Saving and Investing Made Easy
Posted by Eric Solis on December 12, 2011 under Prophetic Visions | 
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Here is the second part of a sermon from May of this year. Don’t discount the power of prayer when it comes to business!
Posted by Eric Solis on under Prophetic Visions | Be the First to Comment
Please listen to the first part of an inspired sermon I gave in May of this year. Don’t discount the power of prayer when it comes to business!
Posted by Eric Solis on June 22, 2011 under National Debt, Public Policy, Saving & Investing, Uncategorized | Be the First to Comment
This will shock many and I am sure cause a reaction in some, but the cure to the economic woos facing our nation is not the national debt in isolation, as the national debt is an unsolvable problem under the current tax schema. Bottom line…America has a structural deficit and the problem can’t be fixed without first converting from a consumer based society to a nation of savers. The problem with our national debt is that we are not “self funded”. As you know the US relies heavily on external capital from nations that do not share our values and/or interests. This so called “hot money” can be expatriate back to its home country without warning.
What is the solution? We MUST generate enough domestic savings to absorb the delta between tax receipts and government deficit spending. In other words, private sector savings can offset government spending on the cash flow statement of USA Inc. The debt will still rise, but if Americans hold the debt, then it is like borrowing money from ourselves. In the absence of addressing the private savings rate, spending cuts alone will not solve the problem as the debt bucket has a hole that no amount of duct tape can fix. In the absence of a complete overhaul of the tax system, which is out dated and built on a industrial era platform of American consumerism, the USA will collapse from the weight of its debt and will make Greece look like a wealthy nation in comparison, and NO amount of tax cuts can change this course if left uncorrected.
On the other hand; an increased savings rate will have an inverted multiplier effect on public debt reduction. Meaning that for every dollar saved, the net effect will be an equivalent reduction of government debt. Savings is to de-leveraging, as leverage is to consumption. We MUST also let go of Keynesian dogma that asserts that savings hurts the economy. We need to think about becoming healthy financially so we can sell best of breed products into a global economy which has the potential to explode in the years to come. If America gets serious about causing China to play by the rules (i.e. re-valuing the Yuan) then America will once again be in position to compete for high paying manufacturing jobs.
Re-valuation will also reverse the tide of our massive trade deficit and move us toward a balanced current account, furthering the reduction of aggregate US liabilities.
Posted by Eric Solis on December 29, 2010 under Banking, Financial Crisis, General, Global/International, U.S. Treasury Markets, Uncategorized | Be the First to Comment
Oil Prices-Surrogate Interest Rate; Low rates are the problem not the solution.
Oil is priced more like a bond than a commodity. As interest rates go down, prices of oil rise and as interest rates go up, oil prices fall. Why is this important? Because the Federal Reserve is choosing to leave interest rates at or near zero to keep oil prices artificially high. The result of this is that money that is being funneled to OPEC could be going to the American people by way of lower gas prices at the pump, heating oil and lower consumer prices. The distribution of freed up capital as a result of lower oil prices is far reaching when prices drop. The economic benefit hits the economy immediately and is spread far and wide across all socio economic classes. Low interest rates on the other hand, unevenly distribute relief to those persons owning assets which require financing in particular BANKS. The problem is that in an economic climate where savings not debt is the required behavior; lower interest rates are a bastardized strategy towards stimulating economic growth.
Even more disconcerting is that low interest rates are essentially a vehicle for funneling money to OPEC by way of artificially high interest rates. What do I mean by this? Think about it this way. If interest rates were to increase to 5% which is the historical average for 100 years, then oil would drop back to 1990 levels. Think about a world today with $1 gas prices at the pump and natural gas bills for heating your home cut by 65%.
This would distribute 100’s of billions of dollars immediately and tangibly right into the pockets of the American people. Instead what the government is doing is keeping rates at zero; so that oil prices remain high and thereby American consumers are channeling these hundreds of billions of dollars to Saudi Arabia instead. The other benefactor to this strategy is the BANKS. Since they borrow at 0%, they are basically getting free money at the direct expense to the consumer. The consumer is getting hoodwinked into thinking that low interest rates are simulative to the economy. But you need not be an economist to determine that the supposed tsunami of capital that the government has injected through fiscal and monetary policy, is NOT finding its way into the hands of consumers. In fact it is being sucked out of the pockets of consumers by way of an artificially high oil price. This tax on consumers is then monetized by way of printing more dollars and then loaned to banks at zero percent.
