The S&A Digest
October 26, 2012
Editor's note: Porter (along with much of the Digest team) is traveling back to Baltimore today from this week's S&A Alliance conference in Sea Island, Georgia…
So we're taking this opportunity to re-run one of our favorite Friday Digests. Originally published last October, Porter's essay describes "the hidden depression"… the insidious erosion of our standard of living… which is going unnoticed by most Americans. Nothing has changed fundamentally with the situation since Porter wrote about it. So it's still an important piece for everyone to read…
America's hidden depression… Why our standard of living is plummeting… How paper money turns losers into winners… More on the Social Security snafu… In the mailbag: 'The arrogance of youth'…
This Week on Stansberry Radio:
On this week's edition of Stansberry Radio, Porter interviews the director of another anti-Obama documentary. (Regular listeners may recall Porter's sparring with Dinesh D'Souza, maker of the film United States of Islam.)
This week, Porter speaks with Joel Gilbert – the director of Dreams of My Real Father. On the show, Joel shares groundbreaking information on Obama's background and past. To hear the interview with Joel Gilbert, click here. You can also download all Stansberry Radio episodes from iTunes here.
Today… I'd like to simply point out one unpleasant fact. I'd like to give you some insight into why it's so important and what it really means.
Here's the fact: America's standard of living is falling at a faster pace today than at any time since the Great Depression. Specifically, the real median income is down 9.8% since the fall of 2008. Additionally, Americans have lost roughly $5.5 trillion in asset value, or about 8.6% of their wealth.
When you talk about a depression, what you're really talking about is a collapse in the standard of living. That's what's happening today, right now, in our country. But people continue to go about their lives as though nothing is happening. Certainly, our politicians don't want to draw attention to the problem. Instead, they are behind the campaign to "paper over" these losses with schemes like "quantitative easing."
These schemes do nothing to make our economy more productive. They're designed instead to make prices rise so people (hopefully) won't notice how poor they're becoming.
If you've been reading my newsletters since 2008, none of this is a surprise to you. I've been warning month after month, year after year, that the government's efforts to paper over our bad debts won't work. And they won't work for two primary reasons…
First, soaring levels of high-powered money (like the Federal Reserve's asset base) will eventually cause prices to rise. That means the savings of millions of Americans – and the value of their wages – will fall in real terms. That's exactly what's happening. That's why our standard of living is falling so precipitously.
Second, the impact of this inflation and the uncertainty about its impact on the economy will cause entrepreneurs and corporations to delay or cancel major capital investments. That's the primary reason we have yet to see any rebound in employment.
The best way to see what's really happening in our economy and to our standard of living is to look at the value of the stock market through a sound-money lens. You can pick whatever sound money you like. Of course, most people won't ever do this… It would never even occur to them that the dollar is not sound and that it's distorting the value of everything in our economy.
Here's the real situation in America…
That's what the S&P 500 looks like when you price stocks in ounces of gold instead of in U.S. dollars. You'll see we are now below the lows we saw in 2009. Unfortunately, few people understand this… They've never thought about it this way before. And as a result, they're simply not doing enough to protect themselves.
They don't know this is what's really happening because Washington keeps papering over these problems with more borrowing and more printing. But you can't solve a debt crisis by going deeper into debt. You can't reverse inflation by printing more money.
If I could wave a magic wand and change just one thing about my fellow citizens… I'd make them realize paper money is a crime.
It allows politicians to rob creditors to bail out debtors. It's a tool that's used to take value away from savers and give it to reckless borrowers. It's how both political power and economic power remain vested in Washington D.C.
Now… the politicians and their backers on Wall Street will swear up and down that their policies and the actions of the central bank (which has more than doubled its assets via nearly $3 trillion of asset purchases) aren't causing the inflation. It's as if, in their minds, printing trillions of dollars in new money has no impact on our economy.
It's simply a lie.
But that's not the worst part. The worst part is all that new money will end up in the hands of the people who caused this crisis in the first place.
Let me give you one example. Below, you'll find a chart of Genworth Financial. It's a mortgage-insurance/life-insurance company. It was spun out of GE Capital during the midst of the 2000s financial boom.
Without the bailout of the financial system, via $700 billion in Troubled Asset Relief Program (TARP) money and more than $2 trillion in quantitative easing (QE), there's no doubt in my mind that Genworth would have gone bust because of losses in its mortgage-insurance unit. But that's not what happened. Instead, Genworth Financial became the No. 1-performing stock in the U.S. from the spring of 2009 until the spring of 2010.
It held on to those gains as long as the Central Bank continued its QE policies. And when QE finally ended in the summer of 2011… guess what happened to Genworth? I bet you can guess without even looking at the chart.
Paper money took the biggest loser, the company that had made the worst bets with the most leverage… and turned it into the biggest winner… at least, temporarily. For this, we all paid a massive, invisible tax: the largest decrease in real wages since the Great Depression.
This isn't how America should work. The rich and the powerful in New York and Washington D.C. shouldn't have the right to impoverish the rest of us simply to bail out their backers and their cronies.
My guess is… sooner or later… our creditors and the American people will wake up to what's happening to our money. And as I've been warning, they will be furious. What's scariest to me is to see how this anger is manifesting itself in the Occupy Wall Street movement. These folks are blaming capitalism for these kinds of problems. But this has nothing to do with capitalism. Paper money was Marx's idea. But try explaining that to any of those folks…
What's happening to our country is a crime. The ramifications of these kinds of manipulations will be decades of mistrust and social unrest. Unfortunately, this is a long way from being over. The price inflation that will inevitably result from the Fed's actions of 2009, 2010, and 2011 are only now beginning to manifest. The worst is yet to come. And it's going to be a lot worse.
