Addison Wiggin – September 2, 2011
- Broke government sues broke banks for mortgage fraud. Guess who pays no matter the outcome…
- How can you roll dice and come up with 0? Easy, get a job with the BLS…
- Stocks tank, while gold inches toward $1,900… again
- Assault on enterprise, continued: The mind-bending jackbooted raid on Gibson Guitars
- Success stories about entrepreneurs overcoming the obstacles: Reader in the construction trade reinvents his firm, while Patrick Cox’s favorite “nutraceutical” hits the market
Some days, what passes for analysis in the news is enough to make your head explode.
Today is one of those days. Welcome to the pre-Labor Day episode of your favorite daily source of news, entertainment and investment advice.
The Federal Housing Finance Agency (FHFA) — the arm that oversees the government-sponsored entities Fannie Mae and Freddie Mac — announced they plan to sue a list of major Wall Street banks for… drumroll, please… lying about the quality of the mortgages they packaged into securities and sold to Fannie and Freddie.
Seriously.
If you’ve been keeping score at home, you already know why this is a joke. The standards by which subprime mortgages were originated, then guaranteed, then packaged and foisted on the investment markets were originally established by Fannie Mae and Freddie Mac.
The pertinent facts were relayed in this video. (Warning: When we linked to this video in 2008, our inbox was flooded with partisan rants. If after watching you have an insatiable need to cast blame, please target a buddy or spouse who may actually care enough about the two-party system to debate you.)
“While I believe that FHFA is acting responsibly in its role as conservator,” one-time Fannie flunky Tim Rood (now a partner at the Collingwood Group) told The New York Times this morning, “I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again.”
Hmmmnn… let’s see if we can get this: A bankrupt government is suing on behalf of two bankrupt quasi-government firms… hoping to recover money from bankrupt banks that were already bailed out once by the aforesaid bankrupt government… and as a consequence may yet need to be bailed out again.
If the suit is going to drag Congress into another political quagmire, why, you might be tempted to ask, do it at all… and why now?
Well, because the statute of limitations expires next Wednesday.
The FHFA will file suit — if not today, then first thing next week. Fannie and Freddie’s losses on these deals are estimated to be $30 billion.
The August unemployment data, out this morning from the Bureau of Labor Statistics (BLS), hit a milestone. After running reams of data through its various and sundry models, the BLS concluded the economy added no new jobs last month.
The economy also lost no jobs.
The number was: zero.
If you plot it on a chart, it looks as if there’s an empty space for data that hasn’t yet come in.
This is the first time since 1945 a figure bereft of meaning as such has ever shown up in monthly numbers. Here’s the quick and dirty on how the quants derived their conclusion:
- Private employers added 17,000 jobs
- The federal government cut 2,000 jobs
- State and local governments cut 15,000 more
Voila, zero.
But wait: We must also account for the birth/death model. That’s the BLS’ statistical invention that conjures up jobs created by brand-new businesses. That added 87,000 completely hypothetical jobs.
Take that away and the economy lost… 87,000 jobs.
Meanwhile, the equally gamed U-3 unemployment rate is unchanged at 9.1%.
Oddly, the two numbers the statisticians can’t fiddle with showed modest improvement. Those are the percentage of the working-age population in the labor force… and the employment rate of the overall population.
Considering both numbers hit early-1980s lows last month, that’s cold comfort.
After the BLS figures hit the transom, traders on Wall Street threw a tantrum. Zero was a “miss” in Street lingo.
Economists polled by Bloomberg, MarketWatch and the like were counting on a modest five-figure gain — not enough to keep up with the natural growth of the population, but at least, well, something.
The Dow plunged 200 points in the first five minutes of trading, and that’s where it remains as we write. The drop comes on the tail of a 120-point loss yesterday, attributed widely to a sick feeling that the jobs number would disappoint.
“Most economic data point to a recessionary environment over the next few quarters,” says Strategic Short Report’s Dan Amoss, managing to keep his head together.
“Analysts have not cut their 2011 and 2012 earnings estimates for many stocks far enough to reflect the recent dramatic deterioration in forward-looking indicators. The stock market typically looks cheap on a trailing earnings basis ahead of a recession.”
“Low interest rates on bonds should lessen the depth of another bear market (especially for high-yield, blue chip stocks), but low rates can’t really send stocks surging, either. In the coming months, I expect most stocks to slowly grind lower, interrupted by bursts of central bank-fueled rallies.”
