Saturday, April 2, 2011

Goldman Raises Corn Price Forecast By 30% Just As Corn Surges To Highest Since 2008 Food Crisis

Unprecedented strength in corn continues, with futures rising by 4.5% on Thursday, following strong demand for corn to make food and fuel. That demand has whittled down the corn supply, which was already at its lowest level in 15 years in the United States, the world's top exporter of the grain. Per Reuters: " Demand has been strong from the livestock and ethanol sectors, and from importing nations, including China which is believed to have purchased 1.25 million tonnes last week. This week's rally, triggered by the U.S. Agriculture Department's lower-than-anticipated quarterly U.S. corn stocks estimate on Thursday, rekindled worries about food price inflation. The near-term supply concerns have largely overshadowed USDA's forecast that U.S. farmers will plant the second-largest corn acreage since 1944." Yet whether due to fundamental reasons or pure momentum, Goldman has just added more fuel to the fire by raising its corn price forecast, after having lowered it a whopping 10 days ago, from $6.00/bu and $5.80/bu to $7.80/bu and $7.00/bu, for 6 and 12 months respectively. Of course, all those who followed Goldman's recent downgrade made some very inverse profits. So it may well be time to trade against the squid yet again.

From Goldman Sachs:

The USDA Grain Stocks report featured corn stocks significantly below consensus expectations. These tighter old-crop inventories will require higher prices in the short term to finally ration demand. Further, despite corn winning the acreage battle, we reiterate our expectation for only a modest build in corn inventories in 2011/12. As a result, we raise our corn price forecasts to $8.60/bu in 3-mo, $7.80/bu in 6-mo and $7.00/bu in 12-mo. We recommend that consumers take advantage of the current backwardation in the corn futures curve to enter into longer-dated hedges.

Old-crop corn significantly tighter than expected…

The real surprise in yesterday’s USDA reports came from corn stocks, which were below the low end of expectations. This confirms that recent high prices have yet to achieve a slowdown in feed demand, and with strong weekly ethanol and export demand, point to a further drawdown in old-crop inventories. As a result, we believe that corn prices need to rise strongly in the near term to ration demand, including feed. Accordingly, we are raising our 3-mo corn price forecast to $8.60/bu. We expect ethanol demand rationing will be harder to achieve, as a $3.00/gal RBOB price and a $0.45/gal blender tax credit require prices above $10.00/bu to push the ethanol production cost above the price of gasoline.

… leading us to raise our corn forecasts despite acreage gains

We had lowered our new-crop corn price forecast on March 20, on the view that stabilizing inventories, as reported in the Feb/Mar WASDE, and higher acreage would allow for a modest inventory build and in turn moderately lower prices in 2011/12. While we maintain our outlook for the 2011/12 corn supply response, lower beginning stocks mean that our forecast for a sequential modest decline in prices will start from a higher level. As a result, we raise our 6- and 12-mo price forecasts to $7.80/bu and $7.00/bu from $6.00/bu and $5.80/bu previously, above the current forward curve.

Focus now shifts to weather, with price risk skewed to the upside

In the short term, the focus will be on precipitation in the Midwest as wet conditions lead farmers to swap corn for soybean acreage. Further, lower inventories suggest strong asymmetry in the price response to weather: it would take very favorable weather to push new-crop prices significantly lower than our new forecast, while any weather disappointment will limit inventory build and push corn prices even higher to further ration demand. We therefore recommend investors and consumers layer in upside exposure/hedges in Dec-11 corn prices.

In other words it is likely time to sell it all...

Federal Reserve president spooks market: Says Fed could raise rates by 75 bps this year...

Minneapolis Fed's Kocherlakota, who is not scheduled to speak today, and who in the past has exhibited both hawkish and dovish tendencies is on the wire, saying the the Fed Funds rate may need to rise 75 bps by late 2011. He is also quoted as saying that QE2 boosted inflation expectations more than he anticipated (oh look, another confirmation of Fed ineptitude but only in retrospect), and that higher short-term rates certainly possible in late 2011. In other words, the hawks in the Fed are once again getting very vocal... Just like in March of 2010, and before the market tanked, opening the door for QE2, and when all the hawks kept their mouths shut.

From MarketWatch:

Narayana Kocherlakota, in an interview with Dow Jones Newswires and The Wall Street Journal, said that if the U.S. economy grows at about 3% this year, as he expects, and underlying inflation ticks higher, as he expects, then the Fed will end its $600 billion bond-buying program as planned in June.

He expects core inflation (inflation excluding volatile food and energy prices) will rise from about 0.8% late last year, when the Fed launched its bond-buying to about 1.3% by year end, he said. As a result, lifting the Fed's target for short-term interest rates by more than half a percentage point late this year is "certainly possible." He noted that the often-cited Taylor Rule, named for the Stanford University professor who devised it, would in that circumstance call for a ¾-percentage-point increase in rates.

"If you consider monetary policy was appropriate at the end of 2010...and then you see core inflation go up by 50 basis points over the course of 2011..the usual response that we know from 20 years of thinking about monetary policy (or even more) is to raise the target rate by even more than that increase in observed inflation," he said. "So that means you should be raising the target rate by more than 50 basis points."

The Fed dropped its short-term interest-rate target nearly to zero in December 2008 during the financial crisis, and promised to keep it there for "an extended period." Trading in futures suggests markets anticipate a Fed increase to 0.5% early in 2012.

Mr. Kocherlakota is one of the five regional Fed presidents with a vote on monetary policy this year, along with the Washington-based Fed governors. He is a swing voter on the Fed's policy committee, who isn't clearly aligned either with hawkish Fed officials who tend to favor tighter credit or dovish members who tend to favor looser credit

Two other regional Fed presidents with votes—Charles Plosser of Philadelphia and Richard Fisher of Dallas—have expressed concerns about inflation and suggested they would favor raising rates in the near future.

The Minneapolis Fed president, a former academic, said he expects a "pretty big upward movement" in core inflation—that is inflation excluding volatile food and energy—which he considers the best predictor of where overall inflation is.

Mr. Kocherlakota also said that the Fed's second-round of bond buying, known as QE2 for "quantitative easing," was more potent than he anticipated when he and other Fed officials launched it last year. It raised near-term inflation expectations, then dangerously low in his view, by more than he anticipated, measured by financial market indicators.

Mr. Kocherlakota said when the Fed decides to tighten monetary policy, he favors raising short-term interest rates over selling assets by the Fed's portfolio, primarily because the Fed has a firmer understanding of how interest rates affect the economy.

All-clear signal from the Dow Theory?

