Stay Home! Buy Nothing!

October 8, 2013

  • Debt ceiling preparations: ATMs stacked with extra cash, bottled water flying off shelves?
  • The truckers who could stir things up six days before the debt ceiling
  • David Walker on why the U.S. won’t default… and Wall Street won’t stand for it
  • One scenario for averting a crisis… and how to invest no matter what
  • Taking the pulse of small business… golden find in an airport lavatory… readers’ debt ceiling scenarios… and more!

  Gosh, this debt ceiling thing must be getting serious.

Cyprus, March 2013

The Financial Times reports three of the top 10 U.S. banks have activated a “playbook” used during the last debt ceiling charade in August 2011. “One senior executive,” says the salmon-colored rag, “said his bank was delivering 20-30% more cash than usual to cash machines in case panicked customers tried to withdraw funds en masse.”

Dig into the deeper recesses of the Internet this morning and you find message boards with accounts of ramen noodles and bottled water vanishing from the shelves at Wal-Mart — as if people are preparing for a natural disaster.

  Adding to the strange stew of the debt ceiling deadline a week from Thursday, we drop in another ingredient…

That’s this Friday through Sunday.

The movement began Sept. 15 with a Facebook group called “Truckers to Shut Down America” — racking up over 53,000 “likes” the first week. “Truck drivers will not haul freight!” it said. “Workers will call in sick! Consumers will not buy or sell anything on this date! Stay home! Buy nothing!”

Organizers say a convoy 3,000 strong will gather Friday on Interstate 495 — the “Beltway” surrounding Washington, D.C. — and tie up three lanes going 55 miles an hour.

Unfortunately, their grievances are at least as fuzzy as those of Occupy Wall Street. The original Facebook page — which is now gone — made only vague reference to “corruption” in Washington. Then appeared messages calling to “Restore the Constitution, Defund Obamacare, Lower Fuel Prices.”

By yesterday, one organizer was telling U.S. News & World Report, “We the people will find a way” to arrest members of Congress, while other organizers rushed to Facebook to disown the guy. The American Trucking Associations — the biggest trade group — wants nothing to do with any of it.

Friday could be interesting…

“The United States will never default on its debt,” says former Comptroller General and I.O.U.S.A. protagonist David Walker. “The Treasury can and should prioritize its debt service payments.”

We’re delighted to see Mr. Walker affirm something we’ve hammered at since at least the first of the year. Even if the Treasury hits the debt ceiling, it will have no problem continuing to pay interest on the national debt.

“The Bureau of Public Debt knows who’s owed what, when,” Mr. Walker tells CNBC. “And we have plenty of cash flow to meet those debt service obligations.”

  It’s Uncle Sam’s other various and sundry obligations that would have to give way.

At the risk of repeating ourselves further: To stay under the debt ceiling would require, in effect, an instant balanced budget so that no more additional debt accrues.

It isn’t that hard to get from here to there. As we noted yesterday, the “partial government shutdown” already amounts to a 17% cut in government spending — or $626 billion if it lasted for all of fiscal year 2014.

The White House’s 2014 budget request projects a deficit of $744 billion. Really, how hard would it be to scare up another $122 billion in savings?

  The problem is Wall Street won’t stand for that.

“In recent meetings with Republican lawmakers and Obama administration officials,” reports this morning’s Wall Street Journal, “chief executives of the nation’s largest financial institutions said putting some payments ahead of others would create insurmountable uncertainty for investors, drive up borrowing costs and cause market disruptions, according to people familiar with the meetings.”

Says Tom Simons, an economist at investment bank Jefferies Group: “This is going to be permanently damaging for business and consumer confidence if this happens. People will never look at the United States Treasury the same ever again.”

Hmmm… He says that as if it’s a bad thing…

  For the moment, the Street has ceased to throw a snit about the dysfunction in Washington. The major indexes are more or less unchanged from yesterday’s close, the S&P at 1,674.

Treasury yields have inched up, with the 10-year at 2.65%. Gold is up $5, to $1,327.

  “I think most people sort of knew that the shutdown business was the undercard to the main event,” says our Chris Mayer — “which is the debt ceiling issue.

“It’s rare that any sovereign in our paper-money age defaults for obvious reasons. It’s hard to run out of money when you can print what you want and people who hold the debts you owe have to take it.

“I think we can rule out the idea that whatever resolution comes out of this is going to fix anything. The U.S. government will still be deeply in the red. It will still have a growing pile of debts. And the value of the U.S. dollar will likely continue to crumble like a sand castle worn away by wind and an incoming tide.

“In other words, expect more of the same. Meanwhile, markets will go up and markets will go down. People are still people — and they have a tendency to misprice securities. There is always something to do, as the great investor Peter Cundill used to say.”

[Ed. Note: One of the most mispriced opportunities out there right now has a track record of delivering as much as $50 for every $1 invested. And that happened in the teeth of the 2000-02 bear market.

Chris has taken to calling these plays “Chaffee Royalties.” Thing is they crop up at unpredictable moments — and then they disappear just as suddenly. But for the moment, the window of opportunity is wide open. Check it out while you still can.]

 Here’s how the phony drama might well end — with cuts to Social Security.

