3 American Companies Saying “Thank You!” To OPEC

By Zach Scheidt

Zach Scheidt

This post 3 American Companies Saying “Thank You!” To OPEC appeared first on Daily Reckoning.

We’ve talked a lot recently about how oil prices are now above $70/barrel in the United States.

That’s up over 150% from the lows back in early 2016.

The cause of this uptick has been a “perfect storm” type scenario for oil investors. The supply of oil is low due in most part to OPEC’s policy restricting production, while the demand for oil is still extremely high, due in most part to the booming world economy that now relies on more oil to continue churning.

But this is only half of the oil story (not even!). Which is why today I want to complete the picture and give you three stocks that should benefit most from the new trend I’m seeing in today’s oil market…

Up until this point I’ve only talked about oil prices in the U.S., but have you noticed how oil prices abroad are looking?

They are even higher!

Brent crude, which serves as a major benchmark for global oil prices, is now above $78/barrel.

That’s the widest spread between U.S. oil (measured by WTI crude) and Brent crude that we’ve seen since U.S. lawmakers permitted the export of U.S. crude in 2015.

This divergence shows just how stretched global oil prices really are!

Even with U.S. drillers producing a record 10.7 million barrels/day, we still can’t produce enough to change the supply and demand fundamentals in the global oil market. And that great news for U.S. pipeline companies!

Let me explain…

The difference between U.S. and global oil prices is a key factor in determining whether it is worthwhile to ship oil abroad or sell it domestically. A wider price spread makes longer, more costly journeys to markets abroad more profitable.

And with the current spread being the largest in three years, oil producers cannot get their product to the coasts fast enough!

According to The Wall Street Journal, oil is already backing up in West Texas where there aren’t enough pipelines to get all the oil to market.1

That’s great news for pipeline companies like Kinder Morgan (KMI), Energy Transfer Partners (ETP) and The Williams Companies (WMB), whose pipelines will be working around the clock (and charging higher prices) to meet the growing demand.

And the best part, these companies currently pay great dividends to income investors like us that should only grow as profits increase.

Kinder Morgan (KMI) Dividend — 5.00%

Energy Transfer Partners (ETP) Dividend — 12.00%

The Williams Companies (WMB) Dividend — 5.32%

The “Great American Oil Boom” is underway and these companies are great “pickaxe and shovel” investments to take advantage of this emerging trend.

Be sure to stick with The Daily Edge over the next few days as we continue to outline stocks set to benefit the most!

But first, let’s get to the 5 Must Knows for Monday, May 21st…

5 Must Knows For Monday, May 21st

Trade War On Hold — On Sunday, Treasury Secretary Steven Mnuchin stated “Right now, we have agreed to put the tariffs on hold while we execute the framework,” after the U.S. and China released a joint statement following trade talks in Washington. For now, the temporary cease-fire is a welcomed development by investors as stocks opened sharply higher this morning. However, details are scarce and markets can surely rebound if the world’s two largest economies fail to deliver on these vague comments.

How’s The Housing Market? — It’s no secret that we here at The Daily Edge have been bullish on today’s housing market — and we still are! That’s because there is currently a low supply of houses for sale that’s simply unable to satisfy the growing demand. This week we’ll get the newest updates on the state of the market. On Wednesday, the Census Bureau will release new home sales figures, and on Thursday, the National Association of Realtors will report sales of existing homes.

Fed Minutes On Deck — On Wednesday, the Fed is scheduled to release the minutes from its most recent Open Market Committee meeting that ended on May 2nd. During the meeting, members decided to keep rates unchanged, but as usual, this release will give valuable insights into future Fed moves.

The E.U. Takes On Privacy — This Friday, May 25, the world’s strictest privacy regulations will go into effect in the European Union. This comes in the wake of Facebook’s scandal where data from millions of user profiles was mishandled by a third party consulting firm. In short, the new regulations place restrictions on companies harvesting data on more than 500 million people, while also requiring organizations to ask permission from users before collecting any personal data. Violators could face steep fines of up to 4% of global revenue for noncompliance.

Zuckerberg Faces More Lawmakers — On Tuesday, Facebook CEO Mark Zuckerberg will be in Brussels answering questions relating to the Facebook data scandal that we talked about above. Questions are expected to be along the same lines that U.S. lawmakers asked in their April hearing. For those interested, the once thought to be private meeting is now set to be live streamed.

Here’s to growing and protecting your wealth!

Zach Scheidt
Editor, The Daily Edge
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1Trans-Atlantic Oil-Price Spread Soars as Supply Glut Disappears, WSJ

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From:: Daily Reckoning

A Central Banker’s Plan for Your Money

By Brian Maher

This post A Central Banker’s Plan for Your Money appeared first on Daily Reckoning.

Jim Rickards calls them “silent dog whistles.”

Through these signals, in the frequencies beyond normal human hearing… elites communicate with each other.

Their communications are public.

But their language can be so thick, so technical — so innocuous — not one in a hundred can crack it open.

Only the intended audience can penetrate the deeper message within… and that audience is their fellow elites.

Hold this information close when you consider the recent “speech” by a certain Benoît Coeuré…

This Coeuré fellow is a grandee of the European Central Bank (ECB).

