The Newest Lost Decade

Addison Wiggin – September 22, 2011

  • The new new “lost decade” coming to a neighborhood near you…
  • “Operation Twist” and shout kicks the market in the shins… what the Fed’s balance sheet will look like in return…
  • Odyssey Marine seeks next level of redress…
  • World’s cheapest car, transformed into the world’s most expensive…
  • Readers sound off about Odyssey Marine and how the IRS chases away foreigners who want to do business with America…

   “It’s official,” either because the Census data prove it or because CNNMoney reported it — we’re not sure — but “the first decade of the 21st century will go down in the history books as a step back for the American middle class.”

“Economists talk about the lost decade in Japan,” Jared Bernstein told CNNMoney, “[these data] confirm the ‘lost decade’ for the American middle class.”

We first drew out the analogy of Japan’s lost decade for the U.S. economy in the 2003 book Financial Reckoning Day. Today’s Census data translates our forecast for what was then the future… into the plot of what is now history:

   The poverty rate in the United States is now at a 17-year high.

For most American households, income has fallen by 7% over the past decade. At the same time, “even accounting for inflation, it still costs more to buy a home, fill your gas tank, go to the doctor and put food on the table than it did only 10 years ago.”

We remember writing for the first edition of Financial Reckoning Day that wage rates, particularly among white middle-aged males in the U.S., had been declining since the 1970s. In 2003, post tech bubble reviewers of the book were inclined to either dismiss or deny the data.

Today, post housing bubble and financial panic, most folks are willing to entertain different assumptions about the U.S. economy and its ability to furnish what has come to be considered the American Dream (i.e., a sustainable middle-class lifestyle).

We might be inclined to argue the American Dream was never intended to be a sustained material standard of living, but that of equal opportunity before the law. That, we fear, will have to wait for another episode of The 5.

   As if in response to the release of Census data, the Federal Reserve has delivered “Operation Twist” — that is, trying to keep long-term rates for borrowing even more money as low as possible… for as long as possible.

Apparently, the Fed governors feel fueling the economy on extended periods of low rates — encouraging mass consumption and asset bubbles — has been so successful they’re now going to kick it into overdrive.

   “It’s a plan so dumb you have to have to Ph.D. to believe it will do any good,” writes our managing editor Chris Mayer, by way of trying to help make sense of it for readers of Capital & Crisis. “Quantitative easing was dumb. This is dumber.”

“They are calling it Operation Twist. The Federal Reserve will buy $400 billion of long-dated Treasuries, financed by selling bonds with three years to go or less. The idea is to try to drive long-term rates lower, which the Fed thinks will help the mortgage market.”

“The Fed unveiled its crackpot scheme yesterday and the market quickly registered a firm opinion, as you see in the daily chart of the S&P500:”

   With that said, let’s survey the damage left by the Fed’s statement…

  • Major U.S. stock indexes are off another 3.5% today, on top of yesterday afternoon’s 3% losses. The Dow is flirting with its Aug. 10 low of 10,720.
  • European stock indexes closed down about 5%. Asian indexes closed down anywhere from 2% (Japan) to 5% (Hong Kong).
  • Precious metals are plunging, although that’s a relative term: At $1,730 gold has retreated to a level first reached only six weeks ago. Silver’s been knocked back to $37.21.

“Today is no better,” Mr. Mayer continues, “with the stock market firmly in the red. Aren’t you glad we have the Federal Reserve to run to our rescue? What’s the old saying, ‘with friends like these…’?”

   Flight to “safety” trades are loving the Fed’s move. Treasuries are rallying big. The yield on a 10-year has sunk to another multi-decade low, currently 1.77%.

The dollar index has popped to 78.4 — the highest since mid-February

   “The Fed’s operation twist seems to have shouted the market down,” says Michael Pento, looking curiously at the Fed’s finances. “I’m not sure what the Fed is attempting here by extending the duration of their balance sheet. The 10-year note is trading at an all-time-low nominal yield and its real rate of interest is already extremely negative.”