The dollar index is ending the week on the high end of its recent trading range, at 74.6. The index’s major component, the euro, has weakened to $1.423.
The Swiss franc, meanwhile, is strengthening again. After touching a record $1.386 on Aug. 9, and sinking below $1.22 on Monday, the franc is back to $1.272 as we write.
“The franc has been strong for quite some time,” comments our currency trading specialist Abe Cofnas. “It’s considered a safe-haven currency, so it has attracted a lot of attention stemming back to October 2007.”
“The Swiss economy’s main trading partner is the eurozone, so imagine the difficulty of Swiss exports to be competitive. It’s no wonder the Swiss National Bank is warning that it may intervene.”
“The handwriting is on the wall: The Swiss franc will weaken in the coming year,” Abe concludes. “In fact, it has the capability of decreasing in value more than 10% in one week” — which is what it did in mid-August.
Abe recently suggested a way to play the trend to readers of Strategic Currency Trader. For access, look here.
Gold is up big today. The spot price added $25 in overnight trading… and another $25 after the jobs report came out.
Here’s a little fun at someone else’s expense. Yesterday, a reporter at the TheStreet.com gave this explanation for a flat market in the Midas metal:
“Gold prices held steady Wednesday as hopes of more government intervention to boost the economy and stave off a double-dip recession left investors with less reason to own the safe haven.”
That would have to be a first: people fleeing gold because they expect more stimulus — the very action that causes political gridlock and a declining dollar — from the White House and the Federal Reserve?
Still, in a bid for clarity (we think), less than 24 hours later, the same reporter wrote: “Gold prices were skyrocketing Friday after the worst jobs number in almost a year triggered a rush into safety.”
AHHHH!
Meanwhile, in its determination to improve lives in foreign countries, the U.S. government seems to have overlooked a few items back home.
During the storm, flooding near 13 different towns in Vermont cut those communities off from the rest of the state. Under ordinary circumstances, the Vermont ‘National’ Guard would use its six helicopters to haul in food, water and medicine.
But these are not ordinary circumstances. All six of the helicopters are guarding things in Iraq.
“We’d be in a very different scenario if they were here,” said Guard spokesman Lt. Lloyd Goodrow, speaking of local rescue efforts.
Always ready to assist, New Hampshire, next door, sent over a couple of helicopters… but instead of carrying supplies, they were pressed into service to ferry the head of FEMA and Vermont politicos around the state for a photo op — er, excuse us, to “survey the damage.”
Heh.
Help finally arrived on Wednesday when eight choppers came in all the way from Illinois.
We also learned this morning the Fed’s staged a raid on Gibson Guitars on Tuesday. The iconic American company supplies musicians like B.B. King and AC/DC’s Angus Young with their instruments.
Gibson’s Memphis and Nashville factories were targeted because the firm has, apparently, run afoul of environmental laws by making its guitars with ebony imported from India.
“We’ve been importing this wood for 17 years, consistently, on a regular basis, with no problem,” CEO Henry Juszkiewicz told Fox News yesterday. “And our competitors continue to use and buy this wood without any problem today.”
Why Gibson has been singled out among domestic guitar makers the Justice Department isn’t saying.
Bonus irony: It’s perfectly legal for Gibson to use the wood. It just can’t use its own workers to fashion the wood into a guitar.
If the same work is done by an Indian? Well, that’s OK.
The law effectively requires Gibson to outsource — a phenomenon Joel Bowman explores in greater depth in today’s Daily Reckoning. Just imagine: If the Feds had delayed the raid on Gibson for one more week, maybe the BLS number would have come out one or two jobs to the positive!
That would be too simple.
Ah, well, at least Alex Schaefer will get the last laugh.
We introduced you to him on Wednesday. He’s the California artist whose painting depicting a burning Chase bank branch earned him a visit from cops with delusions of stopping the next Sept. 11.
But he’s hoping it’ll fetch more than $7,500 before all’s said and done.
We’re only intrigued by how he arrives at that figure.
“Legend has it,” Schaefer writes in the listing, “that Vincent van Gogh sold one painting in his lifetime, The Red Vineyard at Arles, for 400 francs, which would have equaled 116.129 grams of gold, or 4.1 ounces of gold.”
“Today, an ounce of gold costs $1,835, so 4.1 ounces of gold is $7,523.50. Not a bad price adjusted for inflation and given the amount of money his work auctions for nowadays quite a steal!”
Do you suppose he’d take payment in gold?
