We spend a lot of time assuming we're wrong...
Lord knows, it happens frequently enough. And this data point gives us pause: Investors outside the U.S. are actually increasing their purchases of U.S. Treasuries, showing inflation fears remain subdued. Foreign investors bought 43.1% of the $1.41 trillion of notes and bonds sold by the Treasury this year, compared with 27.1% of the $527 billion issued at this point in 2008. The consensus among foreign fund managers is their money is safe in the U.S., and inflation should remain below the five-year average.
As you undoubtedly know, we expect exactly the opposite. We have seen our government is willing to do whatever it takes – double the size of the Federal Reserve's assets, spend billions bailing out banks, and make loans (through the FHA) to deadbeat borrowers – to keep the money charade rolling.
But "whatever it takes" has a price – in this case, a stimulus equal to roughly 30% of our GDP. This is the kind of stimulus found in banana republics on the eve of a massive devaluation. We know this will inevitably lead to a massive inflation that will see the U.S. government bond market collapse.
So... why are the foreigners still buying our bonds? Well, we're really talking about the Chinese, who are the largest buyers, by far. And the Chinese are still buying because they want to keep their people employed, building new widgets and gee-gaws to sell to "rich" Americans. So they keep buying our bonds, and we keep buying their imports. The question remains: Which breaks first, the chicken or the egg? We don't know. But we wouldn't bet on either.
Our president doesn't seem concerned about the dollar or our debts... He is proposing to double the debt during his administration. He is running an estimated $1.5 trillion deficit this year. So what is he concerned about? Blogs. That's right. The president is worried blogs are ruining our country:
I am concerned that if the direction of the news is all blogosphere, all opinions, with no serious fact-checking, no serious attempts to put stories in context, that what you will end up getting is people shouting at each other across the void but not a lot of mutual understanding.
His solution? Newspapers. I'm not making this up... OBAMA! says he would consider several breaks for newspapers, including tax breaks if they restructure as educational corporations. That's just what we need, isn't it? Yet another industry that's dependent on the government for its life's blood. Yes, government-financed news would prove to be America's savior...
Some of the sharpest minds in Florida real estate believe recent buyers – who have been buying entire buildings for cash – are buying too soon... even though prices have fallen by as much as 80%. On average, 45 condos priced at more than $750,000 sold in Dade Country (home to Miami) in June, July, and August. But about 2,439 units remain on the market, meaning it would take 4.5 years to clear the market.
In addition to a condo supply problem, southern Florida has a population problem... University of Florida researchers reported this year the state's population shrunk by 58,000 in the 12 months ended in June – the first annual decrease in 63 years. And the state is losing its draw as a retirement Mecca. In 1980, 26.3% of all U.S. citizens 60 or older who moved across state lines went to Florida. By 2007, that number decreased to 12.5%.
Jack McCabe, CEO of McCabe Research & Consulting, says prices could easily fall another 10%-15%. Some Florida bears label those estimates conservative and say a recovery could take an entire generation. (McCabe, by the way, is our keynote speaker at this year's S&A Alliance meeting.)
New highs: Morgan Stanley Emerging Markets (EDD), PowerShares Insured National Muni Bond (PZA), Annaly (NLY), Fairfax Financial (FFH).
In the mailbag... Is Stansberry & Associates an exclusive club? Who provides higher-quality advice for less than we do? Send your e-mail to feedback@stansberryresearch.com... We read every one.
"Sorry I cannot make the Atlas 400 Club trip to Europe to drive expensive cars that I only dream of owning. I am trying to figure out how to survive in this California economy with house payments and no job for 9 months, 2 kids to raise, and a bleak horizon in my world. Thank God you have Dan Ferris who keeps out of your jet set world to provide sound advice to those of us who just hope to retire in something better than a double wide and maybe buy a car that is newer than the ones I have that are 10 and 14 years old respectively! Keep those emails to Atlas 400 Club members please... Now to the bottle." – Paid-up subscriber JJ
Porter comment: First... let me say I have true empathy for your situation. When I founded this business, I was out of work and had so little capital I couldn't afford to have my car repaired. I was literally riding my bike to the office every day. As a business, we have always strived to make the highest-quality research available to people for a reasonable price. Who offers more high-quality financial research to more people than us? We publish for free DailyWealth, widely regarded as the single best daily financial e-letter and certainly the most widely read. Likewise with Growth Stock Wire and The Digest, which is free to subscribers. We also offer five high-quality letters – True Wealth, Retirement Millionaire, Porter Stansberry Investment Advisory, The 12% Letter, and The Resource Report – for annual subscription rates that are less than one night's meal at a good restaurant.
Meanwhile, we know not every subscriber is a candidate for the Atlas 400 Club. But we also know our association with the club and our friendships with its members will provide benefits to all our subscribers by increasing our network of highly placed sources. And you never know... Start your own business today, and in a few years, you might decide our $25,000 membership fee is a bargain.
"Your Sunday rant on The Crux was a little intense. You may want to consider a few sedatives or taking a few days off. Yes, things are bad and they'll get worse. We all know that. The U.S. is on a slippery slope. We're all well aware of that. Maybe we'll really have another Great Depression. We very well could with the current bunch of lunatics in the White House. But I'm sorry to disappoint you.
"Even if all of the above happens we will pull through. We are smarter than you and Obama think we are. Some of us like it here and want to stay. We'll do what it takes to keep the wheels turning and keep America going. If you want to bolt, go ahead. But the rest of us are going to stay here and tough it out. I assure you, when it's bad in the U.S., it's terrible in the rest of the world. I'll venture a guess that you've never spent real time in a foreign country. I mean live and work there among the local population for six months, a year or more.
"Well I have. It's not carefree life you describe. Every time I get back to the U.S., get out of the airport, get on the freeway, turn on the radio and even if 'Hotel California' is playing I take a look at the countryside, the big clear sky above and think to myself, there's no place like the good ol' USA. Sure, there are a few countries I'd like to spend some time in. Of course. There are some great ones actually. But I don't think I'll be turning in my U.S. passport just yet." – Paid-up subscriber Allen Whitmore
Porter comment: I don't think I said anything like what you apparently believe I did...
I have no plans to leave the country, for example. On the other hand, it is true I greatly fear our politician's efforts to destroy our currency will succeed. When that happens, I don't think anyone can honestly say they know what will happen to our country.
What I do know is 1% of the people will not pay 40%-50% of the taxes for long. I do know we have no realistic way of ever actually paying back the money we have already borrowed... and we are borrowing more, year after year. And finally... I know paper currency systems encourage the growth of government, encourage the growth of violence, and always – always – collapse in an inflationary spiral. It sure looks like that's what's happening right now to Amerika.
I know some people will read my remarks and think, "Porter has lost his marbles." Maybe so. But they said the same thing when I wrote GM would go bankrupt. And they said it when I wrote that gold was going to $1,000. And when I wrote Fannie and Freddie were "zeros."
Wake up, my friends. The government has already made it against the law to turn in your passport and leave the country with your assets – one of the defining characteristics of the former Soviet Union. (Yes, that's right. Look up the "Hero's Act of 2008".) I don't know what they will do next... but I can tell you what has happened in every other country in the world that runs up debts it cannot repay: currency controls. And the Transportation Security Administration is perfectly positioned to enforce it, too. Happy coincidence, huh?
If you haven't read my interview with The Daily Crux, it's completely free. To sign up, click here.
Regards,
Porter Stansberry and Sean Goldsmith
Baltimore, Maryland
September 21, 2009