Catching Up

Dave Gonigam – March 21, 2012

  • IMF chief says economy has “stepped back from the brink”… reinforcing one fund manager’s view that we’re back in 1999 and 2007. Uh-oh…
  • Drone aircraft to the rescue of downloaders? Three fascinating developments in the piracy wars — including its contribution to the Hunger Games phenomenon
  • “Simply no need for housing starts to rise beyond current levels”: Dan Amoss throws cold water on the rally in home builders
  • Saudi Arabia’s empty promises… a filmmaker’s meltdown… a constitutional amendment to put Congress in its place… and more!

   “The world economy has stepped back from the brink,” says International Monetary Fund chief Christine Lagarde.

The problem, dear reader, when we gather with our fellow editors — be it in Baltimore, or more so here at the incomparable Rancho Santana — is that we end up in a bubble. We’re surrounded by other folks who think independently and see the world for what it is.

There are vigorous disagreements, to be sure… but it’s easy to lose sight of the fact that bureaucrats and central bankers of Mme Lagarde’s ilk still run the show. They have no compunction about issuing fatuous statements, such as the above. They really do believe they solved the eurozone debt crisis by putting Greece into deeper debt.

So we begin an episode of The 5 in transit, catching up on certain things we missed while in our coastal cocoon.

“There are still major economic and financial vulnerabilities we must confront,” continued Mme Lagarde, begging the question of who’s “we.” So having solved the eurozone crisis, she now believes the problem is oil prices. “The rising price of oil is becoming a threat to global growth.”

Really? You don’t say…

   Oil is trading this morning for $106.61 — which is not appreciably lower than the $108.09 it fetched before Saudi Arabian leaders made noises yesterday about boosting production by 25%.

After the initial announcement, the country’s oil minister, Ali Naimi, was supposed to offer up a few choice details about how his government planned to pull off such a task. Such details were not forthcoming. Instead, there was only bluster: “I think high prices are unjustified today [on] a supply-demand basis.”

Really? The ever-present threat of war erupting in Iran has nothing to do with it? On that subject, too, the minister was inscrutably silent.

   “We feel just like we did in 1999 and 2007,” says David Tice, reminding us your editors aren’t the only people who’ve retained their senses.

Mr. Tice founded the Federated Prudent Bear Fund. He finds the parallels to the tech-bubble and housing-bubble tops in the market, well, eerie. “[During] both of those periods, people were positive about credit being created, the central banks were easy, everybody was complacent and we ended up having a big accident.”

“You also see,” he tells Fox Business, “emerging-market stocks start to underperform. You see Europe slowing down dramatically. China is now slowing down. Oil prices are up. This is indicative of the slower economy in the U.S.”

   In the meantime, stocks are set to open the day slightly up. Yesterday, the Dow fell half a percent on news of Peyton Manning’s decision to sign with the Denver Broncos.

Well, that’s about as plausible as the explanation the financial media settled on. A honcho at the mining giant BHP warned that Chinese demand for iron ore would fall as the Middle Kingdom’s economy weakens later this year.

Whatever the reason, if there was one, and there likely wasn’t… Abe Cofnas’ mock trade of the week is still intact. If the Dow remains above 12,975 Friday afternoon, it’s good for a 19% gain in four days. Stay tuned.

   Gold is trading in the overnight spot market a bit higher than it was 24 hours ago. The bid, as we write, is $1,653. Silver is hanging onto the $32 level, just barely, at $32.07.

   While in our bubble, we also missed the item about the Kony 2012 filmmaker going off the deep end.

Readers will recall our curiosity about why Joseph Kony, the Ugandan rebel leader, was suddenly Public Enemy No. 1 after carrying on his murderous rampages for 30 years. We even drew a link between the film and a future conflict between the United States and China over Africa’s resources.

Nor were we alone in our criticism… and it was all too much for filmmaker Jason Russell. “Russell, 33, was taken into custody Thursday afternoon by San Diego police after neighbors reported him running naked in the streets of the Pacific Beach neighborhood, pounding his fists on the sidewalk and shouting incoherently. Police took him to a mental health facility for observation,” according to the Los Angeles Times.

“Because of how personal the film is,” read a statement from Russell’s wife, “many of the attacks against it were also very personal, and Jason took them very hard.”

The 5: sincerely regrets any contribution it might have made to this unfortunate situation.

   Elsewhere in the big world, we see someone’s come up with a use for drone aircraft that doesn’t involve spying on and murdering U.S. citizens without trial.

The Pirate Bay, the No. 1 torrent website, plans to put its own drone in the skies over international waters with servers on board to slake the thirst of downloaders everywhere.

“We’re going to experiment with sending out some small drones that will float some kilometers up in the air,” writes an administrator at The Pirate Bay. “This way, our machines will have to be shut down with airplanes in order to shut down the system. A real act of war.”

