Obama’s Budget “Cuts,” The Copper Standard, German Confidence, Piracy Trends and More!

by Addison Wiggin & Ian Mathias

  • Obama’s “drop in a bucket”… our first (baby) step toward fiscal responsibility
  • Rob Parenteau on a “built-in contradiction” in the Fed’s credit crisis strategy
  • Forget gold — is China planning to adopt a “copper standard”?
  • What do they see that we don’t? German investor confidence at two-year high
  • Chris Mayer on the rise of piracy… and what it means for investors


  Mr. Obama must have been scared by the Tax Day Tea Party rebels. At the end of their meeting yesterday, he asked his Cabinet officials to cut… (insert evil spy soundtrack)… $100 miiilllliion dollars from the budget.

$100 miiillliion dollars…

These radical cuts will come by “purchasing office supplies in bulk” and teleconferencing when applicable. And they account for roughly five one hundredths of a percent of last month’s — just March’s — $192 billion federal budget deficit!


That’s like making a $5 payment on a $10,000 monthly credit card bill.

If your neighbor sent the bank a check for $100 on a $200,000 loan, he’d be a bum on the verge of personal collapse — the village idiot. In Washington, he’d be the leader of the free world.

  Down to the real business of government (i.e., spending your money), the Obamaniacs wrote $5.5 billion in checks yesterday made payable to the Big Three in Detroit. No press conference for this one, though… they were too busy getting photos taken in support of their ingenious office supply strategy.

General Motors will get the lion’s share of the handout: $5 billion to help it restructure outside of bankruptcy. Chrysler only needs another $500 million to lube the gears of their merger with Fiat.

No word yet on what either of these companies will be doing for office supplies.

  “‘Deflation’ remains the watchword for 2009,” notes Rob Parenteau, defrocking the guise under which the wanton spending in Washington has taken place. Using the government’s numbers, “headline inflation has dipped into deflation for the first time since the 1950s and the producer price index (PPI) crude material series is still deep in deflation…

“Yet as the Fed trashes cash and drags down mortgage-backed securities and U.S. Treasury yields by expanding its balance sheet, it is at the same time pushing professional investors into riskier asset classes, like precious metals, industrial metals, energy products and agricultural land.

“That means the cost of inputs to production will rise before the prices of final products rise. In addition, higher energy and food prices are likely to reduce the discretionary income of households already facing wealth destruction, credit constraints and job losses.

“We are perplexed. The Fed’s so-called ‘quantitative easing’ may have a built-in contradiction: The inflation they expect will most like occur in commodities that are either raw materials or consumer items. How do they expect these higher prices to be supportive of economic growth?”

(Editor’s note: Mr. Parenteau, as you know, is the editor of The Richebacher Letter. If you’re interested in joining us in commemorating the lifework of the good doctor Kurt Richebacher, may we remind you the open-door invitation to join the Richebacher Society ends tonight at midnight.)

  Case in point: “China’s State Reserves Bureau (SRB) has instead [of U.S. T-bonds] been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons,” reports Ambrose Evans-Pritchard of The Daily Telegraph.

While the world is waiting for China to start hoarding gold, Pritchard notes that the Red Naiton is gobbling up “aluminium, zinc, nickel and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).”

"China has woken up.” a taiwanese shipper told Pritchard, “The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get 10 times the impact, and can cover their infrastructure for 50 years."

(Amusing side note: In a recent survey conducted of “The Doomsayers Inherit the Earth” by the Business Insider, Ambrose Evans-Pritchard scored an 83 on the “gloom and doom” scale of the world’s most scariest views. Our own Bill Bonner scored a 97! Heh. The list includes Nassim Taleb, Marc Faber, Jim Rogers, Nouriel Roubini, Meredith Whitney, Mike Mayo and others… many of whom have graced these pages… and our stage in Vancouver. )

  Still, much of the world is watching, waiting and even imitating what the Fed is doing. Sweden and India both announced cuts to their main lending rates yesterday. Sweden is now on its last legs, much like Japan and the U.S., with a 0.5% rate.

India, on the other hand, still has plenty of bullets in the clip, with a main rate of 4.75%.

  German investor confidence hit a two-year high last month.

The Zew Centre for European Economic Research in Mannheim reports today that its gauge of investor sentiment perked up to a score of 13 in April, from negative 3.5. That’s the first positive score since July 2007 and the highest since June 2007.

We have to wonder: Are German investors seeing value where others fear to tread… or just hopped on Pilsener and schnitzel and thus easily beguiled by the sucker’s rally?

The major stock indexes in New York fell as much as 4% yesterday.

Bank of America reported better-than-expected earnings, but apparently the mob has grown tired of the smoke-and-mirror parlor tricks being staged by the big Wall Street banks the past few weeks.

The Dow’s 3.6% plunge was its biggest since March 9, the day it hit a 12-year low. As we’ve forecast before, we expect another trip down to those lows. The sucker rally may have had less leggage than we previously expected. Many investors, we suspect, just want to book profits from the last six weeks — and get out.

