Wednesday, June 30, 2010

Fund Exodus Continues as Risk Is Shunned

More money was pulled out of mutual funds than put into them during the month of May, according to the Investment Company Institute, an industry research firm. Investors took $11.98 billion out of long-term funds, including stocks, bonds and hybrid funds (a combination of stocks and bonds), in May, marking the first time since March 2009 that more money was withdrawn than committed to the funds.

Click here for the story.

South Florida Brothers Selling Oil Spill Souvenirs

Capitalism rules...

Jeffrey and David Shiffman have turned their bathroom into a pseudo chemistry lab. The two brothers from Ft. Lauderdale are trying to support relief efforts in the Gulf, by bottling and selling "Oil Spill Water."

Click here for the story.

So...Why did the Flash Crash happen? Its been almost 2 months...

On May 6th we had “The Flash Crash” as it has come to be known. In a blip the market lost 10% and then quickly regained most of its loss.

It was of course a coincidence that the Senate was debating very sensitive parts of the financial reform bill that day, that hour. Maybe it was a coincidence.

But we still have no explanation for what happened that day, and trust me I have watched for it.

It ain’t coming.

Either we haven’t a clue as to what happened, or we do and the powers that be can’t say.

Regardless the crash is a huge warning to individual investors.

70% of trades done these days are done by quant robots buying and selling back and forth in milliseconds. The market was once a place to invest in companies. It is no longer, at least for those of us who don’t work for Goldman or JP.

If your money is in the market right now, the question is; why? I know, I know, long term etc. etc. I used to be a broker I know the whole bit.

You could get lucky, don’t get me wrong, and being lucky is a good thing to be. However, if you prefer poker to craps you might want to think long and hard about remaining in the current high frequency trading driven market.

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Sunday, June 27, 2010

An amazing piece of American and world history: The Rumble in the Jungle, Kinshasa Zaire, 1974

By Nick Sorrentino

I recently had the pleasure of becoming acquainted with the band “The Hours” and their song “Ali in the Jungle.” –Through of all things a Nike commercial.

The song is beautiful and I would encourage everyone to listen to it.

The song inspired me to learn more about the “Rumble in the Jungle,” a fight between Mohamed Ali and George Forman for the heavy weight championship of the world, held in Zaire, now called The Congo, in central Africa in 1974.

It is a fascinating story, and one more people should be aware of whether boxing fan or not.

Don King the notorious boxing promoter got both Ali and Foreman to sign onto a fight if each man was paid 5 million for the fight. The problem was Don King didn’t have 10 million to pay, so he went shopping for a sponsor.

A sponsor emerged from an unlikely source in Mobutu Sese Seko, the brutal dictator of Zaire who came to power a decade and a half before with some CIA help.

Mobuto was an African strong man in the classic sense but sought to divine an alternative way from the Soviet Union and the United States, by emphasizing Zairian nationalism. Basically he was a fascist.

Regardless it was he who came up with the 10 million, and with the help of Panamanian Banks, and God only knows who else the deal was done.

Enter Ali and Foreman.

The 2 men stood in stark contrast to one another.

Ali was a symbol of black pride. His refusal to submit to the draft, and his new membership in The Nation of Islam turned much of white America away from the man who previously had been known as Cassius Clay. In the end Ali was stripped of his title. To many in the African American community and in Africa his personal stand elevated him from sports hero to cultural and political hero.

However, most people did not consider Ali to be the fighter he once was. At the time of the “Rumble” Ali was 32, a little long in the tooth for a fighter.

Foreman, in addition to being 7 years younger was a ferocious fighter. He made Mohamed Ali look slight. Forman was a bulldozer with style and skill, the perfect boxing machine.

Ali had taken another shot at the heavy weight title in 1970 after regaining his sanction to fight in which he lost to Joe Frazier. Additionally he had also lost a lesser fight to Ken Norton between Frazier and the Rumble. Ali could talk a good game, was a great story, but most thought the man was on the way to demolition at the hands of George Foreman.

Foreman, though no patsy for white America, was more palatable to the mainstream generally. He hadn’t made statements against the Vietnam War. He wasn’t a member of the Nation of Islam. He was just a badass fighter of immense talent, but he was a fighter, not a political figure.

For months the 2 trained in equatorial Africa, with the fight scheduled to begin before the rainy season, which would make travel, business, and the fight impossible.

After a major delay, due to Forman sustaining a cut in sparing, the fight finally went off in Kinshasa’s largest stadium, which seated 100,000.

Below the seats in this stadium was Mobutu’s private dungeon. Prior to the fight, as the crime rate increased he had actually rounded up 1000 of the usual suspects and brought them to the stadium, after which he executed 100 of the “criminals” at random. The crime rate went back down.

It is incredible to think that the biggest spectacle in the world was executed in this most developing zone of the developing world. The place bordered on 5th world, yet the developed world converged, on Zairian terms, on African terms, and Ali reveled in it.

While training in Zaire Ali often talked about the fight being a kind of homecoming for him. Africa and much of the developing world felt they had a comrade in Ali, which they did. Foreman was there to fight and get paid, very American.

