I am not big on using charts, graphs, etc.  They are useful in telling us what has happened in the past, but I am not particularly fond of charts and patterns for predicting the future.

There are a lot of people out there who use charts and trends to make predictions on investments.  They will talk about head and shoulder patterns or breaking above a 200-day moving average or some other jargon.  They base their analysis of an investment primarily using these charts and trends.  While I often find it fascinating, I also think it is mostly bogus.

If there is one thing you should learn from Austrian school economics, it is that economics is really a study of human action.  Everything in economics depends on human action.  And that is really the problem with charts and graphs.

You could read some analyst who says that gold is about to break out because of a particular trend line on his gold chart.  But why should this mean anything for the future?  What happens if Bernanke comes out tomorrow and announces that the Fed will not engage in any more quantitative easing (money creation) for as long as he is Fed chairman?  The gold chart can’t possibly know any of this.  If it did, then the chart would already reflect this and the price would have gone way down, assuming that people believed what he said.  How can the chart know what millions of individuals are going to do the next day and whether they are going to buy or sell or hold or do nothing?

Again, charts and graphs can give us a good overview of what has happened in the past.  Perhaps this can contribute to our decision on whether or not to invest in that particular thing.  But charts can’t predict the future any more than a Magic 8 Ball.

When I read some analyst who says something along the lines of, “this stock’s 6-month chart shows that it is about to break out and will probably double in price over the next few months”, I wonder many things.  First, if this is such a great tip with a high, practically-guaranteed, rate of return, why is this person sharing the information with everyone else?  Second, if this person is so good at doubling his money every few months, why doesn’t he have wealth in the neighborhood of Warren Buffett or Bill Gates?  Third, why doesn’t he list all of his previous calls and tell us what the results were of his recommendations?

Charts can be somewhat useful and informative, but they can’t predict the future.  They can’t predict human action.  If anyone is selling you an investment solely based on the use of a chart or graph, my recommendation is to walk away from that person.

The Federal Reserve chairman, Ben Bernanke, talked this week and markets moved.  There was nothing really significant that Bernanke said though.  The Dow surged passed 13,000.  Gold tumbled this week.  However, I think the most significant news is in the bond market.

Bonds got hammered this week.  The 10-year yield has been around 2% or a little lower for quite some time now.  While it was hovering just above the 2% mark earlier this week, the yield is now 2.28% as of this writing.  While a few days don’t necessarily make a trend, a rise in interest rates has to start somewhere.

The 10-year yield and mortgage rates tend to be highly correlated.  That means that when the 10-year yield goes up (as it has this week), then mortgage rates are also likely to rise.  If the rate were to keep going up, even to just 3%, this could be devastating for the housing market.

Many libertarians/ Austrian school followers have been predicting higher rates in the U.S. for quite some time now.  It hasn’t happened yet, like it did in the 1970’s.  It never ceases to amaze me how long things can take to unfold.  It seems that the interest rates in Japan should have gone way up, yet the rates there continue to be close to zero.

The Japanese government has a debt-to-GDP ratio that is well over 200%.  This makes the U.S. government look fiscally responsible in comparison.  The Bank of Japan has not inflated much in comparison to other central banks.  But how could a government with such high debt manage to keep rates so low?  You would expect at some point that investors would stop buying government debt, which would either force the government to cut spending or force the central bank to monetize the debt (inflate).  Yet this hasn’t happened.  The only explanation is that these investors are naive and do not understand what is going to happen.

This just goes to show that markets are unpredictable.  You may think it is a rational response for investors to stop buying Japanese government debt because the debt has reached such a high point.  Yet, others do not see it this way.  They may not be smart, but it also wouldn’t have been smart to bet against Japanese bonds at this point.

I don’t think the U.S. government and the Fed will be able to stop higher interest rates for decades like has happened in Japan.  Higher interest rates and higher price inflation are the two main things to look out for.  These two things will determine Fed policy.  I believe the Fed will stop inflating when the U.S. dollar is severely threatened.  At that point, the government will finally be forced to make real cuts.

Higher interest rates will be bad for the elitists in Washington DC.  In many ways, higher interest rates would be a blessing for the long run, as it might slow down the train and lessen the impact of the coming wreck.

We will keep an eye on the 10-year yield and see if the higher rates become a trend.  This could change Fed policy and encourage a start to QE3 (more money creation), but it will eventually bring on the day of reckoning.

Eight years ago, Harry Browne wrote an article called “The ‘Exporting Jobs’ Scam”.  He pointed out that American wages have always been much higher than wages in many other countries, yet American companies weren’t exporting jobs 30 or 40 years ago to the same extent.

