Before I rant about MU's performance in the Champions League final, I've this to declare:
This current BARCA team is the greatest ever... they are the GODS of football. We're all privileged to witness this incredible team play divine football during our lifetime.
And now about MU's performance...
What's so upsetting about being a MU fan is that we got slaughtered left, right, front and back. With better strategies, we would probably still have lost, but at least not in such an embarassing manner.
A point of note about MU's previous formations:
4-4-1-1
Bear in mind that MU were very ineffective in their most recent league match against Arsenal using the 4-4-1-1- formation. Chicharito was heavily subdued and became anonymous in that match. And if Arsenal is a lesser version of Barca, why would that formation work against Barca when it didn't even work against the tiny Arsenal?
4-3-3 / 4-5-1
Also bear in mind that when MU beat Arsenal much earlier in the season, they played Rooney alone up front in Fergie's previous favourite formation, the 4-3-3 / 4-5-1 hybrid, the same formation Mourinho used against Barca. This formation was used for many years by MU against the big teams (since the Van Nistelrooy days), that is until the recent emergence of Chicharito and the now favoured 4-4-1-1. Why was the 4-3-3 / 4-5-1 formation abandoned when it would have presented the biggest chance of upsetting Barca?
So do you know why Guardiola and his players kept praising MU before the match? They wanted MU to think that they were good enough to play Barca with their usual attacking formation. They wanted MU to play 4-4-1-1 with Chicharito.
Before the match, Guardiola said he "fears absolutely everything about MU." Messi said “Chicharito has become a really key player for United by scoring important goals. He showed that for Mexico against us in the World Cup." Other players kept praising Giggs, Scholes and Rooney.
The last thing Barca wanted MU to do was another Mourinho-type of stiffling football. Barca wanted MU to play attacking football. And to my surprise, Fergie fell for Barca's mind tricks. He actually thought MU were good enough to go tic-for-tat with Barca.
Yes, Fergie said he played his best team, but his best team was not the suitable team to face Barca. It is not about playing all your on-form players. It is about choosing the correct players to counter Barca. The whole world is aware that you must devise a special strategy to stop Barca first, before you can even think about winning. It's not about Barca stopping you, it's about you stopping Barca.
Fergie was actually given a chance to correct his tactical mistake when MU somehow managed to survive the onslaught and went into half-time at 1-1, but to my bewilderment, Fergie still allowed his team and formation unchanged. And the onslaught continued... and the humiliation deepened.
Fergie can keep winning us the Premier League, but it still takes a Mourinho to beat Barca and clear the way for Real or other teams to win the next Champions League.
If MU want to knock Barca off their fucking perch, Fergie's not the one to do it.
AW
MU fan since 1990
Wednesday, June 8, 2011
Wednesday, February 24, 2010
The Two Words Bill Gates Doesn't Want You to Hear...
The Two Words Bill Gates Doesn't Want You to Hear...
Plus, the 2 companies poised to rule the post-Microsoft world
On October 30, 2005, something incredible happened...
In Redmond, Washington, one of the world's richest -- and most powerful -- businessmen sent an urgent memo to his top engineers and most-trusted managers.
It sounded the alarm that a very disruptive "wave" was about to wash over the entire world -- forever changing the way we get information and do business.
It also warned this would wipe out the $200 billion business empire he'd spent his life building.
Meanwhile, a few hundred miles south, on the banks of the Columbia River, a mysterious outfit known only as "Design, LLC," quietly constructed two massive windowless warehouses.
This mammoth undertaking was code named "Project 2," and the International Herald Tribune described the towering monolithic structures as "looming like an information-age nuclear plant."
This may sound like something out of a Tom Clancy novel, but you'll want to have all the facts because...
Merrill Lynch estimates this "wave" has grown into a $160 billion tsunami.
And experts say it's going to upend a $1 trillion industry. Yet very few investors understand just how huge it's going to be.
That's why it's crucial to take the next few minutes to read this report in its entirety.
At the very least, you'll get the full story so you can decide for yourself if you'll be front and center when the big money starts rolling in.
But be warned, the smart money is on the move...
A handful of investors are already quietly positioning themselves to cash in on this incredible economic shift. Soon, tens of thousands will be rushing to join them.
One of the most lucrative investment opportunities we'll ever encounter
The next great technological revolution is already under way.
And now that the last pieces are falling into place, the floodgates are beginning to open.
Which is exactly where you come in...Just ask David Gardner, co-founder of The Motley Fool. He's convinced that this technological shift will dump millions of dollars into the portfolios of investors just like you.
You've probably seen David on CNBC discussing his favorite growth stocks with some of the nation's other top-tier equity analysts. Or perhaps you've read one of his many best-selling investment books...
Or maybe you're just familiar with some of his remarkable stock recommendations... eBay in 1999... Starbucks in 1998... AOL in 1994... Amgen in 1998... Amazon in 1997.
Regardless, it's not hard to see why Money.com says he's "among the most widely followed stock advisors in the world."
And surely you can understand why anytime David gets excited about an investment opportunity, people stand up and take notice...
He's been closely tracking the development of this blockbuster technology and the 3 dominant players heading the revolution.
These are the companies he believes will rule their respective industries over the next 5 to 10 years and hand investors life-changing wealth along the way.
Recent developments have him particularly excited about one of the companies. Right now he considers it the No. 1 way to profit from this coming technological boom. And he's telling his followers to snap up shares immediately.
To see why he's so convinced about this company, you must learn the six traits he looks for in a growth stock -- and how they have led him to companies that have soared 231%, 233%, 375% and even 478% in just the past four years.
But first, a little bit more about this amazing technology and why, once again...
The Unimaginable Is Fast Becoming a Reality
You probably remember when computers took up entire rooms and were used only by companies that needed to do intense mathematical calculations.
That all changed when Intel unveiled the microprocessor and a geeky college dropout started writing software with his former high school pal.
Thanks to the virtual desktop they developed, the PC quickly replaced the mainframe as the center of corporate computing and began showing up in homes across America.
Before long, companies began building interoffice networks so that their employees could run programs like Microsoft Word and Excel on their PCs and also access programs, files, and printers from a central server.
But this model was far from perfect.
Due to a lack of standards in computing hardware and software, competing products were rarely compatible -- making PC networks far more inefficient than their mainframe predecessors.
In fact, most servers ended up being used as single-purpose machines that ran a single software application or database.
And every time a company needed to add a new application, it was forced to expand its data centers, replace or reprogram old systems, and hire IT technicians to keep everything running.
As a result, global IT spending jumped from under $100 billion a year in the early 1970s to over $1 trillion a year by the turn of the century.
Here's the dirty secret behind this mind-boggling growth -- and the two words that will put an end to the party
IT consulting firm IDC reports that every dollar a company spends on a Microsoft product results in an additional $8 of IT expenses.
And one IT expert admits, "Trillions of dollars that companies have invested into information technology have gone to waste."
Yet, companies have had no choice but to run these obscenely expensive and highly inefficient networks.
But that's all about to change...
And that's precisely why the two words "cloud computing" scare the hell out of Bill Gates.
You see, thanks to the thousands of miles of fiber-optic cable laid during the late 1990s, the speed of computer networks has finally caught up to the speed of the computer processors.
Suddenly computers that were once incompatible and isolated are now linked in a giant network, or "cloud."
As a result, computing is fast becoming a utility in much the same way that electricity did...
"The next sea change is upon us." -- Bill Gates
Think back a few years -- anytime you wanted to type a letter, create a spreadsheet, edit a photo, or play a game, you had to go to the store, buy the software, and install it on your computer.
But nowadays, if you want to look up restaurants on Google... find directions on MapQuest... watch a video on YouTube... or sell furniture on Craigslist... all you need is a computer with an Internet connection.
Although these activities require you to use your PC, none of the content you are accessing or the applications you are running are actually stored on your computer -- instead they're stored at a giant data center somewhere in the "cloud."
And you don't give any of it a second thought... just like you don't think twice about where the electricity is coming from when you plug an appliance into the wall.
But cloud computing isn't going to be just a modern convenience -- it's going to be an enormous industry.
You see, everyone from individuals to multinational corporations can now simply tap into the "cloud" to get all the things they used to have to supply and maintain themselves. This will save some companies millions and make others billions.
"Is cloud computing the next big thing?"
That's the title of an article in PC Magazine.
The answer was an overwhelming yes. And PC Magazine isn't the only one taking note of this sweeping trend...
The Economist claims, "As computing moves online, the sources of power and money will increasingly be enormous 'computing clouds.'"
David Hamilton of the Financial Post says this technology "has the potential to shower billions in revenues on companies that embrace it."
And Nicholas Carr, former executive editor of the Harvard Business Review, has even written an entire book on the subject, entitled The Big Switch. In it, he asserts: "The PC age is giving way to a new era: the utility age."
He goes on to make this prediction: "Rendered obsolete, the traditional PC is replaced by a simple terminal -- a 'thin client' that's little more than a monitor hooked up to the Internet."
While that may sound far-fetched, in the corporate market, sales of these "thin clients" have been growing at over 20 percent per year -- far outpacing the sales of PCs.
According to market-research firm IDC, the U.S. is now home to more than 7,000 data centers just like the one constructed on the banks of the Columbia River in 2005.
And the number of servers operating within these massive data centers is expected to grow to nearly 16 million by 2010 -- that's three times as many as a decade ago.
"Data centers have become as vital to the functioning of society as power stations." -- The Economist
The simple truth is that cloud computing is becoming as big a part of our everyday lives as cell phones or cable television.
And one company is shaping up to be a remarkable way for investors like you to cash in on the fast-moving cloud computing technology.
You may already know what it is... and you may have even guessed that it's the real face behind Design, LLC.
But what you may not realize is that this is still an excellent time to get invested -- despite what many so-called "experts" in the financial media might be telling you...
Buying This Tech Juggernaut Today Is Like Buying Microsoft in 1990
Don't forget, even after the dot-com collapse and the recent market sell-off, every $10,000 invested in Microsoft would now be worth over $500,000.
Even a modest $3,000 investment would have grown into more than $150,000!
Just imagine what you could do with that kind of money...
Now imagine being given a second chance to secure that kind of profit.
Well, look here... this is your second chance.
You see, like Microsoft in the early 1990s, Google [Nasdaq: GOOG] is just getting started.
It's already won the search engine war, set the standard for online advertising, and turned the company's name into a word tens of millions of people use daily.
And now it's fast becoming synonymous with the future of computing...
Over 500,000 companies -- including GE [NYSE: GE] and Procter & Gamble [NYSE: PG] -- have already signed up for Google Apps.
This grab bag of business applications can be purchased and run over the Web for just $50 per year and is just one of many Google products now giving Microsoft a run for its money.
Considering that Google Apps costs just one-tenth of what a traditional business software suite does, it's no surprise that more than 2,000 businesses are signing up per day.
No wonder the Financial Post says, "The cost savings in offering scaled-down versions of large enterprise software is making cloud computing a huge business."
But at just $50 a pop, you might be wondering how big this business can really get.
Industry research firm Gartner, Inc., says the market for Internet-based software hit $5.1 billion last year and conservatively estimates it will more than double to $11.5 billion by 2011.
But don't forget, this is just one small part of the giant and highly profitable cloud computing world.
Given its dominance over the online world, massive network of strategic partnerships, and unmatched ability to innovate, you can bet the great majority of the fortunes generated by cloud computing will flow through Google's coffers.
Even so, you may be wondering...
Isn't it too late to buy Google?
Not at all!
Well, let's just say this isn't the first time David has recommended a stock after the hotshots on Wall Street declared it was "too late"...
Back in 2005, he recommended robotic surgery specialist Intuitive Surgical to a small group of opportunistic investors.
At the time, shares were selling for $44.17. One year prior, shares had sold for $17.46, and a year before that they were selling for just $8.68.
You read that right... Intuitive Surgical had risen 500% in the two years before he recommended it -- and that scared lesser investors off.
But this visionary investor recognized that Intuitive Surgical was both "top dog" and "first mover" in its industry and still had plenty of room to run...
Shares traded as high as $359.59, and even after the recent market downturn, those who followed his lead are sitting on a whopping 555% gain.
Had you joined them, you could have turned $10,000 into a brand-new car... or a year or two of college tuition... or a prestigious golf-club membership -- and all in just 3 short years.
And this wasn't just some sort of lucky break or fluke, either.
You see, David's world-famous career began when he caught the financial media's attention by recommending AOL in the summer of 1994 - after it had quadrupled in just 12 short months.
