Addison Wiggin – October 17, 2011
- Will Occupy Wall Street expose the banks as insolvent? A small hint from last weekend… and a big wild card coming three weeks from now
- The real Empire of Debt… the national debt of every country on a handy interactive map and the only two not-so-rosy outcomes…
- Euro fears drag down stocks and precious metals… Our editors offer a host of predictions for the next 12 months, directly from our Safety & Survival Summit
- Readers find more common ground between Occupy and Tea Party… and make an ominous prediction about what happens when neither side discovers it for themselves
Here’s an intriguing question: What if the 21st century’s version of a bank run were inspired not by a panic… but by protest?
Witness this scene at a Citi branch in Manhattan on Saturday:
“They all went in as a flash mob to close their accounts,” office manager Adrielle Slaugh told the New York Post. “There were about 30 of them. They were screaming and chanting while they were going in.
“Security told them to leave, but they didn’t. They stood in a group chanting things to the tellers. They were locked in and then they were taken away.”
The protesters don’t look very disruptive in the video. And even Citi admitted “only one person asked to close an account” — a request that was accommodated. Reports on the number of people arrested vary, too — the Post says 24.
In all, the commotion is hardly enough to cause a bank run.
But… “What happens,” a reader pushes the point further, “if the Occupy Wall Street protesters inspire the masses to withdraw their ‘savings’ from the banks?”
The reader says he put savings in quotations because he assumes they’re all jobless and have no savings. But what if “they,” the reader goes on, “inspire people with savings to withdraw their savings? That could wreck havoc on the financial system’s bank reserve ratios.”
“How do you bail out a bank when the savings are withdrawn? On a worldwide basis?”
You might be inclined to dismiss the question as a crazy one. Or… you might want to get prepared.
There’s a Facebook campaign encouraging people to close their accounts at the big money center banks three Saturdays from this past one. Three Saturdays from now is Nov. 5 — Guy Fawkes Day:
It’s worth noting we’ve seen “move your money” campaigns fizzle before. This one probably will, too.
On the other hand, consider this: Prior to getting pepper sprayed by some overzealous New York City policemen, Occupy Walls Street was limited to a few dozen people on a sidewalk in lower Manhattan.
Over the weekend, protests were registered in more cities worldwide than reporters could keep up with:
“Why Occupy? Why Tea Party? Why Protest?” asks John Robb of Global Guerillas, responding to a similar theme we’ve been exploring here in The 5.
“Simple. The U.S. economy is broken. Incomes are less than they were 35 years ago. Everything costs more. We’ve had 17% unemployment (traditional measure) for two years, and we’re about to lose many more jobs. Our collective debt is 370% of our GDP (from all sources, from consumer to government).”
“Our financial system has a) enabled the transfer of our manufacturing jobs to a mercantilist (managed trade) China and b) stolen the rest of our wealth (and is in the process of gambling what’s left of it away).”
“Finally, given the ongoing instability of our economic system, we don’t have long before the entire thing fails, and with it, our collective future (rich or poor).”
“The question really is: Why aren’t you protesting? Why isn’t everyone protesting?”
This morning, The Economist published an interactive map depicting worldwide public debt ratios:
The OWS protests are popping up in the countries where public debt is already the largest.
“When grand promises must be fulfilled,” we wrote in Empire of Debt in 2005, “debt creeps higher. So does the resistance of taxpayers and lenders, especially from conservative groups.”
“Political leaders,” wrote John T. Flynn in his 1944 volume As We Go Marching, from which we cited in our research, “embarrassed by their subsidies to the poor, soon learned that one of the easiest ways to spend money is on military establishments and armaments, because it commands the support of the groups most opposed to spending.”
“Whenever governments are granted the power to purchase their own debt,” Ron Paul writes in the preface to the 1982 edition of The Case for Gold, “they never fail to do so, eventually, destroying the value of the currency.”
“Political money always fails because free people eventually reject it. For short periods, individual countries can tell their citizens to use paper, but only at the sacrifice of personal and economic liberty.”
