Down the Groundhog Hole

Addison Wiggin – February 2, 2012

  • The Amazonian precedent: How Facebook’s lofty claptrap gives us Groundhog Day déjà vu
  • Groundhog Day weirdness: Bill Gross goes “Ron Paulish”… Rogue lawmakers in the Evergreen State… Eerie swarms of drones… and a busybody crackdown on a blogger
  • Odyssey Marine’s terrible, wonderful day: Court deals bitter blow to treasure hunters, even as a landmark agreement is signed and sealed
  • “The law against recessions” and other reader reflections

   “Facebook was not originally created to be a company,” declared founder Mark Zuckerberg yesterday in his firm’s IPO filing with the Securities and Exchange Commission.

“It was built to accomplish a social mission — to make the world more open and connected… We don’t wake up in the morning with the primary goal of making money, but we understand that the best way to achieve our mission is to build a strong and valuable company.”

Hmmm… This sounds awfully familiar. It’s as if we’ve lived through this before. As if it were… well, Groundhog Day.

   “We are a customer store,” declared Amazon founder Jeff Bezos to Playboy in February 2000.

We noted this remark in Financial Reckoning Day, explaining he meant the company focused on the customer, instead of on making a profit or even a product. At the time Bezos said this, the market valued his firm at over $80 a share.

   Two years later, on Jan. 23, 2002, we noted in The Daily Reckoning that Amazon reported a profit for the first time — 1 cent per share.

The share price had collapsed to less than $12.50.

Amazon turned out to be a pretty good buy at that price. A dollar invested in AMZN then would be more than $14 today.

Facebook might turn out to be a pretty good buy as well. But not right now.

   “Bernanke to Congress: Don’t Cut Deficit Too Quickly” reads a news alert that just crossed our iPad.

Artist WilliamBanzai7’s take on the holiday, as seen at Max Keiser’s site

Some things are so bizarre, they’re best left alone. But others cry out for additional comment. And on this Groundhog Day, one bizarre item after another is coming to our attention.

Is something in the water? Are the sunspots acting up? Is there a collective realization that the “epic rematch” of the Super Bowl four years ago might not live up to expectations?

Whatever the case, let’s dive in…

   “I’m a little Ron Paulish,” declared bond king Bill Gross to CNBC.

Recall from yesterday’s 5 that in his monthly letter, Gross groused that near-zero interest rates would hamstring developed economies and even “give a rise to commodities and gold as store of value alternatives when there is little value left in paper.”

In a follow-up interview, Gross was asked to pick between Obama and Romney in a hypothetical general election matchup. He begged off the question, and then proceeded to turn the name of the good doctor into an adjective.

His attempt to elaborate was thin on specifics, but interesting: “I think both parties have basically done the same thing… Both parties have followed a policy that hasn’t promoted long-term investment in the United States. And I think, ultimately, we need to produce things, as opposed to paper.”

Say it ain’t so…

   From Washington state, we see the emergence of a group of rogue legislators whose activities might be worth watching.

Reps. Matt Shea and Jason Overstreet are sponsoring a bill affirming the legal tender status of gold in the Evergreen State.

That alone isn’t remarkable. Similar moves are afoot in other states, and it’s now the law in Utah… although as we noted at the time the practical effect is limited.

What really got our attention is that Messrs. Shea and Overstreet are among five sponsors of a bill standing up to the National Defense Authorization Act — or as it’s come to be known around our office, the Repeal of Habeas Corpus Act.

The Washington State Preservation of Liberty Act condemns the law’s provision for detention of terrorism suspects indefinitely and without charge. And it goes a step further, prohibiting state and local employees — including Washington National Guardsmen — from cooperating with federal officials enforcing the law.

We have no idea whether the bill will pass or, if it did, what the practical impact would be. But in another strange item getting our attention this morning, we have a good idea what the worst-case scenario would look like.

   “In the next couple of years,” writes our friend John Robb at Global Guerrillas, “the number of advances in technology, deployments, use cases and awareness of drones will be intense.”

