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  • Archive for the 'World Politics' Category

    A Warning From China to US

    Posted by Frugal on 8th August 2007

    Two officials at leading Communist Party bodies have given interviews in recent days warning – for the first time – that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

    click here for full text from telegraph.co.uk.

    For the best interests of global economy, I think a gradual devaluation of $US is the best. However, US keeps wanting to revalue Reminbi at a much faster rate. I don’t know how much these Congress man think, but revaluation of Reminbi is equivalent to increase inflation in the US. Increasing inflation means US needs to keep higher interest rate. And higher interest rates mean less economic growth and lower stock prices.

    I personally think that what China is doing with Reminbi is smart. Although most likely the policy is more beneficial to Chinese, the fate of Chinese and American are really tied together in this global economy. Making your creditors mad most likely won’t do you any good.

    Again the spectre of heightened inflation is there again from the threat of China, adding onto a long list of reasons of why inflation in the US will go higher for the forseeable future. So whatever you invest in, make sure it can be inflation-proof somewhat. Otherwise, whether it’s an energy-driven inflation (due to peak oil or emerging world demands), or monetizing the heavy US debt and all the social programs, or an inflation driven by US dollar devaluation, or the need for higher inflation to reduce the absolute magnitude of collapsing housing price from Shiller’s housing price curve, or inflation caused by decreasing agricultural labor or any other minimum wage jobs due to increased immigration enforcement, etc. I think you get the picture.

    Inflation does nothing to the people without savings, since they don’t have any savings to be depreciated. Inflation usually makes the rich even richer because they are always positioned at the front of inflation curve, whether it’s their assets or their salary. But for the people in the middle class as a whole, they tend to get poorer because the wealth is transfered to the rich people or foreign countries. Make sure you are not one of them.

    Posted in Miscellany, World Politics | 7 Comments »

    Paris Hilton goes to jail, but not Libby?

    Posted by Frugal on 3rd July 2007

    The fanfare on Paris Hilton going to jail was all over the TV. Just when I thought everyone is equal before law, Mr. President Bush again demonstrates how executive branch of the government has gone excessive. Libby, an aide of vice president Cheney, was sentenced to two and half years of prison term plus $250,000 fine because he leaked Valerie Plame’s CIA identity. But President Bush relieved Libby from his prison term, and left the fine intact.

    Coining the term WMD to cheat the legislative branch of Congress into going into Iraq war, overriding the decision from judicial branch on the prison term, stripped away the basic human right for detainee on habeas corpus, and with the help of legislative branch of Congress, passing a law to grant himself all immunity from war crimes (see the video below):

    The president of USA is becoming like almost an emperor now. The three branches of the government: executive, legislative, and judicial are supposed to have a proper check and balance. It looks like our country is nowhere close to where the founding fathers have envisioned.

    Posted in World Politics | 15 Comments »

    Ron Paul for 2008

    Posted by Frugal on 20th June 2007

    I will be voting for Republican Congressman Ron Paul if he can become a presidential candidate. His views on reduced government, personal privacy, fiscal responsibility, and an anti-war foreign policy are everything that I believe in. Never in the past I’ve watched any primaries. But with Ron Paul in the race, I’m again hopeful for a better America that can happen sooner.

    I put up a small banner of his campaign on the right column linking to his website to show my support without too much distraction from this blog. I hope at least I’ve brought you some attention to this potential presidential candidate, a medical doctor (gynecologist) by profession, a conservative republican, who is daring and knowledgeable enough to challenge Greenspan and Bernanke for so many times. He is a true believer in the free markets, and wants to reverse the trend of a bigger and bigger government that gets into the private affair of free markets, taking away a bigger share of tax revenue each time for providing some inefficient services. If he is elected as the US president, I think for the first time, USA can cut tax and still close the budget deficit. This will be very very bullish for the stock market and USA in the long term. Less tax burden is always better.

    I’ve watched many of his YouTube videos. If you have some time, you could watch a couple. I don’t know about you, but I’m so excited and feel so refreshing to hear some unconventional political views. And you bet that he will bring our troop home for certain.

