Real Income, Sell In September, Solar Energy, I.O.U.S.A. and More!

by Addison Wiggin & Ian Mathias

  • You might make more money, but are you richer? Today’s definitive answer
  • Sell in September? History shows you might be in the red next month
  • Market led higher by an unlikely cast of characters
  • Chuck Butler with a currency buying opportunity
  • Plus, Gunner’s latest solar energy play… probably not what you’re expecting

  As if the savings rate weren’t already a problem, personal income for Americans tumbled in July by its largest measure in three years. The Commerce Department announced today that earnings fell nearly 1% during the month, the biggest drop since Katrina.

At the same time, year-over-year inflation rose to 4.5%… by the government’s own calculation. That’s the fastest pace since George Bush I was begging voters to read his lips.

Hmnn… dwindling income… rising inflation… not exactly the most succulent ingredients for a wealth-producing stew.

  “Real gross domestic income (GDI) has contracted for two consecutive quarters,” reports John Williams.

“Technically, GDI, which is the income-side equivalent to the consumption-side gross domestic product (GDP), is now in recession.Traditionally, two consecutive quarterly contractions in GDP have constituted a formal recession. The GDI contracted in the fourth and first quarters.”

  The Economist just published this chart, too:

Nearly a quarter of all Americans who answered the poll say they have no discretionary income — second only to Portugal in the Western economies.

Aren’t we supposed to be growing our way out of the low savings and high debt scenario?

  Heh, but we’re all just whistling by the graveyard… consumer sentiment rose to a five-month high this month. That’s according to the latest from the University of Michigan today. Its monthly gauge of consumer glee rose to a score of 63 this month, higher than expected. But we’re still just 13 points above the record low, set in 1980.

  No worries for the stock market, either. The major U.S. indexes all raced ahead yesterday, led by the full cast of unsavory characters: Fannie Mae and Freddie Mac, as well as the bond insurers. Better-than-anticipated earnings from luxury goods purveyors Tiffany and Zales and an unexpected boost from the airlines also helped push the Dow up 1.8%. The S&P 500 was close behind, at 1.5%, and the Nasdaq rose 1.2%.

  Despite being 90% below its all-time high today, Fannie has managed to rally over 60% this week. Together, Fannie and Freddie eked out $3 billion in bond sales this week at slightly more reasonable yields.

Traders are also backing up the truck on word of yet another executive shakedown. Fannie fired its CFO, chief risk officer and chief business officer. Of course, that strategy worked really well in 2004, when they canned Franklin Raines, didn’t it?

What’s that definition of insanity again? When you keep trying the same things, but expect different results… hmmmnnn.

  Financial Guarantee Insurance Corp. (FGIC) — one of MBIA’s rivals — closed a deal with MBIA for $200 billion worth of bonds. MBIA picked up the portfolio for a penny on the dollar.

Shares of bond insurers MBIA and Ambac soared themselves yesterday, by as much as 30%.

  If you’ve got the cajones to buy Fannie and MBIA these days, here’s a word of advice: Take the gains while you can get them. September is traditionally a tough month on investors:

Since 1950, September has averaged a loss of nearly 1% in the market’s largest stocks. The past 28 years have fared worse still.

  Lehman Bros. announced today it’ll be firing another 1,500 employees.

  The dollar index is up to 77.1 today, about a half a point higher than yesterday’s low. The dollar got a nice kick in the pants from yesterday’s GPD “surprise." After a scant spat of profit taking this morning, the dollar is back on the rise. The euro is down a cent, to $1.57.

  “The Chinese yuan will decline in August for the first time since China dropped the dollar peg, in 2005,” reports our currency counselor Chuck Butler. Indeed, the yuan is down about 1/10th cent this month. That movement clearly bucks the trend:

“I told you this could happen as we approached the election period in the U.S.,” Chuck chastises us.“The focus is on getting elected and not banging on the Chinese to allow their currency more flexibility.

“But we don’t have to get all full of panic and rush to sell our renminbi. This is simply a bump in the road. China’s still growing, and it will need a stronger currency to help fight the inflation pressures of that growth. While the U.S. is looking the other way, the Chinese have taken this opportunity to slow down the appreciation rate of the renminbi!”

  Gold, on the other hand, is clutching to its recent highs like a 2-year-old with a pet stuffed pig. The spot price began the day at $835.

  Hurricane Gustav is staying the course. The bold fellow is expected to hit the Gulf oil patch on Monday. And the Russia/Georgia conflict still has traders keeping an eye on the other side of the world. But until anything actually happens, no one’s making a move. Oil is biding its time at $117 today.

  “The sun will change the way we power the country,” says our small-cap sleuth Greg Guenthner. “Just not the way you think it will. There’s another form of solar power. In our opinion, it’s more potent — and could be even more life changing than the cheaper next-generation solar panels in development at this time.

