December 21, 2012
- The Mayans were wrong!… (Darn, back to the “fiscal cliff”)…
- “Of course, it will be a disaster” Casey observes… the danger of confusing the government with the economy…
- The “Shadow Gold Price” (SGP) points to $3,400 an ounce by 2015… And $20,000 beyond!… the 5 Min. Forecast PRO recommends accordingly…
- Man leads modest existence, dies with $7.4 million in gold: All hail the “rich white guys with no life” brigade…
- The real perils of small business as we approach 2013… an inquiry on the AMT… Romney chalks up $8.9 million in missing (taxpayer-funded) transactions… and more!
Hmmm… where’s the massive solar flare? How anticlimactic.
The north and south poles remain in their customary locations. The Yellowstone Caldera? Quiet as a church mouse.
That giant slab on La Palma in the Canary Islands? It was supposed to fall into the Atlantic, sending a wave 3,000 feet high toward Agora Financial headquarters.
Apparently, not today.
We suppose there’s still time for this forecast to pan out:
But it seems increasingly less likely.
Frankly, we could use a little excitement around here. Without the shock and awe of the end of the world to contemplate, we’re stuck with… the “fiscal cliff.”
Nooooooooo!
This morning, the least tarnished of the big three ratings agencies, Fitch, warned Congress and the White House a lurch over the fiscal cliff in would increase the “likelihood that the U.S. would lose its AAA status.”
Not a guarantee… just an increased likelihood.
“Going over the fiscal cliff,” writes a perplexed reader, “means we would cut the $1.1 trillion deficit we run each year in half.
“Why the hell would the ‘prudent,’ more responsible path mean a cut to our rating? Upping the debt limit by $5 trillion and increasing the deficit to $1.5 trillion would be better management?”
“It’s not the U.S. economy that’s facing this alleged cliff,” writes our friend Doug Casey, “it’s the U.S. government.
“It just goes to show how hopeless the situation is when people equate the government with the economy. They’re two entirely different things. The only way to revitalize the U.S. economy is a vast reduction in taxes and a vast reduction in government spending.
“Instead, these idiots are arguing over how much to raise taxes and how little they can cut spending. Of course, it will be a disaster.”
Indeed, to see how little is at stake when you examine the Obama and Boehner proposals side by side, check this out from The Daily Reckoning…
“Here’s what would happen,” says Doug Casey, if the White House and Congress can’t come to terms… and the government does stumble over the cliff.
[Warning: Mr. Casey is applying logic.]
“Higher taxes would suck more capital out of the productive economy and divert it to the government — that’s very bad. And lower government spending would help unravel distortions and misallocations of capital that spending was causing — which is good.
“In the process, some people would have to find new jobs, and some businesses dealing with government handouts would go bust. Painful, but necessary, and we need to see lots more of both.”
Instead, “The tax increases they’re proposing are significant and immediate… capital gains are set to go from 15% to 20%, and the top income tax rate to 39.6%, including dividend income.
“The spending cuts are modest and mostly for the future — only a 0.25% decrease in actual outlays by the government in 2013. That’s a rounding error.
“In short, it’ll be harder to earn an honest living, and there will be less incentive to invest wisely, but bloated government will continue running the printing presses as fast as they’ll go. I think we’ll see at least a trillion-dollar deficit next year. Maybe more like $1.5 trillion.”
Which the Federal Reserve will proceed to monetize.
“The one thing we know for sure,” Doug surmises, “is that the world is being flooded with new funny money. Economic contraction is masking the effect, and that money is just sitting in banks now, but you can’t print trillions and trillions of new currency units indefinitely without inflation showing up.
“Timing is always the hard part — confusing what’s inevitable with what’s imminent — but this is as sure a thing as I can see in today’s market.”
But don’t pile into an inverse Treasury ETF, Doug warns: “There’s no telling exactly when the tide will shift; and until it does, investors in such vehicles run the risk of losing their patience and giving up too early.
“There will be time to invest in that when the tide shifts, but has not yet gained momentum — then shorting government bonds will be the Trade of the Decade.”
Thus, Doug Casey concurs with Addison and Bill that government bonds are “the world’s biggest bubble.” For concrete ideas on surviving that bubble, follow this link.
[Ed. Note: For many more pithy insights from Doug Casey, we direct your attention to his new book: Totally Incorrect, from Laissez Faire Books. If you move quickly enough for rush shipping, you still have a chance to score a copy — at 47% off — before Christmas.]
The major U.S. stock indexes slumped 1% on the open today. With the end of the world not nigh, financial media are latching onto — you guessed it — the failure of Congress to vote on a fiscal cliff deal before Christmas. At last check, the S&P has slumped to 1,428.
The economic numbers out this morning are stunningly unremarkable. The only thing worthy of inclusion in The 5: the Commerce Department’s reading of “core PCE” — the Federal Reserve’s preferred measure of inflation: 1.5% year over year. Heh.
The fiscal cliff may be moving stocks, but there’s nothing moving precious metals. Gold sits where it did 24 hours ago, at $1,651. Silver’s at $30 on the nose.
If a recent investor letter from QB Asset Management pans out, however, gold will be getting some wind in its sails very soon.
“Using the U.S. as an example,” the letter observes, explaining how the Fed could dispense the national debt by moving forward to a new gold standard, “the Fed would purchase Treasury’s gold at a large and specified premium to its current spot valuation. The higher the price, the more base money would be created and the more public debt would be extinguished.
