InvestMacro Forex News

By MoneyMorning.com.au

The Federal Reserve is busy doing everything in its considerable power to get credit (that is, debt) growing again so that we can get back to what it considers to be ‘normal’.

But the problem is that the recent past was not normal. You may have already seen this next chart. It shows total debt in the US as a percent of GDP:

Source: Hoisington Investment Management Company
Click to enlarge

Somewhere right around 1980, things really changed, and debt began climbing far faster than GDP. And that, right there, is the long and the short of why any attempt to continue the behaviour that got us to this point is certain to fail.

It is simply not possible to grow your debts faster than your income forever. However, that’s been the practice since 1980, and current politicians and Federal Reserve officials developed their opinions about ‘how the world works’ during the 33-year period between 1980 and 2013.

Put bluntly, they want to get us back on that same track, and as soon as possible. The reason? Because every major power centre, be that in DC or on Wall Street, tuned their thinking, systems, and sense of entitlement, during that period.

And, frankly, a huge number of financial firms and political careers will melt away if and when that credit expansion finally stops. And stop it will; that’s just a mathematical certainty.

Total Credit Market Debt (TCMD) is a measure of all the various forms of debt in the US. That includes corporate, state, federal, and household borrowing. So student loans are in there, as are auto loans, mortgages, and municipal and federal debt.

It’s pretty much everything debt-related. What it does not include, though, are any unfunded obligations, entitlements, or other types of liabilities. So the Social Security shortfalls are not in there, nor are the underfunded pensions at the state or corporate levels. TCMD is just debt, plain and simple.

As you can see in this next chart, since 1970, TCMD has been growing almost exponentially.

Source: Mises.org
Click to enlarge

That tiny little wiggle happened in 2008–2009, and it apparently nearly brought down the entire global financial system. That little deviation was practically too much all on its own for the markets to handle.

Now debts are climbing again at a quite nice pace. That’s mainly due to the Federal Reserve monetizing US federal debt just to keep things patched together. As an aside, based on this chart, we’d expect the Fed to not end their QE efforts until and unless households and corporations once more engage in robust borrowing. The system apparently needs borrowing to keep growing exponentially, or it risks collapse.

One could ask why credit can’t just keep growing. But there are many reasons to believe that the future will not resemble the past. Let’s start in 1980, when credit growth really took off. This period also happens to be the happy time that the Fed is trying (desperately) to recreate.

Between 1980 and 2013, total credit grew by an astonishing 8 percent per year, compounded. I say ‘astonishing’ because anything growing by 8 percent per year will fully double every 9 years.

So let’s run the math experiment and ask what will happen if the Federal Reserve is successful and total credit grows for the next 30 years at exactly the same rate it did over the prior 30. That’s all. This is nothing fancy, and it is simply the same rate of growth that everybody got accustomed to while they were figuring out ‘how the world works’.

What happens to the current $57 trillion in TCMD as it advances by 8 percent per year for 30 years? It mushrooms into a silly number: $573 trillion. That is, an 8 percent growth paradigm gives us a 10-fold increase in total credit in just 30 years:

Source: Mises.org
Click to enlarge

For perspective, the GDP of the entire globe was just $85 trillion in 2012. Even if we advance global GDP by some hefty number, like 4 percent per year for the next 30 years, under an 8 percent growth regime, US credit would be twice as large as global GDP in 2043.

If that comparison didn’t do it for you, then just ask yourself: Why, exactly, would US corporations, households, and government borrow more than $500 trillion over the next 30 years?

The total mortgage market is currently $10 trillion, so might the plan include developing an additional 50 more US residential real estate markets?

So perhaps the situation moderates a bit, and instead of growing at 8 percent, credit market debt grows at just half that rate. So what happens if credit just grows by 4 percent per year? That gets us to $185 trillion, or another $128 trillion higher than today – a more than 3x increase. Again: for what will we borrow (only) $128 trillion for, over the next 30 years?

When I run these numbers, I am entirely confident that the rate of growth in debt between 1980 and 2013 will not be recreated between 2013 and 2043. But, I’ve been assuming that dollars remain valuable.

If dollars were to lose 90 percent or more of their value (say, perhaps due to our central bank creating too many of them), then it’s entirely possible to achieve any sorts of fantastical numbers one wishes to see.

For the Fed to achieve anything even close to the historical rate of credit growth, the dollar will have to lose a lot of value. This may in fact be the Fed’s grand plan, and it’s entirely about keeping the financial system primed with sufficient new credit to prevent it from imploding.

Chris Martenson
Contributing Writer, Money Morning

Note: This originally appeared at Mises.org

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By MoneyMorning.com.au

Source: Tom Armistead of The Mining Report (12/3/13)

http://www.theenergyreport.com/pub/na/why-uranium-and-coal-rank-high-for-energy-return-on-energy-invested-thomas-drolet

Not all energy options are equally good, says Thomas Drolet, principal of Drolet & Associates Energy Services Inc. Using an “Energy Return on Energy Invested (EROEI)” calculation to decide which energy sources yield the most for the least energy investment, Drolet sees hydroelectricity, natural gas, uranium and coal at the top of the list. Drolet adds that the need for reliable power will keep baseload power fueled by uranium and coal at the center of the world’s electricity systems for many years, but he tips The Mining Report to some technologies looking for investment that can help make coal a more environment-friendly fuel.

The Mining Report: Tom, thanks for joining us today. I’d like to start out with the concept of an “Energy Return on Energy Invested cliff,” which is being debated widely these days.” What is it and what does it mean for the future of mining energy resources?

Thomas Drolet: When you invest money in a new energy system, say, hydroelectric, you may spend $2 billion building a hydroelectric dam, but the device works for hundreds of years. Energy planners and thinkers have created a ratio, an index of the energy return divided by the energy invested in putting that energy system in place. For a hydroelectric plant, the water (the fuel, if you will) is basically free and it flows for literally centuries, yielding a very high ratio. Let’s call it 100 for now. But in generating coal-fired power, there are losses at the station, in the transmission from the coal plant, the distribution transformers and finally, when you use it in your light bulb at home, where there are further losses by heat radiation. All those losses yield a ratio number of somewhere in the area of 20 to 30. At the bottom of the scale is corn-based ethanol, perhaps the worst example that we have today. It takes a lot of energy to grow corn—tractor fuel, fertilizer, shipping of the corn to the ethanol production distilleries and distribution of that ethanol in tanker trucks. Then there’s the loss of energy in the engines in our normal cars and trucks. That ratio may be down below 6.
Source: Thomas Drolet

The more we use of these soft energy forms that don’t return as much energy for the energy invested in the facility, the weaker the energy returns to overall society will be. My fervent plea is for society to continue to look at a wide portfolio of energy fuels and energy-generating techniques that keep from going too far over that cliff edge toward the low return end. We need the hydroelectrics. We need the nuclear power that is up in the 20–30 range. We need the natural gas in the 20–25 range. Yes, we should add the solars and the winds, which are in the 10–20 index range. But, let’s not go too far down. We’re sitting today somewhere around 15–20 as an average ratio return for the energy invested, and society’s working at that level. Let’s not go down below 6. Societal regression and recession inevitably follow once you go over that cliff edge.

