- Profit opportunities as a British brain trust aims to stop doomsday in its tracks
- Postcard from Argentina… where a crackdown on truth-telling economists has resumed
- Byron King on a potential gold catalyst
- Rick Rule on what gold stocks need now
- Tax avoidance expert on government payroll… the memo that might have done in Larry Summers… income inequality debate takes a “Luddite” turn… and more!
Have no fear: The “Doomsday Brain Trust” is here…
It seems the ominous Doomsday Clock, maintained since 1947 by the Bulletin of the Atomic Scientists, is dead and a new sheriff is in town.
With initial funding from Skype’s co-founder Jaan Tallinn, some of Britain’s finest minds are composing a “doomsday list” of devastating threats to human existence… and, for better or worse, racking their brains for solutions.
“Many scientists,” the group’s website reads, “are concerned that developments in human technology may soon pose new, extinction-level risks to our species as a whole.”
The heavyweight lineup includes the group’s leader, Lord Rees of Ludlow, astronomer extraordinaire and past president of the Royal Society; Stephen Hawking, the Cambridge cosmologist; and Lord May of Oxford, a former government chief scientist, among others.
“Those of us fortunate enough to live in the developed world,” Lord Rees announced in a recent speech to the British Science Festival, “fret too much about minor hazards of everyday life: improbable air crashes, carcinogens in food, low radiation doses and so forth.”
The most likely “end of days” scenarios they’ve mocked up are listed as such:
- Cyberattacks
- Bioterrorism
- Food shortages
- Pandemics
- Malign computers
- And runaway climate catastrophes.
Lord Rees believes the largest threat to our existence, which is already unavoidably embedded into our society, is technology.
“According to Lord Rees,” the London Independent reports, “the threat of nuclear war was the main global risk we faced in the last century, but in the fast-developing 21st century, there are new concerns over risks such as deadly bioterrorist attacks, pandemics accelerated by global air travel, cyberattacks on critical infrastructure and artificially intelligent computers that turn hostile.”
[Ed. Note: Fortunately, we’ve already been tracking the companies working on solving these potentially catastrophic problems. Now that the awareness is on the rise, there isn’t a better time to learn who’s coming up with solutions — and, of course, how you can invest. Byron King has uncovered critical clues within the Pentagon’s “black budget.” He reveals what he’s discovered so far right here at this link.]
Stocks are in a holding pattern as the Federal Reserve begins its two-day taper extravaganza.
Come 2:00 p.m. EDT tomorrow, we’ll know whether the Fed will pare back its bond purchases. For now, the S&P has inched its way back above 1,700.
Options trading is proceeding normally again after a “data feed glitch” that shut down trading for about 20 minutes yesterday afternoon. Like the Nasdaq freeze-up last month, we may never know the exact reason for it.
The big number of the morning is consumer prices — up 0.1% last month, according to the Bureau of Labor Statistics, and 1.5% year over year. In the real world, meanwhile, inflation as reckoned by John Williams at Shadow Government Statistics runs 9.17% year over year.
We take no pleasure in relating Mr. Williams’ calculation, but we also take comfort that he can still speak his truth.
“Argentina is trying again to criminally prosecute people who publish independent inflation data,” reports The Associated Press.
It’s an old story — documented in our own virtual pages — but also a persistent one. The government is now going after economists at four firms. They face up to two years in prison.
“The Argentines live with super-high inflation,” writes our Chris Mayer, whose travels took him to Buenos Aires last week. “Officially, it’s around 10%, but on the ground, it’s closer to 25%.”
Chris met up there with “Marco Polo,” the pen name of a former Hong Kong-based investment banker. That’s as much as he’s willing to let on about his identity.
“Marco told me that Argentines hold one out of every 15 printed U.S. dollars. ‘The problem is the current government has made it impossible to buy dollars legally since late 2011,” Marco writes at his blog called Of Wealth. “With price inflation running at around 25% a year, a large black market economy and peso savings accounts that pay 10-15% less than inflation, there is plenty of demand for dollars.”
And if you want a decent exchange rate, that too requires a black market transaction. “The average taxi driver in Buenos Aires,” avers Marco, “understands more about financial mismanagement than the crowd at a conference of Nobel Prize-winning economics professors and central bankers.
“Americans have yet to learn these lessons,” says Chris. “Ours is a culture still much too trusting of central banks and paper money.”
[Ed. Note: You can read Chris’ full dispatch from Buenos Aires in today’s Daily Reckoning. And if you’re looking for a way to protect your wealth from the vagaries of central banks and paper money, Chris has just the thing — a type of play that’s available in your regular brokerage account, but can often soar 300-500% beyond traditional stocks. And with less risk, to boot. Check it out right here.]
All’s quiet in the precious metals — gold at $1,311, silver at $21.82.
“Let’s look at one item — just one! — that could cause precious metal prices to rebound sharply,” says Byron King. He’s talking about the national debt — which for nearly four months has been static at the “debt ceiling” of $16.729 trillion.
“Throughout 2013,” says Byron, “the Treasury has used accounting gimmicks, tricks, fund transfers, restatements and other legerdemain to juggle the books. But in a month or so — or as soon as the debt ceiling is raised after Congress and President Obama go through their Kabuki theater — the U.S. national debt will quickly revert upward.
“Do investors no longer need gold as a risk hedge?” he asks rhetorically. “Is the modern economy past the point where savers and investors need to convert currency into something that central banks can’t create out of nothing?
“Just keep in mind that over the long haul, gold and other precious metals are a key part of preserving your wealth,” Byron concludes. “Don’t panic out.”
