Market or Bubble? How to Know the Difference
By Paul Mladjenovic – May 4, 2010
Copyright 2010. Paul Mladjenovic. All rights reserved.
To build wealth (or to avoid losing it), it is obviously important to discern where to put your money and where NOT to put it. That discernment is greatly tied to understanding which securities or assets will have are experiencing bullish or bearish conditions. In recent years many investors were fooled into thinking that a particular asset class was in a bull market when in actuality it was a in a “bubble”, which is the precursor to a bearish decline.
For investors, a “bubble” translates into a temporary head fake of financial success followed by a painful bearish plunge. We have all seen them. The most obvious recent examples include the Internet & tech stock bubbles that popped in 2000-2001 and the housing bubble that popped big time in 2007-2008.
If investors had seen these bubble conditions coming, they of course would have reduced their exposure to that asset class and headed for the safety of the sidelines. But when a bubble is in its “pre-pop” stage it has all the looks and emotions of a torrid bull market that many are fooled into thinking will go on indefinitely.
For the record, I never bought Internet stocks during the late 1990s because I thought they were speculations and not true investments. And, I started warning about that inflating bubble in 1998.
As the Internet & tech stock bubble continued to inflate during 1999, I started to question my wisdom (sanity?) since those stocks kept rising while I looked dumb for avoiding them. Sometimes, bubbles can last a lot longer than we anticipate.
The same thing happened with the housing bubble that was inflating during 2002-2006. I told my readers and students that the housing bubble would definitely pop and be a very painful event. I made that forecast public in my national seminars and then on the Internet during 2003-2004.
In 2005, the housing bubble continued to inflate and…again…I felt (looked?) dumb. But I thought about a prudent rule when it comes to avoiding the wretched aftermath of an asset bubble that pops…
IT IS BETTER TO GET OUT A YEAR TOO EARLY THAN A DAY TOO LATE!
During those years (and still today), I always enjoyed the opportunity to ask someone in the financial industry (especially investment portfolio managers) the following question:
WHAT IS THE DIFFERENCE BETWEEN A BULL MARKET AND A BUBBLE?
They should know…right?
I have also asked this question of students in my financial seminars. On average, the students gave more reasonable answers than most of the “financial experts”. For those of you that would like to know, here is the essential difference:
A BULL MARKET IS A “NATURAL EVENT” DRIVEN BY FREE MARKETS.
A BUBBLE IS AN “UNNATURAL” EVENT DRIVEN BY GOVERNMENT.
A bull market means that the price rise of a particular asset or asset class is driven by the natural, free market dynamics of buyers and sellers. As we know from “Economics 101” (or hope we know), when there are more buyers than sellers of a given asset (or product or service), all things being equal, the price of that given asset will rise. If there are more sellers, then of course the price of it will fall. In other words, “bull markets” are natural and healthy events that can easily last months, years or decades.
How about a “bubble”?
A bubble occurs when a normal bull market gains artificial stimulus typically from expansive credit and/or money supply infusions. This artificial stimulus usually comes from increased “injections” of new credit; new money creation which originates from governmental sources (such as a nation’s central bank or perhaps from other central banks). The artificial stimulus can also come when the central bank lowers (again, artificially) interest rates to levels below realistic market levels. It may also come from the government’s treasury.
The housing bubble had all the hallmarks of a bubble years before the public (and “experts”) finally noticed. The housing industry received massive injections of credit coupled with artificially low interest rates and artificially lax lending standards starting in 2001. These policies were aggressively applied by the Federal Reserve (America’s central bank), the US Treasury and by governmental entities (such as “Fannie Mae” and “Freddie Mac”). Of course, when plenty of “easy money” is chasing a finite supply of a particular asset (such as real estate), you will over-stimulate demand and cause prices to sky-rocket. And thus, a bubble is eventually created.
Bubbles may “feel good” for the early participants due to incredible price increases. However, as the great economist Ludwig von Mises observed long ago, bubbles may create an artificial “boom” but this euphoric event is followed by an equally jolting and painful decline…the “bust”.