TMR: How do you weight coal versus uranium?

TD: Some people say there’s a war on coal in the U.S. and to some degree in Canada and much of our world. Overall, 40% of the world’s electricity is generated by coal. If that war were to start to shut down that 40% of our electricity capacity in a fast-paced, “blitzkrieg-like” fashion, the world would have trouble keeping the lights on, keeping our motors running, keeping our factories going, keeping our steel mills going. I believe coal is still a good investment because it’s a necessary investment to keep our world growth rate positive. We can’t have the world’s power-generating sources, like coal, go down too suddenly, because we have nothing but natural gas to quickly fill the void. Like our own investment portfolios, we should never put all our eggs in one basket.

Uranium and hydroelectricity are baseload power fuels, and these energy sources are the floor that electricity supply sits on. I believe in continuing to generate by both coal and uranium, in addition to a basket of many other fuel sources.

I know that much of society and many of our political leaders have already decided that climate change is real and is totally caused by humankind. I believe that CO2 emissions have an effect, but climate change is not completely caused by humankind. There are several causes, and I believe that the real scientific underpinnings of climate change should remain a worldwide debate until we are sure of all causes and effects. We should not close down our coal stations as quickly as some would have us believe we should. There are so many improvements that can be made to the existing fleet.

TMR: Germany and Japan seem to be cutting back on further development of their nuclear energy grids, and France, South Korea and China are moving ahead. What is the reason for the differential?

TD: It’s a case-by-case answer. In Japan, there’s a tug of war between industry, the government and the general populace—the government and industry desperately want to bring back some or all of the nuclear power stations—and the general populace is pretty much dead set against it. That tug of war will, in my opinion, end up bringing back approximately half of those units over the next five years, but it will be a slow and agonizing process.

In Germany, the political leadership just made a decision to shut down all 17 reactors; they’ve shut down 10 already, and the other seven will be shuttered over the next nine years. I’ve just returned from Germany. I’ve been talking to German business leaders and investors who don’t share the belief that all those stations should be shut down. Germany is by far the leading nation in the world when it comes to renewables, but I see a fear that the grid in Germany is starting to see minor effects on frequency and voltage, which affect some of their major manufacturing businesses. I continue to wonder whether all those stations will actually be shut down in the event of a future change in the German government.

The difference with other countries, like the U.K., France, China, India, the U.A.E. and Saudi Arabia, stems from a belief among the political leadership that there is a need for energy diversification. As the fight over coal and fracking comes and goes, some of these other nations are led by political leaders who are looking further ahead and are electing to stay with nuclear power, and in fact building on it.

TMR: The European Union is pushing away from coal, but Poland is clinging to it. Is that going to have a meaningful effect on European energy markets?

TD: Yes. Germany, the leading nation in the world in renewable power, is actually pushing back into coal out of necessity because of its decision on nuclear power. Poland has massive coalfields and is building new coal-fired stations. Other nations in Europe are continuing with coal. The Czech Republic, Slovakia, Romania and Bulgaria are all continuing with coal and building some new stations. It’s a real mixed message out of greater Europe. They do not all speak with one central “EU voice” when it comes to real, on-the-ground decisions.

TMR: Will that mean a bigger market for coal exports from North America?

TD: Yes it will, but given that most of Canada’s coal is in Alberta, B.C. and Saskatchewan, I think the preferential export markets for our coal will be in the Far East. While Japan debates its future nuclear restart schedule, it’s importing liquefied natural gas (LNG) from the Middle East, Indonesia and Australia as fast as it can. It’s also building new coal stations. Europe still has massive coal quantities in Ukraine and Poland, and much more of it in Eastern Europe, so I don’t see exports of Canadian coal going to Europe.

TMR: What do these trends mean for the business of uranium mining globally?

TD: When you subtract the approximately 70 nuclear power reactors either shut down or in the process of being shut down, mostly in Japan and Europe, there are actually about 370 power-producing nuclear reactors in the world today, consuming approximately 160 million pounds/year (160 Mlb/year) of uranium as U3O8. Another 65 reactors are actually being built today in China, in Russia, the U.A.E., Turkey, Finland, the UK and India. Now add what they say they’re planning behind that, and in 40 years there will be another approximately 370 reactors operating worldwide, the same number of reactors as is operating today.

Where is that other 160 Mlb of U3O8 going to come from over the next 40 years? It has to come substantially from new mines in the Athabasca Basin in Canada, from Australia, from parts of Africa and from Utah, Colorado, Nevada and Wyoming in the U.S. It’s going to come from Mongolia and it’s going to come from other mines here and there in the Far East and in Slovakia.

Uranium prices right now are definitely in a bottoming process, but as a result, the uranium mining industry has a chance to get its act together and invest in new exploration and production (E&P). We’ve got time on our side because these new uranium mines, especially in Athabasca, are long-lead items. They’re 10 years from concept and exploration through to production. The in-situ recovery (ISR) projects don’t take as long to get going, so they have a real advantage in filling any early voids in supply that may arise. However, they’re working on much lower concentrations. Overall, I see a very good future for uranium, but we’ve got to use the time to get our act together.

TMR: What are some of the technological advances in nuclear energy that will address the future need?

TD: Standard nuclear reactors being built today are gigantic units. Over the next decade, in my opinion, we’re going to see a shift to smaller units—small modular reactors (SMR)—for good and valid reasons of schedule and because the utilities want them as supply sources that fit their load growth profile better. A few examples are Babcock & Wilcox Co. (BWC:NYSE) and NuScale Power LLC (private) in the United States, which are being funded or potentially funded by the U.S. Department of Energy to bring on these smaller reactors in the early 2020s.
Source: Thomas Drolet

TMR: What about the advanced light water reactors, the third- and fourth-generation reactors? Are they going to be an equally important factor or are the SMRs going to crowd them out?

TD: The newer large reactors are better in so many respects than the earlier generation reactors that we have in the world’s nuclear fleet today. What with thermal siphoning capability, better fuel storage techniques, better cooling backup systems and passive safety features, they are a quantum step forward in safety and reliability. However, as I said before, I think they will be very gradually superseded by the SMRs over the next several decades. Some think that someday the ultimate nuclear reactor system is going to be based on a molten salt reactor (MSR) concept. MSRs are proliferation resistant, have much higher cycle efficiency and can produce copious quantities of heat for various industrial uses. It’s absolutely safe and lets you just dump the mixed coolant and dissolved fuel, in the event of any emergency. It can be built in small, medium or large sizes, but is better made into the small or medium sizes. China, France, India, Norway, Russia and even one company in Canada are working on the very early stages of development for various MSR configurations.

TMR: What will the U.K. reactor agreement do to the U.K.’s energy future, and does it contain features like a price multiplier?