The revolutionary “nutraceutical” Patrick Cox has been raving about in his newsletter and at the podium in Vancouver also launched on Tuesday.
The product, derived from a compound found in tomatoes and peppers, can arrest the inflammation that comes with nearly every disease of aging — heart disease, cancer, autoimmune disorders, Alzheimer’s.
“Our own immune systems turn on us as we age,” Patrick explains. And this product “is the most powerful anti-inflammaging strategy to date. “It’s going to disrupt practically every aspect of our lives.”
If you’re over 50, or if your knees hurt in the morning, or if you take cholesterol pills, or if you’re diabetic… imagine those no longer being an issue, and all because you can take a simple supplement.
And don’t let the word “supplement” put you off. Patrick is a skeptic. Like you, he’s seen crazes come and go. Beta-carotene. Resveratrol. But on this account, Mr. Cox has reviewed the science and is convinced the benefits are real.
“What penicillin did for bacterial diseases,” Patrick asserts, “this substance will do for the diseases of aging.” Please allow Patrick to share his enthusiasm for the breakthrough — and its investment implications — with you here.
“You are so right,” says a reader after we declared yesterday there will always be entrepreneurs building businesses in spite of market manipulators, government regulations and depreciating currency.
“I have been through it all and could blame everything on the situation I find myself in today. The past 2½ years have been one tough slog. Try making a living building things today — it ain’t easy.”
“We face all of the above: rigged markets, government red tape, blah, blah, blah… What we discovered by working our tails off is a unique market niche that demands our special skills, and no one else has discovered it yet.”
“It has been real tough getting it going, but by continuing to work our tails off, we will completely mothball our ‘old’ operations and be working exclusively in our new niche within the next six-12 months.”
The 5: Congratulations. “What Obama or the Fed say really doesn’t matter,” says an email yesterday from Ray Blanco of our tech team, and your experience bears that out. “Over the long run, good investments will pay off. If they do not arise in the U.S., they will do so elsewhere.
“Investing in transformational technology over the long run will overcome the personal economic damage inflicted by arrogant clowns who think they can manage a $14 trillion economy.”
“All that matters,” adds Patrick Cox, “are the big technological innovations that are moving like floodwaters through the old economy. They can’t be stopped, but they can be harnessed.
“Those who invest in these enormous transformational technologies are going to do very, very well. Those obsessed with market fluctuations are playing against the casino.”
This is why, for instance, Patrick is unfazed by the ups and downs of the company he described above. He knows it’s now on the market with a revolutionary product that can halt the onset of everything from cancer to Alzheimer’s. He knows the CEO — a hard-charging, bursting-with-ideas Steve Jobs type — has sunk his own money into the company to the tune of a half-million shares.
In other words, Patrick knows over the long haul the company is destined to multiply your money many times over. He’s marshaled in impressive array of evidence to make the case. You can examine it for yourself here.
“We have been loyal readers of your publication,” comes an email unique for its origins, “for over seven years out here in Guam, USA… ‘Where America’s Day Begins.’ We always enjoy the worldview and political insight that goes with long-term investing.”
“Your team is not only spot-on, exceptionally brilliant and humorous, but need not be overly concerned with the mindless chatter from readers in Wednesday’s issue who remain clueless to the rest of us. That narrow-minded few need to unsubscribe and go back to their TV network shows.”
“As for the rest of us adults that vote and care about Americas’ freedom erosion, please hang onto your whiskey, guns and business and investment spirit and come visit us in Guam. You can watch the beautiful sunsets from our patio. Bring your own cheesecake and adult beverage. We look forward to meeting you. You do not have to escape to Paris, Vancouver or Central America… at least until after the next election.”
The 5: Heh… and what are you going to do at that time? Thank you for the tempting invite.
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. Markets in the United States are closed Monday for Labor Day. For their part, our friends to the North will observe Labour Day. The 5 returns on Tuesday.
P.P.S. Some holiday weekend humor, courtesy of our friend and Vancouver compatriot Rick Rule:
“The English language has some wonderfully anthropomorphic collective nouns for the various groups of animals.”
“We are all familiar with a herd of cows, a flock of chickens, a school of fish and a gaggle of geese.”
“Less widely known are a pride of lions, a murder of crows, an exaltation of larks and, presumably because they look so wise, a parliament of owls.”
“Now consider a group of baboons. They are the loudest, most dangerous, most obnoxious, most viciously aggressive and least intelligent of all primates.”
“What is the proper collective noun for a group of baboons?”
“Believe it or not… a congress!”