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The Daily Reckoning | Friday, September 2, 2011 Guitars vs. Guns: The Assault on Enterprise continues, Fellow Reckoners...not exactly the “Pollyanna” crowd, Plus, Bill Bonner on the minds of the meddlers and plenty more... ------------------------------------------------------- Who gives a damn about America’s credit rating? I’m SICK of hearing about Keynesian vs. Austrian, fiat currency vs. Gold, US credit ratings and other BORING economic theories you have ZERO control over. “WHO CARES!?” Truth is, if you want to make money in the markets, none of that stuff even matters! Let me prove it to you by showing you. Guns vs. Guitars Joel Bowman Reporting from Buenos Aires, Argentina... If I leave here tomorrow Would you still remember me? For I must be travelling on, now, ’Cause there’s too many places I’ve got to see. — Free Bird by Lynyrd Skynyrd Bullying small and medium businesses, sending armed goons to American factories, confiscating private property, closing down production and harassing business owners and their employees; a curious strategy for nurturing domestic job creation, wouldn’t you say? The above strategies might seem ludicrous, even downright criminal, to we laypeople, but to government officials, it’s “all in a day’s work.” Take, for example, the latest case of The Feds vs. Gibson Guitars. Actually, it’s not even a case yet, not officially...but that didn’t stop armed agents from the US Fish and Wildlife Service (these guys have guns?) from raiding two of Gibson’s production facilities in Tennessee and its Nashville headquarters last Wednesday. The agents confiscated “nearly $1 million in Indian ebony, finished guitars and electronic data,” according to the company’s CEO, Henry Juszkiewicz. “It was a nightmare,” fumed Mr. Juszkiewicz after the incident, “We had people sitting there making guitars. We had no weapons.” This is not the first time the feds have actively sought to bum Gibson’s vibe (a job-creating vibe, let us not forget — Gibson’s Tennessee factories alone employ over 700 people). The feds last crashed the party back in 2009, seizing a shipment of ebony from Madagascar. They claimed they were there — and, again, armed — to enforce the Lacey Act, a century-old endangered species act that was amended in 2008 to include plants and animals. But before activists get their patchouli incense sticks in a knot, it’s worth noting that Gibson is not your typical — or even atypical — enemy of the planet. “Agents seized wood that was Forest Stewardship Council controlled,” Juszkiewicz noted, in a quote carried on the company’s website. “Gibson has a long history of supporting sustainable and responsible sources of wood and has worked diligently with entities such as the Rainforest Alliance and Greenpeace to secure FSC-certified supplies. The wood seized on August 24 satisfied FSC standards.” Your editor has no idea where the Forest Stewardship Council, the Rainforest Alliance and Greenpeace stand in this particular case...but we’d bet it’s not on the side of the “greedy, seal- clubbing, old growth-uprooting capitalist pigs.” “We’ve been importing this wood for 17 years, consistently, on a regular basis, with no problem,” Juszkiewicz told Fox News yesterday. “And our competitors continue to use and buy this wood without any problem today.” Juszkiewicz says the government won’t tell him exactly how — or if — his company has violated that law. “We’re in this really incredible situation,” continued Mr. Juszkiewicz. “We have been implicated in wrongdoing and we haven’t been charged with anything,” he says. “Our business has been injured to millions of dollars. And we don’t even have a court we can go to and say, ‘Look, here’s our position.’” It’s also worth noting that the relevant law doesn’t actually protect the trees themselves...just how — or, more specifically, where — the wood is finished. It’s perfectly legal for Gibson to use the wood, in other words, it just can’t use its own workers to fashion the wood into a guitar. That work needs to be done in India. Call it “mandatory outsourcing”...from the same people who will next week bring you their ideas on how best to create jobs in America. In response to their...uh... “treatment,” Juszkiewicz and Gibson have mobilized their supporters via social media networks, encouraging people on Facebook and Twitter to write their representatives and demand action. The company also launched a Twitter campaign under the hashtag: “ThisWillNotStand.” Tweeted Juszkiewicz last Friday: “Why is big government spending our money to harm ordinary citizens and small businesses?” Indeed, the “assault on enterprise” theme is one we’ve tackled many times in these pages, and one Addison addresses specifically in his Apogee Advisory research service. [For a full presentation on how “big government” is strangling the American economy, feel free to check out his latest presentation, here.] For the record, your editors here at The Daily Reckoning have no political dog in this fight. That a “red state” company is being harassed by a “blue state” administration may or may not be a “fluke.” Either way, the politics of it all is of little interest to us. In the end, we are fans of private action and government inaction, not the other way around. But since the government insists on acting — and acting in the only vulgar, brutish way it knows — we’ll return the favor and harass them a little...peacefully, without guns, in the only way we know. As you probably already know, next week Obama is scheduled to deliver his much-lauded “Jobs Speech.” We are already