Search results matching tag 'Depression'

The Keynesian Depression

JohnMauldin — Sat, 23 Feb 2013 05:00:00 GMT

In today’s Outside the Box, Scott Minerd, chief investment officer of Guggenheim Funds, regales us with the not-always-happy history of Keynesian economics – we did what he said when we had to, but not always when we should have. Shoving fiscal and monetary stimulus down the throat of a recession is well and good, but how about the part where we’re supposed to be fiscally conservative during boom times? “What, raise taxes? No thank you!”

The upshot, as Minerd reminds us, is that “As a result of the constant fiscal support without the tax increases, businesses and households became comfortable operating with continuously higher leverage ratios. The conventional wisdom was that this government backstop could never be exhausted.” Today we are testing that premise to the limit, and not only in the US.

Keynes forged his ideas in the fires of the Great Depression, but his disciples have, as Minerd wryly notes, “carried his views much further than could have been imagined during the period in which the master lived.” Consequently, the downturn we now struggle to escape from is very different from the one that plagued the world of the 1930s. The key difference, Minerd tells us, is that:

… for the first time since the 1930s, we have had severe asset deflation (declining real prices) in the face of relative price stability. Periods of asset deflation occurred between the 1960s and 1990s, but nominal prices were supported by rising inflation levels…. This protected asset-based lenders from severe losses resulting from declining nominal prices.

During the 2008 crisis, inflation levels were close to zero and unable to offset falling real asset values to stabilize nominal prices. This caused a debt deflation spiral to take hold as nominal prices fell. In contrast to the Great Depression, policymakers took extreme measures in 2008 to prevent a total collapse of the financial system and head off a deflationary spiral like that experienced in the 1930s. These policies included sharply increasing the money supply and engaging in an unprecedented amount of deficit spending.

To say the least. And all the easing and deficit spending worked to stave off financial disaster – up to a point. The problem is, we have just about reached that point – the point where, as Rogoff and Reinhart have so firmly instructed us, things turn out not to be that different after all. So let’s jump into Minerd’s take on the big picture, and see what he thinks the implications are for our investments.

But first, let me reveal that I find myself in Palm Springs this morning, getting ready to take a few hours off and embarrass myself with friends at the Indian Wells Golf Resort. Greg Weldon was on the plane last night (at 6’10”, he has to be the tallest analyst in the writing game), and he told me to bring my “A” game to the golf course, as we’d be playing together. I just laughed and said I didn’t even have an “X” game. I think if I shoot anything close to 120, I will just declare victory and walk to the clubhouse with a smirk. Big difference from my attitude in the “old days,” when I had time (and a back) to play. Bottom line: It’s a great course and a beautiful day, and I don’t make my living with a golf club in my hand. Greg, on the other hand, brings the same intensity to everything he does, whether it’s trading or golf or the World Series of Poker. I will watch him exult and curse, maybe on the same hole. I only get intense these days when I write. C’est la guerre.

Grant Williams is in town, and we will be spending a lot of time the next few days comparing notes and doing some videos for our readers (that would be you, and you’ll see them shortly). As everyone knows, I am a huge Grant Williams fanboy. It helps that he is also one of the nicest human beings anywhere.

I am speaking at the Cambridge House Natural Resources Conference here. Rick Rule of Sprott is coming in, and we will have dinner. My Mauldin Economics team partners are also in town, to help with the video and plan out some great new letters. I am really excited about the directions we are taking. They are opening up whole new ways for me to help you.

Oddly, it is colder here in Palm Springs than it was back in Dallas, but pleasant all the same. Have a great weekend.

Your wondering where his ball went analyst,

(The real editor’s note: John apparently finished this on his iPad at the third hole. He was probably not kidding about having lost his ball.)

John Mauldin, Editor
Outside the Box

subscribers@mauldineconomics.com

The Keynesian Depression

A Premonition From a Halcyon Era

By Scott Minerd, Chief Investment Officer, Guggenheim Funds

In 1968, America was literally over the moon. Apollo 7 had just made the first manned lunar orbit and the nation would soon witness Neil Armstrong’s moonwalk. The United States was winning the war in Southeast Asia and the Great Society was on the verge of eliminating poverty. I remember my father taking me to the Buick dealership that summer in Connellsville, Pennsylvania, where he bought a 1969 Electra. As we drove home I asked him why we had bought the 1969 model when we had the 1968 one, which seemed equally good.

“That’s just what you do now,” my father said, “Every year you go and get a new car.” “Wouldn’t it be better,” I asked as a precocious nine year-old, “if we saved our money in case a depression happened?” I will never forget my father’s reply: “Son, the next depression will be completely different from the one that I knew as a boy. In that depression, virtually nobody had any money so if you had even a little, you could buy nearly anything. In the next depression, everyone will have plenty of money but it won’t buy much of anything.” Little did I realize, then, how prescient my father would prove to be.

Five years have passed since the beginning of the Great Recession. Growth is slow, joblessness is elevated, and the knock-on effects continue to drag down the global economy. The panic in financial markets in 2008 that caused a systemic crisis and a sharp fall in asset values still weighs on markets around the world. The primary difference between today and the 1930s, when the U.S. experienced its last systemic crisis, has been the response by policymakers. Having the benefit of hindsight, policymakers acted swiftly to avoid the mistakes of the Great Depression by applying Keynesian solutions. Today, I believe we are in the midst of the Keynesian Depression that my father predicted. Like the last depression, we are likely to live with the unintended consequences of the policy response for years to come.

This Depression is Brought to You By...

John Maynard Keynes (1883—1946) was a British economist and the chief architect of contemporary macroeconomic theory. In the 1930s, he overturned classical economics with his monumental General Theory of Employment, Interest and Money, a book that, among other things, sought to explain the Great Depression and made prescriptions on how to escape it and avoid future economic catastrophes. Lord Keynes, a Cambridge- educated statistician by training, held various cabinet positions in the British government, was the U.K.’s representative at the 1944 Bretton Woods conference and, along with Milton Friedman, is recognized as the most influential economic thinker of the 20th century.

Keynes believed that classical economic theory, which focused on the long-run was a misleading guide for policymakers. He famously quipped that, “in the long run we’re all dead.” His view was that aggregate demand, not the classical theory of supply and demand, determines economic output. He also believed that governments could positively intervene in markets and use deficit spending to smooth out business cycles, thereby lessening the pain of economic contractions. Keynes called this “priming the pump.”

On Your Mark, Get Set, Spend

Since the Second World War, policymakers concerned with both fiscal and monetary policy have opportunistically followed certain Keynesian principles, particularly using government spending as a stabilizer during periods of economic contraction. In 1968, steady economic growth and low inflation had led optimists to declare that the business cycle was dead. When President Nixon ended gold convertibility of the dollar in 1971 he justified it by declaring that he was a Keynesian. Even Milton Friedman, founder of the monetary school of economics, told Time magazine that from a methodological standpoint, “We’re all Keynesians now.”

In dampening each successive downturn, authorities accumulated increasingly larger deficits and brought about a debt supercycle that lasted in excess of half a century. The complementary aspect of Keynes’ guidance on deficit spending – raising taxes during upswings – was rarely followed because of its political unpopularity. As a result of the constant fiscal support without the tax increases, businesses and households became comfortable operating with continuously higher leverage ratios. The conventional wisdom was that this government backstop could never be exhausted.

The calamity in the financial system in 2007 and 2008 signaled the beginning of the unraveling of the global debt supercycle. The Keynesian model dictated that the best way to fix the problem was to run large deficits and increase the money supply. Keynes had based his prescriptions for this type of action on the early mismanagement of the Great Depression which he felt had prolonged the losses and hardship during that time. As is the case with most groundbreaking philosophies, Keynes’ disciples carried his views much further than could have been imagined during the period in which the master lived.

The Depression My Father Knew

Keynes viewed governments’ attempts at belt-tightening during the Great Depression as ill-timed. Although President Roosevelt invested in massive public works projects under the New Deal starting in 1933, almost four years into the crisis, the U.S. government maintained a policy of attempting to balance the budget as the depression raged on. Keynes’s response was: “The boom, not the slump, is the right time for austerity at the Treasury.” The other problem, according to Keynes, was that the Federal Reserve’s attempts to lower real interest rates and inject cash into the system were too modest and too late to avoid what he referred to as a liquidity trap, leading people to hoard cash instead of consuming.

To illustrate the dynamics of the liquidity trap Keynes cleverly invoked the analogy of “pushing on a string.” He said that at some point, attempting to stimulate demand by easing credit conditions is like trying to push a string that is tied to an object you want to move. Whereas you can easily pull something toward you by the string to which an object is tied (raising interest rates to slow growth), attempting to carry out the opposite by reversed means (lowering interest rates to try to induce lending to otherwise unwilling borrowers) is not always successful. This is especially true when the rate of inflation becomes so low that it becomes impossible to set interest rates below it.

This Time It’s Different

What sets the current downturn apart from any other since the Great Depression is that, for the first time since the 1930s, we have had severe asset deflation (declining real prices) in the face of relative price stability. Periods of asset deflation occurred between the 1960s and 1990s, but nominal prices were supported by rising inflation levels. Against the backdrop of a rising price level, nominal asset prices remained stable or continued to increase as real asset prices declined. This protected asset-based lenders from severe losses resulting from declining nominal prices.

During the 2008 crisis, inflation levels were close to zero and unable to offset falling real asset values to stabilize nominal prices. This caused a debt deflation spiral to take hold as nominal prices fell. In contrast to the Great Depression, policymakers took extreme measures in 2008 to prevent a total collapse of the financial system and head off a deflationary spiral like that experienced in the 1930s. These policies included sharply increasing the money supply and engaging in an unprecedented amount of deficit spending.

In many ways the swift policy action proved highly effective. Instead of the 25 percent unemployment seen in the 1930s, joblessness reached only 10 percent. While unemployment now stands at roughly eight percent, if one uses the labor force participation rate from 2008, the level is still higher than 11 percent. Although there was a 3.5 percent decline in the price level between July and December of 2008, policymakers immediately tackled and reversed the deflationary spiral. This compares with the Great Depression, when between 1929 and 1933 the general price level declined by 25 percent.

The Aftermath

Though some may be cheered by the relative policy successes this time around, at the current trajectory it will still take almost as long for total employment to fully recover as it did in the 1930s. While job loss was not as severe this time, the recovery in job creation has been much slower. Although nominal and real gross domestic production have returned to new highs on a per capita basis, we are still below 2007 levels. In the same way the Great Depression and the depressions before it lasted eight to 10 years, we will likely continue to see constrained economic growth until 2015-2016 (roughly nine years after U.S. home prices began to slide). Only then will the excess inventory in the real estate market be absorbed, allowing the plumbing of the financial system to function, and supporting an increase in the economic growth rate.

At what cost did we attain this “success”? Like any strong medicine, the policies pursued since 2008 have had, and are continuing to have, unintended side effects. The most glaring feature of today’s global landscape is that governments around the world have exhausted their capacity to borrow money and have turned to their central banks to provide unlimited credit. In the United States, it has taken an average annual deficit of $1.2 trillion and multiple rounds of quantitative easing just to keep the economy growing at a subpar rate since 2009.

In their 2009 book, This Time It’s Different: Eight Centuries of Financial Folly, the economists Carmen Reinhart and Kenneth Rogoff catalogue more than 250 financial crises and conclude that the U.S. cannot reasonably expect to circumvent the outcome that has befallen all overleveraged nations. In the authors’ words:

...Highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked.

Sovereign powers saddled with debt loads as large as those of the U.S., Europe, and Japan today are jeopardizing their long-term economic wellbeing.

In an October 2012 whitepaper, Reinhart and Rogoff re-emphasized their findings that the U.S. cannot expect to quickly emerge from what occurred in 2008. They point out that 2008 was the first systemic crisis in the U.S. since the 1930s so the consequences have been much more significant than fall-outs from normal recessions.

What Comes Next?

The most important question for investors concerns how public sector debt levels, which have risen exponentially over the past half-decade, will ultimately be discharged. As Reinhart and Rogoff discuss, there are three options to reducing debt levels. The first is restructuring, also known as default. For obvious reasons this is painful and typically avoided except under the most dire circumstances. Governments can also pursue structural reform, which in today’s case would mean greater austerity. Implementation of this would stand in stark opposition to Keynes’s recommendation that the fiscal and monetary spigots be kept open during hard times. Although tightening is arguably the best long-term path, it appears unlikely that it will be the primary policy of choice in the near future. The third method, toward which I see global central bankers drifting, is to keep interest rates artificially low and permit increasing levels of inflation in the economy.

Pushing down the cost of borrowing and allowing the price level to rise is known as financial repression. The real value of debtors’ obligations is reduced by financially repressive policies. Keynes warned of the dangers of inflation in his early work, The Economic Consequences of the Peace, which presciently criticized the harshness of the Treaty of Versailles:

...By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens ... As inflation proceeds and the real value of the currency fluctuates wildly, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless.

