Beware the Party Mood

Addison Wiggin – November 28, 2011

  • Holiday cheer: Retail and eurozone jubilation… The 5 deigns to interrupt with a few facts that don’t fit in
  • $601 trillion time bomb grows to $708 trillion in only six months
  • Money-grubbing local governments’ latest scheme: Decades-old parking tickets come back to haunt drivers trying to renew their licenses
  • Byron King on why gold supply simply can’t keep up with demand
  • Readers lament the onset of the police state… castigating your editor for the sins of decades ago… a unique source of yield in a world of near-zero interest rates… and more!

   The S&P’s up 30 points in the first three minutes of trading. The Dow has recovered to 11,500.

“Strong Black Friday sales add fuel to investor sentiment,” reports MarketWatch, “as does perceived progress on EU crisis.”

   Indeed, Thanksgiving weekend retail sales are 16% higher than a year ago, according to the National Retail Federation this morning.

Real disposable incomes, on the other hand, are flat from a year ago, according to the Commerce Department’s income and outlays report last week.

And the number of Americans earning a paycheck is up only 1.2% from a year ago, according to the most-recent Labor Department figures.

   As for the latest European fix, “France and Germany,” the BBC tells us, “intend to propose a fiscal union ahead of a summit on Dec. 9, which would set binding limits on eurozone government borrowing.”

Funny, we already thought there were binding limits. Yep, right there in the Maastricht Treaty — deficits no higher than 3% of GDP. Too bad the treaty’s honored only in the breach; most eurozone governments have blown the 3% limit for years… including Germany.

The jubilation in the markets today is more likely the result of a tryptophan hangover than a sustainable rally…

   The total amount of derivatives worldwide exploded by 18% in a six-month span, according to the Bank for International Settlements (BIS).

Outstanding derivatives — futures, options, swaps, including the infamous credit default swaps U.S. banks wrote on European government debt — totaled $708 trillion in the first half of 2011 — a staggering 11.2 times global GDP.

The figure is up $107 trillion from the second-half 2010 total of $601 trillion, and now exceeds the previous record set in — gulp — the first half of 2008:

How much of this sits on the books of U.S. banks, we can’t say with certainty. But the most-recent report from the Office of the Comptroller of the Currency indicates the total is $333 trillion. Of that, $249 trillion sits on the books of institutions backed by the FDIC.

That last number is sure to increase after Bank of America’s move last month to transfer an unspecified amount of derivatives from Merrill Lynch to BofA’s commercial banking arm.

   Oil prices are within sight of $100 again. A barrel of West Texas Intermediate is up more than 2.5% this morning, at $99.33.

But Abe Cofnas is expecting even more this week. “Oil moves in relationship to expected global growth, supply uncertainty, as well as news out of the Middle East,” he says. “Now, with prices hitting the key psychological level of $100 a barrel, it is becoming the center of a lot of attention.”

As Abe wrote that, January crude futures were at $100.40. He’s counting on a small move up to $101.25… delivering a 170% gain by this Friday in the one-of-a-kind market he follows.

“Binary options” are about a lot more than currencies. To learn more about Abe’s strategy, look here.

   A growing number of cities are hunting people down for decades-old parking tickets. And they aren’t messing around. In Massachusetts, resident Patricia deWeever recently got a notice warning her license would be suspended if she didn’t settle tickets she got 25 years earlier. In New Jersey.

Turns out New Jersey and Massachusetts have a reciprocity agreement, cross-referencing their records. Cities including New Orleans and Toledo are also chasing down years-old, or even decades-old, parking tickets.

Typically, “the fines add up to a couple of hundred dollars,” writes AOL Auto columnist David Kiley, “and most draw the conclusion that they will pay it, rather than endure the hassle of hiring a lawyer or pursuing a Byzantine process of challenging it.”

Statute of limitations, you ask? For felonies, yes. Parking tickets, frequently, no.

“In deWeever’s case,” Kiley writes, “she will end up paying New Jersey $129 to settle the tickets, plus, a nebulous $100 license reinstatement fee, so she can legally drive in New Jersey to go visit her mother. On top of that, Massachusetts is also charging her $100 to reinstate her license in that state.”

Get used to it, as states and cities become evermore desperate for revenue. It’s the only way they can hope to get by as the mother of all financial bubbles starts to burst. You can’t fight it, so you might as well take protective measures.

   Gold buyers, perhaps sensing early signs of money printing in Europe, have bid up the Midas metal nearly 2% today. At last check, the spot price is $1,712. Silver has reclaimed $32.

