Bush reveals his final budget… really, has he lost his mind?
Jim Rogers on why he’s “extremely worried.” Plus, the buying opportunity that has him “gearing up”
Markets stage best week since 2003… John Williams on what may be around the bend
Ed Bugos with 11 damn good reasons to buy gold
Kevin Kerr on the latest booming commodity… and how it could wreck your Valentine’s Day
Bush must be pathological. There can be no other explanation.
After chastising Congress for earmarks and pork barrel spending in his State of the Union address last week, the president unveiled the first ever $3 trillion budget proposal today. $3.1 trillion to be exact, but who’s counting the extra billions these days?
The man who once promised a more humble foreign policy and championed “compassionate conservatism” is now responsible for the first $2 trillion (2002) and $3 trillion (2009) government budgets… which is nothing short of incredible. It took his predecessors 200 years to reach the first $1 trillion in 1987.
What’s more, after repeating his promise to balance the budget by 2012, Bush announced the second and third largest deficits in the nation’s history. The $410 billion deficit projected for this year and the $407 billion projected for 2009 will be surpassed only by his $413 billion deficit four years ago. By what fuzzy math this is heading toward “balanced,” we cannot even hazard a guess.
“These are not insignificant changes,” Paul O’Neill comments in I.O.U.S.A. of Bush’s uncanny ability to add to the national debt. “These are monumental changes.”
“When you’re no longer able to service your debt,” O’Neill warns, “you’re finished.”
“I’m extremely worried,” our friend Jim Rogers told Fortune magazine over the weekend. “I just see things getting much worse this time around than I expected.
“Conceivably, we could have just had recession, hard times, sliding dollar, inflation, etc., but I’m afraid it’s going to be much worse,” he says. “Bernanke is printing huge amounts of money. He’s out of control, and the Fed is out of control. We are probably going to have one of the worst recessions we’ve had since the Second World War. It’s not a good scene.”
“I’m delighted to see what’s happening in Shanghai and Hong Kong,” Rogers said of the recent 20% pullback in many Asian markets. “As I’ve said, if things hadn’t cooled off, the Chinese market was in danger of turning into a bubble. I find this most encouraging… I would suspect the correction isn’t quite over in China. But I’m gearing up. I didn’t put in any orders for tomorrow, but I’m starting to prepare my list of things to buy in China. Whether I buy this week or this month or this quarter, who knows. But I’m starting to think about buying new shares in China for the first time in a while. And I’m not thinking about buying in America.”
U.S. benchmarks finished up about 1% or so on Friday, ending a week of big gains on Wall Street. Traders seemed mostly unfazed by the first monthly job loss reported by the BLS in four years. Microsoft’s bid for Yahoo and more whispers of bond insurer bailouts captured investor attention, and thus another day of gains for U.S. investors.
For the week, the Dow rose 4.4%, while the S&P shot up just short of 5%. That’s the best weekly performance for both indexes since March 2003. The Nasdaq posted a jump of its own, up 3.8%, its best week in 18 months.
And the good vibes spread to Asia, where markets are sharply up this morning. The Shanghai Composite gained over 6%, while benchmarks in Hong Kong and Japan rose about 3%.
Over 302,000 “investors” tuned in to CNBC during business hours in the month of January, the best month for the network since September 2001. From 5 a.m.-7 p.m. all month, the nation’s most popular business network had 28% more viewers compared with January 2007.
Proof, perhaps, that people care about their money only when they are losing it.
After briefly dipping into a score of 74, the dollar index staged a small rally over the weekend. Now with a score of 75.3, the index is just short of 1 point from its all-time low… better than last week, but still frighteningly low. The euro still trades for $1.48. The pound lost a shilling, down to $1.97. The yen stood still at 106.
“With the Fed capitulating to stock market demands for easing,” advises John Williams of Shadowstats.com, “deterioration in the U.S. dollar should accelerate sharply. The general outlook for the months ahead, however, remains the same, with a deepening inflationary recession, a major bear stock market, heavy selling of the U.S. dollar, heavy buying of gold and an eventual flight to safety away from the greenback that will spike long-term interest rates.”
We too see a dollar ready to test new lows, as we explain in the second edition of Demise of the Dollar… due out in a month. As far as the greenback is concerned, we’ll keep a close eye on it this week. Both the European Central Bank and the Bank of England meet this week… stay tuned for their rate decisions and subsequent “guidance” statements.
Gold fell off a cliff on Friday, sliding from all-time highs of $936 to just barely above $900 this morning. Can you say, “buying opportunity”?
“I can think of 11 good reasons why it is still early to buy gold,” suggests our gold adviser Ed Bugos:
1 – Valuation — the most important, yet overlooked commodity on the board
2 – U.S. dollar still over-owned, diversification and/or new reserve currency still needed
3 – Worldwide gold reserves are stagnant and mine production is shrinking (peak gold)
4 – China’s gold and futures exchanges just now launching access to gold investments for retail investors
5 – No sign of an end to cheap money policies despite a sizeable inflationary threat
6 – Coming bear market in shares to provide extra fresh safe haven “liquidity”
7 – Seasonal trends are favorable until about May-June
8 – 2008 U.S. election uncertainty
9 – Geopolitical uncertainty / wild card
10 – U.S. budget deficit to widen on recession and current stimulus plan
11 – Confidence in Fed impaired as Bernanke seen to panic on latest rate cuts
We’ll consider today’s federal budget proposal and Jim Rogers’ and John Williams’ comments on the dollar above as reason Nos. 12 and 13.
