• Watch your language: The unlikely offense that could get your bank account frozen
• Greek bank run: Addison on how the entire euro experiment is “in jeopardy”
• Dollar jumps… for now. But what about your purchasing power?
• Come on Eduardo, there’s no shame in it: Facebook co-founder’s savings from giving up his U.S. citizenship
• Soros’ latest gold move… a grim economic indicator from NASCAR nation… preparing for a zombie apocalypse in Vancouver (uh-oh)… and more!

   “Apparently,” writes journalist Jeremy Scahill, “the First Amendment had an exception about Yemen in it that I missed.”

Violate that exception as of today and the federal government might deny you access to your bank account. Seriously.

This is of no small interest to us here: More than two years ago, Addison wrote in Apogee Advisory about how the place is a tinderbox. Nearly half the population is under 16. Nearly half is in poverty. There’s almost no arable land. “Oil, which accounts for 75% of government revenue, will likely run dry by 2020,” he noted.

Sure enough, the place blew up during the Arab Spring last year. The longtime U.S.-backed dictator Saleh was chased from office, agreeing to a U.S.-brokered “transition.”

As part of that “transition” a Saleh stooge named Hadi won an election in which he was the only candidate.

Having pronounced the election “successful,” Secretary of State Hillary Clinton ensures that Hadi, like Saleh before him, collects beaucoup bucks and weapons to do Washington’s bidding.

Yemenis, realizing they were had, are restive.

   So the president issued an executive order this morning — authorizing the Treasury Department to freeze the U.S.-based assets of anyone the feds believe “engaged in acts that directly or indirectly threaten the peace, security or stability of Yemen.”

Included are “acts that obstruct the implementation” of the “transition” agreement.

“In other words,” writes Salon’s civil liberties blogger Glenn Greenwald, “the U.S. government will now punish anyone who is determined — in the sole discretion of the U.S. government — even to ‘indirectly’ obstruct the full transition of power to President Hadi.”

As part of this transition, the U.S. military has carried out more drone strikes in Yemen this month than in the preceding 10 years combined. Yemen is also the place where last fall, a U.S. drone summarily executed a U.S. citizen — with no trial or other vestige of due process, merely the president’s say-so.

Would criticism of these policies constitute an act that “directly or indirectly threaten[s] the peace, security or stability of Yemen”? Probably not.

Not yet, anyway. But if you’re the sort of person who doesn’t like the government freezing his assets, we pass this along as a public service.

   In a rerun of yesterday, the major U.S. indexes are up a bit — traders having set aside their worries about Greece.

Of course, by the close yesterday, all those gains were wiped out, and then some — thanks, we’re told, to “news” of a bank run in Greece.

We put “news” in quotation marks because even now, nearly 24 hours later, nobody has a clue what’s going on. Here’s a sampling of media coverage…

CNBC: “Greek depositors withdrew 700 million euros ($900 million) from the nation’s local banks recently, said President Karolos Papoulias, though the exact timing of the transfer was unclear.”

Wall Street Journal: “Greek depositors withdrew €700 million ($898 million) from the country’s banks on Monday… Greek President Karolos Papoulias told the country’s political leaders that bank withdrawals plus buy orders received by Greek banks for German bunds totaled some €800 million on Monday, a transcript of his comments said. A central bank official confirmed the figures.”

London Telegraph: “Citing a secret government document, [Papoulias] said Greeks were already pulling £80 million a day out of the country’s banks. Almost €1 billion (£795 million) has been withdrawn since the last elections, on May 6.”

From this we can deduce that ordinary Greeks withdrew a large but indeterminate sum of money sometime in the last 10 days. Maybe.

Don’t be surprised if there’s a repeat of yesterday’s late-day drop: The wild card this afternoon could be the release of minutes from the Federal Reserve’s meeting last month.

   “The whole experiment is in jeopardy,” Addison writes of the euro in The Little Book of the Shrinking Dollar.

“The differences between the fiscal trajectories of the various eurozone states are of degree only, not direction. In this game, we’d put our bets that Germany — the last AAA standing — will call the shots. And they could well kick Greece or one of the other paltry PIIGS outta the union.”

   As this forecast unfolds in real-time, hot money is again fleeing for the greenback. The euro is down this morning to $1.274.

The dollar index — of which the euro makes up 57% — is up to 81.24. The “DXY” has risen for 13 straight days, something it’s never done before.

Thus it stands at the high end of the range where it’s traded since Fed chief Ben Bernanke gave a wink to the world in Jackson Hole, Wyo., in August 2010 and all but said “QE2” was in the bag.

   “The best wool that the feds can pull over your eyes is that they have all this under control,” writes Addison in the book. “They don’t.”

“They’ve got prejudices and working theories, but remember, there’s nothing hard about the ‘science of economics.’”

“If you hear CNBC or Bloomberg declare: ‘Prices are up 10% over the past year.’ don’t just switch off the TV and shrug.”

“Instead, acknowledge that ‘last year’s dollar is worth 90 cents today’ and work on what you can do about it when it comes to your own wallet and your bank account.”

The book has ample guidance to help you do so. In fact, our publisher Joe Schriefer counts 47 solutions. (He shares five of them with you right here.) Some are easier to implement than others. But no matter your net worth or your income, you’ll find plenty of take-aways you can put to work the moment you set the book down.

And for a limited time, Joe’s worked out a way to get you a copy of the book — free. Learn how to get your own — on us — at this link.

   Gold is sinking further toward Vancouver speaker Marc Faber’s potential target of $1,400-1,500.

At last check, the spot price was $1,540 — below its low set at the end of last year.

Silver, for the moment, is holding above its year-end 2011 low… barely… at $27.42.

   George Soros quadrupled his gold exposure in the first quarter, according to his latest 13-F filed with the SEC.

His stake of 85,000 GLD shares during Q4 2011 grew to 320,000 at the end of March.

That’s still a far cry from the 4.67 million shares Soros held at the end of 2010. He dumped almost all of it in the following three months… when gold still traded between $1,340-1,440. Even at today’s “relatively” depressed price, that looks like a bad trade.

Soros also loaded up on J.P. Morgan Chase during the first quarter. Yeah, that’s working out really well right now.

   The morning’s read on the housing market: Meh. The Commerce Department says housing starts grew 2.6% last month… essentially offsetting a 2.6% drop the previous month.

Permits — a better indicator of future activity — fell 7%, largely offsetting an 8.8% increase the month before.

Activity was strongest in the South, weakest in the Northeast.

   There’s now a number on the savings Facebook co-founder Eduardo Saverin will achieve by giving up his U.S. citizenship: $67 million.

Bloomberg figures it this way: Saverin owns 4% of the company, which has 1.9 billion shares outstanding. When he surrendered citizenship last September, shares were privately auctioned for $32.10. The IPO this week could be as high as $38.

The difference between the last two values works out to $448 million. Apply 15% capital gains tax — which goes up at the end of this year — and you get $67 million.

A Saverin spokesman challenges Bloomberg’s methodology and sticks to his story that came out this weekend: “His motive had nothing to do with tax and everything to do with his desire to live and work in Singapore.”

We’re not sure why Saverin and his minions are so determined to downplay the tax angle. “The United States is the only developed country taxing its citizens regardless of where they live,” Addison writes in The Little Book of the Shrinking Dollar.

No matter: Saverin’s move has inspired much weeping and gnashing of teeth. “Rather than paying back, he is moving on,” complains Yale law professor Bruce Ackerman in the Los Angeles Times.

“I don’t agree,” Addison says via email this morning, “with Ackerman’s assertion that Saverin should ‘pay back’ anything. Rather, the U.S. should have a tax system that makes it attractive for him to want to stay.”

Imagine that…

   Heads up if you’re joining us in Vancouver this summer: Watch out for zombies.

The 5 has been on zombie alert going back more than 18 months. More recently, we took note of a course at Michigan State instructing students in “Surviving the Zombie Apocalypse.”

Now comes a new section on the website of British Columbia’s Emergency Management office: Evidently, it’s Zombie Preparedness Week in Canada’s westernmost province.

“The threat of zombie attack is a popular phenomenon around the globe,” the site says, “and with it comes the message to ‘be prepared.’”

“Earthquakes, tsunamis, floods, landslides, avalanches, interface fires, severe storms and hazardous material spills are some of the dangers that could threaten lives and cause extensive damage in British Columbia,” it goes on. “And while the chance of zombies a-knockin’ on your door is pretty slim, we do believe that if you’re ready for zombies, you’re ready for any disaster.”

The site includes links to several YouTube clips of preparedness steps, produced by the agency. They must be seen to be believed: We’re finally starting to understand some of the mock public-service announcements those Canucks on SCTV were doing 30-odd years ago…

We’re reasonably sure zombies will leave us untroubled in Vancouver the week of July 24. There’s still time to register and come join us for our best lineup of speakers ever, listed here. You’ll want to move quickly, though: We expect to be full up before the end of the month.

   “Addison’s discussion about debt to GDP ratios with finance students at Towson University,” a Canadian reader writes, “reminded me of a class I taught many years ago (being a businessman, I volunteered with Junior Achievement to teach business basics to school kids).”

“Sadly, the current crop of Towson students seem as ignorant and misinformed about business, economics and finance as the Grade 8 kids I taught.”

“For example, a multiple choice exam asked my kids what the profit was when McDonald’s sells a $1.00 hamburger. All of them selected either 90 cents or $1.00 as their answer. They were shocked when I explained what it costs to make that hamburger and the few pennies left for profit after all costs are paid.”

“Most of the kids in my class were from upper-income families whose parents were either business people, professionals or well-paid skilled workers. Yet they knew nothing about business, the economy or finance. Nothing.”

“It is truly scary that my Grade 8 kids in Canada and Addison’s university students in the USA were so ignorant about what makes the world go round, and such ignorance is deeply embedded in our education systems.”

“But at least this explains why voters keep demanding their governments and unions do things that are sure to lead to economic and social ruin (Greece is a prime and current example).”

“If only we could force them all to read The 5 starting when they are in diapers.”

The 5: Hmmm….

   “I have been using NASCAR attendance to tell me the truth about the supposed recovery for several years now,” a reader writes after yesterday’s episode, “since I live within half a mile of Bristol Motor Speedway and rent out space in my yard for campers.

“I have been doing this for over 10 years and never had a vacancy until last year. The one race that was run this year had the lowest attendance ever and I had nearly a third of my yard empty. Since I haven’t raised my camping rate ever, it all has to do with the economy and gas prices.”

“So I’ll believe in a recovery when the fans are back in my yard.”

   “In November of last year,” writes a reader with a follow-up, “I read in The 5 that the Indiana Supreme Court had just shredded the basic right of its citizenry to defend themselves in their own home — a right dating back to the 13th century and the Magna Carta.”

“I was shocked to learn that six months earlier, the case of Barnes v. Indiana had gone almost unmentioned. As Indiana is my home, I was especially moved to prevent this ruling from taking hold.”

“Fortunately, despite the downplay given by the media, many of us here, myself included, objected loudly. Our state senators and representatives heard from us, and agreed, using words like ‘shocked’ and ‘appalling’ in reference to the ruling in their replies to me.”

“As a result of our efforts, Senate Bill 1 of 2012 was written to overturn the ruling; passed by an overwhelming majority; and, effective July 1, 2012, will become law, handing back the right of the individual to defend his or her home and property against unlawful entry by the police, using force if necessary.”

“I wanted to thank you for calling this incredible breach of justice to our attention. It was your action that informed me and doubtless many other Indiana residents of what was happening in our state. Thanks in part to you, we have stopped the court from stripping Indiana residents of a basic right. Others may complain of the nonfinancial content that we find in The 5 from time to time. I am not one of them.”

“Thanks for the financial advice, political heads up and always entertaining read.”

The 5: You’re welcome. And we invite you to join kindred spirits, wherever they might live, at the Laissez Faire Club.

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. Congratulations to the segment of our readership who as of yesterday were up 54% in a little over a week as financial shares took a beating… and 71% in less than two months on a stumbling tech giant.

Just goes to show there are gains to be had whether the market’s up or down. Want to claim some for yourself? Here’s where to start.

• The scary number that’s doubled in 20 years… and the generation about to get hit good and hard
• Why Bill Gross believes Treasury yields can’t go much lower… and the corroborating evidence from China
• “Inflation Is Falling,” scream the headlines. Savers are still getting punished, we hasten to note…
• How a slumping economy puts sand in the gears of stock cars… a reader marvels that we have any readers left… a tweet in vain (we assume)… and more!

   “We used to be a nation of thrifty creditors,” Addison writes. “Now even our sharpest students look abroad and see no problem with collectivized risk and a mountain of unpaid liabilities.”

His revelation came when speaking to some finance students at Towson University. “What is so bad about a debt-to-GDP ratio in the 90% range? [This was before it crossed the 100% threshold.] Japan has been running in excess of 130% of GDP for years? They seem to be doing just fine.”

Addison’s response: “You don’t know this yet, but when you leave school with a mound of debt and try to find work in a struggling economy — you’ll begin to understand.”

   There’s a whole lot of “understanding” about to begin, good and hard.

According to Department of Education figures crunched by The New York Times: 94% of students who earn a bachelor’s degree take on debt to do so. In 1993, it was only 45%.

The Gray Lady finally got around to doing a big splash over the weekend about the higher education bubble — a year after we picked up on it here. And of course, they couldn’t bring themselves to use the B-word to label it such.

Today, however, an even bigger bubble — one we’ve taken in recent months to calling the mother of all financial bubbles — consumes our attention.

   First, we briefly survey the landscape: U.S. Treasury yields are sinking further today.