He dispatched the following message this week at a monetary conference in Geneva, (and we doff our cap to the folks at Phoenix Capital for alerting us to it):

I would like to share some more general thoughts on the role of the central bank’s balance sheet in the economy. My focus will be on central bank liabilities – that is, money created by central banks to be used as a means of payment and store of value…

What distinguishes the discussion today from previous discussions… are three new facts:

The first is that we are seeing a dramatic decline in the demand for cash in some countries, in particular Sweden and Norway.

Let us interrupt briefly to translate this “fact”:

Cash limits our options as central bankers. Private citizens should not be allowed so large a voice in monetary affairs. Besides, no one wants it anyway. The time has come to discard cash altogether, as we previously discarded the “barbarous relic,” gold.

Pardon our manners, Monsieur Coeuré. Please continue.

The second is that central banks today could make use of new technologies that would enable the introduction of what is widely referred to as a “token-based” currency – one based on a distributed ledger technology (DLT) or comparable cryptographic technology.

Once again, we must break in. The unvarnished message:

Cryptocurrencies are a threat to our control of the monetary system. Unacceptable. We cannot stop the technology, so we must co-opt it. We must ensure that the masses can only use authorized cryptocurrency — ours, that is. We must ban all rival cryptocurrencies.

Please… proceed, sir.

And the third “new” fact, at least from a long-term perspective, relates to the role of central banks in setting monetary policy, and more recently to the emergence of negative rates as a policy instrument and the consequences for the transmission of monetary policy.

The problem comes back to cash. No one will pay the bank to hold their cash, so the masses would withdraw their money from the banking system. Cash therefore prevents us from employing truly negative interest rates. In consequence, cash must go. Once all money is digital, we’ll completely capture the monetary system and can make negative interest rates a reality.

Out of kindness… we spare you the remainder.

Perhaps you think we overweigh an obscure talk by some two-bit corporal of a banker.

But this Coeuré is no understrapper.

There are only six members on the ECB’s Executive Board — the board that sets policy.

Coeuré is one of them.

As Phoenix Capital sizes him:

There are fewer than 100 people on the planet who are as familiar with how central banks perceive the risks in today’s financial system as well as the policies said central banks will unleash when the next crisis hits.

And the implication:

Put simply… discussions of ending physical cash and introducing strictly digital money are taking place within the highest circles of central bankers.

The war on cash.

Jim Rickards has been up on his rooftop, hollering about it for years now.

His message is simply — but deeply — this:

The elites must ban cash so they can herd us all into the “digital pens.”

Only then can they unleash the negative interest rates they believe are necessary to repair a sick economy.

And you, fellow American, are among the flock:

This is of course part of the war on cash. The American people are being led like sheep to the slaughter. They’re being herded into digital pens, which are the banks.

It will not happen at once.

The resistance is too heavy in the center.

These elites intend rather to outflank and surround the sheep, to cut off all escape routes.

Then when the next crisis strikes, it’s off to the digital pen… to be sheared.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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From:: Daily Reckoning

$100 Oil Is One Explosion Away

By Jody Chudley

rocket launch

This post $100 Oil Is One Explosion Away appeared first on Daily Reckoning.

If you wake up tomorrow and oil prices have spiked to $100 per barrel, here is what will have happened.

You will find out that a long range Burkhan – 2H missile will have directly hit the Saudi Royal Palace in Riyadh. The reaction to this missile will be swift and severe.

Within the hour Saudi Arabia will have declared war on Iran. And within 24 hours the Saudis will have retaliated through a direct attack on Iran.

Once that happens, all bets are off as to how high oil prices go…

The initial spike to $100 per barrel would just be the beginning. Between them, Iran and Saudi Arabia produce roughly 14 million barrels of oil per day.

There is no way to compensate for any significant percentage of that production being wiped out.

The spiking oil price will decimate the global economy.

Even more concerning will be how the rest of the world gets pulled into this conflict. Israel is already on the brink of war with Iran and will be raring to go. It gets even bigger with Russia (supporting Iran) and the United States on the opposite side of the fence in this region.

I’m disturbed by how quickly this scenario could get out of control. I am far more disturbed by how very realistic the sequence of events are that I’ve just laid out.

The actual firing of the missile won’t be done by an Iranian.

It will be done by a Houthi Rebel based in Yemen who will have been supplied the Burkhan – 2H by Iran. This is not my theory, we know that the Houthis have these missiles and we also know that they are willing to use them.

Yemen is located directly south of Saudi Arabia. The Saudis are involved there because they want to stop the rising power of Iranian supported Houthis in the region, which already escalated into direct conflict once before in 2015.

The Houthis have already fired Iranian supplied missiles at Riyadh and are now openly targeting key Saudi oil infrastructure (refineries, pipelines, tankers). The graphic below shows the range of the missiles that the Houthis have and it clearly shows that all key Saudi oil infrastructure can be reached.

Yemen map

The Houthis claim to have already hit some of that Saudi oil infrastructure (a refinery) in the summer of 2017. Whether they have or not is impossible to prove since the Saudi Kingdom is very tight lipped about such things.

If the Houthis were to hit something really important, like for example the 5 million barrel per day east-west Saudi pipeline, it would obviously roil the oil market. After all, even the Saudis can’t hide that much supply being taken offline.

The real big picture concern though is what the Saudi response would be. The young, aggressive Saudi Crown Prince Mohammed bin Salman has already threatened to move the “battle” to Iran, in response to previous missile attacks.

