Jan 13
2
TWO THOUSAND THIRTEEN will mark my 30th year in and around the financial arena. Besides asking where the time went, I think the only question on my mind is this: Will 2013 be the year the chickens come home to roost? In my mind, it’s not if economic, social, political and spiritual upheaval hits, but when? In a country that has been robbing Peter to pay Paul (and Peter’s broke) and has undone many of the principles our Founding Fathers built this once-great nation on, my heart says I hope I’m wrong…but my brain knows it’s right.
While our troubles certainly began many years ago, I truly believe the straw that broke the camel’s back was election night, 2012. The virtues that once made this country great—self-reliance, hard work, entrepreneurship, individual liberty, responsibility, etc.—were voted out that evening. Instead, we now have a majority of Americans who happily rejected these long-held beliefs in favor of massive government control over their lives. Robbed of the incentive to achieve or even work, increasing numbers of Americans will turn to the government nipple.
Dan Norcini was spot on recently when he said:
“…We are witnessing a breakdown in ethics, virtue, and morality, as well as the loss of the sense of righteousness versus sin, and the blurring of the lines between good and evil that has marked the fall of every great civilization throughout history.
Sadly, there is NOTHING politicians can do to deal with the moral rot that has now infected this land. Changing the human heart lies solely in the province of the Almighty. But, as He is more and more banished to the outskirts of society, as His laws are treated with contempt if not indifference or even mockery, what can one expect? Human nature, left to itself is no different than a dead fish – it cannot swim upstream but always follows the path of least resistance and that path always tends towards corruption.
I fear for our nation’s future in a way I have never feared for it before at any point in my life. What area of our society has not been coarsened? Whether it is in the financial realm where far too often these days it seems we witness fraud, decadence, vice, etc. or in the culture, in its music, which seems to become more degraded with the passing of each year, or in so many of its movies which epitomize the empty souls of an increasingly larger and larger share of our population. Everywhere one looks it seems as if the nation is spiraling downward…”
Whether or not you concur with what Dan said, I believe there’s one indisputable fact that this video puts in perspective that if you don’t fully appreciate and agree with, its senseless for you to continue reading what I have to say.
As the video clearly demonstrated, all the b.s. that flows from both sides of the aisle about debt, deficits and you is just crap. This article expands on what the video discussed and why there’s no easy way out.
Assuming you “get it” that we’re past the point of no return when it comes to our debt, and the inevitable result shall be a renegading, renegotiation and/or monetizing of the debt by us to our creditors, we also need to realize the following:
#1 According to the World Bank, U.S. GDP accounted for 31.8 percent of all global economic activity in 2001. That number dropped to 21.6 percent in 2011. That is not just a decline – it is a free fall. Just check out the chart in this article.
#2 According to The Economist, the United States was the best place in the world to be born into back in 1988. Today, the United States is only tied for 16th place.
#3 The United States has fallen in the global economic competitiveness rankings compiled by the World Economic Forum for four years in a row.
#4 According to the Wall Street Journal, of the 40 biggest publicly-traded corporate spenders, half of them plan to reduce capital expenditures in coming months.
#5 More than three times as many new homes were sold in the United States in 2005 as will be sold in 2012.
#6 America once had the greatest manufacturing cities on the face of the earth. Now many of our formerly great manufacturing cities have degenerated into festering hellholes. For example, the city of Detroit is on the verge of financial collapse, and one state lawmaker is now saying that “dissolving Detroit” should be looked at as an option.
#7 In 2007, the unemployment rate for the 20 to 29 age bracket was about 6.5 percent. Today, the unemployment rate for that same age group is about 13 percent.
#8 Back in 1950, more than 80 percent of all men in the United States had jobs. Today, less than 65 percent of all men in the United States have jobs.
#9 If you can believe it, approximately one out of every four American workers makes 10 dollars an hour or less.
#10 Sadly, 60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low-wage jobs.
