July 19, 2013
- Detroit: After the overpromising comes the underdelivering
- Byron King unpacks “a very strange gold market” and performs his own analysis of the Zero Hour scenario…
- “Let us pursue a line of thought”: Chris Mayer on where to invest if interest rates rise and the economy stays sluggish
- Forget cash for gold, here comes gold for fat… readers’ horror stories about inexperienced IRS personnel… a big misunderstanding… and more!
In the same way Generalissimo Franco is still dead, Detroit is still broke…
They used to build Packards here (photo credit: “Albert duce,” Wikimedia)
“I was planning on retiring in October,” city streets worker Herbert Jenkins tells The Wall Street Journal, “but now I’m not sure. I have a lot of questions.”
Mr. Jenkins is 50. Which seems to hint at some of the problem that’s landed the Motor City in Chapter 9 bankruptcy. Nor is overpromising on pensions and retiree health benefits unique to Detroit.
The news hit CNBC’s Twitter feed shortly after the close yesterday…
…followed nine minutes later, without an inkling of irony, by this:
Well, as we’ve said for two years now, the mother of all financial bubbles will make its impact felt on the local level first. Already two of Detroit’s pension funds are suing to halt the bankruptcy proceedings. Meanwhile, wait times for Detroiters who call 911 stand at 58 minutes. The national average? Eleven minutes.
Our ongoing forecast continues to unfold. Act accordingly.
Major U.S. stock indexes are pulling back from yesterday’s records. At last check, the S&P was at 1,688.
The Nasdaq is taking a bigger hit — down two-thirds of a percent — after Microsoft and Google delivered underwhelming results.
Crude, which crested $108 yesterday, is still there today, at $108.42 — its highest since February last year.
Gold is making another run at $1,300 as the week stumbles to a close, the bid currently $1,294.
“It’s a very strange gold market,” observes Byron King. “Nominal prices are down, but scarcity is up.”
Byron is pondering the insatiable demand for gold in Asia, a theme we’ve oft visited this year… but he’s also noticed a pop in gold lease rates — the amount of interest commercial banks pay to lease gold from central banks.
“The numbers are small, but the trends are intriguing. The one-month gold leasing rate rose from 0.12% in early June to 0.3% in early July. That’s a 150% rate rise in one month! It’s the highest gold lease rate since 2009, although still well below the peaks of previous eras.
“If you’re not familiar with the gold leasing market, there’s a good reason for that. You’re not supposed to know much about it. Gold leasing is a niche activity, and largely the preserve of a few big banks (Goldman Sachs, JP Morgan, etc.) and central banks. Gold leasing is virtually off-limits to retail investors.”
We’ve done our own exploration of gold leasing in developing our Zero Hour scenario, but Byron has his own take — one that points to “a good time to own physical gold.” How do we get from here to there? Check out his full investigation — yours free in today’s Daily Resource Hunter.
“The past several days have brought income investors some much-needed positive news,” says Neil George of our income desk.
For starters, Neil points to Ben Bernanke’s “dovish” talk this week during his final appearances as Fed chief on Capitol Hill.
“Adding to this good news,” Neil says, “is some recent economic data.” Retail sales disappointed on Monday. Consumer prices, at least as far as the statisticians are concerned, are tame.
“All of this points to economic and market conditions that are still ideal for income-generating investments.”
[Ed. note: One of Neil’s favorite income-generating methods works no matter what’s happening in the broad market. You can pick up a fast $215, $500 or even $578 applying this strategy. Neil shows you how it works and how to start collecting checks in this presentation.]
“Let us pursue a line of thought,” says Chris Mayer, “that says interest rates will rise.”
Chris is not convinced this is a certainty, mainstream chatter to the contrary notwithstanding. A 10-year Treasury note has hovered near 2.5% all this week — still historically low, but a far cry from 1.7% in early May. “This might surprise you, but I have no strong convictions on interest rates either way. They may continue to meander along at their current low rates for years yet. Or not.
“But I am interested in thinking about interest rate risk and in preparing for different possibilities.” So back to Chris’ thought experiment: Let’s say rates rise. And let’s further say the economy stays sluggish. What plays might perform best?
“As for stocks, I like insurance stocks.” Chris points to the story of Shelby Cullom Davis, who built a fortune investing in insurance stocks after World War II — just as interest rates began a steady 35-year climb. “Insurance stocks did well as their earnings from their bond portfolios also went up.
“Certain types of real estate will also benefit.” Chris is especially fond of hotels. They can change their prices every night. The owner of a warehouse or retail space has to wait for the end of a five-year lease.
“My guess,” Chris concludes, “is that as long as the 10-year Treasury doesn’t get above 4%, real estate of all types will be in good shape.”
“Kids are big business,” says Penny Stock Fortunes’ Jonas Elmerraji.