    Here is a recent video of Ron Paul in CNN debate on June 5th:

    Posted in World Politics | 8 Comments »

    Details of Bush’s Immigration Reform

    Posted by Frugal on 22nd May 2007

    Immigration issues is an extremely tough thing to deal with, and devils are truly in the details of the implementation (since people always find the loopholes in whatever obstacles presented to them). I googled to find out the some details on the reform. There are MANY sections to this reform, and indeed you probably need all of them for any reforms to work.

    Title I: Border security

    This is quite a big expenditure item. I won’t comment on whether it’s possible at all to protect this long border from illegal immigrants, but with the help of technology, it is certainly easier. The important thing to note here is that there is an end to the practice of CATCH and RELEASE. The illegal entering people will be imprisoned now. But I’m not so sure how much this will deter people from entering. Sometimes, economic improvement may outweigh other factors. After all, some of cross-border attemps are life-threatening. Losing one’s own life is the biggest deterrent, but it didn’t deter those illegal immigrants who have perished on their way.

    Title II: Internal enforcement of immigration laws

    There is not much that I would like to comment here.

    Title III: Workplace immigration enforcement

    This is a welcome change to stop unscrupulous employers from competing illegally by employing cheaper illegal immigrants. All employers eventually must verify all employees. However, this is still at least 3 years away. What would be the results from this? I believe that low-wage earners can finally see some increase in their paychecks due to less illegal job competitions, but also the inflation on all goods and services will inevitably go up as a result.

    Title IV: Temporary work visa or Y visa

    This section obviously will counter the inflationary influences from Title III. Assuming that the wage paid is the “prevailing competitive wage” (which is hopefully higher than minimum wage), then this section will still help the legal minimum wage workers at large overall I believe.

    Title V: Immigration reform on family-based ground

    From what I can read, it appears that it will be much tougher to immigrate through family relationships. The goal here is to reduce chain migration through extended family relationship. This spells bad news for the people who have not immigrated yet.

    Title VI: Z visa for illegal immigrants already in the USA

    The total cost of converting to a legal status for an illegal immigrant I believe is in the order of $20000. This is probably a big bill. I don’t know how fair nor how feasible it is for the illegal immigrants to complete such requirement. But my own opinion is something around $10000 is probably a fair figure (if not too little) to account for all the needed expenditures for patroling the border, detaining illegal immigrants, social and educational costs, and healthcare system strains, etc. But this is just my personal opinion (without any detailed studies on the problem). At the end of days, what matters is whatever that gets written to the laws.

    I obtain most of my information from this link. Please feel free to add any informative links to the comment section. Thanks.

    Posted in World Politics | 1 Comment »

    The Next War Article From Harper Magazine

    Posted by Frugal on 25th January 2007

    My recent web-surfing has led me to this site on how the Vietnam war was falsely triggered and pre-planned all the way by the US president. Daniel Ellsberg the whistleblower who told the truth to public on Vietnam war, is again speaking out against the Next War with Iran that is probably under planning.

    I just don’t know how many lives of American soldiers it will take to wake up the public. Often, everyone of us is too busy taking care of our own affairs, be it job or family or just party fun. We don’t read and learn from our past history. We don’t think far enough into the future either. Frankly speaking, I know little about Vietnam War, and I was surprised to learn these things about Ellsberg.

    Stories like “Enemy of the State” movie has happened to Ellsberg. Maybe one day my website will be a target too. But whatever government power that tries to erase its trace cannot stand up to Truth. Any country that pre-emptively attacks cannot justify its cause. Have you seen the movie or DVD on Minority Report? Who is to say that because murders may happen or could happen, and then you should jail the person? What if it’s all made up, like the non-existent WMD in Iraq? Bush was so sure of its existence, and now blame it all on faulty intelligence. Who is going to be responsible for all the innocent deaths?

    And it’s also under this administration that Habeas Corpus has ended. Under this bill, if you’re called the enemy combatant by the Executive Branch, you have no legal rights to challenge such claims, and can be jailed without proper cause. This is the “free” America.

