Who’s the Boss?

  • Trump is the target of a lawsuit with some “English” on it
  • The new reality of banking regulation… and how to play it
  • Is the Fed talking down the stock market — or setting it up for a fall?
  • How does a senator’s campaign fund earn (minimum) 5.3%?
  • The truth about precious metal “proofs”

Here’s something you don’t see on Wikipedia every day…

consumer financial protection bureau

“Disputed” is the sort of word you might expect to see associated with an obscure island in the Pacific Ocean, or the president of a third-world country — not the head of a bureaucracy in Washington, D.C.

The “dispute” at hand this morning is key to a major profit opportunity as the Trump administration is about to roll into its second year…

The 1,623 employees at the Consumer Financial Protection Bureau literally don’t know who their boss is this morning.

The CFPB is an agency set up under the Dodd-Frank Act of 2010 — the law that was supposed to rein in the too-big-to-fail banks but instead allowed those banks to grow even bigger. (Cynics would say that was the plan all along.)

On Friday, CFPB director Richard Cordray — an Obama appointee — announced his resignation. Cordray fashioned himself as a crusader — defending the little guy against rapacious lenders. President Trump, in his zeal for deregulation, has been keen to curb the CFPB’s powers.

Trump immediately named his budget director Mick Mulvaney to do double duty as acting director of the CFPB until the slot is filled permanently. But Cordray says the way the law is written, he’s the one who appoints an interim director… and he named his deputy, Leandra English.

Last night, English sued the Trump administration — setting off a court battle. This morning, Mulvaney showed up at CFPB headquarters — ready to win over the troops.

Katie Rodgers tweet

It’s all great theater, but pointless in the final analysis: Trump will appoint a permanent successor, who can win confirmation with a simple majority in the Senate.

[Missing from the mainstream financial media’s coverage is this context: Cordray’s term didn’t expire till next July. If he was serious about manning the ramparts against Trump’s deregulation steamroller, he could have stuck it out till the last possible moment. But Cordray evidently places a higher priority on running for governor of Ohio next year.]

“It’s no secret that Trump’s economic agenda is likely to help the U.S. financial industry,” says our income specialist Zach Scheidt — stepping back to examine the bigger picture.

“Not only is Trump planning to cut corporate taxes (helping banks keep a larger portion of their earnings and giving banks’ corporate clients more money to spend), but Trump has also been a very big proponent of less regulation for the mega-banks.

“I have mixed feelings about some of these changes. While I agree that unbridled profit-seeking in the financial sector helped to create a toxic situation for the global economy in 2008, I also believe that too much regulation can stifle growth and keep banks from lending capital that would actually help our economy grow.

“There needs to be a balance between giving banks freedom to lend capital to good businesses and individuals in a way that stimulates growth as well as regulation against situations that encourage predatory lending and excessive risk taking.

“Thank goodness it’s not my job to figure out exactly where that balance should lie. Instead, it’s my job to help you profit from market opportunities as regulators and legislators continue to adjust the market that businesses operate in.”

For sure: Last week, Zach showed his premium subscribers how to pull down $270 in instant income from one of the mega-banks. With his help you can collect a minimum $2,000 a month using the same technique. It’s a technique our publisher Joe Schriefer has been using in his own portfolio for years. Learn how it works at this link.

After notching record-high closes during an abbreviated trading day Friday, the S&P 500 and the Nasdaq are catching their breath.

Both indexes are off fractionally; for the moment the S&P is holding onto the 2,600 level. The Dow is up a bit at 23,584.

Gold is making a run at $1,300 for the first time since mid-October; at last check the bid was $1,296.

But the big action is in bitcoin. It busted through $9,000 yesterday — it took all of a week to add $1,000 — and as we write is less than $400 away from the “psychologically significant” $10,000 mark.

“After a brief pullback, stocks are surging to new records, as we have seen time and time again,” reports Alan Knuckman from the Chicago Board Options Exchange.

Until indicated otherwise, Alan says every pullback in the market merely sets the stage for another record run. And so it goes now, he wrote his Weekly Wealth Alert readers this morning: “The pullback pause is letting the market gather energy for the next leg higher. And it looks like this is going to be a December to remember as stocks are set to end the year in high gear.”

Which is a situation the Federal Reserve claims to be concerned about.

Amid the holiday rush last week, the Fed issued the minutes from its most recent meeting on Nov. 1. As a reminder, Fed “minutes” aren’t like the minutes from your local school board meeting. They’re not an objective record of who said what; they’re a political document intended to telegraph a message to the markets.

The message this time went like so: “In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances,” the minutes said. “They worried that a sharp reversal in asset prices could have damaging effects on the economy.”

Could it be the Fed is trying to talk the market down?

There’s a theory proffered by some very smart market observers that goes like this: While Fed pooh-bahs actively sought to drive up stock prices after the Panic of 2008, they now realize they’ve gone too far… and almost all of the benefits have accrued to people already at the top of the economic heap. From here on, the Fed will be more mindful of how their policies affect everyday folks.

