There are some good opportunities out there for people looking to invest in real estate.  Of course, this isn’t for everyone and you should definitely consider some factors when deciding.  For example, if you have a career in which you are likely to move around, then real estate investing is probably not a great idea.  It can be difficult to manage property when you live far away.  You can hire a management company, but this may eat into your potential returns.

I also wouldn’t recommend real estate investing to someone with little or no money in the bank (or other liquid assets).  Problems can arise.  You may have repairs or you may have a time period between renters where you are not collecting any rent.  You need a little cushion to get through these times.

For people with significant savings who are not planning to move out of their current city, then there really are some great opportunities for a good return on your money.  I would not recommend investing in real estate if you live in a big city that is really expensive (like New York).  I also wouldn’t recommend investing where prices are so depressed that it makes you wonder if the city will ever recover (like Detroit).

So if you live in a good place to invest in real estate and it seems like something you want to do, start doing your research on the internet.  The internet has made it so much easier for the average guy.  You may still benefit from getting a real estate agent, but at least you can look and narrow things down on what you want to seriously look at.

One thing you should seriously consider is paying cash (not literally) for an inexpensive place.  While I would more typically recommend buying a 3 bedroom 2 bathroom house as a rental property, you may live in an area where condos are depressed in price.  If you can pick up a small condo for, say, $50,000, it might give you a good return on your money.

Now I understand there are arguments against paying cash.  Libertarians usually understand the nature of inflation and there is a legitimate argument that you should take out a mortgage and pay it back in depreciating dollars.  But, also consider that if there is high inflation, owning a rental property will still have its advantages without having a mortgage.  You may get appreciation in nominal terms on the property.  In addition, you can raise rents as they tend to go up with inflation, at least over time.

Let’s run some numbers for an example.  Let’s say you have been saving your money for a while.  You have $50,000 available.  You buy a one or two bedroom condo for $50,000.  By paying cash, this may enable you to get a better deal.  You can offer the seller to close within a week.  You may get a better price because of this.

Now let’s say that property taxes will be $100 per month (the purchase price is only $50,000).  Let’s say that association fees are $175 per month.  Let’s say that insurance is another $25 per month.  Let’s say that you can rent it out for $800 per month.  On a normal month where you have it rented and don’t have any extra expenses, you will net about $500.  On $50,000, this is an annual return of 12%.  Someone please tell me where I can get a 12% return, on an almost continuous basis.

Another advantage of paying cash is that you don’t have a mortgage and therefore have less risk.  In the above scenario, even if you go for a month without renting it, it will only cost you $300.

Perhaps my numbers are too optimistic for where you live.  Either way, I spelled it out to make a point that real estate investing is something to consider right now with all of the bargains out there.  You can take your time and shop around for the right deal.  If you live in a good area and you are in the right financial situation, this might be something to consider.

I do not like to make predictions.  If there is just one thing to learn from Austrian economics, it is that humans act freely.  It is impossible to predict what every individual on this planet is going to do.  This makes it impossible to accurately predict what the economy will do and what investments will do.  The best we can do is to forecast what people are likely to do based on current conditions.

With all of that said, I would like to review some possibilities of what is to come for the rest of the summer.  QE2 has ended.  I thought there was a good possibility of another major downturn in the stock market and the economy.  A stronger U.S. dollar would most likely go along with this scenario.

It looked like this might play out a few weeks ago.  The Dow Jones dipped below 12,000.  Then, all of a sudden, it popped back up.  As of this writing, the DJIA is over 12,700 and not showing much in the way of weakness.  Meanwhile, gold and silver have been up significantly in the last few days.  While, this doesn’t make a trend, it does make it look more probable for gold to go up again and look for new highs.

I think things could easily go either way right now.  QE2 is over and the market knows it.  Greece and other European countries are on the verge of default.  In the U.S., the unemployment picture does not seem to be getting much better.  These are all potential arguments for a sharp downturn in the economy in the near term.

On the other hand, there is just as good of an argument for stocks and commodities to go higher while the dollar continues to be weak.  The debt is out of control and there is little promise of it getting any better.  We also have to remember the biggest elephant in the living room.  The Fed has tripled the monetary base in less than three years.