    I agree with the arguments made by antiwar.com. If any country attacks another, such aggression is always seen bad by other countries. Why is it that when USA or Israel does it (such as owning nuclear weapons), it can be called just, but not any other countries? Even if US doesn’t occupy the invaded country, it still doesn’t give US any rights to attack. By the way, US has been in Iraq several years now and counting. Quite a bad image. And of course, Israel occupied West Bank and Gaza for years if not decades. Their land grab is coined as “settlements” as if there are still no man’s land (not to mention all of bulldozing of Palestine houses without recompense). Once you stay long enough, a decade, and two, and then a hundred years after several generations have passed, it will become yours. Quite clever? Israel might as well change the history books like what Japan did for their WWII aggression against China, calling the attacks as “entries”.

    Maybe you don’t like it, but my “anti-governments” stance comes from my deepest love for humanity of all races and all walks in life. I wish Truth & Justice & Love prevails on Earth, and Prosperity for everyone. Jesus’s teaching is very clear: no one is innocent enough to throw the first stone on the sinned woman (John 8:7). No one can judge another person, but God. Likewise, no country alone can claim to be the world cop, and attack without being under attack. I don’t personally judge Bush as a person, but rather I’m afraid of the results from his actions as the US president (Iranian president is far worse though). In fact, if Iran attacks first, I will be the first one to speak out against Iran. What kind of crazy @#$% BS is that, “wiping Israel out of the map”?(Please check out the link in Pascal’s comment. I was surprised to learn more details about this “quote”.)

    I would like to conclude this post with a simple prayer:

    May there is no war with Iran. May no innocents are hurt. May all countries live in peace, and all peoples live in prosperity. In Jesus’ name. Amen.

    Posted in World Politics | 12 Comments »

    Chinese anti-satellite missile test/iShares aerospace and defense ETF

    Posted by ML on 22nd January 2007

    While political pundits were occupying themselves with “to surge or not to surge” and the Dem’s first 100 hrs in congress, the news that China successfully tested an anti-satellite missile by blowing up one of its aging weather satellites almost slipped through the news cycle. This CNN report contains a video link. My impression of the very short clip from the press conference was that Tony Snow was wishing the whole thing would just go away. For some reason, the test was conducted on Jan. 11, and the main stream media did not pick it up until Jan. 19.

    Of course, one ought not be surprised, since Russia and China (for that matter the whole international community) has been trying to get US to sign a ban on space-based weapons for some time. It is also common knowledge that US is the undisputed leader in this area even after this latest Chinese advance. Some might characterize this move by China as a ploy to get US back to the negotiation table, but any realist could see that a space arms race, which has long been going on behind the scenes, is inevitable. Space, as they say, is the final frontier.

    This is not to assign blame to anyone, for we are squarely in the realm of “real politik”. It’s a classic prisoner’s dilemma situation where nothing good will ensue. A new international agreement, even if signed, will only slow down the arms race in the best case, just as the nuclear test ban treaty simply moved testing to a digital platform. At any rate, we have to realize that satellites directly above someone else’s territory are indefensible. More fundamentally, US’s hegemonic power is predicated upon a monumental overspending which cannot be maintained when the object of subjugation is a rising industrial power with 1 trillion in reserves.

    Alright, enough of being fatalistic. I accept the reality of the world we’re living in, and it behooves to position myself the best way I can. So I’ll make the case for investing in the defense industry here. A space arms race, however irrational and unwinnable, is sure to booster the aerospace and defense industry into the “low earth orbit”.

    From Jeffery Saut
    The basic premise was already strong prior to this latest incident. Following is from a Jeffery Saut missive dated December 26, 2006. It’s no longer available at the Raymond James site but here’s the Google cache page.

    This is the interesting bit:

    Having lived around “The Beltway,” we have a pretty decent sense for how the political winds blow. Last week’s visit to “The Hill,” however, surprised us. Indeed, we arrived thinking that political gridlock was likely to be the course over the next few years, but that sense changed after a few conversations. Surprisingly, we found many of our Republican and Democratic leaders pretty much in agreement on numerous things. Of particular note was a near unanimous agreement between the Congressional folks from states devastated by companies moving jobs offshore. While said Congressmen can’t force companies to keep jobs in their states, one thing they can do is vote for an increase in the defense budget and mandate that those attendant high-paying jobs be kept in the United States. The last time such a defense build-up occurred was during the Reagan years and it led to a BOOM in economic activity punctuated by near 8% GDP growth. And maybe, just maybe, that is what the stock market is “seeing.” The quid pro quo is that such a boom would obviously be accompanied by more rate ratchets from the Fed . . . aka, “the fooler.”

