The Great Intervention, Part II

by Addison Wiggin & Ian Mathias

  • American workers tap out… U.S. productivity falls for the first time in years

  • Panic at the Fed: FOMC reinstates quantitative easing… what it means for markets, your finances

  • Byron King on the world’s best-known source of energy

  • Government boondoggle No. 1,295,672: Free shipping of free money

  • Plus, readers outraged… what’s our beef with Glenn Beck?

 

  Two charts for the history books to start today’s 5… let’s get right to ’em:

Worker productivity fell at a 0.9% annual clip from the first quarter this year to the second, the government announced yesterday. That's the first quarterly contraction since the crisis of 2008. Thus, we’ve found an end of an incredible boom for this D-list data point. Companies have been asking more and more out of fewer employees for the last three years, and the threat of joining the 14.6 million “officially” unemployed has compelled workers to comply.

Now, for one reason or another, we’re collectively working less than we did last quarter (if, we presume, the government’s numbers add up.)

  So why are we less productive?

Either America has found a temporary peak of human productivity, and without greater technology, greater incentive to work harder or more Americans in the work force, productivity growth is no longer possible…

OR

There’s just no reason to work so hard. In other words, demand for our products and services is less than our current productivity rate.

Which is it? We promised you two nice charts… here’s the other:

Capital stock is the total inflation adjusted value of all “business equipment” in the U.S. That’s machines, robots, vehicles, tools, software, computers, pencils, paper… the whole shebang. For the first time since World War II, U.S. capital stock is contracting. Meaning, employers are not reinvesting in their equipment. More machines are left broken or outdated than are being replaced or upgraded.

Employers likely underinvested in capital stock during the darkest days of the credit crisis. But why aren’t they catching up now? Perhaps worker productivity is down — along with capital stock — because there’s simply not enough business to warrant investment… either in people or equipment.

  The Federal Reserve seems to agree. (Heh, we find this discomforting, actually.)

“The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” Ben Bernanke and his brood admitted in yesterday’s Federal Open Market Committee release. As expected, the Fed left rates at 0%, issued more a more dreary outlook and — most importantly – reinstated its quantitative easing.

As usual, it’s complicated. Basically, the Fed will be buying about $10 billion in U.S. Treasury bonds every month with proceeds from old purchases of asset-backed securities and Fannie Mae debt. (Keep in mind the Fed already owns roughly $700 billion in U.S. bonds.)

Thus, The Fed’s $2.3 trillion balance sheet we showed you yesterday will not begin to return to normalcy… if anything, it will get bigger. Market manipulation will recommence. Naturally occurring corrections — postponed, again.

Traders had already baked the Fed’s new plan into stock prices. Major indexes finished yesterday about where they started, with a small loss. Maybe traders just needed a night to “sleep on it”… the market opened down 2% this morning.

All the more reason, we say, to get involved in the small-cap trade. During times like these — where a sideways market sounds like the best possible scenario — remarkable gains can still be had in the realm of very small, off-the-beaten-path companies. We promise, GE is not going to soar 1,000% in the next few months… but it’s all but guaranteed a few microcaps will.

Of course, it helps to have a good guide. Our small-cap analyst Greg Guenthner just published a presentation on small-cap investing… you should check it out, right here.

  Treasury bonds, on the other hand, got an instant government-backed bump yesterday:

If the Fed’s scheme goes according to plan, falling yields will reverberate in the mortgage market… already, cheap loans will get cheaper. According to Bankrate today, the average 30-year fixed goes for 4.5%.

  U.S. states are about to get a bailout of their own. President Obama and the House approved a bill yesterday that will inject $26 billion into cash=strapped states. We’re told $16 billion will go straight into Medicare funds, while the other $10 billion will be used to prevent teacher and emergency responder layoffs.

Don’t worry, President Obama urged yesterday, this stimulus is “fully paid for”… by raising taxes on large corporations. As for the remaining $90-100 billion in state budget gaps for this fiscal year… ummm… errr… they’ll worry about that after elections.

Perhaps we could focus more on why Medicare is hemorrhaging money from every hole… then maybe we’d have some cash left over to invest in something useful, like nuclear energy.

  “Nuclear will give you, by far, the most energy for your money right now,” says the intrepid Byron King

“The best way to view this issue is in terms of what physicists call ‘energy density.’ That is, let’s measure the amount of energy stored in a given volume or mass of a certain substance or material.

“Below is a table that I put together expressing the energy density of an array of materials in terms of megajoules of energy per kilogram. A megajoule — MJ — is 1 million joules, or approximately the kinetic energy of a 1-ton vehicle moving at 160 km/h (100 mph). The point is to show that if something has a high energy density, then less physical material will release the same amount of energy:

“You can see the difference in energy density ranging over a variety of commonly available substances. Indeed, you can see why, for example, old wood-burning locomotives and steam engines gave way to coal-burning equipment. And the coal burners eventually yielded to diesel engines. You just get more energy from the same volume of material, which matters when you’re in the confined spaces of a moving piece of equipment.

