Here Come the Baby Boomers, 4 Million Chinese on the Move, The New $100bl Bank Bailout Fund, an Underpants Story, and More!

by Addison Wiggin & Ian Mathias

  • First drop of a coming flood: First Boomers retire… Why the government’s not ready
  • Huge hydroelectric effort displaces millions of Chinese… Hancock on how to play the trend
  • Mayer in India, identifying opportunities in the midst of “danger zones”
  • Gold forges ahead… Frank Holmes’ gold forecast and favorite precious metal plays
  • Mega-banks establish $100 billion bailout fund… The 5 explains this confusing consortium
  • The 5 forgot to wear its underpants… details, and an apology below

The first “official” baby boomer filed for Social Security today.

Kathleen Casey-Kirschling, who was born on Jan. 1, 1946, at 12:00:01 a.m. — literally the first child “on the books” of the baby boom generation — filed for benefits this afternoon. Social Security requires all early retirement applicants to file no more than four months before their eligibility date, which allows Casey-Kirschling to file today, before her 62nd birthday.

Casey-Kirschling will be the first of some 80 million “official” baby boomers to start taking advantage of our utterly doomed entitlement programs. Approximately 3.2 million will turn 62 next year — about 365 per hour — and will potentially begin requesting the 75% benefits share associated with early retirement. In 2011, Casey-Kirschling and her 3 million friends will become eligible for Medicare. In 2012, the same group will qualify for full retirement benefits.

Oh boy, here we go…

In a speech at the Des Moines, Iowa, Rotary Club that we captured for our documentary on the subject, David Walker, the U.S. comptroller general, pointed out that “38% percent of the federal budget today is deemed to be ‘discretionary spending.” And it’s getting squeezed and going down every year.”

What is “discretionary spending”? It’s:

National Defense
Homeland Security
Foreign Policy
The Treasury Department
The Judicial System
The Executive Office of the President

“In fact,” says David, “all of the basic functions of government at the end of George Washington’s second term are now deemed to be discretionary.

“Sixty-two percent of government spending is either on interest on the debt or ‘mandatory spending’ like entitlement programs and other things that, quite frankly… did not exist at the founding of this republic.”

The Government Accountability Office (GAO), which David Walker heads up, estimates that the current liabilities of the U.S. federal government — owing mostly to Social Security, Medicare and Medicaid — exceed $50 trillion.

Meanwhile, U.S. markets ended the week strongly on Friday. The Dow and S&P 500 regained Thursday’s losses with 0.5% bump to the upside, as did the Nasdaq, with a solid 1.2% gain.

Asian markets continued their rapid growth. The Shanghai Composite rallied to an intraday high on Friday, but backed off just below a new record close. The Chinese benchmark index closed at record highs every other day last week.

Hong Kong’s Hang Seng rose nearly 1% to a record high, as well.

Four million more Chinese will be forced to relocate to make way for the Three Gorges Dam, the Chinese government announced on Friday.

Heralded as a showcase of Chinese engineering, the $23 billion dam has already displaced 1.4 million people since construction began in 1994. Nearing completion, the world’s largest dam — and perhaps the biggest civil engineering feat ever — will push millions of Chinese out of rural life and into Chongqing, a city on the western end of the dam’s 400-mile-long reservoir.

“All told, China intends to relocate 400 million people to newly developed urban centers between 2000-2030,” says our international investing adviser Christopher Hancock.

Criminy, this thing is big. The Three Gorges Dam

“Think about that… 400 million! That means China plans to move a population 33% larger than the total population of the United States into urban centers over the next 23 years.

“That’s going to require a construction project like nothing the world has ever seen. The United States needs $1.5 trillion just to maintain its existing infrastructure. We suspect the Chinese plan to spend much, much more.”

Chris’ play on the trend? In a word: steel… pretty tough to build much of anything without it. China will need to build hundreds, if not thousands, of steel-supported high-rises in the coming years to support this demand. And according to Mr. Hancock, there’s only one stock you need to own to get a piece of the rising demand for the gray hard metal.

The Sensex, a benchmark index for India’s stock market, also hit all-time highs last week.
“It rose almost 800 points on Tuesday alone — the biggest rise in absolute terms ever,” said our man on the scene, Chris Mayer. “Since October 2002, the average annual return on the Sensex is about 45%.”

Chris touched down in India on Tuesday. He was in Bombay last week, hunting for investment ideas for his Capital & Crisis and Mayer’s Special Situations readers. With the Sensex at record levels, and the Indian rupee at a 9½-year high versus the dollar, it looks like Chris is curious… and cautious.

“I’m a bit wary about the Indian stock market at the moment,” cautions Chris. “Not surprisingly, the people we met with were cautious about the short-term prospects. But like any market, there are pockets of opportunity, as well as danger zones.

“As far as danger zones go, the Indian property market looks frothy. In fact, one money manager told me that some public companies have changed their name to include the word ‘property’ even if that had little to do with their actual business. This is eerily reminiscent of the tech bubble in the U.S. in the late ’90s, when companies wanted ‘dot-com’ as part of their name. Just that sent a stock soaring.”

As for opportunity, Ajit Dayal, who runs the QIEF Mauritius Fund and is Mr. Mayer’s host on the first leg of the trip, points out that the consumer discretionary stocks — cars, clothes and other consumer goods — make up 11% of the MSCI World Index, but only 3% of the Bombay Stock Exchange 30. The first is a common global stock market benchmark. The latter is sort of the Indian Dow Jones industrial average. Relative to the market price sectors in other parts of the world, the consumer discretionary stocks of India look good.

