 | | The Daily Reckoning | Tuesday, June 7, 2011 |
- The bull market in government limousines: your tax dollars at work,
- A high melting point and six times the specific stiffness of steel...any guesses?
- Plus, Bill Bonner on futile Fed fixes and where one-in-four American dollars go...
|  | | | How to Stimuluate Inflation and a Weak Dollar | | The Real and Unfortunate Consequences of Quantitative Easing | |  | | Eric Fry |
Reporting from Laguna Beach, California...
The Dow Jones Industrial Average slumped another 61 points yesterday, giving the US stock market a jumpstart on a sixth consecutive losing week. Bad economic news is, apparently, bad news after all.
"US equities halted their longest streak of gains in a month," Bloomberg Newsreported last Wednesday, "after companies added 38,000 workers to payrolls in May, according to figures from ADP Employer Services, less than one quarter of the median growth forecast by economists."
Two days later, US equities continued halting their streak of gains, as the Labor Department's monthly employment report also fell way short of expectations - about one quarter of the median forecast by economists.
The economy, in general seems to be running at quarter-speed.
Just in the last few days we learned:
- Factory orders slumped 1.2% in April, compared to a gain of 3.8% in March.
- Car sales tumbled 10% in May - the lowest level in seven months.
- The ISM's manufacturing index dropped to 53.5 in May from 60.4 the prior month - the slowest pace since September 2009.
- The Consumer Confidence reading for May slipped to 60.8 from 66 in April - the lowest level of the year.
- The Median home price fell to a new low for this cycle - the lowest since 2003.
As anticipated by your skeptical editors here at The Daily Reckoning, Ben Bernanke's quantitative easing has failed to stimulate enduring economic growth, but it has done a masterful job of simulating inflation and dollar weakness. We expect these trends to continue.
To be fair, the Fed Chairman did as much as he could, armed with only a printing press and a few moronic economic theories. He's a modern-day Davey Crockett, trying to repel overwhelming hostile forces with the financial equivalent of a Bowie knife.
A printing press was never meant to nurture the economic growth of an entire nation. It is good for mass-producing Bibles, and putting monks out of the illuminated manuscript business. But a printing press is not so good for inspiring an entrepreneur to take a chance.
In fact, an active printing press undermines capitalistic enterprise because it creates the inflationary episodes that disrupt pricing throughout the supply chain, while also raising the cost of credit.
But Bernanke's efforts have yielded some measurable results, even if they are the wrong results to be measuring. Government employment is soaring.
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"The structure of the US economy was changed by the two bubbles and reflations over the past ten years, as private and public debt levels have ratcheted up," observes Eric Janszen, of iTulip.com. "Consider the fact that total employment fell by 2.6 million jobs since the year 2000 while local, state, and federal employment grew by 1.8 million... In 2001, 14 million were employed in local government and 17 million in manufacturing. Ten years later, 15 million are employed in local government and 12 million in manufacturing."
The growing legions of federal employees are doing their best to jumpstart the economy, as the nearby chart illustrates.
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The number of limousines owned and operated by the federal government has doubled over the last three years. The booming federal limousine trade is good for the limo industry, which is also good for related industries like limo driver uniform vending, sun-roof installing and crystal whiskey decanter manufacturing.
Two hundred new limos in three years isn't going to turn the economy around overnight, but at least it's a start, right?
| | | | Israel Gives Money-Grubbing OPEC the Middle Finger |
Israel just discovered what could be the 2nd largest oil basin in the world today. This could spell the beginning of the end for OPEC - and huge gains for you. Details here.
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| | The Daily Reckoning Presents | | Beryllium...Even Sexier Than it Sounds | |  | | Byron King |
The young Marine sniper lays motionless in a shallow bed of sand and broken rock on the mountainside in Afghanistan. The sun blazes down, and he's sweating. He's spent the morning scanning a valley for Taliban fighters who keep a low profile in their maze of spider holes.
