Archive

Posts Tagged ‘food prices’

Goldman Sachs (GS) Made $400 Million Betting On Food Prices In 2012 While Hundreds Of Millions Starved

January 23rd, 2013

goldman sachsMichael Snyder: Why does it seem like wherever there is human suffering, some giant bank is making money off of it?  According to a new report from the World Development Movement, Goldman Sachs Group Inc. (NYSE:GS) made about 400 million dollars betting on food prices last year.  Read more…

Agriculture, Asia, Financials, Markets, World News

Early 2013: Prepare For A Massive Food Price Surge; Up 175% From The Year 2000

September 20th, 2012

Mac Slavo: The after-effects of 2012′s summer drought are far from over. According to a new analysis from Rabobank this year’s crop failure and premature slaughtering of pigs, cattle and other staple meats will lead to an average 15% surge in food prices in 2013. Read more…

Agriculture, Economy

Why Major Food Inflation, Food Shortages and Food Riots Are Coming

September 7th, 2012

A devastating global food crisis unlike anything we have ever seen in modern times is coming.  Crippling drought and bizarre weather patterns have damaged food production all over the world this summer, and the UN and the World Bank have both issued ominous Read more…

Agriculture, Currency, Economy, Inflation/Deflation

Nearly 1 In 5 Americans Have No Money To Put Food On The Table

August 22nd, 2012

Mac Slavo: While economists, government officials, and mainstream media experts argue about whether a recovery is finally taking hold, the evidence on the ground provides a clear insight about where the country is headed. Read more…

Economy

Collapse: It’s Coming! Are You Ready? (Part Two of Two)

June 15th, 2011

Continued from Part One.

According to a June 8th CNN/Opinion Research Corporation poll, 48 percent of Americans believe that another Great Depression is likely to occur in the next year – the highest that figure has ever reached. The survey also indicates that just under half of the respondents live in a household where someone has lost a job or is worried that unemployment may hit them in the near future.

Suddenly, after years of obvious economic hardship experienced by tens of millions of Americans – only when the suffering and pain can no longer be cloaked in abstractions and cooked statistics – does an emboldened media dare utter the forbidden “D” word.

For Trends Journal readers, alerted to this emerging trend some three years ago, the prospect of Depression should come as no surprise. Neither should the idea that, when it hits and can no longer be denied, a long suffering public will take to the streets.

When I made this forecast back then it was written off by most of the major broadcast and print media. Now, however, when one of their own, belatedly and hesitantly, raises that possibility he is elevated to sage status and it becomes big news. In early June, Democratic strategist James “It’s the Economy, Stupid” Carville, having finally mastered the higher math of adding two plus two, warned that decaying economic conditions heightened the risk of civil unrest.

As I described it all those years ago: “When people lose everything, and have nothing left to lose, they lose it.”

Trend Forecast: The wars will proliferate and civil unrest will intensify. As we forecast, the youth-inspired revolts that first erupted in North Africa and the Middle East are now breaking out in Europe. Given the trends in play and the people in power, economic collapse at some level is inevitable. Governments and central banks will be unrelenting in their determination to wring every last dollar, pound or euro from the people through taxes while confiscating public assets (a.k.a. privatization) in order to cover bad bets made by banks and financiers.

When the people have been bled dry financially and have nothing left to give, blood will flow on the streets.

Trend Lesson: Learn from history. Do you remember when it first became apparent that the US economy was in deep trouble and heading toward the “Panic of 08”? Not many will. Most people were in a summer state of mind and in holiday mode. It was late July 2007 when the stock market suddenly plunged from its euphoric 14,000 high.

Though we had warned in our Summer 2007 Trends Journal (released that June) that “trends indicators point to a major crisis hitting the financial markets between July and November,” the diving Dow was downplayed as a mere “hiccup” … a time to pause between more mouthfuls of expansion.

Biggest mistake in a falling stock market

The huge swings in the Dow are giving investors pause. But taking your money out of the market now could be the gravest mistake of all.

NEW YORK — This past Thursday was the second worst day of the year for the Dow Jones Industrial Average. But remember, it was just a week ago today that the Dow closed above 14,000 for the first (and only) time.
Fluctuations in the market shouldn’t get to the 401(k) investor. Keep in mind your time horizon – most of us are going to be invested in the market until we retire, often decades from now. CNN 27 July 2007

Four years and trillions of dollars in stock and 401(k) losses later, that typical “take a deep breath, stay the course” advice looks tragically misguided. The Dow would eventually lose more than half its value and now, in June 2011, it’s fallen below 12,000.

The moral of this story is to not let your mind take a summer vacation. Conditions are rapidly deteriorating and it is imperative to remain on high alert. Another violent financial episode is looming. It may be triggered by economics (e.g., debt defaults and debt crisis contagion in Europe, a crashing US dollar, or commodity price spikes); it could be terror (false flag or real), a man-made disaster (another Fukushima) or one made by Mother Nature … or any combination of the above.

Publisher’s Note: To excel in any field – from gourmet chef to concert pianist to close-combat warrior – you have to practice … endlessly, over and over, until finally the training sinks in and becomes a part of you.

In that spirit, I again repeat: preparing for financial survival is a “practice.” And it has to be treated as if you are preparing for battle; expect the unexpected and prepare for the worst, which in these perilous times could be a declaration of economic martial law. Banks may close, currencies may be devalued and deposit withdrawals may be imposed. Remember Gerald Celente’s basic survival strategy, “GC’s Three G’s: Guns, Gold and a Getaway plan.”

Regards,

Gerald Celente
for The Daily Reckoning

P.S. In the Summer 2011 Trends Journal (mid-July release) we will provide practical strategies to cope with the coming collapse and offer approaches that, if implemented, could reverse the prevailing negative trends.

Collapse: It’s Coming! Are You Ready? (Part Two of Two) originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Collapse: It’s Coming! Are You Ready? (Part Two of Two)




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Darkening Storm Clouds on the US Civility Horizon

June 10th, 2011

Today, a new post on our friend Barry Ritholtz’s blog looks at Jack Cafferty’s new CNN Question of the Hour: What are the chances the US economy could eventually trigger violence in our country?

A few choice quotations help explain the perspective:

  • “A new CNN poll suggests 48 percent of Americans think the country is headed for another Great Depression in the next 12 months.”
  • “If our economy doesn’t turn around, and people don’t start feeling optimistic about their futures again, we could be headed for some ugly scenarios.”
  • James Carville remarked, “The current economy is so bad, there’s a heightened risk of civil unrest unless things begin changing for the better.”
  • “In the most recent jobs report, last Friday, more than half of the private sector jobs added were at McDonald’s.”

Some viewer reactions point out challenges with wealth disparity in the nation, as well as with increasing prices of gas, groceries, and other basic items as the ingredients of “a crumbling nation.” You can view more details in the video below which came to our attention via a Big Picture blog post on how the handling of the economic crisis may lead to civil unrest.

Darkening Storm Clouds on the US Civility Horizon originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Darkening Storm Clouds on the US Civility Horizon




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

No Saying “No” to the American Middle Class

June 8th, 2011

Stocks struggled yesterday to reverse a long series of losses. For a while, it looked like they would succeed. But by the time the bell rang, the Dow was down again – 19 points.

