Left Behind

by Addison Wiggin – December 23, 2010

  • Left behind: While U.S. sputters, world economy doubles 2000-2010

  • Back to the future: Stunning chart shows China, India reassuming roles they held a millennium ago

  • Treasury’s ugly truth: 2010 deficit only 61% higher than you were told on CNN

  • An end to the flu? Patrick Cox on one of the “wealth quakes” set to arrive in 2011

  • Parental discretion advised: WikiLeaks stirs CIA, Bank of America into profanity and vulgarity

  • Because we don’t always know what gets our readers’ dander up… An onslaught of mail about silent killer Priuses!

Here’s an interesting thought for you to chew on during your Christmas dinner. The world economy, following the global recession and financial crisis, is almost twice the size of a decade ago.

In 2000, world GDP was $32 trillion. “Next year, based on conservative growth assumptions” by the British megabank Standard Chartered, “it could rise to $64.7 trillion.”

“There was a significant contraction as a result of the crisis and global recession,” the bank admits, “but now the world is back to its pre-recession peak.”

Given all the handwringing over unemployment and outsourcing in the U.S., the figure seems improbable. But the stat belies the fact that most of the growth in the economy over the past decade has come from economies outside the U.S. or Europe.

Here in the Empire of Debt, GDP has been sluggish not just since the Panic of 2008, but for the last decade.

If the global trend continues for the next 20 years, then global growth in the 21st century will ring in at a clip superior to the historic period we call the Great Dollar Standard Era — from the breakdown of Bretton Woods in 1971 through the palliative Y2K freakout:

Indeed, if the trend continues, the next era will see global growth that exceeds any period in the last 200 years except for the post-World War II era.

Hard to believe, isn’t it?

[Ed. Note: We were treated to these charts and facts by Chris Mayer who addressed Reserve members on our third Chill Weekend at Rancho Santana on Monday. And you thought it was all fun in the sun. Ha!

Our next Reserve-Only Chill Weekend is on Feb. 15-19, 2011… but I’m told it’s already sold out. If you’re interested in joining us down at the Ranch, we’re taking reservations for Reserve members (who want to invest in the project) for the weekend June 7-11. Contact our surfer-in-residence Marc Brown for details, right here.]

What’s perhaps even more interesting, Mr. Mayer suggested, the global output in the West may have peaked in 2000.

And if you narrow it down to just manufacturing, the peak came in 1953. “Services industries grew enough to offset such losses. That trend, though, ended in 2000.”

For hundreds of years, going back to the Renaissance, China and India ranked among the most productive economies on the planet.

Ironically, many of the contacts we’ve developed over the past decade have been investing in the so-called emerging markets. They’ve been taking advantage of this growth firsthand and doing quite well with their money in places like Colombia, Brazil, Vietnam, Indonesia, South Africa and spaces in between.

Such a strong trend is it we’re considering adapting and rebranding our new Apogee Beta product to cover fund managers and their strongest investment themes ex-U.S., ex-Europe. So far, we’ve got a tag line… “Capital Goes Where It’s Treated Best”… but we’re in search of a good name for the product. Got any ideas?

[Breaking News: In a remarkable episode of synchronicity, we see this headline from the U.K. Daily Mail — “Fresh Humiliation for Eurozone as China Says It Will Bail out Debt-Ridden Nations.” Seems the Foreign Ministry just identified Europe as an important sector for China’s $2.7 trillion overseas investment fund. Previously, China offered to buy some of Greece’s and Portugal’s debt, but now it appears the commitment is going to be stepped up a notch or three. Stay tuned.]

As if to prove the above thesis, the U.S. Treasury just came clean on how much of a deficit it ran during fiscal 2010. It’s only 61% higher than the “official” figure.

The annual Financial Report of the United States Government came into being under Paul O’Neill, who you might remember from I.O.U.S.A. He was the Treasury secretary thrown overboard by Dick Cheney for having the temerity to believe deficits do matter.

