Gold Speculator - 5min Forecast http://www.gold-speculator.com/ “Brevity is the soul of wit,” wrote Shakespeare long ago…and we’re inclined to agree. If there’s one thing lacking in your daily deluge of e-mails, financial media, and other distractions, it’s brief, concise judgment. That’s why we’ve created The 5 Min. Forecast: a daily e-letter designed to cut through the incredible glut of “news” by providing you with a quick and dirty round up of the most essential ideas and not-so-common knowledge - in five minutes or less. --Joe Schriefer Publisher, Agora Financial en Wed, 08 Sep 2010 01:41:27 GMT vBulletin 60 http://www.gold-speculator.com/images/misc/rss.jpg Gold Speculator - 5min Forecast http://www.gold-speculator.com/ Stress Test Reality Check http://www.gold-speculator.com/5min-forecast/37575-stress-test-reality-check.html Tue, 07 Sep 2010 20:40:57 GMT The 5 min. Forecast
September 07, 2010 11:53 AM

by Addison Wiggin & Ian Mathias
  • Say it ain’t so… Wall Street wakes up to stress test reality six weeks after our warning
  • Commodity consternation: Cotton hits 15-year high, wheat set for another rise
  • Dan Amoss on how Fed policies have reached a point of no return
  • Obama offers sop to small businesses… Why our readers won’t buy it

Wall Street is waking up, only this morning, to the fact the “stress tests” on European banks are a joke.

Folks who attended the Agora Financial Investment Symposium in Vancouver learned this in real-time six weeks ago when the test results came out. Speaker after speaker said it was ludicrous that only seven of 91 tested banks needed to raise additional capital.

Lo and behold, The Wall Street Journal is out this morning with its own analysis of the stress tests. Bottom line: Many banks understated their holdings of shaky sovereign debt in the PIIGS countries -- in some cases by anywhere from 50-80%

By unhappy coincidence, the German Banking Association issued a warning today that the country’s biggest lenders need 105 billion euros of new capital.


Thus the euro has been whacked 1% today. It sits at $1.276.


Stocks tumbled in the first hour of trading. The S&P fell nearly 1%, below 1,100. The volatility index is up big -- more than 11% -- although still low by recent standards.

But the eurozone isn’t the only thing that has traders itchy. There’s also the looming specter of rising commodity prices in a stagnant economy…


Cotton prices hit a 15-year high this morning -- 93.9 cents a pound. With no warning, India extended a stiff tax on cotton exports that aims to keep domestic prices low. That’s sure to tighten world supplies more than they already are thanks to massive floods that have wrecked the cotton crop next door in Pakistan.

Cotton prices have jumped 15% in just the last month.


Too, there are continuing jitters over wheat prices. Traders coming back from vacation are just now absorbing this news from last week…
  • Russia extended the export ban imposed during August. It was supposed to expire at year’s end; now it won’t run out till the end of 2011
  • Rioters went on a rampage for three days in Mozambique after the government in that southeast African nation raised the price of bread. (It has since reversed the decision.) 13 people died and 400 were arrested. Protests were also reported in Egypt, Serbia and Pakistan.
After a spike in reaction to those developments last week, December wheat is down this morning to $7.35 a bushel. But the longer-term trend is still up.

“After a doubling of prices from $4.00 to $8.00 in the two months of June and July, wheat finally took a much-needed break,” explains our resource expert Alan Knuckman. “The pause in the uptrend has seen trade action between $6.75-7.50 since the beginning of August as investors evaluate future direction.

“The 2008 all-time highs around $13.50 illustrate how volatility quickly puts upward pressure on agricultural products. A modest retracement of half of the move to recent lows puts the price target near $9.00 a bushel.”

Alan advised his readers to lay on a wheat trade late last week… on the heels of closing out a gold position for 114% gains. Want to be on board for Alan’s next recommendation? Check this out.


Rising commodity prices will put that much more pressure on the Federal Reserve to keep the monetary reins loose. “If wheat and other raw food prices keep soaring, does anyone really expect the Fed to tighten policy?” asks Dan Amoss rhetorically.

“The Fed is actively trying to devalue savings and recapitalize the banking system at the expense of savers,” he continues. “It can print a years' worth of honest labor in a millisecond, and might eventually seek to bypass the banking system if it remains lethargic in its role of transmitting easy credit.

“Considering the current state of government policy and central banking, should we really be surprised that the private sector economy seems to be malfunctioning?

“We've probably reached the point where further Fed easing will cause more negative consequences than so-called ‘benefits.’ For example, can the Fed really keep long-term Treasury yields pegged to low levels if existing Treasury holders want to sell? How much new money creation might it take to keep long-term Treasury yields pegged to a desired level?

“If it went down this path, the Fed might have to create several trillion new dollars to hold bond prices up (yields down). This new money creation, in turn, would heighten fear of future inflation. At this point, the Fed would lose the small bit of credibility it has left.”

Dan is planning some appropriate short plays to make the most of what’s coming. Already a bet on another down leg in housing is up 38% in six weeks, thanks to Dan’s combination of big-picture analysis with his ability to go into the details of documents every publicly held company files with the government.

To learn more about Dan’s techniques and how they can make you money in a down market, you’ll want to pay heed to his latest presentation.


Just two business days after we publish an issue titled “The War on Small Business,” The Washington Post publishes an article headlined, “Small Businesses Feel Squeezed by Obama Policies.”

“As small businesses try to plot their recovery,” it says, “attention is turning to what many owners consider burdensome policies -- higher taxes, new accounting procedures and health care mandates. Even as the government tries to help with an array of small-business initiatives, many owners say the intervention is as much a hindrance to hiring as the faltering economy.”

You don’t say? If you were on vacation last week and missed our laundry list of indignities large and small, it’s worth a look.


We see the president is on the verge of announcing several proposals that aim to help small business…
  • A payroll tax holiday
  • Permanent extension of the (now-expired) research and development tax credit
  • Accelerated write-off of new investment in plant and equipment through 2011.
Hmmm… Two of those three things look like quick-fix adrenaline shots, along the lines of the homebuyer tax credit. What happens after those incentives go away?

And where’s the proposed repeal of the requirement to send Form 1099s to every vendor from whom a businessperson buys more than $600 of goods and services each year?

Which brings us to the mail we invited from small-business owners …


“My husband and I are both long-haul truck drivers,” as we kick off our list of small-business horror stories, “and each fuels our trucks about twice a week, with an average weekly fuel consumption of $2,000-3,000. Can you imagine the horror of us having to send a 1099 form to EVERY truck stop we purchased fuel at for an entire year!!?? This is going to be a nightmare!”


“Nothing too drastic,” our next reader writes. “Just a 50% increase in health insurance premiums. Our provider informed us of this three weeks before we were due to renew our policy. Almost all of us opted for a new high-deductible plan with an HSA. Normally, this wouldn't be an issue, but I've got a flex account that prevents me from having an HSA for another calendar year.

“So I have a flex account with a $900 balance versus a $3,000 deductible (formerly $500), and I can't open an HSA until 2011. These costs will effectively eat up any raise I might receive at year's end. At least I still have a job.”

The 5: And as of next year, you can’t even use HSA or flex money to buy over-the-counter meds.


“I'm self-employed, 63 and in fantastic health -- no meds, great diet and a runner -- a 30% increase in my health insurance premium!!!!!!!!!!!!! At that rate, I'll be working for health insurance only shortly.”


“I own and operate two commercial fishing boats in Alaska, and yes, I am not just dreading the changes in 1099 filings, I am PISSED OFF at the thought! I do my own accounting, and a quick glance at my cannery statements suggests the number of 1099s I'm required to file will explode from the current seven per tax year (crew members only) to 40-plus in 2012 when I will send a form (for miscellaneous INCOME) to every VENDOR (not employees, mind you) that I buy from.

“The extra time and/or money I will be REQUIRED to spend (27 minutes per form, by IRS reckoning) on this redundant policy is an indirect tax on my business. Even more reviling is the stat you posted showing that even though an IRS auditor's time is more efficiently spent (in terms of uncovering unreported income) auditing large corporations, their focus is increasingly turning to small businesses and sole proprietors.”


“We have two big issues to face. First, we will have to file hundreds, if not thousands, of new 1099s in the future. It will cause us a great deal of extra time and money and force us to buy new software to keep track of it. Second, we will have to provide our taxpayer ID to all of our customers and then try and reconcile the hundreds of 1099s we receive from them to our sales or other receipts.

“I believe that the second one is going to be the bigger problem. Everyone knows that many of the 1099s being filed now are incorrect. We are going to see that problem multiplied a thousandfold. Are we are going to have to get a taxpayer ID for every one of our customers in order to be able to confirm the amounts they are reporting as payments to us on a 1099? Also, they are going to give us a 1099 based on their total payments to us. Our reported income does not include the sales tax or pass-through expenses, so the 1099s will always be more than our reported income.

“What are we going to do when the IRS comes in and says we are underreporting based on hundreds of 1099s filed for payments to our business? How are we going to reconcile all of them to our receipts? Many times, our customers set up accounts under various names or DBAs. They may have multiple locations and have an account for each one. They could be sending us a 1099 under a corporate name that we don’t even recognize.”


“I am a sole proprietor of a small Internet-based retail business located in Southern California. My income goes on a 'Schedule C,' as I am not incorporated.

“This is a second job for me, and based on all the questions and uncertainties, I am 'coasting' right now. My inventory is lean, I am spending nothing on advertising and have no plans to risk any money outside of normal operating expenses or to expand in any way right now.

“The 1099 is upsetting, but it's certainly not the only worry. The thought of a VAT or even having to charge my out-of-state customers sales tax is frightening, as most of my business comes from out of state. Who is going to want to pay shipping charges (what I sell is heavy and expensive to ship) if they have to pay sales tax too? My California customers won't be enough to keep the lights on.

“Sometimes I feel like I purposely want to make less money in both my sole proprietorship AND my day job just so the government has less of my tax money to do damage with!”


“[My wife and I] are realistically considering whether or not to continue our C-Corp as a going concern. By the time we account for compliance costs, the marriage tax penalty on our personal income, the increased payroll tax burdens and generally every expense of running a business... it's about not worth it anymore.

“She (my wife) can stay home and not do anything, we can get the extra exemption on our income taxes, reduce our tax rate and the way it looks now we'll actually come out better in the long run, without all the headaches and pressures of running the business. Not to mention I can free up my time spent on the business and focus more on my true passion, which is trading. It may be slightly less income at first, but just the change in quality of life may be worth it.”

Good luck,
Dave Gonigam
The 5 Min. Forecast

P.S.: “I may or may not be the first to point this out to you,” one more reader writes, “but if I am, can I get a cookie? The 1861-D Gold Dollar was the only coin whose entire mintage was struck by the Confederate States of America. So your statement about the half dollar is incorrect.

“Google ‘1861-D Gold Dollar’ for the whole story. Sorry... But it was a very nice article otherwise.”

The 5: You are correct, and you are the first, but we’re all out of cookies.

The 1861-O Seated Liberty Half Dollar is in fact the only silver U.S. coin minted by a foreign government. (It was also minted by the State of Louisiana for a brief period after secession and before handing over control of the New Orleans Mint to the Confederate government.)

If you’re just getting back from an extended summer break, Addison and crew tell the breathtaking story of how these coins were recovered from the bottom of the sea in a clip from their new documentary project.




After the clip, you’ll get details about how to add these historic coins to your own collection. (Full disclosure: We may receive compensation if you buy.)

Shooting for the documentary continues tomorrow in Washington, D.C. Details to follow…

P.P.S.: “My wife and I would be very interested in a ‘Chill Weekend’ at Rancho Santana,” a Reserve member writes. Anytime between 11/22/10-12/21/10 would fit into our schedule. Keep us informed.”

Will do. We’re still working on Version 3.0 of the Chill Weekend, after successful outings in March and August. Watch this space.
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/37575-stress-test-reality-check.html The Latest Chapter in China’s Resource Grab http://www.gold-speculator.com/5min-forecast/37416-latest-chapter-china-s-resource-grab.html Fri, 03 Sep 2010 19:01:14 GMT The 5 min. Forecast
September 03, 2010 10:40 AM

by Addison Wiggin & Ian Mathias
  • Defense on fertilizer, offense on ‘rare earths’: China’s latest resource moves…
  • Big-time market rally in reaction to a small-time jobs report…
  • Insiders dumping their own bank shares by the billions…
  • An investment idea even the dimmest bulb could understand…
  • More small-business horror stories… the hidden treasure of the SS Republic, reprise… in praise of snark… and more!

The stakes just got higher in the 3-D chess game China’s playing for natural resources. On one dimension, the Middle Kingdom is on the offensive. But on another, it’s playing strictly defense…


Beijing is ordering state-owned businesses to explore a bid for PotashCorp (POT), the Canadian fertilizer giant that’s already fending off a hostile bid from BHP Billiton, the Anglo-Australian mining giant.

Just a quick reminder of the significance here: You can’t run a modern farm without fertilizer. And you can’t have fertilizer without three main ingredients…
  • Potash (POT is the world’s No. 1 producer)
  • Phosphate (POT is the world’s No. 3 producer)
  • Nitrogen (POT is the world’s No. 3 producer).
Still, this is not another thread to the “China buys the world” story line. This is a defensive move. China fears BHP gaining “too much” pricing power in the world potash market. Already, BHP is on track to generate 15% of world potash production by 2020. Add POT and the number would be more like 35%.

Thus, the Chinese state-owned firm Sinochem has hired HSBC for advice on how to proceed with a bid for POT. And according to Reuters, Beijing is quietly pushing a Canadian pension fund to submit its own bid.

That latter move would undoubtedly go over better in Ottawa. The Canadian government has no qualms about letting China buy into the Alberta oil sands (Sinopec is buying a 9% stake in the region’s biggest deposit). But POT is a bridge too far for the Canadians. It’s liable to generate the same kind of static China got from Washington in 2005 by bidding for Unocal.


But on another resource front, China is pressing its advantage. The mainstream is finally catching up to something we’ve been writing about in The 5 for 2½ years…
  • “China's monopoly on elements used in computer disc drives, electric cars, military weapons and other key products could mean a crisis for the West,” says a UPI article this week.
  • “Behind the rise of resource-poor countries like Japan, South Korea and China into industrial giants,” reports The Economist, “has been the readiness of other countries to sell them critical commodities, albeit sometimes at excruciating cost. An unfolding collision around a group of elements known as ‘rare earths’ is seen by some as a test of China’s willingness to reciprocate.”
  • “China defended its controls on exports of rare earth,” Bloomberg reported last week, “after Japanese officials raised concerns about supplies of the raw materials used in the manufacture of products from cell phones to radar.”
If you’re new to all this, here’s the skinny: “Rare earths” comprise 17 elements used in everything from iPods to guided missiles. Depending on whose estimate you see, China controls 93-97% of world production.

“The rare earths issue is more than just an investment story,” says Byron King, who first alerted us to rare earths in early 2008, “although I believe that smart investors can make a serious killing over the next couple of years.

“Rare earths also embody something about the national cultures of China, versus the U.S. and other Western nations -- Canada, Australia, Japan, members of the European Union. My view is that competency in the rare earths space is an indication of where any nation plans to go in the next 50 or 100 years.

“Yes, rare earths are THAT critical to the next generations of technology, in things like energy, metallurgy, materials and environmental control. If a nation ‘does’ rare earths, that nation will prosper in the coming decades. If a nation neglects rare earths, that nation is making the collective decision to decline into the backwaters of the future global economy. It's a nation in decline. Rare earths embody the Chinese concept of a ‘sunrise’ nation, versus a ‘sunset’ nation.”

That said, there’s a handful of tiny non-Chinese producers looking to put a dent in Chinese dominance. If you’re interested in making a “serious killing,” Byron is about to reveal the names of three of them in his next issue of Energy and Scarcity Investor. Join up now and you’ll also get the ticker symbol of an up-and-coming oil firm sitting on a unique -- and potentially massive -- deposit.


The Labor Department’s nonfarm payrolls for August came in better than expected -- a net loss of 54,000 jobs. It breaks down like this…
  • Private employers added 67,000 jobs
  • The government sector cut 121,000 jobs, almost all of them Census workers.
  • U-3 unemployment rose to 9.6% as more people re-entered the work force. The more realistic U-6 figure grew to 16.7%.
So how’s the job picture relative to previous recessions? The Calculated Risk blog keeps a nifty chart of job losses in percentage terms from the start of every postwar recession…


Back out the Census skew and it looks as if we’re improving, if ever so slowly. But despite a positive private-sector number this month, we’re still not adding jobs at the 100,000-a-month pace we need just to keep up with the growth of the labor force.

So at this rate, we’ll be back to late-2007 employment levels by, oh, late 2012. Assuming nothing else goes wrong.


Did we mention the jobless numbers were better than the Street expected? Oh, yes, and the revisions to June and July were to the upside. Thus, the major indexes jumped well over 1% in the first half-hour of trading today. The S&P is back above 1,100.


Gold and the dollar are reverting to their trend for 2010, once again moving in tandem today. The dollar index is down to 82.2, and gold is down to $1,242.


Insiders at Wall Street firms are dumping company stock left and right. Officers and directors at Goldman Sachs, JP Morgan Chase, Citigroup and Wells Fargo have sold $100 million of stock this year -- about five times as much as they’ve bought.

This may be a case of guys taking profits after buying at the bottom; that’s the take of InsiderScore, the firm that analyzed the SEC filings of these insider transactions. But what does it mean when just three senior executives in Goldman’s compliance division sold $11 million in stock? (Nothing at all, Goldman says.)

We don’t want to say this bodes ill for the stock market as a whole. But we see that XLF, the big financial-sector ETF, is tracking the S&P 500 very neatly. Both are down 2.5% year to date.


News about the insider selling of financials hit the tape the same week that Dick Fuld tried yet again to explain away the fall of Lehman Bros., this time to the government’s Financial Crisis Inquiry Commission.

“Lehman’s demise was caused by uncontrollable market forces,” Fuld said, “and the incorrect perception and accompanying rumors that Lehman did not have sufficient capital to support its investments.”

Yeah, it’s always someone else’s fault. It had nothing to do with Lehman’s 30-to-1 leverage (where a 3% loss wipes you out). And it certainly had nothing to do with “Repo 105,” the accounting trick Lehman used to make $50 billion in debt vanish from the balance sheet during the company’s final two quarters as a going concern.

Some people saw through it at the time, including our own stock market vigilante Dan Amoss. He didn’t know about Repo 105 (that news didn’t come out till just six months ago), but he didn’t have to. Even the papers Lehman filed with the government at the time looked awful.

“These quietly filed government-mandated documents have a long history of revealing hidden details and golden opportunities,” says Dan, whose careful reading of Lehman’s documents delivered his readers a 462% gain. That includes an ex-Lehman employee who at first couldn’t bring himself to accept the realities in Dan’s analysis. But he put on the trade reluctantly anyway, and wound up $200,000 wealthier.

You can join Dan’s circle of Strategic Short Report members today, at a considerable discount off the regular fee. Your first trade could well cover your entire cost.


Pending home sales jumped 5.2% in July, according to the National Association of Realtors. The consensus guess was a drop of 1%, so the mainstream is taking this as a sign the housing market is “stabilizing” after the expiration of the homebuyer tax credit.

We’ll just offer our usual cautionary note whenever we mention this number: Not all pending sales reach closing. Especially not now, when lenders actually expect buyers to prove they have an income stream to support the payments.


We also offer this caveat about the other positive housing data point this week: The Case-Shiller home price index, which came in oh-so-good on Tuesday, is a three-month rolling average. So the figures are still skewed somewhat by the homebuyer tax credit. We won’t get a “clean” reading until the end of October. That could provide some genuine Halloween horror.


Before the mail, an intriguing investment idea you can’t buy on any exchange.

Last week, Europeans were snapping up 75-watt incandescent light bulbs before an EU ban on their manufacture and import took effect this week. Apparently, even the environmentally conscientious Euros don’t much care for the quality of light from compact fluorescents. Imagine that.

This is Phase 2 of the EU ban; the same thing happened during Phase 1 last year when 100-watt bulbs became verboten. We can imagine folks who bought and stocked up early are selling them for a nifty premium these days -- their sale and use is still legal.


Buy ’em by the case, stash ’em away, sell for a profit after 2012

The 5’s word to the wise: The U.S. ban starts with 100-watt bulbs in January 2012. Lower wattages will be phased in over the following two years. Buy now. You can thank us later.


“A really fascinating film clip,” a reader writes about the sneak preview of our new documentary project. “I liked your presentation regarding 1861-O Half Dollar,” writes another. “Will be interested to see your end product,” says a third.

Thanks to all for your feedback. We’re still doing interviews. Our next shoot is on Wednesday in the belly of the beast (Washington, D.C.) at the Library of Congress, among other locations.

If you haven’t had a chance to check out the clip of Greg Stemm and Neil Dobson reviewing the fruits of their labor at the New Orleans Mint Museum, here’s a link. Click “Play”:


Not only will you get a sense of the immense body of historic knowledge and scientific know-how it took to recover the wreckage of the SS Republic, you’ll also hear about the one random event that made discovering the wreck next to impossible.

You’ll also get a crack at buying some of the SS Republic treasure for your personal coin collection -- an opportunity exclusive to Agora Financial readers. The number of coins remaining is very limited. So if you’re interested, jump on it now. And remember, if you buy, we’re likely to be compensated. You can also review the coins in the set, here.


“Congress unanimously passed the Consumer Product Safety Improvement Act of 2008 (CPSIA),” writes another reader, responding to our account of the War on Small Business yesterday, adding this to our laundry list. “The act is aimed at protecting children 12 years of age and under from all products containing lead and phthalates.

“Perhaps it was well-intentioned, but is also a poorly written law that will impose onerous (expensive!) testing and certification requirements on even the smallest of businesses, and has already forced some out of business and others to cut staff so as to afford testing for each product they sell.

“Here again, a big business (Mattel, I believe) caused the uproar that led to the hastily passed legislation, and the small businesses that did not cause the problem will get a huge compliance burden.”

The 5: “Never has so much damage been done than by those with good intentions,” goes our favorite von Mises quote. Alas, the list grows.

We were suspicious, by the way, about your assertion that the vote was unanimous, so we checked: Indeed, Ron Paul was absent in the House chamber that day.

Everyone else: What’s your horror story? Are you dreading the new Form 1099 monster? What’s going on with your health insurance? We’d like to create an on the ground account of what these “reforms” are really doing to the economy. Tell us what’s going on in your corner of the world here. We’ll share your response with readers next week.


“You talk about the federal hit on small business,” a fifth reader gets us started. “Here in Washington state, we are under attack by our state government as well. Gov. [Chris] Gregoire has touted that we are about 28th nationwide in taxes. However, what she fails to mention is that when you take into account all the ‘fees’ we small-business people have to pay, we come out in the top five!!

“Got to love semantics. Keep up the good work, including the sarcasm -- it can make my day!”


