Turn on, Tune in, Drop out
Timothy Leary

Yesterday, Investor’s Business Daily ran a piece on the 5.4 million Americans that have joined disability rolls under President Obama. It was a thoughtful piece, but it missed the point of the amount of abuse of this system that allows millions of young American men to drop out of the workforce and get paid to cool their heels. It’s an epidemic nobody talks about because it could bleed into the sensitivity associated with legitimate recipients of social security disability insurance payments. The program provides money to people too young to get social security and unable to work.

The problem is that so many young people, especially men, are claiming they are nuts. Yes, this is the biggest scam since the welfare queens of the 1980s, and it’s getting worse. They call it “the crazy check” and there are wide swathes of men playing the system for these checks. They feel like they’re getting over on the system except they are digging a hole that means dependency of some form. They are not victims by any means. It’s a national tragedy. When so many brave young men and women have been permanently injured fighting wars for this nation others can shuffle to their mail boxes and get paid.

This is seen by many as a form of social justice, and it’s the tip of the iceberg. It’s amazing and it’s suicidal for our nation. Perhaps the saddest part is that there is no shame to this game, and in fact, those perpetrating are seen as slick, cool, and smart. I guess they’re playing by the rules the same way Wall Street played by the rules. In both cases, the rules were wrong and must be adjusted. For Wall Street, they simply have to be able to go out of business and take their losses with them. For those young men willing to sit on their ass and rip off the nation they should be thrown into some kind of public service like cleaning roads.

This is a national outrage. In addition, it’s beginning to take a heavy toll. New data out yesterday points to the fact social security will run out of money even sooner than the last time the numbers were ran.

Social Security Retirement Funds will be depleted by 2035
Social Security Disability Funds will be depleted by 2016 (previous estimate was 2018)

As a result, the entire program will be broke three years sooner than previously thought, and there is no doubt once they sharpen the pencil and run the numbers a year from now, it will move up a few more years on death row. It is very easy to go to the Social Security office and say the recession is making you depressed and begin collecting a monthly check of $1,111.
For a man trying to feed his family, this is a paltry amount, but for a bum with no rent, mortgage, car note, educational loans, electric bills, and living with his mother or grandmother, this is a lot of dough.

This is a huge scam and must be fleshed out even more, but I don’t think the government will do that since these same dropouts are not counted in employment data, making the unemployment rate look better than it really is. That’s how social justice works.

Nestlé and the Industrial Revolution Nobody Else Sees

The market’s negative reaction to a bevy of disappointing news out of Europe reflected Wall Street’s near-sightedness because when you really connect all the dots, it’s hard to see how investors could buy the continent. Long term trends from demographics, to education, to lack of financial discipline point to a disaster at some point that makes the Greek crisis drama look like a walk in the park. The big news yesterday backing up this contention was that huge deal for Nestle to purchase the baby food division of Pfizer. The all-cash deal for $11.85 billion had several narratives.

Narrative Number One: The World is Hungry

The world is on fire and they are not only coming after what America has through greater educational standards, lower tax rates, non-existing promises that require massive spending cuts and possibly higher taxes, they also are birthing armies. Since the beginning of time, civilizations adapted to survival conditions by adjusting their birthrates higher or lower based on infant mortality and the ability to propagate their clan forward.

Developed nations have put it in park with respect to increasing their broods. I’m not sure if that’s just a natural move that comes with peace and prosperity. If it is a natural thing, it’s also being aided by superior notions of man’s place and role on the planet. After all, slower birth has been engineered in Europe resulting in a need to open its floodgates to immigration and the same is happening in Japan.

Just as European nations are grappling to get immigrants to assimilate, the Japanese have to bring in workers they’ve shown disdain, hatred and cruelty towards for years. China has had its one-child policy in place too long according to many experts and that will ultimately derail their amazing growth. But they are also trying to engineer a society dominated by males.

The world is hungry in more ways than one. Nestle is the world’s largest food company, and it understands the need to be able to be where growth is. While there are nations that are still serious third world basket cases, I remain impressed by nations that seem to have great economic traction and understand the need to supply the most important component of that growth-manpower. That food division Pfizer sold derives 85% of its revenue from emerging market nations. Those nations will get richer and demand even better food for their babies. In the meantime, Kellogg’s lowered its earnings forecast largely as a result of slower growth in Europe and weaker volume in certain US segments.

There is a large correlation to hot economies and high birthrates, and you must take this into consideration as a long term investor. So there will be times when Europe is oversold and worth a trade, but it’s estimated that the population, currently 730 million people, will decrease to possibly 630 million by 2050 with the workforce 25% smaller than that of 2000. That is a disaster.

Narrative Number One: War on Businesses Moving to Next Level

If there is a second term for President Obama, it’s going to mean war on businesses. Such a war is necessary if people are to be dissuaded from success and to fund the Greater Society. The rhetoric has been harsh, but empowered to attack the constitution and mitigate the powers of the judicial and legislative branches. This administration would begin to punish multinational companies with domestic and taxing tools. If that’s not enough to make them cry “Uncle,” look for efforts to stretch the long arm of the tax collector into overseas bank accounts. Why else would Pfizer sell a business that has amazing upside?

