September 16, 2013
- Mainlining traders have one less thing to worry about with their new supplier
- With 48 hours before the “taper” announcement, Marc Faber offers his best guess
- How Russia’s Syrian move scrambled the global chessboard and opened up new investing possibilities
- A 51st-state movement that hits close to home… the “income inequality” debate, week 2… an early invite for Reserve members… and more!
Seriously? Larry Summers — the junior member of the “Committee to Save the World” — pulls out of the competition to succeed Ben Bernanke, and this is the result?
At last check, the Dow has roared up 1% to 15,547. That’s less than 120 points away from its all-time high set six weeks ago. The S&P is also within striking distance of its record.
Over the weekend, Summers — or more likely, someone at the White House who saw the writing on the wall — decided he should give it up and retain some semblance of dignity. The alternative was to go down in flames during a Senate confirmation vote in which members of the president’s own party were likely to defect.
Ironically, Syria appears to have been the final straw: “Clearly, Obama couldn’t bring his own most enthusiastic supporters to back him on an issue of national security,” a Summers supporter told The New York Times anonymously. “How was he going to corral them for Larry?”
So much for the politics… Why the rally this morning?
The clues to traders’ addled mentality lie within a two-week-old Times story almost no one noticed because it was published on Labor Day: “The spreading expectation that President Obama will name Lawrence H. Summers to lead the Federal Reserve Board appears to be working against the central bank’s efforts to stimulate the economy.
“The jitters even have some analysts betting that a Summers nomination could lead to slower economic growth, less job creation and higher interest rates than if the president named Janet L. Yellen, the Fed’s vice chairwoman.”
Conventional wisdom had it that Summers was less likely than Bernanke to keep mashing the monetary gas pedal. We’re not altogether sure where this impression came from, but there you go. As money manager and blogger extraordinaire Barry Ritholtz might say, the junkies wandering the floor of the NYSE feared their supply of “that good s**t” would no longer find its way into their veins.
Treasuries are rallying too. The yield on a 10-year note has dipped below 2.8% for the first time this month.
And so the handicapping begins. Again. Right now attention has turned back to the previous front-runner, San Francisco Fed chief Janet Yellen.
“Larry Summers’ withdrawal greatly boosts the odds of a Janet Yellen nomination,” suggests our Dan Amoss. “Yellen makes Ben Bernanke look like a tightfisted hawk. She believes there’s no problem — including high unemployment — that can’t be solved by easy money. The stage is set for continued destruction of the U.S. middle class through destructive boom-bust credit cycles.”
Ditto if it ends up being a dark horse. Cue Currency Wars author Jim Rickards — who improbably is plugged into the D.C. scene, but still makes sense on monetary matters.
Tim Geithner employing mind control with the Senate Finance Committee, 2009
Jeez, just when we thought we were rid of the guy as Treasury secretary. Supposedly, Geithner doesn’t want the job. But as Rickards points out, playing hard to get is an old trick when you want to snag a desirable sinecure in Washington.
But enough about this already. Just writing about it, we want to take a bath.
Curiously, precious metals aren’t reacting to the Summers news the same way stocks are.
Gold sits about where it did at this time on Friday — $1,317. Silver rests precariously on the $22 perch.
Can’t blame it on weakness in the greenback; the dollar index is essentially unchanged at 81.1.
Meanwhile, the Most Anticipated Fed Meeting EverTM gets underway tomorrow. Come Wednesday afternoon, we’ll know whether the Fed’s Open Market Committee will “taper” — and if so, by how much.
“I think maybe they will taper 5 or 10 or 20 billion dollars off the current $85 billion monthly purchase of assets,” says the Gloom Boom & Doom Report’s Marc Faber, “and they would say they will reassess the situation depending on economic and market conditions.
“I believe the U.S. economy is weakening,” he adds in an interview with the Thai newspaper The Nation, “and if it gets worse they will have to even increase the purchases, maybe even to $150 billion a month.”
Investment implications: “There is nothing safe anymore. The U.S. money printing has distorted all asset prices while cash in the bank has not given you any return when inflation is adjusted.
“My investment strategy during this time is that you have to diversify and minimize your risks from economic, political, geopolitical and other factors. Your portfolio should include properties, stocks and equities, corporate bonds, gold and silver, plus cash. It should be 25% of each, or 125% — just to mimic the U.S. accounting standard where things now do not add up.”
Crude has dipped below $107 for the first time in September as Syria recedes further from the headlines.
Still, the events of last week scrambled the geopolitical chessboard, says our Byron King: “Russia has diminished the prospect that the U.S. will further shift the balance against the central government in Syria’s civil war. This will confound the Saudis, who support the opposition, and thus drive a wedge into U.S.-Saudi relations.
“Russia has pulled the rug out from under the Syrian rebels. But in a sense, Russia has also strengthened the credibility of jihadi radicals in the Syrian opposition by demonstrating that American ‘red lines’ and presidential promises mean little.”
And that’s not all: To support Syria, Russia has dispatched a missile cruiser to the Mediterranean.
“When I first saw this ship,” says Byron, “I had an odd feeling of deja vu. I’ve seen this movie. Then it hit me. It’s the old Soviet naval vessel Slava (Glory), launched in 1979 and commissioned in 1983.