Of course, the story is the same with AOL -- he recognized it as both a top dog and a first mover in an important emerging industry and knew it was only getting started.
Six years later, AOL was a 200-bagger, turning every $10,000 invested into a whopping $2 million -- and this growth investor into a living legend.
Here are just a few more of the top dogs and first movers he's uncovered recently:
Myriad Genetics -- locked in 252% gains
Millennium Pharmaceuticals -- locked in 142% gains
Vertex Pharmaceuticals -- up 304%... and counting!
Surely you'd love to have gains like that in your portfolio... Any investor would.
Well, you're in luck because now David is extremely excited about the incredible profit potential of 3 companies he calls...
The 3 Kings of Cloud Computing
These are 3 exceptionally well-run companies that David and his team of cutting-edge equity analysts have identified as both top dogs and first movers in their respective industries.
You already heard about Google, and just ahead you'll get all the details on the others -- including David's No. 1 cloud computing pick.
But first, you're probably wondering how David can be so sure about these companies. It's quite simple really -- they all have...
The 6 traits of a Rule Breaker
David begins his search by looking for what equity analysts call "top dogs" and "first movers."
A "top dog" is a company that dominates its industry... and a "first mover" is a company with a technology or product so revolutionary that it disrupts an existing industry and creates an entirely new one.
On the rare occasion that you find a company that is both a top dog and a first mover, the chances are pretty good that you've found your next big winner...
Just think of eBay in the online auction market... Amazon in the online retail market... or Netflix in the DVD-rental market (David led investors to big gains on all three).
These companies redefined the way business was done, launched entirely new industries, and continue to dominate those industries to this day. And you don't need me to tell you how handsomely they've rewarded shareholders along the way.
So you can see why David and his Rule Breakers teamwork around the clock to find companies that are both top dogs and first movers.
But they don't stop there... Because David discovered long ago that in order to find companies that will deliver truly life-changing investment returns, you have to break the rules and go against much of what passes for "wisdom" on Wall Street.
That's why he searches for companies with...
a sustainable competitive advantage that can be exploited for years to come
strong past price appreciation
excellent management
strong consumer appeal
And here's the big one...
documented proof that the financial media thinks it's "overvalued"
Remember, many of David's biggest winners were recommended after all the fast-talking experts on Wall Street already declared you'd missed your chance to buy.
And it's much the same story with the second king of cloud computing he's recommending you buy today...
A Bona Fide Rule Breaker With Very Real Profits
Not only does this company meet all of David's criteria for a classic Rule Breaker, but it also has a stranglehold on a niche market that's absolutely essential to the future of cloud computing.
This rising tech superstar designs extremely complex software that allows central servers to function in the first place.
While the market for this software sits at roughly $1 billion today, it is estimated it will soar to $5 billion by 2011 -- an astonishing 50% compound growth rate.
And thanks to various patents, a considerable head start, and immense technical know-how, there is very little chance competitors will be able to wrestle the lion's share of that $5 billion away from this company.
So it's no wonder over the past two years, VMware [NYSE: VMW] has seen its revenue climb at a 30% clip. Not to mention, returns on equity and invested capital have never dropped below double digits.
But here's what has really caught David's attention...
A recent shake-up in management has caused shares to tumble well below their fair value -- giving investors who act now a rare opportunity to snap up an incredible growth stock on the cheap.
Plus, the 2 companies poised to rule the post-Microsoft world
On October 30, 2005, something incredible happened...
In Redmond, Washington, one of the world's richest -- and most powerful -- businessmen sent an urgent memo to his top engineers and most-trusted managers.
It sounded the alarm that a very disruptive "wave" was about to wash over the entire world -- forever changing the way we get information and do business.
It also warned this would wipe out the $200 billion business empire he'd spent his life building.
Meanwhile, a few hundred miles south, on the banks of the Columbia River, a mysterious outfit known only as "Design, LLC," quietly constructed two massive windowless warehouses.
This mammoth undertaking was code named "Project 2," and the International Herald Tribune described the towering monolithic structures as "looming like an information-age nuclear plant."
This may sound like something out of a Tom Clancy novel, but you'll want to have all the facts because...
Merrill Lynch estimates this "wave" has grown into a $160 billion tsunami.
And experts say it's going to upend a $1 trillion industry. Yet very few investors understand just how huge it's going to be.
That's why it's crucial to take the next few minutes to read this report in its entirety.
At the very least, you'll get the full story so you can decide for yourself if you'll be front and center when the big money starts rolling in.
But be warned, the smart money is on the move...
A handful of investors are already quietly positioning themselves to cash in on this incredible economic shift. Soon, tens of thousands will be rushing to join them.
One of the most lucrative investment opportunities we'll ever encounter
The next great technological revolution is already under way.
And now that the last pieces are falling into place, the floodgates are beginning to open.
Which is exactly where you come in...Just ask David Gardner, co-founder of The Motley Fool. He's convinced that this technological shift will dump millions of dollars into the portfolios of investors just like you.
You've probably seen David on CNBC discussing his favorite growth stocks with some of the nation's other top-tier equity analysts. Or perhaps you've read one of his many best-selling investment books...
Or maybe you're just familiar with some of his remarkable stock recommendations... eBay in 1999... Starbucks in 1998... AOL in 1994... Amgen in 1998... Amazon in 1997.
Regardless, it's not hard to see why Money.com says he's "among the most widely followed stock advisors in the world."
And surely you can understand why anytime David gets excited about an investment opportunity, people stand up and take notice...
He's been closely tracking the development of this blockbuster technology and the 3 dominant players heading the revolution.
These are the companies he believes will rule their respective industries over the next 5 to 10 years and hand investors life-changing wealth along the way.
Recent developments have him particularly excited about one of the companies. Right now he considers it the No. 1 way to profit from this coming technological boom. And he's telling his followers to snap up shares immediately.
To see why he's so convinced about this company, you must learn the six traits he looks for in a growth stock -- and how they have led him to companies that have soared 231%, 233%, 375% and even 478% in just the past four years.
But first, a little bit more about this amazing technology and why, once again...
The Unimaginable Is Fast Becoming a Reality
You probably remember when computers took up entire rooms and were used only by companies that needed to do intense mathematical calculations.
That all changed when Intel unveiled the microprocessor and a geeky college dropout started writing software with his former high school pal.
Thanks to the virtual desktop they developed, the PC quickly replaced the mainframe as the center of corporate computing and began showing up in homes across America.
Before long, companies began building interoffice networks so that their employees could run programs like Microsoft Word and Excel on their PCs and also access programs, files, and printers from a central server.
But this model was far from perfect.
Due to a lack of standards in computing hardware and software, competing products were rarely compatible -- making PC networks far more inefficient than their mainframe predecessors.
In fact, most servers ended up being used as single-purpose machines that ran a single software application or database.
And every time a company needed to add a new application, it was forced to expand its data centers, replace or reprogram old systems, and hire IT technicians to keep everything running.
As a result, global IT spending jumped from under $100 billion a year in the early 1970s to over $1 trillion a year by the turn of the century.
Here's the dirty secret behind this mind-boggling growth -- and the two words that will put an end to the party
IT consulting firm IDC reports that every dollar a company spends on a Microsoft product results in an additional $8 of IT expenses.
And one IT expert admits, "Trillions of dollars that companies have invested into information technology have gone to waste."
Yet, companies have had no choice but to run these obscenely expensive and highly inefficient networks.
But that's all about to change...
And that's precisely why the two words "cloud computing" scare the hell out of Bill Gates.
You see, thanks to the thousands of miles of fiber-optic cable laid during the late 1990s, the speed of computer networks has finally caught up to the speed of the computer processors.
Suddenly computers that were once incompatible and isolated are now linked in a giant network, or "cloud."
As a result, computing is fast becoming a utility in much the same way that electricity did...
"The next sea change is upon us." -- Bill Gates
Think back a few years -- anytime you wanted to type a letter, create a spreadsheet, edit a photo, or play a game, you had to go to the store, buy the software, and install it on your computer.
But nowadays, if you want to look up restaurants on Google... find directions on MapQuest... watch a video on YouTube... or sell furniture on Craigslist... all you need is a computer with an Internet connection.
Although these activities require you to use your PC, none of the content you are accessing or the applications you are running are actually stored on your computer -- instead they're stored at a giant data center somewhere in the "cloud."
And you don't give any of it a second thought... just like you don't think twice about where the electricity is coming from when you plug an appliance into the wall.
But cloud computing isn't going to be just a modern convenience -- it's going to be an enormous industry.
You see, everyone from individuals to multinational corporations can now simply tap into the "cloud" to get all the things they used to have to supply and maintain themselves. This will save some companies millions and make others billions.
"Is cloud computing the next big thing?"
That's the title of an article in PC Magazine.
The answer was an overwhelming yes. And PC Magazine isn't the only one taking note of this sweeping trend...
The Economist claims, "As computing moves online, the sources of power and money will increasingly be enormous 'computing clouds.'"
David Hamilton of the Financial Post says this technology "has the potential to shower billions in revenues on companies that embrace it."
And Nicholas Carr, former executive editor of the Harvard Business Review, has even written an entire book on the subject, entitled The Big Switch. In it, he asserts: "The PC age is giving way to a new era: the utility age."
He goes on to make this prediction: "Rendered obsolete, the traditional PC is replaced by a simple terminal -- a 'thin client' that's little more than a monitor hooked up to the Internet."
While that may sound far-fetched, in the corporate market, sales of these "thin clients" have been growing at over 20 percent per year -- far outpacing the sales of PCs.
According to market-research firm IDC, the U.S. is now home to more than 7,000 data centers just like the one constructed on the banks of the Columbia River in 2005.
And the number of servers operating within these massive data centers is expected to grow to nearly 16 million by 2010 -- that's three times as many as a decade ago.
"Data centers have become as vital to the functioning of society as power stations." -- The Economist
The simple truth is that cloud computing is becoming as big a part of our everyday lives as cell phones or cable television.
And one company is shaping up to be a remarkable way for investors like you to cash in on the fast-moving cloud computing technology.
You may already know what it is... and you may have even guessed that it's the real face behind Design, LLC.
But what you may not realize is that this is still an excellent time to get invested -- despite what many so-called "experts" in the financial media might be telling you...
Buying This Tech Juggernaut Today Is Like Buying Microsoft in 1990
Don't forget, even after the dot-com collapse and the recent market sell-off, every $10,000 invested in Microsoft would now be worth over $500,000.
Even a modest $3,000 investment would have grown into more than $150,000!
Just imagine what you could do with that kind of money...
Now imagine being given a second chance to secure that kind of profit.
Well, look here... this is your second chance.
You see, like Microsoft in the early 1990s, Google [Nasdaq: GOOG] is just getting started.
It's already won the search engine war, set the standard for online advertising, and turned the company's name into a word tens of millions of people use daily.
And now it's fast becoming synonymous with the future of computing...
Over 500,000 companies -- including GE [NYSE: GE] and Procter & Gamble [NYSE: PG] -- have already signed up for Google Apps.
This grab bag of business applications can be purchased and run over the Web for just $50 per year and is just one of many Google products now giving Microsoft a run for its money.
Considering that Google Apps costs just one-tenth of what a traditional business software suite does, it's no surprise that more than 2,000 businesses are signing up per day.
No wonder the Financial Post says, "The cost savings in offering scaled-down versions of large enterprise software is making cloud computing a huge business."
But at just $50 a pop, you might be wondering how big this business can really get.
Industry research firm Gartner, Inc., says the market for Internet-based software hit $5.1 billion last year and conservatively estimates it will more than double to $11.5 billion by 2011.
But don't forget, this is just one small part of the giant and highly profitable cloud computing world.
Given its dominance over the online world, massive network of strategic partnerships, and unmatched ability to innovate, you can bet the great majority of the fortunes generated by cloud computing will flow through Google's coffers.
Even so, you may be wondering...
Isn't it too late to buy Google?
Not at all!
Well, let's just say this isn't the first time David has recommended a stock after the hotshots on Wall Street declared it was "too late"...
Back in 2005, he recommended robotic surgery specialist Intuitive Surgical to a small group of opportunistic investors.
At the time, shares were selling for $44.17. One year prior, shares had sold for $17.46, and a year before that they were selling for just $8.68.
You read that right... Intuitive Surgical had risen 500% in the two years before he recommended it -- and that scared lesser investors off.