As Foreman entered the ring he looked invincible. Pure power. A composed tempest. A force. A rolling boulder.

Ali entered as only Ali could full of style and looking crisp. Many of Ali’s people however feared for him. They thought that Ali was about to take the beating of his life. Indeed he would take a beating, but it was part of a plan.

In the first round Foreman quickly put Ali on his heals. Foreman was stronger, bigger, younger, perhaps even quicker, and on the canvas this reality hit Ali’s mind as hard as any connecting punch from his opponent. He was in trouble.

Ali stepped back and went “to the ropes.” He allowed Foreman to beat on him as he leaned back deflecting any knock out punches. Ali’s kidneys got hammered by Foreman’s right hand. The colossus went about destroying Ali’s insides.

This went on for another 7 rounds. Ali took blow after blow, until Foreman punched himself out.

Then in a flurry fueled by the energy Ali had reserved in his “rope-a-dope” strategy Ali landed a series of blows, including one that nearly decapitated the champ. Ali connected and connected and Foreman went down. The fight was called for Ali.

It is arguably one of the top 10 upsets in all major sports. Regardless the story of the “Rumble in the Jungle” is one that has many facets and themes. The politics of it all. The business. The culture of the time. The 2 gladiators. There is much to appreciate. It’s just an amazing story.

Below I have included a link to the first episode of the documentary “When We Were Kings” if you want to learn more about this bit of historical craziness.

In the words of my favorite new band “The Hours…

“It was the greatest comeback since Lazarus… Since Lazarus.”

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Wednesday, June 23, 2010

Tuesday, June 22, 2010

Congress Wants To Bail Out Union Pensions

“A new bill introduced by Democratic Sen. Bob Casey of Pennsylvania would set up a taxpayer bailout of underfunded, multiemployer union pension plans.”

Click here for the story.

Saudis Hoard Twice as Much Gold as Thought

Saudi Arabia, the world’s fourth-largest holder of foreign exchange reserves, is sitting on more than twice as much gold as previously thought, according to new estimates that point to the revival of bullion as part of emerging economies’ official reserves.

Click here for the story.

Saturday, June 19, 2010

Medvedev Pushes Ruble Reserve Currency to Cut Dollar Dominance

This is probably the biggest story in the world over the long term, though most (especially in the USA) don't know it yet. The world is fed up with the dollar, and frankly the US.

The dollar, or more specifically the petrodollar, is the linchpin to the current economic and geopolitical order. The fact that oil business is done exclusively in US dollars and is traded in economically significant levels only in London and New York, is the key reason why this country has been able to "pay" for the sprawling leviathan that is the US government.

Simply put, we sell our dollars to the world (via Treasury Bonds) so that the world in turn can pay its oil bill with them. This is as true for Russia, as it is for China, as it is for the EU.

Its like the globe is a giant Chuck-E-Cheese and we have all the tokens. The Russians, the Chinese, and the rest of the world want new tokens. It is one of the chief reasons for the emergence of the euro a decade ago.

But we've based our entire economy on the premise that the world will always come to us for dollars. That is the only reason why things are still puttering along economically in this country, though feebly. If the reserve currency was somehow taken away from the US, the arcane economic rumblings in far off lands today will become very real very quickly for everyday Americans tomorrow.

The individual investor would be wise to watch the reserve currency debate like a hawk.

It may mean your retirement.



“Only three, five years ago it seemed like a fantasy” to create a new reserve currency, Medvedev said yesterday in a speech in St. Petersburg, Russia. “Now we are seriously discussing it.”

Medvedev, who has repeatedly called for a supranational currency to match the dollar, said discussions with China are continuing on broadening the global options. Russia sold U.S. Treasuries for a fifth consecutive month in April, the U.S. Treasury Department said June 15. The world may need as many as six reserve currencies, Medvedev said.

Click here for the story.

This is a great interactive map that shows movement of residents from county to county.

Map: Where Americans Are Moving

Jon Bruner

More than 10 million Americans moved from one county to another during 2008. The map below visualizes those moves. Click on any county to see comings and goings: black lines indicate net inward movement, red lines net outward movement.

Click here.

Friday, June 18, 2010

Obama Tells G20 That Double Dip Recession Is Out of the Question

The sky is red. Up is down. War is peace. Things are getting better economically. What is this nonsense?

Click here for the story.

Sunday, June 13, 2010

May you live in interesting times... China's challenges

By Nick Sorrentino

I was recently speaking to a friend of mine in Asia and I prodded him for information on the Chinese economy. I asked him if it was true that there were entire cities built devoid of people. He said indeed that was true. Essentially the main cities were full of people and cars, the second tier cities were struggling, and the third tier cities (First or second tier in terms of population in the west) were on their back with skeletons of apartment buildings dominating recently clear skylines.

Frankly, this is one anecdotal report. One does not make investing decisions on what could be an outlying perspective. But the reason I asked my friend for his view was because I was hearing similar stories from other sources. There is smoke coming up from China to be sure.

In 2005 I had the pleasure of listening to a speech given by James McGregor, the former WSJ China chief at Regent University. His book, One Billion Customers, had just come out and he spent the lunch hour telling us of the many peculiarities of doing business in China. It was a great speech and I would recommend his book to anyone doing business in the Far East.