IMHO
Posted by Eric Solis on December 20, 2010 under Global/International, Uncategorized | 3 Comments to Read
December 20th, 2010
Paper Tigers
By: Eric Solis
America has imported low inflation and in exchange exported its wealth for the past half century. This Began with the Japanese following World War II and has continued with the Chinese for the past two decades. The similarities between these two paper tigers are astounding.
Prior to World War II, the Yen Dollar exchange rate was 3 to 1 and Japan was a vibrant economy with a strong currency. After The United States defeated Japan in 1945, General Mac Arthur was charged with revaluing the Yen. He looked at the Japanese flag and saw the red sphere representing a 360 degree angle; hence he pegged the Yen Dollar exchange rate at 360 to 1. Overnight, Japan went from being an industrial nation to a third world country with a weak currency. This currency devaluation guaranteed two things 1) Americans would be able trade dollars for cheap Japanese products and 2) America would provide the capital for Japan to rebuild after having two of its largest and most strategic industrialized cities demolished.
The Japanese finally de-peg the Yen from the USD after the US abandoned the gold standard in 1971. But, by then the forces of an artificially weak currency were already in motion. Japanese exports had become too cheap in the international markets, they had a huge trade surplus and inflation was escalating because of exploding money supply.
By the mid 1980’s Japan was buying assets at a blistering pace…everything from government bonds, landmark real estate, US equities and prestigious county clubs and golf courses and they ran a burgeoning trade surplus with America. Fear was mounting that Japan would soon own America.
But, the political and economic reality was that the Japanese had won their massive wealth through a planned and unsustainable competitive advantage that was built into the trade relationship with the United States following the war. As the Yen began to strengthen, causing prices to rise in the international markets, the Japanese became less competitive and by the end of the decade, their products were priced in line with American made products. After 40 years of being on the receiving end of American consumerism, Japan had become a wealthy juggernaut and America’s mission of rebuilding had been completed. Next up…American’s point there consumption across the bay towards China.
Japanese were a case study for the Chinese… a practice test, the beta, the crash dummy so to speak. Like Japan, the Chinese have also benefitted from an artificially suppressed currency value which has gained them an unfair and unsustainable competitive advantage against trading partners including the USA. But America has a goal just like it did with Japan; to open up the huge Chinese market and abolish communism.
This plan has been in the works for over 150 years reaching back in time to the Opium War of 1839-42. As a result of the Treaty of Nanking in 1842, the Treaty of Beijing in 1860, and The Convention for the Extension of Hong Kong Territory in 1898, the Chinese entered into a 99 year lease placing Hong Kong under British rule. The lease expired on July 1st, 1997 and the United Kingdom returned Hong Kong back to China. They received a world class society with a western style economy, free markets, vast technological and business infrastructure and a multi-party political system.
However, mainland China had made little progress during that time period economically, politically or socially. But the West now had a foothold into China that would give it the access it needed to begin breaking loose communisms chock hold on China, beginning with its currency. The Yuan-Renminbi has been pegged to the USD for decades which has played a pivotal role in China’s ability to dominate in international trade and become what it is today. But there oughtn’t to be an utterance of China amongst bona-fide world leaders until China proves that it can compete in the world of business and trade with a currency that trades freely and unabated and without being controlled or manipulated and whereby their society is protected by human and property rights.
To create a visual, imagine pushing a beach ball under water…keep pushing…keep pushing down…down…down…down further and deeper, keep going and then BOOM!!! Eventually the ball is going to rush to the surface with a vengeance. In economic and societal terms, this is what is happening within China as their wealth is being unevenly distributed and their massive trade imbalance is being hoarded by the government to control the value of the Yuan. These macro forces are giving the Chinese government indigestion as both tempers and inflation rise.
