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  Quotations - Invest  
[Quote No.36562] Need Area: Money > Invest
"Sir John Templeton’s 15 Rules for Investment Success: --1- Outperforming the market is a difficult task. The challenge is not simply making better investment decisions than the average investor. The real challenge is making investment decisions that are better than those of the professionals who manage the big institutions. --2- Invest – don’t trade or speculate. The stock market is not a casino, but if you move in and out of stocks every time they move a point or two, the market will be your casino. And you may lose eventually -– or frequently. --3- Buy value, not market trends or the economic outlook. Ultimately, it is the individual stocks that determine the market, not vice versa. Individual stocks can rise in a bear market and fall in a bull market. So buy individual stocks, not the market trend or the economic outlook. --4- When buying stocks, search for bargains among quality stocks. Determining quality in a stock is like reviewing a restaurant. You don’t expect it to be 100% perfect, but before it gets three or four stars you want it to be superior. --5- Buy low. So simple in concept. So difficult in execution. When prices are high, a lot of investors are buying a lot of stocks. Prices are low when demand is low. Investors have pulled back, people are discouraged and pessimistic. But if you buy the same securities everyone else is buying, you’ll have the same results as everyone else. By definition you can’t outperform the market. --6- There’s no free lunch. Never invest on sentiment. Never invest solely in a tip. You would be surprised how many investors do exactly this. Unfortunately there is something compelling about a tip. Its very nature suggests inside information, a way to turn a fast profit. --7- Do your homework, or hire wise experts to help you. People will tell you: investigate before you invest. Listen to them. Study companies to learn what makes them succesful. --8- Diversify – by company, by industry. In stocks and bonds, there is safety in numbers. No matter how careful you are, you can neither predict nor control the future. So you must diversify. --9- Invest for maximum total real return. This means the return after taxes and inflation. This is the only rational objective for most long-term investors. --10- Learn from your mistakes. The only way to avoid mistakes is not to invest – which is the biggest mistake of all. So forgive yourself for errors and certainly don’t try to recoup losses by taking bigger risks. Instead, turn each mistake into a learning experience. --11- Aggressively monitor your investments. Remember no investment is forever. Expect and react to change. And there are no stocks that you can buy and forget. Being relaxed doesn’t mean being complacent. --12- An investor who has all the answers doesn’t even understand the questions. A cocksure approach to investing will lead, probably sooner than later, to disappointment if not outright disaster. The wise investor recognises that success is a process of continually seeking answers to new questions. --13- Remain flexible and open-minded about types of investment. There are times to buy blue-chip stocks, cyclical stocks, and convertible bonds, and there are times to sit on cash. The fact is there is no one kind of investment that is always best. --14- Don’t panic. Sometimes you won’t have sold when everyone else is selling, and you will be caught in a market crash. Don’t rush to sell the next day. Instead, study your portfolio. If you can’t find more attractive stocks, hold on to what you have. --15- Do not be fearful or negative too often. There will, of course, be corrections, perhaps even crashes. But over time our studies indicate, stocks do go up ....and up ... and up. In this century or the next, it’s still 'Buy low, sell high'." - Sir John Templeton
(1913 - 2008), American value share investor, in fact one of the world's most successful share investors, founder of Templeton Mutual Funds, Rhodes scholar, author, and philanthropist.
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[Quote No.36563] Need Area: Money > Invest
"The Purchasing Power Parity Theory [for Determining the Currency Exchange Rate Fundamental Value]: Purchasing Power Parity (PPP) is a method for determining where the currency exchange rate 'should' be. The theory is that currency exchange rates between two countries should be at a level where goods can be purchased at the same price in either country [or theoretically the other country would buy it in the cheaper country rather than their own country]. For example, if the price of an identical item is cheaper in Canada than in the U.S., than the Canadian Dollar is considered undervalued and its value is likely to rise against the [US] Dollar. While, PPP determines exchange rates in the long term, it has next to nothing to do with short term fluctuations. News, interest rate changes, inflation expectations, and growth expectations have more to do with short term exchange rates than PPP... Purchasing Power Parity valuations are best used along with other indicators, such as interest rates and momentum." - Jacob Wolinsky
Founder, owner, and content manager of the VectorGrader website. [http://www.vectorgrader.com/indicators/ppp.html ]
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[Quote No.36567] Need Area: Money > Invest
"The gold price is controlled by central bankers. Here's how... ‘GOD, IT WAS SO embarrassing... ‘Everyone was asking why they ever let that guy publish the report? Credit Agricole was a laughing stock. Professionals in the gold industry were amazed. It was just ridiculous...’ The professional gold-industry analyst I met for a pint one warm summer's evening in Soho, London earlier this year was certainly amazed. Mentioning the infamous report from Chevreux – a division of Credit Agricole – made him wince. The Remonetization of Gold by Paul Mylchreest put the reputation of France's largest bank right on the line – the same line spun by the Gold Anti-Trust Action Committee (GATA) since it first accused the Federal Reserve and its counterparts in Europe of illegally rigging the gold market to suppress Gold Prices in 1999. ‘Central banks have 10-15,000 tonnes of gold less than their officially reported reserves of 31,000’ the Chevreux report announced seven years later. ‘This gold has been lent to bullion banks and their counterparties and has already been sold for jewelry, etc. Non-gold producers account for most [of the borrowing] and may be unable to cover shorts without causing a spike in the gold price.’ In other words, ‘covert selling (via central bank lending) has artificially depressed the gold price for a decade [and a] strongly rising Gold Price could have severe consequences for US monetary policy and the US Dollar.’ The conclusion? ‘Start hoarding,’ said Paul Mylchreest...a smart call. Because in finance, being right – even if for the wrong reasons, perhaps – still pays off. His report for Credit Agricole's Chevreux division was published in January last year [2006]. Come May 2006, the Gold Price leapt to a 26-year high. It's since gone on to break those levels again, rising to its highest price since the all-time peaks seen at the start of 1980. As for the world's central banks, they seem to done a pretty bad job of ‘covert selling’ since the start of this decade. The Gold Market has now seen prices double for US investors and savers, and it's pretty much doubled for British and European gold owners, too. Japanese gold prices have more than tripled. How come? Whatever the reality of active, covert manipulation, the world's central banks do indeed control the Gold Price, as former Federal Reserve governor Wayne Angell put it in 1993. ‘The price of gold is pretty well determined by us...But the major impact on the price of gold is the opportunity cost of holding the US dollar...We can hold the price of gold very easily; all we have to do is to cause the opportunity cost in terms of interest rates and US Treasury bills to make it unprofitable to own gold.’ Cutting interest rates below the rate of inflation [a monetary policy euphemistically called ‘financial repression’ by economists, is used when central banks wish to use inflation to make paying back private debt and public government debt and deficits easier using this ‘hidden tax’] between 2003 and 2005, the Greenspan Fed guaranteed a bull market in gold. Cutting rates again now in late 2007, even as oil and global crop prices move to new record highs, the Bernanke Fed seems bent on pushing Gold Prices higher, too. Indeed, a new report from Citigroup – the United States' largest bank – agrees with Credit Agricole's conclusions. ‘Central banks have been forced to choose between global recession or sacrificing control of gold,’ say John Hill and Graham Wark at Citi, ‘and [they] have chosen the perceived lesser of two evils. ‘We believe that the policy resolution to the credit crunch will take the form of a massive, extended 'Reflationary Rescue' in a new cycle of global credit creation and competitive currency devaluations. This could take gold to $1,000 an ounce, or higher.’ More than that, the flood of central-bank gold sales earlier in 2007 was ‘clearly timed to cap the Gold Price,’ they go on. But little good it did the central bankers' aim of capping gold if so. The price just moved above a 27-year high vs. the Dollar, and it's tracking new 16-month highs for European investors each day. Why suppress gold? If gold goes higher, or so the thinking runs, then the world's confidence in the con-trick of paper money backed by government promises alone might just collapse. That was the threat in the late 1970s. Given last month's run on Northern Rock in the United Kingdom...and now the collapse of NetBank in the US...that might come to be seen as a threat again today. Meantime, allegations that the world's major central banks actively work together to suppress the price of gold were only given credence in 2004 when Paul Volcker – chairman of the US Federal Reserve at gold's all-time top – said in his memoirs that ‘letting gold go to $850 per ounce was a mistake’ during the last great bull market. At one of the policy meetings led by Volcker in late 1979, his Federal Reserve committee noted the threat of ‘speculative activity’ in people wanting to Buy Gold. It was spilling over into other commodity prices. One official at the US Treasury called the gold rush ‘a symptom of growing concern about world-wide inflation.’ ‘We had to deal with inflation,’ as Volcker said in a PBS interview of Sept. 2000. ‘There was a kind of great speculative pressure. ‘It was the years when everybody wanted to buy collectibles from New York. The market was booming, and other markets of real things were booming – because people had got the feeling that things were inflating and there was no way you could stop it.’ But besides waving a gun at anxious gold owners, there seemed only one other route to stopping speculators profiting from – or rather, defending themselves against – the demise of the Dollar. Fix it up with higher interest rates. The Volcker Fed took US interest rates to 19%...and put the real cost of Dollars above 9% after adjusting for inflation. The Gold Price sank almost in half inside 12 months. Because just like Wayne Angell says, the price of gold really is determined by central bankers. They can hold it down very easily...simply by causing the opportunity cost in terms of interest rates and therefore government bonds to make it unprofitable to own gold. To do that, however, they have to raise interest rates dramatically above inflation. If you don't trust the Bernanke Fed to do that – not least after they cut 0.5% off the returns paid to Dollar savings in mid-Sept. – then you might want to consider Buying Gold today." - Adrian Ash
He runs the research desk at BullionVault, the world's No.1 gold ownership and trading service. [http://goldnews.bullionvault.com/gold_central_banks_control_price_100120062 ] Published 1 Oct '07.
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[Quote No.36568] Need Area: Money > Invest
"How do you know when the central bank has tightened too much? It's when the yield curve inverts [with longer-term bond yields falling below short-term interest rates]. Historically that has been a fantastic indicator." - Richard Bernstein
Capital Management LLC.'s Chief Executive Officer and a leading market strategist.
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[Quote No.36569] Need Area: Money > Invest
"The Bank of International Settlement [BIS] holds 500.7 tonnes of gold as at the end of 2010. Why? In the third quarter of 2009 it held just under 120 tonnes. These were part of currency/gold swaps. There are no details of the names of the counterparties. Coincidentally, they could be nearly the total of the 'official' gold holdings of Greece, Portugal and Spain. What of Greece's 111 tonnes of gold? It is pure conjecture on our part to link the gold holdings of three of the Eurozone's financially weakest members to the B.I.S. In the first quarter of 2010 the B.I.S. recorded the jump in gold holdings that it had acquired. Four years prior to that Portugal and Spain had sold gold through the Central Bank Gold Agreement on the open market. So we do not link sales under that agreement with these B.I.S. transactions. The B.I.S. acquired this gold though a set of Currency / Gold arrangements the details of which have not been made public. But it was at about this time that the Eurozone debt crisis reared its ugly head. In advance of any rescue plans, when the respective central banks probably first began discussions on the matter it would have been deemed prudent to makes a collateral arrangement using the asset of last resort, gold, to secure their gold against any future bailout package being offered. While a swap arrangement is not a sale of gold nor is it a disposal, it is sufficient for the B.I.S. to record the gold swapped as an acquisition in its books. But the central banks involved need not record its disposal, giving us a rather clandestine situation. Hence the question, 'What of Greece's 111 tonnes of gold?' We cannot see just how the Greek bailout package can force the sale of state assets with no mention of its gold [worth $5.5 billion at present prices]. We have no doubt that Greece will cling onto the family's jewels as long as possible, but the creditors will fight to get the gold as hard as Greece fights to hold onto it. Should the news come out that the gold was handed over last year in a futile 'swap' there will be fur flying and not a few of the present government will lose their seats in Parliament. It will be a very sensitive issue. Perhaps that's why it hasn't been mentioned yet? What price Greece's gold? In times like today in Greece [when it is facing sovereign debt default and is being supported by IMF -International Monetary Fund - and ECB - European Central Bank - loans], 111 tonnes of gold is worth considerably more in international collateral to a bankrupt nation than $5.5 billion. It is the means to cover imports, when there is no other money to pay for them. These may be necessities. Money is far more valuable when you haven't got it than when you have! And gold will be fully accepted from Greece, anywhere and anytime. If it's already gone, then there'll be more than a sense of humor failure in Athens. And for this reason alone gold as a reserve asset is undervalued. Central banks hold gold for times such as these. When the whole world hits these types of crises [such as war and sovereign debt default worries], a currency price put on gold is not the basis on which gold is used. The emotional value in such times is far higher for any deal to be concluded. At such times gold can secure far more goods that its price implies, because of the dubious value national currencies will have internationally. When gold is tied to these currencies, then gold has considerably more value because of the support it gives these currencies. And this is why the issue of Greece's gold is so pertinent. If such a crisis happens in isolation, then the dollar or euro price of gold would be used, because of the relative stability in the rest of the world. So Greece may get no more than $5.5 billion for its gold. But if the B.I.S. currency/gold swap were tied to sufficient bailout support being given, then its value would extend far beyond its price. This is why gold's price rise is far from over. The path the developed world is following currently is headed to potentially stormy days where gold's use as selective collateral will bring far more than its market value to a nation. That's why central banks are gripping hard to the gold they have or buying more. CONCLUSION: Are central banks tempted to confiscate debt-distressed nation's gold? " - Julian D. W. Phillips
[http://www.marketoracle.co.uk/Article29118.html ] Jul 07, 2011.
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[Quote No.36570] Need Area: Money > Invest
"When considering the trend of the official US unemployment rate, it is important to also consider the trend of the work-force participation rate as this allows you to judge the number of ‘discouraged’ long-term unemployed workers who are not included in the official statistics and therefore the likely direction of consumer confidence and spending and therefore the economy in general." - Seymour@imagi-natives.com

