Happy Birthday to the U.S. dollar... Another record for gold... Dan Loeb slams Obama... Greece downgraded again... Italian rout continues... Money market funds abandon Europe... Massive layoffs return...
This week marks the paper dollar's 150th birthday. In 1861, the U.S. government introduced paper notes (the first "greenbacks") to help finance the Civil War.
We'd argue the dollar died shortly thereafter… in 1933. After the Great Depression, the economy was facing severe deflation. The easiest way out of deflation is printing money. So Congress and President Roosevelt suspended the gold standard, banned private ownership of gold bullion, and printed away.
If the dollar died in 1933, it was buried on August 15, 1971... the day President Nixon ended the dollar's convertibility into gold. When a currency becomes untethered from an underlying asset and trades at the whim of government, it's finished. The paper dollar standard is only 40 years old. And it's nearing its end.
To commemorate the greenback's birthday, we present the following chart: The performance of gold versus the U.S. dollar since 1971...
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As you can see, the markets celebrated the dollar's anniversary by sending gold to an all-time record of $1,622.70 an ounce.
The dollar also hit a new low of $0.79 against the Swiss franc (gold's closest fiat proxy). And silver is once again trading above $40 an ounce.
Last week, we published a rant from one of our favorite libertarian billionaires, casino mogul Steve Wynn. Today, another favorite scathing commentator, hedge-fund manager Dan Loeb, turned his pen on Obama in his latest letter to investors...
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The budget is not the only thing in deficit today, as a paucity of leadership has left the country without a stable framework in which businesses can conduct business, investors can invest, and consumers can consume without a high degree of uncertainty and fear. Politically charged statements and brinkmanship have served to deepen divisiveness between the parties and led to confusion and fear among citizens. |
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There has been much said about who is allegedly the "adult in the room," but President Obama has yet to speak to Americans as adults, insisting instead on his preferred technique – stirring up class warfare. Scaring senior citizens about the possibility of not receiving their Social Security and Medicare checks, lambasting the corporate jet industry, and calling for higher taxes on managers of private partnerships is not a constructive approach to handling a complex multi-trillion dollar problem that will have a multi-generational impact. |
You can read Loeb's full letter to investors at Zero Hedge.
While the debate surrounding the U.S. debt ceiling is stealing the headlines, let's not forget how awful things are across the pond... Even after last week's $156 billion Greek bailout, Moody's is downgrading the country's debt.
Moody's cut Greece's debt rating from Caa1 to Ca, one notch above junk. The company said the likelihood of a distressed debt exchange and default is nearly 100%.
"After an exchange, we'll do a fundamental analysis of (Greece's) securities... and consider the risk of a re-default," Sarah Carlson, vice president and senior analyst at Moody's sovereign risk group, told the Wall Street Journal. "It's our experience, if you look back at history, that sovereigns that default will often default again."
And the market is still worried about Italy... The Italian stock market fell 2% today. UniCredit, our favorite bellwether, fell 5.5%. Shares in Intesa Sanpaolo SpA – the country's largest bank by market value– fell over 6% and were briefly suspended. Two other large Italian banks – Banco Popolare SC and Banco Popolare di Milano Scarl – dropped more than 7% each.
Only adding to the European crisis is the fact that U.S. money market funds are cutting back funding. The 10 largest prime U.S. money market funds have cut exposure to European banks by 8.7% on a dollar basis since June. More importantly, money market funds, which are historically important providers of short-term financing to European banks, are pulling out.
According to one French financier, "Up to mid-June, getting three, six, or nine-month money was not that difficult. But now, getting one-week or one-month money is about all we can manage."
Business owners are used to the reality that when it comes to customer feedback, you rarely receive emails or phone calls from your most satisfied customers.
Your most satisfied customers usually keep to themselves... and give you "indirect" feedback by quietly enjoying your product or service and ordering more. Only customers with a problem take the time to write in. Regular Digest readers see this idea at work nearly every day. We typically reserve the mailbag for our most scathing feedback letters. This allows us to address major questions about our research... and keep us all on our toes at Stansberry Research.
We bring up the mailbag today because we've received an unusually large volume of POSITIVE feedback regarding one of our latest reports.
Last week, Dan Ferris published the latest issue of our income-focused 12% Letter advisory, titled "The Great Debt Ceiling Hoax." Dan spent weeks studying how the debt ceiling works… and how our government works around it. He came to several controversial conclusions.
We received an enormous amount of feedback from folks thanking Dan for cutting through the BS you hear in the mainstream media... and from men like Tim Geithner. Several folks wrote in to say that single issue was worth the price of their entire subscription.