Having a large trade surplus is no better than having an equally large trade deficit. The goal is to balance the current accounts and bring equilibrium between imports and exports. This balance in trade is a sign of a healthy economy which indicates that investments are moving in both directions and there is not an excess of savings or spending.
The question is who has the easier problem to solve, America or China? China creates sweat shops and abuses its citizens to distribute cheap products around the globe and they care little about establishing a vibrant middle class or legal framework with defendable human and property rights. They have hoarded trillions of USD to manipulate the Yuan and now there is a crack in the levy.
On the other hand, the US has the lowest savings rates in the industrialized world and a thirteen trillion dollar national debt, a bad combination to be sure. But it has one of the most advanced economies in the world and is able to mass produce goods and services with global reach and distribution capabilities. The USA is home the most efficiently run companies and it has a robust middle class and it marks its markets to the market each and every day without interference.
As of this writing, the Chinese are feeling the pressure of an undervalued currency. The Chinese current accounts currently hold over $1.5 trillion USD which was an intentional transfer of wealth to open their market. But now, as China flexes its steroid built economic muscles, the United States will take away the needle. China is the proverbial “bull in a China shop” (pun intended) and they stand to wreak havoc on the tentative global economy if left unchecked.
Watch and listen as the United States power structure begins turn the screws on China and their currency. As baseball was to Barry Bonds, the markets will be to China as it imputes punishment on the Chinese for its ill gotten wealth. While the USA has its work cut out as it goes through the painful process of revaluation and deleveraging, it will fare far better than the Chinese who still must learn the basic fundamentals of how to operate within a free market economy.
It is true that the Chinese are a new, huge and profitable market and a major source of global growth, but will this translate into sustainable economic and political power? Not until they choose to recognize and enforce and embrace free markets, human rights, property rights and free speech; which are all pre-requisites to leading in the twenty first century.
As China runs its course, who will be next…India?
Posted by Eric Solis on November 17, 2010 under Public Policy, Technology & Innovation | Be the First to Comment
More times than not, “protection” equates to diminished access as rules and regulations almost without exception carry a cost of compliance and they usually focus on the wrong problem.
The propensity of law makers is to focus on short run, non systemic risks, such as cost, volatility, disclosure, etc. when the real problem lies within how the core operating systems of our financial infrastructure are or are not being utilized properly. When a company holds itself out to be something it is not (technologically) and then something goes awry, public trust in technology at large is damaged and innovation suffers the consequences.
One solution might be to create a governmental agency which certifies the soundness, reliability, scale and security of technology based systems. Few, if any financial company’s today operate in a silo; they are interconnected and rely upon each other for vital process flow within the links of their transaction chain. But as the old adage goes, “you are only as strong as the weakest link in the chain” and this bares a profound truth when it comes to technology.
It is indisputable that innovation and technology can break down long standing barriers to entry for the underserved mass consumer with regard to how one achieves access to financial services and products that heretofore have been out of reach. But the problem is that the end users do not know who or what to trust and with good reason. This is where the breakdown occurs and where the focus of law makers needs to be.
If there were a “certification” that vetted new technological applications on the basis of system architecture and failure points, then entrepreneurs could develop innovative solutions that could provide high quality, unprecedented and trusted access to the public. This would hold non traditional financial companies accountable to knowledgeable industry experts employed by the government in order to maintain their participation in certificate program.
Successful examples of this methodology include:
Innovation flows through the disruptive unknown and Trust Certifications of this type would spawn a bewildering array of ACCESS to the heretofore underbanked. IMHO
Posted by Eric Solis on February 6, 2010 under Banking, Financial Crisis, General, Investment Strategies, Prophetic Visions, Saving & Investing, Stewardship/Spiritual/Finance, Stock Market, U.S. Treasury Markets | Read the First Comment
Eric wrote this article while sitting at his desk in 1997, staring out the window gazing upon the San Jacinto Mountains in Indian Wells Ca. God gave Eric a vision for what was to come in the future of our country. Read with amazement the accuracy of the vision and get ahead of the curve as we are only half way through the events to come. Eric had his entire client base load up on gold at under $300 an ounce (to be stored in their homes in a safe), he steered them into commodities, had them pay off their mortgages and eliminated all credit card debt as a result of this vision. He also saw that the only way to stop this coming economic catharsis was for Americans to save more. He launched www.savedaily.com and www.save252.com in 1999 and 2005 respectively in pursuit of creating solutions to this coming disaster. fall-of-capitalism-092319971
Posted by Eric Solis on January 28, 2010 under Stock Market | Read the First Comment
A dead cat bounce is a market that retraces half of its decline before retesting lows. When a market falls at the speed and the magnitude that this market fell, the resulting dead cat bounce can and in fact does look like a renewed bull market. But the fact is that a lot of Dow points to the upside does not change this probable reality of a continued bear market.
