Agora Financial: The 5 Minute Forecast
Gold Still a Buy?, Insiders Selling Stocks, North Dakota and More!
by Addison Wiggin & Ian Mathias
* Are you wealthier now than in 1998? The government quietly announces the average answer
* Gold hits $1,000 again… Bill Bonner on whether to buy, sell or hold
* Stock insiders selling at frightening rate… sell signal or contrarian indicator?
* Doug Casey on “an excellent place to be” as the crisis continues
* Plus, readers chime in on how North Dakota has managed to dodge the global downturn
Over the last 10 years, have you really become more wealthy? We hope the answer is yes… one of our many credos is to protect and enhance your wealth, as small or large as it may be.
But for the average family, the answer is no, says a Census Bureau study released this week.
From 2007-2008, the most up-to-date data the government has, the median family income fell almost $2,000, to $50,300. That wipes out all gains made over the last three years. Factor in inflation, and the typical family is actually making less now than they were in 1998.
So let us gripe for bit: We all spend so much time poking at things like our GDP -- reporting changes every quarter and spending millions upon millions guessing where it will be next month, next year, etc. Yet there’s only one gauge of how wealthily we as a nation are actually growing… and we leave it to the Census Bureau to report once a year, with a nine-month lag time. Which matters to you more: If you are more financially sound now than you were last quarter or if the U.S. gross domestic product shrank 2.1% or 2.3%?
Poverty in the U.S. has risen to its highest level in 11 years -- that’s the more popular headline from the Census report. They released the annual poverty study this week, which was oddly delayed, as we mentioned back in August, because the data were “not optimal.”
At any rate, 13.2% of Americas lived in poverty in 2008, up almost a full percentage point from 2007. That’s the highest rate since 1997. And even though you’re likely shaking in suspense over next year’s number -- SPOILER ALERT -- we ain’t seen nothin’ yet.
What exactly is “poverty” to the U.S. government? The equivalent of a family of four living on an annual budget of $22,025 or less. Rest assured that if you’re stuck raising a family on 30k a year, you’ll be just fine.
We hate to rub it in, but gold went for less than $300 an ounce 10 years ago today. Take that, inflation.
The spot price today has once again broken through the $1,000 mark. Traders have bumped gold up to $1,010 as we write, thanks mostly to a weakening dollar.
“Is this still in a bull market in gold... or at the end of one?” asks Bill Bonner. “Are we idiots for holding it now... or idiots for not buying more?
“The feds are desperate to restart the economy. The only way they can imagine is by increasing the money supply... and inducing people to spend money. They want inflation, no doubt about it. And they'll get it -- no doubt about that, either.
“The question is when. Our view is that they'll get more than they expect, but later than they want it. We're looking for another crack in stocks...followed by more fear and loathing in the economy. This will have two major effects. First, investors will turn to the familiar dollar for safety. Second, everyone will hoard money... speculation will cease... and prices will fall -- including the price of gold.
“Market events -- such as another big break in the banking sector -- could bring a deflationary collapse. If not, the Fed itself may have to step in to protect the dollar. In either case, gold is not likely to reach its final, bubble phase until this contraction is over.
“In the meantime, our advice remains unchanged: Buy gold on dips.”
The dollar has found a new 2009 low. At 76.5, the dollar index is at its lowest level since this time last year… right before Lehman died and the market started to tank. What a coincidence!
Stocks look set to end the week quietly. As we write, the S&P is hovering around break-even. Still, at around 1,045, the S&P 500 is at a year to date high.
If you seek the market’s next move, why not ask the CEOs of publicly traded companies? For every $1 of insider stock purchases in August, there was $31 worth of sales, says a report from market researchers TrimTabs. According to the firm, execs at U.S. public companies have been net sellers of $105 billion worth of stock over the last four months. That’s the most aggressive insider selling since the summer of 2007… heh, you know… when most papers were rejoicing “Dow 14,000!”
What’s more, insiders have been spot on so far in 2009. Check out this track record:
We admit there’s a lot more going on here than simple market timing. And of course, many CEOs are no better at managing their own money than they are at running their companies (Greenberg, Fuld, Cayne, etc.). Tracking insider buying and selling sometimes does little more than confirm predispositions.
Disclaimers be damned, the numbers don’t lie… insiders have had a stellar track record so far this year, and right now, they are crowding around the exits. Caveat emptor.
(By the way, as buyers and sellers argue which way the market should head next, options traders are quietly getting rich. One of our options analysts is boasting an incredible track record so far this year… get details -- and his strategy -- right here.)
“I think that cattle is an excellent place to be,” says the always interesting Doug Casey.
“There is such a thing as a cattle cycle, and right now, all over the world, cattle are in liquidation. Farmers and ranchers just can’t make any money on cattle. Nobody has made any money on cattle in North America or Europe for years, and it’s especially serious now. So worldwide, cattle herds are being slaughtered, and that’s depressing the prices.