It certainly looks that way Friday morning, with the Dow Jones Industrial Average (DOW:DJIA) finally surpassing its February closing high of 12,391.25 — after having failed to do so in its two previous attempts.

In fact, if the Dow can hold on through the close and remain above that previous high, then the venerable Dow Theory will have flashed an all-clear signal for the market.

The Dow Theory, of course, is the oldest stock-market-timing system that is still in widespread use. It focuses on the action of both the Dow industrials and the Dow Jones Transportation Average (DOW:DJT) .

Dow Theorists focus particular attention on how these two benchmarks behave after any market correction. It’s considered a bearish omen if either or both fail to surpass their pre-correction highs, and it’s an all-clear signal when both eclipse their respective highs.

Friday is the third consecutive day in which the market has come close to generating such an all-clear signal. The transports finally surpassed their previous high as of Thursday’s close, and the industrials came awfully close on both Wednesday and Thursday — though in each case, they fell short by the close.

Many would have found it disappointing if the Dow Jones Industrial Average went into the weekend having failed a third time.

For now, at least, it looks as though the bulls can save their disappointment for something else.

How to Beat the Stock Market by Following Five Simple Rules

Keith Fitz-Gerald writes: Most investors operate on some variation of the "set it and forget it strategy."

And that's why - more often than not - they're surprised by the terrible things that happen to their money when the stock market stumbles.

But it doesn't have to be that way.

Studies show you can dramatically boost your performance and potentially beat the stock market by following five simple rules.

Those five rules are:

1.Set goals and monitor your progress.
2.Concentrate your assets.
3.Structure your portfolio and rebalance at least yearly.
4.Use trailing stops to limit risk.
5.Don't chase the train if it's already left the station.

Breaking Down the Fab Five

Rule No. 1: Set Goals and Monitor Your Progress: Most investors have no understanding of where they've been - let alone where they want to be. So start out by figuring out where you want to wind up. Then craft a plan that helps you get there.

For instance, if you really want above-average income, don't waste your time with growth-only choices that pay no dividends. Various studies show that dividends and reinvestment can contribute as much as 97% of total long-term stock-market returns.

Similarly, if data shows that 75% of the world's economic activity now takes place outside U.S. borders, investors who have only 6% of their holdings in international stocks will end up with a substandard portfolio. For decades, we've heard over and over how international investments should comprise 5%, 10% or at most 15% of our portfolio's total value. Any more than that is foolhardy and risky, the pundits tell us.

Yet, best-selling author and famed Wharton Business School Professor Jeremy Siegel believes that such long-held conventional wisdom on international investing should be thrown right out the window. In fact, an allocation of 40% or more may be more appropriate, Siegel says. And that matches my own research.

Rule No. 2: Concentrate Your Assets: Many investors are familiar with the concept of "diversification"- or, at least the form that Wall Street practices. Common wisdom tells you to spread your assets around, reasoning that this will protect you from a single catastrophic loss. But that's actually akin to rearranging the deck chairs on the Titanic. No wonder investing icon Warren Buffett reportedly quipped that "diversification is for people who don't know what they are doing."

Like Buffett, I think it's far more important to concentrate your assets. In doing so, you're investing in a more limited list of things that you can better understand, keep tabs on, and react to. That also suggests that you're investing in the certainty of projected returns, rather than trying to protect your money against things you can't control in the first place.

That's why I advocate investing in globally unstoppable trends with literally trillions of dollars behind them. I'll bet you can probably name most of them with relative ease: Inflation, global commodities and natural resources, the emergence of China and its effect on global earnings, bond bubbles, population growth, and more. My good friend and Money Morning colleague, Larry D. Spears, described eight such trends - and accompanying investments - in a two-part report just this week [Editor's Note: Readers can access Part I or Part II of the aforementioned series by Spears, right from here, free of charge.]

Rule No. 3: Structure Your Portfolio and Rebalance at Least Yearly: Most investors get caught up in one of two extremes. Either they "over-manage" their portfolios, and wind up trying to maneuver through every possible swing, shimmy, and shake the market throws at them - usually with limited success. Or they don't pay any attention whatsoever - and when they finally do examine their statements, they're left to wonder why their 401(k) turned into a 201(k).

To properly structure your assets, consider a simple, proven model - such as the 50-40-10 strategy we recommend here at Money Morning, as well asin our sister publication, The Money Map Report. Because you've got three clearly defined "tiers" to play with, every investment has a place - and a specific role - in your portfolio. [Editor's Note: For a full report on this investing model, please click here. It, too, is available free of charge.]

The 50-40-10 pyramid that represents our investment model is a lot like the "food pyramid" many of us remember as kids.

The stuff on the bottom - the 50% we assign to safety and balance - is the food that tastes like wallpaper paste, but that your mom insisted (and correctly so) "was good for you."

The middle layer - the 40% we put in global income and growth - is the stuff that actually tastes great and is stuff you want more of. The top 10% - the wild "rocket riders" - is the beer and chips, the chocolate mousse, or whatever other delight you can envision.

If you examine your statements and find that one segment - the 50, the 40, or the 10 - has gotten too large, it's a simple, self-reinforcing matter to sell some of your winners and redistribute that money into new choices to bring your money back into balance.

There's another benefit, too. When used properly, a strategy such as the 50-40-10 ensures that you achieve the three goals that are common to all successful investors. In short, you:

•Maintain discipline - in an automated way.
•Generate higher-than-average income.
•And achieve a greater overall stability for your portfolio.

That's not to say that a 50-40-10 portfolio can't come under pressure if the markets do. But we can say that, over time, the comparative stability it creates can help you avoid surprises that clobber most investors and doom them to sub-par returns.

Rule No. 4: Use Trailing Stops to Limit Risk: Think of it as a plumber would. Big losses - like water in your living room from a broken pipe - are expensive and tough to recover from. They can set you back years, which is why it's best not to incur them in the first place.

Instead, do what the world's most successful investors do - focus the majority of your efforts on avoiding losses in the first place. Success here will really make a difference, especially when you consider that most investors have been halved twice in the last decade - once from 2000-2003 and again from 2007-2009.

The simplest way to avoid catastrophic losses is through the use of protective or "trailing" stops.

Trailing stops work in one of two ways. You can set them at a certain percentage or absolute dollar amount below your purchase price when you first buy a stock or other security. And if that stock starts to run, you can "slide" it up, and keep it at a certain percentage below the current price.

In either case, the "stop" establishes a certain price at which you will "exit" the position - automatically and with no questions asked.

For instance, we advocate a 25% trailing stop, which means that if we buy shares in "XYZ Corp.," and XYZ falls 25% from our initial purchase price, we're out - no emotion, and no potential for vacillating with indecision as the loss widens.

