Big Banks, A Bigger Medical Breakthrough, College Costs, A Contrarian Play and More!

by Addison Wiggin & Ian Mathias

  • One year later, are we better off for bailing out banks? Two charts reveal the answer
  • Bill Bonner on staying contrarian… his bet against Wall Street, Matt Drudge
  • College costs continue to defy logic… tuition, fees, expenses rise despite global deflation
  • Plus, Patrick Cox explains “one of the most important public health breakthroughs in decades”


  Here’s one of the more convincing series of charts we’ve seen in a while… bailing out the big U.S. banks — at least the way our government did it — was not a good idea:

In the year ending June 30, the biggest five banks in the U.S. grew deposits by 29%, the FDIC said this week. In dollar terms, that’s over $852 billion in deposits over the last year. But in spite of this, and the over $100 billion in TARP funds they’ve received, lending has increased only $564 billion.

So for all our troubles — the billions of taxpayer dollars, the tireless political battles, the violent market swings — what have we gotten in return? Too-big-to-fail banks are even bigger, and they are hoarding their larger market share. We can hardly blame them for it, but from the taxpayer standpoint, heh… looks like we got the shaft.

  “Lending money to customers is a tough way to earn a living,” Bill Bonner notes. “The more you lend, the more you make… until you lend too much. Then, you don’t make anything.

“Of course, speculating is a tough business too. But it’s a lot easier when you can borrow from the feds at practically zero interest and the government also guarantees your debts. How can you lose? Don’t worry, dear reader. Bankers will find a way. They always do. Want an investment strategy that really works? Just figure out what the big banks are doing and do the opposite.

“What are the big banks doing now? Mortgage lending? Nope. Credit cards? Nope. Business expansion? Are you kidding? How about mergers and acquisitions? Not really.

“According to the news reports, the banks are making money by ‘trading.’ Trading what? Trading the dollar for things that are going up.

“Look at the price of oil — over $79. And the price of gold — over $1,050. Compared to each other — oil and gold — prices are stable. But against the dollar, both are rising. In other words, people with dollars are trading them for oil and gold.

“And not just oil and gold. While U.S. stocks have gone up 50% or so in the last seven months, emerging markets are up twice as much. Argentine stocks — who would have believed it — have doubled. Indian stocks are up about 80%.

“Well, let’s see… If the big banks are getting rid of dollars… Hmmmm… Do we want to get rid of dollars too? Maybe not quite yet.”

  A sign of the times, wrapped in a contrarian alert: A headline regarding a weakening U.S. dollar has appeared on the Drudge Report 18 times in the last 21 days, notes the Pew Research Center’s Project for Excellence in Journalism. Could the Demise of the Dollar be any more mainstream?

(At the local Rite Aid this week, we overheard two clerks talking about the weak dollar. We only caught the end of the conversation: “Not like the dollar is worth anything anyway,” one quiped, not a day over 18. We may be jumping to conclusions, but we doubt she read that in The 5.)

  Right on cue, the world regained their appetite for dollars yesterday. U.S. stock indexes fell about half a percent, and the dollar index rose from its yearly low of 75.1 to 75.5.

  The “real” currency story today is the Brazilian real. It fell 3.5% versus the dollar yesterday  — two full cents, to $0.56. Evidently, the spot real-to-dollar contract on the Brazilian exchange saw the biggest daily volume in history, over $520 million in bets changing hands.

“The Brazilian gov’t is imposing a 2% tax on capital inflows,” explains our friend Chuck Butler. “This was done in an attempt to slow down the Brazilian economy by slowing down the ‘hot money’ that’s going into the Brazilian stock market by foreigners. Talk about throwing a cat among the pigeons!

“I tend to think there’s something up Bullwinkle’s sleeve here. Recall that about a week ago or so, Brazil’s central banker had mentioned the need to raise interest rates 200 basis points (or 2%). So the gov’t sees the real responding to that comment and thinks, "Oh my God, we’ve got a big problem when rates really do go up 2%, for this real will skyrocket! What’s a gov’t to do? Ahhh, we’ll impose a tax to offset the rate hikes, thus currency neutrality.’

“So I still like the real, but this really points out what I’ve been trying to say for some time now: These emerging markets currencies are big swingers: When they’re going good, they’re really good, but when things go awry, they really go bad, fast! But that’s their game. As long as you know it, no biggie!”

If you’re looking to diversify into the real without suffering those big swings, might want to check out Chuck’s MarketSafe BRIC CD. Backed by his EverBank crew, it’s principal-protected exposure to the real, ruble, rupee and renminbi… details here.

