Walking through the Capital dome on my way to the House the Representatives, I couldn?t help but sense the presence of ghosts of friends from decades past. There was Tip O?Neill with his ever-present scowl. Ted Kennedy was hurrying off to another meeting, barking orders in his peculiar Boston accent. Mike Mansfield was maintaining his ever aloof and professorial demeanor.

President Ronald Reagan was giving a hearty laugh after retelling the same off color joke for the umpteenth time, turning the faces of the female press crimson. I found the spot where 30 years ago, I ambushed Treasury Secretary Nicholas Brady and got a heads up on the impending bailout of Latin America, financed by, what else, Brady bonds.

I stood briefly to admire the timeless paintings in the filtered light, Washington Crossing the Delaware, the Victory at Saratoga, and the Surrender at Yorktown. My ancestors were present at all three. Then I hurried over to the House chamber, up the wide marble steps, and into the office of the Minority Speaker of the House, Nancy Pelosi.

The Madame Speaker welcomed me into her spacious, high ceilinged office and then immediately reached for my lapel. She touched my Marine Corps pin and said ?Thank you for your service.? I replied that it was a very long time ago and that many more had made far greater sacrifices since. She then launched into a description of her recent trip to Afghanistan where she described to the troops in Kandahar the opportunities and benefits that awaited them on their return.

To open on a light note, I asked her how it felt to be the most powerful woman in history after Cleopatra and Catherine the Great. She replied ?Having the levers of power at hand does have its uses.?

Agree with Nancy and she can be ingratiating and even motherly, taking the opportunity to pour me a cup of tea and offering a cherry Danish. Argue with her and she turns into a pit bull, whipping out well-rehearsed arguments and data so fast it almost knocked me back on my heels.

Pelosi is one of the most liberal Reprentatives in congress. Her multi ethnic constituents in the 8th California congressional district in San Francisco repeatedly return her to office with a resounding landslide. Most locals don?t even know who ran against her. In fact, many of her supporters bitterly complain that she is not liberal enough and compromises too often.

The nation?s greatest concentration of wealth creation is also an easy commute from her San Francisco office, and Nancy is well attuned to technology issues. Apple (AAPL), Google (GOOG), Hewlett Packard (HPQ), Oracle (ORCL), and Facebook (FB), have together created $1 trillion in market capitalization over the last decade.

If the Democrats retake the House in November she will reclaim her former job as House Majority Leader, making her third inline to succeed the president. If not, she will remain a major source of input to the president on economic policy. So I thought it judicious to listen what she had to say. Thin skinned, died in the wool conservatives might want to skip the rest of this story.

As the Supreme Court?s decision on Obama?s health care plan was imminent, I asked for her analysis of the likely outcome. She insisted that basic health care was a right and not a privilege. The Affordable Health Care Act will be a crucial tool to get health care spending under control and cut significantly into the budget deficit.

For business, it is a competitiveness issue, with backbreaking health insurance costs cutting into profitability and leaving managers reluctant to add employees. Foreign competitors bear no such overheads, the cost borne by generous national health programs. Employees here are ?job locked? by the old system, which prevents them from moving or changing careers for fear of losing company health insurance.

Every developed economy that implemented national health care has been able to keep spending to 8% of GDP compared to the 13% now suffered by the US, on its way to 18%. As the most efficient economy in the world, there is no reason why America cannot match these results. The program should also create 4 million jobs extending care to 50 million people.

Pelosi says the constitutionality of Obamacare is ?iron clad? and expects the Supreme Court to rule in its favor by a 6-3 margin. The right of congress to regulate interstate trade is clearly enshrined in the 1803 Marbury versus Madison case. While an activist conservative court may chip away at the act, such as through barring the individual mandate, severability prevents them from throwing out the entire measure.

While full implementation does not begin until 2014, 80 million have already benefited. They include children under 26 added to parents? policies, coverage for consumers with pre-existing conditions, and shrinking the drug benefit ?doughnut? for seniors. Young children who get cancer are no longer treated as having a pre-existing conditions for life. However, Nancy concedes that the administration has lost the public relations battle over the issue.

The Democrats need to win 25 seats in the November election to retake the House. She thinks there is a 50:50 chance of that happening. Even if they fail to regain the majority, the Tea Party?s influence will be greatly diminished, making compromise and deal making much more likely. That could lead to a resuscitation of the ?Grand Bargain? that was nearly reached last summer. This would be a hugely market positive development.

She urged Republicans to ?take their party back from the radicals? who don?t believe in any public role for the government beyond defense. The sole accomplishment of the Tea Party has been to hand control of the Senate to the Democrats by running weak, ideologically rigid candidates in the primaries, most notably in Delaware, Nevada, and now Indiana.

Nancy admitted that when growing up, a career in politics was the last thing on her mind. She was the progeny of the premier Italian political dynasty in Baltimore. Her father was both mayor of Baltimore and a member of congress. Her brother was also a mayor. After spending a childhood handing out campaign leaflets, her rebellious nature prompted her to run a mile from the family business.