He blames the exporting of jobs on U.S. regulators who “won’t quit heaping more and more demands on American corporations”.  I think this is a major point that is still lost today.  While China is still considered a communist country, there actually are a lot less bureaucratic regulations for businesses to follow.  Property rights are still not as strong there as in America, so it makes sense for an American company to stay in America while exporting jobs to China.

I think wage differentials do matter, but only to the extent that it benefits a company.  If a company can have something done cheaper overseas, everything else being equal, then it is likely to “export” the job.

It is also important to remember the consumer in all of this.  People talk about jobs being exported overseas, but they are simply focusing on the American worker.  Besides benefiting someone in another country, it is also benefiting the American company and, most of all, the American consumer.

Let’s use a ridiculous example and say that workers in China and India are willing to work for just one cent per hour.  If Chinese workers are willing to work for virtually free, this will benefit American consumers.  You would pay that much less for an iPad or a television.

American companies hire foreign workers because it is cost effective.  A big factor in this is probably U.S. government regulations as Harry Browne said.  But regardless of the reason, it is a benefit to the American consumer (which is virtually everyone living in the U.S.) to have less expensive products and services.

People were complaining about jobs being “exported” eight years ago when Harry Browne wrote that article and they are still complaining about it today.  Some things never change.

Yesterday I wrote about debating others and trying to convince them that libertarianism is the way to go.  Today, I want to discuss the topic of offering financial advice to others, particularly family and friends.

My general advice here is to not give advice, unless you are asked.  I give out some financial advice on this blog, but it is not meant specifically for family and friends.  It is for the general public.  Most people reading this blog are doing so because they were searching for something on the topic.  It may or may not be what they were looking for, but if they found it through a simple Google search, then it must be related to what they were inquiring about.

For family and friends, it is usually better to avoid giving too much advice.  If someone wants help, they will find a way to ask you.  You can make it known in a subtle way that you are available.

The only success I’ve had in influencing people’s financial decisions is by discussing something and stimulating their thoughts enough so that they go out and do their own research.  But you have to realize that this will not happen with most people.  Most people are living the daily grind and are probably not interested in economics and financial markets the way you are.  They are probably not interested in libertarianism and Austrian school economics (although the number has grown quite significantly).

I have also had a few people come to me and ask for help in setting up a portfolio.  They are not usually looking to understand anything.  They just want to make sure that their money is in a good place.  While I certainly try not to steer anyone the wrong way, it makes me nervous that they are willing to practically hand over control to me.  It makes me nervous because that means that a lot of other people are doing the same thing, but they may be going to people who are steering them the wrong way.  I am not saying it is intentional, but just that there is a lot of bad advice being given and taken.

I have also had casual discussions with people when there is a lot of news in the financial markets.  For instance, after the huge stock market decline in late 2008 and early 2009, I would say to people that I wasn’t really that surprised by the whole thing.  I thought a severe recession was coming, but I just couldn’t predict when.  Then I have people tell me that I should have told them what was coming and told them to change their investments.  First, it is not like I could have predicted everything perfectly and timed everything right.  And second, and more importantly, these people would not have taken my advice at that time anyway.

You can try to give financial advice to others who don’t ask, but most friends and family will simply not listen.  They will blow you off.  It doesn’t matter if you tell them to get out of credit card debt or if you tell them they should own some gold.  They are probably not going to listen.  They may even resent you later on because they didn’t listen, even though they should be looking in the mirror.

If someone ever does come to you for advice on investments, I would not recommend that you try to speculate on the latest hot thing.  I would simply tell them to set up something similar to the permanent portfolio as described by Harry Browne in his book Fail Safe Investing.  This way, you are minimizing the speculation and the person can continue to use this strategy in the future, even if the economic environment changes and you are not around to offer more advice.

It can be frustrating to be a libertarian.  It might be a little less frustrating than it was a few years ago, because more people have been exposed to libertarianism, particularly through Ron Paul and the internet.  However, there are still a lot of misconceptions out there.  The essence of libertarianism is that you don’t believe in the initiation of force for political or social change (just as the Libertarian Party’s pledge says).  You can hold this view regardless of your personality and characteristics.

Many libertarians find themselves in debates with others, particularly because they are so passionate about their views.  It is hard to “convert” someone.  Libertarians who are well-versed on all of the major issues have trouble convincing others.  Imagine how hard that makes it for libertarians who are not as knowledgeable.

You will probably not win someone over by debating them.  Debates tend to drive people the other way.  They become more stubborn in their position.  They do not want to be wrong, just as you don’t want to be wrong.  With that said, there are legitimate reasons to engage others in (hopefully friendly) debates.