Keynes re-iterated his views in the mid-1940s when he visited the United States and saw programs that were touted as Keynesian although he viewed them as primarily inflationary.

Financial repression is nothing new. Between the 1940s and the early 1980s, the United States reduced its national debt from 140 percent of GDP to just 30 percent while continuing to run sizable deficits. The difference between then and now is the magnitude of the debt mountain on the Federal Reserve’s balance sheet that will need to be eroded. A subtle shift has begun in which policymakers are starting to think of inflation as a policy tool rather than the byproduct of their actions. Despite Keynes’ warnings, it appears that higher inflation will continue to be the monetary tool of choice for central bankers tasked with cleaning up sovereign balance sheets.

Investment Implications

The long-term downside of mounting inflationary pressure will ultimately accrue to bondholders and income-oriented investors. The case can be made that we are marching headlong into a generational bear-market for bonds. During the next decade, holders of Treasury and agency securities will likely realize negative real returns. Despite this, these assets continue to trade at extremely rich valuations. Exactly when the market will awaken to this anomaly in securities pricing remains to be determined. The analogy I would use for the current interest rate environment is that of a balloon being held underwater. When the Fed withdraws from the market and allows interest rates to find their economic level, the balloon will inevitably ascend.

If investors need to stay in fixed-income assets, they should consider transitioning into shorter-duration credit and floating-rate products like bank loans and asset-backed securities. If duration targeting is a concern for liability-matching purposes, adjustable-rate assets can be barbelled with long-duration securities like corporate bonds or long duration agency mortgage securities. Equities and risk assets are likely to rise as the money supply grows.

Gold, as I discussed in my October 2012 Market Perspectives, “Return to Bretton Woods,” has significant upside potentially and should be considered for inclusion in any portfolio designed to preserve or grow wealth over the long-term. Depending on the scale of the current round of quantitative easing and the decline in confidence in fiat currencies, the price of an ounce of gold could easily exceed $2,500 within a relatively short time frame and could ultimately trade much higher.

The World is Waiting

The Great Depression brought about the Keynesian Revolution, complete with new analytical tools and economic programs that have been relied upon for decades. The efficacy of these tools and programs has slowly been eroded over the years as the accumulation of policy actions has reduced the flexibility to deal with crises as we reach budget constraints and stretch the Fed’s balance sheet beyond anything previously imagined. Nations have exceeded their ability to finance themselves without relying on their central banks as lenders of last resort and increasingly large doses of monetary policy are required just to keep the economy expanding at a subpar pace. Some have referred to this as reaching the Keynesian endpoint.

Keynes would barely recognize where we now find ourselves. In this ultra loose policy environment we are limited by our Keynesian toolkit. Today, the world is waiting for someone to come forward and explain how we are going to get out of our current circumstances without suffering the unintended consequences created by so-called Keynesian policies.

Early in his life, Abraham Lincoln wrote that he regretted not having been present during the founding of the nation because that was when all the positions in the pantheon of great American leaders were filled. By resolving America’s Imperial Crisis through the Civil War and the abolishment of slavery, Lincoln would go on to join those lofty ranks himself. Much like that crisis needed Lincoln, the current crisis needs someone who can identify new tools to resolve the present economic crisis. Until then we are condemned to a path which leads to further currency debasement and the erosion of purchasing power, with the result being a massive transfer of wealth from creditor to debtor. Without a new economic paradigm, the deleterious consequences of the current misguided policies are a foregone conclusion. It would seem my Dad could hardly have been more correct when he described the next depression from behind the wheel of his 1969 Buick.

The Economy: Worst Five Years Since the Depression

GaryHalbert — Tue, 12 Feb 2013 23:05:00 GMT

IN THIS ISSUE:

1. Worst Five Years Since the Great Depression

2. Half of Americans on the Edge of Financial Ruin

3. “Fiscal Cliff II” – Sequestration: Here We Go Again

4. Treasury Bond Bubble: Yields Jump 32%!

5. Bonds: It’s Not Too Late to Protect Yourself

Overview

Tonight, President Obama will give the first State of the Union address of his second term as President of the United States. You can bet that the speech will be full of glowing rhetoric and success stories from his first four years in office.

What you will definitely NOT hear from him tonight is the fact that the US economy just recorded the worst five years since the Great Depression. That is what you will read below. While the many facts and figures below are disappointing, even depressing, Americans need to know the truth about the real state of our economy and our union.

Consider what follows as a rebuttal to President Obama’s speech tonight. Feel free to forward this to as many people as you wish.

Worst Five Years Since the Great Depression

As of the end of 2012, the United States has experienced the worst five-year period of economic growth since 1928-1932 and the start of the Great Depression. Following the global financial crisis and recession in 2008, and based on the historical pattern of American economic recovery since the Depression years, the United States should have been experiencing broad and significant economic and job growth by the third year of the recovery (2011) at the latest.

Place the blame where you wish, but not since 1928 through 1932 have the American people been more significantly worse off at the end of a five-year period than they were at the beginning. Here are the telling statistics:

A) Since January 2008 the employment age population has increased by 11.7 million, yet there are three million fewer Americans employed today – 146.3 million in January 2008 vs. 143.3 million in December 2012. Factoring in the population growth and the 2008 labor participation rate, the real unemployment rate for December 2012 would be 11.4% as compared to 4.9% in December of 2007.

B) At the end of 2007, the median household income was $54,489 (inflation adjusted). By January 2012, it had dropped to $50,054 – a decline of over 8% and the most precipitous plunge over a similar period since the Census Bureau started tracking that statistic. While American incomes were rapidly eroding, the cost of living continued to rise as the commodity price index (basket of food, fuel and other essential commodities) rose 20% from 2007 to 2012.

C) The average net worth of all American households from 2007 through the beginning of 2011 took a nose-drive, dropping by nearly 40%, according to a study from the Federal Reserve that was released in June 2012. About three-fourths of the decline in family net worth was due to the devastating collapse in the value of their homes. Median home prices plunged from $248,000 in 2007 to $173,000 in 2012, a decline of 30%.

D) In December 2007, 26.5 million Americans were on food stamps at a cost of $30 billion annually. As of November 2012, the USDA reported that 47.7 million were accessing the food stamp program, an increase of 80%, at an annual cost in excess of $70 billion. Furthermore, the government calculated that 38.0 million Americans were living in poverty at the end of 2007, a poverty rate of 13.0%; however, by the beginning of 2012, 49.7 million were living in poverty and the rate had increased to 16.1%.

E) The nation’s growth in Gross Domestic Product over the past five years has also been the most anemic since the Depression years. The GDP (adjusted for inflation) in 2007 was $15.5 trillion; in 2012 it is estimated to be almost $16.0 trillion, a difference of just under $0.5 trillion ($500 billion). That comes to total growth of only 3% over five years, or an annual rate of a minuscule 0.6%.

F) While the nation’s growth rate has been stagnant, spending by governments at all levels (federal, state and local) has increased dramatically from $4.9 trillion in 2007 to $6.2 trillion in 2012, a jump of 26.5%. This increase is driven largely by the federal government as it has increased its spending by nearly 41% over this period. This has resulted in the total national debt rising from $9.2 trillion at the beginning of 2008 to $16.45 trillion as of today, a staggering 79% increase. That is over 100% of GDP!

G) There is one group that has fared well over the past five years: federal bureaucrats – this according to the US Office of Personnel Management. Since December of 2007, there has been an increase of 4% in the number of federal workers (not including the military) – 2.70 million vs. 2.82 million today – this despite the worst recession and financial crisis since the Great Depression.

Further, the average total compensation for federal government employees increased nearly 9% to $126,200 from 2007 to 2011. Additionally, the number of government workers earning more than $150,000 has more than doubled over this same period. By comparison, the average total compensation for those in the private sector was $62,100 in 2011, only 49% of what the average federal employee realized that same year (US Bureau of Economic Analysis).

Since the Great Depression, recessions in America have lasted an average of 10 months, with the longest previously at 16 months. According to the National Bureau of Economic Research, the latest recession began in December 2007 and ended in June 2009, the longest since the Depression at 18 months. Yet here we are 62 months after the recession began and there is hardly any recovery at all.

As noted earlier, you can place the blame wherever you wish. President Obama places all of the blame on former President Bush. Apparently, the majority of American voters agree since they elected Obama to a second term by a comfortable margin last November. However, I suggest you read an excellent article by Forbes columnist Peter Ferrara who does a great job explaining why our economy is still so weak. It is the first link in SPECIAL ARTICLES below.

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

Half of Americans on the Edge of Financial Ruin

In the past few years, Americans have certainly learned a thing or two about how quickly disaster can strike. With each new crisis – Hurricane Sandy, the housing bust, the credit crisis, stock market crashes, etc. – we’re faced with the harsh realization that many of us simply aren’t prepared for the worst.

A sobering new report by the Corporation for Enterprise Development shows that nearly half of US households – 132.1 million people – don’t have enough savings to weather emergencies or finance long-term needs like college tuition, health care, housing, etc.

According to the Assets & Opportunity Scorecard, these people wouldn’t last three months if their income suddenly stopped. More than 30% don’t even have a savings account, and another 8% don’t bank at all.

We’re not just talking about people who live at or below the poverty line, either. Plenty of middle class folks have joined the ranks of the “working poor,” struggling right alongside families scraping by on food stamps and other forms of public assistance.

More than one-quarter of households earning $55,465 to $90,000 annually have less than three months of savings. And another quarter of households are considered “net worth asset poor,” meaning that the few assets they have, such as a savings account or durable assets like a home, business or car, are overwhelmed by their debts, the study says.

One of the prolonged reasons consumers have consistently struggled to make ends meet has more to do with larger economic issues than whether or not they can balance a checkbook. As noted above, the average net worth of all American households from 2007 through the beginning of 2011 took a nose-drive, dropping by nearly 40%, according to a study from the Federal Reserve that was released in June 2012. During the same time, the cost of basic necessities like housing, food, and education have soared.

And wherever consumers can’t cope with costs, they continue to rely on plastic. The average borrower carries more than $10,700 in credit card debt. One in five households still rely on high-risk financial services that target low-income consumers.

“Fiscal Cliff II” – Sequestration: Here We Go Again

The White House and GOP lawmakers are getting ready, once again, to not work together on taxes and spending cuts. As the March 1 sequestration deadline looms for the start of $85.3 billion in automatic budget cuts, the old brinksmanship is back.

Democrats will press for additional tax hikes on wealthier Americans, even though Republicans declared that this option is now off the table, after agreeing to roughly $700 billion in new revenues (ie – higher taxes on wealthy Americans) over the next 10 years as part of the New Year’s Day fiscal cliff deal. President Obama had leverage then, and the Republicans basically had to cave in.

But this time, President Obama lacks a critical piece of leverage. The GOP joined with Democrats on the recent tax increase only to protect middle-class Americans from tax rates that were set to surge for everyone. Their bargain prevented higher taxes on families with incomes below $450,000.

Still, the president and Senate Majority Leader Harry Reid are undeterred. Both announced over the weekend that any part of a plan to reduce the deficit must include new revenues (ie – higher taxes), such as eliminating the “carried interest” tax rate for investment managers and other lucrative loopholes and deductions.

In an interview with CBS News before the Super Bowl, President Obama declared: “There is no doubt we need additional revenue [taxes], coupled with smart spending reductions in order to bring down our deficit, and we can do it in a gradual way so that it doesn't have a huge impact.” He knows that’s not true.

Also, Obama didn’t spell out how he plans to sway the GOP to his way of thinking. After the fiscal cliff tax deal, Senate Minority Leader Mitch McConnell said, “The tax issue is finished, over, completed.” What the Republicans can’t seem to get through their heads is the fact that the ‘tax issue’ will never be finished with President Obama and most Democrats.

The stalemate could have serious real world consequences in a matter of weeks. As noted above, more than $85 billion of across-the-board spending cuts – half in defense and half in domestic programs – are set to kick in automatically beginning March 1 unless Congress and the administration take action. Here we go again!

Treasury Bond Bubble: Yields Unexpectedly Jump 32%!

Last summer I became very concerned that Treasury bond yields were overshooting on the downside, and that the risk of a sharp upward correction in rates could happen at any time. In August of last year, I sent clients and subscribers a 16-page SPECIAL REPORT entitled: How to Avoid the BURSTING of the Bond Market Bubble.

In the Report, I warned about the growing risks in the bond markets, especially in long-dated Treasuries. I warned about how investors were stampeding into T-bond mutual funds (a record $310 billion in the last two years), not realizing that they were taking on some huge risks if long-term interest rates started to rise. Remember, when T-bond yields rise, the price of those bonds declines accordingly.

I recommended that investors consider moving some money into System Research’s Equity Alternative Program that invests – long and short – in Treasury bond mutual funds. Some people argued that T-bond yields could not move significantly higher, especially after the Fed’s September announcement that it would begin buying $45 billion a month in new Treasury bonds indefinitely in the hopes of stimulating the economy.

