Dave Gonigam – January 27, 2012
- When you’re in a hole, grab a shovel and keep digging… or something like that: Mr. Geithner’s firewall, and other conceits of “Davos Man”
- Debt ceiling grows to $16.394 trillion: Addison puts a time frame on the mother of all financial bubbles
- Muddle through: Four numbers that point to no recession… and no prosperity
- Another government number to be suspicious of: Byron King’s spontaneous point-by-point rebuttal to yesterday’s mailbag… and still more (!) reader feedback on his audacious U.S. energy outlook
We awoke this morning to find Groundhog Day arrived early. There was Treasury Secretary Tim Geithner talking about the need to build “a stronger, more credible firewall” around the crisis in the eurozone.
How many times have we heard one official or another say that by now? Mr. Geithner said it this morning at the annual gathering of the World Economic Forum in Davos, Switzerland. He might as well have said it last year. Maybe he did.
Geithner has indicated he won’t be around for a second Obama term… but he’ll always remain “Davos Man.”
This term, according to Wikipedia, is “a neologism which refers to the global elite of wealthy men whose members view themselves as completely international.”
kissing up this week and line up my next gig…”
“Davos Man,” according Clyde Prestowitz, president of the Economic Strategy Institute, “has consistently proven clueless and unable to set an agenda with regard to the global developments on which he is supposed to be the expert.”
Mr. Prestowitz was counsel to the commerce secretary in the Reagan administration and led America’s first trade mission to China. So he knows a lot of Davos Men and Women. Around this time of year, his inbox is flooded with name-dropping “I’m here in Davos” messages. He is unimpressed.”
“At the Davos meeting in 1997,” he writes, “Southeast Asia was designated the most dynamic region in the world. Only three months later, the Asian financial crisis that became a global crisis was triggered when Thailand effectively fell into bankruptcy. None of the seers and whiz kids at the annual meeting had even hinted at the possibility of such a development…”
“Similarly, at the Annual Meeting of 2008, none foresaw the bailout of Bear Stearns, the failure of Lehman Bros. or the collapse of real estate markets in the United States and Europe.”
“Nor in 2010 did the Davos elite foresee the need that quickly arose in the spring for a huge stability fund to deal with the financial crisis of Greece and other peripheral European countries.”
In the real world, you don’t ask the people who got you into a problem to get you out of it. Davos Man does not function in the real world.
Which brings to mind a line by Secretary of State Hillary Clinton, which we’ll invoke today now that she too has let it be known she won’t be around for a second Obama term.
Asked in early 2009 why she agreed to take the job, she said, “I looked around our world and I thought, you know, we are in just so many deep holes that everybody had better grab a shovel and start digging out.”
Mr. Prestowitz concludes, “Anyone interested in knowing what’s really happening or in changing the way things are doesn’t go to Davos.”
That includes the reporters covering it… although our acquaintance Lauren Lyster, the anchor of Capital Account on RT, is there. Guess we’ll have to make an exception.
While the party in Davos is under way, one of the crises brought about by its U.S. contingent has opened a new chapter.
With a Senate vote last night, the debt ceiling has risen to $16.394 trillion… and by one measure, the mother of all financial bubbles is destined to grow another 7.9%.
Hmmm… a $1.2 trillion increase. Is that even enough to buy nine more months to get past the election in November?
“We see these financial bubbles throughout history,” Addison told Ms. Lyster’s RT colleague Demetri Kofinas during an interview this week.
“On the downside, during the collapse, people are more concerned about preserving their capital than they are about making money anymore… You have a period of mistrust, and it’s a long period of time before that trust can be re-established.”
“We expect this one to last seven-10 years, and we’re only three years into it.”
“China, Russia, Brazil… They’re all holding massive amounts of U.S. dollars. Japan, India, South Korea. These countries are all dependent on their dollar-based reserves. And they’re fearful, too.”
If you’ve made out OK during the last three years, good for you. If you feel you need to do more to prepare, you’re best served following Addison’s guidance here.
The major stock indexes are down slightly this morning, adding on to yesterday’s modest losses. The big number traders got an hour before the open was a disappointment…
The Commerce Department’s first guess at fourth-quarter GDP rang in at an annualized 2.8%.
That’s a darn sight better than the previous quarter’s 1.8%, but less than the “expert consensus” of 3.1%. Consumer spending wasn’t as strong as expected, and that kept a lid on the overall number.
This is the latest in a series of numbers we’ve seen in the last 36 hours that reinforce the following thesis: A “double dip” is not nigh… but a “robust recovery” is an even less likely prospect. To wit…
- Chicago Fed National Activity Index: Still “below historical trend” at -0.19… but well above the -0.70 reading that nearly always signals recession
- Philadelphia Fed State Coincident Index: Down slightly from the previous month’s figure to 64… but still well above the 50 threshold that’s also a reliable recession indicator
- Leading Economic Index: Up 0.4%, according to the Conference Board — less than the consensus guess of economists polled by Bloomberg.
For the record, the Conference Board has rejiggered how it measures the LEI. In the post-2008 world, money supply has grown so fast began to distort the overall index.
The revisions had the effect of dropping the previous month’s increase — first reported at 0.5% — to 0.2%. Still, the LEI’s been rising three straight months now.
Precious metals are set to end the week at seven-week highs. Gold is up again this morning, to $1,733.
