Dave Gonigam – June 27, 2012
- Only in government: Number of people on one program grows 70%, cost of the program grows nearly twice as much
- The $78 billion pile of money that lures at least three Dow 30 companies to Washington (none of them banks)
- “A very important business to JPMorgan”… every penny of which comes out of the taxpayer’s hide
- The Spanish acquisition: European “fire sale” Chris Mayer spotted five months ago begins in earnest
- A new number for JPMorgan’s “London whale” loss… a $5 billion Pentagon boondoggle, all for vanity… windshield-washing outrage… and more!
Here’s a fairly well-known fact: One in seven Americans is on food stamps.
Here is a lesser-known fact: Food stamps account for 25-40% of the monthly revenue at certain Wal-Mart locations, according to New York University nutrition professor Marion Nestle.
Indeed, Wal-Mart collected nearly half of the total $1.2 billion in food stamp spending in Oklahoma between 2009-11, according to the Tulsa World.
Food stamps — or if you prefer its current nomenclature, the Supplemental Nutrition Assistance Program (SNAP) — has become big business.
Curse the zombies who are on the program all you want… but as you’ll learn today, the zombie class includes the executives of grocery chains, soft-drink makers and the ever-present zombie banks.
The number of Americans on food stamps totaled 46.4 million as of March — the most-recent figure available. The number is down slightly from the record set in January:
While the number of Americans on food stamps grew 70% from 2007-11, the cost of the program grew 135%.
Spending in 2011 totaled $78 billion, according to the Congressional Budget Office. The agency says spending grew faster than the number of recipients for two reasons: First, benefit amounts were increased 15% under the 2009 “stimulus” bill.
Second, as you know all too well… food prices have gone up.
The Agriculture Department is spending up to $3 million to encourage even more people to sign up for SNAP.
The agency figures one out of four people eligible for food stamps isn’t taking advantage. So for the last four months, the USDA’s been running radio commercials “targeted at the elderly, working poor, the unemployed and Hispanics,” reports CNNMoney:
The part about “eating right” is especially rich… considering the vested interests in the program.
“A vast percentage of food stamps’ money goes into the pockets of soda companies and snack food companies,” says the aforementioned professor Nestle.
USDA has few limits on what you can buy with food stamps. No booze and no prepared foods — i.e., the mac and cheese served hot beneath a sneeze guard. Nearly everything else edible is fair game.
So among the companies that lobbied Congress last year on issues related to the food stamp program are Cargill, Coca-Cola, Kellogg, Mars and PepsiCo… along with the aforementioned Wal-Mart. Plus, industry groups like the American Beverage Association and the Snack Food Association.
In Washington, there’s been idle chatter about tightening the list of eligible foods available under SNAP. In at least nine state capitals, that chatter has been put down in legislation. And in all nine cases, the legislation has gone down in flames.
“In Florida, a proposal to ban food stamp purchases for soda and junk food was killed with the help of Coca-Cola, the Corn Refiners Association and Kraft Foods,” according to a report from Eat Drink Politics, which describes itself as a “watchdog consulting group.”
“Sometimes good intention goes too far,” says a list of talking points from the National Confectioners Association — the candy lobby.
“For example, limiting food choices in SNAP could deny children an occasional treat during the holidays such as Christmas, Halloween, Hanukkah, Easter, etc. — and for birthday parties, shouldn’t parents be able to make the decision whether treats will be offered?”
The question of whether parents should “make the decision” on the taxpayer’s dime is conveniently skirted.
Often the food companies and industry associations donate to anti-hunger organizations — to bolster their lobbying heft.
“Anti-hunger advocates,” writes Nestle, “fear that any move to restrict benefits to healthier foods, or even to evaluate the current food choices of SNAP recipients, will make the program vulnerable to attacks and budget cuts.”
The financial sector also has its hands deep in the SNAP candy jar.
In 24 states, JPMorgan Chase administers the EBT (electronic benefit transfer) cards — the debit cards that replaced traditional “food stamps” nearly a decade ago.
JPM has a five-year contract in Florida worth $83 million, and a seven-year deal in New York worth $112 million.
The program in 13 other states is handled by Affiliated Computer Services, a unit of Xerox. In 11 more states, the contract is held by Fidelity National Information Services. Improbably, the defense contractor Northrop Grumman administers the cards in Illinois and Montana.
“This business is a very important business to JPMorgan in terms of its size and scale,” said Christopher Paton in 2010. He’s chief of the JPM division that handles the program.
How important, we don’t exactly know. “Although state contracts are public record, they do not clarify exactly how the contracting firms turn a profit from EBT, and what those profits are,” according to the Eat Drink Politics report.
“Likewise, the Securities and Exchange Commission filings from the publicly traded corporations in the EBT market, such as JPMorgan Chase, do not itemize revenues from EBT business.”
“Banks that administer SNAP have a vested interest in keeping SNAP enrollments high,” concludes professor Nestle, “and makers of junk foods have a vested interest in making sure that there are no restrictions on use of benefits.”
The professor is among the advocates of such restrictions. Here at The 5, we take no position… except the one behind the battlements against the zombies, whether they wear flip-flops in Wal-Mart or Pradas in the executive suite.
“I’m not against supporting people in need,” says our publisher, Joe Schriefer. “But when the handouts are too freely dispensed, it breeds corruption. America’s welfare state is completely out of control… and shows no signs of improving.”
