SOS GIGO

This is what Peter Schiff said about the Keynesians eonomists, Garbage In Garbage Out.

Lets talk about the CAR, Capital Adequacy Ratio of the Banks.

Prior to the collapse of the financial crisis, most of the Big Banks in USA is above the CAR. Then suddenly all of them have problems in Sep 2009. Non of the auditors, regulators, rating agencies even raised a red flag of the financial health about the banking or housing sector.

Have anyone stop and think, why, why, why? If one investigate further one will find that there are limitation in the CAR's formula, and I am sure, there is limitation in the rating agencies formula to evaluate the health of the companies and there is even limitation of the formula to evaluate the economy as a whole.

Even US claims to be the most transparent economy in the world, and why didn't we see it? There are Harvard, MITs, Stanford, Harvards, and top notch universities in US, how come non of them sees it?

That is something INVINSIBLE, and everyone seems to overlook it, it is called DERIVATIVES.

It is worth about USD600 trillion, 1000% of world GDP of USD54 trillion. Say, if we tax 1%, it is worth USD6 trillion.

SOS USA

China, Japan, UK, Caribbean & Middle East hold about USD2.0 trillion US Debt.

USA reserve on gold is about USD225 billion @ USD900 per ounce.

USA total debt is about USD50 trillion, out of which Federal Debt is about USD10 trillion.

USA GDP is about USD14 trillion and Earnings of USD1.2 trillion.

It is doubtful if USA is able to repay its loans, not to mentioned that significant contribution to the Earnings is from financial and housing industries, which has since collapse.

USA derivatives, estimated to be around half of total world derivatives of USD600 trillion.

The mortgage market size is about USD20 trillion, not to mentioned the derivatives created from this market would be at least 5-10 times more.

MyView

Mathematically speaking, USA has overgeared 358% of GDP, over consumed at 70% of GDP. The next question is the GDP is highly inflated by the financial, housing and derivatives industries. Just take earnings after interest (private) , interest on private debt of about USD40trillion x 3% = 1.2 trillion, the interest cover about 1 time. This is not very healthy, especially there is so much to write down on toxic assets (4 big banks has a off balance sheet of derivatives of USD5.2trillion) and Roubini expect the write of of bad debts of about USD2 trillion.

Say a normalised GDP is USD10 trillion (adjust for sustainable gearing of 200% and consumption of say 50% of GDP), the earnings will drop to USD0.7 trillion.

SOS Pessimistic!

Most people call them Dr Doom or Mr Pessimistics when they predict about the market in 2008 and 2009 on the financial crisis:

1. Jim Rogers


2. Marc Faber


3. Peter Schiff


4. Ron Paul


5. George Soros


6. Dr Nouriel Roubini


7. Gerald Celente

They are not pessimistics, they are just realistic. They understand the facts and know how to analyse the economy and more importantly they got it right previously and they use the most important tools that others fail to understand or refuse to accept it, common sense.

Like what Jim Rogers said, Ben Bernanke has been wrong about the US economy for the past 7 years, and Timothy Geithner has been wrong about the economy for the past 15 years and the administration chooses them as their critical advisor. They are the elites, they only helps their own kind, and of course, the have to do something politically right but economically wrong.

It is sad to know that most people is influnce by what they listen from the media and other popular economists saying this crisis will be over by end of 2009 or early 2010, they haven't even sees the real thing yet!!

Please prepare yourself or you may regret it.

I believe the failure of most economists on the crisis is they may have studied the wrong type of economics and forgot about the most important tools, common sense, and of course influence by the media.

So, for learning economics, I would recommend we read more stuff written by this guys. They have been right and will be right on this one as well.

SOS Wake Up!

US economy is turning from bad to worst
Europe economies is turning from worst to disaster

Both Europe and US economies contributes >60% of world GDP

Why are they not doing well in the long run?

• Over borrowing


• Over spending


• Participate significantly in derivatives


• Government interventions, protections and bailouts


• Government is broke and continue to print money (spending money from more debt, as they do not has reserves or surplus like the Asian economies)

Is the Asian economies any better?

• in the short term no, because they over invest and over produce for the Europe and US


• in the long term, they are better off because they have strong reserve and surplus to reinvest into their own countries, and sell to their populations, esp China, which still has lots of room to grow


• they are rich in resources and commodities and that is what the mass population needs, infrastructure development and better food

So, for investment for LONG TERM (more than 5 years), what is the asset class should we be investing?

• the banking system has collapse, new credits are shrinking, hence investment in mining, agriculture and other resources will be impeded, hence causing low inventories, and as the demand increases in the Asian countries esp, lack of credits will suffocate the supply, and demand will gradually increase when the Asian economies recovers, hence, causing an imbalance of demand exceeding supply for COMMODITIES. Hence, one class that is critical for LONG TERM investment is critical.


• with this crisis prolonging, and low interest rates regime, and printing of trillions of dollars without a strong reserve by Europe and US, it will cause hyper inflation, hence, the next logical asset class to invest is precious metals like GOLD, SILVER and PLATINUM.


• One more class that is hard to avoid is the EQUITIES. For LONG TERM, avoid equities in Europe and US, but there may be rebounds (25% to 50%) in a secular bear. Go for Equity in Asia or Resource rich countries like Australia or Canada. LONG TERM equity should focus on the fundamental that is not impaired by this crisis, i.e. in the LONG RUN, demand will exceed supply type of business. Some of the countries would be like China, Canada, Australia, Brazil, NZ. The equities in the resource rich countries and strong reserves will recover and do much better than their counter part in the Western countries.


