The “America: Love It or Leave It?” edition of The 5…
Charlie Munger: “Thank God” for bank bailouts, but ordinary folks must “suck it in”
Economic oracles declare the recession over… but at what price? And where to from here?
Washington’s war on gold buyers? The 5 analyzes this week’s House hearings
Scads of reader letters on whether it’s time to pack up and leave the “Land of the Free”
There’s nothing like an enraged readership.
We closed yesterday’s edition with the question “Is the prospect of higher tax rates (or just the uncertainty about them) enough to make you think about picking up stakes” and moving to another country?
And we were flooded with replies…
“Yep, definitely worth considering looking for a venue more encouraging to innovation and investment. The climate here for being successful is getting very discouraging.”
“Multitrillion-dollar deficits, this government pushing unconstitutional laws down the throats of the American people while claiming it's because of the ‘war on Terror’ The smart ones are already planning to leave for greener pastures. I know I am.”
“It’s a difficult call. HOW do you know what country will TRULY honor your wishes to be just left alone?”
“Well over a year ago my wife and I discussed moving out of the country, but we ultimately decided America is still the best place to live and work. ‘Better the devil you know than the one you don’t.’ Plus, if America is to have any chance of surviving reasonably intact, it needs practical and responsible citizens like us to stay and fight the good fight, albeit it an uphill one at this point.”
Surveying the news this morning, we would agree about the “uphill fight.”
As if you needed it, we'll add a little bit more fuel to the fire:
“You should thank God” for bank bailouts, Charlie Munger, Warren Buffett's once better half, has been caught saying to a crowd of students at the University of Michigan in a video that has just gone viral. “Hit the economy with enough misery and enough disruption, destroy the currency, and God knows what happens.
"So I think when you have troubles like that you shouldn’t be bitching about a little bailout. You should have been thinking it should have been bigger.”
Munger, of course, is talking his book. Berkshire Hathaway holds a 6% stake in Wells Fargo, holder of $1.7 trillion in “assets” that are off balance sheet and a significant recipient of bailout funds. Of course, the taxpayers should bail his smarmy ass out.
“Now, if you talk about bailouts for everybody else," Munger goes on, channeling Marie Antoinette, "there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.
“At a certain place, you’ve got to say to the people, ‘Suck it in and cope, buddy. Suck it in and cope.”
Let them eat cake, Charlie. A$$hole.
Well, at least the economy came out of recession 15 months ago… and soon all this angst and class warfare will be over.
Unless you've been buried under a pile of stock market profits over the past 24 hours unable to breathe or reach your TV set, you know the National Bureau of Economic Research (NBER) – the nonprofit body based in Cambridge, Mass., that has been assigning dates to recessions since… 1929 — declared the Great Recession over and done with in June 2009.
Total duration of the Great Recession: 18 months, eclipsing the previous postwar record of 16 months set in 1973-75, and again in 1981-82.
Although, “economic activity is typically below normal in the early stages of an expansion," navel gazers at the NBER reluctantly admit "it sometimes remains so well into the expansion.”
How did the 'recovery' such as it is come about? Let's take a look at the nittys:
Government spending grew from 20.6% of GDP at the start of the recession to 25.4% in the second quarter of this year, according to the Commerce Department’s Bureau of Economic Analysis
Increasing transfer payments — 99-week unemployment benefits, etc. — account for 73% of that growth. At least with the New Deal we got some bridges and dams to show for it. Now Uncle Sam just pays people to sit at home, eat Cheetos and watch Jersey Shore
In contrast, gross domestic private investment has shrunk from 17.3% of GDP at the start of the recession to 11.3% last year.
And a good portion of that last figure goes just for repair and maintenance of the existing capital stock. Investment in new factories and equipment — i.e., real growth — represented 40% of gross domestic private investment in 2006.
Last year, capital investment was a mere 3.5%.
“Thus,” concludes Independent Institute scholar Robert Higgs, “net private investment did not simply fall during the recession; it virtually disappeared.”
So much for a productive recovery and worthwhile use of stimulus money. No chance of a double-dip recession after all that paper cash flushed down the toilet.
Stocks are treading water this morning as traders await the Federal Reserve's press release following their FOMC meeting.
Gold is just off its recent all-time highs, at $1,278.
“I would love to go to another country,” writes a reader, joining the litany of frustrated voices in the inbox, “where at least you know who the crooks are. I find that my retirement is at risk from the government wanting to sink it into the bubble of bonds and not allow me to invest in the only real store of wealth, gold.
“Leading up to this, they have plugged all the loopholes to leave this country with any portion of my hardworked saving. Cash me in on my current value of Social Security, my 401(k) and small pension and I will gladly live where I know who the bad guys are,” he concludes.
The 5: Well, we dodged a bullet on the 401(k) front last week. As we suspected, the Labor Department hearings weren’t what the Internet scaremongers cracked them up to be. But this week we have new hearings on another subject to scrutinize.
A House subcommittee meets Thursday to discuss the “Precious Coins and Bullion Disclosure Act.” Skeptics can be forgiven for dubbing this the “Goldline Act,” for that’s the firm squarely in the sights of the bill’s sponsor, Rep. Anthony Weiner (D-N.Y.).
According to Weiner’s website, “companies like Goldline would be required to disclose the reasonable resale value of items being sold and would no longer be able to hide behind false promises of profitability.”
We see another round of online scaremongering with this one, claiming this is an early step in the demonization of people who wish to preserve their purchasing power with gold. And we don’t buy it. This sounds to us like garden-variety consumer-advocacy showboating, combined with a chance to trot out a partisan boogeyman in the form of Goldline pitchman Glenn Beck.
