Wednesday, February 22, 2012

Final Conclusion of Almost a Years Worth of Study

Well, after almost a full year of studying and digging and opening my eyes to the truth around us in the world today I can summarize my newfound understanding in these few short sentences by President J. Reuben Clark, Jr.:
“First, and above and beyond everything else, let us live righteously. …
“Let us avoid debt as we would avoid a plague; where we are now in debt, let us get out of debt; if not today, then tomorrow. 
“Let us straitly and strictly live within our incomes, and save a little. 
“Let every head of every household see to it that he has on hand enough food and clothing, and, where possible, fuel also, for at least a year ahead. You of small means put your money in foodstuffs and wearing apparel, not in stocks and bonds; you of large means will think you know how to care for yourselves, but I may venture to suggest that you do not speculate. Let every head of every household aim to own his own home, free from mortgage. Let every man who has a garden spot, garden it; every man who owns a farm, farm it.” (President J. Reuben Clark, Jr., in Conference Report, Apr. 1937, p. 26.)
As quoted by President Benson multiple times, of which my personal favorite is "Prepare for the Days of Tribulation".

With all the energy of my soul I add my witness as to the wisdom and divinity of this inspired council. May we each take heed is my sincere prayer. In the name of our Lord and Savior, Jesus Christ, amen.

(Date updated to place this entry first.)

Saturday, February 18, 2012

S&A Digest from Feb 3, 2012


Here is a digest from Porter Stansberry at 
www.stansberryresearch.com. He is one of those who 'gets' what is going on. Basically a recap of some of the numbers describing the awfulness of our situation today. Enjoy...

A forecast-free Digest... A critical review... Why our deficits continue to soar... Raising taxes won't help... A punching bag replaces the mailbag...

