False Choice: Worse than Sweden

by Addison Wiggin

  • Stockholm Syndrome? Swedish economy ranked more competitive than I.O.U.S.A.

  • Sarnoff, Knuckman on why bulls have the upper hand for now

  • Norwegian pension fund makes a “can’t lose” bet… on Greek sovereign debt

  • Yen near 15-year high against the dollar… why it won’t last

  • Readers see hidden agenda behind the flurry of Form 1099s about to flow…

  Heh. Has it come to this? Sweden, that notorious bastion of socialism, is a better place to do business than the United States.

So it has… at least according to the World Economic Forum (WEF), the outfit that puts on the big annual shindig for the rich and powerful in Davos, Switzerland.

  Two years ago, the United States were still No. 1 in the WEF’s eyes. Then last year, Switzerland took over the top spot. Now both Sweden and Singapore have vaulted ahead.

The WEF surveyed 13,500 people in 139 countries to establish their rankings. The U.S. has lost ground due to both a “weakening of public and private institutions,” say the data crunchers. "Lingering concerns about the state of its financial markets" don’t help.

Sweden, by contrast, has “the world’s most transparent and efficient public institutions, with very low levels of corruption and undue influence.” Which loosely translated from wonk-speak sounds like, “You’re better off dealing with honest socialists than crony capitalists.”

In any event, here are the WEF’s top 10…

  As if to underscore the WEF’s assessment… and knock out another support column for the “recovery”… the Federal Reserve’s Beige Book is losing some of its lily-white sheen. The period from mid-July through the end of August brought “widespread signs of a deceleration.” Of the Fed’s 12 regional banks…

  • Two report healthy expansion (Boston and Cleveland)

  • Five report moderate expansion

  • Five report mixed or slowing conditions.

Oddly, the stock market seemed to like this report, rising steadily after its release. Perhaps traders are buying into the Fed’s “New Goldilocks” thesis — something we identified back in April.

That is, growth is too slow to return to full employment anytime soon, but still strong enough the Fed won’t have to resort to full-bore quantitative easing, at least not for a while.

In the “New Goldilocks” economy — instead of “just right,” we get lukewarm. We’re happy with it. Except the porridge keeps cooling. And there’s an autumn breeze blowing in the kitchen window.

  Today, at least, before the snows begin to fall, we can enjoy an Indian summer. Two positive data points were released this morning…

  • The U.S. trade deficit fell 14% from June to July — the biggest drop in 17 months. Exports of airplanes are way up, and imports of nearly everything are down

  • First-time jobless claims fell last week by 27,000 — considerably better than the Street forecast. (Of course, nine states including California failed to turn in their numbers due to the holiday weekend, so the BLS just made up some numbers to fill the gap. Revisions are forthcoming.)

  Stocks rallied on the news. The S&P jumped 1% in the first half-hour of trading, well past 1,100.

“This holiday-shortened week,” according to Options Hotline editor Steve Sarnoff, “stocks continue to rebound and probe resistance. Bulls have the short-term edge and are testing sellers’ resolve.

“An accelerated slide in the dollar and highflying bonds could direct money into stocks. Bears are against the ropes. We shall see if they come back swinging.”

  “The September rally certainly reversed the bearish stock market rut slowed by summer selling amidst low volume,” says our resource man Alan Knuckman. “Equities had reached a point of selling exhaustion after repeated attempts on the downside.

“The S&P trading range for the majority of the past year was between 1,130-1,040. Watch closely any new relative highs or lows of the trading range and the corresponding volume to gauge faith in market direction.

  As stocks go, for the time being at least, so go commodities. With one notable laggard.

“The 2009-2010 rallies in stocks, crude oil and gold,” asserts Mr. Knuckman, “can be attributed to global asset recovery after the sharp decline from the financial crisis. But the benchmark barometer commodity, crude oil, has lagged behind our other asset groups… unable to reclaim $80 a barrel since the beginning of August:

“Prices have traded in a channel between $77-71 for nearly a month that sets up for a price breakout. The positive action in the band of brothers gold, and recently stocks, lead to an upcoming rally to confirm asset appreciation.”

Over the summer, Alan’s readers had a chance to bag gains of 69%, 103%, 114%… and even 187%. If you want to position yourself for similar gains before year’s end, you can get started with Resource Trader Alert right here.

  Norway, home to the world’s second-biggest sovereign wealth fund, is betting its pensioners’ future on Greece. The Norwegian Government Pension Fund Global is loading up on Greek government debt. Spanish, Italian and Portuguese debt too. A statement from the fund foresees no chance of default.

“So,” sums up Chuck Butler from his post at EverBank World Markets, “first Norway funds a retirement for every citizen, then they create a fund for all unborn citizens to come and then this… buying Greek bonds… I think they are very shrewd investors, and this just may be a coup for them in the future… And it helps Greece!”