And given his previous bold actions both domestically and abroad, I don’t think we should discount those words. It would almost be hard to blame him. With the Iranians shooting missiles through their Houthi proxy at his palace, one can understand why he would want to fire something directly into Iran.

We are one successful Houthi missile away from an oil market disaster. The missile doesn’t need to hit Saudi oil infrastructure. It just needs to hit something that pushes the Crown Prince to retaliate.

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge
EdgeFeedback@AgoraFinancial.com

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From:: Daily Reckoning

Blundering Into Recession

By James Rickards

This post Blundering Into Recession appeared first on Daily Reckoning.

June 12 is just three weeks away.

That’s when the Federal Open Market Committee, FOMC, the Fed’s interest rate policy arm, will in all likelihood raise interest rates another 0.25%, the seventh such rate increase since the “liftoff” in interest rates in December 2015.

The market is currently putting the odds of a rate hike at 95%.

This is the most aggressive tempo of rate hikes of any major central bank and puts U.S. policy rates significantly higher than those in the U.K., Japan or eurozone.

The issue for investors is whether the Fed is raising rates too aggressively considering the strength of the U.S. economy. Higher rates imply a stronger dollar, imported deflation and head winds to growth.

If the U.S. economy is on a firm footing, then the rate hikes may be appropriate, even necessary to head off inflation.

But if the U.S. economy is vulnerable, then the Fed’s actions could trigger a recession and stock market sell-off unless the Fed reverses course quickly.

My view is that the latter is more likely.

The Fed is tightening into weakness and will reverse course by pausing rate hikes later this year.

When that happens, important trends in stocks, bonds, currencies and gold will be thrown into reverse.

Outwardly, the Fed is sanguine about the prospects for monetary normalization. Both Janet Yellen and new Fed chair Jay Powell have said that interest rate hikes will be steady and gradual.

In practice, this means four rate hikes per year, 0.25% each, every March, June, September and December, with occasional pauses prompted by strong signs of disinflation, disorderly markets or diminution in job creation.

Lately job creation has been strong. And inflation has picked up. But it’s been spotty. The Fed still faces head winds in achieving its inflation goal.

The Fed is targeting a 2% annual inflation rate as measured by an index called PCE core year over year, reported monthly (with a one-month lag) by the Commerce Department.

That inflation index has not cooperated with the Fed’s wishes, and despite recent gains, hasn’t been able to hold consistently above 2%.

This has been a persistent trend and should be troubling to the Fed as it contemplates its next policy move at the FOMC meeting on June 12-13.

I’ve warned repeatedly that the Fed is tightening into weakness. The Atlanta Fed is projecting a 4.1% growth rate for the second quarter. But it’s known for its rosy projections that are almost always revised downwards once the data come in,

It had to lower its estimate of first quarter growth from over 5% to 1.8%. You can pretty much bet they’ll have to significantly reduce this projection as well.

The economy has been trapped in this low-growth cycle for years. The current economic recovery shows none of the 3% to 4% growth that previous recoveries have shown.

Meanwhile, the Fed is plowing ahead with its policy of quantitative tightening (QT), or cutting into its balance sheet.

Balance sheet normalization is even more on autopilot than rate hikes. Now, the Fed will not dump its securities holdings. Instead, it refrains from rolling over maturing securities. When the Treasury pays the Fed upon the maturity of a Treasury note, the money simply disappears.

This is the opposite of money printing — it’s money destruction. Instead of QE, we now have QT, or quantitative tightening. It’s like the Fed is burning money.

The Fed has been transparent about the rate at which they will run off their balance sheet this way, although transparency should not lead investors to complacency.

The Fed wants you to think that QT will not have any impact. Fed leadership speaks in code and has a word for this which you’ll hear called “background.” The Fed wants this to run on background.

Think of running on background like someone using a computer to access email while downloading something on background.

This is complete nonsense.

Contradictions coming from the Fed’s happy talk wants us to believe that QT is not a contractionary policy, but it is.

They’ve spent eight years saying that quantitative easing was stimulative. Now they want the public to believe that a change to quantitative tightening is not going to slow the economy.

They continue to push that conditions are sustainable when printing money, but when they make money disappear, it will not have any impact. This approach falls down on its face — and it will have a major impact.

My estimate is that every $500 billion of quantitative tightening could be equivalent to one .25 basis point rate hike. Some estimates are even higher, as much 2.0% per year. That’s not “background” noise. It’s rock music blaring in your ears.

For an economy addicted to cheap money, this is like going cold turkey.

The decision by the Fed to not purchase new bonds will therefore be just as detrimental to the growth of the economy as raising interest rates.

Meanwhile, retail sales, real incomes, auto sales and even labor force participation are all declining or showing weakness. Every important economic indicator shows that the U.S. economy can’t generate the growth the Fed would like.

When you add in QT, we may very well be in a recession very soon.

Then the Fed will have to cut rates yet again. Then it’s back to QE. You could call that QE4 or QE1 part 2. Regardless, years of massive intervention has essentially trapped the Fed in a state of perpetual manipulation. More will follow.

But what about the stock market?

Despite February’s correction, the stock market remains overpriced for the combination of higher rates and slower growth.

