The Real State of Our Union, The End of “Buy and Hold,” The Loonie, Chavez, and More!

by Addison Wiggin & Ian Mathias

  • Scary new foreclosure stats, same old State of the Union… how America has become its own worst enemy
  • How long do you hold your stocks? New figures reveal buy-and-hold gives way to churn-and-burn
  • The 5’s own “economic stimulus” plan: Clone Britney
  • Loonie back at parity… Chuck Butler on the future of the Canadian dollar
  • Chavez back in the news, aims to form multination military alliance versus U.S.
  • Consumer confidence at fresh lows, gold at new highs and more!


More than 405,000 homeowners lost their homes to foreclosure last year.

Total filings, according to RealtyTrac, were up 97% year over year in December, bringing the yearlong increase up 75% from 2006. More than 1% of all U.S. households were in some form of foreclosure in 2007.

“I would argue,” says David Walker, the U.S. comptroller general in the opening lines to I.O.U.S.A.
“that the greatest threat to our nation is not someone hiding in a cave in Afghanistan or Pakistan, but our own fiscal irresponsibility.”

You wouldn’t get that impression from the State of the Union address given by George W. Bush last night. He mentioned the nation’s deficit only once, and even then only repeated his pie-in-the-sky projection that the deficit would be down to zero by 2012. Bush didn’t mention the word “debt” once… even though our national IOU just crossed the $9 trillion threshold.

As we pointed out last week, even by Congress’ own measures, the deficit is on track to increase by $219 billion in 2008… not including off-budget spending for the wars in Afghanistan and Iraq. And not including the economic “stimulus” package Bush begged Congress to pass.

Bush spent 16 minutes — 30% of his entire speech — talking up the “war on terror” in Afghanistan and Iraq.

“If we had been running our economies the old-fashioned way,” the venerable Stephen Roach said at the conclusion of the World Economic Forum in Davos last week, “for example, were saving and consumption funded by income, maybe we wouldn’t be in this mess we are in now.” The subprime fiasco, says Roach, “will dwarf the dot-com slump.”

“It is one thing to punish a few speculators with skin in the dot-com game,” added our friend Bill Bonner in The Daily Reckoning yesterday. “It is quite another to deliver a stern lesson to America’s entire middle class. The latter never liked school.

“Spending on information technology was barely one-sixth the spending on house building. But that’s only the beginning — because the dot-com bubble didn’t cause millions of householders to think they were a lot richer than they really were. It didn’t lead millions of families to borrow and spend far more than they could afford. And it didn’t entice bankers and investors into billions of dollars worth of losing positions.

“A word to the wise: You can’t really make people wealthy by resorting to ‘Zimbabwe economics.’ A society grows rich by producing things… and saving money. There is no other way. Cheaper credit won’t do it. More consumption won’t help. Printing money — and dumping it from helicopters — is a losing proposition.”

Markets kicked off the week with a nice day of gains yesterday. The Dow and S&P 500 opened to a sell-off, falling as low as minus 0.5%. But stocks surged back, led almost entirely by financials, to notable gains.

The S&P 500 ended up 1.7%, the Dow rose 1.4% and the Nasdaq managed a 1% gain.

“The average holding period for a stock on the NYSE is just nine months,” notes James Montier in our friend John Mauldin’s Outside the Box e-letter, commenting on the true speculative nature of the U.S. economy.

Investors in the U.S. markets are fixated on the short term — more so now than ever before.

“Of course,” Montier concludes, “if everyone else is focused on the immediate future, mispricing of the long term may well result.

“If you are investing on a nine-month time horizon (see chart above) then your returns are likely to be dominated by price returns. You are simply betting on whether a stock goes up or down. In fact, the capital gain delivered via the change in valuation accounts for some 62% of your total real return.”

“Do you know what the highest-rated show on CNBC is?” asks our Maniac Trader Kevin Kerr, as if to put a point on the subject. “Jim Cramer’s Mad Money? Closing Bell? Fast Money? Kudlow & Co.?

“None of the above. The highest-rated show, by far, is the game show Deal or No Deal, on which people try to guess which briefcase has the most money.” Fast, easy money and scantily clad women… what else is on the minds of the gaming public these days?

Given the above, we have an alternate suggestion for economic “stimulus” … let’s clone Britney Spears.

According to Portfolio magazine, Ms. Spears, loony as she may be, accounts for $120 million of the U.S. GDP each year. She has sold about 83 million records, grossed over $150 million touring, over $100 in perfume sales, and netted $10 million-plus in advertising.

Paparazzi firm X17 sold $2.5 million worth of Britney photos in 2007 alone… the magazine estimated that photos of her account for at least 20% of the entire paparazzi industry. Her face on the cover of gossip magazines boosts sales by an average 33% — newsstand sales of mags with her on the cover amounted to $360 million in the past year and a half.

She’s been Yahoo’s No. 1 search term six of the last seven years. Just another hundred Britneys or so, free cameras from the federal government and we’re in the clear…

The U.S. dollar fell yesterday and overnight. The dollar index slipped to the lower side of 75, accelerated mostly by a surging euro — up to just a hair from $1.48. The pound is in similar shape, trending upward to $1.99. The yen is ever so slowly letting go of its recent rally, trading at about 107.