But this visionary investor recognized that Intuitive Surgical was both "top dog" and "first mover" in its industry and still had plenty of room to run...
Shares traded as high as $359.59, and even after the recent market downturn, those who followed his lead are sitting on a whopping 555% gain.
Had you joined them, you could have turned $10,000 into a brand-new car... or a year or two of college tuition... or a prestigious golf-club membership -- and all in just 3 short years.
And this wasn't just some sort of lucky break or fluke, either.
You see, David's world-famous career began when he caught the financial media's attention by recommending AOL in the summer of 1994 - after it had quadrupled in just 12 short months.
Of course, the story is the same with AOL -- he recognized it as both a top dog and a first mover in an important emerging industry and knew it was only getting started.
Six years later, AOL was a 200-bagger, turning every $10,000 invested into a whopping $2 million -- and this growth investor into a living legend.
Here are just a few more of the top dogs and first movers he's uncovered recently:
Myriad Genetics -- locked in 252% gains
Millennium Pharmaceuticals -- locked in 142% gains
Vertex Pharmaceuticals -- up 304%... and counting!
Surely you'd love to have gains like that in your portfolio... Any investor would.
Well, you're in luck because now David is extremely excited about the incredible profit potential of 3 companies he calls...
The 3 Kings of Cloud Computing
These are 3 exceptionally well-run companies that David and his team of cutting-edge equity analysts have identified as both top dogs and first movers in their respective industries.
You already heard about Google, and just ahead you'll get all the details on the others -- including David's No. 1 cloud computing pick.
But first, you're probably wondering how David can be so sure about these companies. It's quite simple really -- they all have...
The 6 traits of a Rule Breaker
David begins his search by looking for what equity analysts call "top dogs" and "first movers."
A "top dog" is a company that dominates its industry... and a "first mover" is a company with a technology or product so revolutionary that it disrupts an existing industry and creates an entirely new one.
On the rare occasion that you find a company that is both a top dog and a first mover, the chances are pretty good that you've found your next big winner...
Just think of eBay in the online auction market... Amazon in the online retail market... or Netflix in the DVD-rental market (David led investors to big gains on all three).
These companies redefined the way business was done, launched entirely new industries, and continue to dominate those industries to this day. And you don't need me to tell you how handsomely they've rewarded shareholders along the way.
So you can see why David and his Rule Breakers teamwork around the clock to find companies that are both top dogs and first movers.
But they don't stop there... Because David discovered long ago that in order to find companies that will deliver truly life-changing investment returns, you have to break the rules and go against much of what passes for "wisdom" on Wall Street.
That's why he searches for companies with...
a sustainable competitive advantage that can be exploited for years to come
strong past price appreciation
excellent management
strong consumer appeal
And here's the big one...
documented proof that the financial media thinks it's "overvalued"
Remember, many of David's biggest winners were recommended after all the fast-talking experts on Wall Street already declared you'd missed your chance to buy.
And it's much the same story with the second king of cloud computing he's recommending you buy today...
A Bona Fide Rule Breaker With Very Real Profits
Not only does this company meet all of David's criteria for a classic Rule Breaker, but it also has a stranglehold on a niche market that's absolutely essential to the future of cloud computing.
This rising tech superstar designs extremely complex software that allows central servers to function in the first place.
While the market for this software sits at roughly $1 billion today, it is estimated it will soar to $5 billion by 2011 -- an astonishing 50% compound growth rate.
And thanks to various patents, a considerable head start, and immense technical know-how, there is very little chance competitors will be able to wrestle the lion's share of that $5 billion away from this company.
So it's no wonder over the past two years, VMware [NYSE: VMW] has seen its revenue climb at a 30% clip. Not to mention, returns on equity and invested capital have never dropped below double digits.
But here's what has really caught David's attention...
A recent shake-up in management has caused shares to tumble well below their fair value -- giving investors who act now a rare opportunity to snap up an incredible growth stock on the cheap.
Friday, February 5, 2010
A Truly Suspicious Case
by Sivarasa Rasiah
There are many facts about the current allegations made by Saiful and his behaviour which are already in the public domain. These facts speak for themselves and immediately show the lack of substance in the fabricated case now brought to attempt to bring down Anwar.
Saiful claimed in his police report of 28 June 2008 made at Hospital Kuala Lumpur (”HKL”) that he was sodomised by Anwar on the afternoon of Thursday 26 June 2008 at a condominium in Bukit Damansara. His version to the police in his police statement appears to allege that he had been assaulted about 8 to 9 times against his will by Anwar over the previous two months. In his police report made two days later on 28 June 2008, he claims that this incident of sodomy was also against his will.
This version immediately raises suspicion as to why this so-called “victim” is sodomised 8 to 9 times against his will over two months and yet made no complaint to the authorities. During that time, he was in regular contact with Anwar and all the other office staff at Anwar’s office.
It has also been revealed that on Wednesday 25 June 2008, the day before the last so-called assault on Thursday, he had met with a senior police officer Senior Assistant Commissioner Rodwan Mohd Yusof (then Deputy Director of Criminal Investigation Dept of the Royal Malaysian Police Force, now CPO Melaka) in the Concorde Hotel in Kuala Lumpur at Room 619. When asked by journalists about this meeting, Rodwan said he had no comment. Rodwan also played a key role in the police team in Anwar’s 1998/9 cases and in particular was infamous for his role in illegally using Anwar’s blood sample for DNA testing and was also embroiled in allegations of planting fabricated DNA traces on the infamous mattress brought to court. In the first trial in 1999, the DNA evidence was so discredited that even the hostile trial judge Augustine Paul was forced to expunge the evidence to assist the prosecution.
It has also since been revealed that the “victim” also met the current Prime Minister Najib Tun Razak (then the Deputy Prime Minister) a few days prior to the alleged incident. What is interesting about this revelation is that Najib initially denied meeting Saiful to the media, then admitted it, then said the meeting took place because Saiful (a university drop-out) was asking him for assistance to get a scholarship, and then told the media that Saiful said he was sodomised by Anwar and looked traumatised during their meeting.
Saiful’s behaviour after the so-called assault on Thursday also raises questions.
The next morning, Saiful went to the Anwar’s office as usual. He made no complaint to anyone and appeared quite normal. Later that day, he attended an Anwar Ibrahim Club event at Anwar’s house, at which Anwar was also present. There he helped serve coffee to the dozen or so persons present, showed no signs of fear or anxiety, and was able to sit and stand without showing any signs of discomfort.
The following day on Saturday in the afternoon about 2 pm, Saiful decided to go to a private hospital called Pusat Rawatan Islam (PUSRAWI) in Jalan Tun Razak. There he complained to one Dr. Osman that he had pain in his anus for a few days and that apparently a “plastic” item had been inserted. A proctoscopy examination by Dr. Osman showed no physical signs of penetration and a normal anus and rectum. After the examination, he then told Dr. Osman he had been sodomised by a VIP (Very Important Person) and was then advised to go for an examination at a government hospital. Despite HKL being virtually across the road, it took Saiful two and a half hours to get there. At HKL, where he reported that he had been sodomised, he was examined by three specialist doctors, which was a very unusual procedure in itself. These three doctors, in their official report, have stated that there were no “no conclusive clinical findings suggestive of penetration to the anus…” again reinforcing the conclusions of Dr. Osman.
There are many facts about the current allegations made by Saiful and his behaviour which are already in the public domain. These facts speak for themselves and immediately show the lack of substance in the fabricated case now brought to attempt to bring down Anwar.
Saiful claimed in his police report of 28 June 2008 made at Hospital Kuala Lumpur (”HKL”) that he was sodomised by Anwar on the afternoon of Thursday 26 June 2008 at a condominium in Bukit Damansara. His version to the police in his police statement appears to allege that he had been assaulted about 8 to 9 times against his will by Anwar over the previous two months. In his police report made two days later on 28 June 2008, he claims that this incident of sodomy was also against his will.
This version immediately raises suspicion as to why this so-called “victim” is sodomised 8 to 9 times against his will over two months and yet made no complaint to the authorities. During that time, he was in regular contact with Anwar and all the other office staff at Anwar’s office.
It has also been revealed that on Wednesday 25 June 2008, the day before the last so-called assault on Thursday, he had met with a senior police officer Senior Assistant Commissioner Rodwan Mohd Yusof (then Deputy Director of Criminal Investigation Dept of the Royal Malaysian Police Force, now CPO Melaka) in the Concorde Hotel in Kuala Lumpur at Room 619. When asked by journalists about this meeting, Rodwan said he had no comment. Rodwan also played a key role in the police team in Anwar’s 1998/9 cases and in particular was infamous for his role in illegally using Anwar’s blood sample for DNA testing and was also embroiled in allegations of planting fabricated DNA traces on the infamous mattress brought to court. In the first trial in 1999, the DNA evidence was so discredited that even the hostile trial judge Augustine Paul was forced to expunge the evidence to assist the prosecution.
It has also since been revealed that the “victim” also met the current Prime Minister Najib Tun Razak (then the Deputy Prime Minister) a few days prior to the alleged incident. What is interesting about this revelation is that Najib initially denied meeting Saiful to the media, then admitted it, then said the meeting took place because Saiful (a university drop-out) was asking him for assistance to get a scholarship, and then told the media that Saiful said he was sodomised by Anwar and looked traumatised during their meeting.
Saiful’s behaviour after the so-called assault on Thursday also raises questions.
The next morning, Saiful went to the Anwar’s office as usual. He made no complaint to anyone and appeared quite normal. Later that day, he attended an Anwar Ibrahim Club event at Anwar’s house, at which Anwar was also present. There he helped serve coffee to the dozen or so persons present, showed no signs of fear or anxiety, and was able to sit and stand without showing any signs of discomfort.
The following day on Saturday in the afternoon about 2 pm, Saiful decided to go to a private hospital called Pusat Rawatan Islam (PUSRAWI) in Jalan Tun Razak. There he complained to one Dr. Osman that he had pain in his anus for a few days and that apparently a “plastic” item had been inserted. A proctoscopy examination by Dr. Osman showed no physical signs of penetration and a normal anus and rectum. After the examination, he then told Dr. Osman he had been sodomised by a VIP (Very Important Person) and was then advised to go for an examination at a government hospital. Despite HKL being virtually across the road, it took Saiful two and a half hours to get there. At HKL, where he reported that he had been sodomised, he was examined by three specialist doctors, which was a very unusual procedure in itself. These three doctors, in their official report, have stated that there were no “no conclusive clinical findings suggestive of penetration to the anus…” again reinforcing the conclusions of Dr. Osman.
Wednesday, September 30, 2009
What the Price of Gold Is Telling Us
by Dr. Ron Paul
Holding gold is protection or insurance against government’s proclivity to debase its currency. The purchasing power of gold goes up not because it’s a so-called good investment; it goes up in value only because the paper currency goes down in value. In our current situation, that means the dollar.
One of the characteristics of commodity money – one that originated naturally in the marketplace – is that it must serve as a store of value. Gold and silver meet that test – paper does not. Because of this profound difference, the incentive and wisdom of holding emergency funds in the form of gold becomes attractive when the official currency is being devalued. It’s more attractive than trying to save wealth in the form of a fiat currency, even when earning some nominal interest. The lack of earned interest on gold is not a problem once people realize the purchasing power of their currency is declining faster than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living.
The point is that most who buy gold do so to protect against a depreciating currency rather than as an investment in the classical sense. Americans understand this less than citizens of other countries; some nations have suffered from severe monetary inflation that literally led to the destruction of their national currency. Though our inflation – i.e., the depreciation of the U.S. dollar – has been insidious, average Americans are unaware of how this occurs.
The response in time will drive the dollar down, while driving interest rates and commodity prices up. Already we see this trend developing, which surely will accelerate in the not too distant future. Part of this reaction will be from those who seek a haven to protect their wealth – not invest – by treating gold and silver as universal and historic money. This means holding fewer dollars that are decreasing in value while holding gold as it increases in value.
Historically, paper money never has lasted for long periods of time, while gold has survived thousands of years of attacks by political interests and big government. In time, the world once again will restore trust in the monetary system by making some currency as good as gold.
The economic harm done by a fiat monetary system is pervasive, dangerous, and unfair. Though runaway inflation is injurious to almost everyone, it is more insidious for certain groups. Once inflation is recognized as a tax, it becomes clear the tax is regressive: penalizing the poor and middle class more than the rich and politically privileged. Price inflation, a consequence of inflating the money supply by the central bank, hits poor and marginal workers first and foremost. It especially penalizes savers, retirees, those on fixed incomes, and anyone who trusts government promises. Small businesses and individual enterprises suffer more than the financial elite, who borrow large sums before the money loses value. Those who are on the receiving end of government contracts – especially in the military industrial complex during wartime – receive undeserved benefits.
