Sal's Corner

Not so happy labor day weekend

Highlights of the week

Although is a beautiful day here in Holland, and we are blessed to have all the things we do, the jobs picture in the US does not look to be improving and thus, the title of my blog.

Another week in Wassenaar, this week was special for a few reasons.  First and foremost, it was my daughter's 6th birthday, she had a very special day yesterday.  She invited 10 friends over and had cake and fun after school.  Here's a few pictures

Here's Annelise with her classroom at school at the "Harvest Festival" where they learned all about how vegetables and fruits are planted and harvested.  By the way, there is a small farm at the school where they grow tomatoes and other vegetables, anyone can go there and help themselves to the vegetables.

Anither picture of Annelise at school, as you can see the weather can get already cool here in Holland, although today we are having a beautiful warm day, perfect to sit by the patio and drink a very cold beer or a chilled glass of white wine, cheers!

Here's Annelise and some of her friends at the start of the birthday party, gelukkige verjaardag!! (happy birthday in dutch)

Here's Annelise surrounded by all the terats that mommy made for her, yummy!!,  and notice that she's actually wearing her glasses, she's turning into a big girl!

Andrew our Soccer (or should I say football) Star!

Andrew worked very hard all week in soccer tryouts to see if he would make the school's team.  After a week of tryouts, he found out on friday that he is one of the members of the "American School of the Hague" or ASH Trojans.  He is quite excited as he will be playing teams from the Netherlands, Belgium and Germany, he will get to go alone to Hamburg, and Waterloo among other places.  Congratulations Andrew, and GO Trojans!!

Our Car Finally Made it

Our car finally arrived from the US, I went to pick it up on friday, it is quite nice to have the freedom to move a little bit farther than with our bikes, do not get me wrong, riding our bikes is great, but on the weekends it is nice to be able to make short trips to different places.

Here's Marielle and Gianna with her friend Sarah in front of our car yey!  Notice the Texas license plates, we are getting our dutch plates until next week.  As you can imagine we stick out like a sore thumb.

This is life in the Netherlands, a good friend of Marci riding her bike after picking up her kids from school, I guess you could consider this the SUV of the bike world!

Happy Labor day Weekend in the US

This weekend is labor day weekend in the United States, and yesterday the new jobs numbers were announced, the numbers do not look encouraging, and if I was to bet, I would say the US is going into a double dip recession.  Even though I'm here in Europe, I keep very much up to date with what's going on in the US.  I read a number of publications and keep reading books as much as my time and budget allows me to.  If you are interested in getting a more sober long term perspective about the US, I would recommend you to read "End Game" or "Aftershock".  Both boks are well written and provide a lot of food for thought.  For many years the US and other countries in the developed world lived above their means and now is time to pay all we owe.  I hope I'm wrong, I really do, but my prediction is that a recession will be announced by the end of this year or beginning of next, and rememebr that on every recession the stock market falls an average of 43%.  With that I leave you as the day is beautiful outside and I have a glass of white wine waiting for me!

 

Cheers!!

 

A New All Time High!!!

Yes, you guessed, that 3 letter word that is causing so much pain in so many areas of our lives.  Oil broke a new record today, it traded above $115 per barrel for the first time in history.  I read a book a couple years ago, it is titled "The Coming Economic Collapse," in it the author tells that oil would reach the $100 mark before 2010, and he even predicts oil getting to $200 in the next few years.  I doubt it will be pretty, there will be a lot of pain.  In addition the dollar going down is not helping one bit, the dollar right now is doing the free fall act.  But I have said before that when an item is going up or going down, it usually catches some breaks before it resumes, I believe the dollar will start doing just that.  in the long term, the dollar is a losing proposition, but in the short term it could go through rallies that may fool an investor into believing that the dollar reached bottom.  I do not think we are there yet.  My guess is that within the next 5 years gold will test the $2000 dlls per ounce range.  At this point is hard to say whether that will be the bottom for the dollar.

I wanted to bring to your attention a great book I'm reading, it is titled "The Last Lecture."  You absolutely have to get your own copy, I guarantee that it will change the way you look at life.  It is about a professor from Carnegie Mellon that has terminal cancer.  This is a true story, and the professor "Randy Pausch," has an attitude like a few of us.  If you did not know he has cancer, it would be hard to tell, he's the most positive person I have ever seen.  He has 3 kids under 6 and a wife, this book "The Last Lecture" was written for his kids.  The objective is to leave in writing all the things that he wants to tell his kids.  He's a really awesome man, after reading this book you will realize how blessed you are to be alive and you will actually start enjoying life more.

