Three Cheers for the Depression!

May 22, 2013

  • “We are in a depression”: If it’s doom-and-gloom you crave, this guy delivers…
  • But wait: At the same time, “the technology to create and design new products is available to anyone today,” says someone else
  • Can both be true at once? Yes, we suggest… with historical proof
  • When you’re a AAA risk, it’s all downhill: Neil George upends the traditional view of bonds
  • The day the toaster ban was lifted… a reader’s impassioned plea… the gold manipulation debate, continued in our inbox… and more!

  “We don’t have to worry about a recession — we are in a depression,” declares James Rickards.

“If you take the classic definition of a sustained, long-term downturn with economic growth below trend,” he tells the New York Post, “then we are in the midst of a depression.”

For an “insider,” Mr. Rickards is refreshingly candid. Fifteen years ago, he negotiated the banking system’s rescue of the hedge fund Long-Term Capital Management. In 2009, he was invited by the Pentagon to help “war-game” a global financial conflict — a scenario he fleshes out in his book Currency Wars.

“Each country is degrading its currency in the hopes of spurring growth,” says Rickards. “Look at Japan. The yen has lost 40% of its value against the dollar in a very short period of time.”

And in the United States? “There’s a good possibility I may never see another rate hike in my lifetime.” Quantitative easing, Rickards says, amounts to a $3 trillion trade. Only problem? “Bernanke’s not a trader, so doesn’t think like a trader; he has no exit plan.”

  As if on cue: “Bernanke warns premature tightening could end growth,” reads the liveblog entry at Marketwatch.

It’s time for the Federal Reserve chairman’s twice-yearly testimony to Congress. At the stroke of 10:00 a.m. EDT this morning, Bernanke affirmed Rickards’ thesis in real-time.

The “tapering off” talk that’s had the financial media abuzz in recent days? Ha ha, just kidding. “A premature tightening of monetary policy,” said Bernanke, “could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further.”

100  And with that, it’s “risk on,” baby!

  • The Dow has broken through 15,500. The benchmark small-cap index, the Russell 2000, might post its first close above 1,000 today
  • Money is flooding out of “safe” Treasuries; the yield on the 10-year note has popped to 1.97%
  • Gold even leaped the $1,400 barrier for a few moments, but has settled back to $1,376
  • And for irony, the greenback is looking sharp relative to the rest of the world’s fiat currencies; the dollar index has jumped to 84.4, the highest in nearly three years.

  “Businesses have no clarity into future policy,” says James Rickards, adding to his litany of woes, “so therefore there’s no investing into hiring new workers or buying new equipment.”

There’s the terrible twosome of multithousand-page legislation, Obamacare and Dodd-Frank; more than two years after passage, regulators are still writing the rules. And there’s the hemming and hawing over the Keystone XL pipeline. Rickards says all of that needs to be resolved “so businesses know their future costs.”

  “The technology to create and design new products is available to anyone today,” writes author Chris Anderson — making as hard a left turn as perhaps we’ve ever made in The 5.

Anderson does not concern himself — not much anyway — with the follies of politicians and central bankers. He’s too busy being an apostle of the Maker movement — or as the subtitle of his book Makers calls it, “the new industrial revolution.”

He has a 3-D printer in his house. Using it and some designs from a website called Thingiverse, he and his daughters can make their own dollhouse furniture — at a low cost, in exactly the right style and the perfect size. Bad news if you’re a toy company.

And that’s in his spare time. He runs 3D Robotics, a firm that started on his dining room table in 2006 and now employs 70 people in San Diego and Tijuana building small drone aircraft — not the military kind, we assure you.

His story can be anyone’s story now: Using 3-D printers, laser cutters and computer numerical control (CNC) machines, you need only a little imagination and an Internet connection to become an entrepreneur. If your awesome new idea is too complex for a crude 3-D home printer, you can outsource the job to someone across town or across the globe who has the right tools. And you can get ready access to capital through “crowdfunding” websites like Kickstarter.

  Can government foul up the Maker movement? Not much, Anderson suggests.

