Curried Wealth Building
Finding an Edge

If you want help with your finances, give me a call at 703-791-3243.
March 20, 2010
Issue 88  -  Speechless
 
 
Sometimes I hear something that is so crazy that I don't even know what to say.  This time I heard two things, consecutively.  They both came from the same podcast.  I typically listen to about 12 podcasts a week.  Some of them aren't very good, but I suffer through them (aren't you glad you're not me), because sometimes there is a nugget.  One of those podcasts is The Money Guy.  This is done by a CPA and his partner and they have done it for a few years.
 
This past week the partner was talking about the $8,000 first time home buyer credit.  He was buying his first home and qualified for the credit.  He found he had to jump through many hoops to get this money.  Remember a credit comes off your final tax amount owed.  This is different from a tax deduction which is deducted from the income.  Big difference, credits are much valuable.
 
After jumping through all the hoops, it was taking forever to get his money.  He kept calling and the IRS said everything was fine.  Finally after 6 months he received the check.  Now how much do you think his check was for?  How about $8,276!  That's right, the government paid this HANDOUT recipient INTEREST on his GIFT!!!!!  Not just savings account interest, but 7% interest.  7%!!!!!!!!  Why in God's name is the government paying interest at ALL on a GIFT!  Even if they thought it was fair, and the government seems to be all about fair these days, why are they paying monster interest rates?
 
As if that wasn't bad enough, the second story was more mind numbing.  The host of the show, a guy named Brian Preston, is a tax preparer, and had a young couple as clients.  He had just finished their 2009 tax returns and was rather stunned.  They were a single income family and had an income of $36,000.  In 2008 they had $1,800 withheld in taxes.  They then received a refund of $4,000.  $2,200 more than they paid.  I had heard of families getting back more then they paid but that seemed extreme.  Then it got really bad....for tax payers.
 
During 2009 this same family had only $700 withheld throughout the year.  This was due to Obama's reduction in withholding to "stimulate" the economy.  Now what would you guess they received as a refund?  Ready?  $7,600!!  They actually received $6,900 more than they paid!  That seems a bit like a bad joke.  How can we pay people just for existing!  We are bankrupt.  Now why did this differ so much from 2008?  It has to do with the credits.  In 2008, some credits were phased out, as you paid less taxes.  Obama changed the rules to allow the credits to just keep adding up.
 
This is nuts guys.  This is all part of the government's game to keep the plates spinning.  The government is now supplementing lower class incomes.  Is this why the economy has picked up a little?  You bet.  Are people living in homes without making a payment for up to a year "helping" the economy?  Of course.  They have to do these things because the wheels are coming off in other places: 
 

Social Security to start cashing Uncle Sam's IOUs

PARKERSBURG, W.Va. – The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.

It's time to start cashing them in.

For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.

Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg's municipal offices.

Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn't be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.
 
 
This was a major source of funds that were used to "balance" the budget during the Clinton years.  These receipts to the treasury were just used to pay normal expenditures.  As the story says, these are merely IOUs.  Pieces of paper.  Worthless.  A giant ponzi scheme where older Americans take from the younger.
 
 
 
 
This is what the government has become:  one giant manipulation machine.  The sole purpose of the government is now managing the mindset of the public.  Their reported numbers should be questioned in every case.  Just read this:
 
 

Faults Exposed in Oil-Data Collection
by Brian Baskin
Friday, March 19, 2010
provided by

DOE Documents, Consultants' Report Cite Outdated Methodology, Errors in EIA's Weekly Survey
The U.S. government faces "critical" shortcomings in producing its oil-inventory data, according to internal Department of Energy documents, casting doubt on figures that affect the production and prices of the world's most important industrial commodity.
The documents, obtained through a Freedom of Information Act request, expose several errors in the Energy Information Agency's weekly oil report, including one in September that was large enough to cause a jump in oil prices, and a litany of problems with its data collection, including the use of ancient technology and out-of-date methodology, that make it nearly impossible for staff to detect errors. A weak security system also leaves the data open to being hacked or leaked, the documents show.
Moreover, problems with EIA data underscore the hazards of depending on companies or other firms to self-report data.
More from WSJ.com:

