Evidence That Government Is Shrinking

February 14, 2013

  • “Hey, whatever happened to the Somali pirates?” Therein lies a tale…
  • Government shrinking? In a way, yes: Neil George explains
  • The last time the world’s central banks did something like this was 1964…
  • The “magic material” at work in the shale patch: Two of Byron King’s themes merge into one!
  • “Do-gooder” drones? A flying automated emergency room
  • Regarding the bad drones: One reader wonders what our petition will accomplish, while another wants to know how to invest in drone tech. Sincere replies to both below…

  We first spotted it in 2008. As recently as May 2011, we called it a “growth industry.” Now its pioneers, if that’s what you want to call them, have quite literally given up the ship.

Picture yourself aboard the Queen Mary 2, on a voyage through the Red Sea to Dubai. You see a typical cruise-goer on deck in a Hawaiian shirt, sipping a fruity cocktail… right next to a hardened security contractor armed to the teeth.

Private security has successfully beaten back the Somali pirates.

Passengers don’t seem to be bothered by either the threat… or the security. “It doesn’t worry me at all,” passenger Kiki O’Connell tells Reuters. “Although, I don’t suppose we’ll see any pirates now. I was hoping for Johnny Depp.”

Too bad…

Countries like the U.S., France, India and even China and Russia have had ships stationed in the region to deter piracy, but “in more remote parts of the Indian Ocean, the nearest naval support can be eight or nine hours away.” Private security has filled the gap; so far, every ship that relies on it has avoided capture.

Overall, pirate attacks are on the decline. And the guards are a darn sight cheaper than Combined Task Force 151 — a naval task force set up by 25 governments, including the U.S., to fight the pirates.

  The private sector is taking the lead on land and closer to home too — a reversal of trend.

“Over the past 10 years,” observes our income specialist Neil George, “the U.S. federal government’s spending has expanded by more than 50% — equating to an average annual rate of over 4.1%.

“And that buildup in spending has been a bigger share of the overall economy — hitting a high of over 25.1% of overall U.S. GDP in the fourth quarter of 2009. This run-up is well above the long-term average of 19% going back to 1950,” he says.

Same old story, Washington’s spending too much, right?

  Here’s where it gets interesting: “Spending as a percentage of the U.S. economy,” says Neil, “is now ebbing, with the overall contribution by the federal government alone shifting downward to a current 22.5%.”

You read that right. The government may actually be getting smaller… compared with the size of the whole economy, that is. That means the private sector may be taking over.

For further evidence, Neil points to a recent Fed survey: “31% of the largest 68 domestic banks and 22 foreign banks with operations in the U.S. state that they’re seeing a rise in business loan demand that can be facilitated.”

That’s good news if you can pinpoint who benefits from the trend. Neil confirmed what we already thought — that if the government is, in fact, getting smaller, there will be winners and losers.

Neil has identified several winners that treat their shareholders well with generous income streams. Subscribers to Lifetime Income Report have the names and tickers. You can join them here.

100  Stocks are adrift this morning. All the major indexes are losing ground, but not much.

“In the first half of this week’s trading, stocks stretched higher,” Options Hotline editor Steve Sarnoff wrote last night. “I view each day’s trading as a struggle between buyers and sellers for the advantage in price direction. In 2013, sellers have been pushed back on their heels and seemingly held up only by the ropes.”

Yesterday, however, “I saw signs of buyers’ exhaustion and what could be the onset of sellers battling back. Will they come off the ropes swinging? In my opinion, it is likely they will. Buyers may still have enough juice to propel prices, but I’m looking for a coming shift in the balance of power. It may not arrive until March, but it makes sense to use the current stretch to prepare for lower prices and a serious test of complacent buyers’ resolve.”

  The dollar raced up this morning as sickly GDP figures came in from Japan and the eurozone.

Japan is “officially” back in recession, with two straight quarters of contraction. Europe has now chalked up three.

With that, the yen sits at 93.1, the euro at $1.334… and the dollar index is back to a five-week high at 80.5.

  Precious metals are holding their own — gold at $1,645, silver at $30.83.

  Central banks accumulated more gold last year than any time since 1964, according to figures out this morning from the World Gold Council.

Nearly 535 metric tons of the metal went into central bank vaults during 2012 — with Russia, Brazil and Iraq leading the way.

“As the official reserves of these countries swell, with their heavy emphasis on U.S. dollar and euro-denominated assets, the need for diversification also increases,” says the council’s latest report.

Yep… We’ve been on the case ever since central banks became net buyers of gold in 2009. And right now we see no end in sight…

  “The utilization of radioactive waste is the major problem of the 21st century,” dean of the chemistry faculty of Moscow State University, Valery Lunin, told Russian Radio this week.

“It is a fundamental and most important task for the economy and science. What is proposed by our colleague as a possible approach can make a breakthrough.”

The Russian team’s colleague, Rice University’s James Tour, the chemist who transformed a cockroach leg into the “magic material,” has helped the Russian team to discover another important use for the new tech staple: removing radioactive waste from water.

“Where you have huge pools of radioactive material,” Tour explains, “like at Fukushima, you add graphene oxide and get back a solid material from what were just ions in a solution.

“Then,” he goes on, “you can skim it off and burn it. Graphene oxide burns very rapidly and leaves a cake of radioactive material you can then reuse.”

  The industries to benefit from this practice the most? Fracking and mining.

Oftentimes during the drilling process, naturally occurring radionuclides gather together and rise to the surface. With fracking’s use of massive amounts of groundwater, obvious and expensive complications arise. When the groundwater reaches a certain level of radioactivity, says Tour, “they can’t put it back into the ground. It’s too hot. Companies have to ship contaminated water to repository sites around the country at very large expense.”

