- The “deep state” is not monolithic
- A tipping point for the U.S. auto industry
- The Seven-Year Plan
- Bad omen: The bank crisis isn’t a thing of the past
- They lost us at “Texas Bullion Depository”… Gold: “Singing to the choir”… Not (yet) sold on precious metals… And more!
We got a vivid reminder at the end of last week that the “deep state” is not a monolithic entity. It has competing factions and power centers.
On Thursday, Paradigm’s Jim Rickards took note in this space of how the Biden administration recently approved the Willow oil-and-gas project on Alaska’s North Slope… and the auction of 73 million acres for offshore drilling in the Gulf of Mexico.
“Perhaps,” he surmised, “someone in the Biden administration has finally brought rational thinking back to energy policy.”
But there are other “someones” who aren’t ready to let go. Which brings us to a Bloomberg scoop filed around the same time we hit “send” on that edition of The 5.
“The Biden administration is on track to propose the toughest-ever U.S. curbs on car pollution, while stopping short of an electric-vehicle mandate or ban on gas-powered models.”
“The proposed standards on cars and light trucks, set to be announced Wednesday in Detroit, are expected to govern tailpipe emissions of carbon dioxide, smog-forming nitrogen oxide and other pollution from vehicles manufactured for model years 2027–2032.”
The idea is to use regulations on tailpipe emissions to “nudge” the auto industry toward a target of EVs comprising 60% of new car sales by 2030. The share now, you wonder? Only 6% last year.
The auto industry’s lobby group, the Alliance for Automotive Innovation, wants to see the details. But in a statement, it cautiously said, in so many words, What, are you nuts!?
The actual, more measured, statement said, “This requires a massive, 100-year change to the U.S. industrial base and the way Americans drive.” And all in seven years!
In a way, the details of the proposal don’t matter, because the proposal is pie in the sky. Hell, it’s an entire bakery in the troposphere.
Where’s the plan to build millions of charging stations? Where’s the plan to upgrade the rickety electrical grid? Where’s the plan to obtain rare-earth elements for batteries? (As you might know, nearly all of the globe’s supply comes from China – even the stuff that’s mined domestically is sent to China for processing.)
But this totally unrealistic proposal reinforces Jim Rickards’ confidence that the sweeping changes he lumps under the category “Green New Scam” are doomed to fail — and a select group of fossil fuel producers stand to benefit immensely. If you’re not currently a subscriber to Rickards’ Strategic Intelligence, you owe it to yourself to check out Jim’s updated presentation at this link.
To the markets, where the overall vibe appears to be one of “Uh-oh, brace for more Fed tightening.”
Most U.S. markets were closed for Good Friday… but the Labor Department still served up the March job numbers. The wonks at the Bureau of Labor Statistics conjured 236,000 new jobs for the month — the smallest increase in more than two years, but still strong by historical measures.
The official unemployment rate ticked down to 3.5%. The real-world rate from Shadow Government Statistics — using the methodology the feds used back in Jimmy Carter’s day — held steady at 24.6%. Two things account for the yawning gap — part-timers looking for full-time work and people who’ve given up looking for work altogether, no matter how long ago.
More interesting are the two figures the statisticians can’t game…
- The labor force participation rate — the percentage of the working age population that’s working or looking for work — ticked up from 62.5% to 62.6%
- The employment-population ratio grew from 60.2% to 60.4%.
Both of these figures stand at post-pandemic highs. Neither suggests a labor market that’s weakening materially.
Thus, the betting in the futures markets this morning reveals a 69% probability the Fed will jack up the fed funds rate another quarter percentage point on May 3 — to 5.25%.
And with that, the Nasdaq — the index stacked with companies most sensitive to rising interest rates — has broken back below 12,000. It’s down 0.8% at last check.
The S&P 500 is down about a half percent, back below 4,100. The Dow is holding up best — nearly even-steven at 33,456.
➢ In a sign the bank crisis still isn’t over, First Republic Bank has suspended dividend payments on its preferred shares — a much more dramatic step than suspending the dividend on its common shares, which it did last month. FRC is down another 1.2% today, on top of the 90% tumble going back to early March.
We’ll get the monthly inflation numbers on Wednesday — another “tell” into the Fed’s intentions. But then the Fed takes a back seat to earnings season, which starts on Friday. Expectations are low — which Paradigm trading authority Alan Knuckman says can easily trigger rallies if those expectations are violated. “Anything remotely with a heartbeat, the market should have a positive reaction because they’ve beaten it down so badly,” he tells TD Ameritrade’s Morning Trade Live webstream.
The prospect of more Fed tightening is definitely translating to a stronger dollar, the dollar index up three-quarters of a percent to 102.8. And a stronger dollar translates to weakening gold, the bid off $19 to $1,988. And silver’s latest run toward $25 has been aborted.
Crude is back below $80 a barrel; copper is barely holding on to the $4-a-pound handle.
Pardon us if we don’t share in the excitement over a proposal in Texas to create a “gold-backed digital currency.”