The Canadian dollar, on the other hand, refuses to let go of parity with the greenback. But at a dime off its November all-time high of $1.10, it’s most likely in the pits until commodity prices rebound.

“The loonie has seen better days, for sure,” writes our friend Chuck Butler, watching currencies closely. “But let’s not get too down on it. I recall, not too long ago, when the loonie was trading at 65 cents! It’s now trading near parity.

“The short-term problem is that the loonie is getting tugged on both ends. The Bank of Canada’s rate cuts and the idea that Canada gets tarred with the same brush as the U.S. are trying to pull it down, while rising commodity prices, and a strong economy, are trying to pull it higher. Which one will win? That’s for the markets to decide, my friends.”

We’ll let you know as soon as something gives.

Orders for durable goods in the U.S. rose 5.2% in December
— the biggest leap upward in five months. Orders for big-ticket items meant to last more than several years, says the Commerce Department, doubled analysts’ expectations. The number is especially surprising in light of the ISM’s manufacturing index current four-year low.

Still, for all of 2007, durable goods orders rose 0.9%, a might bit slower than the 6.3% jump in 2006 and the 9.4% gain in 2005.

Consumer confidence fell in January to two-year lows. After a slight increase in December, the American consumer resumed his gloomy outlook in January, sinking the Conference Board’s index to a post-Katrina low of 87.9.

“We have to do everything possible,” urged our favorite South American dic… er… president, Hugo Chavez, to Latin American leaders this week, “so that in the coming years, the U.S. empire falls.”

Chavez called for all Central and South American countries to begin withdrawing the billions of dollars they hold in reserve in U.S. banks. And as plenty of other nations are doing without his insistence, Hugo wants his Latin allies to sell whatever U.S. Treasuries they might own because, well, “You can’t put all your eggs in one basket.”

Mr. Chavez added to that sentiment today by suggesting that Nicaragua, Ecuador, Bolivia, Cuba, the Dominican Republic and Venezuela create one united anti-U.S. military alliance. That no doubt would be interesting.

We wonder where Chavez is going to get fodder for his tirades when Bush leaves office a year from now.

“I see you, puny imperialists, I see you… ha ha ha!”

Gold reached another record high this morning, climbing as high as $933 per ounce. Platinum hit an all-time high as well, up to $1,738 per ounce.

“What caught my eye this last week,” writes a reader, “was your story of China becoming the world’s No. 1 in gold producer in 2007. My wife is Chinese and was born there. When I told her this, she was surprised about how production has grown.

“Last night, she talked with her father, who lives far from the big city. He said people there are buying gold BY THE POUND OR 10 POUNDS AT A TIME. They also made combative gold bars for the Olympics. The first three bars sold out quickly and the fourth is selling on the Internet. Even teenagers are buying… like a status symbol.

“No matter what happens here in the U.S., I believe China will drive the price higher and higher.It’s the right thing to do if you were the largest producer of gold last year.

“So make sure you buy some more gold today.”

Countrywide CEO Angelo Mozilo announced yesterday that in light of his role as the spearhead of the greatest housing bust since the Great Depression, he’ll forfeit $37.5 million of his severance pay. The poor guy will now be stuck with a measly $24 million pension.

“Why are the very engineers of this mess,” asks another reader, “not personally held responsible?

“If you are an engineer, trained to be an engineer, and you build something that collapses due to your own inability, being an engineer, a matter expert, you are held responsible for your work.

“While taxpayers eventually end up paying, the CEOs of Citicorp, Merrill Lynch, Bear Stearns and all the other Harvard, Stanford, Princeton, etc.-trained CEOs of the very financial companies that designed and executed this disaster are walking away with millions upon millions of dollars in severance packages, bonuses and stock options while the little guy on the street has to bail out what’s left — while having to deal with the economic downturn on top of that.

“It’s not just evil — it’s plain wrong. It might be legally correct, but it’s still wrong, wrong,

“Addison Wiggin, Bill Bonner, Chris Mayer, et al.,” suggests a third, “are to be congratulated on what — and how — you report what’s REALLY going on in the financial world!

“Years ago, I stopped following the advice of all the ‘experts’ on CNBC and other idiotic TV stations, especially after big losses on Motorola and Qualcomm. Now I follow your advice… and lo and behold — despite of what happened last year — I came out about 26% ahead of the experts!

“Thank you for what all of you are doing, and keep up the good work!”

The 5 responds: OK, we couldn’t help but publish this last one. (Bashful fluttering of the eyelashes.) Thank you for reading… and good luck. It’s a speculative world out there.


Addison Wiggin
The 5 Min. Forecast

P.S. Tonight at 5 p.m., we’re going to publish Dan Amoss’ special report on which stocks are likely to get hammered next in the subprime fiasco. If you’re interested in his “paddle strategy” for investing in these uncertain times, now would be the correct time to act. Learn more here.


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