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[Quote No.36571] Need Area: Money > Invest
"Whenever there's a catastrophe, there are also massive opportunities." - Jim Rogers
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[Quote No.36573] Need Area: Money > Invest
"House prices: inflation wipes thousands off property values: Your home may have risen in value – on paper. But factor in inflation and the picture is bleaker. Do you think you are a winner at the house-price game? Even if your home hasn't lost monetary value since you've bought it, rampant inflation means that most people who bought a property after 2006 have seen their house price decrease in real terms [by today in 2011]. According to analysis from LSL Property Services, house prices have increased by just 11pc between 2006 and 2011, which means that the actual worth of the average home has gone down. This is because inflation has increased by 17pc in the same period, while salary growth is up 15pc. For home owners in many parts of the country [Great Britain], the situation is far worse. Property prices in East Anglia and the North West have been fairly static since 2006, while home owners in the East Midlands have lost money. The total picture is being skewed by London. This effect is having huge consequences on personal wealth. For example, a home owner who bought a property in the North West for £250,000 in 2006 may think they have lost no money if it is still valued at that level today. However, in real terms that house has lost more than £42,500 since 2006, because of inflation over the period of 17pc. Ray Boulger, of mortgage broker John Charcol, said most people didn't realise that they would have lost money even if their house price stayed the same. 'The house price falls in the Nineties were much worse than most people think they were, because inflation was so high,' he said. 'People think that they bought a home at a certain price. When they sell it they regard what they make as a real gain, whether it is due to inflation or not. They simply don't factor it in, although they should.' The toxic combination of rising inflation and falling or static house prices is set to continue for some time to come, with economic forecasters now expecting interest rates to remain low, encouraging inflation. The situation will further erode Britain's housing wealth – much of which is being saved up to pay for long-term care. Simon Kirby, an economist at the National Institute of Economic and Social Research, is forecasting a further five-year period during which house prices will not outrun inflation. The NIESR is forecasting that property values in Britain are set to fall by 4.5pc this year and by 10.5pc by the end of 2015, in real terms. Mr Kirby said this fall would add to national economic weakness. 'When people have equity in their homes because their house price has outstripped inflation, they feel that they need to save less for retirement and so they spend more now,' he said, adding that house-price wealth also encouraged people to remortgage and spend money on home improvements. Even those who have become used to living with substantial equity in their homes could struggle as the divergence between inflation and house prices continues. According to the LSL figures, house prices rose by 79pc in the five years to 2006, while inflation was only 11.7pc over the period. However, another five years of rising inflation and falling house prices could erode much of that equity." - Rosie Murray-West
Published in the English newspaper, 'The Telegraph', 9th July 2011. [http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8626790/House-prices-inflation-wipes-thousands-off-property-values.html ]
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[Quote No.36574] Need Area: Money > Invest
"Warren Buffet is known for his advice to only buy what you know and stay away from what you don't understand." - Seymour@imagi-natives.com

