April 12, 2013
- Gold sinks to $1,540… no, check that, $1,520… whoops, make it $1,500: The 5 would like to remind you there was a time it was much worse… before it got much better
- The IRS trolling Facebook? That’s only the beginning of their digital-era methods
- One source of income the government can’t touch… and the safest way to tap that flow
- Cyprus digs into the sofa cushions… who’s a “bank investor” anyway?… the “sociopath” check box on a government job application… and more!
A short historical side trip as we embark on today’s 5: After Nixon cut the dollar’s last tie to gold, gold rose from $35 in 1971 to nearly $200 by year-end 1974.
And by Labor Day 1976, it was back to nearly $100. Only then did it begin the epic run above $800 in January 1980.
We say this as prologue to — and moral support in light of — the following chart from resident technician Greg Guenthner.
Gold sank steadily from $1,560 to $1,535 overnight… and then in a waterfall below $1,500 shortly after the “afternoon fix” in London trading — 10:00 a.m. in New York. For the moment, $1,500 seems to be holding.
But “$1,550 was the line in the sand,” says Greg — reminding us of the support level he’s been watching for weeks. “How gold reacts here,” he wrote in today’s Rude Awakening, “will be telling. Failure to reclaim $1,550 could take us back to 2010 prices in short order.”
The proverbial “weak hands” are getting shaken out. If you’re looking for a chance to buy the dip… well, you can afford to be patient.
Ditto silver, down 5% as we write, at $26.31.
Hey, it’s better than Bitcoin. It’s falling faster than we can keep track of whether the website of Mt. Gox, the biggest Bitcoin exchange, is running or not. (At the moment, the site won’t load.)
Less than 48 hours ago, Bitcoin crested $265. At last check, it was $69. (Hope you held off on buying while we continue to prepare our Bitcoin Bible — set for release in less than two weeks.)
Here are two things you never want to see in the same sentence: “IRS” and “digital tracking technology.”
On Monday, with a week to go before the filing deadline, news began seeping out of the cesspool in the nation’s capital: The IRS would begin checking the Facebook and Twitter pages of taxpayers whose returns throw up red flags.
“Let’s say,” suggested Fox News legal analyst Andrew Napolitano, “you took a trip that you characterized as a business trip and you deducted the cost of the trip from your income — perfectly legitimate if true — and the IRS looked at your Facebook page and saw you dancing with a grass skirt and hula hoop and a hat and drinking whatever.”
Annoying as hell… but not at all surprising. You could make the IRS’ job harder by limiting access to your Facebook posts — friends only. You do that anyway. (You do, right?) Easy.
Then the story took a more sinister turn.
“The new technology,” according to a report at Accounting Web, “resembles the Internet ‘cookies’ that track movements of consumers and target them for advertisements. The IRS assembled a team of experts from the private sector to help develop a system with similar digital tracking.
“But the IRS has an added advantage of being able to access Social Security numbers, credit card transactions and other confidential information that is otherwise protected.”
Ick. Nor does this remark in the tech trade press inspire confidence: “Private industry would be envious if they knew what our models are,” bragged Dean Silverman, the IRS’ lead techie and one of those private-sector recruits.
Now the story is much, much worse. “The Internal Revenue Service doesn’t believe it needs a search warrant to read your email,” reads a new scoop by CNET’s Declan McCullagh.
The ACLU got its hands on an IRS Search Warrant Handbook from 2009. “Emails and other transmissions,” it says, “generally lose their reasonable expectation of privacy and thus their Fourth Amendment protection once they have been sent from an individual’s computer.”
Other documents reveal the IRS stuck to this position even after a federal appeals court ruled in 2010 that Americans do indeed have a reasonable expectation. A 2011 update to the manual says, “Investigators can obtain everything in an account except for unopened email or voice mail stored with a provider for 180 days or less.”
Alas, there’s no electronic equivalent of this doormat…
The IRS appears to be relying on a broad interpretation of the Electronic Privacy Communications Act — a law passed in 1986, when email was the province of hard-core techies and pointy-headed academics. Members of Congress are drawing up a bill that would bring matters into the 21st century.
Whether it actually reins in the IRS is another matter entirely…
[Ed. note: We can’t do much to stop the IRS from pecking at the digital breadcrumbs you leave behind. But we can help you trim your tax bill — if not this year, than next year for sure.
The Laissez Faire Club has put together a baker’s dozen of obscure but totally legal tax dodges in a handy report, including…
- A “household feature” that could save you $2,250 (one out of three households has this)
- The “good Samaritan” tax dodge that could save hundreds more
- A lifesaving medical procedure — typically not covered by insurance — that could save you $750.
The report is called Starve the Beast: 13 Still Legal Ways to Slash Your Taxes in 2013 and Beyond. Click here to learn how you can get your copy.]
“Here’s a source of steady income the government can’t touch,” promises our income specialist Neil George.
