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Daily Dispatch: Crisis & Opportunity - Mar 01, 2010
Published:
March 01, 2010
by GoldSpeculator
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| March 01, 2010 | www.CaseyResearch.com | Crisis & Opportunity
Dear Reader,
Despite the runup in stocks that took place during 2009, the Dow Jones Industrial Average and the S&P 500 Index are still down about 30% from the highs of 2007.
The Bureau of Labor Statistics reports that total private employment has decreased by 8.5 million jobs and fallen 7.4% from 2007 highs.
Real unemployment as reported by John Williams’ Shadow Government Statistics (SGS) is running at 21.2%. Here’s a quote: While 21.2% unemployment might raise questions in terms of a comparison with the purported peak unemployment in the Great Depression (1933) of 25%, the SGS level likely is about as bad as the peak unemployment seen in the 1973 to 1975 recession. The Great Depression unemployment rate was estimated well after the fact, with 27% of those employed working on farms. Today, less than 2% work on farms. Accordingly, for purposes of a Great Depression comparison, I would look at the estimated peak nonfarm unemployment rate in 1933 of 34% to 35%.
Retail sales are down 5.5% from 2007 highs.
Meanwhile, corporate earnings have picked up a bit, though sales are still swirling around the toilet bowl.
But the kicker is that total household and government debt outstanding is at a new all-time high and has grown 21% over the past three years (and more than doubled in the past ten).
In other words, we’re still in the thick of it. And we expect it could get much worse before it gets better.
Thoroughly understanding the powerful economic forces now at work has never been more important.
Likewise, stepping away from the daily grind to undertake a comprehensive review of your personal portfolio, and of the opportunities inherent in every crisis, is not just important but imperative.
So what’s an investor to do?
We happen to have just the thing for you…
Registration is now open for the upcoming Casey Research Crisis & Opportunity Summit at the Four Seasons Hotel in Las Vegas, Nevada, from April 30 through May 2, 2010. The all-star faculty includes Doug Casey, natural-resource power broker Rick Rule, and Agora founder Bill Bonner of Daily Reckoning fame; also, John Embry of Sprott Asset Management is one of our confirmed speakers. In addition, best-selling science fiction writer and futurist David Brin will provide his perspective of the powerful technology-driven changes now sweeping the world.
And that’s just for starters. Click here to view the preliminary agenda.
And click here to read your invitation and register. We recommend signing up soon – these summits have a tendency to sell out fast. Plus, if you register before March 15, you can take advantage of our special early-bird price discount. Once again, here’s the link to register.
Financial Advice from the Ivory Tower
By Vedran Vuk
A large paradox exists in the financial news regarding academics. On the one hand, professors are not actively involved in financial markets. On the other hand, their opinions keep making financial headlines.
No matter how educated and logical their opinions may sound, at the end of the day, these guys collect six-digit salaries from comfortable, tenured positions. Even if they make complete fools of themselves, their university status will not change.
We have to remember that markets aren’t dumb. These constant appearances in the financial media must merit some value. So, when should you and when shouldn’t you listen to academia?
I’ve attained some firsthand knowledge on this topic. For a year and a half, I spied inside the ivory tower as a PhD economics student. During this time, I published two academic journal articles as well as attended numerous academic conferences.
Fortunately, I escaped just in time to retain my sanity and real-world productivity.
Here’s the first thing to remember about academics. They are not forecasters. Academics analyze the past. An economics professor specializing in interest rates understands past rates – not future rates. Professors face an incentive to publish academic papers, which do not reward predicting the future. At best, one can create a current model to test past data.
Also, the crutch of full information is an aspect worth discussing. Academics can analyze the effects of every interest rate bump and change in unemployment clearly in past data. In everyday trading, the complete opposite is true. Traders observe extremely limited information. The effects of monetary policy are uncertain, and full information is either unavailable or inaccurate.
Analyzing the past with full information and predicting short-term movements on limited information are two completely different skill sets. Think about this. Analysts can quickly recall the ups and downs for the dollar throughout the day, the scares, the rallies, and the news. An extremely tiny minority of professors could do the same – the short term and current events are not their focus. Many professors didn’t even know the current Fed discount rate.
In the financial news reporting on academics, a big problem is the disregard for school of thought. Without understanding an economist’s school of thought, their comments on the news are useless. A school of thought carries plenty of bias – though academia as a whole would like the public to think anything but that.
Usually, a student enters the first year of graduate school with a preconceived school of thought, whether it is New Keynesian, Neoclassical, Austrian, or post-Keynesian, etc. No matter the amount of evidence presented, rarely does an economist jump schools in his entire career. At best, someone will move from being a pure Keynesian to a New Keynesian. But jumping from Neoclassical to New Keynesian is highly unlikely.
Professors, unlike traders, can maintain illogical ideas. If a trader has a dumb idea about how the economy works, his zero-balance bank account will reveal the truth rather quickly. Analysts and traders constantly predict false bottoms, interest rates, and growth. As a result, they lose piles of money. And as a result of loss, they change their worldview. Academics never feel this loss. Their theories are never connected to real dollars. If each academic invested half their salaries based on their respective macroeconomic theories, I’m positive that we would find the most accurate theory much quicker than centuries of peer-reviewed journals.
Speaking of investing, few professors do so actively. As I was always interested in financial markets, I would ask professors about their own investments. I stopped doing so after receiving innumerable disappointing answers. Here are two examples.
