Into the Mire of Politics

Mumbai, India

If you don’t read the newspapers you run the risk of missing something. Of course, if you do read them, you run the risk of catching something.

Not much in the financial news worthy of comment this morning...

The Dow gained $13. Gold lost $13. Nothing much to say about it...

So we will comment on something beneath comment... something so low we have to dig down to find it... something so unworthy we hardly imagine we are mentioning it... something in the newspapers...

We’re talking, of course, about politics…

The love-fest with politics is heating up. The drugs have been passed around. Now, the clothes are coming off...

“France keeps steady course in economic upheaval,” says a headline at the International Herald Tribune. Steady course? You bet. It kept subsidising, bailing out, protecting, coddling and otherwise meddling in its economy – just like it did before the crisis began. Had it not done so, the story continues, France might not have been the first major economy out of the worldwide recession.

On the other hand, the French never went deeply into debt... So maybe they just didn’t have so much exposure to the worldwide debt crisis in the first place.

Never mind. The papers don’t know what the problem is, but they’re convinced that government interference is the solution.

Over at the Financial Times, Clive Crook is breathing hard too. He reckons that the “downturn called for a big stimulus”, and that the US stimulus effort headed off a worst recession.

He then explains that the feds’ stimulus really didn’t stimulate at all. It merely offset a decline in spending at the state level. State tax revenues fell; states spent less. State tax revenues declined $87 billion in the last 12 months – the biggest drop on record. The feds made up for it by spending big.

Meanwhile, the New York Times tells us that the whole downturn is now behind us. The economy is “surprisingly normal”, it says.

The US economy is some 11 million jobs short of full employment. Nothing very normal about that. But February saw an unexpected upturn in consumer credit, reports the Times. And unemployment seems to have bottomed out, adds the Wall Street Journal.

Surprisingly normal?

Well, there’s a big difference between something that looks surprisingly, reassuringly normal... and something that is actually working normally.

Which is it?

The New York Times is right; it is an economy that looks surprisingly normal...

Zombies can look surprisingly normal too. If you clean them up.

More news:

It seems that over on the Red Hot Penny Shares newsletter, investment expert Tom Bulford recently experienced an epiphany…

“Last month I had a revelation while travelling on a little boat across the Solent.

“I was there on the invitation of the CEO of one of my Red Hot portfolio companies. His boat was small and basic – a tin kettle the only visible luxury.

“But perched above the dashboard was something very special indeed. It was a small black box, with a colour screen. And on that screen I could not only see the location of most of the boats in the area, but also find out all about them – what they were called, where they were headed, how fast they were travelling and in what direction and plenty more.

“Before very much longer, this box will be perched on the dashboard of hundreds of thousands of licensed vessels around the world.

“I already knew that this company was one with a lot of potential. But standing there on the boat I could suddenly picture ports all over the world teeming with vessels that would need this little box.

“In less than five years, the device will go from being a curiosity on a tiny boat nipping across the Solent to having a global presence, sitting on the dashboard of every licensed boat from Great Yarmouth to Guangzhou and everywhere in-between.

“This is a truly massive opportunity, I thought. It’s exactly the type of story I look to bring subscribers of my Red Hot newsletter. This month I reveal three more penny share companies that I think have the same sort of potential as this one.”

If you want to find out more about Tom’s exciting tips for March, simply click here.

Lately Tom has also revealed one of his top techniques for picking the best shares out there in his ‘Intercept’ strategy report. For those of you who haven’t picked up on this, here’s what he has to say about it.

“Forget earnings reports, technical trends and economic data.

“The ONLY thing that always makes stocks go shooting up is a big news story.

“Click here to discover a simple way you could cash in on the City’s biggest news stories weeks – sometimes months – before they appear in any mainstream newspaper.”

Red Hot Penny Shares is a regulated product issued by Fleet Street Publications ltd. Forecasts are not a reliable indicator of future results. Commissions, fees and other charges can reduce returns from investments. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Penny shares can be relatively illiquid and hard to trade. There can be a large bid/offer spread so if you need to sell soon after you’ve bought, you might get less back than you paid. This can make them riskier than other investments. Please seek advice if necessary. 0207 633 3600.