   “The gold price is rising due to the fundamentals of supply and demand,” says our Byron King, with an eye on the longer-term picture. “More and more people across the world are buying.”

“I still recall one scene in a gold souk that I visited in Istanbul last year. Men with fat wads of cash — dollars, euros, Turkish lira, etc. — were just peeling off bills and buying gold, literally with both hands. It was kind of surreal, if not medieval.”

“All this gold buying and demand growth is happening while global mine output — aka ‘supply’ — is shrinking. Indeed, overall mine output may face a precipitous decline in the not-too-distant future. In other words, don’t argue with this chart, either:”

“It’s a busy chart, to be sure — gold mine output by region, from 1850-2010. Basically, the take-away is how precipitously South African mine output (noted in dark green at the bottom of the chart) has fallen over the past 20 years.”

“For the near-, medium and long terms, gold has strength as a store of wealth. It’s not just me saying it, either.”

“The forecast from the British bank Barclays is for a gold price at $1,875 per ounce by the end of this year. Germany’s Commerzbank is advising clients to expect gold at $1,800 per ounce, or more, by the end of the year. Another German bank powerhouse, Deutsche Bank, views gold as a ‘safe haven’ asset through 2012. In fact, Deutsche Bank calls gold its strongest ‘conviction trade.’”

[Ed. Note: If you share that conviction, there’s still time to add to your own metals stash via our one-of-a-kind offer…

Specifically, we’re offering one Gold Buffalo, 10 Silver Eagles and a unique “booksafe” storage solution… and we’re practically giving them away. But only through midnight this Wednesday. Time’s a-wastin’.]

   We’re not altogether sure what to make of this gold spectacle…

This is the scene in Caracas last Friday, as armored vehicles brought in a shipment of gold bars — the first of Venezuela’s overseas gold holdings that President Hugo Chavez has ordered home.

Those overseas holdings total 160 metric tons, worth roughly $11 billion. This first shipment, if the central bank president is to be believed, is about 4.4 tons.

“Experts had cautioned,” says a Reuters dispatch, “that the operation… would be risky, slow and expensive.”

But Chavez announced the repatriation in August to “help protect Venezuela’s foreign reserves from economic turmoil in the United States and Europe,” again, according to Reuters.

   “Keep in mind,” a reader writes, picking up a thread from last week and opening a grab bag of responses we got over the holiday weekend, “the police state has been funded by Homeland Security dollars.”

“I live in Houston. Even at Houston’s transit organization, they have a 10-person anti-terrorism team, SWAT Team, bomb-sniffing dogs, etc., all funded by Homeland Security.”

“Homeland Security dollars have brought out every wannabe tough-guy police chief in the country as they buy up truckloads of ‘goodies’ from the ‘law enforcement only’ vendors. Pull the plug on Homeland Security ‘grants,’ and these police departments will have to put their toys back in the bag.”

   “I am one of those a**h**** your reader complained about. For my Thanksgiving flight out of Baltimore, I was subjected to an embarrassing pat down by one of the oh-so-polite TSA officers.”

“I felt violated and humiliated and let the officer know I felt it was wrong. One other passenger whispered to the agents ‘Thank you for keeping us safe.’ He would probably thank them for walking him into the gas chamber, too.”

“My offense was wearing a two-part sweater that showed up as an ‘anomaly’ on their new machine. As a 70-year-old grandmother, I don’t feel like a threat to security and don’t think it is right to be treated as one. It made me less than thankful on Thanksgiving Day.”

   “This may well prove prophetic,” writes a reader in reaction to the words of Thomas Paine, cited last week in Jeffrey Tucker’s review of The Idea of America. “I wonder if this was inspired by the passages in Psalms and Proverbs indicating evil men will become worse and worse, and truly righteous men will need protection from the tyrants that rise into positions of power.”

“While I retired over a year ago from my job as an expedite courier making regular deliveries into the U.S. from Canada, when I read about the police-state tactics now commonplace, I was glad that I no longer have to do that.”

“Nothing against the American people, but the government has become everything the framers of the Constitution warned and attempted to legislate against. The biggest end run was successfully accomplished by the International Bankers when they got the Federal Reserve Act passed by Congress in 1913 that, effectively, legalizes counterfeiting in place of REAL MONEY, and established a monopoly in doing so.”