Former Wall Streeter Bruce Krasting broached the subject last week. He’d been looking at a Congressional Budget Office (CBO) report that says Social Security’s finances have taken a sharp turn for the worse in the last 12 months, mostly because people are living longer.

The CBO says the most obvious fix would be an “immediate and permanent” increase in the payroll tax from 6.2% to 9.6%. Obviously, that’s a nonstarter, but “I wonder,” Krasting writes, “if the White House will use the rapidly deteriorating condition of Social Security as its ‘lever’ in negotiating with Republicans over the budget and the debt limit.”

After all, he points out, the president has already pushed to raise the retirement age and to use the “chained-CPI” ruse to lower Social Security’s cost-of-living increases.

  “The president seems unwilling to give an inch on Obamacare, so, alright, where can we find other reforms?” asks Rep. Blake Farenthold (R-Texas).

Mr. Farenthold is one of three Tea Party Congress members who tell Bloomberg that “they’d back an agreement to end the government shutdown and lift the debt ceiling if it included major revisions to U.S. tax law, significant changes to Medicare and Social Security and other policy shifts.”

Meanwhile, the president, according to the Christian Science Monitor, has “signaled a willingness to make concessions in some of the other areas mentioned by the tea partyers, such as changes to the formula by which retiree cost-of-living increases are calculated under Social Security.”

Farenthold’s rationale is interesting: Obamacare, flailing in the week since the launch of the exchanges, “will collapse under its own weight.”

Hmmm… We’ll keep our ear to the ground.

  If the drama in Washington is weighing on small business owners, it’s not showing up yet in the Optimism Index put out each month by the National Federation of Independent Business.

The September number dropped 0.2, to 93.9. It remains near the high end of the range where it’s been stuck the last four years.

“Between botched health care implementation and one manufactured crisis after another,” says NFIB chief economist Bill Dunkelberg, “consumers and small business owners are likely to remain pessimistic, accepting the notion that growth is going to be subpar and that their government is likely to continue in dysfunctional mode for months to come.”

Regulations and taxes continue to top the “single most important problem” list in the survey, followed closely by poor sales.

  From India comes word of illicit activity in an airport bathroom that has nothing to do with the “Mile High Club.”

Gold bars worth $1.4 million have turned up in the lavatory of an Air India plane. Acting on a tip, agents from India’s Directorate of Revenue Intelligence were waiting at the Chennai airport for a flight from Dubai. They arrested four men and found the gold stashed in the bathroom — where exactly, umm, we’re not told.

As we’ve chronicled all year, the Indian government has been ratcheting up the import duties on gold to prop up the rupee and narrow a yawning trade gap — a gambit that’s keeping smugglers busy.

An airport bathroom strikes us a sloppy method. Much smarter are TVs outfitted with capacitors made of gold.

  “The door is always open for any kind of goofy political possibilities,” writes a reader trying to read the tea leaves.

“For example, when the heads of government crash through the debt ceiling, then what? Well, the government can’t borrow anymore legally, but in my world of rainbows and butterflies, the Federal Reserve, which really loves the U.S. government and the American people, is at liberty to offer a free gift of an extra $100 billion to the Treasury, just to keep them going, like a loyalty bonus or a ‘coupon deal.’

“If you can’t borrow, you can still take a free gift, right? I am sure the Supreme Court will uphold this somewhat tortured legalistic interpretation. So once again, no worries.”

  “Has anyone,” another writes, “connected all three events: Obamacare, the debt ceiling and profits?

“My guess is Obamacare will increase costs to employers of every kind, thus reducing the tax revenue the government takes in, thus making it harder to pay the government’s bills. When Obamacare really gets started, it will be a heavy conduit of profits flowing from the private sector to health care for unproductive people.

“Will the government take in enough to pay the bills and keep the faith of the investment world? The answer to all of this is NO, which is why Agora is a big recommender of buying gold and hiding it away.”

The 5: Although we hasten to add that’s not the only solution on our radar. Stay tuned…

  “My first job after college graduation was with Connecticut General, now CIGNA,” a reader writes on Obamacare.

“I was a Field representative for pensions and employee benefits. Group health and disability insurance in employee groups was the arena that consumed most of my time for the next 25 year . I know about health insurance and funding it.

“The Affordable Care Act, aka Obamacare, is nothing more than a huge health insurance law. It burdens the USA with the bill for giving insurance to millions of previously uninsured people. This will not be financially successful.

“An insurance term is ‘utilization’ — the propensity of an insured group to use the fee-for-service system. Utilization will now skyrocket, and claims will far outrun premiums into the exchanges. Premiums will then skyrocket.

“Next after the failure of the bill to address basic health care reform in any way, there will be cries for reform — and they will propose the same inept government is the answer.”

The 5: Exactly. We suggest how the endgame will play itself out in this presentation.


Dave Gonigam
The 5 Min. Forecast

P.S. Here in Maryland, we see the state-run health insurance exchange has had 170,000 unique visitors… 13,532 people who’ve created accounts… but only 326 people who’ve actually signed up.

Mind you, about 600,000 Marylanders have no health insurance, if Census figures are to be believed.

The feds — which operate the exchanges in 36 states — have yet to disclose their sign-up numbers, heh.

And the real fun starts on Jan. 1. If you haven’t been affected now, you will be then. Prepare accordingly.


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