 | | The Daily Reckoning | Friday, May 25, 2012 |
- The fun continues at the European Roller Derby!
- What to expect in the American Empire for the year(s) ahead,
- Plus, Bill Bonner on the Facebook moment and wimpy, whiney investors...
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Europe is the last place your attention should be right now...
When Greece’s debt crisis first shook the world in 2010, people were so preoccupied by headlines about Europe many of them missed out on the big early gains being generated by America’s explosive shale boom...
Now that same distraction could cause them to miss out on an even bigger moneymaking opportunity.
Forget about France, Germany, Greece and Spain for a moment — something far more unexpected, important and life changing is about take place right here at home...
Click here now to see what it is.
|  | | | | Euro Declines as Greece and Germany Play “Chicken” | | |  | | Bill Bonner | Reckoning today from Baltimore, Maryland...
Hey...this is fun! The European Roller Derby.
Smash! Crash! Crunch! Whack!
Fenders banged up. Radiators steaming. Tires flattened. Whee!
But here’s the most exciting scene in the whole show. Greece and Germany are playing chicken!
Greece presses down the accelerator and heads for Germany. “If you force us out of the euro, all of Europe will go up in flames,” say the Greeks.
“Oh yeah?” say the Germans, turning on the speed in their Mercedes, “ve’ll see about that. Ve haf airbags!”
And we watch. Wonder. Which one will lose his nerve? Or will they crash head-on?
Nobody knows for sure.
But nobody wants to have money in Greek banks...in Europe’s periphery banks...or even in euros...when they find out.
Yesterday, more money leaked out of Greece...and out of the euro. The euro fell to its lowest level in two years as “Europe braced for turmoil...”
One headline said Greece was making plans to withdraw from the euro. The Greeks promptly denied it...which reminded us of what they used to say in Soviet Russia: no rumor is confirmed until it is officially denied...
De La Rue, an English company that prints most of the world’s currencies, would not say whether an order for drachma had come through or not.
Meanwhile, all these wrecks and smash-ups are damaging Europe’s economy. The New York Times is on the story:
Economic reports Thursday showed Europe’s prospects dimming as the long battle to defend the euro zone continued to undermine confidence and raised the prospect of a renewed cycle of demands for austerity.
The relentlessly bleak data, reflecting weakness across the Continent and in Britain, came a day after political leaders again failed to break the deadlock over how to resolve the European debt crisis.
A Markit Economics index that tracks the European services and manufacturing sectors fell in May to 45.9 from 46.7, worse than economists surveyed by Reuters and Bloomberg had expected. An index reading below 50 suggests the economy is contracting. In the first quarter, the euro zone economy grew just 0.1 percent.
Perhaps even more worryingly, German data released Thursday showed signs of a slowdown in an economy that until now had been a bright spot for the Continent. A Markit index based on surveys of purchasing managers of German manufacturing companies fell to 45.0 in May from 46.2 in April. | And Britain’s is worse. New data show the slump is worse than previously thought. The NYT again:
The Office for National Statistics revised the decline in gross domestic product in the first three months of this year to 0.3 percent, up from the 0.2 percent it estimated last month, because of a deeper slump in the construction industry. Construction output dropped 4.8 percent from a year earlier, the agency said, not 3 percent, as it had estimated earlier.
The revised figures were “bad news for UK policy makers as it shows the economy faring even more badly than initially thought,” said Scott Corfe, senior economist at the Center for Economics and Business Research in London. “Indeed, the latest data show the UK economy performing worse than the euro zone economy, which saw zero growth at the start of the year — meaning the UK’s woes cannot even be fully attributable to the debt crisis embroiling the Continent.” | So, stay tuned. More below...
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| | The Daily Reckoning Presents | | Borrow-As-You-Go Politics | | |  | | AddisonWiggin | Today, let’s take a look at the “logic” of the American Empire and what you can expect in the year(s) ahead... regardless of whether a donkey or an elephant squats in the Oval Office come Jan. 20, 2013.
“Great empires, such as the Roman and British, were extractive,” the economist Paul Craig Roberts observed recently. “The empires succeeded, because the value of the resources and wealth extracted from conquered lands exceeded the value of conquest and governance.”
But unlike empires of the past, the American Empire has a perverse logic all its own.
“America’s wars are very expensive,” says Roberts, stating the obvious. “Bush and Obama have doubled the national debt, and the American people have no benefits from it. No riches, no bread and circuses flow to Americans from Washington’s wars.”