Oil held steady at $99. Gold closed down $4, with the euro edging up towards the $1.50 mark.

Are stocks headed down, while the major market trend remains fundamentally bullish?

Or are they headed down, resuming a major bearish trend that began in January, 2000?

We don’t know. But we heard from a technical analyst today with a system he calls “The Grail.” The system just gave a sell signal for stocks.

Meanwhile, the headline on yesterday’s USA Today told the tale:

“US owes $62 trillion.”

Beneath the headline was a photo of Congressman Anthony Weiner sobbing.

Poor man, we thought, he’s taking this too personally. It’s not his fault the US is so deeply in debt.

But Mr. Weiner doesn’t give a damn about the US going broke. He wasn’t weeping about the fate of the nation, but about his own fate, his own pathetic career. Now that voters know what a silly creep he is, he’s afraid he could be kicked out of the House. As for his campaign to replace Michael Bloomberg as mayor of New York City, it will have to wait until voters forget!

There you have the whole story, dear reader. America is going broke. Congress is worried about getting re-elected. Do you need to know more?

USA Today goes on to report that the total of America’s debts and unfunded obligations – which the newspaper computes following generally accepted accounting principles – increased by $5.3 trillion last year and now comes to $534,000 per household.

Okay, so let’s do the math. The average household has about $45,000 in income…and about $30,000 in ‘disposable,’ after-tax income. If the $534,000 were looked at as an additional mortgage, at say 5%, it would cost about $2,200 a month…or about $26,000 per year.

So, let’s not bother with any more math. The feds have loaded the average household with so much debt that there is no way it can keep up. It would require almost all its disposable cash to do so – leaving almost nothing for food, transportation, housing, and everything else.

In short…forget it. This debt is not going to be paid.

Well, then, what will happen to it? Easy answer: it will disappear. Retirees will not get what they hope for. Bondholders won’t earn the kind of returns they hope for either.

That’s just the way it is.

‘Okay, Bill, you say retirees won’t get what they expect…’

That’s right, but they’ll get what they deserve!

‘Ha, ha…you’re so funny… But let’s get serious. Did you bother to look over at the editorial page of USA Today? If you had, you’d see that the retirees aren’t going to give up without a fight.

‘There are letters there from military retirees. To make a long story short, they claim they deserve every penny. And how can you deny them? They say they’ve paid for their benefits in “blood and sacrifice.”‘

Yeah…yeah…nobody ever wants to give up nuthin’. Especially when they didn’t earn it. And military retirees are the worst. They pretend that if it weren’t for them our wives would all be speaking Vietnamese.

But what’s so bad about speaking Vietnamese?

Seriously, the military has contributed mightily to the bankruptcy of the nation. They fight phony ‘wars’ at great expense…and then we pay the residual costs for many decades. And who wants to say ‘no’ to an old soldier with a missing leg? Or an old teacher with a facial tic? Or an old firefighter with a drinking problem?

Not us. And not Congressmen either. Remember, they want to be re-elected. And you don’t get re-elected by saying ‘no.’

And now, we have a whole new class of people nobody is going to want to say ‘no’ to – America’s middle class.

Guess which houses have lost the most value? Low-priced, middle and lower class, houses. The homes of the rich have lost much less as a percentage of their pre-crisis values.

Guess who have lost most jobs and income? Again, the middle and lower middle classes. There are now 25 million people in the US who lack full time jobs; very few of them are bankers, lobbyists or lawyers.

Guess who has the hardest time paying higher gasoline and food prices? You guessed it!

And guess what consumers this headline refers to:

“Economic Perfect Storm Halts Consumer Spending.”

Not shoppers at Neiman Marcus, Saks, or Tiffany’s. We’re talking about people living paycheck to paycheck, struggling to keep up with rising living expenses.

Yes, dear reader…the middle and lower-middle classes are taking a beating.

Yes, the US is going broke, too. But that is far in the future. We need to help these people now! That’s what Barack Obama says.

Poor Barack Obama. He seems like such a nice guy. He’s probably even a distant relative. He’s Irish too, you know.

But what’s a nice guy like Barack doing in a place like this?

“I am concerned about the fact that the recovery that we’re on is not producing jobs as quickly as I want it to happen. Obviously we’re experiencing some headwinds.”

The president faces a re-election campaign in the midst of a Great Correction. The wind is in his face, not at his back.

Of course, he seems to have no idea which way the wind is blowing. Yesterday, he told the nation that it did not face a ‘double dip’ recession. How did he know that? Of course, he has no idea.

And when the double dip comes…and the triple dip…and the quadruple dip…

…and when the election approaches…

…do you think President Obama and Congress will say ‘no’ to America’s middle class voters?

Mr. Market is wily, cunning and cruel. He always tries to disappoint the greatest number of investors. So what will he do now?

What do most investors expect?

Many think the economy will recover slowly…with slowly rising stock prices.

Many others think inflation will pick up…with falling bond prices.

What if neither of those things happens?

More to come…

Regards,

Bill Bonner
for The Daily Reckoning

No Saying “No” to the American Middle Class originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
No Saying “No” to the American Middle Class




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Arab Spring + European Summer = World Winter of Discontent

May 26th, 2011

The biggest news this past week was not the rape accusation scandal embroiling International Monetary Fund chief, Dominique Strauss-Kahn. It was not President Barack Obama’s much ballyhooed Middle East speech, nor was it the historic floods devastating the Mississippi flood plain.

But these were the stories that preoccupied the US press. Whereas all were certainly newsworthy – and a cut above the usual obsession with the purely titillating and violent – the most trend-significant story of all got scant, or no coverage from the mainstream media.

While the downfall of Strauss-Kahn shattered his hopes to run for the French Presidency, the repercussions would be mainly confined to France. His resignation from the IMF, however, would have limited consequences. A new chief will quickly be found to replace him, and regardless of the Strauss-Kahn rape verdict, the IMF will continue raping countries that are forced into accepting their “aid.”

As for Obama’s speech, it was essentially meaningless; many empty words and more vague, unfulfillable promises that will lead to no action of consequence.

Undoubtedly, the devastation wrought by the violent weather patterns will be felt severely by all those directly affected. The physical and emotional toll on the tens of thousands whose homes, businesses and livelihoods were destroyed is incalculable. Nevertheless, the consequences will impact mostly those directly affected while the spillover implications will only temporarily affect the national, and to a lesser extent, the global economy.

Trend Forecast: Should current weather patterns become more a norm than an anomaly, the socioeconomic consequences will prove long-term, far-reaching and disastrous. Farming, shipping, seafood, food supplies and petroleum refining will be among the foreseeable casualties, accompanied by massive population displacement. But the ensuing chain reaction (inflation, shortages, unemployment, etc.) will claim many other victims, which, at this time, are unquantifiable.

The 800 Pound Gorilla in the Press Room

Strauss-Kahn, Obama’s speech, tornadoes and floods notwithstanding, the biggest news with the greatest implications was the story with the least coverage. If you watched the Sunday night network news (ABC, CBS, NBC, etc.) you wouldn’t have seen it. If you read the front page of The New York Times, America’s self-described “Paper of Record,” it wasn’t there either.

