- The only thing we know for sure about Trump’s inscrutable nuke tweet
- Why defense turned big profits even as Obama “gutted” the military…
- … and why those profits will grow even as Trump berates defense CEOs
- A test of the “no harm to taxpayers” bailout rules in Europe
- Why Deutsche Bank still poses a systemic risk despite settling with the feds
- The origins of “Generalissimo Francisco Franco is still dead”… a reader invokes Ronald Reagan to slam Jim Rickards… paying more and getting less for Medigap coverage… and more!
Once again, the president-elect has used 140 characters to troll the world…
With that, hours of cable-news airtime and gigabytes of internet bandwidth were wasted trying to unpack what he meant. No one had any clue.
Nor is it any clearer this morning after he did an interview on MSNBC: “Let it be an arms race,” he said. “We will outmatch them at every pass and outlast them all.” Who is “them all”? What would “coming to its senses” look like? Even his own paid lackeys were stepping on their own manhood trying to explain it.
We have no more idea than any of them what he meant. All we know is it’s going to be expensive… and for an investor, it will pay to follow the money.
Really, Trump’s tweet is no more incoherent than Barack Obama’s policies these last eight years.
In April 2009, Obama gave a grand speech in Prague, pledging “America’s commitment to seek the peace and security of a world without nuclear weapons.”
To begin delivering on that promise, the United States and Russia came to terms on the “New START” treaty in 2010. The treaty cut by half the number of strategic nuclear missile launchers — but not the number of stockpiled nuclear warheads.
To get Senate Republicans to sign onto this modest reform, Obama agreed to a program that would “modernize” the nation’s nuclear arsenal — a years-long undertaking now likely to cost upward of $1 trillion. Which seems like a strange way to achieve “a world without nuclear weapons,” but that’s just us…
For all the conservative caterwauling about how Obama has “gutted” the military, defense stocks have been a big winner during his presidency. They will be an even bigger winner under Trump.
Here at Agora Financial, we saw through all the nonsense five years ago. At that time, the Beltway chatter was all about the “sequester” — automatic spending cuts under the 2011 Obama-Boehner budget deal that would supposedly “devastate” the military and the defense sector.
On Veterans Day 2011, in the gone-but-not-forgotten Apogee Advisory, our executive publisher Addison Wiggin called BS on the charade: Any discussion of “spending cuts” in Washington merely means slowing the previously planned rate of growth. Against the grain, he suggested buying into a defense-sector ETF — iShares Dow Jones U.S. Aerospace and Defense (ITA).
ITA tracked the S&P 500 into mid-2013 — itself not a bad thing — and then it really took off at the very time the “worst” of the “cuts” were kicking in…
Not only were the cuts less than they were cracked up to be, but defense contractors profited from a surge of overseas sales — especially to U.S. allies in Asia feeling itchy about China and North Korea.
Don’t feel bad if you missed out on this stealth defense boom of the last five years. Trump will ensure more and better is to come.
The moment he won election, “the countdown clock had started speed ticking on a time-sensitive investment window in the defense spending space,” says Jim Rickards.
Yes, we know: Trump summoned defense CEOs to his Mar-a-Lago resort in Florida yesterday to dress them down over the costs of programs like the F-35 fighter. Pay no nevermind: The big picture is what Forbes reported a few days after the election — Trump is set to raise military spending by as much as $1 trillion.
Sure, you can buy shares of ITA. In fact, it was one of the first post-election recommendations in Rickards’ Strategic Intelligence, Jim’s entry-level newsletter. It’ll be good for a steady 15–20% a year under a Trump administration.
But there was something else Jim knew last month, based on his long relationship with people in both the military and the intelligence community — recall Jim took part in the Pentagon’s first-ever financial war game, nearly eight years ago.
He knew that certain niche players in the defense space stood to generate staggering sums of money from this new spending wave.
That fact is behind his latest project — which he’s rushed to completion, knowing there’s a limited window of time in which to make the most of the coming defense-spending boom. We urge you to check out the fruits of his efforts right here. There’s no long video to watch.
The proverbial “Santa Claus rally” is stalling out… and once again, Dow 20,000 is just out of reach.
As we check our screens, the Big Board has shed six points, to 19,912. The S&P 500 and Nasdaq are likewise in the red by a smidgen. Gold is hanging tough at $1,133.
The big economic numbers of the day include new home sales — up 5.2% in November. But on closer inspect, the three-month average looks little changed from last summer. Meanwhile, consumer sentiment as measured by the University of Michigan has reached a new post-Panic of 2008 high.
With relative calm in the markets, traders are whistling past the graveyard of European banks.
For starters, after daily rumors for the last week, the Italian government will bail out the sickly Monte dei Paschi bank. Generalissimo Francisco Franco really is dead now.
Under European Union bailout rules that aim to avoid soaking taxpayers… junior bondholders will see some of the debt they hold converted into Monte dei Paschi stock. Those junior bondholders include tens of thousands of everyday retail investors.
