July 28, 2014
- Joe Sixpack’s net worth: Losing ground since 2001
- Why today’s stock market action makes a pullback even more likely
- Light at the end of the tunnel for miners (and it’s not an oncoming train)
- A revolution in prosperity that ended 100 years ago today
- Oil tanker’s delivery shrouded in mystery… The 5 turns communist… the perils of Airbnb… and more!
We hope you’re not a “typical American”… because if you are, you’re a lot poorer now than you were a decade ago.
Research paid for by the Russell Sage Foundation finds median household net worth in 2013 was $56,335. Half have more than that figure, half less.
Back in 2003, the figure — using inflation-adjusted 2013 dollars — was $87,992. We’ll spare you the math: That’s a 36% decrease.
The study examined many levels of income going back three decades. The “typical American” is worse off than “morning in America” in 1984.
Much of the slippage has taken place since the start of the “Great Recession” in 2007. Indeed, nearly everyone has lost ground since 2007… but the more money you had to start with, the better you’ve made out. Only those in the top 10% are better off now than a decade ago…
Let’s keep our focus on the “typical” household, the dotted line representing the median. Now let’s take out the artificially inflated housing values that lifted the line to those lofty levels in 2007. Turns out median net worth was declining years earlier.
“The housing bubble basically hid a trend of declining financial wealth at the median that began in 2001,” writes the study’s lead author, Fabian Pfeffer at the University of Michigan.
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Stocks are slipping as the new week begins. Blue chips are faring best, the S&P 500 down a mere 0.2% as we write, to 1,975.
But the small-cap Russell 2000 is taking it much worse — down three-quarters of a percent, to 1,136.
Which underscores the worried looks on the faces at our trading desk…
“Expect a pullback sooner, rather than later,” advises Greg Guenthner in today’s Rude Awakening.
For evidence, he submits the underperformance of small-caps — not just today, but for months. “After leading the bull higher for years,” he says, “small stocks are beginning to crack.
“Small-cap performance is typically a good gauge of investors’ risk tolerance. That makes the flight to larger stocks a concern for the overall health of the market.”
Another point of concern is something traders label “momentum.”
“We are seeing some cracks in the rally more recently,” says STORM Signals editor Jonas Elmerraji. The two lines on the following chart should not be moving in opposite directions… but they are. The bottom line is the “relative strength index,” a measure of momentum.
“While the S&P 500 has been moving higher since June, our momentum gauge at the bottom of the chart has been trending lower,” says Jonas. “That disconnect is known as a bearish divergence, and it’s typically a precursor to a drop in price.”
As always, when we get a mildly bearish call from our trading desk, we emphasize this is not a call for a crash. Heck, if the S&P tumbled 75 points, to 1,900, this week, that might set the stage for another big run-up…
Gold is holding the line on $1,300. It’s down $4, to $1,304. Silver is down nearly a percent, to $20.56. But platinum is up on the day, at $1,488. Ditto palladium at $879.
Buying cheap stocks… that’s how Day 3 of the Sprott Natural Resource Symposium started off.
Dan Ferris, editor of Extreme Value, took the stage to cover value investing in natural resources. “Or,” he quips, “we could argue if it exists!”
The idea behind finding value in stocks is figuring out what something is worth and paying less than that.
A novel idea indeed!
“Cash flow,” one metric that miners have a tough time providing, is the main factor Ferris uses to determine an equities value.
Luckily for the crowd, Ferris also did the hard work in sussing out two value-laden stocks — one of which is already up 17% in July alone.
So it appears there may just be a light at the end of the tunnel for mining plays after all.
There are signs of life in the prices of gold and miners, says Hard Rock Advisory editor Eric Coffin.
“Volume [in gold miners] is coming in. There is renewed interest here,” he says.
The big “bugaboo” that he’s keeping an eye on, though, is the change in tone from the Fed.
Will this taper talk last?
According to Coffin, monetary inflation in the long term will continue to affect gold. And there’s not much room for rates to rise without hurting the economy.
His conclusion?
“Completely and intentionally,” the Fed will keep rates low.
My conclusion? That means big things for metals and miners alike. That’s why having audio access to Coffin’s full discussion from this year’s event is a must.
And remember, this year’s event was chock-full of must-hear speakers — Doug Casey, Frank Holmes, Keith Schaefer, not to mention Rick Rule, Byron King, Adrian Day, Brent Cook, Matt Badiali and more! To lock in your full-access general session recordings of this event at our discounted price, simply click here today.
For the record, the “classical” gold standard died 100 years ago today.