“In the days of the Cold War, we called this ship an ‘aircraft carrier killer’ — meaning exactly what it sounds like. Note the prominent set of dual tube launchers, port and starboard. There are 16 units, each housing a strike missile with NATO designation SS-N-12 ‘Sandbox.’ Each missile can fly supersonic at Mach 2.5, over 300 miles, carrying a warhead of either 350 kilotons nuclear or 2,200 pounds of high explosive. Yes. Kaboom!”
The ship was mothballed in 1990 as the Soviet Union fell apart, then returned to service under the name Moskva in 2000.
And now it prowls the eastern Mediterranean: “In a botched effort of gunboat diplomacy,” says Byron, “the Obama administration has triggered a visible revival of blue-water ‘great power’ tensions not seen since the days of the Soviet Union. The ripples will spread far and wide. Let me say that again: Is Obama reactivating the Cold War?”
With that in mind, Byron added two names to his watch list in Military-Tech Alert last week. In the meantime, there’s still ample ground-floor opportunity within the cyberwar plays we’ve been writing about the last several weeks. To take advantage of the wealth blueprint found within the Pentagon’s “black budget,” give this a look.
“We, the people of Garrett, Allegany, Washington, Frederick and Carroll County, intend to separate from the state of Maryland and form the new state of Western Maryland.”
Seems there’s a new-statehood movement — “secession” isn’t really the right word — within a short drive of Agora Financial headquarters in Baltimore.
“Annapolis has repeatedly injured us and abridged or denied our fundamental rights and violated numerous articles in the Maryland Declaration of Rights,” reads the declaration of the Western Maryland Initiative. “Our pleas for redress of grievances to the General Assembly and the governor are ignored or rebuffed.”
Among those grievances: a new gun law taking effect in two weeks, requiring fingerprints for new handgun purchases.
The 51st state? [Image from The Washington Post]
Nor is the Western Maryland effort alone. The Washington Post documents three more: “Nearly a dozen northern Colorado counties are the furthest along, with nonbinding referendums set for November ballots. The Upper Peninsula of Michigan is making a move to join with parts of Wisconsin. Northern California counties want to form a state called Jefferson.”
Three existing states have been formed from other states — Kentucky, Maine and West Virginia. Curiously, the creation of a new state is easier than amending the Constitution: A simple majority in Congress, approval by the president and agreement by the affected state legislature is all that’s needed.
“To my amazement,” begins today’s mailbag, “especially with some in your readership, comprehending the root causes of income inequality remains elusive. Though I get your point about manipulated monetary schemes as a contributing factor, the underlying cause is technology and its application to drive improved revenues and lower costs.
“As technology progresses in all fields of endeavor, two things happen. First, money is made by those who innovate or invest their capital in successful technical advances, shifting those who do toward or well into the 1% (and you make your money researching the former and reporting to the latter). Second, most technology-based innovations drive labor savings, helping a broad base of companies do more with less, or have the unintended consequence of eliminating jobs from the middle to the lower end.
“Despite any longing for the quaint days of strong unions and a flatter Lorenz curve, many of those jobs don’t exist anymore, and others will continue to shrink in number. Collective bargaining can’t fix the fact that at $15 an hour and corporate investment interest rates artificially near zero, the CAD designers have already created the plans for the machines and devices that will prepare and serve your fast food smarter, faster, better, cheaper. At $8 an hour (or market labor rate), it may not make economic sense, and the jobs stay until technology can drive the ROI at that rate.
“The human impacts are real, and the defense of diamond-crusted, gold-plated Lambos is impossible at a time when the downwardly mobile unskilled are lathered up and pandered to for votes in exchange for supplemental nutrition. But it doesn’t stop the technology train.”
“Money is created by governments and owned by governments, which do as they please with it,” chimes in another.
“They pass it out to those they consider friends, and the friends use it to acquire properties or the rights to properties of one sort or another, which is to say, real wealth. The money then passes into circulation, and, as more of it does, it is less and less valuable for purchasing properties. If governments simply keep creating money, it eventually loses so much value it becomes essentially worthless.
“Then governments create a new version of money which they tell the citizenry is worth a higher value, and the old money can only buy (be exchanged for) a much lesser amount of the new. By then, of course, the average middle-class citizen is reduced to penury, and government and its friends own most all things of real value. It is one way the politicians and their satraps who run government, and who generally find ways to profit from their actions, increase their power over the mass of the population. Hence neo-Feudalism.”
The 5: What you describe will be the downside to the “re-monetization” of gold as anticipated by Jim Rickards: Sound money is a good thing, but it’s a real downer to have it implemented after central bankers have done so much damage with fiat currency…
Regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “We have confirmed the dates for the next installment of our wildly successful Chill Weekends at Rancho Santana, Nicaragua,” reads an email from our Symposium director Bruce Robertson.
“These events are a fantastic, laid-back opportunity explore the truly unique real estate investment possibilities at Rancho Santana. And to spend some quality time chillin’ in one of the most spectacular places on Earth. There is no sales pitch, no pressure and barely even an agenda… Rancho Santana either speaks to you, or it doesn’t.”
The dates are Nov. 9-13. Members of the Agora Financial Reserve will receive a formal invite later this week. But seeing as only eight spots are available, we figured we should give you a heads-up right here. Interested? Then drop a line to Marc Brown and he can get you squared away.