The most prominently placed story with the biggest photo, that was obviously intended to catch the reader’s eye of the flagship Sunday edition, also bore testimony to what the Times considered the news most “fit to print”:

The Gossip Machine, Churning Out Cash Appetite for Dirt
Fuels a Growing, Round-the-Clock Industry

To satisfy the Times’s own insatiable “Appetite for Dirt” it devoted some 4000 words to an imbecilic, inconsequential, lowest common denominator, supermarket tabloid, junk news story on the growth industry of celebrity gossip. Spread across three pages and emphasized by eleven meaningless and superfluous color photos, the Times did what all the mainstream media characteristically do: hawked sleaze and justified it with the reasoning, “This is what the people want.”

Perhaps it was this lust for lust that accounted for the inability of the “Paper of Record” to recognize a megatrend-in-the-making that was already reshaping the global geopolitical landscape. To their credit, however, unlike the networks that ignored the story, the Times at least covered it. According it less than 500 words and relegating it to the Page 12 boondocks, its innocuous headline read: “Despite Ban, Protests Continue Before Spanish Vote.”

Anti-austerity/anti-big bank bailout protests had been sporadically erupting throughout Europe for over a year. But these Spanish demonstrations signaled a major turning point. It was the unrest and discontent in Europe that led us to forecast our “Off With Their Heads” trend that would lead to revolts and topple governments (Trends Journal, Autumn 2010).

But European unrest was overshadowed by the far more violent and widespread Middle East and North Africa uprisings of late 2010 and early 2011. Unlike the Europeans who still believed in the power of their vote, Arabs, with only autocrats, dictators and monarchs in control, had no ballot boxes to divert them. They knew that unless the system changed, nothing would change.

As I had forecast in the Trends Journal and repeated in media worldwide, it would only be a matter of time before Europeans would wake up to the same realization: the system had to change. What distinguished this latest round of Spanish protests from earlier ones in Europe was that very realization; no matter how many votes were dropped into the ballot box, the result would be essentially the same. All the shouting, demands, marches and strikes would accomplish nothing without a responsive government to address them – and this could not be achieved through the current system in which, despite the rhetoric, there was little difference between the major parties.

Trend Forecast: The massive bailouts of Greece and Ireland are already proven failures, and the Portuguese bailout will follow the same path: more debt, higher unemployment, draconian austerity measures imposed upon the people, and a wholesale sell-off of valuable public resources.

Spain, the UK and Italy are next in line to suffer the long-term consequences of the economic “Panic of ‘08” … that has been only temporarily assuaged by the trillions pumped in by the central banks to keep the financial system afloat.

Economic conditions will continue to deteriorate for most European nations. The worse they get, the louder and more heated the protests will become. Entrenched political parties, unwilling to make adequate concessions or yield power, will intensify their crackdown efforts.

The youth-inspired Spanish demonstrations, sit-ins and camp-outs will serve as a template for the equally disenfranchised youth of other countries. In the absence of an economic miracle, divine intervention … or a fulfilled Doomsday Prophesy (in which case all forecasts are off), expect protests to mount throughout the summer of 2011 and continue into 2012 and beyond.

One wild card that might derail the demonstrations, quiet the discontent and unite the people, would be one or several terror strikes in European cities. Considering NATO’s military actions against Libya, revenge attacks are a distinct possibility.

Regards,

Gerald Celente
for The Daily Reckoning

[Editor's Note: The above Trend Alert is available as part of a subscription to The Trends Journal, which is published by Gerald Celente. The Trends Journal distills the ongoing research of The Trends Research Institute into a concise, readily accessible form. Click here to learn more about and subscribe to The Trends Journal.]

Arab Spring + European Summer = World Winter of Discontent originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Arab Spring + European Summer = World Winter of Discontent




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Keeping Capital in a Depression

May 13th, 2011

Nothing is cheap in today’s investment world. Because of the trillions of currency units that governments all over the world have created – and are continuing to create – financial assets are grossly overpriced. Stocks, bonds, property, commodities and cash are no bargains. Meanwhile, real wages are slipping rapidly among those who are working, and a large portion of the population is unemployed or underemployed.

The next chapter in this sad drama will include a rapid rise in consumer prices. At the beginning of this year, we saw the grains – wheat, corn, soybeans and oats – go up an average of 36% within one month. In the same time frame, hogs were up 30.7%. Copper was up 29.1%. Oil was up 14%. Cotton was up 118%. Raw commodities are the first things to move in an inflationary boom, largely because they’re essential to everything. Retail prices are generally the last to move, partly because the labor market will remain soft and keep that component down, and partly because retailers cut their margins to retain customers and market share.

We are in a financial no-man’s land. What you should do about it presents some tough alternatives. “Saving” is compromised because of depreciating currency and artificially low interest rates. “Investing” is problematical because of a deteriorating economy, unpredictable and increasing regulation, rising interest rates and wildly fluctuating prices. “Speculation” is the best answer. But it may not suit everyone as a methodology.

There are, however, several other alternatives to dealing with the question “What should I do with my money now?” – active business, entrepreneurialism, innovation, “hoarding” and agriculture. There’s obviously some degree of overlap with these things, but they are essentially different in nature.

Active Business

Few large fortunes have been made by investing. Most are made by creating, building and running a business. But the same things that make investing hard today are going to make active business even harder. Sure, there will be plenty of people out there to hire – but in today’s litigious and regulated environment, an employee is a large potential liability as much as a current asset.

Business itself is seen as a convenient milk cow by bankrupt governments – and it’s much easier to tap small business than taxpayers at large. Big business (which I’ll arbitrarily define as companies with at least several thousand employees) actually encourages regulation and taxes, because their main competition is from small business – you – and they’re much more able to absorb the cost of new regulation and can hire lobbyists to influence its direction. Only a business that’s “too big to fail” can count on government help.

It’s clearly a double-edged sword, but running an active business is increasingly problematical. Unless it’s a special situation, I’d be inclined to sell a business, take the money, and run. It’s Atlas Shrugged time.

Entrepreneurialism

An entrepreneur is “one who takes between,” to go back to the French roots of the word. Buy here for a dollar, sell there for two dollars – a good business if you can do it with a million widgets, hopefully all at once and on credit. An entrepreneur ideally needs few employees and little fixed overhead. Just as a speculator capitalizes on distortions in the financial markets, an entrepreneur does so in the business world. The more distortions there are in the market, the more bankruptcies and distress sales, the more variation in prosperity and attitudes between countries, the more opportunities there are for the entrepreneur. The years to come are going to be tough on investors and businessmen, but full of opportunity for speculators and entrepreneurs. Keep your passports current, your powder dry, and your eyes open. I suggest you reform your thinking along those lines.

Innovation

The two mainsprings of human progress are saving (producing more than you consume and setting aside the difference) and new technology (improved ways of doing things). Innovation takes a certain kind of mind and a certain skill set. Not everyone can be an Edison, a Watt, a Wright or a Ford. But with more scientists and engineers alive today than have lived in all previous history put together, you can plan on lots more in the way of innovation. What you want to do is put yourself in front of innovation; even if you aren’t the innovator, you can be a facilitator – something like Steve Ballmer is to Bill Gates. It will give you an excuse to hang out with the younger generation and play amateur venture capitalist.

This argues for two things. One, reading very broadly (but especially in science), so that you can more easily make the correct decision as to which innovations will be profitable. Two, building enough capital to liberate your time to try something new and perhaps put money into start-ups.

