Facts about the Federal Reserve

This is a picture of the United States Federal Reserve Bank. The US Federal Reserve Bank (FED) is actually not a government entity. It is a private Corporation with share holders who are paid by law 6% dividends per year. It is owned by the richest and most powerful banks and people in the world. It has been given, by congress, the authority to create US currency out of thin air and thus control the flow of capital and rates of interest in the nation. The Federal Reserve has a zero balance in its check book. It has no "reserves" of any kind. So it is not Federal and it has no Reserves. Heres how it all works... The United States has what we call a Treasury, every country has some sort of institution just like it though they are called by different names. The Treasury controls the finances for the nation. They give the government the money they need to fund the different sectors like the military, congress or any government sponsored programs, etc. Think of our country as a business; we produce things, and purchase things and invest in things, and the overall goal is to turn a profit at the end of each year. As citizens we all work our jobs and own our property and we pay taxes on those things to the government every year. the IRS monitors all of these things to ensure we're paying properly. So those taxes are given back to the Treasury so they may be lent back out accordingly. Because we, as a nation, are producing a deficit every year we have no money to fund the government sectors and programs necessary to keep our country operating. So thats when the Treasury turns to the Federal Reserve and says "we need money to keep things afloat or we'll go bankrupt". So the Treasury produces an IOU called a Bond that promises to pay back the borrowed amount plus interest over a 30 year period and gives it to the FED. The FED then writes the Treasury a check, from their zero balance checking account, for the amount of the IOU and hands it over. The Treasury then prints that money and puts it into circulation, this is called "Quantitative Easing". It took 200 years to go from the first US Dollar printed to $825 Billion in existance. Then the crisis of 2008 occurred and it took about 2 years to go from that $825 Billion to $2.4 Trillion, thats an expansion of nearly 3 times. And there are another estimated 3 or $4 Trillion created that were not reported. Heres a chart of the reported Currency supply courtesy of GOLDSILVER.com

This chart depicts what is called the "base money" supply, or M1. Inflation is properly defined as the expansion of the currency supply, and rising prices are just the symptom of the actual monetary inflation. There is always a lag in time between the inflation of the currency supply and the rises prices felt by consumers, so it is possible to look into the future in this way by studying the charts. Perhaps now you can better understand the severity of the previous news headline i posted about.

ECB plans Unlimited Bond-Buying

Mario Draghi from the European Central Bank announced on September the 5th that the new plan to help the economic woes in Europe is the purchase an unlimited amount of Bonds and soverign debt. What this means is that the ECB will print an unlimited amount of money until things get better. This will dilute and destroy the wealth of all the people who have savings in the Euro and transfer the wealth to the holders of real assets like land, real estate, commodities, and ofcourse precious metals. You can expect a similar statement to be released by the Federal Reserve probably within the next few weeks, but certainly by years end. Bernanke will have to do it in a more round-a-bout way though, because a bold statement like that from the US will send massive shockwaves throughout the market. So what he'll probably say is something like "well, if we keep the purchase amount open-ended it will allow us to react more quickly and efficiently to the nations economic needs." but what he's really doing is setting it up so that once that initial announcement is made they wont have to tell us everytime they purchase bonds.

My 2010 position in Silver Wheaton brought gains of 100%, give or take a few dollars. I also had a small position in Premium Exploration which i thought had great potential as a gold exploration company. Their properties seemed to be extremely valuable but I sold my position at the end of the year for just a slight gain, which turned out to be a bit soon. Over the following weeks the stock did a major run up in price which would have been nice, but now it sits just about where i sold. The reason i sold my positions at the end of the year was so that i could switch from paper precious metals investments to physical metals investments. My research throughout the year taught me alot about the nature of our crisis as compared to other crisis's suffered by the US and other nations throughout history. I learned about the transfer in wealth from cash to tangible assets like gold and silver. So at the beginning of the 2011 year i purchased a 100oz bar of
.999 fine silver for $30 an ounce and paid $100 for shipping and insurance. In 2010 I started with $1600 which i doubled to just about $3200 by december. I then purchased the bar for $3100 and later two small 1oz bars for just under $100 with shipping.
Less than 3 months after my purchase silver was riding $50oz. Thats a gain of 62%.
During these summer months the price of silver has been beatin back by a combination of massive commercial shorts, in an effort to supress the price, and the natural summertime selloff which happens nearly on cue every year. Notoriously the fall and spring months are best for precious metals while the summer is usually the slowest.
I do expect that by years end we'll be back up near the $50 price range.