The 5: Our investment director, Eric Fry, connected a few more of those dots in an interview last week with RT’s Lauren Lyster…

   “Whoa, is it Halloween or Thanksgiving?” writes a reader. “What a scary 5 on Thanksgiving Eve: corrupt insider trading, the stealing of a man’s livelihood that he has spent his life working for (the big catch), the growing Nazism of the TSA, giving power to the incompetent who couldn’t find a job otherwise and the broadcasting of the next financial disaster to come.”

“I used to be bullish, but in these pages, I have learned to begin to see the various future positioning of the contrary view — finding ways to build positions to bet on the black, shorting the various markets. It seems anything the government wants to promote anymore is a sure bet to the contrarian side.”

“Thank you for your service and ability to think and report.”

   “Reading about the Covered Bond Act of 2011 on Thanksgiving Day,” adds one more reader, “I was filled with thanksgiving that there are sources of information available that do more than parrot the misinformation, disinformation, spin, obfuscation and downright lies from government and corporate sources, whose goal is to distract our attention while plundering yet another part of the wealth of the citizens.”

“Thanks. And keep up the good work.”


Addison Wiggin
The 5 Min. Forecast

P.S. Even as the broad market swooned last week, Options Hotline readers were sitting pretty. The Dow shed more than 500 points between Monday and Friday… but Steve Sarnoff’s recommended put options on a major energy producer were up 86% after only three weeks.

Options Hotline is available right now at a significant discount. Grab it here.

As of this morning, a 10-year Treasury note yields 1.96%. A 3-year CD pays a paltry 1.95%.

Clearly the old “rules” for retirement investing no longer apply. Which makes this Overtime briefing from our income specialist Jim Nelson more important than ever…

Navigating Your Way Through a Choppy, Zero-Percent Interest Rate World

Three Secrets to Generating Thousands
in Monthly Income

If you’re counting on interest from your savings to fund your golden years, you’d better think twice about those retirement “dreams” you had…

As you know all too well, it’s near impossible to find a savings account that will pay you even 1% annually.

That means all the things you had planned will squeeze your wallet harder than you may have expected. Dreams of cruising the world… golfing on exotic courses… even just treating the kids or grandkids to a day of fun… all become harder to achieve.

The same thing goes for counting on stocks and government bonds…

If you dumped $10,000 into the S&P 500, you’d be “rewarded” with an average income of just over $200 per year. Worse yet, you’d be putting your money at risk in one of the most turbulent markets we’ve ever encountered.

And inflation is running much higher than the yield on government bonds. No matter how you calculate it.

But there are few little-known income moves that you can make to double, triple, even quadruple the income you’re currently receiving.

One of those moves is designed to return more than $1,000 a year in income… from just a $10,000 investment — roughly five times the average stock yield.

This move doesn’t require any quick in and out trading, either. You can make this move today… and then simply forget about it for months. The income is scheduled to come in like clockwork.

And best of all, this move has nothing to do with touching the risky stock market… options market… or currency markets.

This move not only crushes the income most stocks produce, but it can actually provide more safety, too.

If you’re skeptical, I can understand. Greater income… with more safety… sounds like another “Wall Street scam,” I know.

But it couldn’t be further from what Wall Street’s lead you to believe…

For example, one of the reasons you probably haven’t heard about this unique move is that there’s no “easy money” in it for brokers.

The other reason you’ve probably never heard about this secret is that this move does require a little more work than, say… just buying or selling a stock. Since it isn’t in a brokers best interest to teach you things, he probably ignores this move.

But I’ve found that all good things in life require at least a little bit of extra work. Building a business… becoming good at a sport… even starting a new relationship, all require some time and knowledge. Investing your hard earned money is no different.

My point in telling you this today is simple…

Despite all the things crumbling around you… despite the “pay nothing” savings accounts… despite the rumor-driven volatile stock market… and despite your income not keeping up with rising prices…

I believe there are still a few relatively hidden, safe income-boosting moves you can make to help secure the retirement you’ve dreamed of living.

That’s why, over the next few days, I’ll use these 5 Min. Forecast overtime briefings to introduce you a whole new way to think about your retirement dreams.

We’ll kick off tomorrow with the first of these secrets — something I call “Income SAFE IOUs.” I believe you can use this little-known move to generate always-known, contractually obligated income in the range of 8-10% per year.

So if you’re at all worried about rising prices…

If you’re frustrated by the government’s zero-interest policies…

Or if you’re concerned about outliving your savings in any way…

Then you won’t want to miss tomorrow’s 5 Min. Forecast overtime briefing.


James Nelson


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