TD: The U.K. thought through a long-term energy plan a couple years ago. The North Sea gas and oil that the country was relying on was starting to diminish, and the U.K. had to consider other options. It looked around at the 19 nuclear plants it already has in use, and considered whether it should continue with nuclear power. For a variety of reasons, it decided it had to go back to some level of nuclear power. I think it was a good decision. It appears, on the surface, to be a very expensive decision in terms of the rate that has been guaranteed by the providers. The French and the Chinese are going to fund most of the investment for the first couple units. But, the rate guarantee spans the lifetime of the reactors. Think what average electricity rates may be in place for other systems in 20 years!

TMR: What about the Canadian agreement not to require European uranium firms to partner with Canadian companies? Is that going to affect the uranium prices?

TD: Yes. I’m glad it happened. I think we’re going to have more investment in Canada, more mines being developed, especially in the Athabasca area. That investment will inevitably lead to quicker production from Athabasca and other Canadian uranium sources that are dotted across the country. I think it will eventually lead to lower prices and more Canadian uranium on the world markets. It’s a long-overdue step.
Source: Thomas Drolet

TMR: What companies do you like in the uranium industry?

TD: In Canada, we’ve got a series of majors working here. We’ve got, of course, Cameco Corp. (CCO:TSX; CCJ:NYSE) and Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT)—good, well managed companies. We’ve got Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK), which has come into the Athabasca Basin through the acquisition of Hathor Exploration Ltd. Finally, among the majors we have AREVA SA (AREVA:EPA). I would assume these companies will all continue to expand their positions there as investors and eventual producers and operators of new Canadian mines.

In the junior category, we have a whole slew of new juniors up in the Athabasca Basin. I’m on the advisory boards of a few of these, but I’d like to highlight one of them. Lakeland Resources Inc. (LK:TSX.V) is a very well managed company backed by solid investor groups. The company has what looks like a series of very good properties up on the north rim of the basin that have been explored before. Lakeland may have a very good resource to operate. Of note is Skyharbour Resources Ltd. (SYH:TSX.V)—part of a Syndicate called the Western Athabasca Syndicate with properties in the Patterson Lake South area.

I do like a Canadian company that’s operating outside of Canada, U3O8 Corp. (UWE:TSX; UWEFF:OTCQX). U3O8 Corp. offers a very interesting proposition with potential near-term production from Argentina, backed up by a flagship project in Colombia. The Argentine project would involve the mining of uranium from soft gravels within a couple feet of surface in a supportive jurisdiction that is currently 100% dependent on imported fuel for its growing fleet of nuclear reactors. In addition, U3O8 is negotiating a definitive joint venture–type agreement over exploration concessions owned by the provincial government, on which U3O8 believes there is additional resource potential. This agreement would see U3O8 and the provincial government as equity partners. Development of the Argentine deposit would set the stage to advance the flagship project in Colombia, for which the preliminary economic assessment shows a zero cash cost for uranium, thanks to byproduct revenues.

In the States I do like companies that have been bought up now, like Strathmore. Ur-Energy Inc. (URE:TSX; URG:NYSE.MKT) looks like a pretty good company. Fairly high debt, but it’s now producing. It seems to have its debt issue taken care of better than it was a while ago.

TMR: Is the market stability of Lakeland Resources an issue for you?

TD: It’s down on the bottom these days. But surely the Lakelands of this world will come up as they make real progress. I believe value will be driven, as always, by real results.

TMR: Zimtu Capital Corp. (ZC:TSX.V) has a stake in Lakeland.

TD: Zimtu has an interesting business model in that it has a collection of companies that it has taken various positions in and nurtured, when required, with good people and marketing savvy. Zimtu scours various countries for investments and nurtures a stable of companies. I think the Zimtus of this world are a good thing for juniors to have backing them at early stages.

TMR: What is the role of the Western Athabasca Syndicate you mentioned above, and what’s the role of the companies within it?

TD: Collectivism is a good thing, driven by necessity in the markets of today. I do know syndicate member Skyharbour Resources reasonably well, and that’s a good way to survive in tough times. Not only does the Western Athabasca Syndicate bring different sources of treasury money together so you get more bang for your buck, but in this case, it also brings together different sources of expertise. One syndicate member has particularly good expertise in landholdings and ability to get land. Another is a good investment grabber. The other two are good drillers and explorers. I think each member brings something to the table that makes for a very strong, four-legged table. I like the idea.

TMR: Are there any other uranium companies you’d like to talk about?

TD: There’s one private company I’ll mention. Ualta Energy Ltd. is the best example I can think of in innovation in the uranium mining business today. It’s not publicly listed, but is looking for investment now. It has uranium deposits in southern Alberta in two gigantic swaths, 40 kilometers long, several meters thick, just below Lethbridge north of the U.S. border. The uranium is associated with shells from the former inland sea that used to cover Saskatchewan and Alberta.

Ualta has potentially discovered a source of hundreds of millions of pounds of uranium in these bone fragments through looking at old oil and gas cores that were drilled by earlier resource explorers. Ualta is drilling vertically, turning the bit and drilling horizontally, and then using ISR solutions to dissolve the uranium from the long strike lengths containing uranium-bearing bone fragments. ISR together with horizontal drilling is a very innovative combination of known technologies that can be brought together in a unique deposit like this. I think one of these days we’ll see Ualta coming up the pipe as a very viable new uranium entity in Canada.

TMR: I’d like to go back to coal for just a minute. You touched briefly on the EPA rulings. What about the new technology for combusting coal and restricting the emissions? Is there hope in the new technology for coal?

TD: Yes, and there’s a new company out there that is just getting going with its first project in Indonesia. It’s called MicroCoal Technologies Inc. (MTI:CNSX). The company has developed a method that partially dries coal using microwave energy in a vertical tube. You take the coal off the coal pile, which has a variable amount of moisture in it, and filter the coal through a tube that is surrounded by microwave antenna heads that remove some of the moisture from the coal.

That actually does three things for you: First, it means that the thermal-unit value of the coal that’s actually blown into the boiler for combustion is greater because you’ve removed some of the water, which would take up some of the energy in the boiler if it were still there to combust. Basically, it’s pretreating the coal to be a more efficient source of energy. Second, studies have shown that some of the sulfur and mercury is precipitated out in that process. Finally, the coal ash is less sticky, and adheres less to the baghouses that are the final particulate-removal step for the combusted gases coming out of the coal-fired stations. It’s therefore easier to clean the surfaces of the baghouse.
Source: MicroCoal Inc.

MicroCoal Technologies has its first project underway in Indonesia. Once that is up and running, I see a very good future for that technology at coal-fired stations everywhere that have a reasonable amount of moisture in the coal. MicroCoal’s technology has other potential applications with other utilities in Indonesia, once this small prototype is up and running. I think the company will likely get going on some projects in North America, both Canada and the States, I hope in the near future. It’s also working on projects in Poland.
Source: MicroCoal Inc.

TMR: You cover Coalspur Mines Ltd. (CPT:TSX; CPL:ASX), which has a large property in northern Alberta. Its share price dropped dramatically about a year and a half ago. Is there a good reason to buy it today?