“The big idea is to farm massive amounts of algae and harvest the plants for their oils. Internet communities are abuzz, and the technology has the support of numerous academics. That’s right — universities, venture capitalists and even the government are all racing to squeeze valuable oil out of pond scum…

“Algae are the fastest growing plants in the world. They’re vital to water ecosystems worldwide and consume more carbon dioxide than any other plant. As they grow, algae produce lipids, or vegetable oil. In fact, they produce a lot of oil …

“Let’s put this into perspective. One acre of corn can yield about 28 gallons of oil in one year. In more tropical regions, an acre of palms can yield about 6,700 gallons of oil per year. But algae are in a class all their own. An acre of algae can yield anywhere between 20,000-100,000 gallons of oil per year. This is possible because algae really do grow like weeds. An alga plant can completely reproduce up to six times per day. Try doing that with corn.”

If you’re interested in the algae-to-energy process, check out Bulletin Board Elite. Just yesterday, Gunner gave readers his favorite microcap way to play the trend. Get the details here.  

  “Yeah… free viewing for the no-free-lunch movie ,” responds a reader to our comments yesterday . “It’d be funny if it weren’t pathetic.And it’s the case in point that a great many of your readers don’t actually listen and/or take to heart what you and your team write. That’s why I bought 11 tickets for last Thursday night’s show.Only five were used.”

  “I actually joined the Financial Reserve because of your contrarian and accurate insights on the Federal Reserve Bank,” says a reader. “On that note, I have to admit that I was hoping for a film more pointedly critical of the existence of the Federal Reserve as a private banking cartel in total control of our nation’s financial future.The last clause of the act states that Congress can abolish the Federal Reserve by voting it out.

“This act must be repealed.Doing so would essentially end the national debt and eliminate the need for the personal income tax on wages that exists as an excise tax on the privilege of having volunteered into the Social Security program for government-granted privileges and benefits.

“I understand that no one dare broach that topic, but it remains at the heart of our financial predicament (even more fundamentally than Socialist Security).It was Baron Mayer Amschel Bauer (Rothschild) who stated, ‘Give me control over a nation’s currency, and I care not, who makes its laws.’He also aptly noted that ‘There are three ways to conquer a nation: militarily, through religion and financially.’It should be pretty clear which one he finally chose to employ.

“All in all, I.O.U.S.A. is a great start in educating an underinformed and naive public.However, you might have wanted to capture these viewers, to enlist them into ongoing efforts to see these changes through.Just voting won’t do the job. Thanks to you and all involved.”

The 5: We made a choice. We felt it was more important to get the conversation started among a wider audience — the same people who are just now wondering why gas and food are getting expensive. I think we did a good job.

“There’s no quick fix for a culture ‘addicted to debt,’ as one wag puts it in the film,” reprised the Phidelphia Inquirer. “But watching "I.O.U.S.A." is a good place to start.”

For those who want a more comprehensive look… well, that’s what the rest of the publishing enterprise is about. Thanks for your support!

  “I’d be more than happy to pay twice the going commercial price for a DVD copy of I.O.U.S.A.,” adds another. “Please hurry the release date and info on how to order.”

The 5: We’d be happy to take twice the commercial price. But we have to produce them first!

  “Why did you make the movie in the first place?” asks the last. “Was it about making a buck?Or was it to bludgeon awake a comatose public with the facts? I believe the latter, and I think you do too.Do the right thing and get the bloody movie out before the powers that be get too far.Then again, maybe they already are and it doesn’t matter if an outcry from the public happens.
“Yeah, it’s better to make a buck while your country goes down in flames.”

The 5: We are getting it out as fast as we can. We just finished the film. And are now physically producing the DVDs. Then we have to manufacture them. We’ll have them out in time for the election.

Still, you’re missing the point. It’s not about the money. How could it be? We just happen to believe the marketplace is a much better distributor of ideas than if we were to give the movie away for free. You may be able to coerce your friends to watch it for free, but we’re not going to get a broad distribution of the film until it cracks the film market.


Addison Wiggin
The 5 Min. Forecast

P.S. Entertainment Weekly is helping a bit today. It gave the film a rare “A.”    
“Certain topics — the Enron disaster, the industrialization of corn,” the reviewer from EW writes, “are so thick with unsexy detail that if you happen to see a good documentary about them, it can produce a kind of catharsis. ‘Aha!’ you exclaim. ‘Now I finally get it!’ I.O.U.S.A., a sharp, absorbing portrait of our national debt crisis, has that energizing brain-food effect. The film traces how America, whose federal debt reached $8.7 trillion in 2007, has put its future into hock. It’s a scary, sobering look at toothless leaders and credit-addicted consumers locked in a duet of denial. If they handed out an Academy Award for Most Gripping Graphs and Charts, this film would take it.”

P.P.S. Heh. We even got the “thumbs up” from famous critic Roger Ebert. He decided to write his review as a letter to his grandchildren:
“I see you growing up into such beautiful people, and I wish all good things to you as you make the leap into adulthood. But I have just seen a documentary titled I.O.U.S.A. that snapped into sharp focus why your lives may not be as pleasant as ours have been… We never fully realized that we were paying for many of our comforts with your money.”
You can read the rest of his review here.  
And don’t forget, you can be a critic of the movie yourself, here.  


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