- The 5 marks a round-number anniversary…
- … and one revealing market measure just returned to decade-ago levels
- The Buffett betrayal: If we’d known then what we know now
- Tax cuts (and spending and wars and deficits), 2007 and 2017
- Reader inquiries about “401(k) confiscation” Trump-style
- Plus, an unprecedented offer if you have an annual membership to a premium service
Complacency, thy name is “short interest in the S&P 500.”
Short interest, as you might already know, can be a revealing indicator: When traders “short” a financial instrument, they’re betting its price will fall. When short interest is high, there are a lot of those bets. When it’s low, complacency rules the day.
SPY is the big S&P 500 ETF, the biggest ETF out there. And this morning, SPY short interest sits at the lowest level since we began publishing this e-letter, 10 years ago today:
No, that doesn’t necessarily mean the market’s due for an imminent fall from its euphoric heights. In that spring of 2007, the market wouldn’t top out for another six months… and it was 11 more months before the bottom fell out in the Panic of ’08.
But it’s an interesting signpost we’d be remiss to overlook today.
It was on April 26, 2007, that our executive publisher Addison Wiggin hit “send” on the premiere episode of The 5 Min. Forecast.
For this 10th-anniversary episode of The 5, we mark the occasion with an offer unlike anything we’ve done before. Your editor just got off the phone with Addison to hammer out the terms. If you subscribe to any of our high-end services, you’ll want to read on and learn how to secure a substantial savings.
[Ed. note: If you’re really impatient, you can scroll down and look for more of the red font. Heh…]
SPY short interest isn’t the only thing to come full circle in the last 10 years.
That debut episode of The 5 began with a snippet of an exclusive interview featuring Warren Buffett. Addison had worked hard to secure that interview for his debt documentary, I.O.U.S.A. He’d been impressed by an article Buffett wrote for Fortune in 2003 called “Thriftville vs. Squanderville” — spelling out the dangers of America’s trade imbalance with China.
If you’re one of our most long-suffering readers, you know the rest of the story. But if you’re one of the many newcomers, here’s the CliffsNotes version. I.O.U.S.A. sounded an all-too-timely economic alarm bell. It made its nationwide debut on Aug. 21, 2008 — less than a month before the Panic of ’08 was underway in earnest. On that night, theatergoers nationwide watched the film, followed by a live-via-satellite panel discussion in which “the Oracle” took part.
“It has not paid to sell America short since 1776,” Buffett said, “and the time to start is not in 2008.”
“Buffett sold us out,” Addison told me this morning, still smarting from the experience.
The day after the debut, he was a little more circumspect here in The 5. “Buffett said at the beginning of the Q&A session that somebody had to play the role of the optimistic Pollyanna… but he went a little overboard. Even though he helped considerably with the trade deficit section of I.O.U.S.A., he downplayed the federal debt and savings deficit.”
Then again, we too would have been sanguine on that night if 33 days later the Panic of ’08 had gone full tilt… and we’d invested $5 billion in Goldman Sachs in exchange for preferred stock yielding a 10% dividend.
That’s among other sweetheart deals Buffett cut in the financial sector, amid TARP and the rest of the government’s alphabet-soup bailouts.
And to think people still buy into the “anybody can do it” Graham-and-Dodd value investing shtick he’s perfected across five decades, complete with the hamburger-chomping and Cherry Coke-swilling.
[Postscript: On the heels of the satellite panel discussion, CNBC had scheduled four hours of coverage focusing on the important themes exposed in I.O.U.S.A. Buffett bogarted the whole thing to talk his book.]
Ten years after The 5’s debut, we see Buffett’s in the news this morning — once again standing up for the croniest of crony capitalists.
Wells Fargo — one of Berkshire Hathaway’s biggest holdings — held its annual shareholder meeting yesterday. It was the first since the big scandal broke last fall — the one in which WFC signed up its customers for new accounts without their knowledge or consent, from which the bank skimmed fees of up to $39 a month.
Not surprisingly, there was a shareholder revolt against the board of directors. Also not surprisingly, Buffett saved the board’s bacon. “Wells’ biggest shareholder,” says the Financial Times, “used its 10% stake to vote in favor of all 15 directors, even though the share price drop that followed the revelations about its sales practices cost the bank its status as the world’s most valuable.”
