2008 was Lehman. 2012 is…

Dave Gonigam – April 27, 2012

  • The next Lehman — as identified by the researcher who generated 462% gains as Lehman crashed and burned
  • Food prices up again: Mayer on the best way to play a growing and better-fed world population
  • Feds back off family farm regulations… while pursuing full-court press to destroy Internet privacy
  • Faber’s global stock outlook… the slender, but powerful book that could change your life… and last chance for 5 readers only: unprecedented trial access to the Reserve

   “If Greece was Bear Stearns, Spain is Lehman Bros.” said the alert one week ago today from Dan Amoss.

Considering he delivered his readers 462% gains on Lehman as it circled the bowl in 2008, it was hard not to pay attention.

   After the U.S. close yesterday afternoon, Standard & Poor’s affirmed this outlook.

It delivered a gut punch… followed by a swift kick… to Spain’s government debt. The agency downgraded the kingdom not by one, but two notches, from A to BBB+.

   “S&P is subtly warning Spain that its banking system needs more capital,” says Dan, digging for the story the financial media aren’t onto yet.

“The situation in Spain is very similar to Ireland in 2008. Ireland had low sovereign debt until it decided to recapitalize its banks.”

The rest is history: Ireland racked up huge debts, and it still didn’t do the banks any good. Today, Irish taxpayers are being drained faster than a pint of Smithwick’s.

   While Spain lies doubled over from S&P’s pummeling, the nation’s keepers of statistics kicked sand in its face this morning: They announced Spain has reached record unemployment at 24.4%.

Barring a miracle, GDP numbers due Monday will indicate the country is back in recession.

   “With a worsening recession, 24% unemployment and a government on the verge of being shut out of the private credit markets,” says Dan, “Spanish banks have run out of time.

“The banks,” he explains, “are just starting to recognize long-delayed loan losses. As they do, they will need fresh equity injections to remain solvent. Many depositors are fleeing Spain because they are worried that the banks are insolvent, and not addressing their capital shortfalls.”

“If the EU and IMF want to prevent Spain from sparking a ‘Lehman Bros.’ panic in the European banking system, they will perform triage to rebuild confidence in bank depositors.”

That is, depositors will be made whole first… followed by the holders of assorted derivatives instruments.

Shareholders? They’ll be holding the bag. “Spanish bank shareholders,” Dan concludes, “are going to be left with little to no claim on bank assets when this is all over.”

Dan — our resident stock market vigilante — has identified a way to profit from this certainty.

He has a knack for this. Not only did he spot a way readers could make more than five times their money on a failing Lehman in 2008, he delivered a 95% gain in 2011 as American Airlines sank into Chapter 11.

At the moment, the only way new readers can access Dan’s premium research is through membership in the Agora Financial Reserve. To celebrate The 5’s five-year anniversary, we’re offering Reserve membership on a trial basis — something we’ve never done before. It’s an extraordinary offer, and it expires at midnight tonight. Addison lays out the details here.

   U.S. stocks have shrugged off the pain in Spain, to say nothing of a U.S. GDP number that missed expectations this morning. All the major indexes are up, however slightly.

   First-quarter GDP rang in at an annualized 2.2%. The “expert consensus” was looking for 2.6%. The number in the previous quarter was 3.0%. Not good by any measure.

   Currency traders, perhaps sensing the GDP number will drive the Fed to do something stupid, are pulling the dollar down this morning.

At last check, the dollar index had slipped to 78.7, the lowest in two months. The euro has improbably strengthened to $1.327.

   Japan’s central bank moved overnight to affirm Einstein’s definition of insanity.

The Bank of Japan will pursue 5 trillion yen in additional “asset purchases” — i.e., shoring up the banks’ balance sheets and printing money to do so.

The yen has weakened to 80.446… but that keeps it well within the range of Abe Cofnas’ demonstration trade this week. Recall he expected the yen to close the week somewhere between 79.75-82.75.

This will be good for gains of 6.9% and 10.4%… not bad for a week’s work. And it makes Abe 8 for 9 on the sample trades we started following in The 5 two months ago.

   Gold is taking its cue from the sinking dollar as the weekend approaches. The spot price has perked up again to $1,664. Silver has firmed to $31.38.

   “I think that the markets for the next one-two months will be going lower,” says the inestimable Dr. Marc Faber with his take on global stocks.

