The last, most obvious warning...

Apple's record phone sales mean nothing for the economy...

Apple recently sold more than 9 million new iPhones – its best launch in history. This has generated a lot of optimism in some investors.

But in today's Digest Premium, Porter says this event has nothing to do with the strength of the economy.

To subscribe to Digest Premium and access today's analysis risk-free, click here.

The last, most obvious warning... The secret history of One Chase Plaza... The foreign creditor shopping spree continues...

A building – One Chase Plaza – was sold yesterday in New York for $750 million.

Not surprisingly, the building was bought by a Chinese asset-management firm, Fosun.

Today's Friday Digest is about this deal... and the massive economic forces that lie behind it. The story of One Chase Plaza is the story of how America was sold to its bankers. It's the story of how inflation plundered our wages. It's the story of how credit, rather than savings, came to dominate our economy and transform our way of life. It's the story of how America was packaged and sold to our foreign creditors – mostly the Chinese.

Since 1996, the Chinese have made 51 major acquisitions in America, including deals to own or control iconic U.S. assets like computer giant IBM, carmaker GM, meat producer Smithfield Foods, U.S. power company AES Corp., major airplane lessor International Lease Finance Corp., investment bank Morgan Stanley, and private-equity firm Blackstone Group. They've also bought trophy real estate around the U.S., like the GM Tower.

These deals didn't happen by accident. They happened because the U.S. continues to consume far more than it produces. We finance this consumption with debt that's owned in large measure by foreign creditors. Take the U.S. Treasury debt, for example. At nearly $17 trillion, this is the world's largest pile of obligations. If you exclude Treasury obligations held by the U.S. government and the Federal Reserve, 54% of the remaining obligations are held by foreign creditors. And these foreign debts continue to grow rapidly – at about $500 billion annually.

Debt service on these obligations allows our foreign creditors to continually buy America's best assets. Today, foreign creditors directly own and control U.S. assets worth more than $25 trillion. That's roughly a third of all the wealth in America. And that's far more than what Americans own overseas: Americans only own about $20 trillion of foreign assets.

Every year that goes by, our foreign rivals will earn more on their American assets than we're able to earn on our foreign investments. They will grow wealthier and wealthier... while we become poorer and poorer in comparison.

As Warren Buffett famously said about this situation 10 years ago: "We have entered the world of negative compounding – goodbye pleasure, hello pain."

How did this happen? Why is it continuing? And why is it almost certain to lead to an enormous currency crisis? The story starts with One Chase Plaza...

In 1957, America was the most powerful country in the world. We controlled roughly 75% of all of the world's economic activity, and we owned the three most important corporations in the world: General Motors, Exxon (Standard Oil), and Chase Bank (the Rockefeller Bank). Our country's products – like the '57 Chevy – were the finest available in the world. We dominated every foreign competitor in manufacturing, energy, banking, and just about every other industry, too.

At the time, you might recall, our dollar was literally as good as gold: By international agreement, our foreign creditors could exchange their dollars for gold for $35 per ounce at the Federal Reserve Bank of New York. This firm limit on the value of the dollar protected the middle class in America, guaranteeing that every wage-earner in the economy would share in gains from increased productivity. As productivity increased, the dollar bought more goods and services. As a result, real after-tax income increased. What was good for GM actually was good for America, too.

The firm value of the U.S. dollar also protected America from the temptation of credit. By linking the dollar to gold, expansion of credit required an increase in gold reserves. Under these rules, the supply of additional gold bullion (through new production or trade) limited the banks' ability to create new credit.

This made credit expensive (in real terms) and encouraged savings. Those savings then powered stable investment into our economy. Thus, the U.S. government debt actually declined in 1957, falling by $2.2 billion. Surely, no sane person in 1957 imagined that would be the last time the total debt of the U.S. government would ever again decline on an annual basis.

