- After an up, up, up 2017… is investor sentiment about to turn?
- Here comes another whiff of inflation
- Small business regains its mojo
- “The wall” is yet to be built, but it’s already having financial impact
- Precious metal counterfeiting gets Congress’ attention
- Readers write: Crypto skepticism and a manipulation lament
Gee, it’s been six whole days now since the Dow set an all-time record close.
OK, we’re being facetious, of course — even as we’re being factual. We’ve been here before this year — many times. Investors seem unworried; the major U.S. indexes power to new highs every few days or weeks.
In other words, “sentiment” is bullish. It’s a phenomenon that feeds on itself, says our income specialist Zach Scheidt — who finds sentiment an important marker for where the market is going.
“Investors who are feeling bullish have likely already put their cash to work buying individual stocks,” Zach explains. “The more bullish a population is, the more stocks have already been bought.
“When there are too many investors that report feeling ‘bullish,’ history shows that markets are vulnerable to a pullback,” Zach says. “And when too many investors are feeling ‘bearish,’ it’s likely that stocks will turn higher.”
Zach believes extreme sentiment one way or the other — bullish or bearish — historically signals a turning point. “The lopsided bullish sentiment helps to explain why markets have been moving steadily higher this year.”
“But it also raises some important questions about what happens if these bullish investors start to become concerned…” Zach goes on.
Because at the end of the day, “It all comes down to what investors are doing with their cash.”
As seen in 2008, when investors got spooked and were feeling very bearish, they pulled money out of the market in favor of safer havens (aka under the mattress). The market went into a tailspin as it bled out cash… Of course, this was a favorable buying climate for investors who had the stomach for it. Then the economy rebounded, investors tiptoed back into the market and voilà! — it’s been on an eight-year tear since.
Zach says: “As we head into the end of a very profitable year for us, I’m very mindful of the importance of protecting our wealth from any future market pullback.”
Which is the beauty of his strategy in his premium service Income on Demand. As markets pull back, the weekly payouts can be even bigger. It’s an all-weather income approach you’d do well to check out if you haven’t already. Click here and learn how it could mean an extra $2,000 a month in our account.
As the day goes on, the major U.S. stock indexes are all down about a third of a percent.
Gold dipped overnight but has since recovered to $1,279. Bitcoin has slumped to just below $6,500. Crude has taken its first meaningful tumble in more than a month — down $1.39 at last check, to $55.37.
The big economic number of the day points to a resurgence of inflation.
Only last week we pointed out how we were seeing a few inflationary rumblings. This morning’s producer price index from the Labor Department is further evidence. Wholesale prices leaped 0.4% in October. Dozens of economists were polled by Bloomberg in advance of the number, and not one of them guessed it would be this high.
Big jumps could be seen for food, legal services and health care. “Gains here hint at wide and emerging price traction in the wholesale economy in what perhaps is a harbinger for price gains at the consumer level,” says a summary from Econoday.
The consumer price numbers come tomorrow; yes, we realize they typically understate your cost of living, but the shift in trend is still worth watching for.
A slip in small-business sentiment during September turned out to be a one-off, judging by the October Optimism Index from the National Federation of Independent Business.
The number bounced back from a 2017 low of 103.0 to 103.8. “Owners became much more positive about the economic environment last month, which suggests a longer-run view,” says NFIB Chief Economist Bill Dunkelberg. “In the nearer term, they are more optimistic about real sales growth and improved business conditions through the end of the year.”
In the often-revealing “single most important problem” part of the survey, 20% of respondents cite taxes, followed by 19% citing “quality of labor” — seems good help is still hard to find. Retreating to a distant third place is regulations at 14% — small-business owners really are feeling the impact of a slowdown in the pace of new regulations from the Trump administration.
“The Mexican peso has been on a roller-coaster ride against the U.S. dollar for the past year,” says Jim Rickards.
“After trading in a range of $17.00–20.00 for most of 2015–16, the peso suddenly plunged to $22.00 after the election of Donald Trump.”
Chalk up the peso’s plunge to anxiety that Trump would dissolve the North American Free Trade Agreement (NAFTA) between the U.S., Canada and Mexico and make good on his campaign promise to build a wall across the U.S.-Mexican border.
Trump hasn’t delivered on either promise but all the talk about the border wall has had real psychological and economic consequences. “The psychological impact is that it escalates tensions between the U.S. and Mexico,” Jim says, “Markets will discount the Mexican economy and the peso based on that uncertainty alone.”
So far, Trump’s been delayed on two occasions from pushing a resolution for the border wall through Congress. Jim says, “Trump is determined to fight over the Wall in December. That debate by itself will be a major negative for MXN (peso).”
“The other major issue on the table is the status of NAFTA,” Jim says.
Trump’s trade agenda — looking for significant changes with trade partners like South Korea, China and others — has been overshadowed by geopolitical tensions. “Trump’s only feasible trade targets are Canada and Mexico in the context of NAFTA,” Jim says. “Trump has already imposed harsh sanctions on Canadian lumber and aircraft. Mexico is next in his sights.
“This hyper-political environment is not a conducive setup for a resolution of NAFTA.” Jim predicts: “A formal notice of termination of NAFTA is much more likely. This will cause a meltdown in Mexican markets generally and the peso in particular.”
The counterfeit precious-metals saga takes yet another turn…
President Trump has nominated David J. Ryder for the position of director of the U.S. Mint… a position vacant since 2011. Ryder’s not new to the Mint — he served as director for a little over a year in the early ’90s.