If you have an audience, a debate with someone can be useful in swaying the observers.  They may not be that opinionated one way or the other.  If you lay out good reasons for your philosophy, it might help the people listening move closer to your point of view.

Another reason to debate someone is to sharpen your own skills.  The other person may have some arguments that you have never heard before.  They may challenge you on some of your beliefs.  They may try to point out inconsistencies.  This is good for your own knowledge.  It can help sharpen your own ideas, even if you have to think about it later, after the debate.

Of course, one last reason to debate someone is just for your own satisfaction of “winning the argument” and getting some jabs in at the other person.  If you are doing this though, you are highly unlikely to change the other person’s mind.

The hardest thing for a libertarian to do is to convince close friends and family members, particularly the latter.  Family members know you well.  They know your faults.  They probably do not think you are a genius and you probably aren’t.  They will have trouble seeing the merits and consistency of your libertarian philosophy, especially if they are already far away from it.  If you want to engage in a little friendly debate with family members, make it minimal.  Just try to explain your point of view without attacking theirs.  You will probably not change any minds.  You can lead the horse to water, but you can’t force it to drink.

If you are going to discuss libertarianism with others, it is actually best to do it with others who are already sympathetic to your ideas.  Your goal is to strengthen their understanding.  You are not going to change a statist into a libertarian overnight.  You can help someone who is quasi-libertarian become slightly more libertarian and slightly more skeptical of the state.  There are usually no home runs.  You have to advance one base at a time, and even this can be difficult.

If you really want to help the cause of liberty, make sure that you are virtually an expert yourself.  I see so many people trying to change the world, when they need to change themselves first.  They are putting the cart before the horse.  If there are libertarians who have been studying the subject for 20 years and speaking in front of audiences who can’t convince others, why would you think you can if you have just been reading a couple of articles a day for the last 6 months?

Be sure that you have a great grasp of the issues and that you are consistent in your philosophy.  Then you can talk to others and convey the right information.  There is nothing I hate to hear more than listening to someone trying to convince another person of libertarianism and conveying the message in a poor way.

1)When people say “the world” (me included), do they really mean the planet or the earth.  If the world means the universe, then this is a completely different thing.  If I say that there are 7 billion people in the world, then “world” must be planet.  It can’t mean the universe in that sentence because there could be more people in a galaxy far, far away.

2)Why would anyone ever predict an end to the world?  If they are wrong, then they just look like fools.  If they are right, then there will be nobody around to give them credit for it anyway.

3)Did some people actually think the earth was flat several hundreds of years ago?  When they looked all around them, did they think they were right in the center?  Why wouldn’t you just start walking and realize that you were not getting any closer to the edge?  And if there were an edge, like a big cliff, wouldn’t you be curious and want to see it?

4)If there is less than one ounce of gold for every person on earth and many central banks hold gold, then that doesn’t leave very much for everyone else.  Imagine if a large portion of Americans actually started buying gold as an investment.

5)Is popularity a self-fulfilling prophecy?  I sometimes listen to Sean Hannity on the radio in the car.  I can’t really stand him most of the time, yet I still listen.  Part of me wants to hear the latest political news.  But part of me just wants to hear what he is saying so that I know what a lot of other people are hearing. What if those other people are listening for the same reason?  We are making him popular for no good reason.

6)Judge Napolitano’s show has been cancelled on Fox Business.  While he is a libertarian in most respects, his show wasn’t completely libertarian.  He had on a lot of guests who were not libertarian.  Do you think a true libertarian show could thrive on television?  It is hard to say because it has never been tried.  None of the main networks will allow it to happen.  I’d like to see a show by Tom Woods and Robert Murphy.

7)If technology is growing exponentially, and so fast that computers are becoming smarter than humans, then when are computers going to start telling humans to support libertarianism?

Super Tuesday was a little bit of a disappointment for Ron Paul supporters.  Even the campaign is admitting frustration and saying that he is highly unlikely to win the Republican nomination.  The most they can hope for is some attention at the convention.  Of course, aside from politics, Ron Paul can keep expressing the message of liberty and changing hearts and minds.  Here are my thoughts on what the campaign should do going forward.

Most Americans are good and decent people.  They will understand this message.  They will see those innocent faces the next time some politician suggests that we need to start bombing Iran.

The markets continue to be a roller coaster, although not as much as we have seen in the past and not as much as we are likely to see in the future.  Yesterday, the stock market was down significantly.  Today, it rebounded.

There were actually a lot of things that went down yesterday.  Aside from the stock market, gold, silver, and oil were all down.  The U.S. dollar was up.  This was attributed to news that there are still problems in Greece.  No kidding.  I have already written on this topic several times, saying that a full Greek default is inevitable, along with a departure from the European Union.