Because of the recent bold move by the Fed, very few readers took me up on my advice to allocate some money to the Equity Alternative Program. But despite the Fed’s unprecedented action, long-term rates still rose significantly recently. Take a look below.

The yield on the 30-year Treasury bond actually hit its all-time low on July 25 last year at only 2.44% as you can see above. Since then, it has spiked to 3.22%. That’s a jump of 32% despite the record monthly Treasury bond buying by the Fed. Notice also how much the T-bond yield has jumped just since the presidential election in November… Hmmm.

The case I made in my August Special Report was that bond yields could turn higher at any time, even before the Fed announced its huge T-bond buying program in September. But now that the Fed is implementing the $45 billion a month in T-bond purchases, that raises another question: When will the Fed end these huge purchases? No one knows when, but they will end at some point.

And that will almost certainly cause another jump in Treasury bond yields. If so, investors in Treasury bonds could suffer even larger losses than in the last six months as yields have risen.

Are We Nearing the Tipping Point on US Debt?

My contention in my August Special Report was that the day is coming when investors will demand higher rates to loan the government 30-year money. The fact that yields have jumped 32% in the last six months – for no obvious reason – suggests that we are coming closer to the tipping point when interest rates rise significantly higher.

There are plenty of liberal arguments that there is virtually no limit on how much debt the US can rack-up without a bond market revolt. These arguments are always weak in that they assume there will never be a day when investors begin to worry that they may not be repaid all of their money that they loan to the government.

To them, a government debt default is not possible, at least not in the US. I am not arguing that the US government will default on its debt. What I am arguing is that we have reached the point where investors will demand higher returns on the money they loan to Uncle Sam. How else can you explain why T-bond yields have jumped so much, especially since the election?

Our national debt has ballooned from $10 trillion when Obama took office to over $16 trillion in four years. It could approach $20 trillion by the time he leaves office. This debt will never be fully paid off. I get criticized every time I say this, but that’s what I believe. I challenge anyone to give me a realistic scenario showing how this debt is ever repaid!

Investors continue to buy US Treasury debt because they are confident the US will never default. And maybe the US will never default. But the other option is to inflate and further debase the US dollar. Either course is bearish for bonds!

Bonds: It’s Not Too Late to Protect Yourself

The bottom line is this: We are drawing closer to the tipping point where investors demand much higher returns on money they loan to the US government. It’s only a matter of time before long-term rates move significantly higher in my opinion. The 32% jump in 30-year Treasury rates over the last six months was not expected by virtually anyone. What happens next? Could this trend continue? It is certainly possible.

My advice remains the same. If you are overweight in “long-only” taxable bonds and bond funds, you should seriously consider a long/short bond strategy such as the Equity Alternative Programthat has the potential to make money whichever way Treasury bond yields move. The minimum investment is only $25,000.

Or consider our “Legacy Long/Short Bond Portfolio” which combines two successful bond money managers that invest both long and short as market trends dictate. The minimum investment is only $50,000.

* As always, past performance is not necessarily indicative of future results.

Treasury bond yields have already jumped by almost one-third when virtually no one expected it. This could well continue, whether you believe it or not. No one can predict the future, so you had better be prepared.

If you still do not want to pursue an actively-managed bond strategy that may protect your bond holdings from rising interest rates – and with the potential to profit from higher rates – then you may want to consider at least lightening up and moving some of your bond exposure to the safety of cash.

As always, feel free to call us at 800-348-3601 to ask any questions you may have. One of our salaried (non-commission) Investment Consultants will be happy to discuss your situation with you, with no pressure or obligation. Our only objective is to help you make the right decision for you, whether you invest with us or not.

Best regards,

Gary D. Halbert

He's Baaaaaacccckkkk!

ChuckButler — Fri, 20 May 2011 13:13:00 GMT

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In This Issue.

* Some healing for the risk assets.

* Norges Bank Gov. hints on rates.

* BOC's Gov. does the same.

* This depression.

And, Now, Today's Pfennig For Your Thoughts!

He's Baaaaaacccckkkk!

Good day. And a Happy Friday to one and all! WOW! It seems like I've been gone for a long time. And I'm sure it feels that way to Chris, who was so kind to take the conn on the Pfennig while I traveled the U.S., which is what it felt like! But. I'm Baaaaaacccckkkk! And full of you know what and vinegar this morning! So. let's go have some fun on this Fantastico Friday!

Well. I've kept up on the goings on while I was gone, and Chris did a good job of giving you the skinny each day. So, I should hit the ground running today.

Like. I see where the euro, which a week ago, was looking pretty sickly, is back on the rally tracks, or should I say, that the dollar is back on the slippery slope, which allows the euro, the offset currency to the dollar, the ability to rise in value VS the dollar when it slides. Yes, of course I should! But, I like saying something is on the "rally tracks"! Speaking of rally tracks. The Chinese renminbi took a giant leap forward last night, with the biggest overnight move in 3 weeks!

This guy, the Gov. at the People's Bank of China, Zhou, always has a zinger or a very astute vision of the markets, and last night was no exception. Zhou, said that "inflation was high" (in China), and that China needs to strike a balance between economic growth and consumer prices." Yes, Mr. Zhou, that's exactly what you should be focused on. But, if you want to go the route of your friends over in Singapore, you could simply allow large moves in the renminbi on a consistent basis, which as we all know. A strong currency goes a long way toward combating inflation.

I also see the Aussie dollar (A$) back on the rally tracks, after falling from $1.09 to $1.05, it has fought back to gain some lost ground, and is pushing the envelope to $1.07 again. I would have to think that the high yielders, and Commodity Currencies would be stronger today after yesterday's strong showing in the IPO of LinkedIn. That should light up the stock jockey's eyes, eh? Yes, these markets are still connected for some unknown reason. Historically, they do not move together, but ever since the financial meltdown of 3 years ago, they have been, save a few times when it looked as though the dis-connect had set in, but only to have been a false dawn.

Like I've said quite a few times recently. I have the bejeebers scared out of me right now, with what's going to happen to the financial markets when the Fed steps away from the stimulus table next month. And from the looks of it, and the words of Ben Bernanke himself. Quantitative Easing helped the stock markets to their gains. So, with that in mind, what's going to happen when Quantitative Easing, does a Puff The Magic Dragon, and once Ben Bernanke came no more .And puff that mighty dragon, he ceased his fearless roar.

Ok, admit it. that song is now in your head, and you'll be humming it all day long! But getting back to the serious stuff. So, if stocks are going to hit the headwinds once QE is removed, it would be better for the currencies and commodities to get that disconnect in place now!

Well. last night, Norway's Central Bank (Norges Bank), Gov. Olsen, made a very strong comment about interest rates that have the Norwegian krone hopped up this morning. Olsen said that "normal rates are around double the current 2.25%. " He went on to express little concern about the strength of the krone, and that's just what a currency trader is looking for. He wants to know that he's not going to get caught with his hands in the cookie jar, should the Gov't decide to intervene.

The Canadian dollar / loonie has been quite resilient through this recent U.S. dollar strength. Yes, the drop in the price of Oil, started all this unwinding, but, as I said before I left. Oil may have fallen, but still remains close to $100, and $100 Oil is not good for the U.S. economy. But, it is good for the loonie! Yesterday, Bank of Canada Gov. Carney, said that he just doesn't see the need to signal policy intentions ahead of schedule, but that "higher rates are built into the Bank of Canada's forecast, and the markets should converge on that."

Folks. that's central bank parlance for Interest rates are going to go higher, but I'm not going to give you any hints about when this will happen. The key here is that we could very well see interest rates going higher in Canada. I'm not sure, I'd have to go back and check, but I recall saying that I thought the Bank of Canada would hike again in June. and if I didn't, then now I have!

Getting back to China for a moment here. I did my "Change in Currency Regime" presentation 3 times in the past 2 weeks, so. I've got it fresh on my mind. And one of the points I make in the presentation is the point that I first made here in the Pfennig, months ago. And that is that China was buying truckloads of Gold & Silver for two reasons. 1. To diversify out of the dollar. and 2. (this is my thought) to begin to accumulate these two metals to eventually align their currency to, when they decide to allow it to float. Think about that for a minute, folks. If China has the largest population, the largest treasure chest, and have financed both the U.S. and Europe, and then they tie their currency to Gold & Silver (even if it's just a percentage tie) one would think that their currency would be the most sought after in the world. And when that happens, another notch gets placed in the Chinese belt that wraps around the reserve currency of the world.

Speaking of China. a great story on newswires about Chinese domestic demand for Gold continuing to be very strong. "Private gold demand in China set a quarterly record with the arrival of Lunar New Year. In the first quarter, private gold demand was 0.71% of China's gross domestic product, compared with 0.47% of GDP in the comparable quarter last year." --- Reuters

Well. the economic data here in the U.S. continues to be a mixed bag of nuts. Just this week we've seen Housing Starts fall 10.6%, Industrial Production print flat, and Capacity Utilization slip some. The Weekly Initial Jobless Claims fell (that's good!), but remain above 400,000 per week (that's bad!). Today, we'll see the color of Existing Home Sales, Leading Indicators (I expect to be weak), the Philly Fed (manufacturing, again I think will be weak) and something new called, The Bloomberg Consumer Comfort Index and Economic Expectations. Both Comfort and Expectations are forecast to be weak.

Do you see a trend starting here? Weak this, weak that, and pretty soon, the economy is backpedaling again. That's my thought for the economy going forward, but really getting the stuffing knocked out of it the further we get pull away from the Quantitative Easing station. So, by Sept or October, we'll be hearing whispering campaigns beginning once again about another round of QE. Shoot Rudy, just yesterday, Fed Head, Dudley, made overtures about QE3. So. that just gives me more terra firma to stand on, with my thought that QE3 comes later this year, not right after June. And eventually we see QE4, QE5, 6,7.8, 15, 25. The economy has become to addicted to this stimulus. and instead of making the economy go "cold turkey", the Fed will be like the pusher, always feeding us more stimulus. from the great song by Steppenwolf, The Pusher. "You know, I've seen a lot of people walkin' 'round

With tombstones in their eyes, But the pusher don't care, Ah, if you live or if you die"

Then there was this. Well... here we are... May is about to begin to wind down, it's still not "spring like weather" here, and the depression that began 3 years ago, remains in place... What? I hear you asking... Come on Chuck, the NBER said the recession was over a couple of years ago, but yet you still call this a depression? Ahhh... grasshopper, yes, of course I do... Unemployment is still around 23%... Home prices keep falling... the Gov't keeps trying to "help out" with stimulus, and we keep sending out checks to people that don't have jobs... No, it's not a soup line like we saw pictures of from the "great depression", but those people didn't get "the checks" sent to them in the mail from the Gov't... yes, think about this long and hard... instead of soup lines... we save people the embarrassment of having to stand in a line... Instead, we mail them a check, two checks, maybe three or four, each month... What incentive do they have to correct this? 45 million people receive food stamps now folks... if you figure there are about 300 million people in the U.S., then almost 1/4 of the population gets to eat for free on the taxpayers... And this is not a depression?

Whew! That's depressing Chuck. what can I do here. Oh! I know, I'll play the song September, by Earth Wind and Fire, and get bopping in my seat, singing, and back in a Friday mood! Try it. you'll like it!

To recap. Chuck's baaaaaacccckkkk! And the Currencies and metals are trying to heal some from the recent sell offs. Although, now that I've come to the end of the Pfennig 1 ½ hours later, the currencies and metals are selling off a bit from the levels I saw when I first came in! The data here in the U.S. has been weak lately and I don't expect that to change. We saw comments from the Governors of both the Norges Bank and Bank of Canada, with the same underlying theme. that interest rates were going higher, and they weren't worried about the strength of each respective currency.

Currencies today 5/19/11. American Style: A$ $1.0665, kiwi .7950, C$ $1.0335, euro 1.4250, sterling 1.6235, Swiss $1.1315, . European Style: rand 6.8930, krone 5.4985, SEK 6.2690, forint 187.75, zloty 2.7515, koruna 17.1485, RUB 27.98, yen 81.60, sing 1.2360, HKD 7.7730, INR 44.99, China 6.4915, pesos 11.63, BRL 1.6160, dollar index 75.29, Oil $99.29, 10-year 3.16%, Silver $34.82, and Gold. $1,497.45, and don't forget to take a look at the debt clock. www.usdebtclock.org/index.html

That's it for today! It was great to get home the other night. And yesterday, I got to spend some time with Delaney Grace and the EverBaby, Everett, before heading downtown for the day game at Busch Stadium! My trips to Las Vegas, La Jolla, and then Tampa, were all good. Thanks to the good people down in Tampa for their hospitality. I got to meet quite a few people, customers, readers the past two weeks. You are all very kind to me, and I truly appreciate that! I also got to spend some valuable time with Doug Casey. The Global Currency Expo was a hit. and I think we'll do it again next spring. Steve Sjuggerud, Keith Fitzgerald, Eric Roseman, Doug Casey, Jeff Opdyke, Frank Trotter, and the list goes on of the speakers we had in La Jolla. Oh! And I was there too! HA! Rain is forecast all weekend here, so, we'll have to have our fun indoors! Now, let's go out and make this a Fantastico Friday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Keeping Capital in a Depression

DougCasey — Wed, 13 Apr 2011 18:45:00 GMT

By Doug Casey, The Casey Report

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. This thinking partly lay in back of our starting our Casey’s Extraordinary Technology service.

