by Addison Wiggin & Ian Mathias
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Bernanke finally admits the obvious: U.S. debt is out of control
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Visit from the ghost of American future: Japan resorts to sexual propaganda to sell government bonds
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Dan Amoss presents a compelling new short selling idea, courtesy of the Obama administration
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Byron King offers one investment theme that every industry craves — from miners to drillers, farmers to homemakers
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Plus, a new bull market on the streets of Baltimore: Wires
At long last: “The federal budget appears to be on an unsustainable path,” the maestro of money printing, Ben Bernanke, admitted this morning in a congressional hearing. Mr. Bernanke might as well have been reading from the script of I.O.U.S.A., a documentary about national debts and deficits we made years ago.
“Unless we as a nation make a strong commitment to fiscal responsibility, in the longer run, we will have neither financial stability nor healthy economic growth.”
Heh, where was this guy three, four, five years ago? It can’t possibly have just dawned on him now… so why start building the levy now that we’re up to our arses in murky floodwater?
The U.S. national debt will top $13.6 trillion this year and $19.6 trillion by 2015, reads the latest guesstimate from the Treasury Department.
Thus, a look into our likely future:
“Men who hold Japanese government bonds are popular with women!!” an ad declares this week in magazines around Japan. Struggling to maintain the world’s biggest bond market, the Japanese Ministry of Finance has resorted to outright propaganda, buying ads in magazines that proclaim buying Japanese bonds will — in essence — get you laid.
“I want my future husband to be diligent about money,” says one of five women (ahem, government copywriters) in the ads, which were featured in a Bloomberg report yesterday. With another prime minister’s resignation, national debt at 180% of GDP and a nearly failed auction of 30-year bonds on Monday, they need all the help they can get.
But sexual propaganda… who would stoop to something as silly as that?
By the way, the U.S. Treasury is set to sell another $70 billion in bonds in this week.
But don’t just blame Uncle Sam for our debt addiction: Personal credit rose 0.5% in April, the Fed reported this week, up $954 million, to a total consumer debt outstanding of $2.4 trillion. That’s greater than the total annual economic output of the United Kingdom… and the total doesn’t include mortgages.
The first signs of the homebuyer tax credit hangover are starting to emerge. This from ZipRealty and CNBC:
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“The number of homes that closed in May are down more than 5% compared to April
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Newly signed contracts in May dropped more than 10%, a sign of a real estate drought this summer
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Internet searches on real estate sites are down 20% compared to this time in 2009.”
It’s too early for “official” numbers on the difference between April housing stats and those in May, after the government withdrew its manipulation. But reason alone can provide a good forecast… it’ll likely be ugly.
Elsewhere in the realm of government blowback, “The Obama administration’s offshore drilling moratorium is likely to add to the list of attractive short ideas for 2011,” our resident short seller Dan Amoss forecasts. Dan’s fresh off a conference call hosted by Morgan Stanley energy analysts, where the growing consensus is that this six-month ban will most likely grow to 12-18 months.
Our government is “effectively punishing the entire industry for the sins of one company,” Dan continues. “Morgan Stanley estimates that if deep-water rigs don’t return to the Gulf until late 2011 — which is possible considering political incentives and bureaucratic apathy — then oil prices could go much higher… Depending on the length of the moratorium, we’re probably looking at a few hundred thousand barrels per day hit to U.S. oil production in 2011.
“The ripple effects of this moratorium on the U.S. economy will be numerous and painful — the most obvious being higher gasoline and diesel prices, and more pain for consumer discretionary companies.
”Thus, higher gasoline and diesel prices should squeeze the 2011 margins of the companies with the heaviest reliance on this fuel.”
So… think rental car companies, shippers, tuckers and manufactures of gas-guzzling SUVs and motor homes. In other words, think of Dan’s Strategic Short Report portfolio, which is currently betting against two such companies. You can still gain temporary access to his master list of short ideas for just $1, right here.
The stock market has staged a bit of a rebound over the last 24 hours. After falling 5.4% Friday and Monday — its worst slide since March 2009 — the S&P popped up over 1% yesterday and another 0.5% this morning.
The dollar index has certainly paved the way for a stock recovery today. It’s down nearly a full point, to 87.5.
Gold, strangely, isn’t responding well to a weaker dollar. After making another all-time high ($1,250 an ounce) yesterday, it’s down to around $1,225 as we write.
“What do gold mines in South Africa and Alaska have in common with tar sand operations in Canada?” Byron King asks, excited about his latest investment recommendation for Outstanding Investments readers. “And what do these kinds of operations have in common with a gigantic deep-water drilling vessel in the Gulf of Mexico? What major systems do they have in common?
“The fancy name is ‘fluid control.’ The more common name is ‘pumps.’
“Every mine needs to pump out the water. Every heap leach needs to pump the leaching material and recover it. Every oil sand operation needs to move water and oil, in one form or another — hot, warm or cold. Every oil-drilling operation needs to move mud or cement, or maybe even oil and natural gas. Plus, every pipeline for every fluid needs a unique form of pump to move product down the line.
“And at the end of the day, you need pumps to move water. Move the river water into industrial applications, or agriculture, or over to the treatment plant. Move the treated water to your home. Move the used water down the sewer lines for further treatment. Move that treated water back into the water flow cycle. We live in a world of pumps.
