May 13, 2013
- IRS scandal: more common ground between the tea party and Occupy… while politicos fret over “profound distrust” in government!
- Stock aversion syndrome: Elmerraji’s case for a long-term bull market in stocks
- Neil George on pulling nearly a nearly 8% yield from a “rough business”
- Amoss on why the rush into Japanese stocks is due for a rest
- How the government makes the epidemic of computer hacking even worse… Bitcoin mining as a source of heat… why Buffett has one reader worried… and more!
“It’s not the crime,” was the infamous saying that came out of Watergate, “it’s the coverup.”
We won’t say much this morning about the IRS scrutiny of tea party groups, etc. But as scandals go, it seems this one will have more “legs” than Benghazi or the birth certificate.
For one thing, we’ve noticed the IRS’ targets run across the political spectrum. A report from the IRS inspector general obtained by The Washington Post reveals the agency took aim at “political action-type organizations involved in limiting/expanding government, educating on the Constitution and Bill of Rights, social economic reform movement.”
Expanding government? “Social economic reform”?
We don’t want to reopen an old debate — oh, hell, yes we do. It inspires some quality reader mail — but it sure sounds as if once again the tea party and the Occupy movement have more in common than either wants to admit. They’re both making the politicos squirm.
Which is a fun spectacle to watch. On the Sunday talk shows, there was Sen. Susan Collins (R-Maine), the epitome of what blogger Glenn Greenwald would call a Very Serious Person in Washington, as far removed from those ragamuffin tea party and Occupy types as you can get.
“This is truly outrageous,” she said, “and it contributes to the profound distrust that the American people have in government.”
Yep… That’s what has the power brokers quaking this morning.
Heck, they might even indict a low-level flunky or two to “restore trust” and make the whole thing go away…
Major U.S. stock indexes are pulling back a bit from Friday’s record closes. At last check, the Dow is about 15 points below 15,100.
The one big number of the day came in better than expected: Retail sales jumped 0.1% from March to April. The consensus among dozens of economists polled by Bloomberg was looking for a drop of 0.3%.
Take away the Census Bureau’s “seasonal adjustments,” however, and the number fell 2.6%. Heh…
“Stock and bond markets have been flying high,” wrote Options Hotline’s Steve Sarnoff to his readers last night, “bolstered by the central bank bond-buying binge. While stock indexes finished Friday still looking higher, bonds and utilities slipped. I view this action as a warning sign for equities.”
“Would it surprise you,” writes STORM Signals editor Jonas Elmerraji, “to hear that stock ownership among Americans is at a record low?”
Sure enough, barely half of Americans polled by Gallup say they or their spouses own any stocks — including mutual funds.
“That’s a jaw-dropping number,” says Jonas, “if only for the fact that the S&P 500 has more than doubled since its 2009 bottom. The data show that, left to their own devices, most individual investors sold into that 2009 bottom, and they kept selling stocks as the market recovered and pushed to new highs.”
Jonas has two takeaways: First, “there’s a lot of money still sitting on the sidelines. I believe it’s just a matter of time until we see some cash getting thrown at the stock market again,” as people get tired of earning zip on their cash holdings.
Second, “while the masses are wrong at turning points, they’re also right for the ‘meat’ of the move.” Think back, says Jonas, to the heart of the dot-com bubble. “When your average investor starts liking stocks again, it’s not going to be a contrarian signal for us to turn bearish — but it will be a signal to pay closer attention to our exit strategy.
“Even so, I think this rally has years ahead of it.”
Commodities are getting clobbered today.
Gold and oil both popped late on Friday when it looked as if Libya was about to fly apart — well, worse than it already has. But Libya’s still sort of holding together, and a car bombing in Turkey over the weekend looks like a domestic thing — tragic, but lacking much geopolitical importance.
Thus, when electronic trading reopened last night, all the gains vaporized. This morning, gold is back to $1,435. A barrel of West Texas Intermediate is back below $95.
And that’s despite a slightly weaker greenback. The dollar index is down a tad, at 83.1.
“The shipping business can be rough,” says our income specialist Neil George.
“During flush times,” he explains, “companies can face a lack of capacity — forcing them to scramble for new ships with additional cargo room. And in economic downturns, they face lower revenue and the prospect of idle ships costing thousands of dollars in lost opportunities and storage…”
Lately they’ve faced the latter. But it looks like things are finally turning around. “First,” says Neil, “the global spot rates for container ships have rebounded, as shown by the Container Ship Time Charter Assessment Index.
“Meanwhile, U.S. ports have made a big push to expand their capabilities to load and unload container ships much more efficiently. So ships spend less time idling in port.”
In addition, upgrades to the Panama Canal are due for completion this year: “New locks will allow bigger ships to use the canal, so super-carriers from Asia can reach Eastern U.S. ports, instead of unloading on the West Coast and sending it the rest of the way over land.”
Neil likes a company that leases ships to the industry. It sports a respectable dividend of 5.4%… but for his premium subscribers, he’s uncovered a way to parlay the yield into nearly 8%.
“In the short term, the trend looks overdone,” says Dan Amoss of the run-up in Japanese stocks.
As noted here on Friday, the yen broke through the round-number barrier of 100 to the dollar. As the yen has slipped, the Nikkei index has soared.
Time for a rest, Dan says. “Short positions against the yen look excessive. And the consequences of the Bank of Japan’s aggressive printing are starting to unfold: The Japanese government bond market was halted several times in recent days, as prices fell sharply. The BOJ can’t afford to lose control of the bond market, since higher interest rates on Japan’s national debt would quickly bankrupt the country; so it may tone down the easy money rhetoric.