Hoarding

In the days when gold and silver were money, “saving” was actually identical with “hoarding.” The only difference was the connotation of the words. Today you can’t even hoard nickel and copper coins anymore because (unbeknownst to Boobus americanus) there’s very little of those metals left in either nickels or pennies – both of which will soon disappear from circulation anyway.

We’ve previously dismissed the foolish and anachronistic idea of saving with dollars in a bank – so what can you save with, other than metals? The answer is “useful things,” mainly household commodities. I’m not sure exactly how bad the Greater Depression will be or how long it will last, but it makes all the sense in the world to stockpile usable things, in lieu of monetary savings.

The things I’m talking about could be generally described as “consumer perishables.” Instead of putting $10,000 extra in the bank, go out and buy things like motor oil, ammunition, light bulbs, toilet paper, cigarettes, liquor, soap, sugar and dried beans. There are many advantages to this.

Taxes – As these things go up in price and you consume them, you won’t have any resulting taxes, as you would for a successful investment. And you’ll beat the VAT, which we’ll surely see.

Volume Savings – When you buy a whole bunch at once, especially when Wal-Mart or Costco has them on sale, you’ll greatly reduce your cost.

Convenience – You’ll have them all now and won’t have to waste time getting them later. Especially if they’re no longer readily available.

There are hundreds of items to put on the list and much more to be said about the whole approach. This is something absolutely everybody can and should do.

Agriculture

During the last generation, mothers wanted their kids to grow up and be investment bankers. That thought will be totally banished soon, and for a long time. I suspect farmers and ranchers will become the next paradigm of success, after being viewed as backward hayseeds for generations.

Agriculture isn’t an easy business, and it has plenty of risks. But there’s always going to be a demand for its products, and I suspect the margins are going to stay high for a long time to come. Why? There’s still plenty of potential farmland around the world that’s wild or fallow, but politics is likely to keep it that way. Population won’t be growing that much (and will be falling in the developed world), but people will be wealthier and want to eat better. So you want the kind of food that people with some money eat.

I’m not crazy about commodity-type foods, like wheat, soy and corn; these are high-volume, industrial-style foods, subject to political interference. And they’re not important as foods for wealthy people, which is the profitable part of the market. Besides, grains are where everybody’s attention is directed.

But there are other reasons I’m not wild about owning any amber waves of grain. Anything you want to plant will practically require the use of a genetically modified (GM) seed from Monsanto. I’m not sure I really care if it’s GM; all foods have been genetically modified over the millennia just by virtue of cultivation. And $1 paid to Monsanto typically not only yields the farmer $5 of extra return, but produces lots of extra food – which helps everybody. But I wouldn’t be surprised if someday the giant monocultures of plants, all with totally identical purchased seeds, don’t result in some kind of catastrophic crop failure. This is a subject for another time, but it’s a thought to keep in mind.

In any event, agricultural land is no longer cheap. But I don’t suggest you look at thousands of acres to plant grain. Niche markets with niche products are the way to fly.

I suggest up-market specialty products – exotic fruits and vegetables, fish, dairy and beef. The problem is that in “advanced” countries – prominently including the US – national, state and local governments make the small commercial producers’ lives absolutely miserable. Maybe you can grow stuff, but it’s extremely costly in terms of paperwork and legal fees to sell, especially if the product is animal based – meat, milk, cheese and such. Niche foods are, however, potentially a very good business. Eternal optimist that I am, I see one of the many benefits of the impending bankruptcy of most governments as again making it feasible to grow and sell food locally.

Above all, though, this isn’t the time for business as usual. You’ll notice that “Working in a conventional job” didn’t occur on the list above. And I pity the poor fools working for some corporation, hoping things get better.

Regards,

Doug Casey,
for The Daily Reckoning

Keeping Capital in a Depression originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Bill Bonner, the founder of the the Daily Reckoning released his latest book Dice Have No Memory: Big Bets & Bad Economics From Paris to the Pampas in April 2011.

Read more here:
Keeping Capital in a Depression




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

Keeping Capital in a Depression

May 13th, 2011

Nothing is cheap in today’s investment world. Because of the trillions of currency units that governments all over the world have created – and are continuing to create – financial assets are grossly overpriced. Stocks, bonds, property, commodities and cash are no bargains. Meanwhile, real wages are slipping rapidly among those who are working, and a large portion of the population is unemployed or underemployed.

The next chapter in this sad drama will include a rapid rise in consumer prices. At the beginning of this year, we saw the grains – wheat, corn, soybeans and oats – go up an average of 36% within one month. In the same time frame, hogs were up 30.7%. Copper was up 29.1%. Oil was up 14%. Cotton was up 118%. Raw commodities are the first things to move in an inflationary boom, largely because they’re essential to everything. Retail prices are generally the last to move, partly because the labor market will remain soft and keep that component down, and partly because retailers cut their margins to retain customers and market share.

We are in a financial no-man’s land. What you should do about it presents some tough alternatives. “Saving” is compromised because of depreciating currency and artificially low interest rates. “Investing” is problematical because of a deteriorating economy, unpredictable and increasing regulation, rising interest rates and wildly fluctuating prices. “Speculation” is the best answer. But it may not suit everyone as a methodology.

There are, however, several other alternatives to dealing with the question “What should I do with my money now?” – active business, entrepreneurialism, innovation, “hoarding” and agriculture. There’s obviously some degree of overlap with these things, but they are essentially different in nature.

Active Business

Few large fortunes have been made by investing. Most are made by creating, building and running a business. But the same things that make investing hard today are going to make active business even harder. Sure, there will be plenty of people out there to hire – but in today’s litigious and regulated environment, an employee is a large potential liability as much as a current asset.

Business itself is seen as a convenient milk cow by bankrupt governments – and it’s much easier to tap small business than taxpayers at large. Big business (which I’ll arbitrarily define as companies with at least several thousand employees) actually encourages regulation and taxes, because their main competition is from small business – you – and they’re much more able to absorb the cost of new regulation and can hire lobbyists to influence its direction. Only a business that’s “too big to fail” can count on government help.

It’s clearly a double-edged sword, but running an active business is increasingly problematical. Unless it’s a special situation, I’d be inclined to sell a business, take the money, and run. It’s Atlas Shrugged time.

Entrepreneurialism

An entrepreneur is “one who takes between,” to go back to the French roots of the word. Buy here for a dollar, sell there for two dollars – a good business if you can do it with a million widgets, hopefully all at once and on credit. An entrepreneur ideally needs few employees and little fixed overhead. Just as a speculator capitalizes on distortions in the financial markets, an entrepreneur does so in the business world. The more distortions there are in the market, the more bankruptcies and distress sales, the more variation in prosperity and attitudes between countries, the more opportunities there are for the entrepreneur. The years to come are going to be tough on investors and businessmen, but full of opportunity for speculators and entrepreneurs. Keep your passports current, your powder dry, and your eyes open. I suggest you reform your thinking along those lines.