The potential for graphene to filter these radioactive materials out of the groundwater holds vast implications for the cost-effectiveness, safety and efficiency of the fracking and mining processes.

The latest developments in graphene cover two flagship sectors our resource hound Byron King has been following for years. His latest recommendations are poised to rise as graphene and fracking become universally mainstream. Your opportunity to get in at the bottom is limited, but you can do so right now, before it’s too late, here.]

 “When you see this quadcopter drone flying at you,” tech blog Popsci advises, “don’t run or shoot it down — it’s coming to help.”

Although the idea of enormous drones flying above playgrounds with heat-seeking missiles is terrifying, and tiny fly-sized drones spying on you from your bathroom ceiling is a disturbing reality, the drone industry is one that will, for better or worse, continue to grow in size and scope in the coming years.

“But,” Cambridge grad student Omer Aziz opines, drones are also “beginning to be transformed into civilian tools.” For example, he says, “some scientists already use drones to monitor their experiments, the film industry employs a dronelike technology for use as platforms and farmers have begun to turn to drones for crop management.”

While the military continues to create more lethal and privacy-destructive drones, many students in the U.S. are taking a different approach… making drones — wait for the shocker — useful.

  “A lot of drones serve as spies, assassins or toys,” Popsci goes on. “But if all goes well, rescue workers and emergency response crews could soon deploy the Incredible HLQ (pronounced ‘hulk’) drone that actually helps humanity by zipping up to 50 pounds of provisions per trip.”

Developed by a team of mechanical engineers for their undergrad senior project at San Jose State University, the group has turned to the crowd-funding cradle Kickstarter to make the HLQ a reality. To date, they’ve raised $8,052, surpassing their $7,500 goal with still 11 days to go.

The HLQ: Rise of the “Do-Gooder Drone”

Meanwhile, a philanthropic startup called Matternet, also in California, aims to launch do-gooder drones in rural areas and overseas to drop necessities when and where needed through a sophisticated digital infrastructure.

And with the economic slump in full sag, some startups are seeing the cost-effectiveness of employee-drones. Take, for example, the Tacocopter, a service allowing you to order tacos from your smartphone and have them drone-delivered to your standing location.

Ironically, Tacocopter co-founder Star Simpson told HuffPost, “current U.S. FAA regulations prevent… using UAVs [unmanned aerial vehicles, like drones] for commercial purposes at the moment.”

Why ironic? Because, she goes on, “that’s the case in a country where you can be killed by a drone with no judicial review.”

Oh, right.

[Ed. Note: As the debate rages on about the militarized not-so-kind type of drones, our petition to stop the militarization of the flying gun-cams on American soil continues to grow in support. If you haven’t already, you can sign the petition here.]

  “I feel sympathetic toward the anti-drone petition that you told us about the last couple days,” a reader writes. “But I am scratching my head a little.

“I thought you were (back in November) making fun of voting and other political participation as a waste of time, even criticizing such participation as legitimizing a corrupt system. Under such a view, shouldn’t a petition like the anti-drone petition be viewed as legitimizing the corrupt government officials to whom it is addressed?

“Maybe I have misunderstood you somewhere. In any case, I am interested in your thoughts.

Thank you for your continued coverage of important-stuff-that-the-mainstream-avoids.”

The 5: Observant, you are.

Yes, we mock the idea that collective activity can achieve change for the good. We spurn the notion that electoral politics can make a difference. We dismiss the idea that voting accomplishes anything other than (maybe) making a statement about who you are to other people.

So what’s different now?

Simply this: The stakes are high… and the goal is achievable.

On the state level, both houses of the Virginia legislature have passed a two-year drone moratorium. On the federal level, Sen. Rand Paul, R-Ky., is putting a “hold” on the nomination of John Brennan as CIA director.

“I have asked Mr. Brennan,” the senator writes, “if he believed that the president has the power to authorize lethal force, such as a drone strike, against a U.S. citizen on U.S. soil, and my question remains unanswered. I will not allow a vote on this nomination until Mr. Brennan openly responds to the questions and concerns my colleagues and I share.”

There’s momentum. If “we the people” stand any chance at reining in the drones, it’s now… while the topic is hot in Washington. Next year, next month, even next week might be too late.

So move now. Take a stand. Sign the petition.

  “I don’t think the drones are only Obama’s,” another reader writes. “I know for a fact the FAA was testing air traffic control procedures with NASA Ames regarding unmanned aerial vehicles at least eight years ago (quite probably longer).

“These could be W’s or even Bill Clinton’s drones. This issue seems to be beyond Orson Welles’ imagination.”

The 5: Wouldn’t surprise us. The guts of the Patriot Act were drafted by career Justice Department underlings at a time when W was just getting settled into the governor’s mansion in Austin.

  “I was disappointed,” still another writes, “that The 5 PRO did not give any suggestions on how to invest in the manufacturers of drones, especially after the detailed comments about the drone market in The 5. Do you plan to name the companies that manufacture drones — and to discuss if they are good or bad investments?

The 5: Ah, someone who understands our line of thought about making the empire pay and channeling a few of your wasted tax dollars back into your pocket.

Today and tomorrow, PRO-level readers will get in-depth analysis of two drone plays from our macro strategist Dan Amoss. Read on…


Dave Gonigam
The 5 Min. Forecast

P.S. If you don’t have PRO access, we’ll open it up again to new subscribers in a few days. Stay tuned.


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