“Many traders are short the yen against the dollar on the belief that the U.S. economy is on firm footing and that the Fed will soon stop its quantitative easing. Yet leading economic indicators point to stagnation. So the Fed will continue its practice of printing rapidly, while promising to stop printing at some undefined future date.
“This ‘strong dollar’ mentality is overdone,” Dan concludes. “It will reverse quickly as high hopes for the U.S. economy are dashed.”
The U.S. government “has become the biggest buyer,” reports Reuters, “in a burgeoning gray market where hackers and security firms sell tools for breaking into computers.”
It would be one thing if the feds were trying to ward off attacks. But no. The military and intelligence agencies “are using the tools to infiltrate computer networks overseas, leaving behind spy programs and cyber-weapons that can disrupt data or damage systems.”
In other words, the Stuxnet worm that was used to disrupt Iran’s nuclear program wasn’t a one-off thing. It’s standard operating procedure.
“The strategy,” according to the wire service, “is spurring concern in the technology industry and intelligence community that Washington is in effect encouraging hacking and failing to disclose to software companies and customers the vulnerabilities exploited by the purchased hacks…
“The more the government spends on offensive techniques, the greater its interest in making sure that security holes in widely used software remain unrepaired.”
Madness? Yes… but as we’ve documented since February, a huge source of revenue for the burgeoning “information security” sector, or as the people in the know call it, InfoSec. Byron King continues to buttonhole his extensive contacts within the military-industrial complex to find the best players for his new premium advisory, Military-Tech Alert.
[Ed. Note: We’ve alluded to several of our high-end services in today’s episode. That’s because they figure into the “major change” I mentioned in an admittedly vague email I sent you earlier today.
Here’s the scoop. We’re offering you unlimited access to every advisory we publish — including microcap stock plays and high-octane trading services — in an unprecedented “test drive” venture. We’ve never done it before. We may never do it again. Learn how to take advantage at this link.]
We’re not sure if this falls under the category of hacking, but it’s fiendishly clever.
“If you’ve been playing Counter-Strike on the ESEA gaming network,” says a report at Wired, “you’ve been doing a lot more than tossing virtual hand grenades and firing virtual machine guns. You’ve been mining Bitcoins for an unnamed staffer inside the company that runs the network.”
Seems a rogue employee slipped some Bitcoin-mining code into software that ESEA distributes to players.
Counter-Strike: As many as 14,000 gamers might have been affected…
“The software,” says Wired, “gives players better data on their game play and cuts down on the use of known game cheats, which can give opponents an unfair advantage.”
“What transpired the past two weeks,” says ESEA co-founder Craig Levine, “is a case of an employee acting on his own and without authorization to access our community through our company’s resources. As of this morning, ESEA has made sure that all Bitcoin mining has stopped. ESEA is also in the process of taking all necessary steps internally to ensure that nothing like this ever happens again.”
Looks as if the rogue employee netted about $3,700, funds ESEA says it will donate to the American Cancer Society.
“Coming from a guy who heats his one-bedroom U.K. flat all winter with two old gaming PCs that mine Bitcoins,” writes the alert reader who tipped us off to the previous story, “you’ll find a maybe not-so-coincidental connection between the price of electricity and the price of Bitcoins.
“For the last few years, I’ve turned off the electric heat in my flat and I mine Bitcoins instead. The electric costs are identical, but with the mining rigs, I get the bonus of ‘free’ Bitcoins!
“There’s no doubt that the demand side plays a big role in the price, but I get the feeling the bottom of the market is supported by today’s cost to mine new coins (as each coin is harder to mine than the last). Especially in the era of cloud computing, if the price dropped low enough, you could simply spin up ‘pay by the hour’ mining rigs and make a healthy margin. No capital costs and quick turnaround.
“As always — keep up the great work! You guys do an awesome job.”
“OK, so now I am a bit worried,” writes one of our regulars. “Not two months ago, I read that Buffett and Munger never talk or discuss macroeconomics. And in reality, if you are those guys, you aren’t too worried.
“Now I see that they are both concerned about policies of both the Federal Reserve and our government.
“Money is so cheap that even Berkshire is selling bonds. Hell, a couple of years ago, they had so much cash they couldn’t find anything worth buying. Is that the story now? Nothing worth buying, let’s sell some bonds. But on the other side of the coin, what are they going to do with the cash?
“Haven’t looked to see how much cash they have on hand, but I am sure $1 billion is pocket change. Go figure. Why would a cash-rich company want debt? Seems to be the way of the financial industry as a whole.
“But then again, he is Warren Buffett. We are just a bunch of schmucks.”
The 5: This is what “financial repression” looks like.
Look at Apple. The company had $145 billion cash sitting on its balance sheet… but it tapped the bond market for $17 billion two weeks ago, the biggest corporate bond issue ever.
OK, some of that is a tax-reducing gambit, but even so… if you could borrow for five years at 1.076%, wouldn’t you? You’d have investors beating down the door — and Apple did — with a five-year Treasury note yielding 0.823%.
Of course, you can’t borrow for five years at 1.076%, because you’re, in the reader’s words, a schmuck.
Not that you’re helpless, though. We have several ways to line your pockets in spite of financial repression. Here’s a reader favorite.
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. If you clicked on the “test drive” link above and instantly decided, “It’s not for me. I’d get too many emails,” rest easy. We’ve figured out a method around that. Seriously, check it out.