Dave Gonigam – June 29, 2012
- They fixed Europe (again!): Monster rally ensues to end the second quarter
- Byron King on the “strange investment climate” wrought by the Supreme Court
- China takes its next step toward supplanting the U.S. dollar… but they’ll have to sell a bunch of Audis and Maseratis along the way
- Only in government: A “world’s biggest” grows even bigger… How hot pizza qualifies for food stamps… a special message for only our best customers (that’s you)… and more!
“Maybe we can stop calling it the most boring financial crisis in history?” mused Greg Guenthner this morning.
It’s a “risk-on” day, that’s for sure. Traders are celebrating another paper-clip-and-rubber-band solution to the eurozone saga…
- The Dow has crested 12,800. The S&P has pushed above 1,350
- Gold is toying with $1,600. Silver has powered past $27.50
- Oil is up nearly 6%, to $82.26
- The dollar index is down well over 1%, to 81.6
- The 10-year Treasury yield is up to 1.64%.
“Investors are craving clarity,” Greg said in yesterday’s episode of The 5. “And whether news or resolutions are perceived to be ‘good’ or ‘bad,’ we will probably see sentiment improve when some certainty is added to the mix.”
The headline from the eurozone deal: The $149 billion bailout for Spanish banks will be channeled directly to Spanish banks, and not through the Spanish government.
Of course, the Spanish and Italian governments are major contributors to the bailout fund in the first place. So even under this latest “solution,” the system remains as Doug Casey described it yesterday: “You’ve got two sets of bankrupt institutions trading debt back and forth between themselves.”
Not even a miserable personal income and outlays report can put a dent in this rally.
Consumer spending was flat in May for the first time in six months, according to the Commerce Department. Incomes grew 0.2%.
Meanwhile “core PCE,” the Fed’s favorite gauge of inflation, grew 1.8% year over year — a bit below the 2% target. Any resemblance to your cost of living is purely coincidental.
“What a strange investment climate we have,” says Byron King, chewing over the portfolio implications of the Supreme Court health care ruling.
On the one hand, “the decision actually limits Congress’ power to act, based on a mere pretense of regulating interstate commerce. Any law that compels a person to participate in commerce will, in Chief Justice Roberts’ opinion, ‘undermine the principle that the Federal Government is a government of limited and enumerated powers.’”
“What?” says Byron, tongue-in-cheek. “There’s a ‘principle’ of ‘limited and enumerated powers’ in the Constitution?”
On the other hand, “the Supreme Court ruled that Congress was exercising its ‘tax powers’ when it passed Obamacare. That is, if you choose not to engage in a form of commerce called ‘health care,’ Congress can tax you — but it’s NOT regulation.”
“The result is the same. You’re subject to Obamacare, even if it’s not strictly ‘regulation’ of commerce. It’s just another new tax — the largest tax increase in U.S. history.”
None of this changes Byron’s outlook for the companies he follows in the natural resource sector: “I deal with company managers and staff who are making a difference. I meet people who are out on drilling rigs, logging hole, making engineering calculations and performing back-office work to truly ‘build value.’ I expect to see these companies do well.”
[Ed. Note: If you’re fed up with “authorities” telling you what you can and can’t do with health care, you’ll want to take note of this week’s e-book selection at the Laissez Faire Club: Standing up to Experts and Authorities is the title. Its author is Sharon Presley, who co-founded LFB 40 years ago.
Among Jeffrey Tucker’s take-aways in his video review: “Never be hoodwinked by credentials.” You can watch the full review below: Once you click, you’ll be automatically signed up for Jeffrey’s free e-letter, Laissez Faire Today.]
China’s taking another baby step toward supplanting the dollar’s role as world reserve currency.
A section of Shenzhen province “will be developed over the next eight years,” according to a Reuters dispatch, “and serve as an experimental zone for offshore yuan transactions.”
“The country’s policy,” says the vice chairman of the state planning agency, “is to gradually open up its capital account and realize the full convertibility of the yuan.”
“To me,” writes EverBank’s Chuck Butler this morning, “there’s been no question whatsoever that the Chinese have gone well down the road to removing the dollar as the reserve currency of the world.”
“It will take time, lots of time, but the Chinese have awaken from their slumber, and everything they’ve put their minds to, they’ve accomplished. They wanted to be the biggest exporter, and now they are. The wanted to pass Japan as the second-largest economy in the world, and they did.”
“If you haven’t woken up to smell the coffee yet, here’s a hot cup of java for you!”
Mr. Butler is among the many experts Addison called on in assembling The Little Book of the Shrinking Dollar. Think of it as a road map to steer your wealth where you want it to go as the dollar’s role on the world stage diminishes. And this is the only place you can get it in a one-of-a-kind value package.
Still, as Chuck indicates, China’s own road will have some bumps along the way: Local Chinese governments are raising cash by dumping their fleets of luxury cars.
