Beware the government that provides “more.” Fear the government that provides “extra.”

“More government” always means more of something, but not always more of something a productive individual desires. More government means more rules and regulations, more agencies to enforce the proliferating rules and regulations, more taxes to pay for the proliferating agencies that enforce the proliferating rules and regulations. Before long, “more government” begins to feel a lot like “less” — less opportunity, less liberty, and certainly less after-tax income.

But that’s an old story. The newest twist on that old story is that “more government” sometimes means “extra”… and that’s just about the last thing any liberty-loving American should desire, especially when “extra” pops up in a government-endorsed euphemism.

Look what happens to simple, inert terms when you add “extra” to them:

“Marital passion.”

“Terrestrial encounter.”

“Judicial verdict.”

Marital passion might be just the thing to keep the nuptial embers glowing. But extramarital passion, not so much. That’s why most of us are content to do without “extra.” But from time to time, there’s someone around who’s eager to force “extra” upon us, whether that someone is a cheating spouse, a wayfaring alien or an “extra-constitutional” government agency… which brings us to the first half of the U.S. government’s catchy new euphemism: “extrajudicial.”

The word does not mean “extraordinarily judicial” or “even more judicial than usual.” It means the opposite. It means “outside the judicial process” or, literally, “outside the law.”

Now let’s add the word “killing” and, voila, we get, “extrajudicial killing.”

This euphemism has recently popped up in the American lexicon to describe the conduct of U.S. drone strikes in countries that end in “-stan” or “-en”… or sometimes “-ia.” And you usually find this term very close to its companion euphemism, “collateral damage.”

“Extrajudicial killing” does not mean a killing that is “extraordinarily judicial” or “even more judicial than usual.” It means the exact opposite. The term refers to a premeditated killing that occurs outside of any judicial process – i.e., “outside the law.” It refers to a killing, in other words, that most folks would recognize as simply “murder.” But there’s a twist. As Wikipedia helpfully explains, “An extrajudicial killing is the killing of a person by governmental authorities without the sanction of any judicial proceeding or legal process.”

In other words, a government never murders anyone; it extrajudicially kills them.

Eye-glazing terms like “extrajudicial killing” are ideal for obscuring ugly or inconvenient truths. In this case, the inconvenient truth is that the U.S. government is killing suspected terrorists, rather than convicted ones.

There is a difference, of course, which is why the U.S. Supreme Court reserves the death penalty for convicted murderers, rather than suspected ones. Even then, mistakes happen. Juries get it wrong sometimes.

Here in the States, about one in 20 death row inmates is later found not guilty. In some cases, the truth does not surface until after the innocents have suffered the ultimate penalty. And posthumous exonerations cannot raise the dead. Even after all the testimonies, cross-examinations, objections, and appeals, innocent folk sometimes die for crimes they did not commit. Knowing this, it would be easy to imagine that the percentage of folks wrongfully condemned to “die by drone” is not zero.

But there is also another inconvenient and ugly truth about drone strikes. They sometimes miss their targets. Not only are they extrajudicial, but they are also extra good at killing innocent bystanders.

The Guardian observes: “A report by the law schools at Stanford and New York universities suggests that during the first three years of [Obama’s] time in office, the 259 strikes for which he is ultimately responsible killed between 297-569 civilians, of whom at least 64 were children.”

Even as mere numbers, this story is horrific. But the numbers have names, which is utterly chilling. And each of the names had hopes and dreams — hopes and dreams that did not deserve to vanish in a burst of shrapnel and flames.

Last week in Boston, three innocent people lost their lives to a heinous act of terrorism. One of the victims was an 8-year-old boy — a boy with hopes and dreams that did not deserve to end.

There is no such thing as collateral damage. The term is an insult to human dignity. There is only tragedy. Horrific tragedy. But euphemisms like “collateral damage” and “extrajudicial killing” attempt to sanitize and conceal the horror of tragedy.

Not all euphemisms are bad, of course. But moral ambiguity and euphemisms tend to go together like hunters and camouflage, or perhaps more like warfare and national anthems. The greater the “ambiguity,” the more creative the euphemism tends to be, especially when the euphemism issues from a government agency to describe a government activity.

Good policies require no cosmetic surgery, no euphemistic photoshopping — no spoonfuls of sugar to help the medicine go down. If the policy of conducting drone strikes is a good one, let the government call them what they are. Let the government call them “serial exterminations of folks who probably do not like us and might intend to harm us one day” — a term that would lend itself to the handy acronym, “SEOFWPDNLUAMITHUODs.”

Or maybe the government could simply replace its public euphemism with its private one: “bug splats.”

“The people who operate the drones,” Rolling Stone magazine reports, “describe their casualties as ‘bug splats,’ since viewing the body through a grainy-green video image gives the sense of an insect being crushed.”

