January 22, 2013
- “Hurry up and die”… Japanese finance minister and a major rating agency catch on to a theme spotted here 10 years ago
- The world’s “most interesting market”: New Trade of the Decade thesis comes alive on a chart
- Byron King, Frank Holmes, Egon von Greyerz on the 2013 outlook for gold. Hint: It’s about QE, and it’s not all about the U.S.
- “Organs from scratch”: Discovery Channel latching on — sort of — to the God Switch
- The new rules of Silver Eagle production… drone-proof outerwear… the wood stove police on patrol… and more!
“This won’t be solved unless you let them hurry up and die,” said Japan’s finance minister Taro Aso.
Who “them” were, Mr. Aso did not specify. But since he spoke up during a meeting of the National Council on Social Security Reforms, it didn’t go over well.
“Heaven forbid if you are forced to live on when you want to die,” he said. “You cannot sleep well when you think it’s all paid by the government.”
Mr. Aso’s remarks hit a raw nerve in a country where fully a quarter of the population is now older than 60. Naturally, he backtracked later: “I said what I personally believe, not what the end-of-life medical care system should be.”
“All citizens of Western industrial democracies (including Japan) have ‘pay-as-you-go’ funding for their government-guaranteed retirement and medical insurance systems,” wrote Addison and Bill Bonner a decade ago in the first edition of Financial Reckoning Day.
“Yet every Western nation has a birth rate lower than 2.1 children per family. The math is easy. The number of workers coming into the economy is not enough to fund the old-age pension systems.”
Ten years later, Mr. Aso isn’t the only one jumping on the bandwagon. So is one of the major rating agencies.
“Whilst a successful resolution of the current fiscal crisis remains the most important driver for many advanced-economy ratings,” said a Fitch report yesterday, “without further reform to address the impact of long-term aging, these economies face a second, longer-term fiscal shock.”
Japan, Ireland and Cyprus are the three countries in the biggest trouble. But it’s an issue everywhere, according to the report: “Without reforms to boost labor productivity and/or participation rates in many other advanced economies, population aging will cause potential GDP growth to decline over the long term, exacerbating the fiscal challenge.”
How prescient. We can’t wait for the day when Fitch figures out the U.S. government is no longer a AAA credit risk… Heh.
In the decade since Financial Reckoning Day was published, a new wrinkle has emerged: a growing number of Americans collecting Social Security disability benefits.
Contrary to popular belief, the number did not explode in the last four years as unemployed people finally exhausted their 99 weeks of benefits. The number has been climbing steadily since the “mild” recession of 2001.
Like old-age benefits, disability is funded through the payroll tax.
“There is now one person collecting disability in this county for every 13 people working full time,” CNS News reports. At the dawn of the 21st century, it was one in every 23. Back in 1968, it was one in every 51.
Stocks are beginning the holiday-shortened week mixed. The Dow and Nasdaq are down fractionally, the S&P up fractionally. Johnson & Johnson delivered an earnings “beat”; Verizon missed.
The big number of the day disappointed; existing home sales dropped 1% from November to December, according to the National Association of Realtors – worse than the most pessimistic guess among dozens of economists polled by Bloomberg.
The Bank of Japan mashed the monetary gas pedal overnight. Aping the Federal Reserve, the BoJ announced an open-ended “asset purchase” (i.e. money-printing) plan. It also spelled out an explicit inflation target of 2%.
Currency traders already priced in the move; the yen has barely budged at 90.18. The dollar index sits a hair below 80.
“This is for real,” says respected technician Barry Sine of the developed world’s most hated stock market.
Suddenly, we’re no longer so lonely with the buy side of our New Trade of the Decade — Japanese stocks. Yes, Japan is faced with a demographic time bomb… but at the dawn of 2010, its stock market was so badly beaten it had nowhere to go but up.
We saw The Wall Street Journal take notice 11 days ago… and now comes Mr. Sine, director of equities research at Drexel Hamilton: “It’s the most interesting market — technically — in the world.”
Sine spoke last week to the Market Technicians Association in Orlando. Our in-house technicians were in attendance.
