January 17, 2013
- Oil busts through $95 on a crisis the CIA and its compatriots “probably never even bothered to imagine”
- Now the Fed is worried about an asset bubble? QE consequences their college classes and quant models don’t account for
- Two industries in the feds’ sights: one rallying, one in trouble (specific guidance on the latter in today’s PRO)
- A giant gold nugget (maybe)… the cat whose stock picks beat the pros… a sincere inquiry about the God Switch… and more!
Nothing like a Middle East hostage drama to push oil above $95 for the first time since September.
Seems no matter what headline we look at this morning, we’re watching the Law of Unintended Consequences quietly at work in the background.
The story keeps changing, and will no doubt change again by the time you read this. But what appears certain is that some angry Islamists took a bunch of Westerners hostage at a natural gas plant in Algeria. The kidnappers are angry because French troops — with U.S. support — have gone to war with Islamist rebels in Mali, a former French colony due south of Algeria.
There was no Islamist rebellion in Mali before NATO attacked Gaddafi’s regime in Libya two years ago. Many of Gaddafi’s henchmen were ethnic Tuaregs from Mali. With Gaddafi dead, Tuaregs became the target of the new thugs running the place. So the Tuaregs went home… and a few of them started stirring the pot. This morning, the pot has reached a boil.
But of course, “No one saw this coming!” when the world-improvers thought the world could be improved with a little regime change in Libya.
Or as The Independent puts it more diplomatically, “The toppling of Muammar Gaddafi’s dictatorship had consequences that Western intelligence services probably never even bothered to imagine.”
Then there are the unintended consequences of “quantitative easing.”
While Ben Bernanke routinely pulls his triceps patting himself on the back for jacking up stock prices, “Federal Reserve officials are voicing increased concern that record-low interest rates are overheating markets for assets from farmland to junk bonds,” according to a Bloomberg story this morning.
Say it ain’t so!
“Investors have been snapping up riskier assets since the Fed boosted its bond buying to reduce long-term borrowing costs after cutting its overnight rate target close to zero in December 2008.”
And from the Fed’s standpoint, there’s not much they can do about it. They’re caught in a trap. Or as our macro strategist Dan Amoss is fond of calling it, a roach motel — easy to enter, impossible to escape.
“More QE (printing money to buy Treasury debt) is a matter of when, not if,” Dan said in this space a year ago this week.
“When” turned out to be last month. “You need only consider the imperative to keep interest expense low for the biggest borrower of all: the U.S. government. The Fed’s zero rate policy has led to lower interest expenses, despite exploding Treasury debt.”
Here’s an update to a chart we shared a year ago. While the national debt has more than doubled since the “official” start of the recession in 2007, annual interest expense on that debt has fallen from $237 billion to $222 billion.
The Fed can’t keep the game going forever. Whenever the “bond vigilantes” show up and call BS, it’s “game over” and we spill into a new crisis that will make 2008 look mild.
No telling when that will happen… but economist Robert Murphy says there are three triggers to watch for, and one of them has already been pulled.
You might be familiar with Mr. Murphy’s books, like The Politically Incorrect Guide to Capitalism… or maybe his entertaining and ongoing battles with The New York Times‘ Paul Krugman.
What you might not know is that he’s a board member of the Laissez Faire Club. And we’ve tapped him to lead an event we’re calling The Anatomy of Booms and Busts: How to Detect, and Protect Yourself From, the Coming Crisis. This three-part video series will be released on Monday at 2:00 p.m. EST. For a comprehensive rundown of what you’ll learn during this event, give this a good look. It just might save your retirement.
The new gun control proposals from Washington might prove the catalyst for another phenomenon we’ve been following — the “Wikiweapon” project. More unintended consequences.
No sooner did the president make his announcement yesterday than a new video from Defense Distributed hit the Internet. While the sale of 30-round magazines would be banned under the White House proposals, the production of 30-round magazines on a 3-D printer would still be kosher.
Elsewhere this morning, gun makers Smith & Wesson and Sturm, Ruger are both adding to the gains they made yesterday after the president’s press conference.
Another sector in the feds’ sights: “energy drinks.”
A new government survey concludes that from 2007-2011, the number of emergency room visits involving energy drinks doubled. These are drinks infused with herbal stimulants — brands like Red Bull, Monster and Rockstar. Emergency room physicians say they’re seeing more patients — many of them kids — with distressing symptoms including irregular heartbeats and anxiety. Some teens have died.
One of the hottest growth stocks over the past decade owns a leading energy drink brand. But since regulators have focused their attention on energy drinks, the stock has cooled off. Last summer, Sen. Dick Durbin, a big fan of the nanny state, asked the FDA to investigate the health risks of these caffeine-laced drinks.
In July 2012, the New York Attorney General’s office, another entity full of ambitious politicians, issued subpoenas to all the biggest makers of energy drinks. It sought information about advertising and labeling practices, and whether there were any undisclosed sources of nervous system stimulants — including guarana, tea extracts, taurine and ginseng — in drink formulas. This investigation is still in its early stages.
