America’s New “Stress” Dynamic

Addison Wiggin – January 30, 2012

  • The $132.9 billion festering sore… bank shutdowns… and unpatriotic cheapskate consumers: Tales of “post-recessionary” America
  • Recession be damned? Stunning new breakthroughs in preventing the onset of nearly every disease associated with aging… and a retrenchment in the U.S. energy patch that will mean even more oil
  • Eurozone leaders blather while an artist finds a worthwhile use of the Esperanto currency…
  • A firsthand account of “shale prosperity” from Texas… Did the nation’s chief diplomat really say that?… a one-of-a-kind opportunity to learn about “offshoring” your wealth… and more!

   U.S. taxpayers have lost $133 billion from TARP — the abominable acronym inflicted on us by former Treasury Secretary Hank Paulson — a new report out this morning shows.

We begin another week pulled in two directions: In one direction lie unresolved failures in policy… and the mayhem it has wrought in the financial system. In the other lie breakthroughs in energy and biotechnology.

There’s no real point in wagering on which of these trends will ultimately “win out.” It’s entirely possible the system can fly apart even as scientists and entrepreneurs stick to their knitting and achieve great new things.

The stress we alluded to last week is borne of the fear that the former — i.e., Hellish Financial Crisis Is on Its Way — will prevent the benefits of the latter from ever seeing the light of day.

If that happens, well… then… in the immortal words of the Mogambo Guru: “We’re all freakin’ doomed!”

Until such an event, however, we’re left to our own devices. We’ll continue to do what we do each day. We’ll follow the breadcrumbs. Let’s get started and see where they lead today…

   “TARP is not over,” Christy Romero, acting inspector general of the Troubled Asset Relief Program, reminds folks of the program through which she derives her own power, prestige and paycheck (PPP).

Congress authorized $700 billion. $413.4 billion was paid out. Only $318 billion’s been paid back, according to a new report from Ms. Romero.

So much for the shrill lecture delivered last fall by CNN’s Erin Burnett to an Occupy Wall Street protester: “Taxpayers actually made money on the Wall Street bailout.” But what would you expect from someone engaged to an executive at Citigroup?

Getting the rest back will be no easy task: For starters, General Motors stock would have to more than double from $24.28 to $53.98.

   Another trend that’s “not over,” we note, is bank shutdowns. The FDIC swooped in and closed four banks Friday night. (Yes, it’s the return of our own watch list for failed banks and the feds’ attempts to save them… a request for updates of which often lands in The 5’s mail bin.)

Two of Friday’s victims are in Tennessee, where the last bank failure took place in 2002. The others are in Florida and Minnesota.

That makes seven banks for the month of January — an annual pace of 84. Close to last year’s total of 92, but lagging 2010’s peak of 157. (Who knows, maybe things will pick up in the spring!)

   There is one notable increase: the FDIC’s “loss ratio.”

Of the 92 bank failures last year, FDIC losses totaled 20% of the failed banks’ assets. So far this year, it’s 32.9%… nearing TARP territory.

   The deleveraging of the U.S. consumer is “not over” either.

The monthly “income-and-spend” figures from the Commerce Department reveal consumer spending was ruler-flat between November and December. Consumers, indeed, got their shopping done early.

Personal income, on the other hand, grew 0.5%. Gee, what a bunch of tightwads Americans have become.

“The capacity for households to carry on to be the engine of growth that they have been in past recoveries is simply not there,” says economist Carmen Reinhart of the Peterson Institute.

She points to figures showing that in the third quarter of last year, household debt totaled 86% of GDP. That compares with 47% as Americans climbed out of the “double dip” recessions in the early ’80s.

   By the way, that same Commerce Department report features the “core personal consumption expenditures,” the Fed’s favorite measure of inflation.

Last week, you may recall, the 2% “inflation target” ceased being an “unspoken agreement” and became “official policy.” According to the numbers, the year-over-year increase in December was 1.8%. So in the estimation of the monetary mandarins, there’s still not enough inflation in the system.

