- Happy Scandinavians, not-angry Americans, sad Japanese
- Stresses emerge in an asset class Rickards says is vulnerable to “financial A-bomb”
- Why a weaker dollar is great for blue chip dividend stocks
- The Saudi princes couldn’t kill shale… but they are taking out another target
- Motels that take cash… fighting back in the war on cash… the downside to “cash-back” credit cards… and more!
If, as one of the presidential candidates says, there’s “a lot of anger out there” across the land, the United Nations doesn’t see it.
The U.N. is out with its “World Happiness Report” for 2016. We’ll pause a moment to let it sink in that the U.N. in fact devotes manpower and materiel to compiling a “World Happiness Report.”
[pause…]
The “researchers” take quantifiable measures like GDP per capita and life expectancy… plus less quantifiable things like “generosity” and “perceptions of corruption”… and put them all in a blender and hit “purée.”
Herewith, the 10 happiest nations… plus a few major developed nations for perspective…
The U.S. at No. 13? Sure, it’s not as good as those giddy Nordic countries. But it’s nothing to sneeze at, either.
Japan, on the other hand… what a downer. Guess a quarter-century of economic stagnation will drag anyone into a funk.
Meanwhile, investors are showing “deepening frustration” with Japan’s negative interest rates and “faltering” economic policy, says this morning’s Financial Times.
It wasn’t supposed to work out this way. But less than two months after the Bank of Japan ventured into below-zero interest rates, Japan “is discovering that negative interest rates are not the magic solution for spurring inflation and a weaker currency but are instead bringing their own raft of unintended consequences.”
You mean like hardware stores running out of safes because everyday Japanese want somewhere other than a bank to stash their cash? We spotted that one nearly a month ago.
The yield on a 10-year Japanese government bond fell to a record low today — minus 0.135%. That happened after almost no one showed up for an auction of JGBs today.
“Anecdotally, there is evidence that a lot of overseas investors are saying it’s time to take a chance on offshore markets like the U.S. that have a higher yield,” portfolio manager Jay Mueller from Wells Capital tells the salmon-colored rag.
Sure enough, U.S. Treasury prices are up this morning, and yields down.
The FT story surely affirms Jim Rickards’ suspicions that something big and bad is about to go down in Japan — as he puts it, a “financial A-bomb” whose fallout will affect all of us.
We haven’t had a chance to get his latest thoughts this morning… but we know his concerns center on those very JGBs no one seems to want. He’s on a flight to Tokyo as we write to get on-the-ground confirmation of disturbing reports from his network of contacts.
They tell him a rogue group of individuals is about to detonate this financial A-bomb — with consequences that will cascade around the globe.
“By the time everyday investors and retirees like you will know what happened,” says Jim, “stocks could gap down in a 10%-plus flash crash in a matter of seconds… the selling panic could lead to the shutdown of stock markets, like after 9/11… and major financial institutions will go bankrupt, taking savers’ money with them.”
Jim figures by Tuesday he’ll be able to confirm the information he’s been hearing… and on Tuesday night at 7:30 p.m. EDT, he’ll host a live online briefing from Tokyo. He’ll deliver instructions on how to protect yourself from the fallout… and seize on a once-in-a-lifetime chance to make up to 450% during the next six months.
Sign-up is free and comes with no obligation. We’ll reserve a spot for you when you click here.
Major U.S. stock indexes are on track to notch a fifth straight week of gains by day’s end. At last check, the S&P 500 had crested the 2,050 mark — a level last seen when the calendar was still in 2015.
We’re not noticing any strange trading action even though it’s a “quadruple witching” Friday — one of four days a year in which stock options, stock futures, index options and index futures all expire.
Gold has been knocked back a peg or two, but at last check, the bid was still $1,253 — not much lower than it was at this time a week ago. Barring a last-minute shock, crude is set to end the week above $40.
With the dollar at new lows for 2016, owners of blue chip dividend payers can breathe the proverbial sigh of relief… and maybe add to their positions.
Relative to other major currencies like the euro and the yen, the dollar has taken two big tumbles this year. The first came in early February. “Economic data showed the global economy was weakening,” our income specialist Zach Scheidt reminds us. “This made it less likely the Federal Reserve would be able to hike rates, because without economic strength, raising interest rates could cause a lot of damage.”
Sure enough, the Fed left rates alone this week — and dialed back its expectations for rate increases later this year. That’s the second leg down on this chart:
“The U.S. dollar traded lower because lower interest rates make the dollar less attractive to savers,” Zach goes on. “Why own dollars if the Fed is going to keep rates low? After all, saving dollars earns you next to nothing with rates so low.
“That’s why we’re seeing the dollar fall when compared with other currencies, and I now expect that trend to continue this year. Low rates on deposits are bad news for you if you have money in the bank.”
On the other hand, “A falling dollar is good for companies that are based in the United States and sell products around the world,” Zach says.
After all, overseas customers will need less of their home currency to buy the products of, say, Procter & Gamble (PG).