“As a daily reader of your page for several months now, I can honestly say I wish I'd found you sooner. Your articles are timely, informative and interesting. How's that for sucking up? To the readers who complain about you commenting on their favorite politician, I say ‘lighten up!’ The only reason you guys pick on their decision-making processes is because it's so easy! Now, that's sarcasm! About the sarcasm issue, I say keep it coming. Some days, it’s the only thing that puts a smile on my face.

“With the constant threat of recession, depression, war, terrorist attacks, global warming, genital warts, etc, etc., it’s hard enough for everyone to make it through the day without being hypercritical of everything and everybody.

“‘Live and let live.’ Keep up the good work and remember, keep smiling! It worries the heck out of the other guy.

“-- Reader for life!”

The 5: Thanks. We do our best (to be hypercritical of everything and everybody).

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. We’d like to leave you this weekend with a link to a back issue of The 5 that ranks high on the all-time classic snarky list. You can find it here.

This by way of thanking our longtime editor Ian Mathias for several years of snarky comments… and more importantly, for countless hours of at times thankless hard work.

Ian’s not going anywhere physically. He’ll be contributing to The 5 from time to time. But he’s also graduating to a more intense position. Instead of steadfastly perusing the daily news cycle, he’ll be tracking movements in the bond and income markets and helping define Agora Financial’s income investing strategy.

Given the nightmare that Social Security is and has become… and the bond bubble we’re all a party to at the moment… we expect we’re going to need his talents in this enterprise more than ever.

Thanks, Ian.

P.P.S. The U.S. stock market is closed on Monday for Labor Day. And Canada’s stock market is closed for Labour Day. The 5 returns on Tuesday. Enjoy!
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/37416-latest-chapter-china-s-resource-grab.html The War on Small Business http://www.gold-speculator.com/5min-forecast/37340-war-small-business.html Thu, 02 Sep 2010 21:01:13 GMT The 5 min. Forecast
September 02, 2010 12:03 PM

by Addison Wiggin & Ian Mathias
  • The War on Small Business: Washington’s long train of abuses against entrepreneurs
  • Health insurance costs, paperwork requirements, stepped-up audits… It’s worse than ever
  • The “assault on enterprise” coming to film… A sneak preview of our new documentary project
  • “Bears on their heels”… Taking stock of stocks as the summer doldrums come to a close
  • Readers sound off on “sarcastic political commentary” and rare earths

Today, we revisit a recurring theme: the assault on enterprise. It was the subject of our symposium in Vancouver in July. In this episode, we look at a particularly vulnerable segment of the economy: small businesses.


To help set the stage, let's look at some important stats from the Small Business Administration (SBA). Small businesses:
  • Represent 99.7% of all employer[s]
  • Employ just over half of all private-sector employees
  • Pay 44% of total U.S. private payroll
  • Have generated 64% of net new jobs over the past 15 years
  • Create more than half of the nonfarm private gross domestic product (GDP)
  • Hire 40% of high-tech workers (such as scientists, engineers and computer programmers)
  • Are 52% home-based and 2% franchises
  • Made up 97.3% of all identified exporters and produced 30.2% of the known export value in FY 2007.
  • Small firms produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large-firm patents to be among the 1% most cited.

Further, if you look to the Kauffman Foundation, startup firms are the "sole engine" of job creation in the U.S. economy.

Kauffman crunched a data set from the Census Bureau covering the years 1977-2005. In all but seven years during that period, existing businesses cut an average 1 million jobs… while firms in existence for a year or less created 3 million.

“Policymakers tend to focus on changes in the national or state unemployment rate, or on layoffs by existing companies,” explains Kauffman VP of Research and Policy Robert Litan. “But the data from this report suggest that growth would be best boosted by supporting startup firms.”

Instead, these small firms are being strangled. Let us count the ways...


According to the National Business Group on Health, the typical large business will see its health insurance costs rise 9% next year.

But for small businesses, the numbers are rising faster. Small employers in California are looking at increases of 12-23%, on average, according to the Los Angeles Times -- one got notice of a 76% increase.

It’s an acceleration of a long-standing trend…


The government has skewed health insurance costs in favor of larger businesses for decades… and now the “health reform” law signed this year is tilting the scales that much further.


Then there’s this nugget tucked into that other legislative monstrosity known as “financial reform”: Starting in 2012, every business must issue a Form 1099 to every vendor from whom it buys more than $600 in goods or services every year.

So if you’re a small businessperson and you order $601 in office supplies from Staples over the course of a year (better keep a running total), you must issue a 1099 to Staples.

26 million sole proprietorships alone will be caught up in this net. SMC Business Councils, a business networking group, reckons its typical member currently files about 10 1099s a year. Under the new rules, SMC estimates the number could reach 200.

The idea behind this requirement is to increase compliance with existing tax law. The unintended consequence is it will bury small businesses in paperwork.

Very small firms with fewer than 20 employees already spend 45% more per employee than larger firms to comply with federal regulations, according to the SBA.


And yet... right on cue... a study released by the pithily named Transactional Records Access Clearinghouse at Syracuse University shows the IRS has increased its audit hours of small businesses (those with less than $10 million in assets) by 30% over the last five years.
At the same time, large corporations’ audit hours are down 33%.

The average amount of “underreporting” found for each audit hour of a small- or midsized business was $1,025. For a large corporation, it was $9,354.

Hmmmn... that's a good trend if you’re a lawyer at a Fortune 500 firm. It's bad if you're trying to book a tee time or grow a small business.


Individual sectors are also getting hit hard…
  • The financial reform law is hitting small community banks with big regulatory hurdles. “We will no longer be able to evaluate loan applications based solely on the creditworthiness of the borrower,” complains Sarah Wallace, chairwoman of a small thrift in Ohio, in The Wall Street Journal. “We will be making regulation compliance decisions, instead of credit decisions”
  • The requirements buried in a “food safety” bill likely to pass Congress this month will have a devastating impact on small farmers. “This could make farmers markets go away,” farmer Scott Frost tells the Portland Oregonian. “The only guys left standing in the room will be the big gorillas." That’s because the big boys can easily absorb the record-keeping requirements (and annual fees) that come with the bill.

It's not just the Feds looking for a piece of these guys. Small businesses are looking juicy to revenue-starved state governments. To wit…
  • Pennsylvania is looking to add a 6% sales tax to plumbing and electrical services
  • Wristwatch repair may become subject to a 4% sales tax in New York
  • Four states are looking to join the 26 that already tack on a tax or fee at bowling alleys
  • Want to go horseback riding in Arizona? The stable owner may soon have to charge you a 5.6% sales tax
  • Three states may opt to start taxing interior decorating services.

Given the environment, this next nugget should come as no surprise.

The National Federation of Independent Business puts out a monthly “Optimism Index” of small-business owners it surveys. Last month, that number sat at 88.1. The last time the number stayed above 90 for longer than three months was early 2008. It was over 100 as recently as October 2006.

“The persistence of Index readings below 90 is unprecedented in survey history,” says the NFIB. Contrast its readings over the last five years with, for instance, the big-business ISM manufacturing index, which has pointed to expansion for over a year now…


“It seems,” Barron’s columnist Randall Forsyth writes archly, “America's entrepreneurs were too busy struggling with their own businesses to read all the accounts in the media about how terrifically the economy is doing.”


When NFIB survey participants were asked what is the single-most-important problem facing their business, a plurality of 29% said “poor sales.” But right behind that…
  • 22% cited taxes
  • 15% cited “government regulations and red tape”
  • 7% cited “cost and availability of insurance” -- as we’ve seen, a government-created problem.
Only 4% cited availability of credit. Good thing we spent billions in bank bailouts to keep the lines of credit open, isn't it?


"Far from being the exception, crises are the norm," writes Nouriel Roubini in the introduction to his new book Crisis Economics. "Crises -- unsustainable booms followed by calamitous busts -- have always been with us, and with us they will always remain…

"The very things that give capitalism its vitality -- its power of innovation and its tolerance for risk -- can also set the stage for asset and credit bubbles and eventually catastrophic meltdowns whose ill affects reverberate long afterward."

Unfortunately, the reforms set in place now -- as is so often the case -- come replete with unintended consequences. Those consequences are threatening the very goose they're intended to save.

[Ed note. As you may know, we’re making a film about entrepreneurs in the wake of the crisis. One of the case studies we’re drawing on is that of the frequently harassed entrepreneur Greg Stemm, founder of Odyssey Marine.

For decades, he and his teams have plumbed the bottoms of the ocean to find and recover treasure left in situ after ships have plunged to their deaths. For their toil, they’ve often been rewarded with the threat of litigation from governments seeking to skim some (or all) of the proceeds for themselves. Greg is also the source of great consternation in the academic world because of his efforts to introduce a "commercial model' to the world of undersea archeology. Heaven forbid the gentleman make a profit!

As you'll see, our film is still very much a work in progress, months away from release… but we’ve captured a small part of the Odyssey Marine story in a seven-minute clip we caught of Stemm and Neil Dobson, one of his archeologists, as they're ogling some coins they'd only recently returned to the New Orleans Mint for a museum exhibit. As faithful 5 readers, you get first crack. Check it out here and let us know what you think, please. Any and all suggestions are welcome at this time.

You'll also note there is an offer for some of the coins Odyssey brought up from the wreck of the SS Republic. That offer comes by way of our ongoing business relationship with First Federal Coin. It's our modest effort to introduce a "commercial model" into the all-too-stuffy world of documentary making. But you should be aware that if, in fact, you choose to take advantage of the offer presented, we're likely to receive compensation.

Otherwise, we’ll keep you posted as the film gets closer to a final cut. Enjoy...]


“Bears are back on their heels,” says Options Hotline editor Steve Sarnoff of this week’s stock market action. The major indexes opened flat this morning on news that first-time jobless claims fell slightly last week. That had the effect of merely canceling out what turned out to be an increase last week (darn those revisions).

Steve offered this pithy summary of the week so far in an alert to readers last night…
  • Monday: No follow-through from bulls... stocks lower from resistance on weak economic data
  • Tuesday: Another roller coaster day on Wall Street... indecision in the market may signal a turn
  • Wednesday: A very strong bounce-back day for stocks as they surge up from key support.
Steve’s been playing the volatility for all it’s worth: As of Tuesday, his recommended puts on Intel are up 159% in six weeks, while his recommended calls on Barrick Gold are up 164% in just three weeks.

His next recommendation comes in 10 days. If you’d like to be on board, here’s where to go.


“The range-bound S&P chart between 1,130-1,040 for most of the last year can set up an optimist for a rally back to the April highs,” says our resource man Alan Knuckman. “That is IF 1,040 holds again on a monthly basis and the next earnings cycle proves corporations can continue to exceed profit expectations. Money is being made to fill company coffers even without an all-around recovery.”

”The shorts have been squeezed many times over the last two years, so it will be interesting to see what happens from these levels again. A little forced buying to close out the summer sales can provide some much-needed support. The stock indexes were down only 1% last week as the low-volume season comes to an end and business gets back to normal, albeit a new, undefined normal.”


The dollar index is pretty much unchanged at 82.4 this morning. Spot gold is back within $10 of its all-time record at $1,250.


“I just started getting your newsletter last week and was dismayed to see you engaged in sarcastic political commentary in [yesterday’s] letter. That's not what I subscribed for. Why don't you stick to investment-related topics?”

The 5: Since you’re among over 10,000 new readers who’ve joined us in recent weeks, we don’t mind repeating ourselves here: We’d be content to ignore politics were it not for the fact that politicians keep finding new ways to meddle with the economy and our investments. We furnished copious examples just today.

Other times the connection is less obvious, so if you’re complaining about our jaundiced observation that the Iraq war has strengthened Iran’s hand in the Middle East, we simply invite you to ponder how an emboldened Iran might drive oil to $220 a barrel in 18 months. You’ll find the supporting evidence here.


“Love your work 5 Min. team -- great stuff," writes another from down under. "Read it over here in Aussie every morning. One rager you haven't talked about is rare earths. Most of the 17 underlying elements have at least doubled this year in price (some up four times). China has increased its export restrictions to 70% (it currently supplies 97% of the world's rare earths), which has lit a fire under the rare earth prices.

“I would have expected a little more than zero media coverage from the Americans considering you need certain rare earths for military requirements plus a whole lot of other key new technologies that everyone seems to deem so important (iPhones, TVs, DVDs).

“The big kicker for rare earths remains green technology, which despite its move to the middle pages of the paper is most likely going to 'rare' its head once you guys stop printing money, take your medicine like a good boy and face the 'depression' front on, rather than letting it ‘rare end’ you.”

The 5: Actually, our resident geologist Byron King’s been thumping the tub for rare earths since early 2008. In fact, he’s speaking at a conference on rare earths in Washington next month. So we’ll have plenty to say in the weeks ahead.


“I find it instructive,” a Reserve reader writes, “that the Obama administration wasn't much interested in Social Security reform until the program started taking money out of the general fund, by selling government paper, rather than buying it. Supposedly, the 'recovery' we are experiencing will change that, but don't hold your breath.

“Frankly, I hope they don't do anything. I'd much rather see government money going to retirees and the occasional genuinely disabled worker than be used to kill Arabs or to lock up people who have grown pot in their basements.

"Besides, the sooner the U.S. dollar goes belly up, the sooner we will be back on the gold standard. It has happened in this country before, after the failure of the Continental Dollar and the elimination of the Lincoln Greenback.

“Yeah, yeah, it will never happen. History never repeats itself, and it is sure to be different this time. In the meantime, keep your bullion hidden, or vault it in Zurich.”

The 5: And readers accuse us of fostering sarcastic political commentary. Sheesh.

Indeed, we can help you store your bullion in Zurich... under the runway at Zurich Airport, to be more precise. Our friend Egon von Greyerz with goldswitzerland.com has access to just such a vault. (If you contact Egon, please let him know Addison sent you.)

We also continue to get good feedback on this unique approach to the creaking Social Security system, the one we call the “other” government-backed retirement program.

Regards,

Addison Wiggin
The 5 Min. Forecast

P.S. How solvent is your bank? Imagine if you could access a document that predicts when a certain bank stock is going to fall. Even better, imagine if you had an expert who could access hundreds of such documents and cull the best shorting opportunities on your behalf. Imagine what you could do with such knowledge. Imagine... here.
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/37340-war-small-business.html Mission Accomplished” — But for Whom? http://www.gold-speculator.com/5min-forecast/37242-mission-accomplished-but-whom.html Wed, 01 Sep 2010 21:30:24 GMT The 5 min. Forecast
September 01, 2010 12:06 PM

by Addison Wiggin & Ian Mathias

  • The Iraq War: “Mission accomplished”… for the Iranians
  • Tehran’s next step, and the events that could eclipse 2008’s oil record of $147
  • Three data points driving a big rally today… and one that’s being ignored
  • A currency milestone… and the trade that has our forex maven transfixed
  • Readers who know Brazil firsthand square off: Has the nation really strangled its growth for decades to come?


So… The “combat mission” is over in Iraq, the president declared last night. Just so there’s no confusion, that’s a separate thing from the “major combat operations” his predecessor declared were over in May 2003. Mission accomplished — again!

We’ve had “defining moments” like this before. Like the Paris Peace Accords that ended U.S. involvement in the Vietnam War in early 1973. Remember how that turned out a little over two years later?






We’re not saying this is how U.S. involvement in Iraq is going to end. The embassy in Baghdad is much bigger and better fortified. Still, the Iraq adventure has set in motion a series of events that could eventually end with oil north of $200 a barrel.

Let’s review how we got to this point: Dick Cheney and friends figured on a quick war that would put an Iraqi exile buddy of theirs named Ahmed Chalabi in power. Chalabi was a successful banker educated at MIT and Chicago. If he couldn’t transform Iraq into a Jeffersonian democracy, at least he’d keep it in Washington’s corner.

Of course, ordinary Iraqis had their own ideas about who ought to run their country after Saddam Hussein. Since Shia Arabs make up about 60% of the population, we’ve since had a succession of Shia leaders. They have trouble getting along with each other, but the point here is that most of them are on friendly terms with Iran. Many lived in exile in Iran during the Saddam era.

And it turns out old Chalabi was funneling U.S. secrets to Iran himself. Thus, the supreme irony: A war started by U.S. leaders thoroughly hostile to Iran has empowered Iraqi leaders who are generally friendly with Iran.

Mission accomplished, for Iran.

For Washington, it’s a real pickle. Just yesterday in The Wall Street Journal, columnist Gerald Seib wrote that Obama’s policy in Iraq, Afghanistan and Israel-Palestine all aim to “clear the decks in order to concentrate more intensely on the paramount challenge posed by Iran and its Islamic extremist friends.”


That’s what makes the news from Bahrain so interesting. Bahrain is an island state in the Persian Gulf, just 150 miles from Iran. It’s home to the U.S. 5th Fleet and Naval Forces Central Command.

It’s also home to a seething cauldron of Sunni-versus-Shia conflict — the ultimate dividing line in Islam, going back to the seventh century. The rulers are Sunni. The majority of the population is Shia. You can see how this might be a problem.

In recent weeks, the government’s been rounding up Shia opposition leaders. That could rile up the Shia majority. (The U.S. Embassy is advising Americans there to avoid parts of the capital city at certain times of the day.)

And it plays right into the hands of Shia Iran, which claimed Bahrain as its own territory as recently as 1970. “Politicians in Tehran still sometimes refer to the island as Iran's 14th province,” according to analyst Simon Henderson from the Washington Institute for Near East Policy. (Remember how Saddam Hussein called Kuwait Iraq’s “19th province?” Just sayin’.)

The pot gets stirred up even more next month when Bahrain holds elections. Think about it: A ruling Sunni minority propped up in power by Washington, versus a Shia majority sympathetic to Iran.


Bahrain could actually be a fourth flash point in the “new war” Byron King sees shaping up between Shia and Sunni across the Middle East — spurred on by an Iran seeking to restore its Persian imperial luster.

“No Empire forgets its past glory,” Byron explains. “The Iranians resent losing theirs… But now they see a chance to get it back. The nuclear bomb? Tehran's crackpot leaders don't want it just to scare Israel. They want it so they can throw a dark shadow over their Sunni Arab neighbors, too.”

This is the setup for a “new war” in a region that sits atop 66% of the world’s key energy reserves. That would send oil as high as $220 and gasoline toward $8. Byron sees this coming in as little as 12-18 months. And he’s prepared an investment strategy to seize the advantage during what would be one of the most turbulent moments of our lifetime.

We got a tremendous response on Friday when we first posted the maps and data Byron put together to back up his case. If you haven’t checked it out yet, now’s the time to do so… before the war goes hot and you see these same maps 24/7 on the news channels.


On Wall Street, traders donned their rally caps this morning. The S&P jumped nearly 2.5% in the first 45 minutes of trading on the following news…

  • The monthly ISM manufacturing report came in at 56.3 — far above the consensus guess of 53
  • Chinese manufacturing looks perky too. Both versions of the nation's purchasing managers’ index rebounded in August, after several months of slowdown
  • Australian GDP came in grew 1.2% in Q2, better than expected.
Quite a turnaround — yesterday, the Dow sank below 10,000 as traders tried to make sense of the minutes from the Fed’s August meeting as a shaman tries to make sense of entrails. This morning, none of it matters. Neither does this…


ADP, the payroll firm, estimates private employers cut 10,000 jobs last month. The Street was betting on a gain of 15,000. Small business and manufacturing both took a hit. But when a bipolar market makes up its mind to rally, nothing can get in the way.

On the other hand, it makes you wonder what’s in store Friday, when the Labor Department offers its take on August employment — including another mass release of Census workers.


Gold sits about where it did at this time yesterday, at $1,247. The dollar index has plummeted nearly 1%, to 82.4.


Volume on world currency markets now tops $4 trillion a day, according to a new report from the Bank for International Settlements. That’s a 20% increase from just three years ago.

This week, all eyes in the forex market are on the yen. “We see large pressure on the Bank of Japan and the Finance Ministry to do something to stimulate the Japanese economy,” says our currency trading specialist Abe Cofnas. “As we’ve noted, there are fears the yen is too strong. Therefore, we are betting on one direction — a breakout play for a weakening yen.”

For the moment, Abe’s plays are open to only a small circle of readers trying out his techniques. As we get their feedback and refine the service, we’ll throw it open to all comers for new memberships. We’ll keep you posted.


Bank profits are back to levels last seen at the outset of the financial crisis in the third quarter of 2007, according to the FDIC. The agency’s latest quarterly report says banks made $21.6 billion in the second quarter, up from $18 billion in Q1.

Unfortunately, the biggest banks made most of that money. And the FDIC’s “problem bank” list has grown further, from 775 to 829. That’s the highest number since 1992 and amounts to one out of every 11 FDIC-insured banks. Still, the pace of growth from quarter to quarter continues to slow, as it has since late last year.

At the same time, the shortfall in the FDIC’s reserve fund has shrunk from $20.7 billion to $15.2 billion.

Bankers will say the “less bad” news is evidence the system is stabilizing. We suspect it’s a case of mark-to-fantasy accounting doing what its designers intended.


“What led me to emigrate from Brazil,” a reader writes of the nation’s new limits on foreign ownership of farmland, “was exactly this kind of disconnect between the ruling class and the people in general, though the latter kept on voting for the former. It got to a point that I just gave up on trying to persuade others of their contradictory healthy mistrust of politicians and to vote for a prolix demagogue.

“Property rights have always been subject to dramatic shifts caused by the pen. It has to be remembered that foreign investment in oil and foreign ownership of land were only allowed in the late ’80s and early ’90s.

“The newly discovered oil fields are not private property, but concessions, since all subsoil belongs to the state. If you watched the interview of Eike Batista, who got the concessions of the most productive shallow water reserves, by Charlie Rose, you'd notice his lionizing of the ruling party and his carefully chosen words. He trod very lightly not only to not scare investors, but also to appease those who can withdraw his concession at the strike of a pen.

“And this is hardly the exception to business in Brazil. The norm is always to appease and bribe in order to get the fattest contracts: government contracts.”


“I have just returned from Brazil,” writes a reader who disagrees, “where I had previously worked full time. I have seen governments ranging from those of the military dictatorship to the current Worker's Party (PT).

“The foreign investor's reaction to the possibility of Rousseff’s election (first round Oct. 3) is very similar to that when the incumbent, Lula, of the same party, was about to be elected eight years ago. What happened? In eight years, Lula moderated, and got rid of his more left-wing members, or they left in disgust. But most importantly, he continued with the financial reform policies of his centrist predecessor, Cardoso. Moreover, he appointed one of the most competent central bank chiefs in the Americas, Meireles

“These factors, plus the positive commodities markets, have helped Brazil boom. Wikipedia has a good biography on Rousseff, which indicates to me how much she has moderated since being a student militant during the dictatorship. I am not predicting the future. Make up your own mind. The issue of foreign agricultural land ownership is a recurring theme of nationalism that is always close to the surface in any election.”

The 5: “When emotions simmered down last week,” responds Chris Mayer, on whose beat Brazil lies, “my contacts in Brazil and I started to dig into the gritty details of the new rules. My first impression was that these rules would freeze new foreign investment in Brazilian farmland. It has, from what I can tell, but it seems there may be room to maneuver.