You might say Pfizer wants to focus on its roots and core competency, but in this environment, why would anyone simply want to be a drug company. There was a hefty premium for the division so that makes the deal more palatable to management, but the time will come when Pfizer will miss this cash cow. What good is a cash cow when someone else is milking it. or in this case when the government is taxing your milk. Make no mistake, corporate America is afraid. They have fought back only as much as opinion editorials with only the gutsiest like Apple (AAPL) saying they will not bring home all that cash.

Tomorrow, before the open, Caterpillar will report its earnings, and I’m looking for a nice number but even better guidance. I’m also looking for the company’s CEO to send yet another message to the White House. The last time the company reported, this statement was pointed and focused at one person.

“The 2011 increase in sales and revenues was the largest percentage increase in any year since 1947, and much of it was driven by demand for Caterpillar products and services outside the United States. As a result, 2011 was a record-breaking year for U.S. exports at nearly $20 billion, which supported thousands of jobs in the United States and around the world.”
Doug Oberhelman Chairman and CEO Caterpillar

Signs of Life

There are several companies that have been amazing recession investments including pawn shops, same day lenders, and self-service automobile maintenance. One such company is Rent-a-Center whose shares are up 125% since the beginning of the recession. After the bell, Rent-a Center (RCII) posted record earnings results, and while the news was good enough to send the shares higher, I saw a line that was a ray of hope for the overall economy.

“Total revenue and same store sales benefited in the quarter from more customers than expected exercising their early purchase option”
Mark E. Speese
Chairman and CEO Rent-a-Center

Then there’s Texas Instruments (TXN) which hasn’t been a bellwether name for decades but beat the street and offered guidance that could been seen positively for the entire industry.

“As we expected, our business cycle bottomed in the first quarter, and early signs of growth began to emerge”
Rich Templeton
Chairman and CEO Texas Instruments

Mr. Templeton went on to say in the statement that orders were up 13% and backlog is growing as a result of “breadth” of orders across geographic regions and markets including the industrial sector.

Today’s Session

Initially the market looked like it would bounce, but Apple has plunged again and broader indices are coming along for the ride. Live by the sword ….

Earnings in general are mixed although beats are greeted with slight increases in share prices while misses are greeted with a visit to the guillotine. I can’t get a real handle on it all right now. I’m going to be burning the midnight oil more than usual trying to figure it all out, but one thing is for sure, this market doesn’t suffer fools or misses gladly.

Comments

I SEE two signs Kimosabe. One is Smoke. The other is Light. The Smoke means we will remain in the “haze” we are in if Obama gets re-elected. We have lost our direction, the economy will continue to decline and government handouts will become even more rampant. The Light means we will have a new President. We will find our way out of the darkness we have been in where we have been held captive. All facets of the economy will improve. That is all for now Kimosabe. I am tired. It takes much energy to discuss these things. Regards, Tonto Tonto on 4/24/2012 10:13:06 AM

although simple...this is what I see in broad view: depends upon what side of the track you are on. how I cam to this conclusion over the past 8 months: I live is central Oh, and traveled in Washington state, KY, and the states between Oh and Florida...spots appear as if nothing has changed since 2005...other areas died and other than a government project or two have lost population (appearance) and property is in worn-out condition or vacant...these areas are the second great depression areas that our national government is silent about...at every government level all that's being done is ADDING layer upon layer of regulations, and forgetting to dismantle the burdens of outdated regulation...seems the best solution is the least desired -- a clean plate; that can only occur by a revolution -- an effort that takes several generations; this nation is no longer up to it Steve Galli on 4/24/2012 10:13:40 AM

I owned a trucking company for 20 yrs and got out due to a car wreck.But one good way to tell is go out on the interstate hwys and look at what type of trls are doing the hauling.If there is alot of flatbeds,dropdecks and specialize trls for heavey machines the economy is doing great but if you see mostly dry vans and refer's it the economy is not doing so good.Those are vans hauling stuff me must have where the other is constr,home bldg, factories are in-largeing or bldg new factories,road work that is a good sign things are better.The last 2 times I've been out on I-30 going to Dallas only the dry goods and vary little flatbed or other special trls are seen!So America has still a long way to go!!!!sammy moss sammy p moss on 4/24/2012 10:21:21 AM

Charles, Maybe I"m slow to catch on, but I just discovered your radio show and am looking forward to listening. Also, sharing the link to your show with others on FB... the many localized T-Party groups are loosely connected thru FB & its a great way to circulate infor. Thanks! Laurel Laurel R. Di Tomaso on 4/24/2012 10:45:23 AM

