- Jim Rickards on the “no drama” Federal Reserve
- Meta’s buyback program, in one (nauseating) chart
- Diesel: “At the lowest level ever for this time of year”
- China’s role in the uber-tight copper market
- A cannabis “Sister Act” in Merced County, CA.
“I wanted to run this by The 5,” a reader says. “I’ve heard rumblings that the recent market rally has nothing to do with any change in fundamentals, but rather because it is an election cycle.
“The ‘right’ party is in power and the banks (and deep state) are pulling strings to keep the bottom from falling out before Election Day.
“Any thoughts or anything to add? Just curious as up seems to be down and down seems to be up these days.”
True enough, but you needn’t look any further than the Federal Reserve…
… to find out who might be putting a floor under equities.
“This is the ‘no drama’ Fed,” says our macro expert Jim Rickards. “They want to avoid shocks to the market.”
Having said that, “the Fed never announces its rate policy decisions in advance,” says Jim. “These are announced in the form of a press release and statement that is distributed at precisely 2:00 p.m. ET on the second day of each Federal Open Market Committee (FOMC) meeting.
“So they have to find a way to let the world know what they are going to do in advance of the formal announcement. They do this by leaks to the media… But not just any media.
“To know what the Fed is doing in advance, you only have to know the chosen reporter” — Nick Timiraos of The Wall Street Journal — “and believe what he says,” Jim adds. “This allows stock and bond markets to adjust smoothly to the new rate policy.”
And what is Mr. Timiraos telegraphing ahead of the next FOMC meeting?
“The Fed will raise interest rates 0.75%,” Jim says, according to the Fed’s “unofficially official” WSJ source.
On Friday, Oct. 21, Timiraos reported: “Federal Reserve officials are barreling toward another interest-rate rise of 0.75 percentage points at the meeting Nov. 1–2 and are likely to debate then whether and how to signal plans to approve a smaller increase in December.
“What comes next at the Fed meetings on December 13–14, 2022?” Jim asks. Even though The New York Times isn’t the Fed’s chosen mouthpiece, Jim believes Jeanna Smialek’s analysis is on the money.
“Smialek speculates that after the 0.75% rate hike on Nov. 2, the Fed may still engage in a strip of 0.50% rate hikes on Dec. 14, Feb. 1 and March 22.
“If all four of those future rate hikes happened,” he says, “the fed funds target rate would be 5.50% by March 22, 2023.
“That’s an amazing amount of monetary tightening considering that rates were 0.0% as late as March 14, 2022.
“The reasons for this forecast include the persistence of inflation through September 2022 despite five rate hikes from March to September,” says Jim.
“Fed Chair Jay Powell made it clear both in his Aug. 26 remarks in Jackson Hole, Wyoming, and again at his Washington, D.C., press conference on Sept. 21 that fighting inflation is Job One and the Fed will tolerate both higher unemployment and a recession to achieve that goal.
“There’s little doubt that the Fed can crush inflation given enough time,” he continues. “The difficulty is that the cost will be high in terms of lost growth, lost income, business failures and much higher unemployment.
“The Fed could probably stop monetary tightening today and inflation would come down because growth is already slowing around the world. But the Fed needs to see headline inflation come down both for political and policy reasons before they stop tightening.
“That’s a recipe for over-tightening since the drop in inflation lags the monetary tightening,” Jim observes. “It wouldn’t be the Fed’s first blunder (there are many) and it won’t be the last.”
[Ed. note: In spite of the Fed’s efforts, Jim Rickards believes the day the market goes “nuclear” is closer than most people think, and millions of Americans are going to feel the pain.
That’s why Jim is hosting a LIVE emergency briefing onSunday Oct. 30 at 7 p.m. EDT to explain exactly what’s coming and what you need to do to prepare.
It’s important you attend and act on Sunday’s information — as soon as possible. This briefing is FREE to all attendees, and Jim will be giving out actionable advice, including a free play that could earn 10X or more during a market crash. All you need to do is register.]
There’s nothing in the big economic numbers of the day that would seriously deter the Federal Reserve from its “tightening” plans.
Orders for durable goods — anything designed to last three years or longer — rose 0.4% in September, a bit less than the consensus 0.6%. But better than August’s 0.2%.
But if you strip out the volatile categories of aircraft and military hardware, you get a more revealing figure called “core capital goods” — and this figure crash-landed at -0.7%, opposed to the 0.2% economists anticipated.
The first estimate of third-quarter GDP came in at 2.6% on an annual basis, above the consensus gain of 2.3%. (We’ve explained in the past, however, why GDP as a measure of the overall “economy” is woefully defective. Plus, no one casts a vote based on how the GDP is doing, right?)
To the market today, where the Dow is up 1% to 32,170… Moving in the opposite direction, the tech-distressed Nasdaq is down 1.10% to 10,850. While the S&P 500 Index is somewhere in the middle, down 0.15% to 3,825.
Per the Nasdaq, Meta (NASDAQ: FB) reported third-quarter earnings yesterday afternoon and missed on earnings per share at $1.64 versus the $1.90 analysts anticipated.
