Protecting Your Assets in the "Mother of All Bubbles"

In a commentary for the Financial Times, Nouriel Roubini of New York University recently warned that "the mother of all ... global asset bubbles" may be under way, in which all risky assets (stocks, high-yield bonds, oil, commodities, etc.) almost everywhere have run beyond what the fundamentals will bear. Roubini was early (and lonely) in spotting the housing / credit bubble. What's behind this new bubble, and how should investors respond?

Getting carried away
According to Roubini, investors are stoking a forest fire with the "carry trade" as their kindling. This is how it works: Investors borrow at a low interest rate in one currency and invest in higher-yielding assets in a different currency. If the exchange rate doesn't move against you, you pocket (at minimum) the difference between the yield on the assets and your borrowing cost.

Today, Roubini asserts, the U.S. dollar has become the borrowing currency of choice for the carry trade because the slide in the dollar compounds the Fed's zero interest rate policy such that traders are effectively funding the carry trade at negative interest rates. A negative borrowing cost certainly lowers your hurdle rate -- is it any wonder that all risk assets look attractive in that context?

A clue from Soros
The odor of the carry trade hasn't escaped George Soros: At The Economist's Buttonwood conference last month, Soros -- who has been known to speculate on currencies -- noted that the short dollar trade is "extremely crowded." A dollar-funded carry trade creates a short dollar position: First, you borrow in dollars; then, in order to buy assets that are denominated in another currency, you must sell your dollars against the other currency, i.e., you end up short dollars.

Saddled with pocketfuls of cheap dollars, investors have gone on a shopping spree, scouring the globe for any asset they expect to secrete a return above their borrowing cost. For proof, UBS says its Global Equity Strategy Risk index, which measures risk appetite, reached its highest level since March 2000 on October 23rd. UBS's comprehensive index looks at investors' preferences for higher-risk sectors and geographical regions, along with equity option volatility and conditions in the bond and currency markets. Historically, it has proven to be an effective signal to move into lower-risk assets, even below current levels.

A frenzied shopping spree
The results of this shopping spree are immediately visible in the relative performance of emerging markets versus the U.S. While the S&P 500 has delivered a workmanlike effort since hitting its closing low on March 9, rising 54.1%, that pales in comparison to more exotic investment locales. The average return for the 22 emerging markets tracked by MSCI over the same period is 90% in U.S. dollar terms. A third of these markets have more than doubled, including three of the four BRICs (Brazil, Russia, India & China):

MSCI Country Index

% Return from March 9, 2009
(in USD, 11/02/2009)

Brazil

104.0%

China

78.2%

India

123.4%

Russia

117.5%

MSCI BRIC Index

97.6%

Within the BRICs, some individual stocks have performed extraordinarily well:

Company

Country

% Return From March 9, 2009,
(In USD, at 11/02/2009)

Mechel OAO  (NYSE: MTL  )

Russia

450%

Vimpel-Communications (NYSE: VIP  )

India

272%

Satyam Computer Services  (NYSE: SAY  )

India

132%

Vale S.A. (NYSE: VALE  )

Brazil

108%

Infosys Technologies  (Nasdaq: INFY  )

India

103%

Petrobras (NYSE: PBR  )

Brazil

85%

PetroChina (NYSE: PTR  )

China

85%

Look at the returns on PetroChina (NYSE: PTR  ) -- these aren't penny shares; it's a company with a market value in excess of $150 billion! But the BRICs aren't the only frothy markets. In fact, value-driven strategist Andrew Smithers told Bloomberg in late October: "It's quite likely that Japan is the only significant market in the world that is not seriously overvalued." Given his expertise in stock market valuation and his superb track record as a "bubble-spotter," that's a worrying assessment for investors everywhere.

2 actions to protect your assets
The perspective of this "mother of all bubbles" bursting is unsettling, but there are a couple of actions that investors should consider in order to protect themselves against a possible correction, particularly investors who are broadly invested in the U.S. and major foreign markets (via index funds, for example). First, you can reduce your equity exposure in order to accumulate some "dry powder" that you can then reallocate in the event of a correction. Second, you can tilt your exposure away from the broad market and toward specific names or sectors. When implementing the second of these strategies, investors must be focused on selecting high-quality names that are trading at a discount to intrinsic value.

China is experiencing an asset bubble also, but there's more to China than the red-hot coastal regions. Motley Fool Global Gains co-advisor Tim Hanson puts his finger on the next great place to invest.

Quality matters. The team at Motley Fool Inside Value can show you how to build -- and manage -- a portfolio of high-quality company stocks trading at discounted prices. To find out their top five recommendations for new money now, take advantage of a 30-day free trial today.

Alex Dumortier, CFA, has no beneficial interest in any of the companies mentioned in this article. Petroleo Brasileiro is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletters today, free for 30 days. Motley Fool has a disclosure policy.


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  • Report this Comment On November 04, 2009, at 11:25 AM, EvanRowe wrote:

    The gold bubble, equity bubble, it's all coming down. This IS the big one, the big tank, the great depression 2.0 and it doesn't matter how many (or few) of us have been calling it and for how long. All that capital is hot money, not real investment.

  • Report this Comment On November 04, 2009, at 5:24 PM, Rumpleforeskin11 wrote:

    Evan, I'll take two apples, please.

    Keep the change.

  • Report this Comment On November 04, 2009, at 5:35 PM, TWOTIMETUNA wrote:

    so where should we put our cash? anyone anyone

    bueller?

  • Report this Comment On November 04, 2009, at 6:43 PM, jondee123666 wrote:

    I didn't really see any great details on how to protect your assets. Is the author advocating leaving stocks and getting on the sidelines?

  • Report this Comment On November 04, 2009, at 7:03 PM, TMFAleph1 wrote:

    @nanandpaul,

    Thanks for your interest. The two recommendations to protect your assets are contained in the final paragraph.

    Best,

    Alex Dumortier

  • Report this Comment On November 04, 2009, at 7:06 PM, johnlewisgrant wrote:

    If the big R. is right, and I think his argument is sound, then there really won't be anywhere to hide in equities. The good and the bad will suffer. So you must live with GICs (Yuck), inflation protected bonds (a possibility if the rise of the US Buck and interest rates are coincident), or a short term corporate bond ladder. I've opted for the latter, in Canadian bonds--'cause that's where I live.

    Roubini says it's all bound to unravel in 6 months to a year. His theory certainly explains the action since March. Some fundamentals, yes. Lots of funny money, yes indeed.

    JG

  • Report this Comment On November 04, 2009, at 7:43 PM, jondee123666 wrote:

    Thanks for the follow up Alex, I'm at work and skimming quickly. Will have to consider strategically placing stop loss orders and the resulting "dry powder" strategy. The second rec is fairly general, but I see your point.

  • Report this Comment On November 04, 2009, at 8:22 PM, keddie1 wrote:

    Ok.. so the recommendations are in the last paragraph. Would be nice if the recommendation were in straight forward language. As written, it is a bit like a fortune cookie... It could mean anything you want it to...

  • Report this Comment On November 04, 2009, at 8:44 PM, CustomHotrods wrote:

    Does anyone have any ideas to attract investors to help fund the development and production of a cool retro German supercar? Thanks in advance.

  • Report this Comment On November 04, 2009, at 9:12 PM, LessGovernment wrote:

    Is there a place you can "park" asset value that will survive the negative impact of a bubble correction? Good question.

    If you are in cash and the currency declines, you are screwed.

    If you are in stocks, and the market falls, you are screwed.

    If you invest in real estate and markets go down, you are screwed.

    Bonds, same.

    Art, same.

    Antiques, same.

    I suppose you could buy calls, but that is expensive protection with its own set of risks.

    About the only place to ride out a global bubble bursting is gold, assuming you can invest in gold itself and not rely on some middleman (that may or may not survive) to hold it for you . But then you have the problem of timing the market to get out of gold at the right time and the expense of converting gold into some form of liquid asset.

    If the currency was stable, you could just simply go to cash. So that is the real problem in a nutshell. We got off the gold standard in favor of paper backed by nothing and we have printed lots of paper backed by nothing. That is why the currency buys so little gold now.