The one thing to know about bubbles is they last longer than you think and they pop when you least expect it. Under such conditions, it’s usually when the last guy throws in the towel that the bubble pops. February’s correction took some air out of the bubble, but the dynamic still applies. It just extended the timeline a bit.

But is this thing ready to pop for real?

Absolutely, and QT could be just the thing to do it. I would say the market is fundamentally set …read more

From:: Daily Reckoning

REVEALED: The Date of the Next Big Drop

By Brian Maher

PLACEHOLDER

This post REVEALED: The Date of the Next Big Drop appeared first on Daily Reckoning.

Today we reveal the precise date of the next market drop.

When is it… why that specific date… and what will cause it?

Answers anon.

First the backstory…

Market strategist Kevin Muir began noticing strange doings in 2011…

Some mornings stocks would rise for no apparent reason… as from the stroke of an enchanter’s wand.

No news, no rumors — no rumors of rumors — justified the moves:

I tried to understand what was driving the markets at every point. I focused on technical levels, monitored the news and spent way too long staring at the screens.

But on some days, the stock market would get mysteriously strong. It would usually occur midmorning. Often stocks would sag near the open, look like they wanted to break lower, when all of a sudden — out of the blue — stocks would go bid. I couldn’t understand it. There was no “reason” why they should be rising. Yet they did.

But why?

Muir flogged his aching brain.

No answers were issuing.

But one day he stubbed his toe on the answer…

These unexplained surges occurred only on specific days.

What days were these?

Days of quantitative easing — when the Federal Reserve expanded its balance sheet through bond purchases.

The scales fell away from his eyes… like Paul on the way to Damascus:

I know it seems crazy, but the Federal Reserve’s bond buying had a direct and immediate effect on the stock market. I don’t know why the relationship would be so unequivocal, but I learned the hard way not to fight the Fed on days when they [expanded their balance sheet].

We know quantitative easing worked miracles for stocks — but the same day?

Was Muir chasing a phantom?

Sometimes a fellow connects some random dots and his imagination runs off with him.

But he tortured his theory… worried it… ran it through the rollers.

Then he started over again.

His observations proved solid as oak.

And the larger the Fed’s bond purchases… the higher stocks rose that day.

Now jump forward…

Quantitative easing has yielded to quantitative tightening.

Associate Wolf Richter informs us over $100 billion has already rolled off the Fed’s $4.3 trillion balance sheet.

That balance sheet is presently perched at its lowest point since June 2014.

And the trimming is gathering pace:

Could this chart partly explain why the Dow Jones is down since the beginning of the year?

And why the S&P is essentially flat?

Yes, trade wars and other bugaboos have settled over the market like a London fog.

But stocks have barreled their way through every fog bank for the past several years.

Why stop now?

Might we find our answer in the balance sheet?

A plausible theory, you say.

But the trade war thesis is more convincing.

It’s more evidence you seek.

For your consideration, Exhibit B, coming by way of Martingale_Macro:

PLACEHOLDER

The dates on the left represent days when expiring bonds rolled off the Fed’s balance sheet.

That is to say, days of quantitative tightening.

To the right you will find that the S&P fell on each occasion — as much as 2.2%.

In total, the Fed has offloaded $117.9 billion this year.

And the S&P has shed a combined 4.7% on the days it tightened.

You will note one exception to this pattern… and that exception is Jan. 31.

The S&P was level that day.

But consider…

The S&P spent the entire month of January in an advanced condition of delirium.

Rising 5.6%, it was the S&P’s gaudiest January since 1997.

Perhaps, just perhaps, this momentum overpowered the Fed’s negative tug?

But we opened today’s reckoning promising to reveal the exact date of the next market drop…

The Fed openly publishes its portfolio — including the dates its bond holdings reach maturity.

And the next significant maturity date is…

May 31.

May 31 is the date of the next drop.

On that date, the aforesaid Kevin Muir informs us, nearly $29 billion drops off the balance sheet.

That is the largest balance sheet roll-off to date.

“Watch out below,” warns Mr. Muir.

Unlike January… the market seems poised upon a teeter-totter.

And the S&P has no momentum behind it to counter the blow.

Mind you, we do not forecast a cataclysm — but a substantially negative May 31.

So you can go ahead and put us down for it.

The S&P will sink May 31.

If wrong…

We’ll devour every one of these 761 words — without salt.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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From:: Daily Reckoning

There Is No Such Thing as Cryptocurrency

By James Rickards

This post There Is No Such Thing as Cryptocurrency appeared first on Daily Reckoning.

The next time someone talks to you about blockchain or cryptocurrency, you should politely say to them, “There is no blockchain and there is no such thing as cryptocurrency.”

They’ll look at you funny, as if you’ve been living under a rock or just don’t get the latest thing in technology. Now you’ve got them where you want them.

You then go on to explain, “There is no blockchain. There are thousands of blockchains. There is no single cryptocurrency. There are thousands of cryptocurrencies. And they’re all different!”

That last point is the critical one — “They’re all different.”

It’s the same way you would think about stocks. It may be interesting if the stock market went up or down today, but what you really care about is your particular portfolio of stocks.

If you own IBM (IBM), Walmart (WMT) and Amazon (AMZN), then you care about those stocks. If Boeing (BA) went down, that’s too bad for Boeing holders, but it has no impact on you if you don’t own it.

And no one believes that Walmart and Boeing are interchangeable. They’re completely different companies with diverse business models and revenue prospects.