The signs are screaming "Look out!" to me. There is no way that we can close on any economic recovery if Obama stays in office. Right now, the liberal national press is distorting instead of reporting, and they are trying to engineer an Obama victory. It is too possible that they will succeed based on the power they have to distort and the number of brain-dead voters in this country. Virtually all of Obama's policies have been proven by history time and again to be horrible failures for the country, but people on the dole aren't smart enough to see it coming or moral enough to do anything about it. They will vote their greedy overfed guts, and it is a toss-up now as to whether we join Europe in socialist collapse. It is sad that our only hope now lies in a mud-slinging jerk like Romney, who may delay the fall, but has not the clear vision or backbone to do any real good. But, mud-slinging is the easier way to win when the voters have no class. I would rather have truth overcome Barak "I'll lie about anything" Obama, but that is clearly not in the cards this year. Bob G on 4/24/2012 10:52:23 AM

Hello Charles,, Not really, food is more expensive, a gallon of (water based) paint costs $40.00, as well, Paint thinner (oil based) costs almost $20.00 a gal. I listen to You on KFI 640 with Bill Handel mondays..THX! ..john john j accornero on 4/24/2012 11:09:01 AM

I live in California, nothing is getting better, only worse. The cap and trade legislation signed by Arnold is going to cause the loss of 1M jobs. Jeannie on 4/24/2012 11:09:32 AM

Today's economy reminds me of a rancher who bragged about how good his cattle looked. A visitor noticed the cattle up near the road were fat and healthy, while the ones on the back forty were gaunt and starving. The rancher explained:"You can't expect me to feed the whole bunch, there isn't that much money; and what there is, only goes just so far." Z on 4/24/2012 11:20:18 AM

I have a couple comments on the column rather than the question of the day. First, nobody should be surprised that the forecast for Social Security going bankrupt has come in. President "O-I -lie-bama" has been slinging mud at the Republicans because he says they want to bankrupt Social Security, but what tax cut did he force through? The "payroll tax" cut did not reduce the general funds to run the government that Obama loves to throw around; it is 100% taken from Social Security. So he is the one engineering the failure of social security, but AFTER he leaves office. Like always, someone else will need to clean up his mess. Oh, except that he favors euthanasia, so maybe it is not a mess he is engineering, just another one of his subtle social reforms to "improve" the nation, this one by getting rid of those old folks whose lives no longer have enough quality of life. Second, it is nice that TXN has an upbeat report and forecast, especially since the company has a long history of hitting within the range predicted. A lot of that is in the company culture, where planners will ship early or hold back shipments as required in order to hit the monthly/quarterly forecast as close as possible. But I would be cautious about using TXN under current management as a bell-weather for the industry. There are 2 ways to have good profit numbers. One is to build a rock solid foundation and earn the money the right way, through hard work and growing competency. That is what the last CEO did for TXN. The other way is to sell off that foundation by getting rid of people with knowledge and experience and replacing them with cheap young labor. In a tech company, that means you will spend the next 15 years making costly mistakes due to repeating engineering errors of the past. Efficiency and productivity take a nosedive, including new product development. Profits will look great for a couple years before the manure starts being propelled by the air recirculating device. Bob G on 4/24/2012 11:25:08 AM

Charles, the other aspect is the "label" that will stigmatise the check takers forever- even if they metamorphose into responsible adults. Unreconstructed on 4/24/2012 11:38:00 AM

Two years ago a pound of top round on sale cost $1.49. Last year, $1.99. This year, 2.79. Two years ago a can of Fancy Feast cat food cost 35 cents. Last year, 50 cents. This year 72 cents. Things are just great! George on 4/24/2012 12:06:41 PM

I'm in a large POA which is projected to collect $13 million per year in dues. We just wrote off $1.6 million in uncollected POA dues. Homeowners who don't pay their POA dues are usually not making their mortgage payments. Property values are still falling despite record low interest rates. After almost 4 years, there is no bottoming in real estate values which is a problem. Rich (SoCal) Rich on 4/24/2012 12:46:53 PM

romney should not be undersold. here is the man who vetoed 800 bills in mass. when is somebody going to mention the fact that obama gave egypt, the suez and libya to al qaeda (aren't we supposed to be at war with al qaeda?) meyerhoff on 4/24/2012 2:10:41 PM

On a similar note, getting as many on welfare,unemployment,soc. sec. disability ins. is a perfect ploy, in a sense, addicts comfortable w/ taking...then if Obama looses in Nov. & the Rep. try to cut back or take it away they are declared evil, thus setting up another probable Democrate election 4 years from now, and who knows, maybe forever. Scarry thought! Gail on 4/24/2012 3:05:06 PM

Things are getting better when more people I know are working, but also making a decent enough wage that they're not still looking for another job. SueK on 4/24/2012 4:47:29 PM

I found anecdotal evidence on my afternoon walk just now -- four times as many panhandles than usual were out. I have no idea what that means. Patricia Flynn on 4/24/2012 6:51:28 PM

Keep in mind that anyone getting paid to do nothing has idel hands. If they want a little more money they have to go outside the law to get it. How many "disabled" are dealing drugs? Also, $1k a month doesn't sound like much unless you are also getting food stamps, subsidized housing, etc., etc. Joe Sneed on 4/25/2012 8:55:39 AM

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