January 31, 2013
- “Hot right now,” one email proclaims… not so hot, actually… drab story, familiar conclusions…
- The piling juvenile delinquencies… and one all-too-familiar subprime sentiment…
- Britain’s “classic problem”… the global race for the “magic material”…
- One “outside the box” stress-reduction suggestion… a reader weighs in on the “slippery slopes of graft and corruption”… a Liberty Nickel one-up… and more!
“Hot right now,” read the subject line of an email we got on our iPhone while waiting in the doctor’s office yesterday morning.
You’d open it too, right?
Right.
Unfortunately, it was from Jason Farrell, the gentleman we’ve tasked with following what’s “trending” on social media and reporting back to us.
What was “hot”? The Bureau of Economic Analysis (BEA) had just announced the U.S. economy shrank by 1/10% in the fourth quarter of 2012… as measured by GDP.
Boring.
Digging in a little, however, we make this observation: The Cato Institute’s Thomas Firey estimates the entire stimulus from over 15 pieces of legislation from 2008-2012 is $2.5 trillion… and counting.
A quick breakdown of the BEA’s assessment of economic activity in the fourth quarter looks like this:
The BEA attributed the drop in the fourth-quarter GDP to defense cuts or the deleterious effects of Superstorm Sandy.
Meaning after the greatest stimulus effort in human history, the economy was sidelined in three months… by the weather?
What a shock.
“These numbers are only surprising if you think government spending can actually stimulate the real economy,” we suggested for a “tweet,” hip as we are to the new trends in publishing.
“Of course,” came the reply, “government spending itself is counted toward GDP, so any cut in government spending automatically produces a decline in GDP, hence the freakout over relatively minor defense cuts.”
If the reaction in the news was strong because of small pullbacks in defense spending, then we can only imagine how they’ll react if “sequestration” kicks in. By the shrill voices of the commentators on NPR this morning, you’d think the sky has already fallen. It’s fine to discuss cutting defense spending when you oppose the war in Afghanistan… but if it kicks GDP in the shins…
Oy. Sometimes we wonder why we bother.
Oh yeah, here’s why: GDP numbers helped propel gold up $17 before noon.
Stocks dropped on the news, too… bounced around a bit, and then continued their way down. The Dow closed 40 points lower than it began the day. The S&P shed 6 points…
As we write this morning, the Dow sits at 13,926. The S&P, 1,502.
And this too: “The committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month,” read the minutes from the Fed’s FOMC meeting that wrapped up yesterday. They also plan to purchase “longer-term Treasury securities at a pace of $45 billion per month.”
You may recall, last week we showed how the Fed’s balance sheet has already crested $3 trillion. Whither the balance sheet following this renewed commitment to “QE3”? And what’s it portend for the markets?
The noted economist Robert Murphy, in a Laissez Faire Club exclusive presentation we hosted last week, proffered this forecast:
The Fed’s balance sheet also rises…
Far be it for us to cast aspersions on the Fed’s motives, but we do have an opinion rooted in history. In a chapter on the Mississippi Bubble in 1715-1720 we wrote for Financial Reckoning Day, we observed the effort to set up a central bank with the intention of buying up the nation’s debt to keep the economy solvent… will end, umn, badly.
But “at least interest rates are low,” we quote our own Chris Mayer. And at least we can expect gold to remain the alternative currency of choice to the dollar, we add.
“The last vehicle we purchased,” Ruben Medrano, a 52-year-old undergraduate business student, told The Wall Street Journal yesterday, helping us pivot to an unintended consequence of low interest rates. “We spent four-five hours in the dealership. The student loan process took me 30-45 minutes and I never had to leave my home.”
“Borrowing tens of thousands of dollars from the government — with no collateral and an uncertain payoff,” writes our strategic short analyst Dan Amoss “is easier than getting a loan secured by a car.”
According to a new study published by credit bureau TransUnion, as of March 2012, 33% of all subprime student loans were 90 days or more past due. As the class of 2013 loan balance starts having to be repaid, the pile of delinquencies will only get bigger.
More and more borrowers are subprime, too: An eye-popping one-third of student borrowers have subprime credit scores.
Sound familiar?
“Within a handful of years,” Mr. Amoss warns, “U.S. taxpayers will be on the hook for over $100 billion in student loan defaults. The federal government makes about 93% of all student loans.
“Most federal loans include interest rates of 7-8%. Political acrimony, as you’d imagine, will rise to unseen heights. The fight between Republicans and Democrats about how to pay for this loss will be ugly.”
[Ed. note. In 2013, the U.S. economy will suffer more consequences from the $1 trillion student loan bubble. In today’s 5 PRO, Mr. Amoss suggests an easy way to get ahead of this trend… in a fashion we expect will be as lucrative as his 407% gain when Lehman hit the fan during the early stages of the subprime mortgage bust. See below…]
“It’s the classic problem,” said U.K. science minister David Willetts, “of Britain inventing something and other countries developing it.”