 In today's Friday Digest... a review of what I think are the most critical facts in our country's looming currency crisis. Most people still don't understand the risks we face as a nation because of our feckless leaders and their reckless ignorance of basic economics.
What follows are facts. Nothing in this essay will be conjecture or opinion. I will make no forecast – at least not in this essay. So please, stop the political name-calling... and grow up. The problems we face are ours. All of ours. It doesn't matter how we got here. It only matters that we begin to deal with these issues – soon. If we don't begin to solve these core financial problems, they will certainly destroy our country.
 Today, our national federal debt far exceeds $15 trillion. This alone is not a serious problem. The interest we pay on these debts is small – thanks to the trust of our creditors, who, for the moment, continue to believe America is a safe bet.
So... what's the problem? The main problem is the amount of debt we owe continues to increase at a faster and faster paceThis is exceptionally dangerous for two simple reasons. First, there's simple math. When numbers compound, the result is geometric expansion. And that's happening right now with our national debt because we continue to borrow money to pay the interest. And we have done so for about 40 years. Think about it this way: How big would your debts be today if you'd been using credit cards to pay your mortgage for the last several decades?
 Even worse, our debts are compounding at an accelerating pace because we lack the political ability to limit the federal government's spending. Please understand... I'm not pointing the finger at any politician or either political party. I'm simply pointing out a fact: This year's $3.6 trillion federal budget is 20% larger than the entire 2008 budget. And while our government has grown at a record pace, our economy hasn't. It has hardly grown at all. Thus, this will be the fourth year in a row we set a record for deficit spending. Never before in peacetime has our government borrowed this much money. And now, it's borrowing record amounts every year.
 This combination of borrowing record amounts of money (during peacetime) and continuing to borrow the money we need to pay the interest is setting the stage for amassive increase in total federal debt levels. Why is this happening? Don't our leaders realize they can't continue on this path?
 Well... the problem isn't so simple to fix. What we face isn't a $15 trillion problem. It's actually much, much bigger...
 The $15.3 trillion we owe today is really only a minor down payment on promises the federal government made to its most important creditors – the American people. Not yet included in our debt totals are the $15 trillion shortfall in Social Security (thanks to the Democrats), the $20 trillion unfunded prescription drug benefit (thanks to the Republicans), or the $115 trillion unfunded Medicare liability (thanks to the Democrats and Republicans).
 Most people ignore these looming liabilities because they obviously will never be paid. In fact, the federal government's total obligations today – including all future obligations – is more than $1 million per taxpayer. And that's if you assume all 112 million taxpayers really count. (They don't. Only about 50 million people in the U.S. pay any substantial amount of federal income taxes.)
But here's the funny part... While everyone seems ready to ignore these obligations, we've already begun to pay them. Our spending on Medicare and Social Security already greatly exceeds the $800 billion in payroll taxes we're collecting to pay these benefits. (Total spending on Social Security and Medicare last year was more than $1.5 trillion.) And that means our actual debts will continue to compound faster and faster every year, assuming nothing is done to curtail these benefits.
 I want to make sure you understand this fact: It doesn't matter how much (or how little) Congress chooses to cut its discretionary budget. The promises we've already made to Americans in the form of Social Security and Medicare guarantee that our debts will continue to compound faster and faster, every year. How do I know?
 Once again... let's return to basic math. Right now, we're spending (at the federal level) $2.4 trillion per year on transfer payments and interest on our national debt. That doesn't include any of the other functions of the government – nothing else. Meanwhile, we are only collecting $2.3 trillion a year in income, payroll, and corporate taxes.
Let me make sure you understand this: Even if we cut every other government program – including the entire military budget  the federal revenue collected still wouldn't be enough to merely cover the costs of our direct transfer payments. Not even close. And every year, these payments will automatically grow.
 Here's another way to look at the same basic numbers, but on a macro scale. Right now, total government spending in the U.S. equals $7 trillion per year. (That's federal, state, and local.) Total interest paid in the U.S. economy on all debts, public and private, equals $3.7 trillion. The size of our total economy is only $15 trillion. Thus, we are currently spending $10 trillion (out of $15 trillion) on our government and debt. This is unprecedented in all of American history. This financial structure is unsustainable – and extremely unstable, given our debt levels.
 There's the bigger problem (yes, it gets worse). The political solution to our soaring deficits will most likely be higher taxes. Yes, technically that's a prediction... And I promised no predictions in this piece. But let's face it. You will never see the federal government make dramatic, meaningful cuts to its promised benefits – not when half the country pays no federal taxes and more than 40 million people are on food stamps. So it's not really a prediction – it's a political reality. Will higher taxes save us?
 No. You cannot squeeze blood from a stone. The federal debt isn't the largest obligation we suffer under. Americans hold nearly $1 trillion in credit card debt. We hold nearly $1 trillion in student loans. Total personal debt in America is larger ($15.9 trillion) than all of the federal debt. In total – adding up all of our debts, public and private – Americans owe close to $700,000 per family. It is not possible to finance our federal government's spending via taxes because the American people are broke. Total debt levels in America are the highest – by far – of any developed nation.
