Gold: A Snow Job

  • All those reasons to sell gold? Never mind
  • How one of the world’s savviest investors snows the media
  • Brace for an anti-Trump general strike (but probably not)
  • Media say emerging markets are a buy; we say you have to be selective
  • Businessman’s victory over law-enforcement busybodies… a new 5 caption contest… how the U.S. military relies on cheap foreign labor… and more!

“All the reasons” to dump gold three months ago? Those reasons lasted all of six weeks, it turns out.

As we documented at the time, hedge fund legend Stanley Druckenmiller told CNBC that he sold all his gold on Election Night. The advent of Trump would mean “serious” tax reform and deregulation, sparking renewed economic growth. “All the reasons I have owned it for the last couple of years, it seems to me they may be ending.”

Now he tells Bloomberg he loaded up on gold again in late December and January. “I wanted to own some currency and no country wants its currency to strengthen. Gold was down a lot, so I bought it.”

We suspect all of Druckenmiller’s blather about tax policy and currencies is just a bone he throws at credulous interviewers — a narrative they can latch onto.

Druckenmiller’s one hell of a market timer — as shown by his average 30% annual returns across the quarter century he kept his hedge fund open. And that timing is a skill he sought to acquire early on.

He tells the following story from his youth in Jack Schwager’s book The New Market Wizards. “I particularly remember the time I gave [the research director] my paper on the banking industry. I felt very proud of my work. However, he read through it and said, ‘This is useless. What makes the stock go up and down?’

“That comment acted as a spur. Thereafter, I focused my analysis on seeking to identify the factors that were strongly correlated to a stock’s price movement as opposed to looking at all the fundamentals.

“I never use valuation to time the market,” he added to underscore the point. “I use liquidity considerations and technical analysis for timing.”

He was talking about stocks… but it’s not hard to read between the lines and see his buying and selling of gold is also driven by price action — not the White House or the Federal Reserve. And there’s no arguing with the results…

But if you do want a fundamental argument for gold right now, we come back to what we said when Druckenmiller revealed he sold his gold on Election Night.

The Federal Reserve might want to raise interest rates, but doing so will only push the dollar higher. That could well push the economy over the edge and into recession.

“If the Fed were to continue to raise rates,” said our income guru Zach Scheidt, “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.

“When gold traders realize that the Fed has its hands tied, they’ll have to rethink the logic of a higher dollar (and lower gold prices). Meanwhile, long-term investors are becoming more and more keen on gold to help protect their wealth.”

[Ed. note: As you might know, one of the knocks against gold is that it has no yield, no income stream. But since last fall, Zach has been showing everyday people like you how to extract instant income payments from the Midas metal. We’re talking immediate payouts of $216… $430… even $642. That’s money deposited in your brokerage account, yours to do with as you wish.

Our vivid demonstration of how this technique works will be going offline in five more days. We suggest you give it a look while there’s still time.]

What do you know? Gold has clambered back to $1,242 — a level last seen a few days after Druckenmiller’s Election Night dump.

And while dollar weakness helps today, it’s not the whole story; the dollar index is off only slightly at 100.1.

Treasuries are rallying along with gold, the yield on the 10-year note now 2.34%.

The major U.S. stock indexes are treading water — save the small-cap Russell 2000, which has slipped three quarters of a percent.

The big earnings numbers are in media: Time Warner and Disney both beat expectations… but Disney’s revenue is down again as the firm continues to struggle with “peak ESPN.”

If you own a business, allow us to be the first to tell you there’s a possibility your workers will be no-shows a week from Friday.

“Concerned that protests might be too easy to ignore, activists are now calling for a nationwide strike in order to demonstrate just how many people disapprove of President Donald Trump,” says a story in Cosmopolitan. (Hey, we read widely around here to prepare these daily missives on your behalf.)

Supposedly, this all got started with a column someone wrote at The Guardian on Monday. Over the last 48 hours, the “activists” have settled on Feb. 17 — the Friday before Presidents Day. So far, the labor unions appear to be sitting this out; union leadership knows well how many of the rank-and-file went for Trump.

Our guess is this effort will fizzle much like the general strike that Occupy Wall Street called for on Nov. 2, 2011. And for the same reason — a lack of focus. The organizers have a farrago of grievances instead of one simple bumper-sticker demand.

But if it does turn into something, don’t say we didn’t warn you…

Not all emerging markets are alike — although the mainstream tends to lump them all together.

Here’s how today’s Wall Street Journal tells the story: “Emerging-market currencies, bonds and shares fell sharply on Mr. Trump’s November election victory, as investors anticipated rising U.S. interest rates, a stronger dollar and more barriers to trade.

“Many investors now believe that the worst is priced in. They are, instead, focusing on the benefits for developing countries of strong global growth, near-record-low valuations and rising commodity prices.”

Do not take this as your cue to pile into an emerging-markets ETF like the iShares MSCI Emerging Markets ETF (EEM).

Here’s why: “Investors are becoming more savvy about emerging markets,” Jim Rickards explains.

“They are discriminating between those that may not gain traction due to excessive debt levels and those that offer more financial stability. In the former category of unattractive EMs are Turkey, Brazil, China and South Africa. Among the more attractive EMs are Russia and Indonesia.”

As it happens, Russia and Indonesia both learned some painful lessons nearly two decades ago during a crisis that roiled many emerging markets. Both needed a rescue from the International Monetary Fund.

“Countries like Russia and Indonesia that were badly hurt in 1998 became more nationalistic and self-reliant,” Jim explains. “They built their reserve positions and trade policies with a ‘never again’ attitude. In contrast, China, Turkey and Brazil adopted a more globalist approach with open capital accounts and little fear of financial contagion or damaging capital outflows.”