getting a flavor of what it might contain as advice from tenured economics professors, leading experts and other well-degreed blowhards begin seeping into the pages of the mainstream press. Unsurprisingly, the proposed solution to having over-spent and under-saved is...you guessed it...more spending! Here’s a snippet from The Huffington Post: At the top of many to-do lists is government spending into the tens of billions of dollars to finance large-scale public works projects, a strategy that could address a gaping mismatch: Nearly 14 million Americans are officially out of work, yet a great deal of work needs to be done, from repairing dilapidated roads and bridges, to retrofitting government office buildings with energy-efficient infrastructure. Gary Burtless, a former Labor Department economist and now a senior fellow at the Brookings Institution in Washington, chimed in, “If the government spends the money directly on government-funded projects, that puts people on payrolls.” And here’s Pavlina R. Tcherneva, an economist at Franklin & Marshall College, echoing Mr. Burtless’ brilliance, “We still have mass layoffs in those [manufacturing and construction] sectors. It seems very obvious that we can absorb large numbers of workers in those sectors for the public good.” Ah yes...it’s all so obvious! More spending!...More public works!...More government involvement! You know, because all this worked so very well for the country with The New Deal... Following the above logic, the government ought to spend billions of dollars it doesn’t have undertaking projects it has no demonstrable skill in completing simply to “put people on payrolls.” Heck, why stop at billions? Hasn’t academia heard? Billions are for wimps. Trillion is the new figure du jour. Why not pay every un- or under- employed American a thousand bucks a minute to scrape gum off the sidewalk? Think of the boost to GDP! Think of the payroll numbers! Think of all that “public good!” And think of all the Chinese-made trinkets and Indian-fashioned guitars those people could then buy with their million-dollar bank balances! One is left to wonder: with thinkers like these, who needs idiots? [N.B.: Lynyrd Skynyrd guitarist, Allen Collins, used a Gibson Firebird, and later switched to playing a Gibson Explorer. Starting in late 1977, he also occasionally used a double-cutaway Gibson Les Paul Junior.] Is This Just the Start of an Epic Market Correction? Millions of American retirements are now in jeopardy. Wild Dow swings destroy more wealth by the day. Investors seem paralyzed by global uncertainty. So what do YOU do now? Start by watching this urgent presentation. Solutions, strategies, and protection —right here. The Daily Reckoning Presents Political Promises and Wall Street Tripe A WBAL Interview with Addison Wiggin AddisonWiggin Ron Smith: Addison Wiggin is with us, Executive Publisher of Agora Publishing. Addison Wiggin: Agora Financial, yes. Mr. Smith: Oh, Agora Financial, which is Baltimore-based, and publishesThe Daily Reckoning, which is a newsletter that I subscribe to; it’s free, so I like it. Mr. Wiggin: I hope that’s not the only reason you like it. Mr. Smith: And co-author with Bill Bonner of how many books? Mr. Wiggin: Two books — Financial Reckoning Day and Empire of Debt. Mr. Smith: Empire of Debt. And I asked you when you came in, whether there was a resurgence of interest in these books because they were, shall we say, on the trail of what was going on relatively early. And you said reviewers are now reviewing Empire of Debt, which has been out how long? Mr. Wiggin: Well, we first published it in 2005, so it was even before the housing bubble took over the news, housing prices were still going up, and in the book we were forecasting that that was the most likely spot that the cracks — Mr. Smith: The weakness. Mr. Wiggin: Yeah, the weakness in the economy would show. But when a bubble’s rising most people don’t want to hear any kind of bad news. Mr. Smith: Of course not. Mr. Wiggin: So even though we’re identifying trends that were in the economy and the book made it onto the New York Times Bestseller List, we didn’t get a lot reviewers. We didn’t get a lot of mainstream attention. In 2011 a lot of people have been reviewing the book and while we put out an updated edition in 2009, most of the reviews I’ve seen are of the 2005 edition. What I liken it too is people buy the book and they’re like, “this is what I want to read”; and they put in their bed stand, and it says there for five years, six years. Events and circumstances change and they’re like, “maybe I should read that one now.” Mr. Smith: As we all know the difficulty is timing. You can be totally right on fundamentals, but what I’ve learned over a couple decades is that the power of the status quo is quite immense, and that will keep the plates spinning on those sticks for a long, long time. Mr. Wiggin: Right. And what we’ve seen too repeatedly is the news cycle generates opinions. People change the way that they view the world to accommodate what’s happening in the news. And right now we’re in a cycle where a lot of people are worried about the economy; they’re worried about the United States stature in the world. Mr. Smith: It’s a chicken and egg thing. Our markets depend on confidence. But confidence depends on circumstances, so depending on the day, you can either accelerate tremendously or you can spiral downward. Very rapidly and it’s like a school of fish turning. Mr. Wiggin: Right. And we got the first big wave of selloffs in 2008, which was a big shock. There were a lot of things happening on Wall