In 1957, work also began on the first modern skyscraper in lower Manhattan. Commissioned by legendary banker David Rockefeller, One Chase Plaza featured space-age materials (anodized aluminum panels) and soared 60 stories high. Covered in glass, it reflected light, unlike the older sandstone buildings around it that absorbed light. The building would serve as a glowing new headquarters for Chase Bank. It was a towering statement proclaiming the bank's growing influence around the world.

Even today, One Chase Plaza is a signature piece of New York real estate. It remains the 15th-tallest building in Manhattan. Surrounded by Pine, Liberty, and Nassau streets, it offers tenants a direct connection to the Nos. 2 and 3 subway trains. It is even thought of as a key part of the infrastructure of the United States – housing the largest privately owned bullion vault, five stories underground.

Winston Churchill remarked that "we shape our buildings; thereafter they shape us." Just 10 years after the completion of Rockefeller's global banking trophy at One Chase Plaza (construction was completed in 1961)... the link between the dollar and gold would be permanently broken.

Richard Nixon closed the gold-exchange window in 1971. America reneged on its debts to foreign creditors. Even more important, banks no longer had to back up their loans with reserves linked to gold. Now, all public and private credit would be backed by "Federal Reserve notes" – so-called "fiat," or paper, money.

As a result, banks no longer faced any physical limit to how much credit they could extend. And the U.S. dollar no longer had any firm value. Nothing guaranteed the real value of wages. Nothing linked increases in productivity to increases in wages. Nothing protected the middle class from the rising tide of inflation... or the soaring power of the banks.

You can see how the change is destroying the middle class. Today, gains in productivity benefit our creditors... not our wage earners. Take a look at this chart, based on one originally published by the Economic Policy Institute think tank. Based on Bureau of Labor Statistics figures, the chart shows the cumulative growth in hourly productivity for the total economy compared with cumulative growth in inflation-adjusted hourly compensation...

These changes transformed our economy and the nature of capitalism itself. No longer would our economy be driven by investments fueled by savings. Instead, our economy is funded by debt.

Debt of every kind has soared. Measured in inflation-adjusted dollars, America's total debt has increased from $5 trillion in 1957 to more than $60 trillion today – a 12-fold increase. Meanwhile, our gross domestic product has only increased from $2.5 trillion to $16 trillion, a six-fold increase. As a nation, we've mistaken credit-fueled booms for true prosperity.

But there is a major difference, of course. Credit must be repaid. While real prosperity leads to greater abundances, increasing debt produces greater burdens. The cost of servicing our debts has become so large that our creditors now routinely buy our country's best assets using the debt-service payments we send abroad. Ironically... the "butcher's bill" of servicing our debts now includes the iconic building that launched America's credit bubble.

On August 16, the New York Times broke the story that One Chase Plaza was for sale. JPMorgan Chase & Co., the successor entity to David Rockefeller's bank, was shopping the building through CBRE, the international commercial realty firm. Speculation at the time was that the building might be converted into condominiums and fetch $1 billion. Yesterday, news broke that Fosun bought the building for $750 million.

And so... America has become just a little bit poorer. Our ability to generate wealth has been marginally decreased. One of Manhattan's most valuable buildings has been sold. The rents will now be sent overseas to China. The real earning power of our currency has declined just a bit.

For now, the changes seem small and have such a minor impact that hardly anyone notices. But the compounding nature of this shift in wealth is incredibly powerful and very, very hard to stop. Over time... real wages will continue to fall. Over time... our ability to service our debts without additional inflation will erode. (That's why the Fed can't stop its bond-buying program of quantitative easing.)

One day, no one knows when, the world will simply decide that we're not creditworthy anymore. We will have burned too much of the family furniture trying to keep our house warm.

On that day, you won't want to be holding U.S. dollars or Treasury bonds... or be dependent on the U.S. government. When that day comes, people will look back on the sale of One Chase Plaza and realize... it was one of the last, most obvious warnings, that something had gone badly wrong with America.

