Soaring Oil Prices A Main Concern For Asia

The Euro debt had posed a big threat to the economic growth in Asia. This threat however will soon be replaced by the rising oil prices. The high prices on oil will suffocate oil demand while having adverse effects on exports. It may also prove to be a trigger for sparking inflation.
The global economy is counting on Asia to minimise the impact of the recession in Europe and also aid the US to make a full economic recovery. Any economic threat to Asia poses a threat to the global economy as Asia will play a crucial role in buffering the impact of the recession.
As the threat of a financial crisis looming over the horizon receded, the steep oil price paints a negative picture, threatening economic growth in Asia.
Oil is an important commodity in Asia. Asia is the largest consumer of oil and accounts for more than 31% of the global oil demand. Asia is home to the four largest oil consuming countries in the world such as China, Japan, India and South Korea.
Asiaimports almost two thirds of oil to satisfy its oil demand. Even after excluding Japan this makes for a huge oil bill. The expenses on oil also take a larger share of the gross domestic product (GDP) in Asian countries as opposed to countries in the west.
In fact, the oil demand from Asia is in part the reason why prices remained modest in spite of the slow economic growth and the European debt crisis. Most analysts believe that the geopolitics in the Middle East is the major reason for the current hike in oil prices. Although this is a factor responsible for high oil prices, it is not the whole truth. Asia's huge appetite for oil is also in part responsible for escalating oil prices.
At present the immediate threat to Asia seems inflation due to spiked prices. However, the true threat is to the economic growth in Asia. Exports to the west are already fragile and may not be able to withstand another blow. Even India, China, Japan and South Korea may feel the harsh impact of spiked prices.
It is critical to analyse the impact of the oil shocks and its likely cause. The negative impact of the soaring prices will be less damaging if they are caused by an increase in demand rather than due to a disruption in oil supply.

Why Oil Prices in Europe Are More Than In the US

Today, the whole world is going through a fuel crisis and suffering from higher prices on oil.
The current situations show that Europe, especially the Euro zone is seriously affected by the higher oil prices than any other part of the world. One of the reasons is relative cost of the Euro and the US dollar; the currencies of the Europe and the US. The price of Brent oil in Euros is as same as it was during 2008s. The comparison between dollar and Euro is more in favour of the US and so, the cost of same quantity of Brent oil in the US is comparatively less.
The other reason why oil price in the US is less than that of in the countries in Euro zone is the local oil production. Since 2002, oil production in Europe has prominently decreased. This decline in oil production has had major negative impact on European economy. In contrast to this, oil production in the US, especially in North America has increased recently.
Moreover, the fact is that European oil does not yield benefits for all the European nations. It fetches all the benefits for the countries that extract oil; such as Norway and the UK, and not Europe.
Also, the US utilizes coal and nuclear as fuel significantly and so, it has to import comparatively less of oil than countries in Euro zone. The countries that import oil, also import natural gas. Since the prices on natural gas in the US are relatively dirt cheap than those in Europe, the European countries get doubly hit. And so, the usage of other sources of energy, availability of locally extracted oil and the low prices on natural gas are the main and triggering reasons why oil in the US costs far much less in totality than that of in Europe.
And to flash a light on the reasons why there is significant difference between the prices of oil in the US and Euro zone countries, the opinions of the experts of oil and gas industry affirm that the US gasoline is not taxed as highly as it is taxed in Britain and Europe as a whole.
The experts also add that as the European economy is already frail and as Europe does not have shale gas reserves that the US has, it is more prone to suffer from the higher prices on oil. The situation might get worse if the dollar strengthens more. It will trigger the prices on oil in pounds and euros even further.

What Is The Dow Jones Index? And Who Is The CME Group?

There is a group of 30 US companies controlling $3.8 Trillion US Dollars. These 30 companies make up the Dow Jones Industrial group which seem to have had a very high impact on the economy due to their collective market capitalization.
Usually an index for financial markets is a grouping of public companies that are tracked for daily performance. The largest public US industrial companies are grouped as part of the Dow Industrial Index. Many international and domestic investors make daily decisions based upon the performance of these companies.
The company in the US that commands the most amount of public investor cash is Apple Inc (AAPL), but it is not tracked by the Dow Jones Industrials. Royal Dutch Shell (RDS) and PetroChina Company Ltd (PTR) are also left off of the Dow Jones list even though they have more cash than the rest of the DJI list below Exxon, who tops the Dow Jones list as having the most cash.
The top 5 US companies with the most cash:
1. Apple Corporation (AAPL) $487.1Billion
2. Royal Dutch Shell (RDS.A&B) $467.6Billion
3. Exxon Mobil Corp (XOM) $418.6Billion
4. PetroChina Co Ltd (PTR) $274.8Billion
5. Microsoft Corp (MSFT) $264.1Billion
Exxon and Microsoft are both on the DJI Index, but they are not the top 2 positions for total US market capitalization. 3 of the top 5 largest US cash holders are petroleum companies totalling $1.2Trillion of US investor cash in their control. Apple and Microsoft together do not total as much as the top 3 US oil companies, but the Technology and Energy sectors are a strong couple.
Charles Henry Dow established the basis for technical analysis through his research of the original Dow Industrials. His partnership with Edward Jones and Charles Bergstresser was the beginning of Dow Jones & Company. DJ&C owns the Wall Street Journal, Barrons Magazine, and many other news services and products. Dow Jones makes money by selling ads, which is typically more lucrative when investors are fearful.
The Company was controlled for many years by the Bancroft family, notably by Mary Bancroft who was involved with the US intelligence in Switzerland during WWII. The family's control was taken over by Rupert Murdoch and the News Corporation in 2007 that also owns the New York Post and the Fox Media Networks, among other assets. The CME Group now owns the controlling amount of shares of the company. Dow Jones and the CME Group will choose to include the index of companies that will sell the most advertising and are willing to be on their list. That is their fiduciary responsibility to their shareholders. As soon as PetroChina makes a bid to acquire Exxon Mobil, the DJI list will have to be updated. Apple will join a list when they are offered the right price for use of their name.

