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The Daily Reckoning | Monday, May 23, 2011
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Is This The Last Stock You'll Ever Need?
This one tiny stock could be the last one you'll ever need. You're about to see a story so shocking and hidden - it could rival the great wealth creations in history.
Get all the details - right here - before midnight Monday, May 30.
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Joel Bowman, reporting from Buenos Aires, Argentina...
A quick heads-up before we dive into today's regular reckoning. As you are no doubt increasingly, perhaps even unnervingly, aware, the debate over "fight vs. flight" - that is, whether to move yourself and/or capital to safer pastures abroad or to stay at home and "stand your ground" - is becoming, by the day, more intense.
With each new stimulus package and boneheaded bureaucratic boondoggle, with each new law designed "for your own good," and with each and every freshly printed dollar bill, the noose around your personal and financial freedoms tightens just a little bit more. What to do?
For some, the America they so dearly love is worth saving at almost any cost. They have families and businesses in the country, things they cannot easily leave behind or forget. Others argue that the republic is simply beyond repair, that the debt obligations foisted upon the masses by their supposedly benevolent government are now so great as to have choked off any hope of a meaningful recovery anyway.
Still, for others, America was never so much a place on a map as an idea in the minds of free men and women. It exists wherever they are, whether it's working their land in the Midwest or building startups in Chennai, India. They are entrepreneurs who value the chance to pursue life, liberty and happiness any way they deem fit. These folks and others are starting to wonder if that idea, that core principal of freedom, isn't best pursued elsewhere.
We're not here to make your mind up for you. Only you can do that. Of course, it doesn't hurt to get some basic facts straight when considering your options. Like, for instance, what are your opportunities abroad and how can you begin repositioning yourself internationally in order to take the best advantage of them? Are there restrictions on what you can and can't move offshore? What are the penalties, loopholes and preferred methods for expatriation? What about foreign accounts and investments? Are they really better than those at home and, if so, where exactly are they located?
"Fight or Flight: Your Capital at Risk" is the theme for this year's Agora Financial Investment Symposium, to be held in Vancouver in July. Conference director, Bruce Robertson, has a stellar lineup of experts and contrarian speakers who will all weigh in on this most pressing of debates.
This morning Bruce told us they had 32 available seats remaining for the event. They are already a month ahead of registration response from last year and, in all likelihood, the conference will be sold out by the end of the week. After that, applicants will be put on a waiting list. You know how that goes...
If capital preservation and the idea of America are important to you and you'd like to attend our shindig in July, we'd urge you to get in now before it's too late. You can register here now or Call Opportunity Travel at: (800) 926-6575 or (561) 243-2460. We hope to see you there...
The Continuing Loss of Wealth How Much Government Spending is Costing You Per Day
Reckoning today from Paris, France...
Bill Bonner
Look at what happened on Friday. The Dow dropped 93 points. Oil stayed below $100. But gold added $16 to close well above $1,500.
Fluke? Or trend?
Hey, you're asking the wrong person. What do we know? No one knows.
But what we do know is that the Great Correction is continuing to do its work. All the recent reports tell us that the economy is weak...and weakening. Housing starts, manufacturing output, consumer confidence - all are pointing to a long, hot, sultry, sluggish summer.
So far, the big selloff has not even begun. But it could start any day. Maybe Friday's numbers reflected the new trend. Maybe not.
But just so we get to say 'I told you so' here is what we expect:1) Stocks will be weak...maybe a big sell-off in the summer months. Investors will begin to realize that the economy is not as healthy as they thought. And the effects of QE2 will wear off.
Analysts say the punky figures are not confined to the US. The entire world is slowing down. Emerging markets are being forced to try to control inflation. Europe is worried about what happens when Greece defaults - which is coming soon. And the US is suffering from the worst housing slump in its history. Prices are already down 33%...more than one out of four homeowners is already underwater...and prices are falling at the rate of about 1% per month.
2) The Great Correction, combined with the feds' battle against it, will continue. Economic reports will be mixed and confusing as a result. But no clear, real recovery will begin.
3) The Fed will announce new measures - QE3. These could come anytime, but will most likely follow a new crisis. For example, a default by Greece...or a sharp break in the stock market.
This latest bit of information is worth a pause. The total value of US housing stock is about $20 trillion. So, a 1% loss equals $200 billion. That's $9 billion every working day.
Now, say there are about 100 million wage earners. This puts the losses per day at about $90 per day per wage earner. The typical worker takes home about $2,500 per month - by our calculations, barely more than he loses in housing prices.
