Rob Cheng's Blog

Federal Reserve Football League

I was talking to a friend of mine about the key monetary problems facing our nation. He sighed and agreed with me but he remarked that the problems were quite complex, and in reality difficult for most people to understand. This is a problem since the US is a democracy, and perhaps the only solution is a better informed electorate.

To that end, I have invented the Federal Reserve Football League. Imagine that the United States is a football team. We compete against all of the other teams in the world and of course the perennial winners such as China, Japan, Europe as well as upcoming teams such as Brazil and Russia.

Different than a football game, the games are played real time and all the time. The scoreboard and the winning teams are determined by unemployment and GDP growth rates. The teams with the lowest unemployment and the highest GDP growth rates win and the others lose.

The problem for anyone that keeps track of these things is that in the last 5 years, the American team is losing. During the recession of 2008, the US team slowed to a grind while the teams of Brazil and China forged ahead.

Just like in football, the press plays a huge role and they applied huge pressure on our coach, Ben Bernanke, to improve the team’s performance NOW. So Ben Bernanke started trading draft picks for veterans. He traded the American team’s first round draft pick for the next 5 years, for a bunch of very high paid albeit older stars. Just like in football and perhaps Dan Snyder and the Washington Redskins, this type of strategy rarely works, and the American team still is not winning vis a vis the competition.

Bernanke is frustrated but he doubles down on his strategy, and he trades away the next 5 years of first round draft picks. Of course, because the draft picks are so far into the future, the stimulus to the team is marginal, and the team still cannot compete well against the new superstars in China and Brazil.

So this is where my analogy ends. Bernanke has forced interest rates to 0% for over 5 years now with marginal results. Just like in football, if you trade away all of your draft picks for players, you are sacrificing the future for the present. That is what Bernanke is doing today. He is discounting the future of our young people and that of the country. It is hard to imagine a football team that has traded away the next 10 years of draft picks but that in essence is what Bernanke has done to our country.

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Waiting for the Crash

Every day, I read the morning news
to see if I'm OK
So many people and their views
but I'm waiting for the day

One number's up, the others down
which way will the markets go?
it'll happen in a blink of an eye
only Goldman Sachs will know

I'm waiting for the crash
it'll happen in a flash
my head is spinning
i truly fear
the day i lose my cash

Chairman Ben, Chairman Ben
What you're doing won't last
Cheap Money's a drug
and the  hangover's coming fast

And you Barack, a democrat
with your drones, spies and tanks
it was up to you and only you
to stand up to the banks

we're waiting for the crash
it'll happen in a flash
our heads are spinning
we truly fear
the day we lose our cash

i want to stop this crash
i know i'm not alone
how can we come together
to knock the king from his throne?

yea yea yea, the game is rigged
the smart money's in and we're left out
we got to stop pretending
take to the streets and shout

we're waiting for the crash
it'll happen in a flash
our heads are spinning
we truly fear
the day we lose our cash

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Brazil Super Power

I just finished readings the Sunday newspaper here in Brazil and the press it up in arms. The last first four months of 2013, the Brazilian economy grew at .6%, and the American economy grew at 2.5%. On top of that, in the last month, the Brazilian real has lost 15% of its value against the American dollar. Everyone is calling for quick action due to the poor economic results. They are all dead wrong.

The key issue is that they are trying to compare Brazil to the United States. In my view, the United States, and in particular Ben Bernanke, has done everything wrong in order to manage a strong and prosperous economy. At this point, the United States economy is based on cheap money that creates a bonanza in the financial sector which creates a lot of faux milllionaires but does nothing to create jobs or improve the overall economy. On top of that this strategy creates a very unstable banking sector requiring massive government bail outs. So if Brazil is to be successful, they need to avoid doing what the United has done.

Up to this point, they have been very successful, because the Central Bank has decided to increases interest rates .5% from 7.5% o 8.0%. Imagine that, a country raised their interest rates and this is perhaps the #1 reason why Brazilian is on the right path. They are one of the few countries in the world which still have the ability or strength to raise interest rates. Compare that with the United States, the banks so control the country, that even if the Fed hinted at raising interest rates, the banks and Wall Street would batter the stock market. As we know, the US and Japan are both stuck at 0% interest rates for the foreseeable future. I will Brazil will resist falling in this economic trap and therefore will become more productive than both Japan and the US.

On top of that, Brazil measure inflation correctly The inflation index includes key costs such as health care costs, energy and food costs. That’s right. About 40 years ago, in America, we measured inflation to include all of the key things that people purchase, but in order to avoid “inflation”, our wonderful government decided to exclude key things that people need to survive such as energy and food costs. Again, America is NOT the benchmark and Brazilian can and will be successful if they avoid the tragic error of excluding key costs from the inflation index.

Brazil’s infrastructure severely lags that of Europe, China, Japan and the United States. This is in all senses a good thing. First and foremost, Brazil can and will upgrade their infrastructure and it will create a stimulus to the economy. The Brazilian government is doing the upgrade slowly so as not to overheat the economy and create inflation. It is a huge upside that no other country has at its disposal. China has gone about the infrastructure issue in the exact opposite way. In the short space of 10 years, their infrastructure is now world class.

There is another huge upside which Brazil has yet to explore. Brazil’s key exports are still agricultural in nature. Brazil can and wiil make the transition to move the agricultural work force to production jobs in factories much the same as China. It is another huge upside and they are just in the beginning now that there is a small iPad factory just north of São Paulo.

I moved to Brazil 10 years ago, and believe it or not, interest rates were roughly 24% per year or roughly 2% per month. The dollar was also incredibly strong at 3 reais to the dollar. That’s when I bought my apartment it was the shrewdest investment I have made in my life. Since that time, interest rates have fallen from 24% to 8%, but by raising interest rates, Brazil has proven two things.

1. In the face of inflation, Brazilian did NOT change the way inflationn was measured.

2. Brazil has the ability to rasie interest rates which few nations in the world still have the capacity to do because the Brailian government still controls their banks as opposed to the other way around. If they can avoid the pundits, they can avoid the raise to zero and become of the strongest nations on earth.

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Rio de Janeiro HDR Photos

My room mate from college freshman year in college came to visit me in Rio de Janeiro. I took a few days off and we went to all the typical Rio tourist traps and took a lot of photos. I am doing HDR photography which is using an auto exposure bracket for +/- 2 exposure values. Then I put it all in Photo Matix. Still not perfect but I found some of the photos interesting.

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