The Conscience Of A Restorationist, II

Start The Restoration With Your Own Values
Today, the U.S. "news" media is undertaking what amounts to a new campaign of propaganda (or advertising, or marketing... you decide). The mainstream media is overwhelmingly "progressive," and no longer sees itself as a watchdog for the American people but as a tool in service of the nation's continued march toward statism (a march against the very people journalists once aspired to protect). Today's new media campaign is the promotion of what they're calling the Republican and conservative "war on women."
Here's what happened: the economy continues to flounder, and President Obama (leader of the progressive statist movement) began to suffer in the polls... rallying to his defense, the media changed the subject, doing their best to focus the nation on "social issues" and away from the economy... as part of this distraction, Democrats in Congress invited (in a last-minute switch) a young co-ed from Georgetown Law School, Susan Fluke, to address a Congressional committee on what they call the "women's health issue" of government-subsidized contraceptives on campus... conservative talker Rush Limbaugh, musing about Fluke's appeal to the committee to subsidize her contraceptives to the tune of a thousand dollars per school year, called Fluke a "prostitute" and a "slut"... the media, thrilled to continue the distraction from the economy, fired all their considerable weaponry at Limbaugh for using those words (and nothing at Fluke, who, at a rough cost of one dollar per condom, was asking taxpayers to pick up the tab for about three sexual encounters per day, somehow to be worked in around the nominal study of law)... Limbaugh issued a detailed apology, acknowledging the inappropriate choice of words and the distraction from his overall message about the central craziness of Fluke's appeal... the media scrambled over each other to declare the apology insincere... Limbaugh and other talkers kept talking about the issue... and the progressive media was then able to create this new campaign, pronouncing that their opponents had declared a "war on women."
Whew!
Over a long career, Rush Limbaugh has been called every dirty name in the book... and this is far from the first time he's been called a sexist. Anyone who listens to his show for more than a couple days in a row undoubtedly knows he's nothing of the sort. But that's not the point. For daring to stand up against the progressive march, Limbaugh is declared guilty of every mean motivation and heartless opinion the media can think of. He's not politically correct, that's for sure... and because of that, he's chastised by the political machine at every opportunity.
The same is true of everyone who stands against statism.
America, the leader and engine of the world, is deeply divided. A majority of Americans know in their hearts that a free citizenry, sovereign in a worldly sense, exercising entrepreneurial aspiration, is what the nation is supposed to be. A minority, though, opposes this idea in the interest of radical egalitarianism controlled by an all-powerful state. Because the statists control every major opinion-influencing institution in the nation (from academe to the media to the unelected federal bureaucracy to Hollywood), and because they've been persistently plugging away in the appeal to the inner "Victim" of each American, they are able to make the division of opinion seem much closer than it is. And they now have sufficient power, willingly handed them by a previously-free people, to be dangerously close to replacing the American Constitutional republic with a totalitarian state in the name of ensuring "fairness."
You need to do your part in the great project of our time: the restoration of America. You need to develop the conscience of a restorationist. The bad news is that it's a daunting task that faces us; the good news is that America has always functioned best on a project basis (see World War II), and that, working together and separately, we can turn this thing around.
At some point, you need to undertake a project to fight back against the "progressive" movement. A political campaign you could support... a new book or song you could create... a class you could teach... a business you could start... even a letter you could write to the editor of your local paper. But first, before any other project, you need to start with a restoration of your own personal values.
My guess is that Rush Limbaugh is able to withstand the withering attacks on his character by the statists because he is very clear on his personal values. He knows he's not a sexist, or a racist, or a greedy elitist, or any of a number of other things he's regularly called. And that's why your first project has to be a complete inventory of your own values. When your subsequent projects expose you to the same kind of criticism, even if at a lower and more-local level, believe me, that criticism is going to hurt. But its sting will be greatly diminished by two things: your values, and your friends. You will eventually find you have many friends who share your beliefs and who will join you in the fight... but you won't hang in there long enough to find those friends unless you first establish a bedrock of personal values.
When someone calls you a racist, do you know - without a doubt - that they're wrong? Because they will call you a racist. The fact that they have no evidence to support that accusation (or the fact that, indeed, there's plenty of evidence to the contrary) will not stop them, nor even slow them down. The statists must convince anyone you might influence that you are unworthy of their attention. They'll take their shots at you, without fail. So you have to know you really are NOT the bad things they'll accuse you of being. And that means you have to be clear about your own values.
Keep a journal... talk to your closest friends (especially your spouse)... read and view information that bolsters your values, and write and talk about your reactions to that material. Make a list of the top ten things you believe, or the five key principles that make you you. Find whatever method works for you, but find a way to restore your own confidence in your personal values. It's Job One.
You have lots of important projects to take on in the near future, as have the rest of us who need to make a contribution to the new "resistance." Those projects will place you under attack from the well-financed, well-practiced statists who will work hard to shoot you down. So start by creating your best, strongest immunity: a solid bedrock of personal values, and a clear understanding of your own beliefs and character. Make it your first project. If you do, you'll find in yourself a strong urge to ensure it isn't your last.