It turns out that she ran all the way to California. With her five children nearly grown, she took a post on the San Francisco Library Committee. Then ?one thing led to another? and she ended up in her current job, which she has been working at tirelessly for 25 years.

At her first speech to congress in 1987 she boldly announced that ?I am here to fight AIDS.? A pall cast over the chamber as the members went mute. While the disease was ravaging San Francisco, it had yet to go national. Reagan denied funding for research because he believed the people who got it deserved it, overruling his own surgeon general.

It proved an important time for California to have aggressive representation in Washington. In 1989, the Loma Prieta earthquake hit, and federal funds played an important part in reconstruction. The base closures of the 1990?s cut a wide swath across the state. Almost every military facility in the San Francisco Bay area was closed, where many structures were up to 150 years old, in favor of more modern bases in San Diego and Bremerton, Washington. At one point, an aircraft carrier was used to move the 1,500 personal vehicles owned by transferring troops to save money.

I thanked Nancy for generously carving out an hour from her jam packed schedule and called it a day. As is usual with these high level political meetings, I gleaned a dozen or so valuable investment ideas. I will send out the trade alerts when I see good entry points.

 

 

The Capitol Dome

The first thing I noticed when Paul walked in was the few extra pounds and silvery tinge to his hair he acquired since I saw him last. He?s clearly spending too much time behind a computer writing those acidic columns for the New York Times. We?re all short dated options in the end, I thought.

We met at my favorite San Francisco restaurant, Gary Danko?s (click here for their site at http://www.garydanko.com/), where one can get a once in a lifetime, bucket list type meal for about $300 for two, but only if you get the cheaper wine. Ideally located near Fisherman?s Wharf, they are one of only a tiny handful of Bay area restaurants to boast a coveted Michelin star. Good luck getting a reservation if you?re not having dinner with Bill Clinton.

Paul went for the lobster salad with hearts of palm and the soft shell crab with bacon. I settled for the Dungeness crab salad with quinoa and quail stuffed with foie gras. We washed it down with an excellent 2008 Duckhorn cabernet called ?The Discussion?. I kidded him about recent articles in the press that described him as the ?Mick Jagger of economics?.

 

 

These days, Paul is not about pulling any punches. He argued that the US is really in another Great Depression that started in 2007. Only narrow segments of the economy are doing well, like the fracking driven boom in the Dakotas, which has a population smaller than Brooklyn.

In terms of chronic unemployment, human suffering, and hopelessness, this Depression is every bit as soul crushing as the one the country experienced during the 1930?s. Long term unemployment over 4 million is unprecedented in the postwar period. The jobless rate of recent college grads is even worse.

The only thing preventing Depression era breadlines and soup kitchens is the Food Stamp program that is feeding 45 million people, including many active duty military. The original Great Depression lasted ten years and included two mini recoveries like the one we just saw. The current one will last just as long if we continue the current policies.

The great misconception is that these problems are long term and structural. Adopt the right policies, and the economy would rebound ?faster than you can possibly imagine?. Vicious austerity at the state and local level is the main culprit, squeezing the life out of the economy and cancelling out any stimulus efforts by the federal government.

Austerity is not the answer. It doesn?t work when everyone is trying to reduce their debt at the same time. One man?s debt is another?s income. It?s all about the teachers. The Great Recession has prompted the firing of 1.2 million and prevented the hiring of another 800,000. Hire 2 million teachers, and the unemployment rate drops from 8.1% to 6.5%, and the consumer spending and the multiplier effects they bring with them will return the economy from a 2% to a more normal and sustainable 3% growth rate.

The answer is to spend more money, and a lot of it. If you need proof before proceeding, look no further than the 1939-41 period. Then it was massive government spending in the buildup to WWII that caused the unemployment rate to plummet from 20% to near zero.

If Paul were king of the world, he would immediately allocate $300 billion to the states to rehire teachers, and maintain the infusion annually until we are out of the crisis. The one time only injection we saw in 2009 was inadequate. He would change FHA rules to allow underwater homeowners to refinance at current rock bottom interest rates. That will keep their homes off the market and allow some recovery there, one of the largest sectors of the economy. He would keep monetary policy easy. A modest level of subsidies for alternative energy so we can quit financing sellers of oil in the Middle East who are trying to kill us is also justified.

The origins of the current malaise aren?t hard to fathom and are an exact repetition of what occurred in the 1920?s. A long period of complacency led to a relaxed attitude towards debt and risk. The flames were fanned by deregulation. Gatekeepers of the public interest were lavishly paid to look the other way. Then the Wiley E. Coyote moment came when he only plummets after looking down, that particular physics unique to cartoon characters.

 

Today, the waters are being deliberately muddied by a dozen billionaires funding hundreds of PAC?s and countless bogus research institutes. Their sole interest is to minimize their own tax bills, at whatever cost.

Krugman spits out ideas with machine gun rapidity and is a gold mine of insightful economic data. Eye opening observations are regularly interlaced with biting humor. I?m sure that in a past life he was a standup comedian, or in vaudeville.

