by Addison Wiggin & Ian Mathias
- Tax Day special… how early revenue numbers imply serious state and federal troubles
- A stock sector you’re probably not thinking about… but should
- Patrick Cox on how to shield yourself from federal overspending
- Alan Knuckman shares a leading indicator for economic recovery
- Plus, gold questions pepper the 5’s inbox… our responses, below
Tax Day! One of our favorites of the year….
As could be expected — and just when Uncle Sam and his friends need it the most — total tax revenue among American states will be down this year by the largest percentage since the Great Depression.
State tax revenue fell 4% in the last quarter of 2008, the first decline in six years and the largest in over 50. Preliminary numbers suggest the first quarter of 2009 will be even worse… by a multiple of three. Average state tax collections in January and February were down 12.8% compared to the same time in 2008.
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Personal and cooperate income are in the crapper. Property taxes are too. Taxes on investment profits? Heh, right. And with all the economic strife over the past year, we can only begin to imagine what tax evasion strategies, subversive returns and delayed filings must be sticking in the IRS’ craw on this fine day.
But fear not for the economy… the Fed chairman is on the case. “We have seen tentative signs that the sharp decline in economic activity may be slowing,” Ben Bernanke suggested yesterday.
In a speech at Morehouse College in Atlanta, we heard more of the same: “A leveling out of economic activity is the first step toward recovery,” and that’s not sustainable "without a stabilization of our financial system and credit markets,” Blah, blah, blah.
Mr. Bernanke repeated this oft-heard refrain, too:
The Fed “treats its obligation to ensure price stability extremely seriously… I can assure you that monetary policymakers are fully committed to acting as needed to withdraw on a timely basis the extraordinary support now being provided to the economy, and we are confident in our ability to do so.”
On cue, consumer prices enjoyed their first annual decline since 1955, the Labor Dept. reports today.
The consumer price index (CPI) fell 0.1% in March. Year over year, the “official” rate of inflation is now a negative 0.4%. Looking at these numbers, Mr. Bernanke won’t have to begin retracting monetary infusions anytime soon.
Curiously, the Federal Reserve announced it is considering having regular press conferences. Apparently, the FOMC announcements, Beige Book releases, 60 Minutes interviews, a full speaking tour and weekly congressional hearings still aren’t satisfying public demand for Bernanke’s bewhiskered visage.
The Fed leaked word today that it’s mulling the idea of post-decision press conferences, not unlike their counterparts at the European Central Bank. We can’t wait.
“By no means are we out of the woods just yet," said the eternally confident President Obama yesterday, hedging of his own “glimmers of hope” speech over the weekend. “The severity of this recession will cause more job loss, more foreclosures and more pain before it ends."
Obama took a spin over to Georgetown University yesterday and delivered what was effectily a “state of the economy” address. According to the president, the key to recovey is “built upon five pillars.” They are, in the useful order in which he presented them:
1. Reform Wall Street
2. Education investments
3. Renewable energy and tech investments
4. Health care reform
5. Deficit reduction
(What about Somali pirates? Where do they fit in?)
Unfortunately, for this earnest young man, he’s in a race against time…
“The impact of the radical increase in spending,” writes our technology adviser Patrick Cox, “will be to move the entitlement crisis much, much closer to the present.” It’s a simple idea that Patrick advocates, yet it’s strangely absent in our national dialogue: If we go deeper into debt now, won’t entitlement programs run out of money even sooner?
“The eminent futurist Juan Enriquez of the Harvard Business School ‘gets it,” continues Patrick. “He predicts the date of meltdown as 2017. Fortunately, Dr. Enriquez sees an avenue of escape, as I do. He calls it the ‘reboot,’ but he is really just talking about the transformational technologies we’ve been telling you about. These technologies, ranging from cellular engineering to robotics, have the potential to save our collective butts and make you rich enough to buy that private island you’ve had your eye on.
“Prior to the bailout, I was confident that the reboot would come well before entitlements consumed our entire budget, precipitating an intergenerational political crisis. Now, however, it’s clear that we’re in a race. If transformational technologies are brought to market quickly enough, huge components of our current budget will simply disappear.
“Take, for example, just one biotech example: Alzheimer’s disease. Estimates are that AD costs the U.S. at least $100 billion annually. Throw in cures for late-stage renal failure and cancers, along with longer productive life spans, and we’ll be in the black again.”
Patrick will be revealing many of these incredible breakthroughs in person in Vancouver this July. We’ve also extended an invitation to Juan Enriquez. If you haven’t made plans to attend the symposium, you should do so now, right here.
For more immediate gratification, please subscribe to Breakthrough Technology Alert.
Elsewhere in the tech world, eBay announced today it will spin off its crudely named Internet phone service, Skype.
If you’re unfamiliar, Skype is an Internet telephone service that is currently threatening the viability of major telecom players around the world. Essentially, it allows you to make free calls over the Internet, instead of traditional wired or wireless phone networks.
Skype was recently launched as an “app” on the iPhone, and with the growing propagation of Wi-Fi hot spots, the line between computer networks and phone networks is quickly blurring… as is the feasibility of AT&T, Verizon and their kin.
eBay says Skype’s IPO is planned for early 2010. We’ll be keeping an eye on it, for sure. Patrick Cox highlighted Skype a few times in our editorial meetings last week… one of many breakthrough technologies he thinks will revolutionize business as we know it.
In the markets, American indexes took a break from suckering investors in yesterday. A batch of much-worse-than-expected retail sales data was a sobering splash of cold water in the face of the rabidly optimistic. The major indexes — and a few minor ones — ended down 2% or so.
“Pigs aren’t the first thing you think of when investing in the stock market,” writes one of our small-cap analysts, Greg Guenthner, “but maybe in today’s economy, they should be.