This drone launch strikes us as a real-time example of the phenomenon we described on Monday: the government seizing on transformational technology, and the world’s innovators staying a step ahead.

   Meanwhile, the case against the founder of file-sharing site might be falling apart. Megaupload was shut down two months ago and founder Kim Dotcom arrested in New Zealand on a U.S. warrant.

Now a judge in New Zealand has ruled that U.S. authorities never got a proper court order.

“The blunder,” according to The New Zealand Herald, “might now lead to the beleaguered Internet mogul getting back everything that was stripped away in the surprise dawn raid on his mansion eight weeks ago.”

Well, it’s nice to know the rule of law still applies somewhere.

   “I’m speculating here,” says Laissez Faire Books Executive Editor Jeffrey Tucker, “but I suspect that a major reason for the insane success of these books and movies — easily the most spectacular teen freak out of our time — is that dread thing called piracy.”

Mr. Tucker is speaking of the phenomenon known as The Hunger Games — the trilogy of novels and soon a movie set in a future dystopia where bread and circuses entail teenagers fighting to the death.

“I searched for ‘Hunger Games free online.’ In about one second, I had access to the full text for all the books, in every format: PDF, doc, txt, rtf, HTML and e-pub. Even audio. It is amazing.” Jeffrey explores how this profusion of “theft” has actually fueled the phenomenon and made author Suzanne Collins wealthy beyond her wildest dreams in this provocative essay.

   Housing starts fell 1.1% last month, according to the Commerce Department. Permits — a more-reliable indicator of future activity — rose 5.1%.

“There simply is no need for housing starts to rise beyond current levels,” in the estimation of our Dan Amoss. “According to the Census Bureau, the average number of U.S. housing starts (single-family and multifamily) between 1975-2010 was 1.5 million. Starts peaked in 2005 at 2 million and declined to a 2009 trough of 500,000. In 2011, starts rebounded to 607,000, and the blue chip consensus forecast projects a 17% increase, to 710,000, in 2012 and a further increase to 870,000 units in 2013.”

“Investors are all of a sudden convinced that a recent blip-up in seasonally adjusted housing starts will last.” Thus, the recent rise in home builders could easily be thrown into reverse.

“In many areas of the U.S., low-end home prices are competitive with rentals. Mortgage rates are near all-time lows, and prices have already crashed. But high-end home prices will continue to drop for years to come. One’s primary residence is increasingly being viewed as a slowly consumed durable good, rather than an ‘investment.’”

“Financing for more-expensive houses is also scarce. Banks aren’t interested in writing jumbo mortgages; even if they were, the traditional ‘move up’ buyer is hard to find. If he can’t sell his existing house, he likely won’t have the down payment for a larger, more-expensive house.”

“The excess supply of housing — especially at the middle and higher ends of the market — will take several more years to clear. Prices will fall as this unfolds. After slowing foreclosure activity in 2011, most banks are set to accelerate sales of repossessed houses in 2012.”

   “Three cheers for the National Debt Relief Amendment,” writes Ralph Benko of the American Principles Project.

As Uncle Sam faces the prospect of bumping up against the debt ceiling — yet again — before year’s end, a handful of state legislatures aim to put a stop to the endless charade with an 18-word constitutional amendment: “An increase in the federal debt requires approval from a majority of the legislatures of the separate states.”

“Our Founders,” says the amendment’s spokesman, North Dakota state Sen. Curtis Olafson, “wisely foresaw that they would need to include in the Constitution a method to empower the American citizens to rein in an overreaching federal government. Article V, via the state legislatures, the government closest to the people, gives us that power. If ever there was an issue for which we should be invoking the power of Article V, it is our out-of-control federal debt crisis.”

Last year, the North Dakota and Louisiana legislatures approved it. Two down, 36 to go before it would come into effect. This year, the amendment has passed the state senates in Arizona and Oklahoma. We’ll stay on top of this one…


Dave Gonigam
The 5 Min. Forecast

P.S. Only a few hours remain in which to claim any unused credits on your Agora Financial account.

After we performed a recent software upgrade, we discovered many readers were entitled to potentially thousands of dollars they could apply to other Agora Financial services. With this newfound computing power, you can find out — to the penny — how much you have in unused credits.

But as we’ve warned all week, there’s a deadline to claim these credits — 5 p.m. EDT today. If you have any interest at all, here’s your last chance.

P.P.S. Addison is remaining behind at the Ranch to prepare for the inaugural Rancho Santana Sessions, starting Friday. This is a confidential, private briefing for 30 Reserve members who’ve expressed an interest in offshore investing.

We’ve assembled an expert panel to walk them through the process, with loads of practical information about legal hurdles, tax planning and estate planning.

Don’t feel left out. You can listen in via recordings of the sessions that we’ll release within a week of the conference’s close, so the information will still be as fresh. The price of these recordings goes up the moment the conference begins Friday, so now’s the time to sign up.


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More