    India just bought 200 metric tons of gold two days ago. Folks said they paid too much for it at $1045 per ounce, but two days later, every ounce in the 200 metric tons is now worth about $50 more. Who among us made that much money in the last two days?

    The real problem we face is currency debasement and one of the real issues with a currency backed by nothing is, if you hold it, it loses value, especially in a downturn. We have a Federal Reserve that has proven time and again that it really is not concerned with the value of the currency. It is only concerned with the health of its member banks. Follow the recent policies of the Fed and that statement becomes obvious.

    Our dollar has been severely hurt in the long run, although it may actually strengthen in the short run if the global economy falls back into the abyss which is what I think is about to happen. But nothing the Fed has done has solved the underlying problems in banking, regardless of their claims to the contrary. All we have done is postpone the resolution by exploding our budget deficits, exploding the Fed's balance sheet, artificially suppressing interest rates, and continuing to allow Fannie and Freddie to buy mortgages that are up to 125% of appraised value. This is a really big bubble and it, coupled with the bubble building in the FHA mortgage system and the bubble on the books of the FED create a very real danger going forward. We have thus far avoided the entire hit yet to come from high unemployment by socializing the unemployment benefits (twice extended) to the future. What happens when these benefits ultimately run out. What does the economy, foreclosures, banking, etc do then?

    We have pumped a sugar high to a very diabetic financial system and when the sugar is turned off, the crash or near crash is still going to come as banks previously deemed "saved" will see the values of their MBS's, and other securities plummet as there will once again be no market for any of the low interest rate based MBS's and securities. And when the interest rates seek a natural, global, risk adjusted level, banks, businesses, investors, and taxpayers will all be punished once again.

    Banks will be punished with newly accrued write downs in addition to the write downs that should already have taken place but have thus far been avoided through "creative" bookkeeping (over stating the values on the balance sheets and in the SIV's). this will put a strain on the banks once again.

    Investors will be punished as their stocks, bonds, real estate holdings, etc. once again decrease in value due to a lack of capital to feed to would be buyers. With banks channeling capital to write downs, capital available to loan will become scarce, and investors are going to grow weary of providing capital to a bank only to see it vanish as it is used to absorb more write downs and then having the bank raise more capital which dilutes the investors holdings in the bank.

    Taxpayers will be punished with a double whammy of higher taxes to fund immense debt service costs which will lower discretionary incomes. Think of what an 8% bond rate could do to the debt service costs on 12 trillion dollars of debt, and yes I think 8% is a realistic look at where we are going. Then ask yourself how you are going to raise the necessary taxes to fund the social security and Medicare entitlements which are collectively about 80 trillion dollars in the hole. Are you really going to increase payroll taxes again?

    What we need is exactly what we are not getting. We need to drastically reduce the size of government and government cost and reduce entitlements so as to stop the insane levels of debt that are removing opportunity from the future before we even get there. And in doing this, and only through doing this, can we create the opportunity that only discretionary income can provide.

    Discretionary income creates demand and demand creates jobs. But alas, we have taxed discretionary income into oblivion, destroyed jobs, and destroyed opportunity in the process. So say hello to high unemployment, high taxes, and a lower standard of living, all three of which are the trade marks of socialism. This is not Change we can live with.

    The inherent vice of capitalism is the unequal sharing of the blessings.

    The inherent blessing of socialism is the equal sharing of misery.

    -Winston Churchill

    So what should we be doing?

    We need to remove payroll taxes entirely. This has always been idiotic. If you have to have socialist entitlements that destroy opportunity from the bottom up, at least don't fund them by making your already too high cost of labor even higher by adding payroll taxes to fund entitlements. This only moves more jobs off shore. However, this is just more of the idiocy that is Congress.

    Imagine where we could be if there were no payroll taxes at all. Everyone would instantly receive a 7.6% pay increase with no increase in income taxes. All employers would have their cost of labor instantly reduced by 7.6% as well. How then would entitlements be funded? By using the only logical means available - a sales tax on everything sold of about 5%. In doing so, when Wal-Mart sold stuff made in China, a tax to pay for entitlements would be collected so imported products would no longer be getting a free ride and our cost of labor would not be encouraging more product to be made over seas.

    As it is now, we make ourselves 15.3% less competitive and don't raise any taxes for entitlements through the actual sale of imported products. If I were King, that would change tomorrow as this is just plain nuts. We have been legislated to fail and that is what we are doing.

    Here is another example of stupidity. Low skilled workers can usually find employment in food service. So what do most cities and towns do? They add an extra sales tax on food service establishments making them less successful and pay unemployment to the workers that are the opportunity cost of the higher tax.

    I say have no sales tax at all on restaurants and make restaurants as successful as possible so they can employ more people and get them off welfare and unemployment and stop this addition to the deficits. I could go on, but it only makes me more angry at the obvious stupidity of government.

    Fire Them All in 2010

    Never vote for an Incumbent

    And buy Gold

  • Report this Comment On November 04, 2009, at 10:40 PM, jesse2159 wrote:

    Economies, like everything else closely adheres to one natural order: markets seek their own level and balance no matter what governments or Wall Street does or doesn't do.

    This financial crisis will end once governments get out of the way and let the weak fail. It's the natural order of things not to prop up failed ventures any more than it makes sense to keep an elderly person alive using extreme measures.

  • Report this Comment On November 05, 2009, at 4:32 AM, tdiaczok wrote:

    Less government, you write the best "articles" on this site. Do you have a website ? Absolutely love your work.

    Coming from Australia and visiting the US recently I found your taxes interesting to say the least. As a consumer I never knew the "price" of many items was until some mystery tax was added. Some things were "extra" taxed and some weren't. In Australia we have the type of general consumption tax you wrote about and all price quotes must include it up front. For consumers, far more transparent and overall it has significantly reduced our "cash" economy where tax can be evaded.

  • Report this Comment On November 05, 2009, at 6:44 AM, MAURIZIO400 wrote:

    less government you are the best

  • Report this Comment On November 05, 2009, at 6:52 AM, LessGovernment wrote:

    tdiaczok

    Thank you for the words of encouragement. As to our taxes, yes they do seem designed to punish effort and spread the wealth more so than to run a government. One of the big problems here is our Census and its use to create tax policy by the beloved Congress.

    Our census process has been politicized to the point that it is now just a means of slicing and dicing the population to determine the identities of Peter and Paul so we can rob Peter and pay Paul some more. Over time, the Peters available have been reduced in number, and the Pauls to be supported have increased substantially. Congress may try to deny this or dress up this pig, but it is still just a dressed up pig. Only when you turn loose the power of an economy based on "you keep what you earn" will true opportunity return to America. I hope I live to see it.

    The Constitution calls for an "enumeration" of the population, that's it. The politically active census has stretched that to include details about race, color, creed, national origin, education, income (why is income important to the census?), and much, much more. In short, the census tries to record and document for future policy making in Congress all those off limits things like race, color, creed, nationally origin, etc. that using as the basis of legislative policy making should be illegal. But alas, Congress collects the data through the census anyway and then barrels along making policy based on race, color, creed, and national origin, etc.

    As to a web site , yes one is in the works to be launched in January 2010 to begin the final push for the One Term Allowed Movement in which we hope to unseat as many incumbents as is possible.

    Again, thank you for your kind words.

    One Term Allowed

    Never Vote for an Incumbent

  • Report this Comment On November 05, 2009, at 8:47 AM, lmdliijk5 wrote:

    I say "LessGovernment" for president in 2012...

  • Report this Comment On November 05, 2009, at 9:17 AM, zaab555 wrote:

    Less Government would be good. But I am going for the tax savings in the long run. If we vote out all the incumbents that means they will collect a full pension, paid by us, for the rest of there lives. Plus medical, etc. There is no guarentee the replacments will be any better. So, fewer retired polititians means less taxes. No? I'm thinking work them ( if they do any work ) until they can't drive themselves to work in their fuel efficient cars and planes. The way things are going I will have to work until I am dead.

    Can we keep them from retiring?

    Just a thought!

