September 27, 2012
- As the war drums beat louder, The 5 asks why… gets more than we bargained for…
- How to make $25,000 in 20 minutes… and ride in your own private jet… it’s easy: Win an election!
- A curious correlation: Fed balance sheet and Chinese reserves vs. the upwardly mobile gold price…
- Pushing on a “golden string”… why the “wealth effect” isn’t all it was once cracked up to be… the case for $2,200 gold…and why it’s closer than you think..
- Reader takes a wrong turn, ends up in the “most violent city in America”… one cheer for Honduras!… Hitler — the clothing store, not the maniac — explained… and more!
Can you hear it? The drumbeat of war continues. Maybe it’s just loud for us because we’re so close to the belly of the beast: Washington, D.C.
“There are three ways war between U.S. and Iran can begin,” Trita Parsi of OpenDemocracy.net reports.
“Through a deliberate decision by either Washington, Tehran or Tel Aviv; through a naval incident in the Persian Gulf that escalates out of control; or through the gradual elimination of all other policy options — the dead-end path to war.
“Of these three, it is the last one that is most worrisome and likely.
“The Obama administration is not seeking war with Iran,” Parsi goes on, trying to excuse the president. “Obama’s push back against the Netanyahu government’s campaign for war with Iran and the harsh statements from the U.S. military against such reckless adventurism demonstrates this lack of desire for war.”
Heh. Yeah. OK.
“The Netanyahu government is unlikely to initiate war,” he also writes, “in spite of its never-ending threats… Israel draws a lot of benefits from threatening war, but actually starting one is an entirely different matter with many unpredictable repercussions.”
So that leaves Iran, then.
Full disclosure: We’re not sure there’s any value in trying to follow the breadcrumbs here in The 5. You may have to bear with us. But as we have parsed history in works like Empire of Debt, we’d be remiss if a war actually broke out right in front of us and we didn’t try to understand why… however foolish the justifications for war might be.
One thing is fairly obvious when you dig into the polemics of the situation… the escalation is no one’s fault. Ergo, it must be everyone’s.
“Now is the time that a small provocation could lead to a full-blown war,” Business Insider points out also, curiously, covering the characters who appear to enjoy marching toward conflict.
Meh.”Iranian submarines periodically go down… someday one of them might not come up.”
Patrick Clawson, director of research at Washington Institute of Near East Policy (WINEP), doesn’t think that’s such a bad idea. “If, in fact, the Iranians aren’t going to compromise,” Clawson said in a recent luncheon address, “it would be best if someone else started the war.
“I frankly think that crisis initiation is really tough,” Clawson comments on the challenge of getting such a war under way… and it’s very hard for me to see how the United States… uh… president can get us to war with Iran.”
“Before that, Clawson listed all the conflicts in which the U.S. didn’t become involved until they were attacked,” Business Insider goes on, “emphasizing that a false flag was needed each time for conflict to be initiated.
“One can combine other means of pressure with sanctions,” Clawson said. “I mentioned that explosion on Aug. 17. We could step up the pressure. I mean look, people, Iranian submarines periodically go down, someday one of them might not come up, who would know why? We can do a variety of things if we wish to increase the pressure… We are in the game of using covert means against the Iranians. We could get nastier.”
WINEP’s website describes the outfit as a “key organization in the Israel lobby,” founded in 1985 by leaders of the American Israel Public Affairs Committee (AIPAC) to “provide ‘objective’ research in ‘pro-Israel’ analysis and commentary.”
Objective. Right.
“Your speech agent calls,” a State Department official explained to The Christian Science Monitor this morning, “and says you get $20,000 to speak for 20 minutes. They will send a private jet, you get $25,000 more when you are done and they will send a team to brief you on what to say… The contracts can range up to $100,000 and include several appearances.”
That’s how influence gets peddled. American politics at its finest.
Not surprisingly, a recent egregious example, relates to today’s theme. In 2003, the once “foreign terrorist organization,” Mujahedin-e Khalq (MEK), was used by Bush to justify an attack on Iraq. Saddam was accused of sponsoring “international terrorism,” and it was considered a felony to provide “material support” to the MEK.
Now Washington has had a sudden change of heart… and The Guardian’s Washington reporter says the pro-MEK campaign “has seen large sums of money directed at three principal targets: members of Congress, Washington lobby groups and influential former officials,” including the GOP congressman who chairs the House Intelligence Committee, Mike Rogers.