It's Raining Money! - Money Flowing Freely From World Central Banks

It's raining money... so rip off the roof and stay in bed, it's raining money! It is no wonder the stock market is rising. There is so much liquidity in the market place and with interest rates so low there is no place to go but "risk on" assets.
What this means in simple terms is that central banks are creating another bubble. Just as I first reported in this newsletter back on November 19, 2010,
Playing With Bubbles,
"As the Fed gives us the gift of yet another bubble, investors need to know how to capitalize on this short term phenomenon and how to prepare for the inevitable burst....The Fed has no interest in fixing the root cause, which is lack of demand, just a quick fix to get us past the next election."
Once again, rather than fix the problem so we can get on with a true recovery and adjust to slower growth from a rapidly aging population and a massively over-indebted population, they are making the same mistakes of the past: creating more money through debt just like they did in 1998 stock market bubble and 2003 real estate bubble. These are the very issues, along with what investors need to do, that are discussed in great depth in Facing Goliath: How to Triumph in the Dangerous Market Ahead. When will these kids learn that the answer to too much debt is not more debt!
Last week I reported that the amount of the growth in liquidity in global systems has become staggering, with the US. Federal Reserve's $2.9 trillion, the ECB's (European Central Bank) $3.6 trillion and the BOE's (Bank of England) $1.1 Trillion. This week, I have expanded the research to include the eight largest central bank balance sheets including Japan and other Eurozone members. When combined they total a whopping $15 trillion and rising. With the entire world's stock markets currently at a combined $48 trillion, central banks now equal one-third of world equity values.
Now, the good thing about bubbles is that it drives asset prices higher. Investors that know how to participate in the current bubble with the least risk possible and know when to get out, will do well. There are definitely good opportunities out there for nimble investors who know what they're doing, so be the expert or hire one.
Investor Strategy: Naturally we cannot just sit with money in the bank earning nothing, nor can we afford to stay dormant with an old fashioned buy-and-hold (buy-and-hope) approach. Both are destined for disaster. We must take what the market gives us, when it gives it to us....but without all the risk - Invest for need, not for greed. Investing your hard earned money in the sweet spot is critical. That means getting the very best returns with the least amount of risk possible, and having personal exit strategy.

Europe Has Pneumonia - China Catches A Cold

Stock and commodity markets were not happy at the start of this week when it became clear that Europe's long-anticipated recession is helping to slow the Chinese economy, global commerce's power plant in recent years.
The European Union and China are each other's largest trading partners, if you consider the 27-member EU to be a single entity. (Among individual nations, the United States, Japan and South Korea occupy China's top spots, with Chinese-ruled Hong Kong sitting between Japan and South Korea.) It is not surprising that a downturn in Europe would have significant effects back in China. In fact, what may be most encouraging about the situation is how mild those effects could be, at least if things ago according to the Communist-led government's latest plan.
After several years in which all of the world's major economies and markets seemed to move in violent lockstep, a healthy degree of diversity is creeping into the system. The natural checks and balances of a diversified world economy are trying to reassert themselves.
China is targeting growth of 7.5 percent this year, and plans for growth to average 7 percent annually over the next five years. The previous five-year plan called for annual growth of 8 percent. The country routinely beat the benchmark, notching a 14 percent gain as recently as 2007.
These would be eye-popping numbers in North America or Europe, but until recently, Chinese leaders believed they needed growth of at least 8 percent annually in order to absorb the approximately 10 million workers who joined the labor force each year. Now, China's labor growth has slowed thanks to decades of strict family planning and a rural-to-urban migration that has largely run its course. China is realizing both that it can learn to live with slower growth and that it probably has to, because top export markets in Europe and America are not likely to keep Chinese factories expanding at the accustomed rates.
Europe's economy contracted 0.3 percent in the last quarter of 2011, and the downturn seems likely to continue through at least the first quarter of 2012. This would put Europe in its second recession of the past three years. Fiscal tightening across the continent, combined with ongoing sovereign debt worries, continue to sap consumer demand and business confidence.
Yet the same bleak news that pounded the markets this week points toward stabilization ahead. Slower export demand from Europe and America is prompting the Chinese to stimulate domestic consumption. The Chinese also are allowing their currency to appreciate somewhat faster than in the past. Both of these steps will help keep China's trade in better balance. Increased demand within China would ultimately result in a greater appetite for Chinese purchases of machinery, food products and consumer goods from the slower-growing Western economies.
Another benefit of slower demand is a reduction in upward pressure on a broad spectrum of commodity prices, ranging from oil to copper. Lower prices for physical inputs allow companies to spend more money on capital projects or on an expanded labor force.
Finally, the improving prospects of the world's largest economy, namely ours, provide an additional driver to improve conditions elsewhere. American demand powered the world economy long before China took center stage. Though U.S. growth, at less than 3 percent, is not robust, it is helping to offset the slowdowns in Europe and China. The world should see similar contributions from midrange economies like South Korea and Russia (the latter benefiting from high oil prices) and from some emerging countries. Brazil is struggling with rising prices and wages and slowing Chinese demand for its commodities, but an improving U.S. economy is good news for Brazil as well.
There are plenty of short- and long-term risks to the global economy. A financial blowup in Greece or elsewhere in Europe, another nasty confrontation over American government finances, or a geopolitical crisis in the Middle East or the Pacific could derail business confidence in the U.S., causing us to backslide into the rest of the struggling pack. Longer term, the world is full of dangerous economic imbalances, which range from unfunded pensions and entitlements to aging populations and shrinking labor pools. We will deal with some of these issues for many years, or decades, together with other issues that are not yet even on our radar.
But it's nice to see the current relaxation of the financial contagions that have beset us for the past five years. Europe may have pneumonia, but China has only caught a cold, and we are feeling pretty fit. Things could be better, but we have seen worse.

