I am working on a short story for a few friends and family that have the means to survuve the future correctly with a collapsing dollar and a completely new world of super fast T-3 connected computers and derivatives hedging games has taken over everything.

I guess some of this aligns with Arnold Schwarzennager in the movie "Terminator".

Below I will start the work at continually change it. It will continue to change and should not be viewed otherwise.
I would appreciate any work that anyone thinks might be helpful to others. I need to explain things in a layman type perspective.

The below compilation will continually change until completion. All other posted ideas will go together to create a story that others might like to send to friends and family as well.
I am doing this specifically because I know some people of means who have good hearts and are philantropists. I need them to understand todays new world 100%. They are smart but are missing alot of things that it is imperitave for me to drive in correctly.
I am doing this because I accept that if I want to make a difference in the world in any way, I need to befriend and put my faith in the people around me who have the ability to make real changes beyond what I could ever do myself.

I need to do this for myself to release the anger inside of me. I don't want the rocks anymore and want to change my life no matter what the humility or pride I have to sacrifice in the process. I simply and really ready to change my life and start doing things instead of talking about them.
I could easy be in the "In" crowd in most situations. I could hang out with whoever I wanted to beyond regular categories. I have no interest in any superficial life anymore so I am sacrificing all of it. I never have had all that much interest in success for myself.
Nobody remembers who has the most in life, they just remember who gave the most. The greedy part of me would like to actually be remembered and I have lost alot of time. I know if I change my life now that I could have the greatest gifts of life OR I could continuw down my current path and my health will ensure that my days are numbered.
I have set a date for a complete collapse and reentry into a real life. I need all my ducks lined up in a row before I do so. I have OCD and other issues that make me excel beyond most in some areas but fail miserably in others. I am taken on a problem that is much more common than most think.
Most people are too embarassed to make the changes in their lives necessary to become who they dream of becoming. It is worth it to me to sacrfice the "In" crowds in my life forever to achieve this. Life is to short I have been wasting it badly. I hope someone out there can learn a small something from this. I am far from perfect.


Here is Part #1
Just started off earlier in an email then decided I needed to exapnd on it and ask help. I take 0 credit and will give 100% credit to anyone who contibutes.
It doesn't amount to much but I think whatever small scraps I can turn this into will help. No clue if it is done in a few days as I am great at starting things but never finishing them.

I thought the first clip below was so good that I wanted to share it and expand upon it correctly with facts.

Here is why government numbers are fake. Apply this to anything market related.

Dear Sir,

It is well established that the US is living high "off the kindness of strangers". Is it? How did you establish that?
Could it not be one of those urban legends? I think we owe your readers go beyond the "it is well established" and look at the real numbers...

And lo and behold, the numbers present the exact opposite conclusion! Indeed, every quarter, the Fed publishes two numbers. the first is "interets payments received from the rest of the world". the second is "interest payments to the rest of the world" (if you want, I can send you the chart). Since the early 1980s, interest payments received have been steadily higher, in varying degrees, "than the payments to"...

So clearly there, you have a contradiction: the "biggest debtor nation in the world" earning more on its interest than it pays out? How does that work?

Another question for you: why, if the US is the biggest debtor nation in the world, does it have the biggest savings industry in the world? Where do Fidelity, Putnam, Vanguard etc... get there money from? How come, if the US is not saving, do US institutional investors make around 40% of the daily volume on indices such as the French CAC 40 or the Hong kong HSI? Where do the US institutions get their money?

Could it be that the savings rate does not capture US savings, which today are going a lot into houses or owner-owned business, and as such not reported in the savings rate?

Let us imagine a society called “USA-1980” in which most employees work for a

big, often industrial, company (Ford, or IBM, Dupont or Chemical Bank). Measuring

the savings of all these employees is easy enough: one counts the contribution

to pension plans, purchases of savings products…

Let us now imagine another society called “USA-2006” in which the big, industrial

companies still exist, but they hardly employ the majority of employees. Instead,

an increasing number of people work for “sole proprietorship” companies,

or for small companies. This is not hypothetical: the number of S-corps filings

more than doubled over the 1980s, and by 1995 S-corps made approximately half

of all corporate filings. In 2003 there were 3,444,400 S-corps that filed a tax return

with the IRS. This number is up 4.8% from 2002 and up 354% from 1985.