Similarly, if we've owned XYZ for years, and it's risen tremendously, we'll move our trailing stop up in lockstep. That way, we'll keep at least some of those profits, should the stock ever fall more than 25% from its successfully higher peaks.

With today's technology, there's simply no excuse for not employing trailing stops as a means of protecting your savings. Almost every broker now offers software or the online capability to easily establish and monitor your investments, including the use of trailing stops.

Rule No. 5: Don't Chase the Train If It's Already Left the Station: Most investors have an uncanny knack for doing exactly the wrong thing at precisely the worst possible moment - meaning they buy or sell at times that inflict the greatest amount of financial damage on themselves. That's why it's well documented that investors sell at market bottoms and buy when things have already run up (and are ready to reverse).

Given human nature, that's completely normal.

But that doesn't mean you can't avoid such emotional pitfalls in your own investing.

That's especially true now, when many investors are trying to make up lost ground by piling in at a time when the U.S. Federal Reserve has its foot on the gas in a well-intentioned but ultimately misguided effort to re-inflate the markets and stimulate our economy.

The way I see it, piling into stocks in a wholesale fashion right now is like running down the platform in an attempt to catch a train that left the station in March 2009 - after the market has gained 95% (as measured by the U.S. Standard & Poor's 500 Index). If you do that, the odds are strong that you'll trip and fall - right off the platform and onto the tracks.

I think it's far better to buy your ticket, and then calmly walk for the train that you know is waiting (which closely relates to No. 3 above).

Remember, all investments contain risk. But by following the five simple rules I've just outlined you can go a long way to ensuring a healthier, more profitable portfolio that's capable of generating market-beating returns.

No More Storage in Cushing: WTI Will Be $90 in a Month

The latest inventory report came out on Wednesday, March 30 from the U.S. EIA (Energy Information Administration) showing Cushing stocks at a record 41.9 million barrels (Fig. 1). And guess what? The news is only going to get worse for WTI longs, as the next couple of weeks will bring the total storage at Cushing close to the max capacity of 44 million barrels due to the fact that more traders took delivery on WTI (West Texas Intermediate) on the last CL rollover.

MENA Does Not Matter Much

There is a three week span after the expiration where actual physical delivery takes place, so expect the next two EIA reports to test whatever remaining spare capacity exists at Cushing. In other words, it doesn`t really matter what is occurring in the MENA (Middle East and North Africa), since over the next month at the next rollover, traders will have to sell any long positions because they cannot take delivery even if they want to.

Abnormal Crude Deliveries

Furthermore, because of the events transpiring in the MENA over the last couple of months, traders who normally don`t take delivery have taken delivery over the last two rollovers, due to ‘what if” scenarios where Saudi Arabia became a legitimate concern, and oil spiked to $130 a barrel. The fallout from this is that traders and investors who normally take delivery will not be able to during this next rollover, as there will literally be no more storage at Cushing.

New Sellers Abound

This is very bearish for WTI prices over the next month, as now you are going to have an entirely new segment of sellers come rollover time. As such, expect the U.S. WTI prices to overshoot to the $90 a barrel range as shorts pile in before recovering a little around $93 a barrel at rollover (give or take a couple of bucks in either direction).

It is just not Cushing, the total U.S. supplies rose for the 10th time in 11 weeks, up another 2.9 million barrels for the March 25 week to 355.7 million (Fig.2). Remember during the summer when oil prices were in the low $70s? Well, inventories were at the height around 368 million barrels, which became a big headwind for long only speculators in crude oil at the time.

Demand Destruction by High Oil Prices?

So, here we are--only 12 million barrels from that exceedingly bearish level of US storage. And with these high prices we are starting to experience legitimate demand destruction. It seems with these high prices it is only a matter of time before we are again at the 368 million barrels of oil in US storage facilities at the Commercial level. So the Oil Bulls can no longer point to Cushing as an anomaly, we are literally swimming in Crude Oil right now in the US.

What’s Up with Rising Imports?

The news gets even more bearish for the Brent crowd as the following question should be asked regarding rising imports which are at their highest level in two months, at 9.1 million barrels per day--If there is such a tight supply in crude oil internationally, i.e., reflected in a much higher Brent premium to WTI, then why are imports rising when the US already has sufficient supply right now?

The reason is that there is no other place for this oil to go, especially with Japan`s massive cutback due to a natural disaster which has severely hampered much of its manufacturing, supply chain infrastructure, and domestic demand. All of this portends for continued higher import numbers for the next couple of months until Japan starts ramping back up to normal Oil demand statistics.

Logic Says …..

Unfortunately, Brent doesn`t actually have easily discernible inventory numbers, but through logical deduction one can surmise that if supply were really as tight as the price suggests, then imports to the US market would actually be significantly down, and not up. So expect Brent to come in as well over the next month. (Maybe in the range of $105 to $107 a barrel).

High Prices Kill Demand

With regard to the product side, gasoline inventories fell 2.7 million barrels to 217.0 million (Fig. 2) for the sixth straight weekly draw as there was a period at the beginning of the year, where we had a succession of inventory builds in gasoline products. The draw reflects decreasing refinery output, at 8.7 million barrels per day for the lowest rate in almost three months.

Refineries are cutting output as gasoline demand weakens in direct correlation over the last month due to higher prices at the pump, down 0.1% for the first negative year on year reading since the beginning of February.

This is a prime example of economics with regards to higher prices affecting consumer`s driving behavior, enough to lower demand for the product in the market. There is a slight lag between the RBOB futures price and the price paid at the pump, so expect demand to even go down further as gasoline prices fully manifest the appreciation in the futures market.

Down Goes The Pump Price

There is some good news for consumers in all of this as oil prices correct down over the next month; prices at the pump will start to go down as well. It is really the only way to get the consumer demand numbers back up and positive year on year, which is necessary to work off these large inventory numbers in crude oil storage.

Correct Now or Collapse Later

The consumer and the US economy needs lower prices to grow at a significantly higher rate in order to make a dent in an overall saturated oil market. The longer prices stay artificially high, and not reflect true demand in the market, given the current oversupply situation, the correction, when it does occur, will be even sharper (For example the 2008 Oil collapse).

The old adage “you can pay now, or pay later” applies to the crude oil market here. You can ignore fundamentals for only so long, in the short term, supplies don`t really matter to traders, but there comes a time when fundamentals in the market supersede political and technical based analysis.

In the end, fundamentals have the ultimate and final say regarding price direction in the market. And over the next month, fundamentals will dictate that Crude Oil prices correct to a lower level from current levels.