A 12 Year Low...

The situation for the US keeps getting worse by the day, this morning the dollar broke a 12 year low against the yen.  As a consequence this kept oil prices at record levels and above $110 dlls/barrel.  In the meanwhile the foreclosure activity in the US rose in February, it is no wonder that other countries are opting to invest their money in other currencies as well as commodities. 

As of March 1st 2008, the US national debt stood above 9 trillion dollars, the cost to service this debt is approximately $407 billion dollars a year, the US gets deeper in the hole at the rate of $1.6 billion dollars per day.  Do you need any more proof for the demise of the dollar?  I have said it for years that if you have some money to spare, you should consider buying gold, the average citizen may not make a killing buying gold, but you may prevent inflation from killing you.  The US Fed is injecting dollars into the system at a frantic rate, and he's fighting this recession tooth and nail, so far the recession is winning if you ask me, but you have to tip your hat off to the Fed for making every attempt to fend off recession.  One problem I see is that the Fed is taking down the dollar along, the Fed is in a very difficult situation, damn if he does, and damn if he does not. 

We live very exciting times and it is worthwhile observing what's happening and learning from history as history repeats itself, it happened to Rome, it happened to England, and it happened to every other empire, what you are seeing is the US empire slowly fading away to make room for the next power, will it be China?, India?, or another country? who knows?

The Black Gold and The Real Gold

I have been saying for some time now (about 3-4 years) that we are now going through an inflationary period.  Needless to say, the dollar has been trading at record lows against the Euro and most other currencies.  As a consequence of this, oil, gold, and almost every other commodity has been getting more expensive to buy.  Oil traded slightly above $107 yesterday, and this morning while glancing through the news, I see that a new trading record was set overnight for oil.  Gold is close behind, trading at an all time record of $982.  This past weekend I had a quick visit from my brother, he came to bring his daughter to the Hannah Montana concert, he run around the city for most of Sunday, but we were able to squeeze in a conversation or two.  He mentioned to me that he read somewhere that gold could be trading above $1000 soon, that did not surprise me.  I have seen reports of experts who believe that gold will be trading above $3000 by 2010, courtesy of the profligate ways of the US.  It is not that gold is getting more expensive, the dollar is becoming weaker, and people is hesitating before accepting dollars, the dollar is not king anymore, and this trend will just continue.  The US owes a massive amount of money and the only way to get out is to inflate our currency.  The more paper we print (not backed by gold any longer), the cheaper our debt becomes. 

Just go to the grocery store, everything from apples, beef, milk, everything is more expensive, not only is the dollar getting weaker, but we also have the huge factor that is now called the Chindia factor, billions of people improving their living conditions, and now asking for the luxuries that some other countries have had for years.  Add to that the stupid policies in place in the US of subsidizing corn for use in ethanol production, and that makes a good case for food inflation.  Do not get me wrong, I'm not against bio fuels, I just do not agree with the idea that corn should be used for ethanol, and further more, that the US tax dollars should be providing a subsidy for this. 

A third factor that we will be making this situation worse is demographics, as we see more adults go into retirement than young people coming into the workforce, inflation will just keep getting worse, this phenomenon is already being noticed in some of the textile factories in the middle east and Asia, where workers are going on strike asking for higher wages.  So what should you do? you may be asking, well, the answer is not as clear cut as you may want, there is really not a one solution fits all, first of all, you have to get rid of any kind of debt that is not investment debt, any debt that has a variable interest rate should be wiped as soon as possible too.  If you have no debt and still have money to spare, start investing in lets say gold.  Think long term, do not be misled by day to day swings in prices, or by the vast amount of conflicting information that you may come across, remember that news are made to sell, and the only way to do this is to create panic, so take every piece of information you read with a grain of salt, perhaps the most important advice I could give you is to invest in your education, read, and read, and then read some more, become informed by reading everything you can get your hands on, after all, remember the saying that goes: "Readers are leaders."  Have a great week!

