Worse than Zimbabwe

by Addison Wiggin – March 17, 2011

  • Official statistics confirm: In the race to the bottom, the United States surpasses Zimbabwe!
  • The $2 trillion ramp in stock and commodity prices… and the lonely ally of Ron Paul who calls it for what it is…
  • Man moves markets, then admits he didn’t know what he was talking about… Wall Street catastrophizes and compensates…
  • Six months becomes six days… what Colombia’s new “investment-grade” blessing means…
  • Admiring hope amid the gloom… a young entrepreneur’s “Man Can”… and an eyewitness account of the Ceremony of the Keys…

If you live in the United States, your cost of living — even by official stats — is rising twice as fast as in Zimbabwe.

Yes, Zimbabwe… the country where at its worst $100 trillion was worth about 30 of the U.S. variety… and good for four loaves of bread.

Yesterday, the Zimbabwe National Statistical Agency announced that consumer prices slowed last month to an annualized 3%.

But this morning, here in the good ol’ USA, the Bureau of Labor Statistics (BLS) announced the U.S. consumer price index (CPI) rose 0.5% last month — which works out to a 6% annual clip.


Of course, most of the increase in CPI was driven by higher energy costs and, to a lesser extent, higher food costs. So for Washington policy wonks and central bank honchos alike, the rise in prices doesn’t count.

Food and energy costs are "volatile" and not reflective of "underlying trends" as detected by such farseeing folk:

  • Gasoline up 4.7% (56% annualized)? Doesn’t matter
  • Public transit up 1.9% (2% annualized)? Statistical noise
  • Food consumed at home up 0.8% (10% annualized)? What part of “volatile” don’t you understand?

Thus the "core" CPI, for people who only eat iPads, rose a scant 0.2%. That’s an annualized 1.2%, on the low end of the Fed’s inflationary sweet spot. Print away.

"The Relationship of Monetary Policy and Rising Prices" is the timely subject of a hearing this morning by the House Domestic Monetary Policy Subcommittee, now chaired by Rep. Ron Paul.

We knew having our friend chair this subcommittee was going to provide ample entertainment for readers of The 5, but we didn’t know how aptly… or how soon. Today you’ll find kismet in action for several reasons… let’s press on.

"Since the expansive Federal Reserve program of quantitative easing began in late 2008," testified investment banker Lewis Lehrman, "oil prices have almost tripled, gasoline prices have almost doubled."

"Basic world food prices, such as sugar, corn, soybean and wheat, have almost doubled," he added.

Other expert testimony today will come from Pace University professor Joe Salerno and the prickly James Grant, editor of Grant’s Interest Rate Observer. But it’s Lehrman whose presence carries the most significance, as you’ll see.

"The Fed credit expansion," Lehrman continued, "from late 2008 through March 2011 — creating almost 2 trillion new dollars on the Fed balance sheet — triggered the commodity and stock boom, because the new credit could not at first be fully absorbed by the U.S. economy in recession."

On a chart, that $2 trillion looks something like this:


In 1981, President Reagan formed the U.S. Gold Commission, at the behest of the late Sen. Jesse Helms. The commission’s task: to investigate a return to the gold standard.

Actually, the commission’s real task was to go through the motions of investigating a return to the gold standard. Of that, Treasury Secretary Donald Regan made sure. Fifteen of the 17 members, including Regan and a young Sen. Chris Dodd, concluded a gold standard was a barbarous relic.

Ron Paul was one of the two dissenters. He wrote up a "minority report" that was published in book form under the title The Case for Gold. The other dissenter gave his full-throated endorsement to Paul’s manifesto. That was Lew Lehrman.

History rhymes, they say. But this time, the stakes are higher.

By ironic circumstance, we were approached earlier this year with a proposal to republish The Case for Gold — a joint project of Laissez Faire Books and the Ludwig von Mises Institute.

Later today, you’ll have the opportunity to secure a copy of this "lost" gold bible for yourself… at no charge. Watch your inbox for details on this exclusive offer.

Stocks are recovering some of yesterday’s Japan-driven losses. No, the situation in Japan isn’t appreciably improved over yesterday. Consider it Wall Street’s way of compensating for mass histrionics.

Yesterday, the Dow started plunging shortly before 11 a.m. EDT when news hit the wires that the European Union’s energy commissioner, speaking to a parliamentary committee, described the situation in Japan as "effectively out of control."

How, sitting in a leather chair in Brussels, he was better equipped to make that assessment than anyone else, no one paused to consider. "Hit the bid!" traders cried.

Later, the functionary admitted his assessment was based in part on the same media reports you and I and everyone else have been bombarded with since Friday. But programmed sell orders that kick in when prices dip to one level or another don’t take such things into account.

By day’s end, the S&P was down 2%, and its year-to-date performance had ventured into the red.

Meanwhile, volatility perked up in a big way, as measured by the "fear gauge." The VIX popped 21% yesterday, briefly eclipsing the 30 mark.

