Dear Reader,
As I write to you this morning, it is hunched over with a complaining back, the direct outcome of playing a rushed nine holes of golf yesterday after a week without exercising.
Some years ago my back pained me with some regularity, ceasing to do so only after a competent doctor pointed out the truth that “as goes the stomach muscles, so goes the back.” Since then I’ve put in some extra effort to maintain a steady course of exercise and have had almost no back problems.
Driving home from the golf course, my back in the early stages of rigor, I was reminded of that truism by the sight of a man and a woman walking down the street. To be more specific, and with my apologies if I come across as uncharitable, what they were actually doing was waddling. Which is pretty much the only way to transport yourself by foot when your weight tops 300 pounds, as theirs did.
Observing their struggle to maintain forward momentum subsequently brought to mind the large number of large people I encountered on my recent trip. Doug has often commented that people in the Third World tend to be more fit thanks to diets curbed by local economics, and because they get more exercise since they can’t afford cars and so must walk everywhere. That has changed to some degree, at least in Croatia, where a lot of obese people were in evidence. And it’s not just in Croatia, but in all of the airports we passed through, and most noticeably at JFK airport here in the USA.
As the mind is wont, these thoughts led to others – most having to do with the question of why so many people let themselves go. While I am, per above, referring to the physical manifestation of this phenomenon – the oversized guts, flaccid jowls, and florid faces that attend the condition – there is clearly a mental aspect to this as well. Do you mentally give up on your fitness first or as a consequence of watching your physical self eroded by the waves of days?
It is logical that, as children, our small stomachs, taut skin, and energy expended in constant play counteracts the effects of the food we eat. Similarly, as young adults, it is our various sports, vanity, and general vigor that keeps most of us in passable shape. But then, past a certain point -- a point attributable in equal parts to genetics and self-care -- the seams of our bodies begin to loosen and fray.
It is at this point, often in our 40s, that so many fail to recognize the facts of the matter and, out of habit, continue to have that extra helping at meal time or that extra can of beer on the golf course. To make matters worse, we simultaneously fail to escalate our physical activities to compensate for nature’s ravages. Thus, as our stomachs stretch and our muscles turn to flab, we slip effortlessly onto the downward slope of “letting go.”
It is around this time, I suppose, that we look into the mirror and see ourselves for what we have become and realize that our youth, if not lost entirely, is now so far out of reach that only a near fanatical dedication to the effort will return us to what might be termed a fit state. At this point, most people, their lives stuffed to the gills with other demands – work, family, life – learn to rationalize the hanging gut and the flabby thighs as inevitable. But secretly, we know that there are others the same age and from the same general background who are as fit as fiddles and could dash off a marathon in just slightly over the amount of time it takes us to work our way through the buffet down at the local Lions Club.
Is there anything an ordinary person can do? Logically, it seems that there needs to be an effort made to increase awareness of what, on reflection, is fairly obvious – that with each passing year we need to eat less, not more. And we need to exercise more, not less. It strikes me that this is the sort of thing that should be taught young, along with the need to floss one’s teeth at least three times a week to avoid having bad breath.
Now, you may be asking yourself what this has to do with investing. The answer is, absolutely nothing. Though one could, if pushed to a stretch, mention that lazy habits are just as likely to arise in one’s investment protocols as they are in one’s physical regime.
I do think, however, that there is an apt lesson here for the body politic. Many people like to parrot Churchill’s old saw "Democracy is the worst form of government, except for all those others that have been tried."
They tend to then overlook another of his quotes on the topic, "The best argument against democracy is a five-minute conversation with the average voter."
The not-so-simple fact is that the advanced democracies have become, over the years, obese, middle-aged gluttons: slow moving, unhealthy, and largely ineffective at anything other than consuming.
And what they are consuming is the wealth of their populations.
Unlike the relatively straightforward course of action prescribed for an individual faced with a swaying mid-section and a loss of breath after climbing even a short flight of stairs – a redoubling of one’s efforts at healthful (and modest) eating and exercise – it‘s not so easy to bring a democratic system back into vigor. I suspect it can’t be done without first going through the equivalent of a heart attack – a crisis that lays the government low and brings the public to its feet, ultimately flushing the entrenched leadership from the halls of power like rats in a flooding sewer system.
