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Tuesday, 26 January 2010

A Macroeconomic View of the Current Economy

Q&A with: David A. Moss
Published: January 25, 2010
Author: Sean Silverthorne

If they didn't understand it already, executives and corporate managers have learned one huge lesson over the past couple of years: macroeconomics matters.

Interest rates. Exchange rates. Trade deficits. The Gross Domestic Product. Inflation. All of these can affect a company's bottom line by influencing the cost and availability of money, goods, and services. Macroeconomic forces can conspire to make business more difficult, but they can also present opportunities to executives who know how to, for example, read a country's national income accounts and balance of payments.

For explanations on how the economic system works and what history teaches us, business readers might turn to A Concise Guide to Macroeconomics: What Managers, Executives, and Students Need to Know, by Harvard Business School professor David A. Moss, who holds graduate degrees from Yale in economics and history. The book, which grew out of background notes Moss wrote for his MBA students, is a nontechnical, accessible explanation of broad concepts such as "output," "money," and "expectations"—as well as more specific ones ranging from real exchange rates to total factor productivity. Moss also includes numerous tools for interpreting big-picture economic developments.

We asked Moss to talk about the book and some of the events now taking place on the macroeconomic horizon.

Sean Silverthorne: What's the definition of macroeconomics?

David Moss: It involves thinking about the economy as a whole. Micro is about firms and individual actors and how they behave; macro is about aggregate performance of the economy: overall GDP, trade surplus or deficit, inflation.

In principle, we should be able to get rid of the (macro/micro) distinction because all micro behavior—all the firms and individuals—add up to the aggregate economy. But it turns out that we're not there yet. There's still a great deal we don't fully understand. We see patterns at the macro level that are sometimes hard to disaggregate and pinpoint exactly where they came from at the micro level. So as a result, we separate macro and micro. Someday, if we ever figured everything out, these things would come together. That's true in many areas of study.

Q: What will executives and other business readers learn from the book?

A: One of the most important things is they're going to be able to read the Financial Times, the Wall Street Journal, and The Economist much more effectively than they could before. Those publications integrate macroeconomics with what we know about business and markets, often in the very same articles. Without some background in macroeconomics, much of that goes past the reader.

What exactly does it mean that the real interest rate has moved, or the real exchange rate has moved this way or that? There are different types of productivity—labor productivity, capital productivity, and total factor productivity. Which is the right one to look at in a particular context?

There's a lot of information out there—particularly in the business press. If these aren't familiar terms, and if one doesn't have a way of putting it all together, then you can't process all of this information as effectively as possible.

I think another thing readers will learn is that they can look at big developments at the macro level and start to think about what they mean—how these developments might come back and affect their bottom line.

Let's take exchange rates. Exchange rates fluctuate widely, and anybody who tells you they know what the exchange rate is going to be tomorrow either has godlike powers or is putting you on. But there are patterns over time. For example, countries that are running large and ongoing current account deficits tend to see their currencies depreciate over time. This doesn't mean that the currency of a country running consistent current account deficits is going to depreciate tomorrow or next week or even next month. But over time, you expect it to depreciate. So if you're a business manager, you probably want to be fairly well hedged against this possibility, either by making use of certain financial instruments or by carefully spreading out your real investments across various countries.

Q: You mentioned that you can't predict exchange rates. But are there rules of thumb managers can practice when thinking about exchange rates and how to play them?

A: I'll mention several.

First, as I just suggested, it makes sense to look at a country's current account deficit or surplus. For countries that are running large current account surpluses, like China and Japan, you'd expect their currency to appreciate over sustained periods of time. I can't say for sure that Japan's currency is going to appreciate over time, but in all likelihood, it will. I would be very surprised if China's doesn't appreciate over time.

Another thing you want to look at is inflation. If a country has a higher inflation rate than its trading partners, you should expect that its currency is likely to depreciate over time as well.

Maybe I can put this in some perspective. Over the long term, a main driver of a country's exchange rate is probably its current account deficit or surplus. In the medium term, you probably want to look at inflation rates. But at the day-to-day level, changes in short-term interest rates seem to be a key driver. For example, if the European Central Bank suddenly (and unexpectedly) raises its key short-term interest rate tomorrow, you're probably going to see the euro appreciate, almost immediately. If the central bank of the United States—the Fed—unexpectedly lowers its interest rate, the dollar may well depreciate a bit that same day. You tend to see these very quick fluctuations associated with interest-rate changes. But over the longer term, the current account balance is probably far more important.

Q: What is the current account deficit, and why is it important?

A: The current account deficit just means that you (as a country) are consuming, or spending, more than you actually produce. Think about a household. If you earn $100,000 a year and spend $106,000, you're going to have to borrow $6,000 (or draw down your assets) to make up the difference. The same is true for a country.

Between business spending, government spending, and consumer spending—consumer spending being the biggest—the United States consistently spends more than 100 percent of its GDP (as high as 106 percent in 2005 and 2006). But of course we produce only 100 percent of GDP, so we need to borrow the difference. How do we do that? Well, we ask the Japanese, the Chinese, and some others for their goods, and they give them to us. And then they lend us the money to buy them. We are both borrowing—literally borrowing in financial terms from, particularly, the Asians—and getting their goods (imports). Someday, they're going to want us to repay, which means they're going to have a claim on our output. And someday, we're probably going to have to run a current account surplus, where we're producing more than we spend, and we're shipping off the rest (the surplus) to our current creditors.

Q: Your book centers on the three pillars of macroeconomics: output, money, and expectations. Can you talk generally why these are important to understand?

A: When you think about these three things, output should be in big letters, and the other ones in smaller letters. Output is really the center of macroeconomics, and the key measure is the GDP, that is, total aggregate output, the market value of all final goods and services produced.

In a sense, all that you (as a country) have is the total output that you produce in a year—your GDP. Sometimes people think if everyone owned lots of stocks and bonds, we could all retire happy, regardless of the GDP. But if the nation's total output in future years is not sufficiently large, then all those stocks and bonds are going to end up being worth a lot less than expected. Total output is the key to how much we can consume, not little pieces of paper called stocks and bonds.

As a result, economists worry a lot about how a country can increase its GDP growth rate, how higher growth of output can be achieved over the long term, and how we can make sure that in the short term total output isn't unduly volatile (with unsustainable booms and busts).

Q: The second pillar of macroeconomics is money.

A: In some sense money is just another asset, but it turns out to be a rather special asset. One of the reasons it is special is that there seems to be a relationship between people's holdings of that particular asset and their current consumption or spending. And that's because money is an asset that you can use to buy things, right now. It's the ultimate form of liquidity. But another thing that's important about money is that its supply is largely controlled by the government. Depending on which type of money supply you look at, the government has either a complete monopoly or a partial one. By their control over the money supply, central bankers can essentially set interest rates, especially short-term interest rates.

And that's the basis of monetary policy. It's because of that control over the money supply—either increasing or decreasing the money supply—the government can set short-term interest rates. And that short-term interest rate is what central bankers use to try to control inflation and moderate the business cycle.

Q: And what about expectations? Why are expectations the third pillar?

A: Expectations are extremely interesting because they represent a connection between the present and the future. Current decisions are affected by what people expect the future to bring. For example, business managers set the prices of their products—at least in part—based on expectations. More broadly, if people expect the price of a good (say, wheat) is going to be higher in the future, then the price is going to start rising today.

Although expectations of all sorts are important, one particular set of expectations—about the state of the overall economy and one's own future income—is especially important from a macroeconomic perspective. If people believe the economy is going to falter, even if their reasons are wrong, in the short term the economy may well falter. If consumers believe that they'll soon be in economic trouble, they will reduce their consumption and start scaling back on purchases. And what are businesses going to do? If they see people reducing their consumption (or even just planning to reduce their consumption), business managers may decide to scale back on their own operations, so as not to produce a lot of output that no one's going to buy. Firms will start laying off workers. And then, of course, the negative expectation becomes self-fulfilling. You can even get stuck there for a long time—in a recession.

That's why in some cases you need either a very aggressive monetary policy or large-scale deficit spending, which is what we've seen this past year. Both aggressive monetary easing (lower interest rates) and large-scale deficit spending send the signal that demand will increase, and thus both aim to break the cycle of negative expectations about the economy.

Q: What's a good way to think about foreign direct investment in the United States? Are we selling too much of our core assets to foreign investors?

A: Look, this is a political decision, and it's above my pay grade. There may be some strategic assets that we (as Americans) don't want to sell to foreigners. Congress is going to have to decide which ones those are. It may be that we don't want to sell certain elements of our media to foreigners, or perhaps certain strategic assets that are important for building critical military equipment.

One can be too cautious about reliance on foreigners. In the early 19th century, the British thought their grain supply was strategic, and they protected it aggressively. Eventually, however, with the repeal of the Corn Laws, the British decided to move toward free trade in wheat. It was a controversial move. Skeptics feared that other countries that supplied wheat to Britain could use it as a weapon, by threatening to starve Britain. But it turned out that nothing of the sort ever happened, and Britain was almost certainly better off after it repealed its Corn Laws.

The broader thing to think about with regard to foreign investors buying assets in the United States is that if we as a country are going to spend more than we produce—if we're going to run a current account deficit—year after year, then there's in fact no alternative to foreigners buying our assets, either debt or equity. As I said, if you're earning $100,000 and you're spending $106,000, you're going to have to borrow or draw down your assets to make up the difference. So that's what we're doing as a country. The problem is not fundamentally that foreigners are buying too many American assets, but that Americans are spending too much.

The right way to fix this, of course, is by increasing the American savings rate. Up until the economic crisis, household savings were essentially zero, business was saving in the vicinity of 15 percent (through retained earnings), and the government was dissaving (because of its budget deficit) by a few percent of GDP each year. Once the crisis struck, household savings rose, and government dissaving (deficits) rose by about the same amount.

Over the long term, we'll need to find a way to save more across the board. We'll need to increase our national savings rate quite substantially. That's ultimately the only way we're going to turn around our current account deficit and ultimately stimulate the kind of growth longer term that we'd all like to see.