The last time the VIX approached anything this high was June 29, 2010. On that day, the S&P 500 fell 3%.

There was no single factor driving it that time, rather a pastiche of bad news — Chinese leading economic indicators, eurozone banks, U.S. consumer confidence. You know, the good old days.

This morning, the VIX has pulled back below 27. Fear is no longer cheap. There’s not much to act on here.

Before this week, the VIX spent most of this year below 20 — a pretty reliable sell signal, as our friend Karim Rahemtulla remarked last year in Vancouver. But between 20 and 30, the VIX offers few cues about whether to buy or sell stocks.

Meanwhile, the yen touched an all-time high against the dollar in overnight trading. It takes less than 79 yen to buy one U.S. dollar. A year ago, it took more than 90.

This is the last thing Japan’s government wants right now; a stronger yen will slam exports at least as hard as the tsunami. The finance ministry will likely instruct the Bank of Japan to start selling yen. Or buy dollars.

Officially, there’s been no comment. Unofficially, we’re sure the finance ministry is in as desperate a rush to cool the yen as the defense ministry is to cool the reactors at Fukushima.

When we were in Colombia last week, we were emboldened enough to suggest it would be another six months before the major rating agencies upgraded the government’s debt to investment grade. Some forecasters we are, eh? It turned out to be six days.

Yesterday, Standard and Poor’s upgraded Colombia on level to BBB-.

S&P’s report said it was impressed — as we were — with the country’s resilience in the face of the Panic of 2008, along with the government’s effort to reduce its budget deficit. It’s now under 4% of GDP… compared to the homespun U.S. figure of 10% plus.

"Colombia is now an investment-grade country," declared S&P’s Joydeep Mukherji, thereby bestowing the credentials many institutional investors still blindly regard as useful. "That sends a signal to the world and also makes it very clear to anyone who has restrictions on their investment choices."

Colombia’s IGBC stock index is up over 3% this morning. But there remains another catalyst for growth — the stock exchange’s planned merger with the exchanges of Peru and Chile.

We’re still culling through the many choices Colombia presents for investors. Some are suited for the risk-averse who want to stick to major U.S. exchanges, while others are better suited for the more speculative minded. Watch this space.

Amid all the turgid news this week — rising prices, Japan, the Middle East — we find comfort that the spirit of entrepreneurship remains alive and well.

One day last year, Hart Main, a 13-year-old from Marysville, Ohio, started poking fun at his sister for selling scented candles as part of a school fundraiser. "They were really girly scents," he said.

And then it hit him: "There weren’t any man-scented candles."

So he started filling up empty soup cans with candle wax and developed "manly" scents — like bacon, sawdust and a fresh leather baseball mitt.

So far, he’s sold 500 of his "Man Cans" for $5 apiece. His costs per unit: $2.50. The soup inside the cans, he donates to a local food bank. With his profits, he, so far… bought a new bicycle.


"Please keep a lid on the stridency and hype," a reader implores about our coverage of Japan this week. "The world turns. If you can obtain factual estimates from specialists in their field of worse-case and likely-case scenarios for the various incidents, please filter and present those."

"We all have access to 10 channels of misinformed speculation 24 hours/day if we want this ‘white noise.’"

The 5: Exactly why we’ve reserved our comments to the likely impacts on the financial markets. If you’ve got a beef with the science of it all, or the way it’s getting reported, your beef is not with us. Thanks for reading carefully, though.

“You are not keeping up with events at the Japanese failed reactor,” chides another, likewise failing to cite any specifics.

"Long term, the 250 reactors left in the world will still be producing electricity daily. As the industry learned/improved from Three Mile Island and Chernobyl, they will review this, likely make improvements to deal with hydrogen production during a calamity and implement reactor designs with thermosyphoning and continue.

"I will hold onto my uranium stocks."

The 5: That’s your choice. The debate among our analysts has been fairly strident. Of the two with uranium plays, one has elected to hold… the other to sell.

"I am not interested in uranium," writes another, even if "it is going to suffer a big blow." But if you are, say, in your 30s and can find the companies that will be around for the next generation, do you not think that investing for the future, and years of dollar cost averaging, and a solid energy portfolio put together now might just pay pretty well in, say, 30 or 40 years.

"I am not trying to be crass. This is an unfathomable tragedy in Japan they will endure. The other side of the coin, sound thinking now for the future as the world works through this will provide huge opportunities for the young."

"Do you think maybe, just maybe, there is opportunity for another service that reaches out to the young investor? One of these days, they will have a bit of money to invest, and they could use a sound plan that you folks could develop."

The 5: When we launched Outstanding Investments a decade ago, we concluded a 20-year bear market in natural resources had come to an end. That decision was vindicated recently when the independent Hulbert Financial Digest crunched its numbers and found Outstanding Investments was the best-performing letter among those they tracked over the previous 10 years.