A 10-year note is down to 1.78%. Lend your money to Uncle Sam for 30 years and you’ll get a princely 2.94%.

   The situation can’t go on much longer, says Pimco’s Bill Gross.

“[With] the U.S. suffering a credit downgrade to AA+ and offering negative 200 basis point policy rates for the privilege of investing in Treasury bills, the willingness of creditors — as opposed to debtors — to support the existing system may soon fade,” Gross writes in today’s Financial Times.

“With dollar reserves widely dispersed in China, Japan, Brazil and other surplus nations,” he goes on, “it is fair to assume that there will come a point where 2% negative real interest rates fail to compensate for the advantages heretofore gained in buying sovereign bonds.”

   And those rates remain negative, even by the twisted standards of the Bureau of Labor Statistics: Consumer prices as calculated by that agency were flat last month.

The year-over-year increase has calmed down to 2.3% — which is substantially more than the aforementioned yield on a 10-year Treasury.

Addison pinpoints this phenomenon in The Little Book of the Shrinking Dollar: “If you lend your money to Uncle Sam in ‘safe’ Treasuries, you lose all your yield, and a bit of your principal, to inflation.

“This is no accident. It’s policy (even if, in the end, we discover it is accidental policy). ‘Negative real interest rates’ are how the federal government will try to pay down some of its staggering debt.”

   The Chinese appear to be catching on to that… Not that you’d figure it out from mainstream headlines today.

Yes, China beefed up its holdings of U.S. Treasuries in March, according to figures out this morning from the Treasury Department.

But if you widen the scope and go back six years, a couple of interesting things happen. First, the increase in March was so small as to barely show up on the chart…

And second… China’s holdings peaked last July. Coincidentally, that was the last month before Uncle Sam lost its AAA rating. The numbers declined markedly through the end of 2011, and stabilized in the first three months of 2012.

This is especially interesting when you consider how Chinese imports of gold grew at the same time Chinese purchases of Treasuries were shrinking.

And even though the purchases have dropped off in 2012, they remain — as we noted last week — many-fold higher than a year earlier.

“Gold,” Addison writes in the book, “is the only currency that no one controls. It knows no party partiality and can’t be produced from keystrokes. We expect that China will happily diversify its $3 trillion currency reserves into gold. They’d take payment in that form for sure!”

As we suffer more and more from Uncle Sam’s emissions of debt… and as the dollar buys progressively less… Addison realized the need for a comprehensive source of solutions.

Hence, The Little Book of the Shrinking Dollar — with no less than 47 solutions to preserve your purchasing power.

Negative real interest rates got you down? The book identifies income sources you might not have thought about before. Looking for another currency to hedge your dollar exposure? You’ll learn about how to get into five good ones with only a few mouse clicks. Wondering about the best ways to buy gold? Consider the “offshore gold storage programs” identified in the book.

“You better know Addison’s arguments in order to survive the next decade,” says commodity investing legend Jim Rogers, “whether he is right or wrong.”

“Wiggin’s exploration of investment alternatives,” says Rep. Ron Paul, “warrants a closer look.”

We think the guidance within its breezy 223 pages is so important, we’re going out of our way to get in your hands: You can claim a free copy right now. Here’s how.

   U.S. stocks are generally up today, traders evidently deciding Greece is no longer a problem. Major indexes are up about a third of a percent.

Assuming things stabilize from here — heh — the Dow is down 4% from its post-2007 high set two weeks ago today.

   The Greek government came through with a 430 million euro payment on a bond that matured today. Whew!

Never mind that the politicians fessed up to what everyone already knew: No one can form a majority in parliament, and Greeks will hold another election on either June 10 or 17.

   Traders are also chewing over a raft of numbers, to wit…

• Retail sales: Slowing down big-time last month, to a 0.1% increase. For once, auto sales and gasoline didn’t distort the overall number
• New York state manufacturing: Improving again, according to the Fed’s Empire State Manufacturing Survey. The all-important “prices paid” component is looking better — again, thanks to falling energy prices
• Housing: As good as it’s been in the post-bubble era, according to the National Association of Home Builders’ housing market index; however, this has yet to translate into sales.

One final note about the aforementioned consumer price index: While the official year-over-year number is 2.3%, John Williams at Shadow Stats reckons your real-world rate is 10.0%.

   The eurozone has whistled past the graveyard of a double-dip recession — if the official numbers are to be believed.

This is if you accept the common definition of a “recession” as “two straight quarters of negative GDP growth.” In the fourth quarter of last year, eurozone GDP fell 0.3%.

The first-quarter 2012 number came in overnight… and it was zero.

Voila… no double dip!

Credit goes to the Germans, whose GDP grew 0.5%. France was flat, while Italy contracted.

   “It Might Not Wreck You — It’ll Just Rattle Your Cage,” is the engaging subtitle of a new study that demonstrates the impact of a rotten economy on stock car racing.

“The economic downturn that began in the late 2000s and persisted through the early 2010s has revealed how much NASCAR relies on a healthy, growing economy,” says a report issued by the Public Notice think tank, in conjunction with a group called Race Fans 4 Freedom.

As unemployment rose, attendance in 2010 fell back to 2003 levels, the report says. And the shrinking dollar is at work here too: Rising prices affect NASCAR “the same way it affects everything else,” the report says. “When prices rise, putting a race team together gets more expensive. Going to the track on race day gets more expensive. Even preparing for your party gets more expensive.”

Result? Shares of the two major track owners — International Speedway Corp. and Speedway Motorsports Inc. — have seriously underperformed the S&P…

All that said… this editor, a casual motorsports fan, humbly submits another factor the researchers failed to account for: compared with a few years ago, the racing is a bore.

   Precious metals appear to have found a bottom, for now. The bid on gold is $1,558. Silver is at $28.15.

   “Gold,” a reader carps, “has been your absolute favorite recommendation for over one year with zero return and your constant prediction of the demise of the dollar.

“On equities, you have missed the great global stocks which have delivered increasing earnings as well as increasing dividends in a difficult economy. Check out Altria Group, Philip Morris, Kraft, McDonald’s, etc.

“Buy and hold has been hugely rewarding, but you don’t have anyone who gets it. Am amazed you still have subscribers.”

The 5: This individual has written in before. At times, we find him entertaining. Now it’s just getting tiresome.

Is it “buy and hold” you want? Chris Mayer is one of the best Graham-and-Dodd guys in the business. I’m looking at a spreadsheet of all the open positions in his entry-level newsletter, Capital & Crisis. The average recommendation is up 50%. The positions he’s closed this year gained an average 47%. His closed positions last year, up 74%.

Is it terrific global dividend-payers you want? Jim Nelson is all over it. His open portfolio in Lifetime Income Report is up 28%, including dividends. His closed positions in 2012 gained an average 30%. And the ones he closed last year delivered a 45% total return.

Oh, yeah, and gold? We said at the start of the year it might take a breather in 2012. You can look it up.

   “Why are the Treasury bills doing so well?” a reader inquires, rhetorically.

“If you were on a sinking ship, I suppose you could go to the trading desk and start shorting the front of the ship, where the bow is starting to go under the water, and go long the rear of the ship, where everyone seems to be going. I would be checking out the gambling lounge to see if the baccarat table would be making a good floatation device.”

“I’m an apartment locator in Austin (don’t come here if you don’t have a decent-paying job, or have any serious criminal background, negative rental history or any thought that landlords are going to bend over backward to lease to you in this overpriced market) and even though this area has fared better than most in the USA, I still see the wisdom of the Reckoners saying to buy on the dips for precious metals. We have one hell of a dip going on right now.”

“And as for bonds, I don’t think that long strategy is going to work well for all the people fighting for the best seats in the back of that ship.”

   “Been enjoying The 5 since inception,” writes a reader catching up on recent issues. “I tweeted @ErinBurnett this morning to ask for a comment regarding the congressional testimony from the TARP inspector general” — that is, the fact that contra Ms. Burnett, the program is still a money loser.

“Should be an interesting *ignore*. Poor twit woman. Ah well, what fun is it when you can’t poke fun at self and self-appointed fluffs?”

The 5: Amen. But if you do hear back… by all means let us know!

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. “Federal employee salaries exposed,” says a link at the Drudge Report. “1 Ag Dept worker made $241,895 in 2011.”

Can’t say we’re much surprised. But did you know there’s a way to profit — legally and ethically — from the actions our leaders take every day?

Their secrets can now be yours too. Give this a look.

• Hard to tell which: California roils markets on a Monday… or is it Greece?
• “All it takes is a little political turmoil”… Addison on Greece’s relevance to the United States, and one of the scariest charts you’ll see all year
• Lose $2 billion, make $14.65 million: Barry Ritholtz on the “hedge” that wasn’t
• “A mineralogical and resource treasure house”: Byron King on a dusty and (very) remote trail in search of new energy riches
• An aggressive mock trade… reader takes aim at The 5’s “lazy philosophy”… a challenge to the Gary Gibson nickel-accumulation strategy… and more!

   Ugly realities, long suppressed, finally came home to roost over the weekend: Political deadlock. A flat-broke government. And no ability to print money to get out of the mess.

And that’s before we even get to what’s happening in Greece.

   California’s budget deficit has exploded 73% in a mere four months.

In January, it was $9.2 billion. Now Gov. Jerry Brown says it’s $16 billion. Whoops, guess the “recovery” isn’t everything it’s cracked up to be: “Taxes fell short of expectations,” says the Los Angeles Times, “particularly in April, the most important month for income taxes.”

The only remedy, Brown says, is a “temporary” increase in the sales tax for everyone… and an increase in the income tax for people who earn $250,000 or more. Which comes up for referendum in November. Good times.

   Events in Greece will come to a head much sooner than that.

No one can forge a majority in parliament. Which means yet another election is likely next month. And that one will amount to a referendum on what currency Greece will use going forward. Or maybe backward.

“Suddenly,” writes Harvard historian Niall Ferguson today in Newsweek, “it is no longer so hard to imagine a Greek politician deciding to gamble on exiting the eurozone, restoring the drachma and letting a drastic devaluation do its work.

“Suddenly, it is no longer so hard to imagine the horrendous consequences, with investors asking the obvious question: ‘If they can leave, who will be next?’”

   And with that, the safety trade is on…

• The S&P is down nearly 1%, plunging through last week’s floor of around 1,350
• Major European indexes closed down 2% or more
• Gold is starting to test the lows of late last year at $1,563. Silver’s down to $28.38
• Oil has broken below $95 for the first time since mid-December
• The dollar and Treasuries are the only beneficiaries — about which more below.

   “People focus on Greece, but Greece is completely irrelevant,” says the inestimable Marc Faber.

“What is relevant,” he tells Bloomberg TV, “are two countries — China and India — 2.5 billion people combined. They are a huge market for goods, and these economies are slowing down massively at the present time.”

   With that in mind, we see over the weekend the Chinese government cut the banks’ reserve requirements for the third time in six months.

The move frees “an estimated 400 billion yuan ($63.5 billion) for lending to head off the risk of the sudden economic slowdown,” according to Reuters.

Loose-money moves by the central bank here in the United States are aimed explicitly at goosing the stock market. If that’s what the Chinese had in mind, it didn’t work; the Shanghai Composite fell 0.6% today, on top of the 2.3% it shed last week.

   Demand for U.S. Treasuries is such that the yield on a 30-year bond is back below 3% this morning.

“The inability of the U.S. government to reduce record debt and deficits is being rewarded in the bond market,” says a Bloomberg article attempting hip irony today.

“Servicing debt can be easy, so long as you can do so at a nice low rate,” writes Addison in The Little Book of the Shrinking Dollar. “However, as we’ve seen recently with Greece, all it takes is a little political turmoil on the back of a lot of debt to spike borrowing costs up.”

Uncle Sam’s debt-to-GDP ratio surged past 100% last year; at $15.67 trillion, the national debt is larger than the nation’s annual economic output. And that’s before you throw in the unfunded liabilities of Social Security and Medicare.

Other countries are saddled with their own old-age and medical obligations, too… but the United States is in, well, unique company…

“Eventually,” writes Addison, “when your Treasury bondholders start to wonder where the next batch of money is going to come from, they demand higher compensation for holding the increasingly risky investment.”

The book has ample guidance about how to prepare for when that day arrives.

   We now know the reward for overseeing a division that loses your company $2 billion, with the firm’s shareholder meeting right around the corner: $14.65 million.

That’s what The Wall Street Journal says Ina Drew will get to “retire” from her post as head of the chief investment office that blew the $2 billion in derivatives trades.

“Sheer size of this trade makes it far more accurate to describe this as speculation than hedge,” says Barry Ritholtz, elaborating on his thoughts we shared in Friday’s 5.

“The loss was the tell. A true hedge would have been offset by the underlying position that was being hedged — so any loss should have been insignificant. Even a minor correlation error should not lead to a $2 billion hit.”

“If we are going to define this trade as a hedge, then there is no other conclusion to reach except that everything at a huge bank is a hedge. And once you define everything as a hedge, well then, nothing is a hedge.”

   “Within about five months — by November 2012 — this part of the world will ‘officially’ be on record as holding one of the most significant energy-related discoveries of our time,” reports Byron King from the far side of the globe.

Byron is in Madagascar — the big island nation off the eastern coast of Africa. “I’ve spent the past two days walking along and across the absolute dividing line between two ancient continents — a mountain range of the lost Gondwana that was, in its day, higher than the Himalayas.

“This tear in the outer fabric of the planet is a pathway by which the hottest, richest metal-bearing liquids migrate up toward the surface — making Madagascar a mineralogical and resource treasure house. Add in the fact that Madagascar is so isolated that it’s never truly been explored.”