After a while, another Marine - the spotter - says, "I've got him. Just next to the tree, to the left of that stone house."
The sniper stares down through the optics of his rifle. Yes, indeed. The image is perfect from over 1,000 meters away. There's a very shallow footprint in the dirt, and next to it is a telltale cigarette butt. This Taliban has just smoked his last one. Hey, they're called coffin nails for more than one reason.
The sniper turns a small knob on the gun sight. The image holds steady. There's no vibration at all. Clear view. Eyeballs on target. Confirmed bad guy. Fire at will. Squeeze the trigger, and... Wham! Round traveling downrange. Kill shot.
Later that day, an unmanned aerial vehicle (UAV) flies over the site of the morning's activities. The pilot is faraway, in a "cockpit" in Nevada, USA, where he's linked by satellite communications to the battlefield.
In a routine maneuver, the pilot sets the UAV in a circling pattern. The aircraft is so high up that no one on the ground even knows that it's there. The pilot slews a camera on the bottom of the UAV, down toward that stone house. The image is crystal clear. It's like the pilot is looking out of a plate glass window next door.
Down below, the pilot sees about a dozen Taliban assembling and wiring bombs. He wonders to himself, "Why are they still there, next to that house? Didn't they learn anything when their buddy got shot this morning? Oh, well. Those bombs they're building will soon find their way to sites along roads in the nearby valley. We need to do something, and do it now."
The UAV pilot - assisted by a backup team of observers in Nevada and Afghanistan - quickly alerts the chain of command. There's a well- drilled procedure in this circumstance. Signals flash between orbiting satellites, linking people in Nevada with a command center near Kandahar.
Numerous sets of eyeballs review the imagery. There's no doubt on this one. Heck, you can positively identify some of the Taliban men based on facial features. There's simply no vibration in the camera on the UAV. It's a positive ID - enough to satisfy even the staff of flinty lawyers who look over every shoulder these days.
"Take them out," comes the order. "Authorization granted. Weapons clear."
The pilot in Nevada has by now positioned the UAV into a firing position. He makes his attack run. With numerous witnesses in attendance, the UAV pilot hits a red button on the control stick. He feels nothing, but half a world away, a rocket motor ignites inside a Hellfire missile. The weapon slides effortlessly off a lightweight rail, accelerates like greased lightning and moves down out of the sky, toward the aim point.
The missile moves so fast, in fact, that it strikes the ground before its sound reaches the eardrums of any of the Taliban fighters. When it hits, there's a sudden flash and a blast wave moving at over 25,000 feet per second engulfs the area. Within a few thousandths of a second, several of the bombs that the Taliban were building cook off as secondary explosions.
The operational commander requests that a nearby Navy aircraft, an F/A- 18F Super Hornet, fly over the site. She needs an independent battle damage assessment to determine if a follow-up strike is necessary.
Within a few moments, there's the crackling sound of powerful jet engines above the mountains. A haze-gray aircraft takes its vector from the air controllers and moves toward the target scene. The flight officer in the back seat of the Super Hornet slews a camera that's part of an imagery pod hanging from one of the wings.
The gimbal system of the imagery pod tracks down to the exact global position on the ground where the missile hit. There's no vibration in the camera, none at all. Again, a crystal-clear image transmits from the aircraft and bounces off a series of satellites and back to command centers across Afghanistan, to ships at sea and to Nevada.
The imagery indicates that the first strike by the Hellfire missile did the job, with the secondary explosions delivering any necessary coup de grace. The next decision for the battlefield commander is whether or not to send in a team of Special Forces to pick up the pieces... And so it goes.
The fictional story I just recounted is based on the facts of modern warfare. These kinds of things happen out on the modern battlefield.
How is it that things work so well in a complex battle space? Why doesn't that gun sight vibrate? Why do those UAV cameras work so nicely? Why does that missile rail shoot so straight? And what about those satellite systems that bounce the signals between Afghanistan and Nevada?
The short answer is "rare earths." The longer answer is a specific rare earth known as beryllium, the magic metal.