Tuesday was a good test on the Greece news.  While it hasn’t seemed to affect the U.S. economy much, the latest news indicated that more announcements of major problems in Greece may lead to a strengthening dollar.  This means that the stock market and precious metals are likely to go down.

The U.S. economy is quite unpredictable at this point.  We may be in a mini-boom cycle, courtesy of the Fed.  This mini-boom is not a good thing because it is not based on real savings.  It is because of a loose monetary policy from the Fed.

However, there are a lot of variables out there that could drive velocity down further and cause another deep recession.  There is Iran and Syria.  There is the price of gasoline.  There is Greece, as was just discussed.  There is also the rest of Europe.  Any big event could easily cause a sharp downturn in the U.S. economy.  The downturn is inevitable because of all of the previous malinvestment, but a big event might speed up the downturn.

I continue to recommend that you put the majority of your investments in a setup like the permanent portfolio as described by Harry Browne in his little book Fail Safe Investing.  For your speculation money (if you want to speculate), I recommend that you buy gold related investments and a much smaller position in shorting the stock market.  Of course, aside from this, I am also a fan of investment real estate (single family homes) if you live in the right area and it is something you have the means and will to do.

Expect a continuing roller coaster ride with the U.S. economy and invest accordingly.

As I write this, Super Tuesday is not done yet.  But here are some preliminary thoughts on the results so far and what they mean going forward.

The big story is that Mitt Romney has not clinched the nomination.  I know he wasn’t going to formally clinch anything from Super Tuesday, but it could have put him at 99% or better of winning the nomination.  While Romney didn’t do horrible, he didn’t do exceptionally well either.  He won the states he was supposed to win.  Gingrich won Georgia.  Rick Santorum has won several states.

The big contest was Ohio because it is a swing state in the general election and it was close in the polls.  While it is still too close to call as I write this, Romney did not get a convincing win there.

So while Romney is still the front runner, it is mostly by default.  He has the establishment backing and he has the money.  He comes across too polished though.  Conservatives understand that he says what people want to hear and he doesn’t have strong principles.  For some reason, many conservatives can’t see through Santorum and Gingrich, even though I think they are bigger fakes than Romney.

While I dislike Romney slightly less than the other two, I am happy that he is still not able to become the clear winner.  It drags things out longer.  It gives Ron Paul more of a chance to deliver his message.

Speaking of Ron Paul, it looks like he will fall short of a win in North Dakota or Idaho.  We will have to see if he can pull something out in Alaska where the voting ends at midnight eastern time.

It is interesting to note that Paul received 41% of the vote in Virginia where only he and Romney were on the ballot.

I will put in my humble two cents in a couple of days on what the Ron Paul campaign should do next.  They have to realize that his chances of winning the Republican nomination are quite slim at this point.  This is not a criticism of Ron Paul or his campaign.  I think it is remarkable how much progress has been made in spreading the message of liberty.

Frank Shostak of the Mises Institute has written a wonderful article.  He says that the economic problems are not really about the debt.  He says that the problem is monetary inflation.  As he concludes in his article, “the threat to the US economy is not the high level of debt as such but loose fiscal and monetary policies that undermine the pool of real funding.”

I recommend that you read the whole article if you haven’t already.  He has a very clear understanding of economics.

I don’t think the U.S. debt is irrelevant.  There are consequences that will be felt from the high debt.  As I have written before, it isn’t that our grandchildren will have to pay it.  Government debt hurts us right here and right now.  It takes away from savings and investment and diverts resources into ways that the market wouldn’t have.  In other words, it misallocates resources.  The only reason the high debt hurts our grandchildren is because there is less capital investment taking place.  Our grandchildren won’t have as much wealth as a result.

The other important thing to point out about the debt as it relates to Shostak’s article is that the debt is one of the causes of monetary inflation, and spending is a cause of the debt.  If the government didn’t spend so much money, then there wouldn’t be a high national debt.  If the debt weren’t so high, then the Federal Reserve would not have to create money out of thin air to monetize the debt.  The Fed and the government work hand-in-hand.  The Fed and its money creation is what allows the government to run such massive deficits.

One other important thing to note is that government spending also diverts funds and misallocates resources.  So whether it is the Fed’s loose monetary policy or the government’s profligate spending, it is diverting precious resources away from their ideal use as determined by the market.  It is misallocating resources and hurting savings and investment.  And as Shostak emphasizes in most of what he writes, savings and investment, or the pool of real funding, is what grows an economy.

In conclusion, the Fed’s money creation and the government’s spending make us worse off.  They lower  our standard of living in comparison to what it would be without their interference.  That is why we should do everything we can to reduce the power of the Fed and reduce government spending.