Addison Wiggin – October 25, 2011
- “Can’t we all just get along?” Europeans bicker, cancel summit: Stocks tank
- The $4.2 trillion hole: New report paints dire (but incomplete) picture of state budgets. The 5 fills in the missing details
- Suburban poverty grows 53% in a decade, while gang presence grows 40% in two years: The “Russian scenario” you need to prepare for
- Another bizarre, ambitious metal theft: historic church bell silenced
- Reader backlash against the critics of “Bank Transfer Day”… a perplexed inquiry about our “Project X”… and a special invitation for Reserve members only
Yesterday, the market rose because eurozone leaders had made “first steps” toward a “new plan” to solve the European debt crisis.
Today, those gains vaporized because a meeting to discuss the “next steps” toward that “new plan” was cancelled.
Oy.
“You don’t schedule a meeting like this,” observed Byron King during a conference call this morning, “without the outcome scripted weeks in advance.”
Yes, there are exceptions, like the Reykjavik arms control summit in 1986, when former President Ronald Reagan abruptly walked out on Soviet leader Mikhail Gorbachev because he didn’t want to share Star Wars missile defense research:
But most of the time, the luminaries don’t show up for a summit unless their minions have already agreed to something.
Little happens in Europe these days without an agreement between France and Germany. After World Wars I and II, “Teuton and Gaul would never war again,” wrote veteran foreign correspondent Eric Margolis. That’s what “European unity” has been all about.
But now German leaders are pushing for the holders of Greek government debt to take losses of up to 60%. French leaders think this would be a terrible idea… mostly because French banks would absorb the bulk of those losses.
[Ed note: The British, apparently, have opinions, too, even though they’re not part of the eurozone. Yesterday, the French president, Nicolas Sarkozy, was heard telling the prime minister of Great Britain to “shut up,” albeit in his native Gallic tongue.
“We are sick of you criticizing us and telling us what to do,” Sarkozy went on. “You say you hate the euro, and now you want to interfere in our meetings.”
There are three children in the Wiggin household. Because of similar comments made between them, we’ve taken to having them read a book called How to Behave and Why.
Among other things, the book helps them see that getting along with each other is better than fighting… for various reasons, including, but not limited to, dividing up the misbegotten spoils of hard-won battles with their parents.]
The European leaders’ inability to follow the sage advice of Rodney King has yielded the following results…
- Major U.S. stock indexes have surrendered all of yesterday’s gains, and then some. The Dow is back below 11,800
- Gold had firmed up near last week’s highs, currently $1,686. Silver’s up to $32.27
- The dollar index is up slightly, to 76.3, as the euro retreats to $1.389.
Assuming this bickering in Europe is going to continue… or get worse. And in lieu of having Laissez Faire Books provide them with a French or German translation to How to Behave and Why… please prepare your own affairs accordingly, right here.
Earnings news is also dealing a blow to U.S. stocks. Netflix disappointed, but that’s no surprise. So did 3M… which did surprise.
Traders are also chewing on a pair of mediocre numbers…
- The Case-Shiller Home Price Index was flat from July to August. Year over year, home prices in the 20 cities followed by the index are down 3.8%
- Consumer confidence as measured by the Conference Board has sunk to its lowest point since last December.
State governments in the U.S. are now in hock to the tune of $4.2 trillion, says a new estimate from a group inappropriately called State Budget Solutions.
The giant figure includes pension funds, employee health care funds, unemployment insurance funds, bonds outstanding… and well, something we like to call “general overspending.”
10 states have racked up a per capita debt higher than $3,000. The figure in one state, Connecticut, tops $5,000.
The report, while illuminating, doesn’t tell the whole story. In addition to conventional debt and pension obligations, there is also a state’s proximity to Washington’s pocket book. You can see how your state stacks up on all three of those measures in our report American Oases, still available free to all new subscribers of Apogee Advisory.
Federal aid is already drying up for low-income people who get sick. Several states are limiting hospital stays for Medicaid patients.
Medicaid patients in Arizona will be limited to 25 days in the hospital per year, come the end of this month. In Hawaii, the limit will be 10 days.
You don’t think this affects you because you’re not on Medicaid? “Hospital executives,” according to USA Today, “say the moves will restrict access to care, force hospitals to absorb more costs and lead to higher charges for privately insured patients.”