“One of my favorite new investment ideas provides a service of high demand to the largest group of people on the planet.
“Over the last few years, Chinese pork consumption has nearly tripled. As the amount of disposable income in the Far East mega power has increased, the amount of pork consumed has skyrocketed. While many Westerners were busy buying iPhones, Hummers and extra houses, a majority of Chinese citizens began pampering themselves with an extra serving of hong shao rou, or red-cooked pork — a popular dish in the People’s Republic.
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Your Congressman’s best friend
“Because of this, many more commodity traders have been jumping into the frozen pork bellies pit. Recently, pork prices jumped 50% in one year. After all, China just became a net importer of pork for the first time in its history. It’s only starting to become a large-scale issue. Last year, Chinese imports were up a whopping 311%.
“So how do we make some money on this trade? We can either buy a bunch of hogs and try to sell them over the black market to a Chinese importer…or you can check out two stocks I showed Penny Stock Fortunes readers yesterday. One is a leading pork processing company in China. The other is one of the largest providers of hog feed in the Eastern Hemisphere.” For details on feeding at this trough, please read the following.
The small-cap guys also sold their stake in Dendreon Corp. yesterday, after the company’s “cancer vaccine” passed phase III FDA trials and the stock popped. If you bought and sold when Gunner and crew recommended, you’d have netted 255% gains. Nice work.
Lousy earnings from Intel and big jobs cuts at Yahoo and UBS are continuing to keep stock market optimists in check today. But the testosterone rush of the recent buy-up is still in the air. As we write, stocks are breaking even.
“Keep an eye on copper prices,” advises our resource man Alan Knuckman. “This reflation of assets has investors looking for the next move. Copper, as an indicator, has risen more than 30%, from under $1.50 to over $2.00 per pound in just a few short weeks. Part of the recovery can be attributed to future infrastructure projects designed to stimulate the economy, but prices are still a significant distance from the $4.00 a pound last July.
“Increased demand for commodity assets should signal an extension of the recovery off the lows so far. The price recovery could be simply a rally back to reasonable supply-and-demand stabilization now that prices have stopped crashing. The next few weeks and months are crucial to assess the turnaround follow-through from these extreme lows.”
Copper is up today, around 3%, to $2.13.
Other commodities are, umn, not. Gold is hanging at yesterday’s $890 an ounce. Oil, too, is sitting still at $50 a barrel.
The dollar index got a half point bump this morning after the consumer inflation report printed better than Wall Street anticipated. As we write, the index is up to just above 85. The euro and the pound are trading at $1.32 and $1.49, respectively, today.
“Advisers to The 5,” a reader writes, “are often gold bugs who spin the situation unrelentingly — buy gold today! Now, I agree that the longer-term prospects are bright, but someone needs to balance the short-term Pollyanna perspective being touted by your advisers. Sure, gold is up when the time period is picked selectively; for that matter, so is the DJIA when you compare it with 1968. However, once gold hit a little over a $1,000, it is essentially down 20% from its peak and is in a decided downtrend. If fundamentals alone determined the price for gold, it would already be at $2,500 an ounce. Note that they do not, and, sadly, it is not at such pricing levels.
“What we should, in fact, focus on is a technical analysis that shows it has broken down below key support areas (around $900). It is now testing (unsuccessfully) these support areas from the underside. Likely downside targets are closer to $650 per ounce. I suggest better advice is to keep your (gold) powder dry, wait for much lower prices (likely about 25% lower than they are now) and then jump in with both feet.”
The 5: That’s a first. We usually get criticized for not having a gold bug on staff.
We’ve got two technical options traders, a global currency trader, a roving commodities and resource trader, a geologist turned oil buff, a banker turned long and deep value addict, a hedge fund quant turned short side strategist, a policy wonk turned tech junkie, three small-cap specialists who’ll buy anything, a reformed international equities expert, another intrepid globe-trotter with no discernable training, a certifiable macroeconomist, several armchair historians, a few lads and lasses with advanced philosophy degrees, more than our quota of MBAs, artists and tech geeks… but not a single gold bug.
Unless, of course, you count Bill Bonner… but he lives in France.
For the record, we’ve been recommending you make gold a part of your investment strategy in one form or another since 1999, when it was trading at $253 — an 18-year low. Our recommendation is and has been as an insurance policy for the long term. Yesterday, we merely pointed out that many notable mainstream investors now share this point of view.
Even so, you’re more than welcome to trade the technicals all you like. If gold drops another 25%, we’ll be buyers again right alongside you.
“Seems that gold has generated much attention,” another reader writes. “I do have about 20% in the yellow metal. Yet I have a question: If we do see huge inflation over the next two-three years, gold will likely increase, as many have predicted. However, will its buying power increase?
“If not — it’s simply a hedge and will only buy tomorrow what it buys today, correct? I’ve read that an ounce of gold today will buy a nice suit of clothes, just as it did in the pre-Depression 1900s. Or will it increase with some additional premium so that you realize an increase in the asset’s real value.
“Great newsletter and insight! Thanks!”
The 5: If inflation sets in as aggressively as we believe it will, gold’s “value” will increase relative to paper assets — the dollar, stocks, bonds, mortgages… toilet paper. But even then, the adage of an ounce of gold for a man’s suit still stands. To play with the value of gold versus physical objects, may we recommend PricedInGold.com, created and updated by our friend Charles Vollum, who joins us in Vancouver each year.
Thanks for reading,
Addison Wiggin
The 5 Min. Forecast
P.S. It has been raining for two days here in Baltimore. Still, we sent two intrepid observers to check out the Tax Day Tea Parties being held around the area. We’ll let you know how this fair-weather protest turned out.
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