I only touched on Europe with him, as my own predictions there have already come true and have become my biggest earner this year. He said that the US and Europe are in a contest to see who has the worst managed economy, and that right now, Europe was winning. He observed that maintaining a single currency without a single government is untenable. It doesn?t help that in the German language the same word is used for debt and guilt. A work out will take years, if not decades.

Paul used to work for Fed Chairman Ben Bernanke as a Princeton economics professor before Ben was demoted to the job of saving the world. When he recently met him he handed him a well-known academic paper written in the 1990?s on the monetary policy mistakes that led to the post bubble collapse of the Japanese economy, and admonished him for repeating the mistakes. The author of the paper? Ben Bernanke.

Krugman argued that the tax system was long overdue for a major overhaul, which now has the lowest tax burden of any developed country in terms of GDP. He said the maximum rate should rise from the current 43%, including state and local taxes, to 70%, possibly for earners over $1 million.

That is still well below the 90% peak rates during the Roosevelt era. Money is concentrating at the top at an unprecedented rate and stagnating in the bond market instead of being invested to create jobs. As for health care, we may have to implement a European style VAT tax to pay for it, however regressive that may be.

I asked, with the national debt now over 100% of GDP, how much more could the US borrow without crashing the bond market, he answered ?a lot more.? Japan is able to borrow 240% of GDP at only 0.8% interest rates with far worse fundamentals than our own. There is a global savings glut and bond shortage, and investors are crying out for a safe haven.

Runaway government borrowing is a problem, but not now. Falling bridges and failing infrastructure are causing much more long term damage to the economy than additional debt. Kids today are infinitely more concerned about getting a job tomorrow than the amount of money the government will owe in 30 years.

Paul is a naturally shy fellow who avoids the limelight whenever possible. He once had a thin skin, but after the attacks from the right that erupted after he started writing for the New York Times, ?a rhinoceros has nothing on me?.

As divine as they are at Gary Danko?s, I skipped the desert, as I know I will be packing on the pounds during my upcoming cruise across the Atlantic on the Queen Mary 2. Paul went for the warm Louisiana butter cake with apples, huckleberry sauce and vanilla bean ice cream. Well, that explains the weight gain.

Before he left, Paul handed me an autographed copy of his latest book, End This Depression Now!, the second tome he penned since the 2008 crash (click here to buy the book at Amazon at a discount). There was one condition. I had to give him an autographed copy of my next book.

I pointed out that by grinding out 10,000 words a week with my blog, trade alerts, and webinars, I was effectively knocking out a new book every two months. That was no excuse he said, with the impatience of a university professor admonishing a grad student who was late with a dissertation. With that, he was out the door like a whirlwind.

I don?t get to meet with Nobel Prize winners very often, so I thought I would give you the full blast. Believe it or not, I left out some of his more incendiary opinions. After all, I have dined with only three in the past month. So take from it what you may.

The global resource frenzy has grown so heated that money has begun pouring into the marginal fringes of the universe. The Mongolian stock market has been one of the world?s best performers over the last three years, posting two back to back 100% gains.

I have been pounding the table on Mongolia for over three years now, as the fundamentals were stacking up nicely for it to become a high growth pioneer market (click here for the call). Never mind that you can?t buy it unless you become a resident of Ulan Bator and pay with local currency. But the indirect plays I recommended are did extremely well, including Ivanhoe Mines (IVN) and Rio Tinto (RTP). Government officials were in New York recently negotiating with NASDAQ to take over the management of their nascent exchange, which even after the double, has only 300 listed companies with a total market capitalization of only $1 billion.

There?s nowhere I won?t go to make a buck, so I had to sit up and pay attention when friends in Tokyo told me that the next big Asian equity play will be in Mongolia. Genghis Khan?s ancestral land has enormous mineral resources which make it a natural commodity play (did he know?), and it has one of the world?s most GDP friendly population pyramids.

But incompetent government administrators with antiquated Soviet era sentiments managed to kill every development opportunity in the crib with onerous windfall taxes and harsh joint venture restrictions. The resources stayed in the ground. National elections finally turned over the regressive administration in 2008, and the anti-growth tax regime was dumped.

Mongolia has inked a deal with Ivanhoe Mines and Rio Tinto to develop the massive Oyu Tolgoi mine, the world?s largest undeveloped copper resource, which could lead to a doubling of the GDP in five years. We?re talking a gigantic 450,000 tons of copper and 330,000 ounces of gold a year. Friends have been e-mailing in the results of core drillings from Oyu Tolgoi, and it is clear that this is one of the richest ores ever discovered. Also on tap is the development of huge coking coal and uranium deposits.

The spillover benefits for the rest of the economy would be substantial. Now that visas are no longer impossible to get, as they were in my day, my Japanese and Chinese speaking trilingual son tells me that Ulan Bator has become the trendy place for American college grads fleeing unemployment at home.

Who knows? Give me a low enough PE multiple and I might even develop a taste for the country?s national dishes, sheep brains and fermented mare?s milk.

 

 

 

The Bulls Are Loose in Mongolia