In the big Iraqi oil auction of 2009, for example, even as US military helicopters droned overhead, the Iraqi oil minister gave out zero contracts to American firms. Not one. And we spent at least $3 trillion on war — $2.9 trillion more than Team Bush’s original budget. So much for paying for war with “oil profits.”
Russia was actually the big winner here. So what gives? The American Empire has perverted the Roman mantra “Veni, vidi, vici” (I came, I saw, I conquered) into the odd imperial slogan: “We came, we saw... we borrowed!”
The results from this turn of phrase are less than desirable. Again Roberts: “Washington’s empire extracts resources from the American people for the benefit of the few powerful interest groups that rule America. The military-security complex, Wall Street, agribusiness and the Israel lobby use the government to extract resources from Americans to serve their profits and power. The US Constitution has been extracted in the interests of the Security State, and Americans’ incomes have been redirected to the pockets of the 1%.
“That is how the American Empire functions,” concludes Roberts. Instead of plundering foreign resources to finance itself, the American Empire is always looking to inflate the next financial bubble. Each of these serial bubbles has the effect of “extracting” wealth from the citizens — by drawing both savings and credit into overly inflated asset classes that then implode.
As the bubbles inflate, robust tax revenues flow to the federal government. As the bubbles implode, tax-payer dollars flow to the connected Wall Street elite. Thus, over time, savings pass from the wallets of citizens to the pockets of scoundrels in Washington and on Wall Street.
For confirmation of this assertion we need look no further than the top o’ the 1%, the Oracle of Omaha. Peter Schweizer of Reason reckoned in his March exposé on Warren Buffett that this folksy fellow “needed the TARP bailout more than most.”
Let’s run through the numbers. Berkshire Hathaway firms in total received $95 billion in TARP money. Berkshire, you’ll recall, held stock in Wells Fargo, Bank of America, Goldman Sachs and American Express. Not only did these companies receive TARP funds... they also dipped into the FDIC’s treasury to back their debt. Total bailout: $130 billion. TARP-enabled companies accounted for 30% of the Oracle’s publicly disclosed stock portfolio.
He’s definitely one of the top beneficiaries of the big bank bailout. And to sharpen the sting, he even got a better deal to help ailing Goldman Sachs than our own government. Buffett got a 10% preferred dividend while the Feds got all of 5%. He cleaned up with $500 million a year in dividends. Without the bailout, you can bet many of his stock holdings would have gone near-zero instead.
Contrast that with a blog post from Rosemarie Jackowski, a community activist at Dissident Voice. She’s describes her experiences working with the underclass in a small town in Vermont.
“In Bennington, there are three very distinct classes,” writes Jackowski. “First, there are the ‘fancy people.’ They are the ones who rule and control everything. They are on the boards — the hospital board, the library board, the select board, the school boards. They have the power — even the power over life and death. They, occasionally during a medical crisis in the hospital, make the decision to pull the plug or allow life to go on.”
Then there is the large group of ordinary citizens. Some are blue- collar workers. Most work hard. Love their families. And have had family in Vermont for generations. They acknowledge the class system in conversation often. They call it the ol’ boys network — cronyism.
The third group consists of those who are in need. Those on the bottom of the economic pile. A poor mother of two disabled children, for example, talked about the oppressive avalanche of redundant paperwork required to get any tiny benefit. The social services system is designed by nameless, faceless, unelected bureaucrats. It is set up to assure maximum job security to the workers in the system. To a struggling family, it often feels like an attack of the “paper churners.” Being poor is a full-time job.
In her post, Ms. Jackowski provides a list of 35 ways poverty robs you of your dignity. Here are just a few:
Poverty means living with shame.
Poverty means working three jobs, and still not “making it.”
Poverty means that you go to work when you are sick. Worse than that, you send your children to school when they are sick.
Sometimes poverty means that you skip meals so that your children can eat.
Poverty means that your housing is never secure...
Poverty means following all of the rules, then graduating with oppressive student debt so that the president of UVM can be paid $447,000 per year.
Tragically, more and more “ordinary citizens” are faced with the challenge of joining this third group of government dependents. Case in point: “In the most recent Census,” writes our managing editor Samantha Buker in The Little Book of the Shrinking Dollar (a book we co-authored for the Wiley Little Book Series), “48% of America qualifies as ‘low income.’ There are more Americans living under extreme poverty than have ever been recorded.