Late June, 2011

God its been a long time since i've been here. Its quite interesting to read over my postings from almost 2 years ago. I find it invigorating and motivating to see how passionate i was about investing and expanding my knowledge. I'm happy to report that some of my thoughts were on the money, and that my early research was in the right direction. Though i can say i was wrong about some things. So here i am nearly 2 years later in front of my computer sharing my thoughts about investing.

What i've learned since my last post is this... investing is alot like the game of poker. Why do you think so many of the same people reach the finals table every year? because their the luckiest people on earth? No, its because its a game of skill.

There are thousands of people out there on tv or in magazines that give their opinion everyday. Most of them couldnt be more wrong. Its like a doctor telling a cancer patient that they must start chemo and radiation as soon as possible, without understanding that chemo and radiation are actually proven not to work. Almost every doctor in the country responds to cancer with that same advice, because thats what they grew up knowing and thats what they learned in school, and thats what rakes in billions of dollars every year. Its those people out there getting ridiculed on tv for saying something against the grain. For the most part, those are the people who have an actualy understanding.

Something I learned when i was young is that most people dont really know whats going on.

" the reason the rich get richer, the poor get poorer and the middle class just struggles with debt is because financial education takes place at home, not in school." Robert Kiyosaki

How true! and i wonder why the very essence of financial success has never entered the public classroom? What is it that seperates the rich and the poor and middle class? its the understanding of investing! I told this to some friends of mine over a drink at the local bar and they seemed extremely interested in what i was saying (i mean who doesnt want to have money). About 2 weeks later one of them approached me, very excitedly, and said that he had taken me seriously and he had begun investing. He said "ya i've started a roth IRA, and im going to start putting in a $100 a month and hopefully double my contributions every year". I should have told him it was a horrible idea; maybe i will when i see him next. That is not investing. The point of investing is that at the end of the year you've generated income with minimal personal involvement.

"when your yearly income derived from investments is enough to cover your yearly living expenses with some left over for growth, you are wealthy."

Anyway, the point of the story is that saving us currency at this point is like saving an ice cube for later. The rate of inflation of the currency supply is only escalating. It took 200 years for the US to create $825 Billion in paper money;known as the currency supply. Since 2009 the currency supply has increased to over $3 trillion.
Thats and expansion of nearly 4 times. Below i've posted a video which shows the calculations of some austrian economists who have actually figured out mathematically the "point of no return" in the case of a failing economy.
As you'll see, we're well past "the point of no return". There are really only 2 options for us now and neither have the best interests of the "savers" in mind.
However, for those that are prepared and educated, this will be an extremely profitable time.

The Point of No Return: Part 1

The Point of No Return: Part 2

I have a feeling that there will be another down trend in the equity markets shortly.
you'd think a down trend in equities would drag down commodities to, as it did in the crash of 2008. But, i think that because of the severity of the worldwide debt, and massive liquidity ("stimulus", money printing), many commodities that would have usually tumbled will tend to have minimal downward movement, remain unscathed, or actually make gains. When the markets start a downtrend, investors are leaving equities and looking for a safer investment, typically the US Dollar, but because of its instability I think that investors will search for something else, a physical asset to preserve their wealth.

Today is November 23, 2009. I believe that WWPW will have a price jump starting tomorrow. The volume over the past couple days has been increasing, and today it closed above its nearest resistance level. As long as the level holds early on I think there will be a nice increase.

"Damn it feels good....."

