Another Baby Boom Crisis, China and Dubai Team Up, Retail Worries, The Capital Gains Tax, and More!

by Addison Wiggin & Ian Mathias

  • Another baby boomer train wreck just around the bend
  • If you had $53 trillion, what would it look like?
  • Major airline merger… what “the new Delta” means for your money
  • China and Dubai join forces… how the new partners plan to invest
  • Retail sales surprise on the upside… but all that glitters is not gold in the latest commerce report
  • Plus, your tax-day overtime report… four reasons not to raise the capital gains tax


We start today, Tax Day, with a business opportunity.

The medical industry, says the Institute of Medicine, is grossly ill-equipped for some 75 million soon-to-be elderly baby boomers.

There are only 7,100 doctors certified in geriatrics in the U.S., the institute reported this morning. That’s one doctor for every 2,500 Americans who are already in a geriatric state. When the tsunami of elderly begins crashing over the bulkhead, that ratio is going increase dramatically.

The average doctor specializing in elderly care, despite requiring more training than your average plastic surgeon, makes less than your typical internist.

Our suggestion: Get a license to operate a clinic. Hire some geriatric doctors at an above-market rate. Hang out your shingle. Like zombies from a campy ’50s black-and-white horror film, your customers are on the way.

“How much is $53 trillion?” Sun-li asked. We mentioned briefly yesterday that a South Korean television crew was on their way from Seoul to our offices in Baltimore for an interview. They’d done their homework.

When she asked how much $53 trillion was, she was probing for this specific answer from the book:

“It’s difficult to imagine. A stack of $100 bills would have to be about five feet high to reach $1 million. A $1 billion stack would be one mile high; and a $1 trillion stack would be 1,000 miles high. So $53 trillion would equal 53,000 miles of tightly stacked $100 bills — enough to reach around the world more than twice!”

$53 trillion, of course, is the total amount of unfunded liabilities currently on autopilot in the Federal government’s spending plan. Social Security, Medicare and interest on the federal debt make up the preponderance of those unpaid promises. The tidal wave of retirees we mentioned above isn’t going to make this any easier to deal with… politically or otherwise.

The dollar index has been trading pretty tight at 71 since bouncing off its all-new low last week.

The euro remains a hair short of its recent all-time high, at around $1.58 today. The less stable pound swung a full 2 cents overnight. It shot up to $1.98 then — on word of the biggest monthly U.K. home price decline since 1978 — back down to $1.96 this morning. The yen is “keeping it real” at around 101.

The ubiquitous story in today’s financial news: Delta and Northwest have courted successfully and are now blissfully wed — forming the world’s largest airline. The “new” carrier will keep the name Delta and control some 390 routes, flawlessly maintain 800 airplanes and employ 75,000 cheerful and ever-helpful employees.

Let’s see… last week, we saw Frontier join the bankruptcy ranks of the low-cost carriers ATA, Aloha and Skybus; we witnessed a curious round of passive-aggressive behavior from the FAA, grounding thousands of American flights; and now we’re hearing about the competition-killing merger of two giants. Guess you can kiss cheap tickets goodbye, eh?

On the brighter side, your list of stocks to ignore just got larger… DAL and NWA have become one big stock worth less than the total of their sum.

Adding to the cost of your air travel, jet fuel has reached a new all-time high this week. According to the IATA’s weekly “Jet Fuel Price Monitor,” a barrel now costs $135, up over 5% from last month… up 62% from a year ago.

Ground travel is reaching a price milestone of its own. The average U.S. price of gas hit $3.38 this morning — up a full 10-cents in less than a month. Gas is nearly 20% more expensive than it was at this time last year.

If you’re kickin’ around in an old diesel engine, it gets worse. The national average diesel price is up to $4.12 — a new record of its own. Diesel is up 40% year over year.

Hang on, we’re not done yet. Completing today’s record-high fuel trifecta, oil returned to a new all-time high of $113 — mostly on strength of a weakening dollar.