New 52-week highs (as of 10/17/13): American Financial Group (AFG), Aflac (AFL), Brookfield Asset Management (BAM), BLADEX (BLX), Blackstone Group (BX), Chubb (CB), Chicago Bridge & Iron (CBI), Chesapeake Energy (CHK), Carrizo Oil & Gas (CRZO), Dominion Resources (D), Devon Energy (DVN), Enersys (ENS), iShares Germany Fund (EWG), SPDR Euro Stoxx 50 Fund (FEZ), Fluidigm (FLDM), Fidelity Select Medical Equipment & Systems Fund (FSMEX), iShares Dow Jones U.S. Insurance Fund (IAK), SPDR International Health Fund (IRY), Kohlberg Kravis Roberts (KKR), KLA-Tencor (KLAC), ProShares Ultra KBW Regional Banking Fund (KRU), Loews (L), Ligand Pharmaceuticals (LGND), Longleaf Partners Fund (LLPFX), Laredo Petroleum (LPI), Medtronic (MDT), 3M (MMM), Occidental Petroleum (OXY), PowerShares Buyback Fund (PKW), Sturm, Ruger (RGR), ProShares Ultra Health Care Fund (RXL), Sequoia Fund (SEQUX), Sanchez Energy (SN), ProShares Ultra S&P 500 Fund (SSO), Steel Dynamics (STLD), Constellation Brands (STZ), Cambria Shareholder Yield Fund (SYLD), Targa Resources (TRGP), Walgreens (WAG), and WPX Energy (WPX).

In today's mailbag... some subscribers weigh in on our recent Digest. Send your messages to feedback@stansberryresearch.com.

"I read 'So Long Ben.' I enjoyed it and learned from it. I've recognized the "Bread & Circus" tactic from Roman history for over a year now – totally agree.

"I agree with your speculation that there is more digital money than paper and have taken precautions. Earn more money and save is the real way to true wealth, and I may add intangible as well.

"I use your guidance and really appreciate & need your coaching of the discipline to follow your stops, 12% annual return, etc. (You understand human nature very well.)

"To save this great country a lot more people need to share your views on liberty, freedom, personal responsibility and work." – Paid-up subscriber Howard Kurz

"In today's [Digest Premium] column, you repeated what I believe to have become a firm urban myth – the Baby Boomers are bankrupting the U.S. I don't think their time has even come yet, since the first of them just hit the Social Security roles in the last 2 or 3 years.

"No, I'm afraid that it's the 'Greatest Generation' that has done the damage to this point. By the time I retire in five years – if I retire – I will have been paying into Social Security for 45-plus years at rates up to 7.65% of my salary (plus the company match). What do you think the chances of my receiving my full 'entitlement' are?

"On the other hand, virtually every Greatest Generation retiree paid a pittance 1% or 2% of their pay for maybe 25 years into the system. But they've been collecting far more than they paid in as long as they remain alive.

"Your aiming at the wrong group when you accuse the Boomers. They haven't hardly even begun to wreak their havoc!" – Paid-up subscriber Gary Swanson

Regards,

Apple recently released its new iPhone 5C and 5S... And it sold more than 9 million new phones, almost double its previous launch record.

The market made a big deal about this news... Shares of Apple rose 5% on September 23 – the day the computer and consumer electronics company released its results.

This is a testament to Apple's strong brand (more on that later)... But I don't think this record launch shows anything about the economy. I don't think there's a lot of credit excess in the phone market. I don't think people are buying their phones on credit cards. I think that they're buying them on their wireless plans, and then they pay for them over the course of two years via their monthly payments.

Also, I don't think the prices of Apple's phones are egregious. I know a lot of other people do, but they've maintained the $199 price with a two-year service plan. The new 5C phone is even cheaper.

It's not really a function of the economy. It's a function of Apple's unbelievably strong brand and the huge tie-in it has due to the way it has built out its "cloud." This facet of Apple is still underappreciated on Wall Street.

Once you become a defined Apple user – once you own one of its iPhones, iPads, computers, or laptops… and you're using what they call "iCloud," which allows you to access your content (books, movies, music, etc.) on any of these devices in any location – you're locked in.

