Tuesday, January 18, 2011

Will Jurassic Park (The Movie) Become Reality?

I’ve always been fascinated, and thus repeatedly watched via cable TV, the highly successful sci-fi thriller trilogy film of the Michael Crichton (novel) and Steven Spielberg (director), the Jurassic Park. The movie has been about the unforeseen consequences of turning a menagerie of cloned dinosaurs into an amusement park.

Well what seemed as merely a science fiction in the past may perhaps become a reality soon. I’m not referring to the amusement park of dinosaurs, but of the technology that would enable one.

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According to the Telegraph (which includes the diagram above)

The woolly mammoth, extinct for thousands of years, could be brought back to life in as little as four years thanks to a breakthrough in cloning technology.

Previous efforts in the 1990s to recover nuclei in cells from the skin and muscle tissue from mammoths found in the Siberian permafrost failed because they had been too badly damaged by the extreme cold.

But a technique pioneered in 2008 by Dr. Teruhiko Wakayama, of the Riken Centre for Developmental Biology, was successful in cloning a mouse from the cells of another mouse that had been frozen for 16 years.

Now that hurdle has been overcome, Akira Iritani, a professor at Kyoto University, is reactivating his campaign to resurrect the species that died out 5,000 years ago.

If these scientists will be spot on with their predictions, then the implications would be REVOLUTIONARY. You may call it a black swan- a rare high impact event.

Since one thing may lead to another, then it won’t likely be just about Jurassic Park and about possibly saving endangered or the restoring of extinct species, but likewise the possibility of resurrecting our ancestors!

While it would be a pleasure to see Hayek, Mises, Rothbard, Menger debate Keynes live, it would be a nightmare to see Stalin, Mao, Hitler, Pol Pot or Marcos back, yikes!

We’d also probably see our world co-exist with clones ala the movie The Island, starred by Scarlett Johannson. Of course, am guilty here of the projecting current trends into the future as a way of mental stimulation.

Nevertheless, the rapid progression of technological innovations never cease to amaze me.

Monday, January 17, 2011

Cognitive Dissonance And Inflation

It’s been one heck of a week as global markets appear to be in cognitive dissonance.

One, gold appears to be in a corrective mode. And since gold for me functions as a barometer for the direction of global stocks, the recent consolidation in Gold seems to be having some transmission effects.

Some volatility seems to have emerged in parts of the world markets. Bangladesh’s Dhaka Index recently experienced a violent shakeout with a crash that incited street riots[1], but has rallied intensely to close the week down only 2%.

Where there was no crash the damage had bigger, India’s market (4.22%) fell hard alongside with China (Shanghai 1.67%, Shenzhen 4.59%) as the latter raised bank reserve requirements[2] anew. Another High flying and one of the top gainer for 2010, Peru like Bangladesh experienced substantial losses (4.96%).

On a regional basis, ASEAN and Latin American markets were mostly lower, while East Asia was mixed, whereas major markets in Europe including Portugal whom has reportedly been pressed to accept a bailout have mostly risen. Talk about markets rising as concerns over a crisis ripple.

The Portuguese government has officially declined on the need for a bailout. However like contemporaries Greece and Ireland before her, both eventually succumbed[3] to bailouts. Nevertheless Portugal successfully sold 599 million euros ($778 million)[4] on the back of European Central Bank’s aggressive buying of the Portugal’s offering, aside from declarations of support from Japan and China, may seem to have prevented an auction failure, and thus, may have mitigated the crisis from escalating.

So as we predicted the bailouts, whether direct and indirect, have become a permanent feature of the marketplace until market forces eventually undercuts government ability to do pursue with this strategy.

Some experts say that gold’s decline forebode of a rising dollar that would likewise adversely impact commodity and equity prices. I would deduce that these experts have anchored or fixated their views to the 2008 post Lehman episode.

It isn’t true that a rally in the US dollar automatically means the reversal of the price trends of commodities. In 2005, the US dollar rose alongside with commodities or even gold.

Nevertheless it may seem difficult to become structurally bullish on the US dollar in the cognizance that the US appears as not restricting bailouts on her constitutents but likewise the Eurozone and even the rest of the world.

Inflation Is here

Next, even as gold has been weakening, while emerging market equities have been mixed, commodity markets seem to have picked up momentum. Meanwhile US treasury yields remain elevated from October lows.

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stockcharts.com: Surging Commodities, Elevated Yields and Strong S & P

So you have surging commodities, weakening of the US dollar rising equities and higher yields, all of which seem to highlight the return of inflation.

And we seem to be seeing more indications where inflation has been gaining ground over the global economy. Importantly this can be seen even in nations which were supposedly under threat from “deflation”.

The Casey Research[5] enumerates on some of these:

-Consumer prices in December exceeded forecasts, up 0.5%, with core inflation up 1%.

-Producer prices rose 1.1% in December.

-China’s inflation, at over 5%, is beginning to cause problems.

-Import prices into the U.S. are on the rise.

-The European Central Bank is now warning of inflation, and interest rates there continue to rise. Back in the U.S., the rise in interest rates is becoming persistent, with 10-year Treasury rates moving from 2.57% in November to 3.31% today –

And the sequence of how inflation percolates as seen in the Austrian framework as aptly described by Gerald O’Driscoll[6],

``In the Mises/Hayek theory of economic fluctuations, the transmission of monetary shocks works through producer prices and incomes, and only later consumer prices. No measure of consumer prices, and certainly not a subset of consumer prices, is an adequate gauge of inflation.”

And I would further add that Wall Street seems to be acting based on these premises as banks cut holding of US treasuries at the fastest pace since 2004[7].

All the seemingly cognitive dissonance seen in the marketplace appears to highlight on the growing recognition of inflationary forces gaining traction.

At the end of the day, we should realize that inflation and volatility are like twins.


[1] See Bangladesh Stock Market Crash: Evidence of Inflation Driven Markets, January 11, 2011

[2] Strait Times, China reserve requirements raised to tame inflation, January 16, 2011

[3] Wall Street Journal Blog Portugal Bailout Denial: Sure Sign One Is Coming Soon?, January 11, 2011

[4] Businessweek/Bloomberg Portugal’s Borrowing Costs Fall at 10-Year Bond Sale, January 16, 2011

[5] Gold-speculator.com Let Us Print Notes!, January 14, 2011

[6] O’Driscoll, Gerald Inflation Is Here ThinkMarkets.com January 13, 2011

[7] Bloomberg.com Wall Street Dumps Most Treasuries Since 2004 on Growth, January 10, 2011

US Dollar, Gold and Democracy

I find it odd or self-contradictory for a high profile investment expert[1] to claim that Eurozone bondholders should accept losses while declaring US muni bonds as a “buy”. In short, bearish Euro bullish USD. I view this more as an endowment bias where people place a higher value on objects they own than objects that they do not[2] (That’s because the expert is domiciled in the US).