Innovation

The two mainsprings of human progress are saving (producing more than you consume and setting aside the difference) and new technology (improved ways of doing things). Innovation takes a certain kind of mind and a certain skill set. Not everyone can be an Edison, a Watt, a Wright or a Ford. But with more scientists and engineers alive today than have lived in all previous history put together, you can plan on lots more in the way of innovation. What you want to do is put yourself in front of innovation; even if you aren’t the innovator, you can be a facilitator – something like Steve Ballmer is to Bill Gates. It will give you an excuse to hang out with the younger generation and play amateur venture capitalist.

This argues for two things. One, reading very broadly (but especially in science), so that you can more easily make the correct decision as to which innovations will be profitable. Two, building enough capital to liberate your time to try something new and perhaps put money into start-ups.

Hoarding

In the days when gold and silver were money, “saving” was actually identical with “hoarding.” The only difference was the connotation of the words. Today you can’t even hoard nickel and copper coins anymore because (unbeknownst to Boobus americanus) there’s very little of those metals left in either nickels or pennies – both of which will soon disappear from circulation anyway.

We’ve previously dismissed the foolish and anachronistic idea of saving with dollars in a bank – so what can you save with, other than metals? The answer is “useful things,” mainly household commodities. I’m not sure exactly how bad the Greater Depression will be or how long it will last, but it makes all the sense in the world to stockpile usable things, in lieu of monetary savings.

The things I’m talking about could be generally described as “consumer perishables.” Instead of putting $10,000 extra in the bank, go out and buy things like motor oil, ammunition, light bulbs, toilet paper, cigarettes, liquor, soap, sugar and dried beans. There are many advantages to this.

Taxes – As these things go up in price and you consume them, you won’t have any resulting taxes, as you would for a successful investment. And you’ll beat the VAT, which we’ll surely see.

Volume Savings – When you buy a whole bunch at once, especially when Wal-Mart or Costco has them on sale, you’ll greatly reduce your cost.

Convenience – You’ll have them all now and won’t have to waste time getting them later. Especially if they’re no longer readily available.

There are hundreds of items to put on the list and much more to be said about the whole approach. This is something absolutely everybody can and should do.

Agriculture

During the last generation, mothers wanted their kids to grow up and be investment bankers. That thought will be totally banished soon, and for a long time. I suspect farmers and ranchers will become the next paradigm of success, after being viewed as backward hayseeds for generations.

Agriculture isn’t an easy business, and it has plenty of risks. But there’s always going to be a demand for its products, and I suspect the margins are going to stay high for a long time to come. Why? There’s still plenty of potential farmland around the world that’s wild or fallow, but politics is likely to keep it that way. Population won’t be growing that much (and will be falling in the developed world), but people will be wealthier and want to eat better. So you want the kind of food that people with some money eat.

I’m not crazy about commodity-type foods, like wheat, soy and corn; these are high-volume, industrial-style foods, subject to political interference. And they’re not important as foods for wealthy people, which is the profitable part of the market. Besides, grains are where everybody’s attention is directed.

But there are other reasons I’m not wild about owning any amber waves of grain. Anything you want to plant will practically require the use of a genetically modified (GM) seed from Monsanto. I’m not sure I really care if it’s GM; all foods have been genetically modified over the millennia just by virtue of cultivation. And $1 paid to Monsanto typically not only yields the farmer $5 of extra return, but produces lots of extra food – which helps everybody. But I wouldn’t be surprised if someday the giant monocultures of plants, all with totally identical purchased seeds, don’t result in some kind of catastrophic crop failure. This is a subject for another time, but it’s a thought to keep in mind.

In any event, agricultural land is no longer cheap. But I don’t suggest you look at thousands of acres to plant grain. Niche markets with niche products are the way to fly.

I suggest up-market specialty products – exotic fruits and vegetables, fish, dairy and beef. The problem is that in “advanced” countries – prominently including the US – national, state and local governments make the small commercial producers’ lives absolutely miserable. Maybe you can grow stuff, but it’s extremely costly in terms of paperwork and legal fees to sell, especially if the product is animal based – meat, milk, cheese and such. Niche foods are, however, potentially a very good business. Eternal optimist that I am, I see one of the many benefits of the impending bankruptcy of most governments as again making it feasible to grow and sell food locally.

Above all, though, this isn’t the time for business as usual. You’ll notice that “Working in a conventional job” didn’t occur on the list above. And I pity the poor fools working for some corporation, hoping things get better.

Regards,

Doug Casey,
for The Daily Reckoning

Keeping Capital in a Depression originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Bill Bonner, the founder of the the Daily Reckoning released his latest book Dice Have No Memory: Big Bets & Bad Economics From Paris to the Pampas in April 2011.

Read more here:
Keeping Capital in a Depression




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

‘Angst’ Shouldn’t Even Begin to Describe the US’ Current Economic Sentiment (Part 2 of 2)

May 4th, 2011

This past week, an article written for The Economist, entitled Angst in the United States: What’s wrong with America’s economy?, suggested that Americans are being far too pessimistic, and that there’s reason to believe in a “rosier outlook for America’s economy.” On most of the points addressed in the article, I’d beg to differ. The following is part two of two-part explanation as to why.

Continued from part one

The Actual Entrepreneur’s Dilemma

Either way, let’s decide to ignore that matter and move on. The writer aptly points out that “corporate taxation is a mess and deters domestic investment,” but then offers no solution related to competitiveness on where to instead focus improvement efforts.

Instead, the writer launches into a discussion of public finances, which does make sense as the US’ central economic concern, but in no way debunks the relevance of competitiveness. To say that “when China innovates Americans benefit,” is to oversimplify the way both economies work.

For example, a common refrain in China is “C2C,” meaning “Copy to China.” Many Chinese entrepreneurs have made great careers in finding ideas elsewhere, usually a tech-oriented, US-based idea – preferentially those blocked by the Great Firewall such as Facebook or Twitter – code it up to be displayed in Chinese and appreciated by a Chinese audience, and reap the benefits of having a billion-plus potential first-time users.

Right now, competitiveness in China, especially entrepreneurship, is a game that is rigged – at least domestically – in its favor, and often at the expense of US innovation.

If the US is able to renew its fading preeminence in entrepreneurship the country will benefit specifically in terms of competitiveness. In addition to the brain drain of academics and entrepreneurs discussed earlier, too much of the nation’s wealth has been transferred from intrepid small business owners to other, less productive sectors, over the past quarter century.

Entrepreneurs try new things and either fail quickly, or end up providing goods demanded by the economy, create “more than half of all new jobs”, and contribute real growth through actual production. This is as opposed to less entrepreneurial sectors, including certain global corporations, primarily in financial services, and the public sector.

The Wall Street and government power centers have collected their share of the nation’s wealth through what are normal and legal mechanisms, such as lobbying and legislation, that, beneficial or not, are part of the US business environment. However, the same process that has added to their less-productive increases in wealth has also eroded the level playing field which entrepreneurs require in order to take risks.

Tax, legal, regulatory, and healthcare burdens have diminished the entrepreneurial will to start new businesses in the US, especially as opposed to starting businesses in emerging economies. As wrong-headed as some laws can be in emerging economies, many are not. Add to that fact that a stunning array are rarely enforced, and it stands to reason that countries like China have become breeding grounds for new ventures in what is still virtually untapped and verdant economic soil.

The Labor Market Quagmire

The other “underlying problem” the writer directly addresses is the labor market, which is undoubtedly one of the nation’s most serious ills. While the reasons for unemployment the writer brings up are accurate, they do not provide a complete picture.

