A Persistent Problem

Dave Gonigam – May 23, 2012

  • Say it ain’t so! Sudden realization that Greece is still a problem sends markets reeling: Dan Amoss braces you for the triage to come
  • Other market movers: Facebook descends into farce (or is it tragedy?) and “improving” housing numbers
  • Tales from zero-tolerance America: Man ticketed after saving son’s life… students suspended for riding bicycles… artist jailed for, well, art
  • “Burning Chase” painter’s latest opus… Readers rise to The 5’s defense… Five free ways to preserve your purchasing power… and more!

   Well, well… It’s turning into another one of those “risk off” days. It turns out Greece hasn’t been fixed yet.

Never mind that Greece is no more or less fixed now than it was two years ago. Nor will it be fixed in any sense of the word before the next round of elections on June 17… which is 25 days from now.

In the meantime, the herd of volatility is on a stampede this morning…

  • Every major U.S. stock index is down 1% or more. The S&P is once again threatening 1,300. The Dow is down to its lowest level all year
  • So much for gold’s gains last Thursday and Friday: The bid is down to $1,542. Silver’s been knocked back to $27.41
  • The rest of the commodity complex is getting smashed too: Oil is below $90 for the first time since October, copper is back where it was in January and the CRB index is down to late-2010 levels, at 281
  • Hot money is fleeing to the greenback. The dollar index has broken above 82 for the first time since September 2010, while the euro has sunk to $1.256, a level last seen in August 2010
  • Treasuries are also a beneficiary of the safety trade: The yield on a 10-year note is down to 1.72%. Not quite as low as the all-time record set last Friday, but close enough.

   “The stage is being set for a potential Greek exit from the eurozone,” says our macro strategist, Dan Amoss. “A Greek exit is very bad news for the banks in the rest of the PIIGS countries, because it will lead to another wave of bank runs.”

During those bank runs, the European Central Bank will have to perform triage, deciding which of the PIIGS banks it can save. ECB leaders will want to make sure the banks they lend to will have adequate capital. They’ll ask for guarantees from the PIIGS governments and the eurozone bailout fund.

The process is every bit as messy as it sounds. End result: “The political will to hold the eurozone together is weakening,” says Dan.

Then again, Europe might not be the only thing spooking the market.

   The Facebook debacle is reversing Marx’s quip about how history repeats itself. What looked like a farce on Friday is descending into tragedy today. Or maybe fraud.

Shareholders are suing both Facebook and the IPO underwriter, Morgan Stanley. “To have what was perceived as a watershed IPO result in this kind of harm is deeply troubling,” says one of the lawyers who filed the suit.

At issue is whether Morgan Stanley lowered its revenue estimates for FB, disclosing that information only to preferred investors, conveniently leaving it out of the prospectus and registration statement.

It matters not whether the allegations are true. After J.P. Morgan’s derivatives debacle and the meltdown at MF Global, it’s getting harder and harder for Wall Street to shake the impression that it’s all a rigged game.

   The Commerce Department turned in a sunny report on new home sales this morning… as if traders cared.

Builders unloaded an annualized 343,000 homes in April — better than the “expert consensus” was counting on.

But given the long view, beating expectations doesn’t count for much.

One aspect of this report is back to “normal,” however. Builders are sitting on 5.1 months of inventory. At the start of 2009, they were saddled with a year’s worth.

   It’s not just a handful of U.S. states like Utah that seek to confirm gold’s status as a currency: The Swiss are up to something too.

A committee of the Swiss parliament is holding hearings today on the introduction of a parallel currency known as the “gold franc.”

“Buying gold bullion coins and bars and gold certificates requires professional advice in Switzerland,” explains Mark O’Byrne of GoldCore, “and some other countries and banks are the largest providers. Even the smallest gold coins can cost a few hundred francs.”

“One of the new gold francs, on the other hand, with a gold content of 0.1 grams, could be purchased for just 5 francs (at current prices) and would mean that gold became more widely owned by ordinary people in Switzerland.”

That works out to $5.30, if you’re curious.