Until now. “The company I’m visiting is making astonishing progress in identifying a major world-class resource play.” He’ll soon reveal all to readers of his high-end advisory Energy & Scarcity Investor… and we’re pretty sure he’ll elaborate at the Agora Financial Investment Symposium this July.

Everyone we’ve quoted in today’s 5 will be speaking there: Messrs. King, Ritholtz, Faber and Ferguson. Professor Ferguson’s appearance will be especially timely; his latest book and PBS documentary series, Civilization, gets to the heart of this year’s Symposium theme, which we’re unveiling today…

“Innovate or die.” It holds true if you’re in business. And it holds true for empires. When Spain could no longer innovate, the Dutch took over. When the Dutch ran out of gas, the torch passed to the British. When the British ceased to innovate, it was the turn of the United States.

And now?

What do you do with your money at precisely this turning point? We’ve assembled an impressive array of experts to guide you around the minefields laid by government and to the immense opportunities offered by the innovators of the 21st century.

Whether it’s tiny biotechs identified by venture capitalist Juan Enriquez or our own Patrick Cox… mining and energy plays singled out by Rick Rule or our own Byron King… or global opportunities spotlighted by a Thailand-based fund manager or our own Chris Mayer… they’ll all be there to share their best ideas.

The colorful oil field geologist Marcio Mello is back for a return engagement… and Laissez Faire Books executive editor Jeffrey Tucker will be joining us for the first time.

It might well be our best lineup ever. Even better than last year, when we won praise from attendees like this…

• “The best investment conference anywhere for retail investors” — Peter J.
• “[I discovered a] breadth of ideas [and] new perspectives that will impact my investments.” — George S.
• “A fire hose of great information…” — Geof G.

Last year’s event sold out by Memorial Day; we anticipate the same this year. That means time is limited; but we’re still offering a substantial discount off the full price of registration. Your invitation to join us in beautiful Vancouver is at this link.

   “The U.S. government sets limits on the amount of leverage a bank/investor can use on each trade,” writes a reader, adding insight after we mentioned in passing on Friday that most of the great scams of the last decade, from AIG to MF Global, were run from London-based offices.

“One of the smart [or very dumb] things that the U.K. government did to get a large portion of trading and traders domiciled in London was to remove all limits. Thus, the U.S. markets are used for trading and the London market is used for betting.”

“Investors may think they have some protection from U.S. securities law, but they have no way of knowing if their trades are executed in London. In fact, they have no way of knowing if their account is held in London — thus the surprise to U.S. investors when MF Global went under; their brokerage accounts were held in London.”

   “I am from a former British colony,” writes a Canadian reader adding his own insight, “and I could tell you why the sun never set on the British Empire — God never trusted an Englishman in the dark.”

   “Not a bad philosophy,” says a reader after we reiterated Addison’s outlook of “Sauve qui peut” in Friday’s episode.

“But it’s a lazy philosophy. At some point, the people of this country will have to pay for greed and ineptness of our so-called leaders.”

“We can master our own destiny; there are many avenues to take back what our Founding Fathers had in mind. It will take backbone and courage for sure — time is running out for a nonviolent action. I would implore readers to unite and act posthaste: our loved ones and our country are at stake.”

The 5: Many avenues, indeed; have you started to share them with your fellow readers? That’s one of the unique benefits of our latest project.

   “I saw the Whiskey & Gunpowder video about the value of U.S. nickels exceeding their face value.”

“They made the comparison to U.S. silver coins. If these nickels are a good investment, let’s compare them with pre-1983 US copper pennies: At current copper prices, these coins are worth in excess of 2 cents each, due to their metal content.”

“If a person were to have thousands of dollars in U.S. pre-1983 pennies, how do they cash them in? It seems that the more recent comparison to other base metal coins is better than the silver comparison.”

The 5: You’re on. For starters, Congress is looking at doing away with the penny once and for all. Canada decided to do so six weeks ago.

“If the laws change and the Mint decides to abolish the penny,” ABC News reported late last year, “people would be free to melt them down for the copper.”

But you don’t have to wait that long to perform penny arbitrage. Whiskey & Gunpowder’s Gary Gibson points us to an eBay listing where you can buy $100 face value 1959-82 pennies… for $202.50. “It is currently illegal to melt these, and I can only sell in the U.S., as it is illegal to export,” the seller advises.

Junk copper — love it!

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. The dollar is also benefiting from the safety trade today. The dollar index is up to 80.6 — a four-month high. The euro is down to $1.288.

Meanwhile, it takes 80.09 Japanese yen to equal one U.S. dollar. “The USDJPY has been a safe-haven basket for global crises,” says Abe Cofnas, introducing this week’s “mock trade.”

“It is in an ascending triangle, which means the lows are getting higher and it is positioned for a breakout to new highs.”

With that in mind, Abe is going for another high-potential play this week. If the yen can push above 80.25 by the close on Friday, it means a 122% gain. Stay tuned…

• “Fortress balance sheet” is breached as J.P. Morgan is stuck in the same boat as your average retiree…
• Dan Amoss, Barry Ritholtz on a “flashing sign” that warns of threats to the banking system
• Stocks yawn in reaction to JPM news, while gold looks a lot like early 2009…
• Can balloons really “end the Fed”?
• When nickels are worth more than 5 cents… a reader’s suggestion to fix Congress’ little red wagon… ominous parallels between the USA and Nazi Germany (identified in 1944)… and more!

  We pause this morning to pity a fallen idol… a mighty colossus in its field, revealed to be mortal after all… facing a blow to its sterling reputation, a blow even its most fearless allies are hard-pressed to defend.

Undoubtedly, there will be much soul-searching as twilight falls later on this Friday. What went wrong? Where was that wrong turn? What larger lessons are to be learned?

We speak, of course, of the fact Tiger Woods is in danger of missing the cut at a PGA tournament for the second straight weekend.

  At least Jamie Dimon’s wife never chased him down the driveway with a golf club. Not to our knowledge, anyway.

Regardless, there’s also much navel-gazing in the world of finance today.

The mighty J.P. Morgan Chase… “the darling stock of the financial markets,” in the words of Cumberland Advisors’ David Kotok… an institution praised by the Los Angeles Times for “clamping down on some of the excessive risks that torpedoed rivals”… the only one of the Big Four U.S. commercial banks to make it onto Global Finance’s list of the “world’s 50 safest banks”… just pissed away $2 billion on derivatives.

  For years, JPM chief Jamie Dimon boasted his firm’s “fortress balance sheet.”

Last December, a cocksure Dimon amped up the martial metaphor… saying JPM possessed a “battleship balance sheet.”

Ho-ho… Cue the classic commercial:

You’ve sunk my battleship!

The battleship in this case isn’t sunk, but its hull took a wicked hit after the close yesterday when JPM filed its quarterly 10-Q with the SEC. The bad bets were run out of the firm’s “Chief Investment Office” in London.

“JPMorgan’s Treasury and CIO department is tasked with investing the bank’s excess cash,” explains our Dan Amoss, “while hedging the credit risk that exists on the rest of the bank’s $2.3 billion balance sheet.”

  “Most people forget that banks are among the biggest fixed-income investors,” Dan points out by way of background, “and are suffering in a low interest rate environment along with retirees. It’s hard to shed a tear, I know.

“So JPM decided it was a good idea to play along with the Fed’s encouragement to exit low-yielding securities and move out along the risk spectrum to invest its excess cash to enhance shareholder returns.”

There’d been murmurs about the CIO’s trades going back about a month — trades attributed to a mysterious figure nicknamed “the London Whale.”

  This narrative is already falling apart: “We’re not talking about a rogue trader here,” says an individual described by the BBC as “a source close to the bank.”

“His was one trade in a big portfolio of trades. It was a global hedging strategy known by the bank but executed poorly. It failed.”

While there’ve been no intimations of fraud here, we’ll mention once more what the gonzo financial journalist Max Keiser has pointed out: Every major fraud of the last several years — AIG, Lehman, Madoff, MF Global — was carried out via London-based offices. Hmmm…

  Dimon, with access to the best public-relations and crisis-management training money can buy, moved quickly to “get ahead of the story.”

His hastily arranged conference call was rife with quotable lines that sounded as if he was owning up to the disaster…

• “There were many errors, sloppiness and bad judgment”
• “These were egregious mistakes”
• “We have egg on our face, and we deserve any criticism we get.”

In reality, this Potemkin village of pretended candor attempted to mask any substantive detail about the derivative trades that went more sour than a bottle of milk six weeks past its expiration date.

  “But we can guess” at that detail, says Dan Amoss – who took the bullet of listening to the conference call on your behalf. In venturing this guess, he’s striven mightily to keep the acronyms to a minimum. But hang on…

“JPM is long a boatload of credit risk, so any derivatives trades in CIO would involve short positions in credit derivatives (the ‘synthetic credit portfolio’ in the 10-Q likely refers to writing credit default swap insurance).

“Some of the biggest rises in CDS spreads since March 31 were in European banks. If CIO was short a basket of CDS on European credit indexes that includes banks, then its hedging activities could wind up inflicting large losses.

“If so, the CIO would have had to post more and more margin with its counterparty as the trade went against it. At some point, Dimon was informed of this unpleasant reality, and decided to unwind the losing trade and break the news in the 10-Q.”

Any detail will have to wait until JPM reports its second quarter.

  On the subject of the term “hedging” as it relates to this case: BS, says Big Picture blogger and Vancouver stalwart Barry Ritholtz.

“Trades that are so enormous as to be ‘credit index distorting’ are not hedges, but pure speculation,” he says. “Within banks, apparently, the word ‘hedging’ loosely translates as ‘speculation.’ Actual hedging of existing positions appears to be nonexistent.”

  In any event, “This episode,” says Dan Amoss, “is one of many flashing signs that the global banking system is more fragile than advertised.

“JPM has built a reputation as one of the better risk managers among the world’s largest banks. If JPM had this surprise, what derivatives accidents lie in wait at other banks?”

Adds Barry Ritholtz: “It took less than three years after the financial crisis peaked for traders to engage in the same sorts of highly leveraged reckless speculative bets that helped crash the economy last time.

“Imagine the sorts of risks these misincentivized desks will be doing when the memories of the crisis fade 10 years after.”

Assuming everything hasn’t crashed worse than 2008, of course…

  But just as U.S. stocks managed to shrug off the bad news from Europe most of this week, they’re shrugging this off too.

Futures looked ugly last night, but as of this writing, the major indexes are eking out a small gain. Even the KBW Bank Index is down only two-thirds of a percent — despite JPM being down 7.5%.

Perhaps traders are relieved: Moments after Dan Amoss finished listening to the JPM conference call, he emailed: “It’s not as big a deal as I thought it might have been.”

Knowing about Spain’s nationalization of a bank called Bankia on Wednesday, Dan suspected JPM might have been caught up in something truly horrific — “like maybe a naked CDS short position in that insolvent Spanish trash heap of cajas, Bankia.”

Heh.

  So much for yesterday’s “recovery” in gold. At last check, it’s down to $1,584.

“It seems,” says EverBank’s Chuck Butler, “that we’ve returned to the days around 2008 and early 2009, where the dollar is rewarded with bad data” — i.e., the trade deficit, which grew in March at the fastest pace in 10 months, to $51.8 billion.

“Dollar bugs will tell you that this is how it should be, as the only true safe haven is the U.S. dollar and Treasuries. I want to hit these dollar bugs over the head with a gold bar! Maybe then they would find the true safe haven!”

   Silver, meanwhile, has broken below $29 for the first time since early this year. The bid is currently $28.97.

   Oil is set to end the week below $100 for the first time in three months. A barrel of West Texas Intermediate fetches $96.72.

Barring a sudden geopolitical scare in the next couple of hours, it looks as if Abe Cofnas’ “mock trade” this week won’t pull through. On Monday, he suggested a play that relied on oil ending the week at $98.25 or higher.

Unlike his previous demo trades, this was a high-reward proposition, worth up to 108% — so it entailed somewhat more risk. Even so, Abe’s racked up nine winners among 11 plays. Watch for a new one next week.

  On the theory that it’s hard to make your message stand out on the Internet, hundreds of people plan to take Ron Paul’s “End the Fed” message airborne tomorrow.

A gentleman named Matt Reidinger has gone on Facebook to organize… a nationwide release of balloons. “We will be releasing red, white and blue balloons with any message pertaining to ending the Federal Reserve Banking Cartel tied to the balloons. Stand in unison,” he says, “with others who are tired of the corrupted system in a day of mass peaceful protest that can be done from your own backyard.

“For those worried about environmental impact use latex balloons,” adds Mr. Reidinger, “they degrade as fast as an oak leaf and use hemp as string or any other biodegradable product.”

Good to know… we think.

The event is set for 4:00 p.m. EDT tomorrow.

As of this writing, 372 people have committed to taking part. We wish them well, but they’d better have a whole lot of balloons if they expect to make an impact…

  “How,” a reader inquires, reviving a familiar issue, “can you ever take advantage of a coin’s content value over its face value if you can’t melt it down?”

Ah… You must be referring to the nickel play of Whiskey & Gunpowder editor Gary Gibson. He’s been loading up on ‘em for at least a couple of years.

“If you spend it,” the reader goes on, “it’s still only worth face value. How do you extract the extra value?”

The 5: “When the price of the metal gets high enough,” says Gary, “a market will naturally become established for the coins and that market will use the higher content value, not the lower face value.”

This is exactly what happened with dimes, quarters and half dollars after their silver content was removed in 1965.