Simple math: If a market has rallied 3500 points or 50% off the bottom relative to a 7000 Dow coming off of a high of 14000, one needs to keep in mind that 3500 points relative to the actual starting point of 14000 is only 25%. So the markets 50% rise off the bottom is a perfect retracement to fill the gap and is a dead cat bounce. The “rally” we have experienced over the past year and a half has been a technical correction based on the traders understanding of charting and back filling gaps.
The FUNDEMANTALS (ex government spending) of the economy have not improved and the market is way over extended based on real economic activity which has actually deteriorated further. The way to protect investment capital going forward into 2010-2013 is to substantially reduce your exposure to equities.
Posted by Eric Solis on January 22, 2010 under Banking | 3 Comments to Read
Jan 22, 2010
The Federal Reserve, Treasury and Banks- modern day bank robbers
The billions of supposed profits earned by the banking industry in 2009 is nothing more than a transfer of wealth from the American people to modern day bank robbers which may well be foreign governments, powers and funds. Folks this is the fleecing of America happening right before our eyes.
Here is how the con works:
1. As the Federal Reserve and Treasury continue to take hundreds of billions of mortgage backed and asset backed securities, off of the balance sheets of “banks” they are essentially absorbing the loss that these “banks” would have been writing off in 2009 instead of posting a profit (the profit belongs to the American people). The profit/loss is a direct transfer from the bank to the Fed and Treasury.
2. The TARP money that was loaned to these banks was a shill to take our eyes off of the real fraud that was being perpetrated on the American people. This money is equivalent to the money in the register (TARP) vs. the money in the vault (i.e. banks have leveraging the full faith and credit of the Federal Reserve and U.S. Treasury combined).
3. The next part of there plan is FREE MONEY. The Fed loans money to it “members banks” at 0% and then its members turn around and buy the Treasury bonds that were issued to bail them out and then our Treasury pays them 5% interest on the money we loaned them.
Imagine if you could borrow money from your friend at 0% and then loan it back to him for 5%. WHAT A DEAL!!! (BTW your friend deserves a lobotomy). But this is exactly what our non elected officials have and continue to do while elected officials stand by and watch.
4. Step four, Convert from an investment bank to a commercial bank. Now, investment banks like Goldman Sachs and Morgan Stanley are backed by the full faith and credit of the US Government and even more important, they have unlimited access to borrowing through the Federal Reserve “bank”. Prior to this these pirates had to depend on the capital markets for their liquidity and short term cash requirements. The capital markets are institutional investors that are savvy and know how to read a balance sheet and measure risk. They held these investment banks accountable (sort of…in the end their all scratching each others backs). That is why commercial paper and other money market instruments seized up when the S#$@ hit the fan. Sophisticated investors would no longer lend these guys money. So where did they turn? They went to the so called “lender of last resort” the Federal Reserve and Treasury who not only agreed to loan them money, but they did for nothing and they also agreed to take all of their bad investments onto the balance sheet of Hedge Fund USA.
5. Step five is involves allowing these same banks to exchange toxic assets for Treasury bonds and then borrow against those treasuries at 0% so that they can lever up and buy more and more and more. What this means is that the banks took non performing assets that were in default and for all tense and purposes worthless and exchanged them for government bonds paying 5%. Then they took those bonds and placed them as collateral with the Federal Reserve in order to borrow more money so that could buy more bonds with the proceeds. With these new bonds they are able to repeat the cycle over and over again at will. Remember how we read that many banks had levered up 10x against assets on route to getting into this mess? Well they have done the same thing using Treasury bonds. Lets look at the math:
$1000 non performing assets creating a loss on the books of the bank of $800 to be written off in 2009.
