Say Goodbye to Your Money

Bill Bonner - Wed 03 Feb, 2010

The depression squeezes everything – asset prices, businesses, earnings

Baltimore, Maryland

Got money?

You may find it hard to hold on to. People with money are caught in a vice. On the one side is the de-leveraging economy. On the other is the government.

The depression squeezes everything – asset prices, businesses, earnings. And it’s going to be with us for years – no matter what the papers tell you. Get ready for a 20% decline in stock prices, says our old friend Marc Faber. Another analyst puts the current P/E at 22... also implying a loss of about 20% just to get down to ‘normal’ levels.

But “this isn’t a normal environment,” says a senior analyst at Ned Davis Research.

Well, it’s normal – for a depression. When word gets around, you’ll see stocks lose ground. House prices will probably go down too.

Meanwhile, over on the other side of the vice, Mr Obama says he wants to raise taxes on the rich and on businesses by $1.9 trillion. Let’s see. We’ll make some guesstimates.

There are about 100 million families in the US. Of those, about half are net taxpayers. And the top 10% are said to own half the wealth in the US and already pay 66% of its total taxes. Looks like they’re going to get whacked again. Each of ‘the rich’ families will pay nearly $200,000 more in taxes.

The idea is to make the tax system more ‘balanced’, says the president, by taking more money from the people who pay the lion’s share of US taxes... and giving it to people who don’t pay anything…

Here’s a comment from Chris Edwards of the Cato Institute:

“President Obama has introduced his budget for next year. He proposes that the government spend $3.83 trillion in fiscal 2011. To put that number into context, let's take a trip down memory lane.

“President George W Bush... came into office when annual federal spending was $1.86 trillion. He proposed to increase spending at a healthy clip, rising to $2.71 trillion by 2011.

“Bush and his team started blowing their budget almost immediately. They kept spending more and more — wars, a giant new homeland-security bureaucracy, a big-government response to Katrina, the prescription-drug bill, doubling K-12 education spending, big pay raises for federal workers, financial bailouts, and so on.

“I can’t think of a single crisis that occurred on President Bush’s watch that the Bush-Rove team didn’t have an interventionist and big-spending response to.

“In Bush’s last year, FY2009, the government spent $1 trillion more than the Bush-Rove team had originally planned. It is true that 2009 spending included $112 billion for the Obama stimulus bill, so let’s take that out.

“With that adjustment, the Bush-Rove team ended up spending $916 billion more annually by 2009 than they had originally planned. Note that the wars in Iraq and Afghanistan cost only about one-fifth of that 2009 excess spending amount.

“Then Obama comes into office and turns out to be Bush on steroids with respect to federal spending. Obama is calling for spending $3.83 trillion in 2011, or $1.1 trillion more than the federal budget nine years ago had promised. That's a 41% forecasting error.

“The lesson from all this is that an administration’s promised spending beyond the first year is meaningless. Obama is proposing a freeze on a very small part of the budget, for example, but his budget plan next year will likely find reasons to break that promise.

“It scares the hell out of me that federal spending down the road could be 41% higher than even the huge increases projected by Obama…”

We understand the larceny of the tax increases. What we don’t understand is the economics.

The idea of a $3.8 trillion budget is to stimulate the economy. The Obama team knows as well as we do that this ‘recovery’ is mostly a mirage. Without jobs... and housing... you can’t expect real growth.

Monetary stimulus has failed. Mr Bernanke supplies the banks with all the free money they want. All they do with it is pay themselves bonuses. What more can Bernanke do? Rates are already at zero; they can’t go lower.

That leaves fiscal stimulus. “Spend more money” That’s what economists such as Nobel prize winner Paul Krugman, the Financial Times’s lead economist Martin Wolf and Japan expert Richard Koo are whispering in Obama’s ear. Spending supposedly boosts sales and creates jobs.

But if you’re just taking money from one pocket and putting it in another, what’s the point? There is no net increase in spending power. Still, economists argue that the rich don’t spend their money; they save it! And we know what an awful thing saving is...

Taking money from ‘the rich’ actually retards a real economic renaissance.

The rich are the ones who consume the most... because they have the most to spend. More importantly, they’re the ones who fund the small businesses that do the hiring. Banks won’t take a chance. It’s the relatives... and ‘the rich’ themselves... who put their money on the line.

Either someone forgot to explain this to the Obama administration or they just don’t care. In Washington, politics trumps economics every time...

And now, both politics and economics are putting pressure on Americans with money...

More, after this on why property is set to disappoint… and one area of the stock market that could outperform… if you know where to look:

“Apart from the ever-optimistic estate agents, there are only two groups of people expressing enthusiasm for property,” writes Tom Bulford, straying a little from his normal penny share patch… but with an important point to make.

“The first want to sell new property funds to anyone who can be persuaded that an upswing is just around the corner. And the second group, of so-called ‘vultures’, want to buy property on the cheap from distressed sellers.

“The trouble is that the banks are not playing ball. It refuses to accept the sale of a property that would reveal the overvaluation of all the others it owns. It would rather maintain the pretence that these assets actually have the value shown on its balance sheet.

“The bear market in property is going to be long and painful. Peter Hagerty is Chairman of AIM-listed property specialist Arteon (ticker: ARTO). This company has created a platform to enable investors to target their investment into specific properties. This is what he has to say.

“During 2009, investment property markets have displayed conflicting signals beneath a veneer of headlines which focussed on the slightest evidence of recovery… With a significant volume of property lending due to roll over within the next 24 months and great uncertainty in domestic economies… opportunities will be more plentiful in the coming times.”

In case we need it, Tom wastes no time in translating this statement from a property market insider:

“In other words prices will fall. Property has outperformed shares in the last decade. But don’t bet on a repeat in the next ten years.”

