by Addison Wiggin & Ian Mathias
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“On the 40-yard line”… Our assessment of the oil spill “top kill”
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…Rob Parenteau on the “denial game” coming to an end
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“benefits” rising… Bill Bonner on where it all ends
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On the subject of “obscene profits”… a storm of BP mail hits The 5’s inbox
The bleeding has stopped. Or so it appears.
The Coast Guard says oil is no longer flowing from the broken well at the bottom of the Gulf of Mexico. But BP cautions it’ll be another 48 hours before we know for sure whether its “top kill” effort actually worked.
“Let’s not do the touchdown dance yet,” cautions our oil field hand Byron King. “We’re still on the 40-yard line.” But it’s safe to say the operation “has pumped enough drilling mud into the down-hole casing to block all oil and gas from the well.
According to press reports, the well pressure is now very low, but persistent. The next step is to add enough density to the mud column that it reduces the well pressure to net-zero.
“Then the engineers can begin pumping cement into the hole to entomb the well. Meanwhile, to assist with that effort, BP engineers are pumping debris into the blowout preventer at the top of the well – the so-called ‘junk kill.’”
Complicated? You bet. As Byron told The Washington Post in a front-page story yesterday, “It’s like doing brain surgery using robots under a mile of water with equipment that’s got 30,000 horsepower of energy inside of it.”
Not that it matters to certain people who see only “obscene profits.” We’ll get to that point after we take a spin through the markets.
After yesterday’s manic rally, the major U.S. indexes opened down a bit this morning. Earlier, the Commerce Department reported consumer spending “unexpectedly” stalled in April – the first time since last September the numbers didn’t go up. Incomes rose, and so did the savings rate.
Of course, this is a good thing in the long haul. We need savings to rebuild a healthy economy. But in the credit-addled mind-set of Wall Street, the mighty consumer who drives 70% of the economy isn’t doing his part to support “the recovery.” The Dow sits at 10,205 as we go to print.
The volatility index has retreated to around 30 as traders prepare for the holiday weekend. It was just a week ago that it reached 45 – something that’s happened only four other times in the last two decades.
Gold pulled back overnight to $1,207 this morning. The dollar index recovered some of yesterday’s losses and sits at 86.3.
A 10-year Treasury bill yields 3.31% this morning. Not quite the insane lows of earlier this week, but still good enough to keep a 30-year fixed mortgage at 4.87%.
Despite the stock market’s ups and downs this week, the fundamental weakness remains unchanged, both in the U.S. and in Europe. “The notion that the Greek financial crisis is contained and soon to be forgotten,” asserts The Richebacher Letter’s Rob Parenteau, “is dead wrong.
“Our experience in recent years,” Rob continues, “is that when professional investors play the denial game, they play it to the hilt. Their walls of denial are made of brick and remarkably thick, and they do not come down easily.
“But when current events blatantly reveal the incompleteness, if not the insanity, of consensus views, the walls of denial maintained by professional investors are undermined swiftly, and nothing more is left on the ground than a pile of red bricks with dust rising from them.
“When the thundering herd, in its infinite stampeding wisdom, turns tail, best to go find a ditch to jump into so you do not get trampled to death.”
For what it’s worth, the Treasury still pegs the national debt this morning just shy of $13 trillion. The USDebtClock.org website apparently jumped the gun. As if it matters.
The latest jobs bill Congress is discussing (they don’t want us to call it a “second stimulus,” because that implies the first didn’t do the trick) has been scaled back from $200 billion to $143 billion to $84 billion. As if that matters, either.
“Government has grown too big, promised too much and delivered too little,” says our friend David Walker, assessing what really matters from his vantage point as the former U.S. comptroller general. “We are not exempt from the fundamental laws of prudent finance, and we should quit acting like we are.”
Assuming that does not happen, how to invest accordingly?
“People still think of emerging-market economies as poor cousins,” offers Marc Faber hopefully, “but because 80% of the world’s people are here, in aggregate the consumption is huge. Everybody should have 50% of their money in the emerging world, outside the West.”
Another way of looking at it: In emerging markets, private investment and enterprise is making up a greater proportion of GDP. Here at home, it’s just the opposite.
Bold thinkers in the USA Today editorial room picked apart similar data this week and concluded “paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year.”
At the same time, government benefits – Social Security, unemployment, food stamps, you name the program – set a record high during the first quarter.
Unfortunately, “the feds don’t really have any money,” Bill Bonner mused in The Daily Reckoning. “They don’t make anything. They don’t create any wealth. So they can only send us checks by taking the money from us – one way or another. And that, dear reader, is the story of the most important trend of our time.
“The feds are taking a bigger and bigger share of the economy. And the bigger the share they get, the less the rest of it is worth. Because an economy run by politicians and bureaucrats is not a healthy economy. It’s a sick economy… it limps along. It wheezes and coughs. And if the trend toward more and more federal control continues… the economy finally dies.”
How to grapple with this reality as investors and as individuals lies at the heart of this year’s Agora Financial Investment Symposium. Mr. Bonner will be there to tackle the subject, along with Marc Faber and David Walker.
We’ll also be joined by Doug Casey, Rick Rule, John Mauldin, Rob Parenteau, Byron King, Chris Mayer and a host of other 5 favorites. Deep-water drilling expert Dr. Marcio Mello and the leading stem cell researcher, Dr. Mike West as well as Moscow-based fund manager Eric Kraus will all be there… to name just a few.