It’s a mistake to blame high gasoline and oil prices on price gouging. If we impose new taxes or fix prices, while ignoring monetary inflation, corporate subsidies, and excessive regulations, shortages will result. The market is the only way to determine the best price for any commodity. The law of supply and demand cannot be repealed. The real problems arise when government planners give subsidies to energy companies and favor one form of energy over another.
Energy prices are rising for many reasons: Inflation; increased demand from China and India; decreased supply resulting from our invasion of Iraq; anticipated disruption of supply as we push regime change in Iran; regulatory restrictions on gasoline production; government interference in the free market development of alternative fuels; and subsidies to big oil such as free leases and grants for research and development.
Inflation, as exposed by high gold prices, transfers wealth from the middle class to the rich, as real wages decline while the salaries of CEOs, movie stars, and athletes skyrocket – along with the profits of the military industrial complex, the oil industry, and other special interests.
If we care about the financial system, the tax system, and the monumental debt we’re accumulating, we must start talking about the benefits and discipline that come only with a commodity standard of money – money the government and central banks absolutely cannot create out of thin air.
Holding gold is protection or insurance against government’s proclivity to debase its currency. The purchasing power of gold goes up not because it’s a so-called good investment; it goes up in value only because the paper currency goes down in value. In our current situation, that means the dollar.
One of the characteristics of commodity money – one that originated naturally in the marketplace – is that it must serve as a store of value. Gold and silver meet that test – paper does not. Because of this profound difference, the incentive and wisdom of holding emergency funds in the form of gold becomes attractive when the official currency is being devalued. It’s more attractive than trying to save wealth in the form of a fiat currency, even when earning some nominal interest. The lack of earned interest on gold is not a problem once people realize the purchasing power of their currency is declining faster than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living.
The point is that most who buy gold do so to protect against a depreciating currency rather than as an investment in the classical sense. Americans understand this less than citizens of other countries; some nations have suffered from severe monetary inflation that literally led to the destruction of their national currency. Though our inflation – i.e., the depreciation of the U.S. dollar – has been insidious, average Americans are unaware of how this occurs.
The response in time will drive the dollar down, while driving interest rates and commodity prices up. Already we see this trend developing, which surely will accelerate in the not too distant future. Part of this reaction will be from those who seek a haven to protect their wealth – not invest – by treating gold and silver as universal and historic money. This means holding fewer dollars that are decreasing in value while holding gold as it increases in value.
Historically, paper money never has lasted for long periods of time, while gold has survived thousands of years of attacks by political interests and big government. In time, the world once again will restore trust in the monetary system by making some currency as good as gold.
The economic harm done by a fiat monetary system is pervasive, dangerous, and unfair. Though runaway inflation is injurious to almost everyone, it is more insidious for certain groups. Once inflation is recognized as a tax, it becomes clear the tax is regressive: penalizing the poor and middle class more than the rich and politically privileged. Price inflation, a consequence of inflating the money supply by the central bank, hits poor and marginal workers first and foremost. It especially penalizes savers, retirees, those on fixed incomes, and anyone who trusts government promises. Small businesses and individual enterprises suffer more than the financial elite, who borrow large sums before the money loses value. Those who are on the receiving end of government contracts – especially in the military industrial complex during wartime – receive undeserved benefits.
It’s a mistake to blame high gasoline and oil prices on price gouging. If we impose new taxes or fix prices, while ignoring monetary inflation, corporate subsidies, and excessive regulations, shortages will result. The market is the only way to determine the best price for any commodity. The law of supply and demand cannot be repealed. The real problems arise when government planners give subsidies to energy companies and favor one form of energy over another.
Energy prices are rising for many reasons: Inflation; increased demand from China and India; decreased supply resulting from our invasion of Iraq; anticipated disruption of supply as we push regime change in Iran; regulatory restrictions on gasoline production; government interference in the free market development of alternative fuels; and subsidies to big oil such as free leases and grants for research and development.
Inflation, as exposed by high gold prices, transfers wealth from the middle class to the rich, as real wages decline while the salaries of CEOs, movie stars, and athletes skyrocket – along with the profits of the military industrial complex, the oil industry, and other special interests.
If we care about the financial system, the tax system, and the monumental debt we’re accumulating, we must start talking about the benefits and discipline that come only with a commodity standard of money – money the government and central banks absolutely cannot create out of thin air.
Friday, September 25, 2009
From Deflation to Inflation
by Martin D Weiss
The forces of deflation are temporarily receding; and in the meantime, the forces of inflation threaten to roar back with a vengeance.
They are everywhere. They could be overwhelming. They must NOT be ignored …
Inflationary Force #1 Never-Ending, Out-of-Control U.S. Federal Deficits
Through August, the federal deficit hit $1.38 trillion, or three times last year’s all-time record deficit of $454.8 billion. And in September alone, the administration expects another $200 billion in red ink, bringing the total for the year to $1.58 trillion.
The U.S. government’s official debt is now at an all-time high of $11.8 trillion, or over $100,000 for each and every household in America.
Both the administration and its opponents agree that, over the next 10 years, the cumulative federal deficit will be another $9 trillion, driving the burden per household up to $177,000.
The Federal Reserve is also in hock up to its eyeballs, with more than $2 trillion in liabilities on its balance sheet. That brings the total burden up to $194,000 per household.
Perhaps worst of all, the government’s unfunded obligations for Social Security, Medicare, and Federal pension payments are also ballooning higher and now stand at an estimated $104 trillion, or $886,000 per household.
Total burden per household: More than $1 million!
This is, by far, the largest federal deficit in U.S. history — in proportion to household income … in comparison to the nation’s population … or even as a percent of the total economy (other than during major World Wars).
It drives the Fed to print money without restraint. It pumps up demand for scarce goods. And in the months ahead, it’s bound to be the single most powerful pressure point on public policy, financial markets, the U.S. dollar and … inflation.
Inflationary Force #2 New Lows in the U.S. Dollar
Last week, the U.S. dollar sunk to a new, one-year low against a basket of major currencies.
It’s just five points away from its lowest level in history.
And, as Mike Larson detailed this past Friday, the U.S. dollar is now being driven lower by a new, unprecedented factor:
For the first time since 1933, it is now cheaper to borrow dollars than Japanese yen. Indeed, the three-month London Interbank Offered Rate (LIBOR) on the U.S. dollar has slumped to a meager 0.292 percent, while the equivalent rate on the Japanese yen is 0.352 percent.
This means that, instead of using Japanese yen to finance the carry trade — borrowing low-cost money to buy high-yielding investments — international investors will now start using U.S. dollars to finance the carry trade.
It means that, instead of the dollar being a magnet for frightened money, it is becoming precisely the opposite — a source of financing for the risk trade.
Most important, it means that, instead of buying dollars, they have every incentive to borrow dollars and promptly SELL them in order to purchase the higher yielding instruments.
End result: More momentum to the dollar’s decline.
Inflationary Force #3 U.S. Household Wealth Now Expanding Again
For nearly two years, U.S. households were continually losing wealth. They lost trillions in stocks, bonds, insurance policies, real estate. And these losses, in turn, emerged as a major deflationary force, driving consumer price inflation to zero or lower.
Now, however, in the second quarter of 2009, that trend has reversed.
According to the Fed’s Flow of Funds released just last week, in just the last three months, U.S. households have enjoyed wealth gains of
$1.1 trillion common and preferred stocks
$494 billion in mutual funds
$157 billion in real estate
These gains are still far from enough to recoup the peak asset levels of 2007. But the change in trend is enough to rekindle inflation, and that inflation is likely to take most economists by surprise.
Inflationary Force #4 Exploding U.S. Money Supply
Money pouring into the economy and chasing scarce goods is the classic cause of inflation.
But throughout 2007 and much of 2008, there was no growth whatsoever in U.S. money supply (M1).
During that period, despite the Fed’s efforts to shove interest rates down to practically zero, the total amount of money outstanding remained under $1.4 trillion — another deflationary force.
But first, I want to clear up a few basic points. Although we may sometimes disagree on the specific timing and magnitude of particular market moves, we are unanimous in our views about a few fundamental issues:
First, until and unless there is a dramatic change in these inflationary forces, it should be clear that the U.S. dollar’s decline will accelerate in the months ahead.
Second, despite its decline, the U.S. dollar will continue to be a viable, widely traded currency. It will not, as some seem to fear, simply disappear from the face of the earth.
Third, it is both impractical and unreasonable to abandon U.S. Treasury bills and other conservative dollar-denominated investments. They continue to provide U.S. citizens and residents the best safety and liquidity in the world today.
Fourth, the best way to protect yourself from a falling dollar is with contra-dollar investments such as precious metals, natural resources and assets tied to strong foreign currencies.
The forces of deflation are temporarily receding; and in the meantime, the forces of inflation threaten to roar back with a vengeance.
They are everywhere. They could be overwhelming. They must NOT be ignored …
Inflationary Force #1 Never-Ending, Out-of-Control U.S. Federal Deficits
Through August, the federal deficit hit $1.38 trillion, or three times last year’s all-time record deficit of $454.8 billion. And in September alone, the administration expects another $200 billion in red ink, bringing the total for the year to $1.58 trillion.
The U.S. government’s official debt is now at an all-time high of $11.8 trillion, or over $100,000 for each and every household in America.
Both the administration and its opponents agree that, over the next 10 years, the cumulative federal deficit will be another $9 trillion, driving the burden per household up to $177,000.
The Federal Reserve is also in hock up to its eyeballs, with more than $2 trillion in liabilities on its balance sheet. That brings the total burden up to $194,000 per household.
Perhaps worst of all, the government’s unfunded obligations for Social Security, Medicare, and Federal pension payments are also ballooning higher and now stand at an estimated $104 trillion, or $886,000 per household.
Total burden per household: More than $1 million!
This is, by far, the largest federal deficit in U.S. history — in proportion to household income … in comparison to the nation’s population … or even as a percent of the total economy (other than during major World Wars).
It drives the Fed to print money without restraint. It pumps up demand for scarce goods. And in the months ahead, it’s bound to be the single most powerful pressure point on public policy, financial markets, the U.S. dollar and … inflation.
Inflationary Force #2 New Lows in the U.S. Dollar
Last week, the U.S. dollar sunk to a new, one-year low against a basket of major currencies.
It’s just five points away from its lowest level in history.
And, as Mike Larson detailed this past Friday, the U.S. dollar is now being driven lower by a new, unprecedented factor:
For the first time since 1933, it is now cheaper to borrow dollars than Japanese yen. Indeed, the three-month London Interbank Offered Rate (LIBOR) on the U.S. dollar has slumped to a meager 0.292 percent, while the equivalent rate on the Japanese yen is 0.352 percent.
This means that, instead of using Japanese yen to finance the carry trade — borrowing low-cost money to buy high-yielding investments — international investors will now start using U.S. dollars to finance the carry trade.
It means that, instead of the dollar being a magnet for frightened money, it is becoming precisely the opposite — a source of financing for the risk trade.
Most important, it means that, instead of buying dollars, they have every incentive to borrow dollars and promptly SELL them in order to purchase the higher yielding instruments.
End result: More momentum to the dollar’s decline.
Inflationary Force #3 U.S. Household Wealth Now Expanding Again
For nearly two years, U.S. households were continually losing wealth. They lost trillions in stocks, bonds, insurance policies, real estate. And these losses, in turn, emerged as a major deflationary force, driving consumer price inflation to zero or lower.
Now, however, in the second quarter of 2009, that trend has reversed.
According to the Fed’s Flow of Funds released just last week, in just the last three months, U.S. households have enjoyed wealth gains of
$1.1 trillion common and preferred stocks
$494 billion in mutual funds
$157 billion in real estate
These gains are still far from enough to recoup the peak asset levels of 2007. But the change in trend is enough to rekindle inflation, and that inflation is likely to take most economists by surprise.
Inflationary Force #4 Exploding U.S. Money Supply
Money pouring into the economy and chasing scarce goods is the classic cause of inflation.
But throughout 2007 and much of 2008, there was no growth whatsoever in U.S. money supply (M1).