I now probably have $20,000 invested in Apple content, not to mention all of my family's pictures and movies. I'm not going anywhere. It becomes impossible for me to leave Apple's hardware platform because of the unbelievably strong tie-in with that content.

This is a much stronger tie-in than Microsoft's operating system ever was because Microsoft never had much in the way of media. Even more important, Microsoft never really succeeded in selling hardware. The only piece of Microsoft's hardware I can ever recall buying was an Xbox.

Apple has built what they call in technology a "walled garden," where users' switching costs are not only a matter of time... but they also have to learn a new operating system. You have to learn all the new connections and the new language. And even if you do all those things, it's still almost impossible for you to take your resources with you. So it's not a walled garden. Now, it's more like I'm an indentured farmer.

– Porter Stansberry with Sean Goldsmith

Apple's record phone sales mean nothing for the economy...

Apple recently sold more than 9 million new iPhones – its best launch in history. This has generated a lot of optimism in some investors.

But in today's Digest Premium, Porter says this event has nothing to do with the strength of the economy.

To continue reading, scroll down or click here.

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(Top 10 highest-returning open positions across all S&A portfolios)

As of 10/17/2013

Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any S&A publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.

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(Top 10 all-time, highest-returning closed positions across all S&A portfolios)

Apple's record phone sales mean nothing for the economy...

A building – One Chase Plaza – was sold yesterday in New York for $750 million.

Not surprisingly, the building was bought by a Chinese asset-management firm, Fosun.

Today's Friday Digest is about this deal... and the massive economic forces that lie behind it. The story of One Chase Plaza is the story of how America was sold to its bankers. It's the story of how inflation plundered our wages. It's the story of how credit, rather than savings, came to dominate our economy and transform our way of life. It's the story of how America was packaged and sold to our foreign creditors – mostly the Chinese.

Since 1996, the Chinese have made 51 major acquisitions in America, including deals to own or control iconic U.S. assets like computer giant IBM, carmaker GM, meat producer Smithfield Foods, U.S. power company AES Corp., major airplane lessor International Lease Finance Corp., investment bank Morgan Stanley, and private-equity firm Blackstone Group. They've also bought trophy real estate around the U.S., like the GM Tower.

These deals didn't happen by accident. They happened because the U.S. continues to consume far more than it produces. We finance this consumption with debt that's owned in large measure by foreign creditors. Take the U.S. Treasury debt, for example. At nearly $17 trillion, this is the world's largest pile of obligations. If you exclude Treasury obligations held by the U.S. government and the Federal Reserve, 54% of the remaining obligations are held by foreign creditors. And these foreign debts continue to grow rapidly – at about $500 billion annually.

Debt service on these obligations allows our foreign creditors to continually buy America's best assets. Today, foreign creditors directly own and control U.S. assets worth more than $25 trillion. That's roughly a third of all the wealth in America. And that's far more than what Americans own overseas: Americans only own about $20 trillion of foreign assets.

Every year that goes by, our foreign rivals will earn more on their American assets than we're able to earn on our foreign investments. They will grow wealthier and wealthier... while we become poorer and poorer in comparison.

As Warren Buffett famously said about this situation 10 years ago: "We have entered the world of negative compounding – goodbye pleasure, hello pain."

How did this happen? Why is it continuing? And why is it almost certain to lead to an enormous currency crisis? The story starts with One Chase Plaza...

In 1957, America was the most powerful country in the world. We controlled roughly 75% of all of the world's economic activity, and we owned the three most important corporations in the world: General Motors, Exxon (Standard Oil), and Chase Bank (the Rockefeller Bank). Our country's products – like the '57 Chevy – were the finest available in the world. We dominated every foreign competitor in manufacturing, energy, banking, and just about every other industry, too.