It may true that state of the US muni bonds should be seen at the local level, but this should apply to the Eurozone too. In other words, prospective haircuts should apply to any nations/state where the cost to maintain debt levels can’t be economically sustained and where the policy of bailouts ceases to be part of the picture.

The cost to maintain debt levels can also be read as the willingness to pay, as Dr. Antony P. Mueller rightly commented[3],

``With debt it is as much the willingness to pay as it is the ability to pay. One could even say that the willingness to pay precedes de ability to pay.”

In addition, there is the tendency to ignore the role played by central banks. In as much as the US Federal Reserve can print money to conduct bailouts, so as with the Europeans through the ECB. So who prints more money will likewise impact on the relative economics of debt.

While it may be true that interest rates would impact the Eurozone more than the US (see figure 2), interest rate dynamics can swiftly change depending on either rate of change of inflation at the national level or on the public’s fluid perception of credit quality conditions.

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Interest Payments as share of GDP[4]

Besides, both the US dollar and the Euro are fiat based money that are structurally flawed, as it is being shown today with a gamut of bailout policies left and right, targeted at rescuing the banking system and welfare nations/states in distress.

Thus, like all paper money subject to currency debasement and currency wars or competitive devaluation, that would make both like a race to the bottom.

So it’s a matter of which country (US or the Euro) would make more policy errors.

So even while I may be bullish the Euro over the US over the short-term, I wouldn’t recommend positioning on either one of them over the opportunity costs of holding other assets.

Why the USD or the Euro when there are others to choose from?

And many investors seem to share my view and vote with their money. According to analyst Doug Noland[5]

``The past year saw another $500 billion flee the U.S. money fund complex in search of higher yields. Tens of billions flooded into perceived low-risk bond and muni funds, while tens of billions more headed overseas. Meanwhile, money flowed into the hedge fund community, where assets and leverage are said to now approach pre-crisis levels. All of this amplifies systemic risk.”

So while it may hold the US dollar may rally, mostly as a result of a weakened Euro, I think this could be temporary.

Yet even as the USD should rally, we shouldn’t expect the same pattern of asset behaviour to occur as with the 2008 paradigm as some other experts seem to suggest.

It’s not true that a strong USD automatically translates to weakness in all other assets.

In 2005 the US dollar rallied alongside commodities and global equity markets. Thus, reference points can give divergent views and the view that a strong USD means automatic weakness in all others means anchoring to the 2008 post Lehman bankruptcy episode.

For me, it will always be a question of how authorities are likely to respond to any unfolding problems than simply projecting past or present conditions into the future.

For now, the auto response mechanism or path dependency by policymakers has been to engage in bailouts. Thus, in sustaining these policies means we should position for boom bust cycles, or at worst, insure ourselves from the prospects of a crack-up boom phenomenon (flight to commodities) since money is never neutral.

In a similar vein, it would seem to be impractical to be bearish on gold or precious metals for the same reasons.

And in growing recognition of these reckless monetary policies, in the US, lawmakers of some 10 states have reintroduced bills to recognize gold and silver as money[6].

Thus, it would misguided to suggest that democracy can’t be compatible with gold.

As Professor Tibor Machan points out[7]:

In a just society it is liberty that is primary – the entire point of law is to secure liberty for everyone, to make sure that the rights of individuals to their lives, liberty and pursuit of happiness is protected from any human agent bent on violating them. Democracy is but a byproduct of liberty

Thus if gold should represent liberty then democracy, as a byproduct of liberty, should blend well with gold as money.

And this may be zeitgeist of the current trend of gold prices


[1] Moneynews.com Pimco’s El-Erian: European Bond Investors Must Accept Losses, January 14, 2011

[2] Wikipedia.org, Endowment Effect

[3] Mueller, Antony P. Portuguese Bond Sale, cashandcurrencies.blogspot.com, January 12, 2011

[4] Mitchell J. Daniel Which Nation Will Be the Next European Debt Domino…or Will It Be the United States?, Cato.org, January 11, 2011

[5] Noland Doug Issues 2011 Credit Bubble Bulletin, PrudentBear.com, January 14, 2011

[6] TPMDC At Least 10 States Have Introduced Gold Coins-As-Currency Bills, January 5, 2011

[7] Machan Tibor R. Reexamining Democracy, January 4, 2011

Politics Of International Bailouts

One major development that has offset such policy mistakes has been globalization. But of course, while policies from fiat currencies tend to likewise distort trade, the fact is that globalization has mushroomed in spite of fiat currencies.

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Google Public Data: Global Merchandise trade has Doubled Since 1971

Global merchandise trade has more than doubled since the Nixon shock which closed the US dollar-gold convertibility in 1971 or the Bretton Wood standard.

Yet even when I harbored or expected a tinge of possible policy responses similar to that of the Great Depression, as it has been the natural impulse by governments to use crisis to usurp or expand the reach of political power, or in the words of former White House Chief Emmanuel Rahm[1], "Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before", this did not happen.

Well, not for most of the world.

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DLC.org[2]: 155 temporary tariffs in 2008

In short, most nations opted to keep trade channels open in spite of the crisis.

Alternatively this means that nations have not responded in the same way as in the past or that most of the world has remained receptive to globalization to the disappointment of the protectionists.

And today, globalization isn’t only on trade but also in terms of bailouts. Not only that the US has been bailout the Europe[3] and the world, but also China[4] and Japan[5] as earlier stated have offered to bailout the Eurozone by buying the Euro debts.

Why then the international bailouts?

Bailouts always have political dimensions whether it is local or international. And the likely answer is that globalization has become a huge political influence from which the present crop of political leaders has latched on.

Where trade levels should diminish and magnify poverty levels, unsustainable political structures, like China and other autocratic regimes, could be exposed and risk destabilization that would result to the overthrow of the incumbent political leader or the system.