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 Walmart 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. The idea is basically that of my old friend John Pugsley, which he explained fully in his book The Alpha Strategy. Take this point very seriously. It’s 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 U.S. – 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.

[Get more valuable advice on how to survive in a crisis in The Casey Report – a monthly newsletter brimming with top-notch analysis of U.S. and world events, economic research, trend forecasts and investment advice for the big-picture investor

How Our Home Prices Compare To The Rest Of The World

JohnMcClure — Tue, 20 Oct 2009 16:39:00 GMT

Global Home Price Comparison
Lessons from the Forgotten Depression
Resisting the Intervention Urge
Chaining the Tiger
More Difficult Than Timing the Market

Quote of the week
"Institutional equity investors fear missing out on the rally. Bond investors fear deflation and the stock market is way overdone and is ripe for a steep correction. The gold bugs fear that the fiscal and monetary largesse globally will lead to inflation and fear that the U.S. dollar is on the verge of collapse. Never before has fear felt so reassuring - pick an asset class, and it's going up in price."
David Rosenberg in a recent newsletter to clients

Global Perspective - What's a Home Worth?

In an effort to address deflating stock prices, the Federal Reserve began lowering interest rates in January 2001. Within 18 months it had dropped to multi-decade lows. The strategy eventually worked, but it also fueled a housing boom, propelling home prices to unprecedented highs even after adjusting for inflation. But the strategy had a high price tag and since 2007 we have suffered the all-too-predictable bubble break and property depression.

But how have home prices fared around the globe? Did prices appreciate as significantly? Have other markets been as severely impacted as those in the U.S. over the past two years?

The answers surprised us. A series of charts recently published by The Economist magazine compared home prices from 1990 to present (Q2-09). In the next chart, we see nominal home price changes for Hong Kong, Britain, Spain, New Zealand, Canada and Japan, as well as two estimates for U.S. home prices - the generous Federal Housing Finance Authority (FHFA) and the more conservative Case-Shiller Home Price Index.

Notice the unique jump for Hong Kong in the late 1990s followed by the major correction and market re-ignition. Every other market in the chart, with the exception of Japan, experienced rapidly rising home prices starting in the early 2000s, with peaks in late 2007. Top of the list was Spain followed then by New Zealand (and Australia which closely tracked the path of its smaller neighbor), then Hong Kong, the U.S. followed by Canada and finally Japan, where home prices dropped over the two-decade period.

The takeaway is that although a lot of press was given to the situation in the U.S., there has been a relative dearth of articles comparing international housing markets on this side of the Atlantic and Pacific. In Spain, where home values jumped nearly 400%, prices are still 350% above where they were two decades ago, suggesting that this market has the greatest potential for further price declines. New Zealand and Australia aren't far behind on the "bubble-scale."

Notice that home prices in Canada significantly underperformed their global counterparts through the 1990s and into the new millennium, which may explain why the housing market there has remained more robust of late. And Japan, where prices are still little more than one-half of what they were two decades ago, continues to experience weak housing demand - a result of a combination of an aging population, punitive government stimulus and bankruptcy prevention policies that have frustrated any lasting recovery chances. These are lessons lost on U.S. policy makers.

Figure 1 - International home price comparisons. Source - Economist.com

One thing is clear from this chart. Chances are that the worst is not over for the countries in which housing prices were launched into the stratosphere. It will take more time before economic gravity pulls them back to earth. And even if U.S. property markets stabilize, what impact will falling prices in other parts of the world have on our economy?

Lessons from the Forgotten Depression

Past issues of the ProfitScore IQ have examined the wisdom of a policy to bailout struggling companies and industries in the face of an economic meltdown in historic terms. And in no period in history is the difference between present and past starker than it is today, compared to the 1920 depression.

Then the government and Federal Reserve stayed out of the way and let free market forces deal with the fallout and recovery. Will it become a blatant example of how failing to learn the lessons of history doom us to re-learn them the hard way?

Analysts and economists continually harken back to the period from 1929 to 1933, at the beginning of the Great Depression to laud the example set by Franklin Roosevelt and how he sought to cure the ills of the period with massive government spending and New Deal programs.

Opinions could not be more polarized. On one side supporters of John Maynard Keynes credit government intervention and deficit spending with saving our nation from economic ruin. On the other, opponents of corporate socialism argue that government intervention only served to prolong the economic pain and recovery which ultimately took the second great war to complete.

Why are other periods of economic contagion so rarely discussed? In a recent paper entitled Warren Harding and the Forgotten Depression of 1920, Thomas E. Woods Jr. of the Von Mises Institute explores the Great Depression of 1920 and examines the official response.

"The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. No wonder, then, that Secretary of Commerce Herbert Hoover-falsely characterized as a supporter of laissez-faire economics-urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored."

From 1920 to 1921, foreign trade was cut in half and prices in the U.S. fell by more than 20%.

Today, Hoover's advice would have been gladly accepted and instituted. But a different ethic prevailed in the Harding Administration in 1920.

"Instead of ‘fiscal stimulus,' Harding cut the government's budget nearly in half between 1920 and 1922. The rest of Harding's approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve's activity, moreover, was hardly noticeable. As one economic historian puts it, "Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction."

Resisting the Intervention Urge

Today, policy makers would denounce such a policy as economic suicide and they'd have the backing of the majority of economists and voters. Tightening the purse strings and letting companies and consumers fend for themselves without the help of government cash would not be politically popular.

But then a strange thing happened.

"By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and was only 2.4 percent by 1923," according to Woods.

"In 1920-21," writes economist Benjamin Anderson, "we took our losses, we readjusted our financial structure, we endured our depression, and in August 1921 we started up again. . . . The rally in business production and employment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise. It was not based on governmental policy designed to make business good."

As Thomas Woods explains, "The federal government [of 1920-21] did not do what Keynesian economists ever since have urged it to do: run unbalanced budgets and prime the pump through increased expenditures. Rather, there prevailed the old-fashioned view that government should keep spending and taxation low and reduce the public debt."

Even in 1920, Harding's laissez-faire approach attracted significant opposition from economists who believed intervention was the right approach, according to Woods. And few presidents before or since have been subjected to the degree of ridicule that President Warren Harding had to endure. His 1920 Republican Presidential Nomination Acceptance Speech provides some clues as to why.

"We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens but because it will be an example to stimulate thrift and economy in private life.

Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn't been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations."

Figure 1 - Chart of the 46% drop in stock prices from 1919 through 1921 to the nearly 500% boom that followed over the subsequent eight years. Chart by GenesisFT.com.

Can you imagine a political leader giving a similar speech today? But as much as this approach counters the prevailing conventional wisdom, the recovery that it elicited in the early 1920s was nothing short of phenomenal.

Chaining the Tiger

From 1922 through 1929, the U.S. gross national product rose 40%, from $74.1 billion to $103.1 billion and the federal government ran a surplus budget. Unemployment remained low, between 3 and 4%, and per capita income rose from $641 in 1921 to $847 in 1929. As we see from Figure 1 above, after shedding 46% in value between 1919 and 1920, the Dow managed an incredible 500% gain over the next eight years that dwarfs any subsequent eight-year rally.

Such a recovery was possible only because the market had been allowed to work and the economy cleared of uncompetitive companies run by inept managers and debt levels had been significantly reduced. This created an environment that stimulated new business and economic growth, in addition to generating rapid job growth and fueling consumer confidence.

But there was one undeniable side-effect of this and every other sustainable recovery. While the average per capita income rose 35.3% from 1920 and 1929, it jumped 75% for the top 1% income earners. And it is this reality that present-day policy makers find so intolerable. Today's politicians would rather risk national economic health than allow the rich to benefit unfairly. It is the same intervention ideology that would see the tiger fettered with chains to give the gazelle a better chance during the hunt.

Don't get me wrong, I'm all in favor of helping the poor. But how does keeping moribund companies on government mandated life-support and indenturing our children and children's children with debt to help the poor, especially if it increases their number longer-term? And even if these policies did work, how many would prefer to live in a world dominated by government committees that have the power to decide which businesses should survive and which should fail using your tax dollars to play Santa Claus?

Related Stories and Links:

House Prices Are Creeping Up, But It May Not Last
http://www.economist.com/businessfinance/displaystory.cfm?story_id=14462419

Safe as Houses - Interactive home price graph
http://ow.ly/rSoG

Warren Harding and the Forgotten Depression of 1920 by Thomas E. Woods Jr.
http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b

Economy of the 1920s
https://www.wou.edu/las/socsci/kimjensen/ECONOMY%20OF%20THE%20TWENTIES.htm

Former Fannie Chief Credit Officer Says FHA Is $54 Billion Underwater
http://www.zerohedge.com/article/former-fannie-chief-credit-officer-says-fha-54-billion-underwater

Measured in Euros, U.S. Per Capita GDP Is Down 25% Since 2000
http://online.wsj.com/article/SB10001424052748703298004574458923186941870.html

How Currency Devaluation Can Be a Bad Thing
http://www.zerohedge.com/article/how-currency-devaluation-can-be-bad-thing

Foreclosures Mark Pace of Enduring U.S. Housing Crisis
http://www.reuters.com/article/domesticNews/idUSTRE59705J20091008?sp=true

Foreclosure Sales in Limbo Over Title Issue
http://www.boston.com/business/articles/2009/10/09/title_troubles_leave_some_foreclosure_sales_in_limbo/

More Difficult Than Timing the Market

My wife left for a well-deserved vacation to Puerto Rico last Tuesday, so I have been playing both Mom and Dad. My kids are very involved in athletics and love to play basketball and soccer. The month of October is just nuts because Sarah has three different teams that overlap during the month, so she is currently playing on 2 different basketball teams and one soccer team. Annabelle is fortunately only playing on one soccer team at the moment.

The day that my wife left for Puerto Rico, Annabelle began vomiting and running a high fever, so I had a kid at home most of last week. Needless to say, I didn't get a lot done working from home, but have worked the entire weekend trying to catch up. I have no idea how single parent families function. Being a single parent in this day and age makes my job of making money in up and down markets seem like a walk in the park. The next time I complain about how hard it is, please remind me to reread this letter.

Working to grow your wealth,

John M. McClure
President & CEO
ProfitScore Capital Management, Inc.

P.S. If you would like to hire us to help you navigate this difficult bear market, below are three ways to contact us:

Complete our Private Client Group request form by clicking here http://profitscore.com/clientgroup.aspx and submitting your contact information. (This is the most preferred method.)
Call us directly at (800) 731-5690.
Simply send us an email to info @ profitscore.com.

Someone will contact you within 24 hours of receiving your information.

A Gusher Of Federal Money...

ChuckButler — Wed, 19 Aug 2009 18:23:37 GMT

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.........

In This Issue..

* No currency movement to speak of...
* Buffett calls out the deficits...
* PIMCO does too!
* SNB selling francs to stem gains.....

And Now... Today's Pfennig!

A Gusher Of Federal Money...

Good day... And a Wonderful Wednesday to you! Another day with the medicine in my knee and it feels better yet today... I did have to ice it last night though, I guess I'm still not out of the woods here, but I can see the exit!

There was very little in the way of movement in the currencies yesterday. The euro moved to 1.4150, but was brought back down to the 1.41 handle overnight. Stocks rebounded yesterday, which gave a few risk takers the intestinal fortitude to dip their toes back into the risk assets water... But there just weren't enough of them to give the currencies the push they deserved to get.

OK... I gone for a few minutes, but I'm back now... My all-time fave Journey song was on the radio, so I had to stop to sing along. As always it's a good thing there's no one else here with me in the early morning! Oh! My fave Journey song? I knew you were wondering... The Girl Can't Help It...

Sorry about that tangent, but, you know me, I just type what's on my mind! But, back to currencies we go!

In a classic case of "The Markets do what they're supposed to do... Just not when" There are more than a handful of very well educated people and well respected investor types that have see the writing on the wall for the dollar... But... The markets have decided that it's just not the right time...

This is what I always say about diversification folks... It's the Hedge or insurance if you will that the Markets do what they're supposed to do... Now! Or whenever it is they do it... There won't be any tornado warning sirens, it will just happen... And you'll either be diversified with a portion of your investment portfolio out of the dollar or you won't... The great thing about this country is that you have the freedom to choose what goes in your investment portfolio... That is at least right now you do...