What happens when an entire global financial system is built on that currency? We’ve never been down this road before. But we don’t think current events bode well…
“No contortions are needed,” our new friend Ralph Benko wrote in a Forbes column the day after we’d met him the Heritage Foundation’s Conference on a Stable Dollar, “to cross the bridge between the ‘profiteer hating’ #Occupy Wall Street and the sober reformers gathered in monetary conclave by the Heritage Foundation.”
“The official website of Occupy Wall Street (OWS) contains an entire forum dedicated to the gold standard. While by no means unanimous, a theme emerges that elegantly is summarized by one of the activists there: ‘gold and silver. Been honest money since the dawn of time. The only money that has ever worked…’”
Hmmmn…
U.S. stocks are slumping today, as traders, once again, hang on every word coming out of Europe.
Discouraging words, indeed, coming from the chief spokesman for German Chancellor Angela Merkel. “Dreams that are taking hold, again — that with this package, everything will be solved, and everything will be over on Monday — won’t be able to be fulfilled,” said Steffen Seibert.
Kind of a mouthful, but the overall downer tone couldn’t be mistaken. As we write, the Dow is off nearly 150. The S&P 500 clings tightly to 1,200.
Not helping matters: The Fed’s monthly report on factory activity in New York state. The Empire State Manufacturing Survey registered -8.5 in October.
That’s slightly better than the month before, but it’s also the fifth month the number has come in below zero. The last time that happened was June 2008 — when we were already seven months into an “official” recession.
Gold sits about where it did at this time on Friday afternoon, at $1,667. It made a tentative run toward $1,700 in overnight trading, but it didn’t last.
Silver is back below $32, to $31.72.
Among so-called risk assets, oil is proving the most resilient today. A barrel of crude is down only half a percent, to $86.31 a barrel.
During a freewheeling panel discussion at our Safety & Survival Summit on Friday afternoon here in Baltimore, our editors made the following predictions…
- Chris Mayer: The Dow will surprise to the upside and close the year between break-even and up 5%. Gold will touch $2,000 within the next year
- Byron King: “I think we’re going to be surprised by the upside on oil,” driven by demand that’s higher than expected, and weak exports from OPEC
- Dan Amoss: The Dow will stay stuck in a trading range, capped on the upside by slow growth, protected on the downside by low bond yields
- Abe Cofnas: The euro will remain stuck in a “chronic cycle of panic and optimism.” Don’t rule out parity with the U.S. dollar… but it’s also not a sure thing.
The editors also revealed their favorite long and short positions for the next three years… along with a host of ticker symbols they see as great buys right now, no matter what happens in the broad market. For instance, Byron King made an exhaustive case for three tiny resource plays from the pages of his high-end advisory Energy & Scarcity Investor.
You can have the audio files of these sessions in your inbox just days from now. And if you sign up before midnight tomorrow, you’ll beat a price increase. Don’t wait to access this information while it’s still timely:
The euro is back in panic mode, pulling back to $1.377. That’s enough to push the dollar index back above 77.
“As the week starts,” writes our currency-trading specialist, Abe Cofnas, “the eurozone is rebalancing its fear portfolio as Greece votes on another key austerity package on Thursday. The very real possibility of a collapse of Greek political will is keeping investors on edge.”
“Among those fears is that Germany may need to have larger write-downs for banks and private owners of Greek debt. There is also a need to recapitalize European banks, which don’t trust each other anymore, bringing costs of interbank debt higher.”
Abe’s favorite way to play the euro is via Germany’s main stock index, the DAX. For several weeks running, he’s used the DAX to deliver steady gains to Strategic Currency Trader readers. Last week, it was 117%.
That’s on top of a Swiss franc play that rose 101%… and an oil play that rose 135%. And all of that took place between Monday and Friday of last week. To learn more about the unique, fast-moving and lucrative way Abe plays forex, look here:
Asked during the panel discussion what “the next bubble” to pop is going to be, both Patrick Cox and Byron King cited “higher education,” echoing a theme we’ve covered in the past.
