June 6, 2014
- Opposing Scottish independence, punishing French banks: Just another day running the world
- Is France plotting a replay of its 1960s run on U.S. gold?
- In search of the next Exxon…
- The 5 throws cold water on a jobs milestone
- Signs the small-cap rout might be over
- Eurozone rate cut aftermath… a clever tax-avoidance scheme (that didn’t work)… parsing Pelosi… and more!
“Obama Opposes Scotland Independence,” says the headline at Time’s website.
Sorry, your editor tries to keep the tone light on Friday, going into the weekend and all, but…
Is there nothing occurring on the face of the Earth about which official Washington lacks an opinion? Really, what’s it to you in flyover country whether Scotland breaks away from the U.K. or not?
“We obviously have a deep interest,” said the president, “in making sure that one of the closest allies that we will ever have remains a strong, robust, united and effective partner.”
Apparently, Scottish independence would insult the memory of the troops who stormed ashore Omaha Beach 70 years ago today. Or something like that.
But that’s the way it goes in our Empire of Debt — politicians still trying to control events spinning rapidly out of their orbit. To wit…
“The hegemon does whatever it wants, for its own, often inscrutable reasons, and it does not enjoy being questioned about its decisions,” writes Felix Salmon in the Financial Times.
Late in April, we mentioned the feds were finally pursuing criminal charges against two large banks. Alas, neither was an American bank, and neither offense had anything to do with the frauds that led to the Panic of 2008.
Credit Suisse got nailed for offering tax shelters to Americans. And now the French giant BNP Paribas is in the cross hairs for deigning to do business in countries whose governments Washington does not like. The feds are pressing for a plea deal in which BNP coughs up $10 billion.
More significantly, BNP would be temporarily banned from processing any payments in U.S. dollars — “a key part of any international bank’s business,” Salmon points out.
“America is using its banking laws not to make its financial system safer, nor to protect its own citizens from predatory financial behavior,” he goes on, “but rather to advance foreign policy and national security objectives… Using financial regulation as a vehicle for international power politics is extremely effective. It is also very cheap, compared with, say, declaring war.”
In other words, the BNP case is another front in the financial warfare Jim Rickards writes about in his new book The Death of Money.
Might the French strike back? President Francois Hollande promised yesterday he’d bring up the BNP matter with Obama during a pre-D-Day dinner last night. He called the penalties “disproportionate.”
No, those smiles aren’t forced for the photo op at all…
You gotta wonder: Does anyone in Washington remember it was the French who first noticed the Americans spending billions they didn’t have on guns and butter in the ’60s? The French got wise quickly and traded in as many dollars as they could to collect gold before Nixon slammed the gold window shut in 1971.
We’re fairly sure someone in Paris remembers that, even among the tax-and-spend socialists running the joint now. Something to bear in mind if you see any headlines in the coming months about a trade deal between the eurozone and Russia using euros and rubles, bypassing the dollar.
That’s not a forecast, by the way — but it’s an alternate future, and a plausible one.
Well, at least we have all that shale energy still going for us.
“A few companies are set to ramp up production and grow larger than most Wall Street analysts would ever believe,” says Matt Insley of our energy desk, on the hunt for what he calls “the next Exxon.
“Big Oil left the U.S. oil patch years ago,” he explains. “Companies went overseas, they went offshore, they started researching alternative fuels – with each step, they moved further from conventional oil production. These big companies were thinking conventionally. They thought the commercial amounts of U.S. oil were long gone. And they were dead wrong.”
Meanwhile, “Small companies with determined owners cracked the code to America’s shale plays,” Matt goes on. “They thought unconventionally, and it’s paying dividends today — for citizens and investors alike!
“By some merits, a company like Exxon has become too big for its own good. Sure, the scope of a Big Oil candidate like Exxon offers a ‘safer,’ more diversified investment. But if you’re looking for a growth story, you won’t find it in Exxon.”
Matt has identified five potential candidates to be “the next Exxon.” Each has a market cap a mere fraction of Exxon’s staggering $435 billion value.
Out of respect for his paying subscribers, we’ll withhold the names here. But if you play his guidance right, you could claim a substantial cut of America’s oil wealth — six or seven figures’ worth — in a shockingly small amount of time.
Of course, extraordinary claims require extraordinary evidence… but Matt runs you through the compelling math when you follow this link.
“It is probably time to retire this graph — until the next recession,” quips chartmeister Bill McBride at Calculated Risk.
McBride is the one with the chart tracking the job recovery from every U.S. recession since D-Day. Only this morning, with the release of the Labor Department’s May jobs report, have all the jobs lost since December 2007 been regained.
Of course, the population didn’t stop growing the last 6½ years, so there’s still much ground to be made up.
To the numbers, as conjured by the statisticians….
- 217,000 new jobs last month; that’s four straight months of 200,000 or more, the first time that’s happened since 1999-2000
- The U3 unemployment rate remains 6.3%, lowest since September 2008
- But the percentage of working-age Americans participating in the labor force remains mired near lows last seen in the late 1970s.
John Williams at Shadow Government Statistics still runs the numbers the way they were in the late ’70s. His real-world unemployment rate remains unchanged at 23.2%.
The job numbers, such as they are, just raised the likelihood the Federal Reserve will see its “taper” through to the end.
Recall last December the Fed began dialing back its quantitative easing/money printing. Then, it was $85 billion a month. Now it’s down to $45 billion… and the job numbers make it all but certain they’ll move to $35 billion when they meet later this month.