  • Report this Comment On November 05, 2009, at 9:47 AM, scope62 wrote:

    I agree with many of the things that Less Government promotes. However, the "one size fits all" rule of voting out all incumbents isn't one of them. I am in favor of term limits, but if you vote out all incumbents, you could throw out the good with the bad. Perhaps a term limit of 3 terms and out would not be unreasonable, with the chance to come back and run again after being out for a minimum of one term?

    I fully agree with the removal of the payroll tax and the levying of a flat consumption tax. I think it would certainly equalize many things, and the rich that spend the most would naturally pay the most.

    However, I believe government needs to restrict itself back to providing the BASIC services it was designed to do and move away from all these publicly funded services provided today.

    The job of any government is to provide for the civil and legal protection of its citizens; to create, enforce and uphold its laws; to provide a judicial system to maintain order and to provide interpretation of the law and to develop and maintain the physical infrastructure of the country. In addition to this, the purpose of government is to provide a basic level of "safety net" services to ensure that its citizens can reasonably exist; that is, to provide services such as unemployment insurance, disability, and regulatory organizations to oversee the basic services to ensure that its citizens are protected. These days, the government is involved in too many social issues whcih should be left to the private sector.

  • Report this Comment On November 05, 2009, at 10:54 AM, mshpoy9798 wrote:

    LessGovernment - I agree with your points, but if we get rid of payroll taxes and increase the employees salaries by that same amount -- it will be a net neutral for the companies. In your post you reference that we are 15.3% less competitive -- agree we are less competitive, but by 7.6%.

    Thanks for the commentary and I look forward to reading your future posts!

  • Report this Comment On November 05, 2009, at 11:29 AM, LessGovernment wrote:

    Dear Scope62

    We will just have to disagree then. I spent 12 years in the military to protect and defend the Constitution and I believe in Freedom of speech even from someone you disagree with.

    However, your method of promoting the process of firing the bad and keeping the good fails to identify the bad in workable terms. For instance, if you are in West Virginia and you have a powerful Senator that continues to bring home billions of dollars in road construction monies and other fruits of his office, is he bad? I mean is he bad in WV where the voters put him in office? Or is he a hero? The fact that he is steering money away from Mississippi, a poor state, is he bad in West Virginia? This Mr. Scope62, is the problem with your plan. We voters have to start thinking like a country because our elected morons don't.

    They constantly pit one faction against another to buy votes to stay in office, so no sir, I do not buy into the watered down gruel you are peddling. I am for a revolution at the ballot box in 2010 that will leave no doubt as to the fact that a voter revolution is in the making. With most elections decided by a small minority, the possibilities for success are very real. And don't ask me to choose between Republicans and Democrats because we have been sold out by both parties. That is their dance. We are good and they are bad so all you idiot voters need to do is vote the party line. What arrogance!

    You think Republicans are responsible? Then why did they push through the Commodity Futures Modernization Act in 2000? Don't know what that is? Then Google it. This Act was the straw that broke the financial camel's back. It stripped out all oversight, required no money to be held in reserve when making credit default swaps, and even set the stage for naked credit default swaps which is about as close to unregulated gambling as you can get. Why did we remove the Glass-Steagall Act? Why did we create Political Action Committees? Why did Bill Clinton force Fannie and Freddie to reduce their credit standards? Did you know that Fannie and Freddie were prior to this, actually turning down mortgages in their securitization process. That is fact. Then along comes a Democrat in power and out went that check and balance just like all the rest. Why? To gain votes. To please a small faction that would reward bad political behavior with votes. No sir. You explain to me how keeping the good and removing the bad is going to work in practice. It will not pass muster. Both parties have huge amounts of blood on their hands and the only viable solution is to fire them all.

    And why do members of Congress write so many earmarks? No big deal you think? I disagree. It is unconstitutional and they know it, but they do it anyway. Why? To buy votes to stay in office. Talk about perversion of the process.

    An earmark in Congress refers to the practice of attaching to an existing spending bill (usually at the last moment) an appropriation request called an earmark. The earmark will never be debated in Congress and therefore the Constitutional mandate of "concurrere" can not have been accomplished. You might be asking just what is meant by this word "concurrere".

    Well, when the founding fathers chose this word, they basically meant a meeting of the minds. The word comes from the Latin word "concurrere" which means to meet. Concurrence as used in the Constitution then means to have a meeting of the minds. This is further spelled out in the Constitution in Article 1 section 7 as follows:

    Every order, resolution, or vote to which the concurrence of the Senate and House of Representatives may be necessary (except on a question of adjournment) shall be presented to the President of the United States; and before the same shall take effect, shall be approved by him, or being disapproved by him, shall be repassed by two thirds of the Senate and House of Representatives, according to the rules and limitations prescribed in the case of a bill.

    These earmark appropriation requests simply fail at concurrence because without a fair and open debate among the members of both the House and the Senate, concurrence is not possible. The earmark simply rides like a parasite on a host spending bill that is being debated, but the earmark itself is never debated. Then when the host spending bill is passed, the parasitic earmark appropriation request that was never debated is also passed, but this passage lacks the Constitutional requirement of concurrence since there is no record in Congress of debate having occurred on the ear mark itself, which means there is no meeting of the minds or concurrence in the House and Senate as to the contents of the earmark. Without concurrence, the earmark is not founded in the Constitution and therefore is not law.

    Since nearly everyone does it, they are not going to impeach each other, which they should because writing the earmark is a violation of their oath of office to follow the Constitution.

    If this were a crime committed inside a private business, this would be called collusion as several people are participating in the crime. And that to me is a good way of looking at how Congress has perverted the appropriations process by colluding with each other to write and attach these damn ear marks and not ever raise the issue as to whether or not they are an Un-Constitutional act.

    My solution? Fire them all. Elect new members of Congress and then confiscate the fired members personal assets up to the amount of all earmarks lacking concurrence that they have ever written.

    Interestingly enough, this sub movement of One Term Allowed is rapidly gaining traction in Congress as they are now quietly trying to cover their trail by requiring earmarks to be attached days before a vote so they can later make the claim that the earmark was available to be read and therefore now passes the Constitutional test of "concurrere". To that, I say I don't care. Without debate, fair and open, there is no meeting of the minds, so just stop writing earmarks. And to my dear Congress I would like to add this. We are coming after you. You will pay dearly for violating the Constitution.

    The time has come for a revolution of this nature and I feel this is the proper form of head "offing" we should exercise in the 21st century. I'll go on record that I am in favor if this. Anyone else?

    Fire Them All

    One Term Allowed

    Never Vote for an Incumbent - especially in 2010

  • Report this Comment On November 05, 2009, at 11:43 AM, glenorilla wrote:

    The less government (lower taxes and red tape) chant reached its zenith under Ronald Reagan and bought us to our current ridiculously undernourished infrastructure, the highest infant death rate for a developed nation, increase water pollution (do you like your meds with the tap water?), porky Americans due to unregulated food additives and derivatives that no one can price, etc.... I thought I was hearing things when Greenspan admitted that "the model was flawed". Oh really - you mean greed isn't good?

    I believe we need a balance and that in some cases government (all of us) needs to protect it's citizens - especially the ones who cannot protect themselves. I would put myself in the needing some protection group. I cannot test the impact of thousands of new man-made chemicals that are released into the environment every year. Nor can I stop conglomerates from price fixing and monopolizing certain industries (remember the Sherman Anti-Trust Act?). In addition, it might be important that imported toys for toddlers are not coated in lead carbonate.

    On-the-other hand, bigger government that is more of the same, only larger, is a recipe for disaster. I don't see the orchestration and unselfish discipline to pull us out of the current economic tailspin, quickly. I would only point out that free trade is a sham and the large sucking sound of jobs being pulled out of the US that Perot mentioned has been allowed to accelerate and was even supported by some wrong-headed government policies for a long time.

    All countries protect their own interests and currencies, and only a fool believes that 'free trade" trumps negotiated trade regulations and some government intervention.