At the time, you might recall, our dollar was literally as good as gold: By international agreement, our foreign creditors could exchange their dollars for gold for $35 per ounce at the Federal Reserve Bank of New York. This firm limit on the value of the dollar protected the middle class in America, guaranteeing that every wage-earner in the economy would share in gains from increased productivity. As productivity increased, the dollar bought more goods and services. As a result, real after-tax income increased. What was good for GM actually was good for America, too.

The firm value of the U.S. dollar also protected America from the temptation of credit. By linking the dollar to gold, expansion of credit required an increase in gold reserves. Under these rules, the supply of additional gold bullion (through new production or trade) limited the banks' ability to create new credit.

This made credit expensive (in real terms) and encouraged savings. Those savings then powered stable investment into our economy. Thus, the U.S. government debt actually declined in 1957, falling by $2.2 billion. Surely, no sane person in 1957 imagined that would be the last time the total debt of the U.S. government would ever again decline on an annual basis.

In 1957, work also began on the first modern skyscraper in lower Manhattan. Commissioned by legendary banker David Rockefeller, One Chase Plaza featured space-age materials (anodized aluminum panels) and soared 60 stories high. Covered in glass, it reflected light, unlike the older sandstone buildings around it that absorbed light. The building would serve as a glowing new headquarters for Chase Bank. It was a towering statement proclaiming the bank's growing influence around the world.

Even today, One Chase Plaza is a signature piece of New York real estate. It remains the 15th-tallest building in Manhattan. Surrounded by Pine, Liberty, and Nassau streets, it offers tenants a direct connection to the Nos. 2 and 3 subway trains. It is even thought of as a key part of the infrastructure of the United States – housing the largest privately owned bullion vault, five stories underground.

Winston Churchill remarked that "we shape our buildings; thereafter they shape us." Just 10 years after the completion of Rockefeller's global banking trophy at One Chase Plaza (construction was completed in 1961)... the link between the dollar and gold would be permanently broken.

Richard Nixon closed the gold-exchange window in 1971. America reneged on its debts to foreign creditors. Even more important, banks no longer had to back up their loans with reserves linked to gold. Now, all public and private credit would be backed by "Federal Reserve notes" – so-called "fiat," or paper, money.

As a result, banks no longer faced any physical limit to how much credit they could extend. And the U.S. dollar no longer had any firm value. Nothing guaranteed the real value of wages. Nothing linked increases in productivity to increases in wages. Nothing protected the middle class from the rising tide of inflation... or the soaring power of the banks.

You can see how the change is destroying the middle class. Today, gains in productivity benefit our creditors... not our wage earners. Take a look at this chart, based on one originally published by the Economic Policy Institute think tank. Based on Bureau of Labor Statistics figures, the chart shows the cumulative growth in hourly productivity for the total economy compared with cumulative growth in inflation-adjusted hourly compensation...

These changes transformed our economy and the nature of capitalism itself. No longer would our economy be driven by investments fueled by savings. Instead, our economy is funded by debt.

Debt of every kind has soared. Measured in inflation-adjusted dollars, America's total debt has increased from $5 trillion in 1957 to more than $60 trillion today – a 12-fold increase. Meanwhile, our gross domestic product has only increased from $2.5 trillion to $16 trillion, a six-fold increase. As a nation, we've mistaken credit-fueled booms for true prosperity.

But there is a major difference, of course. Credit must be repaid. While real prosperity leads to greater abundances, increasing debt produces greater burdens. The cost of servicing our debts has become so large that our creditors now routinely buy our country's best assets using the debt-service payments we send abroad. Ironically... the "butcher's bill" of servicing our debts now includes the iconic building that launched America's credit bubble.

On August 16, the New York Times broke the story that One Chase Plaza was for sale. JPMorgan Chase & Co., the successor entity to David Rockefeller's bank, was shopping the building through CBRE, the international commercial realty firm. Speculation at the time was that the building might be converted into condominiums and fetch $1 billion. Yesterday, news broke that Fosun bought the building for $750 million.