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[Quote No.36575] Need Area: Money > Invest
"Peter Lynch is known for his advice to rather buy the best company in the worst sector than the worst company in the best sector." - Seymour@imagi-natives.com

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[Quote No.36576] Need Area: Money > Invest
"Rob Arnott is known for showing that asset allocation has historically been more important than individual stock selection." - Seymour@imagi-natives.com

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[Quote No.36577] Need Area: Money > Invest
"Peter Schiff is known for his recommending foreign dividend paying companies as one of the best way to bet on rising foreign currencies." - Seymour@imagi-natives.com

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[Quote No.36578] Need Area: Money > Invest
"When he was President, Mr. Putin instructed that Russia hold 10% of its reserves in gold. [The European Central Bank recommends that central banks hold between 15-19% of their reserves in gold. These figures are regularly collated by the World Gold Council.]...Central banks have and will always be sensitive to declaring the exact state of their gold holdings and gold policies....Governments generally cannot interfere with the independence of their central banks. It is the central bank that decides the gold policy of reserves. In Germany, calls for gold sales by politicians were refuted. In France, the head of the French central bank, at first said that selling a nation's gold was like selling the family jewels. But then Sarkozy, France's Finance Minister, ordered the Banque de France to do so, which it then did, in part." - Julian Phillips
[http://www.financialsense.com/node/5813?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+fso+%28Financial+Sense%29&utm_term=FSO ]
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[Quote No.36579] Need Area: Money > Invest
"I noted the recent rise in the [US] M2 money supply rates of change to post-2009 highs. I meant to say a little more about that. I should have added that the latest week of data was for June 27th [2011], so some of the most-recent surge may be quarter-end. The Fed may also have wanted to let the market get a little extra liquid with Greece [and its sovereign debt problems] in the backdrop - that explanation is somewhat more pleasing since the jump in M2 rates of change isn't a one-week phenomenon but the rates of change have been edging higher for a few weeks now. But there's a problem with that explanation, and that's the fact that the Fed doesn't control M2. In fact, the relationship between M0 and M2 - the money multiplier [the velocity of money] - has been unstable since the wall of money [from quantitative easing] was first unleashed a few years ago. And that leads to the real fear, which is that the wall of money in M0 is finally starting to pass into M2. That is, the fear is that the money multiplier is recovering. Until now, if the Fed added more reserves through LSAP it manifested in higher M0 and a lower multiplier. That is, M2 didn't really show much effect. The multiplier I first discussed here is down to 3.5 now that QE2 is complete. With the monetary base at $2.6 trillion, if the old 8.5 multiple were to suddenly re-appear tomorrow (and I am not saying I expect that) then M2 would rise from $9.1 trillion to $22.1 trillion. That rise in transactional money would almost certainly be extremely inflationary! The point is that if the multiplier, which collapsed mainly because the Fed was paying banks to hold reserves, were to suddenly start rising again, it becomes a clear and present [core inflation] danger requiring aggressive and determined response from the central bank - which, with the Unemployment Rate rising, would be ticklish to say the least." - Michael Ashton
Sun, Jul 10, 2011. [http://www.safehaven.com/article/21651/no-mister-bond-i-expect-you-to-die?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+safehaven%2Fall-articles+%28Safehaven+-+Most+Recent+Articles%29 ]
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[Quote No.36584] Need Area: Money > Invest
"[The Swiss Franc is considered one of the risk-of, safer currencies world-wide as the following article suggests:] The euro's performance against the safe-haven Swiss franc has become a key indicator of the depth of currency investors' concerns about the euro zone's debt woes. Against its chief rival, the [US] dollar, the euro remains locked in an ugly-dog contest as major issues weigh on both currencies, obscuring how badly the European currency has been hit by the euro zone's debt crisis. Demand for the franc against the euro has been more revealing. 'This continues the story that has been brutally clear since January of 2010, when the euro-zone crisis first began to emerge,' says Simon Derrick, chief currency strategist with Bank of New York Mellon. And to the point, the key thing is that if one looks at the biggest moves in euro versus Swiss franc, these have coincided exactly with the main crises points within the [Euro] currency union.' Late Friday, the euro was bid at 1.1915 Swiss francs, compared with 1.2125 francs late on Thursday. The dollar was at 0.8372 franc, compared with 0.8443 franc, and at ¥80.64, compared with ¥81.25. The euro was at $1.4263, from $1.4364. 'People are buying into the Swiss currency because it has everything to do with proving a credible and reliable safe haven from the travails of the euro zone,' a New York trader said. 'Money has been flowing out of places such as Greece, and the franc has benefited.' Friday, investors' concerns about the fiscal health of the euro zone were heightened when shares of Italian bank UniCredit SpA tumbled in early trading and rumors circulated of a rift between Italian Prime Minister Silvio Berlusconi and the country's finance minister, Giulio Tremonti. Mr. Tremonti is considered the author of Italy's recently approved €47 billion ($67.51 billion) three-year austerity program. Mr. Berlusconi said comments attributed to him in an Italian newspaper that Mr. Tremonti wasn't a 'team player' had been taken out of context. Italy, as the third-biggest euro-zone economy and one of its more heavily indebted members, could present a greater risk to the euro than Greece, which is tiny by comparison. Italy's debt, rather than the troubles in Greece, Portugal and Ireland, could therefore be the first major test for the euro, market analysts say. A gradual worsening of Italy's situation would send the euro a bit lower, they argue. 'Should the dollar drop again late next week on weak U.S. consumer and retail news, then the Swiss franc would gain more buying power,' says Richard Hastings, macroeconomic strategist with Global Hunter Securities. The euro may be heading for a low against the Swiss franc, a Germany-based currency dealer said in an interview. The question remains whether the Swiss National Bank would feel compelled to intervene to curb the franc's strength, but this remains speculative, the trader said. 'Given their experience last year during the height of the Greek crisis, my guess is that they [the SNB - the Swiss National Bank] would be reluctant to do anything other than smooth the prices.' There are benefits to a strong Swiss currency, including the ability to buy higher-yielding euros at a lower cost. 'The stronger Swiss franc would make it cheaper to buy other currencies and gold,' Mr. Hastings said." - Dawn Kissi
Wall Street Journal - July 11, 2011.
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[Quote No.36585] Need Area: Money > Invest
"Good intelligence is nine-tenths of any battle [including the battle for investing profits]! " - Napoleon Bonaparte

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[Quote No.36586] Need Area: Money > Invest
"When everybody is bearish on something it is usually [but not always] a time to own it." - Jim Rogers
Famously successful commodity, currency and share investor.
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[Quote No.36590] Need Area: Money > Invest
"The Sceptics main teaching was that nothing could be accepted with certainty, conclusions of various degrees of probability could be formed, and these supplied a guide to conduct." - Nicholas Taleb
‘Fooled by Randomness’, 2001 - P184.
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[Quote No.36591] Need Area: Money > Invest
"Those who have knowledge don't predict. Those who predict don't have knowledge." - Lao Tzu
6th century BC
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[Quote No.36593] Need Area: Money > Invest
"The most important rule of trading is to play good defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible draw down." - Paul Tudor Jones

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[Quote No.36596] Need Area: Money > Invest
"Gold and silver are money. Everything else is credit." - J.P. Morgan
Very famous US Banker
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[Quote No.36599] Need Area: Money > Invest
"Every once in a while you must go to cash, take a break, take a vacation. Don’t try to play the market all the time. It can’t be done, too tough on the emotions." - Jesse Livermore

