The Car Crisis of 2017

  • The man who “neither admits nor denies” pilfering $1.6 billion in customer funds
  • “The next subprime” is finally here… plus, “the easy, perfect way to make a mint from it”
  • Even the real job numbers are the “least worst” in more than four years
  • The rocket rise of China’s currency: Rickards in search of the real story
  • We finally answer a complaint we get whenever we write about biotech

After more than five years, the book is closed on the case of Jon Corzine. There is no justice.

We’re going to dive into some skeevy financial history today by way of spotlighting a major investing opportunity of 2017 — about which more shortly.

Corzine is a poster child for the “financialized” U.S. economy. It was under Corzine’s tenure as CEO of Goldman Sachs that the company laid the groundwork to go public in 1999. That was the climax to Goldman’s decades-long transformation from a staid partnership in which the partners put their own money at risk… into a too-big-to-fail “vampire squid” that put taxpayers’ money at risk.

His work at Goldman done, Corzine then jumped into politics — becoming first a senator from and then governor of New Jersey.

In 2011, Corzine blazed new trails in financial shamelessness when in a matter of days his brokerage, MF Global, collapsed in a heap.

MF Global was a storied firm with a lineage going back to 18th-century England renowned for its conservative portfolio approach. Then Corzine became CEO in early 2010 and instantly transformed it into an exciting go-for-the-gusto outfit.

In the firm’s trading account, he made huge bets on European government bonds. The bets quickly went sour. To meet the margin calls… he raided customer accounts to the tune of $1.6 billion.

At the time, a Stanford business professor described such a move as “the third rail of the brokerage industry.”

It took more than two years before MF Global’s customers were made whole — including Gerald Celente, the pugnacious author of books like Trends 2000 and a regular on the TV interview circuit.

We told the story at the time: Mr. Celente was accumulating physical gold by buying gold futures through MF Global and then taking delivery.

On a Monday morning as the firm was melting down, Gerald’s phone rang: “They said I needed to have a margin call,” he told an interviewer on RT. “I said, ‘What are you talking about, I’ve got a ton of money in my account?’ ‘Oh, no, you don’t. That money’s with a trustee now.’”

For touching the brokerage industry’s third rail… Corzine experienced a shock no worse than a bit of static electricity petting the dog on a dry winter day.

The feds never brought criminal charges. (Gee, we wonder if Attorney General Eric Holder squashed the investigation the same way he did HSBC’s money laundering…)

Corzine and other MF Global executives settled a civil case with customers last year for $132 million.

This morning brings word of the final chapter: Corzine will fork over $5 million to settle a lawsuit brought by the Commodity Futures Trading Commission. The terms are more or less as we described them back in October. The only unresolved question was whether Corzine could tap MF Global’s insurers to pay the settlement. Now we know he cannot. The Wall Street Journal calls it “an unusual step that highlighted that the case was a high priority for the CFTC.”

But in a fundamental sense, Corzine still skates: Under the settlement, he neither admits nor denies the allegations. In other words, business as usual…

Impunity, thy name is Jon Corzine.
[Photo by Flickr user Tony the Misfit]

Now to the present opportunity: Gerald Celente tells us he’s spied “an approaching financial crisis the likes of which you haven’t seen since the housing bubble burst — and the easy, perfect way to make a mint from it.”

Well, that made us sit up and pay attention — not least because in December 2007, he wrote a mock news story about “the Panic of 2008.”

Gerald joined the Agora Financial team back in August. We wanted him on board because of prescient calls he made like that one… and how he anticipated gold’s huge bull run in the first decade of this century… and how he foresaw the 1987 stock market crash. To say nothing of a plain-spoken, take-no-prisoners attitude befitting a child of the Bronx.

Recall the broad outlines of how the housing bubble burst: Wall Street took “subprime” mortgages taken out by borrowers with a history of poor FICO scores… and packaged them up into securities that were peddled to big-bucks investors as AAA-rated and ultra-low risk.

Goldman Sachs, by the way, was a key player in that trade. Emails made public after the Panic of 2008 revealed many Goldmanites knew these investments were trash: “How much of that s****y deal did you sell?” said one.

2017 will be the year subprime auto securities go south, says Gerald.

Here at The 5, we’ve been anticipating this development since late 2013 — when we first noticed more than a quarter of new car loans were going to people with sub-500 credit scores. And when used car dealerships were starting to advertise, “No Credit. Bad Credit. All Credit. 100% Approval.”

At a time when the auto industry is patting itself on the back for another year of record-high sales, reality is about to intrude — good and hard.

The credit-reporting firm Experian says nearly 23% of all U.S. auto debt is subprime. And another 22% is “nonprime,” taken out by customers with less-than-pristine credit.

Now… as we’ve said in the past, the auto loan market isn’t anywhere near the size of the mortgage market. Subprime auto loans won’t take down the system the way subprime mortgages did nearly a decade ago. But they will have an impact on many financial firms and on the automakers.

Gerald has identified the way to profit just as people who pulled off “the big short” profited in 2008. And that’s just one of five profitable trends for 2017 that Gerald has plotted on what he calls his “road map to riches.”

He’ll unfold this map and lay it out on the table for you to see during a live event next Thursday, Jan. 12, at 7:00 p.m. EST. It won’t cost you a cent to access; we ask only that you shoot us your email address so we know how much server space to set aside. Here’s where to sign up.

[Warning: As noted above, Gerald is outspoken. You might not agree with all his conclusions. But you owe it to yourself to hear him out. 2017 could be your most prosperous year ever if you do. Make sure you have access to this free live event by signing up at this link.]