Although the increase in the monetary base has mostly gone into the banks as excess reserves, it is still a tripling of the money supply.  This money is available to people.  In addition, the banks could start lending it at any time unless the Fed increases the reserve requirement substantially.

So as far as which way the markets will turn this summer, flip a coin.  There are good arguments for both scenarios.  I still think the best strategy is to have a majority of your investments in the permanent portfolio as outlined by Harry Browne in Fail Safe Investing.

For speculation, I recommend additional investments in commodities and perhaps a small short position in the stock market.  The reason for this last part of the strategy is because if the stock market continues to go up, then I suspect it is mostly because of the big increase in the money supply.  This means that commodities should go up even more because commodities tend to do very well in an inflationary environment.

If there is a sharp downturn, it would not surprise me to see commodities go down, but at least you would have a small short position in the stock market to help offset any losses in your commodities.  And again, this is just for speculation.  If you are a conservative investor, just stick with the permanent portfolio.  You will sleep better at night.

Among libertarian investors, gold and silver related investments tend to be popular.  It is because hardcore libertarians do not trust the Federal Reserve and the federal government.  They understand that money can be created out of thin air and it is done on an almost continual basis for the benefit of the large banks and to enable the government to deficit-spend.

So what is the difference with platinum and would this also make a good investment?  First, I think it is important to realize the differences between the metals.  Gold and silver have a history of being used as money.  Platinum does not.  Platinum has uses as an industrial metal.  Silver does too.  Gold’s uses are more limited outside of being used for jewelry and being used as a store of value/ investment.

Central banks do not buy platinum.  Then again, central banks do not buy silver either, at least to my knowledge.  So again, it all comes back to the fact that the market has chosen gold and silver over thousands of years as having good qualities for money.

I am an advocate of setting up a permanent portfolio, as described in Harry Browne’s book Fail Safe Investing.  I think that at least half of your portfolio should be in something similar.  As a hedge against inflation, I am mostly a proponent of using gold and gold related investments.  I think it is safe to have a small percentage in silver, but it should only be about 5%.  Silver tends to be much more volatile than gold.

For speculative purposes, I see nothing wrong with owning a little bit of platinum, especially now.  Although it is not a monetary metal, it will still have a certain correlation with other metals and with commodities in general.  It will also benefit from a weak currency.

The price of platinum, in terms of U.S. dollars, was double that of gold a few years back.  Now the spread is only about $230 as of this writing and that is with gold trading just above $1,500 per ounce.  The gap between the two metals has narrowed significantly.  It just shows that gold has gone up partially because of its monetary qualities.

With the ratio of platinum to gold going from about 2 to 1, to less than 1.2 to 1 in just a few years, it makes platinum an attractive buy.  Platinum is not near all-time highs like gold right now.

So if you are looking for a speculation right now outside of your permanent portfolio, platinum might be a place to look.  I don’t know of any ETFs that invest solely in platinum like there are for gold and silver.  You can easily buy platinum eagles from most reputable gold dealers.  It is a speculative play that is another investment option for a falling dollar that is continually being devalued by the Fed.  I would recommend that platinum be less than 5% of your total portfolio if you are going to pursue this strategy.

With the Republican presidential primaries coming soon, the race for the Republican nomination is heating up.  There is one particular question that should be asked to all of the candidates.  A lot of libertarians want to know the answer.  Democrats should be asking the question to show the hypocrisy of most of the Republican candidates.

It is unlikely that this question will be asked in any of the debates.  If it is asked, most of the candidates will not answer the question.  Their hands should be forced to answer the question or else look really bad.  The question is this:

What specifically would you cut from the federal budget to balance the budget for the first budget year that you would be responsible for as president?

I do not recall hearing any of the candidates saying that they would not balance the budget.  This question would force them to admit this.  It is true that Congress is responsible for spending, but that is 535 people.  The president is one person who can veto spending bills.  The Congress needs a supermajority to override a presidential veto.  In addition, the president can influence the American people, and thus Congress, when it comes to spending cuts.

Here is the problem for the Republican presidential candidates.  They say they want a balanced budget.  They say they will not raise taxes.  Yet, it would be impossible to balance the budget unless you significantly cut military spending or cut Medicare and Social Security.  Cutting military spending would mean ending wars and bringing troops home.  Cutting Medicare and Social Security would mean severely cutting benefits for those already collecting.