So what does that mean? We need to figure out how to encourage households to increase their savings, especially once the recession is clearly behind us. I think that will have to be front and center. Also, once the recession is over, we'll definitely need to get our budget deficits under control—most likely by controlling spending and raising taxes. We'll certainly need to prepare for the retirement of the baby boomers.

Q: The Federal Reserve Board and its chairman, Ben Bernanke, have tremendous influence on the business environment, particularly on interest rates. If you're a manager and interest rates affect your business, how do you think about this?

A: It's worth putting yourself in the shoes of Ben Bernanke and trying to imagine how he thinks about it. That's going to be helpful in assessing what he might do.

As a central banker, Mr. Bernanke has to worry about a number of different things: inflation, unemployment, GDP growth, exchange rates, the stability of the financial system, and so on.

In more normal economic times, he would likely focus mainly on maintaining a low and stable rate of inflation—perhaps around 2 percent. He has written and spoken in the past about his belief in inflation-targeting. The basic idea is that if the central bank manages to keep inflation within the target range (again, around 2 percent), then everything else will tend to fall into place: low unemployment, relatively stable GDP growth, and so on.

So, once the financial crisis and the recession are well behind us, probably the best way to predict how Bernanke will set interest rates is by looking at where inflation is headed. If inflation is rising above the 2 percent level, he's likely to push the short-term interest rate upward, in order to contain inflation. If inflation is falling below the 2 percent level, he's likely to push the short-term interest rate downward. That would be the best way to predict what he's going to do in normal times.

Of course, these haven't been exactly normal times. With the financial system in serious jeopardy and unemployment surging, Mr. Bernanke put aside inflation-targeting and used just about every weapon in his arsenal to save the economy from collapse. He lowered the federal funds rate to just about zero—the lowest ever—and he developed and employed all sorts of unconventional tools to help stabilize things, including asset purchase programs, large-scale financial guarantees, and direct lending to nonbank financial institutions. My own view is that while he inevitably made all sorts of mistakes (especially in the lead-up to the crisis), his extraordinary actions in the heat of the crisis may well have saved us from a complete financial collapse and a far worse macroeconomic crisis.

Once the biggest dangers are behind us, Mr. Bernanke will have to figure out how to get things back to normal. His aggressive stimulation of the economy could easily prove inflationary if he doesn't bring rates back up in time. But it will be a delicate balancing act if unemployment remains unusually high.

Eventually, if all goes well, we'll get back to standard inflation-targeting, and monetary policy will become far more predictable again. But for the time being at least, the Federal Reserve remains in uncharted waters.

Q: As a field of academic study, where do you think macroeconomists have made the most progress?

A: There's a lot that macroeconomists don't know. But I think in monetary policy they've made a good deal of progress. Had we had the same level of knowledge today that we had in the early 1930s, we might have faced a second Great Depression. Bernanke, of course, was a careful student of the Great Depression; he understood it quite well, particularly from a monetary standpoint. The level of monetary understanding is much better than it was in the past. And that reduces our odds of falling into another Great Depression. Again, it doesn't eliminate those odds, but it reduces them. Macroeconomists deserve a lot of credit for that.

That said, excessively low interest rates during the boom years may well have helped to cause the crisis. So monetary policy, while much better than in the past, is still nowhere near perfect. For example, we still know very little about how to prevent a bubble from becoming a problem in the first place.

Q: In your own field of research, what are you working on these days?

A: Well, I'm working on a number of things. I've spent a great deal of time over the past year thinking about financial regulation and what it should look like, and I've been talking with lawmakers in Washington about this quite a bit.

I've also launched a new second-year course at Harvard Business School on financial history. I started creating the course long before the financial crisis hit, but it's definitely been fascinating to teach about past financial booms and busts—about the history of financial innovation, financial growth and excess, and financial regulation—at this particular moment.

Financial history has truly come alive over the past couple of years. My hope is that we can use that history—the long history of financial markets and institutions—in figuring out how to prevent another financial crisis going forward. That's where much of my work has been focused these days.

Saturday, 23 January 2010

Chinese Secret Society Challenges Illuminati

By Henry Makow PhD

A Chinese secret society with 6 million members, including 1.8 million Asian gangsters and 100,000 professional assassins, have targeted Illuminati members if they proceed with world depopulation plans, according to Tokyo-based journalist Benjamin Fulford, 46.

They contacted Fulford, a Canadian ex pat, after he warned that the Illuminati plan to reduce the Asian population to just 500 million by means of race-specific biological weapons.

"The Illuminati, with the exception of Japan, is very much a white man's game," Fulford says.

The secret society confirmed Fulford's information and asked him for advice. He provided a list of 10,000 people associated with the Illuminati, mainly members of the Bilderberg, CFR and Skull and Bones. Neo Cons are also high priority targets.

"I have been promised that not a single person will die if they negotiate in good faith," Fulford says.

Fulford is the former Asian Pacific bureau chief for Forbes magazine. He quit in disgust when Forbes refused to run a damaging story about one of its advertisers. Fulford has since written 15 books in Japanese. His most recent is a scathing dissection of the 9-11 Hoax.

Fulford says Japan has been controlled in secret by the Illuminati through the use of murder and bribery. Underground sources tell him the Americans have murdered over 200 Japanese politicians and influential citizens since the end of WW2.

Among the victims are former Prime Ministers Tanaka, Takeshita, Ohira and Obuchi. They were all murdered using a special drug that induces strokes. The Illuminati have been warned that the Chinese secret society will not tolerate any more murders. It has also extended its protection to truth seekers in the West.

ANCIENT SECRET SOCIETY

The Chinese Secret Society is called the "The Green and the Red Societies," Fulford says.

It "can be found in the history books. When the Manchus invaded China in 1644 the Ming army became an underground society aimed at overthrowing the Qing (Manchu) and restoring the Ming. They supported the Boxer Rebellion but were put down by imperialist powers. Later, with the help of overseas Chinese and the Japanese imperial family, the society managed to overthrow the last Emperor and install Sun Yat Sen in his place. They last appear in the history books as the Green Gang and the Red Gang that fiercely fought the Communists in Shanghai in the 1940's. They were defeated by the Communists in 1949 and once again became an underground organization."

"Since 1949 they have steadily increased their influence throughout China and the rest of the world. They have members at the very highest levels of the Chinese government but they are by nature anti-establishment, and are not an official Chinese government organization...

"The society has deep roots in Japan because of the link between Yakuza crime gangs and the Japanese imperial family. The Japanese imperial family are descended from 6th century Korean invaders. The original invaders had trouble putting down the native Jomon peoples so they brought over a tough, warlike minority people from the Asian mainland. These are the ancestors of the Yakuza. They have historically been used for secret work and for jobs like collecting taxes. When the Japanese decided to help overthrow the last Chinese dynasty, they used the Yakuza as a go-between with the Chinese secret society, many of whose members were gangsters. To this day many of the senior leaders of this group are actually Japanese, not Chinese.

"It must be made very clear though that it is not a crime gang. Although many members are Triad and Yakuza members, over 2/3 thirds of the members are intellectuals such as university professors, researchers and government bureaucrats. Each member earns their own living and membership in the society is like belonging to an emergency fire brigade. Their book of rules reads like a book of ethics filled with instructions to do things like help the weak, fight injustice, help your comrades etc."

"They approached me and asked if they could help after I made a speech in Tokyo describing the Bush regimes' use of race-specific biological weapons. For me it was like a ghost from the history books appearing right in front of me. At first I thought of silly things like having them play 911 truth videos in Chinatowns around the world. However, then I remembered the scene from the movie Kill Bill where Uma Thurman snatches out her opponent's eye. I soon realized these people could save the world by directly attacking the eye at the top of the pyramid on the one-dollar bill."

"Think about it, the Illuminati and their top servants have a total membership of about 10,000 whereas the Chinese group has over 6 million members. That is 600 to one odds. Furthermore, the 6 million have the names and addresses of the 10,000 while the 10,000 do not know who or where the 6 million are."

FULFORD ON THE ILLUMINATI

"Below is a brief a summary of the intelligence I have received from sources including: former Japanese Prime Ministers, senior Yakuza gangsters, senior Japanese Freemasons, Western intelligence agencies etc.

"First the Illuminati are really inbred families of European and North American traditional aristocracy and banking families. They control the U.S., England, Europe (except for Scandinavian countries, Germany and Italy; Italy kicked them out in the 1970's),Japan, Africa, Iran, Canada and Mexico. They do not control China, Russia (Putin kicked them out for the first time since 1917), India, South East Asia, South America, Cuba etc.

"Their goal is to create a world government. Until 2 years ago the plan was the New World Order. That was outlined pretty clearly in the Project for a New American Century. However, with the debacle in Iraq, the secret government of the West changed to a new plan that is a world government based on the EU. To do this they will sabotage the U.S. economy.

"However, there is a big schism in the secret government. Jay Rockefeller and Philip Rothschild support one faction, the Global Warming Faction. Opposing them is the War on Terrorism Faction supported by David Rockefeller and the JP Morgan descendants (Bush, Harriman, Walker etc.). The warming people want to sell 500 nuclear power plants to China and a similar amount to the rest of the world. The terrorism guys want to keep U.S. dominance by maintaining control over oil. Putin was a huge setback for them.

"They are also neo-Nazis who want to reduce the amount of colored people in the world by at least half through disease, starvation and war. The Chinese secret society got wind of this and is preparing to stop them."

GERMANY AND SCANDINAVIA NOT ILLUMINATI?

I challenged Fulford on Germany, Italy, Scandinavia and possibly Russia not being controlled by the Illuminati. He replied that "the quality of my intelligence varies":

"I can say with certainty that China, Russia and India are free. When Putin kicked out Nieslev and Bereshovsky and arrested Khordokovsky, he basically kicked the Rockefellers and Rothschilds out of Russia. I have good Russian sources and am confident Putin is a nationalist who is fighting the Illuminati with all his might. When ex-NSA chief Bobby Inman spoke at the Foreign Correspondent's Club of Japan on June 26th he made it very clear he expected a protracted struggle with Russia.