State Power, Social Power, and Communities

The more I read, the more I realize the true secret to success in business and life is related to the strength of relationships within a person's community. The myth of rugged isolated individualism, although enduring, is, in truth, only a myth. Economic, educational, even political effectiveness are all improved when people work together. Please don't misunderstand me, I haven't turned to economic communism; however, I can understand better how so many have been drawn into this illogically evil doctrine. Specifically, most people, if given the choice between being alone or in community, will choose community, even if the association is Biblically wrong, thus communism's growth. In fact, a cursory look at organizations as diverse as communism, the mafia, and gangs will exhibit the enduring need for community.
Communities versus Individualism
If community is essential to human beings, then the question is: How do we incorporate community into a society without sacrificing life, liberty, and property? Since liberty cannot exist where the State dictates, the idea of community and freedom precludes State control. Therefore, free communities are a misnomer unless they are voluntary organizations. However, although the non-involvement of the State is essential, it isn't sufficient to create community. The other side of the equation is for people to learn how to work within a community setting. Consequently, the atomistic rugged individualism of American myth must be replaced by men and women who work within a Biblical framework of ordered liberty and love. In other words, the greedy, self-centered capitalist is not a true picture of a free-enterprise Biblical community. In fact, this caricature of American freedoms pinpoints what is plaguing America - the loss of community roots and liberty (Social Power), instead, replaced by today's (State Power) crony capitalism.
Murray Rothbard, the late dean of Austrian Economists, wrote in Conceived in Liberty:
With Albert Jay Nock, the twentieth-century American political philosopher, I see history as centrally a race and conflict between "social power" - the productive consequence of voluntary interactions among men - and state power. In those eras of history when liberty - social power - has managed to race ahead of state power and control, the country and even mankind have flourished. In those eras when state power has managed to catch up with or surpass social power, mankind suffers and declines.
State Power versus Social Power
In sum, wherever State Power flourishes, Social Power declines. Thankfully, however, the reverse is true as well. By standing on the shoulders of both Nock and Rothbard, we see that societies can be organized around two competing philosophical choices:
1. State Power: Top down external discipline and the subsequent loss of liberty endured.
2. Social Power: Bottom up internal discipline and the subsequent ordered liberty enjoyed.
The first option is the real-life history of America since around the Civil War, with State Power moving ahead and Social Power in subsequent decline. Since 1913, however, the battle has become a run-away drubbing with State Powers triumphing in the Federal Reserve Act, the Federal Income Tax amendment, and the democratic election of Senators. In truth, it's hard to fathom a worse mixture of federal legislation (for Social Power) in one year in one country than what occurred in America in that fatal year of 1913. In other words, 1913 wasn't just (to use Oliver DeMille's term) a freedom shift, it was a freedom rout. I look forward to DeMille's book 1913 which elaborates on these fateful events.
The second option is America's (and the West's) best hope for freedom. America needs a community restoration, starting, not from the top down (State Power), but rather, from the bottom up (Social Power), in order to revitalize America. Social Power is fueled by social capital - a sociological concept which refers to the value of social relations and the role of cooperation and confidence to get collective results in any endeavor - to paraphrase Robert Putnam, in is classic Bowling Alone. Putnam explains the key role of social capital, "A society characterized by generalized reciprocity is more efficient than a distrustful society, for the same reason that money is more efficient than barter. If we don't have to balance every exchange instantly, we can get a lot more accomplished. Trustworthiness lubricates life. Frequent interaction among a diverse set of people tends to produce a norm of generalized reciprocity." Furthermore, Putnam argues, "Does social capital have salutary effects on individuals, communities, or even entire nations? Yes, an impressive and growing body of research suggest that civic connections help make us healthy, wealthy, and wise. Living without social capital is not easy, whether one is a villager in southern Italy or a poor person in the American inner city or a well-heeled entrepreneur in a high-tech district." Social capital matters, in other words, both personally, professionally, and politically.
Social Capital: Turning Aspiration into Realities
Putnam goes on to list five specific areas where the trust and understanding inured by social capital helps translate aspirations into realities:
1. Social capital allows citizens to resolve collective problems more easily through improved teamwork.
2. Social capital greases the wheels that allow communities to advance smoothly through improved trust.
3. Social capital helps widen the awareness of fellow citizens that their fates are intertwined through improved understanding.
4. Social capital serves as conduits for the flow of helpful information and resources to accomplish community and individual goals.
5. Social capital improves individual lives through psychological and biological processes. In fact, numerous studies suggest lives that are rich in social capital cope with trauma and illnesses significantly more effectively.
America's Social Capital Decline
Even with social capital's overwhelming advantages, Putnam acknowledges its decline, writing, "Americans have had a growing sense at some visceral level of disintegrating social bonds." He explains further, "More than 80% of Americans said there should be more emphasis on community, even if it puts more demands on individuals." In sum, social capital isn't just the fuel for Social Power - a necessary check on State Power - but it also enhances individual lives through the sense of belonging engendered within communities. Strikingly then, the decline of social capital, not only attacks society's freedoms, but also attacks an individual's well-being. With so much to gain and so much to lose, why aren't more people focused on the restoration of communities throughout America and the West? That question will be the subject of further articles.