“Every time government tries to regulate technology itself,” he tells us in the new issue of Apogee Advisory, “rather than use the technology, they get tangled up in definitions. Look at the debate over what’s an [assault] weapon. How do you regulate the Internet? How do you regulate copyright?

“Let’s just take drones. What is a drone? You tell me. At what point does the toy that your children can buy in a department store qualify as a drone? It’s very hard to buy a flying toy that doesn’t have a camera right now. We can regulate how they’re used. We can regulate where they’re used. But it’s very hard to regulate the technology itself, because, among other things, who are you going to stop?”

Who, indeed?

  “Periodically,” adds our own tech and biotech maven Patrick Cox, “I forget that the rate of scientific change is accelerating exponentially.

“If you’re paying attention to the people who are actually pushing the scientific envelope, you will be astonished by the progress and the wealth it is creating.” Only yesterday, Patrick alerted his readers to the possibility that science can successfully regrow human limbs; we’ll get into that in tomorrow’s 5.

“It is, however, easy to be lulled into complacency,” Patrick adds by way of underscoring our point. “This is especially true during dramatic events, such as the current meltdown of Chicago-style federal governance. Ultimately, however, scientific progress trumps everything, including malfeasance and inertia.”

Patrick never tires of reminding us — and we never tire of hearing — that amid the economic destruction of the Great Depression, new fortunes were made in emerging technologies like radios and home refrigerators. The best of times, the worst of times… at the same time.

If as Mr. Rickards says we are once again in a depression, the past is prologue. We’re once again living through “A Tale of Two Americas” — the theme of this year’s Agora Financial Investment Symposium.

James Rickards and Chris Anderson will both be on hand in Vancouver to help us make sense of the opportunity still available amid the wreckage left behind by what Bill Bonner fondly calls the “world improvers.”

Both of them will be with us for the first time. So will Sprott Asset Management’s John Embry. We’ll also be joined by familiar faces like Barry Ritholtz, Frank Holmes and Rick Rule. Plus, the full complement of Agora Financial editors.

Early bird registration is still available through Friday, May 31. Your invitation is at this link. Take the time to review it now before you get too caught up in your plans for the long weekend…

  Moody’s is threatening to lower Uncle Sam’s credit rating. Again.

Moody’s never did follow S&P’s lead in knocking down the U.S. Treasury’s AAA rating two years ago. Now the agency is fretting that Congress won’t deliver a “grand bargain” budget deal this year and start lowering the ratio of national debt to GDP. “More needs to be done on the policy front to address this rising debt ratio,” says Moody’s senior vice president Steven Hess.

  “When you’re looking at a AAA-rated bond,” says our income specialist Neil George, “it can only get worse, not better. And with the U.S. Treasury now rated at AA+ by S&P, there is the possibility of even lower ratings.

“Buying an AAA-rated bond is like buying a fully priced stock. You can’t get any better, and the markets have priced it for perfection. The only way that you’ll make money is to hope for perfection. I’d rather make a different bet.

“I look at bonds as I would look at stocks,” Neil explains. “With a little digging, you can find better yields and some opportunities for gains. The key is to find bonds from governments and corporations that are on their way up in credibility — rather than being questioned on their way down the credit ladder.

“To put is simply, I’d rather buy a ‘B’ credit on its way to becoming an ‘A’ than to buy an ‘A’ and hope it doesn’t slip.”

Neil has cast his gaze overseas for suitable opportunities. They’re not complicated to buy, either: In fact, they’re as simple as a few clicks at your existing online brokerage account. And they’re a core holding in Lifetime Income Report.

  Cuba took another step towards the 21th century yesterday. The island’s citizens are now allowed to purchase domestic appliances that had been banned from abroad.

According to The Associated Press, the ban was instituted in 2005 because of widespread blackouts. Air conditioners, refrigerators, microwaves, water heaters, toasters and irons… all prohibido.