This correction would actually be healthy for the oil market, if this fails to materialize, and oil prices stay high with continuing oversupply, and weak demand, i.e., an artificial mismatch between supply, demand, and price, expect an even “healthier” and fundamentally more severe correction when market equilibrium reasserts itself.

Supply & Storage Fundamental Matters

Now that I have your attention...., no one can predict where oil prices will actually go as the crude oil market is a complex equation with ever changing variables. However, the purpose of the article is to discuss the developing supply and storage capacity dynamics in the market place.

Some other factors which might help facilitate crude oil`s decline would be the stepping down of Libyan leader Muammar Qaddafi, an early ending to QE2, a strengthening US Dollar, and some profit taking in some of the commodity related funds that include Gold, Silver, and Oil.

As recent fund inflows have helped prop up WTI beyond purely concerns over the unrest in the MENA region, the exact oil price will depend upon some of these other factors. Nevertheless, it seems reasonable to assume that one factor is quantifiable, and that is the supply issues with regard to storage capacity in the US market. Given these dynamics, WTI should close lower than when it started as the front month contract, and that hasn`t happened in a while, with prices being somewhere in the $90s.

10 Financial Lessons for a Richer Life

Jeffrey Strain

Let's face it, personal finance isn't nuclear physics.

The basics are so simple that anyone can get the concepts down in less than a day -- spend less than you earn, save and invest the rest.

Knowing what should be done and actually doing it, however, are two different things.

Most people realize that spending more money than they have is a bad, bad thing. That still doesn't keep millions of people from racking up credit-card debt.

Here are 10 money lessons I wish I had known when I was 20 (I'm now 42 years old), which also have the power to change your life if you are able to embrace them.
10. Money Doesn't Buy Happiness

I knew this in my heart when I was younger. After all, who can't hum the tune of the Beatles song Can't Buy Me Love?

But my head often countered it in real life. It took me several years of working in a large corporation making good money, but not enjoying my job, to finally get it through my head that money in itself does not make you happy, and the accumulation of money will do very little for your happiness unless you know how to use that money once you have it.

The happiness comes from the opportunities money makes available so that you can do the things that you want to do. If you have no idea what these things are, no amount of money will make you happy.
9. Goals Are the Key

I didn't begin to make specific financial goals until my early 30s, and it kills me that I lost 10 years in this department.

The old saying that if you don't know where you're going, it's difficult to get there is never more true with your financial goals. It wasn't until I took the time to write down my financial goals in detail that I began to find financial success.

Financial goals give you something to strive for and give you clear knowledge on how you want to spend the money that you earn. They also greatly help you avoid impulse purchases and spending money on things that aren't important.
8. Impulse Purchases Dash Dreams

I spent more money on more crap coming out of college than I would ever care to admit.

Impulse spending (or spending money on anything that isn't important to you and your goals) is the worst type of spending that you can do, yet this is how most people spend their money when they don't have financial goals.

It's especially destructive if it also leads to credit-card debt. Impulse purchases come about when you aren't really sure what you want in your life or what will make you happy.

This is why advertising is so effective. Advertisements make you believe that buying a product or service will give you the happiness that you are seeking, when this is rarely the case.

If you can learn to be patient with your money and avoid impulse purchases by knowing what your financial goals are, you will have made major strides in getting your finances in order.
7. Buy Memories, Not Things

A big con our society plays on us is that stuff will make us happy.

I fell for it for far too long.

When it comes to spending the money that you do have, buying experiences and memories with those whom you care about is a much better use of your money than purchasing material things. It's not the house that you buy, but the home that you make with your family inside it that matters.

When you look back on your life, you will remember the times, memories and experiences far above the things that you have purchased.

Understanding this will ensure that you get much more value out of the money you spend.
6. TV Is a Dream Killer
I once believed that I didn't have the time to do all I wanted to do, but it was nothing more than having poor priorities in how I spent my time, watching TV being one of those poor choices.

I hear time and again that people simply don't have the time to achieve the goals that they have. If you are the average person, that time you don't have is being spent in front of your TV. If you want to achieve your goals and dreams, the first thing to do is start to wean yourself off your TV.

You can't imagine the amount of extra time that you have and all the extra things that you can accomplish when you take the time spent in front of the TV (or computer or whatever other form of procrastination you use) to work on the financial and other goals that you have.
5. Money Seduces

It's a fact of life. At some point you will likely be offered employment that pays you more than what your dream job will pay, or a good salary when you aren't yet sure what your dream job is.

You will likely justify taking the job because the extra money will outweigh the compromise of putting off what you want to do and you may assume it will even help you to pursue your dream job in your spare time since it will mean you have more money.

This is a false justification that will only serve to make you lose sight of your true goals in life. Be very careful of the seduction of a higher-paying job, because when you accept it, it will be difficult to leave.

I wish I had seen this seduction for what it was right out of college rather than four years into a career that wasn't what I wanted to be doing.
4. Financial Mistakes Aren't All Bad

I've made more than my fair share of financial mistakes, and you're going to make financial mistakes, too. Everybody does and they can actually be a great benefit for you in the long run.

The key is learning from them instead of repeating them over and over again. Instead of getting down on yourself when you make a mistake, take the time to learn from it and make sure that it never happens again.

If you learn from your mistakes, you will come out far ahead than if you'd never make any mistakes at all over never learn from them.
3. Do What You Love and the Money Follows

The money probably won't be there at first, and it might seem impossible for you to figure out a way to make money from it, but if you are truly passionate about it, there is a way to succeed and make a living doing what you love. It takes a lot of time, effort and persistence, and it won't be easy.

You will likely have to become quite creative to make it happen, but if you truly love what you're doing, that effort will be the reason you are willing to put in the extra hours it takes to succeed.

I wish I would have started looking for my dream job a lot sooner and that I had the confidence to do so right out of college.
2. Money Is Emotional

You know yourself better than anyone else, and what motivates you. What motivates me and what motivates you may not be the same.

Take this knowledge and use it to your advantage. While personal-finance books will tell you the best way to handle your finances from an unemotional perspective, this advice is worthless if it doesn't work with your personality.

Adopt the methods that will help you get to your financial goals the quickest, leveraging your personal habits to do so.

Doing something (even if it is a longer process) is almost always better than the choice of doing nothing because the method advanced doesn't work well for your personality.
1. Embrace Compound Interest

If you want to be wealthy, understand compound interest and how it is your best financial friend from an early age. To retire early you don't need to make a lot of money.

All you need to do is begin saving small amounts early. The earlier you begin to put money into retirement savings, the more you'll have, and the sooner you will be able to retire.