In addition, “A falling dollar boosts profits when reported for U.S. investor,” says Zach. Three months ago, the euro was trading at $1.05. Now it’s at $1.13. Two billion euros of European profits for a global giant like PG translated to $2.1 billion back then… but $2.26 billion now.
“With higher profits for international companies, we’re likely to see dividend payments increase. After all, these companies will be generating more U.S. dollars thanks to their international operations.
“Higher profits should also send these stocks higher because investors will be willing to pay more for companies that earn bigger profits. Already, we’re seeing PG and other blue-chip dividend payers in Lifetime Income Report trade higher as the U.S. dollar weakens.”
With oil back above $40, the U.S. shale industry is still here.
Weakened, for sure. Heavily indebted, no doubt — and some of the weakest in the herd will still be culled.
If Saudi Arabia set out to wreck shale, it hasn’t worked, says Jody Chudley of our natural resources team. “Breakeven costs for the major shale plays have come down continuously since we started chasing this oil in the last decade. The oil crash has made the industry buckle down more, and the improvements have accelerated.”
Total U.S. oil production is down only 5.5% from its peak nine months ago, because many shale plays are still economic.
What’s no longer economic are many offshore deep-water plays. “By the time some of these wells get drilled,” says Jody, “the total cost can get up to $300 million. When you finally hit your target depth, you have…… wait for it……… roughly a 30% chance of finding some hydrocarbons.”
Back around 2007–08, it was worth the risk. Not now — not when shale oil is so easily accessible. “In January, Wood Mackenzie came out with a report detailing that 27 billion barrels worth of oil projects have now been cancelled. Those barrels were almost exclusively in the deep-water and the oil sands.
“The Saudis haven’t killed shale,” Jody concludes. “They have made us realize how much more attractive it is than the alternatives.”
“I for one do not like the war on cash but use cash all the time,” a reader writes.
“So far, I have not had any problems. I use cash to pay for just about everything from motels to retail stores and eating out, and have had no problems transacting cash with my three banks.
“It will be a sad day if they decide to do away with it.
“And by the way, love The 5 and your humor!”
The 5: Maybe there are still motels that accept cash, but will they give you a room without you showing your ID?
“Recently, I decided to buy some dollar coins at a local Chase branch,” another reader writes.
“The teller asked me if I had an account, to which I replied no. The tellers took turns asking if I had a Chase credit card, to which I replied yes. They said that was the same as having a checking or savings account.
“The teller then said Chase policy requires proof of account or account ID for cash transactions.
“Becoming a little irritated at such nonsense, I asked, why I would need to show proof of an account just to trade paper dollars for coin dollars.
“Both tellers answered almost in harmony, ‘Because it is Chase Bank policy for any cash transactions, regardless of whether paper currency exchanges or coins.’
“Unbelievable! What the hell is going on with banking? The war on cash rages!”
“If I tried to pay my credit card with cash at the bank,” a reader writes in response to yesterday’s mailbag, “and they would not accept it without ID, I think I would go home and send an email to the credit card company and tell them I tried to pay but the bank did not accept my money.
“I would try that every day for a while, curious to see what happens when the bill becomes past due after trying to pay many times. Maybe I would say I am old and have lost my ID. Of course, I am retired and have lots of time.
“I bank at a credit union, which so far has been pretty good. But one thing I did several years ago was to open several extra accounts. I keep $1 in them but ask for an ATM/debit card. I tell my bank no overdrafts allowed. Then I send the ATM card overseas to anyone to whom I want to transfer money. I put money in the account when needed. To you fed agents watching email to The 5, please note… no money to terrorists!!!! And actually…. no transactions needed lately. Mainly, it is to manage my vacation home.”
“For the person who wrote in about paying for everything with a credit card to get cash back, do they know that they are paying for those rewards?”
So says an email from a self-identified “independent merchant for 34 years.”
“The merchant is charged a discount rate for normal credit cards and another 1.5–2% for rewards cards. As a result, most merchants have had to increase their prices to cover these fees.
“One of the best examples of this is Costco. When they did not take credit cards, only checks and or cash, their markup was 10%. After they started taking credit cards, the markup changed to 14%. So everyone that buys there has to pay the additional amount to cover the costs of those that use cards. Thus, they make more money on cash and check purchases.
“If no one used cards, this extra markup would not be necessary to cover that overhead cost. Using your card for cash purchases costs you more and only really makes the banks more money.”
The 5: Thanks for chiming in. You weren’t the only one. It only reinforces your editor’s determination to pay cash when transacting with locally owned businesses. Better to keep the money in the community than send it off to New York…
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. It’s come to our attention that some readers had trouble signing up this week for Jim Rickards’ live online briefing from Tokyo next Tuesday.
We’ve identified the electronic gremlins and put them back in their place. So if you want to be clued into what Jim calls Fallout 2016: How to Prepare and Profit From the Japanese Doomsday Detonation, just follow this link and we’ll make room for you.