And considering that political dynamics have likewise been substantially affected by trade enabled innovations on technology, as evidenced by the recent People Power in Tunisia[6], rigid vertical government structures would be challenged by the political influences based on real time “flat world” connectivity, thus likely resulting to a new political order.

It’s either global governments prevents further advances of trade and technology, or governments adapts to the new political realities of the information age.

And given that people continually adjusts to the state of government affairs by circumventing policies or regulation, my bet is one of the latter.

Even the despotic regime of North Korea hasn’t stopped people from engaging in voluntary trade underground. North Korean authorities attempted to inflate the currency[7] in order to wipe out savings and stop the informal economy but this resulted to a huge backlash which the North Korean government eventually backtracked.

So while the politics of international bailouts may be meant to keep trade channels open, the longer term effects is for the mass distortions that could risks future trade via frictions from boom bust cycles or “super” inflation.

Nevertheless, one of the major fundamental positive developments is that connectivity enabled by technology would certainly pose as continuing hurdle to the advances of governments.


[1] Wall Street Journal Editorial A 40-Year Wish List, January 29, 2010

[2] DLC.org Governments imposed 155 temporary tariffs in 2008, September 23, 2009

[3] See The Phisix And The Boom Bust Cycle, January 10, 2011

[4] Los Angeles Times, China moves to prop up Europe's economy, January 15, 2011

[5] Wall Street Journal Japan To Buy Eurozone Debt To Help Europe Tackle Debt-Crisis, January 10, 2011

[6] See Tunisia’s People Power: A Combination Of Creative Destruction And The Politics of Obedience January 16, 2010

[7] Will North Korea's Version Of The 'Berlin Wall' Fall In 2010? January 3, 2010

Sunday, January 16, 2011

Tunisia’s People Power: A Combination Of Creative Destruction And The Politics of Obedience

The New York Times reports,

The fall of Mr. Ben Ali marked the first time that widespread street demonstrations had overthrown an Arab leader. And even before the last clouds of tear gas had drifted away from the capital’s cafe-lined Bourguiba Boulevard, people throughout the Arab world had begun debating whether Tunisia’s uprising could prove to be a model, threatening other autocratic rulers in the region….

Because the protests came together largely through informal online networks, their success has also raised questions about whether a new opposition movement has formed that could challenge whatever new government takes shape. (emphasis mine)

This represents another validation of our prediction when I wrote,

The growing friction between technology and the old political society is definitely taking shape; eventually one has to give. My bet: creative destruction will win.

Aside from the first People Power at an Arab nation where the changes in the political order appear to be significantly influenced by the rapidly diffusing adaption to connectivity based technology platforms, the Tunisian experience suggests that People Power as a political concept as presciently advanced by the founder of modern political philosophy in France, Etienne de la Boetie, will become more accepted from the grassroots levels or become more widespread globally as more people will learn about their inherent power over governments.

To quote Etienne de la Boetie in the Politics of Obedience

Obviously there is no need of fighting to overcome this single tyrant, for he is automatically defeated if the country refuses consent to its own enslavement: it is not necessary to deprive him of anything but simply to give him nothing; there is no need that the country make an effort to do anything for itself provided it does nothing against itself. It is therefore the inhabitants themselves who permit, or, rather, bring about, their own subjection, since by ceasing to submit they would put an end to their servitude. A people enslaves itself, cuts its own throat, when, having a choice between being vassals and being free men, it deserts its liberties and takes on the yoke, gives consent to its own misery, or, rather, apparently welcomes it.

In short, people power and the web would make a mighty combination over the tyranny of governments.

So governments will try to fight these via the introduction of regulations and control of the web which would limit the democratization of information.

As one of the five things we should worry about in 2011 Cato’s Dan Mitchell rightly observers, (bold emphasis mine)

The Federal Communications Commission just engaged in an unprecedented power grab as part of its “Net Neutrality” initiative, so we already have bad news for both Internet consumers and America’s telecommunications industry. But it may get worse. The bureaucrats at the United Nations, conspiring with autocratic governments, have created an Internet Governance Forum in hopes of grabbing power over the online world. This has caused considerable angst, leading Vint Cerf, one of inventors of the Internet (sorry, Al Gore) to warn: “We don’t believe governments should be allowed to grant themselves a monopoly on Internet governance. The current bottoms-up, open approach works — protecting users from vested interests and enabling rapid innovation. Let’s fight to keep it that way.” International bureaucracies are very skilled at incrementally increasing their authority, so this won’t be a one-year fight. Stopping this power grab will require persistent oversight and a willingness to reject compromises that inevitably give bureaucracies more power and simply set the stage for further demands.

Thursday, January 13, 2011

Heritage Foundation’s Economic Freedom Scorecard For The Philippines

We’ve been told that elections would usher in important positive socio-economic changes.

But where things matters most, particularly economic freedom, there appear to be little signs of progress.

Here is the newly released Economic Freedom Index scorecard from the Heritage Foundation on the Philippines.

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As one would observe, the Philippines falls BELOW the world average, and whose score has been nearly STATIC from the past administration until the present.

The Scoring Methodology: (all bold highlights mine)

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Business Freedom

Potential entrepreneurs face severe challenges. The overall regulatory framework is burdensome, and the legal framework is ineffective, holding back more dynamic and broad-based expansion of the private sector.

[my comment:

These are symptoms of too many arbitrary laws and regulations which results to the onus of red tape, that increases the incidences of corruption and inefficiencies.

All these add to the business risk premium which raises the costs of doing business and the subsequent required investment hurdle rate.

Ever wonder why investment in the Philippines has lagged the region? And how unemployment rates remain high despite high level of educational attainment by the population?]

Trade Freedom

The Philippines’ weighted average tariff rate was 3.6 percent in 2007. Some high tariffs, import and export restrictions, quotas and tariff rate quotas, services market access barriers, import licensing requirements, restrictive and non-transparent standards, labeling and other regulations, domestic bias in government procurement, inconsistent and non-transparent customs valuation and administration, export subsidies, widespread corruption, and weak protection of intellectual property rights add to the cost of trade. Fifteen points were deducted from the Philippines’ trade freedom score to account for non-tariff barriers.

[my comment: protectionism results to inefficiency of resource allocation and crony capitalism]

Fiscal Freedom

The Philippines has relatively high tax rates. The top income tax rate is 32 percent. The top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT), a real property tax, and an inheritance tax. In the most recent year, overall tax revenue as a percentage of GDP was 14.1 percent.