    I think the message was crystal clear. He went on to suggest two ETFs for this sector: iShares Aerospace & Defense Index (ITA) and the PowerShares Aerospace & Defense Portfolio (PPA).

    ITA vs. PPA
    ITA tracks the Dow Jones aerospace and defense index (components) whereas PPA tracks PowerShares’ proprietary SPADE™ defense index. The main difference seems to be that PPA contains some consumer discretionary names like DirectTV and EchoStar, as well as some IT names related to biometrics and homeland security. ITA was just introduced last May. Over its short life, PPA has outperformed slightly. ITA has an expense ratio of 0.48% vs. 0.60% for PPA. I personally gravitated towards the former but both capture the desired exposure well. Daily dollar volume is equally low at $1.5-2 million. ITA trades only about 30k shares; however, I have noticed persistent 30 lot orders with a bid/ask spread of 4 cents. I’m not sure if there is a market maker providing liquidity. Perhaps a more knowledgeable reader can shed some light here.

    Technical Picture
    On the daily chart ITA just completed a breakout and a retest of the $54 level. One may ask whether this is a late stage breakout, but the benefit of the doubt resides with the trend until proven otherwise. As long as it stays above $53, I’m not going to fret much.

    The long term DJUSAE vs. S&P chart makes a very convincing case for this sector. In fact, it can be argued that we’re at the brink of a new leg up and this latest incident could very well be the catalyst.

    Disclosure: I’m long ITA and all the usual disclaimers apply.

    Posted in Investing, My Portfolio, World Politics | 1 Comment »

    Shih…signs of war?

    Posted by Frugal on 10th January 2007

    Reading this article from Baltimore Chronicle and this one from financialsense is making me nervous. The news of Bush wanting to send more troops in for no clear purpose is getting alarming (link #1, link #2, link #3). I hope there is no war. I hate wars, period.

    The leaders in Iran seem to be way-over their heads, while Israel is always aggressive in pre-emptively defending herself. This looks like an almost perfect “recipe” for conflicts. Iran however would be very different from Iraq or Lebanon. Iran not only is quite strong, but also can potentially shut down the Humus(?) strait that controls flowthrough of about 20% of global oil production.

    I can’t nor want to imagine what kinds of social havoc may be caused due to a outbreak of war between Israel/Iran. Oil/gold will most likely go up big time. And I actually believe that US Fed would take this chance to lower short-term interest rate and try to duplicate their success campaign after 911. But it wouldn’t be the same everytime. For one, commodity prices will go up big time. I’m guessing that they may use the core rate that excludes both energy & food, and telegraph that the rise in commodity would be just temporary due to a temporary war.

    Anyway. I truly hope nothing terrible will happen.

    P.S. I wrote this about 2 weeks ago. Just this past weekend, I saw another more concrete report on Israel’s plan in attacking Iran. And Israel’s plan includes the option of using “low-yield” nuclear bunker busters. I can’t believe it is even considered, my dear God.

    Posted in World Politics | 4 Comments »

    Second Class Shareholders? Print Your Money At Your Own Will !

    Posted by Frugal on 5th December 2006

    How many of you know that if/when you buy GOOG Google shares in the publically trading market, you are signing up to be a second class shareholder? I was surprised and disheartened to find this out when I read this article from MarketWatch. In fact, this is true for many companies (some 200 companies to be exact), and GOOG is definitely not the worst “violator”.

    What do I mean exactly? It’s the two classes of shares that have different amount of voting power (class A and class B for that matter). With the exception of Berkshire Hathaway (Warren Buffett’s company), Class B shares are not available to public, but insiders and management, while having more voting power, often 10X. Class A shares are the ordinary shares that trade in the stock market for ordinary folks like us, and only has 1X voting power. In Google’s case,

    With Class B shares having 10 times the voting power of Class A shares, the three executives together control more than one-third of Google’s voting power. Combined with the shares held by directors and management, the group controls nearly two-thirds of the voting power.

