Sit Tight

  • $2.9 million for five words
  • Bubbles, bubbles everywhere
  • Legendary investor Jesse Livermore…
  • … “being right and sitting tight”
  • Core PCE: “for people who don’t eat and drive”
  • From gateway drug to legalization (NY)
  • “Class A” case of friendly fire
  • A reader on corporate taxes and a “double-whammy.”

The world’s first tweet — issued by Twitter founder Jack Dorsey 15 years ago — commanded a price of $2.9 million this week.

Tweet

“What?!” you might wonder. $2.9 million? Where can I email this image so I can cash in?

Sorry, doesn’t work that way. The tweet can be replicated unto infinity… but there’s only one edition that’s “signed by the artist,” as it were, with a digital token authorized by Dorsey and recorded on the blockchain. (Dorsey is giving the proceeds to charity.)

Yes, we’re talking about one of these “non-fungible tokens,” or NFTs, that are all the rage right now.

The buyer, Malaysian businessman Sina Estavi, likens his purchase to the Mona Lisa of tweets. “It’s a piece of human history in the form of a digital asset. Who knows what will be the price of the first tweet of human history 50 years from now.”

Who indeed?

We’ve spent a lot of time this week talking about market bubbles… and whether or not there’s a bubble here in the early spring of 2021.

Are NFTs a new and legitimate form of collectible — a worthy asset class along with fine art, rare coins and baseball cards? Or are they a craze that next year will have people asking, “What were they thinking?”

We have no idea… and really, the answer isn’t especially relevant to what you should do with your retirement nest egg.

“Those are definitely individual bubbles,” BCA Research strategist Garry Evans tells The New York Times. He’s thinking specifically about the “meme stocks” like GameStop and certain cryptocurrencies.

But that too isn’t very helpful. There’s almost always a bubble somewhere. In late 2017 it was “initial coin offerings.” In early 2014 it was shale energy companies.

The relevant “bubble” question for your retirement is this: Are we at a “Party Like It’s 1999” moment, just before the dot-com bubble burst and wrecked millions of baby boomers’ retirement accounts in midlife?

You know where we stand on that. When the elite media are wringing their hands about the existence of a widespread stock market bubble, as they are now… then there’s no bubble. Not one that’s on the verge of bursting, anyway.

The time to get cautious is when the media stop talking about a bubble — when a euphoric nothing-can-go-wrong delusion captures the mass imagination.

We’re not there now.

But… there’s nothing to stop the market from taking a nasty spill before resuming its march higher.

We’ve talked about a couple of relevant examples this week. Coming out of the Panic of 2008, the S&P 500 climbed 69% in a year… and another 16% the following year. But during that second year of the rally, there was a 17% sell-off in just two months. If you’d panicked and sold, you’d have missed out on big gains once the rally resumed.

Or how about the Russian-default scare of mid-1998? The Dow tumbled 18.2% in just seven weeks. If you thought that was “the big one,” you’d have missed out on even bigger gains going into late 1998 and 1999.

But if you’d laid on one simple trade as a hedge — “disaster insurance,” as it were — you could have ridden out those market bumps with confidence as the insurance paid out.

What we’re describing is the art of “being right and sitting tight,” as attributed to the legendary trader Jesse Livermore.

Livermore was the basis for the main character in Edwin Lefèvre’s 1923 book Reminiscences of a Stock Operator.

In one of the book’s most famous passages, the Livermore character talks about riding out episodes of market turbulence. “Men who can both be right and sit tight are uncommon,” he said.

“I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money… After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”

Livermore was already a legend going into the crash of 1929. But it was during the crash he scored one of his biggest successes with a “disaster insurance” trade. It enabled him to sit tight… and net $100 million. In today’s money that’s nearly $1.5 billion.

Of course, he had a huge starting stake. You won’t be able to replicate those results by taking out “disaster insurance.” But it can help you sleep at night at a time when your friends and neighbors are freaking out and panic-selling.

As we’ve said more than once this week, the market action since World War II suggests a 10% pullback is in store sometime over the next year. And that’s just an average — this time it could be more. Do you have the discipline to sit tight and ride it out?

It’s been barely 48 hours since I debriefed our floor-trading veteran Alan Knuckman about how you can lay on your own “disaster insurance” trade, in the same tradition as Jesse Livermore. You can still watch it right here.

The information is still fresh… but it could go stale the instant an out-of-nowhere event tanks the market. So the time to start moving is now.

To the markets… where the major indexes are up and for once, they’re all performing about equally.

The Dow is up more than a half percent, back above 32,800. The S&P 500 is up nearly two-thirds of a percent at 3,935 — about 40 points off the record close a week ago Wednesday. The Nasdaq is also up two-thirds of a percent, back above 13,000.

Gold is stuck in neutral around $1,730. Silver is sinking further below its 200-day moving average, now below $25 an ounce. Crude is bouncing hard and is now just a dime below $61 a barrel. Bitcoin is back above $53,000.

The day’s major economic numbers come in the Commerce Department’s income-and-spend report. Personal incomes sank 7.1% in February, while consumer spending fell 1%. That’s because unlike in January, there were no stimmy checks in February; look for both numbers to shoot up like a rocket in March.

But the real news from this report emerges in “core PCE” — the Federal Reserve’s preferred measure of inflation.

