March 4, 2013
- Birthday musings, the 20th Amendment and FDR’s legacy 80 years after his first inaugural: the “sequester” in context
- Gold Eagle sales pop — an early harbinger of our “zero hour” scenario?
- Mighty U.S. consumer teeters under the weight of… well, you name it
- Reach for yield leads unsuspecting investors into securities backed by… student loans?
- Krugman, Pelosi, Cheney and other candidates suggested by readers for our viral video project
“Write drunk;” Papa himself, Ernest Hemingway, advised young writers “edit sober.”
We awoke this morning and were reminded that today we enter our middle, middle 40s. By way of saying “Happy Birthday,” the kids showed us the following piece of art from etsy.com and offered to have it made into a T-shirt to wear at the office:
We’re not exactly sure it’s the proper inspirational message for young writers trying to learn the investment research trade. But hey, maybe it is…
We learned at an early age that March 4th is the only day of the year that is also a verb: march forth. “Procedamus, as they say in Latin,” offers Laissez Faire’s curator of fine ideas, Jeffrey Tucker.
Procedamus, indeed. March 4th also used to be the day new presidents were sworn into office. That is until the 20th Amendment to the U.S. Constitution was enacted.
“Perhaps more than any single amendment,” reads to the Encyclopedia of Constitutional Amendments, “the 20th is largely attributable to the work of a single individual,” namely Nebraska Sen. George W. Norris…
“Norris lobbied for the 20th Amendment for close to a decade,” the entry continues. But only in the throes of the Depression could he finally push it through — on the justification that a four-month lame-duck period was archaic in an era of telephones and rail travel.
Norris proposed his final version in March 1932. Thirty-six state legislatures were freaked out enough by Progressive rhetoric to ratify the amendment by the time Hoover was himself a lame duck in January 1933. In the end, all 48 states fell in line…
“Norris,” our off-the-cuff research indicates, “supported many other Progressive causes, among them conservation, rural electrification, labor reform and establishment of the Tennessee Valley Authority.” He also wanted to do away with the Electoral College.
Not so ironically then, the nation’s most Progressive president, Mr. Franklin Delano Roosevelt, was the last to be inaugurated on this day 80 years ago.
Very ironically, however, given our current federal conundrum, “while campaigning for office in 1932,'” we quote ourselves from Page 140 of Empire of Debt, “Roosevelt had denounced [then president Herbert] Hoover as a spendthrift.
“The Democratic platform during the campaign of 1932 called for, among other things, a drastic reduction of government spending by at least 25%, abolishing useless commissions and offices, a budget balanced annually and a sound currency to be preserved at all hazards.”
Ha! Those were the days, huh? “A drastic reduction of government spending by at least 25%”?
How proud would the Democratic Convention of 1932 have been of today’s sequestration “cuts”… those that limit the rise in government spending to an additional $15 billion over last year? What an achievement! New fathers would have been able emulate their joy for generations to come.
A “budget balanced annually”… and a “sound currency to be preserved at all hazards”… what kind of crazy talk was that?
Oy. Ernest Hemingway’s words to the wise are beginning to make more sense. We assume he penned them soon after he awoke and discovered he’d written this now infamous quote:
“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”
Procedamus.
While gold plummeted in February (2013), sales of U.S. Gold Eagles showed marked improvement from a year earlier. All told, 80,500 ounces of bullion coins exited the U.S. Mint’s doors. That’s down from January, but January always sees a spike with the new year’s issue.
More noteworthy: February marks “the fifth consecutive month that Gold Eagle bullion sales have exceeded the level of the year-ago period,” according to Coin Update.
“When I look at the physical data that I can see in gold,” says Sprott Asset Management chief Eric Sprott, “the gold market has not changed its supply fundamentals in 12 years. It’s flat.”