[my comment: a double whammy for investments]

Government Spending

In the most recent year, total government expenditures, including consumption and transfer payments, held steady at 17.3 percent of GDP. Fiscal stimulus and restructuring of public enterprises have widened the fiscal deficit, which had almost reached balance in 2007.

[my comment: orthodox Keynesian policies for the benefit of the entrenched rent seeking political-economic class at the expense of society]

Monetary Freedom

Inflation has been moderate, averaging 4.7 percent between 2007 and 2009, and was holding steady in 2010. The government influences prices through state-owned enterprises and utilities and controls the prices of electricity distribution, water, telecommunications, and most transportation services. Price ceilings are usually imposed on basic commodities only in emergencies, and presidential authority to impose controls to check inflation or ease social tension is rarely exercised. Ten points were deducted from the Philippines’ monetary freedom score to account for measures that distort domestic prices.

[my comment: global inflation has been moderate and this has camouflaged or masked the imbalances from local state interventionism. Once global inflation rises meaningfully the ramifications of such imbalances will be magnified.]

Investment Freedom

Foreign investment is restricted in several sectors of the economy. In many industries where foreign investment is allowed, the level of foreign ownership is capped. All foreign investments are screened and must be registered with the government. Regulatory inconsistency and lack of transparency, corruption, and inadequate infrastructure hinder investment. Dispute resolution can be cumbersome and complex, and enforcement of contracts is weak. Residents and non-residents may hold foreign exchange accounts. Payments, capital transactions, and transfers are subject to some restrictions, controls, quantitative limits, and authorizations. Foreign investors may lease but not own land.

[my comment: embedded anti-competition policies all designed at propping up the economic interest of the elites combined with a legal system that is vulnerable to the influences of the same vested interest groups.

This should be a great example of what the great Frederic Bastiat’s calls as “legal plunder”

“Legal plunder can be committed in an infinite number of ways; hence, there are an infinite number of plans for organizing it: tariffs, protection, bonuses, subsidies, incentives, the progressive income tax, free education, the right to employment, the right to profit, the right to wages, the right to relief, the right to the tools of production, interest free credit, etc., etc. And it the aggregate of all these plans, in respect to what they have in common, legal plunder, that goes under the name of socialism.”]

Financial Freedom

The Philippines’ small financial sector is dominated by banking. In general, the financial system welcomes foreign competition, and capital standards and oversight have improved. Consolidation has progressed, and non-performing loans have gradually declined. The banking sector is dominated by five large commercial banks. Two large state-owned banks account for about 15 percent of total assets. Credit is generally available at market terms, but banks are required to lend specified portions of their funds to preferred sectors. The non-bank financial sector remains small. Capital markets are centered on the Philippine Stock Exchange. The impact of the global financial crisis on banking has been relatively small because of the sector’s very limited exposure to distressed international financial institutions.

[my comment: like all banking arrangements around the world a central bank led banking cartel. Only that this privileged industry has been fortunate enough to escape the latest crisis out of the bad experience from our own crisis episode.]

Property Rights

Although the Philippines has procedures and systems for registering claims on property, including intellectual property and chattel/mortgages, delays and uncertainty associated with a cumbersome court system continue to concern investors. Questions regarding the general sanctity of contracts and the property rights they support have also clouded the investment climate. The judicial system is weak. Judges are nominally independent, but some are corrupt or have been appointed strictly for political reasons. Organized crime is a serious problem. Despite some progress, enforcement of intellectual property rights remains problematic.

[my comment: similar to my outlook in Investment freedom]

Freedom from Corruption

Corruption is perceived as pervasive. The Philippines ranks 139th out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009. A culture of corruption is long-standing. The government has worked to reinvigorate its anti-corruption drive, but these efforts have been inconsistent. Reforms have not improved public perception and are overshadowed by high-profile cases frequently reported in the Philippine media.

[my comment-that’s the outcome of a political economic structure which relies mostly on political distribution of economic opportunities]

Labor Freedom

The labor market remains structurally rigid, although existing labor regulations are not particularly burdensome. Many of the country’s skilled workers have migrated to other advanced economies.

[my comment-similar remark on business freedom]

Overall, on the hype of change from a new administration, developments appear to be turning out as we predicted: the more things change the more they stay the same.

It is important to remember that any major reforms must not emerge only in terms “personality based politics” or the illusion of good government but a change that espouses a society of entrepreneurs or economic freedom

As Ludwig von Mises once wrote,

Prosperity is not simply a matter of capital investment. It is an ideological issue. What the underdeveloped countries need first is the ideology of economic freedom and private enterprise.

How Videogames Flourish Under Free Markets

Former hedge fund Kessler argues that Videogames will inspire many of the most important innovations in the coming years which would overshadow government’s influence.

Mr. Kessler writes, (bold highlights mine)

But without gaming, this technology would be expensive, one-off stuff that never sees much use. Much as keyboards and mice and fast graphics have driven corporate productivity for 40 years—killing carbon paper and Correcto Type—the next decades will be driven by tools that can harness voices and gestures.

All it takes is one application. High-margin industries like finance usually deploy these things first: The early adopters could be traders in commodity pits signaling like crazy folk. The rest will follow.

Videogames will influence how next-gen workers interact with each other. Call of Duty, a military simulation game, has a mode that allows players to cooperate from remote locations. In World of Warcraft, players form guilds to collaborate, using real-time texting and talking, to navigate worlds presented in high-resolution graphics. Sure, they have funky weapons and are killing Orcs and Trolls and Dwarves, but you don't have to be a gamer to see how this technology is going to find its way into corporate America. Within the next few years, this is how traders or marketers or DNA hunters will work together. No more meetings!

Even the entertainment and media businesses will be transformed. In 1985, Neil Postman of New York University wrote a book, "Amusing Ourselves to Death," disparaging the media for ruining discourse. Postman died in 2003, but I wonder what he'd think today: Online ad sales are now more lucrative than newspaper advertising, as marketers follow their customers. Netflix video streaming will change the cable TV business. The videogames Rock Band and Guitar Hero have taught the media how to package something that's at least 30 years old, in this case music you play along with, and sell it as if it were new.

The mass expansion of videogames only reflects on how specialization via technology has swiftly been diffusing into the highly competitive marketplace. The videogames industry today is estimated at $21 billion, according to Venturebeat.com and is expected to balloon to $68 billion, according to arstechnica.com. (includes the graph below)

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And part of this growth will come from social network gaming.