“We have had, essentially, the S&P making a new high in early April at 1,422,” he explains to CNBC India. “But most of the other markets in the world didn’t exceed the May 2011 highs. So if you would build an advance/decline line of all stock markets in the world, it would be in a downtrend.

“From the recovery highs, in early May, we could easily see a 20% decline.”

Dr. Faber is coming back to our annual gathering in Vancouver this year. Through next Wednesday only, you can secure admission at hundreds of dollars off the regular fee.

   Food prices are back on the rise, according to new figures from the World Bank. Its food index rose 8% between December and March.

During the previous four-month span, it actually fell. “The price indexes of grains, fats and oils and other foods all increased in each month since January 2012,” says the World Bank report.

Blame it on rising oil prices, strong Asian demand and poor weather in parts of Europe and the Americas. And it all underscores the need for a critical commodity that Chris Mayer has tracked down in his extensive travels — phosphate.

“I call it ‘white gold,’” he writes in a new report for readers of his premium advisory Mayer’s Special Situations. “While it is a rock, it is not a precious metal at all. Instead, it’s something much more valuable to the world. It helps solve the growing number of hungry mouths. And the price of this rock has risen faster than the price of gold itself.”

“A few years back, the price spiked 700% in just a short time frame. There is no substitute for ‘white gold.’ It’s crucial to the world’s food supply. And most of the world’s mines are in decline. Foreign Policy magazine recently called it ‘the gravest resource shortage you’ve never heard of.’ This critical commodity has a hand in 40% of the world’s food supply.”

His favorite play in the sector has solid management, he tells us, “and they seem to have a pair of world-class deposits in hand in what is fast becoming a strategic resource.”

[Ed. Note: For only a few more hours, you can access Chris’ premium research… and Abe’s trading guidance… and Dan’s recommendations… and free admission to Vancouver… at an extraordinary trial rate.

Indeed, members of the Agora Financial Reserve get lifetime access to everything we publish… and now you can give it a test-drive.

We’re doing it to celebrate five years of The 5… and this offer is open only to readers of The 5. For a comprehensive list of the privileges and benefits of membership, and all the details of this trial offer… please give this invitation your attention.

We’ve never made the Reserve this accessible… which is why we’re keeping the offer open for less than 48 hours. It expires tonight at midnight.

   For the second time in a year, the feds have backed off a proposed regulation that would have throttled the few remaining family farms.

As we mentioned on Wednesday, the Labor Department proposed bringing all manner of farm chores under the child-labor laws. After howls of protest prompted by a story at The Daily Caller, the plan has been dropped. “This regulation will not be pursued for the duration of the Obama administration,” says a press release from the department.

Thus, we have a rerun of last year’s incident, in which anyone who drives a farm vehicle would have had to get a commercial driver’s license. The Transportation Department had to back off that one too.

But every time public opposition makes the bureaucrats back off, you can count on them to come back with something different… or perhaps stealthier.

   Thus, after popular opposition killed the “Stop Online Piracy Act” three months ago… perhaps even worse legislation has now passed the U.S. House.

SOPA would have given government the authority to vaporize websites from the Internet without due process. After scores of popular sites protested by going dark for a day, Congress got the message.

Wikipedia on Jan. 18: An effective protest… but it can only be done so often

Enter CISPA, or the Cyber Intelligence Sharing and Protection Act. “The previous bills,” Internet activist Aaron Swartz explains, “were about giving the government the power to censor the Internet. And this is more like a Patriot Act for the Internet.”

CISPA permits companies ranging from Verizon to Facebook “to hand over your private communications to government officials without a warrant,” says Rep. Ron Paul, “circumventing well-established federal laws like the Wiretap Act and the Electronic Communications Privacy Act.”

“Basically,” sums up the tech-news website Techdirt, “it says the Fourth Amendment does not apply online, at all.”

The bill was rushed to a vote last night — so quickly Dr. Paul couldn’t make it back to Washington in time. The Senate might follow up by the time you read this.

   “Eternal vigilance is the price of liberty,” goes the expression. It’s often attributed to Thomas Jefferson… and while Jefferson scholars can’t find evidence of that, they tell us, “This quotation was well-known in the 19th century, and was, in fact, used by a number of famous figures, including Frederick Douglass.”

It is undoubtedly less well-known in the 21st. Which brings us around to our new project. It’s not a newsletter or a trading advisory. At the same time, it’s not a political movement. If anything, it’s more subversive… heh.