    With that said, I'm not seeing a clear path for improving our present unemployment and I don't think the "Smart Grid" will be the great new industrial salvo for our nation. The next big thing is in the clouds (cloud computing) which says a lot about our current cosmology. I would say cloudy today with increased fogginess for some time to come.

    glenorilla

  • Report this Comment On November 05, 2009, at 11:49 AM, LessGovernment wrote:

    Dear MSHpoy9798

    You wrote

    …if we get rid of payroll taxes and increase the employees salaries by that same amount -- it will be a net neutral for the companies. In your post you reference that we are 15.3% less competitive -- agree we are less competitive, but by 7.6%.

    I stand corrected.

    But there are extenuating circumstances that have to be considered here. Since we are deducting the 7.6% from the employee's pay, and we are only charging the employer 7.6% in tax, one could make the argument as you have done that we are only 7.6% less competitive which is true.

    However, one could also argue that the employee's pay had to be raised over time by the 7.6% that he never got to adequately reward him for the work accomplished in his real take home pay check. Since he never got the withheld amount, his reward for work was 7.6% less than planned unless adjustments are made. And then there is the Al Gore penalty whereby the 7.6% withheld from pay is now taxed for income tax purposes as though received, which is yet another penalty in the reward for work formula. thanks to Al Gore, pay not received increases the amount of tax deducted from pay.

    My head is beginning to hurt.

    Yes, you are correct and I appreciate you pointing this out to me.

    There are additional considerations in the formula that hurt discretionary income and ability to compete. Ability to compete and lack of discretionary income are at the root of our economic problems.

    Fire Them All

    One Term Allowed.

  • Report this Comment On November 05, 2009, at 12:03 PM, LessGovernment wrote:

    glenorilla,

    Well stated. Good points. Thought provoking.

    What I think is lost in the noise is that if you remove opportunity, it is very difficult to bring it back.

    After the textile mills in NC were closed down and workers lost their jobs due to unregulated government subsidized imports from China, the equipment was sold for pennies on the dollar to producers in Asia. Now, in order to bring those jobs back to America, you would have to buy new equipment at 100 cents on the dollar, pay workers a higher pay scale than in Asia, add on the payroll taxes, and sell a product to compete in price with the stuff from Asia. In short, it can not happen, so those jobs are gone forever.

    Yes, you touched on something I have railed against for years and that is bad trade policies that have built in job losses for America. We have to get back to a basis of opportunity, work, and charity instead of government rules that favor moving jobs overseas resulting in government forced charity that is costly and inefficient, both of which destroy jobs and result in putting people out of work permanently.

    I liked your post very much.

  • Report this Comment On November 05, 2009, at 12:05 PM, dymty wrote:

    LessGovernment always seems to make a good point. The whole idea of life-long politicians is a recipe for gaming the system. It's rediculous to hear about the number of lobbyists inside the Beltway. What purpose do they serve aside from influencing legislation by assuring support for re-election! And if this support was removed at all levels, the support for any one candidate would be more broadly based.

    The tax issue also makes sense from the employers perspective. The wage tax essentially is a penalty for hiring workers. Any wonder why the bottom line has risen for so many companies reporting lately? It's not just wages that count, you know. To me, a consumption tax is far more equitable. Just seal up the loopholes.

    As for gold, it looks like I missed out when it was down at 715 last year. Oh well....

  • Report this Comment On November 05, 2009, at 12:39 PM, akutach wrote:

    Back to how to profit from this. LessGovernment seems to think we're in an all lose scenario, but we hear it enough on this site that fortunes are made in the times of greatest turmoil.

    Covering a short dollar??? Wouldn't treasuries be a safe if not glorious return on investment during a net strengthening of the dollar? It sounds crazy now, but that's because the bubble is inflating. When/if it's popping it will go the other way. Flaw is that the short is on the dollar, not treasuries and so this assumes a fair share of the returning purchases of dollars goes to treasuries.

    ETF, if not directly, shorting of emerging markets. I don't know any tickers off hand, but will begin researching these areas.

    Shorting commodity facing industries that will be sensitive to both a stronger dollar (foreign earners) and the direct decline in commodity prices.

    Sitting on cash for years waiting for a bubble (any bubble) that may or may not form to a popping stage is a recipe for bad returns, but holding some cash to be opportunistic, or moving to more cash for short periods (a year or so) once you identify a bubble that will not correct with subtlety, will not break your portfolio.

  • Report this Comment On November 05, 2009, at 1:03 PM, fifteenfifty wrote:

    Eliminating payroll tax in favor of sales tax will result in double taxation. People who've save a pile of cash (are there any? I suppose there must be...) have already paid taxes on that income. If the paradigm shifts over night and they must then spend those savings on goods with a VAT or whatever in a new world with no payroll taxes, then the savers have been seriously shafted.

  • Report this Comment On November 05, 2009, at 3:13 PM, LessGovernment wrote:

    Dear fifteenfifty,

    I agree. Savers will be shafted. Just like responsible folks that lived within their means got shafted. Just as hardworking people in the textile belt got shafted by bad trade policies. Just like folks living around the southern borders suffering from high crime and other problems due to lax border enforcement got shafted.

    So what is your point? You think we haven't been shafted before? You think America can get back on track without pain? If so, please tell me how because I would love to see it. But I don't believe in the credit fairy nor the Easter bunny (cute little nose and all).

    I just want America in the here and now to stop socializing our living expenses and giving the bill to the future because the future is being shafted far worse than any of us in the present and they did not elect the vermin that are doing this. The future is guiltless, we aren't.

    We need to have serious discussions on whether or not we can find a way to phase out of social security over the next 30 years or so. to do that, we have to create the environment for self reliance and the ability to earn sufficient discretionary incomes to allow people to save for whatever reason they choose.

    I am tired of the government placating one faction against the other saying you can save for college tax free but not a car, or you can save for retirement tax free but not to start a business. How counter productive is that?

    Government needs to get out of our lives and take their redistributive, anti middle class tax code with them.

    And the first step to doing this is to Fire Them All.

  • Report this Comment On November 06, 2009, at 9:47 AM, leohaas wrote:

    Great. Yet another excellent article hijacked by political activists.

    If Roubini is right, the carry trade will unwind at some point. Chances are, that when it does (notice, I am not saying "if it does"), it will be violent. All asset classes will be involved. That includes the ones that are considered safe, including physical gold and silver. That is because the unwinding will cause people to sell whatever they bought...

  • Report this Comment On November 06, 2009, at 10:30 AM, scope62 wrote:

    LessGovernment:

    I agree with your point about the country THINKING like a country. Unfortuantely, that only seems to happen once every four years and even THAT is extremely fractious and is subverted by special interest groups with only their agenda in mind. When it comes to electing government officials, it is difficult to get a population to think beyond their own back yard.

    I agree 100% that you cannot depend on these political parties to actually carry out an ethical agenda. Again, driven by too many powerful interest groups that cater to the official's concerns about being reelected.

    Don't even get me started on the credit markets, especially Freddie and Fannie. I bought my first and only home in 1988, had to put at least 15-20% down, had to provide a ridiculous amount of documentation and, depite a stellar credit history, still had to jump through multiple hoops to qualify. The mortgage/real estate bubble that burst last year was because politicians (Democrats in particular) decided that owning a home was a RIGHT, not an earned PRIVILEGE and that the mortgage creditors were asking for too much. All this depite the fact that mortgage defaults were limited due to the strenuousness of the process. Despite all the hassles, I produced the required information. IF YOU COULDN'T PRODUCE IT, YOU WEREN'T ENTITLED TO OWNERSHIP. I agree...this easing of credit was done to appeal to the liberals and interests in the mortgage banking and real estate industries to gain votes.

    Earmarks?? Please, they ought to simply be eliminated. Problem solved.

    Single term limits may not be a bad idea, but the key to remember is that the official elected is almost always elected because he appeals to the largest common denominator...and that denominator has its local interests in mind first and foremost. In the electorate's mind, that makes a good elected official, whether it is taking from Mississippi to give to West Virginia or not. In the mind of WVA, he's a good official if he does that, because that is what they want, right or wronhg. National issues are considered by all only if it affects everyone equally (such as federal income taxes, US involvement in foreign conflicts, energy policy issues, etc.).