“Lowering the cost of money in the middle of the yield curve will not put equity in the pockets of homeowners who are underwater on their property. It will not save the real estate market and won’t put people back to work, either. All the Fed has done is to guarantee that whatever paltry level of capital they have left — if any — will be gone once interest rates rise even slightly.”

“Bernanke pooped the bed once again by not recognizing that this is a balance sheet recession and can’t be solved by creating another bubble in the bond market or by increasing the rate of inflation.”

“In fact, all he has done is to ensure once reality comes to the bond market, the pain involved with the adjustment process will be significantly worse.”

   “In addition,” says Mr. Pento, “Bernanke has now gone on record as being a master prevaricator. He claimed in his statement that inflation pressures have abated through the course of 2011.”

The chart above depicts the year-over-year increase of inflation during 2011. “See if you can find what the heck Bernanke is talking about,” beseeches Mr. Pento.

Oy. Perhaps Mr. Bernanke should take a look at today’s Census report himself.

   On the other side of the planet, things have taken a turn for the bizarre.

India has a long and storied tradition with gold. The nation has also blazed the trail with affordable automobiles. But this is a crossover we didn’t see coming:

Just try to get State Farm to write a policy on this thing

A gold-encrusted Nano, made by subsidiary Tata Motors. Seriously, that’s a $2,100 car outfitted with $4.6 million in gold, silver and gems.

If you must know, that’s 2,822 ounces of 22k gold, 529 ounces of silver, and 10,000 semi-precious stones and gems.

“Paying homage to 5,000 years of jewelry tradition in India, we created the world’s first gold jewelry car,” explains Bhaskar Bhat, managing director of Titan Industries, another Tata division.

After making its debut in Mumbai this week, the car will go on a six-month tour of Goldplus stores in India. Goldplus is another Tata unit. There are 114 stores in all.

   Having solved all the world’s other pressing issues, the United Nations General Assembly is taking up the issue this week of… obesity.

Well, not just obesity, but cancer, diabetes and other noncontagious diseases. “The fascinating thing,” observes Patrick Cox of our tech/biotech team, “is the organization’s proposed solution. Instead of medical technology, the U.N. response to the oncoming cost apocalypse is primarily ‘lifestyle’ changes — 21st-century Calvinism. I envision a vast global network of U.N.-branded gyms and diet programs.”

Medical technology happens to be on the verge of a huge breakthrough in combating obesity. “One reason that obesity increases with age,” Patrick explains by way of background, “is that we tend to lose brown adipose, or fat tissue (BAT). BAT is a kind of furnace that raises body temperature by burning calories.”

Patrick examines one of the most promising ways to reignite that furnace… one with enormous potential both to change lives and build wealth… in today’s Penny Sleuth.

   In response to yesterday’s court ruling, Odyssey Marine announced they will “request an en banc hearing — a hearing before all the 11th Circuit Court of Appeals judges — in the Black Swan case.

They hope to win an opportunity to “point out that today’s decision by a panel of only three judges from the 11th Circuit affirming the district court’s dismissal of the case is contrary to other 11th Circuit opinions and rulings by the United States Supreme Court.”

As much as we’ve been following the Black Swan case in the news and behind the scenes while filming the documentary, we have a hard time believing the case.

Thus far, the case has proven a miscarriage of justice, if anything. Especially given the fact the U.S. Court has seen fit not to take jurisdiction and actually hear the case. More to come…

   “Odyssey Marine ought to take the treasure back out into the middle of the ocean and dump it if they can’t keep it.”

“Now why would Spain be so hot to get hold of something of value?”

   “My sincerest condolences to Greg Stemm,” agrees a reader “and the crew of Odyssey Marine. Especially under the current economic circumstances in Spain and the rest of Europe, the outcome is damnably predictable, and I’d be very surprised if the Supreme Court is any more sympathetic.”