Most people think that it is a matter of working hard and making a lot, but the true path to wealth is simply to start saving and investing from an early age.

Is the Stock Market Cheap?

Here's the latest update of my preferred market valuation method using the most recent Standard & Poor's "as reported" earnings and earnings estimates and the index monthly averages of daily closes for March 2011, which is 1,304.49. The ratios in parentheses use the March monthly close of 1325.83. For the latest earnings, see the adjacent table from Standard & Poor's.

● TTM P/E ratio = 15.5 (15.8)
● P/E10 ratio = 23.0 (23.4)

The Valuation Thesis
A standard way to investigate market valuation is to study the historic Price-to-Earnings (P/E) ratio using reported earnings for the trailing twelve months (TTM). Proponents of this approach ignore forward estimates because they are often based on wishful thinking, erroneous assumptions, and analyst bias.

TTM P/E Ratio
The "price" part of the P/E calculation is available in real time on TV and the Internet. The "earnings" part, however, is more difficult to find. The authoritative source is the Standard & Poor's website, where the latest numbers are posted on the earnings page. Follow these steps:

  1. Click the S&P 500 link in the second column.
  2. Click the plus symbol to the left of the "Download Index Data" title.
  3. Click the Index Earnings link to download the Excel file. Once you've downloaded the spreadsheet, see the data in column D.
The table here shows the TTM earnings based on "as reported" earnings and a combination of "as reported" earnings and Standard & Poor's estimates for "as reported" earnings for the next few quarters. The values for the months between are linear interpolations from the quarterly numbers.

The average P/E ratio since the 1870's has been about 15. But the disconnect between price and TTM earnings during much of 2009 was so extreme that the P/E ratio was in triple digits — as high as the 120s — in the Spring of 2009. In 1999, a few months before the top of the Tech Bubble, the conventional P/E ratio hit 34. It peaked close to 47 two years after the market topped out.

As these examples illustrate, in times of critical importance, the conventional P/E ratio often lags the index to the point of being useless as a value indicator. "Why the lag?" you may wonder. "How can the P/E be at a record high after the price has fallen so far?" The explanation is simple. Earnings fell faster than price. In fact, the negative earnings of 2008 Q4 (-$23.25) is something that has never happened before in the history of the S&P 500.

Let's look at a chart to illustrate the unsuitability of the TTM P/E as a consistent indicator of market valuation.

The P/E10 Ratio
Legendary economist and value investor Benjamin Graham noticed the same bizarre P/E behavior during the Roaring Twenties and subsequent market crash. Graham collaborated with David Dodd to devise a more accurate way to calculate the market's value, which they discussed in their 1934 classic book, Security Analysis. They attributed the illogical P/E ratios to temporary and sometimes extreme fluctuations in the business cycle. Their solution was to divide the price by a multi-year average of earnings and suggested 5, 7 or 10-years. In recent years, Yale professor Robert Shiller, the author of Irrational Exuberance, has reintroduced the concept to a wider audience of investors and has selected 10 years as the earnings denominator. As the accompanying chart illustrates, this ratio closely tracks the real (inflation-adjusted) price of the S&P Composite. The historic average is 16.39. Shiller refers to this ratio as the Cyclically Adjusted Price Earnings Ratio, abbreviated as CAPE, or the more precise P/E10, which is my preferred abbreviation.

The Current P/E10
After dropping to 13.3 in March 2009, the P/E10 has rebounded to 23. The chart below gives us a historical context for these numbers. The ratio in this chart is doubly smoothed (10-year average of earnings and monthly averages of daily closing prices). Thus the fluctuations during the month aren't especially relevant (e.g., the difference between the monthly average and monthly close P/E10).

Of course, the historic P/E10 has never flat-lined on the average. On the contrary, over the long haul it swings dramatically between the over- and under-valued ranges. If we look at the major peaks and troughs in the P/E10, we see that the high during the Tech Bubble was the all-time high of 44 in December 1999. The 1929 high of 32 comes in at a distant second. The secular bottoms in 1921, 1932, 1942 and 1982 saw P/E10 ratios in the single digits.

Where does the current valuation put us?
For a more precise view of how today's P/E10 relates to the past, our chart includes horizontal bands to divide the monthly valuations into quintiles — five groups, each with 20% of the total. Ratios in the top 20% suggest a highly overvalued market, the bottom 20% a highly undervalued market. What can we learn from this analysis? The Financial Crisis of 2008 triggered an accelerated decline toward value territory, with the ratio dropping to the upper second quintile in March 2009. The price rebound since the 2009 low pushed the ratio back into the top quintile. By this historic measure, the market is expensive.

We can also use a percentile analysis to put today's market valuation in the historical context. As the chart below illustrates, latest P/E10 ratio is approximately at the 88th percentile.

Click to View

A more cautionary observation is that every time the P/E10 has fallen from the top to the second quintile, it has ultimately declined to the first quintile and bottomed in single digits. Based on the latest 10-year earnings average, to reach a P/E10 in the high single digits would require an S&P 500 price decline below 540. Of course, a happier alternative would be for corporate earnings to make a strong and prolonged surge. When might we see the P/E10 bottom? These secular declines have ranged in length from over 19 years to as few as three. The current decline is now in its eleventh year.

Or was March 2009 the beginning of a secular bull market? Perhaps, but the history of market valuations suggests a cautious perspective.

Additional Perspectives on the P/E10
In response to the occasional request I receive for a real P/E10 based on the ShadowStats Alternate CPI for the inflation adjustment, see this chart, which suggests that the current market is fairly priced. On a personal note, I find the Alternate CPI version of the P/E10 interesting, but I think it is unreliable for estimating market valuation. Government policy, interest rates, and business decisions in general have been fundamentally driven by the official BLS inflation data, not the alternate CPI.

Yet another approach, one which avoids the question of the "correct" inflation adjustment, is to use nominal values for calculating the cyclical P/E ratio. Thia is the method of analysis favored by Bob Bronson, a market historian whose research is occasionally featured at Bronson favors a 16-year earnings cycle, which corresponds more closely to the duration of broader market cycles. For Bronson's rationale, see this post from last year. Thus I now include a monthly update of the nominal P/E16.

The Economist - 02nd April-08th April 2011

The Economist - 02nd April-08th April 2011
English | 96 pages | PDF | 90.90 Mb

read more here

Solar Sun Spot Activity and the Financial Markets

In recent weeks we have seen surprisingly high solar activity, with sunspot readings over 100 on multiple days, shown below, red line.