#11 Median household income in America has fallen for four consecutive years. Overall, it has declined by over $4000 during that time span.
#12 The U.S. trade deficit with China during 2011 was 28 times larger than it was back in 1990.
#13 Incredibly, more than 56,000 manufacturing facilities in the United States have been shut down since 2001. During 2010, manufacturing facilities were shutting down at the rate of 23 per day. How can anyone say that “things are getting better” when our economic infrastructure is being absolutely gutted?
#14 Back in early 2005, the average price of a gallon of gasoline was less than 2 dollars. During 2012, the average price of a gallon of gasoline has been $3.63.
#15 In 1999, 64.1 percent of all Americans were covered by employment-based health insurance. Today, only 55.1 percent are covered by employment-based health insurance.
#16 As I have written about previously, 61 percent of all Americans were “middle income” back in 1971 according to the Pew Research Center. Today, only 51 percent of all Americans are in that category.
#17 There are now 20.2 million Americans who spend more than half of their income on housing. That represents a 46 percent increase from 2001.
#18 According to the U.S. Census Bureau, the poverty rate for children living in the United States is about 22 percent.
#19 Back in 1983, the bottom 95 percent of all income earners in the United States had 62 cents of debt for every dollar that they earned. By 2007, that figure had soared to $1.48.
#20 Total home mortgage debt in the United States is now about 5 times larger than it was just 20 years ago.
#21 Total credit card debt in the United States is now more than 8 times larger than it was just 30 years ago.
#22 The value of the U.S. dollar has declined by more than 96 percent since the Federal Reserve was first created.
#23 According to one survey, 29 percent of all Americans in the 25 to 34 year-old age bracket are still living with their parents.
#24 Back in 1950, 78 percent of all households in the United States contained a married couple. Today, that number has declined to 48 percent.
#25 According to the U.S. Census Bureau, 49 percent of all Americans live in a home that receives direct monetary benefits from the federal government. Back in 1983, less than a third of all Americans lived in a home that received direct monetary benefits from the federal government.
#26 In 1980, government transfer payments accounted for just 11.7 percent of all income. Today, government transfer payments account for more than 18 percent of all income.
#27 In November 2008, 30.8 million Americans were on food stamps. Today, 47.1 million Americans are on food stamps.
#28 Right now, one out of every four American children is on food stamps.
#29 As I wrote about the other day, according to one calculation the number of Americans on food stamps now exceeds the combined populations of “Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia and Wyoming.”
#30 Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every 6 Americans is on Medicaid, and things are about to get a whole lot worse. It is projected that Obamacare will add 16 million more Americans to the Medicaid rolls.
#31 In 2001, the U.S. national debt was less than 6 trillion dollars. Today, it is over 16 trillion dollars and it is increasing by more than 100 million dollars every single hour.
#32 The U.S. national debt is now more than 23 times larger than it was when Jimmy Carter became president.
#33 According to a PBS report from earlier this year, U.S. households that make $13,000 or less per year spend 9 percent of their incomes on lottery tickets. Could that possibly be accurate? Are people really that foolish?
#34 As the U.S. economy has declined, the American people have been downing more antidepressants and other prescription drugs than ever before. In fact, the American people spent 60 billion dollars more on prescription drugs in 2010 than they did in 2005.
Above taken from ETF News November 29, 2012 article Economy: 34 Signs That The United States Is Headed Down The Wrong Path)
Medicare
One of the many false assumptions both sides of the aisle want you to continue to believe is on Medicare. As Karl Denninger of Market Ticker explained:
“The actual liabilities of the federal government—including Social Security, Medicare, and federal employees’ future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.
Did you get that?
The entire economy is $15 trillion.
The accrued expense of Medicare and Social Security alone — and most of it is Medicare — is half the economy each and every year. Put that in your head and consider that this would mean that just to keep even we would have to more than triple the existing amount of tax collected, raising total taxation to more than 60% of the economy!