For investors, it pays to be very wary of what looks like a “fantastic bull market”. Ask yourself if artificial stimulants are present (excessive credit, money supply increases, etc.).
A good example of an asset class that is currently in a bubble is U.S. Treasury bonds. Trillions of dollars (created) from the Federal Reserve and governments such as China have been pumped into these securities. These bonds have a very low, fixed interest rate and are very susceptible to dropping in value in the event of rising inflation and interest rates. More on this in future essays.
Are there any assets in today’s economy that are in a true bull market? Yes there are. A good example of a true bull market is precious metals such as gold and silver. Gold and silver have increased in value by over 300% since 2000.
Recently, a market pundit remarked that gold was a bubble, but this is not accurate. Why?
First of all, gold is not a bubble because there is no excessive credit or other artificial stimulant being pumped into the gold market. In fact, many central banks have even sold much of their gold holdings during the past decade. The bottom line is that there is no evidence that gold’s price has been driven higher due to government intervention.
But is gold in a bull market?
Gold is in a bull market given its performance and given the supply and demand fundamentals. According to industry sources, the worldwide supply of gold is tightening. Meanwhile, demand for gold is steadily rising as more and more investors and institutions see gold (and silver) as a proven store of value and hedge against inflation. In addition, gold is unique in that it does not have “counter-party” risk that is present in most paper assets (such as stocks, bonds, mortgage securities and mutual funds). Lastly, gold has had nine straight “up” years which certainly confirms its ability to retain and grow in value.
For more details about bull markets and bubbles and other events that affect your wealth-building pursuits, get the Prosperity Alert newsletter. You can get it free at http://www.SuperMoneyLinks.com.
The bottom line is that investors need to keep vigilant about assets and keep asking questions about all the possible reasons why a particular asset’s price is rising (or falling). If you determine that artificial forces (beyond the scope of supply and demand fundamentals) are the main culprit to an asset’s price rise, then you can take steps to avoid the inevitable collapse that will eventually follow.
Copyright 2010. Paul Mladjenovic. All rights reserved.
To build wealth (or to avoid losing it), it is obviously important to discern where to put your money and where NOT to put it. That discernment is greatly tied to understanding which securities or assets will have are experiencing bullish or bearish conditions. In recent years many investors were fooled into thinking that a particular asset class was in a bull market when in actuality it was a in a “bubble”, which is the precursor to a bearish decline.
For investors, a “bubble” translates into a temporary head fake of financial success followed by a painful bearish plunge. We have all seen them. The most obvious recent examples include the Internet & tech stock bubbles that popped in 2000-2001 and the housing bubble that popped big time in 2007-2008.
If investors had seen these bubble conditions coming, they of course would have reduced their exposure to that asset class and headed for the safety of the sidelines. But when a bubble is in its “pre-pop” stage it has all the looks and emotions of a torrid bull market that many are fooled into thinking will go on indefinitely.
For the record, I never bought Internet stocks during the late 1990s because I thought they were speculations and not true investments. And, I started warning about that inflating bubble in 1998.
As the Internet & tech stock bubble continued to inflate during 1999, I started to question my wisdom (sanity?) since those stocks kept rising while I looked dumb for avoiding them. Sometimes, bubbles can last a lot longer than we anticipate.
The same thing happened with the housing bubble that was inflating during 2002-2006. I told my readers and students that the housing bubble would definitely pop and be a very painful event. I made that forecast public in my national seminars and then on the Internet during 2003-2004.
In 2005, the housing bubble continued to inflate and…again…I felt (looked?) dumb. But I thought about a prudent rule when it comes to avoiding the wretched aftermath of an asset bubble that pops…
IT IS BETTER TO GET OUT A YEAR TOO EARLY THAN A DAY TOO LATE!
During those years (and still today), I always enjoyed the opportunity to ask someone in the financial industry (especially investment portfolio managers) the following question:
WHAT IS THE DIFFERENCE BETWEEN A BULL MARKET AND A BUBBLE?
They should know…right?
