Friday, September 13, 2013

The Performance Of All Assets Five Years After Lehman

This coming Sunday marks the five year anniversary of the Lehman Brothers bankruptcy. It's hard to believe how fast five years has passed.

The following chart shows the top performing assets in the world since that fateful moment. Silver has crushed all other assets with close to a 90% return. Gold comes in second. The biggest losses have come from the poor investors in the Greek stock market. Click for larger image:

Thursday, September 12, 2013

The New Early Retirement Program In America: Disability

The disability program in America has become the new welfare, only on steroids. The program is federally funded meaning state and local governments have an incentive to push people off of their welfare rolls toward the disability program (saving money on their budgets). Here is an incredible piece from the article Unfit For Work:

PCG is a private company that states pay to comb their welfare rolls and move as many people as possible onto disability. "What we're offering is to work to identify those folks who have the highest likelihood of meeting disability criteria," Pat Coakley, who runs PCG's Social Security Advocacy Management team, told me.

The company has an office in eastern Washington state that's basically a call center, full of headsetted women in cubicles who make calls all day long to potentially disabled Americans, trying to help them discover and document their disabilities:

"The high blood pressure, how long have you been taking medications for that?" one PCG employee asked over the phone the day I visited the company. "Can you think of anything else that's been bothering you and disabling you and preventing you from working?"

The PCG agents help the potentially disabled fill out the Social Security disability application over the phone. And by help, I mean the agents actually do the filling out.

There's a reason PCG goes to all this trouble. The company gets paid by the state every time it moves someone off of welfare and onto disability. In recent contract negotiations with Missouri, PCG asked for $2,300 per person. For Missouri, that's a deal -- every time someone goes on disability, it means Missouri no longer has to send them cash payments every month. For the nation as a whole, it means one more person added to the disability rolls.

The following shows the mushrooming size of federal government spending on disability, almost 3 times the size it was in 2000:

There are currently 14 million Americans collecting disability. The average monthly check is $1,130 per month. Those on the program also qualify for federal medical benefits which cost the tax payers an additional $100 billion annually. When combined with food stamps and low income housing programs, there is little incentive to even look for a job when an American gets access to these benefits. How do we know this?

Less than 1% of the people that entered the program at the beginning of 2011 have gone back to work. They have retired.

Is there an incentive for fraud in the program? You betcha. 33.8% of all disability cases, over 1/3, are for back pain which is almost impossible for a doctor to determine actually exists. The second highest (19.2% of all cases) is for mental illness, which is almost as difficult to determine.

This is how our current depression is different from the early 1930's. Government transfer payment programs have replaced the pictures of bread lines.

Instead of bread, they receive an EBT card in the mail which allows them to go shopping at Walmart.

MISH at the Global Economic Trend Analysis ran a calculation of how those on disability who are unemployed and not looking for work impact the unemployment rate. Assuming that only 25% of these cases are fraud (it is much more likely to be over 50%), bringing those Americans back onto the workforce would put the unemployment rate at 12.77%. At 50% fraud it brings the unemployment rate to 14.58%.

This is the new American recovery.

h/t: Cato Institute, NPR, MISH

Wednesday, September 11, 2013

China's Century: Meeting Panic Sell Offs With Buy Orders

I believe that specific emerging market currencies, bonds, and stocks are going to be the best performing assets over the next 10 to 20 years (and specific commodities will be some of the best performers over the remainder of this decade), however, in the short term there are always major set backs in markets, which (if you are bullish on the long term fundamentals of an asset class) should be happily welcomed as buying opportunities.

I believe that China will own this century in terms of economic growth, just as the U.K. did in the 1800's and the U.S. did in the 1900's. That does not mean it will be a straight and steady climb in their markets and their economy each and every month. The U.S. experienced the panic of 1907, a major recession in 1921, the great depression in during the 1930's (and so on and so on) before becoming the greatest economy in world history during 1950's and 1960's. Every major sell off during the last century provided a long term buying opportunity for those that understood the bigger picture

Today we have tremendous fear around the world that China's economy will implode, something I disagree with. What is guaranteed is that there will be huge set backs in their financial markets, which could be caused by events such as a shadow banking freeze described in the video below. Longer term investors should look at a panic sell off in China's markets as a welcome opportunity to add to positions in great businesses.

Marc Faber: Bullish On Foreign Equities & U.S. Treasuries

In most televised interviews the best guests do not get an opportunity to communicate their points because they are cut off by another guest or the network's anchor. For this reason I spend almost no time these days watching network news, and I spend more time listening to audio interviews from sites such as The Financial Sense Newshour (their weekend show is free and their weekday interviews are $10 a month - well worth the money) and King World News (all free). Guests are allowed a longer forum and the opportunity to speak.

The difference is similar to reading an article from The Wall Street Journal vs. reading a newsletter or book where the author takes the time and energy to really delve into a topic.

The following interview with Marc Faber is great because he is allowed to take some time and make his points, where he describes his current bearishness toward the U.S. equity markets, bullishness toward foreign equities, and short term bullishness toward U.S. bonds. Faber has a very long track record of prescient and contrarian calls which is why his views are always a must listen.

Godfrey Bloom On The Rolling Bubbles

Godfrey Bloom, member of the UK independence party, provides two minutes of honesty for the European Parliament.

For an excellent and easy to understand summary of the current state of the financial world, I would recommend taking the time to listening to the following interview with Bill Fleckenstein.

Tuesday, September 10, 2013

The Cost Of Living Will Push Some Americans Away From Coastal Cities

We have previously discussed Meredith Whitney's book Fate Of The States and how she feels that the economic growth in the country will begin to shift inward, away from the coasts, as the pension and debt burdens of local and state governments begin to overwhelm coastal cities.

In addition to higher future taxes, lower quality of schools, and a lower quality of future infrastructure, one must also factor in the general cost of living into their decision on where they would like to set their roots down. The following infographic provides the stark difference between living in a city like New York and living in a state like Texas.

Cost-Of-Living: Manhattan vs. The Least Expensive City In The US, Harlingen, TX
by lisamahapatra.
Explore more infographics like this one on the web's largest information design community - Visually.