But for a vivid demonstration of how this works — and why nickels could prove to be a cheap and effective way to preserve purchasing power — we direct your attention to this new “info-video” prepared by the Whiskey team…

  “Some number of years ago,” writes a reader who saw our item about school food tyranny in Massachusetts, “I drove my now deceased mother, my future wife and myself from NYC to New Hampshire to visit my sister.

“We had to go through Massachusetts. The inbound highway shoulders all had multiple Highway Patrol cars on either side of the state. ‘Why?’ I asked my sister.

“She said, ‘They are looking for overweight vehicles bringing goods into the state from adjacent states with lower taxes, and if they catch you, they charge you with PIRACY (!)’

“Oh, goody! Don’t bring any overweight people into that state, you lousy pirate.

“Question? Are they still doing this? Sounds like the old robber barons that lined the Rhine River during medieval times. Not much changes, does it?”

  “A government program being cut by Congress is one program that shouldn’t be,” writes a reader who sees a sacred cow on the way to the abattoir.

“Yesterday, the House voted to stop funding the US Census Bureau’s American Community Survey. This survey collects data on our communities, measures the economy and more.

“Individual data are confidential, and only statistical tabulations can be reported. Census workers, under the law, can be fined and jailed for releasing individual data to the DHS, FBI, ICE, IRS or anyone.

“This survey is used as the base data for many government and private studies as well as policy and planning at all levels — both public and private. Many Agora pubs like The 5 cite its information frequently. So without this survey, you will not be able to write, as you did yesterday, the difference between congressional salary and median household income.

“Maybe Congress doesn’t want us to know?

“I write this with trepidation on how it will be received — reminding me of the old dilemma of a Christian Scientist with appendicitis — LOL.”

The 5: Yep, you’ve got us dead-to-rights.

Because, of course, no one in the private sector would step forward to attempt the sort of work that’s currently performed with the long-form Census. Nor would any private companies be willing to pay for those sorts of data.

Why, we’re just corporate welfare queens here, mooching off the hard work only government is capable of performing. The shame of it…

  “I am not angry/outraged/etc. over how much members of Congress are paid,” a reader writes after yesterday’s issue. “I am angry/outraged…really just depressed, over their ever (and I mean ‘EVER’) being paid by anyone else.

“The financial future of every representative, senator and president should be solely and exclusive tied to the fate of the republic. Not only would I pay them as much as they get now and, in fact, much more, but I’d pay it to them for life. But they’d never legally be able to accept a debased nickel from anyone else, ever. No second career as lobbyist, board member, apologist. No stock portfolio, no gold: nothing at all but U.S. Treasuries and debased currency.

“If their fortunes were exclusively tied to the nation’s, we’d save their more-generous pay in the first farm bill or first military appropriations bill they voted on.

“Don’t bore me with how much they make; instead, help me figure out how to keep them from being the inevitable prostitutes they are in the certain hope of a golden parachute when their terms end.”

The 5: You want guidance from us to help change the system? Brother, you came to the wrong place. “Sauve qui peut,” is the adage Addison has long applied here at The 5 — indeed, throughout Agora Financial.

There are literally dozens of goo-goos (“good government” organizations) that will happily take your hard-earned money in a vain attempt to achieve “reform.”

You’re welcome to do so… but you’re better off figuring out how to preserve and build wealth within the context of the rotten system we’re stuck with. Which is the whole point of this new presentation — in case you missed it.

Have a good weekend,

Dave Gonigam

The 5 Min. Forecast

P.S. “Oh how the critics screamed!” writes our own Byron King in the new introduction to a classic book — John T. Flynn’s 1944 jeremiad As We Go Marching.

“Flynn challenged the U.S. political and wartime orthodoxy of his time. That is, Flynn connected the intellectual and systemic relationships between Italian and German fascism to FDR’s New Deals (I use the plural ‘Deals’ because, per Flynn, there were at least three of them).”

As We Go Marching was one of the seminal works Addison always kept handy as he worked on Empire of Debt with Bill Bonner in 2005.

This classic volume is the weekly selection of the Laissez Faire Club. An e-book edition — complete with Byron’s introduction placing it in today’s context — is going out today to every member. You can join their ranks — and enjoy a host of members-only benefits — at this link.

Thank you for reading The 5 Min. Forecast! We greatly value your questions and comments. Please send all feedback to 5minforecast@agorafinancial.com

• Nice work if you can get it: But if you can’t become a congressman — with a $1,285 a month car lease — you can still make money like one…
• QE3 predictions start crawling out of the woodwork: Why Marc Faber isn’t on board… and the event he says would set up a 1987-style crash
• China bails on eurozone government debt: Chuck Butler on why this is bad news… for the dollar
• Canceled fireworks… revived bake sales… the ultimate in arbitrary revenue-grabbing law enforcement… and more!

   There’s no occupation like it: For starters, a salary more than three times the median household income.

Plus benefits described in one media account like this: “A generous guaranteed pension, great health benefits, including on-site care, lots of free travel and an expense account that could make a corporate titan drool.”

   A few people who’ve landed this cushy gig appear to have guilty consciences. Thus one of them proposed last week to “reduce congressional salaries by 5%, as well as eliminate the automatic cost-of-living adjustments that members of Congress receive annually.”

The man with the guilty conscience is Rep. Kevin Yoder (R-Kan.). Perhaps he’s the designated fall guy this congressional term. Two years ago, it was Rep. Ann Kirkpatrick (D-Ariz.). Then, the idea went nowhere. We’re certain it will meet the same fate this time.

(Ironic footnote: For all the nobility of her gesture, Kirkpatrick lost her bid for re-election that year.)

For the record, members of the House and Senate make $174,000 annually.

   For comparison’s sake, U.S. median household income in 2010 was less than a third of that figure — $49,445.

The number fell 1.6% between 2007-2010, according to the Census Bureau. That’s before you adjust for inflation. Take the cost of living into account and the median U.S. household brought home less in 2010 than it did in… drum roll, please… 1997.

Between 1998-2009, Congress never went more than two years without a pay increase.

Members haven’t tried raising it since the current level kicked in on Jan. 1, 2009. Something about “pitchforks and torches in the middle of a recession,” we suspect…

   But salary doesn’t begin to tell the story. “It would take more than a 5% pay cut to scale back the regal lifestyle of America’s elected representatives,” The Fiscal Times reported when Rep. Kirkpatrick floated the idea.

Among the perks they get…

• A pension twice as generous as the typical defined-benefit pension plan in the private sector
• A “thrift savings plan” that matches contributions at a rate twice as generous as the typical private-sector 401(k)
• Health insurance on a par with those offered by big companies; the government picks up about 70% of the cost
• Free parking at the Capitol and at D.C.-area airports, subsidized gym membership and subsidized day care. In addition, members can collect a $3,000 tax deduction to write off living expenses when away from their home district or state.

   And then there’s the travel allowance. In addition to taxpayer-paid travel between home and Washington, D.C., “there are lots of ways you can globe-trot on somebody else’s dime,” says The Fiscal Times.

“Join a committee, for example, and you can participate in fact-finding trips all over the globe.” The 2009 climate change summit in Copenhagen cost taxpayers $550,000 — which works out to $2,200 per person, per day.

   One example of the perks: Retiring Rep. Ed Towns (D-N.Y.) dipped into his congressional office budget to lease a high-end Mercury model for $1,285 a month. Which we suspect is rather more than his typical Brooklyn constituent could afford.

The New York Daily News says the lease “breaks no rules”… but it does look bad. After the TV tabloid Inside Edition made the lease public, Towns downgraded to a Lincoln MKZ Hybrid, leasing for a more modest $957 a month. Bummer.

Further, his wife, Gwen, drives an Infiniti leased for $602 a month. That money comes from Towns’ campaign fund.

“Election campaign rules give a congressman very wide discretion on what falls under ‘bona fide campaign expenses,’” says Meredith McGehee of the Campaign Legal Center, “but having your wife run around in a campaign car could push the boundaries of creative interpretation.”

“A Towns campaign spokesman could not say if Gwen Towns was reimbursing the campaign for the vehicle,” reports the Daily News. We won’t hold our breath to find out.

   As usual when we offer up a laundry list of outrages like this… you can get mad, or you can get rich.

Fact is, members of Congress employ one means of lining their pockets that’s completely legal… and accessible even to you, the peon taxpayer.

Jim Nelson and our income-investing desk turned up some interesting figures in the course of researching this method. They didn’t even start out with the intention of pursuing a political angle. But they found it readily enough.

Check out what some leading members of Congress have earned using this intriguing investing trick…

“In fact,” says Jim, “my research uncovered at least 94 different congressmen doing this…for a total of at least 6,224 congressional paydays just in the last year alone.”

President Obama and former President Bush do it too — each to the tune of five figures.

These are investments you can put in your own account, today… and because the most powerful politicos in Washington own them too, you can be sure those politicians will go to bat to protect the income streams these investments deliver.

“All 12 of these plays,” says Jim, “are in very influential politicians’ own portfolios. We found all of them completely independently…each based on their own merits and ability to grow our income. But having a few policymakers on our side certainly doesn’t hurt.”

Jim lays out all 12 in a new report he’s prepared for every new member of his entry-level newsletter, Lifetime Income Report. Get the scoop right here.

   The euro-scare is taking a breather today: Major U.S. stock indexes are up modestly, a little under half a percent as of this writing.

The Dow is back within reach of 12,900. The S&P’s at 1,360.

   The QE3 guessing game is suddenly back in vogue.

Pimco chief Bill Gross tweeted yesterday that the Federal Reserve is “getting closer” to another round of Treasury purchases — or what you and I might call money printing.

Ditto for Goldman Sachs chief economist Jan Hatzius. “In such an uncertain environment,” he writes in a new report, “taking out a bit more insurance still looks like the sensible choice for U.S. monetary policy makers.” The Fed’s next meeting is June 19-20.

Gloom Boom & Doom Report editor Marc Faber isn’t so certain: He says it depends on what happens to stocks from here.

QE3 would “definitely occur” if the S&P drops another 100-150 points from current levels, he tells Bloomberg TV. If it bounces back to 1,400 it looks less likely.

   And if the S&P indeed can top 1,400 again… Faber says that greatly raises the odds of a 1987-style crash.

“I think the market will have difficulties to move up strongly unless we have a massive QE3,” he said. “If the market makes a new high, it will be a new high with very few stocks pushing up and the majority of stocks having already rolled over.”

“If it moves and makes a high above 1,422, the second half of the year could witness a crash, like in 1987.”

This forecast will no doubt make Dr. Faber’s appearance at the Agora Financial Investment Symposium especially timely. He speaks at events all over the globe, but he considers ours “among the very best, anywhere in the world.”

For a full speaker lineup, and access to a significant discount off the regular registration fee, please review this invitation. We’d love to see you this July in Vancouver.

   After a two-day drubbing, gold is trying to get its bearings again. The price is holding steady a little below $1,600. Silver’s stuck at $29.26.

   Oil, however, is recovering a bit; at last check, it’s $97.14.

This week’s “mock trade” suggested by Abe Cofnas will be a nail-biter. The price needs to pop to $98.25. If it does, it’s a four-day payout of 108%. Stay tuned…

   After three days of volatility, the currency markets are settling down. The dollar index sits just above 80. The index’s biggest component, the euro, is at $1.296.

And that’s despite one of the more hair-raising headlines from Europe all week.

   China’s sovereign wealth fund has halted its purchases of eurozone government debt.

“We still have our people looking at opportunities in Europe, even though we don’t want to buy any government bonds,” said Gao Xiqing, president of China Investment Corp.

“The eurozone is China’s largest export destination,” says EverBank’s Chuck Butler by way of background. “Did that surprise you? I bet you thought it was the U.S. But no, it’s the eurozone.”

“Obviously, China has bought enough European sovereign debt (ESD) to fill their desires. If The Chinese SWF can back away from its biggest customer, then it should have no problem backing away from its second-biggest customer (the U.S.).”

“The Chinese have become the world’s financier, taking that away from the U.S., and they have also made big inroads to removing the dollar as the settlement mechanism — in terms of trade — by signing currency swap agreements with a boatload of countries.”

That includes Iran, as we spotlighted in yesterday’s 5.

   Meanwhile, the Federal Reserve has approved an application by a major Chinese bank to acquire retail bank branches in the United States.

The Industrial and Commercial Bank of China (ICBC) will pay $140 million to acquire an 80% stake in Bank of East Asia USA.

“It’s a foot in the door,” says Chuck. “And just another baby step for China to remove the dollar as the reserve currency of the world.”

   Another year, another round of Independence Day fireworks ceremonies that are fizzling.

The town of New Rochelle, N.Y., has canceled its July Fourth festivities; the $75,000 line item was removed from this year’s budget. So were the Memorial Day and Thanksgiving Day parades, at $30,000 a pop.

“New Rochelle has asked for donations to help save the holiday celebrations,” reports WNBC-TV, “and so far, enough money has been collected to hold the Memorial Day parade.”

And yes, trivia fans — New Rochelle was the place Rob and Laura Petrie called home on The Dick Van Dyke Show. Suburbia ain’t what it used to be…

   “A growing number of states are taking aim at the driver’s licenses of motorists who refuse to pay [parking fines],” according to USA Today — capturing the desperation on the revenue side of local government ledgers.

As of next Wednesday, Michigan will suspend driver’s licenses after three unpaid tickets. Up till now, it was six.

New York, New Jersey, Illinois and Wisconsin are among the states where blowing off a parking ticket can ultimately cost you your license. Other states simply refuse to renew your license. Still others will refuse to renew your vehicle registration.

“The driver’s license has become more and more a hammer the courts use to get people to comply with whatever they need,” according to Sheila Prior with the American Association of Motor Vehicle Administrators.