The reason this whole idea came to light for me this morning is a story that appeared on the Bloomie that was a reprint from a NY newspaper that I refuse to mention. The title line on the story goes like this: "Buffett Says U.S. Federal Debt Poses Risks to Economy, Dollar." OK, so you know that this had to pique my interest, eh?

Calling it the "gusher of federal money"... Buffett had this to say... "The U.S. must address the massive amounts of "monetary medicine" that have been pumped into the financial system and now pose threats to the world's largest economy and its currency."

So... Just chalk this down to yet another Big Kahuna, that sees the writing on the wall for the dollar, but the time is not right... That makes me think of those old wine commercials that would say, "we will sell no wine before its time"...

The folks over at PIMCO (Pacific Investment Management Co), the world's largest bond fund, also believe that the dollar will weaken as the U.S. pumps "massive" amounts of money into the economy. They even go further, in a letter to customers, saying that the drop of the dollar will come mostly against the emerging market currencies. "the greenback is losing its status as the world's reserve currency, said Curtis Melbourne, a PIMCO portfolio-manager. He went on to say... "Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure."

WOW! Isn't this what I always say to you... Always, always be yourself, no wait! I always say to use dollar strength as opportunities to buy at cheaper levels! But the really funny thing that I saw was this... A reader sent a link to this story from PIMCO to me... And said... "Maybe if they read the pfennig they would have had a clue before today?" HAHAHAHAHAHA! That's absolutely correct! And I'll tell you this... A lot of Big Houses have people in research and trading desks that read the Pfennig each day...

There's more risk aversion creeping into the markets overnight (thus the drop back to 1.41 in the euro we just talked about), as the Shanghai Index fell -4.3% overnight... That weighed on European stocks this morning, and will carry over to U.S. stocks most likely...

The data cupboard has been emptied out and is looking to get restocked today... So the only thing besides sentiment moving the markets today will be the direction of stocks...

Talk about being tied to China... The Aussie dollar (A$) pushed to 83-cents yesterday before the rot on the Shanghai Index's vine was exposed... And the A$ is back to 82-cents this morning...

And... Just to confirm one more time that the Risk Aversion campers have taken over the campground, Japanese yen is the strongest it has been in weeks, looking as though it will take out the 94 handle... Feeling stronger every day, I know I'm all right now...

One currency that seems to "hang in there" the most, with no upside or downside to speak of, is the Swiss franc... Wanna know why? It's not because the Swiss National Bank (SNB) has warned the markets about franc strength... It's because the SNB has been sell francs every time it begins to move higher... SNB member Thomas Jordan was interviewed yesterday, and he confirmed what the markets had suspected for some time now, and that is that the SNB was selling francs to stem gains...

You know... I don't like it when a country's Central Bank sells its own currency... You may recall that the Reserve Bank of Australia (RBA) has done this in the past to keep their currency from moving too high too fast. This is where I think Central Banks overstep their job description... They are supposed to protect the value of the currency... NOT harm the value of their currency! I understand what these Central Banks are attempting to do here, it still doesn't mean that I have to like it!

Speaking of Central Banks... The cartel, I mean the Fed Reserve, has been keeping very quiet recently... I think that since Big Ben Bernanke told Congress that he had no idea where $500 Billion dollars that left the Fed went, he's doing damage control... He is up for re-appointment in January, and that statement won't be a gold star on his resume', eh? I was reading my friend, John Mauldin's weekly letter this past weekend, and he mentioned that some pretty important people that are "in the know" made a bet that Big Ben won't get re-appointed by the President in January... WOW! One and done for the helicopter Ben? I'll have to see that to believe it, as he has gone along with all the back room deals, brokerage sales, and changes to power that the administration is orchestrating... Whatever administration it was or is... Doesn't matter folks... There's been no change, except for the different color of lipstick on the pig...

Speaking of such a thing... That was the title of my presentation to that HUGE crowd of people in Vancouver at the Agora Financial Reserve's Wealth Symposium last month... That presentation was so well received, that I'm using it again in San Francisco on Friday... Updating it of course! Right Jason? And that is... "Applying a different color of lipstick to the pig"... Of course long time readers know that I've used the term: you can put lipstick on a pig, but it's still a pig; for a long time, and way before it became popular last fall during the election. The pigs in this case are the deficit and the dollar...

For instance... The deficit continues to grow to record levels each day, but is Washington D.C. addressing it? NO! they have decided to place all their attention on another item that's taking all of their time and efforts. Just applying a different colored lipstick to the pig, folks... That's all it is...

We learn these things in media training... To divert... To something you want to talk about... That's what's happening here...

A long time reader sent me some notes yesterday, and this one snippet I think addresses this in its entirety... "Here we are with the Japanese experience fresh on our doorstep, and we (or at least our government) is doing almost exactly the same thing. REFUSING to acknowledge weak balance sheets, denying reality, and virtually guarantying that the problems will continue and get worse."

OK... Enough of that! I could get started down a road that would lead to by blood pressure shooting through the roof, so... Let's not go there!

We haven't heard the term "green shoots" from Big Ben lately either... Again, I think that once you get the taste of your foot being in your mouth, you don't want to experience that again! Remember when I told you that Big Ben's "green shoots" were nothing but nut grass, weeds if you will? Here's the image I would get whenever Big Ben or the copy cat media types would mention "green shoots"... A guy feels ravenously hungry late at night and raids the fridge. All that's in there is a plate covered with aluminum foil. He removes the foil and finds a putrid piece of meat, covered with mold. He holds his nose and takes a close look. "Great", he says, "green shoots"... (OK, I didn't make that up, a reader sent me that note, and I told him that I definitely would use it in the Pfennig!)

I don't recall how long ago it was that I said this, but I do know that I said this at some point in the past... And that is that the so called recession that we're in is really a depression, and each time it looks like we're going to come out, we fall back... I think I even said that we could have a quarter of positive growth, only to fall back to negative the following quarter... Let's face it folks, this is a depression, not a recession...

Yesterday's data cupboard had the semi-stupid PPI (wholesale inflation) print for July, and the index printed a negative -.9%! Reversing June's jump to +1.8%... Year on Year, PPI is -6.8%... That spells price deflation, folks... And just means that things should be cheaper... But wait! Do you see cheaper prices? The thing I've been noticing lately is that when we send out for lunch each day, that the prices of things might not have moved, but the size of what you get sure got smaller... Which means that we're paying more for less! Not less for more! Something is awry here don't you think?

We also saw Housing Starts and Building Permits, which I carried on about yesterday... Well, they did not expand like forecast, but fell in numbers instead. Housing Starts were forecast to be 599,000, and came in at 581,000. And Building Permits were forecast to be 577,000 and came in at 560,000... Not as lofty as the forecasts, but still... 581,000 new housing starts when we are already choking on the inventory of houses that we have... I don't get it... I really don't...

I'm watching the euro pop up here in the past few minutes gaining 1/4 euro, which isn't much, I'm well aware of... I'm just marking the move up...

Currencies today 8/19/09: A$ .8220, kiwi .6705, C$ .9030, euro 1.4135, sterling 1.6430, Swiss .9315, rand 8.0750, krone 6.1325, SEK 7.2475, forint 194, zloty 2.9550, koruna 18.16, yen 94.10, sing 1.4505, HKD 7.7515, INR 48.80, China 6.8341, pesos 12.96, BRL 1.8435, dollar index 79.10, Oil $68.75, 10-yr 3.44%, Silver $13.65, and Gold... $935.25

That's it for today... And for me this week, and through to next Tuesday. Chris will have the conn on the Pfennig those 3 days. I'll be traveling tomorrow, and miss my darling daughter Dawn's 30th birthday... Tomorrow is also our little Christine's oldest son, Jamieson's birthday! So Happy Birthday to you two! I have two videos to do today, so I have to get ready to do those this morning. Remember when I told you that I would be doing videos where I answer questions that are sent it, for the subscribers of the Currency Capitalist? Well, we've been doing them for over a month now. I think it's going well. I mean I'm just myself, answering questions to the best of my ability, nothing more, nothing less... Our BRIC MarketSafe CD was quite the in-demand issue! And like all issues that we've done in the past, we saw a flood of applicants at the last moment... The cut off was yesterday, and our people were here late last night still approving on-line applications. WOW! A great job by everyone that was associated with this issue from products, to marketing, to legal, to operations, the newsletter writers, and of course the sales desk... And that guy that came up with the idea in the first place! OK... I've carried on enough here... Time to go! I hope your Wednesday is Wonderful, and I'll talk to you next on Tuesday next week!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Watch One Particular Stock Market Guru!

RichardSchwartz — Fri, 14 Aug 2009 13:36:00 GMT

AN HISTORIC GURU VIEW. Written Friday morning, August 14^th, 2009.

Being in and around the stock market for the last 35 years -- I can’t believe it’s been that long! -- I’ve seen market gurus burn hot and cold. In my early years I was in more of a daze, doing ancillary brokerage jobs rather than following the stock market closely, just trying to figure out the whole brokerage industry. What a stock broker did, etc. Did I want to be one? Would I be recommending my own stuff? And again not being in New York city, the epicenter of finance, I was on the outside looking in. Even today that’s ones largest hurdle. So anyone wanting into the business I’d advise going where the action is, New York or another financial center like London. If not New York or London are not for you, find a big firm, say a big mutual fund family and get to its headquarters, be it in Boston or Singapore, etc. Anyway, back to point.

Granville & More. I’ve seen Joe Granville burn hot (and drop his pants to show stock quotes on his boxers and walk on water on a hidden board) and turn ice cold in popularity and heard about Jim Dines. I used to follow that curly haired woman guru, yes, that image is bringing her name back, Elaine Garzarelli. For many years I read Richard Russell, one of the deans of newsletter writers and whom I modeled my own letter after, took sample letters to numerous letter writers including Ned Davis, Dan Sullivan, Harry Schultz, Norman Fosback, Lou Navellier, .Marty Zweig, Stan Weinstein and unearthed Ted Warren’s one book (one of my favorites) and read everything I could find. I like William O’Neal’s approach and regular readers know I use and recommend his paper and its IBD 100 list. Having an economics background I gravitated to Ed Hyman’s work and read a number of economist A. Gary Shilling’s books. And read John Naisbitt’s Megatrends series with his long range projections. I’ve read and studied all the Dow theorists from Dow to Hamilton to Rhea to E. George Schaefer to Russell. I continue to read many new guys too, Alexander Elder, “Trader Vic” Sperandeo and on and on. Etc., etc. etc. Many unknown letter writers too. I really could throw a ton of names around if I sat down and reviewed my stock market library and mine and other’s old market letters. So I’ve seen many gurus come and go and burn hot and cold. But one who I continue to admire and track is Bob Prechter of Elliott Wave fame who was the #1 guru way back when. He was a major market mover like Joe Granville. While he uses charts -- which Wall Street loves to disdain, I think that’s mainstream Wall Street spinning a veil and case on the public to justify their big bucks, they all surreptitiously use ‘em -- Mr. Prechter also is now ties market swings to societal mood changes (which makes good sense to me). And is in the process of attempting to add and formalize to current investment analysis the concept of tying stock market trends to mood shifts. “Go for it Bob!”

SCHWARTZ RECOMMENDATION: TRACK MR. PRECHTER GOING FORWARD!

Anyway, I have to strongly recommend keeping one eye peeled on what Mr. Prechter is advising right now. Especially now! I’ve related the histories of Granville and Dines going terribly wrong in this letter, getting stubbornly bearish right at major market bottoms, so I realize the danger now for Prechter in remaining so adamantly bearish but I can’t fault his analysis, what he’s saying and my 35 years in the business tells me to not pooh-pooh his foresight. After reading everyone I can and adding in own my market intuition formed over those 35 years in and around the stock market, I’d say he’s on track. So I’m with him and the other bears, Jim Rogers, Marc Faber, Gary Shilling, the Comstock guys and others out there, still recommending extreme caution going forward. Remember us outsiders were bearish but correct at the July through October 2007 bull market peak while most of those bullish today were also bullish back then and missed that major top completely. Amazing! I mean even after the subprime disaster unfolding ahead became plain in August 2007 and on the head fake rally to new highs in October 2007 they remained Pollyannaishly [sic] blinded. (And no, for all you individual investor skeptics out there about Mr. Prechter’s work, and I know there’s a lot by reading the responses and comments now added at the end of most all Internet carried research, no I’m not a shill for Prechter. Never met, emailed or corresponded with him at all.)

So, yes, play this rally which will likely run longer than most bears think, but stay near the exit; somehow!

For a FREE sample of my daily, emailed stock market letter and advisory, email me at RichardStk@aol.com.

Stocks Have Risen When The Economy Is Down

RichardSchwartz — Mon, 03 Aug 2009 14:49:00 GMT

THE BIG PICTURE

The key thought: History shows the economy can be bad and the stock market good! Understanding that one idea is key to making a logical decision about the stock market here. I tried to get this across at Elizabeth’s 9^th birthday party to the family Saturday. The stock market is climbing its “wall of worry.”

