by Addison Wiggin & Ian Mathias
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The world through the eyes of Marc Faber: Goldman “like an angel,” among other provocative observations
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The Greek bailout cometh… What it means for the euro
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Byron King vs. union chief on the oil rig disaster in the Gulf of Mexico
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Two more commodities on a roll, and why
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“Skankwire:” What the SEC was really doing while ignoring Madoff whistle-blowers
This morning, we take stock of events through the eyes of the one and only Dr. Marc Faber, proprietor of the Gloom Boom & Doom Report and Vancouver symposium favorite.
Faber’s been a one-man sound bite machine in the last 24 hours while attending the World Money Show in Hong Kong. For instance…
"I think Goldman Sachs is a very honest firm,” he told CNBC. “They have a very strict compliance department compared to the others — they're like an angel. But [the SEC] targeted Goldman as it stands as a symbol of Wall Street,"
Likewise, he says, it’s just an excuse for the Fed to print more money.
“Obama has lost the trust of the people,” he explained further to Kitco. “His approval rating is worse than Bush’s at this stage in the presidency. When people are dissatisfied in a democracy — you go after a minority to target — in the case of America, you go after Goldman Sachs, because it is the symbol of Wall Street and excessive money creation — and there is also a tone of anti-Semitism there.
"Maybe the intention is not to hurt Goldman Sachs, but just to gain popularity with the middle class and the lower class of America, so they will perceive Mr. Obama to have done something against the evil of Wall Street."
Curiously, Goldman chief Lloyd Blankfein was in the audience yesterday as the president delivered his long-awaited come-to-Jesus speech on Wall Street.
“I'm convinced they're gong to bail out Greece,” Faber also said yesterday. Sure enough, this morning, Greece called the bluff of the European Union and the International Monetary Fund.
Prime Minister George Papandreou now expects the EU and IMF to make good on their promises of an aid package totaling $60 billion. Yesterday was the last straw, with the EU jacking up its estimate of Greece’s deficit, and Greek bond yields blowing out as a result.
Heh. This should make today’s gathering of finance ministers and central bankers from the G-20 countries a fun affair. For the first time in many such meetings, the replacement of the dollar as the reserve currency of the world won’t be the main topic of discussion.
Now that the months-long charade between Greece and the EU and the IMF is over, a relief rally is under way in Europe. Stocks are up, and the euro is bouncing off an 11-month low — currently around $1.33.
Longer term, however, Faber thinks the bailout is bad news for the euro. “It increases the liabilities of the government, and I really think Greece will go bust. What does Greece produce? Olive oil and tourism. This is not sufficient to bail out Greece.”
Also on the G-20 agenda today — China. Treasury Secretary Geithner may have delayed making the call on whether China’s a currency manipulator, but he’d still like to see a rising yuan. And on the edges of the conference, the buzz is that two of China’s BRIC compatriots, Brazil and India, would like to see the same.
Whatever the outcome, Faber has joined the chorus of those who see a building bubble in China. “The symptoms are there. It is a bubble when something goes substantially above the trend, when there is excessive credit growth and when there is excessive speculation. All these elements are in China.”
“If everything is so great in China,” he adds, “why is the Chinese stock market lower today than it was in August 2009?
Gold is holding steady as we write, around $1,137. “If someone is rich, they should buy a ton every month,” Faber says." Paper money (will go) down relative to precious metals. So in that environment, I think you… should all accumulate some gold."
Faber’s outlook for the paper money known as the dollar goes like this: “As far as the eye can see, interest rates under Bernanke will stay at zero and below." Below? He points to the new Fed vice chairwoman, "Janet Yellen, another totally ignorant economist removed from any reality, said herself six months ago, ‘if I could implement interest rates below zero, I would do it.’ So now you know what the policy in the U.S. will be.”
Faber also has a few things to say about the relentless swirl of rumors about how shadowy powers are suppressing the gold price. Namely, that if the rumors are true, that’s just one more argument to accumulate metal.
"If you have manipulation to keep the price down, it eventually goes ballistic. So all the people that are bitching about the manipulation of silver and gold should be happy that it is manipulated, because it still gives them an opportunity to buy it at a depressed price.”
