In last Friday's Digest, I (Porter) discussed Detroit's bankruptcy. It's a situation I've been following closely for years. But I wanted to give Digest Premium readers a little extra material on Detroit...
Detroit is a microcosm of what's happened to our entire country over the last 50 years. It happened in a more acute way in Detroit, but it's going on everywhere. Where I live – Baltimore – the city is $2 billion in debt.
Detroit went bankrupt owing $25,000-$28,000 on a per-capita basis. And that was enough to bankrupt the city of Detroit.
If you look at the same number for the country at the federal level, the federales are roughly $54,000 per-capita in debt. So the federal government is far worse off than Detroit. On a taxpayer basis, the federal number is really astounding... It's $150,000 per taxpayer in debt.
Yet when Detroit declared bankruptcy, nobody in the federal government said, "Wow, what we're doing is pretty dangerous. If we lose our ability to finance these debts, we're in big trouble." The whole country could go down like Detroit went down. And people have no concept of risk.
And that's what troubles me the most about Detroit. It wasn't that a city went bankrupt... It's that there's so much complacency about this.
Lots of other major metropolitan areas face the same problems... And lots of states are in the same situation. But even more important, the federal government has the same problem.
The root of the problem is simple... The people who are voting for the government services and the government spending are not the same people who have to pay for them.
There's always demand for more spending because the people who are voting for the spending don't have to pay. As long as that remains the case, you're going to see a significant decline in the government's creditworthiness at all levels.
– Porter Stansberry with Sean Goldsmith
What really bothers Porter about Detroit's bankruptcy...
On Friday, Porter wrote about Detroit's bankruptcy. And in today's Digest Premium, he shares one more reason this bankruptcy worries him so much...
To continue reading, scroll down or click here.
What really bothers Porter about Detroit's bankruptcy...
On Friday, Porter wrote about Detroit's bankruptcy. And in today's Digest Premium, he shares one more reason this bankruptcy worries him so much...
To subscribe to Digest Premium and access today's analysis, click here.
If you missed last Friday's Digest, make sure to check out Porter's comments on Detroit's bankruptcy. As longtime Digest readers know, Porter has been documenting the mounting problems in Detroit for years (like here and here). And with the city's recent bankruptcy, his predictions finally came true.
Again, I'd encourage you to read Porter's Friday Digest in its entirety, but here's the heart of his argument: "Socialist programs don't cure income inequality," he wrote. "They merely destroy wealth by reducing incentives for building businesses and encouraging dependency. That's why societies with lots of government spending typically have few civil institutions and a small middle class."
He went on to say...
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We've already received loads of positive feedback about the Detroit piece. (That's a rarity... We normally receive loads of angry mail when we expose problems with the government.) You can read some of the feedback in today's mailbag...
We're starting to see signs of a rebound in the precious-metals markets...
I was fishing in Miami this weekend with members of The Atlas 400, a private club Porter and I started four years ago... In attendance was one of the best precious-metals analysts I know. He said gold stocks had already bottomed. A portfolio of his favorite gold-mining stocks is already up 32% this month.
This gentleman, whose name I'm withholding to protect his privacy, pointed to the June price movements in gold stocks as one reason he thinks we've hit bottom...
The Market Vectors Gold Miners Fund (GDX), a portfolio of leading gold miners, fell 20% in June alone. And the Market Vectors Junior Gold Miners Fund (GDXJ), made up of smaller, riskier miners, fell nearly 30% in June.
My friend argued this was because the second quarter was ending... And no institutional investors wanted to report ownership of gold stocks... So they dumped everything. It was the final puke point, he said.
Another person on the trip was telling us about his gold mines in a certain South American country (one that isn't very popular for gold mining). His mines are producing gold at around $300 an ounce. Meanwhile, most gold mines are lucky to break even today – their production costs are four times as high. This guy said there's tons of opportunity in the country... And he's expanding operations rapidly.
That's one of the great benefits of being in The Atlas 400... As our friend Doug Casey, also an Atlas member, likes to say – "In the room, in the deal."
When you get these industry experts away from their desks and spend time with them on a fishing boat or in a race car, they really open up... You can make true, lasting connections. And you get great information.
If you'd like to learn more about The Atlas 400, please read the May 6 Digest. We describe the history of the club, some of the members, and the process for applying. (Our online application can be found here.) This club isn't for everybody, but if you're a good fit, we think it's one of the most important organizations you can join today.
Later this year, we're heading to Scotland for grouse hunting, salmon fishing, and scotch drinking. And in October, we're heading to Tuscany to enjoy some of the finest wines in the world and drive Ferraris through the Tuscan countryside. And we're in the early stages of planning a private conference for our members in Asia to discuss ways to legally get money offshore and different structures they can form to protect their wealth.
Wealthy folks in Asia are taking advantage of the selloff in precious metals to build their positions...
To meet demand for storage, Singapore is opening a new 200-metric-ton vault to store silver.
Malca-Amit Global Ltd, the company that owns the vault, said storage capacity is already 30% booked. The new vault will be the firm's sixth gold-storage repository at Singapore Freeport, a metal storage and trading platform in the island nation.
The increased demand, in part, reflects the growing number of wealthy people in Asia. At the end of last year, 3.7 million individuals in the Asia-Pacific region had more than $1 million in investible assets, according to consulting firm Cap Gemini and Royal Bank of Canada. That's roughly as many people as live in Los Angeles.