“There’s a key element still missing from the picture,” says Sprott USA chief Rick Rule — addressing whether the worst is over for precious metals stocks.
“In past bear markets in natural resources, we witnessed a wave of capitulation selling that marked the end of the bear market. That capitulation allowed the next bull market phase to begin. And we haven’t seen that kind of capitulation occur in this market. The excesses of the bull market from 2003-2010 are nowhere near done being wrung out of the system.”
Typical bear market cycles run three or four years. From where he sits, the capitulation moment might still be a year or two away.
Ironically, Rick says a rising gold price might forestall that shakeout as investors hold onto weak companies that deserve to go under. On the other hand, quality companies with smart management and good properties can be had for a song. “There are certainly opportunities with regard to these companies for those of you who are able to accept the risk.”
“Ninety percent of what you pay out ends up with the employee,” former government tax adviser in London David Heaton said during the small conference that cost him his job at the U.K.’s customs and tax department, HMRC.
“You can’t really knock that one.”
The conference, named 101 Ideas for Personal Tax Planning, was designed to give attendees tips on how to keep money “out of the chancellor’s grubby mitts.”
One of his tricks, for example, explaining how employers can drastically reduce their tax bill is as follows…
If employers, Heaton explains, deliberately time their employees’ bonuses to enable an increased rebate on maternity pay, the tax paid on the bonus would fall from 41.8% to 8.4%.
Two months after the conference, Heaton landed a job at the HMRC.
Unfortunately, unbeknownst to him, BBC Panorama was at the conference with a hidden camera and published it on BBC One for all to see under the title Panorama: Tax, Lies and Videotape.
Heh. Oops.
The video contained nine of the 101 tips to dodge the tax man. Which was apparently enough to convince Heaton that a resignation from his new position was in his best interest.
Hey, maybe our London office has an opening?
“Mr. Heaton’s statements,” Treasury minister David Gauke told The Independent, “are directly at odds with the government’s approach to tackling tax avoidance; therefore, it is right that Mr. Heaton resigns from his position.”
We’re vaguely reminded of a saying about having your cake and eating it too… hmm…
Ah, it’ll come back to us.
“Your retrospective on the 2008 crisis,” a reader writes, “failed to note that the Clinton administration, with the help of Larry Summers, Arthur Levitt and others, dismantled the Glass-Steagall Act set up during the 1930s to prevent banks and insurance companies from running a cash roulette wheel and putting all Americans’ financial future under the gun.
“At present, there are no controls over the derivatives debacle, thanks to the firing of Brooksley Born, who insisted that derivatives should be treated as commodities, where there are margin requirements for such transactions.”
The 5: There’s only so much ground we can cover in our mere 5 Mins. But you’re on the money. Heck, Summers’ role in that whole fiasco might have undone his hopes to become the next Fed chairman; by some accounts we’ve read, it was the deal breaker for several influential senators.
Too bad; we’d have loved to see Summers confronted with a confidential memo recently unearthed by the gonzo journalist Greg Palast. Addressed to Summers, it was a reminder to ring up the CEOs of five banking giants to discuss the replacement legislation. Among the five — Jon Corzine at Goldman Sachs.
Bonus: The memo came from Summers’ deputy at the time, Tim Geithner. Maybe that’s why Geithner says he’s not interested in being Fed chairman?
“I wish to commend the reader who tends toward Luddism in decrying technology as a great impoverishing force,” a reader writes in reply to yesterday’s mailbag.
“He has successfully identified the first stage in economic thinking. Greater profits initially run to those who can do things more efficiently. But in a competitive environment, can the innovator keep perfect secrecy while avoiding the lure of more customers through lower prices? And do the workers ever enjoy these lower prices? Would we really be better off picking nuts and berries and hunting with spears? (Oops, scratch the spears bit, as that is also a technology.)
“I would recommend he read the Hazlitt classics: Economics in One Lesson and The Conquest of Poverty.”
“Technology in all fields is an ongoing process that evolves daily,” another reader piles on, “so the new technology of today is the old way of doing things in the future, just as today we constantly refine ideas that were new 100 years ago.
“As an example, Henry Ford created a new technology to manufacture automobiles in the early 20th century that has been refined over the years, but his ideas, along with many others, created the Industrial Revolution that elevated many people out of the poor class into the growing middle class in America.
“Technology in all areas continues to evolve all around the world, and it has most recently lifted up the lives of countless millions in emerging-market countries. So why is our middle class shrinking?
“Anyone with a new idea today who wants to put it into action has a mountain of obstacles to climb that have been put there by the government. I have read many articles by persons who had ideas 40 years ago and have seen them grow into large, worldwide entities and have gone on record as saying they would not be able to do the same thing in America today.
“So my belief is technology continues to evolve, but the end products of that technology continue to be applied in factories that are predominantly located overseas. To be clear, new ideas and discoveries are being made in our country every day, and the end products of those ideas are being consumed by us also. It’s the middle step we are missing. They are being manufactured, for the most part, in another country. That’s where our middle class is being left out.”
The 5: We have a lot of hope for the Maker movement as described to the crowd in Vancouver this summer by Chris Anderson.
“The technology to create and design new products is available to anyone today,” he says. No factory needed: You can use your own 3-D printer, or, if that’s not sophisticated enough, upload your design to a business that has the right equipment.
“You don’t need to invest in a massively expensive plant or acquire a vast workforce to turn your ideas into reality,” Anderson wrote in Makers. “Manufacturing new products is no longer the domain of the few, but the opportunity of the many.”
Hear, hear!
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. Our favorite 3-D printing plays are described in depth at this link.