As if on cue, the following infographic made its way into our inbox, courtesy of The Best Colleges…
In addition, tuition costs have risen 439% since 1982. High-end private schools that used to provide grants and scholarships now opt, instead, to put students on the debt treadmill.
The tale of the stolen bridge in Pennsylvania we regaled on Friday turns out to be a classic “dumb criminal” story, too!
Recall the little-traveled Covert’s Crossing Bridge in Pennsylvania, near the Ohio state line, was dismantled over perhaps a 10-day stretch recently. A lot of work… but the value couldn’t be denied. As scrap, the steel was worth $100,000.
Over the weekend, two men were picked up and charged with the deed. If the story police tell is true, these were two pretty dim bulbs.
For one thing, they went to a recycler and showed him a picture of the bridge, claiming they had permission to cut it down. Yeah, right. The recycler called the cops.
But the recycler also strung them along… agreeing to buy 151/2 tons of steel for the paltry sum of $5,000. Considering the whole bridge was 40 tons and the scrap value was $100,000… they settled for less than 40 cents on the dollar.
Heh. Had the sale actually gone through, they’d have had just enough moolah to post bail.
“I’ve spent my life in the Rocky Mountain West,” a reader writes, carrying on our Occupy Wall Street and Tea Party discussion, “surrounded by Tea Party regulars and urban liberals. The two have lot in common:”
“OWS and TP hate Wall Street — love Main Street.”
“OWS and TP want an end to expensive wars.”
“OWS and TP hate big banks.”
“OWS and TP hate the Fed.”
“OWS and TP hate multi-national corporations and offshoring of American jobs.”
“But OWS and TP haven’t spoken in years.”
“OWS is gay and loves tacos and MTV.”
“TP is xenophobic, homophobic and prefers chicken fried steak and Masterpiece Theater.”
“How do we garner their political support for the things they agree on without reminding them that they hate each other?”
The 5: We might begin by looking elsewhere than politics for a solution. (Not referring to the groups by stereotypes might help, too.)
“Putting the blame for America’s political corruption in the political class and Wall Street bankers is missing the point altogether,” writes another. “If you want to find the ‘true villain’ for today’s corruption in America, look yourself in the mirror: You are the guilty one.”
“All of those corrupt, self-serving and ignorant politicians were elected by an American electorate that is ill-informed, aloof, ignorant, government-dependent and plain stupid. Those same corrupt politicians sold our economy to Wall Street.”
“The same is true for why most Americans cannot put together $1,000.00 dollars in an emergency and will depend on a soon-to-be-bankrupt Social Security for their retirement. Most Americans spend more time planning for parties and TV football games than in preparing for retirement; they deserve no better that what they are sure going to get.”
“When the American and European economies (all Western economies, including China and India) totally collapse (and they will) in the not-too-long, distant future, at least in America, there will be a civil war between conservatives and liberals, along with fire and tanks in the streets of America.”
“There is also the possibility in America of an indiscriminate slaughter of American politicians (municipal, state, federal), big bankers and Wall Street types.”
“The conservatives will surely win that war, because they have all the guns.”
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. “Remember in The Graduate,” muses our roving reporter Jim Amrhein, covering Friday’s Survival & Safety Summit, “when Mr. McGuire says to Benjamin Braddock (Dustin Hoffman), ‘I want to say just one word to you… plastics.’”
“Well, the one and only Chris Mayer of Capital & Crisis and Mayer’s Special Situations has a word for the future of our money today: ‘Snowplows.’”
“Actually, he has lots of words for our wealthy future in this unique interview-format discussion with Eric Fry — snowplows being only one of them.
“Others include “water heaters” and “Mongolia” (yes, you read those right).
“Seriously, you simply won’t believe what he says unless you hear it for yourself, along with Mayer’s compelling rationales for all of it…”
You should have received Jim’s summary of the day’s activities in your inbox earlier today. If you want to order the jam-packed MP3 files — Chris alone offered nine names during his presentation — you have until midnight tomorrow to act before the price goes up. Here’s where to go.