The Re-Recession

Addison Wiggin – September 8, 2011

  • Beltway types deny there’s a recession; four out of five Americans disagree…
  • Preparing for the next down leg in the Recession That Never Ended: Expect earnings surprises for stocks…
  • Gold rebounds sharply, gold stock indexes at all-time highs: Byron King on why to buy with both hands…
  • Detroit homeowners figure out how to evade property taxes legally… Artist’s fiery commentary on banks earns a huge payday… and your last chance to secure Membership to our most elite level of service

   Please allow us to get something off our chest this morning: It has rested uncomfortably atop our rib cage, digging into the soft tissue, since before Labor Day.

Late on that Friday afternoon, we ran across a story at Politico citing a poll that said four out of five Americans believe we’re in a recession, and one out of three believe the recession is “serious.”

Garden-variety stuff… especially for folks who think the 2007 recession never ended.

But then the article declared flatly: “The United States is not in a recession.”

“By definition,” the pretend-official Politico chided, “a recession is when the economy experiences two straight quarters of negative growth. In the past quarter of this year, the economy grew on an annualized basis of 1%.”

We’re hard-pressed to come up with a better example of the disconnect between people’s real-life experiences and the bubble mentality inside the Beltway. At least not since former Sen. Phil Gramm chastised the public for being in “mental recession” in 2008.

   You can try to talk your way out of economic malaise. You can even cite official stats from the Commerce Department to try to prove otherwise. But at least the World Economic Forum — the Swiss-based nonprofit best known for its annual gathering of CEOs, politicians and academics in Davos — seems to be tapping the sentiment expressed by the Politico poll.

Despite the “professional politicians” assessment, something remains awry in the post-bubble economy circa 2011. The forum knocked down the United States another peg in its annual ranking of the world’s most competitive economies — below Finland.

In 2008, the United States was still No. 1. In 2009, Switzerland moved ahead. In 2010, Singapore and Sweden leapfrogged the USA. And this year, it’s Finland’s turn.

The survey cited America’s suffocating debt and “declining public faith in government.”

Duh.

We submit: Only inside the offices of campaign consultants on Madison Avenue and inside the Beltway is this not obvious… and perhaps willfully so. After all, what’s the would-be public office holder or consultant therein to do? Admit that his or her chosen profession is, umn, useless in the face of a jobless recovery?

Since we prefer to function in the reality-based world, we’ll survey our editors today examining a much more practical question: If America is continuing to become less competitive, and indeed is sliding back into economic contraction, what’s next for your investments? And what can you do about it?

   Stocks, too, are already getting another whiff of slowdown this morning. The major indexes are off half a percent — thanks in part to another lousy weekly reading on first-time unemployment claims.

Last week, they clocked in at 414,000, a figure that is…

  • On the high end of the Street’s “expert consensus”
  • Pushing up the 4-week moving average, a less-volatile figure
  • Nowhere near the 300,000 level that indicates a semblance of economic growth.

“The weight of U.S. economic data points to a recessionary environment over the next few quarters,” says our short strategist Dan Amoss. “Analysts have not cut their 2011 and 2012 earnings estimates far enough to reflect the recent dramatic deterioration in forward-looking economic indicators.”

Result: a slow move down for stocks, cushioned by low interest rates.

   Tonight the president takes the wraps off a grand plan that he promises will “create jobs.” If only.

“Government doesn’t create jobs that add value to the economy,” says Benjamin Powell of The Independent Institute. “Companies and entrepreneurs do.

“The government easily could solve unemployment tomorrow if our only objective is to say that everyone who wants a job has one. It could do this simply by hiring half of all unemployed workers to dig ditches and the other half to fill them in.”

“To follow [t]his logic to the fullest extent,” adds Michael Pento in today’s Whiskey & Gunpowder, “we should just have people save gas and stay home. The government could borrow and/or print money, and then send it to foreign countries that are dumb enough to produce goods and services for U.S. consumption.”