    LG, I like your thinking. A little radical thinking is good to shake up those that are comfortable in positions of power. In the end, I think it will be a balance of views that will rule the day. This is where the concept of a third political party will rise.

    The pendulum always swings both ways...it always swings to the extreme end before swinging back. Just be sure to duck when it does....

  • Report this Comment On November 06, 2009, at 10:53 AM, Chromantix wrote:

    +1 because LessGovernment is the MF'ing man on TMF.

  • Report this Comment On November 06, 2009, at 12:11 PM, sanestance wrote:

    Where to put your cash....?

    I would recommend putting a minimum 3-6 months worth of income in a savings or checking account earning the highest interest rate you can find. In my area of the country, that's 3.01% right now. It's vital to have liquidity at all times.

    I'd then consider cash value life insurance with a mutual company - look at it as another asset class. Loads of benefits here. It's a non-correlated asset, protected from lawsuits and creditors, as time goes on can provide liquidity, grows tax free and with correct strategies, can be accessed tax-free as well.

    It would also make sense to explore variable annuities with a financially strong company. Look for a contract that provides strong guarantees that still offers upside market potential.

  • Report this Comment On November 06, 2009, at 1:01 PM, carltabas wrote:

    Dear sanestance

    What is the maximum age you would think annuities make sense as a place to put cash?

    I have some senior family members (87 - 90) that need safe investment protection, but still have to get some return.

    Thanks

  • Report this Comment On November 06, 2009, at 1:50 PM, sanestance wrote:

    Unfortunately, that age range presents a problem. I don't know of any annuity contracts that are available for folks over the age of 85.

    Perhaps they could look at a low duration bond fund (most are paying in the 3% range.) If they're in a high income bracket, they might want to look at a tax-exempt fund. (I know of one paying 3.64%) Of course, these don't offer the guarantees that I mentioned in my previous post, but do have low volatility.

    That being said, their safest bet might be to look for a high interest checking account, such as the one I referenced above, and make sure they stay within FDIC limits.

    That's my sanest two cents worth!

  • Report this Comment On November 06, 2009, at 2:20 PM, goodgovernment wrote:

    Dear LessGovernment

    There is a practical and fatal problem with the one term policy. The electorate's influence will be diminished. There is a learning curve for rookie legislators. An all rooky legislature adds up to a less capable legislature. Lobbyists would fill the vacuum. There are no term limitations for lobbyists. Entrenched lobbyists will forever have greater knowledge of the system than an endless stream of one term legislators. If lobbyists are the shadow government now they would become a shadow government on steroids. Term limits won't solve the problem it will just shift the problem from entrenched legislators to entrenched lobbyists and what's worse, the electorate's influence would diminish.

  • Report this Comment On November 06, 2009, at 2:46 PM, DennisI wrote:

    Dear Less Gov, How would you prioritize Defense spending? It seems much more wasteful than SS. SS recipients spend it all. You are obviously way smart, but do you really want to starve grandpa? Do we really want to occupy/police/arm/dominate/garrison the entire planet? Do we do this crap before we take care of our own?

    Capitalism as practiced(never was free market, never was free of taxation, never was equal opportunity) has failed, has socialism? Not Communism, not Fascism, Socialism??

  • Report this Comment On November 06, 2009, at 4:02 PM, usernameuser wrote:

    to Sanestance, you say:: I would recommend putting a minimum 3-6 months worth of income in a savings or checking account earning the highest interest rate you can find. In my area of the country, that's 3.01% right now. It's vital to have liquidity at all times.

    Please tell me where you live that has a 3.01% rate!!!! I just asked my banker what was best rate for large cash deposit, the answer: .02% I cannot imagine getting 3.01% on anything anywhere at the moment.....11/6/09.

  • Report this Comment On November 06, 2009, at 4:33 PM, sanestance wrote:

    Tallahassee, Florida - with a local bank that promotes a "super high interest" checking account. It's amazing, but real. This particular bank has been offering these kinds of rates for the last couple of years. Obviously, their interest rates have had to ratchet down as the market has changed, but 3.01% is still a great deal!

    Try looking for local bank in your area that offers this kind of product.

  • Report this Comment On November 06, 2009, at 5:43 PM, LessGovernment wrote:

    Dear goodgovernment,

    By your reasoning, the entire court system is poorly run because the courts rely on juries and juries are brought in for just one case at a time. Juries listen to the lawyers and then discuss the case among themselves and make the best decisions they can.

    I think a new batch of elected officials would be like a jury. They would listen to their constituents, listen to their peers, listen to the lobbyists and then work together to do what is best for the country.

    This to me is far better than having a bunch of old political dinosaurs dictate to the newly elected how they have to vote or threaten the newly elected with the loss of party support (or employ other means of pressure).

    If relying on newbies is the trusted resource at the basis of a right to a fail trail, which is the basis of our judicial system, which is the third pillar in our government, then newly elected representatives is fine with me. In fact, I would prefer their lack of "experience" to the well "experienced" that have so damaged our country.

    Want to change your mind?

  • Report this Comment On November 06, 2009, at 6:12 PM, LessGovernment wrote:

    Dear DennisI,

    There is a big picture here that I do not think is getting enough exposure.

    Your argument that somehow grandpa would be starved is not what I am suggesting.

    Social security has become a device by which people have been persuaded that they do not have to save. This in turn leaves people with nothing to fall back on during life, even during their working life. If grandpa was given the 7.6% that his employer is putting in to the system, and grandpa was also given the 7.6% that is confiscated from his pay, and grandpa failed to set anything aside, then he may end up being a financial responsibility of his children or end up in some sort of government home in his later years.

    The real damage being done is making people think they don't have to save because social security will take care of them. It won't. And even more damage is being done because our wonderful Congress (Fire Them All) has changed the original rules to where now you are taxed on monies you never receive (thanks to Al Gore) and the government is now allowed to spend all that payroll tax intended for your retirement on anything they like. That is not how the SS system was originally set up. That is why social security is currently under funded by about $40 trillion dollars.

    So no, I do not think social security is a viable program, but I also do not think it can be cancelled next Tuesday. That is why I say we need to have a serious discussion as to how to wean ourselves off of SS, increase discretionary incomes, allow people to save for themselves, create more opportunity by having more discretionary income in the system, thus creating more and better paying jobs, and finally, take the bottle away from the alcoholic Congress that is drinking up all the SS funds and spending them on anything they want. This puts us all in far worse shape than if SS had never existed at all. We all have to come to grips with our debt being far more than the $12 Trillion dollars of bond debt. We also have about $80 trillion dollars of unfunded Medicare and SS. Who is going to pay for that? And the clock is ticking. All of that will have to be coughed up in 30 years if we do nothing. That amounts to about $3 trillion per year. Obviously, we are in deep trouble, and SS is one of those enablers that is allowing Congress to be so damaging. Congress is not responsible enough to handle SS. They can not be trusted with it. They have proven that. It must be taken away from them, but it has to be done in a manner that does not put undue harm on the citizenry.

  • Report this Comment On November 06, 2009, at 7:53 PM, ncell wrote:

    LessGov't--great analysis--

    I'm a novice in the world of finance but nevertheless can read the writing on the wall--'no where to run, no where to hide'...

    Just wondering about the ramifications of 'parking' in foreign currencies ? If so, which one and how so?

    Thanks for your insight.

  • Report this Comment On November 06, 2009, at 9:58 PM, LessGovernment wrote:

    ncell,

    I am probably the wrong person to ask about parking funds in foreign currencies. By definition, it is partly based on timing the market because all currencies fluctuate up and down so what you are really doing is timing the market when you sell one currency and buy another. There is also the matter of political instability, so you are limited, unless you are really a gambler, to those countries that appear to be stable and that have relatively stable neighbors.

    But with that said, if I wanted to invest in foreign currencies, I would look very hard for countries displaying the long term trends that signal future wealth creation, and look at those currencies. Countries that are basically capitalistic, that have good or improving infrastructure, that are laying the foundation for an economy based on manufacturing, and maybe even accumulating gold - like India for instance.