In fact, the least promising solution to joblessness is exactly the writer’s route of choice, that “America needs to get its macro-medicine right, in particular by committing itself to medium-term fiscal and monetary stability without excessive short-term tightening.”

Essentially, that perspective is a vote in favor of the same kind of quantitative easing programs that have rocketed the equity markets higher at the expense of a consistently weakening US dollar.

Unfortunately, it’s exactly that same “macro-medicine” that is causing food price increases, and demanding an increasing share of the family budget from both the government-supported unemployed and the stagnant-salaried working poor.

This decrementing standard of living is hitting low-income workers and fixed-income retirees especially hard. To continue present monetary “macro-medicine” in light of its deleterious side effects is hardly a quick-fix solution for the US that credibly lends itself to being summed up in a sentence.

Finally Addressing the Real Issue: US Debt and Deficit

From the outset, the article has a confusing structure. The writer indicates that “three failings stand out,” and then appears to only describe two, at least in terms of subtitles: competitiveness and jobless growth. We’ll take a leap of faith, and guess that the third is intended to be US public finances. The writer describes the matter as “high” on the “the country’s real to-do list” and worth “sorting out,” and so deems it at least somewhat in need of discussion.

To squeeze the US’ crushing debt in as a side topic seems to undermine the needed confrontation of what is the single most important challenge facing the US. Why is that so? To begin, the writer doesn’t mention that according to the International Monetary Fund, US government debt is on pace to overtake GDP by 2012, which is next year.

Nor does the writer mention the fact that Standard & Poor’s recently downgraded the credit rating outlook for US government debt to negative for the first time ever since it began rating US debt about 70 years ago.

Of course, the outlook downgrade came after China-based Dagong Global Credit Rating Co. already downgraded the US’ actual sovereign credit rating to AA, also with a negative outlook. Certainly, Dagong Global does not provide a Nationally Recognized Statistical Rating Organization (NRSRO)-accepted opinion, but it’s already a very public one, and it was likely the catalyst that lit a fire under S&P to finally admit something is amiss with regard to US fiscal health.

Lastly, unlike many other nations, the US ratio of debt to GDP is calculated to exclude state and local government debt, a discrepancy some analysts estimate would tack another $1 trillion onto the national debt. If that figure is in the right ballpark, it would mean that the US is already in Greece-like territory when it comes to nearing default. Put simply, the scale of the debt and deficit problem is far beyond what the writer chooses to seriously consider.

The US economy is not in the midst of just one more quirky moment in the story of a comeback kid. The US economy is in a life and death struggle – it’s a nation that in the medium term is teetering on the brink of default – and it could potentially drag the world’s reserve currency, the US dollar, down alongside with it.

The situation is not necessarily hopeless, and there’s much that could still be done to restore the US economy. However, to blithely suggest that as of now a “rosier outlook” for the US is possible, or that the nation may already be on “the brink of a revival,” is simply counterproductive.

Today, there is cause for far more than angst in the United States.

Best,

Rocky Vega,
The Daily Reckoning

‘Angst’ Shouldn’t Even Begin to Describe the US’ Current Economic Sentiment (Part 2 of 2) originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Bill Bonner, the founder of the the Daily Reckoning released his latest book Dice Have No Memory: Big Bets & Bad Economics From Paris to the Pampas in April 2011.

Read more here:
‘Angst’ Shouldn’t Even Begin to Describe the US’ Current Economic Sentiment (Part 2 of 2)




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

‘Angst’ Shouldn’t Even Begin to Describe the US’ Current Economic Sentiment (Part 1 of 2)

May 2nd, 2011

This past week, an article written for The Economist, entitled Angst in the United States: What’s wrong with America’s economy?, suggested that Americans are being far too pessimistic, and that there’s reason to believe in a “rosier outlook for America’s economy.” On many points the article addresses, there is plenty of reason to differ. The following is part one of two-part explanation as to why.

A Short-Lived Age of America

The writer recommends not being pessimistic about the US because it “rarely pays off in the long run.” His suggestion begs the question as to what he considers the long run. The US is not the first economic capital of the world, nor will it be last. The “Age of America” is a more or less 200-year blip in the history of humankind. Before the US there was the British Empire, and before that the Dutch cornered finance, and so on further back to the Greek and Roman Empires and beyond.

To say that the US “record is worth bearing in mind today” is to take a short view of history, and may be failing to acknowledge that the Chinese empire, for example, has been around for thousands of years and presides over more than a billion inhabitants.

Long before there was a US economic power, the Opium Wars between China and Britain – which won the UK the island of Hong Kong and the Kowloon peninsula – was the main force that dampened down the huge global trade surpluses China had relative to the rest of the world at that time. Prior to those wars, its trade surplus put it in an economic situation not unlike the one it is in today. However, it’s far less likely China would gracefully undergo a similar drubbing in the 21st century. For these reasons, the Chinese record is also worth bearing in mind today.

Decline of the American Dream: Brain Drain from the Land of Opportunity

The writer goes on to argue that, “it is hard to think of any large country with as many inherent long-term advantages as America: what would China give to have a Silicon Valley? Or Germany an Ivy League?” The fact is that neither Silicon Valley nor the Ivy League are assets jotted down somewhere on the US balance sheet… they are fluid clusters of people, often intelligent and hard-working immigrants.

These institutions thrive on constant renewal, and on the frequent injection of new, brilliant people with an extra dose of drive that have historically left their home countries for the US in search of better education and more robust markets. That “American Dream” is faltering, and faith in the resilience of its future is also waning.

Inspired Chinese and Indian students decreasingly see the US as the “Land of Opportunity,” and instead see their homes as beacons of entrepreneurship and wealth creation. We live in a time of the first American brain drain… building a business in a billion-person and still-growing market has become more attractive than in a heavily-indebted and declining US economy.

The Chinese Silicon Valley and a European Ivy League

From personal experience, China does have its own small but thriving version of Silicon Valley, and to see it with your own two eyes is to easily recognize it. It’s an active ecosystem located around the PC Mall region in Beijing in an area that’s roughly 1.24 miles in diameter, but is home to about 20 large technology companies that are publicly-traded… in the US, no less.

The same cluster includes many times that number of new and quickly-growing companies seeking to become listed as well. It won’t necessarily become an actual Silicon Valley equivalent in the near term, but forces of technology, especially with the right minds at work – ones that perhaps would have been in the US in another era – have a way of bringing about unpredictably rapid and industry-reconfiguring change.

In a similar way, Germany has its own version of the Ivy League, and for management education it’s called CEMS. It’s a global network of 16-plus universities stretching from Canada to Brazil to France, Switzerland, Russia, China, and all the way to Australia… but, notably excludes the US.

US hype, inadvertently, but capably, reinforces the Ivy League’s advantaged status through myriad avenues including TV, music, and movies, but the rest of the academic world has yet to sit idly by. Instead it continues to forge ahead and modernize by adapting readily to a changing world. European universities offer a different daily experience than their US counterparts as they are, by force of reality, informative collisions of language and culture that provide global educational environments.

Competitiveness Canard, Or…

The writer points out there are “underlying problems” “to tackle” in the US, and in particular, “three failings stand out.” The first of these being the competitiveness of the US economy. However, the article then abruptly cites the concept of competitiveness as a “canard,” meaning that it’s a sort of fabricated concern not in line with the real issues facing the US.