THE SITUATION. My stock market and economic history studies of the Great Depression of the 1930s convinced me that stock market can rise while the underlying economy remains in a very weak condition. Because it’s happened before. In the 1930s depression, even while US unemployment remained at horrific, double digit levels for the whole decade and with few safety nets in place to help destitute Americans and with great ongoing divisiveness between political parties, the stock market posted a five year bull market run up, from 1932 to 1937. So, yes, there can exist a great disparity between the stock market and the economy. This confounding, confusing conundrum can exist as long as the economy is not sinking and/or when the economy stabilizes, no matter at whatever low level of economy activity. I believe that’s because the US capitalistic economy is essentially revitalizing and self-healing. Helped today, because over our history our capitalistic system has grown so large and diverse. In other words, first because Americans, with our continued open borders to any nationality, are a breed of extremely ingenious risk takers and thus will find ways to survive and prosper if allowed to do so. If, from time to time, when capitalism gets in a bind, it gets jumpstarted. Or gets the table reset when it knocked awry. Secondly, because today, there just are so many different industries, businesses, ideas, innovations in all parts and regions of America. Just meaning that while construction and manufacturing are down, maybe technology and the media are up. Or while Michigan is down, Tennessee is up. Or while big business suffers, smaller businesses spring up. I’m too provincial to see all this metamorphosis first hand and thus explain this concept more completely but what I see today is an America in downsizing mode, say moving to a rightsizing scale, but not in total collapse mode. Just like China, America in our own way is using this crisis, individuals one by one, businesses one by one, even the government is adjusting, although not totally because the government is itself the ultimate safety net when any major crisis hits. Our government, we’ve learned from past crises, is the rarely needed (thank goodness!) jump start provider, booster or table setter. Thus today America is using this financial crisis to rid our economic system of the bloat, the fat, all the long built up excesses, our bad behaviors and habits, particularly our overspending, even the corruption which always builds up during “unfettered capitalism,” seemingly prosperous but under the surface unhealthy, unsustainable times. Exactly why economists look at recessions as normal, healthy and needed cleansing events and why throwing money at any and all past downturns in recent decades led to this larger than life recent disastrous event. Schwartz View: My conclusion thus -- to get back to my opening statement that stock markets can rise while our economy is down and dirty, weak and lackluster and in substantial downsizing mode -- is that what investors mainly have to fear today is indeed fear itself. That fear partially coming from not being able to understand how the stock market can rise as we read about and see big economic trouble all around us. As I see it that’s investor’s biggest bugaboo now. We all know or should know that, as William O’Neil, founder of Investor’s Business Daily has always stressed, that success favors the optimist. Now I don’t mean the Pollyannas, I won’t besmirch the many of this ilk whom get be angry, they got their comeuppances by getting blindsided and riding the stock market down for 17 straight months between October 2007 and March 2009. But today, since we’ve moved past the bankruptcy risk, at least for the time being, no guarantees about future shocks knocking not us back down, we should overcome our fears and our misunderstanding of the economy and stock market relationship and again participate in the stock market to the extent of our own financial goals and objectives and how we’ve performed over the last two, years, during the bear market since mid-2007. To reiterate since this concept is so darn important, the hardest move to make is to buy stocks after this financial earthquake and while we see all the resulting damage around us. In other words, to separate the stock market from the economy. It’s very difficult for us investment professionals as well because every day we watch the stock market closely and/or read every update about each remaining financial problem. We all need to overcome our fears to make money during this full cycle. Easier said than done!

THE ECONOMY

The economy is so large and varied now that even with the shock and resulting dead stoppage of economic activity for many months, we’ve been able to stabilize the economy. Thanks to our government learning from our past travails and understanding its role. President Bush gets much credit but he’s gone now and thus last Friday I heard the first words uttered about an “Obama Miracle.” Pulling totally out of this massive slump is another thing and may take much time yet although we could post some surprisingly great numbers in coming months. Inventory rebuilding looks good statistically and allowing home foreclosures provides changes of ownership from the overextended to new risk takers. Still, over America’s 200+ year capitalistic history we’ve built a vibrant and reenergizing economic system so there’s always something good taking place somewhere and while the distressed and/or overbuilt areas of our economy right size the in fashion areas keep us moving forward. And our government has and is still performing admirably (sorry, I know many readers don’t agree with me), stabilizing our financial system and thus setting the stage to allow capitalism to provide us with future growth while at the same time realizing that any and all government intervention always adds additional drags on the economy and is trying hard to avoid such. While at the same time smartly tackling our long term deeply entrenched and ignored major issues and thus pointing America towards a more fundamentally sound future, remaining as one of the world’s leaders. Such as taking the lead in going green as the “clunkers for cash” program epitomizes. Americans really want to do their part and this program is providing one capitalistic way to do so. Getting polluting cars off the road while stimulating growth at the same time and in essence cutting back money supporting terrorism. I gotta love it! Schwartz View: So, we’re back on the right track in lots of ways and I’m delighted. But don’t get complacent. Please keep reading!

Please email me at RichardStk@aol.com for how the stock market will respond to the above analysis and whether, in the following THE STOCK MARKET and PORTFOLIO STRATEGY sections it’s time to buy the stock market today or not.

The Great Recession Unfolds This Way

RichardSchwartz — Tue, 28 Jul 2009 18:16:00 GMT

SCHWARTZ RECESSION CONCLUSION. Tuesday, July 28^th, 2009.

Ok, after much consideration, here’s my conclusion as to what unfolds going forward. The economy struggles through but survives the next few years. About 20% of Americans have a very, very difficult time out of work and out of hope but the other 80% make out all right. Similar to the 1930s when those with a job managed. Today the US economy is so deep and varied, meaning there is so much diversification, that there will be areas of growth and even prosperity along with much despair. The stock market, in its infinite wisdom and with its amazing discounting faculty, based on the government having prevented an all out total collapse, sees this and settles down. And this mini bull market lasts and lasts confounding the adamant bears. But somewhere along the line we get a recession within this Great Recession, just like hit America in the 1930s when we got a “depression within the depression” after a five year hiatus and stock market run up, which hit in 1937-1938 when the market crashed big time. This time it will be a recession within a recession because of all the safety nets put in place after and as a result of the Great Depression of the 1930s. What will cause this second down turn will be the other 80% of Americans retrenching. I mean the 80% of Americans who are monitoring today’s troubles but not being directly affected by today’s high and rising unemployment are continuing their current lifestyles, meaning continuing their current over spending habits without (m)any changes today. I see this going on all around me. People still working aren’t cutting back much, it’s only those rich and not so rich alike who have been struck head-on by today’s sudden economic downturn, who have been FORCED to cut back. The other 80% while being a bit more cautious are continuing their too abundant lifestyles. Myself I’m not exactly sure what will cause this second and more all-encompassing retrenchment but I believe it does lie ahead. Likely some “Black Swan” event, some unpredictable sudden shock. But the domino, rippling outward series of cutbacks now working their way through America will be partially to blame, having weakened the foundation. I must say driving through the village of New Paltz, NY this morning, probably the most vivacious and bustling town in the Catskills or mid-Hudson River valley region partially buoyed by its SUNY college, I saw more 'For Sale' and 'For Rent' and 'For Lease' signs than ever before in my ten year history living here. Ironically it’s the old paradox of thrift which may get us over time. Meaning savings is good for the individual but bad for the overall economy. For more, agree or disagree, email me at RichardStk@aol.com for a sample of my daily "learning, teaching, always evolving stock market letter and advisory service."

The Room – 07/10/2009

DavidGalland — Fri, 10 Jul 2009 17:59:00 GMT

Dear Reader,

In the June edition of The Casey Report, and again in the edition that was put to bed July 2, we warned that the U.S. equities markets were on the edge of the next leg down in the slow-motion crisis now unfolding. (You can read both issues... more here).

While there is no such thing as a sure thing, the idea that the worst could be behind the economy is almost unimaginable, given the deep structural flaws and governments doing what Doug Casey correctly calls the "exact opposite" of what they should be doing.

Namely trying to solve a debt crisis by adding more debt.

Of course, as turmoil returns to the broader stock market, investors will again scramble for "safe harbor" investments, and that spells trouble for commodities and commodity-related equities, which are viewed by many as "recovery" investments.

While it often marches to its own drummer, in June and again in July, we warned that gold, too, will be affected, though more moderately so. Looking over the price charts since June for gold and oil – among other commodities – it seems clear the correction has begun.

Even so, for the record, we see any setback to the "tangible" sector as being relatively short lived. That's because commodities are the actual stuff of life – unlike, say, flat-screen televisions, which you can hold off buying indefinitely. Food for the table, on the other hand...

As prices fall, commodity producers, long accustomed to dealing with price volatility, will reduce output to rebalance the supply/demand equation and stabilize prices at a profitable level. Of course, there are circumstances under which a producer will continue to produce, even with prices below production costs – say, to avoid the cost of shutting down and eventually restarting a mine or a well. Though not for long.

clicking here

But for many commodities today, structural issues already make any further reduction in production a quick ticket to shortages and soaring prices: copper, gasoline, sugar, cotton, and hogs, to name just a few.

Casey's Trend Trader

More about the Trend Trader here

Regardless, we see the potential for a return to a period of increased volatility in pretty much all things – including some of our favorite investments – but soon thereafter, opportunity will present itself at our collective doors.

Opportunity Knocks

Using history as our guide, after running for shelter as the next leg down in the economy unfolds, most investors will then cower there until the experts on CNBC (the same ones that completely missed this crisis in the first place) tell them it's safe to get back in the water.

Of course no one can be blamed for being extra cautious just now, and we urge you to follow the herd on that point. However, we would also urge you to remember that the herd is almost always slow to react... in getting out of fragile markets, and especially in getting back in.

At the same time that the level of risk is rising, there is a big, fat opportunity brewing as well. If you are attentive and willing to take actions that run contrary to the herd.

The source of this opportunity comes from the government's highly predictable reaction to the next wave of bad news. That reaction becomes obvious (at least to us) by asking the rhetorical question, "Confronted with steadily worsening unemployment, collapsing real estate prices, bankrupt state governments, skyrocketing bank failures, what do you think they are going to do?"

Cutting back on the spending? Letting the free market run an unfettered course? Not likely.

Instead, the president will ask the public for more patience, as his administration mans the spending pumps even more aggressively. The straws confirming that view are already in the wind; on July 7, one of President Obama's top advisors called for yet another round of stimulus.

Sure, they'll have to be increasingly clever to avoid an even stronger political backlash, but the squeeze they are now in (and, for the record, not all of it was this administration's doing) is getting tighter by the day. They have painted themselves into a corner.

And so, to use an old poker term, they are reaching the point where they'll feel they have no choice but to either fold or go "all in." You know, shoving all their chips onto the table (actually, they're your chips they are playing with, but hey...).

Given the unacceptable political consequences of folding their hand (i.e., doing nothing) and the simple truth that monetary inflation has been the default mode for handling economic downturns for many decades now, we have little doubt the government will take the "all in" approach, a desperate measure designed to buy time (at least through the next election).

And that sets up the opportunity.

Playing the Bounce

There has already been a sea change in awareness among the trading community about the seeds for monetary damage sown over the last year. And with this awareness comes increased sensitivity to further debasement of the dollar. Thus, each new announcement of stimulus lately has triggered a quicker rebound in gold and other commodities – as well as the resource-related stocks.

To be as succinct as possible, a struggle for me at all times, in the same way that we anticipated the resource sector correcting along with the broader markets, we also anticipate it to bounce back much quicker. Supporting that contention, consider the last three 25%+ corrections in the S&P versus the GDX, a gold stock ETF.

From Sep 19 to Oct 27, 2008, the S&P dropped 32%, but the GDX fell 57%. Deflation was then the watchword of the day.
From Nov 4 to Nov 20, 2008, the S&P lost 25% while the GDX fell slightly less, by a 23%. Is it really deflation we fear, the traders asked, or might this whole doubling-of-the-money-supply thing be signaling inflation?
It was during the slide in the S&P that occurred between January 1 and March 2009 that the changing tide in inflationary expectations became pronounced. During that correction, the S&P 500 lost 26%, but the GDX lost only 14% in the first two weeks of January – then roared back 33% by February 17, while the S&P continued to fall.

Subsequently, as the S&P rallied 36% between its bottom on March 9 and July 1 due to the (false) sightings of green shoots, the resource stocks added to their head start, rallying 50%.

In other words, natural resource investors who can keep their heads about them will be able to win in both scenarios: the one where the economy is falling and the government is stimulating (a certainty on both fronts), and the one where the economy begins to recover – or the masses come to believe it is.

The only scenario, in fact, that will disadvantage natural resources is if the government adopts a posture of steely-eyed free marketers that step aside and let the worst come to pass. We would contend that to be highly improbable.