New 52-week highs (as of 10/25/2012): Advent Claymore Convertible Securities and Income Fund (AVK), Guggenheim China Real Estate Fund (TAO), Navigators Group (NAVG), Southern Copper (SCCO), and Procter & Gamble (PG).
As always… we urge you to send us a note… good, bad, or delusional… We read and appreciate them all. (That doesn't mean we can publish or respond to every one. If we did, we'd never have time to do anything else.) Send your e-mail to feedback@stansberryresearch.com.
"I have been a subscriber for 2-3 years (currently SIA & TWT). I find that sending e-mails is a waste of time but here I go. Porter’s recent posts on becoming a millionaire by age 40 are interesting. I am in the camp that says his road map is too stark for most people. You might as well go live in a monastery.
"However as Jeff said yesterday you don’t have to do or believe everything Porter of any of his analysts say or recommend. You have to make your own choices. The day before yesterday another subscriber said that he enjoyed/lived his youth and became a millionaire by age 60. That sounds like a good compromise to me. (I did not make it but that is another story). The analysis and information offered by S&A is excellent, in my opinion, as long as you take it as one point of view and accept responsibility for yourself and make you own choices." – Paid-up subscriber Jim. S.
"I am one of those people who have worked from the bottom up. I worked an hourly position for a Fortune 500 Company making $7.00 an hour while completing my undergraduate degree. I graduated from college and went into their management program. My assistant manager wage was $30,000 a year. I proceeded to work my way up the company ladder and ended up Vice President of Operations, overseeing 4500 employees. I have since left them (four years ago and started my own business).
"I recently had the opportunity to speak with a bunch of undergraduate Juniors and Seniors… 18 of them. I asked how many had a job lined up when they graduated… two of them had. I proceeded to explain to them that now they were going out into the real world… and it was going to be brutal. I told most of them that they were going to start in an entry level position, making $9.00 to $12.00 an hour.
"For them to succeed, I explained that they would have to go 'Above and Beyond' in their job duties. Get there early… stay late! If called in, always show up and do what is right for your company! Become indispensable. If they were to do this… they would be ahead of 90% of the other employees, and within 6-12 months would be offered a supervisor or management position.
"I congratulated each and every one of them for getting a four-year degree… because it is a great accomplishment. But I told them that now it was up to them to have the work ethic, and the intestinal fortitude to do what they have to do to move up in this tough economic environment. In the long run, the degree may help them… but it is up to them to show their net worth to prospective employers… by the use of their strong work ethic and the ability to so whatever it take to get to the next level.
"I was one of eight speakers to the class that week… and was voted the most inspirational. The reason is… I told them the truth about the real world and what it is going to take, and not one of their professors did this to prepare them for what they have to face in these harsh economic times. The disconnect between successful business professionals, and those who teach business, is huge, and the graduates are many times, not prepared for the real world of competition and business." – Paid-up subscriber Tom Funk
Regards,
Porter Stansberry
Sea Island, Georgia
October 26, 2012
Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios) As of 10/25/2012
Stock Symbol Buy Date Total Return Pub Editor
Rite Aid 8.5% 767754BU7 2/6/2009 320.57% True Income Williams
Paramount Gold PZG 4/14/2009 240.54% Phase 1 Sjuggerud
Enterprise EPD 10/16/2008 187.89% The 12% Letter Dyson
Prestige Brands PBH 5/13/2009 178.65% Extreme Value Ferris
Sandstorm Gold SSL-V 6/1/2011 175.76% Phase 1 Curzio
Exelon EXC 10/9/2002 145.87% SIA Stansberry
McDonald's MCD 11/29/2006 140.08% The 12% Letter Dyson
Altria MO 11/19/2008 137.82% The 12% Letter Dyson
Pretium Resources PVG-T 1/5/2011 113.00% Resource Rpt. Badiali
Coca-Cola KO 11/19/2008 110.01% The 12% Letter Dyson
Top 10 Totals
4 The 12% Letter Dyson
1 True Income Williams
1 Phase 1 Sjuggerud
1 Extreme Value Ferris
1 Phase 1 Curzio
1 SIA Stansberry
1 Resource Rpt. Badiali
Stansberry & Associates Hall of Fame
(Top 10 all-time, highest-returning closed positions across all S&A portfolios)
Investment Sym Held Gain Pub Editor
Seabridge Gold SA 4 years, 73 days 995% Sjug Conf. Sjuggerud
ATAC Resources ATC 313 days 597% Phase 1 Badiali
JDS Uniphase JDSU 1 year, 266 days 592% SIA Stansberry
Silver Wheaton SLW 1 year, 185 days 345% Resource Rpt Badiali
Jinshan Gold Mines JIN 290 days 339% Resource Rpt Badiali
Medis Tech MDTL 4 years, 110 days 333% Diligence Ferris
ID Biomedical IDBE 5 years, 38 days 331% Diligence Lashmet
Northern Dynasty NAK 1 year 343 days 322% Resource Rpt Badiali
Texas Instr. TXN 270 days 301% SIA Stansberry
MS63 Saint-Gaudens 5 years, 242 days 273% True Wealth Sjuggerud