That’s important to bear in mind because too much of the cryptocurrency discussion these days focuses on generalities and broad-brush statements without drilling down on the particulars.

My readers know that I consider bitcoin (BTC) a dead-end cryptocurrency and would not hold it in a portfolio.

Yet I’m convinced that blockchain technology, or what we call distributed ledger technology (DLT), has a bright future. And cryptocurrencies that perform useful functions in an efficient manner on DLT platforms have a bright future as well.

The key to reaping gains from those potentially successful cryptos involves diligence and research as well as finding the right entry point for an investment.

Generally speaking, the new early-stage cryptos have better prospects than some of the well-known names because developers of the new cryptos have learned from the mistakes of the pioneers.

If you’re a golfer with a foursome on the green, you know it’s advantageous to putt last because you can “go to school” on the missed putts of your partners. You’ll watch their putts, read the quirks on the green and improve your own putting.

It’s the same with cryptos.

The early coins had problems of scalability, sustainability and processing time. That’s why they are dead ends. The newer coins solve many of those problems with improved governance models for validating the ledger and layering solutions for improved processing time.

The new cryptos “went to school” on the mistakes of the old ones.

A second wave or new generation of cryptocurrencies is now emerging with better governance models, more security and vastly improved ease of use.

These new-wave coins represent the future of the cryptocurrency technology. These cryptos have much greater potential to disrupt and disintermediate established payments systems and financial intermediaries such as banks, brokers and exchanges.

It is critical that investors have a robust and reliable method for distinguishing between the dead-end cryptos such as bitcoin and the new-wave cryptos with a chance to disrupt banks the way Uber disrupted taxis or Airbnb disrupted the hotel industry.

Regards,

Jim Rickards
for The Daily Reckoning

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From:: Daily Reckoning

Sex, Drugs And Rock & Roll (And More Drugs)

By Zach Scheidt

Gene Simmons

This post Sex, Drugs And Rock & Roll (And More Drugs) appeared first on Daily Reckoning.

Did 2,500 people just vanish in Las Vegas?

I couldn’t figure it out!

As I walked down the hallway past the exhibit hall and towards the convention ballroom I didn’t see a single soul. It was like a ghost town!

This week, I’m attending The Money Show in sunny Las Vegas, Nevada. I’ve been to the show many times, and every year I learn something new about a few companies I’m following, about a specific industry, or about new opportunities for investors.

But this time was completely different. No one was around. I had to check my watch to see if I was here a day early!

Finally, I spotted a woman behind the registration desk and asked her where everyone was. She just pointed to the ballroom doors and said one name — Gene Simmons.

Of course! The famous rock legend was speaking and everyone was there early to hear him. I had been tied up with a few market issues in the morning and missed the beginning of his presentation. Oops!

Drugs, Sex and Rock & Roll!

As I walked into the great ballroom, I was greeted by two large projection screens with Gene Simmons and his host Tom Sosnoff. It was almost like being at one of his rock concerts!

“I’m sorry, I forgot the question because I like hearing the sound of my voice so much.”

The man certainly has a witty sense of humor. And he kept the crowd engaged as he talked about his rags to riches story, working multiple jobs while trying to build KISS in his spare time.

He also had some great advice when it comes to doing your research and investing in companies you actually know about.

For Gene, this means investing in Invictus MD (OTC: IVITF). It’s a Canadian cannabis company dedicated to providing marijuana to both the medical and recreational markets.

I’ll be frank with you… I’m still debating the legalization of marijuana in my own head. As a dad, I’ve got some concern about making drugs more accessible. But I feel the same way about kid’s access to alcohol and nicotine, too.

Regardless of my concerns, however, marijuana is big business. And Gene Simmons has researched the industry and knows his stuff! And that’s how he was able to settle on investing in — and becoming a spokesperson for — Invictus MD.

There’s a lesson here for us as investors too!

Invest in What You Know — and Do Your Homework!

Although Gene was at The Money Show to evangelize his marijuana company, this concept of “investing in what you know” is so appropriate for all of us.

In fact, that’s why I’m here at The Money Show in the first place!

Because if I’m going to bring the best market opportunities to you week in and week out, I need to be going right to the source of these opportunities to find the best information.

You’ve probably noticed that I travel to conventions, to investment conferences, even to visit individual companies often.

Over the last couple of years, I’ve been all across the country visiting with executives, asking hard questions, walking through company headquarters, and debating Wall Street analysts.

It’s my way of “investing in what I know.” Because I don’t want to put my family’s money into something that I haven’t fully vetted.

And at the same time, I don’t want to ask you to put your money into an investment that I haven’t properly researched. That way, we’re putting the odds in our favor when it comes to locking in the best profits that Wall Street has to offer.

So far at The Money Show, I’ve seen some compelling statistics on the growing marijuana industry, I’ve visited with energy companies that are profiting from the Great American Oil Boom, and I’ve spoken with money managers and listened to debates on the Fed’s actions this year.

In short, these “boots on the ground” sessions are a chance for me to pass the information that I’m finding on to you… So you can be informed and make the best investment decisions possible.

I’ll certainly have a lot of Money Show insights to pass on to you over the next several weeks. So stay tuned!

On today’s schedule is a session on Trump’s new tax plan and some special loopholes this plan opens up for retirees. I’ll let you know what I hear!

