- 255,000 new jobs? What the mainstream gets wrong
- However… the job number just upped your odds of doubling your money
- Small is beautiful when it comes to the post-Brexit stock rally
- In case you didn’t see our insurance warning the first time…
- Fighting back against health-care hacks… The Fed, Wells Fargo and Warren Buffett… Clarifying the key date(s) next month… and more!
The wonks at the Bureau of Labor Statistics just handed you a gift. You already stood a good chance of doubling your money over the next two months. This morning, those odds just got better.
The July job number was good… and the mainstream is getting the totally wrong idea. “The hawks will come out of hiding following this report,” says a summary at Bloomberg’s website, “which definitely brings alive expectations for a rate hike” when the Federal Reserve holds its next policy meeting in mid-September.
Those expectations put an instant hurt on gold. The Midas metal tumbled $20 the moment the report came out. At last check, the bid was $1,340. Almost immediately, Bloomberg piled on with a story claiming, “Renewed strength in the U.S. labor market is threatening to derail the gold rally that sent futures to the best first half in almost four decades.”
Let’s dismantle this nonsense step by step…
First, the particulars of the job report: The statisticians conjured 255,000 new jobs for July — way more than even the most optimistic guess among dozens of economists polled by Bloomberg. The U-3 unemployment rate typically cited by the establishment media held steady at 4.9%.
Beneath the hood, however, the engine is still belching smoke. As we mentioned two months ago, temporary workers are the first to go at many businesses when managers anticipate leaner times — no unemployment benefits to pay. Over the last two decades, a shrinking temp workforce has heralded a recession. For the moment, it’s still growing — but barely.
Meanwhile, the real-world unemployment rate from Shadow Government Statistics — which runs the numbers the way the government ran them during the Carter administration — comes in at 23.0%. The number has hovered around that level now for four long years.
But none of it — repeat none — makes a hoot of difference as far as the Fed’s intentions.
“The Fed has a ‘dual mandate’ consisting of employment and price stability,” Jim Rickards reminds us.
What’s more, the Fed has a funny definition of “price stability,” aiming for 2% annual inflation. And as we’ve mentioned several times in recent days, the Fed’s preferred inflation measure is mired at 1.6%. “It’s not even close to the Fed’s target,” Jim wrote readers of Rickards’ Intelligence Triggers yesterday, “and with oil prices falling lately, it’s likely to stay below target…”
In light of anemic GDP figures, Jim says “a rate hike now could tip the scales to recession and help elect Donald Trump. There’s no way the Democrats on the Fed Board, including Janet Yellen and Lael Brainard, are going to let that happen. The last time the Fed raised rates (December 2015), the stock market crashed 11% in the next eight weeks. The Fed does not want to repeat that blunder, either.”
“The bottom line is that the Fed is in ‘pause’ mode waiting to see definite signs of inflation and higher growth and definitely waiting past the election,” Jim goes on.
“This ‘no rate hike’ scenario is not fully priced in by markets yet. As it gets priced in, gold will continue its rally…
“This looks like a good time to sell (or go short) equities; build up cash; buy gold, silver and mining stocks; and wait things out. We’ll have better visibility after the election. You won’t miss a thing in the meantime.”
As long as we’re taking shots at the mainstream, we can’t help mentioning that at the end of last year, the London Bullion Market Association asked 31 “respectable” mainstream analysts how gold would perform his year.
The midrange guess was $1,103. Again, the bid this morning — even after the post-job report loss — is $1,340. Only three of the 31 analysts thought gold could possibly trade that high at any time this year.
But while mainstream analysts have been busy embarrassing themselves this spring and summer… Jim Rickards and Byron King have been leading readers to consistent gains on up-and-coming gold stocks.
Jim Rickards’ Gold Speculator With Byron King launched only three months ago. The portfolio has 16 open positions, with 14 winners. The average gain among all 16 plays is 63.6%. So as you can see, it’s entirely plausible you could double your money over the next two months. And with the job numbers pushing gold and gold stocks down for the moment, your odds are actually better.
Byron issues his next recommendation six days from now — next Thursday. We’d hate to see you miss out. Follow this link to make sure you’re in on the action.
The other major asset classes are also reacting to the short-term noise of the job numbers.
As we write, the S&P 500 is up three-quarters of a percent, to 2,180. If that holds, it’ll be a record close. The Dow will have a steeper climb to reach a record, but it’s still up strong at 18,513.
Treasury yields are zooming back up, the 10-year at 1.56%. Crude has shed more than 1.5%, a barrel of West Texas Intermediate fetching $41.26.
Gold’s weakness for the moment is only partly a function of dollar strength; the dollar index is up more than half a percent, to 96.3.
There’s a funny thing about the strength in the S&P 500 of late — it’s not uniform.
Going back to the post-Brexit lows on June 27, the average S&P 500 stock is up 9.6%.
“But when Bespoke Investment Group separated the index into 10 deciles, based on market cap, and evaluated the performance, an interesting divergence came into focus,” says Louis Basenese — a recent addition to the Agora Financial stable now that the folks from Wall Street Daily have joined forces with us.