This morning we note that we have fewer than 74 slots remaining… and the price of admission goes up as of next Tuesday, June 1. If attending Vancouver is something you’ve thought about, but never acted on… well, now’s the time to act. For a complete lineup of speakers and activities, go here.
An update from yesterday on the new stem-cell lines that BioTime is developing: All five of those lines will go on sale to researchers next Tuesday, June 1. These are “embryonic progenitors” – a halfway step between embryonic cells and fully-developed ones. And with the promise of fighting debilitating conditions like Parkinson’s disease… demand should be intense.
BioTime is up 679% since Patrick Cox first recommended it. To learn about the world-changing companies he’s following now, grab a membership to Breakthrough Technology Alert before the substantial discount expires tonight at midnight. Here’s how.
“Holy ****, Addison, you feel better?” a reader writes after seeing our reply to the reader yesterday who is and has been offended by BP’s ‘obscene’ profits. “That was an editorial beat-down. Much deserved, too.”
“Appreciate you taking on this reader,” adds Byron King, “and kicking his scrungy butt.
“I’ve tried hard to steer a path between pure, raw investment detachment,” Byron says of his work analyzing the Deepwater Horizon spill, “and still showing my legitimate concern for the impacted Gulf Coast dwellers, and the flora and fauna.
“The BP disaster is horrible… and life with not enough oil would surely suck. Choose your poison. But please, spare me your sanctimony.”
“First, you’re an investment advisory,” writes a reader in agreement, “and you are properly focusing on what your subscribers pay you to do – understand and explain how events in the world will affect companies in your portfolios.
“Second, and connected to that, if you are going to lose your focus by commenting on the ecological calamity (which I admit is terrible) that continues to unfold, then why not lose your focus by commenting on the human lives lost on the rig when it blew up? Or what their spouses are doing now? Or the lost fishing jobs?
“The fact is there are lots of stories within the big story, and if you’re being paid, as you are, to focus on mostly one story (the investment one), then bravo to you for sticking to it and not trying to be know-it-alls with an insight into every aspect of the spill. Who knows, perhaps some of your subscribers are elderly folk who rely on their dividends from companies in the OI portfolio like BP who are scared about what’s happening and how it will affect their already meager income and don’t know what to do.
“So I commend you for mentioning BP’s dividend. I didn’t take it as a sign of insensitivity on your part.”
“Kudos for your response to the village idiot who thinks we need to throw BP execs under the jail or some such,” says another reader. “I live in the People’s Republic of Austin and want to slit my own throat sometimes at the same ignorant things being said here about the oil spill. I have been an environmentalist for decades, a ‘common-sense’ organic environmentalist from the ‘70s.
“Yes, we need to wean ourselves from fossil fuels, but it is stupid to think we can make the wholesale changes these people want without tanking our economy entirely and destroying people’s lives. You don’t cut off your nose to spite your face, if you have any sense at all. Each of us should take responsibility in our lives and help others who cannot. Beyond that, not much else we can do.
“If you think oil is going away in our lifetime, you’re nuts! Good or bad? Doesn’t matter – it’s reality folks. What bothers me about these ‘shortsighted do-gooders’ is that they have no problem drinking from the ‘milk of capitalism’ and enjoying its fruits in their lives, but will turn right around and spit it in the face of the very ones giving them their benefits. Help me, please…I am too damn stupid to figure that one out.”
“Your elongated harangue/reply to the guy who criticized BP is out of character,” writes a fourth, taking a slight different tack. “It’s so much nicer when your answers are short and sweet and you leave us wondering exactly where you are on things. You are normally the master of this, and your softness usually makes The 5 a pleasure to read.
“Sorry to see such outright slippage on your part.”
The 5: Hmmn…
“You wrote,” writes a fifth, ”‘Seriously, how can profits be “obscene”? You’re suggesting there’s a moral component to risking capital and making a return on it? It’s OK to make a little… but not too much?’
“I say profits can be obscene when they are made at the expense of safety.”
The 5: Here we go…
“Profits can be obscene,” she continues, “when they are made at the expense of human livelihoods, and marine and land animals.
“Profits can be obscene when they proceed from shortcuts that are made in order just to make more profit.
“Profits can be obscene when corporadoes and government regulators are so cozy that eyes wink and heads turn, bypassing and undercutting regulation. Profits can be obscene when someone lies, cheats or steals to make them.
“All of these came to play in the Deepwater Horizon spill.
“I’m sorry, but your scathingly hostile retort to the person who dared challenge you was unrealistic and unnecessarily caustic, not to mention that you failed the test of logic by overgeneralizing, i.e., implying that the reader/writer was suggesting that all profit is obscene.
“Of course, profit should have a moral component. That someone should not think so is all the more reason to require oversight by someone or somebody that isn’t making profit.
“If I don’t see this in print, I have to assume that your own moral compass is on a par with those in BP and the U.S. government who have so sadly failed us.”
The 5: “If I don’t see this in print” appears to be a popular goad these days. Well, there it is. You make some good points, but how you know all these to be true of the Deepwater Horizon spill you fail to supply. And… who would this impartial nonprofit regulator be?
The True Believer who started the discussion yesterday wrote back, too. He doesn’t own a car and has been riding his bike to work for several decades in Michigan. We’ll bring you his full response on Tuesday. Along with the U.S. markets, we’ll be taking the holiday off on Monday.
Have a fine Memorial Day weekend,
Addison Wiggin
The 5 Min. Forecast
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