Underlying Source: Jan Alvestad

To understand how high these readings are, the chart below forecasts average sunspots to peak under 100 at the height of the current solar cycle (which is named solar cycle 24).

Source: NOAA

So what are the implications of this sharp rise in sunspots? Well, I have annotated the first chart with two recent macro events.

Firstly, the Japanese Earthquake occured at a peak of solar activity. There is some historic correlation between solar activity and earthquakes, as shown below. Sunspots are the red line, earthquakes the black line.

As we are climbing up towards the peak of solar cycle 24, we may therefore see more incidences of earthquakes (also, note the longer term rising trend in quakes). In terms of impacts on the markets, much depends on how severe quakes are and whether they occur near centres of commerce or in remote areas. It is common though to experience multiple quakes in the same area once an initial event has increased the tectonic stress, so it may be prudent to hold back on seeing Japan as a current investment opportunity, in case further events follow. Otherwise, a little extra general caution in trading may be appropriate, if we should expect further earthquakes globally in the climb to the solar cycle peak but cannot predict where or when they might occur.

Secondly, esclation and spread of turmoil in the Middle East and North Africa also conicided with a peak in solar activity. Human mass excitability has been shown to correlate with peaks in solar activity, with A.L. Tchijevsky finding that 80% of the most siginificant historical human events occured within the years around the solar maximums, specifically "mass demonstration, riots, revolution, wars and resolution of most pressing demands". Again, as we approach the current cycle 24 peak we may therefore see more such activity, and in trading it may pay to be a little more cautious or to be a little more invested in a safe haven such as gold.

But rising sunspot implications don't stop there. Let's dive in a bit deeper.


Cyclical planetary movement around the sun brings about cyclical swings in solar activity, with one solar cycle lasting an average of 11 years, sometimes as short as 9 years or as long as 13. Solar activity causes geomagnetic activity on Earth. There is a correlation between geomagnetism and depression and suicide in humans, and an increase in psychotic episodes in individuals who already suffer from unstable psychological states. Solar activity is also shown to make people more excitable, irritable and aggressive, and can affect melatonin synthesis, blood pressure, heart disease and light sensitivity.

Translated to the stock market, we see poorer average returns on days of significant geomagnetism. Increasing solar activity may therefore represent a headwind for the stocks bull.

Source: Robotti / Krivelyova

Translated to economics, we see a correlation of peaks in inflation with solar activity peaks and a correlation in recessions following solar cycle maximums, as shown in the next 2 charts.

Source both:

Combining these two charts with the solar cycle 24 forecast chart, we arrive at a prediction of inflation increasing into a peak around 2013 followed by a recession. Note that the 2013 peak is only a forecast and as solar cycles vary in length around an average it it possible that the recent escalation in sunspots in recent weeks could make for a steeper trend to peak a little earlier, we shall see. Either way, it might be prudent to be now invested in assets that do well in an inflationary environment as we trend up to the peak, such as precious metals and energy.

In fact, if we look back historically at the secular swings between hard assets and paper (or stocks) then we find that the last 3 peaks in commodities relative to stocks occured at solar cycle peaks, around 1918, 1948 and 1980. I have labelled these 1, 2 and 3 in the two charts below.

Source: Carl Moore

Source: Nowandthefuture

Every third solar cycle peak corresponded to a secular peak in tangible assets (such as gold and oil) in relation to paper assets, and the peak of solar cycle 24 will be the third since 1980, putting us on track for another relative peak in hard assets at the currently forecast cycle peak of 2013. Going further still, we can estimate the next commodities peak after that to be 3 further solar cycle peaks away at around 2046. Using secular averages, we could therefore estimate a secular commodities bull to occur from around 2030 to the mid 2040s, and working back, a secular stocks bull from around 2014 to 2030.

In summary, the recent escalation in solar activity and the predicted trend to a solar cycle peak currently around 2013 suggests increased earthquakes, increased human excitability in the form of action and conflict, increasing inflation and rising relative returns in hard assets until a relative peak at the solar maximum, giving way to a new economic recession.

Specifically, the solar peak around 2013 should coincide with extremes for the Dow-gold and Dow-oil ratios and consumer price inflation, before a recession emerges in which commodities fall harder than stocks and in so doing the two asset classes begin their relative secular inversion.

John Hampson

Martin Armstrong’s Economic Confidence Model vs. Gold’s Performance

An Update

Martin Armstrong, considered to be one of the best – if not the best - market prognosticator in history, had maintained until recently that the price of gold would correct sideways to down into the next bottom of his Economic Confidence Model into June 13, 2011. In a new article that appears to be an apparent response to a recent editorial I wrote he seems to have changed his position somewhat. Let me explain.

My Thoughts In February

In an editorial in February, which was posted on my new site at, I showed that Gold rose aggressively up into each of the last two bottoms of Armstrong's Economic Confidence Model with the price of Gold actually bottoming right at each period's Model top. This is the exact opposite of my fractal work off of the late 70′s Gold chart which shows that Gold will rise into mid-year. A chart near the end of the article shows this in graphic form.

Mr. Armstrong's New Comments

Mr. Armstrong's new article now shows an openness to the possibility of higher Gold prices in the near term although he expects to see a bottom in Gold from some level into June….In addition, he also notes the potential for Gold to rise up to the $12,000 level which is the high end of the potential range I have consistently maintained since 2009 based on the fractal relationship of the Gold:Dow ratio as seen in the 1970's Gold Bull Market.

Armstrong clearly states that one cannot compare any single market including Gold to his Model because his model provides timing such that any single market that bottoms when his Model bottoms tends to do well going forward. He also states that if Gold were to break too far to the upside above his stated price points, as is the case now, then Gold would be going through a "phase transition" where Gold might rise to a point that prevents the future price of Gold from reaching his higher potentials unless Gold trades down into his Model's bottom into June 13th. He does open up the possibility that Gold could trade higher and still correct down into his Model's bottom from a higher level. These are generalized statements as I read them so I would strongly suggest that you read his new article on Gold for yourself. There is no doubt that Mr. Armstrong is brilliant, yet those of us who are less gifted need to find the best way we can to frame-up the investment environment going forward using all of the investing reference points we can find.

Fractal Relationships in Review

Back in 2002 my work with technical analysis involving the charts of the Precious Metals Sector led me to consider the fractal nature of the long-term chart of Gold. Eventually, in early 2009 I read my first Martin Armstrong article that was named "It's Only Time." I was pleasantly surprised to read that Mr. Armstrong's very successful market work was based on fractal relationships. If memory serves, I think he described his point of realization of the fractal nature of the markets by noting his observation that he would see "price patterns repeat in first the daily chart, then the weekly chart, and then the monthly chart." I thought this was a wonderful way to express the fractal nature of how price patterns repeat over time.