And so... America has become just a little bit poorer. Our ability to generate wealth has been marginally decreased. One of Manhattan's most valuable buildings has been sold. The rents will now be sent overseas to China. The real earning power of our currency has declined just a bit.

For now, the changes seem small and have such a minor impact that hardly anyone notices. But the compounding nature of this shift in wealth is incredibly powerful and very, very hard to stop. Over time... real wages will continue to fall. Over time... our ability to service our debts without additional inflation will erode. (That's why the Fed can't stop its bond-buying program of quantitative easing.)

One day, no one knows when, the world will simply decide that we're not creditworthy anymore. We will have burned too much of the family furniture trying to keep our house warm.

On that day, you won't want to be holding U.S. dollars or Treasury bonds... or be dependent on the U.S. government. When that day comes, people will look back on the sale of One Chase Plaza and realize... it was one of the last, most obvious warnings, that something had gone badly wrong with America.

New 52-week highs (as of 10/17/13): American Financial Group (AFG), Aflac (AFL), Brookfield Asset Management (BAM), BLADEX (BLX), Blackstone Group (BX), Chubb (CB), Chicago Bridge & Iron (CBI), Chesapeake Energy (CHK), Carrizo Oil & Gas (CRZO), Dominion Resources (D), Devon Energy (DVN), Enersys (ENS), iShares Germany Fund (EWG), SPDR Euro Stoxx 50 Fund (FEZ), Fluidigm (FLDM), Fidelity Select Medical Equipment & Systems Fund (FSMEX), iShares Dow Jones U.S. Insurance Fund (IAK), SPDR International Health Fund (IRY), Kohlberg Kravis Roberts (KKR), KLA-Tencor (KLAC), ProShares Ultra KBW Regional Banking Fund (KRU), Loews (L), Ligand Pharmaceuticals (LGND), Longleaf Partners Fund (LLPFX), Laredo Petroleum (LPI), Medtronic (MDT), 3M (MMM), Occidental Petroleum (OXY), PowerShares Buyback Fund (PKW), Sturm, Ruger (RGR), ProShares Ultra Health Care Fund (RXL), Sequoia Fund (SEQUX), Sanchez Energy (SN), ProShares Ultra S&P 500 Fund (SSO), Steel Dynamics (STLD), Constellation Brands (STZ), Cambria Shareholder Yield Fund (SYLD), Targa Resources (TRGP), Walgreens (WAG), and WPX Energy (WPX).

In today's mailbag... some subscribers weigh in on our recent Digest. Send your messages to feedback@stansberryresearch.com.

"I read 'So Long Ben.' I enjoyed it and learned from it. I've recognized the "Bread & Circus" tactic from Roman history for over a year now – totally agree.

"I agree with your speculation that there is more digital money than paper and have taken precautions. Earn more money and save is the real way to true wealth, and I may add intangible as well.

"I use your guidance and really appreciate & need your coaching of the discipline to follow your stops, 12% annual return, etc. (You understand human nature very well.)

"To save this great country a lot more people need to share your views on liberty, freedom, personal responsibility and work." – Paid-up subscriber Howard Kurz

"In today's [Digest Premium] column, you repeated what I believe to have become a firm urban myth – the Baby Boomers are bankrupting the U.S. I don't think their time has even come yet, since the first of them just hit the Social Security roles in the last 2 or 3 years.

"No, I'm afraid that it's the 'Greatest Generation' that has done the damage to this point. By the time I retire in five years – if I retire – I will have been paying into Social Security for 45-plus years at rates up to 7.65% of my salary (plus the company match). What do you think the chances of my receiving my full 'entitlement' are?

"On the other hand, virtually every Greatest Generation retiree paid a pittance 1% or 2% of their pay for maybe 25 years into the system. But they've been collecting far more than they paid in as long as they remain alive.

"Your aiming at the wrong group when you accuse the Boomers. They haven't hardly even begun to wreak their havoc!" – Paid-up subscriber Gary Swanson

Regards,

Porter Stansberry

Baltimore, Maryland

October 18, 2013