TD: I like the company. Coalspur is a well managed company with a great property at Vista. Its market for thermal coal is the Far East. Japan, China and South Korea are begging for more supply. Coalspur is undergoing an ongoing series of hearings and will likely see a spike in December as it pursues mine permits. I have no doubt Coalspur will succeed. The company has a great technical team that will be augmented by a strong engineering, procurement and construction partner. The difficulties right now involve the down condition of the whole market, the need to bring in the financing and the large number of shares outstanding. I believe Coalspur will work through all the issues with the good people it has. The key is access to financing in a tough market.

TMR: Tapping into deep geo-pressurized reservoirs of hot natural gas-saturated brine that underlies many abandoned oil and gas wells may be a significant new energy source that could result in future baseload electricity production. What firms of interest are involved in this type of venture?

TD: Two or three companies in the United States are looking actively at this particular source of abandoned energy, and I am president and CEO of another, a private company in Canada called Greenwell Renewable Power Corp. (GRPC). There are about three million abandoned oil and gas wells in Canada and the States. About 3% are underlain at depth—12,000–14,000 feet—by gigantic fields of brine. These brines contain dissolved natural gas, and the brines are hot because of the depth—300 degrees Fahrenheit, 180 degrees Celsius.

As oil and gas companies sealed up their wells because they had no more production, a few companies, ours included, started to look at how they could tap into that abandoned, ready-to-use energy source. We found we can take this source of energy, the natural gas and the hot brine, and create electricity using the potential energy in the flowing brine and piping it up to the surface plant. About 20,000 barrels/day (20 Mbbl/d) of brine, at 300 degrees F, containing 75 standard cubic feet of natural gas/barrel of brine can be put through a series of three machines. The first machine is called a kinetic energy engine, which captures the kinetic energy in the flowing steam and produces electricity. It’s our GRPC proprietary new technology. Then we can capture the heat in the brine through a conventional Organic Rankine Cycle engine (ORC), a decades-old technology, and that also produces electricity. Finally, we can then reduce the pressure in this flowing brine stream that’s had the temperature taken way down, capture the dissolved natural gas and then burn it in a standard reciprocating or rotary engine to produce electricity.

We’re working on a project in the south central part of the U.S. that will produce 6-plus MW of electricity out of 20 Mbbl/d of flowing brine. I’m truly excited about the potential because the overall business enterprise is ultimately just putting together a series of small independent power plants dotted all over in these areas of abandoned oil and gas wells. Here we thought we were finished with those abandoned wells! No, we sure aren’t finished. There’s more energy to come.

We’re still doing our final homework. We do have a private placement out to complete the work, but we’re hopeful to have it packaged up and ready to go by the end of this year on our first project. It only takes about nine months to construct the surface power plant and prepare the abandoned wells. Once we get stable performance out of our first project, roughly by the end of next year, we can start our second project, and move on to other projects.

TMR: How would you advise investors in the mining stocks that you deal with? Should they go all out for uranium or for coal or for some other resource?

TD: Easy to say, but do a little bit of a lot of things that make sense, assuming growth in the world will ramp up again. Don’t concentrate all your dollars in one area. Spread it around into areas that you believe your due diligence shows have a good shot looking forward, because we are at a bottom in so many of these resource materials.

I believe coal has a future. I think some of the coal technologies—I’ve just mentioned one—is a particularly good place to look. I think that coal mining companies that operate in the Powder River Basin and the western part of Canada have the best shot. I think copper, tin and zinc will inevitably come back.

On the precious metals side, I will say that as the central banks of the world continue to print money, I have convinced myself that gold and silver and platinum/palladium have a real place in our future. Quantitative easing, as practiced by some many of the major Central Banks, is inevitable. If anything, we’re in a bit of a deflationary situation at the moment, but if the world is to survive, then we’re going to have to somehow inflate and grow out of this, probably by both growth and inflation. Therefore, the precious metals do have a place in your portfolio.

TMR: Thanks. You’ve given us a terrific amount to think about. I appreciate your time.

Thomas Drolet is the principal of Drolet & Associates Energy Services Inc. He has had a 43-year career in many phases of energy—nuclear fission and fusion, coal, natural gas, geothermal and distributed generation, with the attendant necessary expertise in commercial aspects, research and development, engineering, operations and consulting. He earned a bachelor’s degree in chemical engineering from Royal Military College of Canada, a Master of Science in nuclear technology/chemical engineering and a DIC from Imperial College, University of London, England. He spent 26 years with North America’s largest nuclear utility, Ontario Hydro, in various nuclear engineering, research and operations functions.

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DISCLOSURE:

1) Tom Armistead conducted this interview for The Mining Report and provides services to The Mining Report as an independent contractor. He or his family owns shares of the following companies mentioned in this interview: None.

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3) Thomas Drolet: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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By The Sizemore Letter

This time of year, it’s easy to get wrapped up in the holidays and push unpleasant things like tax planning into January, but believe me — a few tax tips will actually come in handy sooner than later.

For some tax decisions — such as how much to contribute to an IRA or Roth IRA — waiting is perfectly fine. You until have April 15 of next year to make your 2013 contributions. However, you should start your planning now, and we have plenty of tax tips for you to use before year’s end.

Changes to the tax code are scheduled to be minor in 2014, so you don’t need to do anything too drastic. But it still makes sense to pull as many tax breaks into your 2013 tax return as possible.

Uncle Sam doesn’t pay you interest on any refund due, after all, and effective tax rates are slightly higher in tax year 2013 than 2014 due to inflation adjustments that will raise the income levels in each tax bracket. For example, in 2013, the 28% tax bracket starts at incomes of $87,851 for an individual. In 2014, it starts at incomes of $89,351. So if you can lower your tax bill this year, it certainly makes sense to do so.

Today, we’re going to look at seven tax tips that will help you do exactly that:

Tax Tip #1: Max out your 401k contribution

In both 2013 and 2014, the maximum personal contribution you can make to a 401k, 403b or 457 plan is $17,500. And if you’re 50 or older, you can toss in an additional $5,500 for a total of $23,000.

Remember, this is only the portion of your salary that you contribute yourself; your employer also may match up to a certain percentage of your salary.

If you’ve fallen behind in your 401k contributions, there is one quick way to catch up. If your plan will allow it, you can put up to 100% of your December paychecks into your 401k plan. This assumes that you have enough money socked away to effectively forgo a month’s worth of pay — and a month that happens to include the busiest shopping season of the year.

But if you can afford to do it, you should. You’ll pay less in taxes this year and give yourself a head start in your 2014 financial goals.

Tax Tip #2: Contribute to an IRA or to a Roth IRA

In 2014, you can contribute $5,500 to an IRA or Roth IRA and $6,500 to either if you are age 50 or older. These contribution limits are unchanged from 2013, but there are a few changes you should know about concerning income limits. This is one area where the IRS really punishes success, and that is a shame.

In 2013, if you earn $59,000 and have a 401k or similar workplace retirement plan, your IRA contribution tax deduction starts to get phased out, and at $69,000 it gets eliminated altogether. In 2014, these amounts get raised to $60,000 to $70,000, respectively, but this means that plenty of Americans are still denied a fantastic tax break due to their earnings “too much money.”