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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From:: Daily Reckoning

The Stock Market Cannot Crash in 2018

By Brian Maher

A Record Year for Buybacks?

This post The Stock Market Cannot Crash in 2018 appeared first on Daily Reckoning.

The stock market cannot crash in 2018.

This we have on excellent authority… and we encourage you to plan accordingly.

Put away all fear of trade war, geopolitical fireworks or Federal Reserve botchwork.

The stock market cannot crash this year.

What evidence brings us to this happy conclusion?

And if not this year… when can you expect a stock market crash?

Answers shortly.

But first the news…

The Dow Jones turned in another boffo performance yesterday — its eighth-consecutive positive session.

Not since November has the index pieced together so lovely a streak.

The S&P and Nasdaq have taken the same general course.

That winning streak ended today — but all things good must end, as is often said.

Meantime, volatility has fallen to placid lows last seen in January.

What explains the market’s volte-face?

Investors must be at their old tricks, you conclude.

These past several years have taught them well… and they are once again “buying the dips.”

Yes, that must be it.

But do the figures support you?

The figures do not support you.

A Bank of America Merrill Lynch report reveals investors removed $29.4 billion from mutual funds and ETFs the first quarter.

And TD Ameritrade’s Investor Movement Index (IMX) sank 8.2% last month.

This IMX does not indicate investor “sentiment.”

It tracks the actual buying and selling of TD Ameritrade’s clients.

Whatever these numbers may be… bullish they are not.

Yet stocks just strung together their finest stretch since November.

So what accounts for their mysterious strength?

Who’s buying, in other words?

And to the larger question… why can’t the stock market crash this year?

According to Daily Reckoning associate Wolf Richter, we can reduce the answers to two words:

Stock buybacks.

Mr. Richter believes buybacks are the reason stocks cannot crash this year.

In the first quarter of the year, corporations have purchased their own stocks at a record clip.

At the going rate, 2018 will be a record year for buybacks:

Corporate tax cuts take much of the credit — companies are plowing their bounty into buybacks.

And these record buybacks should cushion whatever blows the market absorbs this year.

Says the lupine Mr. Richter:

With this kind of corporate buying pressure in the market, it’s very hard for shares to crash no matter what else is going on… Companies will pile into the market at every dip and buy as high as possible. It’s unlikely the overall market can crash this year no matter what happens. And they’ll be able to prevent their shares from crashing.

Richter adds that corporate buybacks have surged on days when the broader market was selling off.

These buybacks halted the selling.

Meantime, The Wall Street Journal informs us that the 20 most “bought back” stocks have risen over 5% so far this year — on average.

The S&P overall has risen only 2%.

But do record buybacks mean the bull market will rage once again this year?

No, not necessarily, says Richter.

These buybacks establish the floor. They do not raise the ceiling:

Overall, the S&P 500 may zig-zag lower in 2018, and even share buybacks may not be able to stop it, but it’s unlikely the overall market can crash this year no matter what happens.

Two cheers for buybacks, if so.

Preventing a crash is far from nothing — even if the way ahead may be a zig-zag.

But these buybacks cannot continue indefinitely.

What happens when the fireworks fizzle?

As Richter notes, the tax cuts supporting them are “a one-time trove of money. Once it’s used up, it’s gone.”

“Then what?” he wonders.

We wonder as well.

We’re laissez faire to the marrows.

If corporations choose to buy back their own stock rather than invest in long-term productivity… that is their decision alone.

Let their shareholders reward them or punish them as fit.

But the game has its limits.

At some point a business must justify its stock price through higher productivity — not parlor tricks.

The S&P as a whole spent roughly 2% of its profits on buybacks in 1981.

And last year?

That same index devoted 50% of its profits to buybacks.

Might we here have an answer for America’s stagnant productivity?

Or at least a partial answer?

Every dollar sunk in buybacks is a dollar unspent on plants… equipment… research and development.

But let us come down from our box of soap and turn to the question at hand.

If buybacks will keep stocks afloat this year… when can you expect the crash?

Late 2019 or early 2020.

This is the conclusion of Scott Minerd, Global chief investment officer at Guggenheim Partners:

For the next year … equities will probably continue to go up as we have all these stock buybacks and free cash flow… Ultimately, when the chickens come home to roost and we have a recession, we’re going to see a lot of pressure on equities especially as defaults rise, and I think once we reach a peak that we’ll probably see a 40% retracement in equities.

Famed hedge fund manager Paul Tudor Jones also thinks the fall could come as early as next year:

This market’s current temperament feels so much like either Japan in 1989 or the U.S. in 1999.

Japanese stocks crashed to earth in early 1990; the U.S. tech bubble in 2000.

A team of analysts at Goldman Sachs circle 2019 as well:

The backdrop for stock returns appears less favorable in 2019. Our economists project the (Federal Reserve) will tighten interest rates eight times during the next two years, economic growth will decelerate to 2.2% in 2019, and bond yields will likely climb towards 4%.”

Of course, the “big one” could come tomorrow… next week… month.

Or 10 years from now.

Nobody knows.

But maybe these stock buybacks will keep the show going through the end of the year at least.

And maybe it is time to get while the getting is there to be gotten.

For next year… it might not be.

“The divine wrath is slow indeed in vengeance,” said Roman historian Valerius Maximus nearly 2,000 years ago…

“But it makes up for its tardiness by the severity of the punishment.”

