“The New Era of Volatility” — Live It, Love It

  • Volatility: It’s back (Say it ain’t so!)
  • Is the “new era of volatility” such a bad thing?
  • Altucher on why crypto is rebounding now
  • The country that banned black cars (seriously)
  • Gold pounded… a new week of national-debt worries… a different take on taxation and expatriation… and more!

Gee, and just when it seemed as if the wild swings down were over.

After recovering more than half of its February losses last week, the Dow has begun this new holiday-shortened week down 200 points. As we write, it’s in danger of once again breaking below 25,000.

True, about 70 of those 200 points are Walmart — down 9% at last check. WMT whiffed on earnings this morning; its impressive growth in e-commerce last year is slowing.

But the drop in the broad market is a good reminder that “We will have more volatility as we are entering a new macroeconomic environment” — to borrow the words of Bob Prince, co-chief investment officer at Bridgewater, the world’s biggest hedge fund.

Of course, the establishment financial media are getting it all wrong.

They’ve delivered an abundance of fear-driven headlines this month. Little wonder — that’s what generates pageviews and Nielsen ratings.

But those headlines can drive everyday people to make some mighty dumb decisions.

Which brings us to an email received by Agora Financial income authority Zach Scheidt in the midst of the sell-off earlier this month. “Hey Zach,” said this individual, “things are looking bad, I might clear out my account.”

As evidence that “things are looking bad,” this person sent Zach a link to a “Fear & Greed Index” compiled by CNNMoney…

Fear and Greed Index

Again, that was in the midst of the sell-off. This morning the index is up to 18 — still “Extreme Fear” territory, although it was last updated at 7:00 p.m. last Thursday.

There are a number of problems with this metric. Notice how it says “beta” next to the big headline? We find articles about this index going back to mid-2013. For all we know, the index is even older than that. Shouldn’t they have worked the bugs out by now?

Zach is inclined to think there’s a political agenda behind all the scare headlines — a stumbling market makes the sitting president look bad. “The mainstream wants you to believe everything is falling apart.”

The Financial Times is playing up a “new era of volatility.” Which is true as far as it goes — but is that such a bad thing?

As we said while the sell-off was in progress earlier this month, we were way overdue for a correction in the market. The Dow had been sailing upward ever since Election Day of 2016 without even a 3% pullback. That’s not normal.

As it happens, there was a similar period of calm in the markets 22 years earlier. Don’t these charts look mighty similar?

Mellow Markets, Then and Now

The calm back then was broken right around this time in 1996. Then too, there was no obvious reason — we were just due. Then too, the market entered a period of heightened volatility. Sharp down moves became commonplace. The Dow pulled back 8.5% during March 1997. There were extreme single-day sell-offs too — 7.2% on Oct. 27, 1997, amid the Asian financial crisis, 6.4% on Aug. 31, 1998, when Russia defaulted.

You don’t remember those huge moves down? Of course not. That’s because the Dow was also in the midst of an epic rally that continued through early 2000. Let’s pick up that 1990s chart where we left off above…

The Rest of the Story

Don’t get us wrong. We’re not saying the rally that began in 2009 is destined to continue another four years — although the president would surely like it if it did.

But we are saying it’s possible to seize on this “new era of volatility” to generate streams of investment income that aren’t possible in calmer times.

That’s why Zach is convening an “Extreme Income Summit” — showing readers how to bank substantial income payouts and rest easy while the mainstream is freaking out.

At first, Zach was making this live training event available only to his existing readership. But when I heard about his plans, I asked him — OK, I demanded — he throw the doors open to The 5’s readership as well. After all, we’ve been playing up the advantages of his income strategies in the midst of turbulent markets — here’s an ideal opportunity to learn more about them.

So with that in mind, we apologize for the short notice — this event is at 1:00 p.m. EST tomorrow. It’s free and you don’t have to sign up in advance — we’ll send you a reminder email with an access link tomorrow. In the meantime, you can check out some of the emails Zach’s been sending his existing readership to get them ready for this session — they’re right here.

As the day wears on, the Dow has already recovered some of those early losses; heck, the S&P 500 and the Nasdaq are in the green.

Alas, gold has given up much of last week’s gains; it’s back to $1,330. Its drop is the mirror image of a rise in the dollar index — from below 89 last Friday to 89.6 as we write.

Treasury yields are bumping up against last week’s highs, the 10-year at 2.91%.

Bitcoin, which jumped above $10,000 on Friday, is up to $11,785 today.

“The price of bitcoin, ethereum and other cryptocurrencies rallied once again last week, following a string of bad news earlier in the month,” says our crypto-millionaire James Altucher.

To James’ mind, the turning point came the previous week, when top financial regulators testified to Congress about cryptocurrencies.

“In a meeting with the Senate Banking Committee,” says James, “the heads of the U.S. Securities and Exchange Commission (SEC) and the Commodities and Futures Trading Commission (CFTC) testified on the potential dangers of digital currency.”

Crypto enthusiasts expected the worst: more restrictions on digital currency. But the tone of the meeting was surprisingly optimistic.

Nor is that the only good news, says James: “A leading bank took an optimistic long-term outlook and Asian regulators seemed to loosen up some previously restrictive policies.

“JP Morgan published a 71-page report on blockchains and digital currencies. The report, which is available online, covers a range of topics including blockchain applications, trading and regulatory perspectives. The report credits over 25 authors from various divisions in various countries, indicating significant investment and interest from within the bank.”