(Stay tuned for more India updates from Chris. For his specific stock picks, be sure to check out Capital & Crisis.)

Gold soared in Asia over the weekend. The precious metal has gained $10 since its close in America on Friday. It opened in New York this morning at $758.

“I think that bullion is going to continue trading higher,” comments Frank Holmes, a perennial favorite at our event in Vancouver, in a recent MarketWatch interview. “What’s interesting for investors to recognize is the very strong relationship between the dollar, oil, and gold. Eighty perecent of the gold noise is the movement in oil. Whatever the price of oil is today, gold typically rises to 10 times that price.

“Today oil is around $80, so gold seems like it will go to $800 soon. Sometime in the next five years, you’ll see oil over $100 a barrel, and I’d expect gold to be at least $1,000, as well.”

Frank’s advice: “The best thing you can do this holiday is go out there and buy lots of gold jewelry and wear it… wear it like they do in India… wear that wealth.”

Frank also tells MarketWatch readers that Yamana Gold is “a very attractive stock.” Of course, Outstanding Investments readers already knew that. Their Yamana shares are up nearly 20% in the past six trading days. Click here to learn another OI opportunity… gold at pennies per ounce.

The gift that keeps on giving: Moody’s downgraded another $33 billion of subprime bonds late last week — its biggest downgrade to date.

The multibillion-dollar downgrade includes 2,187 securities all written in 2006. This gigantic sum accounts for over 7% of the original dollar volume of debt rated by Moody’s.

Citi, Bank of America and JP Morgan Chase announced they are leading a consortium of 30 banks in establishing a bailout fund for the “commercial paper” market. “Commercial paper” is a bond sold by a firm needing to raise money quickly in the capital markets.

The new fund will amass up to $100 billion and will target only AAA-rated debt. In order to assure investors in the fund, the banks have promised not to touch the subprime junk that has caused so much consternation this year.

So much like the consortium assembled by then chairman of the Federal Reserve Alan Greenspan designed to ward off evil following the LTCM derivatives crisis in 1998, this fund will seek to separate the wheat (good, honest debt) from the chaff (bad, cheeky subprime debt). And keep the credit markets operating smoothly for those who need it.

The theory is a good one. But as always, the drama will unfold when they put the plan into action. And it’s worth noting it will not help stave off any damage to mortgage lenders who dipped their fingers in the dirty debt. We’ll keep you posted as this one develops…

“I really like The 5 with its thought-provoking insights and witty comments,” writes a reader. “I generally agree with your analysis, despite your hyperbole. However, I am disturbed by your inclusion of the ‘aid in euros’ story. It tarnishes your credibility as a reliable source for economical/financial information.

“It seems obvious to a sensible person that such request is not reasonable and the response ridiculous. It appears that you did not validate its truth. Several other blogs have since picked it up, missing the ‘satire’ and ‘gotcha’ tags. Of course, in today’s world, it’s damned hard to tell satire from the awful truth sometimes. Having said the above, I still love your publications and musings.”

“Oh my, unless I am mistaken,” responds another “the source article quoted in The 5, Oct. 12, 2007, regarding Israeli request that U.S. foreign aid be paid in euros is satire.

“If your readers knew the actual source, I suspect some might be upset to learn you are reading such ‘anti-Semitic’ Web sites. I’m glad you are open-minded, despite the unpopularity of such a position. Love The 5.”

“Greetings from Singapore,” writes a third, “I love The 5, but you caused me a red face today when I talked about your ‘Israeli euro’ story in the Friday edition.

“I suppose that I should have tracked back the source, and the fact that it came from a Web site called should have alerted me. Or I could have paged down to see the large, flashing red SATIRE strap on the bottom of the page…

“Of course, the best satire is that which sounds like it should be true; I prophesy that this story will develop legs and soon become a new urban myth. This cat is out of the bag, this horse has bolted. I bet you can’t reel it back in.”

The 5 Responds:
My 4-year-old comes down from his bedroom in the morning several times a week forgetting to wear his underpants. When standing in front of his parents, his only concern is whether or not he’s cold. He’s not ashamed of being naked.

We’re feeling a bit like him this morning. Our aim, especially on Fridays, is to amuse you by pointing out the many absurdities of the global economy, politics, the markets. This past Friday, we got a bit ahead of ourselves. We thought there was something fishy about the Israel/dollar foreign aid story. And that should have given us pause. But we hit “send” before we reached the flashing red SATIRE emblazoned on the originating site.

Still, our efforts remain pure. We want to provide you with accurate information, in a timely manner, with a little humor and a lot of judgment. Above all, we strive to connect the news you read with opportunities to improve your life through successful investing or otherwise. If we sometimes forget to wear our underpants, we cannot be ashamed. But must simply admit our mistake, hope that it’s not too cold… and head back upstairs to don the appropriate attire.

As for anti-Semitism… we won’t speak for other Web sites, but will maintain there is a difference between questioning U.S. foreign policy — even the U.S.’s support for Israel –- and being anti-Semitic. We hope you’ll at least grant us that much.


Addison Wiggin,
The 5 Min. Forecast

Banks Start Fund to Protect Credit Market
Frank Holmes on Gold
Mish Shedlock’s Latest Musings


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More