"India kicked them out in Ghandi's day and they have never been allowed back. Having liberated themselves after 300 years of Illuminati (East India Company) rule, they do not intend to let themselves fall under their control again.

"There have been many attempts by the Illuminati to infiltrate and dominate China. They financed Chairman Mao but he then kicked them out in the 1960's (that is why China and the USSR nearly went to war then). They are now trying to create a financial crisis in China that would open the way for them to infiltrate the Chinese financial system. They will not succeed. Italy basically purged itself during the big P2 Masonic lodge scandal back in the 80's and re-infiltration has only been partly successful. Germany is part of the Nato alliance and is thus indirectly controlled. There is a powerful branch of the Rothschild family operating there.

"However, Germany does not appear on a top-secret Illuminati power flow chart I have obtained. As far as Iran is concerned, I know they financed Ayatollah Khomeini and Iran appears on the flow chart I have. My understanding is they want to provoke a conflict between Islam and the West so they can consolidate their control over the Muslim and Christian worlds before finishing world conquest by taking over China and India."

CONCLUSION

Fulford says a meeting is being arranged with Russia's Vladimir Putin to make sure the KGB also cooperates in this plan to snatch the eye out of the pyramid.

"So far, I have told the Illuminati that they are no longer allowed to murder Japanese politicians. I now plan to extend this protection to all politicians in the West. If the Illuminati assassinate or attempt to assassinate Ron Paul, Barak Obama or any politician, may God have mercy on their souls."

"Since I am a peace-loving, laid-back Canadian suddenly put in a situation of great responsibility, I feel I must act as a servant of the weakest people and creatures on the planet. I have also been negotiating in secret with the Illuminati in the hopes of arranging for them to cede power without any bloodshed in exchange for a general amnesty.

"I do believe we now have a real chance to end the New World Order and start the New Age. The New Age would be one where war, poverty and environmental destruction would only be found in the history books."

I applaud Benjamin Fulford's courage, idealism and defiance. However, he is new to this subject and may have been mislead. He shouldn't use Illuminati terminology like "New Age." The Illuminati control the central banks of Russia, China, India and Venezuela. They control the EU. Germany may not appear on the Illuminati chart because it is at the top. Barak Obama is a Zionist stooge. The Illuminati Li Ka-Shing (and family) has had a major role in China. Heck, the Communists are Illuminati. I thought the Illuminati controlled organized crime. I can't imagine a genuinely benevolent secret society. It would be encouraging if this were one.

It's possible Fulford is sincere but is being used to confuse and/or create divisions. Possibly they want to ramp up domestic terrorism as an excuse for martial law. Now, Orientals as well as Muslims could be on the watch list. This Chinese society is challenging the traitorous Western Establishment. We're talking about the State apparatus! So please be critical. It may or may not be true. Time will tell.

In any case, it's time we refused to bow down to tyranny and called a spade a spade.

Imagine, in Japan he writes the truth in the mainstream media! Maybe some day, we'll do that in America. Benjamin Fulford is an inspiration and he deserves our thanks.

-------

Henry Makow Ph.D. is the inventor of the game Scruples and author of "A Long Way to go for a Date." His articles exposing fe-manism and the New World Order can be found at his web site www.savethemales.ca He enjoys receiving comments, some of which he posts on his site using first names only. hmakow@gmail.com

Tuesday, 19 January 2010

US Quake Test Goes “Horribly Wrong”, Leaves 500,000 Dead In Haiti

By: Sorcha Faal, and as reported to her Western Subscribers

A grim report prepared by the Russian Northern Fleet for Prime Minister Putin is stating today that the catastrophic earthquake that has devastated the Island of Haiti was the ‘clear result’ of a United States Navy test of one of its ‘earthquake weapons’ planned to be used by the Americans upon the Persian Nation of Iran but had gone ‘horribly wrong’.

The Northern Fleet has been monitoring US Naval movements and activities in the Caribbean since 2008 when the Americans announced their intention to re-establish their Forth Fleet that had been disbanded in 1950, and which was responded to by the Motherland when later that year a Russian flotilla led by nuclear powered cruiser Peter the Great began their first exercises in this region since the ending of the Cold War.

Though virtually unknown to the American people, the use, and perfection, of earthquake weapon technology has a decade’s long history that began with the former Soviet Unions exploding of a 10 megaton nuclear bomb in September, 1978 and then ‘redirecting’ its shockwave towards Iran where it resulted in a catastrophic 7.4 magnitude earthquake, an event which hastened the downfall of the US backed regime headed by the Shah.

This attack upon Iran by the Soviets was countered by the Americans in April, 1979 when they unleashed one of their newly developed ‘atomic powered’ earthquake weapons against the former communist Nation of Yugoslavia which resulted in a 7.2 magnitude earthquake.

Since the late 1970’s, the United States has ‘greatly advanced’ the state of its earthquake weapons and, according to these reports, now employees devices employing a Tesla Electromagnetic Pulse, Plasma and Sonic technology, along with ‘shockwave bombs’ they have previously been accused by Russia of employing in their war against the Afghan peoples when one of these ‘devices’ was exploded in Afghanistan in March, 2002 triggering a devastating 7.2 magnitude earthquake.

Interesting to note in these reports are their stating that the earthquake weapons test conducted by the US Navy this week in the Caribbean that destroyed Haiti was ‘most probably’ based upon the same type of Tesla technology held responsible for the catastrophic January17, 1995, 6.8 magnitude earthquake that laid to waste the Japanese city of Kobe, and which the mysterious Aum Shinrikyo cult had warned 9 days prior was going to occur, and as we can read:

“Aum’s charismatic guru, Shoko Asahara, predicted the Kobe quake nine days before the event. In an 8 January 1995 radio broadcast, Asahara stated “Japan will be attacked by an earthquake in 1995. The most likely place is Kobe.” Hideo Murai, the late Science and Technology minister for Aum Shinrikyo also adhered to this view. Murai - said to have been the most intelligent Japanese who ever lived - was murdered in a Yakuza orchestrated assassination shortly after speaking on the record to foreign news correspondents.

“Murai presented his allegation in an April 7 1995 news conference at the Foreign Correspondent Club in Japan. In answer to questions about the Kobe quake, Murai said “There is a strong possibility of the activation of an earthquake using electromagnetic power, or somebody may have used a device that applied force inside the Earth.” The Aum leadership believed the Kobe quake an act of war: “The City of Kobe was hit by a surprise attack…” they claimed, adding the City was an “…appropriate guinea pig.”

Note: The Aum Shinrikyo religious order was destroyed shortly after their releasing of this information to the public when blamed for the March 20, 1995 sarin gas attack upon the Tokyo subway system which resulted in 11 of their members, including their leader, being sentenced to death. FSB reports on Aum Shinrikyo further state that their knowledge of the planned use of these ‘doomsday’ devices was gained from the US computer hackers belonging to the Branch Davidian religious order who had penetrated some of the American defense establishments most secret files and resulted in their, likewise, being completely destroyed in what is now known as the Waco Siege ordered by then US District Attorney, and currently Obama’s US Attorney General, Eric Holder.

The Tesla weapons being developed by the United States are based upon the research of Nikola Tesla who was an inventor and a mechanical and electrical engineer. He was one of the most important contributors to the birth of commercial electricity and is best known for his many revolutionary developments in the field of electromagnetism in the late 19th and early 20th centuries.

Tesla's patents and theoretical work formed the basis of modern alternating current (AC) electric power systems, including the polyphase system of electrical distribution and the AC motor, with which he helped usher in the Second Industrial Revolution. Tesla is also credited as the inventor of modern radio by the US Supreme Court.

To Tesla’s earthquake weapons research conducted in the early 20th century we can further read:

“He put his little vibrator in his coat-pocket and went out to hunt a half-erected steel building. Down in the Wall Street district, he found one; ten stories of steel framework without a brick or a stone laid around it. He clamped the vibrator to one of the beams, and fussed with the adjustment until he got it.

Tesla said finally the structure began to creak and weave and the steel-workers came to the ground panic-stricken, believing that there had been an earthquake. Police were called out. Tesla put the vibrator in his pocket and went away. Ten minutes more and he could have laid the building in the street. And, with the same vibrator he could have dropped the Brooklyn Bridge into the East River in less than an hour.

Tesla claimed the device, properly modified, could be used to map underground deposits of oil. A vibration sent through the earth returns an “echo signature” using the same principle as sonar. This idea was actually adapted for use by the petroleum industry, and is used today in a modified form with devices used to locate objects at archaeological digs.”

Important to note at this point are that modern day experiments seeking to discredit Tesla’s earthquake weapons technology have been directed against structures designed to withstand the effects of earthquakes, buildings which in the early 20th century, like those in Haiti today, were not built to withstand such resonance. A most critical difference when viewed in the light of the US Navy’s testing of 2 of these earthquake weapons this past week and where in their Pacific test it resulted in a 6.5 magnitude earthquake hitting the area around the Northern California city of Eureka causing no deaths, their Caribbean test has caused an estimated 500,000 innocents to die.

Equally important to note are these reports stating that ‘more than likely’ the US Navy had ‘full knowledge’ of the catastrophic damage this earthquake weapons test could potentially have upon Haiti and had pre-positioned their Deputy Commander of their Southern Command, General P.K. Keen, on the island to oversee relief efforts if needed.

To the end result of these weapons being tested by the United States, these reports warn, are for the Americans planned destruction of Iran through a series of catastrophic earthquakes designed to bring down their present Islamic regime.

Most unfortunately in all of these events are the peoples of Haiti, who are suffering under conditions so horrible, that even in the best of scenarios, their functioning as a viable Nation has completely come to an end, and for reasons and purposes they have no comprehension of at all as they have become just the latest victim in the New Great Game that will decide the winners and losers of this 21st Century.