Too radical? Actually I don’t think so. Glancing at modern history reveals dozens of examples of citizenry muscularly saying “Enough!” and backing the words up with actions. Could the recent public outbreaks of incivility directed at politicians during what were meant to be carefully stage-managed “town hall” meetings on health care here in the U.S. be the beginning of something more?
Probably not, but the lessons of history clearly tell us not to rule it out entirely.
Just some random thoughts, which, if nothing else, will help me further internalize the need to head down to the gym and to load the plate lightly at mealtime.
A postscript to these impromptu musings:
Each time I mention in a conversation that I am less than enamored with the entire concept of democracy, I invariably get a question along the lines of, “Okay, smart guy, then what’s the alternative?” My answer is equally invariable, “A republic, if you can keep it.”
Bevin Chu, writing on the always excellent LewRockwell.com, addresses just that topic in his article “Democracy, the Worst Form of Government Ever Tried.” While I might disagree with his contention that it is the “worst” -- surely, life in Stalin’s national gulag would better deserve that dubious honorific -- the article provides an excellent background on democracies’ failings.
Read it here: http://www.lewrockwell.com/orig5/chu6.html
Since we’re on the topic, I came across an article in the latest Science Digest that underscores the benefits of reduced diet on health and longevity. Here’s the citation.
A 20-year study finds that rhesus monkeys fed a nutritious but low-calorie diet have fewer age-related diseases than counterparts on a normal diet, researchers report July 10 in Science. Also, MRIs reveal less shrinkage with age in areas important for decision-making and controlling movement in the brains of calorie-restricted animals, report Ricki Colman and Richard Weindruch of the Wisconsin National Primate Research Center at the University of Wisconsin-Madison and colleagues.
The findings may have ramifications for fighting aging and disease in humans, says Luigi Fontana of Washington University in St. Louis and the Italian National Health Service in Rome. "I'm confident that everything that happens in [nonhuman] primates will happen in humans," he says.
Calorie restriction has already been shown to extend lifespan in fruit flies, yeast, worms, mice and dogs.
The primate study began in 1989 with 30 adult male monkeys. In 1994, 30 female and 16 more male monkeys were added. Over the course of the study, monkeys on the full-calorie diet were three times more likely to die from an age-related disease than monkeys that ate 30 percent fewer calories, the researchers found.
Since the study began, 21 of 38 control monkeys and 14 of 38 calorie-restricted monkeys have died. Of the control monkeys, 14 died of age-related causes, such as cancer, heart disease or diabetes. In the calorie-restricted group, only five died from aging-associated diseases, and none have developed symptoms of diabetes.
"We were frankly blown away by these findings," Weindruch says.
The maximal lifespan of rhesus monkeys is about 40 years, so researchers won't know for another decade or two if -- or for how long -- calorie restriction can prolong life in primates.
So, there’s that.
For some time now, we have taken considerable interest in the Treasury’s extraordinary financings because, in the same way that stomach muscles are connected to the back, so are the government’s efforts to fund its rocket-shot deficits connected to the fate of the dollar.
Bud Conrad, the chief economist here at Casey Research, provides some additional context to the topic.
The Fed and the Treasury are starting a new phase of their relationship predicated on the Treasury needing to borrow too much money – with huge auctions almost every week now – and the Federal Reserve’s increasingly important role as a buyer of some percentage of that debt.
We know that the Federal Reserve has inaugurated a policy of aggressively buying Treasury bills, agency debt, and mortgage-backed securities as part of what is often described as Quantitative Easing. The numbers are hard to absorb: $300 billion of Treasuries, $200 billion of agency debt, and $1.2 trillion of mortgage-backed securities, all between March and September.
The Fed doesn’t tell us whom they buy their Treasuries from, but it seems likely to be the same big banks that serve as primary dealers buying the debt from the government. The primary dealers appear to be holding a slice of this paper for only a short term before selling it on to the Federal Reserve. The net of those transactions becomes a further monetization of the federal debt.
The Fed is also buying even more mortgage-related debt. With the government now guaranteeing mortgage-backed securities, those securities are not that much more risky than actual government debt. This gives the Fed further rationale for having purchased almost $600 billion of mortgage-backed securities since March.
