- Pulling signals from the noise of the Trump era
- Financial deregulation and bank stocks: The music’s playing and it’s time to dance
- Amid the saber rattling, Iran’s little-noticed “dis” of the dollar
- Couldn’t they tell he was walking funny? Crazy gold theft story
- Pulling apart the job numbers… why we don’t care about Snapchat… Silicon Valley execs sound off to The 5 about foreign workers… and more!
We confess, dear reader: It’s getting harder to keep up.
On Inauguration Day two weeks ago, Jim Rickards said in this space, “The most seasoned observer I know in Washington summed up what’s about to happen in one word: ‘Action.’ Policies may or may not be the correct ones, but they will come thick and fast.”
Turns out there’s even more to it than that, says the wise-beyond-his-years freelance journalist Michael Tracey: “Trump has calculated that it’s in some sense to his benefit when everyone is completely overwhelmed and suffering from a form of cognitive overload; it allows him to move briskly from issue to issue without staying there for very long — he’s essentially breaking the national attention span by saturating it with information, controversy, hysteria, real problems, fake problems, fights, feuds, tweets and all the rest.
“He is keenly aware of how to prod the media into indulging its worst instincts, so a vicious cycle emerges where Trump does something outlandish, and then the media responds by acting outlandishly in its own right.”
Even away from the fray, it’s more of a challenge for us to pull signals out of the noise. But we still have a leg up. We’re unfettered by partisan blinders. We’re immune to advertiser pressure. And we have a crackerjack team made up of Jim and our other experts. Onward!
Now for the story behind the story with Trump’s move toward financial deregulation.
As you might’ve heard, sometime today, he’ll sign an executive order aiming to dial back some of the regulations that came out of the Dodd-Frank Act in 2010.
Dodd-Frank was the ham-fisted attempt by the Obama White House and congressional Democrats to “do something” that would prevent a replay of the Panic of 2008.
Like most pieces of legislation stretching for more than 2,000 pages, it’s backfired on almost every level. The too-big-to-fail banks are even bigger. Their exposure to “derivatives” — those wickedly complex and highly leveraged instruments that Warren Buffett rightly calls “financial weapons of mass destruction” — is even higher.
Yes, there’s more bureaucracy for the banks to contend with, but the big banks already have giant compliance departments. It’s small community banks getting snowbound by a paperwork blizzard; more and more of these small banks are giving up and selling out to bigger players.
Here’s a safe bet: Whenever Trump’s deregulation process is over, the too-big-to-fails will be still more powerful… and still more vulnerable.
Leading the charge is the new National Economic Council Director Gary Cohn — fresh from his gig as president of Goldman Sachs. But don’t get the wrong idea, he tells The Wall Street Journal: Deregulation “has nothing to do with Goldman Sachs. It has nothing to do with J.P. Morgan. It has nothing to do with Citigroup. It has nothing to do with Bank of America. It has to do with being a player in a global market where we should, could and will have a dominant position as long as we don’t regulate ourselves out of that.”
Heh… Cohn happened to namecheck the four players that dominate the U.S. derivatives market: Out of $177 trillion in derivatives held by American banks, savings associations and trust companies… $159 trillion is in the hands of those big four. What a coinkydink!
Buried in the Journal’s interview with Cohn is a revealing tidbit: “Mr. Cohn said the actions are intended to pave the way for additional orders that would affect the post-crisis Financial Stability Oversight Council.”
Don’t feel bad if you haven’t heard of it, says our income maven Zach Scheidt: “This group of 15 state and federal officials doesn’t make a lot of headlines and generally operates under the media’s radar. But the group is incredibly powerful and could have a material effect on your wealth this year.”
With revised FSOC guidelines in place, “banks will likely be able to better invest their own capital to generate profits. And more importantly, banks will be able to pay more of their capital to investors through dividends and buybacks.”
OK, we can anticipate your objection already: “Zach’s making it sound as if some of these banks are a good investment now. But you’re saying they’re also setting themselves up for another crisis.”
Hey, both of those propositions can be true at the same time. “I don’t expect to hold these banks stocks forever,” Zach tells us. “If the industry gets dangerous again, we’ll take our profits off the table and find new opportunities. But for the next two–three years, stocks of healthy U.S. banks are going to be some of the best income investments that you can find.”
