- The bull market that won’t die…
- … despite overvaluation and the threat of WWIII
- Wait till next year: 2015 Gold Eagles sold out
- He called BS on the Pentagon’s $43 million gas station — and was punished
- Long live the album? Adele’s unique accomplishment
- Jim Rickards, the December rate hike and sour grapes
“‘World War III’ was trending on Twitter Tuesday as the world waited to see how Russia would respond to Turkey shooting down one of its warplanes,” says NBC News.
Much as we’d rather keep a lighter tone going into a holiday weekend, the press of events — both geopolitical and financial — compels us to keep a steely chin and stiff upper lip.
“The Dow should have been down 500 points Tuesday,” writes David Stockman, the former White House budget director and newest member of our editorial team.
The threat of World War III notwithstanding, the Dow ended the day up 20. As we write this morning, it’s tacked on another 23 points.
“And that’s to say nothing,” adds Mr. Stockman, “of the fact that the market’s current lofty valuation makes no sense in the first place.”
Well, as long as he brought it up… profits among S&P 500 companies have fallen $25 billion in the first three quarters of 2015.
“About 96% of S&P 500 companies have reported 3Q results so far,” Bloomberg reports, “and their aggregate net income from continuing operations for the first three quarters is $804 billion, compared with $828 billion for the first three quarters last year.”
For perspective, the S&P 500 index rests this morning at 2,090 — about 15 points higher than it was at this time a year ago, and about 22 times reported earnings.
“At $94 per share, S&P reported earnings came in 11% below last year’s $106 per share,” says Mr. Stockman. “And that was before the most recent head winds became evident.”
Speaking of economic head winds, the Commerce Department delivered its monthly “income and spend” report this morning… and it was a pre-Thanksgiving turkey.
After a two-month break, Americans have resumed their tightfisted ways — personal incomes growing 0.4% in October, but consumer spending growing only 0.1%. That’s bad news for the conventional-wisdom crowd that believes prosperity comes from spending out of an empty pocket.
Worse, the Federal Reserve’s favorite measure of inflation is still stuck in low gear. “Core PCE” in October registered a year-over-year increase of 1.3% — the same the month before, and nowhere near the Fed’s 2% target. If the Fed is looking for data to justify a December rate increase, they’re not here.
“Syria is rapidly taking on the complexion of the Balkans in June 1914,” says David Stockman — turning our attention back to the potential for World War III.
Turkey’s shoot-down of the Russian jet “wasn’t a minor stray pitch,” he says. “It was evidence that a half-dozen lethally armed outside combatants are lined up in a circle, firing capriciously into the hodgepodge of sectarian tribes, political factions and marauding militias that have metastasized within the boundaries of a shattered former state.”
By all accounts, the Russian jet was in Turkish airspace for — at most — 17 seconds. Why didn’t Turkish jets simply escort the Russian jet back into Syria?
“Why in the world,” asks Mr. Stockman, “would Washington’s Turkish ‘ally’ in the fight against the Islamic State, and the NATO member located closest to the front line and with the largest military in Europe, put a near act of war on a such a hair-trigger rule of engagement?”
“Alas, it’s because Turkey is not at war with ISIS,” David answers his own question.
No, it is not. The Turkish government gives lip service to fighting ISIS. But in the multisided Syria war, the Turkish government is far more concerned with 1) knocking out Syria’s President Assad and 2) also knocking out those anti-Assad rebels who are ethnic Kurds. If Syria’s Kurds gain strength, that will only encourage Turkey’s own restive Kurdish minority.
But as for ISIS, Turkish leaders usually look the other way. “Turkey has aided, abetted and funded ISIS by keeping its southern border open with Syria,” writes James Carden at The Nation. “Turkish commodity dealers have funded ISIS through their purchase of, by one estimate, $50 million a month in black-market oil.”
Back to Mr. Stockman: “If Turkey were to close off its border to the oil trade, the financial wherewithal of the [ISIS] government would dry up in a matter of months.”
Some ally, huh?
Back to the shoot-down: “There is also the question of who gave the order to fire — and why,” writes Philip Giraldi, a retired CIA officer with much experience in Turkey.
“Why a relatively minor incursion, if it indeed took place, would warrant a shoot-down has to be questioned, unless it was actually a Turkish plan to engage a Russian plane as soon as it could be plausibly claimed that there had been a violation of airspace.
“Would Turkish President Recep Tayyip Erdogan do something so reckless? Only he knows for sure, but if his objective was to derail the creation of a unified front against terrorist and rebel groups in Syria and thereby weaken the regime in Damascus, he might just believe that the risk was worth the potential gain.”
And it might well have worked: French President Francois Hollande came calling on President Obama in Washington yesterday.
In the wake of the Paris attacks, Hollande is pushing for a “grand coalition” — the Americans, the French, the British and the Russians — to destroy ISIS.
But Obama doesn’t want to play ball until the Russians give up their support for Syria’s President Assad. Ever since the Syrian civil war began in 2011, Washington’s mantra has been “Assad must go.” Obama reinforced the point yesterday, also saying Turkey “has a right to defend its territory.”
“What that means in practical terms,” Mr. Stockman concludes, “is that world is heading down a path to the wrong war — a NATO/Russian confrontation that is utterly unnecessary.
“At the end of the day, you do not have to get very far down the rabbit hole of the war party’s Middle Eastern policy fiasco to recognize that this madness is going to end in something fairly horrific.
“And in that context, buying the dip at 22 times amounts to madness itself.”