“In five years, they will be part of everyday life. You will see them everywhere. Not just one or two drones. SWARMS of drones. Tens. Hundreds. Thousands. Millions (potentially if the cost per unit is small enough).”

Mr. Robb then points us to this video of “experiments performed with a team of nano quadrotors at the GRASP Lab, University of Pennsylvania.”

Imagine a swarm of these descending on the Washington state Capitol building…

Using drones, “A small number of people in Washington, D.C.,” writes Mr. Robb, “can control/operate a vast 24/7 killing field for very few $$.

“Even a mildly radical post to a blog, Facebook or Twitter (particularly if it could lead to a flash mob or an Occupy-style protest) would invite inclusion on the drone assassination list (in that case, the occasional flash of a car being blown up by a drone patrolling a highway and IDing a listed driver will become common).”

Bill Gross and the rogue legislators in Washington are on notice. And maybe Steve Cooksey, too.

   Mr. Cooksey has offended a legion of dietitians… enough that his humble blog has been deemed illegal by the State of North Carolina.

Mr. Cooksey is a type 2 diabetic who got his blood sugar under control, getting off insulin and medication entirely, through a low-carbohydrate diet. He in the vanguard of the “primal” or “paleo” or “ancestral” diet movement that emphasizes meats and vegetables, and excludes grain.

His website, Diabetes Warrior, includes suggested meal plans and recipes. Thus, he has been advised by the North Carolina Board of Dietetics/Nutrition that he is providing dietary and nutritional advice without a license.

If he does not remove the offending posts, he’s been warned he will be taken to court.

The disturbing thing is that the call from the Board of Dietitians came two weeks after Cooksey attended a nutritional seminar and spoke his heresy. Someone looked him up, found his site and snitched on him.

He was informed by the director of the board that “even IF convicted, it would only be a misdemeanor but typically these cases end without litigation, if the person agrees to change their behaviors or websites.”

On second thought, liberty might not need swarms of drones to kill it. Just an army of bureaucrats already mobilized and awaiting orders.

   Major U.S. stock indexes are drifting today. The Dow and S&P are down slightly. The Nasdaq and Russell 2000 are up slightly.

   First-time unemployment claims clocked in this morning at 367,000 — down 12,000 from the previous week.

The four-week moving average continues to edge down… and it’s still nowhere near levels consistent with a “normal recovery.” Stand by for The 5’s usual deconstruction of the Labor Department’s monthly jobs report tomorrow.

   In one of those lesser-noticed economic indicators we like to follow, rail traffic is off to a weak start this year.

“Data provided by the Association of American Railroads (AAR) points to generally sluggish demand growth across most commodity groups through Jan. 21,” according to a new report from Fitch. The year-over-year growth comes out to only 1.1%.

Volumes have been growing since they bottomed out three years ago, but that growth slowed appreciably during the second half of last year.

Shipments of autos and petroleum products are up — some of that aided by the energy revival Byron King’s been writing about — but shipments of coal, chemicals and grain are down.

   Gold is cresting $1,750 for the first time in two months, the spot price currently $1,753.

Silver continues to knock on the door of $34, but still isn’t being let in.

   It’s been the best of times and the worst of times, all in a 24-hour span, for our friends at Odyssey Marine.

A federal appeals court in Atlanta has ruled against Odyssey’s claim to $500 million in gold and silver coins from a Spanish vessel sunk in the Atlantic in 1804.

Shortly after Odyssey announced the discovery in 2007, the government of Spain filed suit in the United States, claiming the treasure for itself.

Thus began five years of intrigue and backroom dealing between the U.S. and Spanish governments, revealed in part by WikiLeaks and chronicled in our documentary-in-progress, Risk!

“With the ruling by the appeals court,” declared Spain’s Culture Ministry, “the process begins to recover all of the coins taken illegally.”

Odyssey’s only recourse now is the U.S. Supreme Court. “Currently,” says a statement from the company, “no final order has been issued in the case and it would be premature to comment at this time.”

   Odyssey has learned its lesson about dealing with covetous governments: Thus, the same day the ruling came down, it could also announce a huge triumph.