“In fact, the market for these goods is so vast — so ‘obvious’ — that I have a hard time figuring out who does NOT need the items. There’s an utterly world-spanning market out there for these kinds of products. It’s a market that extends so far to the horizon, and beyond, that I don’t even know where it ends.”
But it looks like Byron’s found where it all begins. He just offered OI readers his favorite pump play — “a world-class supplier of critical technology for moving water — clean and dirty — as well as many other industrial fluids.” You can check it out here… Outstanding Investments remains one of the best values in our business.
Here on the streets of Baltimore, there’s a raging bull market in copper wiring. Over the last few years, the lights at Patterson Park, one of the city’s biggest green spaces, have been out of service far more than you’d expect. (This, among other things, is not helping the park’s reputation as the go-to discrete location for nighttime drug deals, rapes, etc.)
“I never thought that I would need to watch the commodities market when dealing with park management,” a representative of “Friends of Patterson Park” explained to us recently, “specifically copper futures. Turns out you can get a pretty penny (no pun intended) for salvaging copper, like the copper in park light wiring.
“Three times they have stolen over 5,000 feet of copper wiring from the 150 park lights and three times it has been replaced.. Each time, we have tried other ways to secure the light fixtures, which they have in turn circumvented. Before Baltimore city spends more funds on new wiring, they need to figure out a better way to secure these lamps.”
Google around a bit and you’ll see just about every city in the U.S. is dealing with this sort of theft. Interesting times, eh?
“I didn't really think about the Vancouver conference,” a reader writes, “until I just read [yesterday’s reader mail] asking why you don't have it in the U.S.
“And I agree — why spend money in Canada and not in, i.e., Arizona? Using a lame excuse that you can't put on this conference in U.S. because of government regulations and red tape is bulls**t! You have ‘Investools’ investor conferences almost daily in the U.S. Anyway, my conclusion is I will be canceling my subscription to Strategic Short Report when this quarter is up.”
The 5: Those are great ideas: An Arizona conference in the middle of July and spitefully unsubscribing from a publication with a 41% average return since its inception. Nice knowing you.
(If you’re interested in that kind of track record, SSR trials are still available for $1. Just a buck will get you a month of Dan Amoss’ advice plus access to the Strategic Short Report portfolio.)
“I never thought about how the U.S. would regulate an investment conference,” another adds. “No wonder you go outside the borders. If you could elaborate further (briefly) on what you would have to deal with doing a conference in the U.S., I, for one, would find that interesting.”
The 5: Well, here’s an example: Your editor just finished reading Confidence Game, the account of Bill Ackman’s public battle against MBIA. He spoke out at conferences around the U.S. — against a truly fraudulent, opaque organization — and was rewarded for his troubles with personal investigations from the SEC, N.Y. State Attorney General and the Department of Justice. Had things gone differently, he could have very easily ended up in jail — even though he never broke the law. Though we are extremely selective about whom we invite to speak at this event, we’d still rather not subject them to that risk.
That being said, we should reiterate why we really go to Vancouver every year: It’s an amazing city. It’s beautiful. It’s accessible. The weather is perfect. The hotel — the Fairmont Vancouver — is both luxurious and frighteningly accommodating. We love the food, the people, the environment… and our guests seem to as well.
If Vancouver can put up with a motley crew like us for a week, there must be something good happening there. Again, we’re staying put.
“I would like to begin by saying that I am a 100% permanently and totally disabled veteran,” our last reader writes. “I have a Purple Heart, Bronze Star and several medals and citations.
“All this talk about the proper place for your conference is so childish. I think I have earned the right and honor to be called a true American patriot. As for all these other ‘crybabies,’ I just wonder what real sacrifices they have made for America. Their arguments only reveal their true nature as being selfish or greedy. Get a life!! Grow up and accept the fact that America and Americans are not the ‘chosen ones.’ At least be thankful that Canada has many of the conveniences, if not more, of the USA. You should all try living for two weeks in Romania, Belarus or other Eastern European countries. It's not about money or patriotism. It is more about foolish pride.”
The 5: And thus ends the “debate” on our annual conference location. If you don’t like it, talk to this guy.
Best,
Ian Mathias
The 5 Min. Forecast
P.S. As of this morning, there were just 10 seats left for our Investment Symposium in Vancouver. Ten — that’s it. If you’ve been putting off registration, or if all this talk of Vancouver has enticed you, you need to pull the trigger today. We’re a breath from selling this thing out. Hope to see you there.
P.P.S. One of two 5 Min. mainstays has been released from the grips of Lady Justice. As we mentioned yesterday, both Addison and Dave were strangely summoned for Baltimore City jury duty — same day, same courthouse. After six hours of selection for a city murder trial, something about Dave rubbed the defense team the wrong way, and he was sent home. “All I can figure is I must've looked too much like a law 'n' order type,” he mentioned this morning.
Addison, on the other hand, for the second time in as many years, was among the first jurors picked to hear a case. All we’re told was that it was a civil matter, supposed to be concluded by end of business today. Heh… we’ll let you know how our fearless leader fares.