Jeffrey Tucker, who heads it up, calls it “the first comprehensive, digital-age society of big ideas. As a member, you’ll have everything you need to cultivate learning and living a free life. And best of all, everything included with the club comes to you for free with your membership, potentially saving you hundreds of dollars in expenses.”

Today, charter members of the club are getting a free e-book of Rose Wilder Lane’s 1943 classic The Discovery of Freedom. It’s not available in e-book form anywhere else.

They also have the opportunity to exchange ideas in a private forum that’s members-only. Under CISPA, Dr. Paul says it’s not too far-fetched to have “government-approved employees embedded at Facebook, complete with federal security clearances, serving as conduits for secret information about their American customers.” By contrast, our project is small enough to fly under Uncle Sam’s radar.

Membership comes with a host of benefits we can’t begin to list here — seriously, give it a look — and right now, we’re offering an extra incentive to make it worth your while. But only through midnight tomorrow.

   “We know,” a reader writes after Jeffrey Tucker’s overtime briefing yesterday, “that toilets are now regulated in the flush water allowed.”

“Some manufacturers have in some cases redesigned the toilets so they flush adequately with the lower water quantity, but as usual, the government failed to consider that older homes with terra cotta waste pipes underground (consider the joints) cannot pass along the wastes without the greater water flow offered in older toilets.”

“One work-around is that on a regular basis it’s necessary to dump an entire bucket of extra water with the flush to keep the pipes under the concrete basement clear. The law of unexpected consequences strikes again! And thus what became of water conservation?”

“Check out electric trimmers: Why do the newer ones fail to work?”

“How about washers and dryers that have doors opening on the side instead of on the top? Why do they require replacing more often than the older models? Could it be the plastic hub bearings wearing out?”

“We know that the government has a new way to calculate the CPI based upon technological improvement, but do they now adjust for the ‘effectiveness failure’ of products due to regulations? I am sure not!”

“Keep up the good work, folks!”

The 5: Yes, the law of unintended consequences is enforced every day in little ways around your home. Which is what makes Jeffrey’s special report so valuable. It’s called Hack Your Showerhead: Plus, Nine Other Ways to Get Big Government out of Your Home.

Together, they make up 10 simple, subtle, even sneaky ways to stick it to Uncle Sam. Best of all, they’re completely legal — at least for now. This report is only one element in a whole bunch of goodies that comes with our new project, the Laissez Faire Club. To learn about the rest, check this out. Please note: This offer expires at midnight tomorrow.

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. Final reminder, exclusive to readers of The 5: Trial memberships in the Agora Financial Reserve are available only through midnight tonight.

If you’ve ever thought you’d like to join but the upfront cost was a deal killer, you have no excuse now. Here’s where to act.

Preparing for the launch of the Laissez Faire Club took the better part of four months, and the involvement of everyone from Addison to Jeffrey Tucker to Agora Inc. founder Bill Bonner to Whiskey & Gunpowder’s Gary Gibson.

One of the biggest challenges: Identifying the essential volumes to make up a box set we call “Economics in One Library.” In the end, the group settled on four books. Today, Jeffrey tells the story of the volume that’s the oldest, the slimmest… and in its own way, the most important.

What Is or Should Be the Law?

by Jeffrey Tucker

It seems that the president is frustrated with Congress. What kind of legislature is this, he asks, that fails to immediately enact the will of the executive? The executive has been using a slightly different approach these days: He uses an executive order. Forget all that stuff you have read in the civics texts about checks and balances and the branches of government. The executive order bypasses them all.

The White House even has a name for this: “We Can’t Wait.” There is even an official dot-gov website. Hey, if you are going to shred the Constitution and pass laws like a dictator, the best approach is to do it out in the open. “If Congress refuses to act,” he says, “I’ll continue to do everything in my power to act without them.”

To be fair, he is hardly the first. The president before him did it, and the president before that and so on back to World War I and before. Every new guy cites the precedent of the old guy, as if that alone provides justification. Defying the Constitution has a long tradition, don’t you know.

But you know what this tells me? What this country needs is a good theory of law. We even lack the language to talk about what is happening to us. One party denounces the other but only in ways that exempt itself from criticism. As a result, the “man on the street” is not even prepared to talk about fundamental questions.

Example: Where did law come from, and what should it do? Sure, people get annoyed at the police, irritated by the TSA or startled to read about periodic injustices of public policy. One party gets annoyed when the other party’s president enacts laws without regard to any constitutional conventions.