“The 50 largest stocks in the index actually underperformed, rising only 7.3%. Meanwhile, the 50 smallest stocks demonstrated ‘significant outperformance,’ as Bespoke put it, rising by an average of 13.4%.”
Meanwhile, small caps — which are Louis’ specialty — are likewise outperforming, up 11%. “Clearly,” he says, “smaller is better in a post-Brexit world.” That’s certainly the case for the picks in his entry-level newsletter True Alpha — 11 of the 13 open positions are in the green, and half of them are up double digits.
Much more from Louis in the weeks and months to come…
What was it we were saying the other day about low interest rates and insurance companies?
Shares of MetLife are regaining their footing this morning after an 8.7% whacking. The firm announced $1 billion in cost cuts only a day after fessing up that its second-quarter profits had dropped 90%. Thanks, Fed!
“Life insurance companies operate much like pension funds,” said our income specialist Zach Scheidt back in June. “They take your monthly or annual premiums and invest that money. Over time, that money is expected to grow so the insurance company has enough money to pay claims.”
With insurance companies getting pitiful returns on their fixed-income investments, “I expect to see insurance premiums rise substantially,” Zach went on. “That is inconvenient, but it could get even worse. We could see insurance companies have to cut back on claims — simply because they don’t have the money to pay.”
Consider yourself warned, again.
“Your health care records contain more personal information about you than your employer or even your bank,” says Ray Blanco of our science-and-wealth team.
Among the headlines that caught our eye this morning: The insurer Banner Health has informed 3.7 million of its customers that cyberattackers have hit the company… and their data might have been stolen.
“Last year, the top industry for data security breaches was health care,” Ray tells us. “One IT infrastructure think tank believes, ‘About 47% of the population of the United States have had their personal health care data compromised over last 12 months.’ A security consulting firm estimates the rise in cyberattacks is costing the health care system $6 billion per year.”
In Technology Profits Confidential, Ray recently recommended a company poised to exploit the screaming need for better cyberdefenses across a host of industries, but especially health care. Revenues are up 400% over the last four years… with more to come, he says.
After the Federal Reserve gave Goldman Sachs a slap on the wrist this week — more like a gentle caress, we’d say — Warren Buffett might be next.
[Cue scary music, right?]
Wells Fargo is one Buffett’s “Big Four” holdings at Berkshire Hathaway. Bloomberg explains why the Fed is wringing its hands: “Wells Fargo provides financing to many in Berkshire’s sea of subsidiaries. The relationships have triggered questions from agencies including the Federal Reserve into whether legal limits are being exceeded for how much a bank can lend to entities controlled by someone who owns a big chunk of its stock.”
To say nothing of WF’s considerable dealings with another of Buffett’s Big Four — American Express.
We’re confident this inquiry will end in another one of those cost-of-doing-business fines that have become the rule in the post-2008 era. But the reason we bring it up today is to emphasize that bit about WF providing financing “to many in Berkshire’s sea of subsidiaries.”
For all of Warren’s hamburger-chomping down-homey act… he owes his considerable fortune not only to good ol’ value investing know-how, but to a considerable degree of modern financial engineering. Don’t try it at home.
“In yesterday’s 5 you speak of a dollar death catalyst on Sept. 4,” a reader writes. “But in Jim Rickards’ D-Day presentation, he says Sept. 30. “Which date do we need to circle on the calendar?
“Thank you guys for all that you do… Truly amazing!”
The 5: Keep an eye on both. Sept. 4 is the summit of G-20 leaders in Hangzhou, China. Expect much maneuvering.
“China’s President Xi is the president of the G-20 for 2016,” says Jim, “and will stride on the world stage as an equal partner with the U.S. in the management of the international monetary system.”
It’s the climax to years of disparate factors undermining the dollar — or, more accurately, disparate reactions to Washington’s deliberate undermining of the dollar…
- The International Monetary Fund’s advocacy of SDRs, or “world money”
- The relentless gold accumulation by China and Russia
- Saudi Arabia’s search for an oil-pricing benchmark other than the dollar.
But that’s just the warmup. On Sept. 30, a major change to that aforementioned “world money” becomes official. Jim’s been warning about it for years — but now, as he explains here, it’s all coming to a head.
“I want to do something fast,” a reader writes after yesterday’s 5. “I don’t have any gold, but I have a 401(k) — what can I do to protect myself before Sept. 4?”
The 5: With the proviso that we don’t give personalized investment advice… we’d encourage you to hit up your HR people and find out whether your 401(k) has a “self-directed” option.
That way you can break free of the lousy (and fee-laden) mutual funds that are the default choices in many 401(k)s and move instead into the choices Jim recommends.
Have a good weekend,
The 5 Min. Forecast
P.S. Make no mistake about what’s coming Sept. 30, says Jim Rickards: “Not only could this event gut the U.S. stock market… and cannibalize your retirement savings… but it could ultimately END what we’ve come to know as the American way of life.”
Will you be ready?
Let Jim show you how to protect yourself. There’s no long video to watch — just a heartfelt and fact-packed guide to keep you out of harm’s way.
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