I have also asked this question of students in my financial seminars. On average, the students gave more reasonable answers than most of the “financial experts”. For those of you that would like to know, here is the essential difference:
A BULL MARKET IS A “NATURAL EVENT” DRIVEN BY FREE MARKETS.
A BUBBLE IS AN “UNNATURAL” EVENT DRIVEN BY GOVERNMENT.
A bull market means that the price rise of a particular asset or asset class is driven by the natural, free market dynamics of buyers and sellers. As we know from “Economics 101” (or hope we know), when there are more buyers than sellers of a given asset (or product or service), all things being equal, the price of that given asset will rise. If there are more sellers, then of course the price of it will fall. In other words, “bull markets” are natural and healthy events that can easily last months, years or decades.
How about a “bubble”?
A bubble occurs when a normal bull market gains artificial stimulus typically from expansive credit and/or money supply infusions. This artificial stimulus usually comes from increased “injections” of new credit; new money creation which originates from governmental sources (such as a nation’s central bank or perhaps from other central banks). The artificial stimulus can also come when the central bank lowers (again, artificially) interest rates to levels below realistic market levels. It may also come from the government’s treasury.
The housing bubble had all the hallmarks of a bubble years before the public (and “experts”) finally noticed. The housing industry received massive injections of credit coupled with artificially low interest rates and artificially lax lending standards starting in 2001. These policies were aggressively applied by the Federal Reserve (America’s central bank), the US Treasury and by governmental entities (such as “Fannie Mae” and “Freddie Mac”). Of course, when plenty of “easy money” is chasing a finite supply of a particular asset (such as real estate), you will over-stimulate demand and cause prices to sky-rocket. And thus, a bubble is eventually created.
Bubbles may “feel good” for the early participants due to incredible price increases. However, as the great economist Ludwig von Mises observed long ago, bubbles may create an artificial “boom” but this euphoric event is followed by an equally jolting and painful decline…the “bust”.
For investors, it pays to be very wary of what looks like a “fantastic bull market”. Ask yourself if artificial stimulants are present (excessive credit, money supply increases, etc.).
A good example of an asset class that is currently in a bubble is U.S. Treasury bonds. Trillions of dollars (created) from the Federal Reserve and governments such as China have been pumped into these securities. These bonds have a very low, fixed interest rate and are very susceptible to dropping in value in the event of rising inflation and interest rates. More on this in future essays.
Are there any assets in today’s economy that are in a true bull market? Yes there are. A good example of a true bull market is precious metals such as gold and silver. Gold and silver have increased in value by over 300% since 2000.
Recently, a market pundit remarked that gold was a bubble, but this is not accurate. Why?
First of all, gold is not a bubble because there is no excessive credit or other artificial stimulant being pumped into the gold market. In fact, many central banks have even sold much of their gold holdings during the past decade. The bottom line is that there is no evidence that gold’s price has been driven higher due to government intervention.
But is gold in a bull market?
Gold is in a bull market given its performance and given the supply and demand fundamentals. According to industry sources, the worldwide supply of gold is tightening. Meanwhile, demand for gold is steadily rising as more and more investors and institutions see gold (and silver) as a proven store of value and hedge against inflation. In addition, gold is unique in that it does not have “counter-party” risk that is present in most paper assets (such as stocks, bonds, mortgage securities and mutual funds). Lastly, gold has had nine straight “up” years which certainly confirms its ability to retain and grow in value.
For more details about bull markets and bubbles and other events that affect your wealth-building pursuits, get the Prosperity Alert newsletter. You can get it free at http://www.SuperMoneyLinks.com.
The bottom line is that investors need to keep vigilant about assets and keep asking questions about all the possible reasons why a particular asset’s price is rising (or falling). If you determine that artificial forces (beyond the scope of supply and demand fundamentals) are the main culprit to an asset’s price rise, then you can take steps to avoid the inevitable collapse that will eventually follow.
Monday, May 3, 2010
The Unfolding Danger: Greece Today…America Tomorrow?
By Paul Mladjenovic
Copyright 2010. Paul Mladjenovic. All rights reserved.