Monday, 18 January 2010

Good post by CNA forummer on getting rich

Courtesy of CNA Forummer: bhsh

What the magic number? I understand that it will be different for everyone depending on the lifestyle they would like to maintain so this is my take on how much and how to get there assuming you start from ZERO ie no help from parents.

Rule Number 1, Savings will not get you there.
at an interest rate of 1.00%, it will take you 40 years to get the final Amount of $1,000,000 if you set aside a mthly saving $1695 (a bit tough for the early years).

Rule Number 2, Start early.
From the time you start working, you'll need to start saving cash for the initial capital for your investments and keep the CPF for your first HDB. Always start with a HDB(not the $700k ones), it's your entitlement as a citizen.

Rule Number 3, If you are getting married, do it early and stay married.
One of the conditions for getting a HDB is to be married and a new HDB is almost a sure way to make some money that will come in handy for your investments. Staying married will ensure you do not lose half of what you have and end up paying alimony or child support and screwing up someone else's life and your own. Starting a family early also ensure that you have the energy and drive to make it work, imagine having a kid at 40 would mean that you cannot retire till 65. Child support does not end when they leave school, trust me.

Rule Number 4, Don't over insure.
Insurance is a good way to protect yourself and your love ones and is a responsible way of ensuring that they have something to fall back on if something goes wrong. I would suggest term insurance at various stages of life ie. getting married, when the children arrives, buying a property and also a medical insurance in case you don't die.

Rule Number 5, Stay invested and and persevere
Dollar averaging and compounded interest are the magic words that you should keep in mind. It doesn't matter how much you start with or when you enter the market, the end result is pretty much the same.

Rule Number 6, Don't F@#K around with your own roof
Sell high and buy high, sell low and buy low. Chances are that if you switch property you will end up with a higher loan unless you are ready to seriously downgrade. Your chance of making some money would come with your second property, start with a small private collecting rental and hope one day it will be enbloced and in the meantime someone is paying your loan for you or worst case they will be paying the interest while you pay for the principal, think of it as a forced savings.

Rule Number 6, Live within your means.
Credit cards are a necessary evil, if managed wise it will give you flexibilities and 1 month of free interest on your spending and also points to redeem and discounts on necessities. GIRO so that you will not incur late charges and interest.

Rule Number 7, Stay healthy.
Staying healthy would ensure that you'll be able to work and earn. Also you would not waste money on medical and also save on the undesirables ie a packet of cig cost 11+, think in terms of the savings that you would have in a year.

This is a rough timeline of how all these should happen

20's-30's Accumulation of capital, save and speculate a little bit, you can afford the risk at this stage. live with your parents and aim to settle down by 30 with a HDB and start procreating.

30's-40's You are in the stage of life when your career is moving forward, so more money for savings and investments(not speculation). midway to the 40's you'll probably change house due to the need for more space or children's education(nearer to the choice primary schools). This will be your first break, MAX out the loan on your second HDB(still HDB, the ruling here is that you cannot remortgage you HDB for a higher loan ie. take out cash even if your valuation has gone up a lot). Together with the saving, investments returns and cash out from the sale of your first house, start looking for your second property.

40's-50's By now you would be at breakeven point, that means that you should be worth as much dead(insurance payout) as you are alive(investments). If job security is not a problem, you can start looking for your dream private home while keeping the second property for investments. More conservative ones would look at a bigger, better location HDB and prepare for the second private property.

50's-60's Investments should focus on dividends rather than speculative gains, now is the time you don't want to blow away your retirement funds, there are good companies that will give 4-6 percent return and hold pretty steady prices in crisis, slowly accumulate these stock to supplement your retirement fund.

60's-70's About time to call it a day. Your income would come partly (40-50%) from rentals(more inflation proof), 30-40% from dividends, and the rest from savings and FDs. This way you'll have the flexibility to cash out from the property or stock market during your retirement for special occasion while still make your funds work for you.

So what's the MAGIC number? a million$ today returning 4% and drawing $5000 a month will last you 26 years till you run dry(life expectancy 85) of course inflation would eat some of it along the way. So roughly, $2500 from your rental returns, $2000 from your dividend/bonds(not Hi Note) and $500 form FDs and a bit of punting. at the end of it you'll still be able to leave you house and rental property to your childrens so they won't start at ZERO.

single income, met objectives at 42, now just waiting to double it.

Friday, 15 January 2010

Increasing risk of second financial crisis, warns WEC

Increasing risk of second financial crisis, warns World Economic Forum

There is now a significant chance of another asset price bubble implosion costing the world more than £1 trillion, and similar odds of a full-scale sovereign fiscal crisis, a key report warned.

By Edmund Conway, Economics Editor
Published: 7:24PM GMT 14 Jan 2010

Investors must steel themselves for the possibility of a second leg to the financial crisis, and should be equally prepared for a fiscal crisis, in which a major economy faces either default or a "sudden stop" in financing themselves on capital markets, according to the World Economic Forum.

Its closely watched Global Risks Report also warned of the possibility of China's economy overheating and, instead of helping support global economic growth, preventing a fully-fledged recovery from developing.

The report, which comes a fortnight ahead of the WEF's annual summit in Davos, which will be attended this year by many of the world's leading businessmen and politicians, including Jamie Dimon of JP Morgan, Bill Gates, Bill Clinton and Nicolas Sarkozy. The report, produced in conjunction with Citigroup, Marsh & McLennan, Swiss Re, the Wharton School Risk Center and Zurich Financial Services, warns that the crisis has left leading economies acutely vulnerable to further problems.

The report, which in previous years had been among the first to cite the prospect of a financial crisis, the oil crisis that preceded it and the ongoing food crisis, included a list of growing risks threatening leading economies. Among the most likely, and potentially most costly, is a sovereign debt crisis, as some countries struggle to afford the unprecedented costs of the crisis clean-up, the report said, specifically naming the UK and the US.

Robert Greenhill, chief business officer of WEF, said: "The US and UK will have among the highest debt burdens; the danger may not be of a default, but it will certainly dampen economic activity."

The report also highlights the risk of a further asset price collapse, which could derail the nascent economic recovery across the world, with particular concern surrounding China, which some fear may follow the footsteps Japan trod in the 1990s.

Another worry is that Britain and fellow nations may be sleepwalking towards a potential energy crisis by failing to invest enough in the infrastructure that keeps the country powered. John Drzik, chief executive of management consultancy Oliver Wyman, said that countries were failing to invest sufficient amounts in both transport and energy infrastructure.

How to Fail at Investing in 5 Easy Steps

By Morgan Housel

I'm a fan of checklists. Especially the ones listing things you shouldn't be doing. It's easier to overlook what you shouldn't be doing than to focus on what you think you're doing right. If you're not humble enough to admit this, you've just proven the point accurate.

One such list I came across resides in Philip Fisher's groundbreaking 1958 book, Common Stocks and Uncommon Profits. Who is Philip Fisher? You could ask Warren Buffett, who admits, "I'm 15 percent Fisher and 85 percent Benjamin Graham." Ben Graham is Buffett's well-known, highly praised, mentor. Philip Fisher, a sort of godfather of growth investing, doesn't get enough credit.

Common Stocks and Uncommon Profits is one of the best guides for evaluating businesses ever written. Buried in the back of the book, right after "Five Don'ts for Investors," is "Five More Don't for Investors." It's quite simple. To fail at investing …

1. Overstress diversification
Diversification is usually a good thing, but Fisher cautions against blind diversification. In his own words, "Investors have been so oversold on diversification that fear of having too many eggs in one basket has caused them to put far too little into companies they thoroughly know and far too much in others about which they know nothing at all."

Far too many investors approach diversification with the mindset of, "I need financials. I need tech. I need telecom. I need healthcare," etc., etc. Wrong. What you need is diversification among good, high-quality companies, not a blind selection among diverse sectors. Let me give you an example of a "diverse" portfolio gone astray:

* Financials: Lehman Brothers
* Telecom: WorldCom
* Energy: Enron
* Industrials: General Motors
* Technology: GlobalCrossing

These are obviously cherry-picked. But you can see how, in an attempt to blindly diversify among sectors, you can just as easily concentrate in failure. Even slight diversification among good companies that you understand can be superior to blind, yet broad, diversification.

2. Be afraid of buying on a war scare
Fisher writes, "The fears of mass destruction of property, almost confiscatory higher taxes, and government interference with business dominate what thinking we try to do on financial matters. People operating in such a mental climate are inclined to overlook some even more fundamental economic influences."

In short, don't be scared of investing in wartime. Some might even say: Buy on the cannons, sell on the trumpets.

Fisher's more direct point regards war's ability to spread inflation through increased government spending. Again, that's quite analogous to today. "Modern war always causes governments to spend far more than they can possibly collect from their taxpayers while the war is being waged. This causes a vast increase in the amount of money … the classic form of inflation."

But rather than sell in panic, "This is the time when having surplus cash for investment becomes least, not most, desirable."

Bingo. If you're scared witless over today's policies, and many are, cash isn't your answer. There are several very high-quality companies that derive enormous revenue from abroad, enabling success in the face of ravaging domestic inflation. Philip Morris International (NYSE: PM), Coca-Cola (NYSE: KO), and Johnson & Johnson (NYSE: JNJ) are three such examples.

3. Forget your Gilbert and Sullivan

"The flowers that bloom in the spring, tra-la, have nothing to do with the case." This Gilbert and Sullivan tune confused me, too. Fisher's analogous takeaway from the example is that "there are certain superficial financial statistics which are frequently given an underserved degree of attention by many investors."

His examples include focusing on past share performance and previous years' earnings. "One reason [investors are] fed such a diet of back statistics is that if this type of material is put in a report it is not hard to be sure it is correct" he writes.

Another set of data investors give undue focus to is quarterly earnings. Lehman Brothers was announcing record quarterly earnings not much over a year before it went kablooey. Ford (NYSE: F), Citigroup (NYSE: C), and Bank of America (NYSE: BAC) announced abysmal earnings in the process of becoming multibaggers last year. The underlying value of company's shares can be far disconnected from their short-term reported earnings.

