WealthCycles

Bankia Investors Learn Hard Lesson About Trusting Authority

Michael Maloney and the WealthCycles Team — Sat, 15 Jun 2013 02:43:59 +0000

On Tuesday, May 28, individual retail investors could sell shares of Bankia, Spain’s fourth largest bank, for the first time. This was small consolation, as the bank—in collusion with the Spanish government—had already erased four-fifths of investor value. Unfortunately, the investors were retirees and middle class families, tricked into sinking their savings in the bank’s bottomless pit.

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Bankia Commercial Investors Sold Tricky Debt-Crippled Shares, Forced to Take Loss to Fund Bank Bailout.

Price Divorced From Value in Modern Economy

Michael Maloney and the WealthCycles Team — Thu, 13 Jun 2013 01:03:37 +0000

Prices display the intersection between the two sides to every trade.

Often we value whether we should make a purchase, trade or sell something based on prices, but, as our readers know, there is a vast difference between price and value.

For more on the difference between price and value, see: The Hidden Secrets of Money – Episode 1 – The Difference Between Currency and Money

There is a problem, however, with how price is determined in our modern economy: prices are being manipulated and fixed, and that interference with price is distorting profit and loss calculations of businesses and entrepreneurs, globally.

United States of Europe Transfers Northern Cash South

Michael Maloney and the WealthCycles Team — Wed, 12 Jun 2013 23:22:48 +0000

In theory, the European Union is grounded on a system of wealth transfer--the money of the better-off north in exchange for the human and resource capital of the poor south. The treaties and institutions of the EU were designed to bring poorer member states up to the same level as the wealthier members, resulting in greater prosperity for all. The banking crisis, however, has proved the old adage that he who pays the piper calls the tune. In the European case, the north pays and the south plays.

The European Union—often but not always in conjunction with the International Monetary Fund (IMF) and the European Central Bank (ECB)—has assembled loans for member states facing crisis. Despite the fact that any default would have catastrophic effects on the euro, the packages resemble dictates more than cooperative measures. In every case, Brussels, the seat of EU governance, has requested austerity measures, but total spending only continues to rise.

Freedom in the 50 States

Michael Maloney and the WealthCycles Team — Wed, 12 Jun 2013 22:46:55 +0000

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It's the states with low taxes that take the lead, while the states with high taxes and excessive debt are portrayed as being weighed down by these burdens. The message: high taxes and excessive debt do not equal freedom.

Each state in these United States has its own particular laws and regulations that impact the freedoms of its residents. In the third edition of Freedom in the 50 States, the researchers at the Mercatus Center at George Mason University have studied factors relating to fiscal policy, regulatory issues and personal freedom in order to determine which of the 50 states offer the highest degree of individual and economic freedom.

The Mercatus Center is a research-oriented non-profit organization housed on the Arlington campus of George Mason University. The center’s purpose is to conduct university-style research into “market-oriented” ideas in order to better understand the connection between theoretical or academic ideas and how these ideas play out in the real world.

The Mercatus Center was established in 1980 with funding from the politically conservative Koch Family Foundation, which has contributed more than 30 million dollars to George Mason University and the Mercatus Center.

Mom-Pop Investors No Match for HFTs

Michael Maloney and the WealthCycles Team — Fri, 07 Jun 2013 22:04:51 +0000

In the movie Superman III, Richard Pryor’s character launches a get-rich quick scheme by stealing the fractions of a cent left over in electronic transactions. Characters in the movie Office Space picked up the theme and made thousands. This financial chicanery, however, is no longer fictional. A trading practice known as High Frequency Trading (HFT) exploits minute changes in stock prices—most less than a penny—to garner huge profits from unfair advantages.

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High Frequency Trading Has Grown to Account for 73% of All Trades, Leaving Commercial Investors with No Chance to Compete.

2013 to Be Bad, "God Knows What Will Happen in 2014"

Michael Maloney and the WealthCycles Team — Thu, 06 Jun 2013 01:41:07 +0000

Many people are concerned with the recent extreme divergences between their experience and what the media is reporting—a fifth, supposed, “summer of recovery,” versus the reality of declining real incomes and the looming specter of rising consumer prices.

We think the best way to get a grip on reality is to take a step back, and turn to those who clearly and consistently explain the fundamental drivers of economic cycles—people with a track record of understanding and warning those who will listen BEFORE catastrophe strikes.