 
This is not by accident.  This is deliberate and is being used to manipulate prices and expectations.  Never listen to what a government says, watch what they are doing, what laws they are passing.  The governments will always say gold is not money and that it pays no interest and why would you want to own that?  Oh really?  Then why are doing this:
 
 
Central Bank Gold Holdings Expand at Fastest Pace Since 1964

March 18 (Bloomberg) -- Central banks added the most gold to their reserves since 1964 last year amid the longest rally in bullion prices in at least nine decades, data compiled by the World Gold Council show.  Combined holdings rose 425.4 metric tons to 30,116.9 tons, an increase worth $13.3 billion at last year’s average price, according to the data. India, Russia and China said last year they added to reserves. The expansion was the first since 1988, the data from the London-based council show.

Central banks, holding about 18 percent of all gold ever mined, are expanding their holdings for the first time in a generation as investors in exchange-traded funds amass bullion as an alternative to currencies. Holdings in the SPDR Gold Trust, the biggest ETF backed by the metal, are at 1,115.5 tons, more than the holdings of Switzerland.
"There’s clearly been a renaissance of gold in central bankers’ minds," said Nick Moore, an analyst at Royal Bank of Scotland Group Plc in London. "It’s not just been central banks taking on gold, but a general shift for physical gold in the investment sector."
Official reserves of central banks and governments may expand by another 187 to 218 tons this year, CPM Group forecast last month. The council’s data also includes the holdings of the International Monetary Fund, European Central Bank and other international and regional bodies.
Gold climbed 24 percent last year, reaching a record $1,226.56 an ounce in December. World holdings rose 527 tons in 1964 and climbed 832.7 tons the year before that, according to the London-based industry group.
‘At the Edge’
"Gold is quietly, at the edge, becoming the world’s second reservable currency, supplanting the euro and rivaling the dollar," Dennis Gartman, a Suffolk, Virginia-based economist and hedge-fund manager, said in his Gartman Letter today. "The trend shall continue months, if not years, into the future."
Read the last sentence again.  The trend will probably last for years.  The central banks have been selling gold for 20 years.  Now they are buying.  This means gold is almost ASSURED of going up.  If these guys are buying, how can you be doing anything different?  Watch what they do, and follow suit.  And for all those claiming gold is "too high":
 
Gold and Silver Highs Adjusted for CPI-U/SGS Inflation.
Even with the December 2, 2009 historic high gold price of $1,212.50 per troy ounce, the prior all-time high of $850.00 (London afternoon fix, per Kitco.com) of January 21, 1980 has not been hit in terms of inflation-adjusted dollars. Based on inflation through February 2010, the 1980 gold price peak would be $2,368 per troy ounce, based on not-seasonally-adjusted-CPI-U-adjusted dollars, and would be $7,494 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars.
In like manner, the all-time high price for silver in January 1980 of $49.45 per troy ounce (London afternoon fix, per silverinstitute.org) has not been hit since, including in terms of inflation-adjusted dollars. Based on inflation through February 2010, the 1980 silver price peak would be $138 per troy ounce, based on not-seasonally-adjusted-CPI-U-adjusted dollars, and would be $436 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars.
 
Gold at $7,494 or silver at $436 an ounce?  Don't bet against it.  In fact, I think it's almost assured the way we are spending a charging ourselves to death.  Add in this possible health care fiasco on top of things and that is only going to make things worse.  If you think we are going to save money with this new benefit, then I've got something that you need to wear:
 
 
 
Don't believe anything coming out of either party.  You'll only be disappointed. 
 
Now here is the thinking of a true investment legend.  Fifty years in the business and still going strong.  What does he think about gold:
 
 
Richard Russell last evening…
March 17, 2010 ...The great bull market in gold has been in force for almost a decade. I've shown where gold, since 2000, has closed higher for nine consecutive years. During that time gold has advanced from prices in the 200s to its current price of approximately 1124.

Now suppose the stock market had done the same thing. Can you imagine the frenzy that would be greeting stocks today? Yet, incredibly, the fantastic bull market in gold has elicited little or no excitement from the US public. Go to your favorite local store, buy a few items and try to pay for those items with an American gold eagle coin. The clerk will stare at the coin and likely say, "Sorry I can't accept that for payment, we only accept dollars. By the way, what is that pretty coin?"

