Why have we come back to the USA? For 15 years, the children followed us. Now, we will follow them. One of the surprises of advanced parenthood is how involved we still are in the lives of our children. We thought they would leave home and that would be the end of it. The nest would be empty. Instead, it has merely changed...from a house to a hotel. They come. They go. They need some advice. (But they don't want suggestions.) They need help with this. They could use a hand with that. They have something to pick up...something to drop off. They wonder what happened to their leather coats. They ask Dad to look over a contract. They want to tell Mom about something personal. Not that we're complaining. Au contraire, we're delighted. We're just surprised. Then again, we are easily surprised. We are surprised that a sickly economy seems so healthy to so many people. And we are doubly surprised that the world's most indebted nation pays less than 4% interest to borrow money for ten years. Of course, surprises, by their very nature, are fleeting. And we would imagine that the surprisingly low rates of interest the US Treasury pays to borrow money will come to an end...sometime during the next decade. For those readers who neglected to tune in on Monday, we announced our new Trade of the Decade: Sell Treasury bonds, buy Japanese stocks. Since we announced our trade we've gotten a number of responses. Not much argument with selling Treasury bonds. Although Richard Koo disagrees. He thinks the Treasury market will hold up, as it did in Japan. But our guess is that Treasuries are living on borrowed time (not to mention borrowed money) in BOTH the US and Japan. Most of the response came in regard to our long side recommendation: buy Japanese stocks. Few approved. So we were feeling lonely and isolated...just the way we like to feel...until we got this from Byron Wein. One of his surprising predictions for 2010: Japan stands out as the best performing major industrialized market in the world as its currency weakens and its exports improve. Investors focus on the attractive valuations of dozens of medium sized companies in a market selling at one quarter of its 1989 high. The Nikkei 225 rises above 12,000. Eric Fry, playing second fiddle from Laguna Beach, California, responds to Bill's Trade of the Decade... In Monday's edition of The Daily Reckoning, Bill Bonner offered his new "Trade of the Decade." In all probability, this trade will not deliver a result as dazzling as his last "Trade of the Decade." Back in 2000, Bill urged the Daily Reckoning faithful to "sell stocks; buy gold." As fate would have it, stocks produced a LOSS during the ensuing ten years, while the gold price quadrupled. Good call! Bill has gazed into his crystal ball once again, and he is offering a brand new Trade of the Decade: Sell US Treasury bonds; buy Japanese stocks. Your California editor heartily endorses Part I of this trade (while professing agnosticism on Part II). Treasuries are indeed a "sell." In fact, Treasuries have been a "sell" for several months already. In the year just passed, long-dated Treasury securities produced their biggest annual loss since 1978. During the month of December, alone, yields skyrocketed along the entire yield curve, as price tumbled.
Just maybe, bond investors are growing a bit nervous about America's mushrooming deficits. "President Barack Obama is borrowing unprecedented amounts for spending programs," Bloomberg News reports. "US marketable debt increased to a record $7.17 trillion in November from $5.80 trillion at the end of last year." This disturbing trend leads economists Brian Wesbury and Robert Stein to conclude that "Government" will be the first major bubble of the new decade. "Some claim a bubble has already formed in the global stock market, with prices up 60%-plus since the bottom in early March," the duo observes. "Others claim commodities will be the next bubble... Still others say US Treasury securities are already in a huge bubble, with interest rates way too low. But maybe the worst bubble has nothing to do with the private sector at all. The public sector, particularly the federal government, has benefited enormously from absurdly low interest rates. "Think about it," Wesbury and Stein continue, "the federal deficit was $1.4 trillion in the fiscal year that ended in September, or 10% of GDP, the largest peacetime deficit on record. But net interest - the cost of servicing the national debt - was only 1.3% of GDP, the lowest in about 40 years. For comparison, net interest was absorbing about 3% of GDP in the 1980s and 1990s." Unfortunately, the skeptical economists observe, the government is relying on low-cost, short-term financing, which creates the delusion that "a massive increase in government spending [is] an easy burden to carry... Just like homeowners who relied too much on short-term adjustable rate mortgages, the federal government's average debt maturity remains less than 4.5 years, which means net interest costs will soar over the next several years as the government rolls over its debt at higher interest rates." Maybe the US Treasury pulls off this financial miracle without a hitch. But we