And more thoughts...

*** As we’ve pointed out before, there are two parts to a political system. One part is shrewd, calculating and corrupt. The other is stupid, senseless, and earnest. The first is surprisingly predictable. The second is predictably surprising.

Like the two sides of the brain, people use politics both ways. On the right side, they use it to do something that is completely preposterous... and often completely at odds with their own interests.

Start a war, for example.

National pride. Sentiment. Anger. Humiliation. There’s no telling exactly what emotion will stir up the mob. And there’s no telling what mischief it will get up to when it’s been properly stirred and shaken.

India was the site of the biggest political demonstration of all time. What was it about? Killing cattle. The Hindu population was against it...

Meanwhile, from Nigeria comes news that the Christians and Muslims are killing each other. And in Europe, just a century ago, people tried to kill each other for four long years...

But the right side of politics is beyond our scope for this morning. We’re concerned with the left side... the rational... goal seeking... angle-playing side... where people use politics like a burglar uses a crowbar – to get something that isn’t theirs.

For example, a report in USA Today tells us that government employees have used politics to get more money. The paper that eight out of ten professions are better paid by the government than by the private sector.

Lobbyists use the government to get money for their employers. If we read the item in the Wall Street Journal correctly there were 10,000 “earmarks” in the latest budget bill.

What’s an ‘earmark’? It’s a special little provision that gives a contract – or other favour – to a specific company, industry, or locality.

A congressman might insert a little provision awarding a $100,000 contract, for example, to one of his constituent companies. Directly or indirectly, the company may have contributed $50,000 to the congressman’s re-election campaign... or may be ready to hire him if he is booted out of office... or may have hired his son or daughter.

The amount is so small that the rest of the Congress is not going to pay much attention to it. Besides, other members of Congress are doing the same thing. Ten thousand earmarks... that’s more than 20 apiece.

Giving out money to friends and supporters is not exactly what Congress was set up to do. A Congressional Ethics panel was organised to investigate. Its report just came in this week. What did it find? That there was no impropriety; it was just business as usual!

Even the Ethics Committee has been corrupted by the left side of politics – the rational side. Everybody is looking out for Number One. Even the Ethics Committee.

Very predictable. And no harm in that. Everyone does it.

But as the political system matures, it supports more and more people who are looking out for Numero Uno and don’t much care what happens to Numero Duo. And as the host weakens, the parasites become bolder.

Even the right side of politics is corrupted. Instead of going to war for purely absurd reasons, lobbyists for pentagon contractors urge the nation to war for practical ones... specifically, to add to their own profits... and generally to boost employment.

Eventually, between the left side and the right side, the nation runs out of juice. Or worse. When the politicians have squeezed all they can out of existing taxpayers they go to work on those who aren’t even born yet. The debt rises and rises... until it is too heavy to carry. Then, all hell breaks loose.

A few days ago, the Congressional Budget Office reported that the Obama administration’s deficit forecasts were a little on the low side – $1.2 trillion short over the next ten years.

How reliable are those CBO forecasts? Not very... The deficits are likely to be a lot higher than either the administration or the CBO now imagine.

Stay tuned...

*** The air is thick and pungent here in Mumbai, just as it always is. But the airport is sleek and new. And there seem to be more new cars than there were a year ago.

We’re staying at the Taj Mahal Hotel. We were scheduled to stay here the last time we came to Mumbai, but terrorists destroyed our room before we could check in.

Now, the only sign of the terrorist incident is the security you have to go through to get into the hotel.

First, our car was stopped and inspected – even though it is a car owned by the hotel itself. Then, we walked through a metal detector. Finally, our luggage also went through the metal detector before being sent up to our room.

The hotel management made up for the inconvenience by being exceptionally attentive. The manager, well dressed and well mannered, greeted us by name as soon as we got out of our car. It was the middle of the night; we were shown directly to our rooms with no delay.

Until next time,

Bill Bonner
For The Daily Reckoning

P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.

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