Tom’s a cunning operator. He makes his money in small companies – the ones that don’t make it to the screens of the City traders. He picks up news before it hits the newswires… and often makes a killing in the progress.

You might not have seen Tom’s most recent report if you are not a reader of his FREE penny shares investment email, the Penny Sleuth. But you really should read it now. It’s causing a phenomenal amount of interest amongst savvy investors.

Let us copy you in on Tom’s latest email to his readers – it lets you know what you need to know about his “intercept” strategy, straight from the horse’s mouth, so to speak:

“In short, it’s the most revealing (and potentially most profitable) report I’ve ever written… it gets right to the heart of everything I love about investing in penny shares. It really captures the raw excitement of getting in early on what could be a truly stunning success story.

“And it also highlights a whole series of potential gains on offer right now – from some of the hottest small caps on the penny share market.

“As you may know Red Hot Penny Shares is my personal advisory newsletter, where I tip shares to my loyal readers, telling them when to buy, sell or hold their shares.

“…if you missed the details of my special penny share “Intercept” strategy, here’s another chance to read all about it, just click here. The feedback has been overwhelming, so I really think you’ll get something out of giving it a quick read.

“And for those thinking of making the step up to Red Hot, you may be interested to know my publishers are currently offering new members a 50% discount for their first year. For about 13p a day, you’ll get the chance to move early on a whole load of stocks that look set to deliver a substantial pay-out.

“Any way you look at it, that’s a great deal. But I honestly don’t know how long they’ll keep the offer open…

“That’s why I’m urging you to read it today – in case they change their mind!”

We agree that you should certainly read about Tom’s clever strategy. You can access his report here:

How to legally “intercept” big company news – BEFORE it hits the headlines!

Your capital is at risk when you invest in shares; never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. 0207 633 3600.

And more thoughts...

*** Here’s another mystery. Homeowner defaults. Not that there are so many... the mystery is why there are so few…

In Nevada, for example. Two out of three homeowners are underwater... which is hard to do in the desert. Some of them owe hundreds of thousands of dollars on something that doesn’t exist anymore – the equity on their houses. Still, most of them continue making mortgage payments. What gives?

It’s a case of “asymmetrical ethics,” says the New York Times. Lenders don’t hesitate a minute to maximise their earnings – using every tool available to them and every trick in the book (including some tricks that have never been published). They default whenever it suits them.

But homeowners? They plod along. Maybe they think their house will come back in price. Maybe they think they’ll suffer some awful penalty if they default. Maybe they are just too proud and too honest to take advantage of the non-recourse mortgage provisions. So, they keep paying.

But for how long? Mortgage rates are based upon past behaviour. In the past, people regarded mortgage payments as an inescapable, moral obligation. You paid as long as you were able.

It won’t be long before the ethics of Wall Street catch on all across the country. Gaming the mortgage system will become as common as signing up for food stamps.

When people see that house prices won’t go back up... and when they see their neighbours shedding hundreds of thousands of dollars’ worth of mortgage debt – and getting away with it – they won’t be far behind.

*** “You’ve been out of the country for a long time. Maybe you notice it. Most people don’t.”

The subject was hamburger. At a hamburger joint in Rockville, Maryland, the server had asked:

“How would you like that burger cooked?”

“Medium rare,” we replied.

“I’m sorry. We don’t do medium rare,” was the reply.

Why doesn’t a restaurant cook a hamburger the way the customer wants it cooked?

Recently, in Baltimore, we ran into the same sort of thing. At the Peabody Court hotel, we asked the desk clerk if he could have someone pick up our laundry. We had left it neatly on the bed, with a laundry slip all filled out.

“You have to bring it down here,” was his reply.

“What?”

“You have to bring it down yourself.”

“What? Isn’t this a hotel? Aren’t you in the hospitality business?”

Our protests were useless. They wouldn’t pick up the laundry because they had a policy against it. The policy was designed to protect them against customers who tried to take advantage of them by claiming laundry had not been returned. Now, a guest has to bring his dirty laundry to the front desk and have it inspected!

The restaurant had similarly taken measures to protect itself from customers who might get sick from uncooked beef. As at the hotel, the precautions are for the benefit of the business, not the customer.

“Oh... and I heard something on the radio...” we continued in our conversation with a colleague.

“There is a proposal in Maryland to make it a criminal offence to smoke in a car in which a child under the age of three is riding. Already, you can’t smoke in bars or restaurants. There doesn’t seem to be any limit to the improvements a legislature can make, does there?”

“Yes. And the most amazing thing is that people will go along with anything. There is no resistance. Nobody thinks any more, they just follow silly rules and procedures. I was just on a trip outside the US with a group of older people. We travelled around other countries with no problem. But coming back to the US was a hassle. They carefully searched all these old people... as if they really thought these folks posed a threat to homeland security.

“This war against terror probably conditioned Americans not to question authority. It’s been going on for nine years now. As far as I can remember there were only two incidents in all that time... and they were almost comic. One guy set his underwear on fire... the other lit his shoes...”

Until tomorrow,

Bill Bonner
For The Daily Reckoning

P.S. Forget earnings reports, technical trends and economic data. The ONLY thing that always makes stocks go shooting up is a big news story.

See how Tom Bulford’s "Intercept" technique is built on this premise – and how he could help you to small cap gains of 200%, 500%, 800% or more. Click here.

Your capital is at risk when you invest in shares; never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. 0207 633 3600.

post a comment

No comments added

	BlinkList
	Del.icio.us
	Digg
	Facebook
	Google Bookmarks
	linkedIn
	Livejournal
	Newsvine
	Reddit
	StumbleUpon
	twitter
	Yahoo! My Web