Now why would the differences in the nature of the employer matter? Speaking

from personal experience, it makes a world of difference.

For a start, when one works for a big company, one is liable to be fired at any

time, so one needs to “save for a rainy day”. When one works for one’s self, one

is less likely to be fired… though times, of course, can be lean.

Which brings us to the second very important point: when one works for one’s

self, the natural reaction is to plow back all of one’s excess income into one’s

business. In essence, the savings is done through the business; and these

savings are simply not captured by national accounts.

This last point brings us to a fascinating paper written by the Minneapolis Fed

(http://minneapolisfed.org/research/WP/WP636.pdf), and sent to us by another

sharp client, entitled Expensed and Sweat Equity. In the paper, the authors

(McGrattan and Prescott) explain that GDP, as it is calculated today, is

massively distorted by the fact that “Expensed investments are expenditures financed by

the owners of capital that increase future profits but, by national accounting rules, are treated as

an operating expense rather than as a capital expenditure. Sweat investment is financed by

worker-owners who allocate time to their business and receive compensation at less than their

market rate. Such investments are made with the expectation of realizing capital gains when the

business goes public or is sold. But these investments are not included in GDP.

Taking into account hours spent building equity while ignoring the output introduces an error in

measured productivity and distorts the picture of what is happening in the economy… We find

that expensed plus sweat investment was large during the recent boom... and critical for

understanding the dramatic rise in hours and the modest growth in measured productivity.”

This notion of sweat equity is of course very appealing to anyone who has gone

through the initial tough years of building a business. And it makes perfect sense.

Take our own business as an example: GaveKal today, a HK registered company,

is worth, on paper, HK$10,000… But neither Charles, Anatole nor Louis would

be too keen to sell any of their shares at that price. Why, because we have so

much “sweat-equity” invested in the business.

And of course, the same goes for any small business owner. And for most small

business owners, valuing the “sweat equity” is a challenging task. Moreover, the

“sweat equity” represents most small business owners’ net worths… In other

words, their savings; though these savings appear nowhere in national accounts.

So could the fall in the savings rate in the US over the past twenty years simply

be a reflection of the fact that a very large number of Americans have moved

from being employees, to being entrepreneurs? And if so, why should we bemoan

that trend?



In his book Running Money, Andy Kessler likes to say (referring to the US current

account deficit), “we think, they sweat”. That is not far off the argument we ourselves

have made before in What Investors Should Know About the US Current Account

Deficit or Accountants vs Economists. But having said that, and according to the researchers

at the Minneapolis Fed, Americans think, and then they sweat! Quoting

from their paper: “Our estimate of intangible (expensed plus sweat) investment in the business

sector is a little over 3% of GDP during the 1990s, rising to over 8% of GDP at the

peak of the boom in 2000”.

Now these are huge numbers: that’s US$300bn to US$800bn! Especially

when put in comparison with the annual US$7tr in wages and salaries. Adding

the “sweat equity” to the savings rate would thus boost the savings rate by 4.2%

to 11.4%... i.e.: no more negative savings rate.

And frankly, this makes perfect sense to us. For everywhere we care to look, we

see sweat equity at work. Think about Vietnamese immigrants who open a dry

cleaner in which the whole family works. Think about computer engineering students

that get together to form the next Google. Think about a bunch of young

musicians who work together for years to get a contract. Think about a hedge

fund. Think about a guy who likes to restore classic cars…

And then, of course, there is the elephant in the room: the young couple which

buys a fixer-upper and pours all of its savings into its home (again, speaking from

experience…).

According to the 2000 census, there were 116m housing units in the US. Assuming

a 10% growth since then (we have had an important construction boom and

an increase in population), we would guess that there must be around 125m-

130m homes in the US today. And that is a lot of places for people to deploy

“sweat equity”.

One of the ways one knows that Americans have been pouring sweat equity into

their residences is by looking at the growth of Home Depot or Loews. Today, it

feels as if one can not drive through a 20,000 person town in America without

seeing at least one, if not several, home improvement store. Clearly, there is a

market for the lumber, tiles, lighting fixtures etc… that they sell.

