September 11, 2013
- Investors pile into one sector… at the very moment another is set to outperform
- More caterwauling about “the 1%”: The 5 unpacks the “income inequality” story neither side wants to tell
- Crude stabilizes, but what about the situation in Syria? A forecast for the rest of Obama’s term
- “Love trade” season almost underway: Frank Holmes on what’s next for gold
- Obamacare, too much for even the most worker-friendly businesses… Goldman turns up its nose at its own employees… a beginner’s plea for help… and more!
Talk about bad timing.
Investors spent much of the summer loading up on blue chips… at the very moment small caps began to outperform.
“A lot of investors have been buying large-cap stocks to take advantage of multinational companies’ broader reach into emerging markets and their ability to raise capital in slower economic times,” Richard Bernstein told The Wall Street Journal last spring. His eponymous firm oversees $1.2 billion in assets.
The Journal story was published on May 17. Here’s what’s happened since to the Dow Jones industrials, EEM (the big emerging-markets ETF) and IWM (the ETF that tracks the small-cap Russell 2000)…
Yeah, how’s that international exposure working out for you?
Like it or not, the U.S. has the proverbial least-dirty shirt in the laundry basket. So small caps will be the biggest beneficiary. The smallest of the small caps have even more explosive potential.
“Oftentimes, microcap stocks derive their revenue from a few sources,” explains our microcap specialist Thompson Clark. It could either be from one part of the world, or from one or two large customers. With a little bit of research, it’s easy to identify these revenue sources.
“Contrast this to the large blue chips, who have a global presence. Diversifying away from certain parts of the world is significantly harder, if not impossible, by investing solely in large-cap companies.”
[Ed. Note: We’d be remiss if we failed to mention that Thompson’s microcap research can still be had for the lowest available price — but only through midnight tomorrow.]
As irony would have it, the Dow is the only index in the green as we write.
It’s pushed past 15,200 this morning. The Russell is down about a third of a percent, but still holding onto the 1,050 level.
“Markets remain neither cheap nor expensive,” blogged Fusion IQ chief and Vancouver veteran Barry Ritholtz during a delay on his commuter train. “At these levels, future growth of equities is dependent upon 1) Earnings growth; 2) Psychology 3) Random events.
“Overall, this remains the least loved cyclical equity rally in my lifetime. So long as so many people continue to fight it, hate it, disbelieve it, blame/credit the Fed for it, upside remains.”
The big corporate news this morning is Verizon’s plan to float a staggering $49 billion in bonds to buy the portion of Verizon Wireless it doesn’t already own. Take advantage of low interest rates while they’re still low, eh?
Verizon’s issue will smash the previous record set last spring by Apple — a now paltry $17 billion.
“Income inequality” in America is now at its highest since its previous peak 85 years ago.
“The very wealthiest Americans earned more than 19% of the country’s household income last year — their biggest share since 1928,” says The Associated Press of the so-called one-percenters. “And the top 10% captured a record 48.2% of total earnings last year.” So concludes a study by researchers at Berkeley, Oxford and the Paris School of Economics.
We squirm every time we see numbers like this. First, and most obviously, because they fuel an “eat the rich” mentality, to borrow a phrase from P.J. O’Rourke. And second, because almost no one pays heed to cause and effect.
Except Lewis Lehrman, that tireless champion of the classical gold standard, interviewed earlier this year by our fearless leader, Addison Wiggin.
“Whether you’re on the right or you’re on the left,” said Lehrman, “the rise in inequality between a privileged few and a vast middle class which is losing purchasing power is caused by the fact the Federal Reserve System has unlimited discretion to issue money to the banks and the clients of banks.
“The primary argument upon which I would rest my case for a gold standard is that it preserves the purchasing power, the wages, the salaries of all those who are unable to defend themselves in the halls of Congress in Washington or elsewhere, in citadels of power like Wall Street.”
Indeed, the Berkeley-Oxford-Paris study buttresses Lehrman’s case, although we doubt that was the researchers’ intent. Income inequality began relentlessly rising from multigenerational lows only three years after President Nixon cut the dollar’s last tie to gold in 1971…
And the previous peak in 1928 came as the phony gold-exchange standard hammered out after World War I began to fall apart. It would have been interesting if the researchers had gone further back in time to the classical gold standard that most of the world followed between 1879-1914.
“Good monetary policies,” said Lehrman, “lead to a stable purchasing power of the currency over a long period of time so that the middle-class working people… can be assured that 30 years from now or 40 years from when they retire the purchasing power of their savings is approximately the same as when they earned it.”
What a concept…
Crude is stabilizing this morning at $107.44 — up a bit from 24 hours ago, seeing as the president kept airstrikes against Syria “on the table” during his speech last night.
Crisis averted, kinda sorta, now that the Syrian government has agreed to forfeit its chemical weapons.
“Now for the fine print,” cautions Asia Times correspondent Pepe Escobar, sharing our suspicion yesterday that the story isn’t over, but only beginning.