To the markets… which can scarcely rouse themselves to react to the monthly job numbers.

At last check, the Dow was up nine points, at 19,908. Treasury yields have backed up a bit, the 10-year at 2.41%. Gold has backed off a bit, the bid at $1,176.

The job numbers were mediocre. The wonks at the Bureau of Labor Statistics conjured only 156,000 new jobs for December — less than expected, and barely enough to keep up with population growth. The unemployment rate ticked up to 4.7%.

The bigger story might be wage growth; average hourly earnings jumped 0.4%, the second such gain in three months. The wage figures have been rising steadily for two years now, and that will likely reinforce the Federal Reserve’s intentions to raise interest rates three times this year.

Back in the real world, where many jobless people gave up looking for work long ago and where part-timers want a full-time gig… unemployment as calculated at Shadow Government Statistics is 22.7%. If you want to look on the bright side, that’s the lowest this figure has been since October 2012.

The big move in the currency markets is the Chinese renminbi — which just registered a record two-day gain against the dollar.

It’s not an organic move. Rather, the People’s Bank of China is cracking down on speculators betting the renminbi will fall.

If you read the financial press, the story is that the PBOC wants to demonstrate who’s in charge and that it won’t tolerate wagers against the currency at a time Chinese growth is slowing and China’s debt burden is rising.

But around here we can’t help wondering if the Chinese hope to fend off President-elect Trump’s warnings about labeling the country a “currency manipulator” as soon as he takes office two weeks from today. That’s something the Obama administration threatened regularly, but never pulled the trigger on.

Jim Rickards has been watching this situation closely for a while… and he’s in China gathering ground-truth intelligence this week. Stay tuned…

Velocity is back in our mailbag: “Dave, thank you for the timely response to my question about the relationship of consumer sentiment (via indexes like the University of Michigan survey) and the demand for money,” a reader writes.

“I want to challenge the notion of money velocity in the answer that you provided. As Murray Rothbard wrote:

“‘At any one time, there is a given total stock of the money commodity… There is, actually, no such thing as “circulation,” and there is no mysterious arena where money “moves.” At any one time, all the money is owned by someone, i.e., rests in someone else’s cash balance. Whatever the stock of money, therefore, people’s actions must bring it into accord with the total demand for money to hold, i.e., the total demand for money.’ (Man, Economy and State, With Power and Market: Scholar’s Edition, pp. 760–1).

“I agree with Rothbard to reject money velocity. Instead, I look to consumer sentiment surveys as the best proxy for gauging demand for money (higher sentiment translates into looser wallets, and vice versa). Any further thoughts on this?”

The 5: What happens in a hyperinflation?

At such a time, we suspect “consumer sentiment” would be in the dumper… even though people would be furiously exchanging their paper money for anything tangible, even if it’s stuff they neither need nor want.

Heck, we don’t need to engage in hypotheticals: Inflation as measured by the consumer price index peaked at 14.6% in March 1980. The University of Michigan was already doing its survey in those years. It bottomed at 51.7 in May 1980 — a record low that still stands today.

“I think people should take responsibility for their own health,” reads an email of the sort we often get when we spotlight a biotech investing play — as we’ve done a couple times this week.

“I have canceled all my insurance policies. I insist on eating real as opposed to processed and refined food. The ‘health care’ systems you speak of are founded on sickness rather than health. We have forgotten that food is our best medicine, as well as one of our greatest pleasures.”

And on the topic of a blood-thinning drug we discussed yesterday, another reader writes: “How about a different blood thinner that works well, has virtually no side effects, only costs a few cents per dose and has been around for a long time. It’s called nattokinase, available from any serious supplement company. Or eat enough of a Japanese staple food called nattō (it definitely is an acquired taste!).

“Of course, Big Pharma can’t make obscene profits from nattokinase because it is a naturally occurring food extract or nutraceutical, nor will it sell expensive newsletters. I dare you to print this one!

“P.S. At 70, I don’t take any prescription drugs, do take a fist full of supplements (including nattokinase) each day, play racquetball three or four times a week (taking great delight in destroying ‘kids’ half my age) and enjoy more than an occasional two–five-mile walk in the park. My Medicare Advantage plan provider is going nuts trying to get me to take flu, pneumonia and all the rest of the shots I refuse because I value my health too much. I totally ignore the FDA and USDA eating recommendations and intend to laugh at them as I light the cake with 120 candles.”

The 5: Good on you. As it happens, our growing Health Sense Media division is all about furnishing information about health solutions outside the realm of conventional medicine. Many weeks, our Saturday edition republishes an essay from their e-letter Living Well Daily.

But the reality is that you (and I) are in a minority. The government and the sick-care industry have conditioned vast numbers of people to consume a diet high in carbs and low in saturated fat — a sure recipe for chronic cravings, insulin resistance, the whole nine yards. They’ve also convinced vast numbers of people that the only good exercise is the kind that gets your heart rate above 85% of your maximum for long stretches of time — which is a sure disincentive to do any kind of exercise at all.

Like it or not, those people will turn to the pharmaceutical industry for solutions to what ails them. We’re just following the money…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. The fact of the matter is that huge sums of money change hands every day in the biotech industry… and if you know how to position yourself, it’s possible to capture as much as $393,000 in 12 months.

It all comes down to a few “magic dates” each year. And one of them’s coming up in another 23 days. Follow this link and follow the money.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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