Woman's Money Class # 2 takes place Monday. Bernanke hints at QE3. Update January 27, 2012

Money Update January 27, 2012

Marc’ Notes:

Woman’s Only Money Class # 2 takes place this Monday at 11:00 thru the Womans Group See Jane Do. If you attended class #1, this is for you. Email me at moneymatters@kvmr.org to sign up. Looking forward to seeing you. Class #1 is not yet scheduled but is coming.

Markets:

Ben Bernanke announced QE3 hints this week. Here is an article I wrote below detailing it. (See below).

Our APPLE buy in reco on Twitter in late November paid off in spades as APPLE blew out earnings and is up almost 80 points from our buy in at 365! Wow. Those not holding APPLE look to add at 390 if it ever gets there again. I wouldn’t chase it here. If you did buy on my Twitter reco, hold and set a stop at 440. Follow me on Twitter for the most updates available, usually daily, if you like that sort of thing.

Gold looks to have halted its decline and may be entering a new rally phase with new talk on QE 3 coming. Investors realize the FEDS wont stop bailing and printing until the cows come home and eat the US dollar for lunch. We mentioned adding positions a few months back thru GDXJ  a junior gold mining index fund or any of our other funds on the Dream Portfolio and also physical gold and silver anytime for insurance. Also the Super Dividend Payers List was just updated about 3 weeks ago and is available on the website.

New Money Matters next week February 2, 2012 at noon. Thursday. www.kvmr.org.

Here is also another article from Bill Bonner. It’s a doosey!

All for now, enjoy the articles.

Marc

Bill Bonner Writes: The Obama Fairness Doctrine.

 “You mean the economy is really going to get worse, huh?”

“No, I mean it’s going to hell.”

We had been invited to watch the State of the Union address with a group of dinosaurs…a group approaching extinction with dignity and intelligence. You might call them ‘thinking conservatives,’ ‘paleo-conservatives’ or ‘constitutionalists.’ Whatever they were, they were not like the scoundrels currently running for the Republican nomination or the yahoos who vote for them. They were more like a renegade, retrograde group…like a secret society of White Russian intellectuals after the Revolution of 1917. They cling to hope…that the nation will come to its senses…that the constitution will again be honored…and that the old republic, established by the founding fathers, will be resurrected…

…they will hang on to their hope…until they are hanged by a rope.

“What do you mean?”

“I mean…it is on the road to hell… This isn’t just about losing money. Heck, the US is going broke. But you can go broke with honor. Good people go broke. Smart people go broke. Dumb people go broke. You can’t go to hell with honor. Bad people go to hell.”

“You’re saying the American people are bad?”

“Not by nature. No people are bad by nature. Even Republicans are not bad by nature. Or good. They’re all subject to influence. And now Americans are under a bad spell…being influenced to do terrible things…”

We turned to the TV. There was the commander-in-chief. The gist of his message was that the economy was getting better…thanks to all the feds’ nifty programs and fixes. He spoke of all the wonderful things he and his group of fixers had done.

But he didn’t seem content with what he has achieved. Something vexed the chief executive. It was not the economy. Nor the constitution. Nor the foreign wars.

What stuck in POTUS’s craw was ‘fairness.’ He didn’t seem to think there was enough of it. And he felt it was his job, or part of it, to determine what was fair…and how to make sure it happens.

In his wisdom, he has determined that it isn’t fair for a rich person to pay less than 30% of his income to…well…to the feds.

Here’s the Bloomberg report:

President Barack Obama, offering an election-year prescription to spur the economy, said the wealthiest Americans should pay more taxes in the name of fairness, to bring down the deficit and ensure those trying to make ends meet don’t have to “make up the difference.”

In his State of the Union address last night, Obama called on Congress to embrace a tax plan named for billionaire Warren Buffett that would require those making $1 million or more pay at least 30 percent in taxes. With congressional gridlock heightened by the 2012 election, there is little chance the proposal will pass.

“You can call this class warfare all you want,” Obama said in a nationally televised speech before a joint session of Congress. “But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.”

