The Online Investing AI Blog

I recently received a call from a recruiter, and he sounded like the guy from Idiocracy. Have you seen this movie? If not, you really need to see it. It is about the dumbing-down of America and the lowest common denominator of human being. It’s about drinking Gatorade and eating fast food.

The Guy from Idiocracy

After talking to the recruiter for a few minutes, I actually thought it was a joke. Why would anyone trust him to find good people? Why would anyone even bother to talk to him? His diction was so poor I didn’t really understand what he was saying. I could tell he knew absolutely nothing about programming. I just kept remembering the frustrations of the main character in the movie when he tried to communicate with the “normal” people.

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After reading this article about Hedge Funds Buying Gold, I remembered so many of the reasons that it is such a great investment. I have posted about gold numerous times in the past. Many individuals think that gold is overvalued because it has quadrupled in the last 10 years. But if you consider many different metrics, it is actually undervalued.

Gold Price 2000 - 2010

What kind of metrics would you use to figure out how accurately gold is valued? I think the best one is its ratio to the money supply. There is a relatively fixed supply of gold. When governments (like the U.S.) start printing money at a furious pace, then the price of gold is going to rise. Since gold is priced in dollars, more dollars naturally makes the price of gold rise.

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The Social Security system, or more accurately Social Insecurity, is a great example of government mismanagement. Instead of collecting more money than it pays out, and investing the money it has collected, the government is now paying out more money than it collects. And instead of investing to get rich, it simply spent the money to make us poorer. To the tune of $2.5 trillion.

This article on Yahoo has some interesting facts about Social Insecurity. The article neglects to mention one of the biggest problems with the system. And that is the fact that people are living longer. It is estimated that people are living as much as half a year longer with each passing year. That means that in 20 years people could be living 10 years longer. Does the government factor this in to the Social Security payments estimates? No.

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This article on Yahoo Finance talks about how the housing market is continuing to decline. As with most government intervention, the effect of the first time buyer’s credit had a short term benefit and I think it will have a long term negative effect.

Besides that, it enticed the most naive and inexperienced buyers to buy at the worst time possible. The housing market is going down and there is nothing to slow it down. Unemployment is high and the economy is weak. It is quite easy to see that housing prices are not likely to rebound any time soon.

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After reading this article on Yahoo about the ever-growing national debt, I took a look at the U.S. National Debt Clock. Not only are we having record deficits each year, but the debt per American has reached unsustainable levels.

As you can see, the debt has reached $42,698 per American! And, $119,524 per taxpayer. The average savings in America is a small percentage of these figures.

How is this ever going to get repaid?

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After reading this article, it reminded me that the U.S. will not be the most powerful country forever. The article says that U.S. debt is not as safe as everyone thinks.

Image courtesy of The Heritage Foundation

America has had a free ride for the last hundred years. America has had the most natural resources, the most immigration, strong investment in industry,  and, most importantly, the ability to print money without limit. Why? Because the dollar has been the world’s reserve currency.

That means that the demand for U.S. debt has been unquenchable. Whenever a country or individual wanted to invest in a safe way (whatever that means), they would buy dollars denominated U.S. debt. Whenever the government needed money because it did not manage its finances responsibly, it would just issue more debt.

So, what’s the big deal?

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There’s a decidedly strong backlash against government spending.

There’s always a backlash against government spending. It’s only right: we’ve all done our due diligence cutting our own spending, trying to invest properly, and finding new sources of revenue.

We’ve managed to create and live on a budget.

But here’s the thing.  This is nothing new. The movement to force government into the frugality has been going on for a long time. But, each time government services are cut, there’s a huge backlash against that, too. Reagan faced it. In the 1990s, when national parks began to close, budget-cutting was demonized.

What about earmarks? We all hate earmarks, but gladly vote for politicians who hold big check photo-ops into our neighborhood, right?

Here’s the question then: what are we prepared to do to make our government more frugal?

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This week has been a great week for gold posts. Here are some of the most interesting I found.

The Big Picture has a great chart of gold relative to the S&P 500. Although gold has hit a high in nominal terms, it is actually still low by many measures. This post shows that it needs to quadruple to hit a high relative to the S&P.

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Pic @ Flickr

We’ve seen tech bubbles.

Commodities bubbles.

Real estate bubbles.

While speculative bubbles tend to be naturally occurring segments of an economic cycle, there’s still some debate on what causes extreme bubbles–and their quick implosion. Some just say it’s the irrationality of people. Others blame the machinations of the free market system.

A recent post in Trader’s Narrative, opens up another possible reason for this rapid bubble-and-bust cycles: politics.

Politics are driving monetary policy.

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Business Strategy, Investing, Money, Online Investing AI bubble, economy, fed, federal reserve, government, GTO, interest rates, investing money, Money, politics

I found this interesting video of Alf Field, discussing the future of the price of gold. This is a fascinating video because many of Alf’s predictions have come true. This video was recorded in 2005, and in the years many of the ideas that he discusses have turned out to be quite accurate.

He suggests that the U.S. government would throw large amounts of money at a series of problems that have been brewing for more than 50 years. He didn’t imagine that a new administration would come in and take deficit spending to a whole new level. But those new developments support his argument.

He says that the U.S. government is going to have to deal with the following major problems. And, that by attempting to fix them by spending, they would destroy the dollar.

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