Street, and in the economy, that came as a surprise to people: the questionable accounting that was going on in a lot of Wall Street banks, and the “innovations” and new instruments that were being marketed as ways for retirees to gain income turned out to be just smoke and mirrors... Mr. Smith: And the thing is, Addison, you can’t really restore, what was driving the global economy for a couple of decades, which is the American consumer’s willingness to assume tremendous debt. Addison Wiggin is with us of Agora Financial Publishing, which is a Baltimore firm. One of their products is The Daily Reckoning newsletter, which is terrific if you have a certain mindset. Most Daily Reckoning — what would you call them “reckoners” — is that what you call them? Mr. Wiggin: Yeah, reckoners, daily reckoners. Mr. Smith: Most reckoners are, shall we say, skeptics, right? Mr. Wiggin: That’s a fair assumption. Mr. Smith: Realists, not Pollyanna-ish. Mr. Wiggin: No, they have experience with the real world, so they’re looking for ways to manage their own money primarily, but they’re skeptical of political promises and even the kind of tripe that we get from Wall Street from time-to-time. Mr. Smith: But they tend to be investors, and therefore, with the market wildly gyrating they’ve indicated a certain amount of concern if not panic, right? Mr. Wiggin: Yeah, absolutely. In fact, we recently convened a teleconference among all our editors. Our editors are scattered throughout the country and even oversees, and we convened them on the phone and did a teleconference because our readers are writing in a panic. They’re wondering with the market swings — up 500 one day, down 400 the next — what’s going on. We were trying to get a litmus test of what our editors were thinking, but also we have the sense of that kind of volatility leading into September or October, which are historically not good times for the market especially, when the economy looks like it’s turning back around down. We wanted to get a sense of what people were doing to prepare their own portfolios because that type of volatility makes people throw their hands up in the year, and then they get nervous and the panic button is hit much easier. And that’s what we’re expecting going into September and October, is we’re probably going to have a much tougher market than we saw even coming into August, which is important because if you compare the three weeks from July 21st of 2011 to today, with 2008, which was the last real tough bear market we saw on Wall Street, the market dropped faster in the past three weeks than it did in those months that that caused the financial panic in 2008. Mr. Smith: And what’s disturbing about that is that every effort made by the Fed and by the government acting in concert has been to bolster stock market valuations. Mr. Wiggin: Absolutely. We actually expected the market to begin going down at the end of June when the second quantitative easing program ended. When that came to an end on June 30th, we expected the market to begin falling. It actually peaked on the week before, but because of the sideshow that was going on over the debt ceiling debate; the real selling didn’t start until the third week of July. Mr. Smith: For years, you folks at The Daily Reckoning have been recommending buying gold when it dips and selling stocks when they rally, and of course you’ve had the satisfaction of riding gold all the way up. But do you get nervous about gold being a bubble itself? Mr. Wiggin: I do get nervous, but I do think we’re in the beginning of the cycle. Until the deficit situation and the debt that became the source of the political — Mr. Smith: The Empire of Debt. Mr. Wiggin: Exactly, the political theater we saw over the last couple weeks in Washington. Until that’s resolved, gold is going to be a flight to safety trade. It’s a bet against the system. If people are nervous about the dollar, if they’re nervous about the political situation, if they’re nervous about the stock market, they buy gold. And we’ve seen it peak over $1,800 in the last week. Mr. Smith: Another thing, it would seem to me, is that if you park a lot of money in T-bills, you’re basically guaranteeing yourself a real loss. So maybe it’s a hedge against that as well. Mr. Wiggin: Well, it is a hedge, but an interesting thing happened in 2008, and we’re seeing it again, both the dollar index and Treasuries have rallied. Mr. Smith: Because of relative safety. Mr. Wiggin: Right. Mr. Smith: Relative safety. Recently, I mentioned that it was the 40th anniversary of President Nixon removing our currency from the gold standard and basically turning the world currencies into all fiat currencies. That is, in other words, ones that exist only by the faith in the issuers, and this is something near and dear to your heart, right? Mr. Wiggin: Absolutely. That’s been the core of much of the work in The Daily Reckoning, and I wrote a book called The Demise of the Dollar, which looks at the launch of what we call the great dollar standard era because the dollar serves as the world reserve currency. Most central banks, most big corporations trade in dollars, and most people around the world use it to preserve their wealth. But in 1971, as you point out, any last link between it and gold was taken apart. Mr. Smith: And the abolition of that link led to us being able to live much higher on the hog than we actually could afford, which led to this trouble. Mr. Wiggin: Right, and if you look at the history of money in the world, 40 years is not that long. And one of our contributors, Dr. Mark Farber, is pretty famous for saying