Firemen at Oktoberfest...
Firemen at Oktoberfest... The debts of California... A reprieve from the End of America... Still on the way to perdition...
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"Hi... Sure, you guys can join us... some of our group just left... Yes, that would be great, thanks for buying a round of beers for us... Where are you guys from?"
Last week, I was standing on the bench of a picnic table in the Hippodrome Tent at Oktoberfest. The festival takes place in a big field just outside central Munich. On any given day during Oktoberfest, more than 100,000 people converge on this event. I'd guess around 10,000 folks crowded this tent alone… maybe more.
Everyone was drinking beer and singing along with the band. It's a great experience to be around that many people who are all having fun... It's like going to the Super Bowl. But at Oktoberfest, everyone is on the same team.
Attending Oktoberfest is free... but getting inside a tent isn't. There's tremendous demand for the best tents, which feature live bands, good food... and, of course, plenty of beer in giant glass steins. A ticket only gets you inside. The beers are 12 euros each... or about $15. The rest of the experience is similarly expensive. And of course... it's in Germany. Flights aren't cheap. Neither are the hotels...
I was there with The Atlas 400 – the global social club I founded four years ago. We had about 20 members with us on this trip. After a few hours in the tent (and after a good meal), about half of the group was ready to head back to the hotel. The other half (myself included) wanted to stay and enjoy a few more rounds of beer and the band. As a result, some space at our tables opened up. A group of Lederhosen-attired, 30-year-old American guys and their "dates" came by and asked if they could join us...
I said, "Sure, no problem. Come on up." I invited them because they spoke English... I wondered who they were and how they found themselves at Oktoberfest. They were fit. They seemed charismatic. And they were roughly my age. I thought they might be U.S. soldiers based in Germany or on leave from Afghanistan. I figured they'd have an interesting story. And they did...
"We're from San Francisco. We're fire fighters. We love Oktoberfest. We come every year... Why not? We only have to work 10 days a month... Yes, we're here for the rest of the festival, and then we're going to Prague and Budapest... These guys [pointing to his friends] really like to party. They love European girls..."
When I got home, I was curious to learn how San Francisco firemen ended up taking expensive European vacations. It turns out, base pay for San Francisco firefighters is more than $100,000 per year. (Starting pay for New York City firemen is $41,000).
And San Francisco has a lot of firemen... The 49-square-mile city has 42 firehouses. Five of those stations receive fewer than four calls per day, on average. Even so, union rules require five "Incident Support Specialists" to be on staff at all times.
More than 60 positions in the department pay over $150,000 a year. My favorite position is assistant chief. There are seven assistant chiefs. They don't actually fight any fires... except at City Hall. Union members stormed City Hall in June because of threatened budget cuts, which would have still given every fireman a raise. They got a 7% raise in 2007, a 4% raise in 2008, a 5% raise in 2009, a 6% raise in 2010, and a 6.5% raise in 2011. What recession?
According to independent analysts (Bloomberg News and State Budget Solutions), the state of California is now $617 billion in debt. This figure includes likely future pension fund contributions. That's more than twice as much as the next most indebted state, New York ($305 billion).
California has about 37 million people. About 15% of these folks are under 18 years old. So that leaves about 30 million adults. As a rough measure, we can assume that only about 60% of the adults are working... That leaves about 18 million actual workers. It's these folks who (in theory) will bear the burden of these debts. That's $34,000 per worker in the state of California. Do you think the average citizen in California can really afford an extra $34,000 in debt?
Our End of America scenario is based on the idea that Americans have racked up so much debt, the only way to finance it is to print enormous amounts of money. Doing so will lead to a massive inflation, a huge devaluation of our currency, and the loss of the dollar's status as the world's reserve currency. If that happens, we'll see a huge decline in our standard of living and a corresponding decline in our national security.
We began writing about the ideas in 2006. Since then, we've had a financial crisis. We've seen the price of gold quintuple. We've seen average real wages fall significantly because of inflation and the recession. We've seen our central bank begin to print money... and announce it will finance 100% of the federal government's record budget deficits with newly printed paper.
What we haven't seen is any change whatsoever to the deficit spending that's endemic to our political systems at all levels.
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Firemen are important to our society. But if we bankrupt our municipalities so that they only have to work 10 days a month and can attend Oktoberfest every year... we won't have much of a society left for them to protect. The radical growth in the political power of state employee unions has led to a flip-flop between taxpayers and state employees. State employees used to say they served the people. Now, it's the taxpayers who serve them.
On Fridays, when I write the Digest personally, I try to share some secret of finance with you. I like to give you a bit of knowledge... something that's valuable to you individually. Something I'd want you to tell me if our roles were reversed. I realize there's nothing here you can use to make money in the stock market.
Nevertheless, I think it's critical you know that the political course our country is on will certainly destroy our economy. Yes, at the moment, we're in the eye of the storm. The printing press has "solved" our problems for now. But it's a false calm... a phony prosperity.
The simple truth is we've been living far beyond our means for decades. We've accumulated debts and burdens that even our children couldn't repay in legitimate currency. The printing press and our currency's status as the world's reserve have given us breathing room... a reprieve, of sorts. But it has also allowed most of our political leaders to fool themselves... to believe that this Band-Aid can heal the wound. It will cause us to continue to spend more and more... And it will make the eventual crisis even worse.
