- No, inflation isn’t heating up after all… and it’s good for stocks
- Trade war? What trade war?
- Dow bounces back, Facebook not so much
- Regulators scrutinize crypto more… in a good way
- CDs and vinyl bigger than downloads again (seriously)
- The latest hat Altucher has donned… reader challenges Rickards’ bitcoin take… if every bill in Congress were only one page… and more!
We pick up where we left off last Friday, with a reader’s inquiry.
“It seems to me,” he wrote, “that we have a large number of folks who have stopped looking for work and are still on the sidelines. If real wages are going up just a little bit, wouldn’t a few of these people come back into the workforce and thus [keep a lid on] inflation?”
That’s exactly what appears to be happening.
Recall the stock market swoon of early February began with an unemployment report that showed signs of accelerating wage growth. Traders anticipated a sequence of events something like this…
Accelerating wage growth → Higher inflation → Additional “tightening” by the Federal Reserve → Rising interest rates → Money flowing out of stocks and into fixed income.
“After all,” explains our income authority Zach Scheidt, “investors can move money out of dividend stocks and into bank accounts if interest rates are giving savers higher yields.”
But all that worrying was for nothing.
We suggested as much when the most recent unemployment report came out. It’s worth exploring in a bit more depth today.
“In the month of February, a full 800,000 Americans entered the job market,” says Zach. “These are workers that were currently not employed and not even looking for a job. The entrance of new Americans into the workforce helped keep wages from moving too much higher in February. And that’s a great sign that inflation is under control.
“More importantly, this trend should continue over the next several months thanks to the HUGE number of people on the sidelines that can still enter the workforce.”
Zach draws the following numbers to our attention…
- “According to Federal Reserve data, there are 206.6 million ‘prime working age’ people in the U.S.
- “Of those people, just over 82% are in the workforce — either employed or looking for work
- “Back in the late ’90s the percentage of people in the workforce was closer to 84.5%
- “If we get back to that point — adding 2% of ‘prime age’ Americans to the workforce, that’s over 4 million new people eligible to fill new jobs.”
We know from surveys that small-business owners are having trouble finding qualified help. But if even, say, a mere 1 million out of those 4 million people return to the workforce over the next year, that’ll be plenty to keep a lid on wage growth.
Sucks if you’re in the workforce and counting on a big raise.
But it’s great news if you’re counting on dividend-paying stocks for retirement income.
Let’s quickly review Zach’s three-point checklist for dividend payers… and explore how these numbers will impact those three criteria…
1) Protect Your Wealth — “We want to always invest in stocks that are strong and safe companies,” says Zach. “That way there’s less of a chance that a pullback in the market will cut into your wealth.
“The fact that inflation is now being held at bay certainly works in our favor and protects the value of our dividend investments. So we’re in good shape there.”
2) Invest for Growth — “We want to buy shares of companies that will grow over time,” Zach goes on — “and also grow their dividend payments sent to us each quarter. This is a lot better than just accepting the same payments year after year.
“With more workers available in the U.S. and companies looking for ways to expand, I expect the growth potential for our investments to be very strong. So again, we’re in a good spot.”
3) Collect a High Yield — “The stocks that we’ve featured in our Lifetime Income Report portfolio all pay generous dividends that help grow our income over time.
“A pullback for some of these stocks gives us the opportunity to lock in better yields. After all, if you pay less for a stock that gives you the same income, you’re getting a better deal for your investment.
“Altogether,” Zach concludes, “this is a great time to be an income investor. And the recent jobs report shows us that these investments are still in good shape and worth sticking with for 2018.
[Ed. note: Over the last several days, Zach has been giving his readers a heads-up about the biggest project of his career, going all the way back to his hedge fund days.
“I’m going to start spilling every secret that hedge fund managers use to help their wealthy clients get richer — one by one.”
And yes, you can apply these secrets to your own portfolio, even if you don’t have the big bucks to buy your way into a hedge fund.
Zach is putting himself at considerable risk here. After all, this is the sort of information the “pros” absolutely don’t want you to have. Watch this space for details later this week.]
The on-again, off-again freakout over a looming trade war is off again.
By the time the stock market closed for the week on Friday, the Dow had shed 1,150 points in two days — a move attributed largely to trade tensions between the United States and China.
But last night, The Wall Street Journal reported that “China and the U.S. have quietly started negotiating to improve U.S. access to Chinese markets.”
And with that, the Dow leaped 500 points on the open this morning. Not a lot of staying power, though — as we write that gain has been pared to 225 points. The Big Board is still in the red for 2018.
Not sharing in the rally today is Facebook; the Federal Trade Commission confirms it’s now investigating how FB safeguards customer data. Shares are down nearly 5%.
Gold is picking up where it left off last week; it’s now above $1,350 for the first time in more than a month.
For all the hand-wringing on Wall Street during February and March, the economy’s looking just fine — according to one revealing barometer.
The Chicago Fed National Activity Index crunches 85 economic indicators into one number. If it’s above zero, then economic growth is “above historical trend.” If it sinks to minus 0.7, that’s been a reliable predictor of a recession.
The latest three-month moving average is plus 0.37. The February number was driven higher by industrial production and job growth. The only real negatives are consumer spending and housing. We’re still in the late boom phase of the boom-bust cycle.
Bitcoin has held the line on the $8,000 level for a week now amid what crypto millionaire James Altucher calls “positive regulator commentary.”
The Financial Stability Board (FSB) — the organization that standardizes financial regulations for the so-called G-20 economies — ruled cryptos do not pose a threat to financial security.