In my investment service, Energy & Scarcity Investor, I've been following beryllium since February 2008. That was when I recommended Brush Engineered Materials, which changed its name and stock ticker in March 2011 to Materion Corp. (NYSE:MTRN).
Here's a bit of what I told you a couple years ago: Beryllium is a silvery white metal, No. 4 on the periodic table of elements. Beryllium is one of the lowest-density metals there is. It is very lightweight. Yet beryllium has six times the specific stiffness of steel. Here are some more impressive points about beryllium:
- Beryllium resists oxidation, even at high temperatures.
- It has a high melting point.
- It holds its mechanical properties up to extremely high temperatures.
- At the same time, you can freeze beryllium to incredibly low temperatures and maintain its strength and stiffness.
- It has high thermal conductivity, plus the highest specific heat of any metal.
- Beryllium has what is called superior "thermal diffusivity," so it radiates heat away.
- It has superb acoustic damping characteristics.
- And it has the highest X-ray transparency of any metal material.
So what does all this mean? It means that beryllium has an incredible combination of properties that occur in no other metal. And it means that super-smart people have figured out how to use beryllium in all sorts of applications.
Rocket scientists use beryllium...literally...in rockets. Beryllium goes into satellites and space structures, aircraft, optical systems, semiconductors, medical imaging and nuclear systems. And as the story up top demonstrates, there's beryllium in gun sights, rocket launch rails, camera gimbal systems and more.
When designers have to come up with products that work at the extreme edges of performance - from the dirt of a mountainside sniper position to the depths of outer space - they specify beryllium.
The robust and growing demand for beryllium inspired my recommendation of Brush-Materion three years ago. The stock took a hit in the market crash of 2008 and 2009, but has since recovered and is up nicely. Business is good, and Materion shares are holding their own. Today, Materion has a strong position within the beryllium market.
But Materion is not the only compelling beryllium play, nor is beryllium the only compelling rare earths play. I recently recommended a second beryllium play to the subscribers of Energy Scarcity and I continue to monitor the fast-moving rare earths sector very closely.
I would advise all Daily Reckoning readers to do likewise. The rare earths are one of the very few industries that possess robust long- term, growth potential, even if global economic activity continues to disappoint.
Regards,
Byron King,
for The Daily Reckoning
P.S. If you would like to get your name on my Energy & Scarcity Investor mailing list, you can do so here. I've also got my eye on a pair of little known Canadian penny stocks, one of which recently discovered a $2.6 billion oil deposit in Israel, while the other, an exploration company, is right now uncovering King Alexander I's gold fortune. Get all the details here.
| | | | Byron King's Outstanding Investments Presents... |
The New OIL WAR and Why Iran Threatens Your Money...
According to Byron King's new presentation Hezbollah terrorists, militant Muslims and Iran's crackpot leader could be planning the deadliest surprise threat to your money and livelihood this coming year. Yet nobody in the Pentagon will talk about it, and no one in the White House has a clue.
Thankfully Byron's taking action and is sharing several ways for you to take to protect yourself against the epic financial crisis ahead...
Click here to watch Byron's value-packed presentation now.
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| | | | Bill Bonner | | Zombie Spending on Things Already Consumed | |  | | Bill Bonner |
Reckoning from Farmington, Pennsylvania...
Yesterday, stocks continued to slide. The 10-year note yield fell to exactly 3%. Oil traded at $99. And gold rose another $4.
Has the post-crisis bounce finally exhausted itself? It's beginning to look like it. But you wouldn't be surprised if this turned out be just another feint to the downside, would you? We've seen several. We expected the end of the bounce last summer. Instead, the rally has held up for a full year longer than we expected.
Is it ready to roll over now? Let' wait and see...
We're attending a conference of financial analysts, investment advisors and writers.
What have we learned so far?
