- The illusion that just won’t die: December rate hike bad for gold
- Instant income payments from gold — no matter the metal price
- Crude craters as the OPEC emperor is revealed to be buck naked
- In praise of cash: Big institutions catch up to Rickards
- Marijuana: Bigger than booze one day soon?
- Taking the pulse of U.S. factories… the marijuana mailbag… Rickards’ next book… and more!
Oy. Here we go again.
“Gold futures on Tuesday snapped back from a tough October, while the dollar dipped,” says MarketWatch, “as the Federal Reserve was set to settle in for a two-day meeting.”
So far, so good. But the story immediately goes off the rails in the second “graf”…
“That meeting, while not expected to produce an interest rate hike, could shed light on the chances for such a move by the end of the year, a potentially gold-negative development.”
That’s the financial media’s shorthand for: “Look out, gold bugs! Once that December rate hike hits, it’s DOOM for you! The dollar will rally huge, your beloved metal will tank and you’ll be on the street in rags!”
We were first compelled to knock down this nonsense at the end of September, when Jim Rickards noticed another mainstream headline: “Gold Down on Hints of Inflation.”
Then too the thinking was that if evidence of inflation prompted the Fed to raise rates, it would be a boost for the dollar — and, ergo, a kick in the teeth for gold.
As Jim explained, the Fed’s real aim is “negative real interest rates” — when the inflation rate is higher than interest rates. “It does the Fed no good to raise rates unless inflation is going up even faster. Yet that’s exactly when gold does its job of preserving wealth.”
But here’s the real problem for the “December rate hike will crush gold” crowd: They have to square their airy-fairy theories with this chart…
Last December, the Fed executed its one and only rate increase in the post-Panic of 2008 era. The move nearly coincided with a six-year low in gold at $1,050. As we check our screens this morning, the Midas metal sits at $1,285.
As we pointed out yesterday, the mainstream is assuming that once the Fed raises rates again next month, it will keep doing so into 2017.
But that’s what we were told when the Fed raised rates a year ago. It didn’t pan out then, and it won’t pan out now.
To emphasize a point our income specialist Zach Scheidt made here yesterday: “If the Fed were to continue to raise rates, it would make U.S. goods and services less competitive. It would cause profits to drop. And this would kill the fragile economic recovery. The Fed does not want this to happen. And so the Fed will not be able to raise interest rates much in the future.”
Once that realization sets in, the whole higher-dollar-lower-gold thesis starts to fall apart. And that will clear the way for gold to reclaim its highs from this past summer… or soar even higher.
[Ed. note: We’d like to remind you once more of Zach’s strategy to squeeze instant income payments out of the Midas metal. So far in 2016, he’s shown readers how to collect as much as $4,515… in 14 installments…
You could have collected these payouts while gold was soaring earlier this year… while it was meandering in late summer/early fall… and after gold’s big drop in early October.
Still not convinced? Watch this new footage from our publisher’s personal brokerage account. Pay close attention to what happens 64 seconds in. It might change everything you “know” about gold. Click here to watch.]
The major U.S. stock indexes remain stuck in yesterday’s holding pattern. The Dow is off 24 points at 18,118. Treasury yields are drifting higher, the 10-year at 1.87%. As noted above, gold is clambering back to a four-week high.
It being the first of the month, we’re getting a read on the health of the U.S. factory sector with the ISM manufacturing survey: It inched up last month to 51.9. About the best that can be said is that it marks two straight months with a reading above 50 — which is the dividing line between a growing factory sector and a shrinking one.
For once, the big merger-and-acquisition news is about a deal that won’t happen: Newspaper publisher Gannett is giving up its unsolicited bid for the company formerly known as Tribune Publishing. As we noted months ago, one of the maneuvers Tribune used to fend off the takeover was to change its name to tronc. Hey, it worked!
“It looks like oil traders are getting a little tired of OPEC’s shenanigans,” writes Greg Guenthner in today’s Rude Awakening.
Since early August, crude has risen steadily with each rumor that OPEC nations were on the verge of agreeing to a production cut. (Uh-huh.) At one point, they had an agreement in principle — but it wasn’t supposed to take effect until this month. (Yeah, right.) They were supposed to hammer out the details during a meeting in Vienna last weekend. (Pull the other one!) And they failed.
With that, traders called BS on the whole charade yesterday, sending crude down 4%. All of the past month’s gains? Gone…
“As crude fails to hold near $50 this week,” says Greg, “the probability of a year-end rally dwindles. For now, crude is acting like the major averages: stuck in a choppy range.”
Never underestimate the value of cash in a portfolio, says Jim Rickards.
Jim reinforced the point yesterday to readers of Rickards’ Strategic Intelligence — noting that portfolio managers at several large institutions are recommending cash right now. Chief among them is Mohamed El-Erian of Allianz, one of the world’s biggest insurance companies.
