- The election or college football rankings? Impertinent thoughts on this week’s market action
- Not a moment too soon: Gold survives a critical test
- The only thing that would dissuade the Fed from a December rate hike
- Peak auto: Sales top out while repossessions rise
- Six days until the “reefer-endum” on marijuana in nine states
- Baseball fans who need schooling in basic economics… gold, the Fed and the Bank of Japan… timeless truths that require patience to pay off… and more!
So all of a sudden the markets have the election willies? Hmmm….
“Tightening polls just a week before the U.S. presidential election have sent tremors through financial markets,” says the Financial Times, “as investors rethought their long-held bets on a Hillary Clinton victory.”
The salmon-colored rag points to the action in the VIX — the market’s “fear gauge.” Early on Friday, it was around 15. By yesterday afternoon, it had moved past 20.
Sounds big… But on a one-year chart, the move looks a lot less impressive…
Golly, the VIX is no higher now than it was around the 10th of September. Does anyone even remember the catalyst for the spike back then? We don’t… and we live and breathe this stuff daily, fer cryin’ out loud.
We can’t say it often enough: Beware facile explanations for day-to-day market movements. Maybe it’s the election. But for all we know, it’s because Clemson is No. 2 behind Alabama in the college football playoff rankings instead of Michigan.
We prefer to deal with facts and not conjecture. With that in mind, we note that two safe havens like the Japanese yen and gold are rallying this week…
Indeed, gold has quietly climbed past $1,300. It was a stealthy move — baby steps from $1,270 on Friday. Checking our screens, the bid is up to $1,302.
“We watched precious metals and miners vault to two-year highs just a few months ago as the Fed backed off a summer rate hike and world markets shook in fear of the Brexit vote,” Greg Guenthner reminds us in today’s Rude Awakening. “But gold’s trajectory changed dramatically over the summer. While the major averages chopped along, gold couldn’t attract any attention. By the time the dust settled, gold had coughed up every ounce of its summer rally as it dropped toward four-month lows.”
From a chart standpoint, gold was approaching a do-or-die moment: “We needed to see the yellow metal bounce at its 200-day moving average. If gold had any shot at finishing what it started in January, it needed to halt its slide.”
Lo and behold…
“Yesterday’s rally,” Greg concludes, “hands us the breakout we’ve been waiting for.”
With that in mind, our Zach Scheidt is eyeing another instant income payout from precious metals this month. That’s on top of the 14 he’s identified so far this year — totaling $4,515.
Who says gold doesn’t throw off an income stream? See for yourself — and make sure you’re on board for the next payout — when you follow this link.
As the morning wears on, the major U.S. stock indexes are drifting lower. The Dow is about to crack through 18,000, after starting the week around 18,160.
Crude’s climb-down continues, a barrel of West Texas Intermediate down more than 3% and threatening to breach the $45 level. The latest inventory figures from the Energy Department show the largest weekly increase on record.
Otherwise, there are no earthshaking economic numbers or earnings reports today. This afternoon, around the time this episode of The 5 hits your inbox, the Federal Reserve will issue its every-six-weeks policy statement. No one expects the Fed to raise interest rates six days before the election, but the statement will be scrutinized for clues to the meeting six weeks from now.
We’ll spare you any suspense: Jim Rickards says a December rate increase is still in the bag — as he’s said for the last month.
“Some commentators have suggested that a surprise Trump victory in the Nov. 8 election might throw the Fed off its expected path, but it won’t,” Jim says by way of an update. “It is true that a Trump victory may cause stocks to decline 10% overnight. But when I discussed this at a recent dinner with Bill Dudley, president of the Federal Reserve Bank of New York, he said ‘it’s not our job’ to prop up the stock market.
“The only thing that could throw the Fed off this path would be if a 10% stock market correction from a Trump win turned into a 15% or 20% collapse with global contagion.”
It’s safe to say we’re at “peak auto”: U.S. auto sales fell 5.8% in October, according to figures out this morning from Autodata. Sales year to date are down 0.2% from the same period in 2015.
Importantly, that’s the number of vehicles — not dollars. From a revenue standpoint, the industry has managed to stanch the bleeding by upping sales of higher-margin pickups and SUVs. But all the same, most people who’ve needed to buy a new vehicle since the “Great Recession” have done so by now.
And a growing number of vehicles sold in recent years are ending up in repo lots.
It was three years ago we mentioned that a quarter of all new car loans were going to borrowers with credit scores of 500 or less. Today’s Financial Times says repossessions will likely total 1.7 million this year — approaching the 1.9 million record in 2009.
A year ago, many of the repossessions were fraud cases — people renting a car under a phony name and never returning it. Now? “More and more, it is people down on their luck and getting their cars taken,” says Ron Neglia, a repo man in Brooklyn.
