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I think it is a reflection on our times that a rap video posted on YouTube has invoked more awareness and debate about modern economic theory among the masses compared to countless serious debate forums and books.

Boiling it down to the basics, Keynesian economics calls for intervention by the government and the use of government spending and money market operations as a tool for controlling the direction of the economy.  In the process, it allows for inflation as an acceptable cost for the greater purpose of economic growth and prosperity.


 
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I bet you’ve noticed the prices at the pump! It’s pretty crazy.  Two days ago I heard an analyst on 680 News saying that there was no reason for gas prices to have escalated at the pump.  He’s got me all fired up – I don’t believe the guy knows what’s going on in the world.

Crude oil prices have been moving up silently for the past few weeks, the sudden jump is because of a few reasons that won’t be going away in a hurry.  Here they are:



 
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A lot of times things happen in the market because the majority sentiment makes them happen.  Imagine this scenario:

A young artist is happy that his art is beginning to sell.  He has just been commissioned to do a portrait for the Mayor on the 3rd anniversary of his office.  He and his girlfriend go out for dinner to celebrate; they start talking about how soon they will be able to qualify for a mortgage and buy a house.  As they're walking toward the restaurant they look at the news stands with large headlines about how things are bad in Europe, China isn't picking up and the US unemployment numbers are still too high to signal a recovery.  They start feeling worried.  Maybe they should wait a bit about getting the house, if the recession hits his income will surely be affected as people cut down on artwork first.  

They get to the restaurant and are still talking, and they decide to be more careful with the money they have. The restaurant owner comes by smiling: "Congratulations! I hear you are doing a painting for the Mayor" he says, "are you celebrating with some champagne this evening?" The couple look at each other and pass a knowing glance.  The young artist turns to the restaurant owner and says "we hear that things are pretty bad in the economy, and there might be another recession coming soon, so we've decided to cut down on spending; we will just have a glass of wine each to celebrate".  

The restaurant owner hears this and starts feeling uncomfortable.  He goes to his office and calls his broker, "cancel that order I placed to buy those shares I wanted.  I hear that things are pretty bad and we are heading to another recession, I want to keep as much cash in hand as possible, and don't want to risk losing money again", then he calls his wife and says "honey, I think we should cancel that trip we were going to take this year, I hear things are pretty bad in the economy we should conserve our resources and ride this out".  His wife is disappointed and she calls the travel agency to cancel - you got it the message spreads like a virus.  

In the final transmission, the Mayor calls the young artist and cancels the commissioning of the portrait.  He says "sorry young man, I hear things are likely to get rough, we will talk about this portrait when things are better". The young artist hangs up the phone in despair and turns to his girlfriend "remember what we were talking about? It's starting to happen already; that was the Mayor, he just canceled the portrait".

See how we contribute to the downward spiral?  In the same way we also contribute to the upward spiral.  Feeling better about how things are is the first step towards recovery and then the manifestation of it follows.


 
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The popular opinion is that the Fed will opt for further stimulus if things don't go as planned.  The plan is to reduce unemployment, increase growth.  the promise is that if that doesn't happen as planned, the Fed will step in to help.
Mr. Bernanke is right in saying that intervention has proved to be a valuable tool in controlling the impact of the recession of 2008, therefore the Fed will be open to using it again - should another recession occur.
The market reacted positively to this signal, interpreting it to mean that further stimulus may be used.  I disagree.  
First of all, we are not in the midst of a recession.  Granted that the growth indicators are below normal, but the important thing is that WE DO HAVE GROWTH! 
If you were recovering from a sickness that almost took your life, don't you think that it would take you a while before you were able to do a 5Km run like you used to before you were struck down?
Well, our world was struck down by such a disease; the virus spread an engulfed all it's organs (countries).  The medicine (stimulus) worked, and the fever came under control in 2009.  But we could not get the virus out of our system.  The virus is now contained in one organ (Europe), the rest of the body is starting to recover, but is far from well.  It is my expectation that vital signs will start returning to "normal" levels by the beginning of next year.   Let's start with a gentle 2Km walk in 2013, and in 2014 we can start doing a walk-run routine and increase our distance.  But the weakness this sickness has created runs deep and we should not expect to do the 5Km run until 2015. 
One of the illusions most people have is that we are only contending with the one virus, whereas in my opinion, we already had a slow spreading virus (debt) in our blood.  Although this virus was slowly eating away at our organs, there were no alarming symptoms so we were able to ignore it.  When we got hit with the Recession virus the Debt virus increased the crisis. We are now done with the first one, but the second one is still around and it is preventing our recovery.  But patience and attention to what is needed will help us recover.  Each individual living on the planet today, needs to make a commitment not to increase their debt burden but to start working on reducing it.  If we all do a little bit, it will add up to a lot - after all that's how the seas and the oceans were made  by a bunch of inconsequential drops.  If we don't we will indeed fall into another recession and it won't be long before it hits us.  We have a choice.  By the way, that's what Dec 21st, End of the World is all about.  We can either work together and come out stronger or we can all perish together - what ever fate we chose we will all be travelling in the same boat in the same storm, and there won't be anywhere for any of us to hide.
Under the present circumstances further stimulus would be absolutely the worst thing for the long term health of the economy.  It would be like a spoon full of sugar, and then we will crash for sure