So whatever the president proposes, and whatever the Republicans counter with, the result will be the same — more inflation, more debt.

“These Keynesian ‘cures’ of endless inflation and debt to fix our economic malaise are offered,” says Mr. Pento, “because there is a profound lack of understanding of what causes a depression in the first place.”

“The cause of the Great Depression in the 1930s, and the Great Recession beginning in December 2007, was one and the same — an overleveraged economy. Easy money provided by banks eventually brings debt in the economy to an unsustainable level.”

“At that point, the only real and viable solution is for the public and private sectors to undergo a protracted period of deleveraging” — which government is working day and night to thwart with still more debt.

Mr. Pento, by the way, has just joined our team here at Agora Financial. We look forward to having many more of these candid and direct insights… and to his presence at our Safety and Survival Summit here in Baltimore next month.

The summit is a chance for Reserve Members to hear firsthand up-to-date strategies. We’re keeping a strict cap on the number of people who can attend, to keep the event as personal and intimate as possible… but we still have room before we close the doors tonight at midnight. Details here.

   Gold is recovering a significant chunk of its losses the last two days. After bottoming near $1,800 yesterday, the spot price has recovered to $1,863 at last check.

$50 daily moves are becoming commonplace. Can $100 moves be far behind?

Silver is also perking up, now at $42.58.

   Gold mining stocks shrugged off the metal’s losses yesterday to power higher. Today they’re shrugging off losses in the broader stock market to move higher still.

The GDX ETF stands at an all-time high. So does the HUI index. Still, the question persists: Why haven’t gold stocks kept up pace with the metal? “Shouldn’t a rising gold price lift the mining shares as well?” asks Byron King, rhetorically.

“Rising gold prices SHOULD lift the share prices for the mining guys. It’s quite perplexing that the mining share prices haven’t risen to the degree we’d like to see.

“I’m not about to sell off the gold miners. The rising price for gold is like a tail wind behind the mining companies. That rising price ought to flow to higher revenues from sales, and eventually to higher profits at the bottom line.

“Sure, the gold miners also suffer from higher costs, like rising prices for energy and other inputs like steel, concrete, chemicals, labor and more. But while the input prices go up and down in a choppy fashion, the gold price has been holding up pretty well. So looking ahead, I’d say that a mining company can bank on consistently higher revenues and profits from the rising gold price.”

It’s for this reason that we’ve pulled together the gold stock recommendations among all our editors… and compiled them in a concise reference guide detailing six gold plays for right now. Reserve Members have already had a chance to review it… and so can you if you join up before midnight tonight. It’s a small, but important, way we’re making new Members feel welcome. To learn about all the privileges and benefits of Membership, please review this invitation.

   Crude oil is back to its highest level in over a month. A barrel of West Texas Intermediate trades this morning for $89.70.

“Oil is back to test the oft-mentioned $90 a barrel level,” says Resource Trader Alert’s Alan Knuckman. “This area was the breakout in December that started the last bull run. It was also our target for most of 2010 — being a 50% retracement from 2008 highs to 2009 lows.”

“Crude oil,” Alan goes on, “can be viewed as an economic barometer commodity much like copper prior to the housing crisis. Higher oil prices are a signal of economic expansion and an ability to pay.”

Thus, ”the recent drop in crude from $101 to $75 accelerated Aug. 4, when the support at $90 gave way. That level is important to monitor for strength signals.”

   Copper, by the way, is showing resilience too — holding above $4 a pound for more than a week now.

Like oil, the red metal took a tumble in early August, but appears to be stabilizing.

   “As the likely cause of death for most of us is cardiovascular failure,” asserts our tech maven Patrick Cox, “there is no bigger financial or medical news” than the alliance announced on Tuesday between one of the companies he covers and an Ivy League university.

Two of the university’s researchers have made a breakthrough in the process of transforming stem cells into “endothelial” cells — that is, the kind of cells that line the inner surface of your arteries and veins.

