Voters Want Stronger Economy, Greenspan Calls Recession, Gold’s Uncertainty, MD Film Fest, and More!

“But this is an awfully pale recession at the moment,” Greenspan backpedaled. “The declines in employment have not been as big as you’d expect to see.” The current funk will last at least until the end of the year, says the bespectacled octogenarian. “That’s certainly the most benevolent scenario. [And] it’s not all that far from being the most probable.”

Although he’s mastered the art of obfuscation using, among other tricks, the double negative and the run-on multisyllabic sentence, there’s still no indication that Greenspan feels a modicum of responsibility for the Fed’s role in the 18-year credit binge that busted after he left his post.

Flying in low for the rescue, the U.S. government airdropped its $600-plus aid packages to 7.7 million taxpayers last week.

All told, about $7 billion in consumer stimulation was deposited into checking accounts. If all goes to plan (which is anything but certain), every warmblooded taxpaying American will be “stimulated” no later than July.

Heh, this is what passes for macroeconomics in the U.S. today. Only $100 billion or so to go. Hooray!

Oil is back up to $118 this morning on new news of Nigerian rebels causing trouble in the world’s eighth largest oil-exporting nation.

Some angry Turks bombed a Kurdish oil field over the weekend, too, which didn’t help. You may recall last October when similar Turkish attacks sent oil spiking to the quaint price of $89 per barrel.

The same behavior this time around could bring about $120 a barrel… again.

Gas has risen over 15 cents in the last two weeks alone. It hit an all-time high of $3.62 on Friday heading into the weekend.

The price has dropped to a bargain-basement $3.61 this morning. But that’s still up nearly 60 cents from the average price this time last year.

The dollar rallied a bit on Friday’s mystifying jobs news, but has since given back all the day’s gains. The dollar index rings in at 73 and change this morning.

From a one-month view, the dollar has come off its all-time low nicely, rising around 3 points. But from a historic perspective, the greenback is looking pretty pathetic.

If you haven’t had a chance, you should check out our fully revised and updated explanation of The Demise of the Dollar… what’s likely to come next… and why you should care.

“If I landed from Mars today with a billion of Mars dollars,” explained Warren Buffett, in another of his classically simple metaphors, “or whatever they call them on Mars, and I was thinking about where to put my money, I don’t think I’d put the entire billion in U.S. dollars… The U.S. is going to continue to follow policies that make the dollar weaker.”

Amen.

We have a lot more from the Berkshire Hathaway shareholders meeting held this weekend in Omaha, Neb. Our managing editor, Chris Mayer, and short alert artist Dan Amoss were at the annual circus, scribbling notes for your 5 Min. enjoyment. Their thoughts, tomorrow…

The U.S. stock market had another uneasy day on Friday. The major indexes opened strong on the bad-but-better-than-expected jobs report and the Fed’s latest policy alterations.

But — just as they did after Wednesday’s surprise GDP report and FOMC rate cut — traders sold steadily as the reality set in. Even if unemployment dropped a point, it’s still the fourth straight month of contraction. And the Fed is still lashed to the mast, blindfolded, with ears plugged, trying to navigate between the Charybdis of credit contraction and the Scylla of a dying dollar.

By the end of the day, the Dow and S&P 500 shed most of the morning’s gains and closed up a fraction of a percent. The Nasdaq dropped 0.2%.

In stock news, Microsoft has given up its purchase of Yahoo. We never cared much about this deal anyway, but, nevertheless, thought you might like to know…

Gold finally found some support over the weekend around $850. The metal has endured a 20% dip from a high of $1,030 hit on March 17 of this year.

“The gold market is stuck in a period of uncertainty,” warns our gold adviser Ed Bugos, “in connection with short-term bearish factors:

– Recovering sentiment on Wall Street
– Potential recovery in the forex value of the dollar
– Mixed signals about liquidity conditions (some monetary aggregates point up, others are stagnant)
– Approach of summer doldrums (a traditional seasonal lull)
– Time of year that central banks tend to gang up on gold
– Psychological resistance at the $1,000 handle.

“I don’t know how much these things will weigh on the gold and inflation trade, but I doubt they will weigh much. I feel that gold prices should hold the $850-885 range.”

The U.S. Postal Service is gearing up for another hike in the price of stamps. At this time next week, a snail mail stamp will set you back 42 cents, up another penny.

But in an alternate reality, we’re experiencing “some of the lowest real postage rates in U.S. history,” explains our friend Charles Vollum of pricedingold.com. As it turns out, when priced in little bits of gold, stamps are as cheap as ever…

Or in other words, those “Forever stamps” issued by the post office to “protect” you from future price hikes aren’t necessarily a good deal.

“If there had been a Forever stamp available for purchase in 2001 for 34 cents, a roll of 100 stamps would have cost $34, or 4.1 grams of gold. Today, that roll would be worth $41… but you could buy a new roll of stamps today for only 1.3 grams of gold — about a third the price in 2001!

“The Forever stamp would have been a great deal in 1980, but unless you foresee a strong U.S. dollar in the future, I suggest that you forget the Forever stamp and stick with the forever metal — gold.”

Amen.

