The news is not good. The word out of D.C. is the government will borrow 50 cents of each dollar it spends for the next year, creating the largest annual fiscal deficit since War World II - roughly 15% of GDP.
On top of this, the Democrats have reportedly gotten the cap and trade bill together, which will limit the consumption of carbon-based sources of energy. They don't need any Republican votes to pass the bill. You don't need to know very much about economics to realize vast amounts of deficit government spending paired with a huge new tax on energy isn't a good combination.
I've already positioned PSIA's portfolio to take advantage of the inevitable dislocations... I've found an investment that will pay us nearly 12% a year, and it's super safe. Plus, the high yield this security offers will attract the trillions of fresh dollars floating around the economy. The result will be like sticking a fire hose into a teacup.
I expect to make a total return of 50% over the next year – probably much higher than the stock market will return over the same period and with much less risk. To access my latest PSIA, where I made two recommendations (including the security described above) that will soar in this inflationary environment, click here...
And in the future, we'll be doing more trading around cap and trade. It's sad... but what more can we do?
Thinking about the largest tax increase in history makes me sick. The cure? Spending the afternoon with my two-year-old son, Traveler. A nefarious pirate ship attacked my house over the weekend – The Scurvy Dog. These were no modern-day, Somali pirates. These were the inflatable kind, featuring a working water cannon that connected to our garden hose, an onboard pool, a slide, and a mast topped with the skull and crossbones. We were held for ransom and paid up willingly with Jell-O and goldfish crackers.
Banks have been scrambling to raise capital and repay their TARP loans in hopes of once again operating their businesses with autonomy. But OBAMA! isn't quite ready to relinquish his power over our nation's financial system. He's looking to permanently reduce compensation in the financial sector. According to the Wall Street Journal, "Administration and regulatory officials are looking at various options, including using the Federal Reserve's supervisory powers, the power of the Securities and Exchange Commission and moral suasion."
We believe compensation practices at large public financial companies long ago passed into the realm of absurdity. But that's why we shorted the stocks – and begged others to do the same. You don't need protection from greedy executives – they eventually destroy themselves quite nicely.
On the other hand, we greatly fear the government's new power grab. Why? Because we know how it will turn out. Those greedy executives are far more likely to use the SEC's new powers to protect themselves from analysts like us than the other way around.
And another problem hits even closer to home... Once OBAMA! gets a firm grip on the financial industry, he'll likely gun for the media – for people like us. Last night, we witnessed the first step toward a newspaper bailout. Washington Gov. Chris Gregoire approved a 40% tax cut for the state's newspaper printers and publishers. The new law followed a hearing held by Sen. John Kerry on the "Future of Journalism," and OBAMA!'s remarks that "a government without newspapers, a government without a tough and vibrant media of all sorts is not an option for the United States of America."
Over at Clusterstock, they compiled a list of reasons the government shouldn't bail out newspapers. First of all, newspapers are obsolete – their business model is completely broken. Also, they employ "just 0.2 percent of the nation's labor force."
But we all know OBAMA! has an aversion to letting bad businesses fail. So we can expect to see tons of taxpayer cash pumped into newspapers. At that point, your dear newsletter publisher will become a competitor not only of more established media companies like Forbes and the New York Times, but of the federal government. That's not a fight we're likely to win.
While we're still bullish on gold for the long term – and absolutely certain the recent money-printing boondoggle will lead to inflation – the trade is getting crowded. That makes us a little nervous...
Fund-of-funds investors estimate at least 5% of all hedge fund assets are in gold bullion and gold-related investments. And the list of big owners is impressive. From the WSJ:
Paulson & Co., Greenlight Capital, Eton Park Capital Management, Hayman Advisors, Blue Ridge Capital Holdings and Highfields Capital Management were among those buying gold futures, shares of gold producers and even physical gold.
Some are buying for protection as the economy crumbles. Others believe we'll see huge inflation in the future. John Burbank of hedge fund Passport Capital, who has 9% of his fund in gold, believes China will continue buying the metal.