“The proposal,” Mr. O’Byrne goes on, “may lead to a wider debate about the Swiss franc and the role gold might again play to protect the Swiss franc from currency debasement.”

   The votes are in, and they’re overwhelming: 96% of respondents to an online poll oppose a plan to yank the passports of people who owe more than $50,000 to the IRS.

As mentioned in The 5 last month, this charming idea turns up in a piece of legislation called the Moving Ahead for Progress in the 21st Century Act.

Our friends at International Living have the poll up and running right now. No, it’s not a scientific survey. But “Americans across the political spectrum appear increasingly frustrated with what they perceive as restrictions in fundamental ‘freedoms’ and they see this latest act as just one more example,” says International Living editor Dan Prescher.

If you want to chime in yourself, here’s where to go.

   “I couldn’t believe it,” says one Frank Roder — in the first of a trio of stories proving you don’t have to offend the IRS to run afoul of the zero-tolerance society circa 2012.

Mr. Roder drove his 5-year-old son last week to a river bluff in Union County, N.J., to feed the ducks. The boy, doing what 5-year-olds are wont to do, jumped out of the truck and darn near ran off a 35-foot ledge.

His dad leaped out of the car and pulled the boy to safety just in time. The truck landed in the drink instead.

The officer who arrived at the scene cited Mr. Roder for failure to produce an insurance card — it was still in the truck — and failure to apply the emergency brake.

“He said, ‘If you would have taken the five seconds to apply the brake, this never would have happened!’”

“I say, ‘Really? And if I did and my boy stepped over the edge and fell instead of the Jeep, then where would I be?’ He says, ‘Jail, for child endangerment.’”


   Meanwhile, the principal of a high school in Walker, Mich., suspended 64 seniors on the final day of class… for riding their bicycles.

“Students say more than 100 classmates participated in a three-mile bike ride to school that included escorts by a Walker Police cruiser and the mayor,” reports MLive.com. “It was supposed to be a fun twist on the types of things that typically happen on senior prank day.”

But the humorless principal, one Katie Pennington, was not consulted in advance, and thus took offense. “I am glad they made it here safely. It was a safety risk,” she said. Even with a police escort, apparently.

Now the students are stuck rescheduling exams. At least they’ll be allowed to attend commencement.

   Meanwhile, police in New York can’t tell the difference between art and a bomb… so they arrested the artist.

Takeshi Miyakawa created some illuminated shopping bags with the “I Love New York” logo, and hung them on some lampposts in Brooklyn — as part of an event called New York Design Week.

A passerby called the cops… who then called out the bomb squad and cleared the surrounding area for two hours. Mr. Miyakawa is now charted with “planting false bombs.”

Even better, a judge ordered him to undergo a psychiatric evaluation, which could keep him in jail for up to a month.

[Ed. Note: Challenging as it may seem, there are still ways to fight back against government’s growing intrusions. Laissez Faire Books executive editor Jeffrey Tucker has compiled 10 simple ones you can put to work at home right away.

His report is one of many benefits that come with membership in the Laissez Faire Club… including access to a new e-book every Friday. Please review Jeffrey’s invitation here.]

   At least one artist we’ve been following in The 5 is still thriving. Alex Schaefer’s latest work is up for bid on eBay…

Readers might recall last fall, Mr. Schaefer set up his easel outside a Chase branch in Van Nuys, Calif., and proceeded to paint a similar picture — for which he was promptly visited by the local constabulary.

Fortunately for him, nothing came of it and his canvas fetched five figures.

“I’m still painting these because nothing has changed,” Schaefer writes on his current listing, now up to $1,925 with a week remaining. “Banks continue to wreak financial terrorism across the globe and politicians continue to do nothing to stop them. But I think we are slowly waking up!”

   “Banks have always been in the business of stealing money from their customers,” writes an awake reader carrying on our Bank of America thread.

“In 1986, in Los Angeles, I started a business and was required to put $800 into an escrow account for utilities. It was there in case I was not able to pay for utilities. I was supposed to get my money back in seven or eight years, but never did.”