“On average, U.S. children under the age of 12 spend an estimated $176 billion of their parents’ money per year. And with a new baby boom on the way here at home, according to demographics experts, that number is only set to swell.
“In today’s super-connected world, parents are spending resources on multimedia devices for kids in ways never seen before.” Giant firms like Hasbro, Mattel and VTech have tried to tap this market — and failed. But Jonas is eyeing an up-and-comer he believes is trading for 20 cents on the dollar.
You read that right. We’ll reserve the math, and the ticker, for his paying subscribers. Suffice it to say those behemoth companies might well be looking to buy out this small fry… and four of Jonas’ picks have already rocketed up on buyout news this year. You can join the ranks of Jonas’ satisfied readers here.
Good news on the cancer treatment front…
It was a little over a week ago when we examined Ray Blanco’s research into reovirus therapy, a potentially revolutionary method to wipe out cancer cells without compromising the immune system.
The company pioneering this research just provided an update from a Phase 2 clinical trial at a major cancer research center in Texas.
“In a two-stage trial,” Ray updates, “up to 18 evaluable patients were to be treated in stage one. If three or more showed at least a partial response to the therapy, the study would proceed to a second stage, in which up to 43 patients would be treated.”
Three of the evaluable patients showed a partial response, meaning a tumor has decreased in size by at least 30%. Another seven showed stable disease, a term used to describe a tumor that’s neither growing nor shrinking, for a control rate of 71.5%. With that, the trial is moving to the second stage.
“These preliminary results are very encouraging,” the company’s CEO beamed, “and support progressing to subsequent studies.”
[Ed note: Through Sunday only, you have a chance to access Ray’s cutting-edge and high-priced biotech research as part of an attractive package deal. This deal also gives you Jonas’ penny-stock picks, Chris’ value plays gleaned from his world travels, Neil’s income picks and Byron’s resource plays.
Combined, these services cost $5,039 per year. But through Sunday night at midnight, you can secure lifetime access for far less than that figure. Follow this link and save.
“In an imperfect world,” Lewis Lehrman suggested yesterday at the Cato Institute, “characterized by imperfect human beings, the best you can look for in any kind of economic institution is the least imperfect. The classical gold standard was the least imperfect monetary system, invented by the ingenuity of men and women engaged in the market who have families to support and a long term view to finance.”
As you may be aware, our fearless leader Addison Wiggin was invited to introduce Mr. Lehrman’s new book Money, Gold and History to a robust, if wonky, audience assembled yesterday in the Hayek Auditorium at Cato headquarters in Washington, D.C.
“Every time I return to the belly of the beast,” Addison commented under his breath afterwards, “I’m reminded how very different the relationship we have with readers than the world of the policy makers and their efforts to steer the Titanic that is the federal government… and all the agents and bureaucrats and lobbyists and political strategists who somehow make a living do so…”
“We’re much happier making snarky comments in The 5 about the whole racket.”
Addison, on friendly turf behind enemy lines…
Lehrman on the other hand has been making the case for the greatest level of prosperity among the broadest number of people to the political class for over 40 years. Money, Gold and History is a compendium of his most widely read Op-Eds and historical references from the pages of The Wall Street Journal and New York Times over that impressive stretch of time.
“He’s a bigger man than I,” Addison concluded.
Lehrman pointed out that under the classical gold standard of 1879-1914 the economy grew at a compounded 4% a year. Under a century of Federal Reserve mismanagement, that’s fallen to 1.5% in the last decade and a half. “By almost every reasonable test,” says Mr. Lehrman, “the gold standard is the least imperfect of the available arrangements.”
Lehrman: “The least imperfect rule-based monetary order…”
Yesterday, members of the Laissez Faire Club received a free copy of Lewis Lehrman’s previous work The True Gold Standard – a roadmap for assembling a new and improved gold standard. Yesterday’s Cato event was broadcast live on C-SPAN and will be edited to air on C-SPAN’s Book TV this weekend.
Here’s something from the freshly ordained “things you’ll never see in the U.S.” file: gold for your fat.
“Losing weight is as good as gold,” The Associated Press reports, “under a unique slim-down initiative in Dubai over growing concerns about rising obesity levels in the wealthy Gulf city-state.”
After authorities across the Gulf Arab states rang the alarms about skyrocketing obesity rates due to increasing fast-food intake and lack of exercise, Dubai officials swooped in with an easy fix… a national 30-day weight challenge.
The incentive? Gold.
Each participant who signs up and weighs in today will, at the end of the 30 days, receive a gram of gold — about $45 at current prices — per kilogram (2.2 pounds) lost, with a minimum of 2 kilograms to qualify.
Will it work? Various studies on the subject of cash incentives and weight loss seem in favor of the tactic. Gold, though, is uncharted territory.