If you don’t have a workplace retirement plan but your spouse does, you still can contribute to an IRA and get a tax break. But it starts to get phased out $178,000 in combined income for the couple and is eliminated altogether at $188,000. In 2014 these limits get raised to $181,000 and $191,000, respectively.

Roth IRAs are also getting higher income cutoffs in 2014. The AGI phase-out range for Roth IRA contributions will be $114,000 to $129,000 for individuals and $181,000 to $191,000 for married couples — that’s up from $112,000 to $127,000 and $178,000 to $188,000, respectively, in 2013.

If you qualify for a Roth contribution, do it. The Roth IRA is the best retirement vehicle ever created in this country. But if you don’t qualify for a Roth, a traditional IRA still is worth considering, even if you have a 401k at work and you’re disqualified from the current-year tax deduction. You still benefit from tax-free compounding of capital gains, dividends and interest, and you also enjoy the lawsuit protection and estate planning benefits of an IRA.

Tax Tip #3: Adjust the timing on your investment sales to push gains into next year and losses into this year.

You should never — and I repeat, never — make an investment decision based purely on tax minimization. Taxes should be a consideration, but fearing the tax man alone is not a legitimate reason to hold on to an appreciated investment you feel might be at risk, nor is it a legitimate reason to sell an investment that has fallen in value but that you still feel is a bargain.

That said, if you’re going to do a little portfolio pruning, this is a good time to do it. We all make that occasional bad investment, and it’s prudent to cut your losers.

And if you’ve been looking to take profits or rebalance, it makes sense to wait until after the first of the year, so long as you’re observing your usual trading rules (following stop losses, etc.)

If you sell an investment to harvest a tax loss, you’re subject to the wash sale rule. This means that you can’t buy it again within 30 days if you want to claim the loss for tax purposes. But there is absolutely nothing in the rulebook that says you can’t buy substantially similar securities. For example, you could take a loss in the SPDR S&P 500 ETF (SPY) and buy the iShares Core S&P 500 ETF (IVV) the very same day and not be subject to the wash sale rule.

Given that the market is near all-time highs, portfolio losses might be few and far between. But it’s good advice to keep in mind during the next correction.

Tax Tip #4: Make a large contribution to a Health Savings Account (HSA).

This is only applicable if you have a high-deductible health insurance policy that is compatible with HSAs, but millions of Americans — and particularly the self-employed — fall into this category.

The uncertainty surrounding Obamacare complicates matters in 2014. Assuming no changes to the Affordable Care Act, HSAs still will be available, even if the connected insurance policies are more expensive. But the entire healthcare industry is in a state of flux right now, and HSAs might no longer make sense once the dust settles.

I’m a big fan of the HSA structure because it encourages patients to be more careful with their medical dollars and gives them a degree of power they don’t have with traditional insurance, but you really have to run the numbers for yourself. If a bare-bones insurance policy is all you need, then you might as well take advantage of the tax breaks.

HSA contributions give you a similar tax breaks as traditional IRAs. In 2013, an individual policyholder can contribute a maximum of $3,250, and a family can contribute $6,450. Next year, the limits rise modestly to $3,300 and $6,550, respectively. If you’re age 55 or older, you can chip in an additional $1,000.

Unlike IRAs and Roth IRAs, HSAs are not subject to any income limitations.

Tax Tip #5: Get any elective medical or dental work done in 2013

Medical expenses not covered by your health insurance are deductible in 2013 if they exceed 10% of your adjusted gross income. And if you’re 65 or older, you benefit from a lower threshold of 7.5% of adjusted gross income.

If you have a high-deductible health insurance policy or somehow managed to find yourself uninsured in 2013, it can be remarkably easy to hit those levels. Ten percent of an AGI of $75,000 would mean that you need only $7,500 in medical expenses to take this deduction, and plenty of Americans spend more than that in a given year. Keep good records of all of your medical expenses — everything from doctor visit copays to prescription drug refills — and popular tax programs like Turbo Tax and TaxAct can calculate

It absolutely never makes sense to get unnecessary medical work done to get a tax break. But if you’ve been putting off an elective surgery or even needed dental work, you might as well do it now if doing so will get you over the deduction threshold.

Want an extreme example? I write this tongue-in-cheek, but I’ve seen people do more drastic things for a tax break:

If you are an expecting mother and have a scheduled caesarian delivery planned for the first two weeks of January, ask your doctor if moving the delivery into 2013 is a possibility. You have 18 years of living expenses to pay before you send junior to college. You might as well get the medical deduction this year, as well as an extra year of the child tax credit and the $3,900 dependent exemption for 2013.

Tax Tip #6: Pull charitable contributions forward

If you give regular sums of money to a church or charity, consider making any contributions you originally planned for the first quarter of next year to December. Or, if you don’t regularly give to charity, this might be a good time to start.

Cash contributions are the easiest and most likely to survive an audit. But the IRS is actually pretty generous when it comes to donating things like old cars or old clothes. For low-hanging fruit, spend a Saturday cleaning out your closet. Chances are good you can generate a couple hundred dollars in tax breaks by donating clothes that you’re no longer wearing. Just make sure you keep good records about the items donated, the condition they were in, and the date you donated them. If you want to be meticulous about it, take photos of the items with your camera phone and file them away with your tax materials for the year.

Reaching an estimated value can be tricky if you’re trying to do it on your own, but popular tax programs like TurboTax and TaxAct will walk you through the process and help you assign proper values.

Tax Tip #7: Get creative with your monthly bills

No one ever complains about getting paid too early, and your creditors are no exception. If you mortgage payment falls near the first of the month, make your January payment a week early this year.

You have to be careful that your mortgage lender understands that you are making the January payment and not simply making an unscheduled principal reduction. There is nothing wrong with reducing your principal early, of course, and I recommend that you do exactly that if your cash flow allows. But for the purposes of minimizing tax, you’re specifically looking to get another month’s worth of interest on the books.

The same goes for health insurance premiums if you pay your own. If your regular payment date falls in early January, pay it early.

If you own your own business or utilize a home office, you have a lot more leeway here. You can pay your electric, phone and Internet bills a couple weeks early. And you can buy basic office supplies or equipment a little earlier than planned.

Will any of these prepayments make a huge dent in your tax bill? No, probably not. But every dollar not spent paying taxes is a dollar available to be spent on something else in 2014.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Check out his new premium service, Macro Trend Investor, which includes a free copy of his e-book, The New Megatrend Investor: The Ultimate Buy-and-Hold Strategy That Will Make You Rich.

This article first appeared on Sizemore Insights as 7 Tax Tips to Use Before the End of 2013

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By George Leong, B.Comm.

Today is Cyber Monday, when consumers will flock online and spend over a billion dollars. In 2012, $1.47 billion in sales occurred on this day and the expectations are that the number could swell to $1.68 billion today. (Dengler, P., “Cyber Monday Predictions For 2013,” Business2Community.com, October 28, 2013.) We will also find out today how Black Friday and the key weekend shopping period were for the retail sector. A big surprise and the stock market will reach higher.

