April 2, 2013
- From The Daily Reckoning’s lips to The New York Times‘ ears? Peeling the onion on David Stockman’s “great deformation”
- The perils of pensions: Will the biggest public system in the country take a hit from Stockton, Calif.’s, bankruptcy? And will a major private system be turned into a plain-old annuity?
- “Powerful evidence”: Patrick Cox on a stem-cell Parkinson’s disease breakthrough
- How to make a mess of legalized marijuana… Gold at an insanely low premium… Bitcoin’s turning point… and more!
“I invest in anything that Bernanke can’t destroy,” said David Stockman in 2010, “including gold, canned beans, bottled water and flashlight batteries.”
Mr. Stockman — the boy-genius White House budget director during Reagan’s first term — has refined those thoughts in a new book called The Great Deformation: The Corruption of Capitalism in America. By way of introduction, he penned a think piece in Sunday’s New York Times beneath a provocative piece of graphic art declaring “Sundown in America.”
“His article,” says our Byron King, “reads like the past 12 years of Daily Reckoning emails from Agora Financial.
“There are 50 shades of Bill Bonner’s gray musings about kinky abuse of the economy, by all manner of politicians and world-improvers. Plus, Stockman channels other AF writing concerning how screwed up is the U.S. Federal Reserve (Fed) and how our government has wrecked the almighty dollar.
“We now have an economic ‘boom, bust, doom & gloom’ story with legs — and of course it drips with the holy water of top billing in the Old Gray Lady.”
“By default,” Stockman writes in the Times, “the Fed has resorted to a radical, uncharted spree of money printing.
“But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.
“The modern Keynesian state,” Stockman writes elsewhere in his piece, “is broke, paralyzed and mired in empty ritual incantations about stimulating ‘demand,’ even as it fosters a mutant crony capitalism…”
It’s impossible to see where Stockman’s going without understanding where he’s come from.
If you have a modest degree of political awareness, you recall he got fed up with the “deficits don’t matter” mindset of the Reagan White House — which drove the national debt from below $1 trillion the day Reagan took office to $1.8 trillion by the time Stockman quit in 1985. He wrote a bridge-burning memoir in 1987 called The Triumph of Politics — perfectly timed as the Iran-Contra scandal heated up and the national zeitgeist was one of Reagan fatigue.
Stockman’s post-Washington career was rather more conventional: He went to work on Wall Street.
First he joined Salomon Bros. Then he became a partner at Pete Peterson’s Blackstone Group. Then he started his own private equity outfit called Heartland Industrial Partners. He did well enough to buy a home in Greenwich, Conn. — where he still lives.
Along the way, he made himself CEO of a company he formed under Heartland — which ended up filing for Chapter 11. In 2007, the feds indicted him, claiming he tried to defraud investors in that company. In early 2009, they decided they didn’t have a strong enough case to get a conviction, so they dropped it.
Hmmm… We don’t recall Stockman making dire proclamations about canned beans and bottled water before the feds started giving him a hard time. Just sayin’.
“When the latest bubble pops,” Stockman concludes his jeremiad, “there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.”
We can’t help but wonder if Mr. Stockman missed out on most of the Dow’s 123% rally the last four years.
Ironically, our own outlook isn’t nearly as dire in 2013. “We now have the confidence to say the Dow will not return to its March 2009 low,” we said in yesterday’s Daily Reckoning. “A Dow of 6,549 will never be seen again.”
We’ll lay out the reasons in today’s Daily Reckoning, in an article adapted from the most recent issue of Apogee Advisory. If you want the investment guidance on the back of those reasons, we reserve that for paying Apogee subscribers. You can join their growing numbers here.
Stocks are rallying to new highs after going nowhere yesterday. The Dow has zoomed to 14,662, the S&P to 1,571.
Gold got whacked hard this morning. It’s down to $1,581. Silver’s taking an even bigger hit, down to $27.53.
Dollar weakness has nothing to do with it; the dollar index is up only slightly, to 82.8.
Took long enough, but Stockton, Calif., is now the most populous U.S. city to land in bankruptcy court.
The city council authorized a filing 10 months ago… but negotiations with creditors dragged on through yesterday, when a federal judge ruled the creditors were acting in bad faith.
Now comes the interesting part: who gets paid first. Stockton’s biggest debt is $900 billion owed to the California Public Employees’ Retirement System — CalPERS. Under California law, that takes priority over everything else — police and fire protection, bond payments, employee benefits, you name it.
But a federal bankruptcy judge might have a different opinion…
Meanwhile, a judge in Dallas has reminded us that private-sector pensions are in their own precarious state.
Yesterday, the judge granted class-action status to 41,000 retirees from Verizon. Last year, Verizon sold off their pensions to Prudential Financial, which then set up an annuity. Unlike the old pension plan, the annuity is not protected by the Pension Benefit Guaranty Corp. — the federal agency that acts as a sort of FDIC for private-sector pensions.
The suit amounts to a test case for dozens of Fortune 500 companies hoping to get out from under steep pension obligations. “We are very concerned,” says William Jones of the Association of BellTel Retirees, “that this is the beginning of corporations dumping off their responsibilities and selling them to insurance companies.”