Of course, there are a lot of departments that can and should be cut from the federal budget.  But even if all of the unconstitutional departments and programs were cut, it would still fall short.  But the candidates are not proposing this anyway, except for one person.

Ron Paul (and Gary Johnson to a much lesser extent) is the only candidate who is serious about making deep and significant cuts.  Ron Paul has said that he would end the wars currently going on.  They would end almost immediately on his watch.  He would like to get rid of all of the unconstitutional departments.  He would like to end foreign aid.

Ron Paul is the only candidate who has been specific enough to come anywhere close to a balanced budget. In fact, Ron Paul should be asking this question to the other candidates.  It would show that the other candidates are closer to Obama than they want to admit.  They have no plan for a balanced budget.

Balancing the budget it just one of the major issues of this campaign.  But most people know where the candidates stand on the other issues.  It is obvious that Ron Paul ( and again, Gary Johnson to a much lesser extent) is the only anti-war candidate in the race.  But when it comes to spending, the Republicans are trying to have their cake and eat it too.  There is simply no way to balance the budget without big cuts in military spending or entitlement spending.

Today is July 4, otherwise known as Independence Day to Americans.  Americans celebrate by barbecuing, going to the beach, and lighting off fireworks, among other things.  While I am hopeful that at least a majority of Americans understand that July 4 is a celebration of the American colonists declaring independence from the British Crown, I don’t think that most Americans realize that the colonists, in effect, seceded.

The labor theory of value, as stated by Wikipedia, is a theory which argues that the value of a commodity is related to the labor needed to produce or obtain the commodity.  This has been refuted by Eugen von Bohm-Bawerk and the Austrian school of economics.  Austrians believe in the subjective theory of value.

Basically, the subjective theory of value says that things are valued based on the opinions of people.  This whole thing has always kind of puzzled me.  You’re telling me that it took hundreds of years of theorizing to come to this conclusion and even now it is still debated?

For anyone who works in an office, you should know that the labor theory of value is not true.  You might observe someone who sits at his desk all day and seems to work hard.  He may even work overtime.  And yet that person may not be the most productive person in the office.  It can even be the case that there are some people who seem to be hard workers and yet are some of the least productive people.  Bottom line is, productivity is not determined just by how hard someone works.

Of course, there can be a relationship between labor and productivity.  If someone doesn’t work at all, he is not going to produce something of value.  But even for someone who is seemingly productive, it doesn’t mean that what he is producing is of value to anyone else.  That is for other people to determine.

I think the one important thing to take away from the subjective theory of value is that consumers dictate prices.  It doesn’t mean that costs don’t matter.  It doesn’t mean that the labor spent on things doesn’t matter.  But, ultimately, what matters the most is how much consumers are willing to pay.

When a business takes on higher costs (let’s say because of a government regulation or tax), we often hear people say that the business will just pass the cost on to the consumer.  Sometimes this is true.  The business will certainly try to charge more if it thinks it can get more.  But it doesn’t always work this way.  The consumer may not be willing to pay more.  The consumer might find a replacement product or just decide that it is not a necessary item to have.

If oil prices go up, food may or may not go up in price due to higher transportation costs.  If Coke and Pepsi get hit with a new corporate tax or accounting rule that drives up their costs, the price of their products may or may not go up because of this.  There are a lot of things that can contribute to prices, including costs and competition.  However, ultimately, it is the consumer who decides the price by how much they are willing to pay.

Today, June 30, 2011, officially marks the end of QE2.  You can look at the adjusted monetary base to see what happened.  It is up around $600 billion, just as the Fed had said it would be.  There was actually a slight retreat in the last week.

You can also see the excess reserves held by commercial banks.  They have gone up with the monetary base.  That last line up is QE2.  This means that all of this new money is being held by the banks.  The banks are parking this money at the Fed to earn .25%, which is close enough to zero.  I don’t think it is a quarter percent of interest that is keeping this money tied up.  I think a more logical conclusion is that the banks see more trouble down the road and are building up reserves to deal with those problems.  I have read that much of QE2 went into European banks.  The speculation is that the Fed was helping to capitalize these banks because of the threat of defaults by Greece and other European countries.