Thing is, we believe the best is yet to come in this space — the "blowoff" rally that propels every bull market to unimaginable heights. That’s when natural resources will be like tech stocks in 1999 and you’ll want to sell. But in the meantime, it’s not too late to climb on board — especially if you’re in your 30s. Here’s where to start.

"How is Abe Cofnas doing with revealing the actual loss potential involved with his system? Some information there would certainly help me decide whether or not to buy in!"

The 5: "Your risk is strictly limited. You can’t lose more than you put in," says Abe, "And you don’t need to guess how far the underlying move is going, just which direction it’s headed. You don’t need to keep track of more than two possible results — yes or no."

Nothing is guaranteed, except the quality of the service. And how many services cover a market in which you can rack up gains of 162%… 545%… even 1,329%… in a maximum time frame of five days?

All right, you got us, that was a trick question. No other North American advisory service covers this market. Let Abe walk you through how it works step by step, right here.

"The reason that gold and silver have not rallied," writes a reader seeking to amplify our remarks yesterday, "is because the member banks of the Federal Reserve suppress the price. Evidence of this is in the COT (Commitments of Traders reports) put out by the CFTC."

"There is a large concentrated short position that traces back to JPM and HSBC for the silver and gold market shorts, respectively. There are currently 25 class action lawsuits now pending and being consolidated."

"Pure and simple, the banks that have the monopoly of the control of currency of the world’s reserve currency know that gold and silver are the only viable alternatives to the very flawed fiat currency system. The futures market is the price discovery mechanism that can be perverted by massive short selling by these banks."

"Do your due diligence on this issue. It goes without saying that you will, but I am admitting that my opinion is not the only one out there. Ted Butler and GATA (Gold Anti-Trust Action Committee) have been writing about this for years and are only now finally gaining the recognition they deserve."

"What say you on the ‘precious metals suppression issue,‘ 5?"

The 5: "If you have manipulation to keep the price down," our friend Marc Faber puts it best, "it eventually goes ballistic. All the people bitching about the manipulation of silver and gold should be happy that it is manipulated, because it still gives them an opportunity to buy it at a depressed price."

Top o’ the morning to ya,

Addison Wiggin
The 5 Min. Forecast

P.S. Way back in December, Alan Knuckman called a rise in the yen, and laid on a trade accordingly. Yesterday, he told readers to close half the position for a gain of 108%. He’ll let the other half ride.

We haven’t formally offered Alan’s Resource Trader Alert to new readers for some time now. But in this year alone, his readers have bagged a 95% gain on soybean meal and 217% on wheat.

They’re sitting on open gains of 157% on cocoa and 287% on heating oil.

As an acknowledgement of his stellar performance, we’d like to extend you an invitation to check out Resource Trader Alert for half off the annual membership fee. Today and tomorrow only. And only over the phone.
Call John Wilkinson at (866) 361-7662. He can answer any questions you have about how the service works. Just know that this offer comes off the table tomorrow at 5 p.m. EDT.

Plus ca change, plus c’est la même chose

On your behalf, Byron King has been in London this week, meeting with executives from five mining and four oil companies. He’ll render insights gained in good time. In the interim, he made time last night to take in “a real treat and honor” at which he was in attendance by exclusive invitation. Amid the changing tides of fortune, it’s comforting for some to witness tradition and ceremony:

I just returned from the Tower of London, where I witnessed the Ceremony of the Keys.

It’s a private function witnessed by invitation only — an inside-the-British-army thing. I felt it quite a coup to be there, having accepted a personal invitation from a Household Guard.

We were met by (name withheld by request), a retired army officer and now a civilian Beefeater guard at the Tower. He gave us the overview, describing the ceremony in detail before it occurred.

Precisely at 21:53, the guards emerged, marched down the cobblestone walk to the first gate of the Tower and locked it up. Then they marched to the second gate and locked it up.

Then as they returned to parade area in front of the barracks, they were challenged by a sentry, asking "Who Comes There?"

They answered the hail "Queen Elizabeth’s Keys!" and were allowed to pass, with rifle salute rendered by the sentry — tonight, a Scots Guard. Then precisely at 22:00, there was the retirement bugle, sounding its refrain, marking the end of another day in the life of the British monarchy.

This ceremony has taken place every night, of every week, of every year… for over 750 years of recorded history.

As the story goes, the ceremony has started late only once… on Dec. 29, 1941. During a German bombing raid, a bomb hit the Tower and knocked the guards down. They got up, dusted themselves off and proceeded… six minutes late.

The next day, King George ("The King’s Speech" George) telegraphed the guards, congratulating them on their drive to carry on in the face of adversity and reminding them that the Tower ceremony must never be late again.

The ceremony is rich with tradition… every movement of the soldiers has a heritage.

There is lots of fine marching and precision drill with rifles and such. I was honored to see such a rich and historic ceremony. It’s good that some things last a long time. Some things should last a long time… especially those with real meaning.

I’m pleased to report all’s well in the Tower of London

— Byron King


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