The Washington Post reports that “last month, the Pew Center asked a random sample of Americans whether they supported ‘the United States conducting missile strikes from pilotless aircraft called drones to target extremists in countries such as Pakistan, Yemen, and Somalia.’ A majority, 56%, approved.”

What would the poll results look like if Pew had asked about “pilotless aircraft called drones that conduct bug splats, in which some of the splats are kids”?

Words matter. Words that sanitize tragedy matter. Because if Americans can approve drone strikes that “target extremists” on foreign soil, the door is wide open to “targeting extremists” right here at home. And as we have learned, targeting extremists does not mean “executing convicted criminals.” It means “killing suspected criminals, along with the innocent men, women, and/or children who happen to be standing nearby.”

“Targeting extremists,” in other words, means “conducting bug splats.”

So far, agencies of the U.S. government have refrained from “bug-splatting” U.S. citizens on U.S. soil. And so far, the president is promising to never do any such thing (unless a U.S. citizen is doing really bad stuff on U.S. soil). But even so, a domestic version of the president’s infamous “kill list” seems to be taking shape.

“The FBI,” according to a recent Los Angeles Times story, “classifies such people, who refuse to recognize government authority in virtually any form… as ‘sovereign citizens’…[and ] as part of a domestic terrorist movement.”

The agency estimates that these “sovereigns” number between 100,000-300,000, which means it’s entirely possible that one of them lives in your neighborhood. In fact, it’s entirely possible that one of these folks stares back at you every time you look in the mirror. Scary, right?

As of now, there are no “Megan’s Laws” requiring states to notify schools and neighbors when a sovereign moves into their town. But that doesn’t mean law enforcement agencies aren’t busy preparing to combat this growing domestic threat.

The Times reports that a Detective Rob Finch and his partner Detective Kory Flowers “have trained nearly 15,000 police and 5,000 public officials to combat sovereigns, zealots who refuse to recognize government authority in virtually any form.”

To sovereigns, Detective Finch explains to the Times, “a police officer is just a man in a Halloween costume. They refuse to recognize [his] authority, and that creates a dangerous situation.”

Maybe so, but recognizing authority can also create a dangerous situation, especially when the authority you recognize is the one flying over your head aiming Hellfire missiles in your direction.

Recognizing authority can also create a dangerous situation when the authority you recognize is the one adding your name to a list of “sovereigns” — a list of “domestic terrorists… who refuse to recognize government authority in virtually any form.”

Domestic drone strikes, while not a reality today, are not as far-fetched a possibly as most of us might like them to be. The first step down that slippery slope would be domestic drone surveillance, which is a reality already… in “special circumstances.”

The official justification for widespread domestic drone surveillance would go something like this: If mere surveillance video enabled law enforcement to nab the Boston bombers after the fact, just imagine the benefits that nationwide drone surveillance could provide before the fact. (One day, perhaps, next-generation drones will be able to recognize prospective terrorists in utero and then eliminate them… with a bit of collateral damage, of course.)

America’s drone program may or may not reduce the risk of future terrorist attacks on U.S. soil. But one thing is certain: The program is ideal for expanding the power and intrusiveness of government.

Quite obviously, the war on terror is a “temporary” campaign with no imaginable end. Will the CIA or Pentagon ever extinguish the “last terrorist,” as if he were the final member of a nearly extinct species?

More than likely, the government will conclude its war on terror about the same time it declares victory in the “War on Poverty” that President Johnson declared 50 years ago.

But in the meantime, the government will likely devise ever more ways to rationalize visiting “extra” on the unwilling, while crafting ever more euphemisms to package and market its “extras.”

Beware the government that provides “more.” Fear the government that provides “extra.” Above all, fear the government that dresses its activities in euphemisms.

Sincerely,
Eric Fry

Original article posted on Laissez Faire Today

The post Beware of Government “Extras” appeared first on Daily Reckoning.

Three cheers for the Dow Jones Industrial Average!…or four, if you like.

Since setting its first new record high in more than four years last week, the beloved Blue Chips have marched ahead to six more record-high closes. In all, the Dow has advanced ten straight days — the longest winning streak since 1996!

One would think the economy is smelling like a rose…rather than pushing up daisies. But one would be wrong, as ZeroHedge pointed out last week.

On the day the Dow logged its first of seven straight new highs, ZeroHedge trotted out a kind of financial “The Way We Were” — comparing today’s economic conditions to that of October, 2007, when the Dow set its previous record high:

• Dow Jones Industrial Average: Then 14164.5; Now 14164.5
• Regular Gas Price: Then $2.75; Now $3.73
• GDP Growth: Then +2.5%; Now +1.6%
• Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
• Americans On Food Stamps: Then 26.9 million; Now 47.69 million
• Size of Fed’s Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
• US Debt as a Percentage of GDP: Then 38%; Now 74.2%
• US Deficit (LTM): Then $97 billion; Now $975.6 billion
• Total US Debt Outstanding: Then $9 trillion; Now $16.4 trillion
• Labor Force Participation Rate: Then 65.8%; Now 63.6%
• Consumer Confidence: Then 99.5; Now 69.6
• S&P Rating of the US: Then AAA; Now AA+
• Gold: Then $748; Now $1583

In other words, the Dow made a new record high despite the economy’s performance, not because of it.

