Wall Street Financial Truth

Chapter 17 Who Emptied Your Wallet (8)
As the saying goes, "People are cheap from the land, and things are expensive from the land." It is unbelievable that the price of Chinese goods exported is lower than that of the mainland.In fact, this unreasonable phenomenon does not only occur in China. Products from almost all countries are cheaper in the United States than in the country of origin.For example, Fifth Avenue in Manhattan, New York, where all the world's famous brand products are gathered, and the price is cheaper than the place of origin.One of the main reasons for Europeans to travel to New York is to buy "self-produced" leather bags, watches, and perfumes on Fifth Avenue...it's simply too cheap.

This phenomenon also occurs in Canada.For example, the Costco (Costco) supermarket chain in the United States is the favorite shopping mall for me and my wife Xiaoling. All kinds of products in the store are cheap and high-quality. The price of the same product is at least 20% lower than other retail stores.Therefore, when we returned to Canada two years ago, we still applied for a Costco membership card. We went once a week and felt that the price of Costco in Toronto was higher than that in the United States. However, because the Canadian dollar was weaker than the US dollar at that time, we were relieved.

When I went shopping at Costco recently, my wife Xiaoling looked at the shopping list and found that the prices of American brand products such as coffee, coffee confidantes, raisins, and walnuts on the shelf are still about 30% more expensive than those in the United States; European products such as Italian olive oil, Brewed vinegar, chocolate in Belgium and Switzerland are also more expensive than in the United States.Assuming that those imported goods involve import tax factors, but even Canada’s specialty maple syrup, the same brand, the same size, and the same packaging, is priced at $9.99 per bottle in the United States, but Canada costs $12.99!

For Canadians, shopping is the biggest motivation for traveling to the United States in the past two years.As soon as the holidays come, Canadians rush to the United States in long queues.General commodities are generally 20% to 30% cheaper, and the most obvious one is cars. The price of the same brand in Canada is tens of thousands, or even [-] to [-], compared with that in the United States. The price difference of famous cars is even bigger.If Canadians go to the United States once and spend the same thousand dollars, they can buy the goods they need, eat and play, which is as much as shopping in Canada.Therefore, the United States is called "shopping paradise"!
If the Canadian dollar was weak against the US dollar in the past few years, it is reasonable to say that shopping in Canadian currency is more expensive than in the United States.However, in the past few years, the Canadian dollar has been almost equivalent to the U.S. dollar, hovering at a ratio of one to one, and was even stronger than the U.S. dollar at one point.In theory, Canadian dollars should have more purchasing power, but why are Canadian dollars not as valuable as U.S. dollars?
In fact, the reason is very simple. It is the special hegemony of the US dollar and the pricing power it holds.Over the years, the U.S. dollar has continued to depreciate, hitting "historical lows" again and again, but what is interesting is that, except for oil prices, prices in the U.S. have not actually risen.In other words, Americans enjoy a good life with low inflation.

Since the disintegration of the Bretton system, the U.S. dollar, which lost its gold support, has depreciated rapidly. In order to rebuild the world's confidence in the U.S. dollar, the United States must find a kind of material that can effectively affect the price to support the U.S. dollar.However, the oil crisis broke out at the end of 1973 and the price of oil soared, which gave the United States an opportunity to replace the hard currency of gold.The United States and the Gulf countries signed agreements one after another in 1975. The main content of the agreement is only one: these countries must use US dollars for settlement in oil transactions!In this way, oil-importing countries around the world must hold dollars, and as oil prices rise, importing countries must hold more dollars.As a result, the U.S. dollar, which lost its gold support, found a new support to replace gold, that is "black gold"-oil!
The privilege of the U.S. dollar has made the U.S. the "world central bank" and freed the U.S. from the constraints of a shortage of foreign exchange reserves, avoiding the currency crisis and debt crisis that may be caused by a huge trade deficit, but through the trade deficit, it has obtained the physical resources needed for domestic economic development and a lot of money.Now there has been a trend of dollarization in the world, and this trend has further consolidated the hegemony of the dollar.