the dollar is going to return to its intrinsic value, which is zero, because it’s a piece of paper. It doesn’t have any value and that’s where we’re going over time. To be continued... A WBAL interview with Addison Wiggin, for The Daily Reckoning Joel’s Note: The US dollar at intrinsic value...zero. Are you prepared for that outcome? Already foreign lenders are threatening to cut up America’s credit card...for good. And the latest debt ceiling debacle didn’t help the situation any. If you’re truly concerned with where the country is heading...and about what you can do to protect yourself, we urge you to check out Addison’s special Apogee Advisorypresentation, here. It’s not easy viewing, to be sure...but the days for make believe recoveries are clearly over. Check it out here. The Secret Financial “Timebomb” Nobody’s Talking About Forget the D.C. debt circus... this secret Saudi event could double your cost of living, in more ways than one, starting as early as the end of this year. Nobody wants to talk about it... and not Obama or Congress have any idea what to do, once this event starts to unfold. Once it does, get ready to kiss your savings goodbye. Hear our shocking new warning in this special report... Bill Bonner Commanding a Recovery Bill Bonner Reckoning from Paris, France... We’re in the Charles de Gaulle airport, in Paris, en route to the USA. Not much to report anyway...at least not to you, dear reader. The Dow went down 119 points yesterday. Gold lost 2 bucks. Nothing revelatory...no burning bushes...no booming voices from the heavens. But, the rest of the world is waking up to what you’ve known for years. Here’s the headline in The Financial Times today: Hopes for global recovery take a hit Yes, the world’s financial elite still believe in the recession/recovery concept. What a pity it never seems to work out. The report continues: The global manufacturing recovery appear[s] to have come to a grinding halt in August, activity surveys suggested on Thursday, undermining hopes of a vigorous economic recovery in the second half of the year. And what’s this? Martin Wolf, chief economist at the FT, has finally realized... This is no normal recession. Of course, Dear Readers, have known that for years. Now, after trillions spent trying to treat it as though it were a typical post- war recession, leading economists are finally noticing the obvious. All that spending has stimulated nothing but larger debts: In the US, unemployment is still double pre-crisis levels... But neither Mr. Wolf nor Mr. Bernanke are ready to give up. Nor are any of the other misters who are in position to manipulate the system...influence it...or steal from it. Mr. Wolf promises to give us his ‘fix it’ solutions in next week’s newspaper column. He hints that the US government should...surprise!...spend more money. Either he has learned nothing. Or we haven’t. He still believes that the challenge is basically a matter of repairing the economy...fixing it...so that it works like he thinks it should. What does that mean? How many people should have jobs? How fast should GDP grow? What should be the interest rates charged by lenders? Ask him! Dear readers see the absurdity of this immediately. In the minds of the meddlers, an economy should work as they command. It has no natural state...no normal functioning...no purposes to which they aren’t privy. In short, the economy should do as it is told! How will this command economy thing work out? Stay tuned... And more thoughts... Well, we don’t have any more thoughts. We have to run to catch a plane... But here is Frank Shostak, with some ideas of his own... The Monetary Tsunami Is Coming by Frank Shostak on August 31, 2011 In his speech at Jackson Hole, Wyoming, on August 26, 2011, the Fed chairman disappointed most pundits. He did not promise another massive infusion of fake money, i.e., QE3. I suspect that a strengthening in bank lending is an important factor behind the Fed’s decision to postpone the pushing of more money into the economy. The yearly rate of growth of our measure for banks’ inflationary credit jumped to 8.2 percent so far in August from 4.3 percent in July. A visible strengthening in commercial bank inflationary credit, i.e., credit “out of thin air,” will provide the “necessary” monetary stimulus. This means that the massive amount of money pumped by the Fed since 2008 (over $2 trillion) is starting to be funneled into to the economy by the banks. This has long been the hope of the Fed, and the goal of the huge increases in bank reserves that have been created during the downturn. Until recently, these reserves have been stuck in the system — unable to find lenders and borrowers willing to make a deal. This has been a good thing because prices have been held somewhat in check. That is now changing. As the pace of lending picks up, and the fractional-reserve system of loan pyramids kicks in, we could see new floods of money pouring through our economic life and causing untold damage. Contrary to most experts — including Bernanke — the more aggressive the Fed’s policies are, the worse the economy is going to be. If all that is required to revive the economy is pushing more money, then all third-world economies would be very wealthy by now. The latest trends in banking foretell the possibility of very dangerous times ahead where developed economies go the way of such undeveloped economies and destroy wealth through inflation in the name of stimulating production. As we may soon discover yet again, printing money is no substitute for real wealth creation. Regards, Bill Bonner for The Daily Reckoning