- A “little hysteria” infects the markets
- Trump’s — financial — nuclear option
- The FDA steps out of its bureaucratic box
- Sweden stages “Cash Rebellion”
- When it comes to crypto, a reader asks what about buying dips?… And will the dollar get fixed to gold… ever again?
From the Department of Obscure Statistics: Bloomberg “informs” us that yesterday on Wall Street marked the worst start to a second quarter since 1929, “a prelude to the devastating crash later that year that brought on the Great Depression.”
[Cue the “dun-dun-duuuun” music.]
Seriously, what are we supposed to glean from one day’s market action?
“Tech Stocks Slide Amid Backlash,” says a slightly more helpful headline in The Wall Street Journal. Tech stocks are indeed taking the brunt of the sell-off, both yesterday and in recent weeks generally.
It seems the mainstream is catching onto something we pointed out last June: The share prices of the five biggest companies in the S&P 500 — every one of them a tech company — were crushing the other 495 stocks in that index. If you’d owned Apple, Alphabet (Google), Microsoft, Amazon and Facebook over the previous four years, you’d have outperformed the “S&P 495” by a factor of 9-to-1.
We wondered what it would look like once that trade went into reverse. Now we’re finding out.
Throw out stodgy old Microsoft and replace it with hip-and-happening Netflix and you have the so-called “FAANG” stocks. Yesterday alone this trendy bunch lost $79 billion in market cap. The total loss since the Nasdaq’s all-time high three weeks ago? $397 billion.
“I expect a little hysteria to work its way through the markets,” chart-watcher Greg Guenthner writes in today’s Rude Awakening, “now that the S&P has lost its 200-day moving average for the first time since July 2016.
“The financial media are already beating this theme into the ground, spinning out every bearish scenario imaginable for the markets.
“But in reality, the path forward is probably maximum pain for both the bulls and the bears. Volatile, choppy trading heading into the summer wouldn’t surprise me at all.”
While the market action is calm as we write this morning, the next bout of volatility is set to hit sometime between now and Friday. It will likely be bad news for the broad market… but enormously profitable for a few strategically placed speculations. Let’s explore…
“With the U.S. using its nuclear option in financial warfare, investors should hope that the Chinese don’t respond in kind,” Jim Rickards explains.
The “nuclear option” in the simmering trade war between the U.S. and China harkens to the days before nuclear technology — back to World War I, in fact.
The Trading With the Enemy Act of 1917 (TWEA) “was used to seize German assets in the U.S. during the First World War,” Jim says.
In 1933, FDR invoked the TWEA to close banks and wrest gold from private citizens.
It got a new name when “Congress enacted an even more extreme version of TWEA called the International Emergency Economic Powers Act of 1977, or IEEPA,” says Jim.
“This is the equivalent of a nuclear weapon when it comes to financial warfare.
“IEEPA allows the president to seize or freeze any asset or block any transaction if the president deems it to be necessary in the case of a national emergency.”
Presidents, however, have an expansive interpretation of “national emergency,” ranging from lopsided trade to job losses — really any run-of-the-mill economic malady.
“President Trump may now use IEEPA to block a variety of Chinese deals in the U.S. in retaliation for Chinese theft of U.S. intellectual property,” Jim says.
“The Trump administration is considering a crackdown on Chinese investments in technologies the U.S. deems sensitive,” says an article at Bloomberg.
“Treasury Department officials are working on plans to identify technology sectors in which Chinese companies would be banned from investing, such as semiconductors and so-called 5G wireless communications.”
Already the agency known as CFIUS — the Committee on Foreign Investment in the United States — scuttled microchip maker Broadcom’s bid to buy its rival Qualcomm. CFIUS explicitly cited national-security grounds.
More nixed deals with foreign investors can be expected as the CFIUS plans “to impose tougher conditions on Chinese firms…
“The Trump administration is considering enforcing strict reciprocity on Chinese acquisitions, meaning U.S. regulators would only approve deals in sectors in which American companies are allowed to invest,” reports Bloomberg.
As it stands, “China restricts or bans foreign investment in a range of industries, from car manufacturing to telecommunications providers and rare-earth exploration.”
While the president can still change his mind about wielding the IEEPA, “enforcing sweeping bans on Chinese investment” is the most likely course of action.
But that’s still a few weeks away. Of more urgent concern is what happens between now and Friday.
Sometime this week the White House will follow up on its plans to lay tariffs on up to $60 billion worth of imports from China.
Which imports will be affected? We’ll know by Friday. Expect significant market gyrations — as we’ve had periodically ever since the president announced steel and aluminum tariffs on March 1.
But here’s the thing… Careful reading of an official White House trade document clearly identifies a company that will benefit from the announcement coming this week. It’s right there on Page 21. Jim Rickards says you can think of it as Trump’s “next big deal” in his long history of deals.
Play it right and Jim says it could be worth as much as $143,518 to you in the coming weeks.
Wait till you see how he arrives at that number — it’s all in his research right here. Just make sure you read it right away — because the announcement could go down anytime between now and Friday.
As mentioned earlier, the Monday market mayhem has given way to a tranquil Tuesday. At last check the Dow has recovered more than 100 of the 450 points lost yesterday.
The Nasdaq is slower to recover from yesterday’s drubbing — up less than a quarter percent.
Gold’s two-steps-forward-one-step-back action continues. Today it’s a step back to $1,331.
“The FDA appears to be making it easier for new outside-the-mainstream medical technology to enter clinical trials and even come to market,” says Ray Blanco on the science-and-wealth beat.
It’s not easy to change a massive and set-in-its-ways government bureaucracy. “The FDA employs some 15,000 people and regulates 20 cents of every dollar spent by the average American.
