Who Snitched? (Privileged Information)

  • Somebody made a ton of money Tuesday morning
  • Access to privileged information? (Not the first time)
  • A severe case of “post-Fed letdown”
  • Zach Scheidt: How to invest despite “sticky” inflation
  • Where every gold coin is already spoken for… “Holy $#*% indeed”… And more!

Somebody made a lot of money on Tuesday morning… because somebody else gave them access to privileged information…

Holger Tweet

As we mentioned on Tuesday, the Labor Department released the monthly inflation numbers, and they came in lower than expected.

But a funny thing happened in the 60 seconds before the numbers went public at 8:30 a.m. EDT. “Stock futures suddenly spiked more than 1%,” reports Bloomberg. “Trading in Treasury futures surged, pushing benchmark yields lower by about 4 basis points. Those are major moves in such a short period of time — bigger than full-session swings on some days.”

Suspicious? Hell, yes. It’s “typically worthy of regulatory agencies making appropriate inquiries,” says attorney Jerome Selvers, who specializes in securities regulation.

“For its part,” says Bloomberg, “the U.S. Bureau of Labor Statistics said it’s unaware of any early release of its data.” White House press secretary Karine Jean-Pierre blew it off as well. “I can tell you this, there were no leaks from here.”

If you’re wondering… no, it’s not the first time something like this has happened. Hardly.

Deep in The 5’s voluminous archives, we find a 2014 study by Singapore-based researchers looking at the market activity surrounding the release of Federal Reserve policy statements every six weeks.

They looked back 16 years and concluded that on days the statement delivered a market surprise, early access to the statements resulted in profits to those in the know as high as $256 million.

We also find a 2016 study by the European Central Bank — which looked into the trading patterns related to 21 market-moving indicators in the United States between 2008–2014.

Among fully one-third of the indicators studied, there was strong evidence of unusual pre-announcement price action in stocks, bonds and futures. Traders acting on this early information might have pocketed an extra $20 million a year trading S&P 500 futures alone.

One thing’s for sure, and Bloomberg’s story doesn’t address it: No journalists were complicit in the early release.

In years gone by, a select few journalists always had early access to these numbers. That way they could work up their stories in advance and file them within moments of the official release.

Throughout the 2010s, the Federal Reserve and the Commerce Department tightened the “lockup” rules to prevent any shenanigans. Reporters getting an early glimpse at the numbers in the lockup room had their phone and internet access cut off. The Bureau of Labor Statistics followed suit in early 2020.

Then came COVID and work-from-home. Cutting off phone and internet access wasn’t practical.

So the Bureau of Labor Statistics simply ceased the early release of its numbers. Reporters got access to the numbers at the same time as everyone else.

“During the suspension of the media lockup room for the ongoing COVID-19 pandemic,” said BLS commissioner William Beach, “the media demonstrated their ability to produce informed and accurate articles within minutes of the electronic release to the BLS website despite not having early access to the data at all…

“Discontinuing lockups, as opposed to merely eliminating use of electronic devices, will enable [the Department of Labor] to cease these expenditures while also eliminating entirely any possibility of a breach from the lockup room.”

So if reporters couldn’t spill the numbers early, that means it was a government insider. There’s no other explanation.

No, we’re not holding our breath for any accountability. Not in the present-day culture of corruption.

To the markets… which are experiencing a severe case of “post-Fed letdown.”

As you’ve likely heard by now, the Federal Reserve jacked up the fed funds rate another half percentage point yesterday… and left no doubt that more increases are coming in early 2023.

The immediate market reaction was muted — the major U.S. stock indexes registering modest losses at day’s end.

Then came a boatload of disappointing economic numbers this morning — making the likelihood of a “soft landing” even more remote than it was before. (But you knew that already because you read The 5, right?)

  • Retail sales: Down 0.6% in November, more than expected. If you back out auto sales and gasoline sales for a less-noisy number, it was still a disappointment — down 0.2%. Many categories related to holiday spending — department stores, sporting goods, furniture — had a subpar month
  • Industrial production: Down 0.2% in November, again more than expected. Manufacturing output fell 0.6% and mining/energy production fell 0.7%. Significantly, drilling for oil and gas registered its first monthly drop in nearly two years. All told, 79.7% of America’s industrial capacity was in use during November — a number that’s clearly been plateauing since the spring
  • Regional manufacturing surveys: This is up-to-the-minute data from regional Federal Reserve banks, and it too is disappointing. The “Philly Fed” survey for the mid-Atlantic is in negative territory for the fourth straight month… and the Empire State index in New York state has now been negative for six of the last eight months.

And with that, all the major U.S. stock indexes are down at least 2% on the day.

At last check, the Dow has shed over 700 points to 33,241. The S&P 500 is *this* close to breaking below 3,900… and the Nasdaq is down nearly 3%, cracking decisively below 11,000.