Mr. Sprott was kind enough to take time out of his busy schedule recently to lay out a scenario for us in the current issue of Apogee Advisory. We’re calling this scenario “zero hour.” The surging demand for Gold Eagles and Canadian Maple Leafs is a small, but critical factor building up to “zero hour.”
While supply as reckoned by the World Gold Council has been rock steady for the last dozen years, scads of new demand sources have come into the picture. Mr. Sprott ran the numbers, and we put them in chart form…
Nearly 2,300 tonnes (officially) of new demand each year are coming into a market where supply has been stuck at roughly 3,700 tonnes since the year 2000. “So where’s the gold coming from?” Mr. Sprott asks rhetorically. “Who’s supplying this gold?”
He’s come up with only one plausible answer — an answer that sets the stage for “zero hour.” That’s the moment when the price of a Gold Eagle — or any form of real, tangible gold in your possession — starts to run away from the “paper” gold price we cite each day in The 5.
Apogee readers now know who’s feeding this gold demand… why Sprott has “about 100%” confidence that zero hour is coming… and three ways to be ready when it arrives. Not a subscriber yet? You can join up here.
The dollar price of gold is little changed this morning from Friday’s close — $1,577. Silver is likewise directionless at $28.62.
Major U.S. stock indexes are all in the red this morning, but not by much. The Dow has given up 50 points. Nine of the S&P’s 10 sectors are down.
Industrials are taking the biggest hit after the Chinese government took steps overnight to cool off rising home prices — including a 20% tax on profits from home sales.
The Shanghai Composite is down 3.7% — the worst one-day loss since August 2011.
“When the U.S. consumer suffers a cash-flow shock,” says Pantheon Macroeconomic Advisors’ Ian Shepherdson, “there is typically a delay of two-five months before it trickles through into spending.”
He’s referring to the payroll tax increase that kicked in the first of the year. But as February rolls into March, there are already signs the vaunted American consumer is feeling stressed…
- Consumer debt rose in the fourth quarter of 2012 by 0.3%, to $11.34 trillion, according to the New York Fed. That’s mortgages, credit cards, student loans — everything. It’s the first time the figure has risen since — gulp — the third quarter of 2008
- Friday’s “income and spend” numbers from the Commerce Department were awful. Personal income fell 3.6% from December to January, while spending grew by 0.2%. Some of the income drop can be chalked up to all the special dividends companies issued their shareholders in December; even so, the number is ugly
- The savings rate from that same Commerce Department report cratered from 6.4% in December to 2.4% in January. The term “savings rate” is a bit misleading; it includes not only genuine savings, but also the paydown of the aforementioned consumer debt.
Not helping matters — an early arrival to the usual springtime bump in gasoline prices.
The nationwide average, according to Gas Buddy, is $3.71 a gallon — the highest it’s ever been this time of year.
Bottom line: Fed chief Ben Bernanke’s famous “wealth effect” — the notion that rising stock prices will spur people to go out and splurge — might be running into the wall.
“People in the top half of the income distribution are doing just fine,” Moody’s Analytics’ Mark Zandi tells The Wall Street Journal. “They’re spending enough to keep the economy moving. But the lower half is having a difficult time keeping their heads above water.”
Strapped consumers are bad news indeed for one company that lurks in many portfolios. PRO-level readers can learn about it below…
Yeah, this’ll end well.
Like a bad rerun of 2008, the Journal reports that last week Sallie Mae sold $1.1 billion in securities backed by student debt. The securities even had a tranche setup, with the riskiest assets at the bottom… like the CDOs of old!
Never mind that in the last quarter, 35% of student loans held by borrowers under age 30 were delinquent. In a zero-rate world, ya gotta reach for yield! A typical student loan-backed security yields 1.48% — nearly double the 0.75% you’d get on comparable Treasuries.
It’s not just the growing delinquencies that are a problem. There’s also the total amount of student debt. It’s grown almost 59% from 2008-12.
Private lenders like Sallie Mae make up only 10% of the market, though. Uncle Sam makes up the other 90%… and he doesn’t bother with all of that “creditworthiness” nonsense.