“My husband and I are planning a trip to for late next summer. Personally, I’d prefer to boycott Spain for what they and the U.S. government have done to Odyssey Marine. But the rest of the group has been wanting to go there for a long time.”

“I can hardly back out, but I can hope something comes up so we don’t have to go. Lots of other places in the world to see.”

   “Have been reading your stuff about how the IRS tracks foreign investments and accounts for U.S. citizens,” another reader writes. “What you may not know is that non-US citizens also have to fill in a form from time to time (mysteriously called a W-8BEN with some connection to Bernanke?) certifying that they are not U.S. citizens or U.S. residents.”

“The form allows foreigners the ‘privilege’ of investing in US stocks, funds, bonds etc. No other country requires it. Eventually we won’t bother with the US. Pffff.”

   “After looking at the reporting requirements to a maze of American agencies and the penalties for missing/filling out a form wrong,” chimes in a Canadian reader, “my company decided to not open a branch in the USA.”

“And just this week we refused to sell a product to a US buyer because they wanted us to fill out a stack of U.S. government forms. The product is unique and patented and we sell it to other countries without problem. But we will not set ourselves up for some future U.S. government/IRS witch hunt in the event we miss filing something on time or tick the wrong box on a form that we can’t make sense of.”

“On a personal note, I was going to buy a condo in Las Vegas for holiday use. But I canceled that due to concern about the onerous regulations placed on foreign owners, potential legal liabilities in sue-crazy USA, and the severe penalties if I make a minor mistake in reporting.”

“Also, I was going to buy an ETF of large-cap dividend-paying US stocks. But that’s off the table now too. I just don’t want to worry about some new tax-collecting scheme/scam the IRS might try to impose on the world in the future.”

“Bottom line is — foreign investors have options. There are safer and easier options than investing in the USA.”

“Keep up the good work. The 5 is the best newsletter I get.”

   “You folks have been warning of the effects of government regulation for some time now,” writes another Canadian, “but it was not until recently that I realized how far down the food chain the effects have been realized.”

“I recently ordered online a Dell computer as a gift costing less than $700 for delivery in the United States. As a Canadian, I elected to use a valid Visa card issued by a Canadian Bank to pay for the purchase. It seems it can’t be done.

“I turned to speaking to actual people from Dell to try and get the order through. There was some mumbling about federal regulations, but the order still will not go through. So much for cross-border trade, which I thought was one of the recipes for getting out of this mess we are all in.”

   “An interesting occurrence is taking place here in Santa Cruz, Bolivia. In the past two months, retailers, my landlord and even our domestic help are demanding to be paid in bolivianos, rather than U.S. dollars.”

“Is the scare of the devaluing of the dollar reaching even the poorest of people in the world? Keep in mind that bolivianos, for all intents and purposes, are little more than Monopoly money (a currency that can only be used to play the game Monopoly). How bad can the U.S. economy be when even the poorest of people refuse to accept ‘sovereign’ currency?”

The 5: Seriously.


Addison Wiggin
The 5 Min. Forecast

P.S. Another alternative to the gloom in the news cycle: Imagine a place so picturesque its photograph looks more like a painting…

“Stunning vistas” doesn’t even begin to describe La Estancia de Cafayate in Argentina’s wine country. Cafayate is the little spot of paradise where Doug Casey decided to build an oasis of freedom, his own “Galt’s Gulch” for like-minded souls.

Agora Financial Reserve members are invited to join Addison in Cafayate Nov. 9-13 for a unique investment/lifestyle event. If you missed your invitation, you can check out the details at this link.

P.P.S. Also, confidential to Breakthrough Technology Alert readers: Yesterday you should have received a unique request, one that would benefit both your portfolio… and your health.

If not, let me fill you in: You may be able to secure a nice deal on a supply of the “nutraceutical” that Patrick Cox has been ogling these last few months. But only if enough readers step forward to urge Patrick to talk to the company. For the intimate details, drop a line to Breakthrough Technology Alert managing editor Jessica Comitto at this address.


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