Now citizens are allowed to import two units per person, for personal use. What changed? It’s all because of “an energy crisis that prompted the then president, Fidel Castro, to launch the so-called energy revolution, seeking to lower consumption”

Hah. It’s always a revolution with these guys…

“‘Prices for those products in Cuba are very high,’ said Maria Rosas, a 42-year-old office worker who added that she makes about $12.50 a month. ‘I see things like a blender, a sandwich maker or one of those steam irons, and I’d like to have them, but I can’t afford to.'”

Hrm…we detect a problem already. Apparently, one Cuban retiree, Gregorio Santos, does too.

He asked the AP the million-dollar question about this two unit per person policy.

“What the government is not going to be able to avoid with this measure is that people who travel won’t just buy for their personal use, but also to resell it later.”

Try as they might, the Castros can’t repeal the law of unintended consequences…

  “The economy is in good shape,” a reader asserts. “It must be if people are taking this much time to complain about whether it takes five, 10 or 84.3 minutes to read The 5. I’ll stay long on the market for as long as these arguments continue.”

“If you want to please everyone,” writes another, “you can change your name to an old iconic retailer known as the five and dime.”

“Fifteen minutes for free is a 300% better deal than 5 Mins. for free (depending on how you do the ‘profit math’),” suggests a third. “I vote for all ya’ll (Texas plural) to do three times the work for free and the folks with ADHD can stop when they notice some other shiny lights and their attention span dissolves. Everybody’s happy!”

  “I know that publications are helped by fueling controversial topics,” reads our next email, “but Dear God (and I do mean that in a prayerful way), please stop fueling the feuding over the time it takes to read The 5! Please! — ‘It’s too long!’ ‘No, it’s not!’ ‘Yes, it IS!’ ‘NO, it’s NOT!’

“This is exactly the type of juvenile behavior we see from Congress and the president. Tit for tat, with nothing of substance. I’m afraid that someone will ask Congress to get involved and pass a bill on the number of words that can be contained in The 5. Then we’ll have to pass it to find out what’s in it.

“With regard to the more material debate over gold manipulation, I agree that there is not yet a smoking gun. But there is certainly the means, the motive and the opportunity for manipulation in addition to all of the circumstantial evidence that has been covered previously.

“Currency and bond interest rates are manipulated openly and we recently discovered the Libor rigging. It’s not a stretch to imagine that gold is being manipulated as well. It also doesn’t require a secret cartel working and planning together, as Mr. Casey and others suggest. The motive of profits and knocking down competition to the dollar are shared by all the central banks.

“Throw in a nicely timed article by The New York Times on gold being dead on the day several hundred tons was dumped and it would seem to be a stretch to not believe it is being manipulated, or at least assisted in its fall. When did Casey and others gain such a high regard for bankers that they don’t see manipulation as all but discovered at this point?”

  “I have to chuckle at the quotes from Doug Casey about gold manipulation,” writes a reader after yesterday’s episode. “I like Doug and always look forward to what he has to say. I find it interested that he is completely not on board with gold price manipulation given that Ed Steer’s Gold & Silver Daily, a Casey publication, is probably in the top five newsletters screaming that there is price manipulation in the gold and silver market.

“I don’t know if Doug is losing a grip on his publication empire or just giving the people what they want. After all, a conspiracy isn’t much fun without two opposing views. Perhaps Doug is just talking his book.”

The 5: Newsletter editors are an irascible bunch. Even the ones who aren’t argumentative by nature end up in arguments. There’s a donnybrook within Agora Financial right now involving at least four — no, make that five — editors, about the merits of a certain master limited partnership.

We think it’s a healthy thing; from such disagreements truth can emerge. And as we said a couple of weeks ago, what fun is it when someone enforces a party line from on high?


Dave Gonigam
The 5 Min. Forecast

P.S. “The Internal Revenue Service official at the center of a tax scandal about extra scrutiny of conservative groups,” reports Reuters, “told a congressional hearing on Wednesday she had done nothing wrong but asserted her constitutional right not to answer questions.”

Thus has an IRS official put herself in the same lofty company as Oliver North and other top officials who’ve taken the Fifth. If only you could do the same when dealing with an IRS agent.

This is starting to get ugly for the Obama White House. Worse for them, it’s only the beginning… as you can see for yourself here.


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