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[Quote No.36600] Need Area: Money > Invest
"[Due to the sensitive nature of inflation, governments all around the world often manipulate the Consumer Price Index by changing the way it is calculated. For example in 2011 the US government has calculated their CPI as about 3%. The economist John Williams of shadowstats.com has used the method the US used in the 1990's and that shows inflation at around 7%. He also has calculated it using the 1980's method and that has US inflation at over 11%!! This is often a deliberate part of a monetary policy euphemistically called 'financial repression' by economists. The US is not the only country to manipulate their CPI figures which they use to adjust pensions and social security payments, etc. as the folowing article explains.] China’s CPI May Have Been Intentionally Underestimated: For the past five years [2006-10] the Consumer Price Index (CPI) in China may have been intentionally underestimated by up to seven percent, according to a report released on Nov. 9 [2010]. The report, titled 'Data and Perception: Is CPI the Wind or the Sail,' was published by the Chinese Academy of Social Sciences (CASS), an academic institution under the charge of the ruling Chinese Communist Party (CCP). CASS researcher Xu Qiyuan analyzed data in the overall CPI as well as eight subcategories with monthly reporting. The period between January 2006 and May 2010 was selected to avoid major weight changes between the subcategories, as the weight given to each CPI subcategory is adjusted every five years. Xu wrote that for the period studied, 7.53 percent of price changes could not be explained by the subcategories and their assigned weight. He therefore suspects that there has been artificial manipulation in the official CPI data. The report also pointed out that recent survey results by the People’s Bank of China, China’s central bank, revealed that only 21 percent of urban bank customers are satisfied with commodity prices. The satisfaction rate was the lowest since 2001, and significantly lower than the 30 percent rate achieved during the 2007-2008 period of 'official' high inflation. Xu thinks that the underestimation of CPI is directly linked with the residents’ dissatisfaction with commodity prices. In the report, he calls for greater transparency on how the CPI is calculated. Dr. Cheng Xiaonong, economic commentator, told The Epoch Times, 'I personally believe that the gap is much wider. The National Bureau of Statistics of China has a basic policy to underestimate [CPI].' Cheng added that in democratic countries, the statistical bureau’s job is to objectively collect and publish data; but in China, the National Bureau of Statistics is not only a statistical bureau, but a de facto spokesperson for the Party. It has to follow orders from the communist regime and the data it publishes is influenced by Party politics. 'It has several methods to suppress CPI and then explain to the public how the CPI is correct,' Cheng said. 'People suspect the data is wrong, but the problem is that the Bureau never publishes how the statistics are calculated, the type of products it sampled,' etc. If the methodology and other factors used to calculate CPI were made public, people would see how the data was manipulated, Cheng said; which is why such information is kept secret." - Gao Zitan
'Epoch Times Staff'- Created: Nov 29, 2010; Last Updated: Dec 2, 2010. [http://www.theepochtimes.com/n2/content/view/46712/ ]
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[Quote No.36602] Need Area: Money > Invest
"[When consumer confidence [of the Conference Board] is over 110 [US] equities have returned -0.2% per year. When consumer confidence is between 66 and 110 equities have returned 6.4% per year. And when consumer confidence is below 66 equities have averaged an annual return of 14.9%. - Research from the US investment services company, Charles Schwab.] Why? Because when consumer confidence is low the economy is not doing well, The outcome is that the Fed starts printing money more aggressively. And stocks rise when the Fed eases." - George Dagnino, PhD
Economist, author and editor. Also the '2009 Market Timer of the Year' by Timer Digest.
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[Quote No.36605] Need Area: Money > Invest
"...I'm a believer in cycles. I strongly believe that an economy -- all economies -- do not move in linear but in cyclical fashion. And so do financial markets. And my goal is to catch most of the up cycles and [short] most of the down cycles, because assets are priced based on where we are in the cycle. So I do a lot of cyclical work. I do not moon cycle but the classic business cycle. There is the 3-5 year inventory cycle that they teach in basic economic theory, then there is the investment-related cycle which lasts 9 years. And then you have the 18-20 year real estate cycle and etcetera. I try to get a big picture of where the major economies of the world are moving and where the risks and pitfalls will be in the next six to 12 months. That's my work -- to find out where we are in the business cycle. And then I apply classic tools like monetary analysis, I do valuations because capital markets go from one extreme to the other. They never go in between and reverse to where they come from -- that's important to understand... The down cycle is usually here to shake off the weak participants in the system and to correct the excesses that have been built up during the up cycle. When you do not let that happen, you take more and more excesses with you, which over the long term and over many cycles will build up to extremes... I draw like a sine curve for a cycle. And according to my analysis of the big picture of a monetary factors of market prices and trends and momentum and valuations/ sentiments, I try to place on that sine curve where the economy and the different markets are at the time. And then, based on that, I read reports and glance through the newspapers and I try to think whether the news today confirms what I think is where the markets are in the cycle. If they do, then [I] go on to the next thing. If they don't, then I have to check it out and see if this is noise, or an aberration, or a delay, or whatsoever. That's the way I look at the short term." - Felix Zulauf
Felix W. Zulauf, born 1950, has worked in the financial markets and asset management for almost 40 years. He started his investment career as a trader for a large Swiss Bank and received training in research and portfolio management thereafter with several leading investment banks in New York, Zürich and in Paris. Felix joined Union Bank of Switzerland (UBS), Zürich, in 1977 and held several positions over the years including managing global mutual funds, heading the institutional portfolio management unit and at the same time acting as the global strategist for the UBS Group. After two years with a medium-sized Financial Organization as a member of the executive board, he founded his wholly owned Zulauf Asset Management AG in 1990, allowing him to independently practice his own individual investment philosophy. Mr. Zulauf focused on macro and strategic issues within the firm. Felix Zulauf always believed that the world economy and the financial markets move in cycles. That has helped him avoiding all the major casualties in the financial markets since the 1973/74 bear market in equities.
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[Quote No.36608] Need Area: Money > Invest
"In the absence of the gold standard, there is no way to protect savings from confiscation through [the secret government tax called] inflation. There is no safe store of value." - Alan Greenspan
Economist and former Chairman of the US Federal Reserve Bank.
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[Quote No.36614] Need Area: Money > Invest
"I believe that banking institutions [that lend foolishly and then expect to be bailed out by tax-payers] are more dangerous to our liberties than standing armies." - Thomas Jefferson
US President
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[Quote No.36616] Need Area: Money > Invest
"The philosophy of the rich versus the poor is this: The rich invest their money and spend what's left; the poor spend their money and invest what's left. [If you don't want to be poor in the future, regardless of your present income, follow the priority the rich give to saving and investing over spending!]" - Jim Rohn
Highly successful serial entrepreneur and self-made multi-millionaire. He was told this by an old millionaire when he was a young man and desperately unhappy because he was nearly bankrupt and being chased by debt collectors all the time. The truth of the advice was that it changed his life and future.
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[Quote No.36623] Need Area: Money > Invest
