Liquidity – The Game of Money and How To Win – Part 1 (includes FOMC subsection)

 Source :   blog.timesunion.com

You can see George Washington in a nugget and own it for  GDP 5,000.

When my grandfather was in college, he was given a scholarship of a 30 dollars a month. He would keep 10 for himself and send the rest off to his mom. It was riches considering that his allowance at home was 5 cts a day which bought him a meal and covered his transport. When he graduated, he was on a handsome wage of 150 dollars.

The global population then was 2 billion (estimated). Well the global population now is about 7 billion, just over 3 times and twice of the global population when I was born. Things are a lot more expensive now in a relative sense.

Just as I was wondering why the hell did the price of my sandals go up from $105 to 165 in just a year and why my son’s eye glasses cost $280 from $240 in 2 months, I came across Malaysia’s proposal for a minimum wage hike. This resounds with the Foxconn employees 25% raise last month and so I checked minimum wages around the world and found that 18 countries have raised minimum wages since 2011. These include bigwigs like France, Portugal, Brazil, Mexico and South Korea.  Shanghai raised min. wages in Feb by 13%.

60 bucks and 40 bucks is not going to kill me. But its the bigger things. I cannot afford to buy my house now because it is worth 4 times what I paid for it in 2004. Actually, I suspect I could but it would be a stretch which I will not bend over backwards for.

And it sucks. Not because I want to buy a new house but because kids are going to be paying of debts that I will never imagine in my lifetime and that includes kids like my son.

More on web :

http://seekingalpha.com/article/379071-the-mega-trend-that-guarantees-the-cost-of-living-will-rise

I wrote about this last week and since then, have been spending some time consolidating my thoughts and understanding of the issue we are facing. Instead of congratulating myself on my extraordinary luck in being born in the 70’s and earning way above minimum wage that allows me to shrug off price hikes, I want to strategize on how to beat the system.

There is no puppet master like we all like to think, waving his arms to control the way the world is evolving and the value of money. There is no league of Jews in New York that decides on the fate of the world.

Lets just grapple the bull by its horns.

Facts :

1. Youth unemployment is hitting record levels in Europe and America.

Source : Zerohedge http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/02/Europe%20Youth%20Unemplyment.jpg

And 54% youth unemployment in American as alleged in this article based on research by the PEW Research Centre, a low in 64 years.

http://www.zerohedge.com/news/only-54-young-adults-america-have-job

2. Central banks have tripled their balance sheets since the Lehman crisis into just last month with BOJ and BOE.

Wrote  about  this  2 weeks ago.  https://tradehaven.net/2012/03/06/the-tale-of-3-central-banks-what-can-we-do-if-we-cannot-go-back-to-fishing-in-iceland/

3. This money is going to be chasing assets whether they are junk or not.

Eg. China is converting their UST into hard assets like commodities, real estate and energy producers in the US.

Commodities  :  http://seekingalpha.com/article/426931-china-converting-u-s-treasuries-into-hard-assets

New York Property :  http://www.businessweek.com/news/2012-03-07/chinese-replacing-europeans-in-new-york-trophy-property-lending-mortgages

Energy Producers : http://online.wsj.com/article/SB10001424052970204883304577223083067806776.html

4. 3 Major BRICs countries have cut rates or signalled cuts to come.

Brazil Central Bank Cuts SELIC Rate to 9.75% from 10.50%

RBI cuts cash reserve ratio by 75bp to 4.75% effective 10 Mar

PBOC Sees Room For Reserve Ratio Cuts

CONCLUSION FOR PART 1.

The Central Banks are not giving money to the youths !! But labour costs are going up in the min. wage segment.

Money is devaluing vs assets no matter where you are which is driven by 1. scarcity and 2. higher labour costs.

FOMC Preview

If I were Ben Bernanke, I would be as confused as hell. (http://www.businessinsider.com/art-cashin-traders-confused-2012-3#ixzz1ox8uHx5h)

1. Obama’s approval ratings have collapsed in the past week, probably fell out of favour with people who 1. hate the gasoline prices 2. missed the stock market bull run.

2. War with Iran is not out of the question.

3. Chinese trade war coming up in the form of the rare earth dispute .

4. Total US Sovereign Debt is now $15.5 Trillion

5. Delinquent student loans taking a big share of headlines

6. EU and BRICs heading for a slowdown

And worse, Bernanke cannot be seen doing nothing in times like these.

QE3 ?

I believe any hint of QE3 would only lead to a short term euphoria.  The implication would be that the economy is still in stagnation which would be a crisis of confidence indeed.

A hawkish tone would cause a pullback in equities and gold, in addition to USD strengthening against the majors.

This is the OPPORTUNITY to BUY. And if you pull a gun to my head, I would say XAU/EUR.

Now you can guess that I am praying for a hawkish outcome !

Sell EUR/USD !!

More in Part 2.