A Government Smoke Screen

A rampant Hollywood theme could signal a coming war on wealth … America’s deindustrialization is becoming is real problem … NSA spying hasn’t ended…

The coming wealth wars … If you take a look at the science-fiction flicks inundating Hollywood right now, you’re not left with an uplifting picture of mankind’s future — think about the Mad Max, Planet of the Apes and Terminator resurrections, and newer films, like The Purge: Anarchy, The Hunger Games series and Elysium.

Each one depicts a world in which something is incredibly wrong — be it because the world has been plunged into complete chaos, or because government has become so totalitarian as to make it resemble a supervillain from a comic book.

To me, it says something poignant about society’s outlook: We just don’t have a whole lot of optimism about our future.

But for the moment, I’ll leave that alone. Perhaps humanity’s pessimism is nothing new; dystopian literature and films have been around for a while. What’s much more unsettling, though, is the narrative these newer dystopian films are telling with increasing frequency — which is if you have any amount of affluence, you’re inherently corrupt. As Jeff pointed out to me: This is a clear attack on wealth.

He had some other interesting thoughts about The Hunger Games’ message in particular, so I’ll let him take it from here:

Hollywood has a unique way of capturing the zeitgeist of the moment and returning it to us as entertainment — and often with an underlying message, if you’re paying attention.

To wit, I bring you The Hunger Games: Mockingjay, Part 2, the final in what has become a uniquely Hollywood numbering system — the four-part trilogy. I went to see it recently. If you are unfamiliar with this series, no worries; it was written for a teen audience, with teenaged heroes and heroines taking on the old folks who run the place. So on at least one level, it’s a generational war movie. On a more obvious level, it’s the story of a post-apocalyptic, post-civil war country (let’s call it America), where the districts (the remaining, habitable states) are suppressed under the tyrannical rule of The Capitol (no comment) — a freedom vs. oppression theme that would make it seem so very American.

But I saw a different theme emerging — the unmistakable attack on wealth, a very un-American theme that Hollywood often excels at when trying to make a larger point about Hollywood’s view of society.

The districts are largely poor — filled with factory workers, stonecutters, coal miners and the like, who are universally disheveled and living under the thumb of abusive, faceless peacekeepers dressed in pure white, save for their black-masked battle helmets. The Capitol, meanwhile, is a glitzy utopia, a futuristic skyline set against pristine, snowcapped mountains, and populated by a fashionable, well-to-do citizenry. Hunger Games heroes are poor; Hunger Games villains are wealthy. It’s the 99% vs. 1% theme that has captured the attention of idealistic youth and an American middle class that is backsliding these days, and which blames Wall Street and bankers for their plight.

In today’s America, business and wealth are villains. They’re demonized the same way the postwar generation demonized the red plague of communism.

In that way, The Hunger Games reflects one of the more troubling statistics to come out of America in recent years: A YouGov survey I came across the day after I saw Mockingjay, Part 2 reveals that 55% of Americans polled are down on capitalism and nearly half believe the government, not business, does a better job of lifting people out of poverty. Another YouGov poll reports that 36% of the millennial generation (those under 35) view socialism favorably — and that’s just three percentage points less than the millennials who view capitalism favorably.

To be clear, these are our leaders of tomorrow.

And in the context of “tomorrow,” there’s an even scarier statistic: 43% of millennial Democrats favor socialism over capitalism … and, worse, when you examine the breakdown of America’s voter base, the groups that lean Democratic will control the country in coming years.

So maybe The Hunger Games is more than just social commentary on today’s us vs. them mentality. Maybe it’s hinting at the future of wealth and government-imposed equality…

In some cases, that future is already here. To read our research on the latest income-redistribution scheme, click here.

Now let’s take a moment to turn to the Fed. Since we’re fast approaching the last Fed meeting of the year, I asked Jeff if he had any updates on the coming rate hike.

As you know, Jeff doesn’t see a rate hike happening until 2016 because there are far too many reasons for the Fed to keep rates down right now. Simply put, Yellen and Co. just don’t want to risk kicking over the economic dominoes that would send the U.S. into a downward spiral.

He hasn’t changed that stance, and more Fed governors have been voicing similar thoughts in recent months. In fact, just last Tuesday, Federal Reserve Governor Lael Brainard cautioned the U.S. central bank against raising rates.

In her speech, she echoed what Jeff has written before: Basically that our shaky economy warrants a low rate as the “new normal.”

Brainard also mentioned that the Fed should consider economic forecasts prior to the crisis, such as Blue Chip Forecasts and the Taylor Rule, when charting its neutral interest-rate destination — the rate at which the Fed’s interest-rate policy neither stimulates nor depresses economic growth beyond its natural pace. Those past forecasts predicted a rate around 2.2% — which is right in line with Jeff’s forecast in this year’s October Sovereign Investor, when he also used the Taylor Rule to predict a neutral rate between 2.25% and 3.25%.

That’s certainly lower than traditional neutral rates in the 5% range — and it underscores why we often suggest getting into high-dividend paying stocks. We’re going to be stuck with low rates for some time.

But let’s back up a moment and revisit the Fed’s December meeting. When Jeff gave me his newest update, he went into more detail about one of the Fed’s rate-hike obstacles — the deindustrialization of America — and I think you’ll find it a compelling read.

So here’s what he told me:

Well, here we are, just a couple weeks shy of the Federal Reserve’s December meeting. If you believe the action in the bond market, the majority of traders believe the first rate hike in a decade is on the way.