“Since 2009, we’ve added another 4 million souls to the category of low income to below the poverty line. That’s 146 million people in America who aren’t consuming much aside from ever-increasing applications for food stamps.”
In November 2008, food stamp applicants topped 30 million for the first time in history. Today, we’re still posting “record highs,” having added over 16 million more names to the food stamp list.
Does this sound like a nation of financially healthy citizens, able to contribute to the national coffers? Au contraire. Sounds like another case in which our Empire will hand out more than it’s taking in.
Again.
Regards,
Addison Wiggin
for The Daily Reckoning
Joel’s Note: Some pretty startling statistics, wouldn’t you agree? Almost half the population categorized as “low income.” And that trend is worsening?! Hmm...not good.
That’s why Addison and Samantha’s The Little Book of the Shrinking Dollar is such an important read...especially now! In the book, Addison and Samantha outline 47 ways you can actually profit from this lamentable phenomenon.
But the book (a copy of which you can claim for free right here) is only part of the “solution set” Addison has readied for Fellow Reckoners who don’t want to become another one of those statistics. The second part of the solution you can read about here.
| | | | | And now back to Bill with more thoughts... | | | | | Bill Bonner | How do you like those wimpy, whiney investors? They lose money in Facebook. Do they take their losses like men? Nope.
They rush to sue everybody! The investment banks who were midwifes to the birth of FB into the public markets weren’t playing fair, they say. They gave their best clients more and better info than they fed to the public.
Well, what...you mean...could you be saying...that the insiders have an edge?
Well...duh...uh...
“The thing about this IPO,” said a friend at lunch, “was that the whole world was watching. That’s why this was so important. It showed everyone how Wall Street operates. Everybody got burned. And they blame Wall Street...because they can see that the pros were being only half honest. And the other half was incompetent.”
Yes, dear reader, our hunch seems to have been right. The FB launch was a disaster for shareholders...for Wall Street...and for the whole cult of equities that has ruled the investment world for the last 3 decades.
“...a six-decade passion for equities has come to an end,” reports The Financial Times.
“Stocks have not been so far out of favor for half a century,” continues the report... “with equity returns virtually flat for more than a decade, the incentive for investors to take risks by funding smaller, more entrepreneurial companies has declined — eroding a process that has traditionally given managers the flexibility they need to grow. Capitalism with less equity finance would follow a much more conservative model.”
In the US, pension funds allocated as much as 70% of their funds to equities 10 years ago. Now, they’re down to 52%.
Everyone is turning his back on stocks...at least, that’s what the FT says. And analysts are already comparing this FT article to the “Death of Equities” cover story in BusinessWeek in 1979...just before a huge new bull market began.
Relative to bonds, stocks haven’t been this cheap since 1956. That was the year when George Ross Goobey announced he was switching the entire portfolio of Imperial Tobacco’s pension fund into stocks.
Goobey turned out to be a genius. Stocks began a great bull market which continued, aside from a countertrend between 1966 and 1982, for the next 56 years!
And now a lot of people think this is another Goobey moment. Stocks are cheap, they say. Get ready for another grand bull market!
What do we say? Nah...
The problems are:
1) This ain’t 1956...this is 2012. The US is no longer on top of its game. It’s no longer in full expansion. It is slipping...sliding...burdened by high costs...zombie industries...and corrupt governments. Growth rates are low...lower than the rate of debt build-up... There is no reason to think America’s capital structure — either stocks or bonds — will become more valuable.
2) Stocks are not cheap. They are only cheap when you compare them to bond yields. But bonds yields are suppressed by a Great Correction...about which more below. In order to be absolutely cheap, US stock prices will have to be cut in half — at least. That would put yields and P/Es near where you can get a 5%+ yield and buy a dollar’s worth of earnings for $5...not $12. Then, stocks will be cheap.
3) Bond yields fall in a correction because people do not want to increase their debt levels; they want to reduce them. They also reduce spending...which lowers business sales and profits, thus making stocks less valuable, not more valuable. As the Great Correction intensifies (and it appears to be doing so now) we can expect stocks to follow the Japanese example. Japan has been in a Great Correction for 22 years. Its stocks have lost 3/4 of their value. They’re still down 75% — nearly a quarter century after the correction began. | Goobey moment? We don’t think so. It’s time to sell stocks, not buy them.
Regards,
Bill Bonner
for The Daily Reckoning
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Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com
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