During that period, despite the Fed’s efforts to shove interest rates down to practically zero, the total amount of money outstanding remained under $1.4 trillion — another deflationary force.
But first, I want to clear up a few basic points. Although we may sometimes disagree on the specific timing and magnitude of particular market moves, we are unanimous in our views about a few fundamental issues:
First, until and unless there is a dramatic change in these inflationary forces, it should be clear that the U.S. dollar’s decline will accelerate in the months ahead.
Second, despite its decline, the U.S. dollar will continue to be a viable, widely traded currency. It will not, as some seem to fear, simply disappear from the face of the earth.
Third, it is both impractical and unreasonable to abandon U.S. Treasury bills and other conservative dollar-denominated investments. They continue to provide U.S. citizens and residents the best safety and liquidity in the world today.
Fourth, the best way to protect yourself from a falling dollar is with contra-dollar investments such as precious metals, natural resources and assets tied to strong foreign currencies.
Sunday, June 21, 2009
Why Inflation Isn’t the Danger
by Alan S. Blinder
SOME people with hypersensitive sniffers say the whiff of future inflation is in the air. What’s that, you say? Aren’t we experiencing deflation right now? The answer is yes. But, apparently, for those who are sufficiently hawkish, the recent activities of the Federal Reserve conjure up visions of inflation.
The central bank is holding the Fed funds rate at nearly zero and has created a mountain of bank reserves to fight the financial crisis. Yes, these moves are unusual, but these are unusual times. Concluding that the Fed is leading us into inflation assumes a degree of incompetence that I simply don’t buy. Let me explain.
First, the clear and present danger, both now and for the next year or two, is not inflation but deflation. Using the 12-month change in the Consumer Price Index as the measure, inflation has now been negative for three consecutive months.
It’s true that falling oil prices, now behind us, were the main reason for the deflation. Core C.P.I. inflation, which excludes food and energy prices, has been solidly in the range of 1.7 percent to 1.9 percent for six consecutive months. But history teaches us that weak economies drag down inflation — and ours will be weak for some time. Core inflation near zero, or even negative, is a live possibility for 2010 or 2011.
Ben S. Bernanke, the Fed chairman, is a keen student of the 1930s, and he and his colleagues have been working overtime to dodge the deflation bullet. To this end, they cut the Fed funds rate to virtually zero last December and have since relied on a variety of extraordinary policies known as quantitative easing to restore the flow of credit.
These policies basically amount to creating new bank reserves by either buying or lending against a variety of assets. But quantitative easing is universally agreed to be weak medicine compared with cutting interest rates. So the Fed is administering a large dose — which is where all those reserves come from.
The mountain of reserves on banks’ balance sheets has, in turn, filled the inflation hawks with apprehension. But their concerns are misplaced. To understand why, start with the basic economics of banking, money and inflation.
In normal times, banks don’t want excess reserves, which yield them no profit. So they quickly lend out any idle funds they receive. Under such conditions, Fed expansions of bank reserves lead to expansions of credit and the money supply and, if there is too much of that, to higher inflation.
In abnormal times like these, however, providing frightened banks with the reserves they demand will fuel neither money nor credit growth — and is therefore not inflationary.
Rather, it’s more like a grand version of what the Fed does every Christmas season. The Fed always puts more currency into circulation during this prime shopping period because people demand it, and then withdraws the “excess” currency in January.
True inflation hawks worry about that last step. (Did someone say, “Bah, humbug”?) Will the Fed really withdraw all those reserves fast enough as the financial storm abates? If not, we could indeed experience inflation. Although the Fed is not infallible, I’d make three important points:
•
The possibilities for error are two-sided. Yes, the Fed might err by withdrawing bank reserves too slowly, thereby leading to higher inflation. But it also might err by withdrawing reserves too quickly, thereby stunting the recovery and leading to deflation. I fail to see why advocates of price stability should worry about one sort of error but not the other.
•
The Fed is well aware of the exit problem. It is planning for it, is competent enough to carry out its responsibilities and has committed itself to an inflation target of just under 2 percent. Of course, none of that assures us that the Fed will hit the bull’s-eye. It might miss and produce, say, inflation of 3 percent or 4 percent at the end of the crisis — but not 8 or 10 percent.
•
The Fed will start the exit process when the economy is still below full employment and inflation is below target. So some modest rise in inflation will be welcome. The Fed won’t have to clamp down hard.
SKEPTICAL? Then let’s see what the bond market vigilantes really think.
The market’s implied forecast of future inflation is indicated by the difference between the nominal interest rates on regular Treasury debt and the corresponding real interest rates on Treasury Inflation Protected Securities, or TIPS. These estimates change daily. But on Friday, the five-year expected inflation rate was about 1.6 percent and the 10-year expected rate was about 1.9 percent. Notice that the latter matches the Fed’s inflation target. I don’t think that’s a coincidence.
But if the inflation outlook is so benign, why have Treasury borrowing rates skyrocketed in the last few months? Is it because markets fear that the Fed will lose control of inflation? I think not. Rising Treasury rates are mainly a return to normalcy.
In January, the markets were expecting about zero inflation over the coming five years, and only about 0.6 percent average inflation over the next decade. The difference between then and now is that markets were in a panicky state in January, braced for financial Armageddon; they have since calmed down.
My conclusion? The markets’ extraordinarily low expected inflation in January was both aberrant and worrisome — not today’s. As long as expected inflation doesn’t rise much further, you should find something else to worry about. Unfortunately, choices abound.
Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.
SOME people with hypersensitive sniffers say the whiff of future inflation is in the air. What’s that, you say? Aren’t we experiencing deflation right now? The answer is yes. But, apparently, for those who are sufficiently hawkish, the recent activities of the Federal Reserve conjure up visions of inflation.
The central bank is holding the Fed funds rate at nearly zero and has created a mountain of bank reserves to fight the financial crisis. Yes, these moves are unusual, but these are unusual times. Concluding that the Fed is leading us into inflation assumes a degree of incompetence that I simply don’t buy. Let me explain.
First, the clear and present danger, both now and for the next year or two, is not inflation but deflation. Using the 12-month change in the Consumer Price Index as the measure, inflation has now been negative for three consecutive months.
It’s true that falling oil prices, now behind us, were the main reason for the deflation. Core C.P.I. inflation, which excludes food and energy prices, has been solidly in the range of 1.7 percent to 1.9 percent for six consecutive months. But history teaches us that weak economies drag down inflation — and ours will be weak for some time. Core inflation near zero, or even negative, is a live possibility for 2010 or 2011.
Ben S. Bernanke, the Fed chairman, is a keen student of the 1930s, and he and his colleagues have been working overtime to dodge the deflation bullet. To this end, they cut the Fed funds rate to virtually zero last December and have since relied on a variety of extraordinary policies known as quantitative easing to restore the flow of credit.
These policies basically amount to creating new bank reserves by either buying or lending against a variety of assets. But quantitative easing is universally agreed to be weak medicine compared with cutting interest rates. So the Fed is administering a large dose — which is where all those reserves come from.
The mountain of reserves on banks’ balance sheets has, in turn, filled the inflation hawks with apprehension. But their concerns are misplaced. To understand why, start with the basic economics of banking, money and inflation.
In normal times, banks don’t want excess reserves, which yield them no profit. So they quickly lend out any idle funds they receive. Under such conditions, Fed expansions of bank reserves lead to expansions of credit and the money supply and, if there is too much of that, to higher inflation.
In abnormal times like these, however, providing frightened banks with the reserves they demand will fuel neither money nor credit growth — and is therefore not inflationary.
Rather, it’s more like a grand version of what the Fed does every Christmas season. The Fed always puts more currency into circulation during this prime shopping period because people demand it, and then withdraws the “excess” currency in January.
True inflation hawks worry about that last step. (Did someone say, “Bah, humbug”?) Will the Fed really withdraw all those reserves fast enough as the financial storm abates? If not, we could indeed experience inflation. Although the Fed is not infallible, I’d make three important points:
•
The possibilities for error are two-sided. Yes, the Fed might err by withdrawing bank reserves too slowly, thereby leading to higher inflation. But it also might err by withdrawing reserves too quickly, thereby stunting the recovery and leading to deflation. I fail to see why advocates of price stability should worry about one sort of error but not the other.
•
The Fed is well aware of the exit problem. It is planning for it, is competent enough to carry out its responsibilities and has committed itself to an inflation target of just under 2 percent. Of course, none of that assures us that the Fed will hit the bull’s-eye. It might miss and produce, say, inflation of 3 percent or 4 percent at the end of the crisis — but not 8 or 10 percent.
•
The Fed will start the exit process when the economy is still below full employment and inflation is below target. So some modest rise in inflation will be welcome. The Fed won’t have to clamp down hard.
SKEPTICAL? Then let’s see what the bond market vigilantes really think.
The market’s implied forecast of future inflation is indicated by the difference between the nominal interest rates on regular Treasury debt and the corresponding real interest rates on Treasury Inflation Protected Securities, or TIPS. These estimates change daily. But on Friday, the five-year expected inflation rate was about 1.6 percent and the 10-year expected rate was about 1.9 percent. Notice that the latter matches the Fed’s inflation target. I don’t think that’s a coincidence.
But if the inflation outlook is so benign, why have Treasury borrowing rates skyrocketed in the last few months? Is it because markets fear that the Fed will lose control of inflation? I think not. Rising Treasury rates are mainly a return to normalcy.
In January, the markets were expecting about zero inflation over the coming five years, and only about 0.6 percent average inflation over the next decade. The difference between then and now is that markets were in a panicky state in January, braced for financial Armageddon; they have since calmed down.
My conclusion? The markets’ extraordinarily low expected inflation in January was both aberrant and worrisome — not today’s. As long as expected inflation doesn’t rise much further, you should find something else to worry about. Unfortunately, choices abound.
Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.
Wednesday, May 27, 2009
George Soros on The Financial Crisis
by George Soros
There are two features that I think deserve to be pointed out. One is that the financial system as we know it actually collapsed. After the bankruptcy of Lehman Brothers on September 15, the financial system really ceased to function. It had to be put on artificial life support. At the same time, the financial shock had a tremendous effect on the real economy, and the real economy went into a free fall, and that was global.
The other feature is that the financial system collapsed of its own weight. That contradicted the prevailing view about financial markets, namely that they tend toward equilibrium, and that equilibrium is disturbed by extraneous forces, outside shocks. Those disturbances were supposed to occur in a random fashion. Markets were seen basically as self-correcting. That paradigm has proven to be false. So we are dealing not only with the collapse of a financial system, but also with the collapse of a worldview.
That's the situation that President Obama inherited. He's faced with two objectives. One, he must arrest the collapse and, if possible, reverse it. Second, he has to reconstruct the financial system because it cannot be restored to what it was. This is a new situation. When people see this crisis as being the same as previous financial crises, they're making a mistake.
The interesting thing is that what needs to be done in the short term is almost exactly the opposite of what needs to be done in the long term. Obviously the problem was excessive leverage. But when you have a collapse of credit there's only one source of credit that is still credible, and that's the state: the Federal Reserve and the Treasury. Then you have actually to inject a lot more leverage and money into the economy; you have to print money as fast as you can, expand the balance sheet of the Federal Reserve, increase the national debt. And that is, in fact, what has been done, which is the right thing to do. But then once this policy is successful, you have to rein in the money supply as fast as you can.
I would say that policy has generally lagged behind events. We were behind the curve. Now that the free fall is moderating, and the collapse has more or less occurred, I think there is hope that policy will, in fact, catch up with events. The outcome of the stress test of the banks will be important, because that's basically where the policy has been lagging behind—in recapitalizing the banks. And that's where most of the confusion comes from.
There are two features that I think deserve to be pointed out. One is that the financial system as we know it actually collapsed. After the bankruptcy of Lehman Brothers on September 15, the financial system really ceased to function. It had to be put on artificial life support. At the same time, the financial shock had a tremendous effect on the real economy, and the real economy went into a free fall, and that was global.
The other feature is that the financial system collapsed of its own weight. That contradicted the prevailing view about financial markets, namely that they tend toward equilibrium, and that equilibrium is disturbed by extraneous forces, outside shocks. Those disturbances were supposed to occur in a random fashion. Markets were seen basically as self-correcting. That paradigm has proven to be false. So we are dealing not only with the collapse of a financial system, but also with the collapse of a worldview.
That's the situation that President Obama inherited. He's faced with two objectives. One, he must arrest the collapse and, if possible, reverse it. Second, he has to reconstruct the financial system because it cannot be restored to what it was. This is a new situation. When people see this crisis as being the same as previous financial crises, they're making a mistake.