The president’s 65-minute address was directed at both voters and Congress. The populist themes — tax fairness, help for homeowners, cracking down on US financial crimes and unfair trade practices in China and investigating the lending practices that preceded the housing crisis — are those he will be repeating as he campaigns for a second term.

On the same day that Barack Obama revealed that 30% was fair, Mitt Romney revealed that he paid less than 14% of his income in US federal taxes.

Fourteen percent of income seems like more than enough to us. Serfs in the Dark Ages paid less. But it’s not enough to satisfy our main man, Barry Obama. He wants more. And all the low-life zombies who decide elections want more too. ‘The rich’ should pay more, they say.

Even a lot of the world’s rich people think so. Also in the news was a report telling us that a group of very nice billionaires has gotten together at a very chilly place and suggested that they should all pay more in taxes.

Ukrainian billionaire Victor Pinchuk wants to talk about income inequality. So does Irish billionaire Denis O’Brien and Indian billionaire Vikas Oberoi.

The three are among a contingent of at least 70 billionaires who are joining more than 2,500 business and political leaders at the World Economic Forum’s annual meeting in Davos, Switzerland, this week, according to a list of attendees and promotional materials obtained by Bloomberg News. A half-dozen of the richest participants, interviewed in advance of the conference, say economic disparity needs to be addressed.

Some sessions in a series labeled “Ensuring Inclusive Growth and Development” will touch on income inequality, said Kevin Steinberg, chief operating officer of the forum in the US. A panel titled “Remodeling Capitalism” is scheduled for Jan. 27 at the Swiss Alpine High School auditorium, six shuttle- bus stops away from the conference’s main location.

See there. A group of people in Davos is going to figure out how to ‘remodel capitalism.’ Out with the dowdy old rattan furniture. Throw out the chintz. Let’s get contemporary!

Already, there’s a problem. If you think you can remodel capitalism you are hopelessly already lost. You must presume someone modeled it in the first place. Who? When? How?

Fact is, capitalism is what you get when you don’t have master designers on the job. It’s what happens when POTUS and the feds leave it alone. It’s what you get when people are allowed to work out their own designs, one by one, willingly… without a gun to their heads… When they can make money or go broke themselves…and Washington doesn’t care.

But that’s the trouble with Davos. They’re all meddlers. They’re all world improvers. And they’re all making the world a worse place.

“If James Madison and the rest of the people who were at the constitutional convention came back to the US they wouldn’t recognize it,” said a man we met last night at the Watergate.

“They’d be appalled. They put all that work into the US Constitution…using every trick they could think of to limit the power of the executive branch. Because they knew that if you let the executive branch get away with it, it’s only a matter of time before it becomes a tyrant. It doesn’t matter whether you call it a king or a dictator…or an emperor…once you put too much power in one man’s hands, you will corrupt the man who has the power…and destroy the society that gave it to him.

“That was the whole point of the constitution. It was to limit power. They put in checks and balances…and the Bill of Rights. They thought about it. They figured it out. They wanted to be sure that the US really was different. The people were meant to be sovereign. They were meant to be in control.

“And the role of the government…and the only role of the government…was to protect the liberty and sovereignty of the people. And they knew too that the main threat to individual liberty was the government. That’s why you needed warrants…you need to have a trial by a jury of your peers…you needed habeas corpus. They built all these protections into the system to protect the individual from the government. They weren’t there to protect the individual from Al Qaida or from China. They were there to protect the individual citizen from the government.

“And now, with this anti-terrorism bugaboo all of those protections have gone away. The president has the power to put any American citizen in jail — for life. No charges. No witnesses. No hearing. No trial. No nothing.

“He can have you tortured. He can have you killed.

“I mean, President Obama has powers that King George would have envied. And he got those outrageous powers without a word of protest. Nobody said anything. Congress said nothing. The people said nothing.

“Yeah…I guess that’s what you mean about Americans going to hell. I guess they deserve to go to hell. But, of course, that’s exactly what we’re trying to stop…

“And now the prez has more power than Louis the 14th… And he was upposed to be an absolute monarch I mean, Louis had to pay for his wars. He had to pay for his public buildings. He had the nobility against him much of the time. He had much of Europe against him.