In a class with a professor of finance, a student asked about the professor’s personal investment strategy. Her response was, “I don’t make my own investments. I became a professor so that I wouldn’t have to work on Wall Street or invest.” She was being dead serious. This was no joke.
Another time, one of my best economics professors believed the market would rebound immediately following the October 2008 crash with no new Great Depression. So, I asked about his investment strategy.
He said that he would put the same monthly amount into his 401K – unlike many. His strategy made no sense. If you believe that the market is at a bottom and will recovery immediately, what do you do? YOU BUY MORE, STUPID! You don’t put the same monthly amount in your 401K. So much for economics professors as clairvoyants and augurs of the financial markets.
Based on historical data, professors understand generalized movements over many years. However, most don’t study day-to-day, month-to-month, and sometimes not even year-to-year market movements. Instead, academics analyze decade-to-decade and recession-to-recession. Their analysis is backward looking based on full information. Their insights are useless to the investor looking at daily, weekly, or monthly investments.
Even my favorite economists like Ludwig von Mises, Murray Rothbard, and F.A. Hayek fell into this category. Each one predicted the failure of the Soviet Union. Each one was absolutely correct. And each one was absolutely clueless as to the actual year that it would happen.
Heed the academics over the very long term. Be wary of advice on the short term.
Apologies
Chris again. I owe you an apology. On Friday we ran an excerpt from this infowars.net story of a supposed quote from billionaire financier Jim Rogers predicting that the British pound could completely collapse within weeks. The only problem is that according to this story from MarketWatch.com, Rogers never said that.
Here’s a quote from the MarketWatch story:Rogers said comments contained in a press release Thursday announcing an appearance by him at a trading seminar in London were false.
"I did not know about this press release. I didn't say those things," Rogers told MarketWatch.com in a phone interview from Singapore Friday.
Among other things the quotes in the release compared the pound to the hyperinflated Zimbabwean dollar and said the U.K. government could do nothing to prevent a steep fall in sterling. The release has since disappeared from the Press Dispensary web site linked to by several media organizations which reported the provocative claims.
"I am on record as saying the U.K. has serious problems over the next few years and the pound sterling has serious problems over the next few years as well," Rogers said in the interview. "I would say the same about a lot of currencies. All paper money is suspect these days."
At Casey Research we pride ourselves on our unbiased research based on facts to uncover the truth. And I am truly sorry we ran an inaccurate report.
That’s not to suggest that the pound is in good shape. Apparently anything can knock this currency on its butt these days.
Consider these stories from the past week. Sterling plunges as King warns on money scheme
Sterling fell sharply today after Mervyn King, the Governor of the Bank of England, warned that it may be necessary to continue the Bank’s asset purchase programme and pressed the Government to reveal its plans to reduce the country's record £178 billion deficit.
In his last appearance before MPs before the general election, Mr King outlined the political challenges facing the economy.
He said: “The crisis has left us facing many serious challenges. Among them are how to reform the international financial system, how to reduce our largest peacetime fiscal deficit, and how to restructure our banking and financial system to prevent another, more serious, crisis in future.
Full story here.
Sterling tumbles on growing fears of hung Parliament
Sterling plummeted to a nine month low against the dollar today and could tumble further, analysts warned, as fears mounted that the general election could result in a hung Parliament.
Sterling fell 2 per cent to $1.4943 at one point, its lowest since early May 2009. It also plunged against the euro, to €1.0991, its lowest since the end of November.
Investor concern was fuelled by weekend opinion polls indicating that a hung Parliament looked more likely. They fear that the lack of a clear majority in the House of Commons could lead to political deadlock over a solution to the country's ballooning debt problems.
“Sterling is in trouble and we suspect it will fall further in the coming weeks,” analysts at Barclays Capital said.
Investors were also unsettled by a fall in the number of home loans granted in January, which triggered fears that a recovery in the housing market is waning.
Figures from the Bank of England showed that the number of mortgage approvals for house purchase, seen as an important indicator of housing market health, fell by 17 per cent in January to a nine-month low, hit by poor weather and the end of the stamp duty holiday.
The figures increased speculation that house prices could fall again this year and further stirred worries about the health of the economy.
Full story here.
So, the pound looks like the little currency that couldn’t. Every piece of news that has come out of the U.K. recently has knocked the little guy on his bum. And despite all the problems with the U.S. dollar and the euro, I would say the pound sterling is even worse off at this point.
Miscellany- New Casey Phyle in Central Virginia. If you live in or around Richmond, Virgina, drop an email to phyles@CaseyResearch.com and we’ll connect you with Justin H., an investment adviser representative and subscriber who has offered to host an informal get-together for other interested parties in the Casey family.
- Fannie Taps Treasury for $15.3 Billion More After a 10th Loss. Fannie Mae will seek $15.3 billion in U.S. aid, bringing the total owed under a government lifeline to $76.2 billion, after its tenth consecutive quarterly loss. Read the Bloomberg story here.
- Comic wars. Recently, a near-perfect sample of the comic book in which Superman made his debut, Action Books No 1 dated June 1938, went up for sale via an auction website. It sold within minutes for a cool $1 million, more than three times the previous record for a comic book. Then on February 25, an equally fine example of Detective Comics No 27 – which introduced readers to “the amazing and unique adventures of The Batman” in May 1939 – went for a grand total of $1,075,000. Read the full story
here.
And that, dear reader, is that for today. David just got back from Argentina, and I’m sure he can’t wait to get back in the driver’s seat of this missive tomorrow. Until then, thank you for reading and for subscribing to a Casey Research service.
Chris Wood
Casey Research, LLC
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