Dave Gonigam – October 18, 2011
- Uncle Sam charges up the national credit card at a record pace…
- Washington now in the same illustrious company as Athens, Rome, Lisbon and Madrid… and the unlikely investment opportunity that results
- Eurozone leaders still “far apart” on bailout terms… Dan Amoss on what that means for everything from corporate profit margins to precious metals
- Anti-protest fail: “End Occupy” effort launched by former director of the nation’s largest defunct bank
- Readers warn OWS will destroy the people not the banks, anticipate “the culling of the herd”
The final numbers are in for fiscal 2011… and federal spending set a record. $3.6 trillion.
So much for the “biggest domestic spending cut in U.S. history.” Remember that? It was the result of a “hard-won” budget deal six months ago that averted a “government shutdown.”
But your editors knew that was a lost cause back in May.
For every dollar Uncle Sam spent, he went another 36 cents into debt. Not as ugly a gap as in 2009, when it was 40 cents, but ugly enough. And as a percentage of GDP, we’re still near postwar records.
You might also notice that revenues still haven’t recovered to pre-recession levels. Not exactly a sign of “recovery” much less a “robust” one.
For the record, the national debt totals $14,874,045,668,291.35 as of this morning. We could take the nation’s entire economic output for the next year… and it still wouldn’t be enough to pay off the debt.
“Not surprisingly,” observed Eric Fry at our Safety & Survival Summit last Friday, “almost every country on this chart has received a credit downgrade.”
Note the illustrious company Uncle Sam keeps…
The debt that’s choking most of the developed world has wrought the following phenomena…
- The yield on the S&P 500 is above the 10-year Treasury yield for the first time since 1958 (excepting a very brief dip in 2008)
- The FTSE, made up of London-listed stocks, yields 3.85% — a full point more than U.K. bonds
- The CAC 40, the leading index of French stocks, yields 5.08% — compared with only 2.96% for the 10-year French government bond
- The German DAX yields 4.06% — a nearly 2 percentage points higher than the German government 10-year note.
“But here’s the truly amazing thing,” Eric said. “The average dividend yield of the four remaining AAA-rated U.S. corporations is 3%, which is not only higher than a 10-year bond, but as recently as last week was higher than the yield on a 30-year Treasury note.”
Meanwhile, China dumped a whole lot of Treasuries in the weeks after Standard & Poor’s downgraded the United States, according to figures out this morning from the Treasury Department.
The Middle Kingdom’s Treasury holdings slipped 3%… from $1.174 trillion in July to $1.137 trillion in August. That’s the lowest level in a year.
It’s not as if they’ve yanked Uncle Sam’s credit card… but they did just send a letter informing him his limit’s been cut.
Addison has long anticipated the day China stops adding to its Treasury stash. With today’s numbers, that day is closer than ever. Prepare for the consequences here.
The China slowdown we’ve been eyeing for a couple of months appears to be gathering pace. Chinese GDP growth slowed to an annualized 9.1% in the third quarter.
Sounds great, right? But remember, Chinese statisticians love to play with inflation rates, just as happens in the United States. Anecdotal evidence from longtime China watchers, including Marc Faber, is that inflation there is running 10% or more.
Subtract that from GDP and… China is already contracting.
Someone failed to inform U.S. wholesalers that we’re supposed to be experiencing another bout of deflation right now.
The producer price index as calculated by the Commerce Department jumped 0.8% in September. The year-over-year increase works out to 6.9%.
That’s for finished goods. Moving up the production chain, the numbers are even worse: up 10.5% year over year for intermediate goods, 20.9% for crude goods.
Stocks are moving this week less on macro news and more on earnings numbers. The S&P 500 is up nearly 1%, recovering about half the losses it took during yesterday’s thumping.
The earnings number that stands out is Goldman Sachs. For all its connections to the Treasury and the Federal Reserve, it registered a $393 million loss in the third quarter. Hmmm…
It’s only the second quarterly loss in 12 years, the other coming in Q4 2008.
The dollar is pushing higher again today relative to other fiat currencies. At last check, the dollar index was 77.3.
The euro has weakened to $1.37 with no market-moving news about the interminable euro crisis. Not today, anyway.
“The parties to any PIIGS bailout are still far apart on many issues,” advises Strategic Short Report’s Dan Amoss.
“Many banks aren’t prepared for a ‘managed’ Greek default with steep haircuts on Greek bonds (which would lower Greece’s debt to a more sustainable level). Perhaps EU and IMF bureaucrats are telegraphing to banks to get ready for a managed Greek default by early 2012.
“Whatever bailout is announced by German Chancellor Merkel and French President Sarkozy in November will ultimately include more money printing from the European Central Bank; if haircuts were imposed on Greek bonds, the ECB would likely step up its monetization of Italian and Portuguese bonds.”
“Merkel had better pull out a powerful ‘bazooka,’ as former Treasury Secretary Hank Paulson might put it. Paulson talked early on in the U.S. financial crisis about the bazooka of government bailouts for the banks, but he didn’t have a plan ready that was powerful enough to satisfy the markets.
“With the markets eagerly anticipating the November announcement from Merkel and Sarkozy about the future of the eurozone, they had better not disappoint. Just in case they disappoint, it’s good to hold some short positions.
“Ultimately, it all adds up to further pressure on natural resource prices and precious metals and continued pressure on corporate profit margins.”