Bloomberg says the number of high-net-worth individuals in Asia is up 9.4% over last year.
The spot price of silver has fallen about 35% so far this year. Yet according to the Bloomberg financial news service, holdings in exchange-traded products remain steady. Bloomberg calculates holdings at 19,222 tons as of July 26, which is 1.6% higher than the same time last year. Gold, on the other hand, is down 25% to 1,970 tons.
Joshua Rotbart, general manager at Malca-Amit, said silver investors are mostly individuals, while the bulk of gold investors are institutional. His company is looking to build an additional vault in Hong Kong and may add to its Singapore facilities if storage-capacity demands continue.
Malca-Amit also has facilities in London, Zurich, Geneva, Bangkok, and New York. International banks such as UBS, JPMorgan Chase, and Deutsche Bank all offer precious-metals storage facilities in Singapore for their clients.
Last year, Singapore removed a 7% sales tax on investment-grade precious metals in an effort to boost its status as a bullion-trading hub. Bloomberg reports that currently about 2% of world gold demand moves through Singapore. The government aims to get that level up to 15%.
And in what is likely the strongest sign that the commodities market has bottomed...
Banking giant JPMorgan Chase announced it's shuttering its division focused on physical-commodities trading – the largest on Wall Street. The bank spent billions of dollars over the past five years building the biggest commodities trading desk. Now, it's exploring "a sale, spinoff, or strategic partnership" of the unit.
JPMorgan joins British bank Barclays and Deutsche Bank in dialing down the physical commodities business, though JPMorgan is the first bank to entirely exit the sector.
The bank's decision also reflects increasing government scrutiny of the physical commodities business...
The U.S. government is currently questioning whether banks should own metals-storage facilities (on suspicions banks are manipulating prices)... And the Federal Reserve is reviewing a 2003 decision that allowed commercial banks to trade physical commodities.
In short, JPMorgan felt the profits weren't worth the hassle. The division produced $2.4 billion in revenue last year.
New 52-week highs (as of 7/26/13): Activision Blizzard (ATVI), ProShares Ultra Nasdaq Biotechnology Fund (BIB), Chesapeake Energy (CHK), CVS Caremark (CVS), Fission Uranium (FCU.V), Fidelity Select Medical Equipment & Systems Fund (FSMEX), Hershey (HSY), iShares Nasdaq Biotechnology Fund (IBB), Integrated Device Technologies (IDTI), Johnson & Johnson (JNJ), Medtronic (MDT), 3M (MMM), ProShares Ultra Health Care Fund (RXL), and Cambria Shareholder Yield Fund (SYLD).
Lots of feedback from Porter's Detroit piece today... You can weigh in at feedback@stansberryresearch.com.
"As a licensed Master Social Worker, I could not agree more with the conclusions reached about how Detroit came to file for bankruptcy. For years, I worked on the 'front lines' with individuals and families and know only too well the allergy that exists to work, work ethics, and being self-sufficient. People 'retire' before they even really begin to work in a variety of ways by using social welfare networks.
"There are truly needy people in this group who should have help for a limited amount of time. However, they are the smallest group within the larger context of people living off their neighbors.
"Social Security is in trouble because most of the money for all sorts of welfare programs come from the S.S. account. Most people are unaware the money they send to SS each paycheck goes to pay for school choice, free breakfasts, free lunches, attorneys in child welfare cases, ALL medicaid monies (otherwise called Title 19) because it comes from Title 19 of the SS Act, incomes to new immigrants to the tune of around $2600/month, housing developments for the same immigrants, and to people who did not pay into SS such as immigrant peoples. Medicare is in trouble because of all the fraud that exists in the system.
"There is so much that could be done and is not being done to correct these inequities that congress should hang their heads in total and irreparable shame for the abuse, emotional and financial, of American citizens and workers. The result of years of congressional pork barreling and lobbyists. Each year they run for re-election, they promise more and more so they can be re-elected.
"One has to wonder why and consider the fact that no one leaves congress, the cabinet or the White House poorer than they came. Financial remuneration for congressional personnel needs to be seriously reviewed. I suggest they live by the same rules they put in place for us. I submit, they get a part time salary and have to retire after 2-3 terms of office with an appropriate retirement income. I suggest the monies they have squirreled away in huge retirement accounts be put back into the SS fund they raided for all these years. I further submit they fund their own 401K account, have to buy their own health insurance and stop forcing us to pay for a cadillac version just for them, and not go to Washington but instead have conference calls or whatever else is technologically feasible." – Anonymous
"Have been a subscriber for over 2 years now I believe, and have thought about writing several times but haven't... couldn't help myself this time.
"Regarding Detroit, I finished reading the best book I have ever read, Atlas Shrugged, several months ago. The book put into words my thoughts and gut feelings I have had the first 33 years of my life. Detroit is the culmination of all that Atlas Shrugged warned about.
"When you reward laziness, push out the tops minds from business, and ignore corruption, Detroit is the end result. You nailed it with the debt per citizen comment and the comparison with the US. Only upside I can find in the whole scenario is that it will be easier for my two children to succeed in this world when the competition in the US is so weak. But as you have said over and over, the bigger worry is the United States will lose its privileged standing in the world and all Americans will suffer.
"Keep up the hard work and keep it real despite the BS the mainstream media is spewing." – Paid-up subscriber Don Brandenberg
Regards,
What really bothers Porter about Detroit's bankruptcy...