Wrote Marc Faber last September in his Gloom, Boom & Doom Report: “Faced with the growing wealth and income inequality criticism, the Fed may actually welcome a decline in stock prices of around 20%, (a) to annoy Mr. Trump, who brags constantly that stocks have rallied because of him, and (b) in order to trim some of the richest people’s wealth and haughtiness.”

The campaign war chest of a three-term U.S. senator is growing so quickly we’re compelled to ask, “How’d he do that?”

Maybe you saw the story on Drudge this morning: Sen. John Thune (R-South Dakota) “has so much campaign money socked away that he now makes more from interest and dividends than some other politicians collect from donors,” according to the Rapid City Journal.

Impressive. Thune isn’t a trust fund kid; his immigrant grandfather opened a couple (exactly two) hardware stores in the Mount Rushmore State. After earning an MBA, Thune immediately started working his way up the political ladder.

It helps that Thune had only token opposition when running for re-election last year… and no opposition at all in 2010.

But it’s not the size of the campaign fund that attracts our attention as much as the yield it collects.

At the end of September, the Friends of John Thune was worth $11.37 million. An undisclosed portion of that money is invested in securities. Per a mandatory report filed with the Federal Election Commission, those investments generated $151,129.72 in interest and dividends during the third quarter.

Let’s assume the entire campaign fund is in the market. If it were, we’re looking at an annualized yield of 5.3%.

Hmmm… The S&P 500 stocks as a group yield 1.85% at the moment. A 10-year Treasury note yields 2.33%. Even a conservatively constructed portfolio of “laddered” bonds and dividend-paying stocks pays maybe 3.5%.

“If the data are accurate, I would say the 5.3% yield is suspicious,” said the aforementioned Zach Scheidt when we put the matter before him this morning.

Then again, he offers some caveats…

  • “One issue could be timing. Since most corporate bonds pay out twice a year, it could be that he [Thune] has a concentration of bonds that pay in the first and third quarters. So that would skew the numbers on a quarterly basis but they would level out over a six- or 12-month period
  • “Another issue could be leverage. In a calm market like we have now, investors get complacent and are willing to take more risks. I could see some manager choosing to use conservative dividend stocks that pay 2–3% yields and then using margin to borrow money and essentially double the yield. In this scenario, the investment securities could be conservative, but the added leverage creates a good bit more yield
  • “Finally, this could represent strong yield plays. There are still a lot of good yield opportunities if you know where to look. And you don’t necessarily have to take too much risk. For instance, Ford and GM are both strong stocks with good business models in my opinion. Ford pays a 5.0% yield, GM pays a 3.4% yield (lower than the returns in question but still attractive)… There are plenty of reasonable corporate bonds that pay at or near 5%. Yes, they’re higher yield (with some additional risk factored in). But we’re not talking about totally irresponsible risk — more of a ‘moderate-to-aggressive’ yield portfolio.”

Of course, we’re taking the newspaper story at its word and assuming that $151k increase in the campaign fund is entirely a function of interest and dividends — and not capital gains from rising stock prices. We can’t help wondering, since the story quotes Thune’s chief of staff saying, “Because of the amount and because of the success of the stock market the last 11 months, there have been some very nice returns on it.” Hmmm…

From the “We Can’t Say It Often Enough” Department: For the love of God, please don’t ever buy “proof” grade gold and silver coins for anything other than fun or speculation.

The quirky “A-hed” story on the front page of today’s Wall Street Journal is all about folks who’ve bought such coins in their retirement accounts.

We’re not talking about plain-vanilla bullion versions of U.S. Gold and Silver Eagles; those are perfectly appropriate as a store of value and we contend they belong in any well-balanced portfolio. No, we’re talking about the extra-glossy versions double-struck with polished dies.

“The government,” says the Journal, “currently is selling the gold-coin proofs at a 25% markup over per-ounce gold prices, a premium that can run as high as $360 per coin. The silver coins carry a more-than-200% premium over market silver prices.”

The situation is made worse when private dealers add their own markup. The paper tells the story of a retired software engineer from Michigan who bought $308,000 of proof Eagles for his IRA from a private dealer. “Less than a month later, his IRA statement valued the coins at $212,000.”

This is old hat for us at The 5. But we have many new readers these days and the Journal story is a reminder that many people still fall for the song-and-dance about how collector coins are a superior form of investment; usually the pitch is that they won’t be subject to government confiscation, unlike plain ol’ bullion coins. (Our most recent “confiscation” debunking is here.)

If you want proof Eagles because they look pretty, fine. But they’re not going to perform better as an investment and indeed they’re likely to perform far worse. And they sure as hell don’t belong in an IRA. (Oy, that’s a new one on us.)

Best regards,

Dave Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Our mailbag is stuffed with takes on grammar and usage after a reader went nuclear on us last week with the “Oxford comma.” Alas, time ran short today and we’ll have to postpone the discussion till tomorrow. Bummer, we know…

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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