    I like their rupee (INR) for a long term trade (years) just as I like TTM for a long term stock investment. The INR on October 6th traded at 48.02 per dollar. Today, the trade is 47.08 per dollar. It jumps around, but I expect the long term trend to be favorable to the INR compared to the dollar because the country is making progress in its ability to make stuff.

    Manufacturing is the real means by which wealth is created. You don't create wealth in financial services. You only transfer it from one party to another. So while India is becoming more and more a manufacturer, the US is becoming more and more a financial services based economy trading the wealth our parents created.

    Manufacturing actually creates wealth and as the US becomes less and less a manufacturer, the US will create less and less wealth. In other words, the standard of living will go down, unemployment will increase and average labor rates will decrease. That hurts discretionary income, which hurts demand, which hurts the currency if the central bank does not take steps to strengthen the currency such as higher interest rates and / or the accumulation of gold. However, both of these measures deprive the economy of the low cost capital that it then needs to keep moving. If you simply print money as we are doing, well, the currency goes down, because there is nothing behind it.

    We are in a really bad situation and I think the government is doing a disservice by telling everyone that things are getting better and going to be fine. No, this is not 1929. It is to me far worse. In 1929 we still had all the interstate highways, subdivisions, shopping malls, strip malls, etc. yet to build. If you looked out the window in 1929, there were very few cars. Now there are three cars in front of nearly every house. We have too many houses, malls, airplanes, cars, trucks, you name it. So what are people going to do for a job?

    So no, I think the long term problem of what people are going to do for a living is a very real and very serious problem, and when you add to that our twenty year program of shedding manufacturing jobs, it only makes the problem far worse. Then add in the immense debt and sorry state of education in this country, and you have a disaster in the making for both the economy and the currency.

    We need honest discussions as to the real issues and what can be done to solve the problems we face. When you as a central bank, debase your own currency, for what ever reason, no matter how noble you think your reasons are, what you are doing is setting the stage for an exodus of wealth (domestic and foreign) from your country and a weakening of your currency. And as more people buy other currencies, the dollar will weaken even more, and I am afraid that is also the future.

    So to answer your question, I would look at the INR and for a stock, take a look at TTM. I think if you buy and hold either for five or ten years, you will do very well. I think India's ability to capitalize on their vast low cost yet educated pool of labor, their ability to utilize technology, their skill at outsourcing our jobs to them, their progress in making their country more of a manufacturing center where people make stuff that can be used or sold, I think these attributes make their currency a good long term bet. Another country whose currency I would look at would be Vietnam. Again, a growing manufacturing base, low cost labor, a very competitive exporter. Others will disagree, and that is why there is always a buyer and a seller.

    On a side note, I think the weakness in the dollar is why Buffet bought Burlington Northern. In looking closely at that transaction, it was as much a deal about exiting a dollar trade as it was about buying a railroad. Why stay in dollars (cash on the balance sheet) if the dollar is losing value? So I think Mr. buffet has sent a signal that the currency to not be in long term is the dollar. If he had done the deal with stock and debt instead of stock and cash, and kept the cash on his balance sheet, then to me, that would have sent an entirely different signal. But he didn't do that did he?

  • Report this Comment On November 07, 2009, at 12:48 AM, jsl1955 wrote:

    I agree with much of what LessGovernment is saying, but I'm not too bullish on gold at $1100. It appears to be buying on panic and is risky. How much more will it rise before a significant pullback? I'm undecided on what to do. Lead may be a good buy now, especially if it has a copper jacket on it. That could be the ultimate barter item, as well as a valuable personal safety item. With Obama and his thugs that hate the Second (as well as the 1st, 4th, 9th, 10th, etc.) Amendments, this might also prove to be a good hedge against inflation.

  • Report this Comment On November 07, 2009, at 10:53 AM, jmsp8 wrote:

    Enjoying the conversation. To Less Gov.....RE: Nov 6th - - 6:12pm posting.......3rd paragraph...Last 12 words- starting...." end up on. Looks like this is where the camel gets his nose under the tent again.

    Peace

  • Report this Comment On November 08, 2009, at 11:49 AM, ekklesia777 wrote:

    The devil is a liar. Although I agree sooner or later party is over if we had listened to the prophet of gloom and doom we would have missed this whole rally!!

  • Report this Comment On November 08, 2009, at 11:50 AM, ekklesia777 wrote:

    I say keep your finger on the trigger and ride em cowboy

  • Report this Comment On November 08, 2009, at 8:57 PM, LessGovernment wrote:

    Dear jmsp8,

    Government is the great fiction, through which everybody endeavors to live at the expense of everybody else.

    -Frederic Bastiat, French Economist (1801-1850)

    We can't just set them by the road and call the trash collector now can we? Enjoyed your comment.

    Peace would be good.

  • Report this Comment On November 08, 2009, at 11:26 PM, pfool18 wrote:

    I'd like to add that:

    1. while term limits need to be in place and

    2. incumbents need to be replaced

    we also need to

    3. remove lobbyists and influence peddling in our capitals (state as well as federal) in order to truly correct the dysfunctional process.

    4. EVERY student shouldn't get a high school diploma until they can demonstrate they understand how to _reason_ on their own.

  • Report this Comment On November 09, 2009, at 4:19 AM, longgoodbye wrote:

    Best insurance for a young person; learn to make something in the basement. Apprentice yourself, part-time or full, at no pay for a year to someone who knows what he's doing.

  • Report this Comment On November 09, 2009, at 12:28 PM, Bloodgarth wrote:

    @LessGovernment

    I was thinking about your 1 term limit for congressmen and I wondered what your opinion was on this:

    If congressmen were only given one term, what would be their incentive to be good to their constituents? They would have nothing to gain... (usually they want to be reelected).

    Also, if we truly DID have new congressmen every 4 years, doesn't that set the stage for an entire group of people under the same party or ideology to enter at the same time? That would mean they would be able to completely control congress.

    What are your ideas about other public offices? President, Supreme Court, governors... mayors...etc.

    Do you believe that there are that many people out there who are qualified/willing to serve in this position if they are no longer able to abuse it?

    And about your analogy earlier in reply to criticism about losing experience in congress, I believe that analogy to have a significant flaw in that in the case of jurors, as bad as this sounds, the damage is minimized to just one case, or person. Therefore, if their inexperience messes up that one case, the damage is limited. However, if an inexperienced congress makes mistakes, that damage extends to the entire country. Moreover, can you compare the complexity of being a juror to being a congressman?

    I thoroughly enjoyed your posts, please tell me when your website goes up.

  • Report this Comment On November 09, 2009, at 8:20 PM, LessGovernment wrote:

    Your questions are represented by ***

    ***If congressmen were only given one term, what would be their incentive to be good to their constituents? They would have nothing to gain... (usually they want to be reelected).

    The problem, the basic problem, is today we elect politicians. Politicians are those individuals that make a career of elected office. This is at the root of what I think needs to be changed. Politicians need financial support to stay in office so once elected, their votes are skewed towards who or what can make sure they will be re-elected. If we take away the career path by allowing only one term in office, then we take away the significance of the campaign funding of special interests and PAC's (PAC's should be abolished entirely) and give the voter a much larger and more important voice.

    ***What would be their incentive to be good to their constituents?

    They are going back to their constituents at the end of their first term. They recently came from their constituents knowing exactly the situation of their constituents. They serve a short period of time staying in touch with their constituents. And they want to go back to their constituents in good standing after serving. Is there a guarantee of good service? No. But I think the likelihood of genuine effort is better with this system that what we currently have.

    ***Also, if we truly DID have new congressmen every 4 years, doesn't that set the stage for an entire group of people under the same party or ideology to enter at the same time? That would mean they would be able to completely control congress.

    The problem I see in your logic is that the "party" is the problem. What we currently have is a two party system that constantly says the other party is bad and our party is good so vote for us and we will give you (fill in the blanks here) to vote for the good party. I have come to the conclusion that the party is meaningless if the individual is of good character. Our current two party system (which controls the campaign funds to a great extent) results in a few powerful members in either party (elected or not) that can hijack the party and tell incoming Congressman what they can and can not do, and for what they will or will not vote and what they will and will not say. This is what goes on now. So now, when a new member, fresh from the constituents arrives in Washington, he or she is told to follow party line which basically means the constituents' vote is instantly meaningless.