“The interesting thing is that even as prices are being depressed by all the selling, counterintuitively, cattle herds are collapsing. That means the number of cattle and the price of cattle are going down at the same time. That, obviously, can’t go on forever; at some point, the relative number of cattle is going to be quite small and prices are going to explode upward. Why? Because people in China, the rest of the Orient and across the developing world are going to want more beef -- in addition to the traditional consumers. And the numbers of cattle are going to be very low…
“Why, if I believe we’re sliding into the Greater Depression, am I long cattle? Because you’ve got to be a buyer when everybody else is a seller, and everyone else is a seller right now, because no one can make any money on cattle. That’s No 1. No. 2 is that despite the fact the world is going into a depression, the world population will continue growing, and the countries in the Orient are going to do relatively much better than countries in the West, so I’m willing to bet on rising beef consumption. No. 3, real cattle prices are at generational lows.
“But I’m not speculating in cattle; I’m investing in cattle. I’m not doing anything with them in the futures market.”
(Doug means that in the most literal sense… he has a crew of gauchos herding ’em in Argentina.)
Last, here’s one to keep on file, from a town hall meeting last night on CNBC:
Steve Liesman: [This time] next year… will more Americans have jobs than today?
Tim Geithner: Absolutely.
Heh, we know it’s not politically legit for the Treasury Secretary to give an honest or realistic answer like “Maybe” or “How the hell should I know?” But to be “absolutely” sure… c’mon.
“I believe one of the reasons North Dakota is doing so well is they have their own State bank,” a reader writes in response to our coverage of this recession-free state. “They can loan to themselves at low or no interest rates. Just shows how much better off they are without the Fed banks -- exactly how things are supposed to be set up.”
The 5: The Bank of North Dakota is actually the only state-owned bank in all 50 states. There’s no office of the Fed and BND’s deposits are NOT insured by the FDIC… yet (gasp!) the bank is stable and capable of self-governance.
“I live in North Dakota and have interests in the Bakken,” another reader writes, “and was surprised to see both mentioned in your e-mail letter yesterday. North Dakota is an interesting place to live and work. The total population is something like 630,000, and about 30% of those live within a few miles of the Red River, which makes up the eastern border. The state is about 340 miles by 210 miles, so you can guess that there are large areas that are sparsely populated. Most of the state is agricultural, and a lot of that is marginally productive. Fortunately, much of the marginal areas have oil below, including the land above the Bakken Formation. I would say the politics are conservative relative to the rest of the country, although the congressional delegation are all Democrats. However, there was very little of the mortgage and property value silliness that some other places experienced.
“The last few years have been good for the state's coffers. When the price of oil peaked last year, there was an enormous amount of money generated for the state. There are a lot of very productive gas wells in the same areas where oil has been found, and even though the price of natural gas is a little depressed right now, it generates a lot of money for the state. Large parts of the state also have thick seams of low-grade lignite coal under them, which is used locally for power generation and some of that power might be exported, but I don't know that for a fact. Coal trains leave the state at a rate of one every few minutes 24 hours a day, and because it is such low-grade, high-sulfur coal, I can only imagine that a lot of it is going overseas. In addition to conventional energy, the last few years has seen a big boom in agriculture related to ethanol and biodiesel generation.
“So with such a small population and all of these energy-related opportunities, in addition to all the regular business that you might find in a state, we would have been pretty irresponsible to not have a budget surplus.”
The 5: Heh, you could say the same thing about the U.S. in general, but that hasn’t stopped anyone for a long time.
“Thanks for the heads-up on DXO last week,” writes the last reader today. “I got out in time, and had a profit to boot! You guys are great. Thanks.”
The 5: Good to hear. We wouldn’t be at all surprised to see other securities follow suit, especially leveraged ones that take up politically unpopular positions. But if DXO is any example, it seems like they are still safe to play with for now… it’s wind down was pretty civil.
Have a nice weekend,
Ian Mathias
The 5 Min. Forecast
P.S. By the time you read this, we’ll be on our way to Dewey Beach, Del., for a quick weekend of relaxation. Summer changed to fall like the flick of a light switch here in the Mid-Atlantic, but we’re dashing over to the shore anyway… we’re more there for peace and quiet than sun and surf. We’d love to list all the provocative and fascinating books we plan on reading on our long weekend… but honestly, little more than eating and napping is on the agenda. It’s one of those vacations.
You’ll be left in the extraordinarily capable hands of Addison Wiggin and Dave Gonigam for a few days. Both mercilessly edit and critique The 5 day in and day out, so by all means… don’t go easy on ’em. Catch you next week.
P.P.S. Would you care for some weekend reading? We recommend Byron King’s latest report on investing in silver. Check it out right here.
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