“The impetus behind the laws is money,” the paper says. The change in Michigan was spurred in part by Detroit – where drivers have racked up $30 million in unpaid tickets.

   And in the ultimate combination of a revenue grab and petty tyranny… pedestrians in Fort Lee, N.J., will soon be fined for using their mobile phones in an unapproved manner.

Exactly how, however, is unclear.

“Fort Lee’s police chief has seen his share of careless pedestrians texting or talking on the phone,” reports WCBS-AM. “He said he has counted 23 pedestrian accidents since January, ranging from minor bumps and bruises to three fatalities. After trying pamphlets and brochures, he’s ordering his officers to ticket careless pedestrians on the spot.”

Now… short of keeping your phone in your pocket the entire time you’re out on the street — which rather defeats the purpose — how would you avoid breaking the law?

You can’t.

“Unlike careless driving,” the radio station says, “there’s no specific charge for being a careless pedestrian, but Chief [Thomas] Ripoli said his officers are watching, adding they’ll know it when they see it.”

Just great. Life is now a moving violation… and at $200 per offense, no less.

As Addison has been saying for well nigh a year now… when the mother of all financial bubbles pops, you’ll feel it on the local level first. If you don’t see it around you yet, rest assured you will. Here’s how to get ready.

Regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Lest we leave you on a downer, we see the Massachusetts legislature has overturned state regulations that would have banned school bake sales.

The “cupcake crackdown,” as it was labeled by the Boston Herald, aimed to have only “healthful” foods sold outside the lunchroom from 30 minutes before the school day until 30 minutes after.

“That is the stupidest thing I’ve seen in my career,” said state Rep. Cory Atkins. “Talk about hitting the nerve of government reaching far into people’s lives.”

As we’ve seen in the case of the federal Stop Online Piracy Act, public outrage can make the bureaucrats back off… only to come back with something different, or stealthier. Stay tuned…

• Is this how the “world’s reserve currency” dies? Behind a hodgepodge of deals conducted in renminbi, gold, even barter…
• Gold sinks below $1,600: Marc Faber thinks it could head lower still
• Day 3 of the latest euro-scare: A top 10 list of the world’s most likely default candidates… including an American interloper
• Economic gloom sparks a return of kneecapping… Readers gleefully join in a round of Buffett-bashing… Taking exception to the “Neo-Nazi right”… and more!

   It’s as if China and Iran have gotten together and said, “Fine, we don’t need dollars to conduct business anymore.”

We step away today from the hour-to-hour, nay, minute-to-minute noise generated by the latest euro-scare… to inspect a couple of nails pounded into the coffin of the greenback’s status as “world reserve currency.”

   “China is using its currency, the yuan, and gold to pay for some of its imports of Iranian crude oil,” according to anonymous “Iranian trade professionals” quoted by Dow Jones Newswires.

Iran, you’ll recall, is feeling the squeeze of Western sanctions over its nuclear program. Its central bank and commercial banks have been kicked out of SWIFT, the international outfit that transmits payment orders among its member financial institutions.

So to keep selling their oil, the Iranian mullahs are resorting to methods bypassing SWIFT, and by extension, the U.S. dollar.

   This nondollar China-Iran trade amounts to as much as $30 billion annualized, according to “industry estimates” furnished to the Financial Times.

• Some of it is in Chinese renminbi. And because of U.S. pressure, domestic Chinese banks aren’t carrying out the transactions. Instead, it’s done through Russian banks — which take a huge commission, natch
• Some of it is in barter: The Chinese trading company Zhuhai Zhenrong pays Iran for its oil by furnishing services like drilling
• And some of it is in gold: Dow Jones describes how recently “two Iranian oil tankers heading for China were bartered at sea with their equivalent in the precious metal.”

   Meanwhile, as the Iranian government accepts gold is payment for oil, ordinary Iranians are grabbing as much gold as they can — unsure what the future holds.

“Turkey is exporting massive quantities of gold to Iran and Arab Spring countries as citizens in those countries switch to portable wealth,” says Mert Yildiz, chief economist for Turkey at Renaissance Capital.

The Turkish government estimates that exports of precious metals and jewelry to Iran totalled $480 million in March — up from a piddling $13 million in March 2011.

   So U.S. sanctions are achieving a perverse result: They “will now enhance the acceptability of the renminbi as a transaction currency,” the CEO of a bank in Dubai tells the Financial Times.

“The global financial crisis,” he adds, “accelerated the shift from the West to the East.”

And from paper to gold, we’ll interject: to wit, our item yesterday about China’s gold imports from Hong Kong growing sixfold in the space of a year.

“As of six months ago,” Addison writes in The Little Book of the Shrinking Dollar, “China held only 1.8% of its total reserves in gold.”

Russia has loaded up somewhat more, at 8.7%, and India more still, at 9.5%. “They have a lot of catching up to do. And they’re ready, willing and able to do it.”

“We consider this tantamount to a realization that gold is king and fiat currencies have nowhere to go but down. The central banks deny it at press conferences, but they know better in the privacy of their own gold transactions.”

Addison and collaborator Samantha Buker tease out the implications… and pull together some long-term investment guidance… in a breezy 223 pages. The Little Book of the Shrinking Dollar is on sale now.

   Gold, in the short term, priced in dollars is down again today. After touching a low of $1,577 this morning… the spot price has recovered to $1,591.

Silver’s down to $29.24.

“Gold may not perform very well in the near future,” says the Gloom Boom & Doom Report’s Dr. Marc Faber — who figures it could test $1400-1500. “The gold market has performed so well,” Faber said, “we could have some setback.”

For the moment, however, both gold and silver remain higher than they were at the start of 2012.

   For the third day in a row, U.S. stocks began the trading day looking mighty sickly, and are in line to end the day looking… well, less sickly. As of this writing, the Dow is a bit below 12,900.

The “recovery” in each day’s activity appears to start with the close of the European stock markets at 11:30 a.m. EDT. Indeed, “Trading was much weaker when European bourses were open,” writes Fusion IQ chief Barry Ritholtz.

“There remains an underlying liquidity bid containing the downside so far,” he adds – and he hastens to point out he’s not saying that from the vantage point of a permabull; his own firm is down to 40-50% exposure to stocks. “I’d like to see lower prices,” he says, “to put some equity exposure back on.”

   As with the previous two days this week, Europe is getting the blame for the “risk-off” trade.

• Spain is on the verge of nationalizing one of its big banks; yields on Spanish 10-year debt have crested 6%.
• The European Union and International Monetary Fund are making noises about not releasing the next round of bailout money for Greece as long as Greek politicians continue to make noises about rejecting the bailout terms
• Italy’s prime minister has issued a plea for European leaders “to go beyond the rigid focus on budget discipline demanded by Berlin,” as a Reuters dispatch put it

With today’s developments, Spain has crept back into the top 10 among the most likely default candidates, as judged by the credit default swap market…

Yes, Illinois is a higher risk than Spain; this is the first time we’ve seen a U.S. state back in the top 10 for months. The Prairie State still has $9 billion in unpaid bills, despite jacking up the state income tax last year by 66%.

   And then there’s this ugly harbinger from Europe: a return to the practice of kneecapping in Italy.

The CEO of an Italian nuclear engineering company walked out of his home in Genoa on Monday when a man shot him in the leg and got away on a moped. The victim’s knee was fractured.

“Shooting victims in the legs,” according to the U.K. Guardian, “was a specialty of the Italian Red Brigades, the terrorist organization which sought to destabilize the Italian government with a series of kidnappings and murders, culminating in the snatching and killing of the former Prime Minister Aldo Moro in 1978.”

“We don’t know who it was,” says Stefano Silvestri of the Italian think tank IAI, “but I suspect it was a small group, possibly anarchists, rather than the Red Brigades, even if the continuation of the economic crisis increases the risk of the return to action of larger groups.”

   “Your Buffett roasting was impressive,” a reader writes after yesterday’s episode.

“It’s a pity he’s become a tool of the degrading system, mostly because he’s such a likeable guy focused on productive endeavors. But perhaps he’s just among the most unlikely examples that power corrupts, absolute or not.”

   “It really irritates me,” another writes, “that these interviewers of Warren Buffett never have the savvy to ask the appropriate question when these platitudes are thrown out like they are pearls of wisdom. They all just gawk and swoon over the Oracle.”

“The appropriate response to his statement, of course, is ‘What was Berkshire’s share price 2,000 years ago?’ Yep, that time frame trick ‘warps’ the mind, apparently.”

“Gold won’t cheat and silver won’t con.”

   “Well, Charlie and Uncle Warren can ‘suck it in,’” adds yet another.

“Long ago when I was a broker with E.F. Hutton, I bought one share of Berkshire for around $4,900.”

“Two days ago, I sold that one share. I decided to act in an uncivilized manner and promptly purchased seven 10-ounce PAMP/Swiss gold bars and eight Krugerrands with the proceeds.”

   “One aspect of the unemployment numbers,” writes a reader carrying on one of this week’s themes, “is the number of people like myself: an ‘independent contractor’/consultant, whose employer never contributed to unemployment insurance.”

“The consulting work dries up, but since there has never been participation in the unemployment process, no one knows that I no longer have a working income, even though I am still looking. I am, in fact, unemployed, but do not appear in the statistics. How many of us are there?”

   “Los Angeles has nothing on Washington, D.C,” writes a reader on the subject of skyrocketing traffic fines.

“D.C. has cameras mounted on their street-cleaning machines and if your vehicle has its picture taken, you get the fine. It’s been a couple of years since I have received one of these, but I believe the cost exceeds the $78 mentioned for LA.”

“Yes, Big Brother now includes the street sweeper.”

   “Don’t confuse Nazis with the right,” a reader implores after our take on the eurozone elections Monday.

“Nazis were fascists, in other words socialists, (nationalist socialists versus international socialists). The Nazis didn’t nationalize businesses, but they controlled business to the same effect. They hated the communists because they were competing for the same recruits. Central planning was pervasive.”

   “Let me raise a nagging thought,” writes a self-described 5 “groupie” for whom the “right” label also stuck uncomfortably.

“I realize you can go ‘left’ enough past big government and socialism into collectivism and communism, the total loss of the individual. I consider myself ‘right,’ heading to libertarianism, if not anarchy (in the positive sense!).”

“Now that I have arrived at the ‘extreme’ individual liberty and responsibility point on the spectrum, how much further to the right do I need to go until I suddenly start believing in the big government, anti-dissent, anti-freedom, anti-liberty, anti-individual, statist fascist/Nazi philosophy?”

“Seems to me the now accepted tagging of Nazism as ‘far right’ has been a successful smear of us freedom-loving individuals, as Nazism has far more in common with communism than libertarianism.”

“Or am I missing something? One of your stellar contributors has probably written a column or book on this subject that I have missed…”

The 5: You haven’t heard of the Nolan chart?

It’s why this editor doesn’t fret too much about what’s left, right or otherwise.

If you hold to the values of, say, the Founders, or the Austrian economists… you don’t have a place on the “conventional” political spectrum. So why try to claim one?

You’re much better off joining like-minded souls who can engage in a lively exchange of ideas, free of any labels. Which is one of the lesser-known benefits of our newest project.

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. The Nasdaq has tumbled about 6% over the last month and a half. But a small circle of readers has successfully used that move to generate a 104% gain as of yesterday morning.

Meanwhile, as the financial sector has weakened 2% this week, this same circle used that move to pick up a 20% gain as of a couple hours ago.

No matter what the broad market is doing, you can rake in profits… provided you can decode the market’s signals. Here’s where you can start.

P.P.S. A reminder that Marc Faber and Barry Ritholtz, who appear today’s 5, will appear in person at the Agora Financial Investment Symposium this July.

Historian Niall Ferguson headlines what might be our best lineup ever. For a full list of speakers and exclusive details on how to register for hundreds of dollars off the regular fee… please review this invitation.

• Buffett and Munger’s exercise in begging the question: Which is more “unproductive” and “uncivilized” — gold… or bailouts?
• The newest “magazine cover indicator”? Barry Ritholtz on why Main Street shunning Wall Street is a good thing
• Gold tests $1,600 as the Chinese step up buying sixfold… and gamblers pay a 13% premium over spot for bullion from a machine
• Two perspectives on “leaving the labor force”… reader nominates a surprising candidate to leave the euro… How you’re no longer a citizen but a “revenue target”… and more!

   There he goes again.

“A decent productive asset will kill an unproductive asset,” said Warren Buffett yesterday on CNBC.

The “unproductive asset,” as if you hadn’t guessed, is gold — which is once again in Buffett’s sights.

“When we took over Berkshire,” he prattled as Becky Quick looked on worshipfully, “Berkshire was selling at $15 a share and gold was selling at $20 an ounce. And gold is now $1,600 and Berkshire is $120,000.”

Ah, the old selective time frame trick. Almost makes us wonder if someone slipped the Oracle this piece of Addison’s from The Daily Reckoning — complete with the following chart…

   Nor does the chart tell the whole story, for what would Berkshire be today without the $700 billion monstrosity known as TARP?

“Berkshire Hathaway firms in total received $95 billion in TARP money,” Addison writes in the most-recent Apogee Advisory. “Berkshire, you’ll recall, held stock in Wells Fargo, Bank of America, Goldman Sachs and American Express. Not only did these companies receive TARP funds… they also dipped into the FDIC’s treasury to back their debt. Total bailout: $130 billion. TARP-enabled companies accounted for 30% of the Oracle’s publicly disclosed stock portfolio.