  That stronger dollar ended the recent commodity rally. Oil gave up the $80 level as quickly as it had found it and goes for $78 a barrel as we write. Gold shed about $10, to $1,055 an ounce.

  The ports of Long Beach and Los Angeles just reported their worst September in nine years. We’re told September is usually the best month of the year for the two ports, the biggest in the U.S. and together the fifth largest in the world. But this month, container volume fell 16% from September 2008 in LA and 19% in Long Beach. For the first nine months of this year, port traffic decreased 16% in LA and 25% in Long Beach. Heh, how’s that for mud in the recovery’s eye?

According to global shipping researcher AXS-Alphaliner, each of the world’s 17 largest shipping lines were losing money through the first half of 2009.

  And now for something we struggle to understand:

During the greatest deflationary period of our time, college costs have managed to maintain their nauseating rise, a College Board study confirmed yesterday. The group attributed the uncanny inflation to shrinking university endowments and a rise in applications — a combination of the biggest high school graduating class in U.S. history and those poor souls who think they can “hide” from the recession by going back to school.

What’s more, the credit crunch has put the kibosh on state funding, which is down 5.7% per student this year. So naturally, these eager students have filled that void with debt — student loans are projected to rise another 5% this year, as they have for the 2007-2008 and 2008-2009 academic years.

  “This ranks as one of the most important public health breakthroughs in decades,” says our tech analyst Patrick Cox, with your investment opportunity of the day.

“A trickle of solid peer-reviewed evidence that most people are severely vitamin D deficient has turned into a flood. If the new consensus is correct, and I believe it is, increasing your vitamin D level could, for most people, add years of healthy life. It could also save the U.S. economy hundreds of billions annually…

“D is not just another nutrient. Putting it simplistically, it is the über-nutrient that affects the way all other nutrients, not just calcium, are utilized. Virtually every cell in the body has a D receptor, even those in the brain. Until recently, however, few asked why. This is a particularly interesting question because there is very little vitamin D actually available in food. Most of our nutritional D, in fact, is added. Historically, the primary source of D, not only for humans, but for many other animals, has been sunshine. We convert the energy found in ultraviolet B in our skin to vitamin D. Obviously, there is something critically important about D if our prehistoric ancestors could manufacture it even during times of famine.

“Now we see a compendium of solid peer-reviewed research indicating that many of our most troublesome and expensive diseases are symptoms of vitamin D deficiency. Rickets, apparently, was only the tip of the iceberg. Other diseases on the list of conditions caused or exacerbated by D deficiency include cancers, diabetes, susceptibility to bacterial and viral infections, autoimmune diseases such as multiple sclerosis, psoriasis, heart disease, stroke, osteomalacia or age-related bone mass thinning, osteoporosis, depression and even food allergies. Obesity, in fact, is highly correlated with vitamin D deficiency. In many of these conditions, risk factors drop within months, and by as much as 80%.

“I know, I know. This is a financial newsletter, but living a longer healthier life is not just an end in itself. It is the most important component of an optimal financial strategy… The nature of exponential growth is simply this: The longer you live, the faster your portfolio grows.”

Amen. Besides, what investment theme could be more lucrative than one that lengthens all our lives? For Patrick’s specific advice on investing in life expansion technology, look here.

  “I attribute this [housing crisis] mainly to the bankers,” a reader writes, continuing our conversation from yesterday. “Why? In 2003, as a life insurance agent and ‘financial adviser,’ I would get people telling me the latest ‘great deal.’

“One time, my office general agent, sort of supervisor, had a mortgage broker come in to talk. He was recommending that we tell our clients to refinance, take a big chunk of money and put it into a life insurance policy, which would make me a big commission, and take a Libor 1% loan on the house.

“Frankly, I was shocked and incensed. ‘What happens when interests rates inevitably rise?’ I asked, for which the jerk had no answer.

“Indeed, I lost my best friend as a client when another adviser convinced him to do the same thing. Those liar loans were deliberately encouraged by the banksters… You’d think that Agora readers would be a bit more sophisticated than to swallow the libertarian "personal responsibility" mantra uncritically at this point.

“People depend on their financial advisers, but what if the advisers are controlled by the banks and brokerages themselves? So the primary responsibility falls to the fraudulent loans that were engineered from the bottom up to the CMOs and swaps by the bankers, the Fed and for all I know the Illuminati and lizards.”

Thanks for reading,

Ian Mathias

The 5 Min. Forecast

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