Pennsylvania’s governor has declared a fiscal emergency for our favorite municipal basket case: the state capital, Harrisburg.
Harrisburg, you might recall, declared bankruptcy earlier this month. As we told you at the time, the state was offering a bailout plan, but a majority of city council members felt they’d be better off taking their chances in bankruptcy court, rather than going even deeper into debt, Greece-style.
The declaration by Gov. Tom Corbett puts Harrisburg a step closer to a takeover by the state: “You’ll take our bailout, or else,” in other words… again, a trend we expect will increase among other munis around the country as the crisis wears on.
The population of poor people in the nation’s suburbs grew by half in the last decade, according to census data crunched by the Brookings Institution.
While poverty grew 53% in the suburbs, it grew only 26% in cities. Two-thirds of that suburban increase came after 2006: The people who fled center cities for more “affordable” housing in the boonies ended up buying into a bubble.
“The whole political class is just getting the memo that Ozzie and Harriet don’t live here anymore,” says Edward Hill, dean of the Levin College of Urban Affairs at Cleveland State University.
We’re not surprised. “The suburbs will be the slums of the future,” our friend James Howard Kunstler has long declared.
Also, a feature on the frontlines of the fiscal crisis, membership in “gangs,” has mushroomed in both suburbs and inner cities by 40% since 2009, according to the FBI’s National Gang Threat Assessment. Known gangbangers now number 1.4 million.
The new trend this year, as sniffed out by John Robb at Global Guerrillas, is the “increasing presence of gang members in the military (primarily the Army) and the transfer of combat skills gained in Iraq/Afghanistan to the street.
“The FBI report states that 100 police jurisdictions have reported coming into contact with gang members with recent military experience.”
As usual, the FBI is late to the party. As far back as 2006, the Chicago Sun-Times found graffiti of the Gangster Disciples, Latin Kings and Vice Lords… on armored vehicles, concrete barricades and bathroom walls.
The FBI did note in its gang report two years ago that gangs are mushrooming in the suburbs:
“The big worry about gangs in the U.S. military,” Mr. Robb writes, “is a repeat of what happened in Russia when the Soviet Union collapsed. When the Soviet Union collapsed economically, hundreds of thousands of Soviet soldiers with fresh combat experience in Afghanistan (and little to offer in terms of skills) were dumped onto the street and into the waiting arms of criminal organizations.”
“This process quickly turned Russian economics into a shooting sport. A place where wealth and firepower became synonymous.”
This is another wrinkle to the disturbing scenario we’ve painted in our most-recent forecast: a breakdown in civil order, gangs invading the suburbs where poverty is mushrooming. But this is what happens when the mother of all financial bubbles finally starts to pop.
If you haven’t started thinking through the consequences… and what you can do to protect yourself… isn’t it time?
One of the Federal Reserve’s reliable recession indicators is again flashing red. The Philadelphia Fed State Coincident Index for September clocked in at 34 — it’s the fifth straight month below 50, and a sustained drop nearly always signals the onset of an “official” recession.
Still, as we saw yesterday, the Fed’s other reliable recession indicator — the Chicago Fed National Activity Index — does not confirm the trend. Really, is it too much to ask that central bankers get their act together?
Nah. Don’t bother, it’s a rhetorical question.
Last week, we thought the dismantling of an entire steel bridge for scrap would be hard to beat.
But it turns out that was nothing. It was deep in the woods of western Pennsylvania on a nearly abandoned road. Here’s a better one… right in the middle of downtown San Francisco:
Someone made off with the 122-year-old bell at St. Mary’s Cathedral sometime in the last month. Nobody noticed it was missing until Sunday morning.
Forged in 1889 here in Baltimore, the bell survived the great San Francisco earthquake of 1906… and a fire at the church in 1962.
After the fire, the bell was moved from its tower to a wooden platform on church grounds… so the thieves didn’t have to climb dizzying heights. Still at 2.7 tons, the bell required a crane and a large truck to haul away.
Made of 80% copper and 20% tin, the melt value is roughly $75,000. It’s hard to pawn something that distinctive, we’d imagine… but if the thieves have the resources to haul it off, perhaps they have the resources to melt it down, too.
Strange days.
“Why, why, why,” implores a reader after seeing our item on the government’s latest attempt to apply the paddles to the housing market, “would anyone take on a 125% loan on their home, for any reason?”