It’s not hard to find both Russia and Indonesia ETFs… although Jim recommends parlaying such trends for maximum gains using his proprietary IMPACT system.

There’s justice in the world: Restaurant owner John Horavtinovich won’t be going to jail for a tweet about underage drinking.

Last August, the Nebraska State Patrol sent two 17-year-olds into Horvatinovich’s restaurant to see if they could get away with buying a couple of Bud Lights. They failed. In an evident attempt to shame other underage drinkers and demonstrate he’s a good citizen, Horvatinovich tweeted a photo of the teens.

That’s when he learned it was, in fact, a sting operation… because he was charged with a misdemeanor, “interfering with a government operation.” The charge carries a penalty of a year in jail and a $1,000 fine.

“We were presented with two minors trying to buy alcohol at our restaurant,” he tells the local NBC affiliate. “Had I known they were minors working with authorities in a compliance check, I would have deleted it immediately. But we didn’t find that until 12 days after the tweet.”

Moments ago, a jury acquitted Horvatinovich. Anymore, we take our victories where we can find them…

And now a 5 caption contest — where we figure if it’s good enough for the Chinese, it’s good enough for us.

In late 2013, just before a huge summit in China known as the “Third Plenum”… we noticed a Tumblr page called “How High Are Xi Jinping’s Pants Today?”

It was full of pictures showing the Chinese president like so…

Description: 110813_fmf1.png

Description: 110813_fmf2.png

Description: 110813_fmf3.png

Each picture on the Tumblr page was accompanied by a “Higher than…” caption. Most of them were funny only if you’re plugged into Chinese news and politics, to wit: “Higher than expectations for the Third Plenum.”

Fast-forward to today: At any given time here at The 5 we have a couple of global news channels streaming on our screens. And we couldn’t… help… noticing…

Description: Screen Shot 2017-02-08 at 10.33.03 AM.png

Man, that’s almost Ed Grimley territory — you know, the old Martin Short character on SCTV and Saturday Night Live?

So that’s the drill: How high are Donald Trump’s pants today?

We can hardly wait until Trump and Xi meet for the first time… although lately we’ve noticed whenever we see a picture or video clip of Xi, he has a suit coat and it’s buttoned. Heh…

“H1B visas aren’t the only way to get slave labor,” writes a reader stationed in Afghanistan.

Sometimes we’re surprised when a topic gets legs in our mailbag. This is one of those times…

“The U.S. government uses similar techniques at my base in Afghanistan, only it is using TCN (third-country national) workers for low-pay work. Largely from India, their monthly pay is $500 or less, and they provide everything from kitchen help and guards through trades. The cheapest U.S. folks I can recall are $8,000 per month, though there may be some making a bit less.

“I did a two-year contract at [a major tech firm] in the late ’90s, and they brought in H1Bs by the boatload, under the claim that they were needed because of their skills, unavailable locally. Well, they were skilled, but they were usually put in very low-level help-desk jobs that could easily have been done by a nerdy high school kid, but they were cheap and were treated and paid like cr*p, even though their visa applications said they would be doing programming and networking tech work. And if someone wanted to hire one away from the importing company, he was threatened with a $10,000 penalty.

“OK, I will admit it, we did hire one, was threatened by a guy about the $10k. I told him if he didn’t shut up, I would pursue his unethical contracting activities with Justice and possibly the INS. He stopped calling, and our new guy was hired by [the firm I was working with] when the contract was complete.

“At least with serious skills, medicine, engineering and all, generally, the importing of tech workers is well accepted by U.S. folks, since there is demand for the talent most of the time, and the immigrants learn very quickly what they are worth on the open market, so they don’t drive the price down. And the rest go home.

“We will be a lot better off in the long run if we let all the talent that wants to come come. Smart, talented people are the reason good things happen. Better when they arrive hungry, curious, energetic and ambitious.”

The 5: Thanks for the perspective. Interesting that the U.S. military is sourcing its grunt-level contracting help overseas from the same place as Saudi Arabia. About one-third of Saudi Arabia’s 9 million-strong foreign workforce hails from India…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. We emphasize — everything you know about gold could change between now and Monday.

But only if you watch this video right now. It vanishes from the web five days from now, so don’t wait.

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.

Recent Alerts

Metaverse Meets the Real World

“The metaverse is expected to be one of the next big trends in technology,” says Ray Blanco, “a sci-fi fantasy whose time has come.” Read More

This Bear Market Isn’t Even Half Over

The bear market of 2022 might be over already… but realistically, the odds are greater than 50-50 it won’t be over until next year. Read More

Coming to America: Digital Handcuffs

“While everyone’s attention is focused on the war in Ukraine, inflation and the Supreme Court, government plans to eliminate cash are accelerating,” says Jim Rickards. Read More

Sleepwalking Into Nuclear War

We return today — however reluctantly — to the unsettling topic of nuclear war. Read More

Debt Dominoes Fall

The countdown clock begins: Russia defaults on a $100 million payment… But it’s not that Russia’s government lacks the money. Read More

What Really Wrecked Crypto

Here’s the problem for crypto: At this moment in financial history, it trades like a “risk asset” along with stocks. Read More

“This Is Not Dystopian Science Fiction”

“Weaponizing health apps — foreshadowing of things to come outside of China?” writes one of our longest of longtime readers. Read More

The System Turns “Critical”

For an update from the Prospectors and Developers Association of Canada (PDAC) in Toronto, we turn to energy, mining and precious metals expert Byron King. Read More

Reality Check (Energy)

It fell to Treasury Secretary Janet Yellen to take the bullet on the talk show circuit… and deny that Team Biden policies have anything to do with high gas prices. Read More

IRS Springs a Surprise

“They will find you, they will find your assets, they will find your account[s],” says Mark Steber of Jackson Hewitt about the goons at the IRS. Read More