“A few years later, BofA was found guilty of systematically not refunding these monies back to their clients. They were hoping that people forget them, and many did, myself included. But even if someone tried to get the money back, they were given so much red tape and runaround that most gave up. Banks have been thieves all along and never change.”

   “You haven’t mentioned,” a reader writes after yesterday’s episode, “the new largest oil reserve of 3 trillion barrels in Utah/Colorado announced by the U.S. Geological Survey earlier this month.”

“Largest oil reserve in the world — talk about energy independence! But will this administration advocate for development?”

The 5: Ah, the Green River Formation. Yes, 3 trillion barrels, about half of that recoverable. But development could be 15-20 years away, even if you factor out political tangles. Awfully hard to invest in now.

Meanwhile, huge shale formations already in development are building new fortunes right now. That’s why Byron King is so jazzed on the sector… and its moneymaking potential for you.

   “We all need to remind ourselves,” says the first of several emails rising to our defense today, “that coins have three sides, objective journalists have at least two and closed-minded ideologues have only one.”

This is in reply to the fellow who labeled us “closet Fox News sheep” for the cardinal sin of mentioning a link seen on the Drudge Report.

“Keep up the good work, and I actually do not see a bias,” says another reader. “I guess that makes me one of those dreaded open-minded folks.”

   “When I read the ranting, complaining reviews about the Drudge Report as a poor source,” writes a third, “I have to stop and think: I have watched American citizens, one by one, become opinionated idiots.”

“Too many people today are narrow-minded and have allowed others to define them. Left, right, anti-Rush, pro-Obama, racist, Zionist, Marxist, Tea Baggers, the list is endless.”

“I’ve come to the conclusion that I am a dying breed in this country. I can actually read material from any side, any angle and any writer and through a process of critical thinking, intelligence and the profound ability to determine the truth, throw away what doesn’t matter.”

“We have truly let the crazies, liars and lunatics guide us. Grow some skin, get your facts together and move on. To call Agora on the carpet for where they get their info, instead of the content and reliability of their info — well, there is a perfect example of an idiot that is led around by the nose.”

   “I just read through my first 5 Min. Forecast. I am always in search of someone or some organization that will tell the truth and back it up with facts. Thanks for the hard work you have to do to tell the truth.

“The problem we face today is that our people have been so inundated with ‘untruths’ we don’t recognize the truth. We have been indoctrinated on the ‘butter theory.’ Our food industry has produced so many different kinds of artificial butter products and we have become so used to eating them we don’t recognize the taste of real butter anymore.”

“Keep up the good work. If you really want to know ‘why’ and ‘how’ we got ourselves in the mess we are in, you need to read the book The Road to Serfdom by Friedrich A. Hayek.”

The 5: This editor first read it about 20 years ago. Addison Wiggin, our executive publisher and “leader of the pack,” drew on it extensively when writing Empire of Debt with Bill Bonner.

“Not only is The Road to Serfdom still relevant in our own time,” writes scholar Bruce Caldwell, “it has something else going for it, too. It is actually readable.”

It’s the edition thoughtfully edited by Caldwell that we offer at Laissez Faire Books.

   “After 30-plus years in the grain business, through Dems and Repubs, and all of the high priced anal-ysts (intentional), you guys are , if nothing else, thought provoking and refreshing.”

“Many would do well to pull their head out of their rear and think for a moment, as difficult and painful as that may be. Keep the light shining. I love this stuff.”

   “The highlight of my day is reading The 5 Min. Forecast,” writes our final correspondent. “It is the only thing I read that tells it the way it is and not with some spin on it. You folks should have run for president; at least we would get the straight stuff. Keep up the good work.”

The 5: Oh dear, not this again. “As flattering as the compliment appears to be,” Addison wrote in this space last October, “should an election turn out this way, we’d demand a recount. Or an investigation.”


Dave Gonigam
The 5 Min. Forecast

P.S. Addison’s latest volume, The Little Book of the Shrinking Dollar, is still available as part of an unbeatable “package deal.” The book lays out 47 ways to protect yourself as the dollar’s purchasing power shrivels to nothing.

You can learn about five of those 47 ways right here.


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