Hmmm… Will bank stock be seen as adequate compensation? If it’s not, the BBC warns it “could provoke political unrest, potentially undermining the government, and playing into the hands of anti-establishment parties. It could also weaken other banks if savers rushed to withdraw their cash.” The story’s nowhere near over…
[Trivia aside: The gag about “Generalissimo Francisco Franco is still dead” from Saturday Night Live’s first season has a basis in fact — aside from the Spanish dictator’s death in 1975, that is.
According to Barbara Matusow’s 1983 book The Evening Stars — a history of network news up to that time — NBC News anchor John Chancellor thought it was a huge deal when word emerged that Franco was on his deathbed. And it was… but on Chancellor’s insistence, Nightly’s lead story was Franco’s impending demise for five nights running before he finally croaked.]
And then there’s Germany’s teetering giant Deutsche Bank — where the worst is not over, despite reaching a settlement with the Justice Department.
The Obama administration, trying to wrap up loose ends, has come to terms with Deutsche’s U.S. unit for its shenanigans with mortgage-backed securities in the run-up to the Panic of 2008. The penalties will amount to $7.2 billion — about half the amount the Justice Department first proposed three months ago. Even that amount, however, will be a stressor on DB’s shaky books.
But forget DB’s legal costs: The real story is still “the bank’s gargantuan derivative exposure and its plain-vanilla bank loan exposure,” says Dan Amoss of our macro research unit. DB is saddled with $21 billion in distressed corporate loans; it hasn’t set aside nearly enough to cover those potential losses.
“While most Wall Street analysts are modeling just 700 million–1 billion euros in annualized loss provision expenses in 2017–18,” says Dan, “we expect a spike to 3–4 billion euros. If our higher loss provision expense estimate is closer to the mark, DB’s earnings would be deeply negative. And EU bank regulators would require continued capital raises at costs that would radically dilute (or cripple) today’s shareholders of DB.”
Here we return to a key point Jim Rickards made three months ago: If Monte dei Paschi in Italy doesn’t get a taxpayer bailout, Deutsche Bank can’t very well get one, either. Deutsche doesn’t get a pass on account of its sheer size; if European leaders make an exception for DB, Italy will say arrivederci to the European Union. That would be a market earthquake far bigger than a run on Italian banks.
“There he goes again,” writes a reader invoking Ronald Reagan… only the reader is hitting out at Jim Rickards.
“Most of the Agora publications continue to talk about Jim Rickards’ ‘successful’ track record of predictions this year, mentioning Fed rate hikes, Brexit and Trump’s victory. I must be the only one who remembers ‘the death of the dollar,’ Goldfinger and SDRs (among others).
“And when you say that his call for gold at $10,000 was never meant to imply it would be a straight line up…. well, that is just completely disingenuous. Gold is lower now than when he made EVERY single one of his predictions. The dollar is at a 14-year high, the 180 degree opposite of EVERY one of his predictions. And then he switched gears by saying there is now a dollar shortage. And now he is saying there will be ANOTHER yuan devaluation, which will lead to an even higher dollar. And now he is saying that gold could go to $950? Isn’t anyone paying attention?
“At this point, I honestly do not understand why anyone believes anything that he has to say. When you add up ALL his predictions this year, his track record is absolutely horrendous. And yet he continues to push a 10% allocation to gold and silver. What about all the people who already have that 10% from his previous predictions over the last year and have watched that allocation devaluing quicker than the euro?
“I would say that I dare you to print this, but I won’t bother.”
The 5: We’d invoke the old line about inevitable events not necessarily being imminent… but we won’t bother.
What’s more, we suspect you know better: The 10% gold allocation isn’t about snagging a capital gain in the next six or 12 months. It’s about wealth preservation against the unpredictable depredations of politicians and central bankers.
On the topic of medical costs, a reader writes: “I’m retired and on Medicare and have had a supplemental plan or Medicare Advantage plan since then at a modest cost per month. Good thing, too, because nearly two years ago, I had open heart surgery to replace a bad aortic valve.
”Anyway, for 2017, I have had to change to a plan with lesser coverage because my current plan has been dropped! This is the second year in a row this has happened, with two different insurers. When I searched other companies, they either cost a bunch more or my doctors did not participate, or something else like way less coverage. I will soon be on a plan with no monthly premium but with less coverage, and I guess that makes sense.
“I guess the insurance companies’ loss ratios for my area were too high, so they dropped out. What else could it be?”
“I am a physician and can say there is nothing I learned in college that wasn’t covered in medical school,” writes an MD, adding to our higher-education thread. “Just sayin’.”
The 5: Ah, yes, but you had to get that four-year degree before they let you into medical school. That’s the brilliance of the whole scam!
Merry Christmas,
Dave Gonigam
The 5 Min. Forecast
P.S. We’re back as usual tomorrow with our weekly wrap-up 5 Things You Need to Know… and then we’ll be going into holiday mode for a few days. The Agora Financial offices will be closed for both the “official” Christmas Day observance on Monday the 26th… as well as Tuesday the 27th. So we’ll be back with all-new episodes of The 5 on Wednesday the 28th.