“And to sharpen the sting, he even got a better deal to help ailing Goldman Sachs than our own government. Buffett got a 10% preferred dividend, while the Feds got all of 5%. He cleaned up with $500 million a year in dividends. Without the bailout, you can bet many of his stock holdings would have gone near-zero instead.”

   “I think gold is a great thing to sew into your garments if you’re a Jewish family in Vienna in 1939,” added Buffett’s right-hand man Charlie Munger last week, “but I think civilized people don’t buy gold. They invest in productive businesses.”

That… or they suck on the taxpayer teat, while telling the rest of us to “suck it in.”

Recall it was Munger last fall who told a group of college students, “You should thank God” for bank bailouts, for the alternative was too horrible to contemplate. “Hit the economy with enough misery and enough disruption, destroy the currency, and God knows what happens.”

[Destroy the currency? Isn’t that why you keep gold? But we digress...]

“Now, if you talk about bailouts for everybody else,” Munger went on, “there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.

“At a certain place, you’ve got to say to the people, ‘Suck it in and cope, buddy. Suck it in and cope.”

There, in a few outrageous sentences, you have the raw essence of what’s increasingly labeled the “extraction” culture.

“Washington’s empire extracts resources from the American people for the benefit of the few powerful interest groups that rule America,” writes economist Paul Craig Roberts. “The U.S. Constitution has been extracted in the interests of the Security State, and Americans’ incomes have been redirected to the pockets of the 1%.”

Addison delves further into this theme in the next issue of Apogee — examining perhaps the mother of all “extraction” schemes. If you have an IRA or 401(k), you don’t want to miss this issue, only days away. Subscribe here.

   Traders who shrugged off yesterday’s euro-scare suddenly have the willies today. The pro-bailout parties in Greece couldn’t twist enough arms to form a majority in parliament. Now it’s the turn of an anti-bailout party to try.

The Euro Stoxx 50 index surrendered all of yesterday’s gains, and then some. Major U.S. indexes, which fought back to end yesterday mostly flat, are down as much as 1.5%.

The S&P 500, which lost its grip on 1,400 only last Thursday, clings to 1,350 as of this writing.

   “It may surprise some people to learn this is both an expected and positive development,” says the inimitable Barry Ritholtz, reacting to the latest “magazine-cover indicator.”

Not that the editors of USA Today consciously set out to imitate the 1979 BusinessWeek cover pronouncing “The Death of Equities”… but the resemblance can’t be denied…

“Stocks remain out of fashion,” the rag reports, “even though the stock market has risen more than 100% since the bear market ended three years ago.”

“This is no surprise,” says Mr. Ritholtz — “between the run of scandals in the 1990s and 2000s, the dot-com implosion, analyst scandal, the 2007-09 crash, housing collapse, the flash crash and HFT, mom and pop have taken their ball and gone home.”

“Whenever I give a market presentation at a conference, I always use the chart below. It explains in great detail how Main Street investor psychology impacts the long secular cycles of bull (green) and bear (red) markets. Note the metric at bottom, which is P/E ratio.”

We’ve been in a secular bear market since 2000. “The dominant feature,” he explains, “is that investors are willing to pay less and less for that same dollar of earnings.”

“We see that today. Profits going up as volumes go down; investor interest ebbs and flows. It’s how markets can go sideways or even rally and still see P/E ratios fall.”

“Ultimately, when the process generates enough investor disgust, we can form a lasting market low, typically, in the single-digit P/E ratios.”

[Ed. Note: Perhaps Mr. Ritholtz will venture a guess about when that will happen when he makes a return appearance at the Agora Financial Investment Symposium this July. He’s quickly becoming a fixture — as reliable as old hands like Doug Casey, Rick Rule and Bill Bonner.

Dr. Marc Faber is back after a two-year hiatus... and for the first time, historian Niall Ferguson will join us for some truly big-picture insights about “the West and the Rest” — the subtitle of his new book. You can still secure a handsome discount on registration... but seats are filling up fast.]

   Small-business owners are feeling their perkiest in more than a year. The optimism index issued by the National Federation of Independent Business jumped two full points last month, to 94.5.

On the one hand, the number equals that set at the start of the “official” recession in December 2007. On the other hand, the number is also the same as it was in February 2011. “No surprise,” says the NFIB report, “since nothing much happened during that time that would make owners more optimistic about the future.”

But we do find something interesting in the part of the survey that asks its members to identify their “single most-important problem.” The categories “poor sales,” “taxes,” and “government regulations/red tape” each pulled between 18-20%.

A year ago, “poor sales” clearly led the other two, at 25%.

   The resumption of the euro-scare is kicking Mr. Buffett’s “unproductive asset” in the teeth today.

Gold is off more than 2%. It dipped below $1,600 earlier and still hangs on just barely. Silver’s down to $29.29 — a four-month low.

   Gold’s fall from $1,900 eight months ago has done nothing to deter the Chinese from scooping up more of an asset that produces no cash flow.

China’s gold imports from Hong Kong have exploded sixfold in the space of a year: First-quarter imports during 2012 totaled 135.5 metric tons. The Q1 2011 figure was a mere 19.7 metric tons.

“The purchases through Hong Kong,” Bloomberg reports, “may signal that the mainland is accumulating reserves, London-based brokerage Sharps Pixley Ltd. said in February. “The nation last made its reserves known more than two years ago, stating them at 1,054 tons.”

We’ll correct Bloomberg here: More than three years ago. And going by past performance, the Chinese government won’t update that number until 2015.

Regardless, China’s well on the way to surpassing India as the world’s biggest gold consumer this year.

   Here in the States, gold is coming into vogue among… gamblers.

Long-time 5 readers have kept up with the “Gold to Go” vending machine ever since a prototype debuted in Frankfurt in May 2009. Now comes word of a second American location.

“The machine made its glitzy debut at Golden Nugget Atlantic City on April 26,” according to the local paper, “when the casino staged a grand opening ceremony to celebrate the completion of its $150 million renovation project.”

The only other U.S. location is the Golden Nugget Las Vegas… which makes us wonder what happened to the first U.S. machine, installed around Christmastime 2010 in Boca Raton, Fla. At the time, we mentioned the machine charged a reasonable 5% premium over spot.

“A 1-ounce gold bar was selling for $1,853 on Thursday,” says the Atlantic City Press… which is a rather steep 13% premium over the price that day.

Maybe they figure the high rollers are easier marks…

   “I am 71 and recently got fired,” writes a reader with his own perspective on the phenomenon of people “leaving the workforce.”

“It took three years to get a job from a guy even older than me. (There is a bit of age discrimination for old f**rts.) Over the years, I started several businesses, even industries, and ‘created’ hundreds of jobs. A couple of badly timed investments left me holding the bag.”

“I grew up to take responsibility for my situation and would never think of applying for unemployment (I think of it as a visit to the DMV).”

“I wonder how many of us are not counted.”

“Not discouraged, just waiting.”

   “You seldom mention the effect of the so-called underground economy when you comment on the disappearing workers from our labor force,” observes another.

“Even in my 80s, I don’t have to look far to see many examples of a vast mass of workers working on barter and ‘off the books’ transactions. All kinds of marginal workers get their daily beer and bread as well as a place to sleep this way.”

“How big is it and what effect does this have on our downturn? Things could well be escalating as the ‘official’ numbers get manipulated by our glorious leaders!”

The 5: Ah, “System D” as it’s coming to be known… Our compatriots at The Daily Reckoning have been onto it all this year.

Robert Neuwirth, author of the 2011 book Stealth of Nations estimates the worldwide off-the-books economy at roughly $10 trillion… although he concedes his calculation is “very rough and almost certainly on the low side.”

   “I am very much inclined,” writes a reader in Switzerland, “to adhere to Dan Amoss’ euro analysis,” presented in yesterday’s episode.”

“Personally, I was always of the opinion that the euro is flawed. It might, however, be a drawn-out piece. We’ve still got French parliamentary elections to come on June 10 and 17. It is quite likely that Hollande will get a majority, but one never knows. His desire to renegotiate the fiscal compact is probably going to fail. The French had too much of a say under Sarkozy; other countries might wish to be listened to too.”

“As far as Greece goes, talk shows that there will be no government formed within the next 10 or so days, thus compelling another general election, probably on June 10.”

“Nice perspectives ahead for all of us.”

   “Watch the Netherlands as well,” advises another reader.

“I have a dear Dutch friend who once ran worldwide operations for both Phillips and Motorola. He says the Dutch central bank has already developed a plan to leave the euro in the course of a long weekend.”

“They have, apparently, already printed the necessary guilder notes, formulated their distribution plan, drafted legislation to change the currency in all contracts and written computer programs to enable banks and businesses to convert accounts to guilders. All that is lacking is the order from government and a central bank decision establishing the official conversion rate.”

   “Boy, you guys were/are so right about cities and revenue,” writes a member of both the Reserve and the Laissez Faire Club.

“Look at what LA is proposing to wring out of people from parking on the streets that they NEED to park on. ‘Revenue targets’ — LOL.”

“Thanks for all the good work!”

The 5: Our correspondent passes along an article about how Los Angeles Mayor Antonio Villaraigosa’s latest budget proposal jacks up parking fines for the sixth time in seven years.

If the city council goes along, parking in a verboten zone on a street-sweeping day — to cite only one example — would cost you $78. As recently as 2005, it was $45.

As the mother of all financial bubbles starts to pop, you’ll feel it on the local level first: As the man says, we’re all “revenue targets” now. Can’t wait for the drones.

Regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Friedrich von Hayek was born on this day in 1899. “Laissez Faire Books is the proud publisher of a new edition of Hayek’s Tiger by the Tail, an outstanding compilation of Hayek’s best writings on unemployment and inflation,” writes LFB executive editor Jeffrey Tucker.

The book came out in 1972 — the year after Richard Nixon severed the dollar’s last tie to gold. To place it in a contemporary context, we commissioned a new introduction by John Papola — creator of the viral “Keynes vs. Hayek” video series.

“Hayek, more than any other economist of the past century,” writes Mr. Papola, “has offered the most complete and systematic critique of Keynes’s economic system and the Keynesian mainstream. A Tiger by the Tail is a powerful compilation of that critical work into one book.”

It’s so powerful, it an element in the “Economics in One Library” set — bound copies of four essential volumes we send to every new member of the Laissez Faire Club.

For several members the arrival came as a pleasant surprise: “You told us before we signed up that LFB was going to be ridiculously generous! Thank you very much guys… Incredible.”

That’s just the beginning of a long list of benefits that come with membership — including a new e-book every week, ready for downloading to your computer or mobile device every Friday. Your invitation to join is here.

• So will the Greeks leave the euro… or will the Germans beat them to the punch? Dan Amoss with the investing take-aways from European elections
• Chris Mayer unearths the story China bulls refuse to see in U.S. earnings
• Oil prices slump, but a wedding shoot-’em-up highlights a new crude threat… Food prices retreat, but for how long?
• Going for “mock trade” winner No. 10… reader worries about being put on “the list”… unprecedented access to Chris Mayer’s high-end advisory… and more!

   “My real enemy,” declared the president-elect of France, “is the world of finance.” The world of finance, for its part, seems rather unconcerned.

For a few hours last night after the election results from France and Greece, index futures looked ugly, indeed. But in the end, traders have gone all Alfred E. Neuman on us.

The Euro Stoxx 50 index ended the day up more than 1.5%. Here in the States, the S&P sits where it did at Friday’s close. The Dow is holding on, however tenuously, to 13,000.

And with that, stocks have yawned in reaction to a new phase of the most-boring financial crisis in world history. Beneath the surface, however, lurk some new threats, indeed…

   “In France,” says our macro strategist Dan Amoss, “there’s no political appetite for even mild spending cuts (like raising the retirement age by a year).”

“The new president will push for Keynesian stimulus spending that could ultimately push France into the PIIGS league.”

France is already so badly in hock that interest on the debt is the second-biggest line item in the budget, after education. And M. Hollande, the new president, plans to dig even deeper into an empty pocket for 60,000 more education jobs.

For the moment, France’s CAC 40 index already priced in the news; it closed the day up 1.7%. But make no mistake; the election result could prove “a sharp turning point in the ongoing eurozone crisis,” says Dan — “perhaps a hyperinflationary endgame for the euro currency and a return to the deutsche mark for Germany.”

   “The Greek election results increase the chances of a ‘hard default’ on its debt in 2012,” Dan adds.

“Many Greek political parties want to renegotiate the terms of their bailout, and they will find a cold reception from core countries like Germany.”

The results from the Greek parliamentary elections might prove instructive wherever you live: For months, the parties generally considered “adult” and “responsible” had insisted the only way to solve Greece’s crushing debt load was to take on even more debt as a condition of securing additional bailout funds from the European Union and the IMF.

A few voters, recognizing this plan isn’t working, opted for the far left and neo-Nazi right — handing those parties enough seats to deny anyone a majority.

Traders can deal with “the devil they know” in France. But they can’t handle uncertainty; Greece’s ASE index was crushed another 6.7% today. From its October 2007 high, it’s down 88% — a drop on the scale of the United States, 1929-32.

   “Bottom line,” says Dan: “Germany may decide to bite the bullet, leave the euro and recapitalize its own banks.”

“If so, the euro would go the way of the numerous French currencies of the 20th century. The PIIGS plus France would be left in a Latin American-style inflationary depression, while Germany would find its export powerhouse hamstrung (but not overcome by) the strength of its own currency.”

The investment take-away: “Avoid all European stocks, especially banks.”

   Something’s different about earnings season this quarter, says Chris Mayer: “There are a number of companies citing China’s slowdown as the cause of earnings shortfalls.”