We met Charles, and his trademark pith helmet, at last year’s Investment Symposium in Vancouver. That’s the thing… the attendees are the No. 1 reason the event is so great. If you’re not already registered, we seriously recommend you consider planning your vacation around the symposium. It could be tax-deductible… Vancouver is amazing in the summer…. we’ve got a killer list of speakers… and nearly 1,000 interesting folks just like you… already on the books.

We hope to see you there… get the details here.

If you want to check out Charles’ site Priced in Gold, you can do so here.

“If Obama is going to tax excess oil profits,” responds a reader, “why not tax farmers, corporate food processors, copper companies, coal and any other places where we think the price has risen too fast.

“We could have a centrally managed economy with a lifetime politician deciding how to allocate our resources.”

“As much as farm subsidies sicken me,” writes another, “there are two sides to each story. The U.S. spends about 50 billion per year on aid to farmers, and the EU over 200 billion. The U.N. reports that we could feed all the hungry mouths in the world for about $17 billion.

“Moreover, if the subsidies were eliminated and market forces were to rule again, some of those hungry people could go back to farming, living in some of the most fertile areas of the planet.

“Their only problem being that it is cheaper for them to import food grown in the U.S./EU than trying to compete with subsidized food that sells for less than their growing cost. And here is my ‘however’… some other reader/farmer pointed out that removing those subsidies would lead to them ending up having to sell to the mega-agribusinesses… that thought is about as scary as they come… How bad is the food quality gonna go when the only driver is profits above quality? I am really thinking about starting my own food supply already!”

“You mentioned the government says employment figures are up,” writes our last reader. “Well, they should be. It’s tourist season, and for seasonal places, that means jobs — never mind the fact that they are temporary and low paying. Then there are the unemployment numbers going down.

“During the Reagan years, unemployment numbers went down too. I know, I was one of them. When the checks ran out, you were dropped from the total number of unemployed people. The fact that you were still unemployed meant nothing.

“Seriously, though, how many people will think of that?”

The 5 responds: We forecast that the employment numbers would be interpreted as an improvement… even though they were not good by anyone’s measure. They simply weren’t as dismal as the government’s own number crunchers were expecting.

Such is life when the economy and markets are drive by “animal spirits” (Keynes’ phrase).

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. “When Dick Cheney told Paul O’Neill deficits don’t matter,” we found ourselves explaining to the audience after Saturday night’s screening of I.O.U.S.A. at the Maryland Film Festival, “he didn’t mean that they don’t matter economically. Of course, deficits matter in economics. What he meant is politically, politicians don’t get punished by voters for running deficits.”

In the movie, former Treasury Secretary Paul O’Neill tells the story about the day Cheney said “Deficits don’t matter” to him in a Cabinet meeting. He also talks about the day he was fired from the Bush administration for “a difference of opinion.”

“Well,” said a gentleman in the second row, “let me explain things from the policymakers’ point of view… “

“Uh oh,” Patrick, the director of the film, said. He was standing next to me at the front of the theatre. “Are we in trouble?”

The gentleman went on at some length about the “political coalescence” that had taken shape in the 1990s, whereby both parties agreed that, despite their differences, keeping the nation’s finances sound should be a priority for everyone.

But that all flew out the window in 2002 when you had the third of the three consecutive tax cuts go into effect at the exact same time that self-imposed “pay as you go” spending laws expired. The nation’s revenues dried up. But spending exploded. For the first time, this year, we’ve seen a $3 trillion budget proposal. The deficit is expected to reach beyond $500 billion.

The gentleman, it turned out, was Paul Sarbanes, the former senator from Maryland whose name gives the willies to corporate legal and accounting firms across the civilized world. Sarbanes co-authored the much rued Sarbanes-Oxley corporate transparency law. And now retired, he had some extra time on his hands to come and instruct us on the subject of our own movie.

Patrick, a Chicago-born recovering union supporter, was impressed and took the time to raise the issue of disparity of wealth in the country. We were a little more subdued. This is exactly the crux of the problem with I.O.U.S.A. — the film, the project and the nation. Once you get down to brass tacks and start talking about specific solutions, you run into two sides of an economic argument that are equally entrenched.

On the one hand, you have the Arthur Laffer supply-side zealots, of which the current president is one. On the other, you have the died-in the wool New New Dealers, who see government programs — most notably Social Security and Medicare — as the bedrock of their party’s existence. Their current arguments sound like this:

Neo Lafferites: “Let’s keep the tax cuts permanent”
New New Dealers: “The nation needs universal health care.”

Neither the twain shall meet. If we’re successful in getting I.O.U.S.A. into theatres this August and as part of the “national conversation” in time for the political conventions… this is the crux of the problem. With these two sides entrenched, Washington and the political system is broken. And you are the victim.

“If we do nothing,” David Walker likes to point out, “the national debt alone rises by $3-$4 trillion a year. That’s if we do nothing.”

Which is exactly what we’re doing now: nothing.

Unfortunately, it won’t be the Paul Sarbanes or the Arthur Laffers of the world who have to pay the price. It will be you and your family.

P.P.S. It’s worth mentioning too… I.O.U.S.A was the only film at the Maryland Film Fest to sell-out every show. We apologize if you came to any of the three screenings and couldn’t get in. Thanks for trying.