Last weekend, according to the Financial Times, the city of Wenzhou unloaded 215 cars for $1.7 million. More than 1,000 additional cars are set for auction.
[Photo credit: GuoZhongHua /Shutterstock.com]
The orders come straight from Beijing, says the FT: “Cities have been told to keep police cars and ambulances, but to sell the chauffeured sedans that do not comply with government policy.”
Fun fact: Government owns one out of every five Audis in China.
In a startling example of what the zombie class hath wrought, the $700 million U.S. Embassy in Iraq — already the biggest in the world — is about to get a $115 million addition.
A compound bigger than the Vatican and six times bigger than the United Nations in New York? Not enough.
U.S. diplomats in Baghdad moved into their new digs only 3½ years ago. As it is, it takes up 104 acres — comprising 21 buildings, a commissary, shopping areas, restaurants, schools, a fire station, power station, and water treatment station.
A mere four months ago, the State Department was talking about reducing its presence. No more: Planning for an expansion is under way, according to an official statement, to make way for “a larger population on the Baghdad Embassy compound, due to the consolidation of satellite diplomatic facilities and property around Baghdad.”
Maybe all that talk about a complex “nearly as big as the Vatican” ticked off the higher-ups at State. They want something bigger, by God…
“If one in seven Americans is now on food stamps (14%) and the government estimates that only 25% of those eligible are taking advantage of the program,” a reader inquires, “does this mean that 56% of Americans could actually be on food stamps?”
The 5: Other way around: It’s 25% of those eligible who are not currently in the program. So the hypothetical maximum at the moment is about 18.7%.
By the way, we see that in addition to the radio campaign encouraging wider participation… USDA is advising local SNAP offices to throw parties for senior citizens.
It’s right here in a pamphlet at the USDA website, spotted by the Daily Caller…
There’s also this gem: “Every $5 in new SNAP benefits generates $9.20 in an additional community spending.”
What a return on investment! At that rate, why not throw out the eligibility guidelines and put the whole country on food stamps? We’d instantly grow GDP 84%!
“As a former Welfare Eligibility Worker (frontline determiner of eligibility based on the written regs), I can certainly agree with the recent responses to The 5.”
“I didn’t see it mentioned but many SNAP eligibles are also TANF clients, (Temporary Assistance for Needy Families, the old AFDC program). Several reports came out a while ago showing withdrawal of cash assistance in out-of-state locations.”
“Some exceptionally obnoxious ones were Florida withdrawals by California recipients — and the also-ran, out of the Las Vegas casino ATMs.”
“There are some simple fixes, like electronic blocking of nonlocal ATMs and removing the candy and soft drinks from the able-to-buy list, but that would be infringing on recipients’ ‘Freedom.’”
“I remember growing up in New York City and the Daily News having pictures of the welfare folks picking up their cheese and loading it into the Cadillac parked around the corner. Some things never change. They just get more sophisticated.”
“Saw a young girl (late teens or early 20s) buy two sodas and a Slim Jim,” writes another reader, “using her food stamp credit card at the gas station/convenience store across from work.”
“How do I get on that food stamp teat?”
“Here in Texas at the convenience stores,” writes a third, “a fully cooked, ready-to-eat pizza can be purchased with food stamps.”
“If I understand the sign correctly, it states the raw pizza has to be handed to the customer and paid for. Then the pizza can be handed back to the vendor to be cooked. Maybe Pizza Hut should hire Hunt Bros.’ lobbyist!”
The 5: Seriously? So in addition to the limits on alcohol described yesterday, the limits on “prepared foods” are also malleable. Sheesh…
“That comment about Yum! Brands was hilarious,” writes a reader who was entirely too amused by our quip at the end of yesterday’s episode.
“It is a comment that sometimes you’re thinking it and debating should I? Or shouldn’t I say it? And bingo, somebody did — The 5 did!”
“I was disappointed,” writes another, “that Yum! Brands didn’t get approved for food stamps, only because I think that pizza, tacos and fried chicken are healthier than chips, soda and packaged goods designed to last for years on the shelf if necessary.”
The 5: Who knew the preservatives industry had such a powerful presence in Washington?
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. Looks as if Abe Cofnas’ “mock trade” this week will be a wash. He suggested a two-part play — and was counting on the Australian dollar to end the day higher than $0.9825 but lower than $1.0025.
Right now, it’s at $1.0240… so half the trade will pay off, and the other expires worthless.
For Abe’s paying subscribers, it’s been another good week: Down on oil, but up nicely on gold and the euro. To learn more about his four-day trading strategy, look here.
P.P.S. You might not be aware of it… but The 5 goes out only to folks like you who’ve paid for at least one of our newsletters or trading services.
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The amount varies from person to person. But one thing’s for sure: Even if your only subscription with us is an entry-level $39-a-year newsletter, you’re automatically entitled to a $1,044 “loyalty reward.”
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