“It’s obvious, based on the raw numbers, that uranium — and by extension nuclear power — can supply energy with a density that’s orders of magnitude more than what you get from carbon-based fuels. With numbers so utterly lopsided like these, the world is going to find it impossible to support massive populations and deal with resource and energy demand without a global nuclear power industry.”

  Oil is getting hit today, along with stocks, bond yields and general hopes for an economic recovery. As we write, the front-month contract is down to $78 a barrel.

  The dollar and gold are rallying. Both assets are seen as safe havens for rocky markets; thus, the dollar index is up to 82 and gold at $1,205 an ounce.

  Few people know, but the government’s presidential dollar coins were “an instant boondoggle!” declares our friend Matt Insley after reading our bit on the odd fate of those coins in yesterday’s 5. (If you haven’t met Matt, he’s the guy that keeps our whole resource investing division in one piece… and a budding commodities trader, to boot.)

“Back in 2008 when the dollar coins were being introduced, the Mint offered free shipping. So if you wanted to help the government circulate these coins, you’d simply order $250 or $500 worth of $1 coins and you'd pay face value. Shipping was included!

 

“Of course, shipping heavy coins isn't free. The Mint planned on this being a losing bet.

“And second, which is exponentially more amusing, they allowed purchasers of the coins to use credit cards. Once a few, let's say, ‘innovative’ credit card users saw what was happening, they began ordering as many coins as they could.

“Why? To collect credit card rewards (i.e., cash back, hotel points or airline miles)!”

Heh, government in action… nice. Now, if you head over to the U.S. Mint’s website, you’ll be greeted with his friendly reminder:

 

"The intended purpose of the Circulating $1 Coin Direct Ship program is to make $1 coins readily available to the public, at no additional cost, so they can be easily introduced into circulation — particularly by using them for retail transactions, vending and mass transit. Increased circulation of $1 coins saves the nation money. The immediate bank deposit of $1 coins ordered through this program does not result in their introduction into circulation and, therefore, does not comply with the intended purpose of the program. "

  “I called that Goldline number once before,” a reader writes, referring to the Glenn Beck scandal we mentioned yesterday. “No one ever tried to push me toward anything. They asked me what I was looking for and gave me their recommendations, nothing more. I had the choice, and I choose not to at the time. Still have not invested.

“Agora Financial does nothing more than Mr. Beck. You support gold, and other minerals as well. You give plugs to what you think is right at the time. I also get so many darn other sales pitches that it annoys me at times, because they are all speculative.

“Bottom line: Free country, one person’s opinion versus another’s. What’s wrong with that?”

  “Your tidbit on Glenn Beck was pure hogwash,” another, more agitated reader writes. “You act like a television/radio star never shilled for an advertiser. You gasp that Glenn Beck has an ‘advertising relationship’ with Goldline. Are you that naive? Just because I hear my local baseball announcer extol the virtues of XYZ roofing company on the air doesn’t leave me calling for federal investigations of Major League Baseball when the roofing contractor talks his customers into buying cheap siding.

“By your and Mr. ‘Screaming’ Wiener’s logic, any TV or radio station that ever ran a car commercial should be investigated because car dealers sometimes sell rust proofing or some other dubious service. Your assertion that Goldline ‘is taking would-be gold investors and turning them into coin collectors without their knowledge’ is silly. ‘Without their knowledge’? does Goldline employ hypnotists? Stop swallowing Liberal America’s moronic arguments for trying to silence dissenting voices.”

The 5: Easy there. Your 5 Min. editors made no such assertion… saying otherwise is a careless attribution. We did call him a “monkey on cocaine,” which — to the best of our knowledge — is absolutely true.

We had a little fun at Glenn's expense, fair enough. But we simply mentioned his dilemma as a reminder to you, dear reader, that we encourage you to do your homework when considering the coin deals you're offered through our partnership with First Federal. Again, we have this handy guide… you should check it out.

 

Other than that, we promise… you care about Glenn Beck, “Liberal America” and screaming Wieners far more than we do.

Thanks for reading,

Ian Mathias

The 5 Min. Forecast

P.S. Jack Pugsley, Doug Casey, Rick Rule… if we learned anything from these legendary investors during our time in Vancouver, it’s to focus on stocks that no one is talking about. NO ONE… especially on Wall Street. Small, no-name companies are likely the last great frontier of personal investing — one of the few places where the armchair investor can be on nearly equal footing with the pros.

If you’re inclined to agree, Greg Guenthner is a name you should know. He’s busting his hump finding small-cap opportunities for his Bulletin Board Elite subscribers… and his latest research will be published at the end of the week. Get on the list to receive it, right here.

 

rspertzel

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