“More time and legal work is needed to figure it out. I’ll know more by the time I get down there in a couple of weeks with my small band of readers who have signed up to come along.”

“I will say this, though: Brazil is not a great place to do business. That much everyone knew. The World Bank ranks it 129th out of 183 countries for “ease of doing business.” And this year is an election year. Which makes it worse.

“Yet there is a lot to like about Brazil as an investor. All that potential farmland… and other resources, too. Plus, there is a growing middle class that will want all the things consumers enjoy everywhere else.

“Whether we wind up investing there or not, Brazil is worthy of study. It is a large emerging market that will impact markets around the world, for good or for ill.”


“Tuesday’s comment at 4:40 was from a total idiot,” writes a reader who says he’s postponed retirement. “He shouldn't spout off how Social Security was set up, because he doesn't know what the bleep he's talking about. Wake up, idiot. It's your government stealing from you — they changed the rules on Social Security and reallocated our money. You've been brainwashed.

“Many of you reading financial newsletters are in much better financial shape than normal people, so you're looking through rose-colored glasses. Many depend on Social Security as a big part of their retirement income, because that's what they were promised, AND because they worked lower-paying jobs and could not afford to put much extra money aside for retirement.

“Feeding themselves and keeping a roof over their heads took priority.”

The 5: Two-thirds of elderly Americans count on Social Security for at least half their income.


“Does anyone think that when the Gen Xers come to power and the boomers are all sitting around at rest homes that the Gen Xers, out of the goodness of their hearts, will fund the massive Social Security black hole? Guess again.”

The 5: You may be on to something. Neil Howe, who with the late William Strauss penned several books on the interplay of American generations, believes history tends to rhyme on a roughly 70-80-year cycle, and each generation plays a role comparable to the one that came four generations earlier.

If that’s the case, think about how the GI’s coming home from World War II were given huge subsidies to obtain homes and college educations — a major sacrifice by older generations for younger ones.

Maybe the same sort of thing’s in store for the “Millennials” born in the ’80s and ’90s. The country’s too broke to hand them big housing and higher ed subsidies, but it’s entirely possible the aging boomers and in-their-prime Xers will see fit to relieve them of a crushing Social Security burden.

Outrageous? Last week, a reader reminded us about the 1960 case Flemming v. Nestor, in which the Supreme Court held that workers have no contractual right to Social Security benefits. And those benefits can be cut or eliminated anytime. Something to think about as we’re now just 30 days away from Social Security officially going into the red.

That’s why we have people on our team who seek out alternative sources of retirement income. Once again, if you haven’t checked out what Jim Nelson has to say on the subject, you really owe it to yourself.

Regards,
Dave Gonigam
The 5 Min. Forecast

P.S.: We see our friends at International Living have just filled all of the available slots for their annual Live and Invest Overseas Conference later this month.

“Attendance at all our conferences has been rising,” publisher Jackie Flynn tells us. “But we didn’t anticipate filling every seat in our 500-seat Las Vegas venue and having to cut off registration weeks before the actual event.”

Last spring, 96% of International Living’s readers said they were more willing to expatriate than they were a year earlier. If you’re a Reserve member and that resonates with you, we’re in the early stages of planning our third “Chill Weekend” at Rancho Santana, on the Pacific Frontier. If you’re interested in joining us, we’re thinking sometime in late November or early December… send an email and tell us what dates work for you.
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/37242-mission-accomplished-but-whom.html The Great Search for Yield http://www.gold-speculator.com/5min-forecast/37119-great-search-yield.html Tue, 31 Aug 2010 17:44:13 GMT The 5 min. Forecast
August 31, 2010 08:15 AM

by Addison Wiggin & Ian Mathias

  • Eric Fry, Jim Nelson on why a certain sector should be on your watch list
  • Plus, Dan Amoss offers advice as to when stocks might be worth buying
  • Two dismal data points: U.S. birth rate hits record low while youth unemployment soars to record high
  • Chris Mayer and 5 Min. readers deliver harsh truth… what could be the beginning of the end for investing in Brazil

By now, everyone and their mother knows the U.S. stock market is a losing bet. The big indexes went nowhere over the last decade, absolutely plummeted in the last few years and now even the 2009 snap-back rally is officially kaput.

Thus, a logical question to begin today’s 5: Is it time to start buying stocks again?


Dividends in the S&P 500 now yield 2.11%, a mere 50 basis points from the 10-year Treasury note’s dismal 2.6% coupon. In other words, the S&P’s yield is 78% of the 10-year’s.

The historic average, says research out his week form brokerage firm Brockhouse Cooper, is 42%. There have been just 50 occasions since 1973 when this ratio was greater than one standard deviation from that average, as it is now. After each of those instances, the S&P 500 returned an average 12% over the next year.

And that’s not including dividends.


“Many investors did not buy stocks in 1980,” Eric Fry remembers another lousy year for the market, “even though they were selling for seven times earnings, because long-term Treasury bonds were yielding 15%.

“Stocks were statistically cheap. No doubt about it. But to justify taking the risk of buying stocks in 1980, an investor would have had to anticipate annualized returns above 15%. To many investors, that hurdle seemed too high to try to clear. When risk-free Treasuries provided a 15% return, buying stocks -- even very cheap stocks -- seemed not just imprudent, but ridiculous.

“By contrast, the statistically not-cheap equities of today face negligible competition from most other asset classes. Short-term Treasury securities yield next to nothing, while long-term Treasury securities yield only slightly more than nothing.

“Furthermore, we would remind our dear readers, equities represent interests in enterprises that produce capital, rather than obligations from a government that absorbs capital. Therefore, as James Grant argues in a recent issue of Grant’s Interest Rate Observer, many U.S. blue chip stocks may be cheap enough… at least relative to Treasuries.”


“In today’s stock market, dividend payers offer the closest thing to security,” our income analyst Jim Nelson declares, “but not every dividend is created equally.

“If you had bought one share in every dividend-paying company in the S&P in January 2009, you’d have expected to receive about $28.39 in total dividend payments, because that's what you'd have received just one year earlier. But by Dec. 31, 2009, you would have actually received only $22.41. The drop comes from 78 different dividend cuts or suspensions in the S&P 500 during 2009. To put that in perspective, there were only 12 total cuts in 2007.


“You can see that during 2009, the rate of dividend decreases skyrocketed. By the end of the year, most of the companies that planned on cutting already did. So the number of decreases subsided. This chart shows the percent change, not the actual number. To be fair, there were only a few months when the number of dividend cuts outweighed the number of dividend hikes.

“So if we are headed for further crashes, which some think is inevitable, dividend payers in general aren’t too much safer than nondividend payers. The right ones, however, are.”

For those “right” dividend stocks, you won’t need to look much further than Jim’s Lifetime Income Report. Since its inception, only one stock in the LIR portfolio has suffered a dividend cut, while 13 have increased payments… some more than once.

If you seek these kinds of stable returns, click here for Jim’s favorite dividend play -- a high-yielder backed by one of the most fiscally prudent governments in the world.


“The next couple of years aren't as important to a stock's value as you might expect,” Dan Amoss offers as a word of caution. “Most of any stock's value today depends on the present value of free cash flow that the company can generate between, say, the years 2015-2040.

“These future cash flows get discounted at a rate that's heavily influenced by the cost of equity. A higher cost of equity translates into much lower present value. Here's a rough analogy: Higher mortgage rates lower a homebuyer's purchasing power, just as a higher cost of equity lowers a stock's value today.

“Many factors can drive the future direction of free cash flows up or down. Lately, it's become clearer that fiscal policy and a sluggish economy will likely drive them down. At least that's the market's message when it, declines despite all of the so-called ‘earnings beats.’ I doubt we'll see a sustained rally in the S&P 500 until 10-year Treasury yields turn back up in a sustainable manner.”

To protect yourself from the market Dan describes above, check out his latest online presentation -- fresh off the virtual presses. In it, he’ll show you some little-known government reports that often identify which stocks are about to fall.


Stock sellers had the advantage yesterday, as the S&P 500 fell 1.4%. Thin volume and some hangover from Friday’s 1.7% Fed-fueled jump was more than enough to do the trick. And with data points like these, it’s hard to be a buyer today:


U.S. birth rates have hit a record low, while youth unemployment has reached a record high. Oy… that ought to cripple a generation or two. Here’s the quick and dirty:

  • The birth rate in the U.S. fell to 2.6% in 2009, the National Center for Health Statistics announced late last week. That’s 13.5 births for every 1,000 people, the lowest rate ever recorded. Even during the Great Depression, approximately 18 babies were born for every 1,000 Americans
  • And among the ranks of lanky teenagers and college students, the unemployment rate hit 19.1% in July, the Labor Department said Friday. For this demographic (16-24), that’s the worst mid-summer reading since the government started keeping track back in 1948. This group’s labor force -- meaning, kids who were actively working or looking for work -- fell to a record low 60.6% this summer, too.

Not all of today’s data are so dark: U.S. home prices rose 4.4% in the second quarter, says today’s monthly release of the Case-Shiller home price index. In June, the last month the homebuyer tax credit could truly be utilized, prices jumped up 5%.

Of course, considering the dreadful, all-time terrible July home sales number we saw last week, the next release of the Case-Shiller index ought to be the interesting one. Next month we’ll see if July’s crash in sales affected prices… hmmmm… just maybe.


Amid all the uncertainty, gold is shining bright. The spot price jumped up $10 in early New York trading this morning and is just above $1,245 an ounce as we write.


“I am an avid traveler over most of Latin South America,” a reader writes, responding to Brazil’s sudden threat of nationalizing farmland. “A few years ago, I traveled to Brazil and came home to a group of farmers eager to invest in its land for cotton and corn production. I was received with open arms by the Brazilian people, but I always have my suspicions about foreign countries, especially Latin countries.

“Latin American people are very resourceful and highly intelligent, waiting for the next opportunity. After I read Dilma Rousseff was running for president and all the tariffs were placed against American producers, I have grown very sour with Brazil and offer a simple warning: Stay away! You will be the next victim of a scam. Research of Dilma Rousseff will reveal she has a very dark past and is fully aligned with none other than Hugo Chavez. The future of Brazil is bleak if this lady (scoundrel) is elected.”

The 5: “I think Brazil's announcement is a big deal,” Chris Mayer responds. “We may not feel the effects immediately, but Brazil's hostile turn toward foreign investment helps plant the seed for another food crisis.

“All of which makes our agricultural companies more valuable. BHP's bid of $130 per share for PotashCorp seems especially inadequate against this backdrop.

“It also makes me wonder about investing in Brazil at all. There is all that hype over Brazil's offshore oil discoveries, for instance. Yet what will the return on investment be there? Won't the government also look for a hearty slice of any profits? I wonder if this ill wind is a one-off event or a harbinger of a larger storm down the road.

“We'll see. But Brazil forgets there is a larger world out there. The money will just go elsewhere. Brazil will be the poorer for it.”


“The only problem with Social Security,” another reader writes, “is that it is funded with a regressive flat tax of 12% on the pretax wages of the poor and lower middle class. The wealthy have been permitted to completely opt out of the system while simultaneously reaping the greatest rewards in history in the form of massive tax cuts and economic policies designed specifically to benefit the top 1% of the population.

“If I pay a flat tax of over 12% of my pretax income into the general federal receipts to live in a civilized country, then so can everyone else, regardless of income. Do that and you could LOWER Social Security taxation.

“Talk of raising the retirement age and the tax rate levied on the poor and lower middle class is not going to fly. Unemployment among people in their 50s and 60s is skyrocketing. Raising the retirement age is the equivalent of throwing them onto the street.

“You people live in a fantasy world.”

The 5: This will be the last place you’ll find advocates for higher taxes… but that doesn’t mean we shouldn’t prepare for them.


“Regarding the reader outraged by Alan Simpson's comments,” our last reader writes. “I fully sympathize with the outrage concerning Social Security, but there are a few key things to grasp:

  • Social Security is not, and never was, any kind of individual annuity or investment plan of any kind. All it ever was or will be is a program for today's workers to pay benefits for today's retirees on the promise that in the future tomorrow's workers will do the same for us
  • There is no SS account with your name on it measuring your gozintas and gozouttas. It's irrelevant to the way the program operates
  • You will never get your $250,000 plus interest back. The World War II generation, like my grandmother of blessed memory, got far more out of it than they ever put in. Boomers might break even. Gen Xers and beyond will lose money, unless there is a seismic shift in jobs and demographics with our children.
“The grass is green, the sky is blue, and that's the way Social Security operates. You'll feel better if you direct your outrage at an issue you can actually affect.”

The 5: Amen. If we all spent half as much time planning for retirement as we do watching television, searching for Barack Obama’s birth certificate and writing nasty letters to your 5 Min. editors, we suspect Social Security wouldn’t be such a sore spot.

Did you say gozintas?

Best,

Addison Wiggin
The 5 Min. Forecast

P.S. By the way, here’s a good place for you to get started:

Legally Collect Thousands of Dollars Each Year... from the Other Government-Backed Retirement Program.

P.P.S. Tomorrow, we’re going to release a sneak peak of our new doc project. “Coming to an inbox near you!” Watch for it…
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/37119-great-search-yield.html Our Take on the Sudden Commodities Rally http://www.gold-speculator.com/5min-forecast/37051-our-take-sudden-commodities-rally.html Mon, 30 Aug 2010 20:41:19 GMT The 5 min. Forecast
August 30, 2010 10:41 AM

by Addison Wiggin & Ian Mathias
  • Softs soar… The 5 chronicles the remarkable summer rally for coffee, corn, sugar, cotton and wheat
  • Chris Mayer delivers bad news… why you might want to reconsider investing in Brazil entirely
  • Another government-mandated disaster: Global helium supply on track to disappear in 25 years
  • Agora Financial analysts deconstruct Bernanke’s big speech… our thoughts and market reactions, below


Today’s 5 begins with an abominable horror: The world’s most valuable commodity has soared to its highest price in a generation.


Coffee futures are approaching a 13-year high of $1.88 today.

And the case for more expensive coffee is growing stronger every week: Columbia had a smaller-than-normal harvest last year, and dry conditions in Brazil this year have pinched supply even tighter. Demand for this delicious, addictive stimulant is (naturally) growing.

Thus, stockpiles at Intercontinental Exchange-certified warehouses are down 35% this year and swill makers like Maxwell House and Folgers have already raised prices by 9% and 10%, respectively. Starbucks announced recently that it will eat the costs, which will amount to roughly 4 cents a share.

Retail prices would have to rise a whole lot more than 10% for either of your 5 Min. editors to even consider switching to something as silly as… tea.


Food prices are about to get a huge boost, too. But not in what we’d like to think of as a productive way.

“Brazil screwed it all up,” Chris Mayer laments by way of giving us an explanation. Last week, the Brazilian government let loose a sudden, “immediately binding” mandate that effectively outlawed all foreign ownership of domestic farmland… eerily similar to the Zimbabwean farmland coup.

“Worse,” Chris continues, “the legal rules are so unclear that all such acquisitions since 1988 could be null and void, with the land returned to nationals. I can tell you from talking to people down there in the last few days -- including attorneys -- that local businesspeople are not dismissing that possibility.

“Blame politics. It is an election year in Brazil. The country will vote for a new president on Oct. 3. All indications are that it will be Dilma Rousseff. She is one of the ones who have been highly critical of foreigners buying Brazilian land. "Brazilian land for Brazilians" is the chant.


What a boondoggle.

In April alone -- the latest data available -- foreign investment in Brazilian agriculture was $26 million -- up 225% from a year ago. Between 2002-08, foreign investors poured nearly $2.5 billion in land alone.

And there are some public funds that probably won't go forward now. Agrifirma raised $189 million and planned an IPO. Macquarie has a fund they set up, and they were to raise as much as $600 million.

“The new rules will freeze agricultural investment in Brazil. This is big news for global food markets because Brazil was such a key part of the equation. Brazil, as I've pointed out, is the world's arable land bank. This is where we'd get the added food supply the world needs.

“The implications will echo far beyond the borders of Brazil. It will have an impact on the world's future food supply and on food prices. And it also raises broader questions about investing in Brazil at all.”

[Ed note: Chris was scheduled to lead an investment tour to Brazil this month, but all the farmland projects he was lined up to see have been put on hold because of this mandate. We'll keep you posted on further developments.]


And yet another commodity is suddenly in rare supply: helium.


$1,092.96 of precious resources?

Cornell physicist Robert Richardson, a Nobel laureate, garnered some new attention last week when he warned the world will likely run out of helium in 25-30 years. Why? You might detect a theme in today’s 5… another bizarre government boondoggle.

80% of global reserves of this nonrenewable resource sit in the American Southwest, mostly in the National Helium Reserve in Amarillo, Texas. Under a 1996 law, that reserve is required to be sold off by 2015, regardless of global supply or market price.

Thus, helium is sold way below its market value, Richardson says, and is too cheap to recycle. As such, we’re consuming it far too flippantly (by government decree) and with little regard for dwindling supply. Should it run out, you can bid adieu to things like MRI scanners and anti-terrorism radiation monitors, among other things.

Ponder this at your next birthday party: To properly reflect helium’s scarcity, the professor reckons your typical party balloon ought to cost… $99.36.


Indeed, it has been a hell of a summer for many soft commodities, especially given the S&P 500’s 2% decline since June.

On top of coffee’s generational run, cotton hit a 15-year high on Friday, thanks in part to the flooding in Pakistan. Sugar hit a five-month high earlier this month. Wheat rose 55% in the last two months to a post-crisis high of $8.41. Barley has followed suit, leading a likely rise in global beer prices.

Just this morning, corn found a 14-month high of $4.44 a bushel, which could very well result in higher prices in everything from fuel to livestock to sweeteners to ketchup.


“Commodities are a world of opportunity,” our Chicago pit man Alan Knuckman commented from an undisclosed vacation spot in Mexico this morning, “a world that is truly governed by supply and demand, with constant concerns about potential upside price shocks.

“Agricultural commodities are especially susceptible to buying frenzies with any disruptions in the growing season or yields. The price declines from the financial crisis were overblown to the downside on an unrealistic halt in consumption.

“Most commodities have had a modest rebound with more upside gains in sight to just recover 50% of the drop from 2008 heights.

Coffee in particular is still a great deal off the 1977-1978 highs above $3.40. Prices move up and down seasonally and depend on the crop performance during the growing season. The price shock potential always exists if Mother Nature fails to cooperate with farmers.

With commodities, it is often not a matter of "IF," but rather "WHEN" major price moves will occur. With big moves come opportunity to profit. If you’d bought, for example, just one coffee futures contract when Alan wrote about it first, you'd be up $16,000 today, all profits.

Alan’s Resource Trader Alert readers have reaped the rewards of this summer’s commodity spike, selling half their sugar position recently for 187% gains while the other half has risen to over 309%. They cashed out on corn earlier this summer too, for an 83% return. If you’re interested in learning more, don’t wait… today is the last day of a great deal on RTA annual subscriptions. Details here.


Stock market traders, meanwhile, are far more concerned with other matters… namely how the Fed will be manipulating their market next. Traders gave Ben Bernanke’s latest speech a vote of approval Friday, as the Dow rallied 1.7%.

If you missed his speech from the annual Federal Reserve Jackson Hole retreat, Mr. Bernanke gave a thorough rebuttal to those who claim the Fed is out of bullets to fire at the U.S. economy. In fact, they’ve got three more, he said:

• The Fed could resume long-term security purchases…
• Or lower the interest rates banks receive for storing money at the Fed (perhaps even charging them to keep reserves)…
• Or promise to keep Fed lending rates at 0% for a longer period than the market expects.

Feel better now? Economists at Goldman Sachs and Pimco are still giving 25% odds of a double-dip recession, no matter what the Fed does.


“What happened to the recovery?” the intrepid Joel Bowman asks of Ben Bernanke. “What happened to the ‘substantial progress’ you had so earnestly forecast at last year's annual Federal Reserve retreat?

“On that very occasion, a year ago to the day, Bernanke spoke thus to the committee:

‘Although we have avoided the worst, difficult challenges still lie ahead. We must work together to build on the gains already made to secure a sustained economic recovery... and prevent a recurrence of the events of the past two years.

'I hope and expect that, when we meet here a year from now, we will be able to claim substantial progress.’

“The inability of Mr. Bernanke -- or anyone else, for that matter -- to hold back the tide of necessary correction ought to be obvious to all.”


Or not. Personal spending increased 4% in July, while personal incomes inched up just 2%. That’s a trend all too common prior to the Panic of ’08.

Savings rates in July dropped from a 12-month high of 6.2% to 5.9%.


After Ben Bernanke’s speech on Friday, the dollar index sunk below 83 while gold shot above $1,240. Both forms of money have since returned to their pre-speech levels.

“The Fed chair’s speech made it clear,” says veteran options trader Steve Sarnoff, “Bernanke and crew are setting up QE2 (another round of quantitative easing) to offset deflationary forces with inflation. This strategy sacrifices the U.S. dollar and is a main reason why the Midas metal is in demand.”


Bloomberg’s case against the Federal Reserve for increased transparency will likely go to the Supreme Court. A federal appellate court ruled in Bloomberg’s favor last week, another step in their quest to force the Fed to release the details of their bank loans during the credit crisis. The Fed will thus have one last appeal with the Supreme Court… we’ll keep you in the loop.

Of course, in the meantime, don’t expect any useful information. The day after losing their latest appeal, the Fed filed for a stay… essentially a delay of the court’s ruling until their appeal can be heard again.


Gasp. The FDIC didn’t close a single bank on Friday, their first weekend off since the Fourth of July.

Indeed, Lakeside Bank of Lake Charles, La., this morning became the first new bank of 2010. In stark contrast to the 151 new banks and thrifts formed in 2006, the tiny Louisiana startup is the one and only bank established from scratch and blessed by the FDIC so far in 2010.

Lake Charles seems to be doing just fine, growing despite the recession, thanks to local casinos, liquefied natural gas terminals, oil drillers and a new plant that makes parts for nuclear reactors.

Thus, Lakeside Bank has clients at the ready and is open for business… out of a double-wide trailer.


“This talk of nudging the age of retirement up,” writes a reader “until it’s conceivable that eventually nobody can retire makes me think of something I kept hearing in Shanghai this summer.

“Everybody would say, ‘It’s hot!’ Got up to 39 degrees (Celsius) today. It was always 39 degrees, not 40 or 41. Later, I learned that it never will get over 39 degrees C because they have a law that says that if it’s over 39 degrees, nobody has to go to work. So you don't have to worry about it getting too hot, because it’s not allowed.”

The 5: Heh. We heard that one in Beijing in May, too.


“I guess Mr. Simpson ” a reader writes, apparently unhappy with Alan Simpson’s description of Social Security beneficiaries, “wants everyone to ignore the fact that he is one of those bigger teat suckers. He is sucking in over $170,000 per year in congressional pension benefits, paid for by the very people he is insulting, even though he did not have to pay a dime to get that, and you can safely bet that due to his government position and contacts, he never has to reach for his wallet, no matter how expensive his health care.