"['The Terrible Twins of Debtflation' High inflation and taxes can be a hazard to your wealth...] The high rate of inflation most of us believe [in 2011] is waiting not too far down the road will be an earthquake for investment markets. The likely winners (gold, silver, precious metals stocks) and the likely losers (long-term bonds and most stocks) aren’t too hard to identify. But separating the sheep from the goats is only one element for financial success in an environment of rapidly rising consumer prices. Higher rates of price inflation will bring greater volatility to all financial markets [think the 1970's]. The higher you expect inflation and hence gold to go, the more volatility you should expect to see for assets of every type. Even if in fact the dollar is on the road to perdition, there will be detours and backtracking along the way. Inflation doesn’t operate smoothly; it is a disrupter for both the economy and for the political system. From time to time over the next five to ten years, the [US] Federal Reserve will come to see inflation as its most urgent problem. And every time that happens, the Fed will slow the creation of fresh dollars [that create the inflation they need to make the government's debts easier to pay each year -economists euphemistically call this monetary policy 'financial repression' but it could as easily be called 'debtflation'] or even put up a big INTERMISSION sign and stop printing altogether for a while. Such seizures of monetary virtue won’t last long, but while they do last, they will hammer most investment markets, including the market for the yellow stuff and for stocks of companies that produce or look for it. You could be absolutely correct about where the dollar is headed in the long run and still have a scary ride. 2008 [2010, 2011] was just a preview of the downdrafts you will need to survive. There will be even uglier smash-ups, and you don’t want to be among the hard-money investors who get carried off on a stretcher. To avoid being one of them, you’ll need to include cash as a constant, permanent element of your portfolio [as well as become a much better investment timer, which is a specific skill few have the time to master]. Cash is a courage booster. Having a substantial cash reserve makes it easier to hold on to your other investments when they are getting battered [if you are a buy and hold investor] and you are tempted to bail out. And cash gives you the wherewithal to buy on dips – and on the big dumps. The [Terrible] Twins: Of course, cash will be the asset whose value is shrinking. But the rate at which the purchasing power of your cash declines will depend very much on how you hold it. Interest rates on money market instruments, such as Treasury bills and large CDs, track the rate of inflation fairly closely. By creating money fast enough, the Federal Reserve can keep rates on money market instruments one or two percentage points below the inflation rate, but not indefinitely. And any such effort to suppress short-term interest rates succeeds at the cost of producing even higher inflation later. Similarly, the Fed can keep money market rates one or two points above the inflation rate for a while, with the likely eventual result of a slowing in inflation. But over long periods, the average yield on money market instruments about matches the average rate of inflation. [It should be noted that government measures of inflation are notorious for understating the true rate - refer economist John William's website shadowstats.com] Given that money market yields travel the same path as inflation rates, holding cash doesn’t seem to be terribly painful. The loss in purchasing power about gets made up for by the yield. That’s a nice thought – until you think about taxes [which is the second 'Terrible Twin' after inflation]. Even though the yield is merely replacing the purchasing power being lost, the yield is subject to income tax, unless you do something about it. Doing nothing about it is, in a subtle way, risky for your portfolio. When price inflation gets to, say, 10% and money market yields are near the same level, if you are in a 40% tax bracket, you’ll be losing purchasing power on your cash at a rate of 4% per year. The situation will get worse as inflation moves higher, and you’ll be tempted to cut back on cash in order to cut back on the leakage. And that will leave you dangerously ill-prepared for the next INTERMISSION sign [when there will be great opportunities to buy investments low for cash when others are selling in fear and need for cash]. Logically, then, to make holding cash cheap or even free, you need to hold the cash [portion of your asset portfolio] in an environment where the yield is protected from taxes [as much as possible. A good tax advisor is therefore very useful, who may recommend Australian high dividend, fully franked dividend paying company shares, or other shares in foreign countries, which have currencies which appreciate when the US dollar falls due to 'money-printing' induced inflation, amongst other methods, to help you address the 'Terrible Twins of Debtflation']." - Terry Coxon
Off-shore planning specialist [http://www.internationalman.com/global-perspectives/3-ways-to-shelter-your-cash-from-inflation ] June 16, 2011.
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[Quote No.36628] Need Area: Money > Invest
"[Here is an example of the way gold investors think as a template for investing in the future:] 'You’re Not Imagining It — The Gold Miners Are Tanking' Conventional wisdom — backed up by years of observation — states that gold mining shares tend to outperform the underlying metal in good times because they’re 'leveraged to the price of gold.' That is, their extraction costs are more-or-less fixed, so when gold rises, most of the increase flows directly to a miner’s bottom line, increasing its earnings at a rate that exceeds the metal’s move. With gold near a record, most miners should put up ridiculous earnings in the year ahead, which should make their shares act like tech circa 1998, right? Nope. The biggest miners, whose shares populate the GDX gold miner ETF, did outperform gold (represented here by the GLD ETF) during most of its recent epic run, just as you’d expect. But in April [2011] the two trends diverged, and lately the divergence has become a chasm. Gold is up 22% in the past 12 months and the big miners are, as a group, virtually unchanged. This is painful and humbling for investors who bet on gold by loading up on mining shares, only to discover that they were right on the macro but wrong on the implementation. But one person’s pain is another’s opportunity, and the market appears to be offering a whopper here. Assuming that the long-term relationship between gold and the miners holds — and there’s no reason to think it won’t — then the trend lines will converge at some point in the coming year. This can happen in several ways: They can both fall, but gold more than mining shares. They can both rise, but mining shares can rise more. Or gold can tread water while the miners go up. Which means there are two ways to play it: Buy the miners and ride them, which will work if gold goes up. Or short gold and buy the miners, in which case you don’t care where gold goes as long as the miner/metal relationship reverts to normal. The first is simpler but only works in a rising gold price scenario. The second is an arbitrage that should work no matter what gold does in the year ahead, though it carries an emotional price, since shorting gold is disturbing on a lot of levels. On the other hand the idea of making money while being short gold — in the middle of a global currency meltdown — has a certain contrarian appeal. One final thought: If the big miners are underperforming because of fears that they can’t replace the reserves they’re consuming, then we’re in for a buyout binge as they use their rising cash flow to gobble up the juniors with the most accessible reserves. So the small-cap miners will end up being the best part of this market." - John Rubino
17th June, 2011. [http://www.financialsense.com/contributors/john-rubino/2011/06/17/you-are-not-imagining-it-the-gold-miners-are-tanking ]
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[Quote No.36632] Need Area: Money > Invest
"Due to South Korea’s heavy exposure to China, and overall growth of the Asian market, the Korean KOSPI Index—the Dow Jones for Korea—serves as a very nice leading indicator for the price of crude...tend[ing] to lead the overall price of crude (black) [WTI-West Texas Intermediate Cushing Crude Oil Spot Price] by anywhere from a couple months to a year." - Cris Sheridan
[http://www.financialsense.com/contributors/cris-sheridan/leading-indicator-for-oil-hits-all-time-high ] 31st January, 2011.
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[Quote No.36645] Need Area: Money > Invest
"Nobody can be lucky all the time; so when your luck deserts you in some fashion, don't think you've been abandoned in your prime, but rather that you're saving up your ration." - Piet Hein
(1905-1996), poet and scientist.
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[Quote No.36666] Need Area: Money > Invest
"Definition of a Statistician: A man who believes figures don't lie, but admits than under analysis some of them won't stand up either." - Evan Esar