Perhaps the stock market “knows” something about the future that is humanly unknowable. Perhaps it “sees” something that is invisible to the human eye. Perhaps it knows and sees the advent of a great economic revival. Perhaps.

Your editor has no idea what the market knows or sees; he only knows that he doesn’t see it. What your editor does see is a stock market that the masses adore, residing in an economy that the masses abhor.

So maybe it is not hope that is driving the stock market to record highs, but despair. Maybe stocks are rallying because investors are afraid to do anything else with their capital — maybe they are afraid to risk their capital in an economy that features zero interest rates, stifling regulatory regimes and capricious tax laws.

Bottom line; the Dow’s record-setting performance tells us nothing about “why.” The stock market is silent on this point. Perhaps it is too terrified to speak.

One thing we know; the rallying stock market stands in stark contrast to the bear market in economic vitality. We also know that bull markets are unfolding in all the wrong places. Unemployment, government debt, food stamp participation, “No knock” SWAT raids and “No trial” drone strikes are all in bull market mode.

The nearby chart tells part of the tale.

Sure, the Dow has reached a record high, when measured in dollars. But the index is not even close to a record high when measured in gold, food stamp participation or “extrajudicial” drone strikes.

Each of these metrics, in its own way, reflects a government that is “hard at work.” The fact that the Dow, priced in gold, remains very far away from a record, suggests that Chairman Bernanke is working overtime. His dollar-printing escapades have played a very big hand in the Dow’s record-setting climb. By devaluing the dollar, in other words, Bernanke “inflated” the Dow price.

The doubling of both food stamp participation and drone strikes during the last five years reflects a different form of governmental hyper-activity. But this hyper-activity shares the identical DNA as Bernanke’s money-printing. All these activities express the genetic traits of a government that continuously expands its power “for the greater good,” a government that belives its influence enables progress, rather than impedes it, a government that considers itself so essential to the march of human civilization that it will dehumanize any individual and sanction any uncivilized act to achieve its objectives…for the greater good, of course.

Maybe that’s why the Dow is setting records…because big, intrusive, debt-financed governments are such a potent source of national prosperity. Maybe. But we’re still inclined to believe that “the government is best that governs least.”

Whatever the reason(s) for the Dow’s record-setting performance, your editor does not begrudge the Blue Chip Index its moments in the sun.

Three cheers for the Dow Jones Industrial Average!

Eric Fry
for The Daily Reckoning

The post Record Highs Despite Epic Lows appeared first on Daily Reckoning.

Senator Rand Paul conducted a 13-hour filibuster yesterday that finally ended at a little before 1:00 a.m. this morning.

Are you still awake?

Usually, the mere mention of the word “filibuster” induces narcolepsy…and why not? A filibuster is explicitly about doing nothing for as long as possible. Webster’s defines it as, “The use of extreme dilatory tactics in an attempt to delay or prevent action, especially in a legislative assembly.”

One would think that the US Congress needs no extraordinary tactics to delay action. But every once in a while, parties on both sides of the aisle unify and embrace a course of action so effortlessly that they seem to have no differences whatsoever.

These rare congressional love-ins often occur under the banner of “national security interests.” Unfortunately, when the two parties unify enthusiastically under this banner, extreme civil rights abuses sometimes follow. (The Japanese Internment during World War II is one infamous example. Guantanamo Bay is another. But there are many more, as every student of US history would be well aware).

Despite the reflexive disdain Republicans and Democrats hold for one another, the two parties can unify very easily on national security, provided that the supposed threat to national security looms large and the resulting civil rights abuses pertain to a small percentage of the population, which brings us to yesterday’s filibuster. MarketWatch summarizes the “action”:

Rand Paul and a small band of Republicans (plus one Democrat) waged a nearly 13-hour filibuster over what they said was the danger of drone strikes against American citizens on US soil. “What will be the standard for how we kill Americans in America?” Paul asked at one point, as recounted by The New York Times. Other senators, including conservative star Marco Rubio, joined in, meaning the Senate was filled with non-stop speaking for more than half a day.

Paul decided to filibuster after getting a letter from US Attorney General Eric Holder that would not rule out using drone strikes within the US in “extraordinary circumstances.”

Senator Paul’s filibuster made headlines, deservedly so. One particular Daily Reckoning column devoted to the same topic did not. This contrast may offer a worthwhile insight.

Nearly one year ago, The Daily Reckoning published a column by your California editor entitled, “Feral Drones and Other Invasive Species.” At the time, the use of drones to conduct domestic surveillance seemed like a meaningless curiosity to most folks. Your editor’s column presented an alternative point-of-view.