Since the Bush administration, the United States has spared no expense in attacking Iraq. So far, tens of billions have been spent.And it is estimated that by the time the United States dies down, it will cost about 1 trillion US dollars!Many people think that the United States is "wasting people and money, and the gains outweigh the losses", and it is foolish to be the world's policeman.In fact, will the United States do stupid things?of course not!It is now becoming clear that the real purpose of the Iraq war was to ensure that oil was paid in dollars.The internal contradiction between the United States and Iran is self-evident.

Since the renminbi is not yet freely convertible, goods exported to the United States can only be settled in U.S. dollars, and the pricing power is in the hands of the United States. Therefore, the obvious result of the appreciation of the renminbi is that the same commodity has different prices in the two countries.For example, a pair of fitness shoes was bought by the United States at 1 dollars four or five years ago when 8.3 dollar was exchanged for 10 yuan; now, 1 dollar can only be exchanged for 6.5 yuan, but the United States still buys it at 10 dollars (because the pricing power is in the in the hands of major U.S. retailers such as Wal-Mart).Therefore, the price of the same product in the United States remains unchanged, but due to the external depreciation of the US dollar, the renminbi actually depreciates internally, so once it enters and exits, it naturally forms a phenomenon of low prices in the United States.This situation is similar in other countries, including Canada.

In fact, at present, the pricing power of food, water resources, and bulk commodities such as oil and steel needed for economic development are all in the hands of the United States, specifically in the hands of Wall Street, and the particularity of the US dollar allows the United States to enjoy commodity pricing right.Judging from the absolute military superiority of the United States, the special status of the U.S. dollar has been guaranteed for the next 20 years. The fluctuation of the U.S. dollar is completely determined according to the needs of the United States. Americans live happily without the pressure of inflation.

18. The more valuable the money, the easier it is to generate big bubbles

One weekend morning, my wife Xiao Ling's cell phone rang. It was her good friend Jennifer in New York who called, saying: 'There's good news, and there's bad news. Which one you would like to hear first? 'I've heard too much bad news these days, so Xiaoling said let's listen to the good news first.Jennifer said excitedly: "Do you know? Fortunoff (jewelry store) is going to close down, and all diamonds will be on sale today, with at least [-]% off and up to [-]% off! I'm waiting in line to open the door and grab the latest one. If you buy it, I will buy it for you."

Fortunoff is a well-known jewelry and furniture store in New York, all over the Greater New York area, and its jewelry can keep pace with Tiffany's. Fortunoff was founded in 1922 and just went public in 2005.I really didn't expect that it escaped the Great Depression and many economic crises, but fell into the subprime financial crisis, which is embarrassing.Xiaoling went to college in New York back then, and she and Jennifer studied the same major and became good friends.Xiaoling noticed that Jennifer wore different diamond rings every now and then.It turns out that Jennifer's father likes to buy diamonds as a value-preserving investment, because buying diamond rings at Fortunoff can be "freely upgraded" at any time. Sell ​​them at market value.

The so-called bad news is that the store closed down, and all previous guarantees can be written off. The diamond ring that Jennifer's father "invested" with millions of dollars suddenly "shrunk" by half, and he was so angry that he didn't sleep well for several days.

Jennifer's father who invested in luxury goods on the other side of the ocean was mad, and the Chinese netizens who invested in gold and silver and lost millions of dollars here were even more annoyed.

Some time ago, due to various reasons, the euro plummeted and the U.S. dollar rose sharply, which caused global commodity prices to plummet. The prices of gold, silver, copper and oil fell across the board, and gold futures once fell below the $1500 mark.Silver futures fell to $33, a cumulative plunge of more than 27.4%, the largest weekly drop since 1975.

The ups and downs of gold and silver also triggered heated discussions on Weibo. Many netizens were puzzled: "Isn't it said that gold is the most valuable? Gold is not a stock, so how can it also plummet?" One netizen was even more thinking I posted a message on Weibo: "Recently, I was caught buying gold. It was 40 yuan lower than when I bought it. What should I do?" The price of gold has only fallen by 6% to 7% from the highest level. Buying at the highest position does not use a margin account or leverage to speculate. If it is 40 yuan lower, his investment is about 600 million yuan, which can be described as a big deal!It is a pity that the loss is so huge.