“An eight-to-10-fold increase in the gold price via this mechanism would fully reserve all existing U.S. dollar-denominated bank deposits.” And result in a “full deleveraging” of the banking system.
Wouldn’t that be nice?
QB maintains a chart of the Shadow Gold Price (SGP). The SGP uses the Bretton Woods calculation for determining the exchange rate linking gold to the U.S. dollar. The calculation is base money divided by U.S. official gold holdings:
QB’s latest chart includes projections of the base money supply through June 2015, assuming the Fed prints $85 billion per month. As you can see, in this scenario, the SGP soars to $20,000 per ounce!
Even in modest terms, if the ratio between the SGP and actual gold prices stays constant, gold would hit $3,400 per ounce by 2015.
[In today’s 5 Min. Forecast PRO, our Dan Amoss presents a few high-grade miners he expects could appreciate by “several hundred percent” if QB’s scenario were to unfold. If you’re a Platinum-level Agora Financial Reserve Member, you’ll find Dan’s recommendations below.
If you’re not in the Platinum Reserve, but would like to participate in our beta test of the 5 Min. Forecast PRO, please call John Wilkinson at 866-361-7662. He can help you calculate the credits already on your account and determine if an upgrade makes sense for you. Call today! Call it an early Christmas present!]
It may have been a blessing in disguise when TV loudmouth Nancy Grace branded gold as the province of “rich white guys with no life.” Today, the brand gets an upgrade:
“Walter Samaszko Jr. was a loner whose death went largely unnoticed,” begins an Associated Press story this week about the gold stash found in his unassuming ranch house in Carson City, Nev.
“There were ammunition boxes stuffed with thousands of gold coins from Austria, Mexico and the United States. There was enough gold to fill up two wheelbarrows — more than $7.4 million worth.”
On Tuesday, a judge declared Samaszko’s lone surviving first cousin his heir.
“No one seemed to know him at all, even though he had lived in the house since the 1960s. His mother lived with him until her death in 1992.”
Sheesh… The only elements missing from the story are a shower-stabbing scene and a wall full of Mountain House No. 10 cans in the basement.
For the sake of the cousin — one Arlene Magdanz of San Rafael, Calif. — it was a good thing Samaszko died this year, while the estate tax is still 35% and the exemption is $5.12 million. Assuming Washington does nothing about the fiscal cliff, the rate rises on Jan. 1 to 55% and the exemption falls to $1 million.
As it is, the IRS gets its grubby paws on $800,000 of the estate. Had Samaszko met his maker next year, the feds’ take would have been more than four times as much — $3.52 million.
“How about some talk about the nonexistent AMT patch for tax year 2012?” a reader writes, with evident irritation at another fiscal cliff wrinkle.
The 5: There’s not much to say on the subject that we haven’t already.
Two days ago, the IRS commissioner told Congress to get on the stick. Without a patch, he said, “it is becoming apparent that… 80-100 million of the 150 million total returns expected to be filed may be unable to file.” Good times…
“I am not surprised that the Small Business Optimism Index has fallen,” says a Canadian reader after Wednesday’s episode.
“These days, even after you do the best analysis and look at all the regulations and policies, it is very difficult to figure out the ‘acceptable risk’ for capital. The environmental crisis has put a lot of ‘uncertainty’ in our model.
“But the U.S. dollar’s long-term value is now a major concern. Suppose I am investing C$100 million in a new U.S. plant, and then the U.S. dollar goes down by 50%? That has a big impact not only on my investment value in Canadian dollars, but also on all the worldwide logistics of my enterprise.
“If I purchase supplies for this plant from Germany and pay for them in U.S. dollars, at a depreciated dollar, I have to figure out the entire product’s logistical structure related to taxes, fees, transportation, margin, lower relative salary cost, etc. A nightmare.
“The future of taxation and regulation in the U.S. is a killer too. With that huge deficit, you can expect that sooner or later, the $7,800-per-year-per-employee fiscal advantage compared with Canada may vanish.”
The 5: But the decline of U.S. small business is a long time coming. In 2007, the Organization for Economic Cooperation and Development found that only 7.2% of U.S. workers owned their own businesses. That was second-lowest among 22 rich nations; only Luxembourg ranked lower.
Curiously, Greece had by far the highest percentage. Be interesting if the OECD updated the study…
As if they don’t look foolish enough already, it cost U.S. taxpayers $8.9 million for the failed attempt of the losing party’s challenger to not become president.
In 2010, Congress passed and the president signed the Presidential Transition Act — generously offering taxpayer funds to major candidates so they could start planning their terms in office well before Election Day.
“Legislators,” reports Time, “said the main goal of the act was to bolster national security by ensuring that candidates are prepared to take office, and that they don’t shy away from transition planning for fear that they’ll look presumptuous.”
Uh-huh.
The General Services Administration is still running the numbers, but it appears more than half the total went for computers, cellphones and such — $5.6 million. Another $2.5 million went for office space.
“The GSA noted that some of the resources would be recycled,” Time says. “Dell Latitude Laptops bought for Romney’s 500-strong transition team, for example, will be used by other parts of the federal government.”
Great.
Well, we wish you safe holiday travels anyway,
Dave Gonigam
The 5 Min. Forecast
P.S. We’re back tomorrow as usual with 5 Things You Need to Know. On Monday, U.S. and Canadian markets have a shortened trading day and are closed Tuesday for Christmas. The daily version of The 5 returns on Wednesday.