- Once again, Jim Rickards ventures inside Janet Yellen’s head so you don’t have to
- How traders fell for a head fake with the latest job numbers…
- … and how you can profit from their folly
- Crude alert: 34 tankers of oil waiting for just one event before they flood the world market
- Years after the Panic of 2008, there are still profits to be made from the fallout
- “The Fed has no clue” and other reader reactions to “myCPI”
“Not even close,” writes a reader reflecting the overwhelming consensus of people who tried out the Atlanta Fed’s “myCPI” personal inflation rate website yesterday and reported back to us. “Very understated.”
“I have seen worthless calculators before,” adds one of our regulars, “and this is the worst one I have ever seen. It told me absolutely nothing. Ah, it’s a Fed thing.”
“My CPI was 0.9241, and the national average for my bracket was 1.24,” writes a third. “This test is a bunch of crap. I would say they do these things to keep the mind of the public off the reality that the Fed has no clue.”
We’ll get to more of your replies later in today’s episode. But right now we want to pick up a related theme from yesterday, a point brought up by our Jim Rickards.
Government numbers, no matter how bogus, still matter… because politicians and central bankers use those numbers to make decisions that can make or break your portfolio.
As Jim put it to us, he has opinions about inflation… but they’re not nearly as important as the opinions of Fed chair Janet Yellen. “I try to get inside her head so we can be ahead of the curve.”
And a good thing too. You or I would risk getting hopelessly lost inside there. Heh…
We’re hammering away at this point to illustrate a strange thing that happened in the markets last Friday.
“The U.S. employment report showed larger-than-expected job gains in May,” Jim reminds us. “The economy created 280,000 jobs in May; the March and April jobs totals were revised upward as well.
“Immediately, the market assumed that the economy was stronger than other recent data suggested. This raised expectations for a Fed interest rate increase in September, with some analysts even putting a June rate increase back on the table.”
Result — a big rally in the dollar and a plunge in the euro. Last Wednesday, the euro was trading at $1.13. The Friday jobs report knocked it down to $1.11, and by early Monday, it was down to $1.10.
“The market fell for a head fake based on the headline number,” Jim says. “The real story was elsewhere in the jobs report.”
As we mentioned on Friday, the unemployment rate ticked up from 5.4% to 5.5%. “That may not sound like much,” Jim acknowledges, “but it’s a move in the opposite direction of Yellen’s recent forecast of 5.0%. That forecast was given in a speech on May 22 in which Yellen described conditions she expected to prevail before the time was right to raise rates.
“This is a good example of the types of clues we look for using our IMPACT system of currency analysis. While Wall Street cheered the job creation shown by the report, we viewed the rising unemployment level as a reason for Yellen to wait longer before she raises interest rates.”
We made passing mention Friday why the unemployment rate jumped a bit. This morning, it’s worth exploring in a bit more depth.
“The story behind the increase in the unemployment rate reveals why Yellen will take it slow,” Jim explains. “How can the unemployment rate increase if the economy created so many jobs?
“The answer is that a lot of people came back into the workforce and started looking for jobs. New jobs were added, but the number of people looking for jobs went up also, so the percentage of unemployed in this larger pool of job seekers went up.”
Now… what if that turns from a one-month blip into a longer-term trend? That would mean “there is an ample supply of labor waiting on the sidelines to come back into the workforce,” Jim tells us.
“In turn, inflation and wage pressures will remain weak because there is still slack in the labor market. This means that Yellen can keep rates at zero for longer to encourage more job creation without fear of inflation. Raising rates now could choke off this positive momentum.”
Jim’s sticking to a call he made late last year that was gutsy then and remains well outside the mainstream now — no increase in the fed funds rate during 2015. And even 2016 is looking iffy…
Bottom line: The boost in the dollar last Friday was meaningless noise.
“A rising unemployment rate, weak growth and persistent inflation are not a recipe for a rate increase,” Jim sums up. And markets will catch on: “As markets see that Yellen will not raise rates, capital flows will reverse, the dollar will weaken and the euro will resume the rally it began last March.”
Indeed, the euro is back to $1.13 this morning — exactly where it was a week ago. Last month, Jim said here in The 5 it was on the way to $1.20.
Then as now, the way to play that move is not in the forex market. The beauty of the IMPACT system is that it gives you a way to profit from the currency wars without having to watch a trading screen every waking moment. “This is a brand-new way to make money,” Jim reminds us — with the potential to turn a $5,000 stake into $63,800 of profit inside of a month.
At midnight tomorrow night — less than 36 hours from now — the charter-subscriber discount we’ve offered for Jim’s premium trading service will expire. We’ll send you a last-minute email reminder, but if you’re still on the fence about subscribing, now’s the time to move.
Stocks are on a tear this morning, for no obvious reason. CNBC is reaching for rumors of the 679th agreement since 2010 to buy time for Greece. Which begs the question why rumors of 678th agreement on Monday didn’t spark a similar rally.
In any event, all the major indexes are up at least 1.25%. The Dow is back above 18,000, the S&P above 2,100.
But bonds are selling off, sending yields higher. At last check, the yield on a 10-year Treasury note is 2.477%, the highest in nearly nine months.
With the dollar down today, the commodity complex is catching a bid: Gold is up to $1,187, crude at $60.60.
“When Iran sanctions lift, watch for 50 million or more Iranian barrels to depress oil markets,” says our Byron King with a heads-up for energy investors.
“According to a highly placed source, I recently learned that Iran has at least 34 large supertankers of oil, anchored and positioned in the Persian Gulf and in other spots across the world. In total, we’re looking at about 50 million barrels of Iranian oil in floating storage.”
