LIVING OFF DIVIDENDS & PASSIVE INCOME

Let’s face it, European countries are bankrupt. First it was Greece and Ireland. Now it’s Portugal. Pretty soon it’ll be Spain and Italy.

Politicians will never admit there’s a problem. Portugal’s prime minister just said that they don’t need any financial assistance. Just like Greece’s prime minister said last March, he claims they want to help themselves out of this mess. And like Ireland’s minister of foreign affairs said last November, there’s no need to panic. Of course a couple of weeks later both prime ministers came begging for aid. Portugal will probably do the same.

Everyone wants someone else to bail them out, and pay for their transgressions.  And other nations are rushing in to buy the sovereign debt – using freshly minted money of course. Maybe these saviors know that their own balance sheets are somewhat murky and hopefully someone else will return the favor in the future?  Read more... (884 words, 8 images, estimated 3:32 mins reading time)

Gold closed at a record high today of $1,237/ounce but surged to nearly $1,250/ounce in intraday trading. The gold ETF, GLD, also reported record inflows this week of $2.3 billion dollars. The ETF also disclosed a record 1,185 tons of gold as distrust in global fiat currencies pushed investors to seek more tangible assets. Gold has hit a high against every major currency, with the exception of the Canadian dollar.

Buoyed by gold’s action, silver has also seen some price movement. After dropping as low as $15.13 in February 2010, it has jumped nearly 30% to 19.52. (Silver prices hit $19.70 today in intraday trading).

Seems like Marc Faber was right about gold being a bargain at $950/oz! Since that post about 2 years ago, gold prices are up about 29% versus the S&P 500 which is down about 8%.  Read more... (153 words, 9 images, estimated 37 secs reading time)

After hitting a high of $1.51 just six months ago, the euro broke the $1.30 level and is currently trading at $1.28. Greece’s inability to repay its debts has dragged down the euro and proposed austerity measures have led to rioting.

After European Union eventually bails out Spain, Portugal, Ireland and Italy the euro might trade on parity with the dollar!

I wish I hadn’t been so quick to close my long position on the EUO May $21 calls last week!

With the financial crisis and currency devaluation, the long term prospects for gold are still looking good too.

A lot of people don’t even know that Greece’s debt is a problem that is threatening to bring down the European Union. And of those that have heard about, few realize its significance and potential impact on the US. John Mauldin has done a fine job explaining that in his most recent newsletter. It’s written as a letter to his kids explaining how the current economic situation affects them.

Why is Greece important? Because so much of their debt is on the books of European banks. Hundreds of billions of dollars worth. And just a few years ago this seemed like a good thing. The rating agencies made Greek debt AAA, and banks could use massive leverage (almost 40 times in some European banks) and buy these bonds and make good money in the process. (Don’t ask Dad why people still trust rating agencies. Some things just can’t be explained.)  Read more... (1010 words, 9 images, estimated 4:02 mins reading time)

One of my favorite investors, Nassim Nicholas Taleb, founder of Empirica investment management funds and author of Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, was recently quoted on Bloomberg advising every single human being to short the US Treasury bonds. While this news is about a week old, I thought I’d still comment on it given the fact that it’s a pretty strong statement and that I recently exited a similar paired-trade.

Taleb said investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office, without being more specific. Nouriel Roubini, the New York University professor who predicted the credit crisis, also said at the conference that the U.S. dollar will weaken against Asian and “commodity” currencies such as the Brazilian real over the next two or three years.  Read more... (555 words, 9 images, estimated 2:13 mins reading time)

Here’s an interesting article by Dominic Frisby about Venezuela’s devaluation, the effect on a country’s currency and the relation with gold prices.

Gold bugs are forever telling you to buy gold because it is ‘nobody else’s liability’. It’s become one of those hackneyed phrases that has almost lost its meaning.

But recent events in Venezuela give us a nice illustration of what that phrase really means. And there’s a stark, but important message for savers everywhere.

Inflation is currently running at 27% in Venezuela. That’s just the official figure. You can expect the real number to be considerably higher.

Earlier this month, the Venezuelan president Hugo Chavez, devalued the bolivar by half, from 2.15 per US dollar to 4.30 per dollar. There will be a second peg, subsidised by the government, of 2.60 bolivars per dollar for essential imports such as food, medicine and machinery.  Read more... (1013 words, 10 images, estimated 4:03 mins reading time)