“He is just another one of those government whores who has been insulated from the real world by his government positions for decades, yet perceives himself as one who deserves to tell everyone else what they should do or what they should have.”


“I read the lists where future jobs would come from,” writes another reader, “and believe them to be very good possibilities if only the government would get out of the way.

“Under previous administrations, trickle-down economics came from the private side of the economy from profit-motivated companies willing to compete for the best product to introduce. This government practices trickle-down economics from the government side, which is not profit motivated nor motivated to compete, and essentially breeds corruption, in my opinion.

“The uncertainty plaguing our investments is government driven -- period. Our country is losing the competitive edge to third-world countries due to bad policies and at the worst time in history.”

The 5: Indeed, you’ve tapped into the very subject of our next documentary. Gracias.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. If you’d bought two coffee futures contracts when Alan Knuckman wrote about them, you'd be up $32,000 this morning. That’s good money.

After midnight tonight, Alan’s presentation on trading these futures and making money in commodities as a whole will no longer be available. Neither will our limited-time discount on Resource Trader Alert. Please, take a short moment and review the presentation, here.
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/37051-our-take-sudden-commodities-rally.html Three Flashpoints for $220 Oil http://www.gold-speculator.com/5min-forecast/36929-three-flashpoints-220-oil.html Fri, 27 Aug 2010 19:52:49 GMT The 5 min. Forecast
August 27, 2010 11:26 AM

by Addison Wiggin & Ian Mathias
  • A run-of-the-mill attack in Iraq… or an alarm bell warning of triple-digit oil?
  • Two more Middle East flash points: How the United States and Iran are already waging a proxy war
  • One year later: Hey Ben, how’s that “sustained economic recovery” working out for you?
  • Judge’s ruling creates “a little bit of a conundrum”… and a new bull market
  • “Enormous ignoramus”: Reader unloads on Alan Simpson… Others weigh in on where new jobs will come from


With oil sitting comfortably at $73 a barrel this morning, we cast a nervous eye toward the Middle East… where some little-noted developments are setting the stage for a return to triple-digit prices. Maybe very soon.


On the surface, this looks like a pretty routine Iraq story: An ambush there yesterday killed six members of a Sunni militia known as the “Awakening Councils.”

But the background the media didn’t supply makes this much more interesting -- and ominous. See, the Awakening Councils are Sunni Muslims the U.S. government paid off in 2007 so they’d stop shooting at U.S. troops.

This was part of Gen. David Petraeus’ “surge” strategy: He promised the militiamen that in return, they’d get a seat at the table in Iraq’s new government, dominated by Shia Muslims. Problem is, Petraeus never got the Shia to buy into this.

What’s more, Iraq’s new Shia leaders have close ties to Shia-dominated Iran; in fact, several of them lived there in exile during Saddam Hussein’s rule. Our eyes perked up a bit at the location of the attack yesterday -- within spitting distance of the border.


We don’t want to jump to conclusions about who’s to blame for this attack. Still, we take note because Iraq is the first of three flashpoints Byron King has identified in what he sees as a “New War” shaping up between Sunnis and Shia in the Middle East.

We might be willing to chalk this up to coincidence, except that…


It’s looking more and more as if the United States and Iran are waging a proxy war in Yemen. Again, this is something the mainstream media ignores: The news we get from Yemen is all about al-Qaida sympathizers like the guy who tried to blow up the jet flying into Detroit last Christmas.

But Yemen’s Sunni-led government is also waging war against Shia rebels in the north, who say they’re victims of discrimination. The fighting has displaced 350,000 people in the last six years.

There’s word this morning of a truce, but truces have broken down before. That may be because, according to hawks in both Israel and the United States, Iran gives aid to its fellow Shia in Yemen. Iran “controls bodies that function as a state within a state, in Lebanon, Yemen, the Palestinian Authority, and other places,” according to Israel’s deputy foreign minister Danny Ayalon.

Get the picture? The United States is backing the Sunni government in Yemen, and Iran may be backing the Shia rebels. That’s why it looks like a proxy war. And it just so happens Yemen is the second of those three flash points Byron King is alerting us to. Should it blow up, he sees this Sunni-Shia war sending oil well past the record $147 set in July 2008.


We’re a bit late on this news, but we see President Obama has just sweetened an arms deal his predecessor cut with Saudi Arabia… throwing in 130 attack helicopters, to bring the total value of the package to $60 billion over 10 years. That’s the biggest U.S. arms sale overseas ever.

The Pentagon makes it pretty plain: Part of the rationale for this deal is to “deter Iran.” Why? Because Sunni-ruled Saudi Arabia is home to restive Shia who happen to live on top of the country’s most productive oil fields.

Thus, the White house seeks “to beef up the militaries of Arab allies as a counterweight to Iran,” explains The Wall Street Journal. “Saudi Arabia, home to the birthplace of Islam, claims leadership of the Sunni world, making it a rival of Iran, which is predominantly Shia.”

And Saudi Arabia is the third and final flash point Byron identifies in the “New War” between Sunnis and Shia. Or rather, a new phase to a very old war that’s been raging 1,300 years.


In this context, Iran’s nuclear program is something of a sideshow. “Even if the go-ahead to build a nuke never comes from Iran's top cleric” says Byron, “the more immediate danger is a wildfire of Shia-Sunni unrest... starting in Iran's new hotbeds of Shia support... and spreading across the rest of the Sunni-run oil states... with the richest oil fields in the world's richest oil nation as the final battleground.”

Byron’s worst-case scenario: Oil at $220 a barrel, and gasoline close to $8 a gallon.

We realize you can’t tell all the players without a program… much less figure out on your own how to protect your portfolio if the worst case comes about (or even some fragment of the worst case).

That’s why Byron’s put together a raft of maps and data in a new presentation that makes sense of a wickedly complex situation… and then shows you how to guide your finances to a safe harbor. We urge you to check it out here.


The Kansas City Federal Reserve convenes its annual retreat in Jackson Hole, Wyo., today. At this event one year ago, Fed chief Ben Bernanke proclaimed, “Although we have avoided the worst, difficult challenges still lie ahead. We must work together to build on the gains already made to secure a sustained economic recovery… and prevent a recurrence of the events of the past two years.

“I hope and expect that, when we meet here a year from now, we will be able to claim substantial progress.”


Right on cue this morning, the Commerce Department issued, well, a progress report -- its first revision of second-quarter GDP. It came in at an annualized 1.6%, a far cry from the initial guess of 2.4%. But it beat the Street’s expectations of 1.3%.


Hence, the Dow shot up 56 points in the first five minutes of trading. Like a climber hanging to a cliff side by the fingernails, the Dow has yet again recovered from the precipice of 10,000.

Now traders turn their nervous eyes to Jackson Hole for Bernanke’s dramatic (yawn) announcement later today. Will our anti-hero boldly order another helicopter drop of quantitative easing? Or must he hold his fire, as the bond vigilantes lurk in the background? Tune in Monday for the thrilling (yawn again, stretch) conclusion.


Bearing in mind a Bloomberg story this week that said, “Housing led the U.S. out of seven of the last eight recessions,” we take note of the following: One in 10 U.S. homeowners with a mortgage has missed a payment as of June 30, according to the Mortgage Bankers Association.

The number is pretty much unchanged from three months earlier. The trend remains up… after having moved down much of last year.

The percentage of borrowers getting foreclosure notices last quarter was 4.57%, the first drop in four years. A good sign? No, that just reflects what we’ve noted before: Lenders are finally working through their massive backlog of “shadow inventory” that wasn’t on the market till now.

Which brings us to a chart that accompanied the news this week about existing home sales hitting a 10-year low: Inventory spiked to a 10-year high...


It would take over a year to clear all the inventory that’s finally made it to the MLS.


Don’t look now, but we could be in for a sugar squeeze come 2011. In fact, close to half the nation’s supply may be at risk.

“When you take beets out of the equation, then we start running into shortages,” says Jake Putnam of the Idaho Farm Bureau, whose state ranks No. 2 in sugar beet production. “We'll start running into problems. And I think we'll start to see food prices increase."

That’s because a federal judge ruled a few days ago that farmers can no longer plant genetically modified sugar beet seeds -- reason being windblown pollen from the seeds could contaminate crops in nearby fields.

Here’s the problem: Genetically modified seeds now make up 95% of sugar beet planting… and half our sugar supply comes from beets. (The other half comes from cane grown in more tropical climes like Florida.)

"We are in a little bit of a conundrum,” says Duane Grant, chairman of Snake River Sugar Co. “We don't have enough seed to plant a full crop with conventional seeds next year,"

“The price of sugar is a global affair,” according to our resource man Alan Knuckman, “but rulings like this add onto the already prevalent bullish market action.”

Bullish, indeed. Alan’s readers closed out a sugar position for 187% gains just a month ago… and they’re sitting on another position that earlier this week was up 311%. It’s too late to get in on that play, but you can be on board for the next one with a discounted membership to Resource Trader Alert -- still available for the next four days.


Seeing our item yesterday on Alan Simpson’s remark that Social Security is “a milk cow with 310 million tits,” a reader writes: “I would like to tell the enormous ignoramus Alan Simpson a few things:

1. Social Security IS NOT a social welfare program. It is an annuity that I paid for.
2. The government that he was kinda in charge of for oh-so-many years took this money from me at the point of a gun -- more than $250,000 in today's money, and I will gladly stop sucking on the Social Security TIT just as soon as I am restored my f'n $250K, plus interest.
3. You know when that is? When I am 95 years old!
4. I think he (Mr. Simpson) should be hung by the b**** until dead.

“Kindly withhold my name as I do not wish to have to defend my First Amendment rights with the paltry Social Security income that I receive.”


In response to our question yesterday, “What's going to replace the credit-based financial industry and housing market with all the jobs, etc., dependent with those two industries?” a reader writes, “Nothing.

“However, four areas that have growth potential in my estimation are: agriculture; medical; in particular, stem cell or related regenerate companies; and, of course, energy of all types.”


“Raw materials, land, minerals and revalued labor,” another responds elliptically. “We will be taking steps backward to grow the future economy from an old seed. It’s back to basics.”


Yet another reader weighs in…

1. “Alternative energy. In all its forms, solar, wind, ocean, geothermal, bio, fuel cell, battery tech, etc. We are not even scratching the surface, and what is needed is an alt-energy Marshall Plan. That's where the stimulus should have gone.
2. Infrastructure. Nearly all roads, bridges, tunnels and especially water mains and pipes, etc., are 50-80 years old. Much ignored, but this is a tidal wave coming down the pike!
3. Environmental technologies. True solutions to carbon emissions, not the stupid sequestering, but recycle/reuse. Clean water, desalination on a massive scale to solve the coming water shortages, truly beneficial pesticides and fertilizers.
4. Health care. Innovative administrative solutions, medical biotechnologies, better, low-cost drugs and alternative medicine.

“I can think of more, but these are the biggies which would provide a range of both manual, skilled labor and cerebral employment opportunities.”


“The ideal industry,” our final reader suggests, “is one that:

1. We are very good at winning and have experience with.
2. We are capitalized in the equipment required to win.
3. Our industry is geared up to support it.
4. We know the conditions for and have in-place assets to monitor the playing field.
5. Will require the services of the currently unemployed -- great savings there.

“The obvious answer is war. We do it very well, especially where there are no significant rules of engagement. So as a mercenary force, we simply work for hire. Our payment can be cash or resources (that we can develop or market for cash). Can you think of another American industry so poised for success and profit? If this puts you off, then tell me what was so good for us with the last few 'wars' we have entered into?”

The 5: What’s with all the numbered lists in today’s mail? Anyway, you’re onto something.

We see news this morning that the promises about winding down the war in Afghanistan starting next year and pulling out of Iraq completely by next year are both falling by the wayside. And on top of that, we have a brewing proxy war between the United States and Iran, as we detailed above. War is undoubtedly one of the major stories that will shape our economic future in the next decade. You’d best prepare accordingly. Here’s a good way to begin.

Regards,

Dave Gonigam
The 5 Min. Forecast

P.S. “It was just a great idea to print Andrew Lahde's farewell note!” one more reader says. ”He was very lucky that some residual sane part of his brain bootstrapped him out of his grey life, and we are lucky that he choose to let us know what moved him to do it -- worth pondering about by all his colleagues, and by those of us who believe that decent governance may still be within reach.”

If you missed it, it’s at the conclusion of yesterday’s edition.
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/36929-three-flashpoints-220-oil.html Surviving the Fall of Entitlements http://www.gold-speculator.com/5min-forecast/36838-surviving-fall-entitlements.html Thu, 26 Aug 2010 20:13:05 GMT The 5 min. Forecast
August 26, 2010 11:18 AM

by Addison Wiggin & Ian Mathias
  • How the United States has defaulted before… and is on the verge of defaulting again
  • “A milk cow with 310 million tits”: a salty politico’s crusty comments and the serious issue they obscure
  • New bull market: Why lean hogs are fattening the wallets of traders in the know
  • Chris Mayer makes sense of China’s 62-mile traffic jam… Plus, the great chopstick crackdown!
  • Readers light us up on marijuana legalization


“Governments will impose a loss on some of their stakeholders,” reads a new report from Morgan Stanley on sovereign debt. “The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.”

Of course, we’re talking only about “other” countries like Greece and Ireland, right?


The report points out a little-noted statistic: Government debt as a percentage of annual tax revenue. With debt soaring and the revenue tanking, the United States now has one of the highest in the world at 358%. (Compare that to Italy -- one of those pesky “other” countries with baby boomers poised to overwhelm the system -- with a figure of 188%.)

But we’re the world’s reserve currency, right? We can’t default. And if we ever run the risk, we’ll just print our way out of it. Right?

Uncle Sam has defaulted in the past, or as the Morgan Stanley report put it, “imposed a loss on some of his stakeholders.” When Social Security was “reformed” in 1983, following the advice of the Greenspan Commission, anyone born after 1937 had to work at least a little past age 65 to collect full benefits. If you were born after 1960, the retirement age was bumped up another two years.

That’s one promise reneged upon. We have no doubt another is on the way.


"Social Security needs to be tweaked,” declared Brad Woodhouse, communications director for the Democratic National Committee this week. True, he said that to differentiate his party from Republicans who want the system “torn apart from its very foundations.” But the very party who claims Social Security as integral to its heritage knows the game is up. The No. 2 Democrat in the House, Maryland’s Steny Hoyer, is already proposing another increase to the retirement age.


It helps to keep a sense of humor about all this. Which clearly some people don’t when it comes to the cantankerous old coot Alan Simpson, the retired Wyoming senator who’s now the Republican co-chair of President Obama’s deficit commission.

Earlier this week the head of OWL, a group describing itself as “the voice of midlife and older women,” sent him a letter insisting Social Security “doesn’t contribute” to the national debt. (Ah, Social Security denialism.)

Simpson’s reply ended with the following: "Yes, I've made some plenty smart cracks about people on Social Security who milk it to the last degree. You know 'em too. It's the same with any system in America. We've reached a point now where it's like a milk cow with 310 million tits! Call when you get honest work!"



I said what? No, I’m pretty sure I meant, “teats”

We could hear people whining all over the capital from here in Baltimore. More than one sourpuss asked for Simpson’s resignation from the commission. That doesn’t appear to be forthcoming, but Washington propriety being what it is these days, he did issue an apology: "I can see that my remarks have caused you anguish, and that was not my intention."

That’s Washington for you: Silly cable news distractions while Social Security is just 35 days away from officially slipping $28 billion into the red.

“What does that mean?” our dividend hound Jim Nelson asks rhetorically. “Either they hike up your payroll taxes now... slash your retirement payouts later... or both. Payouts shrink. No matter what, it means you come out of this with less.”

Mr. Nelson spends his days, and even some of his evenings and weekends, sniffing out sources of investment income to make up the difference. We’ve prepared the following presentation to help share his most recent discovery with you. If you haven’t yet taken the time to view it, please do so here.


The Dow and S&P opened up slightly this morning, thanks to this week’s report on first-time unemployment filings. The number is back below 500,000; indeed, it came in below the consensus guess. Given the rest of this week’s dismal data, traders will find comfort wherever they can.

Yesterday, lousy monthly reports on durable goods (terrible, save for cars and aircraft) and new home sales (worst since records began in 1963) pushed the Dow below 10,000. But that seemed to trigger enough automatic buys to propel the index back above that “psychologically important level.”


Home builder stocks rallied yesterday. Yeah, we know. Nuts.

The major ETFs that track the sector jumped 3% on the theory that such an awful report as came out yesterday indicates we’re “near the bottom.”

If the unemployment picture -- thus the income picture, thus the ability-to-buy-new-construction picture -- were “near the bottom,” that would make sense. Maybe traders are toking even more than the numbers we told you about on Tuesday indicate.


Gold sits at $1,238, down only slightly from this time yesterday. The dollar index is down more substantially, back below 83.


Here’s a bull market in the making: hogs.

“American per capita meat consumption according to the USDA has dropped from a 40-year peak in 2007 at 220 to 210 pounds for this year,” our commodities specialist Alan Knuckman explains by way of background. “The straight uptrend increases halted as the financial crisis changed incomes and diets.

“A major culling of the herd in 2009 to reduce livestock inventory drove hog prices to extreme lows. Then the H1N1 outbreak created a perfect storm and proved that the pork reduction strategy left few animals in the pipeline to meet present demands.”

“It takes six months or more from birth for a pig to reach market weight,” Alan goes on. “And with many breeder pigs sold on the economic downturn, there wasn't a quick fix to restart production again. That's where we are today.

“The United States is the largest pork producer in the world. On Aug. 12, 2010, the USDA said that it expects pork production to be down 3% in 2010 and the price of barrows and gilts to average 54.5 cents per pound, 74 cents lean (live hog is pricing for the whole animal versus the lean hog futures contract that is the dressed carcass). So far in 2010, U.S. pork production is down 4% from a year ago.”

”The June 1 count of all U.S. hogs and pigs was 64.400 million head, down 3.6% from a year ago and less than expected. The March to May pig crop was down 4.7% from a year ago.”

No wonder Alan’s readers are sitting pretty right now with a lean hog position. They’ve collected other gains in the past month totaling 83%, 103%, even 187%. You can join them now at a reduced rate -- but only for the next five days. After that, membership to Resource Trader Alert returns to full price.


We confess we were skeptical earlier this week about reports of a “62-mile traffic jam” in China. For the first 24 hours, there were no pictures accompanying these stories. Apparently, 130 miles outside Beijing is remote enough that it takes time to get pictures to the rest of the world. But seeing is believing…


Gives “bumper-to-bumper” a whole new meaning, no?

Late word at midday is the jam has broken up as mysteriously as it began. (And again, no pictures yet.)

Now, everyone from The Christian Science Monitor to the Beijing Youth Daily is trying to explain this by saying many of these trucks are hauling coal from Inner Mongolia to coastal ports because China’s rail system isn’t up to snuff. Which is true… but “this has been going on for a while,” Chris Mayer tells us, “so I don’t know that it suddenly caused this backup.”

Still, the trend is unmistakable… and Chris is in the process of identifying a way to profit for the next issue of Mayer’s Special Situations. There’s still time -- but not much -- to pay just $1 for a trial membership, which gives you instant access to seven China plays, every one of them available on a U.S. exchange. Here’s where to go.


Then there’s the news that China is cracking down on chopsticks. Seriously. The Ministry of Commerce recently issued a directive that "Production, circulation and recycling of disposable chopsticks should be more strictly supervised."

China goes through 130 million pairs every day. Greenpeace China figures that amounts to 100 acres of forested land every day -- a big deal for national leaders who want to increase the percentage of land covered by forest. (In 1949, it was 8%. Today, it’s about 12%. In the United States, it’s 30%.)

Of course, it’s one thing to tell the factories to cut down on production. It’s another thing to tell ordinary Chinese to cut down their use. We’ll see how it all shakes out…


“Legalizing marijuana would be a step in the right direction toward freedom and liberty more than anything else,” writes a reader who agrees with one of our correspondents yesterday. “Sure, there would be revenues and uses for cancer patients, but for me this issue is about freedom and nothing more. I will put what I want in my body, and it is none of the government's business.

“The drug cartels are running roughshod over the Southwest on both sides of the border. How did organized crime become powerful in the 1920s? Prohibition. History again repeats. This isn't about drugs being good or bad: It is about freedom and ending the power vacuum created from the prohibition of a substance. If we cannot keep drugs out of our prisons, how are we accomplishing anything other than to give incentives to criminals with this stupid ‘war on drugs’? The stupidity of the ‘war on drugs’ is surpassed only by the idiotic ‘war on carbon.’"


“Anyone who thinks that marijuana is ‘productive’ and that it can be called an ‘industry,’” counters another, “is obviously delusional. So we are to turn our cropland and grazing pastures over to the growing of weed? I think not!

“And we are supposed to put up with stoned Wall Street workers? Spare me. They should all be repeatedly and randomly drug tested and fired when they test positive! They make a mockery of fiduciary responsibility both to their firms and to the firms' clients.

“Marijuana is an addictive, mind-altering drug and ought to be avoided, at least on the job, by everyone who is depended upon for clear thinking, good coordination and efficient and productive work.”

The 5: Buzz kill.

Do you remember the infamous farewell letter Andrew Lahde wrote when he shut down his hedge fund two years ago, having successfully shorted subprime? He opted to drop out and tune in instead.

“Hemp has been used for at least 5,000 years for cloth and food,” he wrote toward the end of his message, “as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant -- marijuana.”

For entertainment purposes, we’ve reprinted Andrew’s entire farewell letter below.

Enjoy,

Addison Wiggin
The 5 Min. Forecast

P.S. “We’re rediscovering the values that made us a prosperous society in the first place,” we suggested yesterday in conversation with Dan Rodricks, host of the Midday talk program on Baltimore’s NPR station. “You have to have high savings, high investment in the goods people can use in order to have an economy that grows.”

Of course, not everyone’s gotten the memo yet. Later in the day, we ran across a survey by the purveyors of the Case-Shiller home price index. Each year, they ask new homeowners in four metro areas -- Boston; Milwaukee; Alameda County, near San Francisco, and Orange County, near Los Angeles -- where they think home prices are going. The consensus right now: They’ll rise 10% a year for the next 10 years. Which is what new homeowners also thought in 2005. Oy.

During the program, Mr. Rodricks was trying to define “sustainability” and wondered aloud what’s next for the U.S. economy?

We benefited from the communications revolution in the 1990s. At that time, the reinvention of the economy got us out of recession and helped balance the federal books (on paper, at least) for about 18 months. What's going to happen this time around? The Internet and its concomitant parts were a 100-year event, at least. What new industry will bail us out this time? What’s going to replace the credit-based financial industry and housing market with all the jobs, etc., dependent with those two industries? Email us your thoughts here.


