- James Altucher: The most dangerous thing for investors…
- … And the Fed holds the key
- The likelihood of the “R” word
- Big-time hedge funds bet on gold
- Swiss gold refiners return to (round the clock) work
- Zach Scheidt: A favorite “5G Cash” company
- Golden State backstops dwindling unemployment funds
- A longtime reader says it’s time to “flip the switch” on the economy… shrug off paternalism… while Big Brother backfires in St. Louis.
“The most dangerous thing an investor can fail to understand is the power of liquidity,” says former hedge fund manager and venture capitalist James Altucher.
It’s so important, in fact, he says: “You should probably read that sentence again.
“The Fed has something at its disposal that no one else in America has — the power to increase liquidity,” James says. “Excess liquidity makes asset prices rise in value, while the removal of liquidity tends to push prices lower.”
So as the Fed’s been busy buying everything in sight — from U.S. Treasuries to “junk” corporate debt — the central bank’s been pumping money into the markets. “And as long as liquidity remains plentiful and the financial markets are not under immediate stress (contraction), the market is, in a sense, backstopped,” says James.
In a sense…
“A backstopped market doesn't mean share prices can't decline,” James continues, “but many on Wall Street believe that as long as the Fed ‘has our back,’ the market won't descend into free fall the way it did in March.”
But all good things must come to an end: The Fed “artificially pushing stock prices higher and shielding countless companies and industries from bankruptcy” isn’t a permanent fixture.
“At a certain point,” says James, “fundamentals matter.”
And here’s what he believes will happen in the weeks ahead…
“While the Fed may be willing to step in and pump liquidity into a market that is in free fall,” James says, “the Fed will… NOT be able to prevent the coming recession.”
Particularly as companies roll out first-quarter earnings reports, “analysts will be forced to [revalue] companies based on significantly lower earnings — both current and future.
“Ultimately, lower valuations mean lower share prices.
“While the talking heads… would love for you to believe that the path forward will be smooth and painless and that we’re in for a V-shaped recovery,” says James, “that's extremely unlikely given the impact the coronavirus will continue to have on many sectors of the economy.”
In fact, James doesn’t foresee a return to business as usual in the United States until there’s an effective vaccine available… and that’s quite possibly a year away.
“While there are always incredible opportunities [in the] depths of a recession,” James says, “the uncomfortable reality is we need to give the market and the economy the necessary time to find the bottom.”
In other words, he doesn’t think we’re there yet. As for the “R” word — recession — James believes it’s inevitable. As does Warren Buffett’s business partner Charlie Munger, who says…
“Of course we’re having a recession. The only question is how big it’s going to be and how long it’s going to last. I think we do know that this will pass. But how much damage and how much recession and how long it will last, nobody knows.”
James says: “Here’s the good news in all this: This market’s actually loaded to the brim with opportunity if you know how to look for it.”
Not that investors should blindly follow Wall Street…
“I’ve uncovered a weird market ‘glitch’ during the course of my research,” says James. “It gives anyone who understands it the opportunity to make serious gains in this market.
“It doesn’t matter if the market goes up, down or sideways,” he confirms. “This could change the way you think about investing.”
Stocks are in the green today on word the economy’s getting back to business…
Taking a look at the Big Board, the Dow’s surged 300 points to 24,100, and the S&P 500 Index is up 50 points to 2,890. Meanwhile, the tech-heavy Nasdaq’s gained 160 points to 8,870.
Oil’s on a five-day winning streak — up $3.10 per barrel to $23.49 — and gold continues holding the line at $1,705.50 per ounce.
“Some of the world’s largest hedge funds are raising their bets on gold,” Financial Times reports.
Hedge funds including Paul Singer’s Elliott Management, Andrew Law’s Caxton Associates and Danny Yong’s Dymon Asia Capital all favor gold under present circumstances — as central banks print money like it’s going out of style. Currency devaluation, anyone?
According to Financial Times: “Funds are again betting that stimulus will weaken currencies, even if this does not show up in higher consumer price inflation.” Well… yet.
“Gold is a hedge against unfettered fiat currency printing,” says Mr. Yong, whose hedge fund is up 36% this year, nudged to such stellar returns in part because of its bet on gold.
And it’s not just hedge funds affirming in gold we trust…
“I suspect we will begin to see central banks begin to doubt each other’s creditworthiness and demand gold as payment instead of dollars or yen or euro or any other paper currency,” says Jerry Haworth, CEO of 36 South Capital Advisors.
Mr. Haworth believes gold will become “the credit default swap of central banks.”
And to cater to the appetite for gold…
Two Swiss gold refineries — Valcambi and Argor-Heraeus — are up and running again after six weeks of coronavirus shutdowns.
The shutdowns put a significant kink in the gold supply chain; to give you an idea, the two refiners account for roughly a third of the world’s gold supply.