Houston Unemployment and a Booming Texas Economy

The unemployment rate in Houston is at 10 percent as of December 2011 according to the US Bureau of Labor Statistics, 2 percent higher than the national average. This is shocking, considering Texas is leading the nation in government job growth. About four years ago, government stimulus was supplied in hopes of restoring economies to get them growing again. The fact is, there has not actually been growth. Most states have either stayed the same or gotten worse when it comes to unemployment. Recently it has also just been announced that Texas has returned to the labor rate they were at before the recession started. Not many states can say that.
It's hard to tell where Houston stands when it comes to job growth. News headlines are reading both "Houston Unemployment Rate Inches Higher" as well as "Houston Unemployment Rate Continues to Drop" making it almost impossible to determine what is actually happening in Houston's economy, but it may be safe to assume that Houston will follow the trend of the rest of the state, which is continuing to improve. According to the Texas Work Force Commission, Texas saw their civilian labor force add 21,000 people.
Did you know that two out of three people filing for bankruptcy have lost their job? And that 91 percent of people filing for bankruptcy have suffered either a job loss, a medical illness or have undergone a divorce? This should typically mean that when unemployment drops, so will the number of people filing for bankruptcy. Things are looking up for the lone-star state, and with the way the economy has been growing among countless other states that are either stagnating or getting worse, Texans can be assured that their situation is not dire.
If you live in the Houston area and are one of the many people facing unemployment, be encouraged that the Texas economy is growing. If you are facing the realities of unemployment now and don't have time to wait for the economy to make a turnaround, then you have options you may not even be aware of. No one financial situation is like any other. You may be able to afford an alternative payment plan but you may not. Some debt cannot be taken care of completely by filing for bankruptcy, but many of those include debts that must be paid as a result of a crime, spousal/child support and student loans for example.

The Federal Reserve Should Discount the Amount of Money We Owe By the Trade Deficit Figures

One of the problems with borrowing money for deficit spending by our government is the reality that it is the citizens who are burdened with the cost of paying the money back with interest. The previous business cycles of our economy were much more predictable before our economy became so global. Today, the business cycle is out of whack, along with our deficit spending, borrowing, trade deficits, and money creation theory and allocation. We need to make some changes - we need to make them quick. Okay so, I'd like to talk to you about this for a moment if I might.
We need to make a deal with the Federal Reserve that we should be discounted the amount of money that we have borrowed and now owe, and be forgiven for any interest payments - the amount of money we are losing in trade deficit outflows. When that money comes back, and when the trade flows return the other way, then it can be owed, but we should not be paying interest or principal on money borrowed which is no longer running around in circulation in our economy.
In a perfect world those who have the money flowing in would have to adjust on their side. Pinning the interest and money creation to the flow is more apropos in the global economy. Although this is a working theory of mine in progress, I would submit to you that we are causing a terrible situation and will continue with runaway budget deficits if we keep playing the game as we are - worse it's not a zero sum game, and could easily turn out to be a lose-lose as China for instance recipient of those trade flows paints itself into an economic corner.
Likewise, with huge trade deficit issues we are inflating the rest of the world, and some of that money is coming back, but it is being used to buy up our infrastructure, our biggest corporations, and in essence our money that we paid for is being used to dissolve and erode our national strength. That is a dangerous thing, and it's not good for anyone, especially any American. Worse, we are giving our strength away to less-than-ethical folks in other nations who are corrupt, and are taking advantage of us - yes, I know, they are human, what do you expect. Understood, but we need to pay attention to the flows of currency, capital, and wealth.
We need a new formula, and whereas our money creation theory works fine in an encapsulated an enclosed economy with minimal oversight, it doesn't work so well when pitted against the rest of the world in a global free-flowing market with scoundrels and cheaters, those who refuse to play the Western win-win style trade deals which could actually open up the world for free and fair trade around this pale blue dot. It is quite evident that other nations are more corrupt than we, and are busy destroying their own economies, there is nothing we can do about that, but we can do something to fix our system using a better formula for our nation's economy and within our price system.
Please consider all this on an intellectual level, because it is not my intent to redesign the whole world, just to help everyone realize that what we are doing, currently isn't working, and since it isn't working, the American taxpayer, and their children and future generation should not be economically enslaved, because they had nothing to do with the poor management involved in the present period. Americans should be free, and not be economically enslaved. Please consider all this and think on it.

Make Way for the Mega Cargo Container Ships - What Does It Mean?

Last year, I listened to a rather enlightening speech by a professor at the University of Riverside in CA who explained the changes at the Los Angeles and Long Beach Ports and how that affected jobs, rail traffic, pollution, and how all this was effected by global trade with China. It's a big complicated and comprehensive set of challenges in logistics and economics. Not surprisingly, as free-markets economies always are, and throw in the global trade issues, and it becomes very obvious really quickly that everything affects everything else, and linear decision making won't work.
Perhaps, this is why I am so intrigued by it all and why our think tank often addresses the flows of our civilization. Now then, at stake are vast fortunes, billion dollar companies, and the flow of all we know. Okay so, let's talk.
In fact, there was a rather telling story in the Journal of Commerce on March 5, 2012 titled; "Mega-Ship Trend Comes with Consequences," by Peter T. Leach, Senior Editor. The article noted amongst other things that; "Analyst predicts container industry will shrink to seven to 10 carriers by mid-2020s," which sounds about right to me, as I too have been discussing the global trade slow down, mega-ship capacity, and the reality that there will be winners and losers in this game.
These shipping companies must go for volume, invest in mega-cargo ships, consolidate, or face the Tsunami of bankruptcy and forced consolidation. The article also had an interesting quote from Lars Jensen; "The container industry will shrink to seven to 10 carriers by the mid-2020s, it may be eight, it may be 10, but there will be fewer players," who is also expecting more orders for 10,000 plus container ships, and a revitalization of big news consolidations soon, and really accelerating by 2015.
Now then, I'd like to address some more predictions that I'd like to add to this in light of my on-going scrutiny and ever present radar scanning of this industry. I believe all these issues and the others I've made will also cause the following concerns as the industry evolves and the competition adapts:
Smaller Shippers May Not Be Able to Compete on Global Trade Routes
The economies of scale will no longer be there for companies running smaller vessels across the Atlantic or Pacific or across the top of the world. The profit margins will not be there for the new price points. These smaller vessels will be forced into smaller routes, island hopping, or special orders, still, most are too big for that, and too small to compete with the global mega-ships. Also trade is opening up and larger shipments, ports, and shipping points are upgrading simultaneously, nearly everywhere around the world. This is a good thing for humanity but not so great for the smaller companies with the smaller ships.
Massive Industry Consolidation and Big News Bankruptcies
Some of the smaller routes will still be needed, but without the larger routes and big money maximum capacity routes available due to ship size and cost per container, these companies will not be able to stand alone. Some of these ships will be parked, mothballed, or cut up for scrap. The rest will end up being upgraded and used for spur routes for the bigger global shippers with big bucks and volume pricing.
Challenges for Ports and Shipping Schedules
Ports will have to upgrade or they will get bypassed by rail as the mega ships off-load at ports that can take the additional traffic and volume. Meanwhile, ports which are minimally upgraded will experience traffic jams, and angry communities and neighbors until maximum efficiency is reached to handle the new mega-ship volumes coming in at a much higher frequency. Some smaller ports will die or fall off the proverbial economic cliff and then decay while larger ports will expand and evolve - competing for this new volume paradigm.
There is an interesting paper on this worth reading, a thesis from Martijn Streng from Eramus University in Rotterdam titled; "The consequences of megaships," published in May - July 2011, which I believe sets the record straight and tells of the future evolution of the industry. Indeed, with the opening of the new larger Panama Canal locks it also has big implications for rail companies in the US, Canada, Mexico, and South America. The global shipping routes are changing, and as the Northern route opens up and the ice clears, these changes will favor the mega ships, and the companies which own them even more.
Indeed, I hope you will please consider all this and think on it when discussing anything to do with transportation, global trade, pollution, diplomacy, politics, jobs, ship-building, corporate mergers, and micro and macro economics.