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I just want to thank you for doing an excellent job of enlightening us regarding the debt ceiling scare. I am so grateful that I came upon your publication and I look forward to reading your newsletter and continue to educate myself. Thank you for sharing us your gift and talent! – Corazon Co |
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I thought this was one of the very best issues I have read. We need more real research like this one, putting our entire situation in perspective. – Ken Groeppe |
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One issue worth the price of the subscription all by itself. While I have been thrilled with the profits generated from suggestions gleaned from Mr. Ferris' stock picks in the 12% Letter and Extreme Value, his analysis and opinions communicated in the current issue of the 12% Letter was well worth the price of the whole subscription. Superbly written at a level understandable even by one such as myself. GREAT JOB Mr. Ferris! – Bill Bray |
If you'd like a clear, no BS explanation of the debt ceiling, how it will be resolved, and Dan's controversial conclusion about how it will affect your investments, we encourage you to take a trial subscription to The 12% Letter. In addition to his debt-ceiling research, you'll get Dan's monthly issues and weekly updates about the safest and best income-producing vehicles in the market... which include Dan's method to "boosting" your dividend payments by 200% and 300%. You can learn more about a subscription here.
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New 52-week highs (as of 7/22/11): Coca-Cola (KO), CARBO Ceramics (CRR), Hershey (HSY), Royal Gold (RGLD), Comstock Resources (CRK), McDonald's (MCD), Philip Morris International (PM).
Every week, we receive an angry e-mail from a subscriber accusing us of being Republicans... I assure you, we're not. Send your spurious accusations to feedback@stansberryresearch.com.
"Your bias is showing. You & your Republican cronies belong in jail. What the republicans have done to this country is unforgiveable – let alone even acknowledged by all of you.
"Corporations are gouging the public, you block the one Dept. that MIGHT offer a little help to the general public, you are anti-Elizabeth Warren because she is on the side of people, your get rid of anyone who disagrees with you, you all run roughtshod over everyone else. you waster down Dodd-Frank to nothingness, you don't go to jail for what you Republicans have wrought on this country – Shame on you.
"Am totally disgusted with Republicans. Unfortunately you all have tones of money to buy your Congressional puppets, lobbyiests, etc. Since you are so unpatriotic, perhaps you should go set up your own country – and continue to be the Fascists that you all are." – "Disgusted customer" Angela Eisenberg
Goldsmith comment: Angela, you must be new to our publications... Longtime subscribers know we despise all government. We criticize the right and left equally.
"I have a great deal of respect for the information coming out of the newsletter, but when I read Porter's comment that 50% of the people in the US don't pay income taxes, I wondered if that was really true. So I looked it up and found that it isn't true – but what is true is that 50% of the taxpayers in the US don't pay very much in taxes (on average about $400) because they don't make much money at all (average gross income of about $15,400).
"And according to the latest "State of the Nation's Housing Report" for 2011, the people earning under $30,000 a year are spending between 60% and 80% of their income on housing.
"And when we look at the looming deficits in the trillions through the next 10 years (see Budget report attached), almost 60% of the projected deficit is just the Bush Era tax cuts for the richest 5% of the people in the US. So, 5% of the US population will be causing 60% of the deficit, and yet you're trying to find a way to cover the deficit by digging into the pockets of people making an average of $15,000 a year. Good luck with that idea.
"I can't imagine how the US is ever going to reach any realistic solution to our overwhelming financial problems when people of obvious high intelligence focus is on pushing the solution on the backs of people who don't have any money to speak of at all. Talk about closing your eyes to the problem – this is an issue of responsibility that has to be addressed realistically (where can we get the money), not with hype that won't accomplish the objective.
"Please think of a better answer than what you are now pushing on your readers." –Paid-up subscriber Bill Burdette
Porter comment: I'm always careful to speak about federal income taxes – not payroll taxes – in these discussions. There's an important reason. The payroll taxes that are collected to fund specific programs – Medicare, Medicaid, and Social Security – are designed to function as insurance schemes. But in fact, they're completely fraudulent. They don't collect anywhere near the amount of money required for the obligations assumed.
In short, an analysis of these programs is difficult to perform on a per-person basis, because the returns from these contributions are unknown – your contribution to these funds depends on what you eventually receive from them... And there's no way to compute that on an individual basis, today.
What is clear, on the other hand, is the deficits of these programs overall means the contributions we're all making to them will not help balance the budget.
Regards,
Sean Goldsmith
Augusta, Georgia
July 25, 2011