Assuming Iran reaches a nuclear deal with the United States and the other world powers, that oil would come on the market — maybe sooner rather than later. “They’ll tend to knock down the price of oil,” says Byron, “unless there’s an utter catastrophe elsewhere that shuts off entire regions from export markets.
“No, it’s not the kind of thing that’ll crash markets like, say, last November and December, but it’ll affect share prices for oil producers and service companies. If you’re a long-term investor, you’ll see bargains appear overnight.”
The latest deadline for an agreement at the nuclear talks is the end of this month. Although we’re hearing that will likely slide again, now that Secretary of State John Kerry is laid up with a broken leg from a bicycling accident.
“U.S. banks are still sitting on a mountain of sour mortgages,” writes our Chris Mayer, on the prowl for opportunity.
“There is $163 billion in so-called nonaccrual loans. These are loans that have received no payments for more than 90 days. There is a further $337 billion of loans that haven’t seen a payment in 30-90 days.”
It’s great news for a handful of companies that buy portfolios of distressed loans secured by residential housing. “Once they have loans, they figure out how to make these loans pay. They do this by either modifying the loan terms or through foreclosures.
“In short, they do the dirty work banks don’t want to do.” Not only is it bad publicity for a bank with a smiley corporate face, but new regulations give banks an incentive to unload the loans.
Chris suggests one of these “dirty work” operators in the current issue of Mayer’s Special Situations.
[Ed. note: Both Chris and Byron are on the schedule for our one-day symposium featuring Jim Rickards as the headliner. Jim will unveil his “House of Cards” thesis for the first time a week from tomorrow here in Baltimore for a select group of our readers.
We’ve gotten some inquiries about whether audio of these sessions will be made available. The answer is yes… and you’ll get a generous discount for signing up early. Watch this space for details.]
“My CPI results came in 40% below the ‘National CPI,'” a reader writes as we circle back to reader experiences with the Atlanta Fed’s “myCPI” website. “Puh-leassse — that is not my experience at all.
“Last night, we went out to eat and noticed that the prices at our local restaurant with the best value for the food had gone up across the board. Appetizers went from $7.99 to $8.99, pizzas from $10.99 to $11.99, burgers from $9.99 to $11.99, etc.”
“Our results were even more ludicrous than the ‘official’ number,” writes another.
“My wife and I came in at 1.17% , which in no way captures the increasing expenses in food (milk and eggs most obvious, but also most protein), increases in cost-to-own (utilities, plus staggering increases in property taxes) and greatly increased costs of travel for both business and pleasure — both significant parts of our expenses.
“Gasoline is down for the moment. Yippee.”
“The Atlanta Fed fails to consider geographic locale,” notes one reader. “Tells me I have about 1% inflation. Maybe in Atlanta. In southern California, my personal higher-scale lifestyle is probably running closer to at least 5% annual inflation rate.
“And there is something weird going on whereby the small items are taking absolutely huge jumps. Today I replaced the sweep on the bottom of our glass shower door (keeps water from splashing out under the door). My recollection is that I paid $20 cash two years ago; today it was $25 cash — also note, both would have been higher were I to use a credit card (nudge nudge, wink wink). Rubbing alcohol at the chain-store pharmacy has nearly doubled in three years, and that ain’t the price of oil affecting feedstock and transport costs.”
“ShadowStats wins — no contest,” says a reader referring to the site where economist John Williams reckons inflation is running 7.4%.
“MyCPI reported my inflation at 0.954%. I computed a minimum of 6.06% for the past 12 months.
“I had sufficient data to quickly compute inflation for some expenses. I then multiplied the price change by the percent that category was of my total expenses for the past 12 months:
- Health Insurance — Inflation 40.03%; percent of total expenses 13.9%; net inflation 5.56%
- Property Tax — Inflation 5.03%; percent of total expenses 5.9%; net inflation 0.30%
- Telephone/Cable/Internet — Inflation 3.4%; percent of total expenses 1.5%; net inflation 0.05%
- Gasoline — Inflation (25.5)%; percent of total expenses 1.3%; net inflation (0.33)%
- Sales Tax — Inflation 6.67%; percent of total expenses 1.1%; net inflation 0.07%
- Auto Insurance — Inflation 4.95%; percent of total expenses 1.1%; net inflation 0.05%
- Electric Utility — Inflation 36.2%; percent of total expenses 1.0%; net inflation 0.36% (the legislature authorized the increase to pay for a smart grid).
“Certain major expenses were unchanged: I.e., the income tax rates were the same. For many expenses, I simply lacked sufficient data. However, I don’t remember prices going down.
“Perhaps Janet Yellen reads John Williams and is pushing the rate increase to blunt the runaway stagflation.
“BTW — governments are directly or indirectly responsible for virtually all of the price increases.”
The 5: Can I hear an “amen”?
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “I specifically designed Currency Wars Alert for people who want higher returns without high risk,” Jim Rickards says of his premium trading service applying the IMPACT system. “It is a risk-averse strategy.
“In fact, this strategy should be thought of as safer and more ‘conservative’ than the way most people buy stocks.
“Why? Because you don’t have to take open-ended risks. You don’t have to risk your money like most people do… putting 100% of their retirement money in the stock market constantly, all 12 months of the year — riding stocks up and down at the mercy of Wall Street, the economy… or, worse, at the mercy of the Federal Reserve.
“This service is all about giving you the control over your money. This includes how much risk you want to take. The kind of plays you will see on IMPACT have built-in risk protection.”
To learn more about IMPACT and the risk-reward proposition, look here. But please do so now: The charter-subscriber discount expires at midnight tomorrow night.