   U.S. stocks are generally down today, the Dow and the S&P both slumping about two-thirds of a percent.

In lieu of any other handy explanation, the major finance sites have settled on… the euro. Gasp! No!


   But lest you think we’re not doing our homework this morning, we did find somebody who has come up with a valuable use for the euro:

In Ireland — where the government is choking on debt and the housing market has collapsed — an unemployed artist has taken $1.82 billion of shredded euro currency and built a house.

Originally, he was going to take the money and create an artwork called “Expressions of Recession,” but in the end, he decided to build a house instead, using 50,000 money bricks.

The quarters are modest — living room, bedroom, bathroom. In time, he’ll add a kitchen, shower and patio.

Paper currency might not be useful as a store of value, but it can keep you warm, artist Frank Buckley says: “Whatever you say about the euro, it’s a great insulator.”

   Eurozone leaders are holding their first summit of the year in Frankfurt, where they’ve decided on… not much.

“Leaders place the emphasis on growth and ‘smart’ budget discipline,” says an account from the BBC, not even attempting to translate the bureaucratese into plain English, knowing the exercise is pointless.

On the sidelines of the talks, the Germans are proposing that Greece’s government budget be subject to review by European Union bureaucrats as a condition of further bailouts. The Greeks aren’t taking very kindly to that.

Meanwhile, yields on Portuguese government debt are quickly going vertical. This is the chart of 10-year notes.

No obvious reason, other than rumors that Portugal might follow Greece’s lead in asking bondholders to take a haircut.

   Gold is holding its own in the face of euro-woes propping up the dollar. An ounce of the yellow metal is down, but not much, to $1,730.

Silver’s taken more of a hit, retreating to $33.52.

   “Now,” reads an email this morning from Patrick Cox, who, as we’ve mentioned, is determined to read the breadcrumbs as a net positive, “we can watch as the exponential curve of average life spans approaches vertical.”

The results are in from a human clinical trial of a “nutraceutical” Patrick has had his eye on it for months. And they’re stunning. This simple dietary supplement is now proven to lower the levels of C-reactive protein in your bloodstream.

CRP is a molecule generated by the liver anytime inflammation is present in the body. And inflammation is associated with nearly every disease of aging — Alzheimer’s, cancer, heart disease. What’s more, CRP is a major indicator of heart disease; indeed, some doctors consider it a more reliable marker than more common ones like cholesterol.

The trial involved 105 people — all of them smokers, and nearly 80% of them overweight or obese. The people using this supplement ended up with CRP levels 30% lower than those who didn’t.

“I’m convinced that this is one of the most important breakthrough technologies of our time,” Patrick wrote when he first recommended the company producing this supplement 10 months go. Imagine — a supplement that can help prevent the onset of a host of diseases.

With this new research, he’s more convinced than ever. “I also believe,” he adds, “that equity in this company will yield truly transformational returns.” Patrick makes a compelling case here.

   “What’s going on?” asks Byron King rhetorically about the retrenchment in the shale gas business. Byron’s new forecast of abundant U.S. energy fueling a revival of industry coincided with news that several heavyweights are cutting back on their drilling programs.

“Chesapeake Energy, for example, is cutting its drilling program by two-thirds,” says Byron. “Another major player, EQT, is withdrawing from the ‘Huron Shale’ play in the lower Appalachians. Other companies have similar stories.”

Is the shale boom ending as quickly as it began? Hardly. “Operators,” Byron explains, “are de-emphasizing drilling for ‘dry’ natural gas — meaning plain old methane, which sells for $3 per thousand cubic feet (mcf) in the U.S.”

“Instead, they’ll focus more on drilling for ‘wet’ gas — meaning gas with high fractions of natural gas liquid (NGL) and oil.”

“It’s pure economics. Instead of producing only natural gas and selling it (actually, giving it away!) for $3 per mcf, the idea is to produce gas plus NGL plus oil and sell the NGL and oil for $100 per barrel. It vastly improves the economics of the business. You can go from $3 per mcf to near $10 per mcf equivalent with the NGLs and oil.”