Seth Klarman, founder of the Baupost Group and author of Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor (which since has become a value-investing classic), mirrors the sentiment of Americans and Europeans today:

DeGaulle Money Man Might Have Changed History With Gold-Backed Currency

Michael Maloney and the WealthCycles Team — Thu, 06 Jun 2013 01:00:23 +0000

Enshrined in the Bretton Woods monetary system, the U.S. dollar reigned for three decades as the premier world currency, pegged to gold at a fixed rate of $35 per ounce. Any government could redeem its dollars for gold from the U.S. Treasury on demand. Even though Bretton Woods died in 1971 with U.S. President Richard Nixon’s act to sever the redeemability of the dollar, the U.S. currency continued to be the world’s standard for trade and bank reserves, positioning the U.S. to become the richest nation in the world.

The U.S. dollar did not rise to prominence without opposition, however. French leaders, striving for an independent course of action during the dichotomies of the Cold War, recognized the instabilities of U.S. monetary policy. Key to these strong-France policies was Jacques Rueff, chief economic advisor to Charles de Gaulle.

The career of Jacques Rueff, a conservative economist influenced by the Austrian school of economics, was closely tied to the French franc. In 1926, Raymond Poincaré, newly elected president, appointed Rueff to revalue and stabilize the franc, which had experienced heavy inflation after WWI.

Unelected ‘Monarchs’ Determine Economic Winners, Losers

Michael Maloney and the WealthCycles Team — Wed, 05 Jun 2013 23:20:44 +0000

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History is not reassuring: In recent years the central banks have been wrong with their forecasting as often as they have been right. And when they call it wrong there is very little we the people can do about it.

Exactly who are the Monarchs of Money? Can you name any of them? Prior to the financial crisis of 2008, these monarchs were mostly unexciting, unknown—at least to Main Street—men in grey suits. Times have changed, however, and today you likely can at least claim knowledge of Ben Bernanke (Federal Reserve Chairman) and maybe even Mario Draghi (President of the European Central Bank).

In today’s video clip, reporter Neil McDonald of the CBC, or Canadian Broadcasting Company, seeks to uncover the who, what, where and why of these “Monarchs of Money.”

These guys are really more powerful than the people in government: more than a president, more than a prime minister.

For some, the political independence of these monarchs is a good thing. Their independence means that they are free to act, free of political pressure, free to do what they deem to be best for the economy. And, by some accounts, it is these central bankers—the Monarchs of Money—that executed the strategies that saved the world from catastrophe during the 2008 crisis.

Wikileaks Cables Offer Historic Evidence of Institutional Gold Market

Michael Maloney and the WealthCycles Team — Tue, 04 Jun 2013 00:15:04 +0000

As we have noted many times in the past, the early 1970s marked a great dividing line for world gold markets and the gold standard. The Wikileaks cache of diplomatic correspondence from the period allows us to witness the extensive involvement of governments, international organizations and central banks in the gold market—involvement that continues to this day.

Viewed through the Wikileaks time capsule, although they shudder at the thought of mere individuals using gold, these large institutions use the precious metal for transactions continually, as a matter of course.

On August 15, 1971, Richard Nixon unilaterally took the United States off the gold standard, ending convertibility of the U.S. dollar into gold. His action sent the international markets scrambling to establish new grounds for a global monetary system. Key to the discussions was the role of gold. In November 1973, the United Kingdom signaled its desire to keep gold out of central bank settlements:

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Wikileaks Cables Offer Historic Evidence of Institutional Gold Market

Dearth of Good Money Assets Signal End Is Near

Michael Maloney and the WealthCycles Team — Thu, 30 May 2013 02:46:29 +0000

The European Commission, a group self-tasked with herding cats, has proclaimed the end of “austerity” in the Eurozone for governments, granted citizens will surely continue to feel quite austere. But what does this mean for Europeans and their economy moving forward?

Before we dive into it, we would add that absolutely no austerity was obtained in any EZ national budget, except perhaps where it was forced by plummeting tax receipts as a result of all-out economic collapse (Greece). See: What Austerity Measures?

Here were the Commission’s proclamations on deficits:

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Dearth of Good Money Assets Signal End Is Near