Recent Irish bond yields explained in plain English.

We are not issuing bonds, so the cost of servicing our debt has not magically risen to ‘7%’ because we are not borrowing at that rate, what is happening is all in the secondary market.

What that means: The primary market is when the bond is first issued at par (100) and with a coupon (for instance 3%). When a bond is issued the main concern of a bond buyer is getting your capital back (that par value of 100) and it trumps the yield in terms of importance, so you regularly see people buy debt at very low rates from those most likely to pay it back, Microsoft recently issued a bond at 0.8%!

That is where the Ireland story gets interesting, our bond yield is not 7% because we issued it at that yield or interest rate, it is 7% because people are sacrificing their capital to get out of the trade. That means they don’t believe they will get their money back at the end and …

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Competitive devaluation?

Anybody who follows the well known finance blog Credit Writedowns will know that one of the trends coming about (according to author Ed Harrison) is that we are going to see a competitive devaluation, where USD and Euro purposely look to go lower, the other alternative is that the Chinese opt to float their currency and allow some appreciation. This is happening right now, it is no coincidence that the Yuan is going to see some rule loosening, it is that or face the alternative which is a move by USD as low as it can go to re-establish equilibrium between the surplus/deficit nations.

While competitive devaluation is not the subject, it is touched on by several different facets of the conversation, well worth viewing.

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Falling euro, friend or foe?

Many critics of the Eurozone are sceptical because they have always raised the fact that countries cannot devalue their currency, think twice would be my response, what is happening with the Euro is a large scale depreciation that means nobody has to leave the zone to get cheaper currency.

There is a race to the bottom happening in my opinion, the Chinese have definitely lead the way thus far with their Yuan manipulation, the only reason the world plays ball with them is due to their manufacturing output of cheap goods (which would be cheap compared to 1st world production costs even if Yuan traded at fair value) which we want and willingly buy.

Then you have the dollar, the US has such massive forward liabilities that the dollar will have no choice but to tank, the UK sterling doesn’t have a great future either, fifty years ago it was worth five dollars now it is at $1.43 – but currency is not absolute, it is relative – and that is why you have to look elsewhere to see what …

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The Federal Reserve

(this is taken from the Mises YouTube channel) Thomas Jefferson and Andrew Jackson understood “The Monster”. But to most Americans today (and pretty much everybody else for that matter), Federal Reserve is just a name on the dollar bill. They have no idea of what the central bank does to the economy, or to their own economic lives; of how and why it was founded and operates; or of the sound money and banking that could end the statism, inflation, and business cycles that the Fed generates.

Dedicated to Murray N. Rothbard, steeped in American history and Austrian economics, and featuring Ron Paul, Joseph Salerno, Hans Hoppe, and Lew Rockwell, this extraordinary new film is the clearest, most compelling explanation ever offered of the Fed, and why curbing it must be our first priority.

Alan Greenspan is not, we’re told, happy about this 42-minute blockbuster. Watch it, and you’ll understand why. This is economics and history as they are meant to be: fascinating, informative, and motivating. This movie could change America.

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Gold prices, very much a dollar story (for now)

While we are bullish on precious metals (in particular silver) it is important to remember that many commodities are dollar denominated assets and for that reason they will often appreciate if the dollar weakens, this happens with oil, and it is currently happening in gold (see chart below).

The recent gains in gold are at least in part due to dollar weakness, price gold in euro or loonie and it looks relatively flat for the last seven months in which historic nominal highs were tested. Low carry costs and future inflation risks are in that mix as well, however, in the respect of an inflation hedge gold is still the master metal and silver has good upside potential as well. That doesn’t mean caution can be thrown to the wind in expectation of gains, although physical demand is up a reverse in financial gold plays could happen swiftly and undo much of the current range in a …

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Precious Metals: Is Silver the Golden opportunity?

Gold prices broke the $1,000 mark again and have been hovering around that mark for some time (today’s spot price is $991.91), this is making headlines as people comment on ‘record highs’ that the metal has reached in nominal terms (no inflation factored in), if you adjust for inflation the current price would need to be c. $2,500 to match the $850 peak reached in January 1980.

The Dow/Gold ratio is currently 9.7 historically during a crash you would see gold prices surge, the peaks in the graph below are the low points of gold prices/high Dow, and you can see that in the past (c. 2000) it would have taken 40 oz of gold to buy the Dow, the historic average was around the 5 or 6 oz mark which would mean either the Dow is overpriced or gold is under priced, a ratio of c. 6 would put gold at a price of $1,605 (Dow at 9630) and at 5oz would price gold at $1,926. The hidden aspect …

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GO TO JAIL! Do not pass go, do not collect €200 million

The talk of ‘Economic Treason’ and calling for the heads of every banker are sadly starting to gain more and more traction, all of this is happening without concrete evidence thus far of exactly ‘who’ we are chasing and ‘for what’ specifically, largely the financial leaders greed is central to accusations of wrongdoing, and while greed may not be morally acceptable to right thinking individuals it is not actually a crime.

The FT recently had an article showing that executive pay misguided but that it didn’t make them criminal by nature, stupidity is an ‘equal opportuntities’ trait. It is important that every person in finance is not villified for what was something that all of society played a part in.

One question nobody is asking is ‘what part did I play in this?’, as a brokerage we are culpable, as a consumer I am personally culpable and as a citizen I will be paying for mistakes made on both …

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