“Step-by-step,” your editor observed, “government-intrusion-by-government-intrusion, we Americans are forfeiting our civil liberties in the name of freedom. Today, the government is hunting down feral pigs. Tomorrow, the government’s drones may ‘go feral’ and start hunting down US citizens…all in the name of liberty.”

And so it has come to pass…almost. Perhaps Senator Paul can block this one particular assault on civil liberties, but we Americans appear to be losing the war.

The point is not to lament the government’s growing intrusions into the private lives of US citizens, the point is to prepare for an American lifestyle that bears little resemblance to the lifestyle of 20 or 30 years ago. The point is to examine the changes underway in our nation — really examine them — and to determine how they might affect each one of us individually.

Above all, the point is to examine the changes underway proactively — to develop the kind of imagination that leads to preparation, rather than the kind that “hopes for the best” and glosses over potentially life-altering threats to civil liberty.

Eric Fry
for The Daily Reckoning

Editor’s Note: Talk about timing… The subject of the petition we started almost a month ago finally got some much needed national attention, thanks to Sen. Paul’s filibuster yesterday. If you haven’t already done so, check it out right here. It could be your last chance to “stand with Rand.”

The post Rand Paul’s Drone-a-Thon appeared first on Daily Reckoning.

Let’s play a little game of “True/Not true.” We ask the question and you answer, “True” or, “Not true.”

1) Two police officers in Colorado lost their jobs and face felony charges for shooting an elk.
2) Two police in Washington State lost their jobs and face felony charges for shooting a man in his bed 16 times.
3) America spends more money on the TSA each year than the nation of Nicaragua earns.
4) Pubic “crabs” are becoming endangered by Brazilian bikini waxes.
5) The sequester that began last Friday will cut the national debt by $85 billion this year.
6) Witches read The Daily Reckoning.

The correct answers are: True, Not true, True, True, Not true, True. This essay will focus only on the most surprising of these answers, #5. But for the sake of those who doubt our answers, we’ll provide supporting documentation.

1) True, read all about it here: Police Shoot Trophy Elk
2) Not true. Yes police shot a man in his bed 16 times, but the department determined that this use of force was “justified.” Police Shoot Man 16 Times.
3) True. See the nearby chart:

4) True. Pubic crab lice have become the latest victim of habitat destruction. See: Bikini Waxing.
5) Not true. See below.
6) True. Following Wednesday’s posting of The Daily Reckoning, a number of Wiccans criticized us for being “extremely offensive to actual Witches and Wiccans.” We commend their postings to those who wish to educate themselves about the vibrant, modern state of Witchcraft, also known as the Wicca Way. See: Wednesday’s Daily Reckoning.

And now…back to statement #5, “The sequester that began last Friday will cut the national debt by $85 billion this year.

Not true. Not even close to true.

The truth hurts, as the familiar saying goes, which is why telling truths that deceive is such a popular practice. To illustrate the deceptive power of true statements, consider the following remark:

“Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion. As a result we are more than halfway toward the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.”

President Obama made this remark in his State of the Union address…so it must be true.

But it is also very deceptive. Somehow, Obama’s $2.5 trillion of deficit reduction expressed itself as $5 trillion of deficit spending over the last five years. In other words, during Obama’s first four years in the Oval Office, the nation bankrupted itself by an additional $5 trillion dollars.

Expressed as a percentage of GDP, Obama’s deficit spending has totaled a banana-republic-esque 8.3% of GDP. That’s more than double the worst 4-year deficit that any president has delivered during the last three decades.

We do not offer this observation to tweak the president’s nose, nor to advance any particular political agenda. Republicans also know how to spend money they do not have. We offer this observation to remind our Dear Readers just how deceptive truths can be.

As a nation, we are broke. That’s the truth. But that hurts. So, instead of facing that truth head-on, and dealing with it honestly, the national debate revolves around how to become more broke less quickly than planned.

Most folks imagine that all the chatter about “sequesters,” “budget cuts” and “deficit reductions,” is about making the nation more solvent.

It isn’t. Not even close.

This grand political debate is only about calibrating the speed at which we impoverish ourselves.

Here’s some hurtful truth, folks:

A budget cut does not produce savings; it does not even reduce the national debt; it merely decreases the size of the debt increase.

A budget cut is simply a pledge to borrow less money than you were planning to borrow. It would be like you or me “maxing out” only nine of our 10 credit cards, instead of all 10…and then calling it “austerity.”

The dreaded axe of sequestration that sliced through the national budget last Friday lopped off $85 billion of planned spending. But even assuming these cuts remain in effect, the nation’s debt would still increase by $845 billion this year (according to the CBO), or about four times faster than the economy is likely to grow.

For additional perspective, an $845 billion deficit would be the fifth largest of all time. The trillion-dollar deficits of 2009 through 2012 captured the top four slots in this budgetary Hall of Shame.