Now let us return to the young couple that buys a fixer-upper. The purchases

made at Home Depot are accounted as an expense (and not depreciated over

time but completely front-loaded instead). The time they spend improving their

home appears nowhere in national statistics. Until, of course, they end up selling

the house at which time they will register a capital gain. But that capital gain is

not included in our couple’s savings rate. And, if they have a capital gain tax to

settle (maybe it is a second home…), the tax payment will be deducted from the

revenue they get from work and they will thus show a negative savings rate.

This example on housing also brings us to a side-point: for 95% of Americans,

the purchase of a house is by far the biggest purchase they will ever make and

constitutes around 80% of their lifetime savings. This means that a savings rate

that does not include what happens in housing completely misses the boat. It

ends up being massively skewed towards the higher income segment of the population.

In essence, the savings rate is as skewed as the tax burden, whereas 20% of

the people pay 80% of the tax, we would guess that 20% of the people in the US

probably account for 80% of the so-called savings rate. And these 20% of people

are ever more mindful of finding places for their savings away from the government’s

eyes!



Given the expansion in the balance sheet in the American household, and the

rude health of the US savings industry (Alliance Capital, Vanguard, Fidelity…

don’t seem to be complaining of a “dearth of savings”), it stands to reason that

capital from somewhere is pouring in. We do not expect companies to grow retained

earnings or book value without earning any money. So we probably should

not expect it of the US consumer either.

Now most perma-bears would answer that the US consumer has grown his balance

sheet through leverage, financed by foreigners. This, of course, is true. But it

is not a complete explanation. There has to be some other forms of “unreported

savings” that flow into the balance sheet expansion. Indeed, US household net

worth will grow between US$3-4 trillion this year, on the back of less than US$1

in foreign capital. This doesn’t seem to add up. There must be more domestic

capital being employed than the reported statistics would have us believe.

Housing has been the asset that has really carried the balance sheet expansion of

the last few years. But if people “invested” increasing sweat equity in their business

while stock prices rose in the 1990s, are they “investing” increasing sweat

equity in their homes today? Maybe, just maybe, US asset values, in aggregate, rise

year in an year out (though different assets) on a more balanced path? Maybe, just maybe, the market is not stupid and it

isn’t just explosive debt growth, as most perma-bears argue (see Debate Between

Louis and Marc Faber), but a healthy level of savings mated with appropriate levels

of debt that cause asset values to consistently rise?


On the US current account deficit, Could it be that the deficit is a useless measure, since it measures trade flows in terms of sales, and not profits. Could it be that the US current account deficit is unable to capture what the US truly exports, and where its value added is, namely services such as education (HArvard University is surely a big US exporter), financial advice (how can one account for all the foreign money managed in US hedge funds?), technology (when i download an Adobe program using my credit, how is this accounted for?), but can easily count US imports (cars, Tvs, ipods-whose profitability is nevertheless usually registered in the US!).
You are lucky not to be an economist. As such, you should not be a slave to economic numbers that were devised in the 1950s to measure an economy principally based on industry, and somewhat on agriculture. instead, you can think about how our economy, which is based on services, should really be measured, and appreciated.

What I find amusing amongst the bears is a natural tendency to claim that: a) the inflation rate in the US economy does not correspond to reality and
cool.gif the US savings rate and US current account deficit should be treated with as much reverence as The Gospel.
I admire their ability to pick and choose between the economic data to say which one is valid, and which is not. Or are they picking the data that conforts their prejudices, and discarding the data that does not work for them?
Is it not more sound to assume that a lot of the numbers we use are simply not relevant to an economy which has changed so much in thirty years. If I told you that wheat production was down -10% this year, would you care? Probably not... though 100 years ago that would have been a big deal for the US economy (and it still is for the Chinese or Indian economy since around 50% of the workforce is still in agriculture).
Not being an economist, you don't have to be slave to "how we should look at the numbers". Instead, you can look at your economy with a pair of fresh and unbiased eyes, and try to see what makes sense today from what does not.