“Barry’s noticed a change in the Nikkei recently,” writes Greg Guenthner in today’s Rude Awakening. “He’s not alone. Volume has flooded into Japanese stocks as they have moved steadily higher for the past nine weeks:
“It has been nothing short of a bullish reversal of epic proportions for Japanese stocks,” says Greg. “A sharp downtrend was abruptly reversed as the Nikkei takes out its 2012 highs. Now, its post-financial crisis highs are just a stone’s throw away… A bull market in Japanese equities is coming.”
It’s a quiet day for precious metals. Gold is at $1,690, silver a couple of pennies above $32.
“The real move in gold hasn’t started yet,” says Gold Switzerland proprietor and Vancouver veteran Egon von Greyerz, with the first of several takes on precious metals today. “It is still to come.”
Among the factors in play: The Fed’s ongoing QE games. Contrary to the minutes from the Fed’s December meeting, Egon says the games will not end in 2013: If they did, who would buy the perpetual issuance of virtually worthless government debt that can never be repaid in today’s money?
To the extent that weak hands are unloading precious metals, Egon reminds us “the selling is in the 100 times bigger paper market in gold and silver. The physical market is seeing major and strong demand. As more investors ask for delivery, the paper market will panic and gold and silver will surge. This is likely to happen within the next 12 months.”
“I believe the Fear Trade will continue to be a driver of gold over the next several months,” chimes in Vancouver stalwart and U.S. Global Investors chief Frank Holmes. He cites “the global easing cycle and the continuous running of monetary printing presses.
“Take a look at the projected rise in the balance sheets as a percent of GDP from the European Central Bank, the Bank of Japan, the Federal Reserve and the Bank of England over 2013. The ECB is estimated to have a balance sheet that is nearly 50% of its GDP by the end of the year. The Bank of Japan is right behind the ECB, with its balance sheet projected to be nearly 35% of GDP.
“With the monetary printing presses warm and real interest rates in the red,” Frank concludes, “gold will likely glimmer for another year.”
It’s with that thesis in mind that a Hong Kong-based hedge fund is converting one-third of its assets into physical gold.
The Pacific Group Ltd. was founded by William Kaye, a former PaineWebber trader. “Gold, the way we look at it, is anywhere from being undervalued to being seriously undervalued,” he tells Bloomberg. “We’re in the early stages, in our judgment, of what would likely be the world’s largest short squeeze in any instrument.” Soon his firm will take delivery of $35 million worth of gold bars.
By the way, Egon’s mention above of the “paper gold” market being 100 times that of the physical? Kaye says his firm’s own research has come up with the same ratio.
“All you actually need for a major upward revaluation of gold,” he says, “is for a small fraction of people to physically reclaim from major central banks or other depositories that are holding your gold and using it for their purposes.”
“Any gold price drop will be short in duration,” says our own Byron King — “more like a proverbial ‘buying opportunity.’
“Gold prices seem to have found a floor in the mid-$1,600 range.” Still, “I’d never rule out a price drop due to an entire spectrum of things, from a ‘flash crash’ to deep-seated economic issues. And when bad things happen in the share markets, people sell what’s liquid. Gold is liquid.”
But longer term, Byron sees a crucial factor beyond central bank money printing: Global mine supply is tightening, even as global demand is growing.
“On that ‘tightening supply’ side of things,” says Byron, “look no further than South Africa, which has long been a global gold powerhouse. Yet anymore we almost constantly hear news of labor unrest in the pits, coupled with the many problems inherent in deep mines, high costs for equipment and such and rising energy prices.”
Turning to the white metal, “the allocation or rationing of Silver Eagle bullion coins in 2013 will have some different aspects than the rationing of the past,” says the Mint News Blog.
As noted here last Friday, the U.S. Mint sold out its first batch of 2013 Silver Eagles in only 10 days. The next batch won’t be ready till next week. Future shipments will be subject to rationing — not unlike 2008-2010. But this time, the Mint might not be in as much of a hurry to meet demand.