“Everybody knows what happened to Saddam Hussein and Col. Gaddafi after they gave up their deterrence. Assuming both Washington and Damascus accept [the Russians’ disarmament] proposal, this could easily be derailed into an Iraqi-style ultra-harsh inspection regime.”
Which the president can use literally for the rest of his term to generate crises on demand, distracting the mooing masses from any gathering economic/social discontent. “Assad is thumbing his nose at the international community! We can’t stand by in the face of this constantly looming threat to our security!” Just watch…
Gold sits where it did 24 hours ago, at $1,362. Silver is looking a little more perky, at $23.13.
“Historically, September has been gold’s best month of the year,” says U.S. Global Investors chief and Vancouver stalwart Frank Holmes.
“Looking at more than four decades of monthly returns, the precious metal has seen its biggest increase this month, averaging 2.3%.”
The “love trade” Frank speaks of so often — the cultural affinity many Asians have for gold — is approaching its seasonal peak.
“Indians will be getting ready for their wedding season that begins in October, followed by the five-day Hindu festival of lights, Diwali, which is India’s biggest and most important holiday of the year. In December, millions of people will be gathering with loved ones to exchange gifts as they observe Christmas. And finally, millions will celebrate Chinese New Year at the end of January 2014.”
India’s monsoon season has been good — boosting farmers’ incomes and the likelihood they’ll buy gold. “In 2010, the last year that rains were heavily above average, demand soared 37% in the fourth quarter after harvests,” according to a Reuters story Frank cites.
Frank is unconcerned about the high price of gold in Indian rupees — a “possible short-term threat,” he says. “Keep in mind the East’s long-term sentiment toward the metal, as this area of the world has a different relationship related to both the love trade and the fear trade. And it’s not easily broken.”
Et tu, TJ’s?
It was one thing to read a few days ago that a faceless corporate giant like IBM is dropping 110,000 retirees from its company-sponsored health plan thanks to Obamacare costs.
But now one of the most worker-friendly retailers out there is dropping health insurance for its part-time workers. The grocery chain Trader Joe’s has told workers who log fewer than 30 hours a week they’ll have to turn to the online “marketplaces” for insurance next year. The company will give each part-timer a $500 check to help them get started.
“Trader Joe’s,” reports The Huffington Post, “has won kudos for offering its health care, dental and vision plans to part-time workers at a reasonable price — a rarity in an industry known for low pay and scant benefits.”
Back in May, CEO Dan Bane was more optimistic, writing to workers that the firm “made a decision to make minimal and only necessary changes to your costs.” Something clearly has changed… but for now, TJ’s corporate won’t say what.
Meanwhile, Obamacare regulations now total 10,516 pages in the Federal Register. So far.
If you haven’t started preparing for the changes Obamacare will mean in your own life — or you’re too overwhelmed to think about it — the Laissez Faire Club can help you navigate the loopholes while getting better health care and saving money. Here’s where to get started.
Also from the “corporate memos workers don’t want to see” department, it’s come to this: Goldman Sachs is too good for its own employees.
The vampire squid has long furnished employees with brokerage accounts. But now the word has gone out: If the account has less than $1 million, it will be moved elsewhere by year-end 2014.
From a CNN story passed along by an alert reader: “In addition to providing a perk for employees, the old arrangement allowed Goldman to monitor their investments for compliance purposes. But the firm recently concluded that it could hire an outside brokerage to handle these accounts and still meet its compliance requirements.”
Former employees will have a choice of brokerage; current workers will be moved to Fidelity. As a Goldman memo puts it, they “will now have access to all those services that our platform doesn’t always provide because it’s geared to high-net-worth individuals.”
What’s next? A separate entrance for employees so the clients won’t have to see them?
“You’re one of the only newsletters I read to the bottom,” writes a satisfied-but-not-satisfied reader. “Well done.
“Would Agora consider it too ‘kindergarten’ to offer a beginner’s help desk? You probably don’t know how much you know. I am such a beginner. I need to know about online brokers and overseas brokerages and would appreciate a Q&A service for quick-fire practical assistance.
“Why? Well, if I am interested in , say, options… but do not know diddly squat about how to handle brokers, then your services are tantalizing, but beyond me. I can hear the laughter… but just because I am not a financial expert does not mean I do not have time and money to get on board your train.
“The service that can train me will have my attention.”
The 5: We’re keenly aware that not everyone has the same level of experience. That’s why we go out of our way to offer hand-holding introductions to help new subscribers to our services feel as comfortable as possible.
Penny Stock Fortunes readers, for instance, get a rundown of the best discount brokers available. At Options Hotline, Steve Sarnoff has a package of special reports that walk you through the mechanics and terminology of options.
We’d never laugh at anyone’s level of experience. We’re here to help.
Cheers,
Dave Gonigam
The 5 Min. Forecast
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