- Jerome Powell: Are we clear?
- A legendary investor on gold’s many merits
- Zach Scheidt answers: “Why isn’t gold priced higher?”
- Regional banks are coding
- China’s economic “false dawn”… Thieves: Copper or cooking oil?… The ants go marching… And more!
Yesterday afternoon, Fed chair Jerome Powell dispelled any illusion of a Fed “pivot” to QE.
“We on the committee have a view that inflation is going to come down not so quickly,” Powell said during his presser.
A convoluted way of saying: “In that world, if that forecast is broadly right, it would not be appropriate to cut rates, and we won’t cut rates.”
Courtesy: Twitter, @StockMKTNewz
Are we clear?
All of which squares with what Paradigm’s macro expert Jim Rickards forecast weeks ago. (Indeed, Jim thinks another 0.25% hike might be in the cards come June.)
In any case, on to our topic today…
“Gold is a well-established, blue chip alternative to fiat money,” says billionaire investor Ray Dalio, founder of Bridgewater Associates.
And much like Jim Rickards, Dalio recommends 10% of investors’ portfolios be allocated to gold.
As for his own personal portfolio, Dalio confesses he owns a “little” Bitcoin. Nevertheless, he submits: “[Crypto’s] a small asset class… It doesn’t move in a way that’s consistent.”
Another negative, according to Mr. Dalio: “Crypto, it’s very easy to track the owners and transactions.” Hmm…
So with just a cursory inventory of the post-pandemic financial fallout today, we enter a critical safe-haven discussion…
“Why isn’t gold priced even higher?” says Paradigm’s income-investing ace Zach Scheidt, repeating the question that’s preoccupied gold advocates for, at least, the last year.
“Inflation is supposed to be a tailwind for gold,” he observes. “Inflation means it costs more dollars to buy everything. What’s true for laundry detergent, gasoline and food is also true for commodities like gold.”
While “inflation acts as a tailwind for gold,” Zach notes, “a strong dollar is a headwind.” And once the Fed started its rate-raising cycle, “the dollar remained strong compared against other currencies.
“So those two forces” — inflation and a strong U.S. dollar — “were counteracting each other…
“But all that changed in October 2022,” Zach notes, “when the dollar started weakening.”
What explains the weakening dollar?
First, investors woke up to the very real possibility of a recession; at the same time, the mainstream financial media pushed the Fed rate-cutting “pivot” narrative — both of which “caused the dollar to move lower in comparison with other currencies.
“As the U.S. dollar weakens,” Zach adds, “that gives us even more of a tailwind for gold on top of the inflation story.
“And that is what’s driving gold sharply higher.”
Nonetheless: “Gold is facing resistance right at the $2,000 mark,” Zach says. He calls the current phenomenon, in fact, gold’s battlefield 2K. (At the time of writing, gold is winning on that front: up 1.20% to $2,060 per ounce.)
“But once gold breaks above that mark — and holds the line — I expect gold to actually make a really big surge… and possibly hit $3,000 or more by the end of the year.”
As an investor, then, what’s the play? “Because we’re in this really big breakout moment, I like to capitalize on gold-related stocks and ETFs.
“In the short to intermediate term (say, six–18 months),” Zach says, “if gold moves up to $3,000 per ounce, that gives investors a big opportunity to make money on shares of SPDR Gold Trust ETF (GLD).”
The world’s largest physically backed gold ETF, which closely tracks the price of gold, also “gives you an opportunity to make money on gold miners, gold streaming and gold royalty companies.
“Obviously, I think you should still hold physical gold,” Zach encourages. “Put it somewhere safe.
“Still hold that physical gold because gold is a fantastic long-term investment for protecting the value of your wealth.
“But I believe right now is a key moment to double down on your gold investment,” he concludes. “The upcoming breakout presents a great opportunity to trade gold, in the short term, to rapidly add cash to your investment account.”
[To further capitalize on gold’s breakout — and other similar opportunities — Zach recently shared an income-generating strategy he’s been developing for over a year now. Here’s the shorthand…
- Zach uses macro, fundamental and momentum signals to enter and exit trades.
- He uses simple option positions, reducing the amount of capital needed to start trading.
- And he uses long and short opportunities, profiting from the market’s ups and downs.
In other words, only hedge fund managers have made money this way… until now.
Using a few key market indicators — that you can learn for yourself — Zach has closed trades with returns up to 57%… 85%… even 166%.
He’s cranked out profits including $6,492 in four days… $10,617 in six days… and $13,203 in just two days.
If you haven’t watched Zach’s explainer video, please do so now because it’ll be scrubbed TODAY at MIDNIGHT.]
The high-priority story of the day: regional banks.
Despite Powell telling everyone to calm down yesterday… banks are fine… nothing to see here… LA-based PacWest Bancorp’s shares thereafter plummeted 35% in premarket trading. Indeed, PACW shares are down about 47% now.
In a head-spinning turn of events, less than a week ago, JP Morgan analysts used PacWest earnings to indicate that First Republic’s bleed-out was “idiosyncratic.” Not so much this week…
“PacWest appears healthy, with deposits — 75% of which are insured — ticking up since the end of March. But it needs to raise capital, and fast,” says The New York Times.