It looked like the stock market was in for a major correction, but things reversed quickly this week.  Meanwhile, gold retreated to just below $1,500 per ounce the other day.  Gold has been going down slightly over the last couple of weeks, but it isn’t anything big.  I still think a good strategy for speculation is to have some gold assets and to short the stock market (to a lesser extent).

I just cannot picture a scenario right now where the stock market will go up and make new highs while gold goes down or even stays flat.  If there is not a big correction in stocks, then I see gold going much higher.  I think low interest rates and loose money is the primary reason for the stock market moving higher.  These conditions, along with huge deficits, should be even more positive for gold.

The big question remains: what will the Fed do next?  My guess is that it will keep the monetary base stable for a while.  It could keep buying government debt and not actually announce QE3, but I don’t think this is likely.  If we see more major signs of a downturn (stock market crash or higher unemployment figures), then many people on Wall Street will start demanding another round of digital money printing.  Then we can expect QE3.

It is likely that we will continue to see a roller coaster ride.  Gold has been very quiet lately, so I would not be surprised to see it start moving fast in one direction or the other.  This is a tough environment for investing.  The name of the game right now is to keep what you have, including its purchasing power.

I have already given my perspective of Herman Cain, a best friend to bankers.  Since Michele Bachmann is moving up in the polls, it is now time to take a look at her from a libertarian point of view.

Bachmann has only been in Congress since January 2007.  She is from Minnesota and is considered a supporter of the Tea Party movement.  Some libertarians are sympathetic towards her and her views.

She may actually be the worst of all worlds for libertarians.  The problem is that she has some libertarian rhetoric and she sounds like she is a supporter of capitalism most of the time.  She even throws in states’ rights on some economic issues.  The problem will come if she is elected to the presidency.  Just like George W. Bush and Ronald Reagan, I am fairly convinced that her policies would not reflect her rhetoric.

When she favors special interests and big business and she does nothing substantial to help the average American who is being choked by big government, then capitalism will get the blame.  We hear it now with previous presidents.  We can even go back to the 1920’s and 1930’s and people talk about Herbert Hoover as if he was a big supporter of the free market when it is just about the opposite.

Bachmann sounds just good enough to appeal to conservatives (and even some libertarians).  I have heard her say that she wants to get rid of the Department of Education.  I don’t hear her say it often though.  But why should we believe her?  She is part of the Republican establishment.  If she gets the Republican nomination, she will be surrounded by insiders (if she isn’t already).  Just how the Republican revolution in 1994 turned out to be nothing, so will Michele Bachmann.

The Republicans tinkered around the edges after their major victory in 1994.  They were less disastrous than other congressional periods before and after.  But overall, there was no significant change that took place in the direction of liberty.

The last debate on CNN was horrible.  The candidates were only given 30 seconds to answer the questions, which is not a lot of time for someone wanting to become President of the United States.  But all of the candidates talked about cutting taxes and cutting spending.  Other than Ron Paul talking about the military, none of the candidates offered anything specific of substance.

That is the question I want posed to Michele Bachmann.  How will you balance the budget?  Where specifically will you cut $1.5 trillion from the federal budget.  In fact, every candidate should be asked that question.  It is impossible to balance the budget unless you cut military spending and/or so-called entitlement spending.

Of course, when it comes to foreign policy, Bachmann is a nightmare for libertarians.  She is a typical pro-war Christian who wants to bomb the Middle East and spread democracy throughout the world.  She doesn’t quite put it in those terms, but you can certainly tell that she will not be ending any major wars any time soon.  She never seems to explain how she will spend trillions on military spending and yet remain a fiscal conservative.

Libertarians, beware of Michele Bachmann.  With Obama in the Oval Office, it is easy to see what he stands for (bigger government).  It is a little trickier with Bachmann, which makes her more dangerous.  Do not mistake her for a friend of liberty.

The velocity of money is a huge factor in our economy and yet many investors do not understand it or even know what it is.  I find that even many libertarians and followers of Austrian economics do not understand velocity.

The velocity of money is the demand for money.  It is how quickly money is changing hands.  If there is a high demand for money, then velocity is low.  This means that people are not spending as much.  Therefore, money is changing hands less frequently.  This has the same effect as monetary deflation.  With everything else being equal, a reduction in velocity will push prices down.