4. Fail to consider time as well as price
"When the indications are strong that [rapid growth] is coming, deciding the time you will buy rather than the price at which you will buy may bring you a stock about to have extreme further growth at or near the lowest price at which that stock will sell from that time on."

This is a hard point to understand, but Fisher apparently studied companies' prices and found they were normally lower at certain points in their business cycle -- say, about a month before a venture reaches the pilot-plant stage. I finally equated it to Buffett's rule that, "if you wait for the robins, spring will be over." Waiting for Apple (Nasdaq: AAPL) to actually release a new product like the iPhone, for example, means undoubtedly foregoing the gains that anticipation has priced in.

5. Follow the crowd
Around 2000, top-selling books included Dow 36,000 and The Roaring 2000s. Whoops. In 2006, Why the Real Estate Boom Will Not Bust was a big hit. As of late, top-sellers have included The Great Depression Ahead and The Ultimate Depression Survival Guide.

Pandering to fear and exuberance at or near the peak is nothing new. That's when it's most prevalent. That's when it sells the most. But if the history of the outcome of these extreme views is any indication, you might find optimism in visiting the business section of your local bookstore. More often than not, popular yet awe-inspiring views are dead wrong.

Easy Tips to Avoid Being Ripped Off

by Laura Rowley

For consumers, it's a jungle out there, says Bob Sullivan, author of the new book "Stop Getting Ripped Off: Why Consumers Get Screwed and How You Can Always Get a Fair Deal."

The book is a manifesto for the uneducated, the gullible, the greedy, the pathological optimists and the math-impaired. Sullivan, who writes The Red Tape Chronicles for MSNBC.com and is the author of "Gotcha Capitalism," talks about why consumers got shafted so badly in the last decade, and what they can do to protect themselves.

"American consumers have become bad at being consumers," says Sullivan, due to their own innumeracy, magical thinking and greed, combined with political corruption and lack of regulation that allowed predators from mortgage lenders to Bernie Madoff to act with impunity. The book is like a GPS through the curves of home and auto buying, cell phones, pay TV, student loans, insurance and more. Here are a few of Sullivan's unorthodox personal finance tips for consumers:

1) Assume any salesperson may be a sociopath. Research by psychiatrist Martha Stout suggests an estimated one in 20 adults is a Bernie Madoff -- a shameless, often charismatic liar.

"We imagine we're pretty good at knowing someone is lying because they are nervous or sweating, but sociopaths exhibit none of those traits," says Sullivan. "Know what someone's financial bias is. There is a continuum between bald-faced liars and financial planners giving advice they want you to have because it makes them more money." Look for service providers -- such as fee-only financial planners -- who don't have a commission incentive to steer you into particular products.

2) When negotiating, be prepared to lie. Obviously you don't want to fib about things like your credit score or income, which can be easily verified. But instead of revealing a planned down payment to an auto salesperson, say "I only have X in my bank account."

If you find yourself in a high-pressure situation where you have to say no twice, consider yourself in the danger zone, Sullivan says. Three times and you should hightail it out of there. Walk into a sales situation with an escape plan, i.e., "I'm expecting a call from work, and may have to leave at any time."

3) Never buy a car when you need one. "People let their cars go until it's absolutely time to buy new one -- and urgency is the one thing you can't overcome when you're at a car dealership," says Sullivan. "You have to be able to wait them out. Walk out, come back next week." No one can plan around a breakdown, but it's not a bad idea to do some casual car shopping before your vehicle hits the end of its warranty.

4) Never use friends for major transactions. "That sounds harsh, but it's the truth," says Sullivan. "When I talked to investigators at the Securities and Exchange Commission, almost every sad story begins with 'I thought he was my friend.' When someone is making money off you in a business transaction, at that moment he is not really your friend. Call three professionals, get a price, and never see them again when the deal is done. That's the best way to do business."

5) Be engaged with your finances on a daily basis. "It's human nature to put off the bad news -- nobody wants to look at a credit card bill that arrives after Christmas," Sullivan says. "But when you do that, you detach from day-to-day notions of where the money is."

Take a cue from baseball managers, he says, who rouse benchwarmers by asking, "What's the count?" Keep your financial head in the game with questions like: How much cash is in my primary checking account right now? How much did I spend last month? What's the rate on my credit cards? For consumers who may have trouble paying off the plastic in full that month, just knowing which card has the lowest rate is an easy way to save money. "It just takes a little thought and focus," says Sullivan.

6) Spend as much time shopping for your mortgage as you spend shopping for your house. "People will spend months looking for perfect front porch and a half hour working on their mortgage," says Sullivan. "If you end up with a home you hate it's a lot easier to get out of that than the mortgage, because you can move. But you can't come up with few hundred thousand overnight."

He advises homebuyers to go to at least two banks and one mortgage broker and get written quotes on the same day for a 30-year mortgage with no points, to make comparisons easy. "When you start dealing with points and exchanging closing costs among the parties it can become very muddy," he adds.

7) Never maintain a single checking account for all your transactions. "You should never make ticky-tacky purchases or weekly cash withdrawals from the main staging place for your money," writes Sullivan. "Eventually you're going to trip up, screw up and be hit with (an overdraft) fee."

Sullivan argues that it's easier to set up two accounts -- a "staging" account where your paycheck is deposited, and a "workaday" account for all those little debits and ATM withdrawals. Then shift a pre-determined amount of cash -- say $500 -- into the second account for the dozens of minor transactions. Use your staging account for the regular monthly stuff -- rent or mortgage, utilities, auto loan and cell phone.

If you're paid every two weeks, call service providers and try to group expenses evenly into the first and second halves of the month. Choose a free account with no minimums and no overdraft protection. (An alternative to opening two checking accounts is PNC Bank's Virtual Wallet, which offers spending and savings components in one account.)

Finally, Sullivan says, every consumer should be able to answer the question: How much would I need to survive if I lost my income for three months? It's an old saw, but one that's taken on more urgency in the last two years.

"If you don't have that somewhere in cash, you're living a high-wire act," says Sullivan. "I'm convinced so many people lose sleep and have stress in their marriages and don't feel liberated at work to complain because they know they're only a few paychecks away from being in real trouble."

Thursday, 14 January 2010

Bankers apologize for actions that led to crisis

Big bankers apologize for risky behavior that led to financial crisis, say it seemed right

By Jim Kuhnhenn and Daniel Wagner, Associated Press Writers

WASHINGTON (AP) -- Challenged by a skeptical special commission, top Wall Street bankers apologized Wednesday for risky behavior that led to the worst financial crisis since the Great Depression. But they still declared it seemed appropriate at the time.

The bankers -- whose companies collectively received more than $100 billion in taxpayer assistance to weather the crisis -- offered no regrets for executive pay that is now likely to increase as a result of their survival. They did say they are correcting some compensation practices that could lead to excessive risk-taking.

The tension at the first hearing of the Financial Crisis Inquiry Commission was evident from the outset.

"People are angry," commission Chairman Phil Angelides said. Reports of "record profits and bonuses in the wake of receiving trillions of dollars in government assistance while so many families are struggling to stay afloat has only heightened the sense of confusion," he said.

Lloyd Blankfein, the chief executive of Goldman Sachs, took the brunt of the questions, especially on his firm's practice of selling mortgage-backed securities and then betting against them.

"I'm just going to be blunt with you," Angelides told him. "It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars."

Blankfein replied: "I do think the behavior is improper. We regret the consequence that people have lost money in it." Later, though, he defended the firm's actions as "exercises in risk management."

In a moment of self-analysis, Blankfein said the world of high-finance simply rationalized its way into risky transactions. Summarizing the thinking in the industry at the time, he said: "Gosh, the world is getting wealthier. Technology has done things. ... These businesses are going to do well."

"You talked yourself into a place of complacency," he concluded.

The panel began its yearlong inquiry amid rising public fury over bailouts and bankers' pay.

"We understand the anger felt by many citizens," said Brian Moynihan, chief executive and president of Bank of America. "We are grateful for the taxpayer assistance we have received."

"Over the course of the crisis, we as an industry caused a lot of damage," Moynihan said.

With Bank of America having repaid its bailout money, he said "the vast majority of our employees played no role in the economic crisis" and do not deserve to be penalized with lower compensation. Moynihan said compensation levels will be higher next year than they were in 2008 -- but not at levels reached before the financial meltdown.

Jamie Dimon, chief executive of JPMorgan Chase & Co., said most of his employees took "significant cuts in compensation" in 2008. He said his company would continue to pay people in a "responsible and disciplined manner" to attract and retain top talent.

Still, Dimon said, "We did make mistakes and there were things we could have done better."

John Mack, chairman of Morgan Stanley, said the crisis was "a powerful wake-up call for this firm." He said he didn't take a bonus in 2009 and his bank has overhauled its compensation practices to discourage "excessive risk-taking."

The other executives also said their companies had tightened bonus policies, including provisions to "claw back" some of the money when performance falters.

Outside experts say the banks' changes to executive compensation move them in the right direction, effectively tying pay to long-term performance. Giving more pay in long-term stock and allowing take-backs in extreme cases should discourage excess risk, said Jeff Vistithpanich, principal at Johnson & Associates, a New York financial services consulting firm.

But he said that won't quell public outrage.

"Whether Lloyd Blankfein gets $50 million in cash or stock or paper, the fury will be there, the anger and scrutiny will be there," Vistithpanich said. "There's going to be a firestorm either way."

John Taylor, head of the National Community Reinvestment Coalition, a group that promotes affordable housing, said that if bankers missed multiple indicators that a housing crisis was upon them, "then their spirited defense of their employees falls flat."

"Based on what we heard today," Taylor said, "they should be firing people, not giving them bonuses."

The four bankers represent institutions that collectively received more than $90 billion in direct government assistance from the $700 billion federal bank bailout and availed themselves of billions more from the Federal Reserve. Goldman Sachs received an additional $12.9 billion in bailout money designated to rescue insurer American International Group.

