- Epicenter of the Panic of 1907
- (1910) The “First-Name Club” converges on Jekyll Island
- (1913) Wilson signs the Aldrich Plan
- Jim Rickards: “The real purpose of the Federal Reserve”
- Greg Guenthner on a FANG+ missing piece
- South Africa unintentionally cuts greenhouse emissions… The free “Telly” that watches you… And more!
A century before the Panic of 2008, another American financial panic ignited with the San Francisco earthquake and fire of 1906. The massive event destroyed 80% of the so-called “Paris of the West” and killed 3,000 people.
A motion picture, in fact, depicting the disaster was released 30 years after the fact; the film’s leading man, Clark Gable, would go on to star in Gone With the Wind three years later.
The aftershock from the San Francisco catastrophe, says Paradigm’s macro expert Jim Rickards: “Insurance companies immediately began to liquidate assets to raise cash to cover the expected claims. This liquidation put stress on New York banks, the New York Stock Exchange and other financial markets in the East.
“The combination of liquidity stress from the San Francisco earthquake and loss of confidence from the collapse of the Knickerbocker Trust Co. in New York led to bank runs,” he says.
“At the height of the panic on Oct. 19, 1907, Pierpont Morgan, the most famous banker in America and head of J.P. Morgan & Co., commenced a series of meetings with top bankers and government officials at his private New York City library at the corner of 36th Street and Madison Avenue.
“Through his leadership, Pierpont Morgan almost single-handedly saved the U.S. banking system.
“Immediately after the Panic of 1907, bankers and politicians began asking the obvious question: What would happen in the next panic?” Jim says.
“Pierpont Morgan wouldn’t live forever… Who would save the system the next time the banks were on the edge of collapse?
Source: Bain News Service, Library of Congress
After his 1913 death in Rome, J.P. Morgan’s body was conveyed, once more, to his private Manhattan library
“The top bankers decided that a new central bank was needed,” Jim says. “Ideally, the bankers would own the central bank, with the backing of the U.S. government to issue currency. Most importantly, this central bank would be able to act as a lender of last resort to private U.S. banks.
“U.S. Sen. Nelson Aldrich (R-RI) became the political champion of a new central bank.
“In 1910, Aldrich organized a secret trip to an exclusive private club on Jekyll Island, Georgia,” Jim continues.
Per the Jekyll Island Authority’s website, the island was once a “Southern haven for America’s millionaires.” Thus, perfect for the “First-Name Club,” as the secret meeting would come to be called.
Image courtesy: Lydia England
Part of the Jekyll Island Club Resort today
In a private club room, then, “over the course of a week,” Jim notes, “six men wrote what later became the Federal Reserve Act, known at the time as the Aldrich Plan.”
And since “the group knew that Americans had hated central banks since the demise of the Second Bank of the United States in 1836, they did not call their creation a central bank or The Bank of the United States.
“Calling it the Federal Reserve was both deceptive and anodyne.” Nevertheless, three years later…
“The Aldrich Plan was finally signed by President Woodrow Wilson in the closing days of 1913,” Jim adds. “The Fed has been with us ever since.”
Indeed, for “better” or worse…
Source: Alfred Owen Crozier, circa 1913
“To this day the 12 regional Federal Reserve banks are owned privately by the banks in each region,” Jim notes. “Direction is provided by the Board of Governors of the Federal Reserve System appointed by the U.S. president and based in Washington, D.C.
“The overall system is a perfect hybrid of public and private interests,” Jim emphasizes.
“The real purpose of the Federal Reserve has nothing to do with helping the economy, setting interest rates, lowering unemployment or any of the other policy purposes you hear and read about.
Source: Alfred Owen Crozier (1912)
He gets it…
“The Fed only exists to give bankers control of money and to bail themselves out about once every 10 years,” Jim says. “The bankers have their hands on the printing press. Everything else you hear about is just noise.
“The Fed cannot stimulate the economy. The Fed does not cause the business cycle. The Fed cannot create jobs. But it can make things worse,” he says. “And often does.
“The U.S. did just fine without a central bank for 77 years, from 1836–1913,” Jim concludes. “The coming severe recession may finally force some to ask hard questions and to clip the Fed’s wings. Just don’t count on it.”
[There’s still time to RSVP for Jim Rickards’ livestream from Jekyll Island, where he’ll be joined by former Fed insider Danielle DiMartino Booth.
It all goes down Wednesday, May 17, at 1 p.m. EST. And you can watch live from the comfort of your home, exclusively through an access link we’ll forward to you.
Join us tomorrow… as two of the world’s foremost thought leaders deliver world-class economic insight you won’t find anywhere else.]