So the next time you hear a politician talk passionately about budget cuts or deficit reductions, remember that old phrase, “Figures don’t lie; liars figure.”

Eric Fry
for The Daily Reckoning

The post True?…or Not True? appeared first on Daily Reckoning.

A few months ago, the insightful and engaging financial market observer, James Grant, drew a comparison between “witchcraft, on the one hand, and modern central banking, on the other.”

Grant presented this novel comparison in an address to the “Investment Decisions and Behavioral Finance” meeting at the Harvard Kennedy School.

“I won’t spend much time defining terms,” Grant began. “Witches, as you know, cast spells, make storms and fly on goats or broomsticks to diabolical nighttime rendezvouses called sabbats. Modern central bankers override the price mechanism, conjure money from thin air and undertake to boost economic growth by raising up stock prices.”

In other words, both activities rely greatly on a kind of mysticism – beginning with the notion that combining bizarre ingredients in a cauldron can work magic…and ending with the notion that mere mortals can wield supernatural powers.

Ben Bernanke’s “eye of newt” is quantitative easing (QE). According to American folklore, Bernanke casts benevolent spells, simply by tossing just the right amount of QE into the economic cauldron at just the right time.

“One might almost call it witchcraft,” Grant concludes his address.

Between Grant’s opening remarks and his conclusion, he presents one very striking, and somewhat alarming, comparison between witchcraft and central banking. Both superstitions emerged and then flourished during a time of relative enlightenment. Educated and enlightened populations embraced both beliefs.

Quoting an essay entitled, “The European Witch Craze of the 16^th and 17^th Centuries,” by British historian, H.R. Trevor-Roper, Grant remarked, “The belief in witches was not, ‘Trevor-Roper writes, ‘a lingering ancient superstition, only waiting to dissolve. It was a new explosive force, constantly and fearfully expanding with the passage of time…

‘Creduality in high places increased, its engines of expression were made more terrible, more victims were sacrificed to it. The years 1550-1600 were worse than the years 1500-1550, and the years 1600-1650 were worse still…If those two centuries were an age of light, we have to admit that, in one respect at least, the Dark Age was more civilized.”

After contemplating Grant’s observations, a hard-money guy or gal, couldn’t help but think of the “Dark Ages” of the gold standard, in contrast to the Enlightened Age of central banking.

During the monetary Dark Ages, the gold-backed dollar fended for itself, without the benefit of central bank wizardry.

But the Age of Monetary Enlightenment changed all that. The Federal Reserve began casting its spells 100 years ago, and the U.S. dollar has been bewitched ever since. The greenback has lost 97% of its purchasing power since the Federal Reserve came into existence.

The Fed’s beguiling wizardry continues nonetheless. Ben Bernanke concocts his bubbling brews of QE #1 through QE-infinity, while other PhDs at the Fed publish illuminating manuscripts like the recently released, “Computing Dynamic Stochastic General Equilibrium Models with Recursive Preferences and Stochastic Volatility.” (Thanks, Jim Grant).

Given their impressive array of charms and potions, it should come as no surprise that the wizards at the Fed believe in their own magic; the surprise is that the investing public also believes in it…and remains spellbound by the Fed’s incantations.

Just yesterday, Chairman Bernanke repeated his familiar incantation, “More QE…More QE…Whatever may be…More QE.”

The Dow Jones Industrial Average promptly rallied more than 100 points. The masses were awed by his power.

“In the current economic environment, the benefits of asset purchases, and of policy accommodation more generally, are clear,” Bernanke told the Senate Housing and Urban Affairs Committee yesterday, referring to the $85 billion of Treasury and mortgage-backed securities the Fed buys under its current quantitative easing program.

“Monetary policy is providing important support to the recovery,” the Chairman-Wizard continues, “while keeping inflation close to the [Fed’s] 2% objective.”

Beguiling words, to be sure. But Bernanke’s spells may not be quite as potent as he would have us believe. The “important support to the economy” that QE provides is literally invisible.

The so-called recovery of the last four years has logged the slowest growth rate – by far – of any recovery since WWII, despite the fact that Bernanke has conducted more the $2 trillion of QE programs during that time frame.

Many are the data points that call into question the “success” of QE. For starters, U.S. GDP contracted in the final three months of 2012. Accordingly, unemployment remains stubbornly high and consumer spending stubbornly low.

Just last week, Wal-Mart’s VP of finance and logistics groaned in an internal email:

“In case you haven’t seen a sales report these days, February MTD (month-to-date) sales are a total disaster…The worst start to a month I have seen in my seven years with the company.”

The retail giant also reported that its sales are tracking very closely to what it calls the “paycheck cycle” – i.e., sales spike twice a month…on paydays.

“[This trend] speaks to a strapped consumer that lacks the confidence to spend unless they literally have cash in their pocket,” blogger, Jeff Macke, observes. “Living paycheck to paycheck isn’t something you typically see in the fourth year of an economic recovery.”