Do Bankers Deserve Considerable Bonuses in Today's Society?

In today's culture, the pay of bankers is unregulated and banks are able to reward their productive workers with bonus payments. Investment bankers can receive bonus payments that exceed their annual salaries. With many people currently suffering from the decision to bailout several banks when investments went wrong, we should be asking ourselves whether bankers deserve considerable bonuses whilst many are unemployed and whilst governments control a significant stake in several banks.
The case for bonus payments centres around the belief that these bankers have helped to produce considerable profits for their company and should therefore be rewarded. In addition, there is a theory that if bonus payments were removed, the top performers would leave for another bank that would reward them for their profit-seeking performances. However, considerable research has been undertaken by Boris Groysberg, a professor at Harvard Business School, who noticed that bankers that left one company for another experienced a drop in performance that lasted for at least five years. This leads to the question of whether star performers do so well because of their own ability or whether other factors have a significant part to play.
Many argue that investment bankers don't deserve substantial bonuses, especially when other professions such as engineers and doctors don't receive additional financial payments. However, the nature of investment banking is very different, where profits are volatile and alternatively people argue that bonuses provide the necessary motivation.
It is hard to argue that if you have had a hand in producing significant profits for a company that you don't deserve a reward. However, a significant problem occurs when you consider the opposite. When you contribute to a significant loss for a company, the opposite of a bonus does not occur. An investment banker will not reach into their bank account to correct a poor investment and the debt produced from this poor decision is saddled with the company. As we saw in the 2008 financial crisis, this can happen and when it does, governments and in effect taxpayers are left to bailout banks who have made poor investment choices.
Therefore it can be argued that investment bankers do not deserve considerable bonuses, as long as they are unwilling to reach into their own pockets to refill the bank's balance sheet when money is lost from a poor investment. This lack of accountability for poor investments does not justify bonus payments being rewarded for when times are good.
This is of greater importance when countries are suffering from a global recession caused by the poor decisions of several banks. While millions remain unemployed, it simply does not make sense for banks that have received bailout packages to continue with this type of financial remuneration.