“It’s a strategy that’s been around since 1812… and its tax-free status hasn’t been challenged since the Supreme Court declared the income off-limits to the IRS in 1988. Your checks will come monthly — not annually or even quarterly — and they won’t be small checks, either. Over the past decade — through stock market disasters, credit crises, wars, terrorist attacks, rioting around the globe — this strategy has returned 119%.”
If you already sense Neil is talking about municipal bonds… and your temptation is to run in the other direction as fast as possible… at least hear Neil out.
“A leading think tank that follows and advises state and local governments reports that out of the universe of general obligation muni bonds, only one in every 2,710 issues has filed bankruptcy since 2008.
“But the real pay dirt of understanding muni bond defaults involves recovery,” Neil adds. “Just because a muni issue defaults and goes into bankruptcy doesn’t mean that investors lose out. In fact, for most muni issues that have defaulted, the recovery rate for decades is running at 100%. That’s right — 100% of principal was paid to investors.” That compares with 40 cents on the dollar in a typical corporate bond default.
The problem, of course, is vetting the creditworthiness of a muni issuer. Muni ratings are as rigged as any other bond rating… because it’s the issuer who pays for the rating. The solution? A muni bond fund that chucks the rating agencies’ bogus analysis and does its own research. Neil recommends a basket of three such funds in the current Lifetime Income Report.
Major U.S. stock indexes are finally taking a breather this morning. The S&P is down half a percent, to 1,586.
Among the factors in traders’ sights…
- Retail sales: Down 0.4% in March, rather off the “expert consensus” calling for a flat number. The year-over-year change works out to a 2.8% increase
- Consumer sentiment: Another mainstream “miss.” Down sharply, says Reuters and the University of Michigan — which perhaps bodes ill for April retail sales
- Big bank earnings: J.P. Morgan and Wells Fargo both beat analyst estimates on earnings… but missed on revenue.
“The currencies, led by the euro,” writes EverBank’s Chuck Butler this morning, “are weaker this morning than they were yesterday. The euro is leading the currencies down the path that’s headed to the woodshed as eurozone finance ministers are meeting today to discuss Cyprus.”
At last check, the euro was trading at $1.308. That’s nudged the dollar index up to 82.3.
Cyprus, it turns out, needs to find another $6 billion under the sofa cushions to meet the terms of its bailout deal.
Under the original deal, eurozone honchos were going to lend Cyprus $10 billion as long as the government could scare up $7 billion. That’s why they’re taking a hefty cut from uninsured bank deposits.
Whoops, no, that’s not going to be enough: A “debt sustainability analysis” by the European Commission says the actual figure Cyprus has to cough up is $13 billion.
Hmmm… $13 billion from the government, plus $10 billion from the various eurosuits and the IMF… Cyprus’ bailout is now more than the entire country’s GDP.
Where the extra $6 billion is supposed to come from, no one is saying. The Cypriot central bank has a gold stash of 13.9 metric tons and the European Commission is “suggesting” they unload about 10 tons of it.
Which would raise all of $523 million…
“Recent quotes from numerous politicians and bureaucrats,” a reader writes on Cyprus, “seem to show a complete misunderstanding of what a bank investor is.
“They seem to view stockholders, bondholders and depositors — particularly large depositors — all as investors in the bank. A depositor is not an investor in a bank. Rather, the depositor is a consumer of the bank’s financial services and expects to be protected by the banking regulators from fraud.
“To say a depositor is a bank investor is akin to saying someone who buys a Ford Focus is an investor in the Ford Motor Co. and then saying that car owner is liable along with the company when the company builds an unsafe car. Ford doesn’t view the buyers of its cars as investors, nor do the buyers view themselves as investors in the company.
“Likewise, when I deposit money in Bank of America, I do not view it as an investment in the bank. I am depositing it to consume the bank’s services, and the primary service I am interested in is to keep my money safe.
“Now, if the politicians were saying the people should not depend on the government regulators to monitor banks to protect their money, and therefore caveat emptor, so be it.”
The 5: Dream on.
“Once again, our every-day-in-your-face leaders, managers and government administrators employ and go beyond the call of duty to implement their power to enforce,” writes one of our regulars about the homeless shelter ordered by the Louisiana Health Department to destroy 1,600 pounds of venison.
“It was likely a lobby group that managed to pass the law that the shelter cannot serve venison, or more likely the USDA was involved.
“The problem again: A common, everyday, average American who gains an administrative position in any government agency loses any common-sense application to the job and only follows the rules by the book.
“The group had been serving venison for almost 20 years. Some official got a bug up his butt
and flexed his muscle just to exert his position of power once again.
“The loss of common sense to our government agencies administrators has gone amuck.
“In this instance, the venison caper, everyone lost, no one gained. Except the ego of the person who ordered the invasion of the shelter.
“I am beginning to wonder if there is a box on the government jobs applications that asks if you are a sociopath. ‘Check here for 20 extra preference points.'”
The 5: How many times do we have to say it? Don’t give them any ideas!
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
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