We recall the infamous words of Citi’s CEO Chuck Prince nearly a decade ago, talking about his firm’s dangerous and leveraged bets: “As long as the music is playing, you’ve got to get up and dance.”
That was in July 2007. Prince quit in November 2007 — a full year before the music stopped and Citi was insolvent. He collected an exit bonus of $12.5 million. Well played, sir.
You can do something similar — but much safer — in your own portfolio with Zach’s help. Readers of Lifetime Income Report already know the names and tickers of his favorite banking players. You can join the ranks of those readers today and get a free copy of Zach Scheidt’s Big Book of Income — packed with 47 tips and tricks to collect work-free income. If you can spot us $4.95 for shipping, we’ll send it to your door. Claim your copy at this link.
Bank stocks, fueled by anticipation of Trump’s EO, are helping drive the major U.S. indexes higher today. The Dow has powered back above 20,000… and small caps are performing even stronger.
A decent monthly jobs report from the Labor Department is also putting wind in stocks’ sails. Curiously, gold didn’t take a tumble as it often does with a good job number; the Midas metal is holding its own at $1,218.
The big earnings number is Amazon, which delivered a “beat” on profits but missed on revenue. Shares are down more than 3% as we write.
We have nothing to say about the super-hyped IPO announcement from Snap, the parent firm of Snapchat, other than to reiterate a point we’ve been making for years: The big money is made on IPOs by the people who can invest in them before they go public.
So about the job numbers: The wonks at the Bureau of Labor Statistics conjured 227,000 new jobs for January — way more than the “expert consensus” was counting on.
Remarkably, the number of people classified as “not in the labor force” — meaning they’re neither working nor looking for work — tumbled from a record 95.1 million in December to 94.4 million in January. That means more people are looking for work again, so the unemployment rate jumped a bit, from 4.6% to 4.8%.
The one downer in the report is wages — up a paltry 0.1%. The year-over-year increase is an anemic 2.5%.
The real-world unemployment rate from Shadow Government Statistics — accounting for all the people who’ve given up looking for work, plus part-timers who want to work full time — ticked up slightly to 22.9%. The number’s been mired in the 23% range for nearly five years.
Now for another story behind the story — a currency angle to the Trump administration’s tiff with Iran.
Two days after Trump issued the travel ban affecting Iran and six other nations, the governor of Iran’s central bank declared his nation would cease to use the U.S. dollar “as its currency of choice in its financial and foreign exchange reports,” in the words of Iran’s English-language Financial Tribune.
Sounds like a mostly symbolic move. What would be a replacement? He said Iran could opt for “a basket of currencies or choosing the currency that plays the biggest part in foreign trade.” Presumably he means the euro.
The Bush administration took out Saddam Hussein after he said he wanted to price Iraq’s oil in euros instead of dollars. The Obama administration took out Libya’s Moammar Gadhafi after he said he wanted to establish a “gold dinar” currency for African and Muslim countries.
No, we’re not saying the pursuit of U.S. dollar hegemony was the sole motivation for regime change. But it’s something to keep in mind as you see saber-rattling headlines from Washington and Tehran over the next few days.
For your Friday amusement, we bring you something Eddie Murphy left off the extensive list of items in his 1982 novelty song “Boogie in Your Butt” — gold.
From Canada comes word that a former Royal Canadian Mint employee has been sentenced to 2½ years for stealing gold by… hiding it in his rectum.
Prosecutors say Leston Lawrence smuggled 22 “pucks” out of the Mint — round gold nuggets of roughly 6.75 troy ounces each. Obviously, not all at once…
Uhhh… You’re waving the wand in the wrong place, fella…
[Royal Canadian Mint security screengrab]
Aside from recognizing the value of gold, Lawrence doesn’t appear to be especially bright: Investigators say he took all the pucks to the same dealer in Ottawa and deposited all the proceeds in the same bank.
Defense attorneys tried their best, claiming the evidence was all circumstantial. Which was true. It was also compelling — like the Vaseline and latex gloves in Lawrence’s work locker.
In addition to the prison time, Lawrence has to pay restitution totaling C$190,000. Guess he’ll have to unload that house in Jamaica and the boat in Florida.