There was Caterpillar, the big earthmoving equipment maker. It overestimated Chinese demand. “Its inventories in China were so high it was now moving machines to other developing countries where demand was still tight,” says Chris. “Caterpillar is now forecasting Chinese construction demand to fall 5-10% this year.”

Then there was UPS: Demand volumes to and from Asia are, to use its own words, “flat.” So it’s cut 10% of Asian capacity, and it may not be done yet. “‘Asia’ pretty much means ‘China,’” Chris points out.

“There were others,” he says, “but these two stuck out because they are good bellwethers of broader activity. In the other camp, you still have delusional executives such as the team at Vale — the big Brazilian iron ore miner. They think demand from Chinese steel mills will accelerate, despite all evidence so far that, if anything, Chinese steel demand is falling.”

Chris warned of a China slowdown in this space more than nine months ago. “Now there is no doubt of a slowdown,” he says.

“The debate is how low it will go. Right now, officially, China is growing 8% — if you believe government numbers. (I don’t.) And this is what consensus falls back on: ‘Well, China is still growing 8%…’ But that is hard to square with what we see coming out of companies there.”

   “Meanwhile, the U.S. seems to be getting attention as a positive” in the same earnings reports, says Chris. “UPS was upbeat on the U.S. economy. Oddly, that’s where all the good news was in its report.”

“In an update on the competitiveness of U.S. manufacturing, GE CEO Jeff Immelt said: ‘The sheer competitiveness of the U.S. is better than at any time in the past 25 years.’”

“GE wants to build up its industrial businesses. In the last decade, it’s become more of a finance company. So this was another meaningful snippet on the brighter outlook for U.S. manufacturers.”

Thus, an opportunity Chris has unearthed — a U.S. company already beating China at the manufacturing game. By his calculations, it could deliver a 143% gain in the next 24 months. And you can learn all about it only minutes from now with Chris’ high-end advisory, Mayer’s Special Situations. We’re making it available at in a remarkable “2-for-1” offer for the next few hours. Details here.

   Like most of the eurozone stock indexes, the euro currency is holding up under the weight of the election news — down, but not overwhelmingly, to $1.306. Thus, the dollar index is up slightly to 79.6.

   Precious metals are reacting little to the news. Gold is off a couple of bucks to $1,639. Silver’s holding the line on $30, barely, at $30.08.

   But the euro-scare has dealt another blow to crude. A barrel of West Texas Intermediate is down more than 1%, to $97.29.

For a few moments last Friday, it traded below $96 — a dramatic move that our market-sentiment maven Abe Cofnas says can’t stick.

“This week,” he writes, “our mock trade is U.S. crude. Its huge drop on Friday presents a great opportunity for a double-digit return.”

Indeed, Abe expects crude to end the week above $98.25. If it does, it would mean a four-day gain of 108%… based on a price move of only 0.4%.

“I call it vibrating your way to profits,” he says. Indeed, tiny moves can deliver big gains in the market Abe follows, unique among North American trading advisories.

Abe’s had nine winners in 10 plays here in The 5. If you think you’d like to try his trades for real, here’s your chance.

   A gunfight at a wedding party in Africa over the weekend spotlights one of the ongoing threats to oil prices.

“Separate attacks in northeast Nigeria targeting a village and a wedding party killed at least eight people Saturday,” reported The Associated Press, “in a region that remains under near-daily assault by a radical Islamist sect, authorities said.”

Nigeria’s a messy, complex place. But two things are for certain: It’s one of the United States’ top five oil suppliers. And there’s a huge Christian-Muslim divide there.

The two factors are slowly coming together: “Nigeria’s oil production is under threat,” says UPI, “because of escalating piracy off West Africa, a simmering insurgency in the Niger Delta, the theft of up to 150,000 barrels a day by militants and pirates and deadly Islamist terrorism linked to al-Qaida.”

   Food prices worldwide took a breather in April… but they’re still sky-high and new threats loom, says the United Nations Food and Agriculture Organization, or FAO.

The FAO food price index fell for the first time in three months… but it remains at a very high level by recent standards.

What’s more, weather threats remain. The corn and soybean crops are especially vulnerable.

“Although the production outlook for corn has improved, it will unlikely be enough to compensate for the low stocks-to-use ratio,” warns FAO grains analyst Abdolreza Abbassian. “The upcoming summer will be critical to U.S. yields and if there are any weather problems, this could push up the price.”

Persistently high food prices open up a unique investment space, one Chris Mayer has spotlighted before: phosphate. You can’t make fertilizer without it. And supplies are having trouble keeping up with the world’s growing food demand. It’s the “gravest resource shortage you’ve never heard of,” says Foreign Policy magazine.

Chris has identified a phosphate play set to deliver big gains as the chart above stays near historical highs. He’s also found an oil play — far from Nigeria — with 200% or more profit potential over the next 12 months. Plus the aforementioned U.S. manufacturing play that’s putting China to shame.

He’s eager to tell you about all three of them… and we’re eager to provide you access to his premium advisory, Mayer’s Special Situations. In the last two years, readers have collected gains of 77%… 136%… even 463%. You can join their ranks and secure an unprecedented deal — including a year of free access — through midnight tonight. It’s available at this link.

   “That,” says a reader who caught our item about 600,000 people leaving the U.S. workforce last month, “can only mean the simple fact that fewer people need to support more people whether through government plans, retirement plans, charity plans, family plans or some other plan.

“Good thing there are so many plans to take care of the problem!”

   “I am surprised,” a reader writes, “you missed the story of the college student detained by the DEA for four days in San Diego!”

“He was thrown in a cell and forgotten! He drank his own urine to survive, and finally was taken to a hospital barely alive! That is the scariest scenario I have read about; even Guantanamo residents are fed. It sounds like a story of someone that had been kidnapped by the Taliban!”

“Now I am scared, and will have to hide food and water in my underwear going back to the USA. I am sure that I am on the LIST now for getting Agora!”

The 5: We only have so much room for the government’s outrages in our mere 5 Mins.

As for “the list”… you might as well go “all in” and join the (intellectual) resistance.

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. “The teachings of the principles of economics,” writes professor Peter Boettke, “should inform as much on what not to do, perhaps even more than providing a guide to public action.”

In other words, hands off. Or laissez faire.

“His new book,” writes Laissez Faire Books executive editor Jeffrey Tucker, “which ought to be read by every college student who secretly suspects that economics is not as dreary as they say, is Living Economics, just published by the Independent Institute. It’s a big book, but a luxurious read from Pages 1 to 450.”

Mr. Tucker’s review got a ton of traffic over the weekend from Marginal Revolution, one of the most widely read economics blogs out there. You can read the review for yourself at this link. Just click under “editorial reviews”… and then get yourself a copy!

P.P.S. Final reminder: You can get a full year of Chris Mayer’s premium advisory, Mayer’s Special Situations, absolutely free… if you act before midnight tonight.

• The day the statisticians couldn’t deliver: Key unemployment metric falls to a level last seen when Ali fought his final bout
• Crude drops below $100… but remains a drag on economic growth: How China will adjust, Uncle Sam will react and your 401(k) will be in peril
• A land of vast mineral riches, but what’s the best way to profit? Chris Mayer prepares for his next overseas adventure
• The rabble start catching onto one of our best-kept secrets… Readers suggest unique distribution channels for Addison’s documentary… Instant access to a selection of Bill Bonner’s favorite essays… and more!

   For the last two days, the S&P 500 clung to the 1,400 level by some very close-cut fingernails. This morning, the index lost its grip. At last check, 1,375 is in jeopardy.

Traders weren’t expecting much from the Bureau of Labor Statistics’ April jobs report. In the event, the report delivered even less.

   The BLS statisticians could conjure only 115,000 new jobs last month. Not even enough to keep up with population growth.

“The Street” — by which we mean a few dozen economists polled by Bloomberg — was looking for 165,000.

Meanwhile, the U3 unemployment rate fell a bit, to 8.1%. The U6 measure — which includes people who’ve given up looking for work and part-timers who want to work full time — held steady at 14.5%

So what gives? How can there be so few new jobs and the unemployment rate still falls? Because nearly 600,000 people dropped out of the labor force last month. They no longer figure into the denominator of the unemployment rate.

   Indeed, so many people exited the workforce last month that the chart-meisters at the St. Louis Fed were momentarily confounded.

The total number of Americans counted as “not in labor force” — that includes little kids, the elderly, the wino on the street corner — topped 88 million, exceeding the upper limits of the existing chart. It was quickly adjusted to reflect the new reality. We’ve helpfully highlighted the adjustment for you in yellow…

True, the number will always climb as the population grows… but the percentage of the working-age population not in the labor force fell last month to 63.6%.

Not only is that a new post-bubble low: The number is now its lowest since December 1981… when Britney Spears was born, Muhammad Ali lost his final fight and Warren Beatty inflicted Reds upon unsuspecting moviegoers.

That was also the dawn of the era when the Bureau of Labor Statistics began fiddling with the criteria for the U3 unemployment rate. Calculated the way it was back in the day — and as John Williams at Shadowstats.com still does — the number ticked up last month to 22.3%.

   If the unemployment numbers delivered a wicked Ali right hook to stocks, crude’s been knocked out.

“Fresh concern over energy demand in the world’s biggest crude-consuming nation,” as the AFP wire service puts it, has sent a barrel of West Texas Intermediate down more than 4%, to $98.19. It’s the first time WTI has dipped below $100 in three months.

Interestingly, Brent crude — the benchmark price for most of the world — is proving less sensitive to the U.S. figures. It’s down only 2.5%, to $113.27.

   Indeed, Brent has held above $100 since February of last year… which prompts the following question: “What happens when the world’s most-important source of energy becomes unaffordable?”

The question is posed by former CIBC World Markets chief economist Jeff Rubin… who proceeds to answer, “Economic growth has downshifted into a much lower gear nearly everywhere you look.”

And he goes on to raise several more disturbing questions.

“Even China and India, the global economy’s principal engines of growth, can’t escape the toll exacted by high energy prices. When policymakers in Beijing tried to sustain double-digit economic growth, food and energy inflation quickly slammed on the brakes. The economies of China and India will soon struggle to grow at half the torrid pace of recent years.”

“In a world where distance costs money, China will increasingly look to its own 1.3 billion consumers to drive economic growth,” Mr. Rubin goes on. “If China decides to focus on tapping the potential of its huge domestic market, rather than supplying cheap goods to faraway Wal-Marts, the economic balance of power will tilt decidedly eastward.”

“What happens if the People’s Bank of China then decides that buying U.S. Treasuries is no longer a necessity? U.S. taxpayers, for one, don’t want to find out. They’ll be left footing the bill for Washington’s budget deficit — currently at $1.25 trillion.”

That’s when the mother of all financial bubbles really does pop. But what does that mean for you, exactly?

Addison is teasing out one surprising implication for the next issue of Apogee Advisory. If you worry about whether the government might confiscate your 401(k) or IRA accounts, you can’t afford to miss it: He’ll identify two warning signs that will be your cue to run for the exits. Not a subscriber yet? Sign up here to make sure you receive the issue next week.

   Oil isn’t the only commodity getting pummeled by the unemployment figures today. The broad CRB commodity index has sunk to its lowest level all year, at 296.

   The one exception in the commodity complex: precious metals.

As happened last Friday when the GDP number disappointed, traders are perhaps sensing the Fed will soon react by doing something reckless. Thus, gold is still on its feet at $1,640.

Silver has survived its latest brush with $30, currently $30.19.

   Copper prices have tumbled 30 cents this week. At last check, the bid is $3.74 per pound.

Despite this big move, Abe Cofnas’ mock trade of the week is still good. As long as copper closes the day above $3.695… this suggested move would deliver an 8.6% gain.

Not bad for four days. And it would mean nine winners in the last 10 weeks. Want to play Abe’s trades for real? Learn more about this one-of-a-kind service at this link.

   “Peruvians have mashed something together that looks like it will hold up — at least for now,” writes the globe-trotting Chris Mayer, who’s boning up in preparation for his next trip.

Peru has had three currency “do-overs” since 1863, he tells us. “This is when a country scraps an old currency entirely after its government renders it nearly worthless with ceaseless money printing. In its place, it creates a new one.”

The most recent is the nuevo sol, which dates to 1991. “In 2000,” says Chris, “it took 3.5 nuevos soles to buy a U.S. dollar. Today, it takes only about 2.6 nuevos soles. In recent years, it continues to strengthen.”

Chalk that up to the nation’s resource wealth in the midst of a commodity bull market. “The mining riches are no secret, though. Big miners are all over Peru. And it has some homegrown champions as well. An example is Buenaventura, a $10 billion enterprise that trades on the NYSE.”

“In my experiences from Mongolia to Colombia, the best opportunities in these situations often come not from mining, but from owning real estate first of all, and also simple consumer businesses and the stock exchange (if you can). I’ll be more interested in what I discover along these lines.”

You can follow along with Chris’ entry-level newsletter Capital & Crisis — which you can get right now for a steal… and we’ll ship you a free copy of his new book World Right Side Up. “It is a thoroughly researched, carefully crafted book with a host of investing ideas,” writes Brenda Jubin in a review at Seeking Alpha. “I thoroughly enjoyed it. ”

Right now, you can get the book and a year of issues for a price lower than many readers have paid for the issues alone. Seriously. Act here.

   “Curious world travelers are gradually starting to seek out this formerly menacing place,” reads an article this week that demonstrates how mainstream Nicaragua is fast becoming.

“It’s no surprise,” writes Fox News producer Ruth Ravve, “as word spreads about the miles of white sandy beaches, rain forests and mountains that have become a major draw for hikers and climbers. Unique geologic rock formations left by volcanic eruptions of the past have become sought-out tourist attractions.”

