How do you like those pols?
The shackles of sequester were starting to chafe their ankles. So, what did they do? They got out the files and the bolt cutters!
Yes, dear reader, we can stop worrying. Congress has no intention of cutting funding for America’s zombies. The Federal Reserve, Congress’s creation, has no intention of tapering QE. And the really big crisis that was on the horizon in 2008 has no intention of going away.
Yes, hold onto your gold. You’re going to need it.
The problem is too much spending and too much debt. Washington has made promises to the voters it can’t keep.
It if honors its commitments, spending will outstrip tax receipts from here to kingdom come. Or until lenders come to their senses. Whichever comes first.
Then there will be only one source of funding left: the Fed. In 2013, the Fed almost bought enough Treasury bonds ($540 billion worth) to fund the entire US fiscal deficit for the year ($560.5 billion).
If the Fed keeps buying bonds at the present rate, by about 2080, the size of its balance sheet would match the total current value of US assets – about $70 trillion.
In short, the feds are on a crash course with reality. They can’t spend more than they take in forever. And Janet Yellen et al can’t help fund the deficit with printing-press money forever, either.
Forever is still a long way off. But eventually, someone, somewhere, sometime, somehow will have to come to grips with it.
There are two ways to do so: voluntarily or involuntarily. The Fed took a baby step toward a voluntary solution when, in December, it began to cut back on its bond-buying program by $10 billion a month.
You already know our opinion: The “taper” won’t continue.
A Bipartisan Victory?
Congress took a small step in the right direction, too, when it voted to stop spending so much money by automatically “sequestering” part of its outlays.
But last week, the pols got together and made a $1.1 trillion deal that effectively undoes the sequester provisions.
Veronique de Rugy, a senior researcher at the Mercatus Center of George Mason University reports:
Celebrated as a bipartisan victory, the omnibus bill Congress approved Thursday is yet another example of lawmakers’ propensity for overspending. The massive $1.1 trillion spending package funnels more money than it should to defense and other domestic projects. Following the outline set by the Ryan-Murray plan, the bill spends above the levels set by the 2011 sequester and wastes loads of money on special interests.
[T]he big winners of this bipartisan spending orgy are the Pentagon and the military-industrial complex. Thanks to Congress’s willingness to renege on its commitment to cut spending through sequestration, the Department of Defense won’t be subjected to the cuts that had been planned for the next two years.
A document prepared by the staff of Sen. Tom Coburn, [R-Okla.], shows the omnibus bill is also stuffed with funding for weapons not even requested by the Pentagon, including $90 million for Abrams tank upgrades to maintain “critical industrial base capability,” $1.2 billion to the Navy’s request to fully fund a second Virginia-class submarine in fiscal year 2014 (the Navy had requested partial funding), and eight additional MQ-9 Reaper UAVs on top of the 12 the Air Force requested.
The Coburn document also shows that the omnibus funds research not requested by the Pentagon, including $6 million for human, social and culture behavior modeling, $46.7 million for weapons technology, and $70 million for common kill vehicle technology.
But it gets worse, since the military not only scores more spending through its regular budget, but as a bonus it gets a raise through its Overseas Contingency Operations budget (the OCO or “war” budget). Indeed, although troop levels have gone down from 60,000 to 30,000 over the past year, the omnibus bill provides more spending for the war effort — $85.2 billion. That’s an almost $5 billion hike over what the spendthrift Pentagon asked for…
The zombies at the Pentagon aren’t the only winners. Again from de Rugy:
The bill, for instance, includes $4 million for alcohol and substance abuse research, $12 million for Alzheimer’s research, $120 million for breast cancer research, $10.5 million for lung cancer research, $20 million for ovarian cancer research, $80 million for prostate cancer research, and more — all of which are nondefense activities and overlap research performed by the National Institute of Health.
Thank you, Congress. You’ve reaffirmed our faith in cronyism.
Regards,
Bill
Market Insight:
Is Last Year’s Trash This Year’s Treasure?
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
Gold miners had a horrible year in 2013.
The sector fell by more than 50% versus a 30% gain for the S&P 500. It’s not often you see such an extreme divergence between one sector and the overall market.
But gold miners have been taking off in 2014. The sector is up about 4.5% in the past week.
As you can see from this monthly chart of the Market Vectors Gold Miners ETF (NYSE:GDX), which tracks the performance of the NYSE Arca Gold Miners Index, the gold-mining sector appears to be bottoming exactly where it bottomed in 2008.
It looks as though the capitulation phase of the bear run in gold miners is over… and that value-minded investors are starting to nibble at gold miners again.
This sector could see a massive upsurge in 2014. Many individual gold-mining stocks trade on single-digit P/Es and with book values of less than 1.
Could last year’s trash become this year’s treasure?
We wouldn’t be surprised if this turns out to be the case for gold miners in 2014.
