- The politicization of the looming recession
- Why it’s not time to short banks (yet)
- A supposed Ukrainian drone attack… and oil?
- Gold: A good news, bad news framework
- 5G “scrambles” summertime air travel… An ill-fated Dutch farmers update… Dystopian synchronicity (eat ze bugs!)… And more!
Once more, we’re sending this edition of The 5 at exactly 2:00 p.m. EDT, coinciding with the release of the Federal Reserve’s every-six-weeks policy statement.
On the one hand, it’s a nothingburger: The Fed has telegraphed well in advance that it will raise the fed funds rate another quarter percentage point, to 5.25%.
On the other hand — and as Jim Rickards has been saying for several days now — 5.25% is likely to be the breaking point for the markets, the economy and the banking system.
While CNBC and Bloomberg TV parse every change in the Fed statement from six weeks ago… and hang on every word in Fed chair Jerome Powell’s press conference… we daresay your time will be better spent watching Jim’s time-sensitive presentation.
Do it now, while there’s still time to act on Jim’s guidance. You can come back to the rest of today’s 5 later. We have a potpourri of items waiting for you…
Here it comes — the politicization of the approaching recession.
Ten Democrats in Congress, led by Sen. Elizabeth Warren (D-Massachusetts), have fired off a letter to Fed chair Jerome Powell urging him to “pause your rate hikes, and avoid engineering a recession that destroys jobs and crushes small businesses.”
This is rich. As we mentioned throughout much of 2022, the Fed was more or less doing the White House’s bidding by raising rates. Inflation was crushing the working class and the poor ahead of the midterm elections.
But now that those rate increases threaten to tip the economy into a recession, it appears Democrats are eager to either a) pressure the Fed to pause despite the fact inflation still isn’t back under control or b) blame the Fed for an election-year recession.
Meh. As we said again just yesterday, the Fed always raises rates until they break something.
(What, you still haven’t looked at Jim Rickards’ message yet? C’mon…)
It’s not yet time to short the banks, in the estimation of Jim Rickards’ senior analyst Dan Amoss.
You can be forgiven for thinking otherwise. After all, the United States has experienced its second-, third- and fourth-largest-ever bank failures in just the last seven weeks!
And using history as his guide, Jim has said the bank crisis is still in its early stages. Why wouldn’t this be an ideal time to short-sell bank shares, or buy put options on the banks?
“Most banks are still very profitable,” says Dan. “This is a different environment from 2008.
“Loan defaults and loan losses are very small, and the net interest profit margins at most banks are very high. Unlike Silicon Valley Bank, most banks avoided overdosing on low-yielding bonds.
“Sure, many midsized and small banks must start paying depositors higher rates to prevent them from moving deposits, and this will start to depress their net interest margins. But this is a slow process that can unfold over a year or two.
“There may be a better time to buy put options on banks in three or six months, but I don’t see it as a target-rich sector at this time compared with other sectors, including retailers, technology and truckers.”
It’s at this moment I’ll remind you that in the summer of 2008, Dan guided readers to 462% gains playing put options on a dying Lehman Bros. When the time is right, he’ll know!
If “geopolitical tensions” are supposed to move oil prices… well, it’s not happening today.
The Russian government claims it shot down two Ukrainian drones trying to attack President Putin’s residence near the Kremlin — which the Ukrainian government denies.
But at last check, crude is down over three bucks to $66.28, testing post-Ukraine invasion lows set about six weeks ago. And that’s despite drawdowns in crude inventories as reported in the Energy Department’s weekly storage figures.
Gold, however, is staging a modest rally, up seven bucks to $2,023. Silver’s up a nickel to $25.41.
Not surprisingly, the major U.S. stock indexes are treading water ahead of the Fed festivities; the S&P 500 continues to hover over 4,100.
Strictly from a chart standpoint, there’s both good and bad news for gold bugs.
That’s the assessment of Paradigm contributor and chartered market technician Greg Guenthner, who spent part of last week in New York for a gathering of the CMT Association.
The consensus: “Almost everyone thinks gold finally breaks out above $2,100 and stays above this mark into 2024.”
But don’t expect a clean move. “The early April run to $2,050 has fizzled out. Gold once again failed to post a monthly close above $2,000 in April. It will have to try again this month — which is also a seasonally weak time for the yellow metal.
“Keep alert for a bounce in the dollar index. That could cause some weakness in precious metals in the weeks ahead. The longer-term outlook for gold is strong. But some turbulence in May might require a hard reset before it gets moving higher once again.”
COVID vaccine mandates are no longer headline news… but nonetheless they’re about to scramble summertime air travel.
“The U.S. will not delay a deadline for airlines to refit planes with new sensors to address possible 5G interference,” reports the BBC, “despite concerns the cut-off date could cause travel disruption.
“Transportation Secretary Pete Buttigieg said on Tuesday that airlines were told the July 1 deadline would remain in place. Airlines have warned that they will not be able to meet the deadline and may be forced to ground some planes.”
Matters first came to a head in early 2022 when Verizon and AT&T were set to switch on expanded 5G services. These services rely on the “C-band” of the radio frequency spectrum. The airlines warned those signals will mess with the avionics systems that help aircraft land in bad weather. Thus, the need for upgraded sensors and the time to install them.
Here in the spring of 2023, the International Air Transport Association says its member airlines can’t perform the necessary upgrades in time because of supply-chain issues.
Which is almost certainly true… but it’s not the whole story.
Recovered history: The real problem began when many government contractors imposed COVID vaccine mandates in late 2021.
As Jim Rickards said here in January 2022, “Why wasn’t this problem identified and fixed earlier?” Jim asked. “There’s nothing new about digital avionics or 5G.