would take the other side of that bet. The Treasury auctioned off $118 billion of Treasury notes during the last week of 2009 - a record quantity. We predict this record will fall in 2010...several times. As these monstrous auctions sweep through the bond market like rogue waves, interest rates are sure to rise. To repeat: Treasuries are a "sell." --- Outstanding Investments Gold Investing Report --- From Hulbert's #1 Ranked Advisory Letter Over a Five-Year Period... Even if Gold hits $2,000 by the end of 2010 here's a hidden way you can get in for less than one cent per ounce Over the next two years, you'll witness the greatest surge in gold prices in market history - at least 119% above where gold sits today, as I write this. But even better, I've just discovered a way for you to sneak into the soaring gold market for next to nothing, with what I call "penny-per- ounce" gold. That is, doing this is a "backdoor" way to own as much of a position in gold as you like... for the equivalent of paying a single cent per ounce. Get All The Details Right Here. --------------------------------------------------------------- | ||
| Back to Bill in Baltimore... We did our part. If the US economy remains in a slump, it's not our fault. If Detroit can't make a profit, it's not because of us. We went out and bought a truck. We contributed to the economy. We added demand. The Ford F-150 is a nice truck. Comfortable. Smooth. Quiet. It's probably a difficult export item. It's too big for most foreign markets, where people are more concerned with fuel economy and have smaller parking places. GM reports that its sales to China are rising sharply, but it's hard to imagine much demand for the F-150 in China. Smaller, lighter, more economical and cheaper trucks are available. But your editor is in the USA now. He has a right to use all the gas he wants - at half the price of gas in Europe. It's in the constitution somewhere. Besides, it's been so cold around here he figures the atmosphere must need a little more CO2; the greenhouse effect isn't as effective as people seem to think. But here in Baltimore it is warm compared to many other areas. The Des Moines paper says it is "30 degrees below normal." Seoul, South Korea, just got the most snow it has had in 70 years. Enough of that... The Daily Reckoning is about money. And we're on the case... If you read the papers you're likely to think that the recession is over...we're in full recovery mode...with rising sales, rising production, and rising prices. This year is going to be a good one for stocks...and the US economy is coming back stronger than expected. Is it true? Well, it's sort of true. The recession is over...the depression continues. As we keep saying, if you're going to make a royal mess of things, you need taxpayer support. And with the unwitting and unwilling support of millions of American taxpayers, the federal authorities are busily making a bad situation worse. Don't believe us? No worries. Since everyone is so sure that the economy is hunky dory, the burden of proof is on us to show that it is not. First, we point out that the evidence is mixed. Here's David Rosenberg, on the 'new normal:' "...what was previously unthinkable suddenly becomes the 'new normal'. From March 1983 (when the Reagan-led economic expansion took hold) through to September 2008 (when Lehman collapsed) we never once had a month where US vehicle sales came in as low as 11 million units at an annual rate. That is a span of 25 years. "In yesterday's WSJ, page B1, there is a huge article titled 'Late Surge in Car Sales Raises Hopes for 2009.' This 'surge' seems to have taken sales up to 11 million units in December (data out later today), which would be up from 10.9 million in November. So here we are today, and it is apparently good news that we had virtually no growth in sales towards the end of the year even with dramatic incentives according to the article, GM gave its dealers $7,000 for some of its models and that we had 11 million units when the 'old normal' was 16 million units (not to mention that 12 million is the cutoff for replacement demand - autos are still being taken off the highways and driveways of America)." "Personal Bankruptcy Filings Rising Fast," says The Wall Street Journal. That's the way depressions work. It takes time for people to run out of money and out of options. Then, they give up...admit defeat...and get on with their lives. That's true for the housing market too. People hold on. They wait. They hope prices will go up. And finally, they give up. That's when prices really go down. That hasn't happened yet. The depression is still young! David Rosenberg again: "One would think that of all the sectors that should be benefiting from all the government largesse it would be housing - but at 355k in November, new home sales were down 11% MoM and the fifth lowest level in 3 decades. It is now taking the builders a record 14 months to locate a buyer upon completion of a unit. And the unsold inventory shot back up to 7.9 months' supply from 7.2 in October. Sales of completed homes are still down 38% from what were already depressed levels of a year ago." "Living on nothing but food stamps," says