  “The yen remains very strong,” advises our currency trading specialist Abe Cofnas, “at near-15-year highs against the dollar.” The yen and the Swiss franc were the preferred safety trade (along with gold) during the summer.

But can it last? “Continued strength of the yen represents a problem for Japanese exports,” says Abe. “The Bank of Japan and the Finance Ministry have not ruled out intervention.

”Whether the yen will weaken due to officials talking it down (called "jawboning") or due to actual intervention, the best bet is that the yen will be weaker, not stronger, than it is today.”

Abe is advising his circle of readers to play it accordingly. We’re keeping that circle very small right now while we get feedback on Abe’s strategies. When we’re ready to open membership to Abe’s currency trading service, you’ll be the first to know.

  “Meat prices have hit a 20-year high,” says Chris Mayer this morning. “Global meat prices are up 16% in the last year. Why?

“You have to think in terms of a global marketplace. There has been strong demand for a higher-protein diet from emerging markets as people get richer. In short, people are eating more meat. The Middle East is one of the largest importers for food, for example. Strong demand for lamb there helped push lamb prices to 37-year highs.

“In Brazil, meat consumption will hit a record this year. That means less meat leaving Brazil, which could matter, since it is the second largest exporter, behind only the U.S. And if you look around the globe — Russia, Mexico, South Korea and Vietnam — they will all consume more meat this year. By most estimates, emerging market demand for meat will rise at least 65% to midcentury.”

Chris recently issued a recommendation primed to profit from China’s growing demand for meat — and it’s already up 24%. You can learn all about it — plus seven other China picks, all U.S.-traded — with a trial membership to Mayer’s Special Situations. It’s yours today for just $1.

  “The question is,” a reader writes, “who the hell secretly put that 1099 requirement into a bill that was supposedly a 'health care law'? Who is responsible? Is this not the most perfect example of how the government consistently pulls the wool over the common man's eyes? And is it not another example of how our lawmakers never pay any attention to the crap that they sign into law on our 'behalf'?

The 5: The stated purpose of the requirement is to generate higher compliance with existing tax law, thus generating more revenue to cover the costs of health care reform. No, we didn’t make that up. D.C. logic is like no other, eh?

  “This 1099 issue,” writes a reader, kicking of a litany of ire in The 5 inbox, “involuntarily deputizes small businesses into being IRS agents, with the threat of incrimination if they make a mistake.”

  “If they pull this off,” writes a doctor who sees yet another agenda, “then the IRS will have good data as to how much annual revenue a VAT would raise. I'm no expert on VATs, but my understanding is that it is imposed on business-to-business transactions. Another tax under anesthesia, like payroll withholding. You don't see how much it's costing you.”

  “You’ve left out one key element of the new 1099 laws — the penalty for having an incorrect federal employer identification number/Social Security number is going from $50 to $100. Imagine how many number/name combinations an average business will have in error.

“My employer has been paying an average of $2,500 a year for just the individuals/sole proprietorships/partnerships that are in error. Given the difficulty of getting W9 information from at least 30-40% of our vendors, to ensure that they don’t meet 1099 qualifications as they stand today, the penalty will grow exponentially.

“Yet another new hidden tax on businesses.”

“As a tax executive for a large multinational corporation,” a fourth reader writes, as if to confirm your suspicions, “my work brings me into contact with officials in the highest levels of government.

“Here's the scoop: the Obama administration does not seriously believe that issuing 1099s to just about everyone will smoke out tax cheats. The real money raiser, they believe, will be imposing penalties on businesses who fail to comply with the nightmare they have created!”

  “What do you think would happen if everybody who opposed the new 1099 requirements,” asks a fifth, by way of suggesting a solution, “started mailing, emailing or faxing piles of blank 1099 forms to every congressman and senator between now and the election?

“I am sure if they received a significant number of forms clogging their offices and requiring their staffs to focus their efforts on dealing with stupid 1099 forms, rather than with their re-election, they might reconsider their stupidity.”

“Let's all start mailing in requests for the I.R.S. to mail all small businesses packets of the 1099 forms,” suggests another. “Dozens to hundreds of them per business. Not only will the IRS start to get a bad taste in their mouth… the government will spend so much money mailing the forms… the postal service won't have to lay off anyone.

“And think of all the forestry regeneration specialists (tree farmers) that will be kept busy supplying all that pulp for the forms.”

The 5: If we all band together, we can beat this recession, one form at a time. C’mon people, give your government a hand!


Addison Wiggin

The 5 Min. Forecast

P.S.: We spent the day filming interviews in D.C. yesterday. We were shocked, then numbed, by the sheer number of infrastructure development projects under way around the Beltway.

“Hey,” we thought we heard Congress murmur in unison, “the economy’s in the crapper… let’s double the size of the capital city!”


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