On July 28, 1914, Austria-Hungary declared war on Serbia, setting dominoes of military alliances tumbling. Serbia’s ally Russia began to mobilize, egged on by another ally, France. Four days later, Austria-Hungary’s ally Germany declared war on Russia. Everyone had called everyone else’s bluff, and soon, much of Europe was being torn apart in World War I.
To pay for the war, the participating nations went off the gold standard. Under the “classical” gold standard of roughly 1870-1914, most of the world’s nations pegged their currencies to gold. No longer.
“This liberal international economic order,” writes former White House budget director David Stockman — “that is, honest money, relatively free trade, rising international capital flows and rapidly growing global economic integration — resulted in a 40-year span between 1870-1914 of rising living standards, stable prices, massive capital investment and prolific technological progress that was never equaled — either before or since.”
Last year, Bloomberg’s Matthew Klein ran the numbers for the U.S. and affirmed Stockman’s assertion: “Industrial production grew much more rapidly under the gold standard than in the years since.” In addition, real incomes per person grew at a slightly faster clip.
With the arrival of a tanker off Galveston, Texas, the U.S. government just gave up on Iraq staying together as one country.
The United Kalavrvta is now offloading $100 million worth of crude. The Coast Guard gave its go-ahead yesterday… but only after running it past the National Security Council, the State Department and Homeland Security.
Why all the bureaucratic fuss? Because the cargo comes from Iraqi Kurdistan.
A bit of history to refresh your memory: After World War I was over, ethnic Kurds were mashed up with Sunni Arabs and Shia Arabs into a new and artificial country called “Iraq.” Last month, it started looking as if the three might go their separate ways: That’s when the too-crazy-for-al-Qaida guys from ISIS took over big Sunni swaths of Iraq.
The Kurds have been itching for independence from Baghdad for nearly as long as “Iraq” has existed. Now they see their chance… and they’re selling oil from their part of the country, ignoring the central government. Prime Minister Nouri al-Maliki can only stamp his feet.
The State Department is washing its hands of the matter: “As in many cases involving legal disputes, the United States informs the parties of the dispute and recommends they make their own decision with advice of counsel,” an anonymous official tells Reuters.
Exactly who bought the United Kalavrvta’s haul from Kurdistan remains a mystery. Says Reuters, “The oil could go to any one of the many refineries located along the U.S. Gulf Coast.”
“You sound like a bunch of commie lovers!” reads one of the more, um, cool-headed emails we got after our musings about Flight MH17 on Friday.
“If you give children matches and gasoline, you are responsible for the consequences,” says another: “Similar for Putin and the Malaysian flight.
“The same can be said for George W.’s ignoring agreements on Ukraine and kicking sand in Russia’s eyes with his missile and NATO nonsense.
“I made a suggestion that Canada could help out Europe by using the Emergency Act to expedite pipelines, and the U.S. could do the same by authorizing Keystone plus allowing export to Europe of raw crude. Only responses were vulgar and nasty emails from a few Europeans that they would rather allow Russia to bully them than use oil from Canada’s oil sands.”
The 5: Glad you recognized Bush the Younger did his part contributing to the mess.
But if we’re talking matches and gasoline, how about State Department official Victoria Nuland, who bragged about the $5 billion the U.S. government spent on “regime change” in Ukraine and installed her own hand-picked prime minister with the help of neo-Nazi thugs who overthrew an elected, if unpalatable, government?
“There does seem to be a little bit of a problem with Airbnb and the like, at least here in California,” a reader writes on a less contentious matter we covered Friday.
“A lady in Redding rented her place for what I believe was supposed to be week. A month later, he still hasn’t left. She even gave him back the rent money to try to get him out.
“I have heard of hotels having this problem too. If they were considered a tenant and you want them out, you have to evict them, which can take up to six months here, plus attorney fees, court costs and the time you lose out on the rental income.
“Love The 5! Still don’t like the long ads.”
The 5: Sure, dredge that up for a new week!
“With regards to your epically long snoozers,” weighs in another reader, “I guess the reptile-brained, old-fart couch potatoes have spoken. But really, why don’t they just invest in Halliburton and prison farms and be done with it?
“What they didn’t mention and you still don’t appreciate is people like me have bought NOTHING from you — that’s right, because you don’t respect the value of your readers’ time (why I’ll only read The 5) and mostly because you don’t share my values.
[Values?]
“FDA drug releases? Fracking? Or just any dim, amoral way to make a buck? You create, with your investments, the world we all live in; sorry it’s so much less than visionary. But at least you give me insight in which direction the dinosaurs are traveling.”
The 5: Feeling good about yourself yet?
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Time’s running out if you want the recordings from the Sprott Vancouver Natural Resource Symposium at the best available price. You can still secure a 25% discount if you act before midnight tomorrow.