“In 1994, Ryder took over as the founding president of Secure Products, which manufactured anti-counterfeiting systems,” says an article at the website AllGov. “The company was sold in 2007 to Honeywell, but Ryder remained as global business development manager for what was now the company’s authentication technology group until May 2017.”
Ryder will need every ounce of his experience in the world of anti-counterfeiting if confirmed. He’ll have to answer an unusual petition from two Congressmen….
Congressmen Alex Mooney (R-WV) and Frank Lucas (R-OK) dispatched a letter to the U.S. Mint and the Secret Service on Friday requesting “aggressive action on the growing problem of high-quality counterfeits of U.S. precious metals coins entering the country from China and elsewhere,” according to an article at Coin World.
“Enclosed herewith is a 1995 1 oz. Gold American Eagle coin,” the congressmen write, “carrying a face value $50 and ostensibly minted by the U.S. Mint. You are free to keep it, as it’s a worthless tungsten fake.”
One of these things is not like the other… can you spot the fake?
Boom… of course, we’ve been following the story of counterfeit metals worming their way into reputable depositories like the Royal Bank of Canada and peddled on the Chinese website Alibaba.
As members of the House Financial Services subcommittee that oversees the Mint, congressmen Mooney and Lucas want answers about “whether, and to what extent, the U.S. Mint has taken proactive steps to protect the integrity of America’s minted coins, including reviewing and implementing the anti-counterfeiting measures already put in place by certain foreign government and private mints.”
The letter goes on to seek clarification as to how the Secret Service and border and customs agents will coordinate with the Mint to root out counterfeiting. “The congressmen also raised concerns about a Secret Service decision not to investigate the origin of a counterfeit batch of Gold American Eagle coins when the matter was recently brought to its attention.”
Stefan Gleason, director of Sound Money Defense League, commended the congressmen for… well, doing their jobs. “We look forward to a meaningful explanation from the U.S. Mint and the Secret Service,” says Gleason, “for what appears to be a lackadaisical attitude toward protecting the only constitutional currency that is currently even produced by the federal government.”
If confirmed, Director-designate Ryder’s has got some ’splaining to do…
“Dave,” begins today’s mailbag, “I’ve been watching the recent cryptocurrency ‘fork’ drama with interest, from a comfortable distance. I’ve been in Jim Rickards’ camp on this issue all along: I’m not going there!
“I may be old-fashioned, but I don’t care what kind of profits other people are making from bitcoin (or lesser-known cryptos). I don’t need the nosebleed.
“I’m a big fan of nonsovereign currencies. They are outside central bankers’ control. No manipulations, inflations or middlemen — just decentralized peer-to-peer transactions. That’s all good.
“But if I can’t physically hold it in my hand, I’ll pass.
“Governments have a monopoly on money creation. Their banksters are rather ruthless, so there’s no way they’ll surrender that to some new technology. Instead, they’ll probably find ways to control it and regulate it by targeting its infrastructure.
“Plus as Jim has pointed out, cryptos may not be quite as safe or anonymous as many folks believe. These currencies are a confidence game, like any form of money. How will they perform through a full business cycle (read: crisis)? When that event arrives, will demand for liquidity force holders to sell so they can meet margin calls and pay debts? Cryptos could well be in a bubble — so I’ll hold off until we come out the other side.”
The 5: Totally understandable. But as we’ve pointed out more than once, those efforts to “control it and regulate it” don’t necessarily make it any less lucrative. It merely requires a change of approach.
Or in other words, even if crypto never fulfills its fanboys’ dreams of a decentralized and “disintermediated” nirvana that makes the banksters obsolete (and your editor has always been skeptical of those claims)… that’s no reason to steer clear of it.
“The CME has proven itself to be a co-conspirator in the precious metals suppression scheme — pleased to see you noting that,” a reader writes on the topic of CME Group’s plans to launch bitcoin futures trading.
“So what might we expect from the CME with regard to another ‘anti-dollar’ asset… another threat to the post-Bretton Woods Ponzi, built, as it is, on the ever-increasing creation of central bank phunny munny?
“Massive short sales in the middle of the night that collapse the bid stack instantaneously and trigger stops, driving the price down in huge waterfall drops while the holders of actual bitcoins scratch their heads and wonder whatever happened to the perpetually rising price. That sounds about right.
“You have a ‘platform’ now. Sounds good. Now real investment pros like JPMorgan get to play in their preferred market. Uh-huh.
“What Mr. Knuckman doesn’t seem to get is the fox is tiptoeing into your henhouse. Good luck with that.”
The 5: We’ll say it again — to one extent or another, every market is manipulated these days.
The Fed created gobs of liquidity from 2008–2014 to propel the stock market. Crude futures have been jerked around for 35 years, depending on the political objective of the moment — low prices to bankrupt Russia, high prices to throttle China’s growth.
But what’s a retail investor to do? Sit on the sidelines in cash and Treasuries? That worked at one time, assuming a big enough nest egg to start with. But as you surely know, that’s a nonstarter in the post-2008 world of manipulated ultra-low interest rates.
And so, each in his or her unique way, our editors seek out the very best investing ideas for this age of manipulation. Many of them will present their latest ideas in their earliest stages during our editorial gathering this afternoon; we’ll give you a glimpse into the meeting tomorrow.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. One more thought about manipulation…
We haven’t forgotten CME Group CEO Terry Duffy’s remarks on Fox Business last July, cited in this space: “With all that’s going on in the world, [gold] should probably be at $5,000–6,000 per ounce… People will wake up some morning and find precious metal prices substantially higher.”
Manipulation can go both ways, after all…
