Tremulous Bernanke lies on national television... Facebook taking control of the Internet... Einhorn on "too big to bail"... Last chance to earn Advanced Income... Doctors up in arms...
"One myth that's out there is that what we're doing is printing money. We're not printing money."
The above quote is one of the lies Federal Reserve Chairman Ben Bernanke told in last night's 60 Minutes interview with Scott Pelley. You can watch the interview (or read the transcript) here. Bernanke backs up his statement by saying the amount of money in circulation isn't changing "in any significant way." It's true the money supply isn't changing. But if Bernanke isn't printing money, where did that $600 billion (and the $3.3 trillion before that) come from?
An interesting observation... Domestic U.S. savings is around $600 billion. And next year's deficit will be around $1.2 trillion. So the U.S.'s domestic funding shortfall is $600 billion – the exact amount Bernanke so generously agreed to print. This isn't a coincidence, folks.
In truth, I'm surprised Bernanke was able to say anything considering how violently he was shaking throughout the entire interview. If Pelley were asking tough questions, Bernanke probably would have broken down in tears. Bernanke continues:
... the trick is to find the appropriate moment when to begin to unwind this policy. And that's what we're gonna do... We've been very, very clear that we will not allow inflation to rise above two percent or less.
Pelley asked if Bernanke could act quickly enough to prevent hyperinflation. His reponse:
We could raise interest rates in 15 minutes if we have to. So there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now that time is not now.
Printing these huge sums of money is akin to starting a Saturday night on the town with four or five shots of tequila... By the time the buzz hits, you're already over the edge. Flooding the economy with trillions of dollars is not a problem you can solve in 15 minutes. It will take years for that money to fully work its way through the economy. The money will find its way into hard assets like oil, agriculture, and gold...
And that's assuming we don't print more money, which is unlikely. Bernanke told Pelley inflation is "very, very low" and getting "awfully close to the range where prices would actually start falling." Throughout the interview, he left the option of more quantitative easing (QE) open. Considering the U.S. government has become the backstop of every company and municipality (both here and abroad), we're certain we'll see a quantitative easing 3... and 4... and maybe even a 5.
The euro zone is still teetering on collapse. U.S. municipalities are in terrible shape. As of last week, U.S. unemployment is rising. It's going to take a few trillion more dollars for Bernanke to patch these holes.
Jim Grant, editor of Grant's Interest Rate Observer, says of Bernanke in his latest issue:
By custom, the sovereign debases surreptitiously, as if he were ashamed of himself... Bernanke, in contrast, is out in the open, as transparent as Facebook... Hearing him but not, at first, believing him, America's creditors have just now come around to accepting the astonishing fact that the steward of the currency in which they denominate a substantial portion of their national wealth is bent of inflation.
A perfect lead-in for our next bullet...
The real value from last night's 60 Minutes was the interview with Mark Zuckerberg, founder of Facebook. Zuckerberg's creation is now valued between $35 and $50 billion. His personal net worth, at 26 years old, is nearly $7 billion. Zuckerberg is trying to change the way we use the Internet. His website has 500 million users around the world (7% of the global population). And each user shares loads of personal information with his or her group of friends. The interviewer, Lesley Stahl, asked Zuckerberg if he was trying to "own the Internet." He responded:
Well, think about it like this: People, if they can use the product of any category, photos, groups, music, TV, anything, either by themselves or with their friends, I think most of the time, people want to do those things with their friends.
The interview also raised the point that Facebook is jockeying with Google for "control" of the Internet. With Google, the user must actively enter information into the search bar (i.e. you type "watches" if you're looking to buy a watch). But with Facebook, the user's network will tell them what watch to buy. Since most people are more likely to act on the recommendation of friends (whether or not their friends have any clue) than an anonymous list of links, Facebook may have a leg up...
David Einhorn, founder of hedge fund Greenlight Capital, appeared on CNBC this morning discussing the current interest rate environment. His conclusion... "Zero rates are a very dangerous long-term policy." Einhorn says everything will be fine until the government encounters something "too big to bail." It's inevitable we'll reach that point. It could be the next bank... or European country... or maybe a U.S. state defaulting on a bond. Einhorn says of the situation, "You keep having whoever has good credit guaranteeing the obligations of whoever doesn't... eventually somebody runs out of credit."
It's exactly the same situation we saw with AIG, the insurance company. AIG was able to insure so much debt via credit default swaps (and it was such a desirable counterparty) because of its triple-A rating. Eventually, AIG overextended itself. And when the time came to pay its liabilities, it couldn't. The company collapsed.
The same thing will happen with the sovereigns. It's a house of cards built on undeserved credit ratings (why anyone still trusts a credit rating, we don't know). Once a counterparty demands payment, the game's over. Einhorn, a believer in gold, says he will continue holding the metal "as long as we think the monetary and fiscal policies don't make sense." Eventually, gold will become overvalued. But that point is a long way off.