According to Red Herring,

Farmville and other social games won't be needing Farm Aide support for 2011. According to a recently released eMarketer report, social gaming will reach a billion dollar business this year.

Not that the techsphere is reeling from the news. Considering the massive growth of Facebook and Zynga platforms for social gaming lately, this impressive statistic is hardly surprising, though it's nice to have the numbers to back it up.

According to the report, nearly 62 million Internet users, making up 27 percent of the online audience, will engage at least one game on a social platform monthly this year, a sizable increase from the 53 million who did so in 2010. US consumers will spend $653 million on social gaming for 2011, a hearty boost from the $510 million they spent last year.

Count me as one of the free riding game players (presently active in Knights of Camelot and Napoleonic wars but am rethinking if I should continue)

I think the idea that video games will serve as one of the most important source of innovation is spot on. That’s because video games seems emblematic of free market forces at work where competition drives innovation through the technology platform, where game developers tap the specialty market segments through various genre of games, which has been rapidly growing along with explosive growth of web usage.

While Mr. Kessler rightly attributes the origins of some of the past technological innovations to the government, it is important to point out that the market, and not the government, has fuelled the widespread use.

As rightly Peter Klein explains, (bold highlights mine)

But technological value is not the same as economic value. That can only be determined by the free choice of consumers to buy or not to buy. The ARPANET may well have been technologically superior to any commercial networks that existed at the time, just as Betamax may have been technologically superior to VHS, the MacOS to MS-DOS, and Dvorak to QWERTY. (Actually Dvorak wasn't.) But the products and features valued by engineers are not always the same as those valued by consumers. Markets select for economic superiority, not technological superiority (even in the presence of nefarious "network effects," as shown convincingly by Liebowitz and Margolis).

In short, those cited figures—billions in dollars—account for as the economic value of these videogames. It’s not just the game, but how people spend for it which sustains and grows the industry and at same time satisfying millions of users.

From the investment perspective, surging video and online social network games seem as one great area to explore.

Tuesday, January 11, 2011

Gold And Sound Money

Sometimes I am predisposed to think that gold may be in a bubble, even if I know it isn’t.

This happens when I get feedback of gold’s alleged immutable role as a wealth preservation asset especially in the supposed prospects of an ‘Armageddon’ of either the US dollar or the US economy.

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Chart from Casey Research

I don’t know whether gold’s successive rise maybe instilling a false sense of security or may be leading some people to become proselytes or cult followers of the ‘gold bug’ dogma.

However, given that the reactions I get seemingly emanate from false premises, or from the idea that gold functions as an anti-US dollar trade, where in fact gold has been rising against ALL currencies, I think it is more about the former.

In addition, when one becomes an idealist who aspires to share of gold’s ‘wealth preservation’ status as a social mission, it would seem as wrong source of advocacy.

For one, it represents a false belief to think that gold prices as only moving in one direction enough for it to function as an enduring ‘wealth preservation’ asset.

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While it is true that gold has functioned as money over many generations, gold has likewise shown periods of volatility as shown by the 650 year chart courtesy of chartrus.com or sharelynx.

In other words, gold like all other commodities is subject to the forces of demand and supply.

The main difference with gold from other commodities is that gold and the precious metal family has demonstrated special qualities (marketability, divisibility, durability, scarcity, high value per unit weight, homogeneity and a stable supply) that have made people reconsider them to discharge of an additional role-money.

Second, the rejuvenated price of gold has mostly occurred after the Nixon Shock or the closing of the gold window in August 15, 1975 that has transitioned the monetary framework from that Bretton Woods gold-US dollar convertibility to the US dollar standard.

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Chart courtesy of Wiltontech

The implication is that with the current monetary platform unanchored to commodities, global central bankers and their respective political authorities have been free to inflate on their currencies to meet many unsustainable political agenda. And the repercussions of these actions appear to be coming home to roost.

Thus, the rising prices of gold, not exclusively to the US dollar, could most likely be symptomatic of the escalation of these ongoing inflationist maladies around the world.

And a continuity of gold’s rise would only suggest of further stress in the current US dollar centric fiat standard.

Put differently, rising gold prices may be pointing to a prospective inclusion of gold in the reconfiguration or reform of the incumbent currency architecture. World Bank’s Robert Zoellig recent overtures may be interpreted as a gradual warming of authorities on such a possibility.

The fact that current conditions have been prompting changes to peoples perception of gold, which includes political entities, implies that the gold’s current price trend could reverse once inflationism would be recognized as the source of economic and financial ailments and subsequently addressed.

While the odds of this may be slim for the moment, worsening inflation conditions or the public’s sudden recognition of the inflation tax, may radically alter this mentality.

The point is, it would be wrong to view gold prices as perpetually headed skywards because people act and react based on the unfolding conditions. And the same applies with government policies, policymakers respond to changes in political conditions or sentiment especially when their privileges are under threat.

In short, past performance may not be indicative of future results.

As caveat, this is NOT to say that I have changed my stance on gold as I remain steeply bullish.

The lesson I want to impart is that no asset can be seen as static or even permanently risk free.

Lastly, it would be wrong to worship gold as if contains some mythical powers or deified like the Biblical idol, the golden calf.

The value of gold represents what society perceives it to be.

And if there is anything that gold has symbolized in the past, it is no less than sound money on the framework of economic freedom.

As Ludwig von Mises explained,

It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the nonobservance of old customs by kings. The postulate of sound money was first brought up as a response to the princely practice of debasing the coinage. It was later carefully elaborated and perfected in the age which — through the experience of the American continental currency, the paper money of the French Revolution and the British restriction period — had learned what a government can do to a nation's currency system...

Thus the sound-money principle has two aspects. It is affirmative in approving the market's choice of a commonly used medium of exchange. It is negative in obstructing the government's propensity to meddle with the currency system.

So any advocacy should center not on the metal itself but on the essence of what gold truly stands for-Liberty and Economic Freedom.

Video Interview Of Milton Friedman: In Defense of Free Trade

Here is a great video of the late Milton Friedman debunking protectionism which the US steel industry had wanted to impose against the Japanese in the 70s. (Hat tip Professor Mark Perry)

The premises are fundamentally the same today except that the economic actor at the receiving end of protectionism involves China instead of the Japan.