Nevertheless, very few investors exhibit any desire to consider the downside. Perhaps for good reason. Why fret over “Bubble, bubble, toil and trouble” when Chairman Bernanke provides continues helpings of “Bubble, Bubble?”

Despite Bernanke’s dubious power over the economy, the man sure knows how to conjure a stock market rally out of thin air. The Dow has soared about 250 points since he began addressing the Senate yesterday.

One might almost call it witchcraft.

The post Witches, Warlocks and Federal Reserve Chairmen appeared first on Daily Reckoning.

Broken clocks get a bad rap…at least they are right twice a day. Many are the objects, individuals and/or institutions who are lucky to be right once a day… or even once a year. Consider, for example, those poor souls who continuously predict rising interest rates. These “bond bears” have not been right once in the last 30 years.

The lesson is clear: Better to be a broken clock than a bond bear.

But even if bond bears are not right even once-a-three-decades, perhaps they will prove to be right once-a-generation… and perhaps that moment is now, or almost now.

So says James Grant, editor of Grant’s Interest Rate Observer. In a recent issue of his esteemed newsletter, Grant observed, “Today’s stunted interest rates, though not exactly unprecedented, are rare and remarkable. The world over, creditors are living on the equivalent of birdseed. Investors who once disdained sky-high yields today settle for crumbs…What are they thinking today?”

Grant answers his own question. Today’s bond buyers believe that “in an overleveraged economy, inflation is unachievable. So is growth, they have lately begun to insist. As for us, we hold a candle for both growth and inflation — and, in consequence, for our long anticipated, long overdue bond bear market.”

Grant hangs most of his prediction on fifth-grade arithmetic…or maybe advanced fourth grade: Debts are rising a lot. Revenues, not so much.

“Like a well fed teenager,” says Grant, “the national debt keeps growing and growing. On December 31, it bumped its head against the statutory ceiling that never seems to contain it. That would be $16.394 trillion, or the cash equivalent of 360.7 million pounds of $100 bills.”

Meanwhile, as the national debt continuously inflates by millions of pounds of hundred dollar bills, the national tax receipts struggle to keep pace.

“In the past 10 years to fiscal 2012,” Grant observes, “the compound annual growth in federal receipts worked out to 2.8%, that of federal outlays, 5.8%. In as much as the growth in receipts was much below the historical median (which, since 1967, had been 6.75% a year), one might — just for argument’s sake — say that the country had an income problem.”

Rapidly growing debt, coupled with slowly growing revenue, often creates a toxic environment for bonds. Bottom line: Grant is bearish on long-dated US Treasurys.

Eric Fry
for The Daily Reckoning

The post Bond Bears Should Envy Broken Clocks appeared first on Daily Reckoning.

As singer-songwriter, Aimee Mann, poetically observes, “The moth [will] beat his wings ’til he burns them black”

…and so will many individual investors.

The dazzling glow of a rallying stock market draws them to the flame of “easy” winnings. But just about the time the winnings become seductively easy, the scent of scorched wings fills the air. Share prices tumble and zillions of investor-moths scorch their savings.

This process repeats as predictably as…well…a moth to a flame…

The telltale signs of a too-hot market are only certain in retrospect. But that doesn’t mean you can’t feel the heat building up ahead of time. The classic signs of an overheated market include both technical and anecdotal phenomena. A technical sign of a topping market would be something like a multi-year low in the VIX Index of implied volatility…or low levels of cash in equity mutual funds. An anecdotal sign would be something like a cab driver telling you his favorite stocks…or a celebrity flaunting his/her stock-trading savvy.

As it happens, some of these signs are evident today, in the here and now. The VIX Index — also known as the “Fear Gauge” — just hit its lowest level since right before the market peak of 2007. Cash levels in mutual funds total little more than 3% of total assets — the lowest level ever recorded! The last two times cash levels dipped below the 4% mark (1999 and 2007), stocks tumbled shortly thereafter.

As troubling as these technical signs may be, they lack gravitas without corroborating anecdotal evidence. We all have our favorites, but almost no type of anecdotal evidence terrifies as viscerally and persuasively, as “the celebrity-turned-stock-expert.”

During the waning days of the epic tech-stock bubble of 1999, for example, Barbara Streisand made headlines as a self-proclaimed stock market wizard.

“Barbra Streisand was talking with her good friend Donna Karan on the phone last fall,” Fortune Magazine reported in June of 1999, “and she told Karan she’d made $130,000 on eBay stock in just one month. Karan was duly impressed. As Streisand tells it, ‘She said, “Oh, can you do that for me? I’ll give you a million dollars to invest for me.” And I said, “You’re crazy, why would you do that?” She said, “Well, it sounds like you’re making so much money, so do it for me.” So I said, “I’ll do it if you’re willing to lose it. Are you willing to lose a million dollars? That’s the only way I’m willing to do this.”’