“Of course, you and I both know that our government doesn’t have any money of their own to hand out. Instead, they take to ‘stealing’ the money from you and me.” It might be directly via taxation. Or indirectly via money printing.
Either way, you pay — unless you take some preventive steps. Joe has several in mind that you can start on this week. Most are easy to implement. Every one is completely legal and above board… for now.
There are already moves afoot in Washington to change that. So you owe it to yourself to review these steps ASAP.
U.S. stocks are drifting higher, as they did toward the end of yesterday. The Dow has huffed and puffed its way above 12,600 — which still puts the index lower than it was last Friday.
There were two numbers of note today:
- Durable goods orders rose 1.1% from April to May. The year-over-year increase is 4.6%. A lot of the bump last month came from aircraft
- Pending home sales rose 5.9% from April to May. Like Monday’s new-home sales figure, the index has clambered back to its April 2010 level, when the home buyer tax credit expired.
Both numbers were considerably better than the “expert consensus.”
Back to JPMorgan: The latest estimate on its loss from the “London whale” trade is $9 billion.
“That could be two-quarters’ worth of net income,” freelance investigative reporter Teri Buhl writes on her site, “and since JPM staffers are paid in part on how the whole company earns, that rumor about a year-end lackluster bonus is looking more like a reality.”
Buhl is keeping her sources close to the vest, but “a few seasoned wealth managers I spoke with,” she ventured, “are weighing competitor offers and seriously thinking of jumping ship.”
JPM reports its Q2 numbers on July 13. Friday the 13th, we hasten to add. Heh…
The impending bailout of Spanish banks is about to touch off what Reuters calls a “fire sale of corporate Spain.”
Banks that take bailout money will be subject to European Union rules forcing them to dump their stakes in the phone company Telefonica, the oil giant Repsol and power firm Iberdrola. A report from UBS reckons $28 billion in assets will be up for grabs.
Chris Mayer reckons it’s just the beginning; recall, he forecast the “fire sale of the century” in these virtual pages last January. European banks will likely unload $1.8 trillion in assets over the next 10 years to raise cash.
“There is no better, more-reliable way to make money than to buy something from someone who has to sell,” he wrote at the time. “Bankers are the best people in the world to buy from.”
In his own banking days, “I would get at least three or four requests every year from some investor group asking if we had any assets we were looking to unload. Why? Because they know banks are stupid sellers.”
Chris has thoroughly researched how you, the retail investor, can buy quality assets from “stupid sellers.” His recommendations are found in his entry-level newsletter, Capital & Crisis — which has amassed an average 42% annualized gain for each of the last two years.
For a limited time, we’re offering you the chance to get started on your own path to 42% annual gains… and you don’t have to watch a lengthy presentation to do so.
Gold is moving little today, at $1,574. Silver sits at $26.97.
“War is America’s No. 1 zombie industry,” Bill Bonner reminded us on Monday in The Daily Reckoning… and the newest evidence is easy for all to see.
Too easy, as it turns out: The “pixelated” camouflage that’s been standard issue in the Army since 2004 is being scrapped. Despite $5 billion in development costs — yes, billion with a “B” — the camo did a rotten job of hiding a soldier from view.
“Soldiers have roundly criticized the gray-green uniform for standing out almost everywhere it’s been worn,” reports The Daily:
“If we can see our own guys across a distance because of it, then so can our enemy,” said one specialist who understandably wished to remain anonymous.
Yes, that was surely obvious from the get-go. So why was the design chosen, anyway? Because the Marines had already switched to a pixel design.
“That’s what this really comes down to,” says Eric Graves, editor of the military gear publication Soldier Systems Daily. “’We can’t allow the Marine Corps to look cooler than the Army.’”
“That’s really going to help their case,” quips Addison via email.
“Our kids’ soccer team needs new uniforms too. Not because they don’t hide us from the other team. But because they’re going to start falling off the kids’ bodies in tatters. Cost: closer to $500 than $5 billion.”
“Maybe we could get picked up as an agency of the government and let Congress overpay our 12-year-olds.”
“Regarding the oil change place in Simi Valley, Calif.,” writes a reader after yesterday’s episode, “we should take up a collection for him to hire a good lawyer to sue the city for harassment.”
“It seemed ridiculous how he was being treated, and I would be one of the first to contribute.”
“Honestly?” adds another reader. “$1,200 window-washing permits in Simi Valley? If there’s a California earthquake soon, surely the epicenter will be Ronald Reagan’s gravesite.”
“Flamenco dancers,” writes an incredulous reader, “is what the Spanish come up with as a means of protesting the banks?!”
“Seriously? Flamenco dancers?! This explains why Spain is in the trouble it’s in. Now you don’t have to spill any more ink over it. And if Merkel gives them another dime in bailout money, the Germans better start drinking beer as a means of protest…”
“Baby boxes and California window washing!” writes our final correspondent. “I just live in Jacksonville. Where’s flamenco when you need it?”
The 5: We believe you’ve set a reader-mail record for references to the highest number of 5 Min. stories in the smallest amount of space. Well done!
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. “I made $1,235 in a single conference day,” writes a happy attendee of the Agora Financial Investment Symposium, “which will more than cover my expense for attending the meeting… such a deal!”
That’s the caliber of guidance you’ll find at our annual event in Vancouver. We’d love to have you join us July 24-27… but space is filling up quickly. For a rundown of speakers and registration information, give this a look right away.