P.P.S. Andrew Lahde’s infamous “farewell” upon shuttering his hedge fund in October of 2008:

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, "What I have learned about the hedge fund business is that I hate it." I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don't worry about my employees, they were always employed by Mr. Springer's company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life -- where I had to compete for spaces in universities and graduate schools, jobs and assets under management -- with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man's interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft's near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won't see it included in BP's, "Feel good. We are working on sustainable solutions," television commercials, nor is it mentioned in ADM's similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won.

At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant -- marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let's stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/36838-surviving-fall-entitlements.html The Sector That Defies Deflation http://www.gold-speculator.com/5min-forecast/36737-sector-defies-deflation.html Wed, 25 Aug 2010 19:31:14 GMT The 5 min. Forecast
August 25, 2010 09:42 AM

by Addison Wiggin & Ian Mathias
  • Prescription drugs defy gravity… prices increase 8% in 2009 despite global deflation
  • More federal “assault on enterprise”… judge bans certain stem cell research
  • Patrick Cox on how the ruling will alter breakthrough medical technology
  • Byron King on oil prices and a new frontier for alternative energy -- the Balkans
  • Plus, readers chime in… your thoughts on legalizing marijuana and the plight of American teachers, below

We seem to have stumbled on a theme this week: drugs, drugs, drugs.

In spite of the “deflation” that has much of the banking world spooked, brand-name drug prices increased 8.3% in 2009, says a study AARP released this morning. They’ve nearly doubled in the past five years.


AARP tracked the prices of the 217 drugs most commonly used by elderly Americans and found last year had the highest rate of inflation since at least 2006, when the Medicare drug benefit kicked in.

Coincidence? We think not.


Just in time, a federal judge in South Carolina put the kibosh on President Obama’s plan to allow federal funding for embryonic stem cell research.

“If one step or ‘piece of research’ of an embryonic stem cell research project results in the destruction of an embryo,” ordered South Carolina Judge Royce Lamberth, “the entire project is precluded from receiving federal funding.”

Judge Lamberth cited the 1996 Dickey-Wicker Amendment, which bans federal funding of embryonic destruction. (Thank goodness someone in the federal government is willing to stand up for moral rightness and correctitude.)


Fortunately, “the ruling will have little impact on private companies that have been living with the ban on the use of federal funding for unapproved embryonic stem cell lines for years,” says Patrick Cox, in whose wheelhouse this bit of the news cycle firmly resides.

“Primarily, the ban will effect academic institutions that accept federal research money, which counts for a very small fraction of the money that has gone into stem cell research.

“And ironically, the biggest impact will be felt by important universities. They’ll no longer be able to profit from collaborations that produce marketable technologies. Today, these collaboration incomes are a significant source of funding for many academic research labs. And ultimately, it will slow the progress of regenerative medicine.

“But assuming it stands, the ban will concentrate stem cell IP in private firms that are unaffected by the ruling,” which could be good for investors in the right companies.


Further, “the ruling,” Patrick continues with a recurring theme since the financial crisis began, “reduces the motive for leading stem cell companies to stay in the U.S. Stem cell companies want to collaborate with U.S. researchers. If they cannot, they will probably look elsewhere.”

Already, one of Patrick’s leading stem cell research companies has launched an operation in China, because the regulatory environment there is in many ways more lenient.

“Whereas our FDA often acts to protect established pharma interests,” says Patrick, “Asian authorities are consciously attempting to establish new medical industries to compete with American companies and technologies.

“For investors, this is largely irrelevant, but for Americans it means that we will probably see the current trend toward offshore research and development continue. Luckily, investors are not restricted by national borders and can follow the science and profits wherever they find a friendly home.”

Two stem cell companies in Patrick's Breakthrough Technology Alert portfolio have given readers 134% and 471% gains since Patrick’s initial recommendation. And at the moment, they aren’t selling… they’re holding on for the potentially life-altering gains that coincide with these kinds of generational medical advances. If you want to swing for the fences too, you should check out Breakthrough Technology Alert.


The stock market appears to have bigger fish to fry this week, namely yesterday’s continuing, painfully slow destruction of the U.S. housing market.

July’s 25.5% crash in existing home sales helped the S&P 500 drop over 1.4% yesterday. The Dow eked out some surprisingly strong support at 10,000, bouncing back to 10,040 by day’s end.

Still, yesterday’s loss helped turn a nice gain for Options Hotline readers. The S&P sell-off bumped their Intel puts to a 102% gain in just five weeks -- the ninth time this year subscribers have had the chance to book 100% gains or more.

Five other positions in Steve’s portfolio hit new highs yesterday too… that’s pretty good for an otherwise dismal day in the markets. For insight into Steve’s options strategy, look here.


Following yesterday’s sell order for stocks, the dollar index edged up a few tenths of a point, to 83.2. Spot gold jumped $30 over the last 24 hours, to a healthy $1,240 an ounce.


Oil continues its slide today, breaching the $71 a barrel level. It’s been a downright lousy month for light sweet crude. The front month contract is down about $13 in August.

“Oil prices are in the end-of-summer doldrums,” comments Byron King. “It's not as if anything very good, or very bad, has happened to the world supply-demand situation. It's more likely that the oil traders are at the beach, and not at their trading desks running up the prices.

“Still, lower oil prices mean that many oil companies and oil service players are on sale.” Might be worth a look.


“The Balkans are starting to get over the bad rap that developed with the Bosnian war 10 years ago,” Byron continues on another tangent, having just returned from a research trip to Serbia. “Now that the war is over, there are an increasing number of opportunities for us.

“What the Balkan nations need now are companies to take the first move to put together this new energy resources, like hydropower. One legacy of communism is that much of the hydropower potential in southeastern Europe was never developed. Plus, in the years after the fall of the Iron Curtain in Europe, there was continuing war and destruction in the region, which throttled development.

“The legal and trade regimes in Serbia and the rest of the Balkans are set up for investor success. Today, most of the nations in southeast Europe have joined or are for all practical purposes part of the EU. So they’re used to dealing in the EU legal and regulatory regime, as well as working and accounting with euros. You don’t see nationalizations in these areas, as is the case in places like Venezuela.

“Also in southeastern Europe today, there’s a free trade agreement managed by the EU that covers the regional power grid. Add in the benefit that most EU countries have preferential feed-in tariffs and other subsidies (called “green certificates”) for renewable energy. And then there’s attractive energy pricing in Europe, by any commercial standard.

“It gets better. Just next door, Italy plans to fulfill its EU renewable energy obligations by drawing green power from the Balkans. Italy already has a series of bilateral deals in place to import electricity from Montenegro, Bosnia and Serbia. Italian utilities, with the cooperation of the Italian government, have committed 5 billion euros of hard investment to date, for generation and grid updates.

“So I’m looking at companies in the region that are taking the lead in an almost undeveloped hydropower field… first-mover advantage in a distressed area, so to speak.” With Byron’s help, we’ll be keeping an eye on energy trends in Eastern Europe as they develop. Watch this space.


“I saw that Wall Street workers are using marijuana,” a reader responds to yesterday’s 5, “and you poked fun at it. The time has come for this $40 billion product to be decriminalized, legalized, distributed and taxed in a responsible way. Decriminalized, it would be a $100 billion-plus industry.

“The U.S. needs marijuana to be legalized. Where else are we going to find a product of this magnitude?

“Why is marijuana illegal? It is too productive. The lobbyist groups running our country now are fighting tooth and nail to keep it that way. Here are some of the lobbyist groups fighting it: Big Pharma...imagine something that really helps many ailments and doesn't poison you; Big Oil... a fuel source that doesn't poison our planet; Big Cotton... clothing that costs less; Big Paper... the amount of paper produced by marijuana would dwarf the amounts of paper produced by the same area of land.

“Not to mention maybe we could stop subsidizing our farmers. They could each be allotted a certain area to grow this product. We still need them to grow food -- and probably a little bit more when this law passes. How much money has our government wasted on its war on drugs, while Big Pharma continues to legally poison us while influencing the FDA? And what our medical schools teach future health care workers?”

The 5: Love it. One size fits all. Bob Marley is going to be stuck in my head all day. I like how you used this phrase too: “taxed in a responsible way.” That one gave us a chuckle.

Yesterday, Colorado Gov. Bill Ritter announced he’d be using the $9 million in “profits” his state gained from “medical” marijuana registration to help pay down their $60 million budget gap.

It’s a start.

Here’s another idea: Let’s issue the 58 million people who are currently drawing from Social Security “retirement” marijuana. Then when their checks stop coming, they’ll just think it’s a bummer, dude.


“The teachers teaching in Los Angeles are smart enough,” another reader writes, this one responding to our suggestion that instead of spending $578 million to build one high school, they could use that money to wise up their staff. “I live in a suburb of Los Angeles, so I'm somewhat familiar with the situation.

“The problem, as I see it, is the Board of Education in LA that tells teachers how to teach and what to teach, and when it doesn't work, it's the teachers fault. The only way I see to fix the problem is something that will never happen: Fire the Board of Education members. Sell all the schools with nonprofit status. And give private schools the first chance to buy them. Then give every school an allowance for each student they have, regardless of the type of school, based on the property tax collected and the sale of all Los Angeles Unified property.

“Only then would our children would finally get a useful education, I believe.”

The 5: You’re right: That would never happen.

Regards,

Addison Wiggin
The 5 Min. Forecast

P.S. We’ll be co-hosting a radio program on the local NPR station today between 1-2 p.m. EST. We’re following a gentleman who argued in 2008 that the only way to protect the Chesapeake Bay -- and, by extension, the United Sates -- is to limit population and economic growth. The conversation ought to prove entertaining, if nothing else.
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/36737-sector-defies-deflation.html What They’re Smoking on Wall Street http://www.gold-speculator.com/5min-forecast/36644-what-they-re-smoking-wall-street.html Tue, 24 Aug 2010 20:52:18 GMT by Addison Wiggin (http://www.addisonwiggin.com/) & Ian Mathias (http://www.agorafinancial.com/EDITORS_IanMathias.html) * Study shows sky-high use of marijuana among Wall Street traders * Chris Mayer on a popular investment that will likely prove to be a bummer * One unusual trade to protect you from the coming stock market meltdown * The worst data point so far this year… proof the recession is far from over. Plus, an income program to help you deal with it Image: http://www.ezimages.net/upload/5MIN/z00_00.gif *Markets make opinions, the old-timers say.* Today, we have empirical proof. Or at least a litmus test on the “mood” out there. Gone are the days of the stereotypical high-rolling cokehead on Wall Street, says the drug screening firm Sterling. After conducting tests at 270 firms over the past three years, positives for cocaine have dropped 60%... down to just 7% of all failed tests. Use of ganja, whacky tobacky, sensi, the good stuff -- whatever your favorite name for it is -- is way up. Marijuana now accounts for 80% of failed tests. Nationwide, according to the Health Department, growth in cocaine and marijuana use was relatively stagnant over the same period. Perhaps, the stimulus money didn’t reach as far down the ladder as we’d suspected. Image: http://www.ezimages.net/upload/5MIN/z00_31.gif *Still, dude, doesn’t that explain everything? *You must be high -- paralyzed by laziness from the neck down -- if you think there is no better investment out there than lending the U.S. Treasury money for two years at a record-low 0.46%. Fuzzy-headed 10-year notes found a new low today, too. The T bill yields just 2.5% this morning -- its lowest in 17 months, back when the global banking system was in the grips of the credit crisis. Image: http://www.ezimages.net/upload/5MIN/z00_44.gif * “Too many institutional investors are looking for yield,” *says Agora Financial’s sober managing editor Chris Mayer. “Their quest will end in tears. “This bond bubble is not only for Treasuries and corporate debt, but across the yield spectrum. “For example, master limited partnerships, or MLPs, are popular with investors. Mostly these companies own pipelines for oil and gas. They pay out most of their earnings to their unit holders. Yields are now about 5.5% for the popular Alerian MLP Index. A 5.5% yield looks good today. But about a year ago, MLPs paid about 8.8% on average, according to the WSJ. “To get to just an 8.8% yield from 5.5% means a drop in the price of the MLP of nearly 40%, everything else being equal. MLPs are too popular. They are overpriced, in my view. “Most everything on the yield spectrum is similarly expensive. Investors are getting paid too little for the risks they are taking… “In the end, I think it will end badly. Yield-starved investors will get the hammer dropped on them. The big buyers of the M&A boom will have paid too much. Higher taxes on dividends will gnaw away at shareholder wealth. And buybacks will prove too costly.” Image: http://www.ezimages.net/upload/5MIN/z01_25.gif *Another “you must be high” trade: the Japanese yen. * The same flight to safety trade that has pushed Treasury yields to record lows bumped the yen up to a 15-year high versus the dollar, at 84.17. Traders are rushing out of their carry trades and back into yen, even though fundamentals of the Japanese economy remain dismal, at best. “The swings from risk aversion to risk appetite are always with us,” writes our new currency trader Abe Confas. “It may change from day to day and week to week, but it is not a surprise. The key to success is to correlate the prevailing sentiment with the trading opportunity. Let's look a bit closer at the current risk-aversion sentiment. “The chart below shows an interesting co-movement between the S&P 500 and the dollar/yen rate (USDJPY) from October 2009. When the S&P strengthens, the USDJPY chart also moves up. When the S&P weakens, the USDJPY chart moves down. This is clearly showing that the yen is acting as a "safe haven" basket when the market is risk averse. Image: http://www.ezimages.net/upload/5MIN/MarketsinSync.gif “For equity investors, this is a significant contemporary correlation. It means that equity portfolios can be protected with currency options. That is, a put on the USDJPY becomes a protective strategy for those fearing further declines in the U.S. equity markets. “If the S&P falls, you can expect the USDJPY to fall in tandem,” increasing the value of protective puts Abe has suggested readers of his currency service use. We’re gathering our empirical evidence of Abe’s successful trading strategy as we speak. We’ll be “relaunching” the service this fall. Keep your eyes peeled. Image: http://www.ezimages.net/upload/5MIN/z02_32.gif *Another potentially “high” trade: commodities.* Traders have currently amassed their largest long position in commodities since April 2008 -- right before the crash. According to data compiled by the Commodity Futures Trading Commission (CFTC) and Bloomberg, “long” futures contracts for an index of 20 commodities have reached a nosebleed 1.75 million. Image: http://www.ezimages.net/upload/5MIN/BuyTheTicket2.gif A quick look at the Reuters/ Jefferies CRB Index of commodities reveals the prices are already breaking down. Image: http://www.ezimages.net/upload/5MIN/TaketheRide1.gif In early January of this year, traders got similarly excited about a potential return of the 2008 frenzy for resources. That rally sold off quite sharply. We too expect the return of strength in commodities prices. But not before traders quit their addiction to Treasuries and money market funds. Image: http://www.ezimages.net/upload/5MIN/z03_02.gif * Part of the correction in the CRB Index comes at behest of the black goo.* Crude oil, if you’ve been watching, has been hit hard over the last month, falling from $85 a barrel to just $71 today. Thus, we note the majority of those speculative commodity holdings right now are in wheat and corn, up 51% and 16% this month, respectively. Our Resource Trader Alert readers raked in handsome profits earlier this month on these trades. Editor Alan Knuckman recommended they exit their corn and sugar positions before the crowd rushed in and banked 83% and 187% winnings. Alan reminds us often, you can make money when the market corrects, too. He sat down with us recently and offered his unique wealth building secrets. Here’s what he had to say (http://agorafinancial.com/reports/RTA/GetRich/RTA_GetRich_vp_c.php?code=ERTAL805). Image: http://www.ezimages.net/upload/5MIN/z03_38.jpg *The Dow and S&P opened down over 1% this morning.* Traders were especially blown away by the biggest monthly drop in new homes sales history. The National Association of Realtors (NAR) announced this morning that July saw a 27% drop -- nearly three times as bad as the Street forecast. Inventories of unsold homes rose to a 12.5-month supply, the worst backup since at least 1999. All while median home prices remained flat, year over year, and mortgage rates were at generational lows. The nation’s appetite for McMansions appears to have been satiated. Without more government incentives and tax credits, the housing market remains comatose. Image: http://www.ezimages.net/upload/5MIN/z03_50.gif * “The recession in America never really ended,” *Dan Denning interprets the data from his desk in Melbourne. “It just got papered over by asset inflation driven by Fed policy and government stimulus that lulled people into somnambulant complacency. Yet it's clear that ordering extra gravy on your fries will not make you thin… “A recession is the natural way of correcting bad investments made at the end of the business cycle or a credit boom. Those bad investments are failed businesses or misallocations of credit that didn't produce jobs, income or a net economic benefit. When credit excesses emerge, the recession wipes away the slate and puts the economy and the job market back on a sound economic footing where real growth based on real demand from real savings can begin again. “Not that we're arguing in praise of recessions. But preventing them is a willful denial that any bad investments were made in the previous boom. It's like saying you don't need to burn calories to lose weight. You just need to eat more gravy fries and let fitness come to you naturally, while you gorge on Tim Tams on your couch and watch MasterChef.” Image: http://www.ezimages.net/upload/5MIN/z04_10.jpg * “In my 401(k), I'm pursuing a barbell strategy,” *a reader writes, responding to our question yesterday: How are you preparing for retirement? “I keep 50% of my money in cash and the remainder allocated among stock and bond funds (60/40). In stocks, I'm overweighted in international and income funds. I'm underweight the S&P 500, as I believe the earnings growth with U.S.-based companies is short-lived.” Image: http://www.ezimages.net/upload/5MIN/z04_20.gif * “We went to cash in both our 401(k)s on Jan. 4, 2008,” *a reader writes, responding to the same question. “Those accounts are still in cash. Yes, we missed the climb off the March 2009 bottom, but we never felt comfortable enough with the light volume/high-frequency trading-driven phony rally to put half of our retirement assets back into the risk trade. We've gotten some grief for being conservative. “Another 40% our assets are in a U.S. Treasury bond fund that has done well. With the final 10%, we're actively trading S&P 500 (ES) and Russell 2000 (TF) futures, both long and short. The bond market and general economic news has us expecting a significant retest of the March 2009 lows in the next year, and we think that cash and government bonds will be better than precious metals in that event. “As long as humankind does not revert to cave dwelling and fighting with clubs and rocks, we think that three-five years out, there will be some real equity bargains again -- when the Fed/U.S. government effort to prop up assets prices finally fails and real price discovery occurs. “Maybe when PEs hit 6-8 again we'll consider buying equities, but we'll never own them for the long haul. We have a position trader's mind-set at this point.” *The 5:* Being “in cash” is a position, too. 50% cash = 50% U.S. dollar, which, given its enduring flight-to-safety status these days is not necessarily a bad thing. However, you can get better rates if you diversify out of the U.S. dollar. EverBank currently offers a MarketSafe Currency CD (http://www.everbank.com/001CertificatesMS.aspx?referid=11925) well equipped for such a task. Might be worth a look. We have an ongoing business relationship with EverBank, so we may be compensated if you open an account. Of course, we like the cut of their jib, otherwise we wouldn’t be in a relationship with them. Likewise, we think their CDs are a good deal for you if you’re trying to save your money. Image: http://www.ezimages.net/upload/5MIN/z04_57.gif *“10% in dividend stocks,”* another reader rattles off. “25% in farmland. 50% in bank CDs. 10% gold/silver (physical). 5% in residential real estate.” Image: http://www.ezimages.net/upload/5MIN/z05_00.gif * “The best retirement income comes from several sources,”* our last reader opines. “In my case, it's gold; guns; cash value life insurance; cash (all good); a 403(b); Social Security (not nearly as good); and a young, working wife (best of all.) “Life is good.” *The 5: *Indeed, it is. Cheers, Addison Wiggin The 5 Min. Forecast *P.S. Our income specialist Jim Nelson has been looking far and wide for programs that will pay handsomely on the money you invest.* Here (http://agorafinancial.com/reports/LIR/scandinavian/vp/LIR_Scandinavian_vp.php?code=ELIRL823), he presents a “government-backed” program we think is worth your consideration. Just click on the calendar of payments below: Image: http://www.ezimages.net/upload/5MIN/LIR_presentation_Play.jpg (http://agorafinancial.com/reports/LIR/scandinavian/vp/LIR_Scandinavian_vp.php?code=ELIRL823) Image: http://feeds.feedburner.com/~ff/5MinForecast?d=yIl2AUoC8zA (http://feeds.feedburner.com/~ff/5MinForecast?a=Hxvwc6KxARU:iAlnQzzd7Vs:yIl2AUoC8zA) Image: http://feeds.feedburner.com/~ff/5MinForecast?d=dnMXMwOfBR0 (http://feeds.feedburner.com/~ff/5MinForecast?a=Hxvwc6KxARU:iAlnQzzd7Vs:dnMXMwOfBR0) Image: http://feeds.feedburner.com/~ff/5MinForecast?i=Hxvwc6KxARU:iAlnQzzd7Vs:F7zBnMyn0Lo (http://feeds.feedburner.com/~ff/5MinForecast?a=Hxvwc6KxARU:iAlnQzzd7Vs:F7zBnMyn0Lo) Image: http://feeds.feedburner.com/~ff/5MinForecast?i=Hxvwc6KxARU:iAlnQzzd7Vs:V_sGLiPBpWU (http://feeds.feedburner.com/~ff/5MinForecast?a=Hxvwc6KxARU:iAlnQzzd7Vs:V_sGLiPBpWU) Image: http://feeds.feedburner.com/~ff/5MinForecast?i=Hxvwc6KxARU:iAlnQzzd7Vs:gIN9vFwOqvQ (http://feeds.feedburner.com/~ff/5MinForecast?a=Hxvwc6KxARU:iAlnQzzd7Vs:gIN9vFwOqvQ) Image: http://feeds.feedburner.com/~ff/5MinForecast?d=l6gmwiTKsz0 (http://feeds.feedburner.com/~ff/5MinForecast?a=Hxvwc6KxARU:iAlnQzzd7Vs:l6gmwiTKsz0) Image: http://feeds.feedburner.com/~r/5MinForecast/~4/Hxvwc6KxARU ]]> The 5 min. Forecast
August 24, 2010 12:32 PM

by Addison Wiggin & Ian Mathias

  • Study shows sky-high use of marijuana among Wall Street traders
  • Chris Mayer on a popular investment that will likely prove to be a bummer
  • One unusual trade to protect you from the coming stock market meltdown
  • The worst data point so far this year… proof the recession is far from over. Plus, an income program to help you deal with it


Markets make opinions, the old-timers say. Today, we have empirical proof. Or at least a litmus test on the “mood” out there.

Gone are the days of the stereotypical high-rolling cokehead on Wall Street, says the drug screening firm Sterling. After conducting tests at 270 firms over the past three years, positives for cocaine have dropped 60%... down to just 7% of all failed tests.

Use of ganja, whacky tobacky, sensi, the good stuff -- whatever your favorite name for it is -- is way up. Marijuana now accounts for 80% of failed tests.

Nationwide, according to the Health Department, growth in cocaine and marijuana use was relatively stagnant over the same period. Perhaps, the stimulus money didn’t reach as far down the ladder as we’d suspected.