Some notes:


Import dollars eventually find their way back.


There are invisible and visible effects from policies (ala Bastiat). What makes the protectionist advocacy attractive to the public is the visibility of the effects (loss of jobs of steelworkers), while ignoring the invisible benefits (expansion of jobs in the other industries and importantly lower consumer prices).


As for Japanese mercantilism or a policy of unilateral free trade: “Why should we object to the Japanese giving us foreign aid?”


Bangladesh Stock Market Crash: Evidence of Inflation Driven Markets

Here is more proof that stock markets around the world have been mainly propped up by inflation (bank credit expansion)

If you recall, we earlier noted that the stock market of Bangladesh (Dhaka Index) posted as the second best performer in the world in 2010 gaining nearly 83%.

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Chart from Bloomberg

Yesterday fortunes seem to have reversed, as the Dhaka index suffered a record crash. This provoked street riots and prompted for the forced closure of the exchange.

image Picture from Marketwatch.com

According to Sify News

Stock exchanges in Bangladesh were forced to close down for the day Monday after share prices registered their biggest fall ever and investors took to the streets.

Angry investors vandalised some vehicles and set fire to tyres as they demonstrated in Motijheel area in the heart of the national capital.

People have been lured by easy money where “over three million people - many of them small-scale individual investors” had been affected by the crash, according to a BBC report. A crash reportedly brought upon by a “series of measures” implemented by authorities to restrain “overvaluation”.

Here is a short BBC report…




The series of measures involved the raising of the cash reserve requirements for banks…

From AFP

On December 15, the Bangladesh Bank had raised the cash reserve requirement (CRR) by 50 basis points, tightening money supply in a bid to rein in soaring inflation.

Analysts, protesters and the SEC say this is what triggered the collapse as some banks, which had invested heavily in the market, tried to offload their shares quickly in an attempt to meet the new requirements.

and the curtailment of industrial loans that was being diverted into the stock market.

From Sify news

The limit for giving loans by the banks to their subsidiary companies was set at 15 percent of their total capital, but many banks invested more than the threshold only to increase their stakes in the capital market. BB had earlier directed the banks that invested more than the ceiling to adjust the excess amount by December 31.

Also, the central bank set January 15 as the deadline for the banks to recover loans taken by borrowers as industrial credit but were diverted into the share market.

And as Austrian economist Fritz Machlup correctly postulated

``If it were not for the elasticity of bank credit, which has often been regarded as such a good thing, a boom in security values could not last for any length of time. In the absence of inflationary credit the funds available for lending to the public for security purchases would soon be exhausted, since even a large supply is ultimately limited. The supply of funds derived solely from current new savings and current amortization allowances is fairly inelastic, and optimism about the development of security prices would promptly lead to a "tightening" on the credit market, and the cessation of speculation "for the rise." There would thus be no chains of speculative transactions and the limited amount of credit available would pass into production without delay.”

Bank credit expansion plus retail investor euphoria seem as prima facie evidence of the Boom Bust cycles brought about by easy money policies.

Monday, January 10, 2011

The Phisix And The Boom Bust Cycle

``If it were not for the elasticity of bank credit, which has often been regarded as such a good thing, a boom in security values could not last for any length of time. In the absence of inflationary credit the funds available for lending to the public for security purchases would soon be exhausted, since even a large supply is ultimately limited. The supply of funds derived solely from current new savings and current amortization allowances is fairly inelastic, and optimism about the development of security prices would promptly lead to a "tightening" on the credit market, and the cessation of speculation "for the rise." There would thus be no chains of speculative transactions and the limited amount of credit available would pass into production without delay.”- Fritz Machlup, The Stock Market, Credit and Capital Formation

At this time of the year, many institutions and experts will be issuing their projections. Some, like me[1], have already done so late last year.

Most of the forecasts will be positive as they will likely be anchored on the most recent past performance. And I would belong to this camp but for different reasons.

The Phisix Boom Bust Cycle At A Glance

While the mainstream interpret and analyse events mostly from the lens of economic performance, technical (chart) and corporate financial valuations, as many of you already know, I look at markets based boom bust (business) cycles as a consequence of incumbent government policies (see figure 1).

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Figure 1: Stages of the Bubble and Phisix Bubble Cycle of 1980-2003

As one would note, the Phisix played out a full bubble cycle over a 23 year period in 1980-2003 (right window). The cycle also shows that in the interregnum, there had been mini-boom bust cycles (1987 and 1989).

A formative bubble cycle appears in the works since 2003, with the 2007-2008 bear market representing a similar mini countercycle similar to the previous period.

The lessons of the previous bubble cycle impart to me the confidence to predict that the Phisix will likely reach 10,000 or even more before the cycle reverses.

Although one can never precisely foretell when or how these stages would evolve, as past performance may not repeat exactly (yes but it may rhyme as Mark Twain would have it), the important point is to be cognizant of the whereabouts of the current phase of the bubble cycle.

And evidence seems to point out that we are in the awareness phase of the bubble cycle as demonstrated by the swelling interest for Philippine assets. The latest success of the $1.25 billion PESO 25-year bond offering[2] and the upgrade of the nation’s credit rating by Moody’s[3] serve as good indications.

In addition, local authorities audaciously and ingeniously tested the global market’s risk appetite for the first time ever with a substantial placement at a long tenor that passed with flying colours. With 160 investor subscriptions mostly from the US and Europe, the Peso bond offering further illustrates the mechanics of cross currency arbitrages or carry trades arising from monetary policy divergences.

Of course for the mainstream, this will be read and construed as signs of confidence. For me, these events highlight the yield chasing phenomenon in response to present policies.

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Figure 2: McKinsey.com[4] Global Financial Assets

And considering that the global financial markets have immensely eclipsed economic output as measured by GDP (see figure 2), the yield chasing dynamic will likely be magnified, largely driven by the disparities in money policies and economic performance. Another apt phrase for this would be ‘rampant speculation’.

To reiterate for emphasis, anent the Phisix, we don’t exactly know if there would be another countercyclical phase or if the present bubble cycle will persist unobstructed until it reaches its zenith.

In addition, we can’t identify how the rate of acceleration of the cycle will unfold nor can we ascertain the exact timeframe for each of the stages in succession.

Instead we can measure the bubble cycle by empirical evidences such as conditions of systemic credit, rate of asset or consumer price inflation and mass sentiment.