The stock market has shown little signs of wanting to slow and is continuing to show bullish investor sentiment and the ability to move higher this month and into 2014.

The S&P 500 is at 1,800 and the DOW Industrial at 16,000. The positive momentum is in place for additional gains. The S&P 500 moving to 2,000 next year, up 11.11%, is realistic depending on what the Federal Reserve does and how the economy behaves. The Dow 20,000 may have to wait a few years. Of course, this is contingent on the five-year bull market holding.

On the charts, technology and small-caps continue to lead the broader stock market higher. The NASDAQ closed above 4,000 for the first time since September 2000, when the index was on the decline after trading at a record 5,132 in March. The buying in technology and growth is not a surprise, as buyers have chased risk and potential this year. The top sectors offering the most sizzle at this time are Internet services, mobile, and social media.

Chart courtesy of www.StockCharts.com

Small-cap stocks continue to lead the pack this year as the economy recovers, albeit at a slower pace than we would like to see.

As I said, a strong Black Friday and Cyber Monday could be enough to drive the stock market higher and lead to buying in January. Of course, don’t forget that the government and Congress will still need to resolve the budget and set a new debt ceiling limit by the extended deadlines.

Many of you are probably thinking about what to do.

While the creation of stock market wealth is fantastic for market participants, I’m growing more wary with each record and feel the stock market is vulnerable to selling. The fact that we have yet to see a stock market correction of 10% or more during this bull market is worrisome.

Or maybe it’s an ideal situation for the stock market, with steady but muted growth, low interest rates, benign inflation, and cheap accommodative monetary policy.

At this point, I feel the buying in the stock market is somewhat euphoric and based more on the Federal Reserve’s easy money policy than solid underlying fundamentals. The Federal Reserve will stay status quo. The next chair of the Federal Reserve, Janet Yellen, is dovish towards the use of monetary policy to stimulate the economy. Yellen has suggested how the low interest rate environment allows the central bank to employ its loose monetary policy to drive the economy and not fear inflation. Given this, I expect the bond tapering might be slow whether it begins in December or the New Year.

And while I still feel the stock market is vulnerable to selling, which would present a buying opportunity unless the underlying fundamentals change, my feeling is that the next moves will continue to be higher on the charts, so enjoy the ride. Again, with tax year coming to an end, you should also make sure you take some profits off the table and match the gainers with some losing positions prior to the year-end. And, as I’ve said on many occasions, you should hedge against potential weakness with put options on either stocks or the indices to help protect your gains. (Read “Five Profitable Plays for the Coming Stock Market Correction.”)

This article Why Stocks Likely to Head Higher into the New Year is originally publish at Profitconfidential

By Mitchell Clark, B.Comm.

There are still a lot of companies that are reporting quarterly earnings and, in many cases, the numbers are pretty decent. Let’s look at some of the winners.

The iconic jewelry brand Tiffany & Co. (NYSE/TIF) reported outstanding quarterly earnings growth of 50% due to significant sales strength and margin expansion from the Asia-Pacific region. The company’s American stores saw total sales grow four percent to $417 million, with European sales growing a surprising seven percent to $104 million.

Tiffany & Co. boosted its full-year earnings outlook for its fiscal year ending January 31, 2014, and the stock jumped seven points on the news, closing at a new all-time record high.

Much smaller Movado Group, Inc. (NYSE/MOV), which is based in Paramus, New Jersey, reported an 18.4% increase in third-quarter sales to $189.7 million.

The company’s quarter earnings fell comparatively due to a tax provision, but income before taxes grew to $34.0 million from $25.0 million in the same quarter last year.

Movado beat Wall Street consensus and tightened its guidance to the high end of its previous outlook.

Higher-end retailers like Tiffany & Co. aren’t representative of a general trend, but La-Z-Boy Incorporated (NYSE/LZB) recently shot way up on the stock market after reporting that consolidated sales grew 14% to $366 million in its most recent quarter.

Earnings for the quarter more than doubled. The company boosted its quarterly dividend by a whopping 50% and the stock soared on the news.

Even The TJX Companies, Inc. (NYSE/TJX), which consists of “T.J. Maxx,” “Marshalls,” “HomeGoods,” “Sierra Trading Post,” “HomeSense,” and “Winners,” beat its own expectations with a very solid quarter.

The company’s sales grew nine percent to $7.0 billion on a five-percent gain in global comparable store sales.

Earnings were $623.0 million compared to $462.0 million. Diluted earnings per share grew to $0.86 from $0.62, representing an impressive 39% gain. The company’s cash position and total shareholders equity soared and management boosted its full-year outlook, especially for fully diluted earnings per share.

Things are going to be choppy this holiday season, but I have a feeling retailers are going to surprise to the upside. And even if total sales growth is minimal, we’re getting meaningful margin expansion, which is boosting earnings at a very decent pace.

It is difficult to discern a trend in retail numbers. But from the investor’s perspective, the numbers are the numbers. For these companies, the earnings speak for themselves.

This article Four Companies with Earnings Growth That Shines is originally publish at Profitconfidential

By CentralBankNews.info
    Uganda’s central bank cut its central bank rate (CBR) by 50 basis points to 11.5 percent, saying an an accommodative stance was warranted due to an expected stabilization of core inflation around the bank’s target and the need to further support private sector investment.
    The surprise rate cut comes a month after the Bank of Uganda (BoU) described its stance as neutral and a warning in October that it could raise rates if core inflation were to accelerate. The BoU raised its rate by 100 basis points in September.
    The central bank said it would continue to assess global economic and financial developments and “take appropriate actions to maintain future average annual core inflation around the Bank’s medium-term target of 5 percent.”
    Uganda’s headline inflation rate fell to 6.8 percent in November from 8.1 percent in October with core inflation easing to 7.0 percent from 7.2 percent. Food crops inflation was a minus 4.3 percent in November, higher than a minus 1.1 percent in October.
    The BoU forecast inflation edging further down in the next two to three months due to the impact of the crop harvests to about 5.5-6.5 percent but then rising to 6-7 percent in the second half of 2014.

    Although the bank said there were potential risks to inflation from domestic demand pressures and the global economic recovery, it expects core inflation to stabilize around 5 percent in the medium term.     
    “Real economic activity continues to show signs of recovery, in part boosted by the accommodative policy stance and public investment,” the bank said, adding that growth should benefit from private consumption and investment activity.
    “Nonetheless, economic growth remains below potential and downside risks pertaining to the uncertain global economic environment persists,” the BoU added.
 
    www.CentralBankNews.info

By John Whitefoot for Daily Gains Letter

Despite the retail sector’s every attempt to generate sales this Thanksgiving, from sharp discounts to being open earlier than ever, their efforts fell flat. It’s further evidence that the U.S. economic recovery is not as entrenched as many think it is, and once again shows the economic disconnect between Wall Street and Main Street.

In spite of high unemployment, stagnant wages, consumer confidence at a seven-month low, and a smaller number of people forecast to hit the shops over the Thanksgiving weekend, the National Retail Federation still predicted sales to grow 3.9% from last year. (Source: Banjo, S., “Holiday Sales Sag Despite Blitz of Deals,” Yahoo.com, December 2, 2013.)