If you have read Leverage you know that one of the pieces that I pound on hard is the medical cost explosion. I’ve also written about it extensively here in these pages. The fact is this: it is simply impossible for the promises made through Medicare to be kept. That is not conjecture. It is not a matter of opinion. It is fact: it is not able to be fixed with taxation.
It is mathematical fact.
You’re not going to get Medicare, unless (1) you’re getting it now and (2) you’re reasonably close to death. For everyone else, what you have been promised and what you’re going to get are very different, and there is exactly nothing you can do about it.
There is also no “gradual” way to deal with it.
Taxes
Another b.s. category that flows out from D.C. is taxes and our tax system. This article does a very good job explaining why our tax system is broke and what it shall mean to those of us who still actually work for a living.
Politically Incorrect
Political correctness is also out of hand:
The thought police are watching you. Back in the 1990s, lots of jokes were made about “political correctness,” and almost everybody thought they were really funny. Unfortunately, very few people are laughing now because political correctness has become a way of life in America. If you say the “wrong thing” you could lose your job or you could rapidly end up in court. Every single day, the mainstream media bombards us with subtle messages that make it clear what is “appropriate” and what is “inappropriate,” and most Americans quietly fall in line with this unwritten speech code.
But just because it is not written down somewhere does not mean that it isn’t real. In fact, this speech code becomes more restrictive and more suffocating with each passing year. The goal of the “thought Nazis” is to control what people say to one another, because eventually that will shape what most people think and what most people believe. If you don’t think this is true, just try the following experiment some time. Go to a public place where a lot of people are gathered and yell out something horribly politically incorrect such as “I love Jesus” and watch people visibly cringe. The name of “Jesus” has become a curse word in our politically-correct society, and we have been trained to have a negative reaction to it in public places.
After that, yell out something politically correct such as “I support gay marriage” and watch what happens. You will probably get a bunch of smiles and quite a few people may even approach you to express their appreciation for what you just said. Of course this is going to vary depending on what area of the country you live in, but hopefully you get the idea. Billions of dollars of media “programming” has changed the definitions of what people consider to be acceptable and not acceptable. Political correctness shapes the way that we all communicate with each other every single day, and it is only going to get worse in the years ahead. Sadly, most people simply have no idea what is happening to them.
The following are 20 outrageous examples that show how political correctness is taking over America…(Taken from this article)
#1 According to a new Army manual, U.S. soldiers will now be instructed to avoid “any criticism of pedophilia” and to avoid criticizing “anything related to Islam.” The following is from a recent Judicial Watch article…
The draft leaked to the newspaper offers a list of “taboo conversation topics” that soldiers should avoid, including “making derogatory comments about the Taliban,” “advocating women’s rights,” “any criticism of pedophilia,” “directing any criticism towards Afghans,” “mentioning homosexuality and homosexual conduct” or “anything related to Islam.”
#2 The Obama administration has banned all U.S. government agencies from producing any training materials that link Islam with terrorism. In fact, the FBI has gone back and purged references to Islam and terrorism from hundreds of old documents.
#3 Authorities are cracking down on public expressions of the Christian faith all over the nation, and yet atheists in New York City are allowed to put up an extremely offensive billboard in Time Square this holiday season that shows a picture of Jesus on the cross underneath a picture of Santa with the following tagline: “Keep the Merry! Dump the Myth!”
#4 According to the Equal Employment Opportunity Commission, it is illegal for employers to discriminate against criminals because it has a “disproportionate” impact on minorities.
#5 In California, Governor Jerry Brown has signed a bill that will allow large numbers of illegal immigrants to legally get California driver’s licenses.
#6 Should an illegal immigrant be able to get a law license and practice law in the United States? That is exactly what the State Bar of California argued earlier this year…
An illegal immigrant applying for a law license in California should be allowed to receive it, the State Bar of California argues in a filing to the state Supreme Court.
Sergio Garcia, 35, of Chico, Calif., has met the rules for admission, including passing the bar exam and the moral character review, and his lack of legal status in the United States should not automatically disqualify him, the Committee of Bar Examiners said Monday.