Bonus points: The sentencing judge is named Peter Doody.
To the mailbag: “Dave, I will never write to complain about your apparent bias or how offended I was over your ‘attacks’ on my side of political aisle.
“I will never give you that superpower over me, BUT (didn’t want you to skim over that word) I loved your retort to one such offended reader: ‘Addison replied that in many instances, “Politics are the problem, and you ignore them at your peril.”’
“Besides, the times recently when you have ‘questioned’ the motives of my side, the objects have been caricatures of themselves, i.e., John McCain et al. They do more damage to themselves than even you could pile on. So they weren’t much to get worked up over. And when you made fun of Sean Spicer’s grimace, you followed it with an encore photo of ‘TurboTax’ Timmy Geithner that immediately quelled any initial knee-jerk animus. So bravo, Dave! Keep up the great work on an informative and entertaining missive.
“P.S. I was separately informed that Mr. Trump took Mr. Spicer aside and offered some fashion advice… that he should not to wear light-colored suits again… very much like the one in picture that you highlighted.”
“I felt compelled to chime in on the ‘Silicon Valley foreign-born worker’ topic,” writes a reader who says he’s been with us since Day 1 — a stunning feat of patience considering The 5 is coming up on 10 years in April.
“As a founder of a cleantech company in San Francisco (which in itself is a regulation-gone-mad discussion), I live this scenario you describe every day.
[Yesterday we posed the question: If the foreign-born workers are really that incompetent, isn’t there some crossover point at which it becomes more profitable to hire U.S.-born talent, even at the higher salary? Or is it the Dilbert principle at work?]
“I’ve hired U.S.-born software dev talent and paid them well. And I’ve hired foreign-born software dev talent and paid them well. Navigating the nightmare of the H1B visa process is something I’d rather avoid, not to mention huge cultural, language and time barriers when outsourcing overseas or hiring from overseas.
“But the overall problem I’ve found with U.S.-born tech talent is a profound sense of entitlement and arrogance. More of an ‘I can code, so I’m irreplaceable and you owe me’ mentality. The startup culture here fuels it: high salaries and bonuses, made-to-order lunches from professional chefs, coffee baristas in the office, playing-pingpong-all-day workspaces, etc.
“It’s a race to the bottom of actual productivity. The real issue and challenge is finding employees who are hungry enough and mission-driven to put in the work, regardless of where they’re from.
“Keep pushing buttons and raising questions. Please all and you will please none.”
“I am a little perturbed to hear from some readers that there are India-based H1B software engineers working for very low compensation,” writes another.
“I am a CIO for a large global company. I have development offices worldwide, including some offshoring in Bangalore.
“Not saying it is not true, but I have quite a few H1B workers in my various development departments, and I am forced by the Department of Labor to pay them a U.S.-compatible wage for the title they hold. In fact, just last week, I was ordered by our HR department to raise an H1B’s salary to well over the $100K mark.
“If there are companies pursuing dubious wage practices in the Bay Area, they are doing so illegally.”
“I liked your response to the reader at 4:40 in yesterday’s edition,” writes our final correspondent.
“You’re right. An American worker who can complete the job in 12 months at $125k is much more efficient than the foreign-born worker who takes 38 months at $50k per year. At this rate, the foreign-born worker is 27% more costly than his American counterpart. It’s not rocket science, but apparently more than the highly touted Silicon Valley execs can handle. This, of course, assumes the information provided by that reader is factual and true.
“Which brings me to the topic of alternative facts. I am still waiting for the media to lead into a story about alternative facts with Jefferson Airplane’s ‘Somebody to Love,’ which, as you are not doubt aware, begins, ‘When the truth is found to be lies.’ Could it be they don’t want to point their finger while facing a mirror?
The 5: You get the last word this week!
Have a good weekend,
The 5 Min. Forecast
P.S. As we’ve been saying for months, marijuana legalization is sweeping the country…
A record-breaking eight states recently passed new laws for recreational and medical use.
Already, dozens of tiny marijuana firms have begun skyrocketing by 100%, 300%, 500% and higher.
This is your chance to turn a single $50 bill… into an absolute fortune. But you need to take action BEFORE April 15…