Tannock was referring to the global graphene race we first referenced in The 5 on June 11, 2012. It appears our initial estimates for graphene becoming “the new silicon” were a tad conservative, if you can believe that.
“In Britain,” CambridgeIP chairman Quentin Tannock told the BBC yesterday, “there is no appreciation of just how competitive the race for value in graphene is internationally, and just how focused and well-resourced our competitors are.”
“According to new figures from CambridgeIP,” the BBC reports, “there were 7,351 graphene patents and patent applications across the world by the end of last year — a remarkably high number for a material only recognized for less than a decade.”
Of this, the Chinese lead the pack… and yes, Minister Willetts, the U.K. is far behind.
The EU granted a billion euros toward two flagship projects: exploiting the “magic material” and modeling a human brain in a supercomputer.
Tannock’s a policy guy. He’s alerting the U.K. government to the “risk that we might underinvest in graphene as an area and that therefore we might look back in 20 years’ time with hindsight and say, ‘That was wonderful, we got a lot of value, but we didn’t get as much as we should have.'”
As an investor, you can take Tannock’s cue a lot more nimbly than the slow wheels of Britain’s constitutional monarchy and get positioned now, right here.
“I’m surprised that, magically, the money has shown up,” Mahesh Desai told The New York Times this week.
Fifteen months ago, Mr. Desai checked his MF Global account to find his $580,000 had “magically” disappeared. This week, he opened it up to see 80% of his money back in the account. “I feel very relieved,” he said.
And if the bankruptcy judge signs off on the proposed settlement today, all United States customers will receive 93 cents back on every dollar disappeared.
Hey, even MF Global had a good day… upon closing last night, their stock was up 8%, at 4 cents.
If you too feel like you’ve been swindled by unscrupulous Wall Street operators, allow us to make a minor “outside the box” stress reduction suggestion:
The Rage Room
“This feels so good!” 18-year-old Savo Duvnjak proclaims. “I feel like I let go of all my negative energy. This last year was a tough one and I wanted to end it with a bang!”
The Rage Room is available in Serbia for a modest fee, about $6, where you can go berserk… destroy bookshelves, beds, coat racks and framed photos… without the regret or the cleanup that usually comes with breaking your own things.
“On average, we have one person a day, enough to keep us going” said Nikola Pausic, one of the room’s founders, being covered by AP. “Dozens have come so far, people of all ages.” Visitors take around five minutes to destroy the place.
The service is, apparently, popular among women.
[Ed note. Don’t fret… you don’t have to go to Serbia, necessarily, to use the facilities. The two teens who started this one based the concept on a similar “Anger Room” in Dallas, Texas, that they saw on the Internet. That one is a bit pricier at $75, but you get cooler things to break, like computers.]
“One of your readers says that Americans aren’t paying attention,” one reader responds to another as we take a peek in the mail bin, “saying the U.S. is ‘sliding down the slippery slope of graft and corruption.’ Another claims we watch TV, drink beer and do not care about what is happening.
“I suggest if they care so much, they should run, not walk to their nearest Tea Party meeting. We do care. In fact, three of our members were elected last year, one of which was a state assembly position.
“Inasmuch as we live in California, we considered this quite an accomplishment. There are a lot of Americans who care and want to stop the disintegration that we are seeing in our country. Of course, the media are doing all they can to demean our efforts and give our citizens a completely inaccurate picture of who we are and what we are attempting to do.
“We are working very hard to inform as many people as we possibly can — rumors of our death have been greatly exaggerated!”
The 5: Your enthusiasm is infectious. However, we’re skeptical any collective activity will yield the fruits you expect, draped in nostalgic patriotism or no… not a critique necessarily, just an observation.
“I told my father in 1950,” another reader writes, “the 1913 Liberty Nickel would be a good investment (it was $1,500.00). He said are you nuts, it’s only a nickel.
“If only he could be here today!”
“If you liked that 1913 nickel,” another reader writes, seemingly to the last, “you will love the 1794 silver dollar that was just sold last week, (Jan. 24) by Stack’s Bowers Galleries for $10 million ($10,016,875.00, to be exact). This set a new world-record price for any coin.
“It is a superb gem quality, grading an astounding MS-66 by PCGS, and a CAC certificate for exceptional condition and eye appeal. A close examination of the coin suggests that it may well be the very first specimen struck of the first year of the silver dollar, and was carefully preserved.
“While the U.S. dollar has lost 98% of its value in just the past 100 years, this unique silver dollar has appreciated more than their creators could ever have imagined.”
The 5: Amen.
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. As the graphene developments continue to spew out into the mainstream, there’s “unofficial” word circulating the Web that hasn’t quite caught yet. If it ends up being the case, and Byron seems to think it might be, we could see graphene products filling store shelves in a matter of weeks. That’s why Byron’s updated his graphene thesis… and shows why graphene could take off before February’s end, here.