Now that research will be paired up with the work done by the company… with the goal a process that can literally rebuild a failing human cardiovascular system.

Imagine people living longer, and with more vigor: “A rapid increase in health spans,” says Patrick, “will change the shape of the demographic pyramid dramatically. The percentage of the population that is aged will increase fast.

“Insurance companies are going to do well as people pay into their programs longer before taking out benefits. The reverse mortgage industry will collapse, however, if major adjustments to actuarial tables are not made quickly.”

The most dramatic investment implication is that tiny biotech firms like the ones he follows are set to multiply their investors’ money many times over.

Patrick touched on many of these issues during his talk six weeks ago at the Agora Financial Investment Symposium in Vancouver. Admission to this event is free to Reserve Members — another privilege of Membership.

The Reserve gives you access to everything we publish, from all the editors we’ve cited today — plus Chris Mayer, Ray Blanco, Jonas Elmerraji, Greg Guenthner and Jim Nelson. This access is good for life, and it’s yours for a low one-time fee — lower than it would cost for a one-year subscription.

For a full rundown of what you get with a Reserve Membership, please review this invitation. And if you would prefer a suite of services that’s tailored to stock picks only, our Equity Reserve is available too. Either way, we’ll help pick up some of your expenses for our Safety and Survival Summit here in Baltimore on Oct. 13-14.

Here’s what makes the Reserve an almost irresistible deal: Almost no one pays full price for admission.

It works like this: If you already subscribe to one or more of our high-end services, you’re eligible for a substantial discount from the one-time fee. We’ll credit your account based on the remaining time of your existing subscriptions.

How much can you save? The answer is different for everyone… but my friend John Wilkinson is standing by, ready to give you a personal answer. He’s manning the phones late tonight, working till 7 p.m. EDT. Give him a call at (866) 361-7662.

   From Detroit comes a new wrinkle in the housing bust: Homeowners purposely going into foreclosure to get out of back taxes.

Property taxes in Detroit are sky-high, the highest in Michigan. Strapped homeowners can find themselves in arrears. But some of them have figured a way out: Allow the house to go into foreclosure, and then buy it back dirt-cheap at auction.

Voila, no more property tax debt!

Sure, there’s always the risk that someone would outbid you and you’d lose your home. But it’s a low risk… This is Detroit we’re talking about.

Out of 3,700 Detroit properties sold at auction last year, the Detroit News found 200 of them were bought back by owners for as little as $500.

Gloria and Mah-Lon Grant: $5,500 property tax debt slashed to $500 via foreclosure

Seven of those properties were rentals owned by landlord Jeffrey Cusimano. He bought them back, under another name, for $4,051… wiping out nearly $128,000 in back taxes and liens.

No apologies: The annual taxes on some of the bungalows — $4,000 — are more than the houses are worth, he says.

Of course, the neighbors who keep up their tax payments aren’t too keen on it: “That’s not a fair break to anybody else out here,” says Marilynn Alexander, who lives next to one of Cusimano’s rentals.

On the other hand, what’s to stop her from doing the same thing? What’s to stop anyone in Detroit, the way things are going?

Strange days in the heart of postindustrial America…

   Finally, we note a last-minute bidding binge for Los Angeles artist Alex Schaefer’s Chase Burning. When we wrote yesterday, the top bid at eBay was $10,300, with nine hours remaining.

The final bid was $25,200.

For his own sake, we hope Schaefer sets aside some of it for a lawyer. If the cops were so dense as to suspect him of terrorist intent, they might well suspect the auction is a means of financing terrorist acts…

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. Only a few hours remain before we close the doors to Membership for both the Agora Financial Reserve, with access to everything we publish… and the Equity Reserve, with access to all our stock-picking services.

The doors close tonight at midnight. But to find out what discounts you might be entitled to, based on your current subscriptions, we urge you to call John Wilkinson at (866) 361-7662. He’ll be on duty until 7 p.m. EDT tonight.

rspertzel

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