As financial analysts, we're going to do our best to help you make money now and in the future, no matter what happens. But don't allow this lull in the storm to fool you. Our country suffers from serious structural problems. Our servant (the government) has become our master. Most Americans have come to believe that prosperity is a birthright instead of an accomplishment. I fear what happens when reality returns. I hope you will prepare.
When I founded the Atlas 400 four years ago, I imagined I'd get to meet successful people from all over the world and enjoy many incredible experiences. Luckily, thanks to our incredible members and the tireless efforts of Sean Goldsmith and Karen Campbell (who run the club), that's exactly what's happened.
I've seen giant black marlin off the coast of Panama… I've raced Porsches in Germany and gone wing-shooting at a "finca" (estate) in Patagonia. Along the way, I've become friends with the leading neurosurgeon in Beverly Hills and spent a day standing in a bucket with one of the first Microsoft employees. (The latter was a lot more fun than it sounds.)
I've been invited to private meals at two of the highest-quality vineyards in the United States… And I've gotten to know the best-selling author in the United States... the owner of the leading private-aviation company... top executives on Wall Street... and one of the most influential corporate attorneys in the U.S. (who also loves to shoot .50-caliber weapons).
I know most of you will never join our club. Some of you think it's ridiculous and tell me how much you hate the idea every time I mention it. That's OK. For me, it's a dream come true. It's a chance to meet self-made people from all over the world who share many of my interests and passions.
Our club has finally "turned the corner" where it is now self-sustaining and viable. We plan to bring on our 100th member before the end of this year. I believe that's a tremendous accomplishment, and I want to applaud our board, our staff, and our members. Thanks very much for contributing to the vision... and creating something we can all enjoy.
By the way, once we hit the 100th member, we will significantly increase our membership price, as the value of the club has grown dramatically since we began. So if you've been waiting to see if the club would ever get "traction," now is the time to apply. To learn more, click here.
New 52-week highs (as of 10/11/2012): Sandstorm Metals and Energy (SND.V) and Comstock Resources (CRK).
In today's mailbag, a reader who's taken our lessons to heart. We hope all our readers truly learn the lessons we try to impart. Have you? Let us know... feedback@stansberryresearch.com.
"You have always said you encourage feedback so I thought I would take you at your word. In summary, I have been very pleased with your publications and, although I can't say I've made tons of money, I believe becoming an Alliance member has been one of the best things I've ever done for my financial security.
"A little bit of background information: I am semi-retired (civil engineer) with a modest portfolio of about $450,000. Since my retirement from the State of Alaska, I rolled over my retirement into an IRA managed by one of the big brokerage firms. Since retirement my account grew until 2007 when it then tanked along with the general market. I had been relying on them to give me safety from just such a thing.
"Near the end of 2010, I opened an e-mail from Townhall.com which happened to be your 'End of America' video. I'm not sure how or why they were spreading the word, but I was thankful that they did. I watching it in its entirety and agreed fully with what you were saying. A collapse of epic proportions is inevitable, given our current monetary and economic policies. As a result I was forced to ask myself, what am I going to do about it? Here is what I did.
"1) I realized that my brokerage firm had allowed my account to crash every time the market did. (I won't name the firm but you definitely know it: one of the big ones.) I realized than I alone was responsible for my financial future and had better take responsibility for it. No more trusting on my financial advisor.
"2) I immediately signed up for Stansberry's Investment Advisory and followed up a few months later with Matt's S&A Resource Report… [The subscriber later joined our lifetime Alliance.]
"It's now been about a year and a half and I am ahead of where I was when I started, but am still not filthy or even cleanly rich. However, the real value of your advice is not in getting instantly rich but learning the psychology and pragmatic skills needed to grow rich over time. That is where I'm at now.
"3) I decided that if I am to succeed over the long run I would have to learn the basics of investing along with a few tricks that would serve as my 'body English' to help enhance my returns. I would also have to unlearn a lot as well. A few of the things I've learned…
"Always keep on learning. Even old guys can keep learning.
"Never try to catch a falling knife, although I'm still working on this one.
"Hot tips come and hot tips go, but [World Dominating Dividend Growers] just keep on getting better.
"The resource sector is volatile!
"You can enhance your income with covered puts and calls. (This is now a regular part of my investment strategy.)
"Always have some gold and silver on hand.
"Both technical analysis and value investment have their places. But if you don't know what you're doing, stick with value bought at the right price.
"You can't buy everything.
"Have an exit strategy. Use trailing stops. (Still working on this one.)
"Be patient. Stick with the good companies that have a future, but don't be afraid to throw losers off the train. If there aren't any great opportunities, wait. Something will come along. You just don't know when.
"Always have some cash on hand.
"Don't believe everything you read.
"These are just a few. In summary, I would like to encourage Porter to continue his mentoring quest, even if it proves there are a lot of fools out there who prefer hot tips over wisdom. Some of us are listening even if we only email this acknowledgement every two years or so. Again, my thanks for quality advice. We are listening." – Paid-up subscriber Ken Mattson
Regards,
Porter Stansberry
Baltimore, Maryland
October 12, 2012