But what is the law, and what should it be? These are the bigger questions that are not part of public consciousness.

The same was true in the time of Frederic Bastiat (1801-50). At the very end of his life, he wrote an impassioned plea on the topic. He tried to get people to think hard about what was happening and how law had become an instrument of plunder, rather than a protector of property.

He writes:

It is not true that the function of law is to regulate our consciences, our ideas, our wills, our education, our opinions, our work, our trade, our talents or our pleasures. The function of law is to protect the free exercise of these rights, and to prevent any person from interfering with the free exercise of these same rights by any other person.

This is from Bastiat’s The Law, one of the great political essays to emerge from the whole Continental world of the 19th century. it vanished into obscurity in France, was resurrected in late 19th century English, and then disappeared again, only to reappear in the United States in the 1950s, thanks to the efforts of the Foundation of Economic Education.

This essay asks fundamental questions that most people go through life never having thought about. This book is part of Laissez Faire Books’ set of new works that seeks to find what is essential in the literature and distribute it in new ways. The book comes free to you (both physical and digital) with a membership in the Laissez Faire Club.

The problem is that most people accept the law as a given, a fundamental fact. As a member of society, you obey or face the consequences. It is not safe to question why. This is because the enforcement arm of the law is the state, that peculiar agency with a unique power in society to use legal force against life and property. The state says what the law is — however this decision was made — and that settles it.

Bastiat could not accept this. He wanted to know what the law is, apart from what the state says it is. He saw that the purpose of law is, most fundamentally, to protect private property and life against invasion, or at least to ensure that justice is done in cases in which such invasions do take place. This is hardly a unique idea; it is a summary of what philosophers, jurists and theologians have thought in most times and places.

Then he takes that next step, the one that opens the reader’s eyes as nothing else. He subjects the state itself to the test of whether it, the state itself, complies with that idea of law.

He takes notice, even from the first paragraph, that the state itself turns out to be a lawbreaker in the name of law keeping. It does the very thing that law is supposed to prevent. Instead of protecting private property, it invades it. Instead of protecting life, it destroys it. Instead of guarding liberty, it violates it. And as the state advances and grows, it does this ever more, until it becomes a threat to the well-being of society itself.

Even more tellingly, Bastiat observes that when you subject the state to the same standards that the law uses to judge relations between individuals, the state fails. He concludes that when this is the case, the law has been perverted in the hands of the governing elites. It is employed to do the very thing that the law is designed to prevent. The enforcer turns out to be the main violator of its own standards.

The passion, the fire, the relentless logic have the power to shake up most any reader. Nothing is the same. This is why this monograph is rightly famous. It is capable of shaking up whole systems of government and whole societies. What a beautiful illustration of the power of the pen.

But take notice of Bastiat’s rhetorical approach here. His conclusion is at the beginning. Why? He did not have that much time (he died not long after writing The Law). He knew that the reader didn’t, either. He wanted to raise consciousness and persuade in the most-effective way. Even from a stylistic point of view, there is much to learn from his approach.

Laissez Faire Books is honored to give new life to this remarkable document in this edition, which revives the translation by Dean Russell. It also includes an introduction by Bill Bonner, who gets my vote for the most-underrated voice in defense of old-style liberalism in the world today. He explains how Bastiat’s essay opened his eyes to see the world in a new way.

It is a habit of every generation to underestimate the importance and power of ideas. Yet the whole world that we live in is built by them. Nothing outside pure nature exists in this world that did not begin as an idea held by human beings. This is why a book like this is so powerful and important. It helps you see injustices that surround us, which we are otherwise inclined to ignore. And seeing is the first step to changing.

That’s why it continues to be printed and circulated and why every living soul should read it. If we are to see a renewed appreciation of the idea of liberty in our lifetimes, this monograph written so long ago in a country so far away will deserve a great deal of the credit.

Jeffrey Tucker
Executive editor
Laissez Faire Books
Primus inter pares, Laissez Faire Club

P.S. Today we release the first-ever digital edition of one of my favorite books ever: The Discovery of Freedom by Rose Wilder Lane, with an introduction by Wendy McElroy. It will later be available for purchase for $9, or get a copy free alongside all members of Laissez Faire Club! Here’s how.

[Ed. Note: If you act before midnight tomorrow, you get one free month of membership in Laissez Faire Club. Take advantage at this link.]


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