Emerging markets have seen double digit growth for many years now and are constantly out performing the West with their flat lined economies. These power houses have great resources and workforce capacity which operate in pro business environments. There are also great long term factors underpinning EM stocks.
So should we all be rushing into EM stocks as a safe haven for your money in these times of uncertainty?
Definitely not. While Emerging Markets own most of the manufacturing the west owns most of the finance. So when Western institutions need cash to cover loosing bets they pull it out of EM and put it into US dollars. America sneezes and we all catch a cold.
But this can offer opportunities because the true value will out in the end so be patient.
Monday, 9 January 2012
US Debt problem made simple
This appeared on Facebook a little while ago but is excellent for high lighting the depth of the problem.
US tax revenue $2,170,000,000,000
Fed budget $3,820,000,000,000
New debt $1,650,000,000,000
Total debt $14,271,000,000,000
BUDGET CUTS $38,500,000,000
Converted in to a families house hold bills by removing 8 zeros
Income (wages) $21,700
Family spend $38,200
New debt(credit cards) $16,500
Total debt $142,710
BUDGET CUTS $385
Dont think I need to say anymore...
US tax revenue $2,170,000,000,000
Fed budget $3,820,000,000,000
New debt $1,650,000,000,000
Total debt $14,271,000,000,000
BUDGET CUTS $38,500,000,000
Converted in to a families house hold bills by removing 8 zeros
Income (wages) $21,700
Family spend $38,200
New debt(credit cards) $16,500
Total debt $142,710
BUDGET CUTS $385
Dont think I need to say anymore...
Saturday, 7 January 2012
Origins of Currency
The use of gold as money has been traced back to the fourth millennium BC when the Egyptians used gold bars of a set weight as a medium of exchange. The British pound was originally defined as a one pound mass of silver.
The term gold standard is often thought to refer to a currency where notes were fully backed by and redeemable in an equivalent amount of gold. The British pound was the strongest, most stable currency of the 19th Century and often considered the closest equivalent to pure gold, yet at the height of the gold standard there was only sufficient gold in the British treasury to redeem a small fraction of the currency then in circulation.In 1880, US government gold stock was equivalent in value to only 16% of currency and demand deposits in commercial banks. By 1970, it was about 0.5%.Through much of the 20th Century until 1971, the US dollar was ‘backed’ by gold, but from 1934 only foreign holders of the notes could exchange them for metal.
Fiat money refers to money that is not backed by reserves of another commodity. The money itself is given value by government fiat(Latin for "let it be done"). In 1971 the United States finally switched to fiat money indefinitely. At this point in time many of the economically developed countries' currencies were fixed to the US Dollar (see Bretton Woods Conference), and so this single step meant that much of the western world's currencies became fiat money based. When governments produce money more rapidly than economic growth, the money supply overtakes economic value. Therefore, the excess money eventually dilutes the market value of all money issued. This is called inflation. So as we are currently seeing in western economies, inflation driven by quantitive easing or money printing.
Fiat currencies nearly always end disastrously. Governments resort to extreme measures to prop up failing currencies. US made gold ownership illegal in the in the 70’s and the French government of the 17th century forced acceptance of its failing currency through fear. Execution was top of the bill for anyone refusing it!
The term gold standard is often thought to refer to a currency where notes were fully backed by and redeemable in an equivalent amount of gold. The British pound was the strongest, most stable currency of the 19th Century and often considered the closest equivalent to pure gold, yet at the height of the gold standard there was only sufficient gold in the British treasury to redeem a small fraction of the currency then in circulation.In 1880, US government gold stock was equivalent in value to only 16% of currency and demand deposits in commercial banks. By 1970, it was about 0.5%.Through much of the 20th Century until 1971, the US dollar was ‘backed’ by gold, but from 1934 only foreign holders of the notes could exchange them for metal.
Fiat money refers to money that is not backed by reserves of another commodity. The money itself is given value by government fiat(Latin for "let it be done"). In 1971 the United States finally switched to fiat money indefinitely. At this point in time many of the economically developed countries' currencies were fixed to the US Dollar (see Bretton Woods Conference), and so this single step meant that much of the western world's currencies became fiat money based. When governments produce money more rapidly than economic growth, the money supply overtakes economic value. Therefore, the excess money eventually dilutes the market value of all money issued. This is called inflation. So as we are currently seeing in western economies, inflation driven by quantitive easing or money printing.
Fiat currencies nearly always end disastrously. Governments resort to extreme measures to prop up failing currencies. US made gold ownership illegal in the in the 70’s and the French government of the 17th century forced acceptance of its failing currency through fear. Execution was top of the bill for anyone refusing it!
Friday, 6 January 2012
Thursday, 5 January 2012
Is Capitalism Finished?
Firstly lets look at Wikipedia's definition of capitalism:
"A free-market economy is one within which all markets are unregulated by any parties other than market participants. In its purest form, the government plays a neutral role in its administration and legislation of economic activity, neither limiting it (by regulating industries or protecting them from internal/external market pressures) nor actively promoting it (by owning economic interests or offering subsidies to businesses or R&D)."
Now let us consider how the governments have acted:
*They have bailed out insolvent banks with Taxpayers money rather than leave them to the natural laws of economics and now own most of them.
*They continue to inflate currency supply by both printing £'s and $'s (quantitive easing) and manipulating the price of gold in paper markets to prop up their failing currencies. Put quite simply when investors look to protect wealth, gold is seen as a safe haven as it can not be plucked out of thin air. If the price of gold starts to fall then those investors might buy dollars instead so it is in the governments interests to suppress it.
So, is capitalism finished? lets hope not because this is not free market capitalism and free market capitalism is probably the only thing that will sort this mess out
"A free-market economy is one within which all markets are unregulated by any parties other than market participants. In its purest form, the government plays a neutral role in its administration and legislation of economic activity, neither limiting it (by regulating industries or protecting them from internal/external market pressures) nor actively promoting it (by owning economic interests or offering subsidies to businesses or R&D)."
Now let us consider how the governments have acted:
*They have bailed out insolvent banks with Taxpayers money rather than leave them to the natural laws of economics and now own most of them.
*They continue to inflate currency supply by both printing £'s and $'s (quantitive easing) and manipulating the price of gold in paper markets to prop up their failing currencies. Put quite simply when investors look to protect wealth, gold is seen as a safe haven as it can not be plucked out of thin air. If the price of gold starts to fall then those investors might buy dollars instead so it is in the governments interests to suppress it.
So, is capitalism finished? lets hope not because this is not free market capitalism and free market capitalism is probably the only thing that will sort this mess out
Monday, 2 January 2012
How will the Euro crisis end?
Seeing as we have looked at how it started we all need to know the most important issue...the end game!
No one can be certain, Politicians have a track record in changing the rules as they go along however this time its different and I for one cant see many hiding places from the markets. At very best I see a much smaller union with Germany and France at a core of maybe 2 others. At worst a complete Financial collapse with a run on the banks and civil unrest.
Play with this interactive chart and decide for yourself.http://t.co/a6Skwlea
No one can be certain, Politicians have a track record in changing the rules as they go along however this time its different and I for one cant see many hiding places from the markets. At very best I see a much smaller union with Germany and France at a core of maybe 2 others. At worst a complete Financial collapse with a run on the banks and civil unrest.
Play with this interactive chart and decide for yourself.http://t.co/a6Skwlea
What really caused the eurozone crisis
Vey difficult to explain clearly in a blog but this easy to understand chart from BBC News is worth a look at. It breaks down the roles each member state had leading up to the current crisishttp://www.bbc.co.uk/news/business-16301630
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