Armies and Debts and Taxes

September 12, 2014

  • “What so proudly we hailed…” Oh, never mind.
  • Following Mr. Market’s cue for 46% gains
  • How progress on Ebola signals breakthroughs across all of medicine
  • Three reasons not to invest overseas… and one reason you should anyway
  • One reader’s remarkably low cost of living… another reason behind the “jobless recovery”… how to invest for the “pitchforks-and-torches moment”… and more!

   The State of Maryland is blowing $5.5 million to commemorate a minor moment in a pointless war.

Pardon us if we’re a little grumpy today, but Baltimore, our home base, is going nutso with War of 1812 nostalgia right now. Festivals, parades, flyovers, etc. This weekend is the 200th anniversary of the Battle of Fort McHenry — a failed British bombardment that ended with an oversized American flag still flying “by the dawn’s early light,” as Francis Scott Key memorialized it.


“State officials,” The Wall Street Journal informs us, “have awarded $5.5 million in grants for celebrations, educational programs and research, hoping to generate a lasting patriotic buzz about Maryland’s starring role in a war that largely has been written off as a historical footnote.”

   “The War of 1812 was America’s first neocon war,” wrote Jefferson Morley at Salon two years ago.

“With an audacity that would become familiar, the war hawks appealed to a combination of personal pride — the British navy was forcibly conscripting Americans — and the prospect of material gain — the absorption of British Canada — wrapped up in love of country.”

The material gain part never panned out: “U.S. forces attacking Canada,” Morley wrote, “were repeatedly repulsed in 1812-14, giving the Canadians a quiet superiority complex that they have not entirely lost to this day.” Heh…

   The War of 1812 also begat a major default. Banks printed notes in mass quantity to buy the government bonds needed to finance the war. The only banks that didn’t take part in the printing frenzy were in New England, where opposition to the war was widespread.

Weeks before the bombs burst in air over Fort McHenry, the U.S. government and the state governments outside New England came to a fateful decision, described by Murray Rothbard in his A History of Money and Banking in the United States.

“As the banks all faced failure, the governments, in August 1814, permitted all of them to suspend specie payments — that is, to stop all redemption of notes and deposits in gold or silver — and yet to continue in operation.

“In short, in one of the most flagrant violations of property rights in American history, the banks were permitted to waive their contractual obligations to pay in specie while they themselves could expand their loans and operations and force their own debtors to repay their loans as usual.”

Gee… sound a little familiar?

   In 1795, one of the Founders wrote that “Of all the enemies to public liberty, war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other.

“War,” he went on, “is the parent of armies; from these proceed debts and taxes; and armies, and debts and taxes are the known instruments for bringing the many under the domination of the few… No nation could preserve its freedom in the midst of continual warfare.”

The guy who wrote that was James Madison — who waged the war as president two decades later.

   To the markets…

Silver keeps falling. As we write, it’s sitting at $18.51, down 16 cents for the morning. The Midas metal isn’t faring well either. It’s down $12, to $1,229.

Upon writing, stocks are sagging too. The Dow sunk 28 points this morning, to 17,020. The Nasdaq is down 15 points, to 4,576. And the S&P 500 fell 8 points, to 1,990.

   “Mr. Market looks like he’s losing steam this week after yet another textbook bounce off trendline support,” writes Jonas Elmerraji of our trading desk.

“We’ve used a pretty simple formula to trade the S&P 500 for the better part of the last two years: Buy when the big index falls into the green zone, and sell when shares stall out in the red zone. It really doesn’t get much more simple than that.”

Jonas sent along this chart with his own clear, if a bit cheesy, annotations. We reproduce it verbatim to convey the essence of its charm. Heh…


“But shares are starting to stall here,” Jonas goes on. “That doesn’t mean that you need to avoid stocks altogether — you’d be leaving money on the table if you did that. It just means that you need to be selective in the names you own. For instance, one of our names popped 6% Wednesday. That’s more than any single S&P 500 component made, and the move was 100% technical.”

[Ed. note: Only a few hours remain in which you can seize on Jonas’ gutsy challenge: He guarantees he can teach you the steps to go from zero to $10,000 — in as little as 36 days.

You can join the ranks of satisfied readers like Perry, who got in “at 78 cents and out at $2.19… a 28% return on my first trade!” Or David: “I made a handsome 20% return and $28,000 in a few days. Thanks.”

You have literally nothing to lose by taking up Jonas on the offer. See for yourself right here. But do it now: The challenge expires at midnight tonight.]

   The world is closer to an Ebola vaccine… and not a moment too soon, says Stephen Petranek on the science-and-wealth beat.

“Completely bypassing the FDA and its noxious series of Phase 1, 2 and 3 trials that often cost more than $100 million and take many years to bring a drug to market, the National Institute of Allergy and Infectious Diseases declared that its decades-old attempts to create an Ebola virus have finally met with some success,” Stephen tells us.