Turning to the market today, the tech-centric Nasdaq is up 0.30% to 12,400 (more on that in a moment). The Dow, meanwhile, is down 0.20% to 33,160 and the S&P 500 is down 0.20% to 4,125.
Switching gears, the commodities complex is floundering in a sea of red: Oil’s down 0.45% to $70.78 for a barrel of West Texas crude. The bigger story is precious metals. Gold’s slumped 1.30%, below the $2K mark — to $1,995 per ounce. Silver? Down almost 2%, below $24. (Time to stock up?)
And we have a raft of economic numbers to report…
- According to the Commerce Department, retail sales rose just 0.4% last month — a reading that’s half of Wall Street’s estimate. “Spending is weaker… so the handoff to 2Q is soft,” says a Bank of America note
- The Federal Reserve reports industrial production rose 0.5% in April (month-over-month) versus the -0.1% economists anticipated. On the other hand, capacity utilization was right on target at 79.7% last month. (Recall, capacity utilization reflects the percentage of the nation’s factories, mines and utilities that are used during a set period of time.)
- And the latest reading from the National Association of Home Builders (NAHB) Housing Market Index comes in at 50 this month, perking up 5 points from April’s reading. For some perspective, a reading over 50 means builders are optimistic when it comes to single-family home sales. (The housing index, by the way, hasn’t been above 50 since July 2022.)
Finally, Bitcoin and Ethereum are both struggling today, down 1.5% and 0.55% respectively. At the time of writing, flagship crypto Bitcoin is right at $27K and Ethereum’s at $1,820.
“Google has managed to survive earnings season… and play a little catch-up with its AI competitors,” says Paradigm’s market analyst Greg Guenthner.
“Last week at the company’s developer conference, CEO Sundar Pichai unleashed a laundry list of AI advancements coming to its platforms. The financial media ate it up…
“The positive reception sparked a massive rally, prompting the stock to jump more than 10% last week to new eight-month highs.
“More importantly, Google has finally cleared a base the stock has been building since late last year,” says Greg. “GOOG lost as much as 45% of its value since topping out in late 2021, spending the entire next calendar year locked in a vicious downtrend.
“That’s now in the rearview as shares vault higher…
“GOOG was lagging its megacap counterparts up until last week’s breakout. Apple Inc. (AAPL), Microsoft (MSFT) and Nvidia (NVDA) have all locked into strong uptrends this calendar year,” he says. “Even Tesla Inc. (TSLA), which topped out in February, has bested the averages by a wide margin.
“GOOG was the final piece of the FANG+ puzzle,” Greg summarizes. “For better or worse, we’re currently seeing megacaps dominate the market right now — whether they’re playing the AI hype game or not.”
More than meets the eye: “South Africa is ahead of its target for cutting emissions of greenhouse gasses,” Bloomberg raves.
The last time we mentioned South Africa in a truly substantive way, we outlined the BRICS up-and-comer’s electrical-grid state of emergency. More specifically, 15 years of mismanagement at state-owned electric utility Eskom recently resulted in rolling blackouts totaling as much as 15 hours per day.
Now? Well, Bloomberg seriously buries the lede…
“Regular breakdowns of the coal-fired power plants that supply more than 80% of South Africa’s electricity mean that less carbon dioxide is being pumped into the atmosphere and daily rotational cuts of more than 10 hours a day are further limiting emissions from factories.” Yess?!
“We reckon we are well within the range [of our 2030 target],” says Crispian Olver, executive director of South Africa’s Presidential Climate Commission.
“It’s unintentional,” he clarifies.
While the commission wants to decommission several coal-burning power plants, it will make little difference since “they produce little electricity in any event,” Bloomberg says.
“It’s very difficult to recommend the decommissioning of power stations,” Mr. Olver hems and haws, “in the middle of an energy crisis.”
Yeah, no kidding.
Tech startup Telly wants to give away a half million free 4K HDTVs. But there’s one pesky catch…
“The unit has a 9-inch-high second screen, affixed to the bottom of the set, which is real estate Telly will use for displaying news, sports scores, weather or stocks, or even letting users play video games,” says Variety.
“Critically, Telly’s second screen features a dedicated space on the right-hand side that will display advertising — ads you can’t skip past and ads that stay on the screen the whole time you’re watching TV… and even when you’re not…
Image courtesy: Telly
“Telly’s bet is that it will be able to generate a return on the major upfront investment of getting its ad-enabled TVs in front of U.S. consumers.”
And yikes, this is unnerving: “The TVs also have a built-in sensor that can detect the number of people who are watching at any particular time,” Variety says.
You all take care! We’ll be back tomorrow with another episode of The 5…
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