(Yes, it’s the same JPMorgan whose CEO Jamie Dimon called bitcoin a “fraud” last September. Go figure.)

“Separately,” James continues, “a top Korean government official dispelled rumors that the government was getting ready to ban cryptocurrency exchanges.” In short, the government will crack down on money laundering that uses crypto rather than banning crypto altogether.

“Following the news, the prices of bitcoin and ethereum have both rallied more than 30%,” James says.

Even when the crypto markets were tumbling, James encouraged investors to ignore the bad news and buy at a discount. He advises staying the course and tuning out the noise.

Emerging market alert: The government in central Asian nation of Turkmenistan just did something so rash, it will set back foreign investment by a good 10–15 years.

President Kurbanguly Berdymukhamedov has prohibited — of all things — black vehicles and women drivers (no wisecracks, please).

Some residents of the capital city of Ashgabat woke up one day to find their cars, well, missing. The common denominator? All the missing vehicles were black. “News began to float that…cars had been towed and impounded by the federal government under orders from [the] president,” according to Financial Times.

Apparently, the screwball dictator woke up one morning and decided black cars are bad luck. (President Berdymukhamedov drives a green Bugatti, thank you very much).

The — good? — news is that owners of black vehicles can get their cars back…if they sign an agreement to get a paint job posthaste. Of course, a paint job costs about $1,996 in U.S. dollars. Not an easy feat when the average Turkoman makes $275 per week.

This isn’t the first time Turkmenistan’s president has majored in minors: In December, he decided to ban women drivers. He reasoned — and we’re not dealing with the brain trust here — women were responsible for the majority of car accidents. So the edict came down and police seized women’s licenses.

Then again, what do you expect of a guy who ordered up a giant statue of himself on a horse?

Turkmenistan Statue

That’s gold leaf coating it, by the way…

“Deficit spending always sounds trivial in the short run of ‘the annual budget deficit,’ so not to worry. But it’s the Debt, Stupid!!” a reader writes as our mailbag picks up where it left off last week.

“We are exhorted by certain economists that even having China own our debt doesn’t matter, since it is in our mutual interests. But nobody, seemingly absolutely nobody, says anything about the impact of rising interest rates on the proportion of the budget that must go to service the debt.

“But suppose (of course it could never happen!) interest rates were to rise as in the good-ole Carter days (when legislatures around the country were racing one another to eliminate usury laws traditionally capped at 10%) and Treasury notes were to rise to 10%, what proportion of the federal budget would be required to pay this interest? I’d love to see a projection of this cost vis-a-vis the growing national debt. This might be a shokku that would wake some people up.

“Generalities lull people into complacency. Another wake-up call might be a projection of what income tax levels would be required to achieve a balanced budget as the debt rises. We need a responsible plan to reduce the debt over time.”

The 5: Barring a shock event, it’ll be a long time before rates reach that level. Interest rates move up and down in long multidecade cycles. And as we said a month ago, the bottoms of those cycles can last as long as 14 years. Even if June 2016 turns out to mark the bottom of the current cycle, it’ll take time to reach those crazy heights of the late ’70s-early ’80s.

Still, any increase in Treasury rates will raise the government’s interest expense. Uncle Sam had it easy during the years the Federal Reserve kept its thumb on interest rates: In 2008, he paid $253 billion in interest on a national debt totaling $10 trillion. By 2016, he paid only $240 billion in interest on a national debt totaling $19 trillion!

But the gravy train is departing. Interest expense has grown every year since 2015. The Office of Management and Budget projects it will soar past $500 billion by 2021 — and that assumes a 10-year Treasury yield still well under 4%.

“In Friday’s 5 you commented that ‘the surge in Americans surrendering their citizenship has now plateaued.’” writes our final correspondent. “This could be the consequence of Americans working overseas having plateaued a long time ago due to double taxation.

“In the late 1970s, Sen. William Proxmire of Wisconsin, managed to piggyback a rider to his dairy bill that killed increasing inflation adjustments to the exclusion portion of income earned abroad. Because of inflation, it wasn’t long before incomes earned abroad by American expats exceeded the limit of the excluded amount. His bill also killed any hope to eliminate double taxation, as needed to equal the playing field with the expats of other nations not having to pay taxes.

“Sen. Proxmire wrote a book titled The Fleecing of America; and fleecing America is what his bill did. Because of double taxation on Americans, the percentage of American professionals encountered working abroad dwindled over the years in comparison to expats from other countries that were not being taxed.

“As an engineer, I began to see a corresponding decrease in the number of pumps, gates, valves and other equipment and products being incorporated into development projects. Today the number of American products built into overseas facilities pales in comparison to the past.

“Oh, and by the way; today, I no longer see the cheese and other dairy products from Wisconsin that were once found plentiful in supermarkets abroad. What goes around, comes around, Sen. Proxmire.”

The 5: Thank you for that bit of recovered history.

Of course, Sen. Proxmire went down in history as having — well, we’ll cite his 2005 New York Times obit — “crusaded against government waste and irritated presidents and lawmakers from both parties because of his contempt for the mutual back-scratching most politicians engage in.”

But your story reminds us that he was still subject to the foibles that afflict almost all politicians — fomenting world-improving schemes that have unintended consequences…

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Jim Rickards recently revealed something to the public for the first time — something he had to keep quiet for 15 years as a condition of his work with the CIA.

Because of the information’s sensitive nature, we can’t keep it online indefinitely. Give this a look before it vanishes at midnight Thursday night.]

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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