Stocks have mostly risen for eight years straight.

Whether the end comes this year, next year or the year following…

We can only hope the gods are kind.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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From:: Daily Reckoning

Zach Scheidt: America’s Pot Revolution Is HERE

By Zach Scheidt

Marijuana index

This post Zach Scheidt: America’s Pot Revolution Is HERE appeared first on Daily Reckoning.

Last winter, I took a trip with my son.

It was his 18th birthday.

To celebrate, we ventured up to the Rocky Mountains about 100 miles outside of Denver, Colorado. It was set to be a weekend of skiing… Fresh powder… And exploring the great outdoors!

I put my laptop away and had complete freedom from work. Or so I thought…

After picking up our bags and hopping on the shuttle, we started our venture towards the ski resort.

But on our journey, I noticed NUMEROUS lines of people waiting throughout the city of Denver.

After a closer look…

I saw those lines of people were mostly located outside of marijuana dispensaries.

My ‘inner analyst’ was dying to go investigate…

But this was a family trip… And I wasn’t going to show interest in ‘pot’ right in front of my 18 year old son.

However…

It was then I ‘knew’ the marijuana hype was real.

And today I am finally able to give America’s Pot Revolution the attention it deserves!

The Money Show’s HOTTEST Investment — 3 Blocks Off The Strip

As I mentioned yesterday, I am here in sunny Las Vegas for The Money Show… One of the biggest investment conferences in America.

With all of the hoopla of cryptocurrencies this year… I expected bitcoin and blockchain to be the overwhelming focus of the show.

But boy, I was DEAD wrong.

No…

The star of this conference is exploding marijuana industry.

You see, while bitcoin and drama in Washington took over the news…

The marijuana industry has been quietly growing exponentially these past few years.

Check out the North American Marijuana Index…

Since January 2016… The industry has grown nearly TEN-fold.

But you hardly hear about it on the news!

The Money Show is a different story…

Everyone here is talking about the growth of the marijuana industry… And that this $30 billion dollar industry is nowhere near its potential.

In Nevada, marijuana is currently legal for recreational use.

Even though I am not a smoker, I decided to go check out one of the dispensaries close to the hotel.

This was something I wanted to do since I saw the lines of people in Denver.

Zach in Denver

Your editor doing some ‘undercover research’

I went in pretending to be the standard tourist.

But secretly… I was there to get the inside scoop on this exploding industry!

The dispensary was not what I imagined.

It’s essentially an upscale pharmacy.

The staff were informed, professional, and knew the all of the details on their products and the local laws surrounding marijuana.

For example, they told me that while it is LEGAL to purchase marijuana… Smoking it in public is still a BIG no-no.

If you get caught smoking marijuana by police officers, you will be hit with a $600 fine.

They also told me business has been CRANKING since they opened for business last July.

Apparently, Americans are gung-ho over pot.

In fact, 60% of Americans support the full-scale legalization of marijuana for adults.

And the laws are changing to reflect that.

At the moment, 29 US states have laws legalizing marijuana medically or recreationally, while most US states have allowed the non-psychoactive portion of marijuana.

And just when it seems like this piping hot industry couldn’t get any hotter…

The train isn’t stopping here.

In fact, this is just the beginning!

12 more states are voting on either full-scale or medicinal legalization this November. Check out this map.

marijuana legalization

States who have a leaf in the middle are voting to further their laws regarding marijuana.

Here are the respective topics they are voting on:

New Jersey- Recreational

Michigan- Recreational

Delaware- Recreational

Rhode Island- Recreational

Connecticut- Recreational

Ohio- Recreational

Oklahoma- Medical Marijuana

Kentucky- Medical Marijuana

South Dakota- Medical Marijuana

Utah- Medical Marijuana

Missouri- Medical Marijuana

Now you might be wondering where there 12th state is…

Well, this January, Vermont was so eager…

Rather than wait for a citizen driven vote in November, lawmakers decided to legalize recreational marijuana.

We are in the midst of a full-blown revolution here in America.

And the potential addition of 11 states could skyrocket this industry even further.
Think of it this way…

In 2013, we saw the first wave of marijuana stocks explode in value following November votes…

Such as Cannabis Sativa (CBDS) that went from $0.75 to $11.00 in two months from December to February…

And that same year, two states (New Hampshire and Illinois) legalized medical marijuana.

Can you imagine what would happen if all 11 states adjust their marijuana laws this year?

It’s like these marijuana stocks are sitting on a launch pad… Ready for takeoff.

Not surprisingly…

Corporate America is already pouncing on the opportunity.

Constellation Brands, the $42 billion dollar company behind Corona, Modelo and Svedka recently took a 10% stake in Canadian medical marijuana company, Canopy Growth Corp.

Canopy Growth Corp has grown 10x in market cap the past 2 years, along with exponential growth in their sales.

But they aren’t the only marijuana company growing this rapidly… And it’s only a matter of time before more big corporations get involved.

For example, while Big Tobacco has declining sales…

The marijuana industry is probably looking very appealing.

Companies like Philip Morris and Altria could leverage their expertise in the smoking industry to dominate legalized marijuana.

Later this week, I’ll be releasing a more in depth look of the marijuana industry…

And the potential companies set to dominate.

Stay tuned!