Despite whatever rising prices you’re experiencing in your life — food, shelter, you name it — core PCE retreated in February. It’s now running 1.4% year over year, well below the Fed’s desired 2%…

Inflation in Retreat

Note the fine print in that chart about how this figure excludes two of the biggest line-items in your household budget — food and energy. Government and university econo-wonks justify this statistical sleight of hand by saying food and energy prices are “volatile” and thus not reflective of longer-term trends.

If your BS detector is going off, it should.

During the couple of years leading up to the Panic of 2008, consumer price inflation was taking off in a meaningful way… but people like Fed chair Ben Bernanke insisted it was no big deal because the “core” rate was still subdued. Internet wags, us included sometimes, would wisecrack about “inflation for people who don’t eat and drive.”

We can easily envision the Fed resorting to this old playbook later this year — with a new twist.

Back then, the idea was to play up core inflation to pooh-pooh everyday Americans’ real-life experience. Now core inflation can be played up to pooh-pooh the market’s inflationary fears.

Recall that some of the market turbulence so far in 2021 has been chalked up to worries about resurgent inflation. But as long as the chart above stays tame, those worries can stay likewise moribund. (We can easily imagine the market tumbling today if there’d been a sudden spike higher in that chart.)

Again, that’s a later-this-year story. Starting next month and continuing through May or June, the numbers will be sky-high and the Fed will have a valid reason to wave them off; the year-over-year comparisons will be to lockdown-time, when inflation was nearly nonexistent.

Actually, a lot of economic numbers are going to start looking weird this spring for the same reason…

If you were wondering, yes, global shipping has literally been set back 150 years by the grounding of that giant containership in the Suez Canal. The New York Times reports seven ships hauling liquefied natural gas have been rerouted around the Cape of Good Hope on Africa’s southern tip. That’ll add up to two weeks to a voyage.

Took long enough, but New York state appears set to legalize recreational cannabis. State bureaucrats, lawmakers and Gov. Andrew Cuomo have come to terms, according to several news outlets. “With nearly 20 million people, it’s a huge potential market for the industry,” says our pot stock authority Ray Blanco.

On the one hand, progress has been glacial; we’ve been writing about this prospect for more than two years. On the other hand, it was only four short years ago Cuomo was channeling his inner Nancy Reagan, denouncing the wacky tobacky as a “gateway drug.”

It takes a lot to leave us stunned just reading a headline, but…

One of America's $135.8 Million Fighter Jets Shot Itself

Military.com was first to report the story this week: “An ammunition round that exploded following its discharge from a Marine Corps F-35B Joint Strike Fighter at Marine Corps Air Station Yuma, Arizona, earlier this month caused damage to the stealth fighter’s fuselage, according to the service.”

The pilot was unhurt and he managed to bring the aircraft back to base safely. The Naval Safety Center is classifying the incident as a “Class A” mishap — the most severe category.

It’s the latest in a looong string of snafus that have plagued the F-35 program over the years; at one point during its development, its engine would catch fire in the event of a strong tail wind. Even now, nearly 15 years into production, its ability to hold its own in a dogfight is up for debate.

If you weren’t with us yesterday, we bring up the matter today because the F-35’s manufacturer, Lockheed Martin, shows up as No. 4 on a list of corporate America’s lobbying spending. Indeed four defense contractors show up in the top eight. (Facebook is No. 1 overall.)

A single F-35 jet, depending on which source you consult, costs up to $136 million. Again, damage from the incident earlier this month totals at least $2.5 million; it could be much higher.

Meanwhile, Lockheed spent a mere $13 million on lobbying last year.

Helluva return on investment; even better than we thought yesterday.

Biden’s tax plan is a continuation of the lie that Trump’s tax cut favored the rich,” a reader writes.

“Raising the corporate tax hurts all consumers and taxpayers, not only the rich.

“That’s because taxes are a business expense affecting prices and profits. I.e., technically business pays no tax but collects it from consumers.

“Raising corporate taxes also aid foreign sellers, notably China, and hurt Americans’ jobs, ergo, a double-whammy for the working class.

“This being a matter of simple logic, it amazes me how Dems keep getting away with the false claim they are taxing the rich. It’s as murky as the ‘pay their fair share’ undefined mantra.”

The 5: Well said. It’s a stark reality of corporate income tax that few in Washington care to face up to. And why would they? The hidden costs are so, well, easy to hide.

By the same token, that’s what made the $500 billion in corporate bailouts from the CARES Act last spring so infuriating. The Trump tax cuts slashed the corporate tax rate from 35% to 21%… and corporate America immediately used the windfall to go on a buyback spree instead of setting the money aside for a rainy day…

Try to have a good weekend,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. A final word about this “disaster insurance” trade we’ve been talking up all week.

You know the old saying about how you can’t take out fire insurance once your house is burning down? Or auto insurance after a wreck?

Well, you can’t lay on this “disaster insurance” trade while the market’s already tanking. You have to do it beforehand.

If you do — with just 1% of your holdings — you can sleep at night. If the market tanks, the gains you make can more than offset the losses elsewhere in your portfolio. In an extreme scenario, you could make up to 40 times your money.

And if the market keeps sailing higher? Well, you’re only out the “premium” you paid for the coverage. That’s why we refer to it as insurance.

Learn how it works at this link as I debrief our floor-trading pro Alan Knuckman. The sooner you act, the more secure you’ll be… because you never know when the next downdraft in the market is coming.

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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