Legislation drawn up by Sen. Bryan Hughes (R-Mineola) and Rep. Mark Dorazio (R-San Antonio) would “require the state comptroller to establish a digital currency that is fully backed by gold and fully redeemable in cash or gold,” according to a Kitco News story. “The comptroller would also be required to create a mechanism that would allow the new gold-backed digital currency to be used by citizens for their daily transactions.”
Buried midway through the story is this nugget: “All gold reserves backing the digital currency would be held in a trust with the Texas Bullion Depository that is controlled by the comptroller or another entity appointed by the comptroller.”
As soon as they said “Texas Bullion Depository,” they lost us.
We’ve followed the saga of the Texas Bullion Depository for a decade now.
Our most recent writeup — a rather extensive one — dates to September 2021. Long story short: The venture started with the best of intentions — a way for the University of Texas/Texas A&M endowment to vault its physical gold in the Lone Star State and not at HSBC in New York. But it ended up as a shameless crony capitalist vehicle to reward campaign donors — one that’s actually a drain on the state budget every year. And the endowment never moved its gold from New York.
Look, we understand the appeal of the Texas proposal: As Michael Maharrey of the Tenth Amendment Center writes, “A gold-backed digital currency would create an alternative to CBDCs” — central bank digital currencies of the sort we’ve been warning about since last summer.
Too, “creating a gold-backed digital currency would take another step in the process of abolishing the Federal Reserve system by attacking it from the bottom up.” Hear, hear.
But we can’t shake the thought that this proposal is little more than a scheme to prop up the Texas Bullion Depository — which is now a state-contracted vaulting service for the general public, competing with the private sector.
At the very least, the bill’s sponsors need to explain what safeguards they’re writing into the legislation to ensure this gold-backed digital currency actually delivers on its promise.
“You are singing to the choir, brother: I’ve been on my own gold standard for several years,” writes a reader who agrees with the proposition that over time, precious metals preserve your purchasing power.
“Like the Russians after the 2008 debacle I finally saw the light and, after some turmoil in my career after changing professions, was able to start buying gold and silver, mostly when both metals were in the trough during the middle of this past decade.
“I still kick myself for not taking full advantage of the bargain-basement exchange rate in the ’90s when I was an Army officer. Easily could have bought two Gold Eagles each month over my tour — not to mention a roll of silvers — and would have been in great shape. Well, you know what they say about hindsight….
“Anyway, I am very heavy in metals now — too much so, some would say, and perhaps I’ve left paper profits on the table in other venues. Then again, the stock market never has been particularly kind to me, so I likely would have been worse off had I gone all-in on the bull run since the ’08 crisis.
“Bottom line for me is one reason I sleep much better and am far less stressed is that I did see the light and am in good stead with the currencies of both kings and gentlemen. For me, it’s the right choice.
But not everyone is sold on precious metals yet: “There are people who suggest that for a variety of reasons, people should buy gold, silver and other precious metals as a way to protect wealth and that gold and silver are easily sold if needed.
“Sold for what? If dollars have no value, what will you sell this commodity for? Also, if you’re going to use gold to buy and sell, the denominations are not feasible.
“A one-ounce gold coin costs $2K-plus or a quarter-ounce coin costs $600. Silver is lower in denomination so maybe more negotiable. But what if you buy something with one of these coins and you expect to get change in return? What form will the change be? I’m confused.”
The 5: You buy gold and silver for two potential scenarios.
The benign scenario is the one that unfolded in the late 1970s. Inflation was roaring and by late 1979, foreigners were ditching the dollar en masse because Washington was waging economic warfare with measures like freezing Iran’s U.S.-based assets. (Sound familiar?)
Gold soared from under $400 in October 1979 to over $800 in January 1980. If you didn’t get greedy and wind up riding the peak all the way back down, you’d have made out very, very well even as you continued to conduct your day-to-day transactions in dollars. (Reminder: Our Alan Knuckman says that 1980 peak translates to $3,600 gold today…)
Then there’s the malign scenario you hint at, in which “dollars have no value.” No, it’s not as if everyone will spontaneously transition to exchanging, say, an ounce of silver for four pounds of ground beef. (And yes, if you want only two pounds, you’ve got a problem.)
In the absence of a currency serving as a common reference point, chaos is sure to ensue. But aside from precious metals, what else would fill the vacuum? Gotta start somewhere if you don’t want to go back to barter.
Granted, someone else who recognizes the value of your precious metals might well extract what you think is a very steep price for whatever it is you want. I’m reminded that during the 2008 financial crisis, some U.S. troops stationed in Iraq and Afghanistan were genuinely concerned that their direct deposit would bounce and they’d have to somehow scrounge precious metals to pay their way back home. (Bitcoin was still a gleam in Satoshi Nakamoto’s eye.)
Obviously it didn’t come to that. But how many ounces of gold would that have been worth? Probably a lot more than commercial airfare quoted in dollars and translated to the spot price of gold quoted on the Comex, I suspect.
No, these are not pleasant things to contemplate. Let’s hope for the 1979–80 scenario instead.
Best regards,
Dave Gonigam
The 5 Min. Forecast