Without Berkshire’s intervention, four directors would have gotten the boot, including Chairman Stephen Sanger.
What the salmon-colored rag didn’t say is that Buffett was just being Buffett.
Three years ago The 5 described a controversy at another of Buffett’s core holdings, Coca-Cola. Shareholders were asked to vote on a cushy executive pay plan. Buffett thought it was too cushy. But rather than vote against it… he copped out and abstained.
“Well,” Buffett stammered in a CNBC interview,” we abstained because — we didn’t agree with the plan. We thought it was excessive. And — I love Coke. I love the management, I love the directors. But — so I didn’t want to vote no. It’s kind of un-American to vote no at a Coke meeting. So [LAUGH] that’s — but we — I didn’t want to express any disapproval of management. But we did disapprove of the plan.”
On that occasion, Buffett exhibited “the backbone of a banana,” said our old friend Chris Mayer.
The Dow industrials rest as we write this morning just above 21,000 — or 61.5% above where they stood 10 years ago today.
The Nasdaq, which crossed 6,000 for the first time yesterday, is holding the line on that number today.
The bid on gold is $1,262 — which is 86.4% higher than it was on the day we first published. Crude fetches $49.75 — down more than a third from our debut.
Earnings are still in view. Old-economy Procter & Gamble disappointed; new-economy Twitter stunned to the upside.
Otherwise, traders await the details of the president’s tax plan later today. As we mentioned yesterday, a few of the details are already pinned down… although mainstream media appear incapable of performing basic math.
Uh, no, that would be 57%. Try again, CBS…
We’d forgotten all about it until we perused The 5’s voluminous archives… but there was tax-cut talk around the time of our debut 10 years ago.
The Bush administration was looking to lop 4.6 percentage points off the top marginal income tax rate and 5 percentage points off the top capital gains rate. That would cure any and all ills, they said. The zeitgeist then was, “Excluding housing, the U.S. economy is doing just fine.”
Yeah, except for that “worst recession since the Great Depression” part that started to unfold a few months later.
But here we are again… with the “best and brightest” leading us down the road to fiscal perdition.
[We’re already anticipating the hate mail from Trump fanboys again…]
We have nothing against tax cuts. But when tax cuts combine with ballooning spending, expanding wars and swelling deficits… well, that didn’t work out very well during the first decade of the 2000s, did it? And the too-big-to-fails? As Jim Rickards is fond of reminding us, they’re even bigger now.
Oh, but “economic growth” will generate new tax revenue to overcome the deficits, we’re told. Treasury Secretary Steve Mnuchin was yammering about it again yesterday.
Didn’t happen under Bush. Didn’t happen under Reagan, for that matter.
“In what universe does the math work?” says Addison.
As Shakespeare said, what’s past is prologue. We believe so strongly in the quality of the research we produced then, and produce now, that Addison and I have been scheming on a way to make it even more accessible to you, our valued reader.
[OK, let’s get to the offer: As noted above, Addison and I just got off the phone after hammering out the details. To celebrate 10 years of The 5, we’re doing something we’ve never done before. If you currently have an annual membership to one of our premium publications, you have a short window in which you can renew your subscription for a substantial 20% off.
So if you subscribe to…
Currency Wars Alert
Rickards’ Intelligence Triggers
Rickards’ Gold Speculator With Byron King
Rickards’ and Massengill’s Defense Technology Alert
Income on Demand
Contract Income Alert
VentureCap Strategist
Extreme Alpha
FDA Trader
Breakthrough Technology Alert
Gerald Celente’s Exponential Trends Trader
Kinetic Profits
Penny Pot Profits
Agora Financial’s Microcap Millionaires
David Stockman’s Bubble Finance Trader
… you can call and renew and save 20%. The phone number to call is 1-866-361-7662. Our team will be there until 5:00 p.m. EDT. If it’s after hours, call back tomorrow. We’ll keep this offer going through the end of tomorrow.]
We’re not going to engage in a lot of maudlin 10th-anniversary reminiscing today…
But if you appreciate what goes into The 5, you should thank Addison for setting the tone starting with the premiere episode 10 years ago today: “Fiercely independent”… on your side against the blowhards that infest Wall Street and Washington… and eager to poke fun at said blowhards.