The firm has signed an agreement with Great Britain giving Odyssey the rights to recover and document artifacts from the HMS Victory, a warship sunk in the English Channel during a storm in 1744.

Said artifacts include gold coins worth up to $1 billion.

A cannon Odyssey recovered in 2008 from the HMS Victory

Odyssey discovered the wreck in 2008. Under the deal signed with two British government agencies, Odyssey will keep 80% of the proceeds for “items used primarily in commerce” — e.g., the coins — and 50% of other objects, like the weapons on board.

“We’ve come up with the model that everybody’s been looking for,” our friend and Odyssey CEO Greg Stemm announced. Good on them.

   “I find it interesting,” a reader writes, “that during the period that Chavez was having all that gold brought back to Venezuela, starting in August 2011 and gold was taken off the market and with all the buying by other participants in the markets, the price of gold and gold stocks went down.”

The 5: It is interesting. Long term, it’s probably also irrelevant.

   “You say the market went up 1% for no reason yesterday” a reader begins his discourse, taking our levity way too seriously.

“I say the reason was mania euphoria, which the Fed has been working very hard for the last couple of years to build back up again. The Fed has no choice — an economy can’t be kept going forever, contrary to the Fed’s assumption, so the only way it can keep things going is to build up enthusiasm to a higher and higher level in order to prevent it from going down. The problem with this is that the higher enthusiasm goes before things can’t be held up anymore, the worse the consequences will be.”

“First they did it with the stock market in the 1990s in support of the law against recessions. That caused the stock market to go exponential by the end of the 1990s. An exponential is as high as something can go in the big picture for a long time, so they could not do it with the stock market again.”

“So they did it with real estate — but then that went bust too. So now they are trying to do it with the stock market again — but under the following actual circumstances, probably unbeknownst to them. During the first big bounce of a bear market, enthusiasm tends to go nearly as high as during the bull market itself, and sometimes even higher.”

“I think that is what is being pushed to an extreme this time by the central bank, in part because the central bank does not believe in such a dynamic to begin with. The result is that the harder the central bank pushes, the larger the increase in enthusiasm along the way, and the worse the consequences will be.”

“We’ll have to see how far they can push it before things fall apart.”


Addison Wiggin
The 5 Min. Forecast

P.S. Spaces are filling up quickly for The Rancho Santana Sessions — our exclusive, first-of-its-kind briefing for readers interested in parking their assets offshore.

The inspiration came to us during our Chill Weekend at the ranch back in December… as more than one Reserve member in attendance asked about investing IRA holdings overseas.

With that in mind, we’ve gathered a panel of experts to answer a wide range of questions about the legal and logistical hurdles — everything from retirement accounts to estate planning.

For the dates, a list of expert speakers and the chance to receive an invitation, please give this a look… and know that we have room for only 30 people.


Recent Alerts

Sleepwalking Into Nuclear War

We return today — however reluctantly — to the unsettling topic of nuclear war. Read More

Debt Dominoes Fall

The countdown clock begins: Russia defaults on a $100 million payment… But it’s not that Russia’s government lacks the money. Read More

What Really Wrecked Crypto

Here’s the problem for crypto: At this moment in financial history, it trades like a “risk asset” along with stocks. Read More

“This Is Not Dystopian Science Fiction”

“Weaponizing health apps — foreshadowing of things to come outside of China?” writes one of our longest of longtime readers. Read More

The System Turns “Critical”

For an update from the Prospectors and Developers Association of Canada (PDAC) in Toronto, we turn to energy, mining and precious metals expert Byron King. Read More

Reality Check (Energy)

It fell to Treasury Secretary Janet Yellen to take the bullet on the talk show circuit… and deny that Team Biden policies have anything to do with high gas prices. Read More

IRS Springs a Surprise

“They will find you, they will find your assets, they will find your account[s],” says Mark Steber of Jackson Hewitt about the goons at the IRS. Read More

Crashing the Economy to Crush Inflation

It’s becoming painfully apparent the Fed no longer has the economy’s back. Read More

The Fed Will Fail

The media won’t have the Fed’s back Read More

Worse Than 2008

The financial media are starting to invoke memories of 2008. Read More