“The real difficulty was that the altimeters could not be fixed in time because there’s a shortage of qualified engineers in the Wichita, Kansas, area to do the work.
“Almost all of the avionics engineering firms are federal contractors because they work on military as well as civilian contracts, and they are regulated by the FAA. These engineers, many of them men in their 40s and 50s, have a relatively low rate of vaccination, more like 50% rather than the national average of 80%. They are being fired or furloughed because of the vax mandate [for federal contractors].”
Back to the present: Who knows how many skilled engineers, doctors and other professionals opted for early retirement rather than get the jab?
Now there’s an angle of the post-pandemic labor shortage the media won’t explore — in part because the government won’t gather the relevant statistics.
Now for an unfortunate new development in what we called “the most important story the mainstream is utterly ignoring” last summer…
The government of the Netherlands is determined to slash the country’s livestock population by 30% — the better to meet European Union targets for nitrogen-oxide pollution.
Farmers staged huge protests last summer… but apparently to no avail. This week the European Union approved the Dutch government’s plans to spend over $1.6 billion to buy out as many as 3,000 farms. Pro-farmer activists say the farmers are being taxed and regulated so severely, they’ll have no choice but to sell.
Amazing to think about for a country that a) experienced a famine toward the end of World War II and that b) today ranks second only to the United States in the value of its farm exports. At least for now…
And in a case of dystopian synchronicity, there’s this story from today’s Wall Street Journal…
“Switzerland in 2017 became the first country in Europe to allow insects to be sold as food for humans after a lobbying campaign by edible-insect startups,” the Journal reports. Now a campaign is underway to encourage schoolkids in the World Economic Forum’s home country to “eat ze bugs”…
The story is given front-page treatment as the “A-hed” story that’s supposed to be a source of amusement. Alas, we don’t find it so amusing today…
OK, a little comic relief: While not strictly financial in nature, we can’t help chuckle at this headline and draw it to your attention ahead of King Charles’ coronation this weekend…
Brings to mind the famous scene from Monty Python and the Holy Grail…
The whole thing was genius. “I didn’t know we had a king. I thought we were an autonomous collective!”
Back to our mailbag stuffed with hot takes about the Nordic countries’ high taxes…
“Those rates in Scandinavia don’t really look that bad as a New Yorker, paying 28% federal, 7% state, 6.5% SSA taxes, outrageous property, school and sales taxes. And our corrupt government takes our tax money and spends it in a way where a large portion comes back to the politicians personally, leaving them all extremely wealthy while living on an ordinary salary. The Scandinavian countries take care of their citizens much, much better than we take care of ours.”
And from Illinois: “Funny, I calculated my tax burden and with income tax, payroll taxes (who’s ‘FICA’ and why does he have my money every first paycheck?), property taxes, sales tax, license taxes, tax taxes, mystery ‘fees’ on everything makes my percentage into near 60%. That was a number of years ago and in Herr Pritzker’s nazitopia it has spiraled downward fast.”
“My wife is Scandinavian (N, S & Finn) and we visited there in 2019, spending a chunk of time in a small Norwegian village where her cousins live,” a reader writes.
“They cherish their government, their liberal benefits, and trust it explicitly. This is key! Generally speaking, they don’t lie, don’t try to cheat the system and don’t try to become totalitarian — unlike American politicians. They lived through socialist fascist takeover in WWII and understand the differences between that and socialist communism — unlike many Americans.
“There is a complete lack of historical truth in U.S. education. Here we teach the ‘continuum theory’ that left = socialism and right = capitalism. This is completely false. The terms ‘left’ and ‘right’ were born of the French Revolution and basically represented the ruling-class rich versus poor peasant revolutionaries in their first post-revolution parliament.
“Fascism symbolized by the Latin fascia represents a wicked amalgam of private business and a socialist government — which chooses the winners and losers — those businesses who comply with socialist power. Unlike socialist communism, where means of production are all owned by the government, socialist fascism takes advantage of capitalist efficiencies — but reins in tight control over private industry.
“Back to Scandinavia. Their system works for them because of openness and trust, a common religion, nearly common race and languages and common values. But they are VERY pissed about cheats and border jumpers!”
The 5: Once more we’ll cite a 2019 report from JPMorgan Chase analyst Michael Cembalest.
He took a deep dive into the policies and economic performances of Sweden, Norway, Denmark and Finland. He analyzed data from the World Bank, the Organization for Economic Cooperation and Development and other groups.
His conclusion: Relative to the United States, those four governments have stronger protections of property rights and exert less control over private enterprise.
“While Nordic countries have higher taxes and greater redistribution of wealth, Nordics are just as business-friendly as the U.S. if not more so,” he wrote. “Examples include greater business freedoms, freer trade, more oligopolies and less of an impact on competition from state control over the economy.”
“Sweden in fact is pretty much as ‘capitalistic’ as is the United States,” economist Deirdre McCloskey wrote in National Review, also in 2019.
“In many fields,” a Swedish diplomat told her, “we have more private ownership compared to other European countries and to America. About 80% of all new schools are privately run, as are the railroads and the subway system.”
Nor is there a bailout culture, McCloskey pointed out: “When Saab Autos began its descent into bankruptcy, no Swede suggested that the government give the company billions on the security of its worthless stock. When Volvo became a Chinese company, no Swede objected. Compare the determination of the Bush and Obama administrations in proudly capitalist America to socialize General Motors and Chrysler — Chrysler for the second time.”
Oh, and Sweden didn’t lock down in 2020, either…
Best regards,
Dave Gonigam
The 5 Min. Forecast
