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Uncle Sam shrank the deficit in fiscal 2010… One reason it can’t last
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Why today could be the perfect day to buy stocks (no, really)
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Wall Street’s “best September since 1939”… and what the mainstream won’t tell you
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“Never sell a quiet market”… Alan Knuckman on oil’s potential breakout
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“Like gangbusters”… Byron King on shale gas merger mania
We pause today in our usual litany of political and financial failures to celebrate Uncle Sam’s success.
The Department of Treasury is still totaling the figures for the final day of the fiscal year, but as things stand now, Uncle Sam ran up the national debt another $1,545,753,247,046.20 during fiscal year 2010.
That’s a 17% improvement over last year's $1,885,104,106,599.26. Hooray!
At this pace, we’ll be back in the black by 2016. Barring any extenuating circumstances.
Uh-oh… here's one now.
The cost of the wars in Afghanistan and Iraq will likely reach $4 trillion by the time they’re all over, according to economists Joseph Stiglitz and Linda Bilmes. They’re the ones who forecast $3 trillion two years ago. But the cost of medical care for veterans is running about 30% higher than they originally figured.
Irony can be cruel: Medical advances have significantly lowered the death rate for U.S. troops compared to previous wars. But those troops’ kids will be stuck with the tab.
Yet the bond market looks at deficits as far as the eye can see, and reacts like Alfred E. Neuman: “What, me worry?” A 2-year Treasury note yields a record-low 0.41% this morning.
“The bond market rests on confidence,” explains Bill Bonner in the first installment of the Daily Reckoning Video Series. “So there’s a lot of worry that confidence will give way when they see the federal government continuing to run huge deficits year after year.
“I personally came to the conclusion that that was probably not a worry for the near term. In fact, you know, I feel myself being much more optimistic than most analysts and I see ourselves working our way through this in the classic Japanese way, which just happens to be the worst possible way.”
Meanwhile, fiscal year 2011 begins in uncharted territory, as Congress has wriggled out of one of its few Constitutional duties — drawing up a budget. Lawmakers bolted home yesterday to campaign, having passed a “continuing resolution” to keep the lights on until after Election Day.
They haven’t sorted out how money’s going to be spent. Nor, for that matter, how it’s going to be raised: The question of extending the Bush-era tax cuts set to expire at year’s end remains unresolved, no matter what your tax bracket.
Despite the uncertain start to the new fiscal year, this is nonetheless a perfect day to get into stocks… at least if the first nine months of calendar year 2010 are any indication.
If you’d bought the S&P 500 on the first day of each month this year, and again on the second day, selling on the third, you’d be up 10.4%. Compare that to jumping in at the start of the year and staying in. You’d be up just 2.3%.
Could be a case of portfolio managers dumping risky holdings at month’s end and buying in again at the start of the next month. Then again, with high-frequency trading driving 70% of market volume, a search for cogent explanations is likely futile.
(Credit where it’s due: Author Michael Panzner, Bill King from Chicago’s M. Ramsey King Securities and the New York Post’s John Crudele dug up this oddity.)
Then again, you could have bought the S&P at the beginning of last month, sold yesterday and pocketed a nearly 9% gain in 30 days. Likewise, the Dow gained nearly 8%.
As every mainstream financial website reminds us, it’s been the “best September since 1939.” What they don’t remind us is that eight months later, the Dow crashed 20% during a two-week span that coincided with Hitler’s armies rolling over France.
Or that it fell another 17% over the next two years to the April 1942 bottom. Details, details…
Stocks are treading water today. The ISM manufacturing index registered 54.4 last month, down from August’s 56.3 — still in growth mode, but at a slower pace. A similar measure of manufacturing in China rose last month from 51.7 to 53.8.
Oil has burst through the $80 barrier this morning, thus answering a persistent question: Why hasn’t oil kept pace with other commodities?
“Sometimes a more significant event is the failure to act negatively,” Alan Knuckman explained earlier this week to readers of Resource Trader Alert. “If it doesn't go down, then the odds are high it will go up.
“Recent record supply data have been unable to push crude lower, with price action showing encouraging signs. Price volatility has also declined, sharply setting up for a possible bullish rally.
“'Never sell a quiet market’ was the mantra here before the recent stock market run. Let's hope it holds true here too.”
If it does, we expect another flood of email praise for Alan like the one we got a few days ago. A sample: “I followed your recommendations at each step of the March 11 corn trade and had great results. After trading costs, I booked a 76% gain on the first-half exit of the 410 calls. Then I sold the 510 calls as recommended. Last week, I exited the trade with a second-half gain of 11,047% after costs.”
That’s the great thing about Alan’s recommendations: He walks you through every step along the way. But don’t take our word for it… He explains it all right here.
The dollar index is down this morning to territory last seen in February — 78.4. The euro is holding firm at $1.363. It’s held firm all week despite headlines like these…
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The bailout of Anglo Irish Bank will likely drive Ireland’s budget deficit to a staggering 32% of GDP. (Here in the States, we’re still around 10%)
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Moody’s has downgraded Spain’s sovereign debt, finally catching up to S&P and Fitch.
Any other week, the Esperanto currency would be getting hammered. But not at a time traders figure another round of “quantitative easing” by the Fed is a matter of when, not if.
Gold is setting records again as we approach week’s end. As of this writing, the spot price is $1,317. Silver has topped $22.
Now they tell us: Foreclosures accounted for 24% of all home sales during the second quarter. That’s 248,534 homes in all, according to RealtyTrac.
Hmmn… as far as we can tell, we’re meant to celebrate the fact the foreclosure number is 20% smaller than last year. We're having a hard time, however. That darned home buyer tax credit hangover keeps clouding our judgment.