At least the government doesn’t slice and dice its loans into securities. That way when it all pops, it’s only the taxpayers who get dinged.
Swell…
More on the cyberwar front: Financial institutions like Bank of America, Citibank and JP Morgan Chase have owned up to being victims of cyberassaults.
Most of the banks admitted that they were hit by the “distributed denial of service attacks” last year that were blamed on Iran. With the amount of press cybersecurity is getting, it’s impossible to keep quiet.
Other businesses like eBay, LinkedIn and AT&T report attacks as well. But there doesn’t seem to be a clear consensus on the way forward. The question for businesses becomes: to disclose or not to disclose?
Many of the banks at least are being prodded by the SEC to report if they’ve been attacked so investors can know where they’re putting their money. But one banker anonymously dissented to The Washington Post. “Every time we give detail on what we know about the threats, we’re sharing that with those who might be looking to target us.”
Yeah right, keeping your cybersecurity loopholes hush-hush has nothing to do with wooing investors.
The price of the Big Apple’s favorite delivery dish goes up a week from tomorrow. That’s when the large soda ban will be taking effect.
Normally, a 2 liter bottle of soda would run you about $3, but because that size will be banned at pizzerias, you’ll have to buy six-packs of cans for $7.50.
“It’s ludicrous,” one man asks the New York Post. “It’s a sealed bottle of soda you can buy in the supermarket. Why can’t they deliver what you can get in the supermarket?”
Umn, because that would make too much sense.
“So seven days ago, I signed your drone petition,” a reader writes, “and five days ago I found I was no longer a ‘trusted traveler’ at the airport. Could we maybe change the spelling of my name on the petition signature?”
The 5: Hmnn… we’re scheduled for trips to France and Brazil in the next few weeks. If you’re no longer a “trusted traveler,” wonder what’s going to happen to us.
“Krugman would be a fine cheerleader, or maybe DJ,” a reader writes with the first of many suggestions for our viral video project “D.C. Shake (-Down)” — a variation on the “Harlem Shake” videos overwhelming the Internet.
To recap: “Obama starts dancing,” our storyboard goes, “then, when the music kicks in and all the other characters appear…Obama will start pickpocketing people. Bernanke will be dropping bills outta helicopter.”
There will likely be appearances by Alan Greenspan, George W. Bush and John Kerry. But we need 20 or so people in the mix. Herewith, more of your suggestions.
“You have to add Timothy Geithner,” writes our second reader, “maybe twiddling his thumbs and his eyes crossed!”
“How about Henry Paulson,” offers a third, taking aim at Geithner’s predecessor, “hawking his gold watch and putting on a Casio?”
“I would like to see Nancy Pelosi” suggests a fourth, “wrapping House bills like Christmas presents that say ‘don’t open until passed.'”
“The group would not be complete,” a fifth reader suggests, “without mentioning Eric ‘That’s-Not-What-I-Think-the-Constitution-Means’ Holder. Perhaps a drawing of him, squinting at the Constitution, with a large heading but very, very small script for the Articles and Amendments. Then a caption: ‘They talked funny in the 18th century,’ and ‘I’m sure that is not what they really intended for us to do.” Or perhaps another one of him holding a book labeled U.S. Constitution for Dummies.
“I would like to see U.S. Sen. Dianne Feinstein,” writes a crafty sixth, “shimmy over to grab a musket from a Revolutionary War minuteman and then toss the musket to NYC Mayor Michael Bloomberg. Bloomberg does a little jig, and then heaves the musket into the path of an oncoming ‘U.S. Department of Protecting You From Yourself’ steamroller.”
“How about the entire Supreme Court,” suggests numero siete, “doing the shake while carrying a statue of Justice, and oops, they drop it! But then they continue shaking around the broken pieces chanting, ‘We are Supreme!'”
The 5: Ouch.