The interesting thing is that what needs to be done in the short term is almost exactly the opposite of what needs to be done in the long term. Obviously the problem was excessive leverage. But when you have a collapse of credit there's only one source of credit that is still credible, and that's the state: the Federal Reserve and the Treasury. Then you have actually to inject a lot more leverage and money into the economy; you have to print money as fast as you can, expand the balance sheet of the Federal Reserve, increase the national debt. And that is, in fact, what has been done, which is the right thing to do. But then once this policy is successful, you have to rein in the money supply as fast as you can.
I would say that policy has generally lagged behind events. We were behind the curve. Now that the free fall is moderating, and the collapse has more or less occurred, I think there is hope that policy will, in fact, catch up with events. The outcome of the stress test of the banks will be important, because that's basically where the policy has been lagging behind—in recapitalizing the banks. And that's where most of the confusion comes from.
Friday, May 15, 2009
Empire of Carbon
by Paul Krugman
I have seen the future, and it won’t work.
These should be hopeful times for environmentalists. Junk science no longer rules in Washington. President Obama has spoken forcefully about the need to take action on climate change; the people I talk to are increasingly optimistic that Congress will soon establish a cap-and-trade system that limits emissions of greenhouse gases, with the limits growing steadily tighter over time. And once America acts, we can expect much of the world to follow our lead.
But that still leaves the problem of China, where I have been for most of the last week.
Like every visitor to China, I was awed by the scale of the country’s development. Even the annoying aspects — much of my time was spent viewing the Great Wall of Traffic — are byproducts of the nation’s economic success.
But China cannot continue along its current path because the planet can’t handle the strain.
The scientific consensus on prospects for global warming has become much more pessimistic over the last few years. Indeed, the latest projections from reputable climate scientists border on the apocalyptic. Why? Because the rate at which greenhouse gas emissions are rising is matching or exceeding the worst-case scenarios.
And the growth of emissions from China — already the world’s largest producer of carbon dioxide — is one main reason for this new pessimism.
China’s emissions, which come largely from its coal-burning electricity plants, doubled between 1996 and 2006. That was a much faster pace of growth than in the previous decade. And the trend seems set to continue: In January, China announced that it plans to continue its reliance on coal as its main energy source and that to feed its economic growth it will increase coal production 30 percent by 2015. That’s a decision that, all by itself, will swamp any emission reductions elsewhere.
So what is to be done about the China problem?
Nothing, say the Chinese. Each time I raised the issue during my visit, I was met with outraged declarations that it was unfair to expect China to limit its use of fossil fuels. After all, they declared, the West faced no similar constraints during its development; while China may be the world’s largest source of carbon-dioxide emissions, its per-capita emissions are still far below American levels; and anyway, the great bulk of the global warming that has already happened is due not to China but to the past carbon emissions of today’s wealthy nations.
And they’re right. It is unfair to expect China to live within constraints that we didn’t have to face when our own economy was on its way up. But that unfairness doesn’t change the fact that letting China match the West’s past profligacy would doom the Earth as we know it.
Historical injustice aside, the Chinese also insisted that they should not be held responsible for the greenhouse gases they emit when producing goods for foreign consumers. But they refused to accept the logical implication of this view — that the burden should fall on those foreign consumers instead, that shoppers who buy Chinese products should pay a “carbon tariff” that reflects the emissions associated with those goods’ production. That, said the Chinese, would violate the principles of free trade.
Sorry, but the climate-change consequences of Chinese production have to be taken into account somewhere. And anyway, the problem with China is not so much what it produces as how it produces it. Remember, China now emits more carbon dioxide than the United States, even though its G.D.P. is only about half as large (and the United States, in turn, is an emissions hog compared with Europe or Japan).
The good news is that the very inefficiency of China’s energy use offers huge scope for improvement. Given the right policies, China could continue to grow rapidly without increasing its carbon emissions. But first it has to realize that policy changes are necessary.
There are hints, in statements emanating from China, that the country’s policy makers are starting to realize that their current position is unsustainable. But I suspect that they don’t realize how quickly the whole game is about to change.
As the United States and other advanced countries finally move to confront climate change, they will also be morally empowered to confront those nations that refuse to act. Sooner than most people think, countries that refuse to limit their greenhouse gas emissions will face sanctions, probably in the form of taxes on their exports. They will complain bitterly that this is protectionism, but so what? Globalization doesn’t do much good if the globe itself becomes unlivable.
It’s time to save the planet. And like it or not, China will have to do its part.
I have seen the future, and it won’t work.
These should be hopeful times for environmentalists. Junk science no longer rules in Washington. President Obama has spoken forcefully about the need to take action on climate change; the people I talk to are increasingly optimistic that Congress will soon establish a cap-and-trade system that limits emissions of greenhouse gases, with the limits growing steadily tighter over time. And once America acts, we can expect much of the world to follow our lead.
But that still leaves the problem of China, where I have been for most of the last week.
Like every visitor to China, I was awed by the scale of the country’s development. Even the annoying aspects — much of my time was spent viewing the Great Wall of Traffic — are byproducts of the nation’s economic success.
But China cannot continue along its current path because the planet can’t handle the strain.
The scientific consensus on prospects for global warming has become much more pessimistic over the last few years. Indeed, the latest projections from reputable climate scientists border on the apocalyptic. Why? Because the rate at which greenhouse gas emissions are rising is matching or exceeding the worst-case scenarios.
And the growth of emissions from China — already the world’s largest producer of carbon dioxide — is one main reason for this new pessimism.
China’s emissions, which come largely from its coal-burning electricity plants, doubled between 1996 and 2006. That was a much faster pace of growth than in the previous decade. And the trend seems set to continue: In January, China announced that it plans to continue its reliance on coal as its main energy source and that to feed its economic growth it will increase coal production 30 percent by 2015. That’s a decision that, all by itself, will swamp any emission reductions elsewhere.
So what is to be done about the China problem?
Nothing, say the Chinese. Each time I raised the issue during my visit, I was met with outraged declarations that it was unfair to expect China to limit its use of fossil fuels. After all, they declared, the West faced no similar constraints during its development; while China may be the world’s largest source of carbon-dioxide emissions, its per-capita emissions are still far below American levels; and anyway, the great bulk of the global warming that has already happened is due not to China but to the past carbon emissions of today’s wealthy nations.
And they’re right. It is unfair to expect China to live within constraints that we didn’t have to face when our own economy was on its way up. But that unfairness doesn’t change the fact that letting China match the West’s past profligacy would doom the Earth as we know it.
Historical injustice aside, the Chinese also insisted that they should not be held responsible for the greenhouse gases they emit when producing goods for foreign consumers. But they refused to accept the logical implication of this view — that the burden should fall on those foreign consumers instead, that shoppers who buy Chinese products should pay a “carbon tariff” that reflects the emissions associated with those goods’ production. That, said the Chinese, would violate the principles of free trade.
Sorry, but the climate-change consequences of Chinese production have to be taken into account somewhere. And anyway, the problem with China is not so much what it produces as how it produces it. Remember, China now emits more carbon dioxide than the United States, even though its G.D.P. is only about half as large (and the United States, in turn, is an emissions hog compared with Europe or Japan).
The good news is that the very inefficiency of China’s energy use offers huge scope for improvement. Given the right policies, China could continue to grow rapidly without increasing its carbon emissions. But first it has to realize that policy changes are necessary.
There are hints, in statements emanating from China, that the country’s policy makers are starting to realize that their current position is unsustainable. But I suspect that they don’t realize how quickly the whole game is about to change.
As the United States and other advanced countries finally move to confront climate change, they will also be morally empowered to confront those nations that refuse to act. Sooner than most people think, countries that refuse to limit their greenhouse gas emissions will face sanctions, probably in the form of taxes on their exports. They will complain bitterly that this is protectionism, but so what? Globalization doesn’t do much good if the globe itself becomes unlivable.
It’s time to save the planet. And like it or not, China will have to do its part.
Monday, April 6, 2009
Thomas Friedman and Fareed Zakaria on Climate Crisis
Thomas Friedman and Fareed Zakaria, One-To-One
Fareed Zakaria: Your book is about two things, the climate crisis and also about an American crisis. Why do you link the two?
Thomas Friedman: You're absolutely right--it is about two things. The book says, America has a problem and the world has a problem. The world's problem is that it's getting hot, flat and crowded and that convergence--that perfect storm--is driving a lot of negative trends. America's problem is that we've lost our way--we've lost our groove as a country. And the basic argument of the book is that we can solve our problem by taking the lead in solving the world's problem.
Zakaria: Explain what you mean by "hot, flat and crowded."
Friedman: There is a convergence of basically three large forces: one is global warming, which has been going on at a very slow pace since the industrial revolution; the second--what I call the flattening of the world--is a metaphor for the rise of middle-class citizens, from China to India to Brazil to Russia to Eastern Europe, who are beginning to consume like Americans. That's a blessing in so many ways--it's a blessing for global stability and for global growth. But it has enormous resource complications, if all these people--whom you've written about in your book, The Post American World--begin to consume like Americans. And lastly, global population growth simply refers to the steady growth of population in general, but at the same time the growth of more and more people able to live this middle-class lifestyle. Between now and 2020, the world's going to add another billion people. And their resource demands--at every level--are going to be enormous. I tell the story in the book how, if we give each one of the next billion people on the planet just one sixty-watt incandescent light bulb, what it will mean: the answer is that it will require about 20 new 500-megawatt coal-burning power plants. That's so they can each turn on just one light bulb!
Zakaria: In my book I talk about the "rise of the rest" and about the reality of how this rise of new powerful economic nations is completely changing the way the world works. Most everyone's efforts have been devoted to Kyoto-like solutions, with the idea of getting western countries to reduce their carbon dioxide emissions. But I grew to realize that the West was a sideshow. India and China will build hundreds of coal-fire power plants in the next ten years and the combined carbon dioxide emissions of those new plants alone are five times larger than the savings mandated by the Kyoto accords. What do you do with the Indias and Chinas of the world?
Friedman: I think there are two approaches. There has to be more understanding of the basic unfairness they feel. They feel like we sat down, had the hors d'oeuvres, ate the entrée, pretty much finished off the dessert, invited them for tea and coffee and then said, "Let's split the bill." So I understand the big sense of unfairness--they feel that now that they have a chance to grow and reach with large numbers a whole new standard of living, we're basically telling them, "Your growth, and all the emissions it would add, is threatening the world's climate." At the same time, what I say to them--what I said to young Chinese most recently when I was just in China is this: Every time I come to China, young Chinese say to me, "Mr. Friedman, your country grew dirty for 150 years. Now it's our turn." And I say to them, "Yes, you're absolutely right, it's your turn. Grow as dirty as you want. Take your time. Because I think we probably just need about five years to invent all the new clean power technologies you're going to need as you choke to death, and we're going to come and sell them to you. And we're going to clean your clock in the next great global industry. So please, take your time. If you want to give us a five-year lead in the next great global industry, I will take five. If you want to give us ten, that would be even better. In other words, I know this is unfair, but I am here to tell you that in a world that's hot, flat and crowded, ET--energy technology--is going to be as big an industry as IT--information technology. Maybe even bigger. And who claims that industry--whose country and whose companies dominate that industry--I think is going to enjoy more national security, more economic security, more economic growth, a healthier population, and greater global respect, for that matter, as well. So you can sit back and say, it's not fair that we have to compete in this new industry, that we should get to grow dirty for a while, or you can do what you did in telecommunications, and that is try to leap-frog us. And that's really what I'm saying to them: this is a great economic opportunity. The game is still open. I want my country to win it--I'm not sure it will.
Zakaria: I'm struck by the point you make about energy technology. In my book I'm pretty optimistic about the United States. But the one area where I'm worried is actually ET. We do fantastically in biotech, we're doing fantastically in nanotechnology. But none of these new technologies have the kind of system-wide effect that information technology did. Energy does. If you want to find the next technological revolution you need to find an industry that transforms everything you do. Biotechnology affects one critical aspect of your day-to-day life, health, but not all of it. But energy--the consumption of energy--affects every human activity in the modern world. Now, my fear is that, of all the industries in the future, that's the one where we're not ahead of the pack. Are we going to run second in this race?