#7 More than 75 percent of the babies born in Detroit are born to unmarried women, yet it is considered to be “politically correct” to suggest that there is anything wrong with that.
#8 The University of Minnesota – Duluth (UMD) initiated an aggressive advertising campaign earlier this year that included online videos, billboards, and lectures that sought to raise awareness about “white privilege.”
#9 At one high school in California, five students were sent home from school for wearing shirts that displayed the American flag on the Mexican holiday of Cinco de Mayo.
#10 Chris Matthews of MSNBC recently suggested that it is “racist” for conservatives to use the word “Chicago.”
#11 A judge in North Carolina has ruled that it is unconstitutional for North Carolina to offer license plates that say “Choose Life” on them.
#12 The number of gay characters on television is at an all-time record high. Meanwhile, there are barely any strongly Christian characters to be found anywhere on television or in the movies, and if they do happen to show up they are almost always portrayed in a very negative light.
#13 House Speaker John Boehner recently stripped key committee positions from four “rebellious” conservatives in the U.S. House of Representatives. It is believed that this “purge” happened in order to send a message that members of the party better fall in line and support Boehner in his negotiations with Barack Obama.
#14 There is already a huge push to have a woman elected president in 2016. It doesn’t appear that it even matters which woman is elected. There just seems to be a feeling that “it is time” for a woman to be elected even if she doesn’t happen to be the best candidate.
#15 Volunteer chaplains for the Charlotte-Mecklenburg Police Department have been banned from using the name of Jesus on government property.
#16 Chaplains in the U.S. military are being forced to perform gay marriages, even if it goes against their personal religious beliefs. The few chaplains that have refused to follow orders know that it means the end of their careers.
#17 All over the country, the term “manhole” is being replaced with the terms “utility hole” or “maintenance hole.”
#18 In San Francisco, authorities have installed small plastic “privacy screens” on library computers so that perverts can continue to exercise their “right” to watch pornography at the library without children being exposed to it.
#19 You will never guess what is going on at one college in Washington state…
A Washington college said their non-discrimination policy prevents them from stopping a transgender man from exposing himself to young girls inside a women’s locker room, according to a group of concerned parents.
#20 All over America, liberal commentators are now suggesting that football has become “too violent” and “too dangerous” and that it needs to be substantially toned down. In fact, one liberal columnist for the Boston Globe is even proposing that football should be banned for anyone under the age of 14.
Bottomline:
While Obama alone is not solely responsible for the economic, social and political nightmare America is in, he certainly has greatly added to it and it’s during his watch that the straw that breaks the camel’s back shall occur. It’s not “if” but “when” it happens in the next four years.
The only question one must ask is when it all comes unglued, how will you and/or your children and grandchildren be prepared to handle it? I’m not talking about storing up guns and ammo, dry food and digging a hole in the ground to live. There are economic, social and spiritual strategies that can be undertaken now. While I will continue to discuss some of them via the blog, I would like to invite Americans residing in the U.S. with a net worth of $3 million or more to contact me to discuss how myself and associates could be of assistance to you through www.trinityfsem.com.
The Country is fast becoming “Makers versus Takers”. Read this article and see what States have already been run over by the Takers.
“Any man who thinks he can be happy and prosperous by letting the Government take care of him, better take a closer look at the (Native) American Indian.” - Henry Ford
U.S. Stock Market
I’ve not suggested many moves when it comes to the U.S. stock market. In late 2007, I concluded the worst-ever bear market would begin. In March 2009, I then concluded the biggest bear market rally ever was about to start. While certainly no roaring bull by any stretch of the imagination, I suggested throughout 2012 that the surprises should be on the upside and a marginal new, all-time high could be reach by the spring of 2013. Such an outcome was not a reason to back up the truck and load up on equities but it did prevent me from shorting the market as so many of my colleagues and readers have continued to urge since turning bullish back in March 2009.