• Last but not least is CURRENCIES as an asset class. This is a hard call as it very much depends on the government taking the correct actions. Some that we would like to consider is China's RMB, Canadian dollars, or Aussie dollars.


• The incentive to saving (for Asian countries) will not be advantagerous as inflation and low interest regime still in place.

SOS World GDP

GDP = consumption + gross investment+ govt. spending+ (export - import)

GDP = rent + interest + profits + wages + (corporate income tax+dividend+undistributed profits)

2007 - GDP = USD54.6 trillion

2008 - GDP = USD56.2 trillion (3% growth)

World (2007)

54,584,918[4]
—
European Union (expected to drop 6%)
16,905,620[4]
1
United States (expected to drop 6%)
13,840,000
2
Japan
4,381,576 (expected to drop 8%)
3
Germany (expected to drop 6%)
3,320,913
4
China (PRC) (expected to grow 7%)
3,280,224h
5
United Kingdom (expected to drop 6%)
2,804,437
6
France (expected to drop 6%)
2,593,779
7
Italy
2,104,666
8
Spain
1,439,983
9
Canada
1,436,086
10
Brazil
1,313,590

General calculation - World GDP drop 3% = 56.2 x 0.97 = USD54.5 trillion drop about USD1.7trillion

4th Quarter GDP for 2008

United States = - 6.2%

EU = -6%

Japan = -13%

Singapore = -17%

World Derivatives = USD600 trillion

MyView

Citigroup, Bank of America, JP Morgan and Wells Fargo off balance sheet assets is about USD5.2 trillion (based on 2008 filing).

The top 5 GDP countries need to normalise their GDP which is inflated by the US over consumption and US over gearing (and also Europe). Hence, there will be a severe adjustment in these countries.

This severe readjustment will cause volatility in currency, economy, social and political crisis. Get prepared. Learn about ETF in short selling.

SOS Fear

Fearful & Desperate = Bush + Media + Iraq War = Genocide

Fearful & Desperate = Obama + Media + Stimulus Package = Economy Collapse

When people are fearful and desperate they will hang on to HOPE, CHANGE & BELIEVE because they do not know what to do, they lose CONTROL.

The US economy is like a patient who are already brain dead, and the patient's relative HOPING, BELIEVING there would be a miracle to happen or hopes that there are "CHANGES" and "NEW DEVELOPMENT" in science that could save the patient. This is exactly what happen in the US and Europe.

MyView

If we look back to 911 and how George Bush and 90% American supporting the Iraq War, you will realised that 90% of the American being used and manipulated because they are fearful & desperate.

Similarly this round of mortgage & financial crisis 915 in 2008, 90% of American are fearful and desperate and will support whatever stimulus plan the US Government is providing because they are fearful & desperate.

It is ashame that so many Americans get sucked into this "mentality" that AIG or Citigroup is too big to fail. According to Jim Rogers, in the thousand years of history, big banks had failed before, big companies had failed before and there is nothing new to it, this is called capitalism, when during a crisis, the competent will take over the incompetent people. In this case, the incompetent are being bailout or helped, and the competent will be worst off because they are disadvantaged.

I suppose we cannot blame the American since they lose their control because they are fearful & desperate, hence, they have to go through a time called "DENIAL". If they sit down, with a calm mind, and find out all the facts and figures about the crisis, they will come to accept that the patient is "brain dead", the only way is to let it be and move on.

The stimulus plan or "bailout" does not make economic sense. Like what Jim Rogers said, our mother or farther never thought us to throw money into a rat hole.

SOS US Currency

Eventually US Dollar will look like this. Copy from turtleinvestor's blog. Hopefully, it can buy a McDonald.

Facts and figures to ponder;

World GDP = USD60T
World Derivatives = USD600T (1000% of world GDP)
US GDP = USD14T (2008)
US Earnings = USD1.2T
US Debt = US50 T
US Market Capitalisation is about USD10T (end of 2008 or 71% of GDP)
US Earnings mainly contributed by over gearing (3.6 times of GDP) & over consumption (USD10T or 71% of GDP ). The long term gearing of US is 2 times of GDP.
US in the last few years, contributed mainly by the financial institutions i.e. investment banks like Lehman, Bear Stearn, Goldman Sach, JP Morgan, BoA etc, mortgate institutions like AIG, Fannie Mae and Freddie Mac.
World Toxic Asset = US3.6T (by Roubini, about USD2.0T from US)
Roubini predicted earnings will drop to USD50 to USD60 x PE of say 10 = S&P 500 = 500 - 600 points

Since the US Earnings are inflated by Gearing & Over Consumption, if we reduce the gearing to say 200% from 360% in order to go back to NORMACY, loan is expected to drop say 44%.

USD50T debt = US Earnings of USD1.2T
USD28T debt (dropped 44%) = USD Earnings = should dropped 44%x1.2T = USD0.5T

Consumption USD10T = US Earnings of USD1.2T
Reasonable consumption USD7T = US Earnings should dropped 30% x 1.2T = USD0.4T

Hence, a reasonable or NORMACY kind of earnings after adjustment of GEARING and CONSUMPTION

USD1.2T - USD0.5T - USD0.4T = USD0.3T x PE of 8.3 times = GDP of USD2.5T

Hence, the Normal GDP of USD is USD2.5T from the over inflated GDP of USD14.0T.

MyView

Just assumed the US as a Corporation making USD1.2 T with debt of USD50T and derivatives of USD300T, and a over inflated GDP of USD14T of which 71% or USD10T is consumption, what do we get?

Just use simple arithmatic calculation and you will soon realise the Corporation is a BANKRUPT.