That said, the results are murky: “The vaccine works in macaque monkeys if they were vaccinated about five weeks ago, and it doesn’t work so well if they were vaccinated 10 months ago.” But the outbreak is so widespread and so urgent that last week, a 39-year-old woman got the first dose ever put in a human.

“The vaccine’s apparent success is symbolic of the many new and extraordinary drugs that are in development and that will explode on the world of medicine in the next several years, including breakthrough therapies for heart disease and cancers, the top two killers of humans.”

   Then there’s the parallel rush toward an antiviral to treat Ebola… a development Stephen’s readers are following closely.

One of the picks in Breakthrough Technology Alert is halfway through Phase 3 trials of a revolutionary antiviral treatment — “the equivalent breakthrough for viruses that penicillin once was for bacterial infections.”

Now comes word that the National Institutes of Health and the Centers for Disease Control have done test tube experiments with the drug to see what it can do with Ebola. They were successful enough that the scientists have moved on to animal experiments.

“If the World Health Organization and others decide to use this drug before its Phase 3 study is finished, it could provide an extraordinary financial and marketing boost to a company that was beginning to gear up to do its own manufacturing and sales of the drug.”

   If you’re going to invest overseas, do it for the right reasons, says our Chris Mayer — who delivered that message at the Value Investing Congress in New York last weekend.

Here, in Chris’ words, are the wrong reasons…

  • You want exposure to high-growth economies
  • You want to buy assets denominated in strong currencies
  • You think returns are higher in emerging markets.

“If I had to cast a typical investor who wants to invest overseas,” Chris goes on, “this person would hate Obama and Congress, be scared witless about the Federal Reserve Bank and otherwise believe the country is going to hell and the market is going to crash any day now. Thus, goes the thinking, I shall find greener pastures in, say, Brazil.

“But the problem is every country has problems, and often lots of problems. You just aren’t aware of them unless they make the headlines.

“Some people will think they want to diversify by going overseas. Don’t. Ask if being diversified with overseas investments helped in 2008. It didn’t. And it probably won’t in the next crackup either.”

   “I think you should invest overseas for the same reason you might want to order from the other side of a menu,” Chris goes on.

“You want to try it, with the idea maybe you’ll find something you like just as much — or perhaps more — than what you can find on the side of the menu you usually pick from. As a practical matter, it gives you more ground to cover in the hunt for cheap stocks.”

Chris remains keen on Europe. “The whole continent today is a turnaround project. Europe is full of restructuring opportunities and potential spinoffs and other good things we like to invest in.”

Chris’ favorite European play in the Capital & Crisis portfolio is up 141% and counting.

   “You can’t blame the Fed for food prices in most cases,” a reader writes, begging to differ with fellow readers on a recent topic.

“I live in Texas. Beef has gone up substantially due to the drought, smaller herds and lack of decent grazing land. The drought is also affecting some produce prices, and it’s likely to get far worse if California doesn’t get relief. In-season produce is still a bargain. Coffee will be going up due to a disease in coffee plants. Some grains are higher, and that is a government problem from years ago that forced the ethanol issue. It has been proven to be a terrible plan and no longer needed with our increased oil production.

“Milk is cheaper than ever and easy to find at well under $2 a gallon. Sugar, too, is cheaper than I can recall for years, also less than $2 for 4 lbs.”

The 5: Well, good for Texas. But the national average for milk was $3.65 in July — the highest for that month since 2011, according to the Labor Department.

And milk futures touched a record on Monday…

   “Last week,” a reader writes, “a correspondent complained that employers simply will not pay employees a decent wage.

“One reason for that is that government, at all levels, has loaded so many costs on business that it is no longer able, in many cases, to pay employees decently and still make enough to stay in business. This is because the professional politicians who keep running for this office or that, so they can hang onto the public teat, are mostly trained as lawyers.

“When confronted with a problem, their first instinct is to write another law or regulation to ‘solve’ the problem. Every law or regulation they enact has a cost, often hidden, for those it applies to. They seldom consider how those ‘solutions’ restrict progress and freedom for us all.”

The 5: Yup. That’s why we couldn’t get very worked up when the 2011-12 Congress was denounced for being the “least productive” since the ’40s. Only 250 or so bills became law? The horror!

   “In last Friday’s 5 Min. Forecast, you twice mention a ‘pitchforks-and-torches moment.’ I agree that social unrest is coming and that there will be misdirected ire. As you said, ‘We worry about what happens when that moment arrives. We doubt the ire will be directed where it belongs, at Federal Reserve headquarters in Washington. And the 0.1% who benefit so much from Fed largesse will remain comfortably ensconced in their gated communities.’

“I work at a company that prides itself on being ultra-ethical and above reproach (employees who disagree will be punished until they see the error of their ways).

“I am considering investing in Rousseau reprints and guillotines for when the pitchforks-and-torches moment arrives.”

The 5: Heh…

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. Final reminder: If you want in on the kind of trading know-how that can deliver five figures in six weeks… there’s only one way to get it, and it’s available only through midnight tonight.


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More