In the meantime, sellers have come into the precious metals market today. Gold is down more than 2%, to $1,635, while silver is only pennies above $31.
“I don’t plan to always be a gold bull,” declares Chris Mayer. “Gold is an asset like any other. It will go up… and it will go down. At some point, gold will be a sell again.” But not now. Not by a long shot.
“I feel the same way about gold stocks. I don’t plan to always recommend them, but they are attractive now. In 2011, they have only gotten cheaper.”
“Year to date, the GDXJ, which is an index of small gold miners, is down 22%. The S&P 500 is down only 2.6%. So even still, small gold stocks are sucking wind, even though the price of gold is up 18% on the year. Gold stock multiples, as I’ve pointed out before, are at lows we have not seen since the last great bottom in gold stocks in 1979.”
[Ed. Note: Chris and Dan both rattled off several favorite gold stocks at our Safety & Survival Summit last Friday. Across all sectors, Chris threw out nine names, many from his premium advisory Mayer’s Special Situations.
Patrick Cox made the case for several names from his high-end letter Breakthrough Technology Alert, and Byron King zeroed in on three microcap resource plays from Energy & Scarcity Investor.
Mere hours remain in which you can get all the names our editors suggested to the Reserve members in attendance… for a tiny fraction of the price they paid to go in person.
The information revealed is still as timely as it was on Friday… but the price of the recordings from these sessions goes up at midnight tonight. There’s no better time to act than now.]
We got a chuckle out of a campaign to push back against the Occupy Wall Street protests. It’s a new website called EndOccupy.com.
“The Occupy Wall Street crowd represents the same flawed values that got our country into this economic mess,” reads the homepage. “They possess a false sense of entitlement and think they should be receiving government handouts and run up the debt on an imaginary credit card by making hard-working Americans and future generations pay for the bill.”
It goes on to solicit signatures on a petition asking President Obama to “denounce the angry Occupy mob.”
The site, and the petition, turn out to be a vehicle to generate email addresses for the U.S. Senate campaign of former Dallas mayor Tom Leppert.
Leppert’s resume includes an entry that should interest Occupy and Tea Party types alike. He served on the board of Washington Mutual… and chaired its audit committee… at the very time the company was handing out mortgages like penny candy off a parade float.
But he does have a good sense of timing: He managed to bail before WaMu became the biggest bank failure in U.S. history.
“OWS is a dangerous move that will bring catastrophic results to the people, not to the banks!” writes a reader from Australia.
“For every dollar that is deposited into the bank I am given a generous 5.65% interest (on deposits over $5,000! So what does the bank do with my money? Simple.. they lend it out again up to nine times and for between 9% up to 27% on credit cards.”
“Well that is good business for them! If I were to do the same, it would be called fraud and I would go to jail. What would happen if everyone went to the bank and withdrew their money? The bank would collapse and we would be forced into a deep depression.”
“Look at history and this is what happened each time this happened! Inflation got so high people took their money out of the bank and the banks had no cash to support the loans they had approved and were unable to continue, so they reclaimed their assets by foreclosing on their debtors..is this what you want to happen??”
“I agree with the writer when he states, ‘You are the guilty one.’”
“However (go ahead, call me paranoid), if I were on a mission to enslave a country economically, I would take these steps:”
- Dumb down the education system by removing teachers and subjects that forced critical thinking.
- Glorify debt and make credit easy.
- Use the media to constantly beam mindless ‘entertainment’ programming that makes the unimportant appear relevant.
- Constantly beam advertisements at the public that showcase items that you ‘deserve.’
- Re-enforce an entitlement mentality at every possible opportunity.
- Create false self-esteem while kids are young (i.e., getting a trophy just for showing up at a Little League game even if your team loses), so when things collapse and they can’t handle the consequences, they must run to ‘daddy’/the government and
- Always have an external boogeyman handy to justify increased power.
“The reckoning day isn’t far off, and those that fail to acknowledge what is so obvious do, in fact, deserve what they get. There will be a culling of the herd.”
“I am very grateful to you folks at Agora Financial. The information you provide has opened my eyes to a much bigger world.”
“I am firmly embedded in ‘middle-class America.’ Before becoming a subscriber, I received news about my world via the standard newspaper and mainline Internet sites. Now I feel it is my social responsibility to pass on what I have learned to those within my circle of influence. However, I am met with a blank stare after attempting to discuss such topics as the failure of fiat money and the ‘Too big to fail’ fallacy. I have long since quit my attempts to explain derivatives!”
“The point I am trying to make is that the world’s financial problems that impact us as a people are mountainous in their depth and so very intricate in their nature. It is as if their origin were orchestrated with this thought in mind: ‘Don’t worry. The regular guy will never be able to wrap his mind around this, and by the time he does, the money will be in the bank.’”
“We, the average man including the OWS and the TPs, may not be able to grasp many of the finite details involved in this global financial mess, but I assure you there exists a growing intuitiveness that puts us on the same page with each other. We need to break free from the zombie cocoon we have been living in and not be afraid to be misunderstood and derided as we seek answers and solutions. Viva la revolution!”
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. Last chance: Only a few hours remain before the price goes up on the recordings of our Safety & Survival Summit last Friday here in Baltimore. Act now, before midnight tonight, to secure the best available price.