“The fix is tricky, as was made clear by First Republic’s monthlong search for a rescuer. JPMorgan Chase bought the lender only after it had been seized by the FDIC.” (About the FDIC: The insurance fund, in the first quarter of 2023, took a $35.5 billion hit.)
In short, we’re moving from one bank crisis to another….
Turning to the market today, the three major U.S. stock indexes are languishing in the red.
The tech-heavy Nasdaq is actually holding up best, down 0.35% to 11,980, but the 126-year-old DJIA has been cut 1.15% to 33,025. The S&P 500, then, falls in the middle — down 0.70% to 4,060.
Meanwhile, in the commodities complex, crude’s in the green… but still priced very low: $68.66 for a barrel of West Texas Intermediate. And gold keeps holding the line (see above); at the same time, silver has advanced 2.25%, over $26 now.
Finally, the crypto market is likewise in the green. Bitcoin’s up almost 2%, just shy of $29K and Ethereum’s up about 0.50% to $1,884.15.
China’s “reopening” rally has proven to be a “false dawn,” says Jim Rickards.
“In late November 2022, the Communist Party of China announced that its Zero COVID policy was permanently over. While the pandemic was a factor holding back Chinese growth, it was not the main factor.
“One debt-fueled Chinese bubble that is crashing down in real time is real estate. This is the biggest asset class held by the everyday Chinese investor. Values are down, lending has dried up and many securities-type investments backed by real estate are in default.
“Meanwhile, China is laboring under U.S. trade tariffs and highly adverse demographic trends,” he adds. “The rivers are polluted, water is scarce and air pollution is getting worse as China returns to coal burning to fend off an energy shortage.
“Most importantly,” Jim says, “Chinese manufacturing exports are suffering due to reduced demand from the U.S., the EU and other developed economies since those economies are slowing down or already in recession themselves.”
Plus? “As the Federal Reserve continues to raise interest rates in the U.S., dollars are draining out of China in search of higher returns. This puts downward pressure on Chinese stocks along with other headwinds.
“The impact of Fed policy is scarcely confined to the U.S. It affects the world,” Jim concludes.
“Do you see artificial intelligence (AI) taking people’s jobs anytime soon?” a reader recently asked Paradigm’s tech-stock maven Ray Blanco.
“That’s a great question,” Ray replies, since it appears to be one of the prevailing fears “the public tends to express regarding AI.
“I can see why,” he concedes. “You see some companies saving on labor costs through automation that utilizes AI systems.
“However, there’s another side to this story: AI has the potential to create many new jobs and improve general efficiency across a variety of industries.
“One example of AI adding jobs is in health care,” Ray says. “AI-powered systems could assist doctors and nurses in diagnosing and treating patients, allowing them to spend more time providing personalized care.
“This should ultimately lead to a demand for health care professionals, as well as new job opportunities, in the field of AI development and implementation, specific to the needs of the health care industry.”
And in industry after industry, “humans would be responsible for training AI systems, creating new jobs in fields such as data analysis, machine learning and software engineering.
“So while some jobs may change with the implementation of AI,” Ray closes, “new jobs will be created as well.”
Cooking oil has become the next copper — “a commodity ripe for thievery and easy to resell,” says an article at New York’s Rochester Democrat and Chronicle.
“Cooking oil can be refined into biodiesel fuel and resold for $4–5 a gallon,” the article notes.
“This crime has happened plenty of times,” says Sumit Majumdar, owner of Buffalo Biodiesel, who figures his own business has lost millions of dollars as a result of theft. Mr. Majumdar points the finger at organized crime.
Source: Court photo, surveillance image
In Monroe County, New York, six suspects have been accused of federal crimes, including “conspiracy and the transportation and sale of stolen goods in interstate commerce.” Assistant U.S. Attorney Meghan McGuire alleges the six suspects siphoned oil from restaurants across the county.
“Investigators were able to track two shipments totaling 95,320 gallons of oil from the warehouse to the Pennsylvania refinery. The accused were paid $60,051 for the shipments, prosecutors allege.”
To the mailbag, where a longtime reader recalls a much more innocent memory of mischief…
“Many years ago, some friends and I were members of our church’s youth group, which put on an annual youth potluck for our parents,” he says, after reading our “eat ze bugs” update yesterday.
“Being mischievous teenagers, we were always looking for something ‘different,’ and even though there was no Internet back then, we managed to get our hands on a container of high-quality chocolate-covered ants.
“We all tasted them and found them pretty tasty, much like a Nestle Crunch bar. Then we put the balance out with the desserts. They were well-received and disappeared fairly fast.
“Afterward, we all confessed what we had done, but I don’t think my father was ever able to accept it, though he lived to be 101.
“As for me, ants for a sweet snack are one thing, but insects as a main course? No way.”
Finally, today, a reader writes: “Sending this to say THANK YOU to Dave and Emily for all your daily hard work putting together The 5. Don’t always agree with everything; however, I always look forward to what you have to say!
“Keep it up.”
We sincerely appreciate the encouragement… And yes, we intend to!
Best regards,
Emily Clancy
The 5 Min. Forecast