In introducing the country to folks whose knowledge of the place is confined to decades-old headlines, the cliches are hard to avoid: “Where were the gun-toting, camouflage-wearing rebels I remember seeing on grainy television news footage years ago?” Ms. Ravve writes.

We know the feeling well: “If you’ve been reading The 5 and have wondered about what’s going on down there in the land of Ollie North and the Sandinistas,” Addison wrote in February, “you owe it to yourself to come down and check out our project.”

We’d like to present you the opportunity to do so later this year… and at the same time educate yourself about diversifying your portfolio offshore: We’re organizing the second Rancho Santana Sessions.

The first Sessions back in March were an intimate gathering of 30 people eager to learn how to legally and safely park a portion of their assets overseas… all in the stunning setting of Nicaragua’s “Pacific frontier.”

We’ve just set the dates for the next Sessions: Dec. 5-9, 2012. Watch this space as the details start coming together…

   “Great idea” says the first of several emails on our suggestion yesterday that Addison’s documentary Risk! be presented on the Internet as a 10-part series.

“The idea of a 10-part series is GRRRRReat,” writes another, channeling Tony the Tiger. “I have been reading The 5 since its inception, and I really enjoy it to the max. This is the first time I have written in, but I feel it’s a worthwhile cause.”

“Excellent way,” writes a third, “to get the story of the treasure hunters out into the universe. I know I would thereby get to see it!”

“One part or 10 parts,” says a fourth, “either way, just do it.”

   “Wouldn’t releasing Addison’s Risk! on the Agora website be severely limiting its exposure?” another inquires. “If you want the most eyeballs to view it, consider prime time (that’s TV). Maybe even RT.com. PBS? Naw, no thinking person watches PBS anymore.”

   “Louis CK has developed a great way to deliver his stand-up special— instead of giving control to Comedy Central or HBO, as has been the norm, he produced it and put it on the Web. You get to download it for $5.

“He uses the honor system — he just asks people not to copy it, sell it or give it away. He’s printing money with this method. Feel free to copy it. I think your subscribers would happily pay $5 to have a copy of your documentary.”

The 5: Thanks to all for the feedback… and the encouragement! The distribution concept is still in a germinating stage… We’ll keep you abreast of new developments here in The 5.

   “Of course, it is only fitting that The Scream sold in **this** specific economic environment,” a reader writes after yesterday’s musings. “If my recollection of that useless university art history class serves me right, Munch’s drawing is of some worker bee in Peoria after he found out Jon Corzine had ‘lost’ his life savings.”

   “Happy birthday!!!” reads our final correspondence of the day. “I am reading The 5 since Day 1. It is part of my libertarian community base. Or should I say, part of my Common Sense Community?

“Thanks for everything!”

The 5: It’s our privilege to serve; we couldn’t do it without you.

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. “This book might inspire us to think and act more like we should,” writes Laissez Faire Books executive editor Jeffrey Tucker of this week’s selection for the Laissez Faire Club.

It is The Idea of America — the collection of essays thoughtfully chosen by Agora, Inc. founder Bill Bonner and Pierre Lemieux.

“This volume,” says Jeffrey, “is very different from the thousands of other collections that seek to present a picture of the American civic order by reference to classic writings. This is all the stuff you have never read, the material suppressed by those who conflate the nation with the state.”

Every member of the Laissez Faire Club will receive an e-book edition of The Idea of America today. If you’re not yet a club member, you can start your weekend with a small act of subversion and sign up for a host of benefits that space simply doesn’t allow listing here. More from Jeffrey about the book… and the benefits of club membership… at this link.

• Worth screaming about: How the Fed drove a famous painting to a record price
• “Super-wealthy money shufflers” load up on art, while American workers produce more and earn less: Lessons from a chart that’s gone viral, and the story the chart doesn’t show
• The wisdom of the crowd? Americans’ choice for “safest” investment two years in a row
• Comeuppance continues, new pain for Spain: Bolivia adds insult to Argentina’s injury
• Sarnoff on “the little exceptions that get you”… an update on Addison’s documentary project… a poignant account of “family businesses that led to strong work ethics”… and more!

   “When you create monetary inflation,” says the one and only Marc Faber, “it doesn’t touch everything at the same time.

“At certain times,” he tells the Financial Sense Newshour, “it may go into wages or it could go into commodities or it can go into consumer prices or it can go into real estate or it can go into equities or commodities or it can go into precious metals or art prices and so forth and so on — but not at the same time.”

The part about art came to mind as a CNN breaking news alert flashed across this editor’s iPad last night: “Edvard Munch’s The Scream sells for a record $119,922,500 at Sotheby’s in New York.”

   “The Fed basically since 2008,” Dr. Faber goes on, “has expanded its balance sheet with the intention to stabilize the housing market and boost housing prices, but that is precisely the asset that hasn’t gone up.”

There are exceptions, of course: “in Aspen and from Madison Avenue and Park Avenue and so forth,” he says. “In prestigious locations around the world, real estate has continued to go up in value.”

The world’s “super-wealthy money shufflers,” Faber wrote in a recent Gloom Boom & Doom Report “have been the prime beneficiaries of the asset inflation we have experienced since the early 1980s.”

The U.S. working class… not so much.

   Which brings us to this chart; it’s making the Internet rounds this May Day week…

Starting at the end of World War II, as U.S. workers became more productive, their pay kept pace… until the early ’70s. Ever since, they’ve had less to show for their productivity gains.

The chart comes from the left-leaning Economic Policy Institute — whose president Larry Mishel predictably concludes the break in the two lines “is the result of various laissez-faire policies… including globalization, deregulation, privatization, eroded unionization and weakened labor standards.”

   “It’s no coincidence that the two lines in this chart diverge in the early 1970s,” says our macro strategist, Dan Amoss — who comes to some rather different conclusions.

“The August 1971 separation of the dollar from gold set in motion the unchecked growth of government and banking, aided by a supportive Federal Reserve. The Fed prevents the lower prices brought about by productivity from improving living standards. In this inflation-targeting Bernanke regime, laborers and those on fixed income are victims.”

That is, in contrast to the super-wealthy money shufflers, “private-sector laborers are often the last to receive the new dollars that are borrowed and printed into existence, and by the time they do receive them, the cost structure of the economy has inflated.

“This monetary system prioritizes creditors and shareholders over labor,” Dan concludes, “and it will eventually lead to political turmoil.”

   On this point, even the economists who get it wrong agree. “It’s a combustible concoction wherever it occurs,” says the former Labor Secretary Robert Reich: “Increasing productivity, widening inequality and rising unemployment create tinderbox societies.”

Worse still are the two alternatives Reich lays out: “Public anger and frustration can ignite in two very different ways. One is toward reforms that more broadly share the productivity gains. The other is toward demagogues that turn people against one another.”

Mr. Reich clearly prefers the former outcome. But neither is a good one if you’ve worked hard to accumulate your own wealth… or if you’re struggling against all odds to do so.

The “Eat the Rich” mentality was out there on May Day; it was largely peaceful. Whether it will remain that way later this month at the NATO summit in Chicago… or in August at the Republican convention in Tampa… or in September at the Democratic convention in Charlotte… remains to be seen.

But when the mother of all financial bubbles starts to burst, you need to be ready for anything.

   Major U.S. stock indexes are drifting down this morning. Once again the S&P 500 is connected to the 1,400 level by the slenderest of threads.

Traders appear unimpressed by a substantial drop in first-time unemployment claims to 365,000. And growth in the service sector is slowing; the ISM nonmanufacturing survey for April printed this morning at 53.5, the lowest this year.

“So far this week,” Options Hotline’s Steve Sarnoff wrote his readers last night, “it’s been a May grey market, as the ‘Sell in May and go away’ axiom is getting a lot of play on the tout box.”

“My judgment based on experience reminds us the trouble with putting much stock in such approaches is: A) They tend to be quite fickle and B) ‘It’s those little exceptions that get you.’”

“Rising unemployment bolsters the anti-austerity movement in Europe. Stateside, Bernanke and crew remain poised to apply creative money-printing methods in what just happens to be a presidential election year. Overall, technical signs are pointing toward capital moving out of bonds and into gold.”

   For the moment, however, gold is approaching a one-month low at $1,634.

Silver’s ability to hold onto the $30 level is being severely tested at $30.13. The white metal withstood the pressure last week, but the pressure’s back on…

   For the second year in a row, a plurality of Americans polled by Gallup believe gold is “the single safest long-term investment option.”

The 28% who chose gold is smaller than last year’s 34%. Chalk that up to when the poll was conducted: Last year’s survey took place in mid-August, when gold had jumped nearly $300 in six weeks to $1,770.

Once again, gold was the predominant choice among older Americans and people without a college degree and incomes between $30,000-75,000.

   Karma’s biting Spain yet again today: The Bolivian government has sent in the military to seize the local assets of the Spanish power grid operator Red Electrica.

Bolivian president and Chavez wannabe Evo Morales ordered the move on May Day, accusing the company of failing to invest enough.

Hmmm… Readers with good memories will recall that was the same excuse Argentina used last month to nationalize the Spanish firm Repsol’s stake in the oil producer YPF.

And longtime readers will recognize how these moves amount to Spain’s comeuppance for going after the crew of Odyssey Marine: Earlier this year, the Tampa-based private treasure hunters were ordered by a U.S. court to hand over a huge find to the Spanish government.

[Ed. Note: If you’re wondering about the status of Addison’s documentary Risk! — in which the Odyssey Marine saga plays a central role — he’s talking with several folks both inside and outside Agora Financial HQ about the best way to get it in front of as many eyes as possible.

Among the people he’s been consulting is John Papola, the creator of the brilliant Keynes vs. Hayek rap videos from a year ago...

And among the ideas under consideration is to break up the documentary into bite-size chunks... perhaps a 10-part series that we’d unveil first on the Agora Financial website. What do you think? Let us know if you have an opinion...

Mr. Papola, by the way, wrote the foreword to Laissez Faire Books’ new edition of Hayek’s A Tiger by the Tail. “This book, originally published in 1972,” says that foreword, “followed by F.A. Hayek’s Nobel in economics two years later, stands as vitally influential historical events in that period of decline” — indeed, right as the productivity line on that chart above broke away from the wage line.

Addison thought the work important enough to include in a set we call “Economics in One Library” — four volumes that form a foundation for understanding the economy and markets. They are...

• Frederic Bastiat’s The Law
• Henry Hazlitt’s Economics in One Lesson
• Garet Garrett’s A Bubble That Broke the World
• Hayek’s A Tiger by the Tail.

We send bound copies of these four books to everyone who joins the Laissez Faire Club. Members also receive a new e-book every Friday. For a complete rundown of the benefits that come with club membership... please give this a careful look.]

   “I grew up on an oil field in close proximity to many ranches and farms,” writes a reader, reacting to the Labor Department’s now-defunct proposal to bring farm chores under the child labor laws.

“On the other side of that oil field was a harbor with a large fishing fleet. My grandfather had a great pal who was a fisherman. The common denominator of these three cultures was family businesses, which led to strong work ethics formed from somewhere around the age of 8.”

“I spent many years as a professor of engineering at a school specializing in mining, oil, geology and etc. On the scholarship committee, we were continuously confronted with the problem of what criteria should we use to award scholarships. Because of our location (Golden, Colo.) we attracted students from metropolitan areas, but also from a large area of the country with low population density.”

“I soon learned to forget such criteria as extracurricular activities and grades: If an applicant applied from certain high schools, give him a scholarship. One time a colleague noted that I awarded a scholarship to a student at the bottom of his class. I replied, ‘True, but he is also third in his class and has good grades.’ He went through our curriculum fine and later started a very successful service company now run by his son (also a graduate). Grew up on a ranch.”

“As an engineering school, we fought our students’ tendency to concentrate only on technical subjects — I had a reading program in laboratory courses in an attempt to correct the problem — of a type that included Atlas Shrugged. The only requirement was to read the books.

“It was interesting that most of the students would finish early and the heated discussions were in the student commons because they were not part of the lab curriculum per se. Grades were on the technical aspects of the labs. I wish I had had Laissez Faire Books at the time; I could have really wound them up.”

“Upon hearing of the pending legislation, I actually sat down and shed a tear for the demise of the idea of an American. Thanks to Agora and Laissez Faire for trying to preserve the idea.”

The 5: Thank you for the kind words. As synchronicity would have it, The Idea of America — the essay collection edited by Bill Bonner and Pierre Lemieux — is the e-book selection that goes out tomorrow to members of the Laissez Faire Club.

Members get a new e-book every Friday; and that’s only the start of the many benefits you get when you join.

   “I just wanted to send all of you a warm thank-you,” says a belated acknowledgment of The 5’s fifth anniversary — “for taking the trouble to put out The 5 every weekday!

“I’ve taken the few minutes to read it almost every day it comes for the past few years, and I’ve found your group’s take on things really helpful.”

   “I have Niall Ferguson’s excellent books,” writes a reader after yesterday’s edition, “and his Barron’s article.”

“Toynbee described it all many years ago in his discussion about the collapse of civilizations due to strangling themselves with centralized regulations.”

The 5: Amen.

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. A reminder that both professor Ferguson and Dr. Faber will join us in Vancouver this July for the Agora Financial Investment Symposium.

Tech-oriented investors will want to hear from speakers like Juan Enriquez and Michael West. Is resource investing your thing? We’ll have Rick Rule and the always colorful Marcio Mello. Do you have an international view? We’ll have experts from places as diverse as Canada and Thailand. Plus, the editors of the Agora Financial publications you rely on.

We’d love to have you join us: Your invitation is at this link.