Merger mania is under way in the shale gas business. According to a report from the consulting firm Wood Mackenzie, the natural gas industry cut $21 billion in shale deals during the first half of 2010 — a total even higher than the pre-Lehman figure of $19.7 billion in the first half of 2008.
“A resource opportunity of this scale is a game changer,’’ according to Wood Mackenzie’s Luke Parker. “It is something that everyone will want to be involved in.’’
“In Pennsylvania,” Byron King wrote recently, “Marcellus Shale development is going like gangbusters. It’s hard to keep track of the leasing activity, the new drilling permits and the development that’s all in play. There are literally hundreds of millions of dollars of lease payments, capital expenditures and royalty payments moving into some of these small counties that haven’t had a good payday since the time of the Whiskey Rebellion.
“One great beneficiary, for example, is the Pennsylvania Game Commission. Its mandate is to own and supervise game lands for hunting, fishing, etc. That also makes the Game Commission the largest landowner in the state.
“The bottom line is that in places, the Game Commission is making big bucks from energy development where it owns the mineral rights. In other places, the Game Commission is raking in big bucks from selling rights of way for the pipelines.”
Yes, there are environmental issues with the hydraulic fracturing, or “fracking,” technique that gets the gas out of those tight shale formations. “I think there’s evidence that some bad and/or incompetent operators are making a mess of things,” Byron continues. But there are other competent and responsible operators bringing gas to market and making investors money.
Byron says one of his favorites is “running its pipelines and plants full-throttle, making money hand over fist. The stock has delivered a super-nice capital gain to early investors, and the yield is still a very handsome 7.2%.” You can learn more about Byron’s favorite energy plays — and a key driver behind big gains in the next 18 months — right here.
“Progress is everyone’s business,” reads a new print ad from Goldman Sachs. It ran this week in The New York Times and The Wall Street Journal.
No, it’s definitely not directed at drumming up new clients. This is image polishing directed at the general public…
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There’s all manner of smartassery about this on the blogosphere. But here’s what struck us: The ad is as mushy and self-serving as something you’d see from a government agency trying desperately to convince you it’s not a giant boondoggle that, in the end, detracts from the general welfare.
Considering how joined at the hip Uncle Sam and “Government Sachs” are these days, we shouldn’t be surprised by the resemblance.
“Why not prop up Social Security coffers with the retirement accounts of all federal, state and municipal employee funds?” a reader posits. “Sounds reasonable, since the public needs help and we've contributed to their retirement funds all these years. That's our money in their retirement fund accounts.
“Let's level the playing field and give the public some of their money back.”
The 5: You wish. You haven’t heard the state pension funds are short $1 trillion? How pensions in Illinois are only 54% funded? How pensions in only four states are fully funded?
"I could swear that I just read that the GOA just published a study stating that Social Security will be solvent until at least 2028," writes a mildly dyslexic reader. "Now, I may be incorrect about 2028; possibly it was 2018. Secondly, a law was passed sometime in the last five-six years forbidding that any monies were to be taken from the SSA general fund by any other agency within the U.S. government.
"Care to comment, or more likely tell me that I am so far off the mark, it is sad? If this is the case, then please, I request that you provide the proof that what I read about the GOA study is nothing but bunk and that you can prove it. I don't think that is too much to ask.
"Third: The annual increase in Social Security is tied to the CPI. As you stated, the year is now over and the CPI is very rarely talked about. Why is that? I suggest that instead of being an alarmist, stick to the facts and let's see what the CPI is/was for the preceding months of 2010, as that will determine if, in fact, there is to be any raise this coming year.
"What do you say? Are you game for answering these three questions, or will it be glossed over with alarmist responses?"
The 5: Jeez, you're like a 7-year-old trying to prove your knickers aren't in a twaddle.
Let’s start with cost of living, since we’ve already addressed that one. We’re in agreement with nearly everyone from John Williams at ShadowStats to Bill McBride at Calculated Risk: Barring a remarkable upturn in CPI two weeks from today, there will be no cost of living increase this year… even though a typical basket of items at Wal-Mart costs 5% more now than it did nine months ago.
As for the rest, give us a break. How can we “provide the proof” that a study is “nothing but bunk” when you don’t even tell us what study to look up? All you know about it is you “could swear” the GAO (not GOA) said Social Security was still solvent till 2028, or maybe it was 2018.
What we do know is we worked with David Walker from 2006-2008 — the first 18 months of which he was the head of GAO — while he tried to convince the general public (YOU) the federal government is woefully underprepared for the cost of the entitlement programs as the baby boomers begin to retire in earnest.
The first of the baby boomers filed to collect Social Security on Oct. 15, 2007. All of the numbers in I.O.U.S.A., the book and the film, come from the GAO. (David is, incidentally, starting a new campaign this month, called the Comeback America Initiative (CAI), dedicated to the same mission. If you want to check the numbers, we suggest you look here.)
Nor can we help you with the “law” you cite regarding the SS general fund. If you give us something more than it “was passed sometime in the last five-six years,” we might be able to.
We apologize. We recognize it's an emotional subject. But you might want to check your prejudices against a few hard numbers. When you’re ready, we present a raft of facts and how you can secure a more reliable source of retirement income right here.
Have a good weekend,
Addison Wiggin
The 5 Min. Forecast
P.S.: Byron King has been spotted recently in Serbia… speaking with a high-ranking government official… huddling with a team of geologists… and walking out from a mine two miles deep, his arms straining to hold bags of rock samples. He was reportedly smiling.
We have few details, but we assume all will be revealed in the next issue of his premium service Energy & Scarcity Investor. If the opportunity is anything like another he uncovered recently — its epic rise is just getting started — the profit potential should be enormous.