The Canary Croaks

  • Mainstream abruptly drops the “roaring recovery” narrative
  • So… what’s blown up conventional wisdom?
  • The U.S. Mint revises its sales figures
  • Right place, right time: a semiconductor boondoggle
  • Paul Pelosi does it again (probably nothing illegal)
  • Readers on EVs and gasoline taxes… A small victory: “liberated from the tyranny of ‘the cancelers’”… And more!

All of a sudden, the mainstream has dropped the “roaring recovery” narrative…

Bond Yields

Breaking News

Well, we never did fully buy into the narrative around here. And our own Jim Rickards said it was an illusion from the get-go.

Just to refresh the memory, here’s Jim channeling what was still conventional wisdom only days ago: “U.S. economic growth is strong. There’s a labor shortage that’s forcing wages higher. Those higher wages will feed through the economy in the form of higher consumer prices. This will result in what’s known as cost-push inflation affecting the economy as a whole. Higher inflation will result in higher interest rates.”

Yeah, about those higher interest rates: Here’s a chart of the yield on a 10-year U.S. Treasury note…

Interest Rates Have Nowhere to Go But Up

It’s below 1.3% this morning — exactly where it was five months ago.

More than anything else, it’s falling interest rates that have blown up the conventional wisdom of earlier this year. They’re the proverbial canary in the coal mine. If rates aren’t rising, is inflation really taking off as promised? And if inflation is in retreat at least for now, doesn’t that mean the recovery is slowing?

But there’s another aspect of the “recovery” narrative that merits close attention.

That’s because rising interest rates were supposed to trigger meaningful shifts in the currency markets. Here’s Jim Rickards, once again channeling the conventional wisdom: “Higher interest rates will attract capital to U.S. markets causing the dollar to grow stronger. The euro and other major currencies will retreat in the face of a stronger dollar.”

So far, that part of the narrative is holding up. But sooner or later, reality will reassert itself in the currency markets, too… and Jim anticipates “a lower U.S. dollar and higher euro, yen and sterling in the weeks and months ahead.”

Accordingly, Jim laid on a bullish-euro trade last week in his new Tactical Currency Profits trading service — a trade with 50% upside over the next month.

Don’t get the wrong idea, though: Readers of this service aren’t fooling around in the forex markets. Really, only the pros can pull that off consistently and profitably.

Instead, Jim has developed a system he calls COBRA — a first-of-its-kind technique to seize on movements within the currency markets without the hassle of actually trading currencies.

“It’s our proprietary automated system for identifying the best trading opportunities in foreign exchange as and when they arise,” Jim explains.

“The major currencies we recommend display unique trading characteristics that distinguish them from traditional stocks and bonds. The first unique feature is liquidity.

“Global currency markets trade in volumes of over $6 trillion per day compared to about $165 billion per day for global stock markets. Global currency trading is principally conducted by the largest banks in the world including Citigroup, JP Morgan, Goldman, Barclays and others. This combination of huge volume and large bank participation as market makers gives the foreign exchange market 24/7 liquidity that stock markets cannot match.

“The second unique feature is that currencies are range-bound when compared to other currencies. Stocks such as Apple, Facebook and Netflix can figuratively ‘go to the moon.’ But stocks can also go to zero when they face bankruptcy or large unexpected liabilities. That’s not true for major currencies. They can go up or down and investors can make or lose money, but the cross-exchange rates remain in a range.

“Once you identify the trading range for a currency pair and know the dynamics of the cross-rate, you can spot turning points where a strong currency is headed for a fall or a weak currency is set to rally.”

Until now, you actually had to trade currencies to make big gains — or even small ones — from these moves. But using the COBRA system, Jim makes it possible for you to bag fat gains using a plain-vanilla brokerage account. We’re talking average gains of 160% every 45 days.

Follow this link as Jim walks you through how the COBRA system works.

To be scrupulously fair, Jim isn’t the only one of our experts who anticipated falling interest rates at a time when the mainstream was spinning its nowhere-to-go-but-up narrative.

Alan Knuckman is our resident veteran of the Chicago options trading pits. He approaches markets with a trader’s mindset — an entirely different perspective from Jim Rickards’ macroeconomic focus.

But it was four months ago in our virtual pages that Alan poured cold water on the rising-rates thesis, based on the action he was observing in eurodollars. Eurodollars are a long-forgotten corner of the financial markets — dollar-denominated accounts in foreign banks and foreign branches of U.S. banks.

It was inevitable the narrative would fall apart, he tells us in an email this morning: “A crowded trade has done what it always does when too many are on one side — an ugly unwind.”

The investing takeaway? Same as it’s been for more than a decade now: “Low, low interest rates support stock strength. It’s a simple yield choice play.”

Sure enough, the yield on a typical S&P 500 stock is higher this morning than it is on the 10-year T-note.

Under those circumstances… hot money will again gravitate toward the stock market, sooner or later.

Alan says big-money investors will pile into the TINA trade — “there is no alternative” to stocks — until the 10-year once again climbs toward its long-term historical average around 4%. We’re a long way from there…

In the meantime, however, the demise of the “roaring recovery” narrative is causing a minor stock-market freakout.

Futures dropped sharply before the open, but the major indexes are already trying to stage a comeback. At last check the S&P 500 and the Nasdaq are both down about 1% from yesterday’s record closes. The Dow, which did not set a record yesterday, is holding up a little better — down three-quarters of a percent.

Alas, while the safety trade is benefiting bonds — bond prices rise as yields fall — it’s not helping precious metals. Gold can’t hold the line on $1,800 and silver has cracked below $26 for the first time this month.