According to people's general perception, gold is very rare and precious. Putting all the gold in the world together, it can only fill an Olympic swimming pool.However, since the day it left the gold standard, gold has been reduced to a common commodity, no matter how expensive it is, it is just a commodity, and any commodity has a certain reasonable price. Once it enters the market, the price of gold will be determined according to the "supply and demand relationship".

Please note that the "seeking" here refers to the demand of "rigid demand", and does not include the "seeking" of speculation and speculation. The "seeking" of speculation and speculation brings about bubbles above reasonable prices.In other words, no matter how valuable a product is, it depends on the price you buy it at. Buying it at a reasonable price will be worth more than the price, and play a role in maintaining and increasing value.Once you buy above a reasonable price, you will enter a zero-sum game of speculation and hype.As long as no one takes your stick, you will become the last "fool". The money you invested has already fallen into the pockets of others, which is the so-called "locked up".

As long as you pay attention, you will often hear people talking about: a certain person bought gold a few years ago, and now his wealth has doubled; rich man.

That's right!These are probably facts, and the story of getting rich will always be talked about.But the problem is that money is hard to buy if you knew it earlier, similar words can also be said in reverse.For example, at the end of the 20th century, when Dotcom was crazy, the Nasdaq index was as high as more than 5000 points. If you bought it at that time, 10 years later, the Nasdaq index once fell below more than 1000 points, and it is still hovering Between 2000 and 3000 points, it may be difficult in this life to return to that highest point.Even more extreme is the Japanese stock market. The Nikkei index fell from more than 1990 points in 4 to more than 7000 points during the Asian financial crisis. Still the same sentence, I don’t know if I have to wait until the Year of the Monkey.

The same is true for the speculative housing market. The U.S. housing market has continued to decline since July 2006. It is predicted that it will fall back to the price in 7 or even 1998. If you want to return to the price in 1996, you have to wait. When the time comes to drop 2006%, it may be a lifetime thing to wait for the unwinding.The same is true for China's A-shares. If anyone enters at the highest point of more than 90 points, it is also difficult to say when they will be able to "unwind".Even the Wall Street tycoon who once advocated that A-shares will exceed 6000 points and "will not sell" A-shares, a few days ago, he also sighed to "leave those stocks to the children"...

In fact, from the stories mentioned above, it can be seen that if you are unfortunately one of the unlucky ones in the latter stories-buy at the highest point and sell when you can't hold on, then the money you lose will be exactly It has entered the pockets of those who bought low and sold high in the previous stories.

Let's analyze the reasons for the decline of gold and silver in depth.

Since the financial crisis, countries around the world have released a huge amount of funds round after round of bailout policies. Through the financialization (securitization or futures) used by Wall Street, especially with the help of global hedge funds, with the help of one legend after another This story has pushed the prices of gold, silver, oil, and various global commodities to new highs one after another.It is also the "seeking" of hype and speculation mentioned earlier, which makes asset prices deviate from reasonable prices and bubbles appear.Obviously, a huge amount of capital through leverage has created a huge amount of bubbles in precious metals such as gold and silver.

However, as long as there is even a subtle change in the market, such as the deleveraging of the exchange, the market will react immediately, thinking that the resource commodity bubble is too large, and financial giants as sensitive as Soros will short.As long as there is a little spark, it will ignite the bursting of resource commodity bubbles.If history is a guide, a bubble will eventually burst.Usually, where the bubble is blown up, it should end up where it should fall back. This is an unchangeable reality.

Speaking of this, you might as well borrow Buffett's famous saying: "Be fearful when others are greedy." The meaning is very simple. Once you know which hot spots have bubbles after rational analysis, don't join in the fun.Everyone is afraid that cash will depreciate, but if you inadvertently buy "bubble commodities" at high prices, then it is not a problem of depreciation.

At this moment, I believe that netizens who have been "stuck" should understand that the day he (she) gets rid of the trap is actually the day when the next "fool" takes over.Going back to the origin of the netizen’s question, gold is indeed precious and everyone loves it, but it also depends on the price you buy it at.As an extreme example, would you pay $1 for an ounce of gold?If that was the case, the US dollar would have collapsed long ago, and by that time, it would no longer be a question of whether to buy gold...

(End of this chapter)