 
Whenever there is uncertainty about the economic future of the economy investors turn to gold as a safe haven and a store of value.  The present day is no different. 
Is the world going to return to the gold standard?  There isn’t enough gold in the world, in the ground or processed for that to happen.  However, that being said the economy is certainly in a state of disease.  The debt game has caught up with it, and there really is no way out of it but to start paying it down.
The problem as I see it is that it is as much a personal responsibility for each individual of the world economy as it is for the governments of the world.  We are not doing our share, but without it the governments can’t really make a difference.
Coming back to the argument about gold.  Certainly, it is a good hedge to be invested in gold for part of your money, if this is wealth you wish to preserve.  If your objective is to obtain an income for life, gold may not be adequate, as it is not an income generating asset.  It can only provide you with capital appreciation, which may not be sufficient.
If the bond market collapse transpires, there will not be any liquidity in the market, so even if you owned gold you will not be able to sell it or transact in it.
I believe that the other asset that will survive economic upheaval is real estate. I recommend having income generating real estate as a necessary part of an investment portfolio.
Given the fact that stock markets move on the basis of emotion rather than logic, there will still be opportunities in the market to make money.  New technologies that are a part of the Industrial Revolution are a good investment, as is energy and healthcare.
 
The truth is, none of the contenders are favourites.  No one fits the bill.  No one has the chrismatic personality and the vision that can lead the US back to glory.  Sadly, this up coming election will determine the fate of the US economy and that of it's people, and my crystal ball doesn't seem to be lighting up at the prospect!  I believe that most of the countries around the globe are facing the same issue.  The leadership of the US is one of the most important ingredients to it's economic recovery, not because of what the leader can do, but because of the emotions of the US public.  The US public has a long history of overcoming the worst of things with positive emotion and I believe that they can do so again.  I hope and pray that they will, because the well-being of the rest of the world is so closely linked to their fate.
I read an interesting article on the Economist website today on the issue.  For anyone interested, please use the link below to read:
http://www.economist.com/node/21537916
 
Sometimes what happens in the markets makes me wonder about people's common sense - correction, most of the time what happens in the markets makes me wonder about people's common sense!
Today the markets are up on the news that retail sales in the US have been higher than expected, and the market has totally ignored the fact that global industrial production has not grown since June. When will the markets catch up? Are people blind to the fact that the US economy is in the process of taking a massive hit due to the drought that continues on?  Is the improved sentiment an injection of pre-election spirit?
Make money in the US while you can, but please don't pledge your allegiance to US investments – things are far from steady in that part of the world.  Hedge your bets by investing in those areas that will benefit from the US’s situation: Mexico, and South America, and of course China and India.  While all eyes are on China in terms of emerging markets, India is making steady progress, ready to step in where ever China shows a weakness.  Chinese and Indian acquisitions of companies around the world continue.  As an Advisor I am keenly aware of the shift that is taking place and the new economic map that is being created as a result of it.

 
Yes, the markets came down today.  No, we are not heading towards a bigger disaster.  In fact, we are poised to enter a era of abundance and prosperity that has never been experienced before.  WmOe will be in a bull market before the end of the year 2012, and the next three years will be tremendous.
The process of moving towards the new economic era has been a painful one, and this is because the recession has accelerated the industrial revolution that the world was going through regardless.  Many industries are going out of business and new ways of doing things are emerging and will continue to emerge during the next 100 years.
Companies will die and people will be unemployed.  Those who are unemployed must retrain with a view towards the future availability of jobs.  As the gap closes much wealth will be created.
Don't be afraid to explore new technologies and new industries - these will be the IBMs, Microsoft, and Apple Inc of the future.
More specific information about changing trends is available upon request.
 
Are you serious, the US economy created 80,000 jobs and the markets react by going down?  What is wrong with people? Celebrate.  Celebrate the fact that things are going in the right direction. Isn't it fabulous that the US economy actually created jobs?  Besides, I've learnt from experience that the data released at the end of a month does not tell the whole story, there is always a correction that comes in two months later.  Sometimes the correction improves the originally reported results by a huge margin - is anybody listening at that time - No, I don't think so, the market and investors and news-mongers alike move on to other sensational news.  The truth is that the economy in North America is much better.  The truth is that the economies all around the world are much better.  When companies as well as individuals deal with the situation and move on, not letting themselves get stuck things start falling into place.  One thing leads to another and before you know it the market is in full boom - and you missed the boat because you were too scared to step into it while the skies were overcast.
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