March 27, 2013
- $3 billion vaporized in two months: latest collateral damage from the student loan debacle, and the real carnage with a date certain later this year
- Dow sets another record, top-callers abound on TV: Why Guenthner’s contrarian senses are tingling
- First diabetes, then thyroiditis: Now Cox brings word of a breakthrough in irritable bowel syndrome, all courtesy of the same substance
- Never mind the $60 large wasted, here’s the real problem with that IRS Star Trek video
- The downside of “the rubber tire mine”… a sincere inquiry about gold… vain wishes that a 3-D printer could generate bullion… and more!
“Stop Stumpf from shtupping our students!” read the impassioned, alliterative and somewhat vulgar post on Facebook.
Or something like that. It was a couple of weeks ago. We don’t remember it exactly, and we can’t find it now. But it was clearly a reference to John Stumpf, the CEO of Wells Fargo — which is indeed one of the top three student lenders in the country.
One year ago today, in an episode we called “Generation Rent,” we noted the homeownership rate among Americans under age 35 had fallen back to 1998 levels. The blame lies, in part, on crushing student debt. For a typical 2012 graduate, the balance is $26,600.
Now comes new fallout:
- In January and February alone, banks wrote off $3 billion in student debt, according to figures out yesterday from the credit reporting firm Equifax — a 36% increase from a year ago
- Of the 40 million student borrowers out there, 17% are more than 90 days in arrears, according to a New York Fed report last month
- The cost of earning a bachelor’s degree has grown 5.2% per year, every year for the last decade, says the government’s Consumer Financial Protection Bureau.
Tuition at public colleges and universities has skyrocketed since the Panic of 2008.
State tax revenue, and thus state funding, cratered… but all those assistant provosts, vice chancellors and associate directors whose jobs didn’t exist 30 years ago still have to be paid.
Nor will those students have the earning power to keep up their payments going forward.
“By some measures,” says The Wall Street Journal, “nearly half of employed college graduates are in jobs that don’t traditionally require a college degree.”
And they’re liable to stay stuck there, if a new paper from the National Bureau of Economic Research is to be believed. It suggests that demand for college-level occupations peaked as a share of the workforce way back in 2000. Yet the supply of graduates kept growing in the decade that followed.
Enter the politicians.
Last month, Sen. Marco Rubio (R-Fla.) reintroduced the “Student Right to Know Before You Go Act.” It would force colleges to disclose information about costs and career prospects.
Rubio is acting from personal experience: Only last year did he finish paying off more than $125,000 in student debt. Students “should know how much they’re going to make and how much they’re going to owe, so they can take that into account,” he told Bloomberg. “Had I had it in front of me, I may have decided differently.”
Bottled water is more affordable when you’re not shouldering $125,000 in student debt…
The president would seem to be on board with the idea — having gotten out from under his own student debt within the last decade. “Check this out, all right,” he said in a speech last year. “I’m the president of the United States. We only finished paying our student loans off about eight years ago. That wasn’t that long ago.”
Did he take any courses in entomology? (Yeah, we know, he hasn’t released his transcripts…)
Alas, full disclosure will do nothing to relieve the existing debt burden — which graduates cannot discharge in bankruptcy.
And it’s about to get worse. Unless Congress acts, interest rates on Stafford loans — held by a quarter of all student borrowers — are set to double this summer.
This summer is also when the first wave of losses is set to hit the loan book of Uncle Sam — far and away the biggest student loan peddler of all. That’s because this summer will mark four years after the volume of federally funded student loans surged.
“Like the infamous option ARMs (adjustable-rate mortgages) during the housing bubble,” wrote our Dan Amoss last August, “these loans have precisely timed fuses: Four years after the loans are made, borrowers must start making payments.”
The latest estimate of potential losses: $200 billion, based on data crunched earlier this year by Fair Isaac. It’s a hit to the federal budget that no one in the White House or Congress sees coming.
PRO-level readers can scroll down to learn the one ticker symbol you don’t want to have in your portfolio now… and that will present an intriguing short-sale opportunity when investors finally wake up to the student loan bubble. If you haven’t gone PRO yet, you can do so here.
Stocks are tanking this morning on news of Dionne Warwick’s bankruptcy filing. At last check, the Dow is 86 points off yesterday’s all-time closing high.
We’re frankly surprised the diva’s downfall — didn’t the Psychic Friends Network see this one coming? — failed to figure into the media’s attempts to explain the hiccup. A modest drop in pending-home sales? Big deal. Eurozone stress? As if there’s any more now than there was the day before.
“The top-callers are out in full force,” says Greg Guenthner in today’s Rude Awakening. “Everyone — I mean everyone — is expecting stocks to fall hard. Usually, when too many investors think we’re headed for a correction, the market proves them wrong. That makes me think this rally has some more room to run.”
The euro has sunk to a four-month low, at $1.278. Since the euro makes up 57% of the dollar index, the DXY is touching an eight-month high, at 83.2.
Gold is looking resilient in the face of that dollar strength. As of this writing, the bid is $1,604. But silver is slumping to $28.53.