But as with the 401(k) hearings last week, we’ll keep a wary eye on things.
“I'd go back to the auld country in a heartbeat,” writes a reader of Scottish descent, “if I didn't have grandchildren to worry about. Our family came on the Mayflower in 1620 and we can return to Scotland on the QE2.
"Every generation of our family fought for this country, even in the rebellion of 1776, the War Between the States, the Indian Wars, the Mexican-American War, the Spanish War, World War I, World War II, Korea, Vietnam, the Cold War and Gulf 1.
"We gave our blood, fortunes and our freedom to this idea of the USA. Now it seems that it was for naught,” he concludes.
The 5: Perhaps, but the auld country's politicians are proposing “enhanced” tax collection schemes that'd foment rebellion in the New World. Maybe you heard about this one proposed by Britain’s version of the IRS: The government would collect 100% of all wages, decide what an “appropriate” amount to withhold is and then deposit the rest in your bank account.
The other one isn’t getting as much attention, but it should: Deputy Prime Minister Nick Clegg is proposing to increase the number of audits 30-fold… and subject the audited to a new technology that detects voice stress over the phone. “Ministers [are blurring] the distinction,” reports the Daily Mail, “between criminals and ordinary people who try to minimize their tax bill by legal means, or ‘avoidance.’”
The overextension of government spending and regulation is hardly a unique phenomenon in the U.S.
Even if you choose to expatriate, you can’t escape rising prices for food and energy. Corn and soybeans hit a two-year high yesterday, and cotton sits at a 15-year peak.
Long term, China and India are adding more protein to their diets. If people are consuming less grain and more animals, grain consumption goes up because the animals have to be fed.
Short term, markets are reacting to weather reports. “The rallies to multiyear heights first in wheat and now corn are great examples of persistent upside risk if weather or crop yields do not accommodate,” explains our resource specialist Alan Knuckman. “It seems commodities SELL the rumor of a big crop and BUY the fact that the markets are always one bad year away from catastrophic price shock.”
It’s been a good month for Alan’s readers — up 114% on a gold play, and an incredible 445% on a sugar play. (And if things work out just right, they’ll bag another hefty gain this week on corn.) If you haven’t had a chance to read Alan’s expose on the secrets of the commodities markets and how to put them to work in your own portfolio, it’s well worth your time.
“I left a few years ago,” another reader writes. “I’m only 34 years old. I didn’t leave with much money and bought a cheap property in Central America.
"It still amazes me that dumbass Americans still defend an obviously broken and corrupt system.
“The funny thing is that many people actually get offended when I mention this. It doesn’t matter that police are now beating up the elderly, and that all the people who organized the bailout worked for Goldman Sachs — and a farmer in Georgia was fined $5,000 for growing too many vegetables — people just keep waving that flag and cheering for Lady GAGA.
“I've already escaped, a year and a half ago. I sold everything and went, more than likely never to return.”
“While increasing taxes were a consideration,” writes another reader of his decision to leave, “the real driving force for me was the entire behavior of the government of the United States at all levels.
“Its belligerence, arrogance, imperialistic tendencies, endless databases 'in my own interest' and the obviously increasing oppression were more than I was willing to take anymore.
“It is my opinion that those who wait too long will not be allowed to leave.
“So I've taken my talent elsewhere. If big corporations can do it and make money, why can't I? So now I am extremely happy, free, and unburdened in a beautiful country in South America.”
“With real Americans starting to wake up," writes someone with a vestige of the fight instinct still intact, "right here and right now, I think for the time being I will stay and slug it out.
"Still, as a hedge," our bruiser continues, "I would welcome news of a good place to go and start anew. Until the nut cases and dreamers are pushed out, there remains the chance they will prevail. In which case, leaving town may be a real possibility…”
“Earlier this year,” our final reader writes, with a third alternative, “my wife and I decided that her additional income was not worth the sacrifices necessary for the additional income, especially in light of the prospect of higher taxes.
“My wife earned about $40,000 per year, putting our adjusted gross income close to $100,000. After taxes, our net take-home pay was less than $70,000. We live in California and cannot afford to purchase a home, our kids have moved out and there is no benefit for us to itemize.
“After considering the additional costs of my wife working, like additional taxes, a second car, laundry, meals out because we don't have time to cook, we estimated my wife's financial contribution to our income came in at less than $5.00 per hour. She is close enough to retirement age that we don't take that much of a hit by retiring early, so she quit her job and now collects Social Security.
“We did this for two reasons. 1) At the rate the government is spending money, we don't have much confidence that Social Security will be around for long. If she can collect it for seven years, we will get back everything she paid in (without interest). 2) The prospect of paying higher taxes and seeing her net contribution to our income diminish further, especially since we now have time to do things together — we no longer have two cars, and we now eat dinner together at home.
”We are now looking for dirt in a flyover state so we can grow our own food and live on even less.”
The 5: Your seven-year bet on Social Security might be a safe one. For others with a longer time horizon, you need to start seeking out alternative sources of income. If you haven’t checked it out yet, here’s one idea we especially like.
The 5 Min. Forecast
P.S.: “All Your links are still compromised with malware at 5 p.m. Eastern time,” wrote a reader yesterday. “I find this quite distressful.”
Think how we feel. Here’s an update: The security issue itself was fixed by the time we sent yesterday’s issue. However, it still takes a while to convince Google that everything is up to snuff, hence the warning messages you got when you clicked on a link.
That too has now been resolved. We appreciate your patience in the meantime.