About two months ago I had a conversation with my father. We discussed economics, particularly the condition of the US economy and its relation to the global economy. I argued that because of the "recession", most nations are commited to creating serious liquidity to try and jumpstart their local economies. This will lead to serious inflationary issues and likewise the rise in demand for commodity based currency, especially precious metals. The US is no exception. Right now the condition of the US economy is so unstable and so lop-sided that we are commited to either printing money or borrowing it to support our way of life. We import more than we export, we spend more than we make, even the nations that used to lend money to us are thinking twice now.
The US Dollar is the world's reserve currency, which means that it is the largest and most depended on currency the world has to offer; almost. Gold, the mother of precious metals, is the only currency that is more stable and more dependable than the US Dollar. The two currencies are inversely related, meaning that if the value of one diminishes the value of the other increases. That being said, the value of the US Dollar is in the most dire straits it has ever known, which is why I believe that the value of gold will continue to increase greatly.
On those grounds I told my father that I believed that the precious metals were the most secure investments for the coming years. The price of silver tends to rise about twice that of gold, and the price of a silver mining stock tends to rise about twice that of silver itself. So by purchasing stocks in a silver mining company I increase my earnings by nearly 4 times.
It felt good when my parents came clean and admitted that my predictions were right.
The price of gold now sits at $1140.00, more than a 14% increase since our initial discussion.

Serial Killer Mentality

today I learned that there is no room for emotion in investing.
If you make a move, it better be for a strategic reason, and the minute that
reasoning no longer adds up dump the position. Cutting a loss is potentially the hardest thing for the majority of investors to do. But after watching other successful traders strategies I realized that the only way to make it is to be cold about your trades. Treat it like an enemy, watch it, understand its movements and then strike when a weakness is revealed.

An End, A Beginning, and a Fresh Outlook....

It appears that Friday was the last day of work for me at unique landscapes. I guess im glad in some way because it forces me to look for a consistent, year round job. I've known for a long time now that landscaping was not a career move, but I do like doing small jobs on the side. So, not that its a career choice, but now I'm looking for a more reasonable job, possibly less physically demanding. Hopefully something good comes along but I dont have very long to get situated here, I definately cant take a big lag in pay.
So aside from the here and now of my employment I think I've finally made the realization that I would like to get more involved with investing. I'm going to start out as a personal investor(which is where i stand), and then work towards creating an investment consultation/capital management firm. I believe I'd be good at it because I have a passion for investments. I love to learn about all kinds of investing; real estate, stocks, bonds, mutual funds, etc, But the thing I've realized about investing in the markets is that your capital stays liquid. It can be relocated within mere hours from one extreme to another, you can take advantage of a run in oil prices today and a fall the next. There is always a balance, its like physics where energy is never lost, its just transferred. Whenever something is down, something else is up. If you invest in realestate you are commited until you sell the property, in the early 2000's that was great but now its horrible. In a situation like this, you must know far in advance what moves you need to make to put them in motion.

So for this reason I know that investing is for me. I also think that Id like to try and create some program for younger people to invest. They need to learn that being a carpenter is great but you need to understand money and how it works in order to be really successful. I've never met a young person who doesnt want to succeed, it just seems that the normative education and life experiences teach them the opposite of what it takes to make it, and it eliminates alot of peoples potential. so I think its the most important thing to educate young people about investing, especially now.

I am also going to start some sort of publicly owned holdings firm. I believe that its a fairly quick way to amass large amounts of capital for investments. Ultimately this is what will open up the possibilities for serious investments.

I need to study, global economics more, and it seems that its much better to learn from other successful investors rather than TV.
I also need to study the law surrounding these endeavours, as well as the proper certifications and licenses that are required, and the basic layout of the business structure(how does it work?).

Anyway, for now I still say hold the short positions on the EQUITIES and FINANCIAL MARKETS. Once they drop wait for a good entrance point in a out of the country silver or gold company that is unhedged.

Eureka!! I was right on my gold trend assumptions

About a month ago now I began pointing out two trends in the gold chart that I believed had a good amount of validity. It just so happens that my assumptions were correct as today gold has broken above the upper convergence trend line to approx. $980. I think that if we break $980 our next major resistance is the $1000 level.

Since september is notoriously the strongest month for the precious metals I think what we're likely to see here is gold prices between the $990 and $1000 range. I have a feeling that they will ultimately fall back a bit in november because its traditionally a weaker month for the metal. So for now my thoughts are this....

Hold you short positions in the equities, especially financials for the next few weeks.
If china's Shanghai index is any foreshadow we have a few weeks of downside movement ahead of us. At that point I think I will sit tight until gold prices fall down a bit in november and then I will hop into a silver position for the coming of the new year. If you look at historical charts you'll notice that precious metals tend to do well with the start of the new year, especially around late january/february.