It's truly remarkable. Within the space of three or four generations Americans no longer even recognize Constitutional money! I've said before that gold is imbedded in the DNA of mankind. We're closing in on the time when, like a light bulb turning on, Americans will finally realize that they've been hoodwinked by one of the greatest swindles in the history of civilized man. They've been working and saving printed paper with the firm conviction that the paper they worked so hard for was money. Wait, why is that printed paper worth anything at all? It's worth something simply because the government has pronounced by fiat that dollars are "legal tender for all debts, public and private." So the "dollars" that we work our whole lives for, is backed by nothing but the "full faith and credit of the United States." And how good is that credit? Two credit agencies are now threatening to lower the rating of US bonds. If that happens, it will be a monumental shocker? And yes, all sovereign money is now being judged and classified as to its worth. Did anyone ever gauge or debate the value of gold? As I see it, we're watching the very beginning of the end of fiat money.

As we approach the era of suspicion about fiat money, knowledgeable investors will increasingly seek the safety of real, intrinsic Constitutional money -- gold.

And the great irony is that highly-placed but ignorant "experts" continue to denounce gold as a "useless relic." In the face of this pathetic propaganda, the price of gold continues to rise in terms of fiat money. Actually, the price of gold doesn't change. It simply takes more dollars, more reals, more rubles, more bahts to buy one ounce of gold. What this really means is that fiat money in all its varieties is being devalued in terms of real, intrinsic money -- gold.

I've said all along that the primary trend of the market cannot be halted or reversed. However, the Fed, Ben Bernanke and the Administration believe that with enough quantitative easing and enough stimuli the bear market can be halted and even reversed. Ah, but there's the matter of "unintended consequences." What are those unintended consequences? In their frantic efforts to avoid a painful and politically-unacceptable depression, the Fed and the Treasury and the administration have placed the very credit of the United States in jeopardy. They have loaded the US with the greatest mountain of debt the world has ever seen. Ultimately, this will lead to a different monetary system. And ultimately, the US public will be enlightened about the fraud of fiat money. And lastly, it will lead to a frenzy to own gold. Those of my subscribers who were with me during the 1970s probably remember this phase, "There's no fever like gold fever." Before this bull market in gold is over, I believe you'll be hearing that phrase again.

 
That's right, when gold is hot, you will have no doubt about it.  Think housing in 2005 when Playboy Playmates were becoming real estate "investors".  To show how far we are from a bubble, read this from GATA:
 
hello bill,
regarding the "insightful" analysts, (term used with tongue firmly in cheek), who describe gold as being in a bubble. had an interesting experience today.
wife and i were out of town. i wanted to get some trading done in gold mining shares and needed to know where physical gold was before the nyse opened, we were about 20 minutes to nyse open. i was walking past a charles schwab office and stopped in. i asked the receptionist to check her screen for the current spot gold price. she said she couldn't because the stock exchange had not opened yet for trading! i clarified no, the metal. she did not comprehend, then took me to 3 account executives standing together. i mentioned i wanted the spot gold price, all three mentioned that the nyse was not open yet but could get me yesterdays.... etc. you get the idea. finally i mentioned, once again, the physical metal and finally just asked if they could pull up an internet site for me. one of the three had actually heard of the site, the other 2 were a bit mystified.
sure sounds like bubble action to me when workers at a major brokerage firm are mystified as to what spot gold is or that metal actually trades somewhere and not just as a piece of paper "representing" physical.
 

This lack of knowledge by investment professionals is NOT showing a top.  If anything, it shows gold has a long way to go before we peak.  These professionals actually didn't know that gold could be priced during non stock market hours.  That is sad.  Not sad for you, because you can take advantage and buy some more.
 
Stock Market Notes
 
The stock market has been going up steadily as I thought it might at the beginning of the year.  Will it continue?  The numbers seem like they are getting better, but are they really?  Maybe not:
 
Rosenberg: The Truth About Retail Sales Is That They Still Stink
In this morning's Breakfast With Dave newsletter, analyst David Rosenberg talks last week's retail sales report.
 