As I’ve been doing since May 2012, I’m once again bucking the “wisdom of the crowd” theory, as well as the wrongheaded notion that markets are efficient, and predicting that the Fed does not raise rates.

The jobs market, despite supposed strength, is producing largely low-wage, low-skill McJobs that do not a middle class make. The economy sputters still. Consumer spending and consumer sentiment have retreated. And four-plus years of a strong U.S. dollar is a leading reason why corporate profits in America are in a recession now — they fell in the third quarter by the largest amount since the global financial crisis.

It’s that strong buck that creates yet another obstacle for the Fed: increased deindustrialization in America.

Companies such as John Deere, Caterpillar, industrial-fastener maker Fastenal and others are seeing profits drain away because their goods are too expensive overseas … while products made by overseas competitors are more competitive here at home. The American companies have two primary recourses:

    1. Cut prices in America to maintain market share. Of course, public companies must also maintain profit margins in order to keep their stock price aloft and shareholders happy … and that means cutting jobs or even closing less efficient plants. If enough companies choose this path, it’ll undermine the Fed’s mandate of full employment, putting the arbiters of the economy back into a box as they struggle with what to do next to spur economic growth that would lead to a hiring binge in America.
    2. Relocate production overseas. When meaningful customers such as Brazil and the European Union can no longer afford your product because it’s too expensive, the only option is to start making your product in the local market, with a local cost basis, so that your goods are once again competitive. Yet that puts the Fed in a position where its actions — specifically, raising rates, which would make the dollar even stronger and less competitive globally — directly lead to the deindustrialization of America and, subsequently, our growing dependence on those dead-end McJobs.

The Fed is simply in a no-win situation. Raise rates, and a host of predictable, though unintended, consequences will flow forth that’ll weaken and hollow out the core of industrial America even more. Don’t raise rates and you risk blowing an even larger asset bubble that, when and if it pops, rips America apart.

In such a situation, the best action is no action. Maintain the status quo. Do not go into battle if battle is not necessary and if there is no clear path to victory. Just chill; let the opportunity come to you rather than force an opportunity that doesn’t exist. Thus it is, then, that I believe the Fed will not act to raise rates.

The only caveat I see: the Fed’s desire to have at least one arrow in the quiver in the event of an economic contraction. But, then again, raising rates (and strengthening the dollar even more) would be a key reason a contraction happens. So, do you shoot yourself in the foot just so you can bandage the wound?

We will find out on December 16…

Warning: Government smoke screen now in effect … You may have read, seen or heard that the National Security Agency (NSA) stopped collecting bulk metadata of your phone calls at midnight last Saturday.

Congratulations, Edward Snowden.

But, as Ted Bauman tells me, we should probably scale back on the confetti throwing. Despite the hoopla, there haven’t been any actual victories here. In fact, this supposed end to the NSA’s controversial surveillance techniques is just going to make it significantly harder to track the agency’s more unsavory activities (which sound eerily similar to the machinations of a Bond villain).

Here’s more from Ted:

As my good friend John Whitehead has written: “Bottle up the champagne, pack away the noisemakers, and toss out the party hats. There is no cause for celebration. We have secured no major victories against tyranny.” The whole exercise is “a sham, a sleight-of-hand political gag.” John doesn’t mince his words.

Here’s why John and I are so upset: Nothing has changed; in fact, the NSA’s spying on us is probably now going to get much worse.

The so-called USA Freedom Act banned the NSA from collecting Americans’ private communications within the United States. But in the same way that the CIA moved its “enhanced interrogation” programs to Guantanamo Bay to bypass legal prohibitions against torture on American soil, it is simply shifting its data storage, collection and surveillance activities outside of the country.

You see, the Internet — which also handles the bulk of telephone traffic these days — is a borderless entity. When you send an email or make a digital phone call from your home to a colleague across town, it will probably pass through servers in several foreign countries on the way there. It sounds crazy, but that’s the way it works.

That means the NSA can simply access U.S.-based communications by tapping into Internet pipelines offshore, which we know it already does. About 180 million U.S. Google and Yahoo accounts are hacked every month by the NSA in this fashion. Under Executive Order 12333, signed by Ronald Reagan and renewed by every president since, this is perfectly legal (even if it is almost certainly unconstitutional).

Just to give your blood pressure medicine an extra challenge today, it gets worse. The NSA has figured out how to interfere in the routing of U.S. Internet traffic to ensure that it passes through foreign servers that it can legally tap.

At the risk of a cardiac event, consider that the NSA’s ability to tap and retain U.S. data under EO 12333 depends on the agency doing it “unintentionally.” Officially, it isn’t looking for U.S. data, but if the one foreign email or phone call it seeks passes through the same wires as that of 180 million Americans, well, that can’t be helped, can it?

My friends, the government thinks you and I are fools. But we aren’t. As long as it keeps pulling stunts like this, I will keep telling you about it. At least that way we can remain aware that our rights are being violated … the first step to true personal sovereignty.

Unfortunately, the NSA’s unconstitutional activities are just one dishonest drop in the bucket. That’s why I recommend getting familiar with the other ways your privacy is being put at risk. You can start by clicking here.

In dividend news … Origin Enterprises (London: OGN, hold) is dropping its annual dividend of €0.21 into your account on December 18. HollyFrontier (NYSE: HFC, buy up to $49.25) is paying us its quarterly dividend of $0.33 on December 30. And National Oilwell Varco’s (NYSE: NOV, hold) quarterly dividend of $0.46 will hit your account on December 18.

Until next week,

Jessica Cohn-Kleinberg
Managing Editor, Premium Services
December 06, 2015