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[Quote No.36677] Need Area: Money > Invest
"Gold still represents the ultimate form of payment in the world... Fiat money, in extremis, is accepted by nobody. Gold is always accepted." - Alan Greenspan
Economist and Chairman of the US Federal Reserve. Quote from remarks at the Economic Club of New York, December 2002.
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[Quote No.36685] Need Area: Money > Invest
"A low risk high return trade is the trade that aligns with the fundamentals and is opposite the current market emotion." - Jimmy Chow

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[Quote No.36704] Need Area: Money > Invest
"To grow wiser [especially as an investor] means to learn to know better and better the faults to which this instrument with which we feel and judge can be subject." - Georg C. Lichtenberg

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[Quote No.36722] Need Area: Money > Invest
"Luck can often mean simple taking advantage of a situation at the right moment. It is possible to make your luck by being always prepared." - Michael Korda

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[Quote No.36732] Need Area: Money > Invest
"Everything is worth what its purchaser will pay for it." - Publilius Syrus

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[Quote No.36810] Need Area: Money > Invest
"In prosperity prepare for a change; in adversity hope for one. [In summer, think winter is coming; in winter think summer is coming!]" - James Burgh

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[Quote No.36891] Need Area: Money > Invest
"Economists [and investors] who adhere to rational-expectations models of the world will never admit it, but a lot of what happens in markets is driven by pure stupidity – or, rather, inattention, misinformation about fundamentals, and an exaggerated focus on currently circulating stories." - Robert Shiller
Professor of Economics at Yale University. He is co-author, with George Akerlof, of 'Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism'. Quote from his article, 'Debt and Delusion', published 21st July, 2011.
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[Quote No.36893] Need Area: Money > Invest
"When we run into a big problem with money [the economy and debt], what do we always do in a usury [credit, debt and interest] system? We go to war. And what’s the reason for that? We go to war to borrow money into existence, to force people to borrow money into existence. And then they’ll have money to spend on [the war effort and then stimulate the economy with] ice cream cones and cars and boats and everything else after all the killing is done." - Richard Hoskins
Author of the book, 'War Cycles-Peace Cycles'. [http://www.financialsense.com/node/5907?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+fso+%28Financial+Sense%29&utm_term=FSO ]
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[Quote No.36898] Need Area: Money > Invest
"[Many people follow the leading economic indicator but did you know that...] The coincident-to-lagging ratio leads the leader! " - David A. Rosenberg
Chief economist and strategist at Gluskin Sheff and Associates Inc.
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[Quote No.36900] Need Area: Money > Invest
"Debt is the disease – growth is the cure, but as the latter falters, economies and their associated financial markets hang in the balance. Academics Kenneth Rogoff and Carmen Reinhart have outlined what happens when countries assume liabilities that future growth cannot comfortably pay. Ninety per cent debt to gross domestic product is their Maginot line beyond which leverage dynamics begin to work in reverse, slowing growth instead of enabling it, promoting too much risk as opposed to potential gains. The developed world as a whole is now approaching that key percentage. The Rogoff/Reinhart analysis also shows that, as it does, economic growth slows by approximately 1 per cent. Almost on cue, developed economies are experiencing 2 per cent instead of 3 per cent annual growth. We at Pimco labelled this the 'new normal' back in 2009, well before 'This Time is Different' was published. It was a qualitative assessment instead of a historically validated model, based on our assumed effects of deleveraging and re-regulation bound to characterise the post-Lehman future. So far, so good for the forecasting. What lies ahead, however, is a precarious 'bumpy journey', as my colleague Mohamed El-Erian describes it, in which growth moves slightly above and then frighteningly below this 2 per cent 'new-normal' rate. The danger rests not so much on the 90 per cent debt-to-GDP ratio, high as it is, but on the 2 per cent real rate of growth, because that number approaches what is known as 'stall speed.' If the developed world was growing at 5 per cent like developing economies, the risks would be far less. At 2 per cent, however, 'stall speed' connotes an inability to behave like the historical capitalistic model should. Corporations lose incentives to invest because profit growth stagnates, unemployed workers are not rehired and the standard cyclical model of seasonal rebirth is jeopardised. These structural headwinds in turn confuse policymakers. Central banks apply a dose of liquidity and negative real interest rates that fail to stimulate investment, while fiscal authorities and political parties stagger from one election to another, recommending balanced budgets in one year and stimulus packages in another. The burden of debt, however, which was the initial catalyst, is a slow-moving glacier in retreat. While the Rogoff/Reinhart research somewhat incompletely produced an analysis of sovereign debt instead of a debt analysis across the total economy, the past two years have produced negligible total debt deleveraging across almost all countries. Lower interest rates have relieved the burden somewhat and stimulus packages have reduced unemployment marginally. Now, however, as these policies reach mathematical and/or political limits, the developed economies stand at the mercy of unpredictable cross-currents: 1) the necessary continuation of Chinese growth; 2) the required and in some cases regulated moderation of commodity prices; and 3) the avoidance of systemic collapse in euroland. These risks and the associated 2 per cent growth stall speed have several overall investment implications. For one, risk spreads will be constantly volatile as good and bad news hit the tape intermittently. Sovereign credit spreads will be subject to rather desperate policy endgames and equity and corporate bond risk spreads will follow in line, despite the overall health of the corporate sector in the current upturn. Secondly, investors should expect an extended period of 'financial repression' during which policy rates are kept extraordinarily low. Picking the pockets of investors and savers is a historically validated manoeuvre to rebalance sovereign balance sheets. Instead of an inflation plus 1 per cent policy rate, which has characterised the past 30 years, we must get used to inflation minus 1 or 2 per cent, a dramatic reversal in the fortunes of financial markets. The expected negative real-policy rate will influence much of the US Treasury curve as well. Like a black hole, 25 basis point interest rates suck 2- and 5-year rates down with them, producing shockingly low returns that cannot possibly cope with the higher inflation they produce. Alternatively, 30 year rates stay high for fear of inflationary consequences in future decades. The result is a dramatically steep yield curve that promotes roll-down strategies as bonds appreciate in value, as yields decline over time and, for banks and hedge funds, levered positions which take bets on duration, as opposed to on credit risk. One thing, however, seems certain. The west will not thrive in this 'new normal' economy. It can only hope to survive, so that in future years the lessons of too much leverage and debt are taught to a new generation of capitalists. Hopefully that future will be different, and the Rogoff/Reinhart title will be descriptive as opposed to a parody." - Bill Gross
Head of bond investing at PIMCO. Published in 'The Financial Times', 22 Jul 2011.
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[Quote No.36986] Need Area: Money > Invest
"The Maastricht Treaty, that was instrumental for laying down prudent fiscal guidelines for countries wishing to join the European Union, stated that: 1- government's spending deficit should not be any more than 3% higher than GDP - or else government debt will grow faster than the long run growth of the country's economy which over history around the developed world has averaged 3%; and 2- government debt to GDP should not go above 60% - because studies have shown the optimal effective tax rate in a country is around 20-25% of GDP - so that at a debt-to-GDP rate of 60% that is effectively about 3 times the country's income and that is about the same rule that banks have found over history is the top safe and sustainable rate of debt to income to lend to individuals and businesses. Rogoff and Reinhart studies have shown that at 90% of GDP a country's maximum potential growth rate is slowed by about 1% which when the average growth rate is 3% is about 33% of the potential growth rate, making debt repayment even more difficult and therefore the sovereign debt less creditworthy and more risky and thereby requiring still higher interest rates for the market to accept the risks of default and lend to the government...which means more taxes go to just service debt and citizen's living standards decline, etc, etc. These two criteria investors and voters should keep in mind when judging a government's or political party's fiscal policies as well as reputable, rather than big, credit rating agencies' sovereign budget and debt ratings or else they may live to regret their investment decisions and political votes." - Seymour@imagi-natives.com