“The science is overwhelming, and the evidence is imminent,” says Patrick Cox — unpacking the latest developments in what we’ve called, with tongue only slightly in cheek, the “resurrection of tobacco.”
“Remember, we had animal data about diabetes and thyroiditis before human studies confirmed them.” Now comes an animal study that reveals Patrick’s favorite “nutraceutical” holds immense potential for the treatment of irritable bowel syndrome — IBS.
“Intestinal disorders are, in fact, autoimmune diseases,” Patrick explains — and thus, right up this nutraceutical’s alley. “Essentially, the body mistakes normal conditions in the digestive tract as infection and initiates an immune response.”
Researchers from the University of Virginia added a bit of the compound to the water supply of test mice. Compared with the control mice that didn’t get any of the compound, the mice that got the supplement showed much better scores and exhibited far fewer symptoms.
It’s only a matter of time before human trials reveal the same results: “I have personal knowledge,” says Patrick, “of numerous individuals who have suffered from inflammatory bowel disorders who have experienced complete remission” — all because of this one supplement.
“So I watched that IRS video,” William Shatner tweeted yesterday. “I am appalled at the utter waste of US tax dollars.”
The IRS apologized last week for blowing $60,000 on a “training video” featuring actors dressed in Star Trek garb. It was shown to IRS workers during a conference in 2010.
Seems the video’s given everyone something to complain about. “To us,” writes Julie Miller at Vanity Fair, “the most insulting aspect of the video is not just that… the spoof reportedly cost taxpayers $60,000 to make, but that the IRS could not even achieve a semi-respectable production value for its money.”
And from where we sit, there’s the propaganda aspect of the whole thing. Seriously, a distress call from the planet “Notax”? Where “civilization has degraded to anarchy”?
Whatever. “The IRS,” says a statement from the agency, “has instituted tough new standards for videos to prevent situations similar to the 2010 video.” No, it didn’t specify what those standards are…
“You are correct about the ‘rubber tire mine,'” a reader writes of the most ready source of platinum these days. “Unfortunately, it is operated by criminals. The state police recently informed me that the catalytic converter had been stolen off of my motor home in the storage lot.”
The 5: There’s a lot of that going around — it happened in the parking lot here at Agora Financial headquarters, in fact…
“Nice to know of this option,” a reader writes of EverBank’s gold IRA offering. “Question… I read to hold up to, say, 15% of your portfolio in gold/metals. If you’re investing for wealth preservation, why wouldn’t I pump that number up?”
The 5: Nothing’s stopping you; everyone’s mileage will vary. Our Byron King says, “at least 10%, more if it helps you sleep at night.” Marc Faber says 20%.
“How about a Ben Bernanke bobblehead doll,” reads the latest in a slew of suggestions over what we should do with the snazzy 3-D printer we’ve set up in the office.
“Print a Silver American Eagle!” says one of several similar suggestions. “Heaven knows the U.S. Mint can’t make enough of them right now!”
“How about 3-Ding about 20 gold Canadian Maple Leafs! That would be nice,” says another.
“I have always wanted to have an old coin with the date 327 B.C. on it,” writes yet another reader. “It should look old, crusty and maybe even a little bit worn. It would be great for parties and for putting know-it-all experts in their place.”
“Try this,” reads the latest weapon-related suggestion — “a high-capacity magazine for an AR-15 (just because you can, and to piss off Dianne Feinstein).
“Interesting question — since you are in Maryland, and, therefore, restricted to 20-round magazines, can you be arrested as soon as you click the OK button (to start the printing), or
maybe as soon as you download the file?”
“On a recent CSI: NY episode, they had a person who stole a 3-D printer and made a complete gun and then used it to commit two murders thinking he could get away with them!
“However, the gun exploded on the second murder, killing the victim but injuring the assailant as the metal broke down. Apparently, it was not cured properly. I was surprised to see this on TV! But ya know, they have to keep it somewhat real.
“So anything is possible, and soon it may be possible with this great technology, including a complete ready-to-drive automobile that has already been created and will be test-driven from California to New York. The claims are that it is half the weight of a full-size, four-door sedan and twice as structurally strong! Moreover, they are looking to go from California to New York on 10 gallons of gas!”
The 5: The possibilities are nearly endless. We’ll explore a few of them in the next issue of Apogee Advisory with author and entrepreneur Chris Anderson.
“A gold-plated Bill Bonner piggy bank bust,” reads an especially creative suggestion, “to store your precious metal coins, and as a reminder of the value of sound money.
“P.S. If you decide to make them, I think you should give one to AFR members 😉 .”
The 5: Hmmm… We’ll have to keep that in mind.
By the way, we’re getting very close to reopening the Reserve to new members. And this time, we’re making it possible to give the Reserve a test-drive in a way we’ve never offered before. Stay tuned.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “We’re at the point where all the talking, arm-waving and speculation stops,” says Byron King — thinking through the implications of a late-night communication he got less than 36 hours ago.
That’s all we’re in a position to say right now. When we can say more, you’ll know more.