I have been analyzing economics and financial markets for over a quarter century and my analysis always stopped at “financial”. In other words, I do not follow trough usually past the financial theme. After all, as a certified financial planner (CFP), you usually think in terms of dollars and cents, interest rates and all sorts of financially-oriented concepts. I have always been concerned about the financial and economic impact of many different kinds of policies and events but in recent years I started thinking “outside of my own box.”
Perhaps what I find more unsettling that the financial impact of certain policies and events, is what happens afterwards. What is the social impact of bad financial/social policies?
After all, I don’t worry about the impact of good policies and good events since the impact is usually beneficial or at least not bad. However, it sunk in some years ago the following important observation:
ECONOMIC DISINTEGRATION LEADS TO SOCIAL DISINTEGRATION
When economies break down, you are left with people that have desperate needs. This was true in my former country Yugoslavia during the 1990s. It was true of the former Soviet Union during the late 1980s. It was true of almost every country throughout history.
As you watch Greece today, you see disintegration right before your eyes. In recent years, Greece’s government kept spending the country into today’s resulting chaos (think “Keynes”). The country may or may not be “bailed out” by the European Union. Of course, bailing out Greece means that other struggling countries will be forced to come up with the money to do so. What condition will those countries be in? After all, they are not in good shape today.
The next observation is also a very important one when we talk about heady topics like “economic collapse” and the resulting social disintegration:
THE #1 REASON WHY ECONOMIES COLLAPSE IS BECAUSE GOVERNMENTS
AND THEIR SPENDING (DEBT AND INFLATION) GROW OUT OF CONTROL.
That’s right…excessive and growing government is the #1 reason why economies collapse. Throughout history, various groups of people petitioned the government for money and assistance because they think that there is some endless pot of goodies called “government money”. Government does not have its own money…it only has what it can extract by force from others (taxes). In the case that it prints money, this is also not a “freebie”. Printing money leads to inflation and inflation is nothing more than an insidious stealth tax than consumers ultimately pay. Runaway inflation also leads to a currency collapse.
Throughout my life, I have always strongly called for limiting government. Yes…the main reason is that I have seen over and over again, the dangers of growing or unlimited government. Whether you call it “socialism” or some other “-ism” like communism or totalitarianism, it is still in the general realm of “statism” and this is something that must…MUST…be limited. Not only for the good of society but also ironically for the good of government itself.
The “good-hearted” among us like to see the government be there in those cases when individuals need a helping hand and this is fine. The problem is when the situation grows out of control. At that point, no one gets any help. It becomes desperate as government itself becomes a casualty of its own excesses.
Is America next? If America continues on its current path, the answer is a sad yet resounding one…YES.
For America’s sake, it needs to reign in government at all levels. It needs to drastically cut spending, reduce taxes and scale back the blizzard of regulations that are choking economic activity at all levels.
The sad truth is that the people in power now are not doing this at all. They are in fact escalating their efforts with massive trillion-dollar spending, rising taxes and producing more bureaucratic burdens for us.
Just look at the healthcare reform and the financial reform acts. These monstrosities are thousands of pages of inane, confusing and counterproductive bureaucracy with lots of economic harm and very little good.
As we face the abyss up ahead, we have an overzealous government at the driver’s seat and it is accelerating forward. Sadly, our short-sighted politicians don’t seem to care. God help us!
What we can do as individuals…
1) Keep up your individual efforts to accumulate physical gold and silver and get your “financial house in order”. Just because the government is pushing us toward bankruptcy and chaos, that doesn’t mean that we should do the same. Keep managing your costs, lowering your debt, etc.
2) As I have mentioned in prior essays, support those candidates and policies that lower the size, scope and reach of government (at all levels).
3) Keep building up your network of friends and allies. That will come in handy later on.
Also, take a moment to sign up for the Prosperity Alert newsletter since I will be adding more resources and strategies for coping in today’s economy. In a forthcoming issue, I will make some economic forecasts to keep you “ahead of the curve”. Take control and …take care!
Taking the right steps now will help you and your loved ones get to the other side with greater safety.
Copyright 2010. Paul Mladjenovic. All rights reserved.