Fiscal Responsibility and the US Election

This week we look at the Federal deficit, its causation and the fundamental shift in thinking that must take place here in the U.S. to avoid our own version of the fall of Rome. The United States currently owes more than $16,000,000,000,000. That's sixteen trillion dollars. That is our total debt owed. The government sells new bonds and Treasury Notes to collect enough revenue to cover the interest payments due on the bonds and Treasury Notes that have already been sold that are maturing. This also makes up the funding shortfall from tax collection. The creation of new debt to service old debt is a good idea in a falling interest rate environment. Think of it as refinancing your house at a lower rate. Alarmingly, we are still spending more than we make, which adds to the total debt and our not so distant nightmare.
Global interest rates are at unprecedented lows because other countries are refinancing their own debts using the same methods we are. This is exactly what is going on Europe as they try to save their economic Union. This is the, "easy money policy," that the news and politicians refer to. The whole point is to be the first one to fill the market place with super cheap loans before interest rates start to turn higher. This is printing money and currency devaluation. We are trying to repay the expensive money we owe from debts we've previously incurred with newly printed cheap money. It works in theory until interest rates begin to climb. Think of it as revolving credit card debt that keeps getting rolled over to new trial offers. Once the offers wear out, the holder is stuck with the balance at an incredibly high interest rate.
When this happens to John Doe, he calls a credit counselor who tries to negotiate a settlement with the lender. The alphabet soup of regulation, the ECB, IMF, EFSF and others are shifting the burden of Greece's debt from the country to the European taxpayers. According to The Telegraph, European taxpayers will own 85% of Greece's debt by 2015. This is why the fiscally responsible Germans are reluctant to help the spendthrift Mediterranean countries.
European taxpayers want Greece to pay both literally and figuratively. The European credit card counseling sessions include forcing the deepest budget cuts Greece can endure thus allowing them to make their credit card payments. This includes cutting medical care, pensions, education, highway and water systems, etc. This also causes riots in the streets.
The U.S. owes $16 trillion. Nearly $10 trillion (62.5%) of that debt has been sold to U.S. taxpayers. Banks, insurance companies, state and local governments, pension funds, mutual funds, savings bonds and the Federal Reserve depository system account for 8 out of the top 10 holders of U.S. debt. China and Japan round out the top ten at numbers 2 and 4 respectively.
The Congressional Budget Office (CBO) has been issuing warnings for more than a year that the debt path we are on is unsustainable, stating that our budget deficit, our annual shortfall, will surpass $7 trillion within the next 10 years. These deficits are compounded. We add this year's shortfall to the previous years' shortfalls to come up with our total deficit. Long story short, our country will continue to spend more than we make for at least the next decade. This is the path to a Grecian outcome.
The United States must get its financial house in order. We cannot afford to fund Medicaid, social security, unemployment, disability, education and defense when servicing our current debt load leaves $.10 of every dollar available for funding. Would you have a problem getting by if $.90 of each Dollar you earned went towards your debts?
There are solutions. Briefly, corporate taxes must be cut so that businesses are encouraged to remain in the U.S, rather than incorporating offshore. Small business regulations and employee expenses must be cut so that American entrepreneurs can get back to generating breakthroughs in innovation. Remember, Microsoft, Apple and Google were all small businesses once. Finally, the balance between the, "haves" and the, "have nots," must be addressed. I believe that those who make more spend more and should pay more. Benefit programs must be reduced. A consumption or, Value Added Tax (VAT) that places a greater portion of the burden on those who spend the most could equitably offset some of the social program cuts. It would slow domestic consumption and encourage domestic savings as well as proportionately distributing the tax burden by making those who spend more, pay more. We need to act, as we would have our representative government act. Save more, spend less and get our own budgets in balance before the global credit counselors impose their will on our earnings and our country

Markets Hinge on Greece, a Market Looking for Perspective

Greece Needs Money to Avoid Default, But Complications Arise
Europe's financial issues have all the ability to gravely affect U.S. propositions. We have witnessed in the past, starting just last December, a stable climb in equity values. This climb is certainly coincident with the European Central Bank's (ECB) release of billions in loans to European banks. Not only a form of quantitative easing, but in reality a thawing of frozen European bank liquidity.
Presently, equities are moving sideways or otherwise stalled-as if they hold suspense in whether an economic shoe will drop. Certainly such is the case. For Greece; its debt, the exposure of this debt to world banks, and credit default swap parties, all swing in the balance, only for all to wonder of net losses.
Firstly we have Greece's need to reduce its debt. Aside from simply cutting its fiscal budget, the call is for Greece to reduce its sovereign bond payments. To make the reduction, private bond holders have been identified as targets. Where the taxpayer supported ECB has negotiated an exemption from loss, private bond holders will take a loss. Private bond holders are primarily composed of European banks, tied to international money like Lehman.
Cuts to bonds are 53.3% of face value, as negotiated by the International Institute of Finance, lead negotiator for the private sector. A 53.3% reduction in outstanding bond payments (or redemptions) comes from an effort of Greece to cut its fiscal budget, on the debt side, by 170B euros. Cuts to bond payments are demanded by the Eurozone for Greece to receive its second round of bailout money. Greece needs a second bailout, of real cash, by March 20... to make a 14.5B euro bond payment.
Who Wants to Take Half Off Their Investment
Cutting Greek bonds by 170B euro seems fairly expected and anticipated. Greece's fiscal budgetary cuts, however, are still very slippery and hard to hold. Currently, the goal is to see if the 53.3% cut in bond asset value will be accepted by private bond holders. The agreement due date for private bond investors is March 8.
Greece is hedging its own participation in the bond reductions by saying that if 90% of bond holders don't agree to the cuts, it's not obligated to continue with the plan. Big questions remain in the event bond holder participation is in the 75% to under 90% range. Should such a range develop, Greece says it will consult with the public sector.
Naturally, the glitch is that private bond holders aren't really excited to lose 53.3% off the top of their investment. Add to it the lost interest over the period of the bonds, and some say 70%. For large investors, these issues are why credit default swaps (CDS) are purchased.
A CDS is simply insurance purchased against loss on an investment. Should a bond issuer default (Greece), the CDS pays a negotiated percentage of the purchase value of the asset. CDS platforms get the asset and you as purchaser get the negotiated payment.
A key event that leads to CDS payment is default. Defaults are called credit events. A credit event can occur when one creditor is given payment priority over another creditor....subordination. Another credit event can occur when a majority of creditors take a reduction in payment or terms of payment, involuntarily.
Credit Default Swaps Could Cover the Losses
Looking to lose money, obviously anyone bondholder will get curious about their insurance policy. Curiosity is addressed to the International Swaps and Derivatives Association, which monitors CDS's. Because CDS's are essentially insurance policies, CDS questions are analyzed according to contract law. This means that if certain terms are not addressed in the CDS agreement, they will be addressed by Agency interpretation, rules, statute, or court rulings. In the end, there are no statutes, rules or court decisions. Which leaves agency interpretation as the law.
Euro bond holders asked two questions of the ISDA about their CDS insurance:
1) If creditors (bond holders) take a reduction in obligated payments on a bond versus the ECB not taking a reduction, is that a subordination? That is, where private investors take a cut in principle, but the ECB's principle is the same, is that a subordination.
2) If creditors submit to a bond cut of 53.3%, in numbers sufficient to bind all creditors, (2/3 of bond holders of record based on the Collective Action Clause), does that result in a credit Event (default)?
Maybe Credit Default Swaps Work, Maybe Not
The ISDA answered both questions saying no credit event is implicated at this time. For the ECB question, ISDA officials said documents addressing the 53.3% bond reduction mentioned no subordination. Though in reality it's a subordination of creditors to other creditors, it's not according to the ISDA.
Binding all bondholders through the Collective Action Clause is another issue. The Collective Action Clause is a product of legislation recently passed by Greece having retroactive effect. It requires that once 2/3 of bond holders agree to a measure, such measure can be treated as a collective act, and imposed upon all bond holders. It's akin to collective bargaining, and its associated laws.
Should the Collective Action Clause be enforced by Greece, the bond reductions will not be voluntary at that point. By implication of the ISDA's decision, such enforcement of the clause by Greece will be a credit event triggering CDS payments.
Bottom line: 1) Greece needs a second bailout of 130B euros to make a March 20 payment on bond redemptions of 14.5B euros. 2) Greece needs to cut 170B euros of debt and the Eurozone expects it to come from private bond holders. 3) The International Institute of Finance negotiated at 53.3% reduction on behalf of private bond holders. 4) March 8 is the due date to see if private bond holders will take the voluntary reduction. 5) Should 90% of private bond holders not accept the reduction, Greece will have to make a move against public entities holding their bonds. 6) Should the Collective Action Clause be invoked, or Greece not meet the demand of cutting 170B euros, a credit event is likely and will trigger CDS payments.

