Fed chairman "Helicopter" Ben Bernanke's plan is working. He's printing money and making Americans feel rich without the unpleasantness of having to do something useful.
According to a new Flow of Funds report by the Federal Reserve, the total net worth of all U.S. households rose 2.2% in the third quarter (July-September), to about $55 trillion. The report said household net worth is around 4.8 times disposable personal income, up from about 4.7 times in the second quarter.
That's what the government wants. It wants you to feel like you have extra money, so you'll run out and spend it. I have to wonder if they didn't plan all along to create a new money-printing program just in time for the holiday season... when everyone is a little looser with the purse strings.
I've recently been critical of the financial media. Lest they feel picked on, I'd like to cast aspersions on another worthless group, also apparently in the simultaneous employ of Wall Street and Uncle Sam: economists. The economics department of every college should be padlocked and fumigated with all haste.
For example, economists created the Consumer Price Index (CPI) – a measure of inflation designed to never show inflation rising too fast.
For another example, economists measure the size and growth of the biggest, most complex economy in the world by a single, questionable number: gross domestic product (GDP). About 70% of that number, we're often told, is consumer spending of one variety or another, giving the government an incentive to encourage spending, come what may (or should I say, come what has).
How you measure things is a big deal. If Bernanke tracked food prices instead of employment figures, he'd raise interest rates and burn currency notes, not print tens of billions of new dollars a month.
When you print lots of new cash, it tends to collect only in certain places, like rainwater in parking lots. According to new Federal Reserve data, U.S. nonfinancial companies held $1.93 trillion in cash and short-term instruments at the end of the third quarter. That's about 7.4% of total assets – the highest level of cash on Corporate America's balance sheet in more than 50 years.
Technology is ubiquitous in our lives. So naturally, cash is piling up to the rafters at several large tech companies... Apple, Microsoft, Dell, Cisco, Intel, Oracle, Hewlett-Packard, and IBM are holding just under $187 billion of cash among them. Microsoft alone is holding more than $43 billion in cash and short-term instruments.
All of our texting, Facebooking, and mobile Internet access accruing to the benefit of a few smart billionaires is vaguely reminiscent of the old Dr. Seuss story about the Sneetches. In the end, the technology entrepreneur, Sylvester McMonkey McBean, walks off with a huge pile of cash. The poor Sneetches are left penniless, having spent all their money trying to keep up with the latest fashion.
We're like that today. Messieurs Gates and Jobs are like Sylvester McMonkey McBean, supplying the technology and walking off with the cash. We're all running around buying iPads, smartphones, and all manner of other mobile technologies so we can keep up with... each other? The latest celebrity gossip? Anything of import whatsoever?
I wonder if anyone truly productive relies on one of these devices. The most productive people I know read a lot of books (and not necessarily on a Kindle, either).
Technology purports to make us more efficient and wastes more of our time than anything else in our lives. It's all a mass delusion. It's like Nassim Nicholas Taleb said in his book, The Bed of Procrustes, "In science you need to understand the world; in business you need others to misunderstand it."
I think a lot of people misunderstand the world. That's why they have iPads and smartphones and never stop using them for very long.
I don't think pervasive tech mongering will ever change during my lifetime. So I'm long Microsoft and Intel, both of which have triple-A balance sheets, gush mountains of free cash flow every year, and lord it over 90% and 80% of their respective markets. Raising dividends 25%-30% a year doesn't hurt, either. At those dividend growth rates, you can buy Microsoft and Intel today and you'll be earning a double-digit yield over your original cost in about five years.
I expect you'll do a lot worse if you leave it all in T-bills. Our own Jeff Clark knows that, and his readers are profiting handsomely from the insight...
Interest rates have fallen a bit over the past week – which has caused a pullback in the ProShares UltraShort Lehman 20+ Year Treasury ETF (TBT) we've been trading over the past month. We're now closing in on support, so it's time to take another call position on TBT...
Bond prices rallied and yields fell yesterday as investors flocked to the safety of U.S. Treasury bonds after North Korea fired on South Korea. But it was a modest rally, and bonds closed well off their highs for the day. If that's the best they can do with a potential war in the works, there probably isn't enough buying pressure to push rates all the way back down to 4.1%. – Jeff Clark, November 24, 2010, S&A Short Report
Yesterday, Jeff sent an update to Short Report subscribers recommending they sell part of their TBT position... He noted the stock was overbought and due for a pullback. Short Report readers pocketed nearly 100% in two weeks.
Jon Stewart from Comedy Central's The Daily Show has a great piece on Sunday's Bernanke 60 Minutes interview. Jon notes the absurdity of Bernanke's claim that the Fed isn't printing money. Then he runs a clip from a Ben Bernanke interview with 60 Minutes from March 15, 2009...
Bernanke explains how the Fed has bailed out the banks, saying it's "much more akin to printing money than it is to borrowing..."
The interviewer then asks, "You've been printing money?"
Bernanke says, "Well, effectively. And we need to do that."
It's a great clip. You can watch it here. This video shows the Ivy League geniuses running our monetary system are liars and/or ignoramuses. Either way, they feign an expertise no one has ever had or ever will have.
Bernanke's pile of BS didn't fool the market, either. Gold and silver have both been ripping. And as you can see from the chart below, yields on 10-year Treasurys are breaking out...
These soaring interest rates are what Porter calls the "most important trend of the decade." As the government continues to flood the economy with more dollars, this trend will only strengthen. If you don't act to protect your assets from the coming inflation, your portfolio could be devastated. We've compiled a series of reports, dubbed "The End of America," that tell you how to protect yourself. To hear about them, click here.
New highs: Altius Minerals (ALS.TO), First Trust Dow Jones Select Fund (FDM), PowerShares Dynamic Biotech (PBE), HMS Holdings (HMSY), BLADEX (BLX), ConocoPhillips (COP), ExxonMobil (XOM), AmeriGas Partners (APU), Vanguard Natural Resources (VNR), Take-Two Interactive (TTWO).
We're laying the doctor rants to rest in today's Digest. On to the next one... feedback@stansberryresearch.com
"My doctor, who's from Yale and Yale Medical School, insists that on a truly double-blind wine tasting experiment, practically nobody can tell one from another. Also, he advocates buying just the cheapest wines available based on that principle, since they are mainly alcohol, and serve it up in a bottle which used to hold a very expen$$$ive wine. No one will know the difference, he says.
"Then, you mentioned a 'desert' wine. Please clarify if you really meant 'dessert.' This is what happens when you are depending too heavily on spelling checkers in software: Since they will pass both desert and dessert, but both words have quite different meanings.
"Having been a champion speller through 12th grade, I see these errors all the time. A very common one is 'loose' when you meant 'lose.' Are you in need of a proofreader? Methinks so. Holiday Greetings from a pedantic old poop." – Paid-up subscriber Joe
Goldsmith comment: Yes... I meant "dessert" wine. Mea culpa. But even misspelled, it was fantastic.
"Tom, I'm with you on the w(h)ine, and wouldn't have minded being left out of the tasting. Not sure if you're into beer, but as a home brewer is my preferred drink. Mostly the Belgians (Trappist). If you do drink beer, try Rochefort 10, one of my favs; or Westvleteren 12 if you can find it. Don't real men drink beer, not wine?" – Paid-up subscriber Eric
Regards,
Sean Goldsmith and Dan Ferris
Baltimore, Maryland and Medford, Oregon
December 9, 2010