Still, dude, doesn’t that explain everything? You must be high -- paralyzed by laziness from the neck down -- if you think there is no better investment out there than lending the U.S. Treasury money for two years at a record-low 0.46%.

Fuzzy-headed 10-year notes found a new low today, too. The T bill yields just 2.5% this morning -- its lowest in 17 months, back when the global banking system was in the grips of the credit crisis.


“Too many institutional investors are looking for yield,” says Agora Financial’s sober managing editor Chris Mayer. “Their quest will end in tears.

“This bond bubble is not only for Treasuries and corporate debt, but across the yield spectrum.

“For example, master limited partnerships, or MLPs, are popular with investors. Mostly these companies own pipelines for oil and gas. They pay out most of their earnings to their unit holders. Yields are now about 5.5% for the popular Alerian MLP Index. A 5.5% yield looks good today. But about a year ago, MLPs paid about 8.8% on average, according to the WSJ.

“To get to just an 8.8% yield from 5.5% means a drop in the price of the MLP of nearly 40%, everything else being equal. MLPs are too popular. They are overpriced, in my view.

“Most everything on the yield spectrum is similarly expensive. Investors are getting paid too little for the risks they are taking…

“In the end, I think it will end badly. Yield-starved investors will get the hammer dropped on them. The big buyers of the M&A boom will have paid too much. Higher taxes on dividends will gnaw away at shareholder wealth. And buybacks will prove too costly.”


Another “you must be high” trade: the Japanese yen.

The same flight to safety trade that has pushed Treasury yields to record lows bumped the yen up to a 15-year high versus the dollar, at 84.17. Traders are rushing out of their carry trades and back into yen, even though fundamentals of the Japanese economy remain dismal, at best.

“The swings from risk aversion to risk appetite are always with us,” writes our new currency trader Abe Confas. “It may change from day to day and week to week, but it is not a surprise. The key to success is to correlate the prevailing sentiment with the trading opportunity. Let's look a bit closer at the current risk-aversion sentiment.

“The chart below shows an interesting co-movement between the S&P 500 and the dollar/yen rate (USDJPY) from October 2009. When the S&P strengthens, the USDJPY chart also moves up. When the S&P weakens, the USDJPY chart moves down. This is clearly showing that the yen is acting as a "safe haven" basket when the market is risk averse.


“For equity investors, this is a significant contemporary correlation. It means that equity portfolios can be protected with currency options. That is, a put on the USDJPY becomes a protective strategy for those fearing further declines in the U.S. equity markets.

“If the S&P falls, you can expect the USDJPY to fall in tandem,” increasing the value of protective puts Abe has suggested readers of his currency service use. We’re gathering our empirical evidence of Abe’s successful trading strategy as we speak. We’ll be “relaunching” the service this fall. Keep your eyes peeled.


Another potentially “high” trade: commodities. Traders have currently amassed their largest long position in commodities since April 2008 -- right before the crash.

According to data compiled by the Commodity Futures Trading Commission (CFTC) and Bloomberg, “long” futures contracts for an index of 20 commodities have reached a nosebleed 1.75 million.


A quick look at the Reuters/ Jefferies CRB Index of commodities reveals the prices are already breaking down.


In early January of this year, traders got similarly excited about a potential return of the 2008 frenzy for resources. That rally sold off quite sharply. We too expect the return of strength in commodities prices. But not before traders quit their addiction to Treasuries and money market funds.


Part of the correction in the CRB Index comes at behest of the black goo. Crude oil, if you’ve been watching, has been hit hard over the last month, falling from $85 a barrel to just $71 today.

Thus, we note the majority of those speculative commodity holdings right now are in wheat and corn, up 51% and 16% this month, respectively. Our Resource Trader Alert readers raked in handsome profits earlier this month on these trades. Editor Alan Knuckman recommended they exit their corn and sugar positions before the crowd rushed in and banked 83% and 187% winnings.

Alan reminds us often, you can make money when the market corrects, too. He sat down with us recently and offered his unique wealth building secrets. Here’s what he had to say.


The Dow and S&P opened down over 1% this morning. Traders were especially blown away by the biggest monthly drop in new homes sales history. The National Association of Realtors (NAR) announced this morning that July saw a 27% drop -- nearly three times as bad as the Street forecast.

Inventories of unsold homes rose to a 12.5-month supply, the worst backup since at least 1999. All while median home prices remained flat, year over year, and mortgage rates were at generational lows.

The nation’s appetite for McMansions appears to have been satiated. Without more government incentives and tax credits, the housing market remains comatose.


“The recession in America never really ended,” Dan Denning interprets the data from his desk in Melbourne. “It just got papered over by asset inflation driven by Fed policy and government stimulus that lulled people into somnambulant complacency. Yet it's clear that ordering extra gravy on your fries will not make you thin…

“A recession is the natural way of correcting bad investments made at the end of the business cycle or a credit boom. Those bad investments are failed businesses or misallocations of credit that didn't produce jobs, income or a net economic benefit. When credit excesses emerge, the recession wipes away the slate and puts the economy and the job market back on a sound economic footing where real growth based on real demand from real savings can begin again.

“Not that we're arguing in praise of recessions. But preventing them is a willful denial that any bad investments were made in the previous boom. It's like saying you don't need to burn calories to lose weight. You just need to eat more gravy fries and let fitness come to you naturally, while you gorge on Tim Tams on your couch and watch MasterChef.”


“In my 401(k), I'm pursuing a barbell strategy,” a reader writes, responding to our question yesterday: How are you preparing for retirement?

“I keep 50% of my money in cash and the remainder allocated among stock and bond funds (60/40). In stocks, I'm overweighted in international and income funds. I'm underweight the S&P 500, as I believe the earnings growth with U.S.-based companies is short-lived.”


“We went to cash in both our 401(k)s on Jan. 4, 2008,” a reader writes, responding to the same question.

“Those accounts are still in cash. Yes, we missed the climb off the March 2009 bottom, but we never felt comfortable enough with the light volume/high-frequency trading-driven phony rally to put half of our retirement assets back into the risk trade. We've gotten some grief for being conservative.

“Another 40% our assets are in a U.S. Treasury bond fund that has done well. With the final 10%, we're actively trading S&P 500 (ES) and Russell 2000 (TF) futures, both long and short. The bond market and general economic news has us expecting a significant retest of the March 2009 lows in the next year, and we think that cash and government bonds will be better than precious metals in that event.

“As long as humankind does not revert to cave dwelling and fighting with clubs and rocks, we think that three-five years out, there will be some real equity bargains again -- when the Fed/U.S. government effort to prop up assets prices finally fails and real price discovery occurs.

“Maybe when PEs hit 6-8 again we'll consider buying equities, but we'll never own them for the long haul. We have a position trader's mind-set at this point.”

The 5: Being “in cash” is a position, too. 50% cash = 50% U.S. dollar, which, given its enduring flight-to-safety status these days is not necessarily a bad thing. However, you can get better rates if you diversify out of the U.S. dollar. EverBank currently offers a MarketSafe Currency CD well equipped for such a task. Might be worth a look.

We have an ongoing business relationship with EverBank, so we may be compensated if you open an account. Of course, we like the cut of their jib, otherwise we wouldn’t be in a relationship with them. Likewise, we think their CDs are a good deal for you if you’re trying to save your money.


“10% in dividend stocks,” another reader rattles off. “25% in farmland. 50% in bank CDs. 10% gold/silver (physical). 5% in residential real estate.”


“The best retirement income comes from several sources,” our last reader opines. “In my case, it's gold; guns; cash value life insurance; cash (all good); a 403(b); Social Security (not nearly as good); and a young, working wife (best of all.)

“Life is good.”

The 5: Indeed, it is.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. Our income specialist Jim Nelson has been looking far and wide for programs that will pay handsomely on the money you invest. Here, he presents a “government-backed” program we think is worth your consideration. Just click on the calendar of payments below:




]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/36644-what-they-re-smoking-wall-street.html Forecasts for the Mighty U.S. Retail Investor http://www.gold-speculator.com/5min-forecast/36544-forecasts-mighty-u-s-retail-investor.html Mon, 23 Aug 2010 19:22:12 GMT by Addison Wiggin (http://www.addisonwiggin.com/) & Ian Mathias (http://www.agorafinancial.com/EDITORS_IanMathias.html) * Floodgates about to open… India hints at opening market to retail investors * Bond bubble expands: Investors rush out of stock mutual funds at record rate… and pile into Treasuries * SEC catches New Jersey cheating investors… fines state $0 * An unlikely summertime bull market: The sudden resurgence of M&A Image: http://www.ezimages.net/upload/5MIN/z00_00.gif * Ease of access is a staple of market booms.* It’s hard to imagine American stocks, for example, surviving these days without support from retail, institutional and international investors alike. In the same way, much of China’s incredible market boom is thanks to Hong Kong, whose exchange opens the gate to millions of investors who want a piece of the world’s hottest market. Now it looks like ease of access is coming to India. Image: http://www.ezimages.net/upload/5MIN/z00_11.gif * “India is planning to open the country's equity markets to foreign retail investors,” *the Financial Times reported earlier this month. While there’s nothing definite yet, an Indian government panel recently recommended the finance ministry remove many of the barriers that currently prevent small international investors from buying Indian companies. (At present, only institutional-sized investors can have the full pick of Indian companies.) According to the FT, Indian regulators are taking the panel’s advice and beginning to build an exchange capable of handling the rush that would likely ensue. Image: http://www.ezimages.net/upload/5MIN/z00_25.jpg * “One of the biggest frustrations I have with India is the small number of stocks we can invest in,” *Chris Mayer adds. “This is unlike China, which has a well-developed Hong Kong exchange, not to mention the many companies that trade on the NYSE and Nasdaq. In India, foreign investors like you and me can't buy Indian stocks, save for the small number that list in the U.S. “While I was in India, I remember talking to brokers and money managers who told me it was only a matter of time before that changed. The big institutions have been allowed to invest in India for 18 years. But now it looks like the common fellow will be able to pick up shares soon, too. “On my last trip to Mumbai, I spent some time with analysts who shared their favorite ideas with me. There are many Indian small-cap stocks growing 30-40% a year and still trading cheaply. But they've been off-limits so far. Maybe not for much longer.” Image: http://www.ezimages.net/upload/5MIN/z00_50.gif India’s timing is serendipitous, as the average American has withdrawn from the U.S. stock market. Friday, we mentioned the record rise in “hardship withdrawals,” when American savers tap into their 401(k)s before retirement. Today, a new statistic in a similar fold: *U.S. investors have already withdrawn $33.1 billion from domestic stock mutual funds this year*, says a new study from mutual fund trade group Investment Company Institute. If this trend continues through the rest of 2010, this will be the worst year for mutual fund withdrawals since 2008 and the second worst in at least 30 years. Image: http://www.ezimages.net/upload/5MIN/TheHangover1.gif Depending on how you look at it, 2010 could be the worst year of them all. It’s hard to blame investors for fleeing in 2008, when the Dow crashed 33% -- the third worst year in its history. But this year, despite the near-record withdrawals, the market really isn’t doing that bad… the Dow is only down 2% year to date. Investors aren’t running out the door in fear. They’re forming a tired, orderly queue. So what are you doing with your nest egg? Tell us, here (5minforecast@agorafinancial.com). If you want some advice, our income analyst Jim Nelson just released a presentation that’s caught the eye of many retirement savers: How to Legally Collect Thousands of Dollars Each Year... From the Other Government-Backed Retirement Program (http://agorafinancial.com/reports/LIR/scandinavian/vp/LIR_Scandinavian_vp.php?code=ELIRL823). Image: http://www.ezimages.net/upload/5MIN/z01_37.gif Of course, there is no such thing as being “out of the market.” Investors have gone out of stocks and moved money into the new bubbles of our time: the dollar and U.S. bonds. In fact,* bond fund inflows over the last two years mimic that of the dot-com bubble in stocks.* Bond mutual funds received $480 billion in new capital from June 2008-June 2010. That’s just $16 billion less than the most manic 24-month period of the dot-com craze. Image: http://www.ezimages.net/upload/5MIN/z01_57.jpg Hence, bond yields continue to amaze.* The U.S. 2-year note found yet another record low yield on Friday,* a startling 0.46%. The 10-year offers an equally lousy coupon of 2.6%. Of course, the U.S. government will ride this mania right up until the bitter end. The Treasury is scheduled to sell another $102 billion in bonds this week. Image: http://www.ezimages.net/upload/5MIN/z02_02.jpg Another reason to not join the bond rush:* The SEC has accused the state of New Jersey of lying to municipal bond investors.* Here’s the quick and dirty of the allegations, which the SEC announced late last week: In 2001, New Jersey increased pension benefits for state employees without having the funds to cover new benefit expenses. For the next six years, at least, the state continued to underfund the pension system -- but hid that information from municipal bond investors. On 79 separate occasions, the state sold a total of $26 billion in bonds while “withholding and misrepresenting pertinent information about its financial situation,” said SEC director of enforcement Robert Khuzami. In other words, they lied so that the bonds they were selling would appear more attractive. It’s classic balance sheet fraud, committed by senior state officials working for both Democrat and Republican governors. And the state’s bond underwriters -- JP Morgan, Citi, Morgan Stanley, Bank of America, Barclays, Merrill and (of course) Goldman Sachs -- all probably lied too. At the very least, they all failed to conduct due diligence before vouching for the quality of the state bonds. What’s the penalty for this outright fraud? Nothing. The state of New Jersey will pay the SEC precisely zero dollars. Not one state employee or any of the bond underwriters will pay a fine, either, or go to jail…or even lose his job. In fact, the state didn’t even have to admit wrongdoing. “New Jersey agreed to settle the case without admitting or denying the SEC’s findings,” calmly explains the SEC press release. Essentially, the only provision of the settlement is Jersey’s promise that it won’t do this in the future. That’s it. (For more on this story, your 5 Min. editor gave the full rundown in the weekend edition (http://dailyreckoning.com/another-warning-shot-for-bond-investors/) of The Daily Reckoning.) Image: http://www.ezimages.net/upload/5MIN/z02_46.gif * The dollar index, another safe haven trade, is up half a point from Friday,* to 83 on the dot. “It's back to the same old grind,” Chuck Butler reports, “buying dollars, Treasuries, Japanese yen and Swiss francs. “The "heat" is back on the eurozone's debt problems, which is strange in that there were two successful bond auctions by member countries last week. You see, to me, this is nothing more than the old saying about when the U.S. sneezes, the rest of the world gets a cold… coming into play right now. “Everyone was just fine with forgetting about the eurozone debt problems, and focusing on the U.S. economic problems... But then a funny thing happened on the way to the forum, and suddenly, the U.S.' economic problems got too big, and nasty... So the mental giants of the markets decided that if the U.S. is going back to a recession (I say they never left it!), the rest of the world is going to have problems too, and... ‘What about those deficit problems in the eurozone?’ See how their minds work?” Image: http://www.ezimages.net/upload/5MIN/z03_18.gif * Gold remains a popular flight to safety, too.* The spot price is in the higher end of its recent range today, at just under $1,230 an ounce. Image: http://www.ezimages.net/upload/5MIN/z03_22.gif * Stocks have gotten a kick in the pants from a suddenly revived M&A market. *We wrote about the BHP/Potash deal last week… then came Intel’s bid for McAfee… now this morning, HP has entered a bidding war with Dell over 3Par. All told, there’s been almost $200 billion in deals so far this month, the best August for M&A since 1999. In fact, should the pace continue through the end of the month, this could be the best August for deal makers ever… despite all the gloom in the marketplace. The M&A resurgence is keeping the indexes above water today. The S&P 500 rose to a 0.9% gain within the first few minutes of trading this morning. Image: http://www.ezimages.net/upload/5MIN/z03_45.gif * By the way, that BHP/Potash deal just got even more interesting:* Potash execs said today that it is not only rejecting the BHP bid, but are actively pursing offers from other potential suitors. Two names are at the top of the pile, a typical sign of the times… Sinochem, from China, and Vale, a Brazilian miner. Image: http://www.ezimages.net/upload/5MIN/z03_50.gif *Meanwhile, back in the States, more bank failures.* Eight banks bit the dust on Friday, bringing the official tally to 118 for the year. As we mentioned last week, there’s been some dispute over the actual head count, but it hardly matters… considering last year’s total of 140, 2010 will likely be the worst year for banks since the S&L crisis. Image: http://www.ezimages.net/upload/5MIN/z04_00.gif *Last today, just in case you missed it…* Image: http://www.ezimages.net/upload/5MIN/laschool.jpg That’s the new high school in Los Angeles that will officially open next month. The price: $578 million, the most expensive public schoolhouse in America. Matt Drudge is on this story like white on rice, so we won’t beat a dead horse. But considering all the crises occurring in California state budgets and teacher pension funds, we can’t not mention it… boggles the mind, eh? We’re all for kids learning in inspired environments, but this is crazy. Maybe next time take $200 million out of the construction budget and buy smarter teachers. Or, heaven forbid, pay off some debt. Image: http://www.ezimages.net/upload/5MIN/z04_20.gif * “I am in my early 40s and I cashed out my 401(k) and IRA and happily paid the taxes and penalties,” *a reader writes, furthering our discussion on retirement and Social Security. “I sent the money to an account outside the U.S., since I believe there is a ZERO percent chance that that those funds will remain unmolested by the U.S. government by the time I reach retirement. Anyone who believes otherwise is a fool.” Image: http://www.ezimages.net/upload/5MIN/z04_33.jpg * “Please consider that those withdrawing money from their 401(k) to pay mortgage and tuition expenses may be the remaining righteous soul of this nation,”* another reader adds. “They signed a legally binding contract and are doing their best to uphold their end of the deal. They want their children to have a better future than they have. When those honorable and loving citizens are no longer praised for their morals and ethics and, instead, are labeled as stupid, what will be left?” Image: http://www.ezimages.net/upload/5MIN/z04_43.jpg * “I resent all the help that a large part of the population receives, while people keep knocking Social Security,” *our last reader writes. “My retirement went down the tube with my business. I had to close my doors while I could still pay off my suppliers. This forced me into retirement. I have cancer and I am 76 years old and cannot hold down a job. We have not had an increase in Social Security payments in two years, yet everything I must buy has gone up in price. I am being squeezed into the ranks of the homeless. There are those of us who did save and did plan, but the government decisions put our economy in a tailspin. I did not put us there. I say I am not alone. There are many like me, and we need the increases in Social Security to keep up with what it costs us to live. “Enough of we ‘should have planned’ to get along without Social Security. I would be happy to get out of Social Security, just give me one of the federal workers' retirement plans. I advise anyone to forget about private business endeavors -- just go to work for the federal government. Unless you are extremely fortunate, you will never be able to save enough to compete with a federal retirement plan.” Thanks for reading, Ian Mathias The 5 Min. Forecast *P.S. If you’re saving for retirement, you should seriously check out Jim Nelson’s latest online presentation. *He’s discovered a great way to supplement your retirement income by tapping into a foreign source of wealth that is far more stable and secure than the U.S. Social Security system. Like all investments, it’s not a sure thing… but it is an honest idea and absolutely worth your consideration. Listen to Jim tell the story, right here (http://agorafinancial.com/reports/LIR/scandinavian/vp/LIR_Scandinavian_vp.php?code=ELIRL823). Image: http://feeds.feedburner.com/~ff/5MinForecast?d=yIl2AUoC8zA (http://feeds.feedburner.com/~ff/5MinForecast?a=RDt0hPPHLXc:-J-d5xzgzHs:yIl2AUoC8zA) Image: http://feeds.feedburner.com/~ff/5MinForecast?d=dnMXMwOfBR0 (http://feeds.feedburner.com/~ff/5MinForecast?a=RDt0hPPHLXc:-J-d5xzgzHs:dnMXMwOfBR0) Image: http://feeds.feedburner.com/~ff/5MinForecast?i=RDt0hPPHLXc:-J-d5xzgzHs:F7zBnMyn0Lo (http://feeds.feedburner.com/~ff/5MinForecast?a=RDt0hPPHLXc:-J-d5xzgzHs:F7zBnMyn0Lo) Image: http://feeds.feedburner.com/~ff/5MinForecast?i=RDt0hPPHLXc:-J-d5xzgzHs:V_sGLiPBpWU (http://feeds.feedburner.com/~ff/5MinForecast?a=RDt0hPPHLXc:-J-d5xzgzHs:V_sGLiPBpWU) Image: http://feeds.feedburner.com/~ff/5MinForecast?i=RDt0hPPHLXc:-J-d5xzgzHs:gIN9vFwOqvQ (http://feeds.feedburner.com/~ff/5MinForecast?a=RDt0hPPHLXc:-J-d5xzgzHs:gIN9vFwOqvQ) Image: http://feeds.feedburner.com/~ff/5MinForecast?d=l6gmwiTKsz0 (http://feeds.feedburner.com/~ff/5MinForecast?a=RDt0hPPHLXc:-J-d5xzgzHs:l6gmwiTKsz0) Image: http://feeds.feedburner.com/~r/5MinForecast/~4/RDt0hPPHLXc ]]> The 5 min. Forecast
August 23, 2010 10:32 AM

by Addison Wiggin & Ian Mathias
  • Floodgates about to open… India hints at opening market to retail investors
  • Bond bubble expands: Investors rush out of stock mutual funds at record rate… and pile into Treasuries
  • SEC catches New Jersey cheating investors… fines state $0
  • An unlikely summertime bull market: The sudden resurgence of M&A


Ease of access is a staple of market booms. It’s hard to imagine American stocks, for example, surviving these days without support from retail, institutional and international investors alike. In the same way, much of China’s incredible market boom is thanks to Hong Kong, whose exchange opens the gate to millions of investors who want a piece of the world’s hottest market.

Now it looks like ease of access is coming to India.


“India is planning to open the country's equity markets to foreign retail investors,” the Financial Times reported earlier this month. While there’s nothing definite yet, an Indian government panel recently recommended the finance ministry remove many of the barriers that currently prevent small international investors from buying Indian companies. (At present, only institutional-sized investors can have the full pick of Indian companies.)

According to the FT, Indian regulators are taking the panel’s advice and beginning to build an exchange capable of handling the rush that would likely ensue.


“One of the biggest frustrations I have with India is the small number of stocks we can invest in,” Chris Mayer adds. “This is unlike China, which has a well-developed Hong Kong exchange, not to mention the many companies that trade on the NYSE and Nasdaq. In India, foreign investors like you and me can't buy Indian stocks, save for the small number that list in the U.S.

“While I was in India, I remember talking to brokers and money managers who told me it was only a matter of time before that changed. The big institutions have been allowed to invest in India for 18 years. But now it looks like the common fellow will be able to pick up shares soon, too.

“On my last trip to Mumbai, I spent some time with analysts who shared their favorite ideas with me. There are many Indian small-cap stocks growing 30-40% a year and still trading cheaply. But they've been off-limits so far. Maybe not for much longer.”


India’s timing is serendipitous, as the average American has withdrawn from the U.S. stock market. Friday, we mentioned the record rise in “hardship withdrawals,” when American savers tap into their 401(k)s before retirement.