I have been analyzing economics and financial markets for over a quarter century and my analysis always stopped at “financial”. In other words, I do not follow trough usually past the financial theme. After all, as a certified financial planner (CFP), you usually think in terms of dollars and cents, interest rates and all sorts of financially-oriented concepts. I have always been concerned about the financial and economic impact of many different kinds of policies and events but in recent years I started thinking “outside of my own box.”
Perhaps what I find more unsettling that the financial impact of certain policies and events, is what happens afterwards. What is the social impact of bad financial/social policies?
After all, I don’t worry about the impact of good policies and good events since the impact is usually beneficial or at least not bad. However, it sunk in some years ago the following important observation:
ECONOMIC DISINTEGRATION LEADS TO SOCIAL DISINTEGRATION
When economies break down, you are left with people that have desperate needs. This was true in my former country Yugoslavia during the 1990s. It was true of the former Soviet Union during the late 1980s. It was true of almost every country throughout history.
As you watch Greece today, you see disintegration right before your eyes. In recent years, Greece’s government kept spending the country into today’s resulting chaos (think “Keynes”). The country may or may not be “bailed out” by the European Union. Of course, bailing out Greece means that other struggling countries will be forced to come up with the money to do so. What condition will those countries be in? After all, they are not in good shape today.
The next observation is also a very important one when we talk about heady topics like “economic collapse” and the resulting social disintegration:
THE #1 REASON WHY ECONOMIES COLLAPSE IS BECAUSE GOVERNMENTS
AND THEIR SPENDING (DEBT AND INFLATION) GROW OUT OF CONTROL.
That’s right…excessive and growing government is the #1 reason why economies collapse. Throughout history, various groups of people petitioned the government for money and assistance because they think that there is some endless pot of goodies called “government money”. Government does not have its own money…it only has what it can extract by force from others (taxes). In the case that it prints money, this is also not a “freebie”. Printing money leads to inflation and inflation is nothing more than an insidious stealth tax than consumers ultimately pay. Runaway inflation also leads to a currency collapse.
Throughout my life, I have always strongly called for limiting government. Yes…the main reason is that I have seen over and over again, the dangers of growing or unlimited government. Whether you call it “socialism” or some other “-ism” like communism or totalitarianism, it is still in the general realm of “statism” and this is something that must…MUST…be limited. Not only for the good of society but also ironically for the good of government itself.
The “good-hearted” among us like to see the government be there in those cases when individuals need a helping hand and this is fine. The problem is when the situation grows out of control. At that point, no one gets any help. It becomes desperate as government itself becomes a casualty of its own excesses.
Is America next? If America continues on its current path, the answer is a sad yet resounding one…YES.
For America’s sake, it needs to reign in government at all levels. It needs to drastically cut spending, reduce taxes and scale back the blizzard of regulations that are choking economic activity at all levels.
The sad truth is that the people in power now are not doing this at all. They are in fact escalating their efforts with massive trillion-dollar spending, rising taxes and producing more bureaucratic burdens for us.
Just look at the healthcare reform and the financial reform acts. These monstrosities are thousands of pages of inane, confusing and counterproductive bureaucracy with lots of economic harm and very little good.
As we face the abyss up ahead, we have an overzealous government at the driver’s seat and it is accelerating forward. Sadly, our short-sighted politicians don’t seem to care. God help us!
What we can do as individuals…
1) Keep up your individual efforts to accumulate physical gold and silver and get your “financial house in order”. Just because the government is pushing us toward bankruptcy and chaos, that doesn’t mean that we should do the same. Keep managing your costs, lowering your debt, etc.
2) As I have mentioned in prior essays, support those candidates and policies that lower the size, scope and reach of government (at all levels).
3) Keep building up your network of friends and allies. That will come in handy later on.
Also, take a moment to sign up for the Prosperity Alert newsletter since I will be adding more resources and strategies for coping in today’s economy. In a forthcoming issue, I will make some economic forecasts to keep you “ahead of the curve”. Take control and …take care!
Taking the right steps now will help you and your loved ones get to the other side with greater safety.
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