Still, perspective matters: Total outstanding auto loans are $1.1 trillion. That compares with outstanding mortgage loans of $8.36 trillion. Subprime auto loans won’t take down the system the way subprime mortgages did in 2008.
Something else will. Heh…
“So far, so good,” says the Drug Policy Alliance in a new report assessing recreational marijuana in the four states where it’s legal.
Total marijuana arrests are down. The number of young people smoking weed hasn’t grown much. Traffic fatality rates are stable.
True, the Drug Policy Alliance is pro-legalization. But the info appears to be one more suggestion that ballot measures establishing or expanding legal pot will pass next Tuesday. They’re up for a vote in nine states — including the big one, a referendum on recreational cannabis in California.
Every poll gives the “yes” vote a clear lead. “If recreational marijuana use becomes legal in California this year,” say the Gallup pollsters, “many other states will likely follow, because the ‘Golden State’ often sets political trends for the rest of the U.S.”
The National Cannabis Industry Association feels a tipping point is near: “If all nine initiatives were to pass,” says the trade group’s deputy director Taylor West, “we’d have approximately 62% of the U.S. population living in a state where medical or adult-use cannabis access is legal. That’s huge.”
And potentially lucrative. Six days remain in which you can act on Ray Blanco’s “penny pot stock” research. You can still check it out here.
It’s Game 7 of the World Series tonight in Cleveland… but we still can’t get over an outbreak of economic ignorance in Chicago.
Over the weekend while Games 3–5 were held at Wrigley Field, the nearby bars were charging $250 per person for the privilege of watching the game on TV in rough proximity to the game itself. That did include drinks and a buffet… but if you wanted a chair to sit in, that was extra.
The reaction was predictable: “I was outraged at this apparent monopoly situation that was occurring before us,” said one fan.
How easily people lose sight of supply and demand, laments Abigail Hall Blanco at the Independent Institute: “The demand for seats is putting upward pressure on the price of tables at bars. When demand for a good increases, economics teaches us that the price will naturally rise.”
More marijuana mail: “I called a friend the other day,” a reader writes. “He told me a girl we knew from high school died recently. She drank herself to death. Organ failure.
“Another classmate died two months ago. She overdosed. I suspect fentanyl.
“More people than I can remember died from cocaine-related incidents. Mostly from the prohibition and gangster involvement. The phony war on drugs has killed more people worldwide than anyone can count. Marijuana has never killed anyone.
“P.S. Thank you to the two contributors yesterday. Very wise words.”
“About Jim Rickards’ assertion that the last time the Fed raised rates, gold rallied,” a reader writes: “As a Custom Reserve subscriber, I get quite a few of your publications and, of course, have heard Jim connecting gold’s February rally to the Fed rate increase in December many times in his publications before.
“But on no occasion did he mention the Bank of Japan cutting interest rates into negative territory, which happened on Jan. 29 — which is much closer to the beginning of the gold spike than the Dec. 16 Fed rate hike.
“Does Jim have a reason for omitting the BoJ decision — which seems to me as likely as or even more likely than the Fed liftoff — as a cause for the surge in gold prices in his current writings?
“All the best — and good work on The 5. It’s one of my favorite reads every day. Oh, yeah… and I DARE YOU to print this.”
The 5: Jim’s out of pocket today, conducting interviews for his new book — as we write, he’s talking with Ron Paul.
But we can safely say this: The BoJ decision did everything to help gold and nothing to hurt. True, we’ve heard a lot of analysts — some of them very smart — assert the BoJ move was the catalyst for gold’s big rise earlier this year. But the fact remains the bottom was in nearly a month before that decision: Hot money escaping stocks after the Fed decision started going to gold.
“The debt that has been issued for the last eight years will affect the gold price more than anything else,” a reader writes.
“This debt has to be accounted for, at least the sovereign debt. There is no way the major economies that have issued this debt can default outright. It just won’t happen. The only other remedy is to print, to devalue and to keep long-term interest rates at or below zero.
“The politicians around the world do not have the courage to do what needs to be done. That would end their careers much sooner than they would want, so they will print. One day, most of us will experience what the people of Venezuela are going through right now, and countless others have experienced throughout history, but the ones who caused the problems will be gone, leaving us to suffer the consequences of their actions.
“That day will come for almost all of us, and when it does, those who have held onto their gold, or other commodities, will not suffer the losses they would have if they had done otherwise.”
The 5: You’re undoubtedly right. The problem is you’d have been right at any time in the last eight years and gold tumbled 45% from 2011 through the end of last year.
That’s not unexpected — gold got cut in half during its epic run during the 1970s — but it takes long-term patience for an outlook like that to pay off. Fortunately, that moment might soon be at hand…
Best regards,
Dave Gonigam
The 5 Min. Forecast
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