“America was lucky. It was far from Europe. It was protected by oceans from foreign domination. Every backwoodsman had a rifle and he knew how to use it. You know that when King George sent troops to put down the revolution a letter appeared in the London paper. It came from a man who had lived in the colonies. He told his countrymen that if they were shipping out to fight the Americans they should be sure to write their Last Wills and Testaments before they left. Because the Americans all had guns and knew how to use them.

“And that is also why the new government of the US went to such lengths to try to curb the power of the army. There was to be no standing army. The whole idea was a nation of free men. Armed and ready to protect themselves. And the constitution was very clear, if the president wanted to make war he had to convince congress not only to approve it…it also had to raise an army and raise the money to pay for it.

“But now the president can make war on whomever he pleases with no act of Congress. He doesn’t even have to ask the congress for money. There’s so much money sloshing around in the Homeland Security and Pentagon budgets that he can make war on anyone.

“The apologists for this kind of thing say the president will only use his new powers for good causes. But that’s not what history tells us. Even if one or two presidents resist…and govern more or less benevolently, like Caesar Augustus…it won’t be long before we get a Caligula, a Nero, or a Gingrich…

“So now we send out drones and hit squads to kill people in Afghanistan and Pakistan. And soon — it is just a matter of time before the power corrupts the US president, if it hasn’t already — that the drones and hit squads target Americans on American soil.”

“Yeah…you.”

Credits to Mr. Bonner: Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010

Marc Cuniberti Writes : QE3 Disguised US bailout.

In Ben Bernanke’s most recent press release, he hinted that the Federal Reserve is gearing up for another round of money printing which is known as quantitative easing (QE).

The Federal Reserve states another round of QE is required in order to speed up the recovery and prevent our economy from slipping back into recession.

There is a more important reason they will opt for another round of QE but that reason cannot be conveyed publicly and for good reason.

Usually the Treasury Dept just sells its debt (US Treasuries) to investors and foreign governments. Quantitative Easing on the other hand is when the Federal Reserve creates money from air (prints money) and buys the Treasuries itself. This move is referred to as “monetizing the debt”. It basically means the government just prints the money to pay its bills instead of borrowing it.

The big difference between the two is when the Treasury SELLS its debt to investors, the money given in exchange is already in existence and floating around in the system.

When they initiate QE, the money used is created by a computer stroke at the Federal Reserve and this type of newly created money adds to the existing money supply, each and every dollar of it.  

Why would they have to print money to buy Treasuries instead of borrowing it?

The US Treasury is having more and more trouble selling its debt into the public market place. China’s purchasing of US Treasuries has all but ground to a halt and many other investors are paring back as well.

What’s probably happening is investors are tiring of all the debt the US is issuing and are beginning to doubt all of it can be paid off. The amounts owed are staggering and at the current rate, even if we balance the budget tomorrow, it would take a century of balanced budgets with about a trillion dollar annual surplus to boot to pay all the obligations the US government has put its signature on.

Needless to say we haven’t run a balanced budget in years let alone a surplus.

When governments can’t sell all of their debt for whatever reason, it is called an auction failure, and an auction failure sets many things in motion, most if not all of them bad.

Investors start to demand higher and higher interest payments to offset the risk of a partial default, much like what is happening in Greece today.

With higher interest rates, not only does consumer credit dry up at but the cost for the US Government to service its existing debt would skyrocket. Even worse, the reputation of the United States dollar would be badly damaged.

Historically, once a countries ability to pay its debt comes into question, the problems only escalate. Unless the government in question reigns in spending and initiates massive cuts (austerity), interest rates continue to climb causing subsequent debt auction failures and a viscous downward spiral engulfs the currency and country in question.

The end result is either voluntary spending cuts on a massive scale (which causes further harm to the economy) or a catastrophic collapse of the underlying currency. Either case would cause devastating damage to our already fragile economy.

The Federal Reserve is fully aware of the consequences of a Treasury auction failure and will do everything in its power to prevent it.

This includes obscuring the true reason for the next round of quantitative easing.

If the Federal Reserve announced it must buy Treasuries because no one else will, it cause the very thing they are desperately trying to avoid.