Is it because MEK have been good lately? Not exactly, MEK has actually intensified its terrorist and other military activities over the last couple of years. In February, NBC News reported, citing U.S. officials, that “deadly attacks on Iranian nuclear scientists are being carried out by [MEK]” as it is “financed, trained and armed by Israel’s secret service.”
Glenn Greenwald reports from The Guardian on “five lessons from the delisting of MEK as a terrorist group:
1.) “There is a separate justice system in the U.S. for Muslim-Americans”
2.) “The U.S. government is not opposed to terrorism; it favors it.”
3.) “‘Terrorism’ remains the most meaningless, and thus the most manipulated, term in political discourse.”
4.) “Legalized influence-peddling within both parties is what drives D.C.”
5.) “There is aggression between the U.S. and Iran, but it’s generally not from Iran.”
Yet here we go.
Alas, the markets have barely noticed. After three days of sulking, it seems Mr. Market is making a comeback… the Dow has leapt 102 points, to 13,516. The Nasdaq is up 44 points, to 3,137. The S&P 500 hopped up 16 points, to 1,449.
Oil is showing signs of life, jumping up nearly $2, to $91.88. Silver is up 64 cents, to $34.63… and gold has ascended to $1,777.80, up $24.50.
Regarding the price of gold, we were forwarded a curious chart. It depicts the rise in gold price versus the Fed’s balance sheet + China’s dollar-based reserves.
We’re still trying to make sense of it. One interesting feature: When the Fed and China starting pairing back simultaneously, the gold price breaks out ahead of the curve… and then corrects. Only to start rising again when QE began again in earnest…
Coincidentally, banks on Wall Street are calling for QE4… already.
“QE3 will likely be insufficient,” Adam Parker, Morgan Stanley’s chief equity strategist told some talking heads on CNBC yesterday, “to significantly boost equity markets and we wouldn’t be at all surprised to see the Fed dramatically augment this program (i.e., QE4) before year-end, particularly if economic and corporate news continue to deteriorate as they have over the past few weeks.”
“If the recovery continues to disappoint,” Goldman Sachs economists say, “additional steps are possible.” Their prediction? QE3 of up to $2 trillion and “an increase in the pace of asset purchases as well as further changes in Fed communications.”
If the correlation in the chart above holds… gold should climb to north of $2,200…
Income inequality in the United States is worse today than it was back in 1774. Or so a piece in The Huffington Post claims. We’ve never really understood what inflames people so about the “income disparity” issue.
At one point last fall, we were invited on the local NPR station to debate the merits of a study published by a professor from Harvard who found a widening wealth gap to be disturbing. The two other guests were professors of social justice from some local colleges. The interview was a failure. We couldn’t muster the disgust either guest wanted… nor could we justify or defend the trend.
Yesterday, however we think we discovered one reason why growing income disparity may actually matter. First, let’s review what The Huffington Post had to say about the new findings:
“American Incomes 1774-1860,” even when factoring in slavery, finds income equality wasn’t near the extreme it is today.
“Likewise,” HuffPost continues, “two historians concluded last year that income inequality today is worse even than it was during the Roman Empire. The study found that the top 1% of Ancient Roman earners controlled 16% of the Empire’s riches, compared to the top 1% of American earners today who control 40% of the country’s wealth.”
Citing The Atlantic’s Jordan Weissman, the HP then hedges their bet: “Such studies should be taken with a grain of salt, given that making historical economic analyses is like ‘making a messy collage, collecting the disparate bits and pieces of information we have available and fashioning them into a coherent picture.'”
Not that The Atlantic would know anything about that:
The Atlantic: “a messy collage, collecting the disparate bits and pieces of information”
and “fashioning them into a coherent picture.”
Heh. We couldn’t resist.
Back to the point: Bernanke’s QEternity programs are designed to intermittently goose the stock markets and jump-start the much vaunted “wealth effect.”
However, with increasing income disparity… i.e., declining middle class… the beneficiaries of the “wealth effect” are slowly disappearing.
“The problem with Bernanke’s wealth effect thesis,” writes Denis Ouellet in John Mauldin’s Outside the Box e-letter, “lies with the new reality in America. Income and assets have lately been so significantly redistributed that only a tiny few actually feel a wealth effect from rising equity prices. Here are some sad facts:
- “Last year, the top 20% of households took in 51.1% of all income in 2011, up from 50.2% in 2010 and the highest share since at least 1967, according to the Census Bureau. After the top, each quintile of income earners saw their share of income decrease, with the biggest drop among middle-income earners. The middle fifth of households took in 14.3% of all income last year
- In 2007, the top 20% of income earners had 53% of their financial holdings in stocks (directly and indirectly), down from 59% in 2001. Middle-income earners had 38% of their financial assets in stocks in 2007, down spectacularly from 47% in 2001
- Stock holdings have declined since 2007. From a high of $200 billion monthly inflows into the stock market in April of 2004, the market is now seeing a $200 billion monthly exodus from the market
- U.S. house values remain 30% below their 2006 peak level and now match their 2003 level
- Total residential mortgage debt has only declined 7.5% since 2008. Some 1.5 million homes are in foreclosure, but 10.8 million homes remain in negative equity.”