No doubt… As noted in our PRO edition on Jan. 22, AT&T is taking a $12 billion hit to keep its pension plan adequately funded.
“I’m really feeling guilty,” writes our Patrick Cox on the science-and-wealth beat, “because this story deserves a lot more attention than I can give it.”
We’ll do our best to summarize here: Scientists at the American Academy of Neurology’s annual conference have been presented stunning results of a study involving chimpanzees and Parkinson’s disease.
The researchers injected the test chimps with “parthenogenic” stem cells. These are cells taken from unfertilized eggs. “Obviously, this is a big plus for those who oppose the use of embryonic stem cells,” says our Patrick Cox, who’s been following the research for more than three years.
Until now, there was a big minus — doubt whether cells derived from human parthenogenic stem cells (hpSCs) would function as normal cells for therapeutic purposes.
No more, after this primate study: “We now know that hpSC-derived neuronal cells will engraft, became part of the chimps they were given to and produce the dopamine needed to prevent the symptoms of Parkinson’s disease. This is powerful evidence of hpSC efficacy, though I’m not at all surprised by these results.”
Larger primate studies will follow… and then come human studies, with any luck early next year.
[Ed. note: One of the biggest medical breakthroughs on the horizon right now comes from a company that never plans to bring a drug or device to market. Yet its cutting-edge technology could end up saving your life, or the life of a loved one. To learn how it works — and how it could make early investors insanely wealthy — follow this link.]
Leave it to government to screw up something as simple as legalized marijuana.
You might recall voters in Colorado and Washington state approved referenda last fall legalizing recreational weed. But from the Evergreen State comes word that taxes and regulations might prove so onerous the trade would be rendered unprofitable.
The biggest issue: competition from the “collective gardens” where Washington’s medical marijuana is grown — tax-free.
“What if you gave pot legalization and nobody came?” UCLA professor Mark Kleiman suggested last week on TVW, Washington state’s version of C-SPAN. “It is entirely possible that by the time we finish regulating and taxing this product, it’s going to be uncompetitive with what you can get at the collective gardens.”
Oy…
“As an expat living here in the Middle East,” a reader writes, “I would like to comment on the markup on Gold Eagles.
“Though we can buy gold coins, typically the gold exchanges in the Middle East sell 5 and 10 tola bars (1.875 and 3.75 ounces, respectively). Based on my experience of buying gold in this region, I typically pay a commission of 0.4-0.5% above the spot price of gold.
“I will continue to purchase gold on the dips ever more convinced after the Cyprus debacle that it is important to hold some form of liquid wealth outside of the global financial system.”
“Those who do not believe in 3-D printing are way behind the curve,” writes another, adding his two cents to an ongoing topic.
“I believe Stratasys is the leader in the industry. Their machines are owned by NASA, airplane manufacturers, the Jet Propulsion Lab and several other high-tech users who make plastic prototypes to check for clearance, etc., before going into production.
“There are also 3-D machines that can make metal parts, including titanium. They cost about $2 million, but if you need a lot of Ti parts and know how hard Ti is to machine, you will appreciate the significance of this breakthrough. 3-D is here to stay…and grow.”
“I am getting more interested in Bitcoins every day,” writes our final correspondent. “I was curious why they took such a jump with the Cyprus fiasco until I look at the charts and realized that a huge portion of the market is in Russia and Eastern Europe.
“Two weeks ago, $43 dollars. $105 dollars or so today. Pretty big jump, big demand for a limited quantity and controlled inflation of introduction of new coins. It is easy to see the Ruskies have a pretty good play in this market at the moment. When will they sell?
“Future competition, it is always good to be first, and the growing infrastructure that is building in Bitcoin is real. It is always hard to catch up. Bitcoin is way ahead of new competitors and building a confidence-based system, that is beyond the reach of the government, except for the possibility of the government just passing a law that says it is illegal to own Bitcoins or any digital currency.
“Consider this: If the market for Bitcoins grows to, say, $100 billion over the next 20 years and at that point there would be 21 million Bitcoins in circulation, that would give each Bitcoin a value over $4,000 with no further expansion of the base. And this a global currency based on libertarian values.
“Now I just need an offshore bank to handle my transactions in whatever currency I would choose in the future. Maybe I will head to the Caribbean partner with an offshore Bitcoin exchange, backed by an offshore bank. LOL.
“I have a wallet — no coins yet.”
The 5: “What about a government crackdown?” asks Jeffrey Tucker at the Laissez Faire Club in an article that will be posted later today called “Bitcoin for Beginners.”
“No doubt that attempt will be made. Already, government agencies are expressing some degree of annoyance at what could be. But governments haven’t been able to control the cash economy. It would be infinitely more difficult to do this with a virtual currency, with no central bank, with encryption, with millions of users per day. Controlling that would be unthinkable.”
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Shares of Realty Income — the giant real estate investment trust — bumped up 3% over the last two weeks and change. But a small circle of readers were able to parlay that modest move into a 60% gain following Steve Sarnoff’s recommendations in Options Hotline.
This morning, he recommended they take profits. Nice!
You could make money on your first trade putting Steve’s guidance to work in your own portfolio. The proof is right here.