“The reasons given,” said Jim, “include uncertainty surrounding the U.S. elections, overvaluations in stocks and falling bond prices as interest rates begin to rise around the world.
“Yet there are other reasons that don’t show up in the media and market surveys. Cash reduces the overall volatility of a portfolio (it’s the opposite of leverage in that respect). When you own volatile assets such as stocks, currencies and gold, cash takes some of the volatility out of their price movements from a portfolio perspective.”
Cash also gives you choices — or in finance parlance, optionality: “If other investors change their minds about portfolio composition, it can be costly to exit stock and bond positions in a market panic, whereas the holder of cash is always ready to swoop in and pick up bargains when the opportunity presents.
“Cash often lacks appeal to investors because it doesn’t offer big immediate gains. But for the patient investor, cash offers the biggest gains of all by avoiding losses. Cash allows you to ‘go shopping’ when other investors are desperate to sell.”
Could sales of legalized marijuana one day overtake sales of alcohol?
No, this isn’t about the cannabis measures on the ballot in California and eight other states next week. This is about Canada… where the government of Prime Minister Justin Trudeau plans to introduce a bill legalizing and regulating weed next spring.
The consulting firm Deloitte has issued a report saying legal pot in Canada could be a $22.6 billion business — more than beer, wine and spirits combined. “There hasn’t been anything like this — and granted it wasn’t legislated — but you think of the dot-com… flurry, it has that kind of feel to it,” Deloitte’s vice chair Mark Whitmore tells the Toronto Star.
Hmmm… Canada’s population is 35.2 million. California’s population is bigger — 38.8 million. And as we’ve been saying for days now, California voters go to the polls a week from today to decide whether recreational marijuana will be made legal in the Golden State.
No wonder our Ray Blanco is seeing dollar signs for people who get into a carefully chosen basket of “penny pot stocks” in the next week. If you haven’t checked out his research yet, time’s starting to run out.
“Here’s an idea,” writes one of our longtimers weighing in on our weed thread: “If you think marijuana is harmful, don’t smoke it (smoking is not the only delivery mechanism, BTW).
“Why are so many so determined to run other people’s lives?
“I do not use marijuana, but I fully support others’ right to do so, with the usual caveat of not interfering with my rights.
“I’ll take any unintended consequences over government meddling and control. Every ‘war’ that the government has decided to execute has resulted in vast human tragedy and even greater squandering of capital.
“After a half century of wars on drugs and poverty, there is nothing positive to show for it. Instead, we have more people imprisoned than Russia, North Korea and China combined and trillions flushed down bureaucratic black holes.
“It’s amazing to me that so many seemingly intelligent people continue to support these failed policies.
“If someone wins this election, I may decide to enjoy some edibles, legally in Washington state.”
“I smoked marijuana from Thanksgiving Day 1970 until sometime in 2012,” writes another. “I don’t remember the date that I quit smoking it on. It wasn’t a big deal when I quit. It was just something that happened.
“I have just started smoking it again, just a little just to see what it’s like, because of all of the notoriety it has been getting lately.
“It isn’t physically addictive — however, it can be psychologically addictive for some people. I’ve known people who had smoked so much pot they became airheads. Not even knowing what day it is. These cases are few and far between and not the norm. It’s the same as someone drinking themselves to oblivion.
“Marijuana isn’t the danger drug that the government and others have tried to make it out to be. It will be discovered that it’s more beneficial than anyone ever dreamed that it would or could be.
“More pharma companies will get on board as the legalities get worked out, and there will be more money made from this plant than any other.
“Hats off to the marijuana plant.”
The 5: You might well be right. There’s immense potential, to say the least…
“I do love to read The 5, and I also love to read and listen to Jim Rickards…”
[We’ve been at this long enough to know the “but” comes next.]
“… but I must admit that I have this feeling that the SDR [the International Monetary Fund’s ‘world money’] will encounter speed bumps that will hasten its demise in favor of gold as a global reserve currency.
“In fact, I see a big bump in the road that is more like a jump with a misplaced landing ramp, at best. I refer to the demise of the euro.
“Can you imagine the haggling at successive G-20 meetings as European countries pull out of the EU and try to re-establish their sovereignty and old currencies? Bundling various currencies into the euro was easy, as was inserting the euro into the SDR to replace them, but this can of worms will be hard to untangle and will not be done by a single quick dispatch this time around.
“This is a sure setup for a volatile SDR and an even more volatile Europe. Jim could write a whole new book on this.”
The 5: All we’ll say at this time is Jim does have a new book coming out in two weeks. More to come…
The 5 Min. Forecast
P.S. What if the secret to getting rich quick is hiding inside this obscure FINRA document?
When world-renowned trading strategist Michael Covel told us about this, we thought it couldn’t be real.
But then he showed us proof… after proof… after proof… and it STUNNED everyone in our office.
If you’re looking for a way to grow your nest egg as fast as possible, we urge you to check this out immediately.