“The result was stunning,” Fortune continued, “After five months of intense trading, Streisand managed to nearly double her friend’s stake, to $1.8 million.”

The stock market tumbled a few months later. As for Streisand’s post-bubble investment acumen, both she and the Internet are eerily silent. The stock-trading exploits of the legendary songbird have all but disappeared from the public record.

Not to worry, sixteen year-old actress, Rachel Fox, has become the celebrity stock-trader du jour! Fox — who was actually a year younger when she posted the video below — describes herself as “one of the only 15-year old stock-trading actresses around,” and reveals that she “makes a lot of money doing it.”

“I make over 64% per year on my investments,” says Fox in the fifth episode of her video series, “Fox on Stocks.” And if you wish to learn how to emulate her investing success, the teenage actress explains, just tune in to Fox on Stocks.

Lesson One (which you can find at minute 1:56 in the video clip below): “Break out your iPhone…” Intrigued? Then check out the entire video for yourself:

Your editor wishes the cheery Miss Fox continuing success, both on the big screen and on the small iPhone screen that’s running her stock market app. But while racking up 64% returns, your editor hopes Miss Fox will remember that stocks sometimes go down. Or, to rephrase that observation in 2013 bull market terms, stocks don’t always always go up. And they especially don’t always always go up when almost everyone has convinced themselves that they do.

Where are stocks going from here? Your editor has no idea. In fact, like a jilted spouse, he is often the last to know. That said, he has observed that stock market lows rarely coincide with multi-year-low VIX readings, all-time low cash levels in mutual funds and “how to” investment advice from Hollywood celebrities.

Eric Fry
for The Daily Reckoning

The post Lessons to Learn from Stock Trading Celebrities appeared first on Daily Reckoning.

Today’s installment of our series, Best of Daily Reckoning, 2012, is all about food — both about how to make money by selling it and about how to “make money” by giving it away.

Here at The Daily Reckoning, we think food is a pretty big deal…and as the Earth’s population explodes, we think it will become an even bigger deal — not just from a socio-economic standpoint, but also from an investment standpoint. In a pinch, the world can do without iPhones and Xboxes. Really, it can. But it can’t do very well without grains, vegetables and fruits.

Chris Mayer, editor of Capital and Crisis, has been a vigilant observer of the agriculture (and water) sector for several years. During the timespan, he has sourced a number of winning investment ideas. But he still thinks there’s plenty of money to be made, as he pointed out in an October 29, 2012 column entitled, “Feed the World, Make Money.”

Interestingly, the US government champions an entirely different way to “make money” by feeding people. The process begins by giving the food away. In a September 24, 2012 column entitled, “In Stamps We Trust: Paving the Road to Prosperity with Food Stamps,” yours truly examined the USDA Food and Nutrition Service’s assertion that, “SNAP [i.e. food stamps] is the only public benefit program which also serves as an economic stimulus.”

Yes, it’s true; this particular government agency agues that increasing the ranks of food-stamp recipients also increases economic activity.

“By generating business at local grocery stores,” the FNS asserts, “new SNAP benefits trigger labor and production demand, ultimately increasing household income and triggering additional spending…Every five percentage point increase in the national participation rate [in food stamp usage] would generate a total of $2.2 billion in economic activity.”

Hmmm…interesting. Too bad “activity” and “growth” are not synonyms.

Eric Fry
for The Daily Reckoning

The post The Curious Relationship of Food and Money appeared first on Daily Reckoning.

Happy New Year, Fellow Reckoners!

Another fascinating year is drawing to a close…and clearing the stage for the next 365 days. What will lucky number 2013 bring? A Reagan-esque “Morning Again in America,” perhaps? Or maybe the grisly, gnarled wreckage of an economy that plummets over a fiscal cliff? Or maybe something in between?

Your editors have no idea, of course. But we do have one confident prediction for the year ahead: the bull market in state-sponsored terrorism will continue — not the kind that straps explosives onto a fanatical teenager and sends him into a crowded Iraqi marketplace to detonate himself into the laps of celestial virgins; the kind that straps fear-mongering catchphrases onto self-serving politicians and sends them into the public eye to terrify Americans into begging for “more government.”

“Fiscal Cliff” is just such a catchphrase. It is terrifying…and to the extent that it incites fear — bordering on hysteria — it promotes a subconscious desire for “more government.” Without more government, according to the Fiscal Cliff fear-mongers, the economy will implode upon itself like a black hole.

Pretty scary stuff.

But here’s an alternative perspective — a kinder, gentler assessment of the dreaded Fiscal Cliff. It may not be a national disaster; it may simply be a good start, you know, just like that old lawyer joke:

What do you call 1,000 lawyers at the bottom of the ocean?

A good start.

The Fiscal Cliff does not guarantee a recession; it does not guarantee a crisis; it only guarantees one thing: smaller government. The Republican Party used to call that “success”…and so did Aristotle, Henry David Thoreau, H.L. Mencken, Murray Rothbard…and more recently, our own Chris Mayer and Joel Bowman.

