- Museums on life support (fine art marts?)
- Jim Rickards on old-money “thirds” strategy
- There’s the REAL economy…
- … And then there’s the “MAGA” economy
- Unemployment funds peter out
- World’s tiniest violin for health insurers
- Overwhelming response: “Drudge sucks!”
- Media’s schismatic corona-coverage
It’s hard not to start feeling a little tinfoil-y when confronted with the following headlines…
Here’s why.
If you’re one of our longer-term readers, you know our Jim Rickards has said for years — even before joining our team in 2014 — that fine art is one of the five asset classes he recommends for the long haul, if you have the means to pull it off. The others are gold, cash, undeveloped land and private equity stakes.
His rationale is based in part on his experience with the old-money families of Europe. And we mean old. As in centuries. “This type of wealth has survived not only business cycles but also war, invasion, the collapse of empires, revolution and natural disaster,” he once wrote in a U.S. News column.
Probably pandemics, too, right?
“When one inquires of family members and representatives as to what it takes to preserve wealth over centuries and not just cycles, the frequent reply is ‘a third, a third and a third,’” Jim continued.
“This is shorthand for dividing one's wealth into one-third land, one-third gold and one-third fine art.”
The value of cash — another of Jim’s five recommended asset classes — is that you can use it to scoop up other assets when they become available at bargain prices.
Like, you know, when a global pandemic strikes… and shuttered museums contemplate selling off pieces of their collections.
If fine art is a little out of your reach, even on sale, there’s always gold. At a time when many dealers are scrambling for supply, our friends at Hard Assets Alliance still have you covered thanks to an unparalleled wholesaler network — along with some of the lowest premiums over spot price anywhere.
Check it out at this link. As always, in the interest of full disclosure, our firm owns a piece of the company… so we’ll be compensated once you fund your account. But we wouldn’t have purchased that stake unless we liked how they treat their customers.
There’s the real economy. There’s the stock market. And then there are the four biggest companies on the stock market.
As you’re surely aware, the real economy is in dire straits. We mentioned yesterday how more than 30 million Americans have recently filed first-time unemployment claims.
By the way, looking at the latest figures from The Tax Foundation, four states including New York and Ohio have only enough money in their unemployment insurance funds to cover one more week of payments. Four other states including California and Texas have just two weeks left.
[Click to enlarge]
But the economy and the stock market aren’t the same thing. Yesterday the S&P 500 ended the first four months of 2020 down only 9.9%.
Not that a rising market does any good for the 40-odd percent of American families who don’t own any stocks, but there you go.
Not only is wealth concentrated in the stock market versus the real economy. Wealth within the stock market is concentrated within the very biggest companies.
Check out the performance of the MAGA stocks relative to the S&P 500 (SPX). These are the four biggest publicly traded companies — Microsoft, Apple, Google and Amazon.
While the S&P is down about 10%, Apple and Google are near breakeven. Microsoft is up 10% and Amazon up 30%.
Going into the corona-crisis, these four companies accounted for two-thirds of the S&P’s year-to-date growth. Now in the midst of the crisis, the outperformance is still breathtaking. Amid a pandemic, the big are getting bigger.
True, Amazon is down about 6.5% as we write, after delivering its quarterly numbers. Sales surged 26% but profit tumbled 29% — more than expected.
Hey, it takes money to disinfect the warehouses and outfit the workers with protective gear. But those expenses won’t go on forever. Meanwhile, with house-bound Americans stepping up their online purchases, just think how much more dominant AMZN will emerge on the other side of the crisis.
CEO Jeff Bezos said as much on the conference call…
OK, here’s what he actually said: “If you're a shareowner in Amazon, you may want to take a seat because we're not thinking small. I'm confident that our long term-oriented shareowners will understand and embrace our approach."
Exactly. Bezos said basically the same thing in his 1997 annual shareholder letter: “Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity and correspondingly stronger returns on invested capital.”
For a long time, AMZN turned no profit at all. And investors were fine with it because Bezos was forever deploying Amazon’s bountiful cash into growing the business. Our old friend Chris Mayer said if you backed research and development out of Amazon’s numbers, it would routinely generate profit margins of 10%.
What’s old is new again. Just when it seemed Amazon’s growth trajectory was sure to level off… well, there’s that saying about never letting a crisis go to waste. (Time to don the tinfoil again?)
For any number of possible reasons, yesterday’s stock market slide is extending into today.
Perhaps it’s the knee-jerk reaction to Amazon’s numbers. Perhaps it’s the president threatening new tariffs against China; nice to know some things don’t change even amid a pandemic, huh? Whatever — most of the time, the media waste their breath looking for “reasons” behind a single day’s market action.
In any event, the Dow is holding up best as we write — down about 2%. The S&P 500 and the Nasdaq are taking more of a hit. The S&P has tumbled to 2,842. What was it our Alan Knuckman was saying earlier this week about the 2,800 level getting retested?
The big economic number of the day is the ISM manufacturing index — and appearances are deceiving.
As always, numbers below 50 indicate a shrinking factory sector. The number took a spill from 49.1 in March to 41.5 in April. That’s the lowest reading since the tail end of the “Great Recession” in April 2009.
The headline number is bad enough, but the “internals” are far worse. Employment crashed from 43.8 to 27.5 — the biggest drop ever in records going back to 1948. And new orders crashed from 42.2 to 27.1 — the biggest drop since April 1951, when Perry Como topped the Billboard charts with “If (They Made Me a King).”