The report applies generally accepted accounting principles to Uncle Sam’s books — you know, the ones you have to apply in the private sector on pain of severe penalties.

That means Treasury took into account things like…

  • Hefty increases in costs accrued for veterans’ compensation

  • Government and military employee benefits

  • Anticipated losses at Fannie Mae and Freddie Mac.

Factor those in and the deficit came in at $2.08 trillion… just a wee bit over the figure splashed all over the media a few weeks ago, $1.29 trillion.

But it’s even more fugly than that.

“Broader GAAP-based federal deficits, including the Social Security and Medicare unfunded liabilities, have been in the $4-5 trillion range in 2008 and 2009,” says ShadowStats.com’s John Williams. ”And 2010’s deficit again likely was near $5.3 trillion, remaining both uncontainable and unsustainable.”

By this yardstick, you could eliminate all government spending except Social Security and Medicare and there’d still be a deficit.

If there’s going to be a showdown over raising the national debt ceiling next year, you can now mark it on the calendar — March 4, 2011. My birthday. Go figure.

In their rush to get home to see their wives and mistresses for the holidays, Congress passed yet another “continuing resolution” this week to prevent a government shutdown.

With these resolutions, members don’t have to actually draft a budget — you know, one of the few pesky activities they’re mandated to do by the Constitution? They can put the whole spending program on autopilot.

The new resolution should keep the lights on through March 4. By happy coincidence, this should be right around the time the national debt hits the current ceiling of $14.3 trillion.

Grab the popcorn. We’ll see if the Tea Partiers have any gumption then.

Markets across the globe are going into hibernation as the holidays approach and traders hit the road (or eggnog) early.

The Dow is up a fraction. The S&P is down a fraction. Gold has drifted down to $1,376, but that’s no cause for concern.

“It’s time to pull back the curtain on my first prediction for 2011,” says Breakthrough Technology Alert editor Patrick Cox, hopefully ignoring the fiscal picture of the nation. Instead, he’s been following a team of scientists who’ve developed “a technology that could stop viral disease — much like the H1N1 ‘swine flu’ outbreak.”

Better yet, “Any virus, from warts and herpes to Ebola and AIDS, could be targeted” using this same research. “The science behind this company is so revolutionary it could destroy the vaccine industry as we know it. When I first read through the company’s materials, including its verified lab results, my jaw dropped.”

In short, the company is using nanotechnology — picking apart molecules and even atoms — to knock out viruses. And it’s on the verge of a significant announcement. “My sources tell me that this company will soon release shocking news about their work — independent tests on how well one of their platforms works.”

We’ve been around Patrick long enough by now to know he’s not just blowing smoke. When he said to buy the tiny company Medarex, it was $4.74 a share. Seven months later, you could have been 235% richer when Bristol-Myers Squibb bought it out for about $16.

This year, Patrick has closed gains of 86% and 290%. Open positions have gains as high as 1,129%. So in 2011, you can put a tiny amount of money into Patrick’s five best ideas — “wealth quakes” he calls them… and just forget about it.

In time, it could be a mountain of money. As is common in the tech market, the earliest investors make the biggest money. Give yourself an early present and check out all five of Patrick’s “wealth quake” predictions for 2011… right here.

Our final two items today run afoul of The Presbyterian Standard we like to follow here in The 5. That’s the effort to avoid any words we wouldn’t write to our mothers. Still, they’re too funny for us to ignore:

First, we’re learning how Bank of America is gearing up for a round of WikiLeaks revelations. WikiLeaks founder Julian Assange has confirmed he’s sitting on a stash of BoA documents. The bank is bracing for the onslaught by… registering naughty domain names.

On Dec. 17, BoA registered more than 300 web addresses, most of them along the lines of BrianMoynihanSucks.com, to prevent them from falling into the hands of people who don’t like the bank. Brian Moynihan is the CEO who replaced the tarnished Ken Lewis.