The Miami real estate market may be turning around... Sales of single-family homes in the area jumped 72% in the first quarter from a year ago, making it the "hottest single-family home market in any major metropolitan area in the state." Sales of existing condos jumped 51%. The median sales price of a single-family home in Miami was $203,700, down 38% from a year ago. The median sales price of a condo in Miami was $149,000, a 47% drop.
New high: Seabridge Gold (SA).
In the mailbag... some readers still have a hard time figuring out our tongue-in-cheek pieces, even when we say things as outrageous as we did on Monday. Make a note: When we pretend to be the chairman of General Motors (or any other very large, soon-to-be bankrupt company), when we endorse personal income taxes, when we applaud the growing power of the government, or when we offer to give you information – for free – about refilling oil wells or creating gold from seawater, etc. it's because we respect the experience and intelligence of the overwhelming majority of o
ur subscribers. These folks appreciate our stabs at humor... and the fact that like you, sometimes we have to laugh at the circumstances we find ourselves facing, because laughing is better than crying.
Also... truth be told... we get a real kick out of the small percentage of our readers who don't have much of an antenna for humor... See below for a few choice examples. And please, if you like our occasional satire or if you don't, let us know: feedback@stansberryresearch.com.
"For an intelligent man, you have a trashy vocabulary. I don't know Jerry, but you need a busted lip!" – Paid-up subscriber Mac McDaniel
Porter comment: It wouldn't be the first time my mouth wrote checks my body couldn't cash. I could probably start a fight with a Quaker...
"Porter, you seem to be an apologist for government's high taxation. I don't care what the guy is earning with all taxation considered, he is paying about 60% or more of his earnings and that is too much. Especially since the government un-representatives waste a majority of the taxes collected... Maybe you were joking." – Paid-up subscriber Alan Wolin
Porter comment: You caught me.
"I am a new subscriber to your letter – just wanted to comment on your 'scolding' of Jerry for complaining about his high taxes on the $150K AGI: Right On! However, I thought you were crazy until I picked up on your satire. Of course, I hope the info in your newsletter is much clearer to unravel. Kudos." – Paid-up subscriber Jimmy Wedel
Porter comment: We know there is a time and a place for jokes. And just because we have a bit of fun now and then in The Digest doesn't mean we're not deadly serious about our equity research.
"I hope that your response is a joke to get us rich jerks enraged enough to do something to eliminate redistribution of our wealth to the folks that won't work hard enough to take advantage of the opportunities in this country. I'd like a direct and personal response from you on your real thoughts on this topic. If your comments are not a joke, you may consider me among the missing from your subscriber list. If you comments are a joke and you have a plan to overcome this insanity, I'd like to hear it. If it's worthwhile, I will become a active player in implementing the plan." – Paid-up subscriber Bob Synder
Porter comment: I think the size of our government is both absurd and obscene. It's idiocy to believe allowing the government to make up 30% of your economy will lead to anything besides a debacle. No country in the world can afford that much government. The government grew so large because the mob gained control over the Treasury – meaning more people collect from the government than pay for the government. That's what always destroys democracies historically. And it usually isn't pretty when they collapse.
As for what to do about it, I've already published my prescription, but I'll repeat it here... We only need to do three things. First, pass an amendment to the Constitution that requires a balanced budget. Second, enforce the equal protection clause of the 14th Amendment so that every adult pays the same amount of taxes, as a percentage of their total annual income (don't allow anyone to pay nothing). If you did these two things, the size of government would shrink dramatically. No one who actually has to pay for government wants any more government than absolutely necessary. Finally, get rid of the Federal Reserve, which is wholly unconstitutional. The constitution gives the Congress the right to coin money – not to print it. While these three things – a balanced budget, a flat universal tax, and sound money – wouldn't solve all of the problems, they would be an important first step toward controlling the leviathan. These things would give us (citizens who pay taxes) a decent chance at limiting the power of government.