On this point, it’s difficult not to vehemently disagree. First, the writer cites a few of the President’s comments, “America’s prosperity, he [President Obama] argues, depends on ‘out-innovating, out-educating and out-building’ China. This is mostly nonsense.”

This disdain is inconsistent with the writer’s previous point that two big US advantages are its Silicon Valley, which evidences the nation’s ability to innovate, and its Ivy League, which refers directly to its ability to educate.

Perhaps the writer is indicating that in the US these bases are already covered, but, even in choosing that generous interpretation, it’s challenging to rationalize how the two concepts of innovation and education, which are directly tied to any economy’s performance, are by any measure “mostly nonsense.”

To be continued in part two…

Best,

Rocky Vega,
The Daily Reckoning

‘Angst’ Shouldn’t Even Begin to Describe the US’ Current Economic Sentiment (Part 1 of 2) originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
‘Angst’ Shouldn’t Even Begin to Describe the US’ Current Economic Sentiment (Part 1 of 2)




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

The Milkman Indicator

April 28th, 2011

Our family has a milkman. Yes, a milkman, just like in the old days.

He comes every Friday and drops off a crate full of cold bottles of milk, along with tubs of yogurt and butter, cheeses and sometimes meats. You place your orders online, and the milkman brings it your doorstep, fresh from a local family-owned farm not far from where I live.

I mention this because I got an interesting e-mail from the farm over the weekend, which I think sums up what we face in today’s economy. The problem we face is particularly insidious because lots of people don’t really understand what causes it, which allows it go on.

But before getting to abstractions, let’s look at the e-mail I got from my milkman.

“We would like to take the time to tell you,” it begins, “that due to some large price increases we are facing on materials we use to bottle milk…we must raise the price of our glass bottled products.”

The e-mail then goes on to show, in some detail, exactly what price increases the farm sees. The milkman is a model of good disclosure and transparency. Many of our banks and corporations should use this e-mail as a model for communicating with the public.

The sources of the pain include a 4% increase in the cost of glass bottles and a 6% increase in the cost of plastic caps. The farm has also seen a 14% increase in shipping costs in just the last six months due to the rising price of fuel. There is more: a 2% increase in materials such as latex gloves and hairnets, a 5% increase in lab supplies for milk testing and an 8% increase in the chemicals used to clean the plant and equipment.

“I hope that you can all see that we have seen a huge increase in total,” The e-mail continues. “This is why at this point it has become a must to increase the price of our bottled products 7%. This is always an agonizing decision for us, but sometimes can’t be avoided.”

We might call this the Milkman Indicator. I can tell you that this is happening across the economy right now. I follow a lot of companies, and rising raw material costs are at the top of the list of concerns facing anybody who makes anything.

Naturally, as investors, the idea would be to play those who benefit from such rising raw material costs and fade those who cannot pass on these costs to their customers. So for example, the rising cost of glass bottles makes me think of Owen-Illinois. This is the world’s largest glass container company. I recommended it in my investment letter, Capital & Crisis in December. Part of the thesis there is that price increases in 2011 would help raise margins and profits. So far, the stock hasn’t gained much ground, but the core idea behind owning it is still very much in play.

This has actually been something of a mini-theme in Capital & Crisis, where I have recommended several specialty producers of materials that are rising in price. Another idea is to own the producers of the commodities rising in price, like many of the energy and mining stocks I have recommended.

This phenomenon of rising raw material costs brings us around to causes. Why is this happening?

The short answer is that our Federal Reserve is printing a lot of money. It’s funny how I can explain this to my 12-year-old using monopoly money – and he gets it – yet it seems economists with Ph.D.s and fancy titles in think tanks and government agencies don’t get it all.

When you create a lot of money, that money loses some value. It buys less than it did before. That’s what we’re seeing, in essence.

The main barometer for monetary creation is the Fed’s balance sheet. When it expands, so too does the amount of money sloshing around. All that money sloshing around has to go somewhere. People buy stocks, commodities and gold. There are many, many ways to show this, and I’ve seen many different kinds of charts that all show the same thing. But I grabbed the one below from today’s Wall Street Journal to show you:

Markets Impacted by QE2

So “QE2” is the fancy name given to a very base and simple act: money printing. And you can see that as the Fed’s balance sheet has swelled, so too have stocks and gold surfed the wave of cash. The dollar has also weakened (buying less), and rates on mortgages have gone up.

This is just the beginning. We know how past bouts of money printing ended. Badly.

Look again at that table above that shows mortgage rates. Those rates are in the 4-5% range. In the 1980s, it was rare to see new home mortgage rates below 10%. In 1982, the average interest rate on a new home mortgage was 15.12%.

These cycles often take a generation to play out from peak to trough and to peak again. Mortgage rates of 10% didn’t just happen in one year. It was a slow buildup over a good two decades. The average mortgage rate in the 1970s was 8.8%, compared to 11.79% in the 1980s. In the 1960s, mortgage rates were in the 5%s.

Look at gold. It didn’t jump to $1,500 in a year. It’s been in a 10-year bull market.

So to wrap up here, I think we’re looking at a long period when prices rise and the cost of money rises. I doubt the Fed’s resolve to take back the cash it put in, until it gets really bad. Then another Paul Volcker will arrive on the scene to break the inflation and a deep recession will ensue, like a nasty hangover.

Until then, I think the Fed will keep the bar open and let the good times roll. This means gold up, dollar down, interest rates up and commodities up. And the prices the milkman charges will go up as well.

Regards,

Chris Mayer
for The Daily Reckoning

The Milkman Indicator originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
The Milkman Indicator




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

Regime Change, Hillary’s Head Fake

April 28th, 2011

It was just another day of duplicity in DC. If there was a Washington newspaper that honestly reported on American politics, it would have to be called The Daily Double Standard.

When the Tunisian and Egyptian rebellions began, President Obama and Secretary of State Hillary “The Determinator” Clinton vacillated for weeks while hundreds of protesters were being slaughtered. It was only after it became clear that the autocratic leaders (that the US had supported for decades) would be overthrown that the US would champion the need for a transition to “democracy.”

Yet similar uprisings, destabilizing other Middle East and North Africa nations, were met only with earnest diplomatic calls for restraint and dialogue, never with demands for regime change… except when it came to Muammar Qaddafi.

On February 26th, just days after the first uprisings in Libya, President Obama boldly declared, “When a leader’s only means of staying in power is to use mass violence against his own people, he has lost the legitimacy to rule and needs to do what is right for his country by leaving now.”

Two days later Hillary Clinton threw her Secretarial weight into the fray, proclaiming, “It is time for Qaddafi to go, now, without further violence or delay. We want him to leave, we want him to end his regime.”

That these ludicrous ultimatums should have been uttered by people in responsible positions and then seriously reported by the world’s media (without editorial comment) was further proof of their arrogance and hubris. In the history of the world, what autocratic leader had ever packed up his bags, bowed down, bent over and gone into exile because a bunch of blowhards seven thousand miles away gave the order: “We want him to leave.”