 Tax the rich, you say. Well, of course. But marginal rates in many places are already greater than 50%. Tax rates this high don't work… They actually reduce tax revenues as people move their economic activities elsewhere to avoid taxes… or even simply forgo working.
Don't forget, the very wealthy can simply leave. James Cameron – director of blockbuster movies Titanic and Avatar – recently did just that, buying a 2,500-acre farm in Canada. John Malone, chairman of Liberty Media, likewise told the Wall Street Journal that he bought a farm on the Canadian border specifically so that he could leave the country whenever he wanted. "We own 18 miles on the border, so we can cross. Anytime we want to, we can get away."
Think I'm exaggerating the risks of real capital flight from the U.S.? Well... let's look at the facts. According to the latest IRS report, the number of Americans renouncing their U.S. citizenship has increased ninefold since 2008.
 How then will the government's spending be financed? Well, I promised no predictions. Not today. But I will remind you that since 2008, the Federal Reserve has expanded the monetary base from roughly $800 billion to nearly $3 trillion. That, again, is a fact. Feel free to draw your own conclusions about what the Federal Reserve is likely to do in the future if the U.S. Treasury is faced with a financial need that can't be met.
 You may do whatever you'd like with today's Digest. Feel free to pass it around to your friends – or anyone else who may be interested in these ideas. Be prepared for lots of nonsense about making the rich pay their "fair share" and pie-in-the-sky projections about how the entitlement system could easily be reformed.
 New 52-week highs (as of 2/2/2012): Yamana (AUY) and Microsoft (MSFT).
 In the mailbag... more assaults on yours truly. Don't be shy. Let us know how you really feel. Take your best shot at feedback@stansberryresearch.com.
 "I was gratified to see there were two other subscribers whose letters you published who had the same confusion about EUO as I did, after reading your last letter stating 'There will not be a deflationary collapse in Europe. The euro will not collapse in the near term.' I don't think I or obviously many of your other readers would be considered dull-witted for not extrapolating that information to mean EUO is a sell...
"Furthermore, I, too, readily admit that I did not look at your portfolio list. Its not something that I follow closely, largely due to the fact that I am so used to constantly viewing your 'top ten' recommendations from all of your advisories in the Digest, which is fairly meaningless – basically a 'greatest hits' list of stocks you may have picked going back 4 or 5 years or more.
"So, the bottom line is I have to defend those subscribers who were put off by this apparent sudden news, and say that your sarcasm was way out of place. If you want to maintain a loyal reader base, you cannot 'assume' people are going to interpolate your statements or consider anything other than what is explicitly stated in the body of your newsletters...
"In my humble opinion if you want to be a RESPONSIBLE and thorough publisher, you must EXPLICITLY state what trades should be executed, and SELL ALERTS should be issued as almost all financial advisories do." – Paid-up subscriber M Kuskin
Porter comment: I'm reminded of Warren Buffett's comments about stock option accounting. He famously wrote in a 2002 New York Times editorial: "When a company gives something of value to its employees in return for their services, it is clearly a compensation expense. And if expenses don't belong in the earnings statement, where in the world do they belong?"
In our monthly newsletters, any recent change to the recommended portfolio is noted in the "Action" column of the portfolio page. (Sometimes it's labeled "Status.") This is done so recommended actions can be seen easily and quickly. And that's what I did in the case of our EUO position.
So... like Buffett... I ask: "If changes to the portfolio don't belong on the portfolio page, where should we put them?"
 "Your canned response is neither appropriate nor correct. I did NOT ask you or your firm for personal advice on financial matters. If you REALLY personally reviewed your e-mail, you'd see that and send a more applicable response for the $3,000 I paid for Clark's advice...
"If you send me another canned response, I'll have to conclude that you don't really personally read the e-mail and that your employees who do are not interested in asking Clark to revisit his predictions for his subscribers and so acknowledge to me.
"If such is the case, I will probably cancel my subscription to Clark's services and get my $3,000 back since I'm still in the trial period. So far, his firm recommendations on NGP and PAAS have lost me money, in addition to his less-than-firm suggestions to get into TZA and SDS.
"I can lose my own money for free, without your or his help. Was it just hype or does Clarke really have the outstanding track record you promoted? I have not seen it since I subscribed on Dec. 5. I hope you do not dismiss this so cavalierly as the previous one." – Paid-up subscriber Herb Hardin
Porter comment: I think we might both be better off parting as friends, Herb. But to clarify, I do read all of the feedback e-mails. I don't respond personally, as you noted, because doing so would take up all of my time. The automated e-mail we sent in reply merely explains this policy.
Likewise, Jeff Clark doesn't respond to individual subscriber requests for specific content, but he does routinely update his positions. He also changes his mind about the market's general direction about once every three hours. He's a trader, not a seer. And last year, his annualized return was close to 200%. Please see the Report Card Part II I published two weeks ago for more analysis of his track record.
Ah... and one more thing, Herb... would it kill you to be nice?
Regards,
Porter Stansberry
Miami Beach, Florida
February 3, 2012