    As argued in the MarketWatch article, there may be some few examples like media where this kind of structure makes some sense for maintaining media independence. But power always finds its way to money. And I am afraid that IPO to the stock market is becoming increasingly like an ATM machine for all the founders in these new companies. How does the whole scheme work?

    1. Create a great company like Google, and then IPO. Through stock market valuation, your wealth immediately expands by at least 10X since annual profits of the company if valued at P/E ratio of 10 will get a market cap of 10X times the annual earning.
    2. But you want to IPO and sell shares, and don’t want to give up controls. So you create two classes of shares with 1X and 10X voting power before or at the time of IPO. For example, if you only own 30% of the company, you can have 3% in class B, and 27% in class A. Selling off 27% of the company makes you immediately rich. And yet you still retain about 30% voting power.
    3. Why not 50% or more voting power? You don’t want to be too controversial or too obvious to be appearing as greedy. You can partner with another founder, and/or people close to the top. With voting power over 50% or close to 50%, now you can make an ATM machine out of the stock market.
    4. Since you are either the CEO, CTO, chairman, or essentially an employee of the “public” company, you will be granting stock options or restricted stock shares to yourself. How much stock option? Well, as much as you want to, since you plus all the people who have B shares can pretty much override any shareholders’ votes.
    5. Since you have an unlimited supply of stock options of your own company (through step #4), you never need to hold your stock options for more gains. Just sell them whenever volatility of the stock offers you some gain.
    6. Selling your stock options are also a great source of positive cashflow into your own company. For every share of stock option, the company gets the price paid for the strike price, and you get the rest. And of course, one invisible shareholder pays for those with his or her hard-earned cash.
    7. If there are problems with share dilution through such process, your company can buyback the shares you sold. Essentially earnings of the company can be recycled through buyback programs into your own pocket. Suppose for every share of stock option that you sold, your company buys it back to create zero dilution, you will pocket all the option gain, while the earning of the company is effectively funneled into your pocket. Totally legal money laundering.

    Now, if you are truly aggressive, you can grant or authorize large amount of additional shares of your company at a single time. For example, if you start with owning 12% of the company, with 2% class A, and 10% class B shares (10X voting power), with the rest of 88% sold to public and trading as class A share, your voting power is 100% + 2% divided by (88% + 100%+2%) = 53.7%, enough to always vote the things in the way you wanted. Now, if you just continually grants yourself options of some 10% additional of the company. After 10 years if you haven’t sold anything, you will have 10 years * 10% + 2% class A share + 10% class B shares out of a total of 200%, basically taking back 50% of your own company again after you IPO and sold off 88% of your own company.

    How do I know this? Because I’ve seen at least one of those 200 companies (not Google, yet?) in action that did something similar to what I just described, except with different percentage numbers and number of years.

    There is a saying: power tends to corrupt, and absolute power corrupts absolutely. I don’t know about you, but if I have an ATM machine that I can constantly withdraw cash without any deposit, I will almost definitely take good advantage of it. Won’t you? Certainly, I would appear to have some stake in my own company, but I don’t need it to be more than 50% to raise eyebrows, since I would have already more than 50% of the voting power.

    I think this is the most pure form of greed if it is all acted out. Sadly our stock market system allows it. How can there be two classes of shareholders is really beyond me.

    Posted in Stock Market, World Politics | 7 Comments »

    California Prop 87 was voted down

    Posted by Frugal on 10th November 2006

    To tell you the truth, I thought that prop 87 will definitely pass without a doubt. Who doesn’t want to beat up the big guys, in this case, the Big Oil companies? But prop 87 to tax oil companies for raising additional 4 billion dollars for alternative energy was voted down with 45% yes, and 55% NO. I guess the recent price fall at the pump probably helps the understanding of the general public that oil price CAN fall as well as rise, according to the crude oil price.

    On the other hand, California has passed the measure for issuing transportatioin bonds on expanding freeways/etc. If you are a stauch peak oil believer, you probably would say that majority of those money is going to be wasted on the freeways. I don’t know for sure whether peak oil is real or not, but I do believe that the country desperately needs to build up the alternative energy sources. If prop 87 was better written and had the full accountability, I would have supported it.

    On the peak oil, I really hope that it’s not like the story about crying wolf. You cry once, and then twice, and then no one believes in you anymore. But then, the real wolf comes. Back in 70s oil crisis, it was quite real, but once it’s over, people quickly forgot about it.