Update: The U.S. Mint has revised its sales figures, mentioned here on Tuesday. Turns out it shipped 2.8 million Silver Eagles to its dealer network in June — rather more than the zero it previously reported. The number for May, however, is still zilch. Regardless, supply for physical silver remains tight, tight, tight…

Crude is rallying a bit after the Energy Department’s weekly inventory figures — up 32 cents to $72.52.

One economic number of note, and it violates the expectations of the “experts” — first-time unemployment claims rose a bit in the week gone by to 373,000. One more hole poked in the “roaring recovery” narrative after the number notched a pandemic-era low last week…

Right place, right time: What we decried in our virtual pages last month as a “boondoggle” could turn out to be quite the boon for a handful of our readers.

Under legislation that passed the Senate overwhelmingly last month, the semiconductor industry would get $52 billion in subsidies aimed at boosting domestic production.

“Consider that just three decades ago, the U.S. accounted for nearly 40% of the world’s semiconductor fabrication capacity,” says our futurist George Gilder. “Today that number is closer to 12% — and continuing to trend in the wrong direction.

“Adding insult to injury, we’re also falling behind in process technology. As for our Asian rivals, their meteoric rise in the development of new wafer fabs has gained them 80% of the world’s capacity, with Taiwan Semiconductor Manufacturing Co. (TSMC) claiming more than half of the total foundry market — and with the world’s most advanced processes.”

Whether subsidies are wise or foolish is not our point today: The point is that $52 billion in subsidies are bound to flow to certain favored players. And George happens to have one of them in the portfolio of his premium advisory, George Gilder’s Moonshots.

Of course we’re withholding the name of the tiny firm out of respect to his paying readers; heck, its market cap is below $500 million. We mention this, however, to illustrate what can happen when a company has, in George’s words, “the right technology, the right place and the right time.”

[Ed. note: Mr. Gilder has a special project in the works that we’ll be bringing to your attention in the coming days. Really, it’s the pinnacle to 55 years of hard work. Stay tuned.]

Speaking of Congress and its impact on one or another financial asset: House Speaker Nancy Pelosi’s husband has done it again.

Per a disclosure filed six days ago, Paul Pelosi netted $4.8 million exercising call options to acquire 4,000 shares of Google parent Alphabet — shares now worth $5.3 million.

“The transaction was completed just a week before the House Judiciary Committee advanced six bipartisan antitrust bills, four of which take aim at Google, Amazon, Apple and Facebook Inc.,” says Bloomberg. “Market reaction was muted, suggesting that investors don’t see the House proposals as a real threat to the companies. Alphabet’s share price has increased 3.2% since the judiciary panel approved the legislation.”

No, there’s probably nothing illegal going on. That’s the infuriating part. Ditto for when Paul Pelosi loaded up on Microsoft calls shortly before MSFT won a juicy contract with the Army. And the many other lucrative trades carried out by congresscritters or their spouses over the years.

We’re undertaking a project enabling you to piggyback such trades even before they become public. Sounds crazy, we know. But we’ll keep you in the loop as the rest of 2021 goes on…

Our exploration of next-gen electric-vehicle batteries yesterday prompts a reader to write…

“Think this may have been covered before — however, really curious where funding for roads, bridges, etc., is going to come from when we are forced off the gas teat?

“I believe the federal tax is around $0.18/gallon and here in Minnesota they add another $0.10/gallon. Plus, with all these EVs won’t there be additional electricity demand? Just askin’.

“Love The 5 and no ‘but.’”

The 5: The federal gasoline tax is 18.4 cents per gallon — unchanged since 1993.

What you mention has in fact been a topic of much consternation in Washington when it comes to paying for the “infrastructure” bill.

Last we heard, the president doesn’t want to raise the gas tax — and why would he, going into the midterms next year and Democrats holding both houses by a slender thread?

Meanwhile, Transportation Secretary Pete Buttigieg was given the unenviable task of putting out a “trial balloon” last spring about a per mile vehicle tax regardless of how the vehicle is powered. Said trial balloon was shot down within three days.

And yes, as we’ve mentioned before, a vastly larger fleet of EVs will put considerable new demand on the electric grid at a time it seems ill-prepared to handle it. (We’re lookin’ at you, California and Texas.)

“I figure it’s time to start spreading the news that there are browsers available that block tracking, popups and so forth, AND you can find all the newsy stuff that others are burying!” a reader writes.

That’s after we lamented a media blackout surrounding the news that Julian Assange’s indictment appears to be based on false testimony from a convicted embezzler and child molester.

“I was able to find all kinds of articles, news and information by searching ‘Assange’!! Brave is the chromelet browser that frees our lives – after installing it, I chose DuckDuckGo as the subinterface. It’s actually quite liberating.

“Oh, but don’t try to install it on a Chromebook. It absolutely choked it out! 🙁 I work in IT security, so I have a sizable pool of teammates who seek out these kinds of freedom and security tools.

“I think it might be past time for true news bearers help the masses get liberated from the tyranny of ‘the cancelers.’

“Love your newsletters, keep up the great work and thanks! :)”

The 5: Good on you… and Brave has taken the place of Chrome in your editor’s own multi-browser setup… but our lament stands.

They stay in Facebook’s walled garden all day, and in recent days if they stray too far, they get messages like these…

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Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. The $6 trillion that changes hands daily in the currency markets? That’s set to rise to $9 trillion by 2025.

Now, for the first time, you can skim some of that money for yourself without the complication of seeking and getting approval for a currency-trading account.

Just with a regular brokerage account, you can follow Jim Rickards’ guidance to pull down average gains of 160% every 45 days. See for yourself right here.

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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