That makes the following meeting at the end of July decisive. “The showdown comes in July,” wrote the aforementioned Jim Rickards last month.
“If the [economic] data between now and then are uniformly bad, the Fed will pause and then increase money printing in 2015. If the data are mixed, the Fed will finish the taper this year.
“But this does not alter the fact that the fundamental economy is weak and the taper is exacerbating the weakness. If the Fed does not pause in July, they will revert to money printing in 2015 to offset the weakness. Either way, look for QE4 in 2015.”
Stock traders appear to have welcomed the jobs numbers. All the major U.S. indexes are in the green as we write, the Dow cresting 16,900 for the first time and the S&P only two points away from 1,950.
But the small-cap Russell 2000 is the star performer — up nearly 1%, adding to an impressive 2% bump yesterday. “After three months of lower prices, small caps might have just defied the odds and broken free of a nasty little downtrend,” writes Greg Guenthner of our trading desk.
“That’s a much different picture than we’ve seen over the past several months. Since early spring, smaller stocks have noticeably lagged their larger cousins.
“Does yesterday’s action mean it’s time for small stocks to play catch-up? We don’t know yet — but it’s a development we’ll be watching heading into the new trading week.”
Traders in other markets appear nonplussed by the job numbers. Gold is holding onto its gains from yesterday, at $1,253. Crude is likewise nearly flat, at $102.41.
Treasury yields are also little changed, the 10-year note at 2.58%. And currency markets are also quiet the day after the European Central Bank moved to negative interest rates. The dollar index is at 80.45, and the index’s biggest component, the euro, at $1.364.
“It’s a done deal in the eurozone now,” says EverBank’s Chuck Butler, weighing in on the ECB decision.
“And boy, did the markets not like the benchmark rate cut! They sent the euro to the woodshed, and it wasn’t until it was there and had the razor strap taken to its backside (old-timers like me know all too well what that feels like in your grandpa’s woodshed) that it got to come out.
“After the markets had taken their pound of flesh from the euro, it began to come back. And by the time I left the office around lunchtime, the single unit was bruised and battered but not down for the count, and just like in the Rocky movies, it won the battle on the day. That’s right, in the end, the euro was stronger in price than it was before the meeting!”
Indeed, it was. The raw chart action looked positively ridiculous…
The bigger picture? “Now the eurozone has ZIRP [zero interest rate policy], along with the U.S. and Japan!” says Chuck. “The Big Three with ZIRP. It must be catching, eh?”
As tax avoidance goes, it was clever — a church in which everyone’s a minister. Alas, it doesn’t fly with federal judges.
Utah resident Kevin Hartshorn founded the Church of Compassionate Service 10 years ago. Each of the church’s 50 or so ministers took a vow of obedience and poverty, signed over their income and possessions to the church and then were issued debit cards for their daily expenses. By going through these steps, the ministers believed themselves exempt from state and federal income taxes.
“Hartshorn tried to distinguish his case from other instances in which churches were found to be part of a tax fraud scheme,” says the Law360 blog. “He said that unlike other cases, his ministers did not receive their salaries and then donate them to the church. Instead, salaries were paid directly to the church.”
A three-judge panel of the 10th U.S. Federal Court of Appeals isn’t buying it. “Even legitimate ministers’ earnings are subject to federal income taxes,” they ruled this week, “if the minister was acting in his individual capacity, rather than as an agent of the church.” And with that, the judges issued Hartshorn an injunction to knock it off.
“I watched the video of Pelosi trying to respond to the pointed questions of a 16-year-old about the NSA,” a reader writes after yesterday’s episode.
“After listening to her babble, backtrack and contradict herself with duplicitous, spontaneous utterances about the NSA, I had no idea what she said. I have a feeling she didn’t either.
“Take away the teleprompters and most of our politicians sound like utter imbeciles. Is it any wonder our country is going down the tubes?
“Here’s an interesting idea to show just how idiotic she sounded. Can The 5 transcribe her responses so everyone can see just how stupid and disjointed her thinking is?
“California must be proud to have her represent them. How the hell does she get re-elected?
Oy!”
The 5: Hmmm… We’re a little short on manpower today. But as we did a quick Web search to see if someone else had done a transcript (no dice), we came across something equally incoherent.
It was her official weekly news conference one year ago today — the day after the first Snowden documents started making news. Try to follow this…
“What has been — the fact that it is in the paper is concerning, disconcerting to me. The fact that it is happening is something that was done with approval of a FISA court. Having said that, I do believe that we come to the place where we always have to make the judgment about how we balance our security and our liberty. This bill is consistent with the Patriot Act, but the Patriot Act also has in it a Privacy and Civil Liberties Board, and I think this thing in the paper yesterday was it, or was it today? Track message and the source are soon parted. It has been in the news anyway for the last 24 hours, but I think calls into — brings to the forefront the need for us to strengthen and use the Privacy and Civil Rights Board that was put forth by the Patriot Act.”
It goes on… but you get the idea. Or not.
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. Back to the unfortunate tax-avoidance case from Utah for a moment: We have a much better idea to help you keep more of what you earn.
The faceless bureaucrats at the IRS aren’t happy about it… but there’s also nothing they can do about it. No less an authority than the Supreme Court has affirmed this strategy’s legitimacy. Check it out for yourself, right here.]