“Think American Idol,” suggests nombre huit. “At the end of the video, have Keynes, Friedman and Greenspan all ‘score’ the dancing with 10s. Or would The Gong Show be more appropriate?!?”
The 5: Now we’re getting somewhere.
“Oh, gentlemen,” writes a lone party pooper, “have you not heard? The meme, ’tis murdered…” The comment was then followed by three links to articles, including one at The Atlantic declaring, “The Harlem Shake Meme Is Dead.” Cause of death: The crew of the Today show performing it on-air the morning of Feb. 13.
Indeed. Worthy caution.
Well… we never claimed to be on the cutting edge of pop culture. But the meme seems to be alive and well overseas: “Workers at an underground gold mine in Western Australia,” Agence France-Presse reveals today, “have been sacked for performing the Harlem Shake dance while on the job.” Here’s a screengrab:
Not sure what that guy in the middle is doing. But it looks as if the gold miners may have run afoul of a few safety regs… which is indeed the cause cited for termination by their (former) employer Barminco.
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. “Mild-mannered vegan man crushes Wall Street.”
No, it’s not an Onion headline; it’s a true-life story of the trader who’s built up a stunning 13-year track record while successfully keeping himself out of the limelight.
We invite you to examine the record for yourself… and even apply his trading recommendations in your own portfolio. You could get started a mere six days from now.
We seem to have inspired some readers more than others. Perhaps this next one should heed Hemingway’s advice from today’s episode:
“A few ideas…” our reader writes:
“** Dick Cheney stands at an outdoor shooting range, shouts ‘pull’ and shoots
a lawyer catapulted into the air
** President Obama dressed as the Wicked Witch of the West screams out of
his Oval Office window, ‘Legalize marijuana, will you! Fly, my pretties!
Destroy Colorado!!’ The sky is blackened, filled with drones
** Attorney General Eric Holder personally delivers Fast and Furious firearms
to Mexican criminal gangs. He demonstrates how to load, shoot and clean the
weapons
** Dick Cheney walks up to Eric Holder in his hunting gear and shoots a poor
Mexican in the face. The leader of the criminal gang offers him a job
** President Obama is waxing his vehicle. It’s a cross between a drone and
pimped car. His Nobel Peace Prize is its hood ornament.
** DHS Secretary Janet Napolitano stands next to the ‘don’t touch my junk’
guy at a TSA checkpoint. He says his famous byline then Janet kicks him in
his ‘junk,’ tasers him and screams, ‘Your junk is mine when you’re in my
line!’
** Dick Cheney walks up in his hunting gear and shoots the downed tasered
‘don’t touch my junk’ guy in the face.
** Bill Clinton is dressed as a TSA agent doing pat-downs, but not at an
airport. He set up shop outside a Victoria’s Secret store. Next, he then
moves the checkpoint inside the store in front of the changing rooms.
** Jon Corzine is sworn in as Fed chairman. He then announces his
immediate mandate that all pensions, 401(k)s and IRAs have to hold all those
bonds that the Chinese are dumping. Next then announces his immediate plan
to send the military, now a division of JP Morgan, door-to-door to
confiscate all gold and silver.
** Imagine a close-up of a sign with the date. The camera slowly pans to a
depressing typical user-unfriendly DMV office with a DMV sign, career
bureaucrats and exasperated drivers trapped in a long endless wait. Then a
close-up of that exact sign with the date advanced one day. The camera pans
to that same DMV office, personnel and all, but it now has a sign saying,
‘Patient Protection and Affordable Care ER.’ The same exasperated people,
now patients, are trapped in a long endless wait. A few bodies on gurneys
covered with sheets add to the ambiance.
** Dick Cheney walks into the ex-DMV/Obamacare ER in his hunting gear and
shoots someone in a line of very old people. He says, ‘I really enjoy my
new job as a death panel administrator.’
“I’ll stop here. It’s getting late.”
The 5: Thank you.