Thus, the way to play things just now, as we see it, is to be cautious, but with the full expectation of aggressively buying up resource bargains before the crowds venture back out of their safe harbors. It might take a month or two (or maybe three), but it's unlikely to be much longer than that.

Investments can be made in certain physical commodities (gold and silver bullion), leveraged commodities positions (using strategic combinations of options and futures), or in selected resource equities, especially those of deeply undervalued and well-positioned companies in the precious metals and energy sectors.

In fact, the biggest challenge you'll face will be choosing between all the many opportunities we see materializing just over the horizon. But if you begin planning now, you should be ready to act when the time for action arrives.

Of course, all of the Casey Research specialty publications will make it a point to help you prepare for the next leg up in our favorite sectors. Of these, the services most dedicated to elephant hunting – namely bagging the really big returns – are Casey's International Speculator and, for especially active investors, our premium Casey's Investment Alert.]

Speaking of Unemployment

As you can see from the chart here, compliments of the monthly Data Farm feature in The Casey Report, the trend in unemployment remains solidly intact. Unemployment is now reaching a point so dire that soon it won't be reported on as further evidence of the economic slump but rather as a driving force (among many) in the ongoing collapse.

As recently as January, the government predicted that, thanks to the stimulus, the unemployment rate would top out at 8%. Despite energetic attempts to conceal the actual numbers, the official rate has still shot up to 9.5%... but the actual number is running closer to a depression-era level of 16%.

Ed. Note:

Worsening unemployment is one of those "important" things people should be paying close attention to. That's because the duration of the crisis – and sadly, the government's many exertions will result in it going on for much, much longer – means that the clock on receiving regular unemployment benefits is running out for more and more of the unemployed.

And, other than rely on the kindness of family members and friends, once the unemployment benefits dry up, what is a person to do? Well, for starters, sign up for special extended unemployment programs. Those programs are seeing a large increase in recipients. Quoting the Washington Times on the topic...

"... there were major jumps in two federal jobless programs. Workers collecting payments from the extended-benefits program increased by 65,000 to 347,000 for the week ending June 20. States also reported that 2.52 million persons were collecting Emergency Unemployment Compensation benefits, reflecting an increase of 81,000.
And this from Bloomberg...

average duration

benefits

This is a trend in motion that will stay in motion and worsen. Which means that the cost of maintaining the social safety net will only grow with each passing day. And, of course, unemployed people, no matter how willing, eventually run out of savings and have to let their debt payments – credit cards, auto loans, home equity, mortgages, etc., etc. – fall by the wayside.

In addition to exacerbating the economic downturn and, by extension, deficits, persistent and growing unemployment will soon lead to social pressure as desperate people begin to do desperate things. Riots in the streets are not out of the question.

And confronted with desperate people doing desperate things, the government will again react predictably – ginning up yet more and larger quantities of bread and circuses.

From where I sit, anything other than letting the situation self-correct in a quick and brutal crash so we can get this over and done with will result in a protracted, torturous death spiral, a negative feedback loop that will last longer than any of us can imagine.

You know what I hope? I hope I'm wrong.

Wicked Game

you can listen to it here

What Really Makes the World Go Round
(and How to Profit from It)

Understandably, people tend to think about energy in terms of the cost of gasoline at the pump or the electricity bills they get each month.

But energy is much more than that. It's the very juice that allowed humankind to graduate beyond being just another dumb animal. Without exaggeration, it's the critical component in most human endeavors, touching everyone and virtually everything that makes up the modern life.

Further, a solid case can be made that each discovery of new and more efficient energy sources coincides with humankinds most stunning advances: in food production, population growth, health, transportation, technology.

Case in point, consider that the rise of nearly unlimited oil and natural gas as mass energy sources began in earnest in the 1860s (unseating whale oil, which was quite limited). At that time the U.S. Civil War (1861-1865) was fought by men on horseback with swords and muzzle-loaded firearms.

Almost impossibly, just 80 years later Paul Tibbets dropped an atomic bomb on Hiroshima. And just 100 years after Lee surrendered his sword at Appomattox, man set foot on the moon.

Simply, the story of energy is step-by-step the story of the ascent of humankind.

I mention this as a circuitous route to make the point that the constant quest to maximize existing energy sources, and to find new ones, is a quest that will never end... at least not until the ultimate breakthrough occurs that allows us to, for example, efficiently harness energy from the sun.

But that is then, and this is now. And right now the energy sector is huge, diverse, and geographically fragmented.

And because of its day in, day out importance, it is also extremely rich in opportunities for investors armed with the right information.

On that front, by now you should have received an invitation to our first ever Casey Research Energy & Special Situations Summit, which is being held in Denver, September 18 to 20.

The registration site for the event, which already boasts one of our most impressive faculty line-ups yet, is now open. Access our summit site by clicking here.

At the event, you'll get concise briefings on specific opportunities in everything from green energy to lithium technology, and from conventional oil and gas in North America, to unconventional oil and gas in Europe. Coal, uranium, geothermal, hydropower, solar, and much, much more will be covered (and, where appropriate, debunked) and the very best opportunities to get positioned for energy profits revealed.

As for the "special situations" in the summit's title, that refers to first-ever programs on emerging homerun opportunities in areas such as rare elements.

All signs are that it will be one of our best – and maybe even our best – summits ever.

As always, it will be a great opportunity for you to meet members of the Casey Research team and to share notes with like-minded individuals. If you've ever attended one of our summits, you already know what I'm talking about. If you haven't, then this is a great chance to find out.

As usual, to keep these events congenial and collegial, we always limit the attendance. Every summit to date has been a sell-out... so, please don't wait to check your schedule and to register.

See you in Denver!

Statehouses in the Poorhouses

People are not the only ones feeling the pinch. As has been widely reported, so, too, have been the states. This excerpt from the Washington Post may not say it all, but it says a lot...

David again. I can well remember the sense of incredulousness I felt back in 2005 when watching state governments, flush with tax loot as a result of booming real estate and investment markets, passing lavish new spending programs. The financial rationale for the many new programs at the time could best be described as "Happy Times Are Here Forever!"

Well, now they are learning the hard way that they are not, leaving the government worker unions scrambling to retain their grips on the public purse. In California, where a pitched battle has been going on over the soaring deficits, the government unions are taking the stance that their backs are up against the wall. That they have pretty much cut all they can cut and still provide the services that the helpless public demands of them. A contention that someone with a brain and a lot of time on their hands answered by assembling the following list of California state agencies.