“From today onwards we are allowed to go up to 100%,” Valcambi CEO Michael Mesaric said Monday, and Argor says it’s now “completely operational.”
According to Reuters: “By keeping the [Argor] facility running 24 hours a day and working on Saturdays it could operate at roughly 90% of normal levels.”
Our income specialist Zach Scheidt says: “If you listen to the media, earnings season isn't supposed to matter this year.
“After all, companies are just going to tell us that things are terrible and not getting any better. Right?”
Not exactly, according to Zach. He’s eyeing robust income opportunities associated with the 5G revolution. He says: “One of my favorite ‘5G Cash’ companies — Crown Castle International (CCI) — reported earnings that beat investor expectations.
“The company also told investors to expect more income throughout the year as CCI charges rent to 5G network providers who use CCI's towers for their equipment.” And CCI is just one example of the 5G-related companies that are faring better than most amid the coronavirus pandemic.
“If you're invested in these solid plays,” Zach says, “you'll be able to collect reliable income from an industry that continues to be in high demand. And you'll also see your wealth grow as share prices for these reliable companies continue to trade higher.
“That's a win for our income strategy,” says Zach, and it might mean extra income in your pocket too.
The Golden State is the first to borrow money from Uncle Sam to pay out unemployment benefits to 3.7 million Californians.
According to The Wall Street Journal: “California had about $1.9 billion in its unemployment trust fund in mid-April, down from $3.1 billion at the end of February, the month before the coronavirus upended the U.S. economy.”
Considering dwindling unemployment funds, California tapped into $10 billion the federal government earmarked to refill the state’s coffers; so far, California’s borrowed $348 million.
An auger of things to come?
“California serves as an early sign of the potential magnitude of the federal assistance that could be required if states are to continue paying out jobless benefits,” WSJ says.
According to Labor Department data, California started out with just enough money to make good on unemployment claims for a little over two months. It was one of over 20 states and jurisdictions without enough cash in their funds to get through a yearlong recession.
So California’s the first borrower… but most certainly not the last.
“The U.S. government also has approved loans of up to $12.6 billion for Illinois and up to $1.1 billion for Connecticut… to replenish state unemployment-insurance funds, though the two states hadn’t yet started borrowing by the end of April.”
And here’s the kicker: Congress doesn’t even have to sign off on these federal loans; governors simply submit a letter to the feds and — voila! — money is transferred to state accounts. Easy-peasy, right?
Well, not really. They are loans after all… And whaddayaknow? Many states had just finished paying off federal loans they took out during the Great Recession.
“For instance, California borrowed nearly $11 billion from the U.S. government to continue financing unemployment benefits after the 2007–09 recession but didn’t finish paying it back until 2018.”
You know what they say about paybacks…
“Our state and local governments have failed us,” says a longtime reader from Idaho. “They seem unwilling to stand up and challenge this unprecedented double whammy, shutting down the economy and quarantining people who are not sick.
“Defining what workers are ‘essential.’ Making ludicrous promises that no one will suffer financially. They have been willing to take the expedient, politically correct path and drift along with the mass hysteria rather than stand up for our rights. And they continue to make it worse by defending and extending that mistake, inevitably making the consequences worse.
“Our appeal to our lawmakers: Please stand up, be brave and ‘flip the switch,’ for God’s sake! The people who don’t want to take the risk can stay home!
“It's not about our initial response to COVID-19; fear and caution are reasonable in the face of a new outbreak. But lawmakers crossed a bright line when they made the leap from voluntary guidelines to mandatory decrees, when they proved that they no longer trust their citizens to act responsibly, to have the freedom to take risks.
“Now they feel they must take care of us, save us from ourselves? That’s the rationale, of course, for authoritarian and totalitarian governments everywhere, who endure as long as the people succumb and believe that they need ‘saving.’”
The 5: Or how about when local governments encourage citizens to snitch on one another?
That’s precisely what’s happening in St. Louis, Missouri, where residents can report on nonessential businesses that defy shutdown orders… via an online form.
According to an article at Reason: “The county received more than 900 complaints. And the complaints, apparently, were not anonymous. Indeed, they're public records subject to the state's sunshine laws.”
D’oh!
Meaning it was just a matter of time before a resentful citizen got his hands on the list of tipsters and posted their names on Facebook.
"I'd call it poetic justice, instant Karma, a dose of their own medicine," says Facebook vigilante Jared Totsch. "What goes around comes around.”
The clichés abound… as does the irony. The same government citizens appealed to for safety (from “nonessential” businesses *eye roll*) is the same one that lets them hang out to dry.
Best regards,
Emily Clancy
The 5 Min. Forecast
P.S. Under the circumstances, there’s no better time for investors to learn this critical information…
If the market goes up, down or sideways — regardless, you can make potentially explosive gains because of one market “glitch.”
Click here to learn exactly how this market “glitch” can work for you…. And don’t delay, because the next trade alert goes out this Wednesday, May 6, at 9:30 a.m.