"After reading the 'letter' to Jerry who was being taxed on $150K, my wife (with her Mississippi high school education) was rolling in the floor, while I (with my southern technical college education) was trying to figure out if he'd have enough left for a bag of Krystals and a case of Cokes. Then I saw the comment by Mr. Maybe Canceled (isn't that mis-spelled?) and thought maybe I wasn't being sensitive enough. As a new subscriber, going through the archives, it seems to me that there is a lot of 'tongue-in-cheekyness' in some of Porter's comments that sort of spice up thing a bit. Figured this was one of them. There also seem to be a few 'dumber-than-a bag-of-rocks' out there... Apparently, not all of them are from the South." - New paid-up subscriber Mike Story
Porter comment: Mike, glad to have you along for the ride. I was born in the South and raised by a southern family with long ties to Atlanta... so maybe the sarcasm and the satire are more recognizable to you because we share a common heritage. Maybe it's a "Southern Thing."
"Porter... just fell out of my chair laughing on your answer to jerry young about taxes. one of the best responses i have read about our tax system and it should hit home with anyone who believes the goverment should raise us from cradle to grave... well done." – Paid-up subscriber Bud van Nieuwenhuyzen
"Just to commiserate with that greedy Jerry Young after your righteous lashing: Isn't it interesting that, 20 years after declaring victory in a 45-year Cold War, we've decided we were wrong after all and are now implementing the very ideals we railed against to the world for so long. And that our former enemies have largely turned their backs on. Sorry for all the trouble, Komrade. What were we thinking?" – Paid-up subscriber Chuck Nienburg
"Porter I have only been a subscriber for a short time, But, I love the way you respond to IDIOTS." – Paid-up subscriber Colton Hunter
Porter comment: Careful there, Colton. We admire all of our paying subscribers... as long as the check clears.
"Porter... Keep it up. Our country wasn't founded by those content to either live off their neighbors sweat, or merely complain that 'they don't like it' like so many lib lefty pukes do today. Too much ain't enough for some folks, especially when they ain't paying for it. Give 'em hell. These are the same people who will wonder loudly why no one 'did something' to stop the decline that will inevitably lead to them getting nothing at all from the soon to be empty public trough." – Paid-up subscriber Raoul Simon
Porter comment: I sometimes look forward to the day the dollar collapses and a gallon of gas costs $10. I know it will mean the collapse of my company – nobody is going to buy a newsletter when they
can't afford a tank of gas – and it will mean trouble and suffering for many of my friends... but it will also mean the complete destruction of the entitlement programs and all of the weak and lazy people who depend on them... I know... that's not a charitable (or logical) opinion, but I can't help it. I loathe the fact that my country has become a haven for the entitled. And I know, sooner or later, they're going to get what they deserve... which is a far cry from what they expect.
"While it was written in sarcasm, it shows in plain english how much of OUR hard-earned money the federal, state and local governments take away. I love your sarcasm, I think it's mandatory when dealing with the public. (I loved the letters from 'the chairman' of GM also, it's sad how true they were, and I work for a GM dealership ! Keep up the good work. I'm using your advice to help secure my financial future." – Paid-up subscriber Dennis L.
"Mr Stansberry, your reply ranks among the best journalistic pieces you have ever written, along with the GM Chairman's letters and SUCR. Joking apart, the politics of envy are gripping many in our respective societies, a result of the Entitlement thinking so cleverly inserted by the Socialists world wide into government policy... It is worth remembering that Capitalism has never been imposed by any government, unlike its alternatives. I suggest the reason is because capitalism reflects human nature, warts and all, which we know from the last 5,000 years, has not changed one jot. Capitalism also provides a basis for both responsibility and accountability. The prevalence of the former and the absence of the latter should be of concern and concerted action..." – Paid-up subscriber Colin Sworder
Regards,
Porter Stansberry
Baltimore, Maryland
May 13, 2009