Today, a new statistic in a similar fold: U.S. investors have already withdrawn $33.1 billion from domestic stock mutual funds this year, says a new study from mutual fund trade group Investment Company Institute. If this trend continues through the rest of 2010, this will be the worst year for mutual fund withdrawals since 2008 and the second worst in at least 30 years.


Depending on how you look at it, 2010 could be the worst year of them all. It’s hard to blame investors for fleeing in 2008, when the Dow crashed 33% -- the third worst year in its history. But this year, despite the near-record withdrawals, the market really isn’t doing that bad… the Dow is only down 2% year to date. Investors aren’t running out the door in fear. They’re forming a tired, orderly queue.

So what are you doing with your nest egg? Tell us, here. If you want some advice, our income analyst Jim Nelson just released a presentation that’s caught the eye of many retirement savers: How to Legally Collect Thousands of Dollars Each Year... From the Other Government-Backed Retirement Program.


Of course, there is no such thing as being “out of the market.” Investors have gone out of stocks and moved money into the new bubbles of our time: the dollar and U.S. bonds.

In fact, bond fund inflows over the last two years mimic that of the dot-com bubble in stocks. Bond mutual funds received $480 billion in new capital from June 2008-June 2010. That’s just $16 billion less than the most manic 24-month period of the dot-com craze.


Hence, bond yields continue to amaze. The U.S. 2-year note found yet another record low yield on Friday, a startling 0.46%. The 10-year offers an equally lousy coupon of 2.6%.

Of course, the U.S. government will ride this mania right up until the bitter end. The Treasury is scheduled to sell another $102 billion in bonds this week.


Another reason to not join the bond rush: The SEC has accused the state of New Jersey of lying to municipal bond investors. Here’s the quick and dirty of the allegations, which the SEC announced late last week:

In 2001, New Jersey increased pension benefits for state employees without having the funds to cover new benefit expenses. For the next six years, at least, the state continued to underfund the pension system -- but hid that information from municipal bond investors. On 79 separate occasions, the state sold a total of $26 billion in bonds while “withholding and misrepresenting pertinent information about its financial situation,” said SEC director of enforcement Robert Khuzami.

In other words, they lied so that the bonds they were selling would appear more attractive. It’s classic balance sheet fraud, committed by senior state officials working for both Democrat and Republican governors. And the state’s bond underwriters -- JP Morgan, Citi, Morgan Stanley, Bank of America, Barclays, Merrill and (of course) Goldman Sachs -- all probably lied too. At the very least, they all failed to conduct due diligence before vouching for the quality of the state bonds.

What’s the penalty for this outright fraud? Nothing.

The state of New Jersey will pay the SEC precisely zero dollars. Not one state employee or any of the bond underwriters will pay a fine, either, or go to jail…or even lose his job. In fact, the state didn’t even have to admit wrongdoing. “New Jersey agreed to settle the case without admitting or denying the SEC’s findings,” calmly explains the SEC press release. Essentially, the only provision of the settlement is Jersey’s promise that it won’t do this in the future. That’s it.

(For more on this story, your 5 Min. editor gave the full rundown in the weekend edition of The Daily Reckoning.)


The dollar index, another safe haven trade, is up half a point from Friday, to 83 on the dot.

“It's back to the same old grind,” Chuck Butler reports, “buying dollars, Treasuries, Japanese yen and Swiss francs.

“The "heat" is back on the eurozone's debt problems, which is strange in that there were two successful bond auctions by member countries last week. You see, to me, this is nothing more than the old saying about when the U.S. sneezes, the rest of the world gets a cold… coming into play right now.

“Everyone was just fine with forgetting about the eurozone debt problems, and focusing on the U.S. economic problems... But then a funny thing happened on the way to the forum, and suddenly, the U.S.' economic problems got too big, and nasty... So the mental giants of the markets decided that if the U.S. is going back to a recession (I say they never left it!), the rest of the world is going to have problems too, and... ‘What about those deficit problems in the eurozone?’ See how their minds work?”


Gold remains a popular flight to safety, too. The spot price is in the higher end of its recent range today, at just under $1,230 an ounce.


Stocks have gotten a kick in the pants from a suddenly revived M&A market. We wrote about the BHP/Potash deal last week… then came Intel’s bid for McAfee… now this morning, HP has entered a bidding war with Dell over 3Par.

All told, there’s been almost $200 billion in deals so far this month, the best August for M&A since 1999. In fact, should the pace continue through the end of the month, this could be the best August for deal makers ever… despite all the gloom in the marketplace.

The M&A resurgence is keeping the indexes above water today. The S&P 500 rose to a 0.9% gain within the first few minutes of trading this morning.


By the way, that BHP/Potash deal just got even more interesting: Potash execs said today that it is not only rejecting the BHP bid, but are actively pursing offers from other potential suitors. Two names are at the top of the pile, a typical sign of the times… Sinochem, from China, and Vale, a Brazilian miner.


Meanwhile, back in the States, more bank failures. Eight banks bit the dust on Friday, bringing the official tally to 118 for the year. As we mentioned last week, there’s been some dispute over the actual head count, but it hardly matters… considering last year’s total of 140, 2010 will likely be the worst year for banks since the S&L crisis.


Last today, just in case you missed it…


That’s the new high school in Los Angeles that will officially open next month. The price: $578 million, the most expensive public schoolhouse in America.

Matt Drudge is on this story like white on rice, so we won’t beat a dead horse. But considering all the crises occurring in California state budgets and teacher pension funds, we can’t not mention it… boggles the mind, eh? We’re all for kids learning in inspired environments, but this is crazy. Maybe next time take $200 million out of the construction budget and buy smarter teachers.

Or, heaven forbid, pay off some debt.


“I am in my early 40s and I cashed out my 401(k) and IRA and happily paid the taxes and penalties,” a reader writes, furthering our discussion on retirement and Social Security. “I sent the money to an account outside the U.S., since I believe there is a ZERO percent chance that that those funds will remain unmolested by the U.S. government by the time I reach retirement. Anyone who believes otherwise is a fool.”


“Please consider that those withdrawing money from their 401(k) to pay mortgage and tuition expenses may be the remaining righteous soul of this nation,” another reader adds. “They signed a legally binding contract and are doing their best to uphold their end of the deal. They want their children to have a better future than they have. When those honorable and loving citizens are no longer praised for their morals and ethics and, instead, are labeled as stupid, what will be left?”


“I resent all the help that a large part of the population receives, while people keep knocking Social Security,” our last reader writes. “My retirement went down the tube with my business. I had to close my doors while I could still pay off my suppliers. This forced me into retirement. I have cancer and I am 76 years old and cannot hold down a job. We have not had an increase in Social Security payments in two years, yet everything I must buy has gone up in price. I am being squeezed into the ranks of the homeless. There are those of us who did save and did plan, but the government decisions put our economy in a tailspin. I did not put us there. I say I am not alone. There are many like me, and we need the increases in Social Security to keep up with what it costs us to live.

“Enough of we ‘should have planned’ to get along without Social Security. I would be happy to get out of Social Security, just give me one of the federal workers' retirement plans. I advise anyone to forget about private business endeavors -- just go to work for the federal government. Unless you are extremely fortunate, you will never be able to save enough to compete with a federal retirement plan.”

Thanks for reading,

Ian Mathias
The 5 Min. Forecast

P.S. If you’re saving for retirement, you should seriously check out Jim Nelson’s latest online presentation. He’s discovered a great way to supplement your retirement income by tapping into a foreign source of wealth that is far more stable and secure than the U.S. Social Security system. Like all investments, it’s not a sure thing… but it is an honest idea and absolutely worth your consideration. Listen to Jim tell the story, right here.



]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/36544-forecasts-mighty-u-s-retail-investor.html The American Retirement Crisis http://www.gold-speculator.com/5min-forecast/36415-american-retirement-crisis.html Fri, 20 Aug 2010 19:50:56 GMT The 5 min. Forecast
August 20, 2010 09:43 AM

by Addison Wiggin & Ian Mathias
  • Retirement picture worsens again: 401(k) “hardship withdrawals” hit a record
  • Dollar up, euro down as French leaders interrupt August vacation (!) for crisis summit
  • The yen at a critical juncture… Our currency specialist calls where it goes from here
  • What happened to the epic wheat rally? Alan Knuckman threshes for answers
  • Readers write: Oil consumption, the Russian Revolution, Social Security


Just when it looked as if the baby boomer retirement picture couldn’t get any worse, it did. The number of workers making “hardship withdrawals” from their 401(k) plans hit a record during the second quarter, according to Fidelity.

A hardship withdrawal is something you take when you’re still working and still on the company plan… provided you can prove to the IRS you’re having a genuine “hardship.” 62,000 Fidelity 401(k) account holders took that step during Q2… compared to 45,000 in the same period a year ago. Ouch.

Granted, the IRS has a pretty loose definition of “hardship,” judging by this part of the press release accompanying Fidelity’s report: “Plan sponsors report that the top reasons why participants are taking hardship withdrawals are to prevent foreclosure or eviction, pay for college and the purchase of a primary residence.”

OK, foreclosure would be a genuine hardship. (Never mind that 401(k)s are usually untouchable in bankruptcy, so it makes next to no sense to tap into those funds to keep your home… but we digress.)

But a home purchase or college tuition? Let’s get this straight: These people are tapping into their retirement nest egg… paying income tax on it… plus the 10% early withdrawal penalty if they’re younger than 59½… to make their measly 3.5% FHA down payment? Or the kid’s tuition for next semester? The mind reels.

Meanwhile, 11% of Fidelity’s 11 million account holders borrowed against their plans in the last year. That brings the total with loans outstanding to 22%, a 10-year high.


Just to put these numbers into larger perspective, 43% of all workers say they have $10,000 or less in savings of any kind, retirement or otherwise, according to the Employment Benefit Research Institute. That’s up from 39% in 2009. And 27% have less than $1,000.

That same survey, conducted earlier this year, says 24% of workers postponed their planned retirement age during the previous 12 months.

Let’s hope they’re not counting on Social Security…


Someone in Washington floated a trial balloon in today’s Wall Street Journal about benefit cuts, tax increases or both to support Social Security.

It’s no great shock that President Obama’s blue-ribbon deficit commission is studying the matter. But a few specifics are now being thrown out there, just to see what the reaction in Congress might be…

• Raise the retirement age (currently, it reaches 67 in 2027)
• Means testing benefits
• Trimming annual cost-of-living increases
• Raising the cap on income subject to the Social Security tax (currently $106,000)
• Raising the tax rate.

"Are Republicans willing to sign onto a tax increase, and are Democrats ready to sign onto a benefit cut? I think the answer is probably yes in both cases if the other is willing to do it," says commission member Alice Rivlin, one of the many voices of I.O.U.S.A.

The commission issues its recommendations Dec. 1. Plan accordingly to provide for your retirement income. Here’s one way you can get started.


The stock market is adding onto yesterday’s losses. At 1,070, the S&P 500 is hanging onto technical support levels for dear life.


Countering the typical trend for 2010, gold is down while the dollar is up. Spot gold goes for $1,224 as we write, while the dollar index is up sharply, past the 83 level.

The euro (which makes up more than half the dollar index) is down more than 1%, to $1.268. That’s in large part because…


French President Nicolas Sarkozy has called his senior advisers away from their August break to discuss a fresh round of budget cuts, under threat of a downgrade from Moody’s.

Well, “threat” might be too strong a word. Moody’s says France is “well-positioned” to keep its AAA rating, but the “distance to downgrade” is shorter than it used to be.

Sarkozy hopes to cut France’s deficit from 8% of GDP this year to 3% by 2013. Among other measures, he’s looking to raise the minimum retirement age from 60 to 62. Quelle horreur!


“The dollar-yen pair is providing a summer fireworks show,” says our currency specialist Abe Cofnas. “The implications are enormous from a technical and fundamental point of view. Both forces are coming together and are now at a key monthly multiyear support at 85.40.

”The price action here could break down and begin a panic in the global markets because too strong a yen creates huge imbalances in global capital flows, which creates a collapse of any expectations of Japanese growth.” That is, if the yen appreciates, it’s bad for Japanese exports, and Japan heads into another down leg of its perma-recession.

”Global sentiment takes time to reflect economic shifts,” says Abe, “or perhaps more accurately, economic shifts need time to reflect global sentiments! We don't know exactly when, but the potential for a reversal moving up is great.”

We’re getting closer to the relaunch of our forex service with Abe at the helm. When it’s ready, you’ll be among the first to know.


"The wheat market has made a huge move,” says Resource Trader Alert’s Alan Knuckman, “but needs another catalyst or issues to develop elsewhere in the world to drive prices higher.”

Wheat has fallen in seven of the last 10 trading sessions, after hitting $8 a bushel on news of Russia’s export ban. Still, new catalysts can develop almost out of nowhere, as Alan explains in this MarketWatch article also featuring Chris Mayer: "The dynamic agricultural markets are always at risk of explosive rallies if the growing seasons have problems.

"Right now, other parts of the world are ready to make up for the decline in Russia, but it illustrates how quickly price volatility emerges with the upside risks of disruptions or weather issues.”


“The dollar decline is a much-overlooked aspect of the recent grain rally,” Alan wrote this week to members of Resource Trader Alert. “U.S. grain is much more attractive to global buyers with the present currency discount. That has added another layer of price support, with additional demand to push corn and beans higher last week.”


The Russian drought is also bullish for corn, Alan says. With less wheat and barley coming out of eastern Europe, corn becomes a cheaper source of feed. That’s great news for U.S. corn producers. All that surplus they expect to harvest soon? They can export it. No wonder corn remains more than 10% above its levels of two months ago.

“Bullish news like this is finally starting to get digested in the corn market,” says Alan. “Remember, until now, all we’ve heard is news of a bumper crop for corn -- but, as I’ve stated before, high expectations can let you down. I’ll be keeping an eye on the grains in the weeks to come.”

Earlier this month, Alan closed out a corn position after just one week for 83% gains. That’s on top of other gains of 103% and 187% within the last 30 days. To learn how folks just like you are growing their account balances by multiples of seven, 10, even 16 times… here’s where to go.


“The graph of per capita oil consumption is astonishing,” writes a reader responding to something we showed in Monday’s edition. “The '30s Depression and World War II correlate with tiny blips in a rising curve to the '70s, and there is a slightly larger blip in the early '70s corresponding to the first oil crisis. Then, from 1978-1983, there is very large uninterrupted decrease and a similar, though slightly less dramatic, change in China! Why?

“My first thought is the transition from oil to gas in large power plants. Other contributors: the price of oil, automobile fuel economy in China at that time, big population increase?”

The 5: Your first thought is a pretty good one. Peter Tertzakian, in The End of Energy Obesity, reminds us that oil made up about 20% of America’s power-generation mix until the energy shocks of the '70s pushed us to use more coal and uranium. Today in the developed world, oil is used almost exclusively for transportation.


“Your reader attempting to correct facts of Russia in 1917 has just further confused things,” writes an astute reader (who speaks for a couple others who wrote in). “Lenin and Trotsky had nothing to do with the authentic Russian Revolution of February 1917, which led to the Czar's abdication. (Lenin wasn't even in Russia then.)

“It is important to realize that there were two Russian Revolutions in 1917: the popular one in February and then the coup of October, in which the Bolsheviks, led by Lenin and Trotsky, seized power from the democratic Kerensky regime and the elected Duma.”


“I enjoyed reading your 5 Min. Forecast until recently when you started to bash Glenn Beck. I now see that you mention more often than not CNBC and George Soros. I personally do not watch or respect either. They are both as far-to-the-left liberal progressive base you can get. We all know King Obama is very close to Soros and the NBC gang.

“Don't think for a minute that Czar Soros does not have inside information. A lot of left progressives are getting very wealthy with the green environmental issues that are going on these days.”

The 5: So you’d rather remain ignorant of what “the enemy” is up to?


“I have found the ongoing debate on Social Security to be rather amusing, at least in a comic-tragedy sense. Like one of your readers, I too have known that the 'government began stealing this money back around 1960, when they first started transferring from SS to the general.' But unlike this reader, who thinks 'the government owes me this money,' I have always known that the money I contributed was no longer mine. It was a tax, nothing more or less.”

“As this particular Ponzi scheme draws to a close, it is going to be very amusing watching the politicians either figure out how to keep the promises their predecessors made or figure out how they can squirm out of them. For years, I figured they would inflate their way out of it. Now I'm not so sure. It's going to be very interesting to see how Rome, er, I mean the USA, deals with this. Caveat emptor!”


“People have a right to be upset about Social Security whether they feel they are entitled to receive payments or entitled to be shed of the corrupt system altogether. I think most subscribers are missing the point. The problem is our entire fiscal and monetary policies of the past 50 years are reaching their endgame, and the 'can' can't be kicked down the road to even the next generation anymore.

“Complain if you want -- heck, write an angry letter to your congressman -- but it is not going to change a damn thing. The dollar is toast and going to take all payments denominated in dollars with it. It is time to grow up: The world is changing and it doesn't suffer fools. How long do we have left? I have no idea. All I know is the clock is ticking.”

The 5: You’re right. In fact, Social Security is due to take another hit just 41 days from now. You can learn the dirty details, along with what you can do about it, right here.

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. As long as we’re on the subject of retirement, have you seen the “secret retirement blueprint” prepared by one of our top analysts?
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/36415-american-retirement-crisis.html Is This What Recovery Looks Like? http://www.gold-speculator.com/5min-forecast/36327-what-recovery-looks-like.html Thu, 19 Aug 2010 19:42:20 GMT The 5 min. Forecast
August 19, 2010 10:30 AM

by Addison Wiggin & Ian Mathias
  • The stat that looks more like “recession” than “recovery”… and more where that came from
  • Hedgies sour on stocks: Soros dumps holdings, Bass says, “I don’t know how I can be long”
  • How the president just handed you the next “mega income opportunity”
  • The new frugality? Seattle getting back to the garden
  • Readers fire back on Social Security… and offer up a novel theory


Surveying the financial news this morning, it’s hard not to ask the question, “Is this what a recovery really looks like?”

In fact, the recovery appears to be about as illusory as this…


“The End”… or so we’re told

We’re told this morning that the last U.S. “combat brigade” has left Iraq, and “combat operations” there are over. Of course, 56,000 U.S. troops remain there. Most of them used to be “combat troops,” in fact. But now they’re “transitional troops.”

You can be forgiven for thinking that nothing’s changed much. Ditto for what we’re told about “the recovery.”


Sure enough, we have yet another “unexpected” increase in first-time jobless claims this week. Worse, the number touched 500,000 for the first time since last November, a figure that has more of a scent of “recession” than “recovery.” (In a more-or-less “healthy” economy, the number is more like 300,000.)


We also have a mediocre report from the Conference Board. Its index of leading economic indicators rose in July… barely. Some recovery…



Despite a mostly chirpy statement accompanying the Conference Board’s data (“The indicators point to a slow expansion through the end of the year”), traders went into a snit. The Dow shed 145 points in the first 35 minutes of trading, to levels unseen in nearly a month.


George Soros is bailing out of U.S. stocks. Soros Fund Management, with $25 billion in assets, slashed its equity holdings 42% during the second quarter -- from $8.8 billion to $5.1 billion. His once-sizable holdings of Wal-Mart, JP Morgan Chase and Pfizer now amount to only a few token shares each. Hmmm, that doesn’t sound like a bet on recovery.

His biggest holding is GLD, the giant gold ETF.

Where he’s shifted the money is harder to tell from the 13-F he filed with the SEC, since the document tracks only U.S.-traded shares and related derivatives.


Maybe Soros sees the same thing Hayman Capital’s Kyle Bass sees. “I don’t know how I can be long stocks,” Bass said this week in one of those moments when CNBC goes suddenly off-script and the anchors’ faces turn white. (Memo to CNBC producers: If you book someone who called BS on subprime anytime before August '07, you have poorer-than-usual odds he’ll say things are hunky-dory now.)

And his reasons don’t even have that much to do with the U.S. recovery, or lack thereof. Bass (no relation to the Texas billionaire Robert Bass, if you’re wondering) is worried about European bank leverage, European government debt and a deadly combination of debt and demographics in Japan.


American consumers haven’t stopped deleveraging. Consumer indebtedness -- that’s credit cards, mortgages, everything -- fell 1.5% during the second quarter, to $11.7 trillion. That total is now down 6.5% from the peak in Q3 2008, according to the New York Fed.

Californians remain the most in hock, with per capita indebtedness of $78,000. The national average is $49,000.

A separate Fed report indicates credit card debt has returned to its October 2005 level.

“We don't know where this process will go,” Bill Bonner wrote yesterday, “but if consumer debt is to be cut in half, it will take about seven-10 years, at this rate.”


Of course, maybe people are paying down their high-interest credit cards by skipping their lower-interest mortgage payments. Mortgage delinquencies remain stuck at insane levels -- 6.67% of all outstanding mortgages were at least 60 days in arrears during the second quarter, according to the credit reporting firm TransUnion.

That’s actually down a bit from the first quarter, but far above the normal 2% or so.


For the second Thursday in a row, spot gold surged the moment the Labor Department announced an “unexpected” increase in first-time jobless claims. An ounce of the yellow metal currently goes for $1,237, a level last seen in late June.

“Over the last few days, gold has broken out to the upside,” says Richard Russell, the 80-something dean of newsletter men. “The breakout is capable of taking gold to the previous record highs.” Which squares nicely with the seasonal factors Frank Holmes discussed here last week, like wedding season in India.


“President Obama has given us our next mega income opportunity,” says our dividend hound Jim Nelson after reviewing a recent speech the president gave on education. “Whether you are an Obama loyalist, a Tea Partier or anything in between, it’s clear the next major issue -- besides possibly energy -- will be education.

“Even with massive increases in education spending over the last several years, comprehension and retention rates are falling flat. According to the Department of Education, reading levels have not improved one iota among 17-year-olds since it started keeping track of them in 1971. Yet we’re paying twice as much on an inflation-adjusted basis.”

“Meanwhile, education levels in our G-8 colleagues’ countries are at the same levels, and many are even higher. Yet they aren’t spending nearly as much per student as the U.S.



“Of course,” Jim continues, “just because the stats don’t line up with spending here in the U.S., it doesn’t mean we’ll see any less spending going forward. In fact, the more involved the federal government gets with education, the more money we’ll see thrown at it.”

Indeed. “Local and state governments still make up the majority of education budgets. And they’ve both been uniformly cash tight since the economic collapse started in 2008. But education is the one department they aren’t looking to cut. Instead, they are just moving money around.

“One department making out even in this environment is educational technology. Each year, the number of students per computer goes down. Eventually, we could see more classrooms with a one-student-to-one-computer ratio. Meanwhile, the software continues to improve at fascinating rates.”

Jim’s just identified a solid dividend-paying company poised to make the most of the trend. It’s the perfect complement to another income opportunity that’s so reliable, he considers it “the other” government-backed retirement program that could make up for threatened cuts to Social Security. You can learn all about it here.