   “This is all part and parcel of the new U.S. industrial revolution that’s coming down the road at us,” Byron goes on.

“This next industrial revolution is not, and has NEVER been, founded only on super-cheap energy, such that it’ll work only as long as we have a money-losing ‘drilling bubble.’”

“Actually, the coming American revival needs to work with all parts of the system in general economic balance. The hydrocarbon producers need to obtain a good price for their output. Price and availability of energy and raw materials and feedstock have to be such that other industries can establish themselves based on sustainable economics.”

With sources of oil and gas close to home, it pays for U.S. industry to build new plant and equipment at home… instead of paying for expensive bunker fuel to ship their product from a factory in China.

Byron’s convinced this boom is just around the corner. In fact, he makes a powerful case for the boom getting under way no later than this May.

   “Thought it might be time for an update,” writes a Texas reader who wrote in a while back when we solicited on-the-ground reports from small-business owners.

“After almost losing my sign business in 2009, I diversified by moving into the safety realm. Since making that decision, my business grew by 63% in 2010 and 238% in 2011. I went from one full-time employee to eight, and added an outside salesperson, as well. If January is any indication, 2012 will beat 2011.”

“It’s all oil field,” he goes on. “It’s all because of the shale. We are also making sales in North Dakota and Oklahoma through locally based companies, and we will be adding Ohio to the list soon.”

“The local economy appears to be recession-proof for now. Skilled oil field labor and management can write their own tickets. There is a new attitude, and safety is at the top of the list. I never thought my client list would look like your stock recommendations.”

“Keep up the great work… I always find time to read The 5.”

The 5: Thanks. Byron will be happy to number you among the living as proof that the shale boom really is helping to fuel new fortunes. (Learn more here.)

   “It looks to me,” writes a reader, “like the government is well on the way to stopping the oil and natural gas revival in its tracks.”

“Perhaps Byron missed the idea they came up with about allowing the industry a ‘reasonable return’ on their investment. Anything the government feels is ‘reasonable’ for business to make is zero. All should be given to people who ‘deserve it’ by being unemployable due to drug use or laziness or possibly busy having enough kids to support them.”

“If I were a company in the oil or natural gas business, I would be looking for another country to use my knowledge and equipment. One where they would be eager to have me and allow me and my shareholders to reap the benefit of these assets.”

“Why would anyone want to put millions at risk to make a ‘reasonable’ return when you can just take the money and invest it in another part of the world and get better returns and keep them?”

The 5: Indeed. Yet to Byron’s own surprise, the renaissance appears to be under way.

   “If Secretary of State Hillary Clinton actually made the statement, ‘I looked around our world and I thought we are in just so many deep holes that everybody had better grab a shovel and start digging out,’ it now makes sense why we are in such a mess.”

The 5: As the cliche goes, you just can’t make this stuff up. Mrs. Clinton said as much to her husband’s former adviser George Stephanopoulos on ABC’s This Week in 2009.

“Really?” adds another. “Last I checked, you generally ‘dig’ when you are trying to make a bigger hole. Maybe she should go back to making those miraculous cattle futures trades, swapping swampland for dollars or simply dodging imaginary bullets in Bosnia, rather than engaging in any more ‘shovel ready’ metaphors.”


Addison Wiggin
The 5 Min. Forecast

P.S. While our editors often write about moving a portion of their portfolios into assets outside of the U.S., it’s easier said than done. In fact, you might find it daunting.

In case you missed Friday’s big announcement… We are now accepting registration for The Rancho Santana Sessions — the very first event of its kind in Rancho Santana, Nicaragua.

I’ve invited a small group of analysts to join me in March 21-25 to explore, in depth, the many ways to diversify in assets outside the U.S. Big picture macro perspectives, the how-to mechanics of diversifying retirement funds, estate planning, tax benefits, real estate, even unique Central America-specific resource and alternative energy ideas, one of which is going on right on-site at Rancho Santana.

Click here for more details on this event. This elite event is only open to the first 30 people, and going fast. You’ll need to register immediately.


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