After the Purge

  • The Dow soars to record highs (*giant asterisk*)
  • Aftermath of an August stock rotation 
  • Tesla joins the S&P 500… but which company gets booted?
  • U.S. Mint: Business is booming in 2020
  • Transparency Act’s blow to financial privacy
  • Bowling over the competition in Detroit
  • Readers on “covering our nether regions”… “What are you smoking?”… “Absolutely disgusting” election lawsuit commentary… And more!

The Dow begins a new week soaring to record heights — except we should put a big fat asterisk next to that sentence.

But seeing as a really large asterisk next to that sentence would mess up our layout, we’ll just put it front and center here:

Asterisk

“There was much fanfare from Wall Street when the Dow Jones Industrial Average crossed the 30,000 level recently,” says Nomi Prins, our resident refugee from the seamy investment banking biz.

“But a closer look at the Dow gives you another picture.”

Our story begins in August, when the makeup of the 30 Dow stocks was changed.

At the time we were told the change was necessitated by Apple’s summertime stock split. The Dow is a price-weighted index, so Apple’s new share price — one quarter the old price — threw the rest of the index into a cocked hat.

The keepers of the Dow decided it was as good an opportunity as any for one of their periodic purges. Gone from the index were Pfizer, Raytheon and Exxon Mobil — the last of those three a mainstay of the index going back nearly a century to its days as Standard Oil of New Jersey.

Taking their places were Salesforce, Amgen and Honeywell.

Nearly four months after the purge, an interesting thing has happened.

“Before the changes,” says Nomi, “two-thirds of the Dow 30 were in the red for the year. After the changes, less than half are in the red.”

Nomi directs us to an intriguing article from the Wall Street on Parade website, asking what would have happened absent the changes.

“It turns out that 13 of the pre-Aug. 31 Dow 30 stocks, a remarkable 43%, are in the red year to date,” write Pam Martens and Russ Martens.

Through last Monday, the biggest loser was the aforementioned Exxon Mobil — down 41%. And the fifth biggest loser was Raytheon, down 17%. Pfizer, of course, is in the green with its COVID vaccine.

Among the replacements, Salesforce and Honeywell are gainers year to date… while Amgen is in the red.

But more than anything else, the difference maker is the company that supposedly prompted the change in the first place — Apple.

After adjusting for the split, AAPL was up 68% year to date as of last Monday.

Apple is still powering the Dow at its lower share price, simply by virtue of how high it’s soared this year.

And to think AAPL was added to the Dow only five years ago!

Lesson: “When you see new highs,” says Nomi, “look at the companies that give the most weight. The rest of the group might not be doing so well.”

[Ed. note: What Nomi just laid out for us is a mild instance of “rigging” the market — especially compared with what she’s discovered in her latest exposé for our readers.

One thing’s for sure: Her former colleagues on Wall Street won’t be happy that you’re getting access to this information.

You can watch it right here Just know that because the information is so sensitive, and we want to stay at least somewhat under the radar, we’re keeping it online only through Friday.]

So to the markets — where the Dow’s jump today is actually the weakest among the major indexes.

The Big Board is up more than half a percent at last check to 30,223 — as noted before, record territory.

Meanwhile, the S&P 500 is up a little stronger at 3,686 and the Nasdaq is up more than 1% at 12,513. But both of those indexes have more work to do before approaching their record closes of a few days ago.

Speaking of the makeup of the major indexes, we now know who’s getting the boot from the S&P 500 once Tesla joins the index a week from today. It’s Apartment Investment & Management (AIV), also known as Aimco. But the disruption to AIV should be relatively minimal; the company recently spun off a sizeable portion of its assets into a new real estate investment trust.

Precious metals are a mixed bag as the new week begins. Gold has sunk another $12 to $1,827, but silver has added 14 cents and is back above $24.

Perhaps not surprisingly, sales of bullion coins by the U.S. Mint in 2020 are substantially outpacing last year’s levels.

“Sales of American Eagle gold bullion coins are more than five times 2019 totals,” reports Coin World — 817,000 ounces. Last year’s total? 152,000.

And Silver Eagle sales have more than doubled from last year to just over 30 million. The strongest month to date is last month, November.

“Strong silver bullion coin sales are anticipated to continue into 2021,” Coin World says, “with two 2021 American Eagle coins, bearing different reverse designs, to be produced.”

We’ll take this opportunity to do a shameless plug for our friends at Hard Assets Alliance — and remind you that amid Mint closures and supply-chain snags during the first wave of lockdowns last spring, Hard Assets Alliance used the unparalleled power of its wholesaler network to deliver coins and bars to retail buyers like you, while many other dealers were out of stock.

You can open an account at this link. Yes, our firm owns a piece of Hard Assets Alliance, so we’ll collect a small cut once you fund your account. But you’ll still be paying among the lowest premiums in the industry.

Buried in Congress’ gargantuan year-end defense-spending bill is a major blow to financial privacy.

“The Corporate Transparency Act,” reports The Washington Post, “would require corporations and limited liability companies established in the United States to disclose their real owners to the Treasury Department, making it harder for criminals to anonymously launder money or evade taxes. The rule applies to future and existing entities alike.”