After the speech he took questions. I asked about another bit of anecdotal information I had gathered from somewhere. I asked if he had heard about the 60,000 officially reported riots in the Chinese countryside. He said that he had and that this was a vastly underreported part of the emerging China story.

I logged that away.

There are a lot of pieces to China and how they fit together is incredibly complicated, and even harder to understand if one does not have a working understanding of the Chinese language. Of course within China there are many dialects that vary so much that much of Chinese TV is broadcast with subtitles for the local population. Just to add to the confusion for Westerners.

I am barely knowledgeable on China as my research methods show. However I am increasingly of the belief that the China the west has been sold for quite a while is not nearly as solid as we have come to believe.

Don’t get me wrong. I still think that much of the economic story in the 21st century will be written in China. But it will be far from a steady rise to first world status.

Much has been made of how the Chinese have been able to “manage capitalism.” This is a illusion. Yes, according to the official numbers things have looked rosy for over a decade. 10% growth year over year for 10 years is a remarkable accomplishment. The thing is we need to question the source of these numbers, a ruling communist party that seeks to maintain control at nearly any cost as it makes its way through the second Chinese cultural revolution.

Their central bank has screwed up as only a central bank can, by infusing way too much money into the economy in the form of stimulus in 2008. Now its got empty cities and inflation and riots in the countryside.

Again I still believe that the trajectory for China is up generally, however I also believe that in the relatively near future we will ask ourselves why we accepted the numbers coming out of China as long as we did. There is the very real possibility of a nasty Sino property crash that might just come on at about the time the sovereign debt bomb goes off in the “developed” economies. The implications of this are many and not clear. But if China implodes as debt hammers the West times could get even more interesting than they already are.

I personally could go for a couple of years of less interesting times.

Ah, who am I kidding. No I wouldn’t.

Saturday, June 12, 2010

Japan’s Prime Minister Warns That Debt Could Bring a Crisis Like That of Greece

First the Japanese thought debt was their friend.

Then they found out the truth!
TOKYO — Japan’s newly installed prime minister startled the nation on Friday by warning that it could face a financial crisis of Greek proportions if it does not tackle its colossal debt.

Stark words from the prime minister, Naoto Kan, followed by just hours the resignation of his banking minister and ally in the governing Democratic Party, Shizuka Kamei — an advocate of big spending. Mr. Kamei’s departure seemed to signal that the new government would focus on reducing Japan’s heavy government debt, called sovereign debt, by far the highest in the industrialized world, and cutting back on the wasteful public works projects.
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Debt Spreading 'Like a Cancer': Black Swan Author

The economic situation today is drastically worse than a couple years ago, and the euro is doomed as a concept, Nassim Taleb, professor and author of the bestselling book "The Black Swan," told CNBC on Thursday.

Click here for the story.

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Tuesday, June 8, 2010

Economic Trouble In Europe Now, China Next…

The events that are unfolding right now makes perfect sense from a global struggle for supremacy point of view. Specifically, the United States will likely emerge from the financial crisis since 2008 once again as the strongest country in the world within the next few years. The plan seems simple - trigger a domestic financial crisis that will shock the rest of the world. The United States took the hit first, and in turn causing a much worse financial/economic collapse in Europe and then likely in Asia.

Click here for the story.

Friday, June 4, 2010

Thursday, June 3, 2010

Obama Administration Closes In On Control of Media

Now is the most vibrant time in the history of journalism. Finally information has been seized from the brokers (MSM) and is subject to the scrutiny of the public. Remember when there were 3 outlets for TV news? Remember when you had to rely on your local newspaper for local information? Well the FTC apparently sees those times as the good old days.

Never before has information been so readily accessed and news more vibrant than it is now. Never have new have ideas spread as quickly as they do now. Never have people been able to make better choices in everything due to the amount of information the average person now has access to.

And this is the reason the Feds want to "reinvent journalism." There is too much power in the hands of the people. In the age of the Internet we have a liquid market in information. Ideas rise and fall on their merit. The problem is that people who don't like free markets generally definitely don't like a free market in ideas.

How dare the bloggers weigh in on the direction of the country. Any moron with a laptop can say whatever he or she wants and post it on the Internet. We must regulate this phenomenon! We must licence journalists! (This is actually a proposal.)

This is a very bad development for our country. Fight this. I will be fighting it.

FTC draft report includes five new possible taxes as ways to fund media and limit freedom of the press.

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Wednesday, June 2, 2010

Gold in India Reaches Record on Currency, World Price

Gold futures in India, the largest consumer of the precious metal, advanced for a second day to a record, spurred by a weaker domestic currency and gains in global prices of bullion.

Click here for the story.

Tuesday, June 1, 2010

China data show manufacturing growth slowing

Two key gauges of Chinese factory activity released Tuesday both showed a slowdown in growth, suggesting that the government's steps to cool the economy could be having an effect.

Click here for the story.

About Me

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Nick Sorrentino is the Editor of The Liberty and Economics Review and CEO of a social media management company.