Commodities gone wild

I just got back from a trip to Amsterdam, and while on the plane, I had some time to get caught up on my reading.  The dollar keeps losing value, and I was reminded of that every time I pulled my wallet to pay for something while over there.  Also, last Wednesday, oil broke a new record to surpass the $101/barrel mark.  High commodity prices are due to the global demand as well as the weakness of the dollar, and the fact that every commodity is traded in dollars.  One theme I have been championing for some time is the commodities bull market.  This bull market started in 2000 and still has a few years remaining.  The problem with bull markets is that is extremely hard to remain invested throughout the full cycle.  As investors we are tempted many times along the road to dump our commodity shares for the safety of cash, we seem to forget the long term.  This brings me to the second point I want to bring tonight, I almost finished reading The Dick Davis Dividend, this is an excellent book that contains plenty of wise advise for investors, the main thing I learned from the book, is that no one knows for sure what will happen in the market over the short term, you will see pundits claiming recession, while you could find the same number of people claiming that the economy will be just fine, truth perhaps will be something in the middle.   If you want to succeed as investor, follow your gut, and stick to your strategy, but more important, if you do not have the discipline to remain true to your ideas, invest using index funds.  The author presents a chapter full of model portfolios from the brightest minds in Wall Street,  I can say that the book was money well spent.

The Recession that Never Happened

Everybody is talking about recession, but some of the information I see seems to indicate that the worst may be behind.  The stock market itself may even be telling us that.  The rule of thumb is that if something is widely advertised: a) it will not happen, or b) it has already happened.  Just when Bush is getting ready to send those tax rebate checks, we may hear from the Fed that the recession fears were over blown and that the economy may pick up the pace.  But who knows, not even the experts can predict with certainty what will happen.

I'm almost done reading a book titled "The Dick Davis Dividend," a really good book and like me, you may be able to pick up one or two nuggets of wisdom, at the end of the day, in order to make money, two things are absolutely necessary: time and patience.  You can make money very quickly, but the odds are not in your favor, the only sure recipe for accumulating money is to save and compound.  Buy cheap stocks or funds that pay a dividend and let them compound, you will be amazed what time makes out of your money. 

I also started reading another book "Happy for no reason."  This is another good recommendation, if you are trying to find meaning in your life, this book is for you.

Inflation? Deflation? Recession?

So the question is will there be recession? will we see inflation? may be deflation?  No one knows, I have a feeling that the US is already in recession and by the time it is formally recognized and the government tries to do something about it we will be a the bottom of the economic cycle.  The US government is proposing an economic aid package that will amount to something like $145 billion dlls, although is a good gesture, this is a little over 1% of the US GDP, and honestly I doubt it will make any difference.  So assuming we see recession, what does this mean for commodities?  My guess is that if recession takes place, a good number of commodities will get whacked, you could see oil, copper, steel, and other metals decline in price, it is a function of supply and demand.  As for gold, gold is a slightly different beast, gold is less of an industrial commodity and more of a hedge against inflation or currency devaluation (such as is happening to the dollar).  My feeling is that gold will undergo a correction period where it may test the $700's but long term it has nowhere to go but up, courtesy of the US profligate ways.

I'd like to recommend that you visit the following web site (http://www.aheadofthecurve-thebook.com) it contains a number of excellent charts that will help you understand the economic cycle.

