Investment Contrarians

U.S. dollar


Is This Digital “Gold Bullion” Investment Worth the Risk?

By for Investment Contrarians | Nov 26, 2013

Investment Worth the RiskThere has been a lot of coverage over the phenomenon that is Bitcoin.

I’m sure many of you are asking yourselves, is this online currency for real? What does it really say about our financial system?

But for those who are unaware, Bitcoin is essentially an online currency that is completely decentralized. Simply put, it is the exact opposite of the U.S. dollar, which is managed by the Federal Reserve.

While the value of one Bitcoin started off being only a few U.S. dollars, over the past couple of months, investor sentiment has become euphoric and the price of a Bitcoin has gone hyperbolic, from approximately US$13.00 in January for one Bitcoin to US$100.00 in July, recently hitting a high of US$900.00 for one Bitcoin in the past few weeks.

Why is investor sentiment so bullish on this online currency?

The best way to think of Bitcoin is as an online version of gold bullion. This digital “gold bullion” has exploded in popularity around the world. In fact, some of the strongest investor sentiment in Bitcoins comes from China. Not only are the Chinese heavily buying physical gold bullion, but they’re now accumulating the digital version of gold bullion: Bitcoins.

Many find the appeal of a decentralized currency attractive in this day and age. With central banks pumping money around the world, owning a piece of something that can’t be controlled by a central bank is very attractive to many people.

However, the spectacular rise of interest in investor sentiment for the digital gold bullion is extremely speculative.

Actual gold bullion has been around for centuries. To place one’s faith … Read More


What the New Record-Low ECB Interest Rate Means for U.S. Investors

By for Investment Contrarians | Nov 12, 2013

Record-Low ECB Interest RateOf all the central banks around the world, the European Central Bank (ECB) has rarely surprised markets by making monetary policy adjustments without some hints to the market first.

But this is exactly what happened last week when the ECB lowered its benchmark interest rate to a record-low 0.25% in hopes to spur economic growth. (Source: European Central Bank, November 7, 2013.)

This monetary policy change is a much bigger deal than many people realize.

First of all, as I just discussed last week, many investors have been expecting economic growth to finally emerge within the eurozone. This change in monetary policy by the ECB just validates what I’ve been saying for some time: that economic growth is nowhere in sight.

This is not news. How many years has it been since the Great Recession, and where can you find true, fundamentally strong economic growth?

All I see are central banks trying to outdo each other with easier and easier monetary policy (money printing).

With the ECB benchmark interest rate now at 0.25%, how much more ammunition does the bank have left? Does anyone really believe that a quarter-point drop in interest rates will revive economic growth for the region? I certainly don’t.

But this goes beyond just the eurozone. What the ECB is doing with monetary policy is more than simply printing money; it’s trying to lower the euro currency. And while the central bank isn’t explicitly stating that this is its plan, in my opinion, it is still a significant consideration.

Look at what the Japanese central bank has done. Japan has enacted one of the largest monetary … Read More


When Foreign Investors Pull Out of U.S. Bonds…

By for Investment Contrarians | Nov 5, 2013

U.S. BondsAs everyone is celebrating the market at record highs, another record was just broken and no one appears to be celebrating it.

Of course, I’m talking about the fact that the U.S. government debt total has just exceeded $17.0 trillion.

No one should be really surprised, since we continue running deficits each year. This just means that our government debt will continue to climb, with no end in sight.

Government debt totaling $17.0 trillion is a staggering amount of money. That equates to almost $149,000 per taxpayer. Of course, this doesn’t include unfunded liabilities. When you add in Medicare, Social Security liabilities, and a vast assortment of other levels of government debt, the total is well over $100 trillion.

Again, this may not be much of a surprise to our readers, as most of you are aware of our government debt problem; what may be a surprise to many, however, is the continued global demand for U.S. bonds.

Because we have been able to sell U.S. bonds for so long to investors around the world, this has enabled us to keep spending and to procrastinate when it comes to getting our house in order.

However, I don’t believe this can go on forever. At some point, foreign investors are going to start getting worried that all those trillions of dollars they pumped into U.S. bonds might be worth a whole lot less in the future.

This political circus that we are witnessing in Washington just barely scratches the surface of how much work really needs to get done to solve our government debt problem.

Because the rest of the world … Read More


How to Protect Your Portfolio as Government Debt Cripples America

By for Investment Contrarians | Oct 30, 2013

Government Debt Cripples AmericaWhenever I’m asked what I think has the biggest potential impact not only on the stock market, but also on our way of life, I always point to the continued increase in government debt.

Over the short term, the Federal Reserve has attempted to stimulate the economy partially by buying U.S. Treasuries. Under normal monetary policy, the Federal Reserve only directly impacts short-term interest rates. To reduce long-term interest rates, the Fed began buying U.S. Treasuries, pushing up the price and lowering the yield.

Over the short term, we can look around today and notice that the sky is not falling. However, as government debt continues to pile on, approaching $17.0 trillion (which doesn’t include unfunded liabilities), at some point, this will impact not only U.S. Treasuries, but also our entire economy.

Part of the reason that U.S. Treasuries are still in demand worldwide is that the U.S. dollar remains a reserve currency. There are benefits from a logistical standpoint in conducting business using the reserve currency to also use U.S. Treasuries for investment purposes.

However, as I’ve mentioned in other articles, large investors in U.S. Treasuries, such as China, are increasingly calling for a new global financial system that relies less on the U.S. dollar.

That sentiment alone should shock the politicians into action and make them realize that our biggest lenders, the ones buying our U.S. Treasuries, are questioning our ability to manage the rising pile of government debt.

The most recent data from August was that China actually reduced its holdings in U.S. Treasuries to a six-month low, according to the U.S. Department of the Treasury. (Source: … Read More


Update: Global Gold Bullion Demand Still Rising, Supplies Running Dry

By for Investment Contrarians | Oct 21, 2013

Global Gold Bullion DemandIt is amazing how different investor sentiment can be around the globe regarding just one topic: gold bullion.

Most of you are quite aware that the price for gold bullion here in America has dropped significantly this year. One could come to the conclusion that investor sentiment has left the precious metal for good.

However, looking at investor sentiment for gold bullion on an international basis, the picture is very different.

Just recently, the premium for gold bullion in India hit a record $100.00 an ounce above London prices. The demand for gold is so high in India that the supply for physical gold is running out. (Source: “Gold Premiums Hit Record in India,” Reuters, October 15, 2013.)

As most of you are probably aware, the Indian government has tried to clamp down on imports of gold bullion to try and stem the outflow of their currency, which is causing the rupee to drop significantly.

This is a great example of not just investor sentiment on a local level, but of global investor sentiment as well, which gives us a better picture of the true fundamental situation. Gold bullion has fallen in price here in America; that’s because investor sentiment looking at the precious metal from the point of view of the U.S. dollar.

People in other nations are not experiencing the same type of price drop in gold bullion. In fact, in India, the rupee has dropped so far that gold prices are still near their record highs.

Will investor sentiment shift in favor of gold bullion once again versus the U.S. dollar?

Obviously, no one can predict the … Read More