At the White House, press secretary Robert Gibbs said that President Barack Obama on Thursday will outline his plan to make sure taxpayers are able to recoup the money they are owed from the bailouts. The president is expected to announce a new fee on the country's biggest financial firms to recover up to $120 billion.

Of the bankers' testimony, Gibbs said, "It would seem to me that apology would be the least of what anybody could expect." He said Wall Street officials need to show common sense.

The witnesses said they supported tighter oversight, but warned against going too far. Congress is considering limiting the size of financial companies or breaking up companies whose failure could collapse the whole financial system.

The commission's vice chairman, former Rep. Bill Thomas, R-Calif., said the inquiry would try "to get to the bottom of what happened and explain it in a way that the American people can understand."

Thomas, a former chairman of the tax-writing House Ways and Means Committee, said one important question is, "If you knew then what you do now, what would you have done differently?"

Dimon said a crucial blunder was "how we just missed that housing prices don't go up forever." Added Mack: "We did eat our cooking and we choked on it."

Associated Press Writer Tom Raum contributed to this story.

Google's China threat is a rare show of defiance

Google's rare show of defiance in China seems unlikely to be widely followed

By Joe Mcdonald and Michael Liedtke, AP Business Writers

BEIJING (AP) -- Google's threat to end its operations in China over censorship and computer-security concerns could embarrass communist leaders who crave international respect. Yet it appears unlikely that many other companies would follow suit and try to change how business is done in China.

"As long as you aren't involved in politics, the media or pornography, the government will leave you alone," said Siva Yam, president of the United States of America-China Chamber of Commerce, which primarily represents U.S. companies in China.

Such high-tech companies as Microsoft Corp. and Cisco Systems Inc. had no comment on Google's announcement Tuesday that it would stop censoring results on its Chinese search engine at Google.cn and might leave the country entirely.

Yahoo Inc. said it was "aligned" with Google's position, though it's not clear what that would mean. Yahoo closed its offices in China several years ago when it sold much of its business there to the Alibaba Group. Yahoo retains a 39 percent stake in Alibaba, and Yahoo spokeswoman Nina Blackwell declined to say whether the company would consider selling its holdings.

Google angered free-speech advocates when it created its China search engine, Google.cn, in 2006 and agreed to exclude links to sites blocked by government filters, popularly known as the Great Firewall of China.

Now Google's decision to confront Beijing might help repair its image.

"Google is putting the other companies in a delicate position, raising the ante and trying to occupy the higher moral ground," said Jean-Pierre Cabestan, head of government studies at Hong Kong Baptist University. "Other companies that are ready to cooperate with Chinese censorship maybe are going to be criticized and targeted by human rights activists."

There was no government reaction in Beijing to Google's announcement Tuesday, which said the company was dismayed by hacking attacks launched from within China. Google said the attacks were apparently designed to break into the computers of U.S. companies and gather information about human rights activists.

China's state Xinhua News Agency cited an unidentified Cabinet official as saying the government was seeking more information from the company. A statement from the Chinese consulate in San Francisco said: "The Internet of China is open. The Chinese government encourages the development and usage of the Internet. The law of China prohibits any kind of cyber attacks. We welcome Internet companies to operate in China according to Chinese law."

At the very least Google's threat sets up a conflict between the govermment's desire to maintain strict controls on the Web and the hopes of its increasingly prosperous, sophisticated citizens. Many of them poured out support for Google on Wednesday.

Visitors left flowers and lit candles outside Google's offices in Beijing's high-tech Haidian district. Notes on bunches of flowers said, "Thank You Google" and "Google Bye-bye."

"I'm here to pay my respects to Google because they did not lose their dignity and they stayed true to their company's beliefs," said You Liwei, 28, who works in publishing. Other visitors bowed in a traditional gesture of respect.

Comments on Chinese Internet bulletin boards pleaded with Google to stay. A note on Tianya.cn hailed Google as a "great soldier of freedom," while on the Web site of the ruling party newspaper People's Daily, a visitor appealed for a compromise.

"Google is good. For the sake of technology advancement, the Chinese side should reach a cooperative agreement," the note said.

Google managers told employees to go home, and they did not know whether to come back Thursday, said an employee who spoke on condition of anonymity because she was not authorized to talk to reporters. Google has been able to hire its pick of China's brightest university graduates since its Beijing office opened in 2005.

Chinese regulators have backed down in rare cases over other technology issues. In June, the government gave in to complaints by trade groups and withdrew a demand that computer makers include "Green Dam" Internet-filtering software with PCs. Early last year, after Washington objected, China withdrew a demand that companies reveal how their computer security technology works.

But foreign companies have long accepted far-reaching government control in exchange for access to the huge and growing Chinese market.

In industries from automaking to fast food, companies have been forced to let communist authorities influence or even dictate their choices of local partners, where to operate and what products to sell. Companies avoid saying anything that might prompt retaliation.

Internet services have faced special challenges given that information, their core business, is even more tightly controlled than manufacturing of autos or home appliances. Indeed on Wednesday, the president of General Motors Corp.'s China group, Kevin Wale, said state-required partnerships help GM navigate the restrictions it faces in China.

"They're not causing us any major impact at the moment," he said.

Meanwhile, China regularly blocks access to Facebook, Twitter and YouTube -- which is owned by Google. So to run Web sites in the country, companies have agreed to avoid certain material.

For instance, Microsoft disabled some blogging services that carried comments the Chinese government disliked. Yahoo once handed over e-mail account information that led to a jail sentence for a writer -- prompting U.S. Rep. Tom Lantos to tell Yahoo executives in a congressional hearing that "morally you are pygmies."

Cisco, the world's biggest maker of computer-networking equipment, has been criticized by human rights groups because its technology is used by the Chinese government to censor Web sites and spy on Internet traffic.

The company declined to comment on Google's possible pullout. In the past, Cisco has defended its business practices in China, saying that it doesn't modify its equipment for the Chinese market and that it is up to customers, not Cisco, how its devices are programmed.

Google had 32 percent of China search revenue in 2009, versus 61 percent for Baidu.com, according to Analysys International, a Beijing research firm. The prospect that Baidu's main rival could leave sent Baidu's U.S. shares up $54.36, or 14 percent, to $440.85 in afternoon trading Wednesday.

Google shares were down $6.93, or 1.2 percent, to $583.55. Google contends that China accounts for an "immaterial" percentage of its $22 billion in annual revenue. J.P. Morgan analyst Imran Khan had been expecting Google's revenue from China to be about $600 million this year.

On Wednesday, Google.cn appeared to be still censoring some results. A search for the banned Falun Gong spiritual movement returned a message saying the browser could not open the page. A notice on the site said some results were deleted in line with regulations.

Google.cn said its top search term of the day was "Tiananmen," likely from people looking for material on the violent crackdown on pro-democracy protests in 1989. The No. 2 topic was "Google leaving China."

Michael Liedtke reported from San Francisco. Associated Press Writers Alexa Olesen, Chi-chi Zhang, Vincent Thian, Charles Hutzler, Jordan Robertson, Jessica Mintz, Tom Krisher and AP researchers Yu Bing and Bonnie Cao contributed to this report.

Tuesday, 12 January 2010

A Happy Retirement: 6 Steps That Work

Optimism about the nation's economic prospects is back. That's the most encouraging news from our latest Consumer Reports Retirement Survey of more than 24,000 of our online subscribers.

Among the retired, semiretired, and those still in the workforce, 60 percent of 54- to 76-year-olds polled by the Consumer Reports National Research Center this fall said that they were feeling upbeat about an economic recovery. That compares with just 34 percent who felt that way a year earlier.

But if our readers feel optimistic about the national economy, they still have grave concerns about their own financial futures. Our survey found that 70 percent of retired subscribers said they were highly satisfied in retirement, but some had fears about adequate resources and health-care coverage, some were getting the wrong information about important topics, and some were disenchanted with retirement.

Among the survey's less sanguine findings:

• Overall, median net worth declined 18 percent. Our subscribers saw an average 11 percent drop in their retirement assets.

• Median net worth dropped 30 percent for those still working. In fact, 23 percent weren't sure they'd be able to retire. More than half of those said they wouldn't have enough money to live without working. Only 19 percent of workers were highly satisfied with their retirement planning.

• Retirement isn't always voluntary. Twenty-four percent of full-time retirees told us they had stopped working because they were made to, their health declined, or they no longer had the energy to work. Those retirees were less satisfied than others. Among the semiretired, 33 percent said they had to scale back from full-time work for the same reasons.

• Some people make plans based on incorrect information. Among subscribers who expected to retire early, 17 percent didn't realize they'd collect less than their full Social Security benefit. Nineteen percent thought they could bridge the gap between employer-sponsored health coverage and Medicare with a privately purchased health-insurance plan, an option Consumer Reports has long criticized as inadequate, restrictive, and impossible for many to obtain or afford.

The $1 Million Sweet Spot

Retired subscribers' satisfaction with their retirement reached a plateau when their net worth was between $500,000 and $1 million. Having more didn't make much of a difference. But notably, even among those who reported having less than $250,000 in net worth, more than half were highly satisfied with their retirement. In addition, 38 percent of retirees said they depended on a defined-benefit pension for a significant portion of their income.

What Succeeds Over Time

Last year's whipsaw stock market upended the fortunes of even the most seasoned investors. At the same time, it proved the argument for investing discipline. Our survey found that investors who didn't much change or increased their investments after the market's swoon in October 2008 were more highly satisfied than those who became more conservative.

That discipline bears fruit over time, our survey confirmed. Those who began saving in their 30s had gains in net worth of almost $400,000 more than those who started by their 50s or 60s. Long-range planning allows more aggressive investing, and retirees who told us they used that approach had a median net worth of more than $200,000 over those who were more conservative. Folks with family money or early career success generally had a leg up on others, no surprise. But retirees from all backgrounds credited their traditional defined-benefit pension plan -- the kind that pays a set income for life, an increasingly rare benefit -- among the best "steps" they took toward retirement.