The Growing Influence Of Negative Real Interest Rates

With interest rates artificially suppressed, which fundamentally distorts the price signals that account for the time preference of the public over money and the economic balance of the credit market, policy influenced interest rates and the interest rate markets that revolve around them will lag the rate of inflation.

In short, real interest rate will be negative for an extended period.

In the milieu where government here and abroad have been working to stimulate ‘aggregate demand’ via the interest rate channel and for developed economies who employ unconventional monetary operations in support of the banking sector and the burgeoning fiscal deficits, the impact on consumer price inflation will likely go beyond the targets of their respective authorities.

As an aside, some governments in the Europe, such as Hungary, Bulgaria, Poland, Ireland and France have begun to “seize” private pensions[5], but applied in diverse degrees, all of which have been aimed at funding unsustainable deficits accrued from welfare programs and the cost of bailouts.

This only serves as evidence that governments are getting to be more desperate and would unflinchingly resort to unorthodox means to keep the status quo.

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Figure 3: Global Negative Real Interest Rates[6] and Record Food Prices (courtesy of US Global Funds and Bloomberg)

Real interest rates were at the negative zone for several countries (see figure 3 left window) even as 2010 had largely been benign.

But with the most recent explosion of food prices[7] to record levels on a global scale as measured by the Food and Agriculture Organization Index (FAO- right window), aside from surging energy prices, we should expect consumer price inflation rates to ramp up meaningfully.

Meanwhile, Federal Reserve Chairman Ben Bernanke imputes high oil prices to “strong demand from emerging markets”[8]. This would represent as a half truth as Mr. Bernanke eludes discussing the possibility of the negative ramifications from his policies.

In the Philippines, such broad based price increases in many politically sensitive products or commodities have even triggered alarmism of the local media. Similar to Fed chair Ben Bernanke, local authorities and the media seem to have conspired to sidetrack on the scrutiny of the real origins[9] of such price hikes.

Nonetheless, most governments will, as shown above, try to contain interest rates from advancing, as this would increase the cost of financing of many of their liabilities. But this will only signify a vain effort on their part as politics will never overcome the laws of scarcity.

For the public, the growing recognition of widening negative real interest rates will further spur the dynamics of reservation demand—call it speculation, hoarding or punting, or in the terminology of the Austrian economists the “crack-up boom” or the flight to commodities as the purchasing value of money erodes.

And that those who expect fixed income to deliver positive returns while underestimating on the impact of changes in the rate of inflation will suffer from underperformance.

Yet the same dynamics are likely to incite further “risk taking” episodes (note again: reservation demand and not consumption demand), one of the fundamental source of boom bust or bubble cycles.

As a caveat, I am not an astrologer-seer who will predict day-to-day movements, rather in taking the role of an entrepreneur we should see or parse the business or bubble cycle as an active process that is subject to falsification.

This also means market actions won’t be moving in a linear path.

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Figure 4: Markets Drive Policies (source: Danske Bank and economagic.com)

And as earlier stated, policy interest rates trail inflation.

And where market based rates partly reflect on prevailing inflation conditions, one would observe that market rates almost always lead policy rates (see figure 4 right window). Despite the Fed’s QE program aimed at keeping interest rates low, markets have started pricing US treasuries higher. In other words, policy interest rates react to market developments than the other way around.

In a parallel context, the interest rate markets seem to also price aggressively[10] Fed fund rate futures (left window) contradicting the promulgated policy by the US Federal Reserve.

Bottom line: the surging consumer inflation signifies as unforeseen consequences to the current polices.

The Continuing Policy of Bailouts

Of course higher interest rates, at a certain level, will ultimately be detrimental to local or national economies, particularly to those in the hock.

But the risk of a high interest rate environment will depend on the leverage of policymaking. Debt in itself will not be the main source of the risk, prospective policy actions will.

Many government institutions (or even politicians) are aware of the risks of overstretched debt levels.

In the US, the Federal Reserve has its 220 PhDs and many more allied economists in the academia or in financial institutions[11] to apprise of the debt-economic conditions and the available policy options and their possible implications. The problem is that they are math model based and hardly representative of actual state of human affairs.

Besides, most of them are predicated on Keynesian paradigms whose fundamental premises are in itself structurally questionable. Thus, market and economic risks come with the methodology guiding the policy actions that are meant to address present concerns.

For instance, should the problem of debt be resolved by taking on more debt?

Applied to US states whom are in dire financial morass, will the US, through the US Federal Reserve, bail them out?

Ben Bernanke pressed by the Senate recently said no[12], but his statements can’t be relied upon as proverbially carved in the stone. That’s because this would largely depend on the degree of exposure of the banking system’s ownership of paper claims of distressed States on its balance sheets. A ‘no’ today can be a ‘yes’ tomorrow if market volatility worsens and if credit market conditions deteriorates based on the financial conditions of the banking system.

Early last year, Ben Bernanke spoke about ‘exit strategies’[13] when at the end of the year exit strategies transmogrified into QE 2.0 and where talk of QE 3.0[14] has even been floated. Talk about flimflams.

In short, since the banking system is considered as the most strategic economic sector by the present political authorities, enough for them to expose tens of trillions worth of taxpayer money[15], then the path dependence by the Fed would be to intuitively bailout sectors that could weigh on their survival.

The fact that the US has had an indirect hand in the bailout of Europe[16], via the IMF and through the activation of the Fed swap lines hammers the point of Bernanke’s preferred route.

And of course, we shouldn’t be surprised if the Fed collaborated anew with European governments to any new bailout schemes in case of any further escalation in the financial woes of European banks and or governments.

So the US has been in a bailout spree: the US banking system, the Federal government, Europe and the rest of the world (through Fed swaps and through the transmission mechanism of low interest rates), so why stop at US states?

Hence given the policy preference, we should expect a policy of bailouts as likely to continue and should hallmark a Bernanke-led Federal Reserve.

And the policy of bailouts is likely to also continue in developed economies affected by the last crisis.

All these cheap money will have an impact on the relative prices of assets and commodities worldwide.

Thus, we see these internal and external forces affecting the Philippine assets--equities, real estate and corporate bonds.

What Would Stop Bailouts?

The preference for bailout option would only be stymied by natural (market) forces—higher interest rates from heightened inflation expectations (through broad based price signals-we seem to be seeing deepening signs of this)—which reduces the policy tools leverage available to the authorities, the resurrection of bond vigilantes as seen in the deterioration of the credit quality of sovereign papers, or a Ron Paul.