Agricultural commodities rose yesterday and overnight, as well. Rice found a new record high as we slept, leaping 58 cents, to $21.90.

Wheat surged too, up over $9, on word that Kazakhstan has banned all wheat exports. The former Soviet nation is the world’s sixth largest wheat exporter, grinding out some 8 million tons of the chaff last year alone. Kazakh officials said domestic prices for bread and other wheat products merit the ban.

In Chicago, wheat has nearly doubled in the past 12 months.

Also in Chicago, our favorite biofuel corn rose to $5.97, not far from its all-time high of $6.16. According to the USDA, only 2% of the 2008 corn crop has been planted, about half as much as was in the dirt this time last year.

“All the reports I’m getting are the same,” Kevin Kerr relays to us this morning. “Wet, cold and no equipment rolling.” Kevin’s Farm Tour 2008 is just about getting started. You’ll be among the first to hear what he learns.

Also, for “face to face” advice, check out Kevin on Kudlow last week.

Following Kevin’s Farm Tour last summer, we issued a warning entitled The Great Ethanol Swindle. But hindsight is 20/20, isn’t it? Looks now like we were letting politicians off easy by merely implying they are corrupt.

“When millions of people are going hungry,” India’s finance minister Palaniappan Chidambaram declared at meetings of the IMF and the World Bank held in Washington D.C. over the weekend, “it’s a crime against humanity that food should be diverted to biofuels.” Turkey’s finance minister, relates The Wall Street Journal, said the use of food for biofuels is “appalling.”

“Massive production of biofuels is ‘a crime against humanity’ because of its impact on global food prices,” reports a UN official saying on Monday on German radio.

Apparently, “Ethanol: crime against humanity” is the new catchphrase among the international wonk set. Hmmmn… Not sure the Midwest farmers we’ve been hearing from are going to like this one all that much.


The U.S. stock market shrugged off the barrage of bad news from Wachovia yesterday. While financials took a hit, the market at large finished flat. The Dow and S&P lost just a few points, while the Nasdaq slipped 0.6%

Gold hasn’t been all that exciting lately. The precious metal has been bouncing between $900-940 most of this month and trades for $929 as we write.

Two sovereign wealth funds from China and Dubai have joined forces.

Dubai International Capital and the Chinese First Eastern Investment Group announced plans yesterday to launch a fund that will invest in Chinese companies listed on the UAE Exchange. The billion-dollar China Dubai Capital fund will invest mostly in Chinese industries such as infrastructure, resources and health care.

Also on the sovereign wealth front, we learned today that China now owns 1% of BP. China’s SWF China Investment Corp. has quietly amassed a $2 billion stake in the U.K.’s biggest business.

The foreclosure rate in the U.S. continues to rise. It’s up another 5% in March… and now up a steady 57% from last year. According to today’s RealtyTrac, 234,685 U.S. homes got snatched up by foreclosure, and 51,393 of those were repossessed outright… up 129% year over year.

Nevada took the foreclosure prize again in March. One out of every 139 homes in the gambling state was in some form of foreclosure during the month — four times the national average.

Retail sales unexpectedly “rose” in March, reports the Commerce Department. Sales inched up 0.2%, beating the Street’s expectations of a monthly flat line.

But at closer inspection, there’s no sign of a retail revival. The monthly uptick came entirely by virtue of gas station sales, which were up 1.1%. Without such sales, monthly growth would have been nonexistent.

“‘Retail sales’ are a lot different from ‘retail profits,’” Chris Mayer likes to remind us. “Who cares how much discounted garbage you move if you don’t make any money?”


Indeed, eight well-known retailers have filed for bankruptcy in the past six months. Many of them took on debt to try to stay afloat, and their inability to pay is sending ripples across the economy. Sharper Image, for example, went belly up with a $6.6 million tab at UPS.

Shopping mall staples like Zales and Foot Locker have also announced hundreds of store closures thanks to dismal sales. Generally speaking, retail store closings are on track for their first nasty year since 2004.