    I think a good preparation is always better than nothing, and that’s also true for peak oil production.

    P.S. I’m “back” from my vacation just for 1 day for a quick post, in case you wonder, :) .

    Posted in World Politics | 9 Comments »

    The Timing of A War With Iran

    Posted by Frugal on 2nd November 2006

    This post is in response to a recent reader’s question in the comment section. It’s an analysis on a hypothetical war. No one can possibly guess the timing of such war (if it would happen) with a very high certainty (unless you are Mr. Bush, or close to his circle). But if I’m Mr. Bush or the war planner, I will consider the following:

    1. The Hurricane Season: A war in the Middle East will cause oil market to spike. To have a war in the Middle East together with a devastating hurricane is an economic suicide. The crude oil price may spike to above $100 easily due to the combination of the two factors. Therefore, I will not consider any war in the hurricane season which starts officially on June 1st, and finishes in the end November. In fact, I will make sure that the war or the most intensive part of the war finishes before the start of the hurricane season.
    2. Christmas shopping seasons: About 70% of the GDP in the USA is due to consumer spending. And 20% or more of the retail sales are done in this period, starting the Black Friday right after Thanksgiving. A terrorist would choose to attack during this season, while a US war planner would never choose to start a war near the start of the holiday shopping seasons. Definitely after Christmas and New Year. US economy is very dependent on consumers to carry the load.
    3. The weather factor: I am not so sure how the weather is in Iran, but at Iraq, it was pretty tough to fight a war in hot summer for US soldiers on the ground, wearing gas mask, and/or carrying heavy equipment. This is probably one of the reasons that war with Iraq started in March. Even though I am fairly certain that US will not deploy ground force into Iran, I suppose that staying away from the start of hurricane season and hot weather in the summer (April to June) is simply a good idea.

    Now if you assume that the most intensive part of the war will last for one month or in the worst case two months, and give sufficient time for the financial markets to stablize, you will probably want to move the start of the war earlier to account the the duration of its effects. Given all the above factors, I would say that the start of the war should be from mid-January to May 1st, the latest.

    Furthermore, we have an election this year in November. It would look very bad to the party in power if they start a war to right after the election is over. Since you will need a couple of months to engineer and direct the media coverage to focus on the Iran issues (which cannot start after Christmas shopping is all done), you are probably looking at end of February the earliest. You definitely want the public opinions to be on your side with any wars, so that you don’t incur further political cost to the party in power.

    The final strategic timeframe therefore would be about from the end of February to end of April, only two months. In fact, I’m sure the war with Iraq went through similar reasoning. The timing of a war with Iran should have similar timing as Iraq. Within this timeframe, as a war planner, I am fairly certain that it should be always earlier the better. There are many uncertainties in a war, and with an earlier start, you give yourself a better margin away from the hurrican season, and to deal with anything that could happen.

    Since Mr. Bush will finish his second term in 2008, will you choose to start something that you may not be able to finish cleaning up in 2008? Or will you rather choose to clean up by your own ways while you are still in power from 2007 to 2008?

    IF there is a war with Iran, end of February to March in 2007 should have the highest probability as the starting date. We will NOT see any signs right now. In January 2007, if we start to see media coverage on stirring Iran issues on nuclear arms, then we should be really careful on watch for such potential unfolding event. With stock markets going higher and higher this time around, next February would be the “ideal” time technically speaking for a big fall if a war occurs.

    I hate to see any wars, and I hope that a war does not happen. In fact, if we go through the end of May without a war happening in 2007, I think a war with Iran will probably no chance of happening until 2010 or later (if conflicts persist and worsen). Of course, that is also assuming that Mr. Bush is not crazy or stubborn enough to try again in 2008. Let us hope that peace prevails.

    P.S. I’ve turned off the comment section. I probably look very stupid, talking about Iran wars now. In any case, I will prefer to be looking stupid, rather than any occurrence of wars. Me stupid is fine. Wars are not fine, not humane, and simply the most TERRIBLE action humans can engage in. If you have any comments, you can email them to me. I will selectively re-post your comments later.

    Posted in Stock Market, World Politics | Comments Off