And here's another fact to toss in front of you this morning. In 1980, US federal, state and local debt per person declined at the rate of $2 per working day. As recently as 2000, debt declined again - at the rate of $4 per day.
But never have we seen anything like this. Government debt per working person is now increasing at $115 per working day. And that doesn't include the build-up in social welfare obligations.
Add housing losses to government debt, and the typical working person's balance sheet is deteriorating at the rate of $205 every working day.
The poor lumpen! He rolls out of bed this morning. By Friday evening he's $1,025 poorer! How long can that go on?
And here's another thing. Seniors are supposed to be protected from inflation by COLA (cost of living) adjustments to their Social Security payments. But the feds compute the CPI as they choose. And they make their adjustments when it pleases them. The result is a big lag between the supposedly inflation-proof Social Security payments and the actual costs of living that old people face. According to a study done by a senior group, the post-65 population has suffered a real loss of purchasing power of 32% over the last decade.
This is a serious situation. The average household is desperately trying to hold onto its standard of living. It has not had a real, substantial hourly wage gain in 40 years. Prices are now rising faster than income - both for people who are working and for people who are retired.
And those people who own a house are losing wealth, collectively, at the rate of about $200 billion a year.
In a way, of course, this is good news. The whole point of the Great Correction is to wipe out bad debt, eliminate bad investments, and reduce living standards to a level people can afford. The feds may be protecting investors and bailing out banks - but at least they're letting the poor lumpen households get what is coming to them!External Advertisement
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You can chart the course of human progress in terms of how clean our clothing is. In early times people used animal skins, had no change of clothing, and had no soap. By Adam Smith's day, soap had improved in quality, was produced industrially, and was becoming available to the common man.
Mark Thornton
In fact, the Industrial Revolution, which is usually discussed in terms of iron, steam, and factories, was actually all about bringing products like soap and underwear - previously only available to the rich - to the common peasants.
Only after WWII did electric automatic clothes washers displace hand- cranked machines. Then detergent replaced soap in the washing process, and competition resulted in much more effective products.
In 1956 the product Wisk was launched as the first liquid laundry detergent. And in 1968 its famous "Ring around the Collar" ads came along.
Other companies followed with products that were even better. Between the 1920s and the 1970s, washing clothes went from a grueling full-time job to a weekly activity that could be accomplished by young children.
Demographic researcher Hans Rosling has called the washing machine the greatest invention in the history of the Industrial Revolution. It liberated homemakers from boiling water and washing clothes. For women around the world, it makes the difference between poverty and prosperity.
Only two generations ago, nearly every mother in the world slaved at washing clothes. Today, no one in the developed world does this. Instead, they can read, do professional work, teach children, hold parties, and generally apply their time to building civilization. As Rosling says, "even the hard core of the green movement use the washing machine."
But government is working on systematically reversing these advances - attacking the washing machine's workings at the most fundamental level.
In 1996, Consumer Reports tested 18 models of washing machines. It rated 13 models as excellent and 5 models as very good. They found that with enough hot water and any decent laundry detergent, any machine would get your clothes clean.
In 2007, Consumer Reports tested 21 models and rated none of them as excellent and 7 models as poor; the rest of the models were rated mediocre. The old top-loading machines were mediocre or worse.
Consumer Reports found that in most cases your clothes were nearly as dirty as they were before washing. The newer front-loading machines worked better, but they were much more expensive and had mold problems, and you cannot add a dropped sock once the machine is started. None of the top-loading machines performed as well as a mediocre top-loading machine from 1996.
The government's meddlesome hand is at fault. Between 1996 and 2007 the government's energy-efficiency standards were dramatically increased. In order to meet those standards, manufacturers had to switch to the inferior front-loading washers, which are more "energy efficient," and to design models that used less water. Less water in the machine means the machine uses less energy to rotate the clothes with the water and detergent. It also means less rinsing, which is a vital component to getting clothes clean.
The result is that clothes come out of the washer still dirty. The easy stuff like sweat is mostly removed, but all the tough stuff, like grease and body oils, largely remains. Most people are unaware of this problem, either because they have an older model, they don't do their own laundry, or they are just oblivious to this type of thing.
Among those who face this problem, the answers are few. Some do multiple smaller loads with larger water levels, but of course this results in higher - not lower - energy and water usage. Others have tried to solve the problem by using more detergent, but this usually does not help - it can make the situation worse - and it reduces the durability of the machine - yet another inefficiency.