“This Valentine’s Day,” writes our Kevin Kerr this morning, “the vast majority of men may put off buying that platinum anniversary or engagement ring and opt for roses or a box of chocolate.” Platinum prices have surged dramatically. Since Friday, April platinum has added $32, to $1,770 per ounce, in New York, a new record all-time high.
“The ultra-precious metals,” says Kevin, “are not a futures market for the squeamish, but for those brave enough, it can be some of the most lucrative trading around.
“The power outages in South Africa that drove platinum into the stratosphere,” Kevin notes, “didn’t just come out of the blue. The government knew it needed more power plants and that it had to lower power exports. (Hmmn. Sound familiar?) There is only so much juice to go around, after all, and mining (heavy-duty deep mining) takes a lot of juice.
“Many of the mining shares that are getting hit will most certainly rebound once this problem is resolved. The next two years are supposed to be the worst, and therefore are going to offer some very good buying opportunities for the longer term.
“Remember, South Africa is the world’s second largest gold producer and the absolutely the biggest platinum producer on the planet.”
“A great game of resource strategy just got a lot more intriguing,” writes Dan Denning from his perch down under, adding to our international intrigue today.
“Just days before BHP’s London deadline to make a formal offer for Rio Tinto, the Aluminum Corp. of China (Chinalco) swept in from the left flank to seize 12% of Rio’s U.K. listing. The $15.5 billion raid included an American wingman. Alcoa is a junior partner in the deal, and it gives Chinalco a 9% stake in Rio’s dual-listed corporate structure.
“Chinalco’s move gives it a seat at Rio’s table, and thus a voice in the ongoing negotiations between Australia’s two biggest mining stocks about their collective future.
“Not a bad weekend if you’re the China Development Bank, one of Chinalco’s financiers. And not a bad weekend if you’re a strategic policymaker in China. The move does not kill the prospect of an OPEC of iron ore-united Pilbara operations under the BHP banner. But it will force BHP to increase its offer for Rio, or recognize that it’s been outflanked by a strategic customer.”
Wesley Snipes was acquitted of felony charges of tax fraud and conspiracy last week.
You may remember our brief coverage of the new face of the anti-tax movement. Somehow, a judge bought his plea of ignorance. He was found guilty on three misdemeanor counts, which might involve a year or so of jail time.
But before you tear up your 2007 W-2… keep this in mind: Both of Snipes’ financial advisers were convicted of felony tax evasion and conspiracy and will do a spit more in the joint than the B-List movie star. And the IRS issued a statement immediately after the verdict: Snipes, despite his acquittal, still owes taxes on the $38 million he made from 1999-2004. Man, can’t a brother catch a break?
Snipes should have leveraged down on the Giants yesterday. According to the official Web site of the Professional Handicappers League, the “moneyline” on yesterday’s Super Bowl was +325 to +405 in favor of the Patriots.
So confident were the media — and the Patriots themselves — that this was going to be a blowout that every $1,000 you put down on a Giant’s win would have not only returned your initial stake, but up to $4,050 more. We suspect there are some very angry bookies out there this morning.
“You seem to be worried about the Chinese and Russians buying U.S. assets by the truckload,” notes one reader, “but isn’t that a good thing? First, it helps our economy, and second, it shows that at least some people have faith in the good old U.S., which I know you don’t. And also, the more other countries own the U.S., the less likely it is that they will do anything stupid militarily or otherwise, because they would also lose.
“You often say the Chinese may dump the dollar or use its military muscle against the U.S. in the future, but I don’t think so. If they did, who would buy their useless junk? It would be same as killing a golden goose…. which the U.S. is to them.
“Actually, this is an important point: Nationalism and separatism are how the world has operated, and this has been a problem before. But as the world gets more fused together, so that all the countries are joined at the hip, only then we will have a chance to lasting peace.”
The 5 responds: Au contraire. We’re grateful to the Chinese. Who else would lend us the money to keep up our spending? We’re grateful to the Russians, Singaporeans and the Abu Dhabites, too, for their massive sovereign wealth holdings. Who else would bail out the Wall Street banks as they take a bath on the homes we’ve moved into?
And if you read a little more carefully, you’d notice we were “taking the piss out of” (if you’ll pardon the British expression) those who think keeping the Chinese or the Russians or the Arabs out of the U.S. is a good idea right now.
“The fact that oil company (Shell, Exxon Mobil) profits are seen as ‘obscene’ or outrageous is a sad commentary on a ever more envious society,” opines another reader. “I don’t recall anyone feeling sorry for these same companies when they were struggling to make a profit with oil prices in the low teens. I certainly don’t remember the government looking to bail them out with the same fervor that they are suggesting punishing them now.
“Where is the anger toward the milk companies now that their commodity is up 29%? How about looking into excess profits and bloated salaries at colleges and universities as tuitions continue to skyrocket?
“Profit is profit. As long as it is garnered within the rules and laws that govern business, leave those that make profits alone. It’s those profits that drive our economy.”
The 5: The gentleman who called the profits “obscene” was a union rep in London. What else do you think he’s going to say? We’ve done quite well on our oil positions, thank you.
The 5 Min. Forecast
P.S. Not only is it important to let the Chinese, Russians and sovereign wealth funds buy U.S. assets, but in some cases, it may provide you with the strategy you need to protect your own retirement over the next decade. For our report on this $2.5 trillion retirement fund, click here.