On the other hand, perhaps the position wasn’t as foolish as it looked, but a calculated exercise in political cunning. Knowing full well that Qaddafi would never leave willingly and that plans were already in place to attack, when they attacked, their nonsensical ultimatum would serve as an effective excuse. Qaddafi had been given fair warning.

Three weeks before President Obama launched “Operation Odyssey Dawn” (a grotesque name to apply to a military exercise that would consist of launching missiles and dropping bombs without any fear of reprisal!), Hillary Clinton told reporters that the movement of US military forces off the coast of Libya was meant to position them to help with humanitarian efforts. And although there was discussion of a no-fly zone, “There is not any pending military action involving US naval vessels,” she said.

“We’ve been reaching out to many different Libyans who are attempting to organize in the east and, as the revolution moves westward, there as well,” she said, “… but we’re going to be ready and prepared to offer any kind of assistance that anyone wishes to have from the United States.”

[Editor's Note: As discussed in the next portion of The Trends Journal, exactly who these "anyones" were, that Secretary of State Hillary Clinton was keen to “offer any kind of assistance,” was a matter left to be sorted out later...]

Regards,

Gerald Celente
for The Daily Reckoning

[Editor's Note: The above essay is excerpted from The Trends Journal, which is published by Gerald Celente. The Trends Journal distills the ongoing research of The Trends Research Institute into a concise, readily accessible form. Click here to get the full story in, learn more about, and subscribe to The Trends Journal.]

Regime Change, Hillary’s Head Fake originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
Regime Change, Hillary’s Head Fake




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Dependent on Fed Spending and the New Money System

April 27th, 2011

Another milestone on the road to Hell!

Here’s the report from The Fiscal Times:

For the first time since the Great Depression, households are receiving more income from the government than they are paying the government in taxes. The combination of more cash from various programs, called transfer payments, and lower taxes has been a double-barreled boost to consumers’ buying power, while also blowing a hole in the deficit. The 1930s offer a cautionary tale: The only other time government income support exceeded taxes paid was from 1931 to 1936. That trend reversed in 1936, after a recovery was underway, and the economy fell back into a second leg of recession during 1937 and 1938.

Yes, dear reader…now we will give you a quote:

“Those who count on the feds for their daily bread will soon go hungry.”

Who said that?

We did!

Yesterday, we saw that the feds’ QE2 program was a failure. Just like QE1. And TALF. And TARP. Worldwide, the authorities committed about $20 trillion to fight the correction. And what has it bought? It bailed out Wall Street. It made more millionaires. It drove up stock prices – to a new post-crisis record yesterday. But it didn’t really lead to a genuine recovery or a real increase the nation’s wealth.

And we’ve got news for the “post crisis” folks. This crisis is still going on. Now, we discover that not only is there no real recovery…the phony recovery is so distorting the political/economic picture that no real recovery is even possible.

Seventy-nine percent of household income growth since 2007 has come from government transfer payments. People earn less real money. They have less real money to spend. Their major assets – their houses – are going down in value.

And now they depend on the feds for more than half their income growth. Who’s going to vote for less government spending now?

In all of history, there are very few examples where centralized economic planning has produced even plausibly positive results. They can mess up an economy; there’s plenty of evidence of that. All their meddling, controlling, twisting – from Diocletian to Robespierre to Lenin to Nixon – every market regulation is a curse…every financial lifeline has a hangman’s noose on the end of it.

The only counter examples we can think of are those on the Pharaonic model…where wise Pharaoh stored up grain during the fat years and released it to the people when times got tough.

How often did that happen? The only example we have is from the Old Testament. Is it fact? Or fiction?

A wise government today could imitate Pharaoh. But none has. Instead of storing up grain for the lean years, governments run budget deficits year in and year out…through good times and bad times. Then, when the pickins are slim, they run even bigger deficits to “stimulate” a recovery.

This pattern has been in place…almost universally and with few exceptions…since the new money system was put in place in 1971. You remember that fateful day? When Richard Nixon interrupted Bonanza to tell the world he was doing two impossibly stupid things at once – imposing wage/price controls…and taking gold out of the international monetary system.

We are still suffering the consequences…still lumbering, stumbling, clumsily padding our way to the final act.

And now look at Pharaoh. The masses depend on him. And he’s handing out bread. But wait…it’s phony, ersatz grain. No kidding. Yes, the feds print up money…as if it were real. They give it to the banking system, claiming that it “stimulates” the economy. Then, the banks give it back to the feds…so they can distribute it to the masses. Of course, anyone could see right through it. Everyone knows it is fraudulent.

And so, the price of gold goes up…

The insider hustlers game the system. Did you read that account of the Wall Street wives who started a company just to borrow money from the feds? Everyone in the press is bad-mouthing poor Christie and Susan. The two wives put up $15 million. They borrowed $220 million from the government giveaway program, TALF. They used the money to gamble on debt…just like the government wanted. And what if their speculations went bad? No problem, the feds took all the risk!

Well, more power to Christie and Susan. The feds wanted people to spend…to speculate…to invest. Well, Christie and Susan rose to the challenge. Besides, they’re pretty.

Honestly, if Ben Bernanke looked like Julia Roberts, maybe we would have no problem with US central bank policy. We’d go happily to Hell…along with everyone else. That’s how shallow we are! But he doesn’t look like Julia Roberts. Not even close.. So, we harp, carp, and kvetch….

And what we’re complaining about today is the way the middle classes have been bamboozled by the feds, suborned by phony money…and ruined by a rigged economy.

Haven’t they benefited from all those government payments? Yes, like a man benefits from a hanging! Keep reading…

Double Whammy from Flimmy Flammy

The combination of high food prices…and a high cost of gasoline…is hitting the middle classes hard. Whence cometh these high prices? Why, from the feds of course. Why would the feds want to hurt the middle classes? Don’t ask silly questions, dear reader. Here’s the AP report:

With gas prices now standing at about $3.90 a gallon, energy costs have now passed 6 percent of spending – a level that …is a “tipping point” for consumers.

Of the six US recessions since 1970, all but the “9-11 year 2001 recession” have been linked to – [if] not triggered by – energy prices that crossed the 6 percent of personal consumption expenditures, he said. (During the shallow 2001 recession, energy prices had risen to about 5 percent of spending, which is higher than the long-term 4 percent share.)

What may make matters worse this time around, is there has been a steep increase in food prices that occurred as well. In other recent recessions food costs were benign, at between 7.5 percent and 7.8 percent of spending.

This year food prices have climbed 6.5 percent since the beginning of early January, according to Consumer Growth Partners.

Meanwhile, the poor middles classes watch as their most important asset gets marked down. Bloomberg is on the case:

April 26 (Bloomberg) – Residential real-estate prices dropped in the 12 months to February by the most in more than a year, putting the market on the verge of eclipsing the nadir reached during the US recession.

The S&P/Case-Shiller index of property values in 20 cities fell 3.3 percent from February 2010, the biggest year-over-year decline since November 2009, the group said today in New York. At 139.27, the gauge was just shy of the six-year low of 139.26 in April 2009, two months before the economic slump ended.

Values will probably keep falling as foreclosures swell the supply of unsold homes…

Regards,

Bill Bonner
for The Daily Reckoning

Dependent on Fed Spending and the New Money System originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
Dependent on Fed Spending and the New Money System




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Copyright 2009-2013 MarketDailyNews.COM

LOG