So there you have it. Politicians, environmentalists, and meddlesome bureaucrats have teamed up to dream up another attempt to serve the public interest. Left to its own, the invisible hand of entrepreneurial competition would have naturally made doing laundry easier, better, cheaper, and more efficient. Instead we have more expensive, more inefficient, and truly ineffective clothes-washing machines.
Then there have been changes to laundry detergent, which have in combination with the "energy efficient machines" led to a return of "Ring around the Collar."
The invisible hand of the marketplace is the foundation of a free society and the source of prosperity. The invisible fist of government is the foundation of plunder and the source of social problems.
If we chart social progress by clean clothing, it is clear that we are headed backward in time. But the trend is easily reversed with a small change toward laissez-faire.
Regards,
Mark Thornton
for The Daily Reckoning
Editor's Note: Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book review editor for The Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory.Uncovered: A Way to Tap into an "Other" Pool of Government-Backed Income Potential...
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Click here now and discover a way to protect your retirement from the uncertainties surrounding Social Security.Bill Bonner Following the Smart Money Notice that gold seems to have ended its correction. Way too early and with far too little losses to suit us.
Gold is doing its job. It's acting as a monetary reserve - something you can hold onto when other forms of money go bad. As the Great Correction does its work, the financial authorities get to work too. They've already pumped so much paper money into the system - most of it still in reserves - that it will be hard to avoid a substantial increase in prices (that is, a drop in the value of the paper money). But the feds probably won't give up. QE2 ends next month. As the Great Correction continues, and the economy slumps in the summer, the cries for the Fed to 'do something' will grow louder. But what can the Fed do? Interest rates are already at zero. And the federal government is already running the biggest program of counter-cyclical stimulus spending in history - with about $4.5 trillion of total deficits over the last 36 months.
What's left to do? Only more 'unconventional' methods - such as QE3.
If it comes, QE3 will mean even more paper money and credit in the system...and the potential for even higher rates of inflation.
The Wall Street Journal reports that the Chinese have become the world's largest gold buyers. Central banks, generally, have become buyers again. The smart money has been buying gold for 10 years.
The smart money knows it needs real reserves - not just phony paper money. If the Fed won't back the dollar with real reserves, smart households know they have to stock up some reserves of their own.
*** We were interviewed several times in China. One question kept coming up: "What's going to happen to China's dollar reserves?"
The Chinese seem to understand the trap they set for themselves. They stocked up on dollars. And the US controls the value of the dollar.
"What can China do to protect itself from the fall of the dollar?"
"Not much," we replied. "Just buy gold. As much as you can."
That advice is good for dear readers too. Buy gold on dips. Sell stocks on rallies.
*** There was scarcely anyone in the business lounge at the Peace Hotel in Shanghai at 6:30AM. A young woman with slightly buck teeth pointed us to a chair...then to the buffet.
"Fee?" she asked.
She looked a little awkward in her trim, new uniform. Walking in a tight skirt may have been new to her. Her face was tanned; her expression was simple, almost alarmed...not poised and confident. She looked like a peasant girl who had just fallen off the turnip truck when it made a delivery to the hotel.
"Fee..." she repeated.
Then, we realized.
"Yes, please..."
She poured some coffee into our cup and went on her way.
A few minutes later, a young woman walked in. She was about the same age as the one serving tables, but she was sleek and thoroughly up-to- date. She was a guest at the hotel, no doubt. She took long strides, and went directly over to a table by the window and sat down. She had on such a short skirt; it would have been indecent to continue watching her as she sat down. She also wore such high heels we wondered if she had acrobatic training. Above the skirt was a short, loose white blouse.
We went back to reading our newspaper.
A few minutes later, we looked up to see the serving girl in front of us. Her mouth had dropped wide open as she stared towards the buffet. There, the other girl was leaning over the table, reaching for something on the far side. As she leaned over, her skirt remained in place, low around her hips, but her shirt rose up, revealing the kind of undergarment that almost got Bill Clinton impeached. It was nothing more than a piece of ribbon that went up about a foot above her skirt and then wrapped around her waist. A thong. Not an uncommon sight in Europe and America. But apparently fairly new to the Chinese countryside.
The serving girl stared. Then her jaw closed and her face hardened into a look of disapproval. Finally, she made a 'tsk tsk' sound, turned on her heels, raised her chin and walked off.
*** Does money make you happy? No, said Arnold Schwarzenegger.
"Money doesn't make you happy. I now have $50 million. But I was just as happy when I had $48 million."
Regards,
Bill Bonner
Tuesday, 24 May 2011
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