Green Sprouts… Or Bitter Fruit?

"If the past has taught us anything it is that every cause brings its effect, every action has a consequence. We Chinese have a saying: 'f a man plants melons he will reap melons; if he sows beans, he will reap beans' ... We can say with certainty that, with the individual as with the nation, the flourishing of the wicked is an illusion, for, unceasingly, life keeps books on us all." --Soong Mei-ling (aka Madame Chiang Kai-shek)

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I was thinking of kicking off this column with the famous line from Galatians: "Whatever a man sows, that he will also reap." But then I recalled Madame C.'s elegant rephrasing of the theme, and simply couldn't resist. For months now, Wall Street, Washington and their sycophantic pundits have lauded the economy's plethora of green shoots. As proof of same, Washington is now touting the fact that our collective personal net worths rose 5% in the third quarter of 2009. "See?" they say. "You CAN buy your way out of trouble! It's just a question of planting the right seeds." It doesn't hurt to water them with trillions of freshly invented dollars. Or does it?

The Numbers Don't Add Up

This growth figure was calculated by totting up the cash in our bank accounts, the taxable value of our homes, and our various investments, and then subtracting our mortgage and credit card debts. The ganged figure reached $53.4 trillion. Not quite the $64.5 trillion we were sitting on back in 2007. But hey --a gain's a gain, right? We are told that we must accept the nature of these new times. Perhaps I would be a tad more accepting of this "formula for success" if it did not overlook two factors that some might consider important.

Your Own Personal 18k Hole

The first is each citizen's portion of our federal debt, currently figured at $39,293 (and growing by about $12 a day). Subtract that from our share of the aforementioned $53.4 trillion, and each and every one of us is in our own personal $18,315 hole. Now, the odds are good that most of the folks who are reading this are substantially better off than these figures might indicate. Not to worry: Washington plans on taxing you more to cover the difference. Speaking of taxes, there are two ways Washington can take your money. The obvious is, of course, your annual bill from the IRS. There are, of course, millions of ways of getting around this levy. In fact, there is an entire industry devoted entirely to creating, deploying and taking advantage of tax loopholes.

Dangerous Debits on Both Sides of the Equation

The second way Washington taxes us is more subtle, and a heck of a lot harder to beat. Indeed, it can't be found anywhere within these equations I am throwing about today. You see, each and every figure I have quoted was in terms of U.S. dollars. And the entire time our income was supposedly going up, the dollar was going down in value. Remember that 5% growth figure? Once you subtract the dollar's 4.11% fall relative to the usual basket of foreign currencies, you are left with a gain so small as to fall within most studies' margin of error. No matter how you look at it, Washington taketh away a heck of a lot more "water" than Washington giveth. And that's just the current picture. As per Soong Mei-ling's admonition, one ought to look carefully at the seeds Washington has planted.

Green Sprouts...

For the past 13 months, U.S. businesses have been unloading already manufactured inventory at bargain rates, in essence devaluing and deflating existing assets. But now that slide is over. In October, all that stimulus finally stimulated businesses to begin restocking. Not by a lot, mind you, maybe 0.2% for the month. But as I said earlier, these are different times, and a gain is a gain. By November, industrial production raised its head above water for the first time in months. Here, we are looking at a 0.8% gain. Mining picked up a positively robust 2.5%!

...Or Dangerous Weeds?

Now that factories actually have some order flow, we see wholesale prices start to pick up: The bean counters over at Labor report an increase of 1.8% in November. But we are told not to worry, because this increase was primarily restricted to "non-core" items, like food, clothing and energy. Does that mantra sound uncomfortably familiar? In fact, most of the usual analysts were rather surprised by that pop in energy costs. Inventories were actually up a tad last week, so most expected prices to fall. Instead, we saw next spring's oil future contracts climb back up over $76/barrel. These are the true seeds Washington has planted, the same inflationary weeds that were watered with cheap dollars in the early Nineties and early Noughts. In the end, inflation's noxious growth always exceeds and overwhelms genuine wealth. Simply put, we know exactly how this cycle starts... and ends.

How to Protect Your Money From the Government's Weeds

There's no doubt in my mind that Washington is leaving us high and dry. But no matter how bad the news is from Obama's White House... how long the recession lasts... or how well your portfolio is performing --you could boost your portfolio's bottom line with the potential for triple-digit gains... many times over. Learn how in our Free Report, 5 Hot Stocks for 2010. It's yours free... all you have to do is tell us you want to receive a copy. And as a bonus, we'll also make sure that you're receiving Taipan Daily, the free e-letter I write for... the investment e-letter that's easily the most profitable five minutes of your day. Join Us Today... It's All Free! Adam Lass is the editor of Taipan Publishing Group’s WaveStrength Options Weekly and a contributing editor to Taipan Daily . He has written numerous articles and special investment reports for several major financial publications, including Taipan, Fleet Street Letter (US), Strategic Investment and Penny Stock Fortunes, on topics ranging from long-term market forecasting, crude oil pricing, and currency speculation to precious metals investing. Adam appears on national television and radio, and has been quoted on The Wall Street Journal Web site. His last turn on CNBC’s Squawk Box on July 18, 2007 was marked by controversy when he predicted that the Dow would fall from 13,965 to below 8,000. He was never invited back. You can read more from Adam in Taipan Daily. Simply sign up, and you’ll start receiving Taipan Daily... plus you’ll receive the Free Special Report, 5 Hot Stocks for 2010. Register Now!

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