Our special offer for Jeff Clark's Advanced Income ends tonight at midnight. Jeff's goal in Advanced Income is to produce super-safe annual income of between 15% and 20%. The 11 positions he's closed since September 2009 have averaged 20% returns with an average holding period of 144 days. That's more than 40% in income on an annualized basis.
In today's market environment, where most assets are dear, it's smart to have some safe, income-producing assets in your portfolio. That way, you'll collect your income regardless of what's happening in the market. We recommend you try Jeff's Advanced Income if you haven't already. And you'll receive a large discount through midnight tonight. Click here to learn more...
New highs: Cenovus Energy (CVE), Fronteer Gold (FRG), Market Vectors Gold Miners (GDX), MAG Silver (MVG), Silver Wheaton (SLW), Silver Standard Resources (SSRI), Silvercorp Metal (SVM), Virginia Gold Mines (VGQ.TO), Automatic Data Processing (ADP), Arch Coal (ACI), Penn Virginia Resource Partners (PVR), Barrick Gold (ABX), HMS Holdings (HMSY), iShares Silver Trust (SLV), BLADEX (BLX), ConocoPhillips (COP), EV Energy Partners (EVEP), Vanguard Natural Resources (VNR), Hatteras Financial (HTS), McDonald's (MCD), Take-Two Interactive (TTWO), Alexander & Baldwin (ALEX).
Our doctor readers, which are many, weigh in on Porter's comments from Friday. We've got a new hot topic... Weigh in here, feedback@stansberryresearch.com
"I am a humble GP in rural Canada, but have to acknowledge that midway through your 3rd sentence, I had made the diagnosis of Zoster (or shingles), and was shocked that the ER docs in USA didn't do so and started you on antibiotics. Instead of toughing it out in Zurich you should have seen a Swiss doc and got some antivirals sooner.
"Incidentally, shingles only occurs in people who have had chickenpox before – in certain individuals, the virus lies dormant in a nerve root and at a certain age (most commonly in those over 60) begins to replicate and the person gets what is in effect a recurrence of chickenpox. There is in fact no convincing evidence to suggest that the use of the chickenpox vaccine has resulted in an increase in the incidence of shingles.
"Another thing, not all severe skin infections are associated with a high fever – a young man I saw here a couple of years ago had a case of necrotizing fasciitis (flesh-eating disease), with an incredible amount of pain, and no fever at all when he presented initially. I treated him with antibiotics on suspicion of NF (unfortunately to no avail, in his case). I am sorry that you have such a generally negative attitude to doctors – I sincerely hope that you and your family never require their services! Good luck with the shingles – hopefully you will not get TN (trigeminal neuralgia as a long-term sequela)." – Paid-up subscriber Paul Stent
Porter comment: There's no statistical evidence whatsoever that my family will benefit from access to doctors – with the exception of gaining access to antibiotics, advanced childbirth technology, and wound-cleaning procedures.
I can tell you quite honestly going to a doctor has NEVER benefited me in any way, besides getting access to antibiotics and pain meds, which is something I shouldn't need a doctor for in any case.
If people had to pay cash for doctors, 90% of them would be out of a job.
"Porter, I suspect that you have hundreds of physicians among your clientele. For the record you would have been well served by going to the hospital in Zurich. Most likely they would have figured out your predicament in five minutes.
"I am a 59 year old orthopedic surgeon, I had your diagnosis figured out in the first paragraph of your digest when you described the quality of your pain in a limited territory of your face. You are stereotyping with pretty broad brush. We aren't stooges and some of us are smart enough to subscribe to your publications. Easy does it, save your despising for our elected thought leaders." – Paid-up subscriber Rob Sypher
Porter comment: I understand...
But you have no idea how much anger your profession's tight association with the government (licensing) and the most powerful union in the country (the AMA) is having on your customers. Most people hate doctors.
"As an ex-medico, I understand your frustration and astonishment fully. I have made the same observation.
"This observation does not extend to the medical field only, as one might say that it more touches on a side of the human nature – the less knowledgeable people are, within a field, especially one where they are expected to be knowledgeable, the more self-assured they will behave.
"We have a saying, in Sweden, that reflects this phenomenon, which goes like this: 'Empty cans rattles the loudest.'
"The reverse seems to be true too: The more knowledgeable a person is, within a field, the more lightly and, actually, flippantly, he might treat it. 'Prestige' is not an issue for him. And he will be humble and would willingly agree that there are many things he does not know, in the field of medicine, as there are many things, yet unknown to Man, within that field. He would even willingly agree to that there are things, within the field of medicine, known to other medicos, but not by him.
"But it boils down to this first issue I mentioned: A truly knowledgeable person will be humble, in his approach.
"This gives you also a clue to people's competence, when you meet them. If they are pompous, about themselves, they are hiding incompetence." – Paid-up subscriber Joachim Troilius
Regards,
Sean Goldsmith
Baltimore, Maryland
December 6, 2010