For those in their 20s and 30s, the advice is clear: Choose a career that has the potential for early financial success or find a job with a secure defined-benefit pension (or both, if such a job exists); buy a home in which to build equity; and invest early and, in those early years, relatively aggressively. Even respondents who started saving in their 40s had, on average, $230,000 more than those who started saving in their 50s or later.

And if that advice seems to come too late for you, there's still hope. Our recommendations are geared to people who are still working but are closing in on retirement, though the advice makes sense for people of all ages.

Six Steps

Live modestly: This was the top "best step" listed by retirees who said they were highly satisfied with their lives; 39 percent said they did not spend beyond their means. One way to rein in spending is to create a budget using store-bought software such as Quicken or a free online service such as Yodlee MoneyCenter (www.yodlee.com). Those programs help you track your spending and your progress toward meeting saving goals by consolidating your financial data from banks, credit-card companies, and brokerages.

Maximize your savings: Even if you don't have a defined-benefit plan, regularly contributing to a 401(k), 403(b), IRA, or other investment vehicle pays off, our satisfied retirees told us. (Saving too little was a regret of 27 percent of dissatisfied retirees.) At 50 and older, you can put as much as $22,000 into a tax-deferred, traditional 401(k) plan or after-tax Roth 401(k) or their 403(b) equivalents in 2010.

Reduce debt: Thirty-eight percent of retirees owed $25,000 or more on their mortgages. But 74 percent of retired respondents who were free of major debt reported being highly satisfied with their retirement. For greater peace of mind, pay off your debts before retiring. Even a low-rate mortgage can be a burden if other expenses rise and your income-producing assets falter. Notably, debt-free retirees had a higher median net worth than those with debt: $843,000 compared with $717,000.

In the current economic environment, accelerating payment of your mortgage can be a wise investment. Most certificates of deposit, bank accounts, and other safe savings vehicles are paying less than 2 percent, so putting your money into additional payments on a 5 percent mortgage instead offers a better return (though you'll give up some tax deductions on mortgage interest). By making extra principal payments, you can whittle down your loan's interest cost and term handsomely. For example, adding $100 per month to payments on a 30-year, $150,000 mortgage with a fixed rate of 5 percent reduces the total interest by almost $35,000 and cuts the loan's term by 6 1/2 years.

Don't invest too conservatively: Taking on even a moderate amount of risk pays off. Median net worth for retirees who said they took a middle-of-the-road approach was $836,000 vs. $671,000 for conservative investors. Notably, the difference in net worth between self-described moderate and aggressive investors was relatively small: a $57,000 advantage for the more aggressive. The lesson: You don't have to go out on a limb to get the best return. Diversification will help reduce your risk.

Study your options: When you design your dream retirement, also devise a Plan B in case you're forced to retire early or can't sell your home (a predicament of 8 percent of surveyed retirees). Your alternative plan might include a more restrictive budget or a different retirement location. To determine your Social Security benefits at different ages, go to www.ssa.gov.

A major issue will be health-care coverage. You can move to your spouse's insurance plan, find a new job with health benefits, extend your own employee coverage under the COBRA law (go to www.dol.gov and type "cobra" in the search box for details), or look for private health insurance. If you go that last route, try to get group coverage through professional or other membership associations.

Take the intangibles seriously: Stress affected overall satisfaction in retirement even more directly than net worth, our survey found. A quarter of retirees cited non-monetary stresses such as family relations, poor health, a loss of identity, and boredom. So before you retire, develop hobbies and line up volunteer work, trips, or part-time jobs. Strengthen your personal connections outside the workplace. And, of course, do what you can to maintain good health.

The Case for Diversification

Diversified investments -- stock and bond mutual funds and real estate, for instance -- correlated with higher net worth among the retirees in our survey. Those who invested in three or fewer investment vehicles had a median net worth of $496,000 compared with $861,000 for those with four to six. Over the long haul, variety worked in our readers' favor.

But diversification is your friend even in the short term. In recessionary times, diversifying among just four asset classes -- large- and small-cap stocks, long-term Treasury bonds, and shorter-term Treasury bills -- reduces the risk that everything will decline together.

Lessons From the Past

When the Consumer Reports Money Lab analyzed investment returns two years after the official ends of three past recessions (those ending in March 1975, July 1980, and March 1991), we found that conservative, moderate, and aggressive portfolios all made money. How they were allocated didn't much matter; total returns of conservative portfolios (one-quarter in all four asset types) and aggressive ones (40 percent small-cap stocks, 35 percent large-caps, 15 percent long-term Treasuries, and 10 percent Treasury bills) varied by no more than 4.3 percentage points.

Still, it's important that you don't put all your eggs in one basket. In the two-year slow-growth recovery after the 1991 recession, short-term Treasury bills were up only 1.9 percent while long-term Treasury bonds gained 27.5 percent. Both are considered safe. Among stocks, large-caps rose 23.2 percent and volatile small-cap stocks were up 46.7 percent.

Monday, 11 January 2010

CREDIT SUISSE INVESTMENT OUTLOOK: DIFFICULT 2010 FOR EQUITIES

As we mentioned on Friday, the cards may be stacked against equities in 2010. After a spectacular year and one of the greatest rallies in the history of the equity markets stocks are now arguably overbought, overvalued and on borrowed time. Like Morgan Stanley, Credit Suisse strategists believe 2010 will be a difficult year for equities.

In terms of their macro 2010 outlook CS sees 4.1% global GDP (3.3% in the U.S.) and muted inflation. They are quite positive about the first half of 2010, however. They target 1220 on the S&P by mid-year and 5750 on the FTSE. However, CS is increasingly concerned about a government funding crisis that eliminates all market gains in H2 of 2010 and sends markets reeling again as the problem of debt once again rears its ugly head.

CS is positive on global growth for 5 primary reasons:

1. Employment to turn positive in Q1 in the US- corporates have overshed labour, especially in the US;
2. Corporate spending to pick up
3. China to grow strongly (10-11%) and not tighten aggressively until there is “economic overheating” (as opposed to “financial overheating”), ie not until there is an acceleration in wage growth (2011);
4. US housing continue to recover (house price-to-wage ratio close to a 40-year low);
5. The inventory rebuild is yet to occur.

On the inflation front, CS sees very benign inflation in 2010 for reasons we have detailed thoroughly here at TPC. They do, however, see a very high risk of inflation in 2012:

(a) wage growth in the US, UK and Japan close to 50-year lows (and wages account for 70% of inflation);
(b) output gaps suggest inflation will fall;
(c) China is exporting deflation;
(d) owner-occupied rents (which are 40% of US core CPI) are likely to fall (given that they lag house prices by two years). We believe significant inflation risks emerge from 2012 onwards.

CS is not at all worried about the Fed raising rates soon. They see the Fed raising in late 2010:


The Fed will be slow to raise rates (unlikely to hike until late 2010). Normally, the first Fed rate hike is 19 months after the peak in unemployment.

De-leveraging will continue to be a drag on the economy and the savings rate will remain higher than normal:


Consumer to de-lever slowly as rates remain on hold.
There is still $2tr of excess US consumer leverage. If asset prices rise and rates stay low, the US consumer is likely to take the slow de-leveraging route (with the savings ratio staying around 5%).

As regular readers know, the biggest threat to the economy will actually come from the supposed solution: more debt. Ultimately CS sees the problem of debt causing major government funding problems:


(5) Government debt is the biggest threat: government debt does not become an issue until there is a recovery in private sector credit growth (unlikely until late 2010/11). Until then, banks fund the majority of budget deficit, keeping bond yields low. Once private sector credit demand returns, banks should find it more profitable to lend to corporates and consumers (rather than buy low yielding govies) and then bond yields are likely to rise sharply (as they did in 1993/4). The response to this is likely to be fiscal tightening (4% of GDP) and more QE (to cap real bond yields).

So how does CS see all of this playing out over the coming few years and how do you benefit from it? They see the next major leg down in economic growth occurring in late 2010 or 2011. The likely catalysts for the downturn will be one or all of the following:


(a) A government bond funding crisis (late 2010 or 2011) as private sector credit growth returns
(b) Accelerating Chinese wage growth (unlikely until 2011).

Until Q3 2010 they see robust economic growth, accommodative policy, banks funding government deficits and low inflation continuing to favor equities.

Sometime in late 2010 or early/mid 2011 they see the Fed raising rates. In addition, bank loan growth is estimated to return leading to a reduction in bank bond buying. Bond yields spike and the Fed is forced to respond with easy monetary policy. Making matters worse is Chinese central bank tightening after wage growth begins to expand sharply.

In H2 2011 or 2012 monetary and fiscal tightening will lead to another recession. Chinese growth slows. Another sharp downturn ensues that finally sets the table for a long-term sustainable bull market.

In the very near-term CS remains quite positive on equities for the following reasons:


(1) Better growth/inflation trade-off than expected;
(2) 25-30% earnings growth (falling ULC, outsourcing= strong margins, revenue estimates seem 2-3% points too low);
(3) Major credit and macro variables at levels when the S&P 500 was 1280.
(4) Valuation neutral.
(5) Investors are still sceptically positioned money market funds still have above average cash levels, retail have bought far more bonds than equities and institutions appear to be underweight equities.
(6) Excess liquidity remains extreme.

Where to invest? The UK, Japan and US are all underweights as high debt levels and low growth make them less attractive regions. Asia ex-Japan remains overweight while continental Europe also remains overweight.

GOLDMAN SACHS 2010 INVESTMENT OUTLOOK – THE BULL WILL CONTINUE

The rally is going to continue into 2010 according to Wall Street’s most influential bank (Please see here for Goldman’s top 10 trades of 2010). Analysts at Goldman Sachs Europe and America have released their full year 2010 estimates and they are very bullish about the upcoming year.