We’ve been looking into this ourselves and we plan to sort out fact from fantasy in the next issue of Apogee Advisory — complete with recommendations on what to buy and, maybe more important, what to avoid. For now, you can sign up and review the current issue that came out four days ago — complete with four new recommendations — right here.
Faber still likes gold miners, too. "Some of them still have reasonably good value at the present time.” For some choice mining stock selections, check this out.
Summing up, Faber says, “What I object to the current government intervention in so-called 'solving the crisis,' [is that] they haven't solved anything. They've just postponed it."
With provocative (and occasionally unexpected) remarks like these, it’s no wonder Faber was one of the most popular speakers at last year’s Agora Financial Investment Symposium. And we’re having him back this year. We’re now less than three months away from opening day in Vancouver. Rooms are going fast, so if you want to stay at the conference venue — the beautiful Fairmont Hotel — you need to act soon.
Or check your inbox for your formal invitation to the Symposium this weekend.
Here in the States, traders are nonplussed over the Greek news, and stocks opened flat. Likewise they’re unimpressed by today’s report from the Commerce Department on durable goods — the stuff built to last three years or longer…
• The overall index dropped 1.3% last month, dragged down by orders for new aircraft — which plunged 67%
• On the other hand, once you take transportation out of the equation, orders rose at their fastest clip since the recession began in December 2007.
But traders are impressed by news that new home sales rose to their highest level in eight months. The rush to beat the April 30 deadline for the homebuyer tax credit appears to be on. The major U.S. stock indexes are up about a quarter of a percent as we write.
Whoopee! Existing home sales climbed 6.8% from February to March, according to the National Association of Realtors. The year-over-year increase is 16%.
Of course, back-to-back Northeast blizzards just might have put a dent in home shopping in February. And year-over-year comparisons ought to look pretty perky, given the abject terror that still stalked the land in March 2009. And never mind that foreclosures, short sales and other “distressed” situations accounted for 35% of the sales.
Nope, it’s all the homebuyer tax credit, which has been such a resounding success that NAR chief economist Lawrence Yun says extending it beyond the end of this month won’t be necessary. Will miracles never cease?
The NAR also reported the median home price ticked up slightly to $170,700.
So the typical home still costs more than three times the median household income of $50,303. And while home prices have returned to 2003 levels, household income is stuck at 1998 levels.
And there are more clouds on the housing horizon…
• Even mainstream economists see a 30-year fixed mortgage rising from the present 5.2% to 5.7% by year’s end
• The FHA — which insures 1/3rd of recent mortgage loans — is actually starting to expect buyers to draw on their own savings to pay closing costs. No longer will sellers be able to kick in up to 6% of the sale price for closing costs; soon it will be 3%
• And as we reported last week, banks are starting to follow through on their foreclosure notices with actual repossessions. So the “shadow inventory” will be coming into full daylight.
“This stuff is damn hard and very dangerous,” says our resident oil patch veteran Byron King, reacting to news that searchers have given up hope the 11 people missing from an oil rig in the Gulf of Mexico are still alive.
It was just a few weeks ago that Byron suited up for a visit to an offshore drilling ship operated by the same firm Transocean. “I saw safety up close and personal. I had to go through two days of safety training just to set foot near the helicopter, and just to go out and set foot on the rig. After the training, I sat for specific safety briefs about the helicopter rides, as well as more safety briefings about shipboard operations. This is what they do. This is how they do it. So I know that safety is a value at Transocean.
“We don't know what happened on the Deepwater Horizon, and I don't want to add to the speculation.” Yet a news release from the United Steelworkers union is already calling for “an overhaul of health and safety within the oil sector."
Says USW International Vice President Gary Beevers, "This is the oil industry's fourth health and safety incident involving worker deaths or injuries in the past 2½ weeks. How many more workers have to pay the price for the industry's lack of a safety culture? The industry is long overdue for a complete overhaul of its health and safety provisions."
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Tragedy in the Gulf: Rush to Judgment?
“Mr. Beevers,” Byron explains, “is referring to six workers who died as a result of an April 2 explosion and fire at Tesoro's Anacortes, Wash., refinery. Three more workers were injured April 14 at Exxon Mobil's Baton Rouge, La., refinery fire. Another worker was killed April 19 due to a crane accident on the Motiva Enterprises expansion project in Port Arthur, Texas.