“The ‘wealthy few’ may feel wealthier if stocks advance,” concludes Ouellet, “but they could nevertheless have much less after-tax income to spend when politicians finally address the looming fiscal cliff nestled within the rapidly growing mountain of debt.
“Keep in mind that it is these wealthy people who run American corporations, keeping them lean and mean and flush with cash. They remember how profits literally disappeared in 18 months in 2007-08. They remember how financial markets totally froze in 2008. They see the humongous budget deficits and the debt piling on, and the not-so-distant day of reckoning. They realize that all the QEs in the world can’t offset inept and irresponsible politicians on either side of the Atlantic. Yet they are the ones targeted by the so-called wealth effect!
“Call that pushing on a golden string.”
A reader requests, “Please have someone define for me ‘fair share.’ I don’t know what that means for the upper-income folks or the middle-income folks or for the remaining folks. We keep reading and being beat up over not ponying up our ‘fair share’ …so what is it?”
The 5: Your guess is as good as ours. If you do find someone who can define it, please let us know.
“Last year, I made a wrong turn,” writes another reader, commenting on our observation about the “city of contented industries,” ” a left into Camden, on a beautiful Sunday afternoon. I live only 25 minutes away, but had never seen the hidden residential underside of the city in broad daylight.
“The scene was something you know exists in your mind, yet the reality is stunning anyhow. Young adolescent prostitutes, people asleep on the sidewalks, truly crumbling buildings like something out of a Dickens novel. Idle adults crowded onto every set of front steps, and, without exaggeration, every eye followed me, and not with friendly interest.
“The place looked like pictures you see of war somewhere else. Yet I have trouble seeing it as a sign of the times. Camden’s been a place no sane person visits for 40 years. It is a great example of how those kinds of problems can’t be solved by throwing money at them, though.
“You can drive over the Ben Franklin and count the dollars both public and private that have been ‘invested’ there, millions and millions and millions, in the name of ‘turning the city around,’ yet things remain the same.”
The 5: What… you tink someone stole da money? Hah? [Best read with Joe Pesci in mind.]
“I am really pleased to see Honduras get some good press for a change,” another writes regarding the as-yet-unnamed experimental city being planned there. “They were criticized — unjustly. in my opinion — when they had to expel their president a few years back. The U.S. and Costa Rica led the group of countries demanding to have him restored to power.
“At the time, I began reading some of the Honduran newspapers on the Internet and discovered that someone had forgotten to put an impeachment section in their constitution, so expulsion was the only solution after he ordered the army to distribute illegal ballots. The chief of staff refused. The president fired him. The Supreme Court put him back in charge of the army and the president fired him again. The legislature met and sent someone to escort him to Costa Rica.
“I added up the numbers, and at least 93% of the president’s party had voted in favor of the expulsion. The ballots that he wanted to have distributed illegally were to hold a constitutional convention so that he could be re-elected. It was illegal to make this change at that time. As nearly as I know, there have only been two occasions when U.S. presidents defied the Supreme Court, once on Cherokee land claims and once on FDR’s New Deal.
“I believe that they did hold a constitutional convention recently, but restoring Manuel Zelaya to power was not on the to-do list.”
The 5: Hmnnnn…
“This is my first time giving feedback to The 5,” writes our last reader for today, “I’ve been reading your newsletters for about three years and love them, so keep up the good work.
“In reference to the man who decided to name his store Hitler, gimmick or not (it probably is), the swastika is a religious symbol to Hindus. It was an ancient Vedic symbol that means good luck, prosperity, good health. Adolph Hitler absconded the swastika and perverted it for the Third Reich, as well as the term Aryan, which is a common name in India. He had an obsession with India and even sent teams of archaeologists there to dig up artifacts. Just an FYI.
“I’m not condoning what this store owner did, but there is a chance he was unaware of the reference. Hey, in a country of 1.3 billion people, there are bound to be some idiots. Look at how many we have in America with just over 300 million people!”
The 5: OK.
Cheers,
Addison Wiggin
The 5 Min. Forecast
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