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[Quote No.36987] Need Area: Money > Invest
"[Wall Street investors are finally waking up to what Main Street households have known all along: The already bad economy is getting worse. And the laundry list of problems that could tip the economy into another severe downturn, if not a recession, is growing only longer...'There’s a growing sense the Continent is in denial...' said Jack A. Ablin, executive vice president and chief investment officer at Harris Private Bank...Just about the only bright note has been corporate earnings. Profit among companies in the Standard & Poor’s 500-stock index are thought to have grown 18 percent, on average, in the second quarter versus the year-ago period, according to figures tracked by Capital IQ. That’s an increase from July expectations for profit growth of around 12 percent. The new figure stands in stark contrast to government reports showing that economic growth slowed drastically in the first half of the year.]...But earnings and earnings revisions are a lagging indicator. [Historically, corporate profits don’t reach a trough until around nine months after a bear market ends. And they typically don’t peak until after a bull market runs its course...] " - Sam Stovall
Chief investment strategist at S.& P. Equity Research. [http://www.nytimes.com/2011/08/07/your-money/this-time-corporate-profits-may-not-save-the-day.html? ]
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[Quote No.36989] Need Area: Money > Invest
"I think it was a long step forward in my trading education when I realized at last that when old Mr Partridge kept on telling other customers, 'Well, you know this is a bull market!' he really meant to tell them that the big money was not in the individual fluctuations but in the main movements — that is, not in reading the tape but in sizing up the entire market and its trend." - Jesse Livermore
Famous US share trader. Quote from 'Reminiscences of a Stock Operator' by Edwin Lefevre.
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[Quote No.36990] Need Area: Money > Invest
"Every significant spike [i.e 80-100% higher than the average price in the preceding 3-4 years] in crude oil prices in the last 50 years has been followed by a recession." - Colin Twiggs
Respected technical analyst with www.incrediblecharts.com. Quoted in 2011.
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[Quote No.36993] Need Area: Money > Invest
"[Fiat, rather than asset or gold-backed] Currencies are artificial abstracts created out of thin air by the governments." - Doug Casey

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[Quote No.36994] Need Area: Money > Invest
"The Coincident/Lagging Indicators Ratio...the concept of how the coincident [indicator divided by the] lagging [indicator] ratio can often provide a leading indicator into economic activity...One of the theories behind this ratio is that when the expansion is nearing its final stages both sets of indicators will be rising, but the increase for the coincident will be slower than the lagging hence the ratio will fall. Richard Yamarone notes in his book 'The Trader’s Guide to Key Economic Indicators' that this ratio has fallen before every recession since 1959. Legendary investor Ken Fisher is also known to use this ratio in his view of the economy. In 1992 Fisher noted that 'when this ratio is rising sharply, always be bullish' and 'when it is falling, adopt your most bearish posture'." - David Schawel
Writer for Economic Musings. Published on Business Insider, August 3, 2011. [http://www.businessinsider.com/cause-for-concern-the-coincidentlagging-indicators-ratio-continues-to-fall-2011-8#ixzz1UTu3BYDF ]
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[Quote No.36995] Need Area: Money > Invest
"De-mystifying RBA [Reserve Bank of Australia] Setting of Interest Rates - My previous blog post on the RBA noted their tendency to follow a Taylor Rule prior to the GFC [Global Financial Crisis - 2007-9]. A colleague points out another statistical regularity that holds either side of the GFC, and right back to 1990: the RBA’s decisions follow the 90-day bank bill. Below are Phil Williams’ observations on this issue. In the days running up to the first Tuesday of each month, the Australian populace is subjected to the excruciating pageantry of whether the RBA Board will increase or decrease interest rates, or whether they will keep them on hold for another month... As a humanitarian, I would like to save us from this dreadful spectacle and give each of us the opportunity to track what the RBA might, or might not do in real time. In so doing I hope to de-mystify the process, by stating that the RBA doesn’t lead the way in setting rates, the market does. The RBA is a follower, not a leader. The following graph plots the 90-day bank-accepted bill rate (red line) and the RBA target cash rate (black line) from January 1990 to 28 July 2011. The blue line at the bottom shows the percentage difference between the two rates. The data is sourced from the RBA’s own web-site, Table F1, 'Daily Interest Rates and Yields – Money Market'... The graph shows an almost 100% correlation between the cash rate and the 90-day bank bill rates. However the data also shows that in almost every instance the RBA cash rate FOLLOWS the 90-day bank bill rate, rather than leads it. The data also shows that the RBA will generally increase rates once the 90-day bank bill rate gets 50 basis points or more above the RBA cash rate. The actions on the downside are not as tight, with decreases in cash rates occurring when the bank bill rate is anywhere from 0 to 100 basis points below the 90-day bank bill rate. However as a rule of thumb the RBA tends to decrease the cash rate when the 90-day bank bill rate is 50+ basis points lower than the cash rate..." - Steve Keen
Australian economist. August 5th, 2011 [http://www.debtdeflation.com/blogs/2011/08/05/de-mystifying-rba-setting-of-interest-rates/ ]
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