    If you have new people elected by their community, most will want to serve their community to the best of their abilities so when the service is done, they will be able to return to their communities. This type of thinking scares the Hell out of special interests and PAC's and even the two party elite, because it says the party really does not matter. And in truth, it shouldn't. We do not vote for a party to represent us. We vote for an individual. Anything, party, bribes, special interests, PAC's, anything that attempts to influence that elected persons vote, other than his constituents, is detrimental to the well being of the electorate. In our current political system, we have perverted the political party system to reward the funding mechanisms and in return, we sell votes based on the financial influence of the special interests to the detriment of the voter, and in the process, the voter now has no voice.

    I believe we need voter reform whereby only a registered voter can give anything of value. Period. No unions, PAC's, corporations, special interests, etc. None. And trying to do so should be regarded as attempted bribery.

    Voters, and only voters should be able to contribute, and subscribing to this allows a very convenient means of vetting the contributions which could easily be done against the registered voter list for the jurisdiction of the election. State for state, local for local, national for national. It would be relatively easy to setup a system whereby all campaign funds would first go to a holding account, then after being vetted against a bonifide voter registratin list, transferred to a campaign fund. All funds not able to be so vetted would after say 14 days, be turned over to a debt reduction fund for the jurisdiction of the election. This would eliminate prepaid credit card contributions (as an example) as a means of funding a candidate because the anonymity of the card would not pass the vetting process. Since you do not know the source fo funding, the funding should not be allowed to influence the election. Instead, these funds should by law be steered to a special fund for debt reduction of the jurisdiction of the election taking place.

    Further, by law, candidates that attempt to use non-vetted funds should (if the violation is sufficient) be barred from being elected. If you can't trust the candidate to follow the rules, do you really want him or her in office anyway?

    ***Do you believe that there are that many people out there who are qualified/willing to serve in this position if they are no longer able to abuse it?

    .

    Yes. There are lots of people having the requisite common sense for the job. Most of Congress lacks such common sense. I could provide you with a list of recent legislation and prove this point but this forum is not sufficient and I am already taking up to much space here in this forum. But to answer your question, yes, there are plenty of good people that would do a superlative job.

    ***What are your ideas about other public offices? President, Supreme Court, governors... mayors...etc.

    All but Supreme Court I think can serve one term and leave. The Supreme court is based on a life time appointment to protect their decisions from any political influence. I would not want to tamper with that and since I am no where near as smart as the brilliant men that wrote the Constitution, I would very willingly bow to their superior intellect and keep the Supreme Court to a life time appointment.

    For everything else, to me, one term is sufficient. If you go more than one term, you open up the system to the special interests again and you end up with a President that serves two years and then campaigns for two years to get re-elected. Also, I think it would be a good thing to have every decision a President made be subject to review by the next guy in no more than four years. That is not bad at all since a bad president can do a lot of harm in eight years.

    ***And about your analogy earlier in reply to criticism about losing experience in congress, I believe that analogy to have a significant flaw in that in the case of jurors, as bad as this sounds, the damage is minimized to just one case, or person. Therefore, if their inexperience messes up that one case, the damage is limited. However, if an inexperienced congress makes mistakes, that damage extends to the entire country. Moreover, can you compare the complexity of being a juror to being a congressman?

    Actually, I think being a juror is a much more demanding job than being a Congressman. In a jury, you are one of 12. In Congress, you are one of 535 I think. The mathematical probability of getting a majority of bad Congressman in any one election is to me very remote. Congress can take its time, a jury can not. The jury has to deliver a verdict. And in a lot of cases, I would much rather Congress do nothing than do something stupid in haste, as has been their track record of late. I have to go back to why a one term elected Congressman is going to run for office. I think the majority would do so to serve rather than to profit. I hope I am not being naïve here, but that is what I believe. I have lived through hurricanes and I have seen how people, just good basic people, come out and help total strangers. A president will fly over a devastated area to have his picture taken looking out the window. It is just a photo op. It is meaningless. Good basic people on the other hand, are cutting the downed trees with chain saws, repairing roofs, picking up the pieces and working hard for no thanks, no recognition, no praise whatsoever. It is those folks I want in office. Let them serve with dignity and then leave.

    ***I thoroughly enjoyed your posts, please tell me when your website goes up.

    As things are now planned, our website, OneTermAllowed.com will be up and running around the end of the year. We plan on raising funds to help offset the immense costs of research and computers and servers and web sites, etc. by selling bumper stickers promoting the OneTermAllowed movement.

    If enough buy them, we will be able to follow our expansion plan up to election day in 2010. Our web site is designed to explain in detail how Congress, both parties, have violated the sacred trust granted them by their constituents and therefore why Congress as an entirety should be fired. The web site will try diligently to present fact and only fact. No spin. Sort of a Walter Cronkite type of presentation of the facts (God I miss that man).

    Your kind words mean more than you know.

    Thanks.

  • Report this Comment On November 10, 2009, at 12:40 PM, foolishafterall wrote:

    It might be stating the obvious but the overriding objective of the many politicans I have been around is REELECTION.

    I've managed campains for local, state and federal office. One US Senator we kept in office for 24 years.

    When they trust you they readily admit reelection is their number one goal and seek your help to achieve it.

    I seriously doubt there is a single politician who does not have this as their number one proioity. At least I haven't found any.

    I agree with LessGovernment the country is not well served by people who have this as their top priority.

  • Report this Comment On November 10, 2009, at 5:21 PM, cvraman wrote:

    LessGovernment

    "Countries that are basically capitalistic, that have good or improving infrastructure, that are laying the foundation for an economy based on manufacturing, and maybe even accumulating gold - like India for instance.

    I like their rupee (INR) for a long term trade (years) just as I like TTM for a long term stock investment. The INR on October 6th traded at 48.02 per dollar. Today, the trade is 47.08 per dollar. It jumps around, but I expect the long term trend to be favorable to the INR compared to the dollar because the country is making progress in its ability to make stuff.

    Manufacturing is the real means by which wealth is created. You don't create wealth in financial services. You only transfer it from one party to another. So while India is becoming more and more a manufacturer, the US is becoming more and more a financial services based economy trading the wealth our parents created. "

    India's infrastructure -roads, utilities, education etc is abysmal even by developing world standards and the current investments are meant to catch up to the existing demands. If manufacturing in India was competitive, it would not need to buy gold since they would have sufficient balance of trade related surpluses to tide them over any currency fluctuations. Much of India's manufacturing was built on a "non-capitalistic" centrally planned model with self-sufficiency or import-substitution as the key objective. So, you have this ridiculous situation where the country makes everything from shaving blades to aircraft parts but very few world class products (textiles, pharma, and software being notable exceptions). So, while the country is making some progress, it is severely hampered by the unions, and too many large govt-owned/led corporations.

    If financial services dont create wealth, then Switzerland, the UK, and Hong Kong, Luxembourg, Grand Cayman, would have low per capita GNP.

    While India possesses great potential and has made good strides in the last 20 years, you may want to keep in mind a couple of points - still a very centrally planned economy (read export and price controls), economy heavily dependent on agriculture/weather/ecology, a billion people with a third of them in poor and illiterate, rupee is not a convertible currency, and the value of INR vs. the dollar has declined from 16 in 1989 to 48 in 2009 notwithstanding the liberalization and the boom in software exports, and the cachet in a being a BRIC.

  • Report this Comment On November 10, 2009, at 5:47 PM, jrj90620 wrote:

    The mother of all bubbles is the U.S. Dollar.Nothing in the world is multiplying faster.So,invest in whatever will benefit from a Dollar decline.That would be gold,commodities,foreign stocks.

  • Report this Comment On November 11, 2009, at 8:04 AM, lahalsa wrote:

    I simply want to say "hallelujah" and "touche" to the posts here by LessGovernment

  • Report this Comment On November 11, 2009, at 8:19 AM, LessGovernment wrote:

    Dear cvraman,

    I happened to check back to this thread and saw you post. I found your thoughts to be interesting. But I disagree on some of your points. Time will tell which of us is right or wrong, and that is why there is always a buyer and a seller. However, I will point out that TTM is up since that recommendation was made. Your points are preceeded by ***.