Goldman sees very low rates, stronger than expected earnings, strong commodity demand and investor reallocation driving prices higher. Goldman sees no rate changes through 2011 – one of the most accommodative outlooks of any bank we have covered. Stronger than expected revenue growth and continued margin expansion will result in 15%+ equity returns in the upcoming year. Although they see a continuation in the rally some moderation is expected. As we previously mentioned, their analysts expect many similarities to 2004. David Kostin wrote:

“Continued profit margin resiliency from prior aggressive cost reductions should drive strong returns in early 2010 and push the S&P 500 towards 1,300.”

Their analysts in Europe are even more bullish. They see the DJ STOXX 600 rising 20% to 300 by the end of 2010.

Goldman argues that we are transitioning into the growth phase of the recovery from the hope phase. This period is generally characterized by stabilization in economic growth and lower equity returns than the hope phase. Nonetheless, doubt remains and catalysts for higher stock prices remain.

Perhaps most important, Goldman sees a continued influx of cash to the equity markets. Thus far, investors have been risk averse and either remain in cash or have moved into bonds. Goldman sees a substantial move into equities as investors become less risk averse.

How to play it? Thematically they focus on three key themes:

* Dispersion – higher growth and higher sustainable returns companies.

* BRICs exposure.

* High and growing dividend growth companies.

Saturday, 9 January 2010

Is the gold craze just another asset bubble?

By Stephen Gandel

At Harrod's department store in London, you can pick up a South African Krugerrand or a 27-pound gold bar along with a sweater and bed linens. Gold is sold like candy out of train station vending machines in Germany. Indian households are borrowing against jewelry the way Americans did not so long ago against their homes. And U.S. investors poured $15 billion into gold funds in 2009, as they were pulling money out of stock portfolios.

Once of interest mainly to central bankers, Swiss jewelers, and folks who are convinced the Trilateral Commission runs the planet, gold is now the world's "it" investment. The question for you: If you buy now, are you getting in on the precious-metal equivalent of Microsoft and Intel circa 1986, or a Miami condo circa 2007?

Investors have turned to gold for centuries in times of trouble, and as panic over the global financial crisis took hold in late 2008, gold prices started heading up from around $700 an ounce. While panic has abated, fear remains -- of inflation building in the global economy, of an armageddon for the U.S. dollar, of Armageddon, period.

But at some point late last year, as gold touched $1,200 an ounce, greed seemed to take over from fear as the main motivation to buy.

Mark Hulbert, who tracks investment newsletters, notes gold scribes have become so enamored of their subject that they're telling subscribers to devote more than two-thirds of their portfolios to it. SPDR Gold Trust, an exchange-traded fund that invests in the metal, is now the second-largest ETF in the country, after one that tracks the S&P 500.

That's not so surprising. "When something goes up as quickly as gold has, the main thought is, Why am I not in it? And how can I get in it quickly?" says behavioral economist Dan Ariely, author of Predictably Irrational. "That's the same thing that happened with housing."

Can fear and greed keep gold prices climbing? In the short run, perhaps. But the case for gold as an investment? That's built largely on straw, as you'll see from the discussion that follows.

And it's only in fairy tales that one can spin straw into gold.

Tale No. 1: Inflation is a looming threat, and gold offers you better protection than stocks or bonds.

The reality: The price of gold is the only thing that seems to be rising.

Inflation is the most common reason gold bugs give for why you need this metal in your portfolio. After all, gold is a hard asset, and real things are expected to hold up better to inflation than paper assets like stocks.

The fear of rising prices is why Peter Schiff, chief global strategist for Euro Pacific Capital, thinks gold could eventually climb to as high as $5,000 an ounce.

But consumer prices aren't actually rising. At least not yet. Gas, for instance, costs less than it did a year ago. So does a gallon of milk -- down about 20%. A Big Mac costs a bit more, but not by much. You get the point. Prices on a number of consumer goods peaked in the summer of 2008 and have been falling or stabilizing ever since.

To be sure, ramped-up government spending could lead to higher inflation. But that's not a sure thing in recessionary times -- especially in downturns as bad as this one, when consumer demand for goods and services is so depressed.

"For inflation to happen, the government would have to spend more than the trillions of dollars that were lost in home values and bad loans in the credit crunch," says Frank Holmes, CEO of U.S. Global Investors. "We are not near that." And this comes from a guy who manages his firm's gold fund.

Even if Schiff is right and inflation is about to flare up, that's still no reason to be hoarding gold. The investment management firm Research Affiliates studied the last period of sharply rising prices -- the late 1970s -- to find out what was the best investment to own back then. The answer: not gold.

In fact, the study found gold prices and inflation had very little correlation. Between January 1977 and April 1980, small-company stocks were actually the best-performing asset, outpacing gold and other commodities by 4 percentage points a year during that stretch.

And over a much longer period -- since the end of 1974, when the federal government permitted U.S. households to own gold as an investment for the first time since the Great Depression -- even the S&P 500 index has whipped inflation by a wider margin than the metal has.

One reason gold may have been such a popular inflation hedge in the '70s was that there were few alternatives for small investors back then. Not only was that before the rise of low-cost stock index funds, it was decades before Uncle Sam came out with a class of bonds -- Treasury Inflation-Protected Securities, or TIPS -- that are guaranteed to keep pace with rising prices.

And let's face it: It's a lot easier to keep an electronic record of your TIPS bonds on your firewall-protected hard drive than to store gold bricks in your living room.

Tale No. 2: Unlike stocks, gold is real and tangible. So it will hold its value.

The reality: Gold prices fell for a quarter-century before the recent rally.

Gold bugs will argue that you can put more faith in a 27-pound block of metal that you can see and touch than in bits of data sitting on a Treasury Department server.

But remember that the whole "real equals safer" argument was cited as the reason housing values would never sink precipitously -- and you know how that played out.

At least stocks give you a share of a firm's earnings, and many pay dividends to boost your overall return. Gold is merely a commodity, and a volatile one at that. Gold prices fell in 14 out of 20 years between 1981 and 2000, and finished that two-decade run having dropped by more than half -- and that's before the effects of inflation are considered.

But isn't there a limited supply of gold around the world? And doesn't that mean prices will have to go up?

Not exactly. The truth is, no one really needs gold. Besides its use in jewelry, gold serves very few functions. In fact, industrial demand for the metal has been falling for years.

Tale No. 3: Despite its spectacular run, gold is still cheap by historical standards.

The reality: Gold isn't that inexpensive. And who says it's guaranteed to return to old highs?

Gold hit a record $850 an ounce back in 1980. In today's dollars, that comes out to about $2,200 -- or about twice the current price.

But just because gold is cheaper than it once was doesn't mean that it's a screaming bargain. If deflated price is the sole reason something is worth buying, then you should be rushing out to pick up Nasdaq stocks or houses in Las Vegas instead. On an inflation-adjusted basis, both are down off their all-time highs more than gold is.

Okay, but is gold at least attractively valued? A common tool used to determine if an asset is cheap is its price/earnings ratio, which takes what an asset is trading for and divides that by the profits it produces. But because gold doesn't generate earnings, that's impossible to ascertain.

Gold-mining stocks, however, do have P/E ratios, because they're shares of companies that mine and process the metal. And since these stocks are influenced by movements in gold prices, they can be a decent proxy for whether the metal itself is over- or under-valued.

Two of the largest publicly traded gold companies, Newmont Mining and Barrack Gold, sport P/E ratios of around 17, based on 2010 estimated earnings. Thanks to surging earnings, the P/Es for both stocks are actually lower than they've been in years. Yet the shares are still more expensive than the S&P, with a P/E of 15. This doesn't mean gold can't go higher. But you can't call it cheap.

Tale No. 4: As the world sours on the U.S. dollar, the demand for gold will take off.

The reality: Even China is wary of gold prices rising too much.

Some think recent shifts in the global economy's balance of power are what's causing gold prices to spike.

Foreign governments have long stockpiled U.S. dollars to shore up their own currencies. And as the buck has sunk with our weakened economy, nations like China have been selling dollars to boost their gold holdings. Global central banks are expected to have bought more gold in 2009 than they sold -- the first time that's happened in 20 years.

But the fear that gold is going to replace the dollar as the world's store of value is largely unfounded. The fact is, governments don't act like pure currency speculators. They hold dollars for economic and political reasons that go beyond the day-today value of the buck. Even with its recent purchases of gold, China still holds 20 times more of its reserves in the greenback than in gold.

And as this metal gets more expensive, central banks are becoming price-sensitive. A deputy governor of the Bank of China in early December said higher prices might slow that country's gold purchases.

If you fear the dollar's slide, there are far easier (and cheaper) ways to wager against it. "The U.S. economy is in some serious trouble down the road, but I'm not going to pay this much for insurance," says Steve Leuthold, chief investment officer for the Leuthold Group.

Instead, Leuthold says he is buying stocks in Latin America and Asia, which are a natural hedge against the dollar's demise. After all, if you buy assets denominated in foreign currencies, and those currencies rise in value while you hold them, you can make money simply on the exchange rates -- even if the underlying assets don't appreciate.

Tale No. 5: The "smart money" is buying gold. So you should too.

The reality: Only a small number of sophisticated investors are getting in on the action.

Gold has always been a favorite of doomsayers and conspiracy theorists. But last year it started to go more mainstream. Some of Wall Street's most successful investors are now into gold, including star hedge fund managers such as John Paulson and David Einhorn.

But before you join this movement, consider who these converts are. Paulson made money betting correctly that tens of thousands of mortgage loans would go bust in 2007 and 2008. As for Einhorn, he's best known as a short-seller -- someone who wagers that stocks are going to go down. In other words, it's really Wall Street's version of the same doomsday crowd that's caught the gold bug. It would be different if, say, Warren Buffett was buying up this stuff. He isn't.

So you'd do well to heed the warning of economist Nouriel Roubini, who was ahead of the pack in predicting the credit crisis. People who argue that there's economic justification for gold prices continuing their rise, he wrote recently, "are just talking nonsense."

Goldman Sachs Information, Comments, Opinions and Facts