I operate on the belief that a “Don’t Worry, Be Happy” crowd roams Wall Street. Most financial advisers and/or the firms they work for are tilted to their camp. I see the vast majority of people who provide so-called financial advice like I see most Realtors: you can toss them off the top of the Empire State Building and all the way down they say the same thing, so far so good.
Because of this, I don’t ever expect them to see the cup as anything but half-full (nor do I expect to see many in the hard asset camp ever bullish on general equities and bearish on gold).
The scenario I most favor continues to be a move to a new, all-time high in the stock market (which I’ve said all along is just a countertrend rally in a secular bear market that began in 2007), followed by a decline that over time shall retest the lows of 2009.
The December 2nd edition of Safehaven.com had a piece written by money manager Robert McHugh that was very much like my thoughts. Ideally, it would be best to make a new, all-time high and then look for a spot to start going short or wind down general equity positions to a very low percentage. Many will ask what about mining shares at that point? We will need to first get there before being able to decide. General equities outside of the U.S. would likely be the preferred way, but there, too, we need to wait to see how this plays out in 2013.
It’s critical to work with a mindset that as good as general equities were for over 30 years, all good things come to an end. Sometime in 2013 a bell will ring. Here’s hoping I can hear it.
U.S. Bonds
I believe bonds are not only the worst of two evils versus equities but believe over the next decade they can be the worst investment, period.
As bad as the Internet bubble burst was in 2000 and the housing bubble bust in 2008, the inevitable bond bubble bust will be far worse. The investing public and most in the financial industry either don’t understand and/or don’t care.
The Fed’s massive multitrillion-dollar bond-buying binge has left all investors more vulnerable today than in any other time in history. Very few Americans (and sadly, many financial advisers) understand just how risky bonds are at this very moment. Investors have considered U.S. Bonds/Treasuries as “low-risk” savings instruments for decades. Bond losses were always something that happened in other countries like Argentina, Greece or Portugal, but not here.
There’s a record $17 trillion of US debt and a good portion of that is sitting in baby boomers’ portfolios like a ticking time bomb ready to explode, and most investors know little about it. And rates would not have to go through the roof to take out billions in principal for investors, most of whom are in bonds because they are nearing retirement.
If the 10-year [bond] goes up 100 basis points, that could mean more than $35 billion is lost. One hundred basis points is just a 1 percent increase, which would put the 10-year at about 2.6 percent. The average interest rate over the last decade is roughly 4 percent, which, if we return to that yield, could put principal losses close to $500 billion. I’m telling you 99% of current bondholders believe over time they won’t lose money… nothing could be further from the truth!
Bond prices (your principal) and interest rates (yield) move in opposite directions. When rates rise, bond prices fall. The inverse is, of course, true as well. When rates fall, the price (your principal) of the bond rises.
The coming disaster is that short-term Federal Reserve funds rates are pegged at zero percent. In addition, the Fed’s irresponsible bond-buying spree, dubbed QE, has driven even long-term rates insanely low, to 1.5 or 1.6 percent on the 10-year Treasury. There’s basically no more upside but enough downside to hurt millions if not tens of millions of investors.
Without rewriting arithmetic, rates have nowhere to go but up — and, eventually, up quite a bit. And the principal invested in bonds will fall substantially. Unlike stocks, there won’t be exceptions to the rule.
If you were in the Internet and/or housing bubble and now find yourself holding a significant position in U.S. bonds, please allow me to remind you of an old saying:
Fool me once, shame on you. Fool me twice, shame on me!
Gold
Long-time readers have heard this from me before but it’s always worth repeating: Gold is hated by most in the financial industry and the media that follow it. No matter what’s happening in the world, these folks are never going to be really positive on gold. Why? They make their living on financial assets like stocks and bonds and to be believe in higher gold prices flies in the face of their livelihoods. It’s like expecting a Ford dealer to tell you Chevy makes better cars.