Over the Black Friday weekend in 2012, U.S. shoppers spent roughly $60.0 billion in the retail sector, but this year, it was a different story altogether. While the final numbers have yet to be tallied, early indicators show that total U.S. retail sector spending over the Thanksgiving weekend fell to $57.4 billion. It’s also the first time that retail sector spending over the Thanksgiving weekend has dipped in at least four years.

Even during the worst of the recession and the beginning of the so-called economic recovery, U.S. shoppers were willing to spend, buoyed by optimism. Five years into the so-called economic recovery, and shoppers are tightening their belts, weighed down by pessimism.

But it didn’t start out that way; in fact, most U.S. retail sector stocks were initially quite enthusiastic about their prospects. Wal-Mart Stores, Inc. (NYSE/WMT) had originally planned to open its doors at 8:00 p.m. Thursday night, but instead opened its doors at 6:00 p.m. Target Corporation (NYSE/TGT) said sales were among the highest it had seen in a single day online.

And maybe that’s the future of Black Friday weekend shopping?

Black Friday used to be the day when consumers hit U.S. retail sector stocks in full force. Today’s younger, savvier shoppers are more willing to not just compare prices in-store, but also on their smartphones and tablets—and this has translated into more online sales.

In fact, online spending on Black Friday was up 15% year-over-year at a record $1.2 billion. During November, total online sales reached $20.6 billion, a 3.1% increase over last year. (Source: Kucera, D., “Black Friday Online Spending Reached Record $1.2 Billion,” Bloomberg.com, December 1, 2013.)

What does that mean for investors this holiday season? For some, it might be time to reevaluate and readjust their retirement portfolio if it contains a fair number of retail sector stocks. After all, weak consumer confidence, high debt levels, and high unemployment are not the best ingredients for an economy that generates 70% of its gross domestic product (GDP) from consumer spending.

More seasoned investors might see this retail environment as one flush with opportunities to short retail sector stocks. There are a lot of options out there; even some higher-end retailers are dealing with shoppers more motivated by price than logo.

While American shoppers are reigning in their retail sector spending this holiday season, they still rely on consumer staple companies. We might be able to go without a new TV, but we won’t forgo deodorant, shampoo, toothpaste, razors, makeup, or aspirin.

With more and more cost-conscious people using the Internet to shop, it might also be a good time to revisit online retail sector stock eBay Inc. (NASDAQ/EBAY). After all, shoppers may be staying away from busy shopping malls, but it’s hard to resist going online from the comfort of home to hunt for deals.

See original article: http://www.dailygainsletter.com/investment-strategy/not-much-for-retailers-to-be-thankful-for-this-past-thanksgiving/2165/

By Saxo Bank

The 2013 Autumn Statement presents the government’s plans for the economy into the New Year. In anticipation, Saxo Capital Markets has published a new infographic which gives a snapshot of the UK’s public finances, the real economy and currency. Is the UK now better off since the formation of the coalition government in 2010? Check the Autumn Statement infographic and share your forecasts on Twitter.

(Click to enlarge or visit Saxo’s full infographic)

By Moe Zulfiqar for Daily Gains Letter

Consumer confidence in the U.S. economy is bleak, and if it doesn’t pick up, the economic growth in the U.S. economy will be in jeopardy, and those who are highly affected by it—companies in the consumer discretionary sector—will face troubles.

What many forget is that consumer confidence and consumer spending have a direct relationship; if consumer confidence declines, we generally see consumer spending decline as well. As consumers become worried about their jobs, financial conditions, and/or general economic conditions, they tend to pull back on their spending. Would you go buy a luxury car or big household items if you knew that your job was in jeopardy, or you had no or very little savings?

The Conference Board Consumer Confidence Index, an index that tracks the sentiment of consumers in the U.S. economy, continued its slide in November after sharply declining in October. In November, it sat at 70.4, 2.8% lower from the previous month, when it was 72.4. (Source: “Consumer Confidence Declines Again in November,” The Conference Board web site, November 26, 2013.)

This isn’t all for consumer confidence. One of the clearest examples of bleak consumer confidence was just last week, at the Black Friday sales. We saw consumers become very cost-savvy, which resulted in retailers opening stores early and providing very deep discounts. Early indicators from the National Retail Federation state that consumers spent an average of $407.02 from Thursday through Sunday, down about four percent from what they spent last year. (Source: National Retail Federation press release, December 1, 2013.)

What does it mean for investors?

Investors have to keep a few important factors in mind when looking at consumer confidence in the U.S. economy.

At the very core, if consumer confidence continues to fall further, consumer spending will start to follow the same direction. This can cause the growth rate of the gross domestic product (GDP) to slow, and if consumers aren’t buying, factories will produce less. As a result, businesses will have to make changes to their operations: reducing their labor force, cutting costs, etc.

In addition, investors have to bear in mind that when consumer confidence is declining—and from Black Friday sales, we see they are—their profit margins begin to go down.

My take is that I wouldn’t be surprised to see retailers, especially those in the consumer discretionary sector, face headwinds going forward; this will eventually reflect in their stock prices. Those who already own companies involved in the consumer discretionary sector may want to consider taking some profits off the table. Remember: when investors take profits off the table, their worst-case scenario is still profit.

Those investors who want to profit from this opportunity may do so by shorting exchange-traded funds (ETFs) like the First Trust Consumer Discretionary AlphaDEX (NYSEArca/FXD). This ETF invests in companies involved in the consumer discretionary sector. Remember that shorting can result in unlimited losses; if investors choose to go ahead with this strategy, they have to be very careful and use proper risk management techniques, in case the trade works against them.

See original article: http://www.dailygainsletter.com/investment-strategy/are-these-retailers-worth-the-investment/2163/

Guest Post by Michael Lord

On October 9, 2013, Janet Louise Yellen was nominated by President Barrack Obama to succeed Ben Bernanke as the next chairman of the Federal Reserve Board. Although no longer the chairman after February 1st, Bernanke will continue to remain on the board until 2020, stating that he no longer wants the burden of the position and would like to return to private life.

In a speech regarding the nomination, President Obama called Yellen “one of the foremost policy makers and economists in the nation.” He continued by heralding Yellen as being “renowned for her judgment.” Her term as chairman of the Fed will officially begin on February 1, 2014, and it will last for four years, after which, it can be extended by the next president in office.

As Bernanke’s successor, Yellen shares many of his views regarding the U.S. economy, and the majority of economists expect a rather seamless transition from a Bernanke-led Fed to a Fed headed by Yellen, who shares the same Keynesian economic beliefs. As such, Yellen’s first major decisions while as chairman will deal with the nation’s unemployment rate and the Fed’s current stimulus policies.

Background and History

Janet Yellen was born in Brooklyn, New York on August 13, 1946. The daughter of middle-class Jewish parents, she enjoyed a comfortable upbringing and excelled scholastically. Yellen was the editor of the Fort Hamilton High School newspaper before graduating as valedictorian of her class. She then went on to study at Brown University, graduating summa cum laude with a degree in economics in 1967. Afterwards, Yellen continued her education at Yale University, where she received her Ph.D. in 1971.