“Damn it, this is the thinking that put this economy where it is — rinse and repeat. When did the people lose the idea of common sense? When did they lose the idea of VALUE? When do people learn to ask the question, what is the cost, not what is the payment, and what is the REAL VALUE?”
“However you cut it, if the people cannot afford what they signed up for originally, they will not be able to afford the new offering. Do people really think that they could afford the risk they took originally, even without the financial crisis?”
“The can this administration keeps kicking is getting pretty full of sand. Won’t be long before they break their toe.”
“Could someone please explain to me,” writes a reader continuing our debate over Bank Transfer Day on Nov. 5, “how taking your money out of the insolvent major banks and putting it into your local credit unions and small banks that actually are lending further cripples the economy?”
“I don’t understand how postponing the inevitable collapse of the majors by pretending everything is all right is helping anyone.”
“Corruption funded by the big banks,” adds another, “is the root cause of today’s problems.”
“In spite of what many readers think and say, OWS have actually gotten it right. There is no point in changing old corrupt politicians with new corrupt politicians. We must stop those practicing and financing corruption, i.e., big banks and the Fed.”
“‘We would inflict even more damage to the system by taking money out and bringing down the big banks,’ says one, calling those of contrary opinion ‘idiots.’ First, ‘the system’ is broken. The sooner it fails, the better.”
“Second, the big banks have stopped supporting any wealth-creating activities a long time ago and morphed into wealth-confiscation and destruction instruments. They engineered the past bubbles (Internet, and then housing) and destroyed the wealth of countless people. How is bringing them down a bad thing?”
“The banking system in the Western world is simply way too big nowadays. It is in need of serious pruning. The society simply cannot turn so many bank managers into billionaires anymore. About half of the banks have to go.”
“Always a pleasure reading your commentaries. Keep up the good work!”
“The reason the banks weren’t allowed to fail,” chimes in one more, “had almost zero to do with them being ‘too big.’”
“What should have happened is that they would have entered bankruptcy, and they would then have been taken over by other institutions. Their assets (sic) would have been sold off or discarded. The banks themselves would have continued running, and life would return to somewhat normalcy. That’s exactly why the bankruptcy laws were enacted.”
“What would have also happened is that the banks’ internal records would have been made public, leading to lawsuits, and most of the execs would now be behind bars, where they belong. Instead, the government came up with a stupid TBTF label that most people immediately bought into.”
“Also, any government dealings with those banks would have been revealed, and that would make for interesting reading.”
“Addison, you haven’t taken any wraps off,” writes a reader who we’ve only managed to confuse by requesting you show your interest in ‘Project X’ by giving us your email address and answering some questions. “All you’ve done is request our interest and ask two questions.”
“How can we honestly give you meaningful feedback, when we don’t know what you are talking about?”
The 5: No, we haven’t taken the wraps off. Not yet. But we can tell you: If you’re determined to take your future into your own hands, there’s perhaps no more important step you can take than signing up here, so you’ll be in front of the line when we do.
Here’s the problem, as we see it. A bevy of banks colluded with their friends in Washington to engineer one bubble after another… the tech bubble, and then the housing bubble, now the sovereign debt bubble… serially wiping out the well-intentioned savings of millions of people.
We’ve written books about it… sent countless emails… made a film… and still, we see the lambs getting led to slaughter. The danger remains… but this time, we’re determined to help you pull through with your wealth intact. And in some cases… watch it grow.
If experience holds, many will be called… few will take the challenge. To make sure you’re first to know when it’s “go time,” please indicate your interest here.
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. On another fun note, we’ve finally gotten everyone’s schedules in sync, and the dates are set for our next Agora Financial Reserve “Chill Weekend” at Rancho Santana on Nicaragua’s Pacific frontier:
If you’re a Reserve member, you are cordially invited to join us for five days and four nights… complete with sightseeing tours, three meals a day, cocktails, receptions and even ground transportation.
The dates are Dec. 14-18. Yes, they’re close to the holidays. Yes, we know this is fairly short notice. So to make it worth your while, we’re going to pick up a significant portion of your costs.
For details, just drop a line to Marc Brown at this link: Availability is limited. Our previous excursions have filled up after one email. Please respond only if you have a serious interest in investing in the property.