“But the regulator has to change if we aren’t to… squelch American medical innovation and drive it away,” Ray says.
There was a lot of optimism — and skepticism — with the changing of the guard at the FDA that came post-election. For the most part, Ray says: “Things appear to be moving in the right direction.”
Take wearable technology as one example of the FDA warming to new tech trends in health care.
“Last year, it cleared the first medical device designed to work with Apple’s Watch, an EKG reader that attaches to the device and uses machine intelligence to detect abnormal heart beats,” says Ray.
“This year, it approved a smart watch that also uses machine intelligence to help epileptics, capable of sending alerts to caregivers if there’s a seizure.”
Here are more encouraging stats: In 2017, the FDA approved 1,000 generic drugs — an all-time record. And it set a 20-year record for the number of drugs approved in one year.
What’s most remarkable is the FDA “is thinking outside of the box more and more, making it easier for out-of-the-mainstream technology to enter the clinic.”
Ray explains, “This is important because increasingly we are going to see the biggest medical breakthroughs come not from traditional drugs but from engineered cells, viruses and methods used to change bad code in our DNA.”
So Big Pharma’s been put on notice; as Ray puts it, “innovate or die.”
Good news for health care consumers and biotech investors alike.
Hmmm… Seems the Swedes are rethinking this cashless-society thing.
As we’ve mentioned from time to time, Sweden is in the vanguard of countries moving away from cash transactions. At more than half Sweden’s banks you can no longer deposit or withdraw cash. Many businesses refuse to accept notes or coins.
Ironically it’s the head of Sweden’s central bank who’s having second thoughts: “It should be obvious that Sweden’s preparedness would be weakened if, in a serious crisis or war, we had not decided in advance how households and companies would pay for fuel, supplies and other necessities,” said Riksbank Governor Stefan Ingves in February.
Now the Guardian tells of a grassroots group called Cash Rebellion. “When you have a fully digital system you have no weapon to defend yourself if someone turns it off,” says its leader, Björn Eriksson.
A recent opinion poll says seven out of 10 Swedes still want the option to use cash. Meanwhile, “Parliament is conducting a cross-party review of central bank legislation that will also investigate the issues surrounding cash.”
Well, better late than never…
“Seems to me that James Altucher does not have the courage of his convictions,” a reader writes after yesterday’s 5. “Wasn’t he the one who was saying to buy cryptos on the dips?
“Now that we’ve had a huge correction, which should represent a great buying opportunity, he’s putting his buying on pause?? What happened to buying on the dip?”
The 5: It comes back to Keynes’ old quip about the market remaining irrational longer than you can remain solvent.
In other words, James has every expectation right now that the present crypto shakeout is going to get worse before it gets better. No sense buying bitcoin at $7,400 if you can buy at, say, $6,500 a few weeks from now.
It’s still early days in the crypto space. James’ top crypto analyst Kamal Ravikant uses a baseball analogy: We’re now in the second inning, brought on by regulatory scrutiny. Many scammy cryptos won’t survive. “Inning two,” he says, “is about accumulating the best. It’s about creating a rock-solid portfolio at rock-bottom prices” — and not buying willy-nilly.
The third inning will come when crypto starts attracting institutional investors like pension funds. We’ll let you know when James thinks it’s time to buy again.
“Dave, a friend brought H.R. 5404 to my attention today,” writes our final correspondent.
“Apparently, it’s a bill introduced to the House on March 22 to fix the dollar to gold. I have not heard any mention of this in the MSM.
“What’s your take on it and its potential to pass?”
The 5: “On Thursday [March 22], I introduced a bill that would return the dollar to the gold standard — the first such attempt since Jack Kemp’s Gold Standard Act of 1984,” writes Rep. Alex Mooney (R-West Virginia) in Wall Street Journal commentary.
“Under this legislation the Fed would still exist, but it would administer the money supply rather than dictate it. Instead the market would be in charge, the supply and demand for money would match up and prices would be shaped by economics rather than the instincts of bureaucrats…”
So far, Mooney has acquired zero co-sponsors. And even if the bill were to catch on, the powers that be would water it down the way they did with Ron Paul’s audit-the-Fed bill…
The 5 Min. Forecast
P.S. The mainstream is working overtime to identify winners and losers as a U.S.-China trade war escalates. But they’re looking in all the wrong places.
The place to look is a White House document seen by Jim Rickards. On Page 21, he says one company is spelled out by name as a winner.
No later than Friday, the White House will name which Chinese goods will be subjected to new tariffs… and a trade on this one company could deliver gains of up to 2,770%.
Ray Blanco says: “I’m seeing strong signs that another giant corporation is about to throw its hat into the ring.” (Hint: space) Read More
The exodus from the big U.S. cities began well before anyone had ever heard of a coronavirus strain emerging in China’s Hubei province. Read More
Your editor is having weird ’80s flashbacks today, including the “Japanese miracle” of that decade. Read More
We received an avalanche of responses to Tuesday’s episode of The 5… So we devote today’s issue to our readers’ perspectives. Read More
It’s totally counterintuitive: Gold throws off no income stream, but in a world where central bankers keep their thumb on interest rates, you need gold. Read More
It’s taken prestige media — and public health officials — about a month to come to grips with a glaring contradiction. Read More
“One of the questions I’m getting,” says Zach Scheidt, “is how can the market be so strong when the economy is so weak?’” Read More
Call it harebrained or genius, Americans might be taking a TRIP courtesy of the federal government. Read More
“There’s a lot of frustration in our country,” says bestselling author Graham Summers, “because we’re seeing a severe breakdown in the social contract.” Read More
Warren Buffett’s empire is under siege in 2020… “but that doesn’t mean there aren’t good deals to be had,” says hedge fund veteran James Altucher. Read More