Four Peas in a Pod

I wanted to share this picture with you, it was taken again by my mother in law last week.  I think she's a great photographer, may be she has found her second calling.   You can see that sadly my son did not get for christmas his two front teeth (as the song would go). 
Anyway, time to talk about finances, yesterday Goldman Sack said that they see a recession likely in 2008, really!!!  All it takes for people to believe is someone like goldman saying it.  It amazes me that as little as 3 weeks ago still no one talked about recession, after christmas apparently things changed significantly and now everybody is worried about a recession.  Good thing the Grinch did not stole christmas and the announcement came after the holidays.  Bush in the meanwhile announced that the government is ready to help with the printing press, Bush said the government would do whatever it takes to fend off a recession, and he's already talking about specific tactics such as tax rebates.  The problem is still that at the end of the day someone has to pay for that, bu why worry, after all, the world still considers the dollar worth as much as gold and the US can print as many dollar as it wants.  This sounds very bullish for gold.  Right now gold looks oversold, and it would not surprise me if it pulls back some, it has climbed too much, too soon, but given the size of our deficit, and our ability and willingness to keep spending money we do not have, it would not surprise me one bit to see gold cross the $1000 mark within the next 2 or 3 months.
So now that everybody is talking recession and even Ben Bernanke is ready to pull all the stops in order to help our economy what should you do? Should you sell and buy bonds? should you buy defensive stocks? Should you remain in cash? Should you buy gold? should you just hold on tight and close your eyes?  Well fortunately you do not pay me to advice you on this, because that is not something I will do.  I can tell you that you should review your investment strategy and stay true to it.  If you bought a stock a few months ago because you felt is a good long term play, then you should hold on to it, are the fundamentals still valid?  Question yourself rationally, do not fall in the "buy high, sell low trap."
About a year ago I read an excellent book titled "Ahead of the Curve," and on it the author described how you could predict a recession by looking at leading indicators.  Tonight I'm going to dust off that book and re read sections of it as it may come useful in the next few blogs.
Finally I would like to congratulate my older brother in his birthday tomorrow.  I will not be able to be with him, but I send him my congratulations and best regards, I hope he lives a very long, happy and healthy life along his family.

Congratulations!!!

The Wisdom of the Chinese

There is a Chinese saying that goes: "Even a broken watch is correct twice a day."  About a year ago I made a call that may have been premature.  A year ago I said that the US was bound for a recession, I was off by about a year.  This time around I think there are serious indications that the US may already be in a recession.  A recession by most standards means 2 quarters of negative economic growth as reflected by the GDP.  This may have started back in December, and the latest manufacturing and jobs indicators my seem to be pointing in this direction.  By the time the government confirms that we are indeed in a recession, it will be too late and whatever the Fed can do will com too little too late.  The ISM index, which is an indicator of industrial activity came back lower than 50 this month.  This represents a contraction in the manufacturing activity.  Also yesterday, the new jobs number came dismally low at about 18,000 new jobs created, the US needs about 150,000 jobs created in order just to keep pace, so yesterdays number was not very encouraging, and investors reacted accordingly by sending the Dow Jones index down 250 points.  If you like investing in stocks, save you cash, my guess is that by June there will be great buying opportunities in the stock market, right now would probably be a good time to buy bonds, and if you are thinking about buying a house, wait until mid year, my guess is that interest rates will fall, sending mortgage rates lower as well.

Here you go, this my first blog of the new year, before I leave I wanted to share this picture of one of my daughters, this picture was taken by my mother in law last summer, this photo was not planned and she never asked my daughter to pose, I just though this is the prettiest picture in the whole wide world, but again what can I say, after all she's my daughter, if I was to enter this picture in a contest I would title it "My green little angel" (double click on the picture to see it magnified).  Have a great weekend!

The End of Cheap Food

Yesterday I picked up a copy of The Economist at Barnes and Noble along with the newest book from Jim Rogers, titled "A Bull in China."  If you have the opportunity, I recommend you to get a copy of this week's Economist magazine, the cover story is about the end of cheap food and how for the next 10 years we will see higher and higher food prices.  The problem is two-fold:1) Asian countries now have more disposable money and can afford to eat more meat.  For example, back in the mid 80's the typical Chinese ate 20 kg of meat per year, in 2007, that number is at almost 50 kg.  In addition, it takes about 8 kg of corn to produce 1kg of beef, the second problem is that the US is providing subsidies for farmers harvesting corn to be used in bioethanol.  According to the economist, the amount of corn used to produce one tank of ethanol for an SUV would be enough to feed a single person during an entire year.  Truth of the matter is that food and groceries in general are getting more expensive, and like in the past, this does not seem to be a spike where prices will go back down, the trend is predicted to keep rising.
This along with a weak dollar make for an even stronger case for a commodities bull market, the food index published by the economist is at the highest level it has ever been since they started publishing this index in 1845.  The obesity epidemic that we are seeing in the United States may finally get a helping hand from higher food prices.
Last night I also started reading the book I mentioned before by Jim Rogers, for those of you who do not know who he is, he's a very wealthy investor that founded the Quantum Hedge fund along with George Soros, Jim made so much money that he was able to retire at 37 yrs old, after retiring he has traveled the world at least twice and he's very optimistic about the Chinese Economy.  I'm looking forward to reading his book and learning from his wise advice.