“Of 18 industries tracked in ISM's sample, only two reported growth: paper products and food, both no doubt benefiting from consumer stockpiling,” says a summary from Econoday.
“The nation's manufacturing sector is literally at a standstill and chances for any meaningful improvement in May, despite the limited easing of lockdowns underway, seem unrealistic.”
From where we sit, there’s no such thing as a “worthy” candidate for government bailouts… but my God, the health insurers?
From an overlooked story at Politico on Tuesday: “Big businesses and powerful Democrats are aligning around a proposal to bail out employer health plans in the wake of staggering losses to the insurance industry… Experts estimate the job-based insurance market has likely already lost millions of customers as unemployment skyrockets.”
Thus, “an unusual bloc is pressuring Congress to fully subsidize workplace premiums for the uninsured. Corporations would benefit because the employer-based system supplies a big tax break for benefits they can use as a recruiting tool. Unions would keep the generous coverage they have negotiated with corporations. And hospitals and doctors could maintain the big payouts from private insurance, which are far higher than the Medicare and Medicaid rates paid by government.”
In other words, the preposterous system of employer-based health insurance that came about during World War II doesn’t work with the highest unemployment since the Depression.
We well remember Barack Obama’s address to Congress pushing for Obamacare in 2009.
“There are those on the left who believe that the only way to fix the system is through a single-payer system like Canada's, where we would severely restrict the private insurance market and have the government provide coverage for everyone. On the right, there are those who argue that we should end the employer-based system and leave individuals to buy health insurance on their own.”
He told free marketeers and socialists alike to take a hike. Either approach “would represent a radical shift that would disrupt the health care most people currently have.” Translation: There was too much money in it for vested interests. (Reminder: The Senate aide who wrote most of the bill was previously VP at an insurer.)
Obviously the socialists see their chance now. Visions of Medicare for All are dancing in Bernie Sanders’ head. And there’s no one on the other side to stand up for a free market in health care that would actually make health care affordable again.
Bailed-out cronyism or full-on socialism. That’s our choice in America 2020. Just swell…
“Drudge sucks!” reads one of many, many, MANY replies we got to our query at the top of yesterday’s 5.
“I've lost all respect and interest in the sellout Drudge and he is going to go down in flames before this whole thing that we see beginning to unravel on the world stage is done!”
Copied and pasted in a Word document the comments filled 13 pages — and most of them weren’t very long, either. So if you agree with the above comment, you’re in good company.
“No more Drudge,” says another. “He has lost it and lost me.”
“Sold out to deep state,” says a third. “No other explanation makes sense… and it's pretty pathetic. One need not be a Trump lover to see it.”
Trust us, this is a representative sample. Any more and we’ll just get redundant.
Thanks to everyone who passed along their input about the news sources they seek out instead of Drudge these days.
We will check out the ones we’re not familiar with as the month of May wears on. Of the ones we are familiar with, you might want to revisit our take on Zero Hedge earlier this year. And if you’re a Ben Shapiro fanboy, we’ve got one word for you: Really?
Alas, many of the other suggested sites we’re familiar with are so slavishly pro-Trump — a colleague of ours calls them “Trump fan fic” — that we don’t bother.
Nor do we bother with the flip side of that coin. For many years your editor kept up with a liberal site called Raw Story — in part because it did some very good investigative reporting during Bush 43’s second term.
But those reporters are long gone and in the Trump era, Raw Story has become a self-parody of the #Resistance. Go there around 8:00 a.m. on the East Coast on any given weekday and you’re sure to see a headline like, “Morning Joe Just Torched Trump on [insert topic here] and It Was Perfect.” No thanks.
As we said last summer when recounting the book tour of our colleague Nomi Prins, almost no media outlet covers any news anymore unless it can be framed in a way that fuels the tribal partisan loyalties of readers and viewers.
“As it turns out, there is a utility in keeping us divided,” wrote Rolling Stone veteran Matt Taibbi last year in his excellent book Hate Inc. Utility, he means, for the governing classes. “As people, the more separate we are, the more politically impotent we become… Hatred is the partner of ignorance, and we in the media have become experts in selling both.”
Divide and rule — which extends to the media’s corona-coverage.
Taibbi posted an outstanding article on his Substack page just yesterday. The whole thing’s worth a read, but here’s the best passage…
“Instead of asking calmly if hydroxychloroquine works, or if the less restrictive Swedish crisis response has merit, or questioning why certain statistical assumptions about the seriousness of the crisis might have been off, we’re denouncing the questions themselves as infamous.
“Or we’re politicizing the framing of stories in a way that signals to readers what their take should be before they even digest the material. ‘Conservative Americans See Coronavirus Hope in Progressive Sweden,’ reads a Politico headline, as if only conservatives should feel optimism in the possibility that a non-lockdown approach might have merit! Are we rooting for such an approach to not work?”
Gotta wonder, right?
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. Here’s a question, and maybe this could lend insight into Drudge’s shift: What the heck is this “DNYUZ” site he’s linking to all the time now?
It doesn’t seem to have any original content; rather, it republishes material from other sources, primarily The New York Times.
Seeking an answer, I stumbled on a Reddit board where someone had the same experience I did: “There is no ‘about’ section at the top. When you scroll to the bottom, before one can click on the ‘about’ section there, more stories load. I tried clicking it many times. Then, I added ‘about’ to the site name… nothing.”
Another Redditor says the site was registered by someone in Yerevan, Armenia. Stranger and stranger…
