Everything Gold Is New Again

By Shayne McGuire
Newsweek, New York
Wednesday, December 29, 2010

http://www.newsweek.com/2010/12/29/everything-gold-is-new-again.html

In stormy times, investors look for something solid to hang onto—something like gold. The World Bank president himself, Robert Zoellick, suggested in November that the world’s economies could use the old reliable metal to help stabilize their currencies. For these and many other reasons, professional gold-fund manager Shayne McGuire argues that gold has nowhere to go but up. The following essay is adapted from McGuire’s latest book, Hard Money: Taking Gold to a Higher Investment Level.

Solution for the sovereign debt crisis - Tax the rich

Extracted from Version 2.0: A kinder brand of capitalism
by Teh Hooi Ling

Published March 26-27 2011 on The Business Times Weekend

Are the rich of the world so rich that combined they would actually have enough stashed away to help solve their country's debts?According to Forbes list of world's billionaires, there are 1,210 billionaires in the world now. Their combined wealth , is about US$4.5 trillion. That's more than the GDP of Brazil, India, Indonesia and Thailand combined.

The United States has the most number of billionaires, at 412. It is followed by China and Russia - ironically two countries which used to subscribe to the Marxist philosophy but have since made some drastic ideological changes. China has 115 billionaires and Russia has 101. But the billionaires in Russia are far richer than those in China. Their combined wealth is US$433 billion, compared with China's US$230 billion.

India's billionaires (with combined wealth of US$247 billion), meanwhile can fund nearly two years of the country's estimated budget deficit of US$131 billion last year. The billionaires in the US can help trim their government's net debt by 16 per cent, Brazil's by 18 per cent and Mexico by 31 per cent. 

Meanwhile, Hong Kong's 36 billionaires have wealth amounting to a staggering 70 per cent of their economy's GDP last year.

Currencies are not the problem

Published March 11, 2011 on The Business Times

By RAGHURAM GRAJAN

Professor of finance at the Booth School of Business at the University of Chicago and the author of 'Fault Lines: How Hidden Fractures Still Threaten the World Economy'. 

LAST November, the US Federal Reserve embarked on a second round of a type of monetary stimulus known as quantitative easing. The central bank declared that it would buy US$600 billion in long-term Treasury bonds in an attempt to push down long-term interest rates. Immediately after the move, the rest of the world accused the United States of deliberately attempting to depreciate the US dollar.

However, Washington was not alone in apparently trying to influence its currency's value. China has continued to hold the yuan relatively stable against the US dollar, even though many economists believe that the fair value of the Chinese currency is considerably higher.

Book: Naked Economics: Undressing the Dismal Science

I have been reading several books to understand more about the macroeconomics, which is necessary to maneuver in complex financial market today. I would say this book is one of the best in explaining the various ideas and issues on economics. The author did a great job making economics study accessible to all; he did away the complicated math calculations and diagrams, explaining the economics concepts and tools with simple example.

If you ever wondering and would like to find out the answers for these questions below, this is the book for you.

• Why Bill Gates is the richest man but not others?
• How much is the paper money we holding worth?
• How governments and central banks fighting the recession?
• How you will be impacted financially when the central bank raise or reduce the interest rates?

Confirmation Bias

Psychology plays a major part in the trading success. Among all, greed and fear are the main determinants in the success or failure of a trade. I would cover these factors details in my future post. Another hurdle is the confirmation bias, the tendency of people to seek evidence in confirming an already held opinion.

For example, you came across an Internet news that a new oilfield is discovered by Company A, that would bring a significant profit to the company. This news attracted your attention, and you went on to google all related news, and think that the shares of Company A will rise. Worried that you would miss this boat, you quickly logged into your Internet broker and made the purchases. Without analyzing the company properly, in term of their financial and technical trend, you might make a wrong entry and suffer loss. This usually happens in amateur traders. 

Book: John Paulson's Greatest Trade

Few weeks ago, the financial titan, Goldman Sachs was charged with fraud by the US Securities and Exchange Commission (SEC) in the structuring and marketing of a debt product against the benefit of the investors. The SEC alleged that Goldman Sachs did not tell investors the vital information about the collateralised debt obligation (CDO) that they were marketing.

The vital information was about a major hedge fund, Paulson & Co have been involved in choosing the securities that would be part of the portfolio, and taking a short position against the CDO in a bet that its value would fall. Through these trades and betting against these subprime mortgages, Paulson & Co have enjoyed the profit of close to 40 billions.

The book, The Greatest Trade Ever came in just in time that provides the reader the detailed insight on how John Paulson, the founder of Paulson & Co transforms his fund, which initial specialize in mergers & acquisitions deals to one of the biggest hedge fund in the world. The book also mentioned briefly how this subprime crises brought down Bear Stearn and Lehman Brothers, which caused financial meltdown around the world. Not only on John Paulson, this book also described how other bearish investors made great earnings after realised early the collapse of the housing market.

Defend against market downturn

Average investors usually use buy low and sell high in the market to earn the profit. However, in sudden market downtrend, they normally hold on their positions and suffer the paper loss.

Recent crisis in Euro zone has spread around the market worldwide; rumour about the sudden dried-up of liquidity in Euro zone and trading system glitch have triggered massive sell off in Wall Street. We might now heading for short term correction.

Under this scenario, how do we defend ourself against the downturn? Shorting the market seems as good choice, but it might be too sophisticated for average investors, and high risk as well. Another choice is to go for inverse ETFs.

ProShares and Direxion offer a range of inverse ETFs, allowing the investors to hedge against the downturns, or seek profit when markets decline. The funds also provides the investors with even more exposure through the leverage. Under current situation, betting against financial sector seems like a good choice, allowing investors profit when financial sector index declines, and vice versa. Look up for ProShares Short ETFs and Direxion Bear Funds.

For more information, please visit for more information:

http://www.proshares.com/

http://www.direxionfunds.com/products.html