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
TwitterFacebookEmail

The post Zach Scheidt: America’s Pot Revolution Is HERE appeared first on Daily Reckoning.

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From:: Daily Reckoning

Economic Numbers Are Less Than Meet the Eye

By James Rickards

Last Price of...

This post Economic Numbers Are Less Than Meet the Eye appeared first on Daily Reckoning.

Investors can be forgiven for thinking they hit the trifecta last Friday.

The U.S. Bureau of Labor Statistics reported that unemployment had dropped to 3.9%, the lowest in almost 20 years.

The Federal Reserve Bank of Atlanta reported that its widely followed GDP forecasting tool was showing projected growth for the second quarter of 2018 at 4%, exactly where Trump boosters like Larry Kudlow said it would be.

Finally, the Dow Jones industrial average rallied 332 points (1.39%), partly in response to the other good news. It was almost enough to make a trader sing, “Happy days are here again.”

Or not.

The fact is that this good news hides more than it reveals. A look behind the numbers discloses a sobering outlook for investors.

Let’s start with the employment report. The U.S. Department of Labor, Bureau of Labor Statistics report dated May 4, 2018, showed the official U.S. unemployment rate for April 2018 at 3.9%, with a separate unemployment rate for adult men of 4.1% and adult women of 3.7%.

The 3.9% unemployment rate is based on a total workforce of 160 million people, of whom 153 million are employed and 6.3 million are unemployed. The 3.9% figure is the lowest unemployment rate since 2001, and before that, the early 1970s.

The average rate of unemployment in the U.S. from 1948 to 2018 is 5.78%. By these superficial measures, unemployment is indeed low and the economy is arguably at full employment.

Still, these statistics don’t tell the whole story.

Of the 153 million with jobs, 5 million are working part time involuntarily; they would prefer full-time jobs but can’t find them or have had their hours cut by current employers. Another 1.4 million workers wanted jobs and had searched for a job in the prior year but are not included in the labor force because they had not searched in the prior four weeks.

If their numbers were counted as unemployed, the unemployment rate would be 5%.

Yet the real unemployment rate is far worse than that. The unemployment rate is calculated using a narrow definition of the workforce. But there are millions of able-bodied men and women between the ages of 25–54 capable of work who are not included in the workforce.

These are not retirees or teenagers but adults in their prime working years. They are, in effect, “missing workers.” The number of these missing workers not included in the official unemployment rolls is measured by the Labor Force Participation Rate, LFPR.

The LFPR measures the total number of workers divided by the total number of potential workers regardless of whether those potential workers are seeking work or not. The LFPR plunged from 67.3% in January 2000 to 62.8% in April 2018, a drop of 4.4 percentage points.

If those potential workers reflected in the difference between the 2018 and 2000 LFPRs were added back to the unemployment calculation, the unemployment rate would be close to 10%.

Of course, there are limits to labor force participation. Some potential workers suffer chronic pain or other disabilities, some are retired, some are students, some are at home raising children. Those are reasons why the LFPR has never been much over 67% since the data have been recorded.

But the drop in LFPR to 62.8% in the ninth year of an economic expansion is stunning. America has a missing workers problem that accounts in large measure for the slow growth, persistent low inflation, stagnant wages, declining velocity of money and social dissatisfaction that have characterized the U.S. economy since the end of the last recession in June 2009.

American labor markets are not tight. America is not even close to full employment. America is in a depression. That’s one reason why wages have been stagnant despite declining unemployment rates.

Another serious problem is illustrated in Chart 1 below. This shows the U.S. budget deficit as a percentage of GDP (the white line measured on the right scale) compared with the official unemployment rate (the blue line measured on the left scale).

From the late 1980s through 2009, these two time series exhibited a fairly strong correlation. As unemployment went up, the deficit went up also because of increased costs for food stamps, unemployment benefits, stimulus spending and other so-called “automatic stabilizers” designed to bring the economy out of recession. That makes sense.

But as the chart reveals, the correlation has broken down since 2009 and the two time series are diverging rapidly. Unemployment is going down, but budget deficits are still going up.

That’s unusual because normally when unemployment drops the economy is getting stronger, benefit spending drops and the budget deficit shrinks. In effect, America uses the good times to save for a rainy day (or at least tries not to spend as much as when it’s raining).

This is good evidence that the economy is not nearly as strong as the low unemployment rate indicates. That’s because of the army of 10–15 million “missing workers” described above, many of whom are receiving benefits in the form of disability payments, early Medicare, food stamps or rental assistance. Instead of shrinking rapidly, these payments are stuck at near-recession levels.

It’s also the case that past deficit spending has now caught up with the U.S. The debt-to-GDP ratio is over 105%. Research shows that any debt-to-GDP ratio over 90% results in slower growth instead of faster growth when you pile on more debt. The U.S. is no longer getting any bang for the buck from deficit spending.

We’re just going broke faster.

As for the Atlanta Fed GDP estimate of 4% for second-quarter growth, that’s a statistical quirk based on the methodology used by the Atlanta Fed. It’s not that the number is bogus, it’s just that the measures suggesting stronger growth are reported earlier in the quarter and those suggesting weaker growth are not available under later in the calendar quarter. This means the estimates start high but come down to Earth as the quarter progresses.

The Atlanta Fed GDP estimate is useful but you have to know how …read more

From:: Daily Reckoning