California Academic Performance Index (API) * California Access for Infants and Mothers * California Acupuncture Board * California Administrative Office of the Courts * California Adoptions Branch * California African American Museum * California Agricultural Export Program * California Agricultural Labor Relations Board * California Agricultural Statistics Service * California Air Resources Board (CARB) * California Allocation Board * California Alternative Energy and Advanced Transportation Financing Authority * California Animal Health and Food Safety Services * California Anti-Terrorism Information Center * California Apprenticeship Council * California Arbitration Certification Program * California Architects Board * California Area VI Developmental Disabilities Board * California Arts Council * California Asian Pacific Islander Legislative Caucus * California Assembly Democratic Caucus * California Assembly Republican Caucus * California Athletic Commission * California Attorney General * California Bay Conservation and Development Commission * California Bay-Delta Authority * California Bay-Delta Office * California Biodiversity Council * California Board for Geologists and Geophysicists * California Board for Professional Engineers and Land Surveyors * California Board of Accountancy * California Board of Barbering and Cosmetology * California Board of Behavioral Sciences * California Board of Chiropractic Examiners * California Board of Equalization (BOE) * California Board of Forestry and Fire Protection * California Board of Guide Dogs for the Blind * California Board of Occupational Therapy * California Board of Optometry * California Board of Pharmacy * California Board of Podiatric Medicine * California Board of Prison Terms * California Board of Psychology * California Board of Registered Nursing * California Board of Trustees * California Board of Vocational Nursing and Psychiatric Technicians * California Braille and Talking Book Library * California Building Standards Commission * California Bureau for Private Postsecondary and Vocational Education * California Bureau of Automotive Repair * California Bureau of Electronic and Appliance Repair * California Bureau of Home Furnishings and Thermal Insulation * California Bureau of Naturopathic Medicine * California Bureau of Security and Investigative Services * California Bureau of State Audits * California Business Agency * California Business Investment Services (CalBIS) * California Business Permit Information (CalGOLD) * California Business Portal * California Business, Transportation and Housing Agency * California Cal Grants * California CalJOBS * California Cal-Learn Program * California CalVet Home Loan Program * California Career Resource Network * California Cemetery and Funeral Bureau * California Center for Analytical Chemistry * California Center for Distributed Learning * California Center for Teaching Careers (Teach California) * California Chancellor's Office * California Charter Schools * California Children and Families Commission * California Children and Family Services Division * California Citizens Compensation Commission * California Civil Rights Bureau * California Coastal Commission * California Coastal Conservancy * California Code of Regulations * California Collaborative Projects with UC Davis * California Commission for Jobs and Economic Growth * California Commission on Aging * California Commission on Health and Safety and Workers' Compensation * California Commission on Judicial Performance * California Commission on State Mandates * California Commission on Status of Women * California Commission on Teacher Credentialing * California Commission on the Status of Women * California Committee on Dental Auxiliaries * California Community Colleges Chancellor's Office, Junior Colleges * California Community Colleges Chancellor's Office * California Complaint Mediation Program * California Conservation Corps * California Constitution Revision Commission * California Consumer Hotline * California Consumer Information Center * California Consumer Information * California Consumer Services Division * California Consumers and Families Agency * California Contractors State License Board * California Corrections Standards Authority * California Council for the Humanities * California Council on Criminal Justice * California Council on Developmental Disabilities * California Court Reporters Board * California Courts of Appeal * California Crime and Violence Prevention Center * California Criminal Justice Statistics Center * California Criminalistic Institute Forensic Library * California CSGnet Network Management * California Cultural and Historical Endowment * California Cultural Resources Division * California Curriculum and Instructional Leadership Branch * California Data Exchange Center * California Data Management Division * California Debt and Investment Advisory Commission * California Delta Protection Commission * California Democratic Caucus * California Demographic Research Unit * California Dental Auxiliaries * California Department of Aging * California Department of Alcohol and Drug Programs * California Department of Alcoholic Beverage Control Appeals Board * California Department of Alcoholic Beverage Control * California Department of Boating and Waterways (Cal Boating) * California Department of Child Support Services (CDCSS) * California Department of Community Services and Development * California Department of Conservation * California Department of Consumer Affairs * California Department of Corporations * California Department of Corrections and Rehabilitation * California Department of Developmental Services * California Department of Education * California Department of Fair Employment and Housing * California Department of Finance * California Department of Financial Institutions * California Department of Fish and Game * California Department of Food and Agriculture * California Department of Forestry and Fire Protection (CDF) * California Department of General Services * California Department of General Services, Office of State Publishing * California Department of Health Care Services * California Department of Housing and Community Development * California Department of Industrial Relations (DIR) * California Department of Insurance * California Department of Justice Firearms Division * California Department of Justice Opinion Unit * California Department of Justice, Consumer Information, Public Inquiry Unit * California Department of Justice * California Department of Managed Health Care * California Department of Mental Health * California Department of Motor Vehicles (DMV) * California Department of Personnel Administration * California Department of Pesticide Regulation * California Department of Public Health * California Department of Real Estate * California Department of Rehabilitation * California Department of Social Services Adoptions Branch * California Department of Social Services * California Department of Technology Services Training Center (DTSTC) * California Department of Technology Services (DTS) * California Department of Toxic Substances Control * California Department of Transportation (Caltrans) * California Department of Veterans Affairs (CalVets) * California Department of Water Resources * California Departmento de Vehiculos Motorizados * California Digital Library * California Disabled Veteran Business Enterprise Certification Program * California Division of Apprenticeship Standards * California Division of Codes and Standards * California Division of Communicable Disease Control * California Division of Engineering * California Division of Environmental and Occupational Disease Control * California Division of Gambling Control * California Division of Housing Policy Development * California Division of Labor Standards Enforcement * California Division of Labor Statistics and Research * California Division of Land and Right of Way * California Division of Land Resource Protection * California Division of Law Enforcement General Library * California Division of Measurement Standards * California Division of Mines and Geology * California Division of Occupational Safety and Health (Cal/OSHA) * California Division of Oil, Gas and Geothermal Resources * California Division of Planning and Local Assistance * California Division of Recycling * California Division of Safety of Dams * California Division of the State Architect * California Division of Tourism * California Division of Workers' Compensation Medical Unit * California Division of Workers' Compensation * California Economic Assistance, Business and Community Resources * California Economic Strategy Panel * California Education and Training Agency * California Education Audit Appeals Panel * California Educational Facilities Authority * California Elections Division * California Electricity Oversight Board * California Emergency Management Agency * California Emergency Medical Services Authority * California Employment Development Department (EDD) * California Employment Information State Jobs * California Employment Training Panel * California Energy Commission * California Environment and Natural Resources Agency * California Environmental Protection Agency (Cal/EPA) * California Environmental Resources Evaluation System (CERES) * California Executive Office * California Export Laboratory Services * California Exposition and State Fair (Cal Expo) * California Fair Political Practices Commission * California Fairs and Expositions Division * California Film Commission * California Fire and Resource Assessment Program * California Firearms Division * California Fiscal Services * California Fish and Game Commission * California Fisheries Program Branch * California Floodplain Management * California Foster Youth Help * California Franchise Tax Board (FTB) * California Fraud Division * California Gambling Control Commission * California Geographic Information Systems Council (GIS) * California Geological Survey * California Government Claims and Victim Compensation Board * California Governor's Committee for Employment of Disabled Persons * California Governor's Mentoring Partnership * California Governor's Office of Emergency Services * California Governor's Office of Homeland Security * California Governor's Office of Planning and Research * California Governor's Office * California Grant and Enterprise Zone Programs HCD Loan * California Health and Human Services Agency * California Health and Safety Agency * California Healthy Families Program * California Hearing Aid Dispensers Bureau * California High-Speed Rail Authority * California Highway Patrol (CHP) * California History and Culture Agency * California Horse Racing Board * California Housing Finance Agency * California Indoor Air Quality Program * California Industrial Development Financing Advisory Commission * California Industrial Welfare Commission * California InFoPeople * California Information Center for the Environment * California Infrastructure and Economic Development Bank (I-Bank) * California Inspection Services * California Institute for County Government * California Institute for Education Reform * California Integrated Waste Management Board * California Interagency Ecological Program * California Job Service * California Junta Estatal de Personal * California Labor and Employment Agency * California Labor and Workforce Development Agency * California Labor Market Information Division * California Land Use Planning Information Network (LUPIN) * California Lands Commission * California Landscape Architects Technical Committee * California Latino Legislative Caucus * California Law Enforcement Branch * California Law Enforcement General Library * California Law Revision Commission * California Legislative Analyst's Office * California Legislative Black Caucus * California Legislative Counsel * California Legislative Division * California Legislative Information * California Legislative Lesbian, Gay , Bisexual, and Transgender (LGBT) Caucus * California Legislature Internet Caucus * California Library Development Services * California License and Revenue Branch * California Major Risk Medical Insurance Program * California Managed Risk Medical Insurance Board * California Maritime Academy * California Marketing Services * California Measurement Standards * California Medical Assistance Commission * California Medical Care Services * California Military Department * California Mining and Geology Board * California Museum for History, Women, and the Arts * California Museum Resource Center * California National Guard * California Native American Heritage Commission * California Natural Community Conservation Planning Program * California New Motor Vehicle Board * California Nursing Home Administrator Program * California Occupational Safety and Health Appeals Board * California Occupational Safety and Health Standards Board * California Ocean Resources Management Program * California Office of Administrative Hearings * California Office of Administrative Law * California Office of AIDS * California Office of Binational Border Health * California Office of Child Abuse Prevention * California Office of Deaf Access * California Office of Emergency Services (OES) * California Office of Environmental Health Hazard Assessment * California Office of Fiscal Services * California Office of Fleet Administration * California Office of Health Insurance Portability and Accountability Act (HIPAA) Implementation (CalOHI) * California Office of Historic Preservation * California Office of Homeland Security * California Office of Human Resources * California Office of Legal Services * California Office of Legislation * California Office of Lieutenant Governor * California Office of Military and Aerospace Support * California Office of Mine Reclamation * California Office of Natural Resource Education * California Office of Privacy Protection * California Office of Public School Construction * California Office of Real Estate Appraisers * California Office of Risk and Insurance Management * California Office of Services to the Blind * California Office of Spill Prevention and Response * California Office of State Publishing (OSP) * California Office of Statewide Health Planning and Development * California Office of Systems Integration * California Office of the Inspector General * California Office of the Ombudsman * California Office of the Patient Advocate * California Office of the President * California Office of the Secretary for Education * California Office of the State Fire Marshal * California Office of the State Public Defender * California Office of Traffic Safety * California Office of Vital Records * California Online Directory * California Operations Control Office * California Opinion Unit * California Outreach and Technical Assistance Network (OTAN) * California Park and Recreation Commission * California Peace Officer Standards and Training (POST) * California Performance Review (CPR) * California Permit Information for Business (CalGOLD) * California Physical Therapy Board * California Physician Assistant Committee * California Plant Health and Pest Prevention Services * California Policy and Evaluation Division * California Political Reform Division * California Pollution Control Financing Authority * California Polytechnic State University, San Luis Obispo * California Postsecondary Education Commission * California Prevention Services * California Primary Care and Family Health * California Prison Industry Authority * California Procurement Division * California Public Employees' Retirement System (CalPERS) * California Public Employment Relations Board (PERB) * California Public Utilities Commission (PUC) * California Real Estate Services Division * California Refugee Programs Branch * California Regional Water Quality Control Boards * California Registered Veterinary Technician Committee * California Registrar of Charitable Trusts * California Republican Caucus * California Research and Development Division * California Research Bureau * California Resources Agency * California Respiratory Care Board * California Rivers Assessment * California Rural Health Policy Council * California Safe Schools * California San Francisco Bay Conservation and Development Commission * California San Gabriel and Lower Los Angeles Rivers and Mountains Conservancy * California San Joaquin River Conservancy * California School to Career * California Science Center * California Scripps Institution of Oceanography * California Secretary of State Business Portal * California Secretary of State * California Seismic Safety Commission * California Self Insurance Plans (SIP) * California Senate Office of Research * California Small Business and Disabled Veteran Business Enterprise Certification Program * California Small Business Development Center Program * California Smart Growth Caucus * California Smog Check Information Center * California Spatial Information Library * California Special Education Division * California Speech-Language Pathology and Audiology Board * California Standardized Testing and Reporting (STAR) * California Standards and Assessment Division * California State Administrative Manual (SAM) * California State Allocation Board * California State and Consumer Services Agency * California State Architect * California State Archives * California State Assembly * California State Association of Counties (CSAC) *0ACalifornia State Board of Education * California State Board of Food and Agriculture * California Office of the Chief Information Officer (OCIO) * California State Children's Trust Fund * California State Compensation Insurance Fund * California State Contracts Register Program * California State Contracts Register * California State Controller * California State Council on Developmental Disabilities (SCDD) * California State Disability Insurance (SDI) * California State Fair (Cal Expo) * California State Jobs Employment Information * California State Lands Commission * California State Legislative Portal * California State Legislature * California State Library Catalog * California State Library Services Bureau * California State Library * California State Lottery * California State Mediation and Conciliation Service * California State Mining and Geology Board * California State Park and Recreation Commission * California State Parks * California State Personnel Board * California State Polytechnic University, Pomona * California State Railroad Museum * California State Science Fair * California State Senate * California State Summer School for Mathematics and Science (COSMOS) * California State Summer School for the Arts * California State Superintendent of Public Instruction * California State Teachers' Retirement System (CalSTRS) * California State Treasurer * California State University Center for Distributed Learning * California State University, Bakersfield * California State University, Channel Islands * California State University, Chico * California State University, Dominguez Hills * California State University, East Bay * California State University, Fresno * California State University, Fullerton * California State University, Long Beach * California State University, Los Angeles * California State University, Monterey Bay * California State University, Northridge * California State University, Sacramento * California State University, San Bernardino * California State University, San Marcos * California State University, Stanislaus * California State University (CSU) * California State Water Project Analysis Office * California State Water Project * California State Water Resources Control Board * California Structural Pest Control Board * California Student Aid Commission * California Superintendent of Public Instruction * California Superior Courts * California Tahoe Conservancy * California Task Force on Culturally and Linguistically Competent Physicians and Dentists * California Tax Information Center * California Technology and Administration Branch Finance * California Telecommunications Division * California Telephone Medical Advice Services (TMAS) * California Transportation Commission * California Travel and Transportation Agency * California Unclaimed Property Program * California Unemployment Insurance Appeals Board * California Unemployment Insurance Program * California Uniform Construction Cost Accounting Commission * California Veterans Board * California Veterans Memorial * California Veterinary Medical Board and Registered Veterinary Technician Examining Committee * California Veterinary Medical Board * California Victim Compensation and Government Claims Board * California Volunteers * California Voter Registration * California Water Commission * California Water Environment Association (CWEA) * California Water Resources Control Board * California Welfare to Work Division * California Wetlands Information System * California Wildlife and Habitat Data Analysis Branch * California Wildlife Conservation Board * California Wildlife Programs Branch * California Work Opportunity and Responsibility to Kids (CalWORKs) * California Workers' Compensation Appeals Board * California Workforce and Labor Development Agency * California Workforce Investment Board * California Youth Authority (CYA) * Central Valley Flood Protection Board * Center for California Studies * Colorado River Board of California * Counting California * Dental Board of California * Health Insurance Plan of California (PacAdvantage) * Humboldt State University * Jobs with the State of California * Judicial Council of California * Learn California * Library of California * Lieutenant Governor's Commission for One California * Little Hoover Commission (on California State Government Organization and Economy) * Medical Board of California * Medi-Cal * Osteopathic Medical Board of California * Physical Therapy Board of California * Regents of the University of California * San Diego State University * San Francisco State University * San José Stat e University * Santa Monica Mountains Conservancy * State Bar of California * Supreme Court of California * Teach California * University of California * University of California, Berkeley * University of California, Davis * University of California, Hastings College of the Law * University of California, Irvine * University of California, Los Angeles * University of California, Merced * University of California, Riverside * University of California, San Diego * University of California, San Francisco * University of California, Santa Barbara * University of California, Santa Cruz * Veterans Home of California

David again... finally. I wonder how many of those agencies existed 50 years ago? And I wonder, really, what would happen if they closed half of those agencies and cut the budgets of the survivors by half?

We may find out.

Report from CYCLE

A few weeks back I mentioned CYCLE 2008 (Casey's Youth Conference for Liberty and Entrepreneurship), the week-long camp for young entrepreneurs that we sponsor in Lithuania. Louis James of our team organized this year's event, and the reviews have been very positive. Happily, even though we mentioned CYCLE at the last moment, a couple of Casey subscribers were able to arrange things to have their own children participate. Here's an excerpt from the notes of one, Natalie.

Up to this point, these camps have only been held annually, in Eastern Europe, but we are considering holding them more frequently and in other areas of the world, including North America. While there may be some commercial gain to be made by expanding this initiative (and no apologies for that), the reality is that there is a dearth of opportunities available to young people these days to learn about the free market and how to succeed in it. Maybe we can do some good.

So, what do you think? Good idea or not? Do you know a kid that could benefit from an immersion course in freedom and free markets? Drop us a note at info@CaseyResearch.com and let us know. We'll keep you posted on any developments.

Too Funny

I have to share this, because it is classic Doug Casey, and I laugh every time I think of it.

The setup is that the nation's media fell all over itself to say kind things in obituaries about Robert McNamara, the former defense secretary who presided over Vietnam and who shed his mortal coil this week.

Louis James, who does the interviews for our new free e-letter, Conversations with Casey, thought that McNamara's passing was something that might have caught Doug's attention and so asked him about it. The result, in addition to being spot on, included some memorable lines, my favorite coming as a result of a follow-on about why the media was so complimentary of the man.

Doug:

If you aren't signed up for Conversations with Casey, it gets very high reviews, and I guarantee you'll never find it dull. Sign up for it here, and don't forget to pass it along!

Miscellany

Casey Phyle News.
- Bend, Oregon, Up and Running. A group of Casey subscribers have started meeting regularly in Bend, Oregon.
- Kansas City Phyle will be having their first meeting very soon.
- SoCal Phyle's Next Meeting Set for July 18, from 1:30 to 5:00 pm. The largest and most active Casey phyle is hosting a program with a speaker reporting on his recent trip to Uruguay, and another from Italy who will be discussing the European perspective on the crisis. The meet-up is at the Steelhead Brewing Company in Irvine California, and space is limited.
If you are in any of those neighborhoods and want to join in the fun, drop us a note at phyles@CaseyResearch.com and we'll get you connected.
Big Changes Coming. Watch your email inbox for an announcement on some exciting and significant changes here at Casey Research. One of those changes will be that this weekly experiment in musing will be going daily (at least for a trial period, likely beginning July 20). The name of the publication will change, too... to Casey's Daily Dispatch. That's just the tip of the iceberg, but I wanted to let you in on the new name now. Watch for the announcement of additional changes soon...

And That's That for This Week

As I sign off this week, the S&P 500 is off 62 points, a slight improvement from earlier in the day, but still well established on a negative down slope, exacerbated, no doubt, by the latest news that the sentiments of consumers are growing less cheery (gee, I wonder why that could be?).

With duty calling, I must now sign off, thanking you for reading and for being a Casey Research subscriber.

Until next week, remember... good things can happen in bad times – if you are sufficiently prepared and have the right attitude.

David Galland
Managing Director
Casey Research, LLC.

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