“The reader who surmises that this emerging recession will be different is spot on,” writes another. “What we’re witnessing is the ongoing deindustrialization of America as we have known it. We have lost several manufacturing industries and thousands of jobs that will never return in our lifetimes.

“The mercantilistic, predatory policies of many of our competitors, China most prominently, are slowly draining the economic life force from us, much like leeches draw blood from their victim. It’s an almost invisible process to the untrained eye, but anyone can read about it in monthly newspaper stories that report our trade deficit. That’s the visible score card.

“Unless we deal with the trade deficits and our shrinking manufacturing base, a resolutely nondemocratic, unfair China will dominate. Bottom line: The world’s future — and America’s leadership — are in the balance. Does anyone in government, business, media or education really understand what’s going on? Does anyone care enough to do something about it before our dollar-gorged competitors buy us up during the fire sale at the bottom of a depression?”

“I agree with the USSA guy who is moving to the Andes to try to become self-sufficient,” writes a reader. “My friend moved to the Philippines 17 years ago for the same reason and has invited me to become his neighbor. I am seriously considering it. He is on the beach, where people catch their own food from the sea and raise chickens, pigs, fruits and vegetables.

“He sees food shortages and riots coming to the USSA very soon. Each supermarket holds a three-day supply of food. Once they are empty, city folks will cry out for help to the government — which already has a network of concentration camps built and ready for business. Electricity and water in the cities will be turned off and the people will beg to get INto the nearest camp. At this point, Americans with means will be prevented from the ‘homeland’ uprising.”

The 5 responds: Ian’s just back from a week of surfing in Costa Rica. I don’t know about the whole concentration camp theory you have going, but I’m willing to bet he’d join you in the Philippines in a heartbeat this morning.


Addison Wiggin
The 5 Min. Forecast

P.S. We spent an hour — on the business end of the camera this time — with the TV crew from South Korea. They’re making a documentary for the largest business network in Korea about the dollar crisis. They’re also interviewing George Soros for the film. Go figure. The interviewer, Sun-li, told me afterward she thought I look like George Clooney.

P.P.S. You’ve got less than 9 hours to check out Byron King’s Energy & Scarcity Investor for the lowest price we’ve ever offered. At midnight tonight, our $500 discount expires… click here to take advantage.

Four reasons not to raise the capital gains tax, cribbed from NPR’s Marketplace report, featuring John Steele Gordon:

Both Senator Clinton and Senator Obama have called for an increase in the capital gains tax rate. It’s currently at 15 percent, and they’d like to see 20 or even 25 percent. Have they really thought this through? Consider four things.

First, the capital gains tax is usually thought of as a “rich man’s tax.” After all, only capitalists have capital gains, right? That was mostly true in the 1930s, when capital gains were first treated differently from other kinds of income. It’s not true today, when over half of American households own financial securities. The vast majority of capital gains taxpayers today are solidly middle class. In 2005, 47 percent of households paying capital gains taxes had incomes below $50,000, and 79 percent, almost four out of five, had incomes under $100,000.

Second, both senators have said an increase in capital gains taxes would increase federal revenues, but when the tax was raised in 1986, from 20 to 28 percent, tax receipts went down, not up. People just stopped realizing capital gains. When Bill Clinton signed a reduction in the tax rate into law in 1997, however, receipts soared. They soared again after 2003, when the tax was further cut to 15 percent. Capital gains tax receipts actually doubled in the next three years.

Third, stock prices are determined by the market’s best guess as to future earnings. If you raise the capital gains tax you inescapably lower the possible future earnings on all stocks. So what happens? The market goes down. A capital gains tax hike is a perfect way to cause a bear market, or make one worse.

Fourth, in a globalized economy, a capital gains tax increase would discourage investment in the US from abroad, where capital gains taxes are often lower.

Raising the capital gains tax is a classic example of what George Orwell called, “an idea so stupid only an intellectual could have conceived it.”


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