Each of us who’s worked on The 5 these last 10 years has taken his cue… and there aren’t many of us, which is why you see a consistent output from day to day. In 10 years of The 5, only five people have signed their name at the bottom of an issue — Addison, me, Ian Mathias, Chris Campbell and Brian Maher.
“Extreme Ian” is the only one who’s left the Agora Financial fold; we heard from him just a few days ago. He’s trying his luck at a tech startup in San Francisco, although he tells us his time at The 5 still provides him with “a knee-jerk skepticism of anything that’s popular… although nowadays I miss all of Addison’s punctuation quirks.”
“There are several different tax-deferred type accounts out there,” a reader writes after our 401(k) warning yesterday.
“Does your use of the term ‘401(k)’ include 403s, 457s, IRAs and specifically gold IRAs?”
The 5: We’re not privy to “Goldman Gary” Cohn’s discussions in the White House. But given the arbitrary and capricious nature of “policymaking,” no matter who’s in charge of it, all of those accounts are potentially on the table.
“Although I believe it is always better to defer taxes until later,” a reader writes on the same topic, “it might not be such a bad thing to pay as you go IF, and only IF, they let you deduct losses as well.”
The 5: We’ve looked high and low for the Tax Policy Center paper that recommends the 15% tax on annual gains in your 401(k) account, but it eludes us; all we’ve seen is secondhand coverage. But that seems like a reasonable request, no?
“Recently, my wife and I went to our favorite ‘cut rate’ grocery store,” reads a War on Cash dispatch from Canada. “It belongs to the Loblaws group of stores.
“When we were ready to check out, with a full cart of groceries, we noticed that at many of the cash-out lines, people were picking and choosing from their food carts what they wanted to buy and what they wanted to leave behind. I had never witnessed this behavior before.
“It turns out that the debit and credit system was down and only cash was being accepted! Most people, at least in this store, carry very little cash. It seems that we are ALMOST a cashless society now!”
“With a diversified portfolio, what is a value proposition?” a reader inquires about our premium-priced services.
“The net profit of the service (information and/or advice) must be weighed by the risk, taxes and the portion of my portfolio that can be allocated to that service. So what happens when I purchase the service and discover that the service doesn’t provide the returns I was led to believe it would (making the service too expensive) or that I can’t allocate a large enough portion to justify the expense?
“I have three portfolios — Roth, 401(k) and taxable. I am limited to $6,500 a year in the Roth, and the company I work for matches 100% on all contributions plus shares.
“All I’m saying is more information from the service (both before purchase and after) would be helpful. Knowing how the editor intends the service to fit into a diversified portfolio and the size of the recommended positions would help.
“Thanks for what you do.”
The 5: What you’re asking for veers too closely to “personalized financial advice,” which is not only beyond our capabilities but would bring federal regulators down on us hard.
Everyone’s situation is different. Their net worth is different. Their risk tolerance is different. Their tax situations are different. We can’t be all things to all people.
The closest we can come is, for example, when Lifetime Income Report editor Zach Scheidt indicates whether his picks are better suited for a taxable or tax-free account.
And in Rickards’ Gold Speculator With Byron King and Rickards’ and Massengill’s Defense Technology Alert, the editors suggest a percentage that each pick should make up in their “basket” of recommendations. But we have to leave the size of that basket up to you.
Hope you understand where we’re coming from…
“May I assume we are all adult?” a reader writes, also on the topic of premium-priced services.
“The 5 and other Agora publications are so well written and so free with open-minded opinions that readers come to believe that these opinions and commentaries are shared out of the like-minded kindness of men’s and ladies’ hearts. Contraire, Pierre.
“The 5 et al. are in the joyful pursuit of free-capitalistic profit-making — sometimes, when everything works like it should. That these columns and candid commentaries are written with such personal candor and extemporaneous genius by gifted authors is only an accidental gift.
“Take your gift and pay for your medicine! You’ll feel better in the morning.”
The 5: [Gulp…]
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. One more time… if you currently have an annual membership to one of our premium publications, you have an extraordinary opportunity.
You can renew your subscription today — and secure an immediate 20% discount. Call our crack customer-care team at 1-866-361-7662. They’ll be there until 5:00 p.m. EDT today… and back at it starting 9:00 a.m. tomorrow. This offer is good today and tomorrow only.