[Ed. note: The latest essay by Mr. Stockman at his Contra Corner website — now run in conjunction with Agora Financial — did much to help us shape today’s episode of The 5.
We’re in the process of launching a new research service. In the meantime, we encourage you to visit and subscribe at Contra Corner. It’s free to read and sign up. Here’s where to go.]
It’s a “meh” day in the markets as the few traders on duty mark time until the start of the proverbial “long holiday weekend.”
At last check, the Dow is up 13 points, at 17,825, the S&P still up a point at 2,090.
Gold continues to oscillate around the $1,068 support level, the bid $1,071 as we check our screens. Crude is pulling back after the latest inventory numbers from the Energy Department, at $42.41.
The euro has sunk to seven-month lows at $1.061, pushing the dollar index to seven-month highs at 99.8.
The 2015 one-ounce Gold Eagles are all spoken for. The U.S. Mint has sold out, and it doesn’t plan to produce more.
One-tenth- and one-fourth-ounce coins sold out earlier, so only the half-ounce variety remains available to the Mint’s dealer network.
So far this year, the Mint has sold 801,000 ounces of Gold Eagles — far more than the 2014 total of 525,500. Volume was stronger in the second half of the year as the price drifted down, with sales frequently topping 100,000 a month. The last time that happened was during gold’s big swoon in the spring of 2013.
If you want the 2016 model, the Mint says it will start taking orders on January 11.
Silver Eagles, you ask? The Mint’s dealer network has bought 43,851,500 ounces this year — very near last year’s total of 44,006,000. The final shipment of 2015 Silver Eagles is set for Dec. 14.
Herewith, a sorrier postscript to the sorry tale of Uncle Sam’s $43 million gas station in Afghanistan.
At the start of the month, we told you how the Pentagon spent $43 million to build a compressed natural gas filling station that should have cost $500,000.
Turns out an Army colonel tried to blow the whistle on this boondoggle… for which he became a victim of retribution.
From The Washington Post: “Col. John Hope was the director of operations for the $800 million task force when he questioned its lack of accountability, and then said he had ‘been singled out for retaliation and retribution’ for ‘speaking truth,’ according to a letter Sen. Chuck Grassley (R-Iowa) sent to Defense Secretary Ashton Carter last week.”
Seems Hope had his performance review delayed — a potential career-killer.
The Senate has a hearing scheduled next month about the $43 million gas station. No doubt it will afford senators a chance to huff and puff about “waste, fraud and abuse” — and avoid any discussion about whether the government is accomplishing any good spending $35 billion on the Afghanistan war this year.
OK, we have to find something to make today’s episode of The 5 less depressing. How about the revival of the album?
Well, that’s probably premature in an era when CDs gave way to downloads, which gave way to streaming… but the British singer Adele has just broken the first-week album sales record in the United States, selling 2.4 million copies of her third album, 25. The previous record stood for 15 years.
Curiously, her label is a British independent, XL Recordings — not one of the “Big Three” labels of the present day (Warner, Universal and Sony).
Perhaps a key to 25’s success is Adele’s decision to hold off releasing most of the tunes to streaming services like Spotify — an industry practice called “windowing.”
But she might be an anomaly. “We can’t read that much into Adele’s success,” Mark Mulligan with MIDiA Research tells the Financial Times. “Much of her fan base are older CD buyers. She brings fading music buyers out of the woodwork.”
Your editor must concede: Not being plugged into contemporary pop culture, I’d never heard an Adele song until I listened to the single “Hello” this morning. Her voice is distinctive, for sure. The song itself? Not so much.
But she’s gotta be onto something. On Wikipedia’s list of the best-selling albums of all time, Adele’s 2011 album 21 is the only album from this century to crack the top 25 — unless you count the Beatles’ 2000 greatest-hits collection, 1. (Michael Jackson’s Thriller is No. 1.)
“Cancel and refund fees paid for The 5 Min. Forecast,” says an entry in our inbox.
The 5: Heh… Considering you paid nothing for it — it’s a free complement to whatever paid advisory you bought from us — we can easily oblige!
“When I see readers writing about Jim Rickards being wrong about a rate increase, or more specifically calling him a silly goose, I realize it is usually a reflection of their own reality in life,” a reader writes.
“They have probably failed and been wrong so often in their own life that they celebrate when they see others ‘failing.’ The more pigs wallowing in the mud with them, the better, as they see it.
“As I see it, Jim planted a flag in the ground over a year ago that was far from the consensus view. His view was proven right over and over again in 2015.
“When few would dare risk trying to predict the direction of rates for even a few weeks, let alone a year in advance, Jim stood out amongst the crowd of shoulder-shruggers and has been as close to a clairvoyant on rates as it gets.
“The entire time, Jim has said he would change his model and assumptions if the facts coming in no longer fit.
“Jim is not the ‘silly goose’ here.
“Bravo, Mr. Rickards! Happy Thanksgiving to all at The 5 and Agora Financial!
The 5: Thanks… and likewise!
The 5 Min. Forecast
P.S. Next week, we might explore why Jim was right on his no-increase call for as long as he was — the specific techniques he applied to reach his conclusion.
Or if you don’t want to wait, you can click here and see how to apply that technique for consistent gains as high as 1,616%.
P.P.S. U.S. markets are closed tomorrow for Thanksgiving Day, and Friday’s trading day will be abbreviated.
We’re back on Saturday with our 5 Things You Need to Know wrap-up. The weekday edition of The 5 returns on Monday.