The report was issued before the group’s summit in Argentina last week. “Although discussions during the meeting had included regulation and policy discussions regarding cryptocurrencies,” James says, “no specific action or regulation was ratified at the summit.
“Instead,” he continues, “regulators set a deadline of July for member states to introduce proposals for coordinated regulation and monitoring of cryptocurrency markets.”
And there’s been crypto-positive news from China with the appointment of Yi Gang as head of the People’s Bank of China — the Chinese central bank.
This is important for crypto because “Yi has praised cryptocurrency in the past, saying that it is ‘inspiring’ and ‘provides freedom to anyone that uses it,’” James says.
Earlier this month, the outgoing PBOC president — Zhou Xiaochuan — said cryptocurrency might replace paper money and the PBOC is investigating the option of issuing its own digital currency.
“It’s easy to understand why China would be interested in launching its own digital currency,” says James. “A Chinese state currency could help eliminate the demand for decentralized cryptocurrency. It would also provide Chinese regulators with better tools for monitoring and regulating domestic financial transactions.”
While regulations spook many people in the crypto community, James thinks appropriate regulations will further legitimize the crypto market and promote involvement from financial institutions.
“Without a doubt,” he says, “2018 will be the year in which regulators more firmly establish guidelines governing the use of digital currency.”
By the way, James is a busy man: His name shows up in the credits as a “technical adviser” on the Showtime series Billions starring Paul Giamatti.
Digital music downloads? They’re soooo 2013. Heck, CDs and vinyl are outselling them now.
Yes, we’re venturing back into the vinyl waters, much to the consternation of certain readers. But we can’t help it after spotting the latest numbers from the Recording Industry Association of America.
“The RIAA released its 2017 year-end revenue report on Thursday,” says The Washington Post, “showing that revenue from digital downloads plummeted 25%, to $1.3 billion, over the previous year.
“Revenue from physical products, by contrast, fell just 4%, to $1.5 billion.”
It’s all about streaming now: Services like Spotify and Apple Music leaped by more than 50%, to $5.7 billion — nearly two-thirds of industry revenue.
Digital downloads, meanwhile, are lagging behind sales of “physical media” for the first time since 2011. If the downward slide continues, digital downloads might go the way of the eight-track, taken down by the exceedingly more portable cassette tape in the early 1980s.
Don’t get the wrong idea, though: CD shipments remain locked in a years-long decline — down another 6% last year to $1.1 billion.
But — thanks to hipsters (heh) — sales of vinyl jumped 10%, to $395 million.
That’s a slight fraction of the music industry’s total revenue… but enough to move Sony to start pressing albums again after a 28-year break.
To the mailbag: “I listen carefully to what Jim Rickards has to say on a number of topics, but (see, it’s not just for The 5) cryptos is not one of them.
“The reason is overly hyperbolic statements like, ‘Today it can cost $60 to make a $50 payment in bitcoin, and the transaction can take hours to clear.’
“Firstly I will agree that bitcoin and the entire crypto space are in early days and have a great many areas for improvement. However, with the transaction fees where they currently are, one would be hard-pressed to submit a $50 bitcoin transaction, pay a $60 transaction fee and have it take hours to clear.
“One of the real strengths of bitcoin is that I, as a sender of bitcoin, can look to see what other people are currently paying in fees for a transaction similar to mine (bitcoin transaction fees are determined by data size, not value) and adjust the fee I am willing to pay accordingly. If I need the transaction to be confirmed quickly, I can choose to pay a higher fee. If I am willing to wait longer, I can again choose to pay a lower fee.
“Based on my experience, that is not something you can do in the traditional financial system where the bank decides what you will pay. They also get to add any other fees they feel like whenever they want. Don’t like their fee structure? Look forward to spending several weeks locating and moving your money to another institution, provided you can find one that is any better.
“Yes, bitcoin and friends have their shortcomings, and yes, it can frequently feel like the Wild West, and no, I do not evangelize anyone to get into cryptos without doing a lot of homework and being a self-reliant person. However, cryptos have competition built in, which in the long run makes them inherently better in my opinion than the banking cabal.”
“So our fun-loving Congress passed a 2,232-page budget and the president signed it,” a reader writes.
“What are the chances that anyone actually read the whole thing? I still propose that if they want to create a bill, it should be on a single 8.5″x11″ piece of paper. Need more room? Too bad, write another bill. That would stop the amount of bull**** that gets written and passed because they would get tired of writing all the individual bills. It would also allow us to determine exactly what they voted for. It may also cut down on the amount of attack ads, since you could actually determine what they did or did not vote for.
“On the subject of the jack***es in Congress, is there any kind of timeline, budget or oversight for this Mueller ‘investigation,’ or does he have free rein to take as much time and money as he sees fit?
“Thanks for The 5!”
The 5: “Mueller has one job, no deadline and bottomless resources,” said Time at the outset of the investigation last June.
The buzz from Washington is that because no meaningful Russia leads have turned up, Mueller is now digging into a pay-for-play arrangement between Jared Kushner and the Saudi royal family — which strikes us as way more credible than any “Russian collusion” tripe.
The only question is, given Saudi influence in Washington, whether Mueller would have the stones to pursue the case wherever it leads…
The 5 Min. Forecast
P.S. Events are starting to move quickly again in the “penny pot stock” space. And the next big run-up could prove even more lucrative than the last. Ray Blanco has already shown thousands of readers the way to profit. Don’t miss your turn.