Friedman: Well, I want to ask you that, Fareed. Why do you think we haven't led this industry, which itself has huge technological implications? We have all the secret sauce, all the technological prowess, to lead this industry. Why do you think this is the one area--and it's enormous, it's actually going to dwarf all the others--where we haven't been at the real cutting edge?
Zakaria: I think it's not about our economic system but our political system. The rhetoric we hear is that the market should produce new energy technologies. But the problem is, the use of current forms of energy has an existing infrastructure with very powerful interests that has ensured that the government tilt the playing field in their favor, with subsidies, tax breaks, infrastructure spending, etc. This is one area where the Europeans have actually been very far-sighted and have pushed their economies toward the future.
Friedman: I would say that's exactly right. It's the Europeans--and the Japanese as well--who've done it, and they've done it because of the government mechanisms you've highlighted. They have understood that, if you just say the market alone will deliver the green revolution we need, basically three things happen and none of them are good: First, the market will drive up the price to whatever level demand dictates. We saw oil hit $145 a barrel, and when that happens the oil-producing countries capture most of the profit, 90% of it. So, some of the worst regimes in the world enjoy the biggest benefits from the market run-up. The second thing that happens is that the legacy oil, gas and coal companies get the other ten percent of the profit--so companies which have no interest in changing the system get stronger. And the third thing that happens is something that doesn't happen: because you're letting the market alone shape the prices, the market price can go up and down very quickly. So, those who want to invest in the alternatives really have to worry that if they make big investments, the market price for oil may fall back on them before their industry has had a chance to move down the learning curve and make renewable energies competitive with oil. Sure, the market can drive oil to $145 a barrel and at that level wind or solar may be very competitive. But what if two months later oil is at $110 a barrel? Because of that uncertainty, because we have not put a floor price under oil, you have the worst of all worlds, which is a high price of dirty fuels--what I call in the book fuels from hell--and low investment in new clean fuels, the fuels from heaven. Yes, some people are investing in the alternatives, but not as many or as much as you think, because they are worried that without a floor price for crude oil, their investments in the alternatives could get wiped out, which is exactly what happened in the 1980s after the first oil shock. That's why you need the government to come in a reshape the market to make the cost of dirty fuels more expensive and subsidize the price of clean fuels until they can become competitive.
Right now we are doing just the opposite. Bush and Cheney may say the oil market is “free,” but that is a joke. It's dominated by the world's biggest cartel, OPEC, and America's biggest energy companies, and they've shaped this market to serve their interests. Unless government comes in and reshapes it, we're never going to launch this industry. Which is one of the reasons I argue in the book, "Change your leaders, not your light bulbs." Because leaders write rules, rules shape markets, markets give you scale. Without scale, without being able to generate renewable energy at scale, you have nothing. All you have is a hobby. Everything we've doing up to now is pretty much a hobby. I like hobbies--I used to build model airplanes as a kid. But I don't try to change the world as a hobby. And that's basically what we're trying to do.
Zakaria: But aren't we in the midst of a green revolution? Every magazine I pick up tells me ten different ways to get more green. Hybrids are doing very well...
Friedman: What I always say to people when they say to me, "We're having a green revolution" is, "Really? A green revolution! Have you ever been to a revolution where no one got hurt? That's the green revolution." In the green revolution, everyone's a winner: BP's green, Exxon's green, GM's green. When everyone's a winner, that's not a revolution--actually, that's a party. We're having a green party. And it's very fun--you and I get invited to all the parties. But it has no connection whatsoever with a real revolution. You'll know it's a revolution when somebody gets hurt. And I don't mean physically hurt. But the IT revolution was a real revolution. In the IT revolution, companies either had to change or die. So you'll know the green revolution is happening when you see some bodies--corporate bodies--along the side of the road: companies that didn't change and therefore died. Right now we don't have that kind of market, that kind of change-or-die situation. Right now companies feel like they can just change their brand, not actually how they do business, and that will be enough to survive. That's why we're really having more of a green party than a green revolution.
Zakaria: One of your chapters is called "Outgreening Al-Qaeda." Explain what you mean.
Friedman: The chapter is built around the green hawks in the Pentagon. They began with a marine general in Iraq, who basically cabled back one day and said, I need renewable power here. Things like solar energy. And the reaction of the Pentagon was, "Hey, general, you getting a little green out there? You're not going sissy on us are you? Too much sun?" And he basically said, "No, don't you guys get it? I have to provision outposts along the Syrian border. They are off the grid. They run on generators with diesel fuel. I have to truck diesel fuel from Kuwait to the Syrian border at $20 a gallon delivered cost. And that's if my trucks don't get blown up by insurgents along the way. If I had solar power, I wouldn't have to truck all this fuel. I could—this is my term, not his—‘outgreen' Al-Qaeda."
I argue in the chapter that "outgreening"--the ability to deploy, expand, innovate and grow renewable energy and clean power--is going to become one of the most important, if not the most important, sources of competitive advantage for a company, for a country, for a military. You're going to know the cost of your fuel, it's going to be so much more distributed, you will be so much more flexible, and--this is quite important, Fareed--you will also become so much more respected. I hear from law firms today: one law firm has a green transport initiative going for its staff--they only use hybrid cars--another one doesn't. If some law student out of Harvard or Yale is weighing which law firm to join--many will say today: "I think I'll go with the green one." So there are a lot of ways in which you can outgreen your competition. I think "outgreening" is going to become an important verb in the dictionary - between "outfox" and "outmaneuver."
Zakaria: Finally, let me ask you--in that context--what would this do to America's image, if we were to take on this challenge? Do you really think it could change the way America is perceived in the world?
Friedman: I have no doubt about it, which is why I say in the book: I'm not against Kyoto; if you can get 190 countries all to agree on verifiable limits on their carbon, God bless you. But at the end of the day, I really still believe--and I know you do too--in America as a model. Your book stresses this--that even in a post-American world we still are looked at by others around the world as a role model. I firmly believe that if we go green--if we prove that we can become healthy, secure, respected, entrepreneurial, richer and more innovative by greening our economy, many more people will follow us voluntarily than would do so by compulsion of a treaty. Does that mean Russia and Iran will? No. Geopolitics won't disappear. But I think it will, speaking broadly, definitely reposition us in the world with more people in more places. I look at making America the greenest country in the world like running the Olympic triathlon: if you make it to the Olympics and you run the race, maybe you win--but even if you don't win, you're fitter, healthier, more secure, more respected, more competitive and entrepreneurial, because you have given birth to a whole new clean power industry--which has to be the next great global industry--and put your economy on a much more sustainable footing. So to me, this is a win-win-win-win race, and that's why I believe we, America, need to take the lead in it. In the Cold War we had the space race with Russia to see who could be the first to put a man on the moon. Today we need an earth race with Japan, Europe, China and India--to see who can be the first to invent the clean power technologies that will allow man to live safely and sustainably on earth.
Fareed Zakaria: Your book is about two things, the climate crisis and also about an American crisis. Why do you link the two?
Thomas Friedman: You're absolutely right--it is about two things. The book says, America has a problem and the world has a problem. The world's problem is that it's getting hot, flat and crowded and that convergence--that perfect storm--is driving a lot of negative trends. America's problem is that we've lost our way--we've lost our groove as a country. And the basic argument of the book is that we can solve our problem by taking the lead in solving the world's problem.
Zakaria: Explain what you mean by "hot, flat and crowded."
Friedman: There is a convergence of basically three large forces: one is global warming, which has been going on at a very slow pace since the industrial revolution; the second--what I call the flattening of the world--is a metaphor for the rise of middle-class citizens, from China to India to Brazil to Russia to Eastern Europe, who are beginning to consume like Americans. That's a blessing in so many ways--it's a blessing for global stability and for global growth. But it has enormous resource complications, if all these people--whom you've written about in your book, The Post American World--begin to consume like Americans. And lastly, global population growth simply refers to the steady growth of population in general, but at the same time the growth of more and more people able to live this middle-class lifestyle. Between now and 2020, the world's going to add another billion people. And their resource demands--at every level--are going to be enormous. I tell the story in the book how, if we give each one of the next billion people on the planet just one sixty-watt incandescent light bulb, what it will mean: the answer is that it will require about 20 new 500-megawatt coal-burning power plants. That's so they can each turn on just one light bulb!
Zakaria: In my book I talk about the "rise of the rest" and about the reality of how this rise of new powerful economic nations is completely changing the way the world works. Most everyone's efforts have been devoted to Kyoto-like solutions, with the idea of getting western countries to reduce their carbon dioxide emissions. But I grew to realize that the West was a sideshow. India and China will build hundreds of coal-fire power plants in the next ten years and the combined carbon dioxide emissions of those new plants alone are five times larger than the savings mandated by the Kyoto accords. What do you do with the Indias and Chinas of the world?
Friedman: I think there are two approaches. There has to be more understanding of the basic unfairness they feel. They feel like we sat down, had the hors d'oeuvres, ate the entrée, pretty much finished off the dessert, invited them for tea and coffee and then said, "Let's split the bill." So I understand the big sense of unfairness--they feel that now that they have a chance to grow and reach with large numbers a whole new standard of living, we're basically telling them, "Your growth, and all the emissions it would add, is threatening the world's climate." At the same time, what I say to them--what I said to young Chinese most recently when I was just in China is this: Every time I come to China, young Chinese say to me, "Mr. Friedman, your country grew dirty for 150 years. Now it's our turn." And I say to them, "Yes, you're absolutely right, it's your turn. Grow as dirty as you want. Take your time. Because I think we probably just need about five years to invent all the new clean power technologies you're going to need as you choke to death, and we're going to come and sell them to you. And we're going to clean your clock in the next great global industry. So please, take your time. If you want to give us a five-year lead in the next great global industry, I will take five. If you want to give us ten, that would be even better. In other words, I know this is unfair, but I am here to tell you that in a world that's hot, flat and crowded, ET--energy technology--is going to be as big an industry as IT--information technology. Maybe even bigger. And who claims that industry--whose country and whose companies dominate that industry--I think is going to enjoy more national security, more economic security, more economic growth, a healthier population, and greater global respect, for that matter, as well. So you can sit back and say, it's not fair that we have to compete in this new industry, that we should get to grow dirty for a while, or you can do what you did in telecommunications, and that is try to leap-frog us. And that's really what I'm saying to them: this is a great economic opportunity. The game is still open. I want my country to win it--I'm not sure it will.
Zakaria: I'm struck by the point you make about energy technology. In my book I'm pretty optimistic about the United States. But the one area where I'm worried is actually ET. We do fantastically in biotech, we're doing fantastically in nanotechnology. But none of these new technologies have the kind of system-wide effect that information technology did. Energy does. If you want to find the next technological revolution you need to find an industry that transforms everything you do. Biotechnology affects one critical aspect of your day-to-day life, health, but not all of it. But energy--the consumption of energy--affects every human activity in the modern world. Now, my fear is that, of all the industries in the future, that's the one where we're not ahead of the pack. Are we going to run second in this race?
Friedman: Well, I want to ask you that, Fareed. Why do you think we haven't led this industry, which itself has huge technological implications? We have all the secret sauce, all the technological prowess, to lead this industry. Why do you think this is the one area--and it's enormous, it's actually going to dwarf all the others--where we haven't been at the real cutting edge?
Zakaria: I think it's not about our economic system but our political system. The rhetoric we hear is that the market should produce new energy technologies. But the problem is, the use of current forms of energy has an existing infrastructure with very powerful interests that has ensured that the government tilt the playing field in their favor, with subsidies, tax breaks, infrastructure spending, etc. This is one area where the Europeans have actually been very far-sighted and have pushed their economies toward the future.
Friedman: I would say that's exactly right. It's the Europeans--and the Japanese as well--who've done it, and they've done it because of the government mechanisms you've highlighted. They have understood that, if you just say the market alone will deliver the green revolution we need, basically three things happen and none of them are good: First, the market will drive up the price to whatever level demand dictates. We saw oil hit $145 a barrel, and when that happens the oil-producing countries capture most of the profit, 90% of it. So, some of the worst regimes in the world enjoy the biggest benefits from the market run-up. The second thing that happens is that the legacy oil, gas and coal companies get the other ten percent of the profit--so companies which have no interest in changing the system get stronger. And the third thing that happens is something that doesn't happen: because you're letting the market alone shape the prices, the market price can go up and down very quickly. So, those who want to invest in the alternatives really have to worry that if they make big investments, the market price for oil may fall back on them before their industry has had a chance to move down the learning curve and make renewable energies competitive with oil. Sure, the market can drive oil to $145 a barrel and at that level wind or solar may be very competitive. But what if two months later oil is at $110 a barrel? Because of that uncertainty, because we have not put a floor price under oil, you have the worst of all worlds, which is a high price of dirty fuels--what I call in the book fuels from hell--and low investment in new clean fuels, the fuels from heaven. Yes, some people are investing in the alternatives, but not as many or as much as you think, because they are worried that without a floor price for crude oil, their investments in the alternatives could get wiped out, which is exactly what happened in the 1980s after the first oil shock. That's why you need the government to come in a reshape the market to make the cost of dirty fuels more expensive and subsidize the price of clean fuels until they can become competitive.