Now, to be fair, there’s also a relatively small group of people who eat and sleep gold. They’ve been called gold bugs, kooks, nut jobs, tin-foil hat wearers, etc. Because of my strong and unshakeable support for higher gold prices since just over $300 in early 2003, I’ve been placed in this small group of gold worshipers. While I don’t also believe we need guns, ammo, dry food and a cabin in West Virginia, I do believe that $2,000+ gold is not a question of “if” but “when.”
So, before we go any further, you must realize you’re never going to find wide support for ownership of gold and if you do, chances are those folks may want you to visit them in West Virginia
Outlook:
After rising sharply for much of the last decade, gold has spent about a year going sideways. The $64,000 question is, “Has it run out of steam or is this consolidation before the next leg up?”
After nearly 30 years in and around the financial arena, I’ve concluded like driving a car from a parked position, it’s best to look in the rearview mirror before pulling out. Four key factors have propelled gold to where it is today:
Central Bank Sales – Once the biggest sellers of gold, Central Banks have become net buyers of late. That should remain the situation for the foreseeable future
Hedging (forward selling) – Throughout the 80s and 90s, gold producers literally were cutting their noses to spite their faces by selling much of their production forward, thereby capping the price of their production. Large-scale forward selling has thankfully become taboo and any CEO who thinks otherwise could start looking for another job.
ETFs (Exchange Traded Funds) – Whether they actually are owners of physical bullion is certainly open to debate, but what’s not is the fact that the creation of gold ETFs led to an enormous new amount of demand that has been a major factor in the 10+ years of rising gold prices. Someday the reverse shall happen but not anytime soon, IMHO.
Money creation – It comes as no surprise that when the world went fiat currencies versus gold-backed, enormous amounts of debt were created and no politician has the courage to stop the printing presses. Gold is indeed money and the more funny money created, the more demand for gold shall be.
Bottomline:
Until at least one or more of these factors turn from bullish to bearish, I see no reason to not believe $2,000+ is not in the cards.
U.S. Dollar
I laugh when I hear some commentator note the dollar rose as a safe haven. The only safety I see from this chart is betting against it. I made the decision a few years ago to move a good portion of my savings into Canadian dollars; I feel much more comfortable having my money legally north of the border.
This speech by a Canadian politician not only concurred with my view of America’s economic, social and political future, but reassured me I was much better off in the Loonie.
Oil and Natural Gas
I never confessed to being an energy expert, but I still feel oil will remain much higher than it should because we still don’t have a real energy policy. At the same time, new technologies that have led to much more natural gas finds shall make a $10+ natural gas price a mere memory for years to come.
Wrong does not cease to be wrong because the majority share in it.” Loe Tolstoy
Mining and Exploration Shares – This email from a reader and my response on New Year’s Eve says it all:
“Peter, while I truly appreciate your honesty given what you do for a living, the junior resource market has sucked wind for awhile and you yourself openly admit you have with it. Is there any hope for either one of you?” Larry Hagen Brattleboro, VT
Having loss more money in the last year on paper and it actual transactions than I ever imagined I would even had while growing up, I can tell you honesty may be the best policy but the pain and shame remains. As I said often in 2012, I wish I could blame the price of metals or something one can easily say “that’s why” and move on.
In this interview of me, I explained what has help lead us to where we are in the junior resource market. As I’ve stated since then, I don’t believe the arrival of 2013 is suddenly going to lead to a bull market and most ships get lifted by the tide change. We still see too many juniors with too many shares, too little capital and a too little share price to do much with. These situations need to get washed out via recapitalization (rollbacks), disappearing, mergers, etc. I do think barring an unforeseen sharp decline in the metals from here, the lows in the market itself have been made. We may just have to go sideways for several weeks or a few months before even the “baby’s tossed out with the bath water” can get some separation.
Glory to God in highest heaven,
Who unto man His Son hath given;
While angels sing with tender mirth,
A glad new year to all the earth.
~Martin Luther