And what we are seeing today is a revolution in how companies produce (increasingly outsourcing everything), how companies finance themselves (no longer dependent on highly cyclical bank lending), and even how consumers behave.
One of the many ways our World has changed for the better, is
that for the first time in History, and thanks to the deregulation of financial markets
and technology, individuals can manage efficiently not only their assets,
but also their liabilities. This is a truly revolutionary development.
Thirty years ago, companies started to gain the ability to manage not only the asset side of their balance sheet but their liability as well ; fixed rate debt or bank loans as the only financing options started to be replaced by variable rates, swaps,
bullet loans, zero coupon bonds, etc… And the providers of capital also gained an ability to manage their own liabilities; today, loans are quickly “packaged” and
“sold on” to excess cash-flow players (pension funds, insurance companies…).
This reduction of risk, or more precisely, the transport of risk unto the balance sheets of participants able to support it, has reduced dramatically the volatility of
our economies and of our financial markets, while allowing them to operate all the time at a much higher aggregate level of risk than before, thus generating more economic growth. To put it bluntly, the probability of a good old fashioned banking crisis at the bottom of a cycle, leading to a deflation- depression, à la Japan 1995 or à la US 1934 has been considerably reduced. Putting it together,
it is hard to deny that we have witnessed a financial revolution, and that this financial
revolution has by and large been an important catalyst in the recent period
of high and stable growth.
The exciting thing is that the emergence of continuously more efficient information
systems have now allowed these techniques to be adapted in the US for the benefit of individuals! Today, any individual in the US with some assets can use them to borrow from a bank, and choose in a menu the liability that he will put in front of this asset, or in front of all his assets. Our individual can optimize his
balance sheet today in a way that would have been impossible for a multinational one generation ago!
For example, a decision to borrow on an “interest rates only basis” (one of the big concerns of the perma-bears) can be supremely rational if our individual knows that he will be staying in town for only five years (a frequent event in the US where, unlike Europe or Asia, people move around for better employment opportunities). Indeed, our individual can deduct the interest payments from his
taxes, which makes the payments lower than he would have to pay if he were
renting... Our individual simply takes a punt on the resale value of his house five years down the road.
Today, local banks in the US will fight to give our individual a loan, guaranteed or not by the house, or by his 401K, or against whatever other assets he may have.
Our individual may extract equity from these other assets, to consume a little bit, of course. He may also buy other assets on leverage, with the hope that the value
of the assets will go up over time more than the after tax cost of money; in essence,
doing what every company has been doing for years. This increase flexibility
is, we believe, one of the main reason why the US economy has remained and
will remain far more resilient that our perma-bears friends believe possible.
The funny thing is that, today, most financial people consider this management
of liabilities by individuals with horror. In essence, they are asking: “How can we
let individual people decide what is good for them?”. Our answer: “would you
rather let the State do it?”
The financial revolution has probably now run its course in the US. So the important
question ahead is whether it will be allowed to take off in other countries,
especially asset rich countries who have been mis-managing their liabilities for
years (Japan? Italy? Germany? Taiwan?...). We hope so. We live in very exciting times.

Yours truly,

Louis Gave



and another cool piece from someone I know and talk to daily.
statistics superfreak

Part 2

Barrons this week devotes their entire cover story to GaveKal (the Gave father/son analcysts) and their thesis of the U.S. "platform economy".

The Gave's believe that U.S. multinats are poised on the precipice of massive profiteering (even more than now) as they apply advanced R&D, technology and superior financial engineering while outsourcing all the dirty stuff (i.e., production and manufact.) to developing nations.

The headline: "Sizzle Inc"

The subhead: "The 'platform economy'---a business model focused on knowledge while outsourcing production---heralds an age of unprecedented U.S. prosperity."

The article is basically an Xmas present for bulls everywhere, courtesy of your good friends at Barrons and GaveKal. Much of the article was lifted whole cloth from the GaveKal boyz book, "Our Brave New World."

Some snips:

"No impending housing bust."

"U.S. consumers have never been more flush on a net-worth basis, with stock gains more than offsetting the flattening of homeowner equity."

"The global economy is on the cusp of a decades-long deflationary boom that will lift America and much of the emerging world to unprecedented prosperity."

"The massive reordering of the global economy engendered by the platform model is an unalloyed good. China and other developing nations are the world's workshop. In return, these countries willingly import much of the risk and cyclicality from platform economies like the U.S. In effect, China is trading job growth for profits flowing to the U.S. and elsewhere. And this trend is in its early stages."

"No impending collapse for the U.S. dollar. In fact, it should strengthen. The greenback, after all, is the basic medium of exchange and font of liquidity for the global economy, and promises to remain so for years because of Washington's political, military and economic might."

"U.S. stocks are still dramatically underpriced."