Sign of the times? The city of Seattle just made major changes to its zoning laws, clearing the way for people to produce more of their own food. Folks in the Emerald City can now keep up to eight chickens, and they can grow crops on up to 4,000 square feet of property in residential zones. (They can sell their produce on-site, too.)


Coming soon to a metropolis near you…

Sure, you can chalk up some of this to effete Pacific Northwest types going organic and “locavore.” But it could also be an extension of the “new frugality,” as seen with the boom in home gardening that got under way more than a year ago, when mail-order seed companies ran out of supply.

And even Seattle has its limits: Roosters are banned.


“To the reader that talks about those 'yammering' for Social Security,” a reader writes, “I’ve been paying into SS for longer than you (now 62). And you’re damn right I’m 'yammering,' as you put it. The government began stealing this money back around 1960, when they first started transferring from SS to the general.

“As far as I’m concerned, I paid into this fund (had no choice, actually) in good faith and the government owes me this money. You may be perfectly content to sit back, do nothing and write off what’s rightfully yours, but I’m certainly not. Whether or not one has a backup plan (I do) is not the issue. Remember the adage -- All it takes for a tyrannical government is for decent people to do nothing.”


“For those people facing retirement without the Social Security benefits for which they have been paying for all of their working lives, putting an alternative in place is not only a great idea, but mandatory. But what about all of the people who have already reached the age to receive benefits, for whom Social Security is already a minor piece to a major piece of current funds for sustenance?

“It is a little late to tell us that what was a legally required bad deal to start with now leaves us starving in the gutter. It’s a little late for us to change horses now. Anybody got an answer to that one?”

The 5: Current retirees probably have little to worry about, at least if you’re to believe Alan Simpson, the Republican co-chair of Obama’s deficit commission. Last spring, he colorfully described who’s sending him the most mail on the issue: “These old cats, 70 and 80 years old, who are not affected in one whiff. People who live in gated communities and drive their Lexus to the Perkins restaurant to get the AARP discount. This is madness.”

Of all the Social Security reform proposals floated in the last 10 years, “none of that affects anybody over 57,” declared Simpson (who turns 79 in a few days). For whatever it’s worth…


Taking the discussion in a whole other direction: “As an owner of several small construction-related businesses in Virginia, we have hired upward of 20-30 immigrant workers during the 'good times.' All had 'proper' paperwork and Social Security cards. We followed all the rules, etc., in the hiring of 'immigrant'-type workers. When I once got involved in looking over some of the paperwork; it was easy to see that some of the SS cards were just plain fakes. I then reviewed all of the employment files and determined that at least two-thirds of this work force was probably illegal, if not all.

“After thinking about it, I immediately let all of them attrition out, which is easy with this type of worker, as I didn't want to take any chance of my business being shut down overnight due to INS 'capturing' my employees all in one day. After more thought, I wondered why hasn't the government contacted us regarding these obviously fake Social Security cards. There has to be some kind of contradiction within the system that would raise a red flag. WHY?

“Because the government is taking the illegals' deductions in order to fund today's retirees KNOWING that they, the government, will never have to pay out for these illegals, as they will, at some time, go back to Mexico or wherever they came from. It's a perfect scam for the government to hold up Social Security. They are knowingly supporting the illegal immigrant situation here in the U.S. in order to fund the government. Why do you think the 'cost deficit' for Social Security has mysteriously increased over the past year? It's because a large proportion of the illegal immigrant population has gone back to their home country due to the nonexistent construction spending and is no longer paying into the fund. It's a vicious circle, but one thing's for sure, we will NEVER see amnesty for the illegal immigrant population; it would torpedo the entire Social Security scam.”

Regards,

Dave Gonigam
The 5 Min. Forecast

P.S. “I decided to squeeze your reco to the last drop,” a reader writes to Strategic Short Report editor Dan Amoss, “and you're not going to believe the result.”

Dan recommended put options on the trucking firm Con-way in March, and if you’d followed his recommendation to the letter, you’d have closed out last week for an 89% gain.

But you can always choose to freelance, as this reader did: “I bought the recommended put around mid-May and sold it at the end of June just when the stock was approaching the $28.50 support level. As it was then the beginning of the reporting season, I bought a call just as it bounced of the support level around first week of July. Just when the stock hit resistance at the $35 level (end of July), I sold that call and bought another September $32.5 put, which I just sold today. Overall result: Over 600% gain.”

Dan issues his new recommendation tomorrow. If you want to be on board, here’s where to sign up.
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/36327-what-recovery-looks-like.html Backfired Stimulus http://www.gold-speculator.com/5min-forecast/36220-backfired-stimulus.html Wed, 18 Aug 2010 20:01:43 GMT The 5 min. Forecast
August 18, 2010 11:07 AM

by Addison Wiggin & Ian Mathias
  • The Fed can print it, but can’t control it: States hoard money intended to save teacher jobs
  • Sign of the times: Top-performing global indexes belong to socialist nations
  • Rich Lee on the sudden resurgence of the eurozone crisis
  • Plus, Alan Knuckman on the recent stock selloff… beginning of a downtrend or an isolated event?


You have to be especially heartless to lay off a teacher, says the political will off the moment. That was the sentiment behind the $26 billion state stimulus bill passed last week, $10 billion of which was supposed to save 160,000 teaching jobs at risk of elimination due to budget shortfalls.

Do it for the children, right? Maybe not…


“We’re a little wary about hiring people if we only have money for a year,” Clark County Las Vegas CFO Jeff Weiler told The New York Times this morning. Heh, what do you mean, Jeff? It goes against your fiduciary instincts to spend “free” money today knowing you will need more of it tomorrow?

“You’ve got this herculean task to deal with next year’s deficit,” said Lydia L. Ramos of the Los Angeles Unified School District, which might just take its “stimulus” money right to the bank in hopes of getting an early start on the school district’s $280 million 2011 budget gap. “So if there’s a way that you can lessen the blow for next year, we feel like it would be responsible to try to do that.”

The Times is covering this story as you’d expect, tugging on heartstrings with first-hand profiles of teachers on the brink and a general air of resentment… “[S]ome of the nation’s biggest school districts are balking at using their share of the money to hire teachers right away,” they report.

But haven’t we been through this already? Recall 2008, when a $160 billion stimulus gave every middle-class American a check for $300… and what did they do with it? A few months later, banks get $700 billion… and didn’t lend a penny of it. GM got $57 billion, then went bankrupt. AIG… we don’t even keep track anymore.

We feel for teachers and their students as much as the next guy. But can they be “saved” with more easy money?


The stimulus debate du jour is how the government will save Fannie Mae and Freddie Mac. More government support is vital, said Treasury Secretary Timothy Geithner, the maestro of yesterday’s White House housing summit, “to make sure that Americans can borrow at reasonable interest rates to buy a house even in a downturn.” It is, after all, your God-given right.

To be clear, the Treasury “will make sure the GSEs have the resources to meet their financial commitments,” Geithner added. Whatever the fate of Fannie and Freddie, it will be financed with tax dollars and controlled by government. Both companies, despite being at the very heart of the financial crisis, were left out of the recent Financial Reform Bill.

“Government is part of our future,” Bill Gross responded. “We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.”

Scary stuff, eh?


As menacing as this all ought to sound, here’s an interesting twist: Some of the best-performing stock markets in the world this year are in socialist-leaning nations. Denmark’s OMX 20 (like our Dow) is up 22% so far this year, the best-performing index in the developed world. Incredibly, Hugo Chavez’s IBVC index of Venezuelan’s stocks is close behind.

Compared to the S&P 500, it’s no contest… 2010 is the year of the socialist investor.


There’s more going on here than just form of government. Denmark, for example, is in the catbird seat of the euro crisis -- part of the EU but not a euro nation, very low debt and a conservative banking system.

But still, it’s worth noting… in a world that’s terrified of excess government involvement, two countries with massive state presences are giving investors top-rate returns.

For investment advice on this matter, you should listen to Jim Nelson’s latest online presentation. Our fixed-income man has found a nifty way to tap into this trend.


“Market sentiment has turned on the rest of Europe,” The Richebacher Society’s Rich Lee wrote to subscribers late last week. “Worries are growing that current strategies and aid packages will not be enough to curtail further regional economic losses.

“Problems that have always been there are getting noticed once again. This time they are centered on Ireland and Spain. Of course, these two countries have been in the mix all along, but their negative contributions were mainly overshadowed by Greece's problems. Now the two are casting shadows of their own. Fears are mounting over both rising bailout aid and sovereign debt costs. This has sparked fear that further external obstacles lie ahead in bringing the EU financial crisis to a halt -- slowing down the possibility of a quick recovery.

“It's not like Spain and Ireland aren't trying. Ireland's government has cut spending, raised taxes and made drastic public worker wage cuts, yet budget deficit problems remain relatively the same. The country's deficit is still approximately 14% of gross domestic product. The only real economic change in the last couple of months has been unwelcomed -- unemployment has risen to about 14%. But what is most disconcerting is the fact the current austerity plan is set to cost more than originally planned.

“Anglo Irish Bank, one of Ireland's major banks that almost failed, is in need of an additional 10 billion euros. That's on top of the already pledged aid of 14.3 billion euros issued by the European Central Bank to keep the bank afloat. The number is staggering. It's even worse considering the fact that the full bailout of 24.3 billion euros would constitute almost 12% of Ireland's overall gross domestic product.

“The sky-high bill for recapitalization has foreign investors worried and clamoring for higher rates of return when it comes to bonds. Although Spain conducted relatively successful bond issuances in the last couple of months, the interbank market still remains relatively closed to the country -- as well as Ireland. This means that both countries are unable to obtain favorable market-level lending rates.”


Back in the States, traders are a tad more optimistic. BHP Billiton’s attempted takeover of Potash Corp. helped bump the S&P 500 up over 1% yesterday. You can spin this story into general market optimism in more ways than one…
  • The mere fact that BHP made a bid shows a huge, multinational company willing to make a big bet on at least one industry.
  • BHP’s offer was all cash. In other words, it might think its own stock is too cheap to be offered as currency.
  • Potash rejected, even though the offer priced the company 16% higher than market value. They clearly think they are not only worth more now, but also will be worth more down the road.

“As it stands, “ says our resource trader Alan Knuckman, “the bullish trend for stocks is still intact. Last week’s selloff was not a change in trend but rather a standard pullback to support levels. The 1,070/1,065 level for the S&P 500 held strong, and most importantly for a bullish strategic mindset, new lows were not made after the gap Thursday. This can be interpreted as a positive. When the market was on its heels, additional selling did not emerge and it was able to stabilize.

“Another positive indicator: The VIX, which measures investor fear, was also unable to reach above 28. It bounced on the selloff but did not rally with subdued concerns of more selling. Combined with the S&P support holding at that 50% retracement of the 1,130 high, this tells me that last week may have been an isolated event.

“All signs are positive if the stock market can get some catalyst to start the climb again with the majority of earnings behind us. Remember, second quarter numbers are what drove the market on its last run.”

Perhaps that catalyst would be a BHP/POT deal. Even though Potash rejected the offer, BHP announced today it would continue making hostile bids in hopes of a shareholder mutiny.


Only one shred of data today, and it ain’t pretty: Bankruptcies in the U.S. rose 9% last quarter to the highest level since 2005. According to the Administrative Office of the U.S. Courts, 422,061 parties filed for bankruptcy between April and June. That’s up 9% from the previous quarter and 11% year over year.

And that “most since 2005” statistic really doesn’t do the situation justice. Remember that’s the year Congress overhauled American bankruptcy laws, making it notably harder for businesses and individuals to file.

Nevada has the worst rate (surprise, surprise). More than 1 in 100 people living there have filed in the last year.


After rallying through most of this month, gold is sticking to a tight range. The spot price has been bouncing between $1,215-$1,230 all week.


The dollar index, however, has been in steady decline this week as stocks move higher. Opening at a high of 83 Monday, the index dipped below 82 this morning.


“Getting our history a bit more accurate,” a reader writes, refining yesterday’s issue. “No, it was primarily Lenin and Trotsky who engineered the overthrow of the Tsar in 1917. Stalin did not rise significantly within the power struggle until Lenin's illness began in 1922. Nor was the assassination of intellectuals the first thing done [what with Lenin and Trotsky among the most prominent examples]. It took the consolidation under Stalin to get this going. What seemed like common sense once the Bolsheviks were in power [with new Hope] was to argue bitterly among themselves, breaking into numerous factions, squandering their gains, until totalitarian strong-man Stalin took over. Now does that seem to be getting a bit closer to home?”


“Do you think that possibly,” another reader speculates, “the whole reason for amnesty for 12 million illegals (20 million is more likely) might have some connection to the Social Security shortfall? Hmmm, 12-20 million (mostly young) illegals now with potential citizenship paying into Social Security, which I presume would be part of the deal. My self-employed gardener might not even apply under those terms when he sees a 15% self-employed tax facing him in addition to IRS tax filings. Just a thought.”


“I have been paying Social Security taxes since I graduated from high school in 1971,” our last reader writes. “Whether that money went to pay my parents' benefits or into the general revenue fund as the surplus was used to purchase Treasuries, makes no difference. That money has been spent. If I and everyone else in my generation [I'm almost 57] are to collect any SS benefits, that money will come out of the paychecks of our children, and has anyone else noticed that good jobs for our young people are not real easy to find these days? I'm still hoping for them to become fully self-supporting. To ask them to support me as well seems a bit much. I have been promised SS benefits, along with all other wage-earning Americans, but I'm making plans to get along without them. I don't like the idea, but yammering about how "they better not fail to pay up" is pointless. Whether people march on Washington, or start a revolution, or whatever, that's not going to bring back the money they feel they are owed. It does, however, waste time and energy that could be spent preparing to get along without it.”

The 5: There are exceptions to every rule, but we’re hard pressed to think of many situations where having a backup plan is a bad idea. Saving for retirement certainly doesn’t seem like one of ‘em. Good for you, and good luck.

If you need some help, you should really check out what our income analyst Jim Nelson’s been up to. His latest report deals especially with retirement investing and preparing for Social Security’s inevitable crisis… which could very well come sooner than most people think.

Cheers,

Ian Mathias
The 5 Min. Forecast
]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/36220-backfired-stimulus.html Happy Birthday Entitlements! http://www.gold-speculator.com/5min-forecast/36119-happy-birthday-entitlements.html Tue, 17 Aug 2010 20:00:12 GMT The 5 min. Forecast
August 17, 2010 11:05 AM

by Addison Wiggin & Ian Mathias
  • Terrified traders: Treasury yields at record lows after fabled “Hindenburg Omen”
  • Happy 75th Birthday, Social Security… government celebrates with useless partisan agendas
  • Chris Mayer on the hottest commodity in the world today: potash
  • Big moves in U.S. debt: China dumps at record rate while total foreign holdings exceed $4 trillion for first time

We begin today with the latest panic on the floor of the exchange: “The Hindenburg Omen.”

According to technical analysts, the Hindenburg Omen is a technical point of no return whereby five market events occur simultaneously and result in a rapid decline in stock prices. Here are the rules of the game, as outlined by Zero Hedge:

1 - The daily number of NYSE new 52-week highs and the daily number of new 52-week lows must both be greater than 2.2% of total NYSE issues traded that day.
2 - The smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3,126). This is not a rule, but more like a checksum. This condition is a function of the 2.2% of the total issues.
3 - The NYSE 10-week moving average is rising.
4 - The McClellan Oscillator is negative on that same day.
5 - The new 52-week highs cannot be more than twice the new 52-week lows.

Uh… yeah. These traders clearly have too much time on their hands.

Still, according to the wizards who do the calculations, “The probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, and usually takes place within the next 40 days.”

At one point over the weekend, Hindenburg Omen was the No. 1 Google search term. Not even “oil spill” or “Obama mosque” can hang with that. With that level of interest… the whole the prophecy may just be self-fulfilling.

Also of note: the last time the “omen” occurred was…

[ominous organ music]

October 2008.


As a result of this Hindenburg business and a host of bad economic data, the 10-year Treasury note is yielding 2.57% this morning -- its lowest since the stock market bottom in March 2009.

Two-year paper is yielding an historic low of 0.49%... incredible.


And since we’re on the subject of omens. Try this one on for size:



The insane have no idea that they are insane.
Pelosi presents a birthday cake to Social Security.

Seventy-five years ago, in the depths of a depression, with a stroke of a pen, President Roosevelt created programs that would morph into the biggest mandatory spending initiatives of the U.S. federal government.

We like the original name better: Federal Old Age, Survivors and Disability Insurance. In its original form, that’s what it was: An insurance plan -- as in, most people might not need it.


Today, over 20 million Americans have more than one Social Security number associated with their name. More than 100,000 have five or more numbers, and according to consumer risk-management firm ID Analytics, only 15-20% of those cases are related to fraud.

“The majority of these cases are likely due to data entry errors,” says an executive with ID Analytics, “which occur somewhere along the food chain of these credit applications and then they propagate in the system.”


The politicians representing your district couldn’t be happier. They get to blame each other and give you false reasons to enter the voting booth this fall… at the same time! Whoopee.

Exhibit A: “We will continue to highlight the Democratic Party's role in strengthening [Social Security] and the Republican Party's role in opposing it,” said DNC national chairman Tim Kaine in a speech on Friday night, the day before Social Security’s official anniversary. “So that is one of the themes for the fall: It's critical to elect Democrats who will stand with the president to protect Social Security.”

The same Democrats that won the 2008 platform on “change” will be advocating aggressively this fall that any drastic change to Social Security is a full-on attack on your way of life. Just to be perfectly clear: “The Republicans advocating these changes are not friends of senior citizens,” Kaine said.

Exhibit B: “Democrats in Washington are desperate to shift attention away from their reckless spending record and failure to create jobs," responded Brian Walsh of the Republican Senate campaign committee. No word from Walsh on their own reckless spending record.

What a mess.


As we’ve detailed ad nauseum, in books and film, the Social Security program in its current state failed to account for the baby boom generation. There aren’t enough workers paying into the program to pay out benefits to those who need them.

The current economic malaise only makes that structural flaw worse.


“The problem,” The New York Times helpfully suggested when we ran this chart of CBO projections back in March, “is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax.”

Still, as you have no doubt seen in reader mail, those who’ve paid in expect to get paid back. Rightfully so, since that’s the bill of goods they’ve been sold since the dawn of the program. (More of that ire below)…


“75 years of a fully paid-for insurance plan isn’t bad,” notes our income analyst Jim Nelson. “But frankly, neither the Republicans’ plan to privatize the program or the Democrats’ plan to do nearly nothing will fix the next 75 years.

“That’s why smart investors are looking elsewhere to save for their own retirement.

“Most are completely unaware of how easy it is to avoid ever having to rely on Social Security. We found one way to actually lock in another country’s ‘pension plan.’ And this one isn’t having birthday parties or at center stage in an election-year demagoguery battle.”

Jim’s not kidding… one of the most successful governments in the world has a way for foreign investors to tap into their vast social safety net. He’s put together a report on how to do it right here, check it out.


You’ll want to check out Jim’s presentation, because the economic malaise isn’t going to fade anytime soon. After yesterday’s not-so-hot report from the National Association of Home Builders, the Commerce Department announced today some lousy housing data of their own.

Housing starts rose 1.7% in July, far less than forecast, while June numbers were revised down heavily. At the same time, building permits for new homes fell to their lowest level in over a year.


“The TIC flows data from June was very interesting yesterday,” Chuck Butler adds, referring to the data that track net foreign purchases of U.S. Treasuries.

“China cut its holdings of Treasuries by the most ever in June. You might also recall in June, China made the announcement that they would once again allow more flexibility in the renminbi. China could have very well decided to allow more flexibility and reduce their reasons for buying Treasuries, turning instead to Europe and Japan. It's all there in the TIC report.”

From May to June, China sold $55 billion worth of dollar-denominated securities while buying $13 billion in yen. And the time bomb ticks…


Meanwhile, back in the markets, the story of the day is POT -- PotashCorp. The world’s largest potash producer got a hostile takeover bid early this morning from BHP Billiton, the world’s largest mining company.

Even though BHP’s $38 billion offer valued POT at a 16% premium to yesterday’s closing price, Potash execs dismissed the offer with some relatively harsh language. The “opportunistic,” “low-ball” offer, they said, was a “grossly inadequate” estimation of the company’s true value.

“This is big news, but not a surprise,” Chris Mayer comments. “As I've been writing to my readers, several big miners have been trying to lock down potash and phosphate deposits. These are key nutrients for making fertilizers. Quality, large-scale deposits are rare. Potash is key in boosting crop yields and has a very important role to play in the world's food supply. It's also underapplied globally, so the growth rate in potash applications looks good.

“PotashCorp is the biggest and has the best assets. BHP is the world's biggest miner. Thus, a marriage made in heaven. This attempted acquisition just cements how desirable potash reserves are. BHP is a smart set of operators. They didn't make this bid lightly.

“Last week, we got news that Russia is creating a national fertilizer champion, merging its two biggest potash producers. Potash is on its way to becoming a strategic asset, like oil.”

That’s great news for those invested in potash, like Chris’ Capital & Crisis readers. They are sitting on a 130% gain in PotashCorp. after this morning’s move.


“My hat is off to [yesterday’s reader] for being so honest,” a reader writes, praising ignorance. “If it were not for those master’s degree types, we would not be in the mess we are in today. They lack common sense, and have for quite some time. That’s the problem with our country today. You have to have a master’s degree to be with the educated ‘in’ crowd. I value common sense much more.

“Common sense is definitely a value that is undervalued and not appreciated by those intellectuals today.”

The 5: Wow. After Lenin, Stalin and Trotsky overthrew Tsar Nicholas II in 1917, the next thing they did was systematically assassinate intellectuals. I suppose it must have seemed like common sense to them at the time, too.


“After giving that much money for that long,” another reader writes, regarding Social Security, “we all better damn well better get paid when we reach retirement age. If not, it’s just a scam… open stealing.

“And that $300 stimulus in 2008? That’s one month’s summer electric bill in Phoenix. Give me some real money and I'll stimulate something.”


“The only mistake,” another adds, “was they should have made the people that received the $300 spend it. I know, since I put mine in the bank making zero interest, which did neither me nor the economy any good.

“This could have been/can be easily be accomplished with a bank-issued debit gift card. It has no cash in value, just like a store-issued gift card… can be used to purchase or for a down payment for any product including baby's milk, shoes, clothing, food, a car, beer, cigarettes, you name it. People should decide what they need. And the government can tax the s**t out of it too. Win/win.”

The 5: Please, don’t take this the wrong way… but you have lost your minds.

Addison Wiggin
The 5 Min. Forecast

P.S. “Everybody wants some,” goes a refrain from the ’80s-era rock band Van Halen tune, “I want some too.” Sing it. It’s catchy. The song is apropos of the nation’s entire approach to government. Unfortunately, with respect to Social Security, there’s nothing left in the pot. A good look at Jim Nelson’s presentation will suggest a viable alternative… I urge you to take a look right now.



]]> 5min Forecast RssFeed http://www.gold-speculator.com/5min-forecast/36119-happy-birthday-entitlements.html