For the record, we have no idea if he sucks or not.

Second, the CIA is forming a task force to deal with the fallout from the diplomatic cables released by WikiLeaks. It’s been given the simple name of WikiLeaks Task Force, or WTF.

That’s right, WTF. If you’re familiar with the texting set’s vernacular, you’ll know why we wouldn’t want to write such things to our mothers, especially this time of year.

“Your commentary on the quiet electric cars is wholly misguided, and you cite irrelevant ‘data’ in a most feeble argument,” a reader grouses. “Over the last 10-15 years, the population of electric vehicles, only some of which are quiet enough to pose a hazard, has been minuscule — even smaller! Statistics such as those exhibited in your citation change very slowly over time; they start to change long after a trend has started.

“Fact is electric cars are so quiet as to be dangerous when mixed thoroughly with pedestrians, especially in parking lots and driveways. To ignore the safety hazards of denying vulnerable humans an often-used and effective warning sensor such as hearing is patently absurd.

“Do you really want to stave off common sense for 30 years so you can have statistical evidence that common sense was necessary? Think of the thousands of dead (mostly children), maimed and permanently disabled people such ‘proof’ would require!

“‘Tis rare that our ham-handed U.S. government does the right thing. Let us celebrate passage of the bill requiring noisemaking in the Senate and enjoy our enginetones in a safer environment!”

The 5: You’re right, it was a feeble argument… but please Lord, tell us you’re kidding. You are kidding, right?

Usually these sorts of bills come with the name of some victim attached to it, to personalize it. If a blind person named Chloe had been killed by a hybrid car, it would be “Chloe’s Law.” But it’s not. It’s the “Pedestrian Safety Enhancement Act.” They didn’t even bother trying to squeeze a catchy acronym out of it.

“Isn’t the ‘noisemaking apparatus’ required by law,” asks another on or near our wavelength, “also known as a…wait for it… HORN?!”

“Maybe the ‘green’ car makers should comply with the decree to make their cars noisier,” suggests a third, “by having it play over and over again the following recording: ‘Don’t blame us, it’s the jackasses in Congress that are making us do this.’”

“Why not make manufacturers equip electric cars with spoked wheels. Then add a clothespin and a playing card and voila!”

The 5: Indeed, unfortunately, the playing card and clothespin lobbies don’t have as much clout in Washington as they used to.

“I’d like a drivetone, please,” writes a fourth, who then adds an angle we like to see. “What colors do they come in? Seriously, if Agora knows of a company making drivetones, I would be interested in the ticker. Figuring most cars will go the way of the electric and be quiet movers. It’s a problem, but a good problem.”

The 5: Sounds like a good job for the Penny Sleuths… we’ll put ‘em on the case.

(They’ve had a terrific year, by the way. Right now, their average open position is up 43%. If you haven’t checked out Penny Stock Fortunes, it’s one of the few genuine bargains across the entire financial publishing industry. Give it a look.)


Addison Wiggin

The 5 Min. Forecast

P.S.: We wrote Empire of Debt in 2005. But with China and other emerging markets soaking up more and more of the world’s capital, its themes are more relevant than ever.

You can get the updated 2009 edition at a 60% discount at Laissez-Faire Books. Plus, you can get any other title at 60% off… and on top of that you get a FREE copy of the Henry Hazlitt classic Economics in One Lesson.

Just enter coupon code THE5ED when you check out. This offer expires Dec. 31 – a week from tomorrow. So check out the online LFB catalog right away.

P.P.S.: The stock market is closed tomorrow. As The 5 will be. At least one of your editors will be driving the family to New Hampshire for Christmas Eve and Day. But never fear, even though many traders will sit out the week between Christmas and New Year’s, we won’t. We’re back on Tuesday the 28th, when we begin looking ahead to 2011 in earnest.

Until then, we hope you and yours have a Merry Christmas!


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