Although revenue was a very modest earnings “beat,” shares still tumbled more than 20% this morning, dropping below $100 per share for the first time since February 2016.
At the time of writing, shares are treading water at $100.70…
As you can see, that’s stunningly below the average $303.30 per share Meta spent on stock buybacks since July 2021… Best buckle up, because two other tech behemoths, Apple and Amazon, report earnings this afternoon.
Looking at the crypto market, Bitcoin is down 0.80% to $20,600 and Ethereum is down 0.65% to $1,550. As for commodities, oil is up 1.5% to $89.23 for a barrel of West Texas crude.
And precious metals? The price of gold is down 0.50% to $1,661.50 per ounce and silver is down 0.20% to $19.45.
“Heating oil suppliers in the Northeast and New England have begun rationing the key fuel ahead of winter, after stockpiles dropped to a third of their normal levels,” says The Associated Press.
It could be a bitter-cold winter for many New Englanders, a region “which is more reliant on heating oil than other parts of the country.”
Source: EIA GOV
“Heating oil prices have also been rising rapidly, topping $4.09 a gallon in New York last week, up from $2.46 one year ago,” the AP says.
“The Energy Department estimates that families who rely on heating oil will see their heating costs soar 27% this winter”… or about $2,300 to heat an average home that uses heating oil.
But that’s if consumers will be able to buy heating oil: “Rationing measures, intended to prevent panic buying and hoarding, are in turn being imposed on consumers, limiting the amount of heating oil they can purchase”
Considering heating oil is chemically similar to diesel fuel, this should come as no surprise…
In a note to clients, Goldman Sachs warns of “unprecedentedly low levels” of diesel fuel; as a result, the bank raised its price forecast from $5.07 per gallon to $5.34 in the near term.
“The bank warned that many of the government’s efforts to fight higher energy prices focus on crude and have little impact on fuels, for which consumers actually pay,” says Bloomberg.
Again, this presupposes there will be any diesel fuel to be had…
“For the past 15 years, the center… of the global copper market has been a row of warehouses in Shanghai’s free-trade zone where the Yangtze River meets the Pacific,” says Bloomberg.
“China’s bonded copper stockpile (so called because metal there is held ‘in bond,’ before import duties have been paid) first came to the world’s attention in the wake of the global financial crisis.
“When copper prices slumped, Chinese traders bought up all the metal they could find — thanks to Beijing’s massive stimulus plan,” says Bloomberg.
Not that Chinese buyers were using all the copper they purchased; instead, “traders directed it into the bonded stockpile” where they leveraged copper for easy financing and even “repos” — short-term repurchase agreements — to raise quick cash.
But this month, only 30,000 tons are warehoused, according to Shanghai Metals Market consultancy. “Chinese physical traders,” according to Bloomberg, “said they expected Shanghai’s bonded copper stocks to drop further — potentially to zero, or just a few hundred tons — as market participants have lost confidence in the business of using metal to raise financing for other purposes.”
“The physical [copper] market is so tight, it’s like a room full of gunpowder — any spark and the whole thing could blow,” says David Lilley of hedge fund Drakewood Capital Management.
And absent the Shanghai bonded inventory, “we are living without a safety net,” Lilley says.
Source: Bloomberg
“Despite… shrinking inventories that are nearing historical lows,” says Bloomberg, “macroeconomic headwinds have pushed copper futures down almost 30% from a peak in March.”
And there’s a smorgasbord of macro “headwinds,” to be fair: the “global economy, weak economic data from top consumer China, the European energy crisis and a strong dollar.”
The kicker? “Such a pricing environment will defer new copper projects and mine expansions just when the world’s epic shift to electrification requires a massive amount of the metal.”
We’ll call them Sisters of Mercy: While they don’t adhere to an official religious organization, “members of a self-proclaimed enclave of nuns who identify as healers and feminists” in Merced County, California, are growing cannabis by the bushelful.
“I chose an industry that is messed up,” says head-nun Sister Kate. “It’s going to probably be messed up and I’m probably going to have to do a lot of dancing and sidestepping.”
Courtesy: Twitter
Even though cannabis has been fully legal in the Golden State since 2016, almost two-thirds of California counties ban growing weed. And in Merced County it’s a no-no for the so-called “Sisters of the Valley” to grow their crop which they make into blessed CBD tinctures, etc.
And business had been booming for the Sister Act — they pulled in $1.2 million annually before the pandemic. Now? They estimate they’re making half that amount.
Still, Sister Kate realizes what’s common knowledge in California. “Operating legally is much more expensive than operating illegally,” the BBC says. “The illegal trade in marijuana is estimated to be worth around $8 billion, roughly twice as big as the legal trade in California.”
According to Sister Kate: “The sheriffs know… they just let me do this,” she says. “I think that they know we will just challenge the law and get it changed then in the county…
“And I think they know it would be a fight they don’t want to undertake.”
Godspeed, Sister Kate.
Take care, and we’ll be back Friday with another episode of The 5…
Best regards,
Emily Clancy
The 5 Min. Forecast
