- Fed honcho’s speech gets porno-bombed
- Biden Bucks collusion goes to a whole new level
- Knuckman: Good omens for both stocks and gold
- “Frivolous spending”reveals new investment opportunity
- A packed mailbag: Buybacks, Fox News, the return of Antonio Gramsci and…BEER!
Gee, there hasn’t been this much excitement at a Federal Reserve speech in, like, forever!
“A virtual event with Federal Reserve governor Christopher Waller was canceled on Thursday,” reports the Reuters newswire, “after the Zoom videoconference was ‘hijacked’ by a participant who displayed pornographic images.”
The raunchy intrusion happened as Waller was about to speak to an online gathering of the Mid-Size Bank Coalition of America. [Voice of Butt-Head: “Heh, they said ‘mid-size.’”]
More than 220 people were on the call… but the organizer failed to mute microphones and video. Oops.
The culprit was someone with the screen name “Dan.” We want so much for it to be the “DAN” who’s the evil-twin alter ego of ChatGPT.
On to more serious matters as the weekend approaches…
The U.S. government just took the next meaningful step toward bringing “Biden Bucks” into existence.
As you probably know by now, Biden Bucks is our own Jim Rickards’ shorthand for a CBDC, a central bank digital currency. These newfangled digital dollars would replace good ol’ physical cash and effectively give the government sweeping new powers of surveillance over your day-to-day transactions (among other evils).
To move the ball forward, the Treasury Department has formed a working group of officials from the Treasury, Federal Reserve, National Economic Council, National Security Council and White House Office of Science and Technology Policy. No, that’s not a complete list.
The announcement came on Wednesday from Treasury’s Under Secretary for Domestic Finance, Nellie Liang, during a speech to the Atlantic Council.
Liang is an interesting figure in Washington’s power structure. Obviously she’s working in a Democratic administration… but Donald Trump nominated her to a post on the Fed’s board of governors in 2018. As we chronicled at the time, the bank-industry lobby circled the wagons, fearing she would get in the way of Fed plans to loosen financial regulations.
Liang withdrew her nomination before it could go down in flames in the Senate.
In her speech, Liang summoned up two new — umm — interesting justifications for an American CBDC.
The first would be to buttress the dollar’s role as the global reserve currency. “This role confers both economic and strategic benefits on the United States,” she said. “We are thinking about whether a U.S. CBDC, to the extent it has functionality that traditional forms of central bank money lack, could help to preserve the dollar’s global role.”
That’s no small matter at a time when Washington’s move to freeze the assets of Russia’s central bank have spurred a slow-motion escape from the dollar by a host of developing-market economies — especially China. This is the “de-dollarization” phenomenon we’ve been writing about for nearly nine years, including yesterday.
Which brings us to Liang’s second justification — a further weaponization of the U.S. dollar to wage economic warfare.
“The United States uses sanctions and other financial measures to address national security threats and deny criminals and other illicit actors’ access to the U.S. and international financial system,” she said.
“The effectiveness of these tools rests in part on the strength and centrality of the U.S. financial system and the role of the dollar. Some have suggested that the development of foreign CBDCs, including multi-CBDC platforms, could diminish the use of the dollar and effectiveness of our tools in this space.”
So there you have it: The objective of Biden Bucks is not only the ability to “turn on or off” your money at will… but further enforcement of what Biden’s people love to call “the rules-based international order.”
Which of course will only spur China and other countries to accelerate their escape from the dollar.
A quick postscript before we move on: All of a sudden, the mainstream spin is that an American CBDC is still years away, if it gets off the ground at all.
“A Tough Crowd for the Digital Dollar,” says a Politico headline on a story about Liang’s speech. Inside the story we learn that “Attorney General Merrick Garland — tasked by President Joe Biden with figuring out a legal framework for a digital dollar — is slow-walking the release of a report that was due six months ago.”
Meanwhile Axios reports that “Biden administration and Federal Reserve officials are loath to do anything that would create systemic economic risks. Yet they also don’t want to risk China and other rivals creating their own globe-spanning digital currency that may supplant the dollar in global exchange. But those two goals are at cross purposes.”
No, we’re not sure what to make of this spin. But it’s something new and it bears watching. We’ll stay on top of it in the weeks to come…
The stock market is ending the week on a high note — which bodes well for next week and beyond.
Both the S&P 500 and the Nasdaq are bouncing smartly off their 200-day moving averages — “a super, super level of support,” Paradigm trading authority Alan Knuckman told readers of The Profit Wire yesterday.
Checking our screens, the S&P is up three-quarters of a percent and back above 4,000… while the Nasdaq is up 1% and approaching 11,600. The Dow, meanwhile, is up a third of a percent at 33,123.
With the broad market having rallied 15% from its autumn lows, “the risk/reward is set up right now for the bulls,” says Alan. With the S&P hovering around 4,000, “the risk is lower at this level — and lots of upside.”
Precious metals are staging a modest rally, gold at $1,844 and silver at $21. On our Wednesday editorial Zoom call — no porn intrusions, we’re pleased to say — Alan pointed out that in inflation-adjusted dollars, gold’s big peak in 1980 translates to $3,600 today. That’s some serious long-term upside.
Crude is rallying to end the week, up 1% and a nickel away from $79.
After looking resilient all week in the face of bad news, crypto is finally taking a tumble with the imminent demise of Silvergate Capital (SI) — a Southern California bank that went all-in on crypto. At last check, Bitcoin is down nearly 5% or over $1,000 at $22,331.