After a sizable rally yesterday, the dollar is trading flat today. The dollar index leapt about a full point Monday, as high as 86.8. It’s now trading for around 86.5. The pound and the euro are each down, $1.29 and $1.46 respectively. The yen is holding tight at 98.

“The highflying high yielders,” notes an unusually flowery Chuck Butler from the world currency trading desk at EverBank this morning, “which basked in the early spring sun during March, have retreated to their dressing rooms, as risk aversion has cast a shadow.

“The Aussie, kiwi, rand and real are all softer and looking less perky than they did a couple of weeks ago. But once currencies and stocks hit splitsville and get back to fundamentals, investors will start looking for any yield, no matter how small, as long as it beats the paltry yields they get now in the U.S., Japan and most of Europe. That could mean that buying these currencies now, when they are cheaper than they were a couple of weeks ago, just might be the ticket!”

For ideas on how to trade movement in currency markets, be sure you subscribe to The Master FX Trader, just one of the components of your Agora Financial Reserve suite.

  As we noted early yesterday, oil took a beating alongside stocks all day. The front-month contract for the light sweet variety shed $4… and is down another two bucks this morning… to $44 a barrel.

  Gold, however, likes frailty in the alternate markets. The spot price for the yellow metal climbed nearly $20 in Monday’s American session, and currently rests at yesterday’s high of $885.

“I expect plenty more pirating in the shipping industry,” forecasts Chris Mayer, commenting on just one of the many diversions obsessed over by the mainstream press. “It seems pirate activity is somewhat countercyclical. When times are bad and seamen are out of work, it’s easier for old pirates to recruit new scalawags. Given the lousy economy — and especially the depression in shipping — it looks like we’re in for a run of more pirate activity.

“As an investor, there is not a lot to do about any of this. But it does highlight a few things. First, it adds to the general sense I have of rising geopolitical risks. Afghanistan is a mess. Pakistan is a mess. Mexico is failing. North Korea is as belligerent as ever. Iran could soon be a nuclear power. Governments in general seem to be in a confiscatory mood. And on and on it goes.

“Plus, the return of piracy highlights the fact that world trade is vulnerable in a handful of critical choke points. The breakdown of any of them could lead to price spikes in the prices of goods that travel through there — such as oil. And it increases the appeal of energy sources we don’t have to ship — like oil and gas reserves nestled in the good old USA and Canada.”


  The credit crisis has grounded the prospect of the first privately owned major American airport.

The city government of Chicago has been trying to sell Midway Airport for some time now, mostly to shore up city pensions and fund needed infrastructure projects. What was a worthy prospect in 2008 is now a dead-in-the-water pipedream that would require far too much leverage and commitment than the credit crisis will allow.

The $2.5 billion project is now officially shelved, and the city of Chicago is left even more strapped for cash.

  “To those who resent the Tea Party participants,” writes a reader of last week’s Tax Day Tea Parties, “I say ‘you should live in California.’ Our sales taxes just went to10%. Our homes are stupidly highly priced (but correcting as I write), so our property taxes are high. And now they want to increase our income taxes to 10.3%. We also have fees, surcharges and upcharges on everything from our parking tickets to vehicle licenses. We know that we need to pay taxes, but it is really getting out of hand here. I want to thank all those Tea Party participants!”

And last: “I was at a Tea Party on Tax Day and did not appreciate being called an idiot by Addison Wiggin,” a reader writes.

“I do not think she realizes why hundreds of thousands of people all around the country were at them. They had to do with the unprecedented spending by the Obama administration, so much so that if you add up the spending of all presidents up to Obama (including George Bush), the total is less than what he is proposing. We were also protesting the involvement of government in private corporations.

“They are now deciding who the CEOs of corporations will be, and I do not recall George Bush doing that. They are also planning to convert their preferred stock shares in banks into common stock, which does not help, but hurts taxpayers since we were receiving a dividend and preferred status, but as common shareholders, the only advantage is for the Obama administration — who can now tell the banks who they can fire and hire, as well as how much they can pay. I also don’t recall George Bush doing that.

“I also don’t understand why she is not questioning the Obama administration’s motive for refusing to take back the TARP funds many banks are now willing to repay. I can go on and on, but I feel this is enough. As a result of the ‘comments,’ I will be canceling all of my subscriptions to Agora Financial. If and when you find someone who reports facts, and not fiction, I will reconsider my position.”

The 5: Uh… I’m a he… not a she. And a reader called you an idiot… not me. But at this point, much as I might agree with some of your points, I’m thinking, “hmmn… if the shoe fits.”

Thanks for reading (so closely),

Addison Wiggin,

The 5 Min. Forecast

P.S. It’s about time to reassess. We’ve opened the doors to the Richebacher Society until today. Once we’ve taken stock on all who’ve decided to enroll, we’ll let you know where we stand in terms of preserving the legacy of Kurt’s work.

Our first conference call is scheduled for 5 p.m. this evening. The society’s first official face-to-face meeting will take place on the eve of the Agora Financial Investment Symposium in Vancouver on July 20. All the details are forthcoming. If you’re interested in joining the Society, but haven’t yet, please do so by midnight tonight. You can find all the pertinent info here.



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