“Based on my inspection of the Discoverer Inspiration a few weeks back, I disagree with Mr. Beevers' assertion of a ‘lack of a safety culture.’ I saw just the opposite. Then again, we've got a sunken rig, and 11 missing workers. Something went wrong.
“For now, we wait and see. We'll watch what happens with the search, salvage and environmental effort.”
Cocoa prices are fast approaching a 33-year high. Demand is high, given solid first-quarter results from Hershey and Nestle. And supply is tight, thanks to a disappointing crop in Ivory Coast, the world’s largest grower. A metric ton of the stuff will set you back $3,139.
Cotton prices are up 40% in the last year, and the outlook continues to look strong.
"China needs more cotton than it produces as an end-user," our resource expert Alan Knuckman recently explained to MarketWatch. "As long as China's strong growth continues that puts upward pressure on prices."
If you’d like to play cotton, cocoa and more conventional resources like gold and oil, Alan racked up an impressive 56% average gain last year. Check out Resource Trader Alert here.
We finally have our answer to the question of what the SEC was doing when one whistle-blower after another was trying to sound the alarm about Bernie Madoff. They were surfing for porn.
An internal review shows 31 SEC employees were “serious offenders” over the last 2½ years, visiting sites with names so naughty we can’t write them, lest your spam filter blocks The 5 into oblivion. More than half of these employees are senior officials earning six-figure salaries.
According to ABC News, several of these people are still in the job. Why are we not surprised.
“Prove it, Addison,” reads the subject line on a listener response to the Dan Rodricks’ Midday radio program we were a guest on this Wednesday.
“This fella has an agenda that is disturbing,” the listener continues. “Since when is the drug program eight times more expensive that what the CBO estimated?
“This is simply not true, and you should have challenged him on this statement. You should have challenged him on his cursory and incomplete analysis of funding the Obamacare bill. The double counting of revenue by the CBO was pointed out by the CBO. You are giving truth and transparency a bad name with your information from inexperienced and poorly informed and researched guests.”
The 5: Help us understand this response. When the Medicare Part D benefit was passed, it was supposed to introduce competition into the pharmaceutical market. And amazingly, amid historically low polling numbers, it got George W. Bush re-elected. The initial projected cost was going to be $1trillion. By the Medicare trustees’ own accounting, it has already cost $7-8 trillion.
On the program, we were looking over the headline numbers projected by the Congressional Budget Office. Initial projections for the cost of “health care reform” are $940 billion, but if the Part D is any indication of what’s going to happen, it’s going to cost anywhere from $5-6 trillion.
Yeah, it’s back-of-the-envelope math. But we’re only saying “government efficiency” is an oxymoron. And these programs always cost more than the legislators think they’re going to. What agenda could we possibly have? Help us. The only thing disturbing is the faith people are putting in the federal government’s ability to legislate one-size-fits-all solutions for a nation of 300 million people… and somehow pay for it.
Ugh. We’re expecting to get a lot more of this thinly veiled emotional angst before, during and after next week’s Fiscal Summit. The event is promising to jump-start a media frenzy on deficits and debt reduction. We’ll believe it when we see it. Bill Clinton is moderating. Check out the rest of the lineup, here.
Have a good weekend,
Addison Wiggin
The 5 Min. Forecast
P.S. We continue to field numerous questions about rare and collectable coins. Lots of them are very good. As you may know, we’ve conducted Web-based video interviews with Nick Bruyer, CEO of First Federal Coins, and higher ups at two reputable independent coin grading companies, NGC and PCGS.
We’ve also researched and written a Beginner’s Guide to Coin Collecting. We’re prepared to send it to you for free, if you do us a favor. Please fill out a brief survey — just five easy questions — about the kind of coins that interest you. We’ll publish the results next week. Here’s where you can claim your report.
We do make a commission on some of the coins First Federal sells to you, but we and Nick are doing our best to find unique deals that you wouldn’t be able to get anywhere else — and to provide you with the most accurate and vital information you’ll need to make good buying decisions. Take a few moments to fill out the survey here… and enjoy your free guide. Gracias.