Right now we are doing just the opposite. Bush and Cheney may say the oil market is “free,” but that is a joke. It's dominated by the world's biggest cartel, OPEC, and America's biggest energy companies, and they've shaped this market to serve their interests. Unless government comes in and reshapes it, we're never going to launch this industry. Which is one of the reasons I argue in the book, "Change your leaders, not your light bulbs." Because leaders write rules, rules shape markets, markets give you scale. Without scale, without being able to generate renewable energy at scale, you have nothing. All you have is a hobby. Everything we've doing up to now is pretty much a hobby. I like hobbies--I used to build model airplanes as a kid. But I don't try to change the world as a hobby. And that's basically what we're trying to do.
Zakaria: But aren't we in the midst of a green revolution? Every magazine I pick up tells me ten different ways to get more green. Hybrids are doing very well...
Friedman: What I always say to people when they say to me, "We're having a green revolution" is, "Really? A green revolution! Have you ever been to a revolution where no one got hurt? That's the green revolution." In the green revolution, everyone's a winner: BP's green, Exxon's green, GM's green. When everyone's a winner, that's not a revolution--actually, that's a party. We're having a green party. And it's very fun--you and I get invited to all the parties. But it has no connection whatsoever with a real revolution. You'll know it's a revolution when somebody gets hurt. And I don't mean physically hurt. But the IT revolution was a real revolution. In the IT revolution, companies either had to change or die. So you'll know the green revolution is happening when you see some bodies--corporate bodies--along the side of the road: companies that didn't change and therefore died. Right now we don't have that kind of market, that kind of change-or-die situation. Right now companies feel like they can just change their brand, not actually how they do business, and that will be enough to survive. That's why we're really having more of a green party than a green revolution.
Zakaria: One of your chapters is called "Outgreening Al-Qaeda." Explain what you mean.
Friedman: The chapter is built around the green hawks in the Pentagon. They began with a marine general in Iraq, who basically cabled back one day and said, I need renewable power here. Things like solar energy. And the reaction of the Pentagon was, "Hey, general, you getting a little green out there? You're not going sissy on us are you? Too much sun?" And he basically said, "No, don't you guys get it? I have to provision outposts along the Syrian border. They are off the grid. They run on generators with diesel fuel. I have to truck diesel fuel from Kuwait to the Syrian border at $20 a gallon delivered cost. And that's if my trucks don't get blown up by insurgents along the way. If I had solar power, I wouldn't have to truck all this fuel. I could—this is my term, not his—‘outgreen' Al-Qaeda."
I argue in the chapter that "outgreening"--the ability to deploy, expand, innovate and grow renewable energy and clean power--is going to become one of the most important, if not the most important, sources of competitive advantage for a company, for a country, for a military. You're going to know the cost of your fuel, it's going to be so much more distributed, you will be so much more flexible, and--this is quite important, Fareed--you will also become so much more respected. I hear from law firms today: one law firm has a green transport initiative going for its staff--they only use hybrid cars--another one doesn't. If some law student out of Harvard or Yale is weighing which law firm to join--many will say today: "I think I'll go with the green one." So there are a lot of ways in which you can outgreen your competition. I think "outgreening" is going to become an important verb in the dictionary - between "outfox" and "outmaneuver."
Zakaria: Finally, let me ask you--in that context--what would this do to America's image, if we were to take on this challenge? Do you really think it could change the way America is perceived in the world?
Friedman: I have no doubt about it, which is why I say in the book: I'm not against Kyoto; if you can get 190 countries all to agree on verifiable limits on their carbon, God bless you. But at the end of the day, I really still believe--and I know you do too--in America as a model. Your book stresses this--that even in a post-American world we still are looked at by others around the world as a role model. I firmly believe that if we go green--if we prove that we can become healthy, secure, respected, entrepreneurial, richer and more innovative by greening our economy, many more people will follow us voluntarily than would do so by compulsion of a treaty. Does that mean Russia and Iran will? No. Geopolitics won't disappear. But I think it will, speaking broadly, definitely reposition us in the world with more people in more places. I look at making America the greenest country in the world like running the Olympic triathlon: if you make it to the Olympics and you run the race, maybe you win--but even if you don't win, you're fitter, healthier, more secure, more respected, more competitive and entrepreneurial, because you have given birth to a whole new clean power industry--which has to be the next great global industry--and put your economy on a much more sustainable footing. So to me, this is a win-win-win-win race, and that's why I believe we, America, need to take the lead in it. In the Cold War we had the space race with Russia to see who could be the first to put a man on the moon. Today we need an earth race with Japan, Europe, China and India--to see who can be the first to invent the clean power technologies that will allow man to live safely and sustainably on earth.
Tuesday, March 17, 2009
6 Questions On Deflation
by Robert Prechter
Q: Can increased government spending help stop the crisis? Can the government spend our way out of deflation and depression?
Answer:
Governments sometimes employ aspects of' 'fiscal policy,' i.e., altering spending or taxing policies, to 'pump up' demand for goods and services. Raising taxes for any reason would be harmful. Increasing government spending (with or without raising taxes) simply transfers wealth from savers to spenders, substituting a short-run stimulus for long-run financial deterioration.
Japan has used this approach for twelve years, and it hasn't worked. Slashing taxes absent government spending cuts would be useless because the government would have to borrow the difference. Cutting government spending is a good thing, but politics will prevent its happening prior to a crisis.
Prior excesses have resulted in a lack of solutions to the deflation problem. Like the discomfort of drug addiction withdrawal, the discomfort of credit addiction withdrawal cannot be avoided. The time to have thought about avoiding a system-wide deflation was years ago. Now it's too late. It does not matter how it happens; in the right psychological environment, deflation will win, at least initially.
Q: In deflation, what's best: to have no debts or preserve capital?
Answer:
Being debt-free means that you are freer, period. You don't have to sweat credit card payments. You don't have to sweat home or auto repossession or loss of your business. You don't have to work 6 percent more, or 10 percent more, or 18 percent more just to stay even. ...the best mortgage is none at all. If you own your home outright and lose your job, you will still have a residence. Of course, one could pay off some debts AND keep some capital - it all depends on an individual's risk appetite and tolerance.
Q: Which news and events can move the market and which can't?
A
nswer:
The subject of the news is almost irrelevant. What IS relevant is the state of investors' collective mood at the time of the news release. If they feel bullish (or bearish), they will interpret just about any news story as bullish (or bearish) too. (Or "dismiss the news," as financial commentators often put it.) The important thing to keep in mind is that while the news can cause short-term price spikes, it has no effect on the longer-term trend; only social mood does.
Q: If this deflation deepens, will the US dollar crash?
Answer:
It's very important to make a distinction between the dollar's domestic and international values. In a deflation, the value of any currency - the U.S. dollar, in this case - rises domestically: As asset prices fall, each unit of currency buys more domestically-available goods and services.
However, the USD's international value (as represented by the U.S. Dollar Index) in a deflation can rise OR fall relative to other currencies. If, for instance, the euro is deflating faster than the dollar, then the dollar's value relative to the euro will rise, and vice versa.
Q: Won't government bailouts turn deflation into inflation?
Answer:
Believers in perpetual inflation think that the government can keep assuming others' bad debts infinitely. But it can't. The only reason that Congress has gotten away with issuing this latest blizzard of new IOUs is that society is still near the top of a Grand Supercycle, so optimism and confidence still have the upper hand.
As pessimism and skepticism continue to wax and the economy contracts, the bond market will figure out that the Treasury will be unable to fund all these obligations with tax collections. Then Treasury bond prices will begin falling as if they were sub-prime mortgages.
A collapsing bond market is deflation; it is a contraction of the outstanding credit supply. Recent bailout schemes will not reverse the deflationary freight train. They will serve only to confuse the marketplace and hinder the efficient retirement of bad debts, thus exacerbating the crisis and aggravating investors' uncertainties and thereby falling right in line with the declining trend of social mood."
Q: When will recession end - and DEPRESSION begin?
Answer:
It took mainstream economists over a year to recognize the "official" start of the recession! Because a depression is a much bigger and rarer event, the delay with its "official" recognition will likely be even greater. Not to mention the fact that, interestingly, there is no "official" definition of a depression. Even if there were one, economists' views would probably differ. Rest assured, though, we intend to update on any "progress" in that direction.
Q: Can increased government spending help stop the crisis? Can the government spend our way out of deflation and depression?
Answer:
Governments sometimes employ aspects of' 'fiscal policy,' i.e., altering spending or taxing policies, to 'pump up' demand for goods and services. Raising taxes for any reason would be harmful. Increasing government spending (with or without raising taxes) simply transfers wealth from savers to spenders, substituting a short-run stimulus for long-run financial deterioration.
Japan has used this approach for twelve years, and it hasn't worked. Slashing taxes absent government spending cuts would be useless because the government would have to borrow the difference. Cutting government spending is a good thing, but politics will prevent its happening prior to a crisis.
Prior excesses have resulted in a lack of solutions to the deflation problem. Like the discomfort of drug addiction withdrawal, the discomfort of credit addiction withdrawal cannot be avoided. The time to have thought about avoiding a system-wide deflation was years ago. Now it's too late. It does not matter how it happens; in the right psychological environment, deflation will win, at least initially.
Q: In deflation, what's best: to have no debts or preserve capital?
Answer:
Being debt-free means that you are freer, period. You don't have to sweat credit card payments. You don't have to sweat home or auto repossession or loss of your business. You don't have to work 6 percent more, or 10 percent more, or 18 percent more just to stay even. ...the best mortgage is none at all. If you own your home outright and lose your job, you will still have a residence. Of course, one could pay off some debts AND keep some capital - it all depends on an individual's risk appetite and tolerance.
Q: Which news and events can move the market and which can't?
A
nswer:
The subject of the news is almost irrelevant. What IS relevant is the state of investors' collective mood at the time of the news release. If they feel bullish (or bearish), they will interpret just about any news story as bullish (or bearish) too. (Or "dismiss the news," as financial commentators often put it.) The important thing to keep in mind is that while the news can cause short-term price spikes, it has no effect on the longer-term trend; only social mood does.
Q: If this deflation deepens, will the US dollar crash?
Answer:
It's very important to make a distinction between the dollar's domestic and international values. In a deflation, the value of any currency - the U.S. dollar, in this case - rises domestically: As asset prices fall, each unit of currency buys more domestically-available goods and services.
However, the USD's international value (as represented by the U.S. Dollar Index) in a deflation can rise OR fall relative to other currencies. If, for instance, the euro is deflating faster than the dollar, then the dollar's value relative to the euro will rise, and vice versa.
Q: Won't government bailouts turn deflation into inflation?
Answer:
Believers in perpetual inflation think that the government can keep assuming others' bad debts infinitely. But it can't. The only reason that Congress has gotten away with issuing this latest blizzard of new IOUs is that society is still near the top of a Grand Supercycle, so optimism and confidence still have the upper hand.
As pessimism and skepticism continue to wax and the economy contracts, the bond market will figure out that the Treasury will be unable to fund all these obligations with tax collections. Then Treasury bond prices will begin falling as if they were sub-prime mortgages.
A collapsing bond market is deflation; it is a contraction of the outstanding credit supply. Recent bailout schemes will not reverse the deflationary freight train. They will serve only to confuse the marketplace and hinder the efficient retirement of bad debts, thus exacerbating the crisis and aggravating investors' uncertainties and thereby falling right in line with the declining trend of social mood."
Q: When will recession end - and DEPRESSION begin?
Answer:
It took mainstream economists over a year to recognize the "official" start of the recession! Because a depression is a much bigger and rarer event, the delay with its "official" recognition will likely be even greater. Not to mention the fact that, interestingly, there is no "official" definition of a depression. Even if there were one, economists' views would probably differ. Rest assured, though, we intend to update on any "progress" in that direction.
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