In his new article Mr. Armstrong seems to suggest that the "when", or time component, of a cycle can be scientifically determined yet the "how", or the price pattern that forms, can only be foreseen based on subjective analysis and the level of experience of the operator. If so, then what happened to the concept of fractal patterns repeating in similar form in the daily, then the weekly, then the monthly charts? The fractal work that I do with the current Gold Bull off of the 1970′s Gold Bull has seen nicely recurring price patterns off of the late 70′s Gold Bull Chart, and the pattern at this point suggests a strong rise in Gold into mid-year.

Gold's Relationship to Armstrong's Economic Confidence Model

In Armstrong's new article he suggests that Gold can only reach his potential target of $12,000 if Gold trades down into his Model's bottom into June so that Gold will be in sync with his Model. This comment gives me pause. He states that the real problem, today, is the huge level of debt. This certainly makes sense. The huge deflationary backdrop of debt which continues to rise forces the Fed to accelerate the Inflation of the US Dollar. As the US Dollar is devalued, the US debt is also devalued since the US debt is fixed in price and denominated in US Dollars. The form of Dollar Inflation, today, is debt monetization in the form of QE. This type of Dollar Inflation does not directly increase the amount of newly printed Dollars reaching the economy so the economy continues to deteriorate generating the need for more US Debt and even more Dollar Inflation. The falling value of the US Dollar drives the price of Gold in the US Dollar higher, though higher in lesser valued Dollars.
If the above is true, then I would expect Gold to trade inversely to the Economic Confidence Model and to rise as the continuing deterioration of the economy generates the need for more Dollar Inflation. In fact, this is true for most nations who are now simultaneously devaluing their paper currencies, creating a period of Global Competitive Currency Devaluation (GCCD). Doesn't this world-wide condition create Capital flows into Gold across the world attracting hot paper money to Real Money Gold as the world-wide economy continues to deteriorate? If so, then don't world-wide Capital flows into Real Money Gold tend to move opposite the cycle of world-wide Economic Confidence? If so, I cannot see Gold moving in lockstep with the Economic Confidence Model in this GCCD environment but, rather, would expect Gold to trade inversely to the Model.

"Goldbugs Want Their Cake and to be Able to Eat it Too!" – Martin Armstrong

I think Armstrong's above quote is unfortunate. This comment might be seen as a slight to everyone investing in Gold, Silver, and the Precious Metals Stocks over time. This comment is especially interesting in the light of his new, higher price target for Gold being offered – one potentially up to $12,000 an ounce for the current Gold Bull. Investors are rushing into anything with intrinsic value these days. Don't we have "copper bugs", and "corn bugs", and cotton bugs", too? This is what makes a market – different investors seeking value in different asset classes at different times.

The bottom line to me is that the price of Gold rises directly proportional to the rise in Dollar Inflation that devalues the US Dollar. The true revaluation of Gold, higher, is created by investor demand for Gold as paper chases Real Money. So, what difference does it make in the end whether investors start to invest for a higher Gold price, today, or after June 13th? The decisions made by investors create the market and, as Mr. Armstrong has reminded us in his latest article, "The market is never wrong." Ironically, I do think that it does make a difference in this case since the parabolic price movement of Gold represents the collective parabolic change in psychology of the people moving to buy Gold.

The above being said I believe Mr. Armstrong has simply been the best with the markets for many years. I certainly wish him all of the best into the future.

Some Final Insights

A period of aggressive US Dollar inflation turns many things on their head since "price and value diverge" in this environment as the value of the Dollar drops. This becomes a world-wide phenomenon in the rare instance when paper currencies all over the world are simultaneously being aggressively inflated and devalued. The huge debt at all levels of government, and in the economy, left only two choices as we entered K-Winter; Either the debt levels collapse into a deflationary heap, or the Fed aggressively inflate the US Dollar. I am sure that it was a difficult decision for those in charge who became responsible for the indiscriminate spending piled up over many decades. The program of Dollar Inflation still has a long way to go considering the sad "state of the States" and the huge unfunded liabilities that remain in the system. Some say that the markets are discounting mechanisms as investors start to recognize what the future will bring. If so, then I suspect we will see a sharp rise in Gold, sooner rather than later, as an increasing number of investors turn to Gold as it climbs up its parabolic path.

Fractal Gold vs. Armstrong's Economic Confidence Model

The green lines on the chart below represent "Economic Model Tops" while the red lines represent "Model Bottoms." I have placed the red line in the current time period in the middle of May which represents the 2011.45 date on Mr. Armstrong's Model – although he states that date as coming on June 13th. The time to the Model bottom might be longer than the chart represents.

At this time Gold is rising similarly to what we saw at the previous two periods. A rise into mid-year would match the fractal work I do off of the 79 Gold Chart.

Current Log Chart of Gold

Notice that in the 2005/ 2006 fractal time-frame chart below how Gold moved higher. This is the analogous time-frame to the Model Chart, above. We can see that in the 2005/ 2006 time frame Gold launched higher from the same angled black dotted line where Gold has recently found support.


An analogous rise in Gold at this time could see Gold rising up to the black line at around $1860 with the possibility that Gold could overshoot that line to the higher dotted line target. I am expecting Gold to move higher very soon with the PM stock indices following suit similar to the move we saw back in 2005/ 2006.

23 Things They Don’t Tell You About Capitalism

If you’re not happy with the way the U.S. economy is being run right now, you’ve been pretty much stuck talking to leftists to get any serious in-depth dissidence. With the exception of a few distinguished rightist critics like Paul Craig Roberts, a former Reagan appointee at the Treasury Department, most people who do hard-hitting across-the-board criticism of our present variety of capitalism are liberals and beyond. So if pink isn’t your political color, you’re pretty much stuck with narrow-bore criticism of the recent financial crisis—most of which comes down to “people were stupid and crooked.”

Thus it is with great pleasure that I review Ha-Joon Chang’s new book 23 Things They Don’t Tell You About Capitalism. (Full disclosure: I went to school with his brother.) This is one of the toughest assaults on what passes for capitalism in the U.S. these days to come out in decades—but it is not especially a liberal or leftist book, and thus supplies the profound need America has for economic criticism that is both radical and bipartisan.

There’s plenty here to offend both Republicans (Americans have no intrinsic right to be rich) and Democrats (immigration makes local workers poorer), but plenty to delight both, insofar as they are looking for real answers. This is a theoretically profound book, but emphatically not a book for theorists. It is thus a book for anyone who has grasped that America is being strangled by a set of myths about what capitalism is and how it works. Debunking these myths is thus job one.