“This now makes perfectly good sense,” writes a Reserve member in reply to yesterday’s reader assertion that many recent IRS hires have a poisonous combination of inexperience and ignorance.
“I had, at a former company I owned, a retirement plan covered under ERISA (another federal bureaucracy). We had closed the plan around 2005, but the three employees covered under the plan had not transferred their funds out. Along about 2007, the IRS came calling wanting to audit the plan.
“I explained that the plan was closed (and they knew it because they had the paperwork). No go. They needed to audit the plan because there was technically money in, attached to it. So I had to hire a specialist to represent my company in the audit. Long story short and $3,000 in fees later, the auditors determined all was OK. My specialist told me later that it was the dumbest audit she ever sat through and that it was basically a training session for a young auditor that asked for documentation that would have never been asked for in a real audit.
“My specialist said she was certain that the entire exercise was never meant to be anything other than a training session at my expense.”
“The stupidity of the IRS is not new,” counters another reader. “In 1988, I was audited on my 1985-87 returns. When we parted, the auditor said, ‘If you owe anything, it will be negligible.’ A couple months later, I received a bill for $98,000.
“My CPA found out that when the auditor took her findings to her boss, she was told she could not give me depreciation on my 21 rental homes because she had not been to the IRS depreciation school. My depreciation was eliminated for those three years. Then they tacked on penalties and interest. They then attached my bank accounts and my rental income. I became homeless.
“After several years of this, I had a hearing — with my CPA on one side and my tax attorney on the other — the auditor looked at my paperwork for a couple of minutes and said, ‘There is no reason you should not receive depreciation.’ I then received a nice check with no interest and no compensation for my CPA and attorney costs, as they refunded the money they had taken from my accounts and my rental income.
“But it did not end there. I then received a bill for over $10,000 they said I owed for 1985. They had ‘inadvertently’ transferred this $10,000 from my ’85 account to my ’84 account, and I had an overage of over $10,000 in my ’84 account. My solution was ‘transfer it back,’ but they said they couldn’t do that.
“My CPA finally got it straightened out. The next year, they disallowed my interest on my 21 homes. My CPA got that straightened out. The following year, they disallowed the interest on my primary residence. After that got straightened out, I got smart and started leaving an extra $10,000 in my account. They haven’t bothered me since.”
The 5: Maybe the stupidity is cyclical. In which case, maybe you should start to worry…
“You guys been listening to Sen. Lindsey Graham?” a reader asks caustically after our international-intrigue episode yesterday.
“Iran has no nuclear weapons program, according to the U.S. military and the United Nations, but don’t let that stop your Israeli cruise missile fun.”
The 5: Are you just looking to pick a fight? Nowhere in the issue did anyone assert the existence of nuclear weapons in Iran, and we have zero desire to start that debate here.
We’re focused on investing. If the Israeli government believes there are nuclear weapons in Iran, there are certain investment propositions that follow. If the Israeli strike in Syria on July 5 is, as Byron asserts, “a milestone of modern warfare,” other investment propositions follow from that too. We’re just following the money, not channeling fatuous politicians who think it’s a swell idea to boycott the Winter Olympics in Russia next year because Edward Snowden is still at the Moscow airport. Sheesh…
“I’m going to have to seriously consider Byron’s new publication, Military-Tech Alert,” writes a reader who gets it. “Those subjects that you enticed us with are very interesting to me — ASW (anti-submarine warfare) and tech spying on the North Koreans.
“I do sour as more and more spying on us via our own NSA stories come out. That just pisses me off! Your readership banters and argues about gold, silver and survival and we all are trying to get educated, learn and invest. Shame on you, USA. Take this effort of spying on us and steer it toward this military aspect and let us have fun without worrying you’re reading and listening to us argue via email of the merits of feral hogs.”
The 5: Thanks. Right now, Military-Tech Alert is available only with a suite of other publications. But we’re making the terms of that suite especially attractive right now. Check out this offer, good through midnight Sunday.
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. Starting Monday, The 5 comes to you direct from Vancouver, where we’ll be gearing up for the last-ever Agora Financial Investment Symposium.
We look forward to making sense of the contradictions and crosscurrents endemic to “A Tale of Two Americas,” our theme for 2013. How can you make the most of the staggering new opportunities in energy and breakthrough technologies… even as a crushing debt crisis lurks in the shadows?
With guests like Currency Wars author Jim Rickards, Makers author Chris Anderson, old hands like Doug Casey and Rick Rule, plus a full complement of Agora Financial editors, our swan song in Vancouver is sure to offer you an unbeatable combination of profitable insights.
Our usual offer of recordings from the event is now open. The choice is yours — high-definition video with all the charts and graphs or high-quality audio for maximum convenience on the go. Either way, your best deal is available only through next Tuesday, July 23.