Don't believe everything that you read, says Rosie. According to "raw data," retail sales actually FELL 1.6% month-over-month in February, and you can't just blame seasonality for this.
Breakfast With Dave: “It’s always best to look at what consumers do rather than what they think or say. They’re spending — that's the main thing”. That goes down as the glib remark of the weekend — front page of the Investors Business Daily (Shoppers Perk Up, Lifting Retail Sales, By A Surprise 0.3%). Another pundit said pretty well the same thing in Barron’s and following the data on Friday there was an economist on CNBC who said that you never win by betting against the U.S. consumer.
What a load of you-know-what.
 
Let’s more closely examine that retail sales report.
 
First, the raw data actually showed that sales fell 1.6% MoM in February. Now it would be meaningful if February was usually a weak month for sales compared to January so that it would make perfect sense for the seasonal adjustment factor to give the raw data an upward skew. But in fact, retail sales rise over half the time in February. And while, on average, the not seasonally adjusted retail sales data are down 0.4% in each February over the past decade, the reality is that this past February was four times as bad as the norm — not to mention tied for the third worst February since 1998. Really good result, eh?
 
Second, here we have the greatest stimulus experience in seven decades and retail sales are still down 5% from the pre-recession peak and on a per capital basis are down 8%. Sales are actually lower today than they were in January 2006 — four years ago — even though the population has risen 4.3% over this time. And on a per capita basis, retail sales are no higher today than they were back in July 2005. Then adjust for inflation and draw the picture of real retail sales on a per capita basis (see below) and you shall see that they are down to 1996 levels. Don’t bet against the U.S. consumer? Sure thing.
 
Third, look at the year-on-year trends in some of the key cyclical sectors — still
negative on top of the detonating year-on-year pace in February 2009.  
Electronics down 1.6% (-3.0% a year ago); 
• Restaurants down 0.3% (+3.4% a year ago, believe it or not); 
• Clothing down 0.7% (-2.8% a year ago); 
• Department stores flat (-6.8% a year ago); 
• Furniture down 1.8% (-7.5% a year ago); 
• Building materials down 4% (-10.9% a year ago).  
If there is one segment that has truly held its own, it is food stores — up 3.8% (was
+1.3% a year ago) and e-tailing, which is now up 11.8% (was -1.6% a year ago).   
 
 
Look at the numbers in red.  These numbers are in direct opposition to the nonsense coming out from the financial press.  These numbers are terrible for a supposed "recovery".  So where does that leave the stock market.  Well, believe it or not, we are mirroring another famous rally....the rally of 1930.  Most people think that the stock market crashed in 1929 and then just went straight down, not at all:  (from Rick's Picks)
 
Bear Rally Nears 1930s Benchmark
by Rick Ackerman on March 17, 2010
 
At yesterday’s top, the Dow Industrial Average was a mere 239 points shy of equaling the six-month bear rally that followed the 1929 Crash.  The blue chip average peaked at 10694 on Tuesday, but it will need to hit 10933 to equal the fervently delusional, 77% retracement of the Great Crash.  At the rate the Dow has been climbing, it could be there by week’s end or early next, so place your bets. We’ve can identify one spot between here and 10933 where a short would enjoy favorable odds, but the gambit demands a tight stop-loss.
 
As we know, those who bought into the 1930 rally, and who stuck with it, were proven to have been fools; for the stock market would eventually lose 90 percent of its value.  If this scenario were to repeat, it would imply a bottom for the Dow at 1420, representing a collapse of nearly 87% from current levels. Obviously, many of today’s investors are not reflecting on the lessons of history. For the record, the bear rally topped in April 1930, a fact that should give pause to those counting on springtime to fill investors’ hearts with lightness and song. Given the parlous state of the economy, which remains frozen despite a steroid-induced spike in GDP, it should be prayer on the lips of investors, not song.

 
So, the market crash of 1929 had a rally of 77%?  Hmmmm.....sound familiar?  Now there is no way to know if this will repeat.  We have already exceeded the duration of the 1930 rally.  A point to watch is 10933 on the Dow.  If that were exceeded for a week or so, then we could be out of the woods.  Doubtful, but you sometimes have to believe the price action no matter how illogical it might look.  I would definitely not be getting into the general stock market until this level is exceeded.  As always, if you would like to discuss what you should buy, give me a call at 703-791-6066 or you can just email me.
 
I finish this week with a video of a guy who truly has more nerve than brains, have a great week!