Adventuresome investors who’ve signed up for our PRO level of service can check out a way to profit if this crackdown gathers steam. It’s at the end of today’s episode. If you haven’t signed up, you still have four days to take advantage of a free trial.
The major U.S. stock indexes are all up about half a percent this morning. If the trend holds, the S&P 500 will notch another post-2007 high at day’s end.
Bank of America delivered an earnings “beat” this morning, while Citigroup missed. The economic numbers of the day are an equally mixed bag…
- First-time unemployment claims: Down big last week to a five-year low of 335,000. That’s almost in line with a “normal” recovery, but seasonal adjustments could make this number a fleeting thing
- Housing starts: Up 12.1% in December. But here too seasonal factors are in play
- Mid-Atlantic manufacturing: Back in contraction territory, according to the Philly Fed survey. New orders are down and fewer people are being hired.
No seasonal factors to temper the last of those three reports; it just sucked all around.
“It’s not a storming bull market, but instead a steady recovery,” says Chris Mayer, as long as the subject of housing has come up. And he figures the recovery is set to go on in 2013.
“One of the great appeals of the housing market is just how long of a runway most markets have,” he explains. “In many U.S. cities, it is far cheaper to buy than rent. The economics of U.S. housing as an investment are compelling, even though the bargains now are not what they have been in the last two years that I’ve been writing about housing. Still, downsides are well protected by healthy rental markets. Nationally, the U.S. still has a steady rate of new housing formation.”
Yes, there’s a caution flag: “A good environment for owning rental properties doesn’t mean every housing stock will rally. One will have to pick one’s spots. Homebuilder stocks have had a huge rally, for example. I’m not a fan of those businesses. By contrast, bank stocks should benefit from a stronger housing market, and it is easy to find good values in bank stocks.”
Gold is clawing and scratching its way closer to $1,700. At last check, the bid was $1,686. Silver’s up too, to $31.65.
Platinum is still a hair more pricey than gold this morning, at $1,693. This might be the week platinum regains its traditional position relative to gold after an 18-month lull. The catalyst: Word from South Africa is that Anglo American Platinum plans to shut down two mines and sell one more and cut 14,000 jobs.
Here we go again: a giant gold nugget found in Australia.
An amateur prospector in the state of Victoria has (supposedly) dug up a nugget weighing a staggering 177 ounces.
“The unidentified man, using a handheld metal detector, found the nugget on Wednesday,” the BBC reports, “lying 2 feet underground near the town of Ballarat.”
We’ll save you the trouble of doing the math. At this morning’s spot price, that’s nearly $300,000. But it would undoubtedly carry a premium for its weight and rarity.
That’s assuming it’s for real. Our skepticism about another giant nugget in Australia last fall turned out to be well-founded.
“It’s time to crack open the Whiskas,” quipped the red-suspendered Justin Urquhart Stewart of Seven Investment Management. “The cat’s got talent.”
The U.K. Observer’s stock-picking task force took an unusual year-long portfolio challenge…
And now that it’s over, they’re probably wishing they didn’t.
It’s a variation on The Wall Street Journal’s famous dartboard contest. Only here, the challenge consisted of three teams of investors: three professional investment bankers, a small group of high school students… and a lone house cat named Orlando.
Each team began the year with £5,000 ($7,621) to invest in five companies from the FTSE All-Share Index. While the investment bankers and the high school kids picked their stocks the old-fashioned way, Orlando chose by tossing a toy mouse onto a grid of numbers matching up with stock picks.
The results? The kids lost $256, the professionals were up $281; and the cat cleaned up with $867 in profits.
“In regard to the God Switch,” a reader writes, “and your statement in The 5, ‘Imagine a world free of cancer, heart disease, diabetes and arthritis’: Being a realist, yeah it sounds too good to be true.
“Having had arthritis for some time and recently being diagnosed with diabetes, it sounds great! Me and the wife have prepared for retirement and currently work and are contributing members of society. But back to the realist in me. How in the hell are governments, people and businesses going to pay for the social programs if we are going to live to 130 or 150 years old? People who have prepared for retirement should be OK, but the majority of them are sucking and will want to suck at the teat of government. We can’t pay for the current state of entitlements.
“How in the heck are we going to do this???”
The 5: Patrick Cox has said many times this will be one of the challenges facing “policymakers” in the years ahead. And when it happens, you’re sure to hear them say, “No one could have seen this coming!”
But that’s how it goes with the sort of “disruptive” technologies Patrick follows. They upend most people’s paradigms… while those with the foresight to invest early can become very wealthy.
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. Our editors are flocking into Baltimore as we get ready to convene our first editorial meeting of 2013. Stand by for their latest insights tomorrow… and for instant access to all of their best moneymaking ideas, consider taking advantage of your “loyalty rewards.”