The opposite is true for high velocity.  There is a low demand for money and money is changing hands quickly.  This pushes prices up.  The most extreme example of high velocity is during a period of hyperinflation.  People get their paycheck and they run to the store and hurry up and spend it before prices are even higher.  When overall prices are rising every day, this is extreme hyperinflation and it means that the money being used will be worth nothing soon.

Velocity is determined by the attitudes of the people.  Right now in the U.S., velocity seems to be quite low.  It is almost impossible to measure, but you can usually take a good guess based on other factors.  With the economy down, unemployment high, and uncertainty high, people are afraid of the future.  They have cut back on their spending and are trying to pay down debt.  They are trying to save for a rainy day, or in this case a rainier day.

The adjusted monetary base has approximately tripled since 2008.  But consumer price inflation has been relatively mild.  I attribute this to two things.  First, the excess reserves held by commercial banks have dramatically increased.  Second, the velocity of money has been low.  The two of these things are even related in a way.  Banks are not lending due to fear and people are not spending due to fear.  This has kept us from having massive price inflation.

For some reason, people still run to the U.S. dollar in times of uncertainty.  I think is beginning to change and will continue to change.  Eventually, people will start running away from the dollar and will run to hard assets like gold and silver.

Because of velocity, it is possible to have rising prices without monetary inflation.  It is not likely, but it is possible.  If everyone became an Austro-libertarian tomorrow and knew that everyone else did too, then people might start dumping their dollars for hard assets.  High velocity alone could kill a currency.  If people no longer have faith in their money, it won’t matter what the government does.  It will quickly become worthless.

Although it is impossible to measure velocity, it is important to keep it in mind when examining the economy and prices in general.  Human behavior plays a big role in our economy.  If velocity turns higher one day, we should watch out for big price inflation.  Then the Fed will have to decide if it wants to save the dollar.

There is an article (linked via Drudge) that discusses China’s role with Europe.  The Chinese premier, Wen Jiabao, is visiting Europe.  With all of the problems with Greece and the other “PIIGS”, the euro is in some trouble, but China is saying that it will support the euro.

The article quotes the Chinese premier as saying, “China is a long term investor in Europe’s sovereign debt market.”  He goes on to say, ” In recent years we have increased by quite a big margin our holdings of government bonds.  We will consistently continue to support Europe and the euro.”

Assuming this did not get translated incorrectly and assuming he means what he is saying, this man is an imbecile.  The Chinese government is still labeled communist.  I’m not sure if that is true anymore when it comes to economics, but it is still mercantilist.

China has made wonderful improvements over the last 3 decades.  When you are starting from just about the lowest point possible, it is not hard.  Economically speaking, China is not really communist anymore.  In some ways, China is more free economically than the U.S. (although still much poorer).  There are less regulations on business in China.

Although China has improved, it is still being centrally planned by a bunch of morons.  They continue to invest in currencies like the euro and the U.S. dollar.  There is little doubt that there will be some form of default with both in the future.  If there is not an outright default, the Chinese will be paid back with money that has been devalued considerably.

Why does the Chinese government have to “invest” all of this money?  Why can’t they allow the citizens of China to have this capital?  It would lower their consumer prices.  It would help their standard of living.  Instead, these complete idiots prefer to subsidize Americans (and apparently Europeans too).  It may help their export sector, but they are hurting themselves far more by making things more expensive within China than they otherwise would have been.  Instead, rich Americans get cheaper products at the expense of the poor Chinese.

The people of China tend to be huge savers.  Even with relatively small incomes, they save a high percentage of their earnings.  The same cannot be said for Americans.  But the Chinese people are not reaping all of the rewards they should be from their frugality.  Their stupid government continues to squander part of their savings.  Of course, the same thing could be said for Americans who don’t save as much (relatively speaking), but still have a government that spends huge amounts.

China will be experiencing huge problems in the near future.  The central bank inflated like crazy.  There is a huge real estate bubble.  There are cities there that are practically empty.  China cannot escape the Austrian business cycle theory.  They will have a bust.  It is too bad.  If the Chinese government would get out of the way and keep a stable monetary system, the Chinese people would become rich very quickly with their high savings rates.