Earlier this year, in two very memorable editions of The Daily Reckoning, Chris and Joel — each in his own way — highlighted the virtues of a government that becomes smaller.

“As for me,” Chris wrote last September, “I always liked Henry David Thoreau’s opening salvo in his essay ‘Civil Disobedience’:

I heartily accept the motto, — ‘That government is best which governs least.’

“I think he is right,” Chris continued. “H.L. Mencken had a similar view. I reach for my copy of A Mencken Chrestomathy — under the section ‘Government’ — and find this passage highlighted:

The ideal government of all reflective men, from Aristotle onward, is one which lets the individual alone — one which barely escapes being no government at all.

“While I have no love of government,” Chris concluded, “I do love America…I love several of its cultural attachments — such as barbeque and blue crabs, blues and jazz, poker, American sports like football and baseball and American beers — to name just a smattering… But in the land of politics, I am the standing opposition. Whoever is in power, I’m against him.”

A few months earlier, Joel Bowman took up a similar theme.

“Some people can’t just leave well enough alone,” Joel observed. “Whether or not that something is the right thing is, to their mind, beside the point. Just so long as it’s not nothing…That’s the real problem with Statism, Fellow Reckoner. All its various machinations are, in one way or another, inherently prescriptive. You try to mind your own business. You try to live a quiet and decent life…but there’s always someone telling you there’s a better way: Their way. Oh, and they’ll be needing your money and/or person to make it happen.”

So please enjoy today’s “Best of” edition of The Daily Reckoning, while waiting to pop champagne corks to the coming Fiscal Cliff!

Eric Fry
for The Daily Reckoning

The post A Good Start… appeared first on Daily Reckoning.

Eighteen years ago, Morgan Stanley’s Investment Strategist, Byron Wien, quipped, “Unless Europe engages in an extensive program of restructuring, in 20 years it will be a vast open-air museum.”

But Europe did not restructure herself. Instead, she clung tenaciously to her beloved Welfare State. As a result, the museum’s doors are now open…and what a delightful museum it is!

Every exhibit hall features fascinating artifacts of capitalism and/or real-time interactive displays of the “Welfare State in Motion” — i.e. in stasis. The “Paris Exhibition” gets our top vote: Plop yourself down at a café table, sip a $15 cappuccino and watch unionized employees pretend to work.

Be sure to put it on your bucket list.

As museums go, this one may be the most dynamic and expansive one on the planet. If current trends continue, a brand new “American Wing” will be opening soon. In fact, to judge from the graphic below, this museum may soon have docents strolling the streets of almost every major economy in the Developed World.

During the last decade, the six largest economies of the Developed World lost “market share,” while six of the seven largest economies in the Developing World gained market share. America’s share of world GDP, for example, plummeted from roughly 32% to 22%. By contrast, China and Brazil both doubled their shares of world GDP, and most other Emerging Economies posted similar results.

These data points show the world as it is; not as we might like it to be…and certainly not as Americans believe it to be. Yesterday’s superstar economies are fast-becoming today’s has-beens, while many of yesterday’s basket-case economies are fast-becoming today’s dynamic upstarts.

Despite this palpable reality, most Americans continue to invest as if past performance does, indeed, guarantee future results. They prefer the “known quantity” to the “unproven prospect.” Problem is; the “known quantity” doesn’t really exist. The “known quantity” may be known, but its future performance is a complete unknown…as the history of sport frequently reminds us.

In 2007, the final year of Roger Clemens’ legendary, 24-year baseball career, he signed a $28 million contract to wear Yankee pinstripes. He would go on to win six games (and also to lose 6 games) that season with an ERA of 4.18. That’s almost $5 million per win, or $5 million per loss, depending on your perspective.

That same year, the L.A. Galaxy soccer team paid $250 million to import soccer legend, David Beckham, for a five-year contract. During those five years, Beckham spent lots of time nursing injuries and very little time leading his team to victories. Sure, he delivered a few memorable moments on the pitch, but not $250 million worth.

Known quantities may be familiar, but that doesn’t qualify them as intelligent investments. Out in the global economy, for example, many of the preeminent known quantities are losing their edge to relatively unknown up-and-comers.

Half of global GDP is now produced by what we call the Emerging Markets. Looking farther out, the IMF expects the Emerging Markets to produce more than 60% of the world’s GDP growth over the next four years — or about five times the growth the G-7 countries will contribute.

The IMF has been known to make a mistake from time to time. But its forecast is probably close to the target in this case. So perhaps the time has come to cast aside our fears and to embrace the world as it actually is, not as we might like it to be.

Aging superstar athletes cannot rejuvenate themselves…and neither can aging Welfare States.

Eric Fry
for The Daily Reckoning

The post The Irreversible Plight of the Aging Welfare State appeared first on Daily Reckoning.