How about this? Porter Stansberry told us that together, public and private sectors in the US now spend $3.5 trillion just on interest. Since almost all the borrowed money was spent on consumption rather than capital investment, this expense is just one big drag on the economy. It produces no growth, no real jobs, and no real wealth.
And here's another big drag: taxes. Porter says the total tax take is about $2.5 trillion. Again, this is money almost 100% consumed...eaten up...used up, with nothing to show for it but people eager to consume even more next year.
These two expenses combined tote to about 40% of GDP.
No wonder the economy is not growing! Four out of every ten dollars is zombie spending. It supports hamburgers consumed in 1998...gasoline burned in 2002...bankers' bonuses handed out in 2008...and food stamps distributed in 2011.
Debt, in other words. But what can be done about it?
Households are already defaulting on mortgage debt. As the Great Correction intensifies, there will probably be more defaults. And not just on mortgage debt, but on credit card debt and student loans too.
Over in the public sector, they're counting on inflation to wipe out much of their debt. Already, inflation is said to have reduced seniors' purchasing power by 32% over the last decade. And that is with an official CPI of only 1% or 2%. Wait until inflation really gets going!
Meanwhile, word is getting out. The mainstream financial media - which supported the feds' nitwit interventions - is beginning to realize that they didn't work. Here's The Economistrubbing its eyes, waking from a long sleep:
RECOVERIES from financial crises are usually subdued, but America's is starting to look comatose...
Last December an agreement between Barack Obama and the Republicans to extend George Bush's tax cuts and enact new ones led to forecasts of 3% to 4% growth this year. But the new consensus rate of 2.6%, for a recovery now two years old, is barely above America's long-term potential and scarcely enough to bring unemployment down. To be sure, the post-crisis imperative for banks and households to reduce their debt meant a V-shaped rebound was never on the cards. Even so, this is a terrible performance.
Economists have found themselves repeatedly making excuses. First it was the snowstorms. Then it was Japan's earthquake, tsunami and nuclear disaster which crimped the supply of parts to car assembly plants in America. Then, as the snow melted, floods ravaged Arkansas, Mississippi, Missouri and Tennessee, and tornadoes battered Alabama and Missouri. America has suffered five incidents of extreme weather this year, each inflicting at least $1 billion in damage.
The most important special factor has been petrol. Prices jumped from $3 per gallon at the end of December to $3.90 in early May. That has siphoned off much of the purchasing power that consumers should have extracted from December's tax agreement and subsequent gains in employment. Total consumer spending rose at just a 6.7% annual rate in the three months to the end of April, but most of that increase was eaten up by inflation. Real spending grew by a paltry 2.2%.
To make matters worse, house prices in March fell to a new post-crisis low. Betsy Graseck of Morgan Stanley reckons they'll fall another 10% to 12% over the next year. That is only one of many reasons she says banks are cautious about lending: they are also facing tougher scrutiny of their underwriting by regulators and buyers of their mortgages. And more thoughts...
Having learned nothing, The Economist gives more bad advice:
...[Republicans'] main plank is that the federal government slash spending. "Families are tightening their belts and sticking to a budget - and Washington should too," said Eric Cantor, the Republican majority leader in the House. Maybe so, but spending less when households are in no shape to pick up the slack seems a sure-fire way to keep an anaemic recovery off-colour. Yeah. Spend, spend, spend...borrow, borrow, borrow. That's worked great so far. Yeah.
The trouble with The Economist, The Financial Times, the US government and most mainstream economists is not that they don't know what is going on but that they don't want to know.
Nobody gets a Nobel Prize for letting the chips fall where they may. Nobody attracts readers by telling them that there is nothing that can be done. And nobody gets elected by promising to do nothing.
So they continue giving bad advice...and following dead-end, counter- productive, zombie-feeding policies.
Usually, the economy is robust enough to recover despite their efforts. Not, apparently, this time.
So, we give you a new definition:
A Great Correction: when an economy is so weak it can't overcome the feds' efforts to fix it.
Regards,
Bill Bonner,
for The Daily Reckoning |
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