It’s “risk off” for the precious metals, too. Gold is back below $1,800, but silver is still holding onto the $23 level despite being down 3.3%.

Treasuries are the safe haven today — prices up, yields down. The yield on a 10-year T-note is back below 3.46%. The yield curve is still crazy-inverted, with a 3-month T-bill yielding 4.34%. (Reminder: While an inverted yield curve is a sure sign of impending recession, the recession typically begins only after the yield curve returns to normal.)

Crypto is losing ground, Bitcoin back below $18,000 and Ethereum under $1,200.

Sam Bankman

Crude’s monster rally of the week is fading, a barrel of West Texas Intermediate down more than a buck to $76.16.

If inflation is going to take longer than the “experts” expect to get back to the Fed’s 2% target… how do you invest?

“There is a certain class of investments that do well during inflationary periods,” says Paradigm’s retirement pro Zach Scheidt. “And you can use these investments to protect your family’s wealth.”

Zach directs our attention to this chart from the investment management company Newton, which we reproduce verbatim…

Stocks Yield

“The purple bars,” Zach explains, “show returns for dividend stocks with a history of growing investor payouts year after year. And the blue bars show returns for dividend stocks that have the highest yields. (Or the most income for every dollar you invest.)

“You can see that these stocks outperform the rest of the market especially when inflation levels are 6–7%.”

Where are we now? The official number is 7.1% and slowly falling.

“Even though inflation will continue to be a challenge, dividend stocks can help protect your wealth and give you extra income to cover higher expenses,” Zach goes on.

Two sectors he says you should eye in particular…

  • Energy. Yes, energy stocks have had a terrific run in 2022 — the only one of 11 industry sectors in the S&P 500 that’s positive year-to-date, in fact. “But looking toward 2023, several catalysts could drive oil prices higher,” Zach says — OPEC+ production cuts, China coming out of zero-COVID and an end to Washington’s drawdown of the Strategic Petroleum Reserve.

“Most energy companies still trade at attractive prices compared with earnings. And most have generous dividend policies, paying you as a shareholder for the profits they generate”

  • Consumer staples. These are the companies that make stuff people need no matter how the economy is doing — food, personal hygiene, cleaning products. “Since these companies have reliable customers day in and day out, their profits are much more predictable. And mature companies in this area of the market can afford to pay a large portion of their profits to investors.”

Zach’s bottom line: “By focusing on these stocks that pay healthy dividends, you’ll be able to survive and even thrive in 2023 — a year I expect inflation to continue to challenge investors.”

“At the moment, every gold coin that comes off the coining press has already been sold,” says Gerhard Starsich — chief executive at the Austrian Mint. “Right now we could sell three times as many as we are able to produce.”

Silver Gold

Demand for the Philharmonic gold coin — which honors the legendary Vienna Philharmonic Orchestra — is on track to set a record this year. More than 1.8 million ounces have gone out the door so far in 2022, just under the 2 million ounces sold in 2009 after the global financial crisis.

“Austria is a financially conservative country in which the public hoards cash and gold in times of crisis,” says a Reuters story. Domestic demand drives about two-thirds of sales. The rest goes to foreigners; the Philharmonic is the top-selling gold bullion coin in both Europe and Japan.

Starsich, the Mint chief, describes the drivers of demand as “a cascade. It started with the corona crisis, with the pandemic, when people were unsettled. Then in February Russia invaded Ukraine. That boosted sales again. And then the rising inflation over the summer/autumn, which increased sales further slightly.”

At times, Austrians are standing in line outside the Mint to get their gold. “I’m from an older generation,” says a retiree named Renate. “Whenever things get a bit uncertain we come back to gold coins and tell ourselves we’ll always be able to sell them. Gold has that safety factor.”

[Shameless plug: High demand notwithstanding, these gorgeous Philharmonics — just look at that picture above — are available right now from our friends at Hard Assets Alliance. And you’ll pay a lower premium than you will for a U.S. Gold Eagle, a Canadian Maple Leaf or a South African Krugerrand.

Not yet a Hard Assets Alliance client? You can remedy that at this link. Full disclosure: Paradigm Press owns a piece of Hard Assets Alliance, and we’ll collect a small cut once you fund your account. But we purchased that stake because Hard Assets Alliance had already proven that it could do right by our subscribers.]

“Holy $#*% indeed,” writes a longtime reader after a best-of edition last week in which I described the ethos I bring to The 5.

“Yes, the zeal still comes through in your daily missives — and The 5 is a great resource for staying centered and maintaining sanity.

“That’s no joke as the intensity keeps amping up. You must be managing it well or your world would have flown apart after all the years.

“Thank you. Rock on! Merry Christmas.”

The 5: Thank you. An appreciative readership makes it a ton easier on days when the research and the writing are a slog!

Best regards,

Dave Gonigam

Dave Gonigam
The 5 Min. Forecast

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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