Silver is less than a couple of dimes from breaking the $34 barrier.
“I believe that we’re going to see more takeover activity this year,” says Byron King of the mining stocks.
Earlier this week, Pan American Silver announced it’s buying Minefinders — a recommendation of both Byron and Dan Amoss… already bearing out Vancouver stalwart Rick Rule’s call that 2012 will be the year of the takeover.
“A lot of resource companies,” Byron explains, “were slammed down by the marketplace in the second half of 2011. Share prices are low for many companies, and barely reflect fundamentals. It’s a bargain hunter’s paradise out there.”
“Speaking broadly and looking over the landscape, with a lot of companies, the share price reflects little more than cash in the bank… and you get the mineral asset — if not management talent — at a massive discount.”
The trouble in 2011 notwithstanding, Byron’s readers walked away with gains of as much as 48%. For Byron’s favorite precious metals plays of the moment, look here.
“There’s never any hype in government numbers,” says Byron tongue in cheek, turning to another subject in his field of expertise — energy, and the U.S. energy renaissance he sees coming as early as this spring.
This week, the Department of Energy slashed its estimate of gas reserves in the Marcellus shale… something that came up during a pointed reader letter in yesterday’s issue.
He’s reacting to a report this week cutting its estimates of gas reserves in the Marcellus shale… and to a pointed reader letter in yesterday’s issue.
“It’s true,” he says, “that the U.S. Energy Information Administration (EIA) downgraded the shale gas estimates the other day… AFTER my latest report hit the wires. Of course, these are government numbers… which must be true because they’re from… the government. Right?”
“Of course, the Obama administration has NO interest whatsoever in pouring cold water on U.S. shale development, right? The EPA is just soooooooooo supportive of fracking. Right? Nobody ever fudges the government data to suit a political agenda, right?”
“Professor Terry Engelder of Penn State — the godfather of the Marcellus boom — thinks that the latest government numbers are… government numbers. He stands by his earlier estimate.”
Byron was in, um, rare form responding to this reader. He went though the whole letter, point by point, including the impact on the local economy in the Marcellus region. (Careful, this is Byron’s backyard we’re talking about.) We though so much of it that it makes up the entirety of today’s Daily Resource Hunter.
“Didn’t you say Byron King’s investment newsletter was tops according to Hulbert?” a reader inquires “Maybe the reader who wrote in yesterday is half-cocked?”
The 5: We won’t assess the reader’s mental state, but the answer to the first question is yes… and still is.
“Outstanding Investments,” reported Peter Brimelow at MarketWatch on Jan. 16, “is still the top-performing investment letter over the past 10 years among the 180-plus followed by the Hulbert Financial Digest, up a startling 18.1% annualized versus 3.80% annualized for the dividend-reinvested Wilshire 5000 Total Stock Market Index.” Grab it here.
“I really appreciate the ‘debate’ between Byron King’s Remade in America and the Norway or Nigeria letter yesterday.”
“Even if that astute reader is right, Byron’s argument highlights the ongoing possibility of technological/market game-changers coming out of nowhere. With so many entrepreneurial and scientific minds working to solve problems, wealth generation can outpace what the government tries to mop up with its destructive policies, at least for a while. This reminds me why I need to increasingly assume heavy uncertainty, cash up, buy the panics and sell the surges.”
“The interesting question is if Byron’s oil boom improves the economy to whatever extent, what happens from here with our bets on gold and uranium? Does high inflation come out of the woodwork and potentially mop up some of that new wealth? Or does the growth fill in the massive government budget holes?”
“Do we need to get neutral on gold? Does uranium continue to look promising because of global demand, or does the shale gas tech get exported for a global revolution?”
“Thanks for the marvelous, money-smart coverage The 5 provides!”
The 5: Byron’s on the road today — as he often is, searching for the latest and greatest resource investing opportunities — so we’ll turn the question over to colleague Matt Insley, editor of Daily Resource Hunter.
“I disagree with yesterday’s comment,” Matt writes, “trying to label this boom as Norwegian or Nigeria — it’s neither. It’s America… so it’ll be different. Why argue philosophy when you can argue in an economic sense — you know, something the Fed and the government think they have an idea about.”
“In an economic sense, this is turning the needle in America’s favor. Instead of welfare for the masses. though — or the Fed printing more cash — this is giving industry players and the surrounding cast and crew a way to make a killing. Thousands of truck drivers and rig staff making nearly $100,000!? You can’t tell me that isn’t an amazing change from just five years ago.”
“That’s more wealth creation for the private sector and a boost to our economy.”
“Will it be enough to pull our government out of the mess we’re in? I doubt it. It’ll float some more money into Uncle Sam’s pocket and keep him from grinding the economy to a halt, though.”
“Going forward, look for inflation to keep rearing its ugly head. The themes that the brain trust here at Agora Financial warn of — government overspending and increasingly inflationary behavior — aren’t set to stop.”
“That’s why I love the way resource sector is shaping up for 2012 — especially here in the U.S. There are plenty of investment ideas, including shale (oil and gas), gold and other resources, set for a huge rebound like uranium.”
“Is The 5,” writes our final correspondent, “trying to take credit for the resurgence in American made energy? Good, grief, any total idiot could have figured that out. Obviously. I mean, you know, Washington, D.C., did…”
The 5: Har! You get the last word.
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
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