Friday, February 17, 2012

1st Hand Account of Austria's Demise

Below is a first-hand account of how it it all went down in Austria. May we use it to motivate us to see what is going on around us here and now such that we can prepare for 'things which must shortly come to pass.' Oh, and actually there will be a place to go. Zion. Read on.

After America, There is No Place to Go

by Kitty Werthmann

     What I am about to tell you is something you've probably never heard or will ever read in history books. I believe that I am an eyewitness to history.
    I cannot tell you that Hitler took Austria by tanks and guns; it would distort history. We elected him by a landslide—98 percent of the vote. I've never read that in any American publications. Everyone thinks that Hitler just rolled in with his tanks and took Austria by force. In 1938, Austria was in a deep depression. Nearly one-third of our workforce was unemployed. We had 25 percent inflation and 25 percent bank loan interest rates.
    Farmers and business people were declaring bankruptcy daily. Young people were going from house to house begging for food—not that they didn't want to work—there simply weren't any jobs. My mother was a Christian and believed in helping people in need. Every day we cooked a big kettle of soup and baked bread to feed those poor, hungry people, about thirty daily. The Communist Party and the National Socialist Party were fighting each other. Blocks and blocks of cities like Vienna, Linz, and Graz were destroyed. The people became desperate and petitioned the government to let them decide what kind of government they wanted. We looked to our neighbor on the north, Germany, where Hitler had been in power since 1933. We had been told that they didn't have unemployment or crime, and they had a high standard of living. Nothing was ever said about persecution of any group—Jewish or otherwise. We were led to believe that everyone was happy. We wanted the same way of life in Austria. We were promised that a vote for Hitler would mean the end of unemployment and help for the family. Hitler also said that businesses would be assisted, and farmers would get their farms back. Ninety-eight percent of the population voted to annex Austria to Germany and have Hitler for our ruler.
    We were overjoyed, and for three days we danced in the streets and had candlelight parades. The new government opened up big field kitchens and everyone was fed. After the election, German officials were appointed, and like a miracle, we suddenly had law and order. Three or four weeks later, everyone was employed. The government made sure that a lot of work was created through the Public Work Service. Hitler decided we should have equal rights for women. Before this, it was a custom that married Austrian women did not work outside the home. An able-bodied husband would be looked down on if he couldn't support his family. Many women in the teaching profession were elated that they could retain the jobs they previously had been required to give up for marriage.
Hitler Targets Education—Eliminates Religious Instruction for Children
    Our education was nationalized. I attended a very good public school. The population was predominantly Catholic, so we had religion in our schools. The day we elected Hitler (March 13, 1938), I walked into my schoolroom to find the crucifix replaced by Hitler's picture hanging next to a Nazi flag. Our teacher, a very devout woman, stood up and told the class we wouldn't pray or have religion anymore. Instead, we sang “Deutschland, Deutschland, Uber Alles,” and had physical education. Sunday became National Youth Day with compulsory attendance. Parents were not pleased about the sudden change in curriculum. They were told that if they did not send us, they would receive a stiff letter of warning the first time. The second time they would be fined the equivalent of $300, and the third time they would be subject to jail. The first two hours consisted of political indoctrination. The rest of the day we had sports. As time went along, we loved it. Oh, we had so much fun and got our sports equipment free. We would go home and gleefully tell our parents about the wonderful time we had.
    My mother was very unhappy. When the next term started, she took me out of public school and put me in a convent. I told her she couldn't do that, and she told me that someday when I grew up, I would be grateful. There was a very good curriculum, but hardly any fun—no sports and no political indoctrination. I hated it at first but felt I could tolerate it. Every once in a while, on holidays, I went home. I would go back to my old friends and ask what was going on and what they were doing. Their loose lifestyle was very alarming to me. They lived without religion. By that time, unwed mothers were glorified for having a baby for Hitler. It seemed strange to me that our society changed so suddenly. As time went along, I realized what a great deed my mother did so that I wasn't exposed to that kind of humanistic philosophy.
Equal Rights Hits Home
    In 1939, the war started and a food bank was established. All food was rationed and could only be purchased using food stamps. At the same time, a full-employment law was passed, which meant if you didn't work, you didn't get a ration card, and if you didn't have a card, you starved to death. Women who stayed home to raise their families didn't have any marketable skills and often had to take jobs more suited for men.
    Soon after this, the draft was implemented. It was compulsory for young people, male and female, to give one year to the labor corps. During the day, the girls worked on the farms, and at night they returned to their barracks for military training just like the boys. They were trained to be anti-aircraft gunners and participated in the signal corps. After the labor corps, they were not discharged but were used in the frontlines. When I would go back to Austria to visit my family and friends, most of these women were emotional cripples because they just were not equipped to handle the horrors of combat. Three months before I turned 18, I was severely injured in an air raid attack. I nearly had a leg amputated, so I was spared having to go into the labor corps and into military service.