Ha-Joon Chang is a South Korean economist currently teaching at Cambridge University in England. His academic specialty up to now has been protectionism and state industrial policy, i.e. two things that conventional economics says can’t work. But his own native land is visible proof that they can. And this is just his starting point for exposing the flaws in conventional economic wisdom.

Because Chang is so spot-on with most of what he has to say, I shall keep my commentary to a minimum and just reel off his insights in order. To wit:

Thing 1: There is no such thing as a free market. Pace the glorification of the free market in recent years, this is largely a mythical animal. This is not just because of government interference, it is often because the private sector doesn’t want to be free, regardless of what it says. Even when we could hypothetically free up markets, we frequently wouldn’t be better off it we did.

Thing 2: Companies should not be run in the interest of their owners. Not entirely, that is. Even the former king of “shareholder value” himself, ex-GE CEO Jack Welch, has recently conceded this. Long-term success requires taking seriously everyone who contributes to a business: not just equity investors but also employees, suppliers, customers, and plant communities.

Thing 3: Most people in rich countries are paid more than they should be. Neither you nor I did anything to deserve to be born in this country—or after the invention of antibiotics, for that matter. This doesn’t mean we should feel guilty; it does mean we should remember we succeed in large part because of what society we belong to, not just due to our own efforts.

Thing 4: The washing machine has changed the world more than the Internet. The washing machine and other labor-saving devices made feasible the radical change in women’s roles we know as feminism. Similarly, without the humble air conditioner, America would have no Sunbelt. Twitter doesn’t come close.

Thing 5: Assume the worst about people and you will get the worst. Yes, people’s behavior is maybe 70 percent self-interested. But the remaining 30 percent is a big chunk, and you can’t make sense of even a capitalist economy without taking it seriously. Companies (and countries!) that understand this do better than those that try to run on selfishness alone.

Thing 6: Greater macroeconomic stability has not made the world economy more stable. Brutal anti-inflationary policies can easily do more damage than the inflation they combat. Protecting the value of a nation’s money is less important that protecting its economy as a whole. We’ve had more financial crises the more obsessed with hard money we’ve become.

Thing 7: Free-market policies rarely make poor countries rich. As I discussed in Chapter Six of my own book, every developed nation from England down to the present day got that way through protectionism and state industrial policy, not pure free markets. Even the good ol’ USA played this game from Independence until after WWII.

Thing 8: Capital has a nationality. Capital mobility causes plenty of mischief in our overly globalized world, but it’s a myth that capital has been denationalized into free-floating ether. Money always belongs to somebody, and those somebodies have passports and home addresses. It matters who’s in charge, and the answer is never “nobody.”

Thing 9: We do not live in a post-industrial age. The myth that we do has just led to the neglect of U.S. manufacturing while Japan and Germany remain quite competitive in hard industries despite paying decent wages. You can’t download a ride to work or the supermarket.

Thing 10: The U.S. does not have the highest standard of living in the world. Much bad policy, both here and abroad, has been based on the idea that the American version of capitalism is observably superior. But our per-hour average income ranks about 8th in the world on a purchasing-power parity (read the book to find out what that is) basis.

Thing 11: Africa is not destined for underdevelopment. Africans aren’t poor because of any mysterious or immutable factors. In the 1960s and 1970s, they were making progress. They’re poor for the same reasons other nations were once poor—which means that their poverty can be fixed if the apply the same solutions other nations have.

Thing 12: Governments can pick winners. Not every time, and don’t get careless, but the free market isn’t always right, and the government isn’t always wrong. In the U.S., government was responsible for (in order) the Erie Canal, the Transcontinental Railroad, the Interstate Highway System, and the Internet. Not to mention the aircraft and semiconductor industries. In East Asia, governments did even more.

Thing 13: Making rich people richer doesn’t make the rest of us richer. Trickle down economics doesn’t work because wealth doesn’t trickle down. It trickles up, which is why the rich are the rich in the first place.

Thing 14: U.S. managers are overpriced. America has the highest-paid corporate managers in the world. We don’t have the best-performing industries. Are we getting our money’s worth? You do the math.

Thing 15: People in poor countries are more entrepreneurial than people in rich countries. Yup: they open up fruit stands at the drop of a hat. This doesn’t stop them from being poor, so stop telling them they need to be more “entrepreneurial.” Their problems lie elsewhere.

Thing 16: We are not smart enough to leave things to the market. In the real world, markets don’t take care of themselves. They need to be regulated. How much and in what way is legitimate party politics, but an unregulated economy is a dangerous fantasy.

Thing 17: More education in itself is not going to make a country richer. You need not just education, but industries for educated people to work in. And paper-pushing education isn’t necessarily the kind of education you need—something America forgets with its neglect of serious vocational training. Again, ask Germany and Japan.

Thing 18: What is good for General Motors is not necessarily good for the United States. There was (maybe) once a time when the interests of giant corporations were reasonably closely aligned with the interests of the national economies they reside in. That time is long gone. Multinationals will treat nations as hotels if we let them.

Thing 19: Despite the fall of communism, we are still living in planned economies. Capitalist planned economies, that is—only nobody calls it that when we get the results that happy suburban consumers like ourselves want. The very fact that people are whining to Washington to solve our economic problems reveals how important planning is in this country.

Thing 20: Equality of opportunity may be not be fair. A “get what you deserve” society sounds good, and in many ways it is, but there need to be some minimums for what even the losers get.

Thing 21: Big government makes people more open to change. Because it makes them more able to take risks. Some economies with big welfare states do very well, thank you. It all depends on what kind of big government you have. If big government is always a loser, why is America borrowing money from Sweden?

Thing 22: Financial markets need to become less, not more, efficient. Efficiency in financial markets isn’t the same thing as efficiency in other industries. It can easily just mean “efficiently sinking into debt.” Even we Americans understood this from about 1930 to 1980; time to relearn it.

Thing 23: Good economic policy does not require good economists. Most of the really important economic issues, the ones that decide whether nations sink or swim, are within the intellectual reach of intelligent non-economists. Technical Economics with a capital “E” has remarkably little to say about the things that really matter. Concerned citizens need to stop being intimidated by the experts here.

On this last score, reading Dr. Chang's book would be a good place to start. Ian Fletcher is the author of the new book Free Trade Doesn’t Work: What Should Replace It and Why (USBIC, $24.95) He is an Adjunct Fellow at the San Francisco office of the U.S. Business and Industry Council, a Washington think tank founded in 1933. He was previously an economist in private practice, mostly serving hedge funds and private equity firms.