As the blog points out, the Coin Modernization, Oversight, and Continuity Act of 2010 made a subtle but critical change to policy. Previous law directed the Mint to issue Gold and Silver Eagle bullion coins in “quantities sufficient to meet public demand.”
No more: Under the new law, the Treasury Secretary gets much more leeway. Now the Mint is directed to issue “quantities and qualities that the Secretary determines are sufficient to meet public demand.”
Political trivia: The sponsor of the 2010 bill was Rep. Mel Watt (D-N.C.) – the congress member who gutted Ron Paul’s audit-the-Fed bill.
[Ed. Note: Another change in the wind at the Mint could prove unusually lucrative. "If you're like most people I've shared this with," says Chris Schaefer of our research team, "you'll never look at the change in your pockets in the same way again." Click here to learn how to take advantage.]
“Within a generation,” says the Discovery Channel’s website, “there may be no limit to the kinds of organs and body parts that can be created from scratch.”
Aspiring to make donor organs obsolete within our lifetimes, scientists are figuring out ways to grow organs using a patient’s own cells.
“We now have the ability for the first time to create a virtually unlimited supply of all the cell types and building blocks we need to make what we want to make,” stem cell researcher Robert Lanza claimed. “Now we just have to put it all together.
“I would say one day,” Lanza goes on, “and it’s not science fiction, a doctor will take a skin cell and grow you a new kidney. It’s not that far off. I think, as we master these tricks, we’re going to get better and better at this, not only in how to make organs, but in how to make them more efficiently.”
That mastery is even closer than Mr. Lanza lets on. As you may be aware, our tech maven Patrick Cox was the first to have one of his skin cells transmuted into a beating heart cell. To see how this is possible and how you can invest in one company has dibs on all technological advances coming out of this sphere, follow this link.
As the surveillance state creeps ever closer, New York-based “artivist” Adam Harvey is creating a fashion trend for a burgeoning market: Stealth Wear for the “fashionably paranoid.”
“Military technology is coming home from the war,” Adam told the New Zealand news blog Stuff.
“These pieces are designed to live with it, to cope with it — to live in a world where surveillance is happening all the time.”
The garments provoking the most discussion as of late are the “anti-drone” scarf and hoodie, metalized apparel designed to stonewall heat-seeking drone radars.
Is it really drone-proof? We can dream…
Harvey’s stealth collection also includes CV Dazzle, a face makeup designed to confuse facial recognition software; the XX-Shirt with a chest patch designed to “protect your heart from X-ray radiation”; and the Off Pocket pants, designed with “signal attenuating fabric” inside one radio-frequency jamming pocket to ward off tracking devices.
He recently unveiled his latest projects in an exhibition called Stealth Wear: New Designs for Counter Surveillance in London.
Assuming he made it back to New York, he’s managed to stay off the no-fly list…
“While reading about the new wood stove changeout from EPA,” a reader writes, “I was reminded of a similar law passed in Flagstaff, Ariz., in the early ’90s.
“The councilperson mainly responsible for this law, which required homeowners to replace their old wood stove with the ‘new and improved’ wood stoves upon sale of their homes, listed her home with my real estate firm.
“As I previewed the house, I noted that the wood stove would have to be replaced, according to the new law, pretending that I did not know who she was.
“She said something like, ‘I can’t do that! It would cost me $1,500.’
“I left with the conviction that if no one else bought her house, I would put together a pool from local business people and we would buy it as a museum. I didn’t have to, as someone did buy it.”
The 5: We can only imagine the contest you would have had to name that museum…
The 5 Min. Forecast
P.S. On her way out the door, Secretary of State Hillary Clinton is stirring the pot over the Senkaku Islands — described here in The 5 last month as “strategically irrelevant and economically marginal.”
Both Japan and China claim the islands. The U.S. is taking Japan’s side. Clinton has warned China against “any unilateral actions that would seek to undermine Japanese administration” over the territory.
The United States “should be careful with its words,” a Chinese foreign ministry spokesman says in response.
Readers of Apogee Advisory will learn later today why this dispute could blow up into full-scale war sooner than anyone expects — perhaps even this year. And yes, there’s an investment angle. Not a subscriber yet? Here’s where to join up.