Exchange the NPA to $1000 in US Treasury @ 5%.
Income $50
Bank then places this bond as collateral for a loan of $1000. Bank buys another bond.
Income $50
Loan 0%=0
If this is repeated 5x the total interest earned From Treasury Bonds= $250
Interest paid on all loans at 0%= $0
Annual Government guaranteed yield? 25%
If we carry this leverage out to a 10x the yield is 100% a year. THEY GET ALL OF THEIR MONEY BACK IN ONE YEAR!!!
Why do you suppose the banks are no longer interested in being in the business of loaning money to business and consumers? Why should they when the government is willing to give them guarantees of this sort, while insuring them against loss?
This is called “crowding out” and is perilous sign of things to come. The government is crowding out business and consumers because they need the banks to lever up with Treasury bonds, to pay for all of the bailouts of same. It is a virtual circle created by our government, Treasury, Federal Reserve and its member banks.
AND WHEN THE MUSIC STOPS ON THIS SCAM, THE PUBLIC IS ON THE HOOK TO COVER THE LOSSES AGAIN. REMEMBER…THESE “BANKS” ARE FDIC INSURED!!!
This is why the Fed is in a quandary to raise interest rates. When they do this whole thing will unravel and everybody will head for the door at the same time.
When it begins to unravel, interest rates will slowly begin to rise, which will push up the cost of carrying the trade and then this increase in rates will accelerate. At the point that the cost of the money exceeds that rate on the bonds held as collateral, the yield drops to zero.
But here is the MAJOR problem; at some point the yield on this trade will drop to zero and the positive arbitrage carry will invert and go negative. And when this happens, the impact on bank earnings will be sudden and irreversible. Banks will find themselves holding government debt that is no longer worth what they paid for it nor what they owe on it. A $1000 face value Treasury with a 5% interest rate may only be worth $500!!! Now what do they do??? BILLIONS OF DOLLARS WILL NEED TO BE WRITTEN OFF AGAIN, UNTIL ALL OF THE BANKS EQUITY IS GONE. AND THEN THE GOVERNMENT WILL NATIONALIZE THEM AND THE AMERICAN PUBLIC WILL OWN NOTHING MORE THAN A LIABILITY.
What is happening between these two points as banks post profits and pay outlandish bonuses to themselves, is that the billions being distributed by and to banks as “profits” is nothing more and nothing less than a criminal act of treason and a confiscation of our nations wealth by and through “banks” committed by the Federal Reserve, Treasury, the US government.
Posted by Eric Solis on December 26, 2009 under U.S. Treasury Markets | 2 Comments to Read
The US Treasury market will be the mother of all bubbles!!! We have seen the tsunami of liquidity that has flooded the world financial markets over the last couple of decades hop scotch from the stock market to the real estate market/derivative market and then to the commodity/gold market(s). But none of these bubbles are even a drop in the bucket compared to the bubble created by the Federal Reserve and Treasury over the past three years. Without going into a long diatribe with regard to the what, where, when, why and how; suffice it to say that anybody caught on the intermediate/long end of the market will be holding the equivalent to what the market calls “zero coupon bonds’ (bonds bought and extreme discounts which mature at par in the future).
If you are a greedy speculator who could give a rip about our country and want to reap profits beyond your wildest dreams, then short as many treasury bonds as you can on margin, with the opportunity to buy them back at penny’s on the dollar within the next 24 to 36 months. Make sure you can carry the trade and pay the margin expense. But rest assured, this will be a blood bath unlike anything the markets have ever seen. And people who thought they owned the safest investment in the world will learn the hard way that irresponsible fiscal and monetary policy of a government, regardless of its size can have a devastating and lethal impact on its lenders.
In the end, maybe they deserve it. How does one come to believe that a country with 12 trillion in debt should pay 0% interest on its debt??? As an old friend of mine once said…thinking so does not make it so!