a New York Times headline. A record 39 million people are getting food stamps. For some of them, that's all they have. They've used up their unemployment compensations. They've spent all their savings. They've mooched off of relatives and friends. Now all they've got is the kindness of strangers who work for the US federal government. And more reckoning: Carmen Reinhardt and Ken Rogoff say that "higher debt may stunt economic growth." Hey, this is getting interesting. Maybe we're not entirely alone here at The Daily Reckoning. This is the second point we were going to make. For the most part, there is no recovery happening. And the part of the recovery that is actually happening is a fraud. You can't cure a problem of too much debt by borrowing more...even if the borrower is the federal government. When the private sector was over-borrowing, it was absorbing resources it couldn't really afford. Plus, it was sending the wrong signal to producers, leading them to believe they had real customers on the other end of the line. What they had were people pretending to have more purchasing power than they really had. And when the credit got turned off, these customers disappeared, leaving the manufacturing sector with too much capacity and the retail sector with too much floor space to sell it. Now, the government is doing the same thing - taking up resources it cannot really afford...and redirecting them to uses that it really can't sustain. What's more, this use creates a phony GDP... production for which there may or may not be any real demand. It looks like real GDP to the economists...after all, people are making money and spending it. But is anyone really any better off by building a piece of expensive machinery that gets shipped to Afghanistan at enormous cost and is later abandoned there? Or how about hiring another 1,000 bureaucrats to process health care paperwork? Is the world a better place as a result? In the private economy, people are always making mistakes. People buy things they really don't need with money they really don't have. Then, they pay the price. In the public economy, people are always making mistakes too. But since the person who makes the mistake is not the one who pays the price there is little incentive to ever recognize the mistake or to stop it. Just the opposite. In the public economy, people are rewarded for failure. The worse a situation becomes...the more money gets thrown towards it. Just look at Detroit! Government mistakes become eternal...programs that can't be stopped because too many jobs would be lost...useless community centers that can't be closed...wars that go on forever...the bureau of this...the department of that... More and more parasites...fewer and fewer honest workers. But parasites do not build honest prosperity. They just waste resources. Driving home from work yesterday, we saw a billboard with a curious message: "Birth defects? Call John McClure. Lawyer. Get what you deserve." Yes, even in the private sector - with generous help from the government court system - the parasites are everywhere... And always with the same message: get something from someone else...without working for it. It all goes on...until it all goes broke. Finally, Patrick Cox, Editor of The Breakthrough Technology Alert, discusses one of the newest "gee whiz" technologies to catch his fancy... Here's a new addition to your tech lexicon: Nanotech lithography - a technology that enables you to "print" electronics on virtually anything. Xerox has developed a silver-based conductive ink that can be printed on everything from plastics to textiles. The ink's melting temperature of 140 degrees Celsius is low enough to allow printing on plastics. Instead of expensive fabrication facilities, specialized inkjet printers will be able to print circuits that could be used as part of flexible signage, radio frequency identifier tags and even novelty clothing. Beyond logic circuits, energy storage devices will be printable as well. Two years ago, chemists at the Rensselaer Polytechnic Institute in Troy, N.Y., were able to place a thin film of cellulose over a surface of carbon nanotubes. This breakthrough will enable paper and CNT-based batteries. Stanford researchers have been able to take a paper substrate and coat it with ink made of silver and carbon nanotubes to create working 'paper batteries.' Paper-based batteries charge and discharge quickly, making them suitable for a wide variety of technologies. Together, these breakthroughs herald an era of ultra-cheap, easily manufactured energy storage... New nanotech-scale manufacturing and materials technologies in the semiconductor industry are going to power a revolution in how we make electronic devices, power our homes and collect and analyze information. Right now, the vast majority of people have no idea how profound these changes are going to be. This is just one of several technologies that are on the verge of changing the world as we know it. For my complete list, look here. Regards, Patrick Cox, for The Daily Reckoning | ||
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Thursday, 7 January 2010
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