With an impressive scholastic resume, Yellen went on to become a professor at a number of prestigious universities, including The London School of Economics, Harvard, and the University of California at Berkeley. In preparation for her future role as Fed chairman, she transitioned her professional efforts to the Federal Reserve Bank of San Francisco, where she became the president and CEO in 2004.

Yellen has also been a member of a myriad of economic councils and committees, such as the U.S. Council of Economic Advisors, the Organization for Economic Cooperation and Development, and the American Economic Association. Prior to heading the Federal Reserve Bank of San Francisco, she served as governor of the Federal Reserve Board for four years from 1994 to 1997. Her resume also includes a position as an advisor to the U.S. Congressional Budget Office, a member of the Pacific Council on International Policy board of directors, and a research associate at the National Institute of Economic Research. In the process, Yellen also held fellowships for the Guggenheim, MIT, and the National Association of Business Economics.

In recent years, Yellen has been preparing for her new position as chairman of the Fed by becoming the vice chairman on October 4, 2010. To date, Yellen has used her position to convince Bernanke to use a two-percent inflationary growth target. Due to her “impeccable resume, solid record with the Federal Reserve Bank of San Francisco, and focus on unemployment,” Obama was urged by the Democrats to appoint Yellen as the next chairman over Larry Summers, the former U.S. Treasury secretary.

Economic and Monetary Philosophy

As the next chairman of the Federal Reserve, Yellen will have a direct impact on influencing the U.S. economy over the next four years. Therefore, it is important to become familiar with her philosophy and monetary views.

Obama supporters and proponents of “big government” could not be more pleased with Yellen’s nomination as the next Fed chairman. In many ways, Yellen is a much more active supporter of government intervention than Bernanke, and she believes that government policies can help smooth over poorly performing market economies.

According to Allen Sinai, president of Decision Economics Inc., ”Janet Yellen’s philosophy is using active government policy to achieve economic objectives.”

During a White House ceremony announcing her new appointment, Yellen emphasized the Fed’s obligation to help deal with the human impact of the recession. She stated, “The Federal Reserve’s mandate is to serve every American. Too many Americans are still unable to find a job and do not know how they will be able to provide for their families and pay their bills. If the Federal Reserve does its job effectively, it can help ensure that every American has the opportunity to work and build a better life for themselves and their loved ones.”

This belief stems from her studies at Yale under Professor James Tobin, an active proponent of Keynesian economics. “The perspective of the students who studied with Tobin was that the government has a responsibility to counterbalance the volatilities of the private economy,” stated James Galbraith, a Yale Ph.D. student who also helped work on the Humphrey Hawkins Act of 1978, which asserted the obligation of the Fed to stabilize prices and create maximum employment.

This belief is evident in the many research papers Yellen wrote with her husband, George Akerloff, while the two taught at the University of California Berkeley. According to the Research Papers in Economics website, the pair’s most cited work demonstrated that whether or not workers believe they are being fairly paid influences their job performance and may also help explain the nation’s unemployment rate.

Years later, Yellen remains a left-leaning economist reflecting the economic ideologies of the 1960s and 70s, an era when interventionist Keynesian economic policies were widely revered.

Similar to her predecessor, Yellen has always been an avid dove, although a number of her supporters maintain this position has only been due to recent unstable economic conditions, and that appropriate circumstances could result in her becoming a hawk.

Yellen has supported Bernanke’s bond buyback program, and many expect her to even expand the Fed’s economic stimulus policy in a continued effort to boost the economy. In many ways, she has strived to emulate the teachings of James Tobin, her Yale professor, who believed that government intervention can rescue an economy from recession.

In fact, Yellen and her husband are both Keynsian economists who openly believe that economic markets need government regulation to function properly. Both she and her husband created economic models showing that in order to maximize profits, firms should pay above minimum wages. It is these economic models that served as the basis for the New Keynesian economic philosophy.

Yellen’s numerous speeches and writings display her confidence in the ability of the government to play an active role in offsetting calamities, especially when it comes to the labor markets. As president of the San Francisco Fed in 2004, she wrote a paper with her husband that argued that central bankers could not ignore long-term joblessness. They wrote, “Given the damaging costs of long-term unemployment, policy makers should feel compelled to take action.”

It is clear that Yellen is also not opposed to using inflation to reduce unemployment and spur economic growth, which is a clear sign that she may leave interest rates where they are or even reduce them to zero in the foreseeable future. In more than one speech, Yellen has indicated that she believes interest rates should actually be held at zero at the present time, even though inflation is rising at a rate greater than two percent. She also plans to impose tighter banking and financial regulations to prevent a future bubble.

While teaching at Berkeley’s Haas School of Business, Yellen published several articles that never questioned Keynesian doctrines, such as the belief that a free economy is predisposed to “imbalances” or “failures” when demand cannot keep up with supply as well as the belief that inflation is caused by excessive economic growth, not excessive money printing. Yellen also taught that money printing can help lower the unemployment rate and that the central bank should exercise its power to keep interest rates as low as possible in an attempt to foster a profligate, debt-accumulating, and deficit-spending government.

Ben Bernanke also shared in his belief of these myths, which ultimately led to a policy of wildly fluctuating interest rates that produced a boom or bust U.S. economic pattern akin to the turbulent economies of the 1960s and 70s, when Keynesian theory was widely accepted. This essentially terminated the stable and sober economic years of the mid-1980s to the mid-2000s, coined by economists as “the Great Moderation.” Fully endorsed by Yellen, Bernanke’s policies helped trigger the Great Recession and the debilitating 2008 financial crisis.

Since 1994, Yellen has played an active role in contributing to the shift away from supply-side economic policies to Keynesian, demand-side policies, first as a member of the Federal Reserve Board from 1994 to 1997, then as an economic advisor to President Clinton from 1997 to 1999 in which she called for an increase in sub-prime mortgages, and most recently as vice chairman of the Fed from 2010 to 2013.

Yellen has always maintained her position as a Keynesian economist who believes in the Phillips Curve, which was a popular economic theory in the U.S. until it was discredited during the stagflation period of the 1970s. During her nomination hearing for vice chairman of the Federal Reserve Board, she stated that the Phillips Curve “provides a useful framework for discourse about monetary policy’s influence on inflation.”

While serving on the Federal Reserve Board of Governors, Yellen commented in a Federal Open Market Committee meeting that higher inflation could be “wise and humane” if it were able to increase supply. During the same meeting, she claimed that a one percentage point decrease in inflation results in a GDP loss of 4.4 percent.

Every step of the way, Yellen has actively helped Bernanke carry out a policy of money-printing, purchase vast amounts of U.S. federal debt, and impose rock-bottom interest rates. In all likelihood, these policies will continue under her leadership. Consequently, we may experience an indefinite period of massive national debt purchases, artificially low rates, and lack of economic progress.

About the Author

Michael Lord is a content writer at Penny Stocks Lab, a website focused on educating investors about penny stocks as well as other investing topics.