But for the moment, Bitcoin’s recent trend of “higher highs and higher lows” is holding. The danger zone would be a break below about $21,600.
“I was taken aback by the amount of frivolous spending,” observes Paradigm’s income-and-value specialist Zach Scheidt, fresh from a family ski trip to Breckenridge, Colorado.
Zach budgeted wisely for this trip; he’s got a big family and they even packed their own food. Which was a sharp contrast with most of the other visitors.
“Everywhere I turned,” he tells us, “there were places to spend exorbitant amounts of money on food, experiences, merchandise (cotton hoodies for $120?), transportation and much more. You wouldn’t believe the lines of people waiting to spend their hard-earned money on overpriced stuff!”
The obvious investing takeaway? Consumer discretionary stocks. “These companies sell products we don’t necessarily need, but products shoppers buy when they’re confident about their finances,” says Zach.
“Now that international flights are chock-full of tourists and business travelers, the strong stock market in the U.S. is powering spending around the world. I like names tied to travel, leisure (like resorts and theme parks) and high-end merchandise.
“Remember, the wealthier investors are the ones who have the most to gain from a rising market. And they’re going to spend money on more expensive items and experiences.”
Zach is researching the names with the best potential. Stay tuned…
On the subject of share buybacks, a reader has an inquiry…
“A company has, say, 1,000 issued shares. It buys back 100. Does it burn them? Do they go in a bank vault?
“Can it give them to a new hire as a token and go back up to 1,000 issued shares? Where do those stocks go? Of course the board of directors can issue more stock in the future, thus diluting those in existence, correct?”
The 5: The shares are, for all intents and purposes, vaporized. They no longer exist.
That’s how buybacks make each remaining share more valuable. If you own one share of a company that’s worth $1… and the company buys back 100 of its 1,000 total shares, your one share is now worth $1.11.
And no, there’s nothing stopping a company that bought back shares from turning around and issuing new ones. That’s a major reason Bed Bath & Beyond is circling the bowl.
According to the Wolf Street site, BBBY retired nearly three-quarters of its shares from 2006–2021 at a cost of $11.7 billion… frequently buying when the share price was near an all-time high. (Again, that’s Warren Buffett’s warning that a buyback has to be executed at “value-accretive prices.”)
But then the company got into trouble, and the board decided the quickest fix was to raise $1 billion by issuing new shares — a huge dilution of the existing shareholders.
“Hostile” doesn’t begin to describe Wall Street’s reaction. Within minutes of that announcement on Feb. 6, BBBY shares tanked 50%.
“Since you were on the subject of truth in journalism,” a reader writes after yesterday’s edition, “I am surprised you didn’t mention Fox News and the Dominion lawsuit to make your point. Not really!
“Probably the largest, easiest-to-understand example of fake journalism to make your point, and you just made believe it didn’t exist. This even had stock price relativity since their motivation was to keep the stock price up. Don’t feel bad, though, Fox News isn’t reporting on it either. Two peas in a pod!”
The 5: We never hopped on the “Muh election was stolen” bandwagon — real-time evidence here and here — so we didn’t feel the need to bring it up.
And compared with silly stories about “ballot harvesting” in Arizona or whatever, Russiagate has done far more severe and lasting damage to the republic: The hysterical Russophobia among our elites has brought us to the brink of nuclear superpower conflict — which would be really, really bad for the economy and markets.
But yes, conservative outlets pander to their audiences as shamelessly as mainstream ones. It’s why I seldom consult them in the course of assembling these daily dispatches…
One more quick take this week on “What happened to America”…
“If it’s not too late to add my two cents (that’s ever decreasing in purchasing power): Antonio Gramsci.”
The 5: We did a full-issue exploration of Gramsci and his legacy during the strange summer of 2020.
Two and a half years later, your editor still isn’t completely sold on the idea that Gramsci’s bottom-up “long march” through the institutions is all going according to plan. Feels like too pat of an explanation for everything that’s gone haywire. But I’m also open to revisiting that assessment with more evidence.
OK, one more reader, one of our regulars: “I’ve been reading with interest the responses to what has happened to America. I basically agree with what Dave wrote, ‘No Family, No Faith, No Freedom’ earlier this year and Emily had the link to that on Tuesday. Well worth the second read, thanks.
“But come on, it’s Friday. Let’s talk about BEER!” this reader pivots.
“I laughed about the light beer ‘wars,’ I’ll call them. I agree most brands do taste like water. Yeah, go ahead and pour that stuff over your head after a workout or mowing your yard (yuck!). Some of my friends drink their light beer under the guise it helps their weight. At least that’s what they tell their wives, behind their beer bellies. Oh, brother…
“I on the other hand have had an affinity for micro beers, since, well, when they started. Being in Seattle I was fortunate enough (and old enough) to experience probably one of the earliest micro beers, Redhook Brewery. Man, that was good stuff when compared with Bud, Miller and even our local favorite back then, Rainier. You also couldn’t swill that stuff down like other beers too. You needed to sip and enjoy all that flavor invading your mouth. It was something special!
“This microbrewery explosion has just increased my pleasure when dining out with the wife. Seems I’ll be trying micro beers for the rest of my life now, trying to find a favorite, LOL.”
The 5: I need to do likewise when dining out. Too often I default to Miller Lite — because of the 96 calories — when there are far better local choices, even way out here in the boonies!