Of course the Ron Paul option, I would see as most unlikely given that a one man maverick is up against very well entrenched institutionalized vested interest groups which have been intensely associated with the government.

As Murray N. Rothbard exposited[17], (bold highlights mine)

But bankers are inherently inclined toward statism. Commercial bankers, engaged as they are in unsound fractional reserve credit, are, in the free market, always teetering on the edge of bankruptcy. Hence they are always reaching for government aid and bailout. Investment bankers do much of their business underwriting government bonds, in the United States and abroad. Therefore, they have a vested interest in promoting deficits and in forcing taxpayers to redeem government debt. Both sets of bankers, then, tend to be tied in with government policy, and try to influence and control government actions in domestic and foreign affairs.

This leaves us with inflation and credit quality which I think are tightly linked underpinned by a feedback mechanism.

A bubble bust elsewhere in the world from high interest rates would drain capital, but if inflation remains high this will reduce authorities leverage to conduct further bailouts. Think the stagflation days of 1970s (the difference is the degree of overindebtedness today and in the 70s).

In addition, high interest rates at a certain point will puncture global governments liquidity bubble which will expose nations propped up by the liquidity mask to deteriorating credit quality.

And at this point, crisis affected governments, including the US, are likely to choose between the diametrically opposed extreme options of continuing to inflate that may lead to hyperinflation or to declare a debt default (Mises Moment).

As a side note, under such scenario, people who argue that the US dollar’s premier status as international reserve won’t be jeopardized would be proven wrong, if, for instance, the policy route would be to inflate.

The health of any currency greatly depends on society’s perception of the store of value function. Once the public recognizes that debasement of the currency has been a deliberate policy and likely a process that would persist overtime, the perception of the store of value function corrodes significantly. And the public will likely look for an alternative.

In finding little option among the available choices, society may choose to revert to a commodity linked currency as default currency, as it always has.

Albeit the worst alternative would be that debasement of the currency or inflationism will lead to totalitarianism.

As Friedrich von Hayek warned[18],

At present the prospects are really only a choice between two alternatives: either continuing an accelerating open inflation, which is, as you all know, absolutely destructive of an economic system or a market order; but I think much more likely is an even worse alternative: government will not cease inflating, but will, as it has been doing, try to suppress the open effects of this inflation; it will be driven by continual inflation into price controls, into increasing direction of the whole economic system. It is therefore now not merely a question of giving us better money, under which the market system will function infinitely better than it has ever done before, but of warding off the gradual decline into a totalitarian, planned system, which will, at least in this country, not come because anybody wants to introduce it, but will come step by step in an effort to suppress the effects of the inflation which is going on.

So the policy tethers will depend on the conditions of several factors such as the rate of commodity and consumer price inflation, real and nominal interest rates, falling bond prices or rising yields, currency volatility and administrative policies choices of protectionism or globalization/economic freedom and capital and price controls vis-a-vis the status quo.

Profiting From Folly: The Inflationary Boom And Cyclical Banking Crisis

For now, the incipient signs of commodity inflation and rising rates have yet to diffuse into alarming levels.

Thus, I perceive that much of the applied inflationism will likely get assimilated into financial assets, thereby projecting an inflationary boom.

So going back to assembling of the pieces of the jigsaw puzzles, the Philippine bubble cycle will merely represent as one of the symptoms of the escalating woes wrought by the paper money system.

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Figure 5: World Bank[19]: Surging Banking Crisis Post 1970s

The Philippine markets like other emerging markets have been the one of the main beneficiaries of the transmission mechanisms of the monetary policies of developed economies aside from the impact from the domestic low interest rate policies.

This favourite chart of mine (see figure 5) reveals of the manifold banking crisis post the Bretton Woods dollar-gold exchange convertibility standard.

While many in the mainstream blame the spate of crisis on capital account liberalization and international capital mobility, this misleads because it is the capacity to inflate (or expansion of circulation credit) rather than capital flows that causes malinvestments. Capital flows merely represent as transmission channels for inflating economies. Like in most account, the mainstream misreads effects as the cause. The repeated banking crisis suggests of a continuing cycle which implies of more crisis to come in the future, despite new regulations introduced meant to curb future crisis.

So while the mainstream will continue to blabber about economic growth, corporate valuations or chart technicals, what truly drives asset prices will be no less than the policies of inflationism here and abroad that leads to cyclical boom and bust in parts of the world including the Philippines.

And that would be the most relevant big picture to behold. Yet relevance seems not a measure of importance for most.

Nevertheless, we’ll heed Warren Buffett’s sage advice,

Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.

Get it? Our objective then is to profit from folly by playing with the cycle rather than against it.


[1] What To Expect In 2011, December 20, 2010

[2] FinanceAsia.com Philippines and Stats ChipPac usher in new year with style, January 7, 2011

[3] Inquirer.net Moody’s upgrades PH outlook to ‘positive’, January 6, 2011

[4] McKinsey.com Mapping global capital markets: Fourth annual report, January 2008

[5] csmonitor.com European nations begin seizing private pensions, January 2, 2011

[6] US Global Investors Investor Alert, December 31, 2010

[7] Bloomberg.com World Food Prices Jump to Record on Sugar, Oilseeds, January 5, 2011

[8] WSJ Blog, Bernanke on Munis, Oil and Fed’s Mandate, January 7, 2011

[9] The Code of Silence On Philippine Inflation, January 6, 2011

[10] Danske Bank, 2011 off to a good start, Weekly Focus, January 7, 2011

[11] Grim Ryan Priceless: How The Federal Reserve Bought The Economics Profession, Huffington Post, September 7, 2009

[12] Reuters.com Bernanke balks at bailout for states, January 7, 2011

[13] Testimony of Chairman Ben S. Bernanke on the Federal Reserve's exit strategy Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C. February 10, 2010

[14] QE 3.0: How Does Ben Bernanke Define Change, December 6, 2010

[15] $23.7 Trillion Worth Of Bailouts?, July 29, 2010

[16] Reuters.com U.S. plays 2 roles in European bailout plan, May 11, 2010

[17] Rothbard, Murray N. Wall Street, Banks, and American Foreign Policy, 2005 lewrockwell.com

[18] Hayek, F. A. A Free-Market Monetary System, p. 23

[19] World Bank Data Statistics Worldview 2009 p.9