Hitler Restructured the Family Through Daycare
    When the mothers had to go out into the workforce, the government immediately established child care centers. You could take your children ages four weeks to school age and leave them there around-the-clock, seven days a week, under the total care of the government. The state raised a whole generation of children. There were no motherly women to take care of the children, just people highly trained in child psychology. By this time, no one talked about equal rights. We knew we had been had.
Health Care and Small Business Suffer Under Government Controls
Before Hitler, we had very good medical careMany American doctors trained at the University of Vienna. After Hitler, health care was socialized, free for everyone. Doctors were salaried by the government. The problem was, since it was free, the people were going to the doctors for everything. When the good doctor arrived at his office at 8 a.m., forty people were already waiting and, at the same time, the hospitals were full. If you needed elective surgery, you had to wait a year or two for your turn. There was no money for researchsince it was poured into socialized medicine. Research at the medical schools literally stoppedso the best doctors left Austria and emigrated to other countriesAs for health care, our tax rates went up to 80 percent of our incomeNewlyweds immediately received a $1,000 loan from the government to establish a household. We had big programs for families. All day care and education were free. High schools were taken over by the government and college tuition was subsidized. Everyone was entitled to free handouts, such as food stamps, clothing, and housing. We had another agency designed to monitor business. My brother-in-law owned a restaurant that had square tables. Government officials told him he had to replace them with round tables because people might bump themselves on the corners. Then they said he had to have additional bathroom facilities. It was just a small dairy business with a snack bar. He couldn't meet all the demands. Soon, he went out of business. If the government owned the large businesses and not many small ones existed, it could be in control. We had consumer protection. We were told how to shop and what to buy. Free enterprise was essentially abolished. We had a planning agency specially designed for farmers. The agents would go to the farms, count the livestock, then tell the farmers what to produce and how to produce it.
“Mercy Killing” Redefined
    In 1944, I was a student teacher in a small village in the Alps. The villagers were surrounded by mountain passes, which in the winter were closed off with snow, causing people to be isolated. So people intermarried and offspring were sometimes retarded. When I arrived, I was told there were fifteen mentally retarded adults, but they were all useful and did good manual work. I knew one, named Vincent, very well. He was a janitor of the school. One day I looked out the window and saw Vincent and others getting into a van. I asked my superior where they were going. She said to an institution where the State Health Department would teach them a trade and to read and write. The families were required to sign papers with a little clause that they could not visit for six months. They were told visits would interfere with the program and might cause homesickness. As time passed, letters started to dribble back saying these people died a natural, merciful death. The villagers were not fooled. We suspected what was happening. Those people left in excellent physical health and all died within six months. We called this euthanasia.
The Final Steps—Gun Laws                                                      
    Next came the gun registration. People were getting injured by guns. Hitler said that the real way to catch criminals (we still had a few) was by matching serial numbers on guns. Most citizens were law-abiding and dutifully marched to the police station to register their firearms. Not long afterward, the police said that it was best for everyone to turn in their guns. The authorities already knew who had them, so it was futile not to comply voluntarily. No more freedom of speech. Anyone who said something against the government was taken away. We knew many people who were arrested, not only Jews, but also priests and ministers who spoke up. Totalitarianism didn't come quickly—it took five years from 1938 until 1943 to realize full dictatorship in Austria. Had it happened overnight, my countrymen would have fought to the last breath. Instead, we had creeping gradualism. Now, our only weapons were broom handles. The whole idea sounds almost unbelievable that the state, little-by-little, eroded our freedom.
    After World War II, Russian troops occupied Austria. Women were raped, preteen to elderly. The press never wrote about this either. When the Soviets left in 1955, they took everything that they could, dismantling whole factories in the process. They sawed down whole orchards of fruit, and what they couldn't destroy, they burned. We called it The Burned Earth. Most of the population barricaded themselves in their houses. Women hid in their cellars for six weeks as the troops mobilized. Those who couldn't paid the price. There is a monument in Vienna today, dedicated to those women who were massacred by the Russians. This is an eyewitness account. It's true . . . those of us who sailed past the Statue of Liberty came to a country of unbelievable freedom and opportunity.
        America is the Greatest Country in the World. Our Freedom is now, Almost Gone.
        The Liberals are destroying every American Institution; they hate America to the core.
        After America is destroyed, There is No Place to Go

"When the people fear their government there is tyranny. When the government fears the people there is liberty."    ~Thomas Jefferson