Construction Decline Hits Affordable Housing

The slump in the housing market has had far-reaching effects. Home prices have fallen significantly on existing homes, especially because there are so many foreclosures on the market. It has also affected new construction, including affordable housing projects.
Because there are so many existing homes on the market, the demand for new housing just isn't there. The need exists, especially for low- and moderate-income families, but developers are having a hard time finding financing. Investors struggle to see the benefit of new home construction of any kind when there are so many homes already on the market. In addition, many new construction projects are sitting idle, having lost their financing.
A story out of Massachusetts shows just how dramatic the effect has been. New construction permits in the state fell to 7,260 in 2011, compared to over 9,000 in 2010. That's a 20 percent decline in just one year. Unfortunately, the drop in production is mostly driven by the drop in single-family home prices. Markets across the United States are nearly saturated, creating the strongest buyers' market in decades.
The decline in new construction has a wide-reaching economic impact. Lack of construction jobs adds to unemployment figures. In addition, the lost wages translate into lost tax revenue for cities and the state. It also means less money is being spent in the local economy, potentially causing job losses in non-construction-related industries.
Though the foreclosure crisis has caused a sharp decline in housing sale prices, it has had the opposite effect on rental prices. Because more families have been forced out of their homes, rental units are in high demand. Consequently, rental prices have been increasing and the number of available units has been falling. The need for affordable housing has risen dramatically in the last few years, especially rental housing.
Restrictions placed on existing affordable housing prevent owners of those using from raising rent to reflect market rates. However, because more people need low-income housing, available units are being filled quickly. All across the country, cities and states have closed Section 8 and other affordable housing waiting lists to new applicants because the existing lists will take years to cycle through.
The combined slump in multi-family housing production and increase in rental prices points to a market need that affordable housing developers are uniquely able to meet. Their experience successfully completing low-income housing developments, combined with their knowledge of the housing market enables them to present solutions that are both creative and financially viable.

Good Times For The Brazilian Economy

China is not the only country receiving so much attention among the world's emerging markets. While this country may have a larger profile as the world's second largest economy, Brazil is likewise making waves in the news headlines.
It is among the fastest growing markets today, bucking global trends and remaining resilient in the face of a global financial crisis.
While the developed world is in the midst of uncertain times, Brazil's banking system and its economy in general are receiving accolades for its robustness. One such accolade was given by the Financial Stability Forum last 2009 in Basel.
The Eurozone crisis and the slowdown in the US may temper the growth of this BRIC economy, but its fundamentals remain in-tact and poised for continued growth. To illustrate this, the International Monetary Fund (IMF) has predicted a year-on-year gross domestic product (GDP) growth of 3.6 percent for 2012. In contrast, the financing institution predicted growth rates of 1.8 percent for the US, 1.7 percent for Japan, 0.6 percent for the UK, and even a contraction of 0.5 percent in the Eurozone.
Brazil is rich in resources as it, along with the rest of South America, is considered to be the world's breadbasket. The presence of what is believed to be about 50 billion barrels of pre-salt offshore reserves near the southern coast of Brazil may also set the country up to be a major exporter of oil and gas. Potential oil discoveries are also currently being investigated in the northeastern side of the country.
Economic Development And Growth
More specific signs of economic development are also present.
Tourism in Brazil continues to be a significant source of income for the South American country, which enjoys enticing beaches and 290 days of sunshine all throughout the year. Brazil also has a large number of UNESCO World Heritage Sites, beaten only by five other countries in the list of 130 territories evaluated by the UN World Tourism Organization.
Likewise, major sporting events like the 2014 FIFA World Cup and the 2016 Rio de Janeiro Olympics have ushered in billions of dollars in infrastructure investments that would help the country's economy become larger in the long run through tourist inflow and job creation.
Brazil has also made extra efforts to liberalize its property markets and allow foreign entities to get access to them. Laws have been significantly relaxed in order to accommodate landlords and the real estate industry and they've simplified their labyrinthine sets of laws that was only stalling further growth.
As a result, analysts are now seeing an unprecedented rise in property prices, which has then positively affected the construction and mortgage sectors. Exame Magazine reports that apartment prices across the nation have risen by 24.7% in April 2011 as compared to the same month a year before.
Even then, Brazilians are still relatively debt-free. Secured lending in Brazil is only equivalent to about 5% of its GDP. Meanwhile, the US has 68%; Mexico, 11%; and Spain, 45%.