I suppose this Panglossian view could come to pass. It's basically what is already going on right now. The question in my mind is, how long will developing nations be willing to supply cheap labor and environmental degradation so the U.S. (and other 'platform economies) can enjoy massive profiteering?

The notion that rising stock prices in the U.S. will counteract housing woes and that the gains will be distributed evenly across the population is patently absurd. The wealth disparity in the U.S. is growing by leaps and bounds. How much longer will the bottom 90%, who largely get by via wages and housing inflation, be able to stomach seeing the top 10%, who benefit most from asset inflation, get richer and richer? And the divide between the merely-rich (top 10%) and the super-rich (top 1% or top 1/10th of 1%) is widening even more than the chasm b/w the top 10% and the bottom 90%.

The GaveKal view is basically a steroidal version of the multi-decade-long neocon globalization dream. What's interesting is that there is another group of neocons with an even more extreme view, one that is not quite so Goldilocks. They see a world where globalization ultimately leads to a complete dissolution of the power of the state.

Many folks would welcome such a breakdown in state control and a return to individual responsibility. But such a development would likely create a relative handful of winners supported by vast oceans of losers.

As described in books like "The Sovereign Individual" by Davidson and Rees-Moog, these globalists see a future where nation-states and borders break down completely and corporations rule the roost. These companies will have no allegiance to any country and will move resources and capital to whereever taxation, regulation, labor and profiteering is most favorable. Not a whole lot different than what we are already beginning to see, actually.

These neocons also envision a world of haves and have-nots, where smart, educated rich folks create enclaves of financial and personal safety all over the world, often protected by private armies, and live off the productivity of the cheap labor of others. Again, not that different than what we're already seeing except for the private armies and for the fact that borders have yet to dissolve.

A list of chapter headings in "The Sovereign Individual" can give you an idea of what these folks believe is in store:

"The Life and Death of the Nation-State: Democracy and Nationalism as Resource Strategies in an Age of Violence"

"Transcending Locality"

"Parallels Between the Senile Decline of the Holy Mother Church and the Nanny State"

"The End of Egalitarian Economics"

"The Twilight of Democracy"

The basic gist of this view is not much different from that of the GaveKals, only darker. It envisions a world where it's every man (or woman) for himself or herself. No safety nets. No "nanny" states. A world where democracy again means "one dollar, one vote". A world without political borders, but with new economic borders, walls separating the rich from everyone else.

In short, it sounds quite similar to medieval times, only instead of castles and moats to separate the rich from the poor, the New World Order will use cybertechnology, global labor, resource and economic arbitrage, and financial engineering.

Should be noted that Davidson and Rees-Moog are not trying to sound a cautionary alarm. They are pretty much in favor of such a development. Or, at least, they see it as inevitable and want to make sure they are among the tiny elite who will benefit from such a transformation.

Have no idea if the GaveKal's view will come to pass and whether or not the darker vision of Davidson will be the end-game. But if this process continues to play out, it will likely mean that a tiny minority will do very, very well---at least until the torches and pitchforks come out. And a large majority will struggle.

From Barrons cover story this week, it's clear from Barrons this week that they assume their readers will be among the small coterie of winners in this epic "Sizzle, Inc." transformation.

I imagine this battle will play out for many years to come. In essence, the battle lines are drawn between what Russ Winter calls Bully Americans and Brazil Americans---only played out on a global stage. Right now, the Bullies have the ball and all the momentum and I can't imagine they will take their foot off the gas pedal willingly. Impossible to know when a tipping point might come. Could be that this Bully/Brazil battle royale is still in its early stages.


Part 3
Metals vs. HP Bubblejet "Action" Currency Printer 990N

Let's start with some gold charts. Here are my basic channels.

This is the short term. It is dependent on what the billionaire boyz club at Goldman Sacks is in the mood for this year as to if this short term channel holds. We will discuss Goldman Sacks later.
Correctly buying Gold and other metals in the longer term weak performance areas over the next 30 years is all I am discussing here. This should never be confused with short term movements in gold that could easily be 20% in both directions. Manias in todays world happen in sections. The more popular something becomes, the more volatile it will become in the process. Short and Intermediate term is a whole diferent ballgame in this new world of derivatives gaming.

Here is the long term gold channel that is a possibility here.