Money laundering and tax evasion — those are always the motherhood-and-apple-pie excuses, right?

“Nearly 2 million corporations and limited liability companies are registered each year in the United States, at the state level,” says the Post. “Few states today require companies to disclose their true owners.”

The National Federation of Independent Business is calling BS: “This amendment,” says the NFIB’s VP of federal government relations Kevin Kuhlman, “would saddle America’s smallest businesses with 131.7 million new paperwork hours at a cost of $5.7 billion, at the same time treating small-business owners as criminals, threatening them with jail time and oppressive fines for failure to provide completed or updated paperwork.”

No lie — failure to comply comes with penalties of up to $10,000 and three years in prison.

It’s not just the burden on small business. Many individuals who cherish their privacy resort to registering their assets within anonymous LLCs — often in the states friendliest to the practice, like New Mexico.

Sounds as if all of that goes bye-bye now. Meanwhile, drug kingpins will always find frontmen to “own” their operations, right?

This legislation is all but a done deal — it passed both the House and Senate with veto-proof majorities.

We’re not sure if we’re supposed to admire this fellow’s entrepreneurship or be miffed at how he’s leveraging the lockdowns to his benefit. Maybe both.

NPR

Among the many limits on daily life currently in effect here in Michigan, bowling alleys have been closed since Nov. 18… and they won’t be able to reopen until Monday at the earliest.

But a mobile bowling alley appears to be OK. "When you come inside, you just forget that you are actually in a trailer at all,” entrepreneur Terence Jackson Jr. tells NPR. His Lucky Strike Bowling truck is up and running in metro Detroit.

Inside are two 25-foot lanes and all the amenities bowlers have been used to for decades — automatic ball return, automatic pin reset and so on. But the limited space does force compromises; the balls are only 3-4 pounds and have no holes. “It’s like duckpin bowling,” says NPR, “except the pins aren’t fat.”

To be fair, Jackson got the idea two years ago — long before “lockdown” entered common usage outside the context of prison life. "The only sport you can't package up and take home with you is bowling," he figured.

But seeing as he launched just as the lockdowns were hitting in March, his timing was perfect. Rentals start at $500 for two hours; he says he’s booking about 10 large a week.

Nah, we can’t begrudge how he’s using loopholes in the regulations to thrive now. As the economist Ludwig von Mises once remarked, “Capitalism breathes through those loopholes.”

“You all did a good job covering your nether regions,” a reader writes after Friday’s 5.

The peculiarities of our publishing schedule forced us to address an event that hadn’t yet happened and whose outcome could have been market-moving to say the least.

But as you know, the Supreme Court turned away the Texas election challenge Friday night. Not market-moving at all.

It was our subsequent remarks on Friday, however, that triggered a fecal storm…

“What are you smoking?” a reader responds to our concern that had the Texas case succeeded, it would have been a severe blow to the principle of federalism.

Nor was he alone. “Your commentary is absolutely disgusting,” said another.

A third captured the gist of everyone else’s beef: “The basis of the case is not to ask the Supreme Court to increase the federal power and dictate how the states determine their own electors. As a matter of fact, in the lawsuit Mr. Paxton specifically states that he is not asking the court to decide the election outcome or change how the states are able to select electors.

“The case asked the court to require the states to simply follow the Constitution — you know, that piece of parchment that outlines the rules for our constitutional republic and that we supposedly agree to abide by, if we are American citizens. .  

“As you quoted in your commentary. From Article II, Section 1 of the Constitution: ‘Each State shall appoint, in such Manner as the Legislature thereof may direct, a Number of Electors…’

“The issue is that the Pennsylvania legislature had election laws in place that were altered by state judiciary and state executives, NOT by the legislature. The Constitution says the legislature must set the manner in which electors are selected, NOT the other two branches of government. This seems like a great idea our Founders had to let the governmental body that is most representative of the citizens select the rules for the political games, including elections.

“While I love to make money more than most people, we cannot let fear of the effects on the stock market deter us from demanding constitutionally accurate, free, fair and unadulterated elections. Otherwise, we move closer and closer toward tyranny.  

“Actually read the lawsuit next time, before you decide to comment on it and make yourself look a little foolish.”

The 5: From the terse language of the court’s ruling: "Texas has not demonstrated a judicially cognizable interest in the manner in which another state conducts its elections.”

Of course the Trump campaign and its allies are within their rights to challenge the conduct of the election in whatever state they choose. But again, where does Texas get off nagging federal judges to tell Pennsylvania how to conduct their elections?

If the Texas case had met with success, it’s a lead-pipe cinch Democrats would resort to the same legal tactics in an election that went against them. In fact, it would be the template for every election going forward, ad infinitum… and it would open the door to all manner of federal interference in other state affairs.

Look, if you want to make a big deal of the election outcome because you don’t like the Democrats’ agenda, just say so. We don’t like it either.

But don’t make it out as if it’s the last stand for constitutional governance. Huge portions of the Constitution have been a dead letter for decades.

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. And to be extremely clear… our position on the Texas case has nothing to do with “the effects on the stock market.”

If that’s all that mattered, we would have given our full-throated support to the bank bailouts in 2008–09, and all of the Federal Reserve’s money printing since. Sheesh…

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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