    ***India's infrastructure -roads, utilities, education etc is abysmal even by developing world standards and the current investments are meant to catch up to the existing demands.

    I agree. That is why I stated "Countries that are basically capitalistic, that have good or improving infrastructure, that are laying the foundation for an economy based on manufacturing, and maybe even accumulating gold - like India for instance.

    So we agree that India is investing in infrastructure. This is a key element as it creates jobs, raises income, increases standard of living, provides a better means of transport of goods and services, and through job creation, creates demand internally. So we agree India is improving its infrastructure.

    ***If manufacturing in India was competitive, it would not need to buy gold since they would have sufficient balance of trade related surpluses to tide them over any currency fluctuations.

    I don't think this is what is happening. India has capital in excess of what it needs in the short run and therefore needs to park that capital somewhere. India has made the decision (I think they are correct from a fiduciary point of view) to not park those funds in US dollars. That is why they bought gold. India is not on a gold standard any more than the US is on a gold standard. The purchase of the gold is simply a hedge against currency devaluation should the funds be parked in US dollars which would have been their other choice. I have not read anything that indicates India is going back to a gold standard and if you have, then please share the info.

    ***Much of India's manufacturing was built on a "non-capitalistic" centrally planned model with self-sufficiency or import-substitution as the key objective. So, you have this ridiculous situation where the country makes everything from shaving blades to aircraft parts but very few world class products (textiles, pharma, and software being notable exceptions).

    Yep. You are correct. Sounds like Japan in the 1960's and China in the 1980's. Like I said, I like the INR.

    ***If financial services don't create wealth, then Switzerland, the UK, and Hong Kong, Luxembourg, Grand Cayman, would have low per capita GNP.

    There is a difference in wealth creation and wealth transfer. If you loan money and charge interest, you will be repaid (hopefully) with the original amount of the loan and the interest. However, wealth was not created. It was transferred from the borrower to the lender. This is a concept that we disregard at our peril. In manufacturing, you take raw material, labor, and process costing X and create a product worth more than X. This is how wealth is created. So I think we agree India is becoming more and more a manufacturer.

    ***a billion people with a third of them in poor and illiterate,

    Wow. Two thirds of a billion people that are educated? Sounds like a market with potential to me.

    ***rupee is not a convertible currency

    A currency is convertible if it can be converted into gold from official or national gold reserves. The US dollar at one time was a convertible currency, up to 1968 when it changed into simply a Federal Reserve note backed by nothing. More importantly, there has not been a major currency in the world that is convertible into gold using official gold reserves since 1973, US dollar, Pound Sterling, Euro, etc. all included. That is because it is much easier to just print money when you need it and not have to bother with that "little" problem of storing something of value to support the value of the currency. The US Dollar is not even a Treasury Note, but is instead, a Federal Reserve Note. Even more scary is the fact that the Federal Reserve is privately owned by the member banks, although the Treasury has from time to time made it clear that it stands behind the debts of the Federal Reserve (another Fannie / Freddie), so liabilities again accrue to the taxpayer and profits to the privately owned banks. Yep, sounds like a system designed by Congress to me.

    All major currencies are now subject to devaluation and appreciation according to market pressures so I am confused as to your statement about the INR not being a convertible currency. While true, neither is the US dollar, so what is the point?

    ***, and the value of INR vs. the dollar has declined from 16 in 1989 to 48 in 2009.

    Yep. Correct again. I find it difficult to buy high and sell low and make a profit.

  • Report this Comment On November 11, 2009, at 2:40 PM, cvraman wrote:

    Dear LessGovernment:

    My point was that doing a currency trade in INR is fraught with some serious negatives, besides the normal parameters that affect currency valuations - balance of trade, interest rates, etc. I am generally bullish on the country's prospects given the policy regime, but less bullish on foreign investors' ability to earn higher rates of return than elsewhere.

    >>"All major currencies are now subject to devaluation and appreciation according to market pressures so I am confused as to your statement about the INR not being a convertible currency. While true, neither is the US dollar, so what is the point?"

    Firstly, the INR although a floating currency as far as exchange rates are concerned, is heavily controlled by the Reserve Bank of India's interventions in the open markets.

    Second, and more importantly, INR has strong regulations in imports/exports in rupees, and capital controls for Indian citizens (cannot buy dollars on the open market) and large-volume restrictions on foreign investors.

    I would bet that the great majority of Indians would happily trade the INR for the US dollar if the above restrictions were removed, thus further depreciating the INR. In light of the lack of rupee convertibility, and the lack of confidence in the INR, the Indian household buying of the gold has over the years been a hedge against a rupee decline and that mind-set has not changed despite recent improvements in Indian economic fundamentals.

  • Report this Comment On November 11, 2009, at 7:33 PM, LessGovernment wrote:

    Dear cvraman,

    You make some good points.

  • Report this Comment On November 11, 2009, at 8:26 PM, LessGovernment wrote:

    Dear cvraman,

    You make some good points. I'll consider what you said.

  • Report this Comment On November 13, 2009, at 5:39 PM, fireball428 wrote:

    Dear LessGovernment:

    With single term limits as a restriction. what is your view on retired legislators' rights to lifetime health & pension benefits?

  • Report this Comment On November 14, 2009, at 6:03 PM, LessGovernment wrote:

    Dear fireball,

    My personal view is they are entitled to whatever the system promised them (even though they created the system) after first deducting the total cost of all earmarks they have ever written. If earmarks exceed their retirement accounts accrued, then they should forfeit their other personal assets as well. Earmarks are un-Constitutional and as a result, a direct violation of their oath of office and therefore demands they be held accountable.

    With a new system of One Term Allowed, we will have an opportunity to get rid of our "Royalty" once and for all.

  • Report this Comment On November 15, 2009, at 11:34 AM, vinfromdallas wrote:

    LessGovernment,

    Regarding single terms, Hallelujah. The Federal Bureau of Prisons forces its employees to move every 6 years to avoid bribes, why should Congress be any different?

    Regarding your financial advice:

    Return OF investment is worth more than return ON investment. A bank with a 3% savings rate payout is suspect in my opinion.

    Rather, you should think about the alternative asset classes that have opened up this decade. For instance, volatility is available as an asset class via the VXX ETF for 401k accts. You can short the treasury (and this Congress, practically), via TBT. TBT is in my favor currently. You can short the dollar via UDN. India has infrastructure risks--they don't have enough clean water to continue their growth. Shorting the dollar in general is safer.

    Those who want to get the price appreciation of gold without paying a physical gold broker should look at GLD, or options on GLD. No need to buy physical gold till there is higher risk the financial system will fail. Wait for $10/gallon gas first, in other words, or allocate some towards the ETF, and some towards physical gold. Do whatever helps you sleep at night.

    Also, brokerage accounts are protected by the SIPC to $500,000. The FDIC is almost broke, and only goes to $100,000.

  • Report this Comment On November 15, 2009, at 11:34 AM, vinfromdallas wrote:

    LessGovernment,

    Regarding single terms, Hallelujah. The Federal Bureau of Prisons forces its employees to move every 6 years to avoid bribes, why should Congress be any different?

    Regarding your financial advice:

    Return OF investment is worth more than return ON investment. A bank with a 3% savings rate payout is suspect in my opinion.

    Rather, you should think about the alternative asset classes that have opened up this decade. For instance, volatility is available as an asset class via the VXX ETF for 401k accts. You can short the treasury (and this Congress, practically), via TBT. TBT is in my favor currently. You can short the dollar via UDN. India has infrastructure risks--they don't have enough clean water to continue their growth. Shorting the dollar in general is safer.

    Those who want to get the price appreciation of gold without paying a physical gold broker should look at GLD, or options on GLD. No need to buy physical gold till there is higher risk the financial system will fail. Wait for $10/gallon gas first, in other words, or allocate some towards the ETF, and some towards physical gold. Do whatever helps you sleep at night.

    Also, brokerage accounts are protected by the SIPC to $500,000. The FDIC is almost broke, and only goes to $100,000.

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