Which brings us to a likely connection to the speed of the stock market rebound since March 2009, a rebound that has surprised many of us. At the March bottom, I was interviewed on television, but at the time failed to see any good reason for the big jump that subsequently followed. Looking through the evidence today, we can see that the Federal Reserve has purchased close to $250 billion in Treasuries, and that may have provided the liquidity needed for the big banks to turn around and dump new cash into stocks. Goldman Sachs, to provide one example, made upwards of $100 million per day on many days through its trading activities last quarter.
In the chart here, I compare the surprising stock market rally to the Fed’s purchases of Treasuries. While it could be coincidence, you will notice the clear correlation.
There are many other moving parts in this complex world, so this may not be a direct manipulation of the market, but I have suspicions that our stock market is far more manipulated than most people realize. As a cautionary note, many of the emergency programs of making direct loans to financial institutions are being wound down by the Federal Reserve at the same time it is focusing on direct purchases in these specific markets. Those countervailing actions have kept the total balance sheet of the Federal Reserve relatively stable since it doubled in the second half of 2008, but that could quickly change if the Fed wanted to launch new programs.
So, a key point to watch in today’s FOMC meeting is whether they indicate if they will be continuing the Quantitative Easing programs beyond the current September 30 expiration date. Many think the Fed is ready to stop, and they may not make an announcement this early, but it is probably more important to watch for this decision than their other pronouncements.
This is just a glimpse at the evolving relationship between the Fed and the Treasury. Many of their actions occur out of sight. For example, in the current edition of The Casey Report, I describe how the Federal Reserve’s $500 billion swaps with foreign central banks in the latter part of 2008 probably provided those central banks the liquidity to help absorb our government Treasury issues.
David has often said that the government is ready and willing to do “whatever it takes,” no matter how extreme, to try and reinflate the deflating bubble. I can see no reason to argue with that contention.
An interesting news item from Canada’s Globe and Mail today, especially if you are a subscriber to our International Speculator service – whose focus is on the best-of-the-best small-cap resource companies.
In an article titled China makes unexpected grab for Canadian miner, the Globe and Mail reports that China’s state-controlled Jilin Jien Nickel was making an unusual hostile takeover bid for Canadian Royalties. An excerpt…
China's insatiable hunger for natural resources has officially turned hostile. State-controlled Jilin Jien Nickel Industry Co. Ltd. launched a surprise $148.5-million unsolicited takeover bid for Canadian Royalties Inc. yesterday, marking one of the first times the Asian economic superpower has gone after foreign resource assets without first winning a friendly agreement with management.
While most U.S. investors are unacquainted with Canadian markets, many of you already know that the majority of natural resource company listings are done on Canadian exchanges. That is because Canada’s economy is heavily skewed toward natural resource production and development. It is, therefore, entirely logical that the Chinese will increasingly make Canadian equities markets their stalking grounds in their burning quest for resource self-sufficiency.
There are other reasons as well, namely that the Canadian dollar should do well as the dollar falls, and because Canadian assets are viewed as safer than those located in the U.S., where a combination of environmental extremism and an increasingly erratic government raise the risk of actual or de facto confiscation.
You can read the Globe and Mail article here. www.theglobeandmail.com/report-on-business
/industry-news/energy-and-resources/china-makes-unexpected-grab-for-canadian-miner/
article1247540/
But if you want the real inside scoop on Canada’s robust resource markets and how you can participate, take a minute to read the International Speculator report on Toronto’s Secret Gold Investment. Click here.
(Important: As of August 31, the subscription fee for the International Speculator will quadruple. Act before that date and your subscription will be grandfathered at the current lower price as long as your subscription is active. Opportunity knocks… don’t miss it. Learn more now.)
And that, dear readers, is that for today. As always, I greatly appreciate you spending some of your valuable time with me today, and for being a subscriber to a Casey Research service. As I sign off, I see that the stock market is once again rallying, thanks to “less bad” earnings out of Toll Brothers, a home builder in a market where no one wants to build a home, and from Macy’s, a white elephant that is increasingly becoming a big basement bargain.
Go figure.
See you at the gym!
David Galland
Managing Director
Casey Research