Is gold market going to reset in 6 months? Is there enough physical gold to satisfy the outstanding paper commitments? Egon recommended as early as 2002 for people to hold 25 – 50% of investable assets in gold, when the price was $300. It's $1725 now, and this is only the beginning. Read more...
For the first time in many years we are witnessing investors moving out of stocks into gold. This could be accelerated by global emergency liquidity efforts following the coronavirus panic which may have been the pin that bust the record bull market.
For the first ten years of the decade gold was the favored asset over stocks. That ended when gold hit an interim top in 2011 at $1900. Since then capital has flowed into stocks for almost ten years until most recently when the stock markets crashed historically last week. Take a look at my video chart analysis below...
Now for the first time in many years I am getting notes from top traders that they are buying industry bellwethers Barrick $ABX and Newmont $NEM as they have reduced debt, sold off marginal assets and are starting to increase free cash flow especially with higher gold prices.
Kibali Breaks Records Across Board For Barrick Gold Corporation $ABX Huge success story that is just starting to get recognized by the World. There could be more Kibali mines to be discovered. Fekola has been a great performer for B2 Gold $BTO.TO. I believe these miners are selling off marginal assets and going to invest in new discoveries near these successful mines. Make sure to stay tuned for updates on drill programs.
You got to look for insider buying in these juniors. There is lots of insider accumulation in this high grade gold story backed by industry giants Rob McEwen and Michael Gentile right when drilling gets expanded from 20k meters to 60k meters. Investors were able to see the drill core at PDAC where there is visible gold.
There is also a lot of insider buying after Eric Sprott invested in this palladium asset in Ontario which just published a really impressive PEA which has attracted the attention of the smartest players in our industry.
Outside of gold...its pretty cool to have recently raised $16 mil in the bank and have established partnerships with the giants of the electric vehicle industry. You know battery technology is the focus for the end users and for many investors who believe that the electrification of transportation is inevitable. For months I have been waiting for a rebound in this area. This battery company could have great upside as they have answers in building better batteries. The automakers are desperately looking for batteries that could go a million miles and possible be cobalt free. Lots of capital is flowing into this sector as mutual funds such as Blackrock are looking for companies such as these that could provide some solutions for battery manufacturers.
Disclosure: Author (Jeb Handwerger) owns shares and that I want to sell them for a profit. I may have received or intend to receive compensation for digital marketing services from these companies. The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Jeb Handwerger about any company, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. Author is not responsible under any circumstances for investment actions taken by the reader. Author has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. Author is not directly employed by any company, group, organization, party or person. The shares of these companies are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed / registered financial advisors before making investment decisions. Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. Author is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. Author is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. Author is not an expert in any company, industry sector or investment topic.
Two options rise before us this day…
Option 1: The stock market is right. Option 2: The bond market is right.
The stock market is cheery and confident. It presently goes at record heights… and bursts with belief in a superior tomorrow.
Moreover, it has a decade of nearly unbroken prosperity in back of it.
The bond market — meantime — is dark, dour, down in the mouth.
Today the 10-year Treasury yields a slender 1.59%.
But not 1.5 years ago, in October 2018, it yielded 3.16%. In general…
The 10-year Treasury yield sinks when markets anticipate economic weather ahead, subdued inflation… and lower animal spirits.
A lean season is ahead then, the bond market struggles to say above the dinning stock market.
Two Irreconcilable Views
Pit the one against the other, stock versus bond. No compromise, no truce, can sink their differences. They are too vast.
As well ask the respective lords of heaven and hell to sign a treaty of peace…
As well ask Hatfield and McCoy to share a kiss…
As well ask the two poles of Earth to join at the equator.
That is, as well request the impossible.
As economist David Rosenberg styles it:
Both bonds and stocks can’t be right at this moment in time. We have to choose which asset class has the story right…
Which asset class has the story right — stock or bond?
We bring a prejudiced opinion to the proceedings, you say. That is, we bring a prejudiced opinion against the stock market.
Yet today we blindfold our eyes, hold the scales of justice even… and grant each side an impartial hearing.
The stock market rises to read its opening statement…
Why Shouldn’t the Stock Market Be Setting Records?
It insists the facts justify its optimism in full.
It reminds the court that unemployment scarcely has existence, that real wages are increasing, that January manufacturing jumped, that productivity is on its legs again.
The stock market is simply a mirror of these fabulous facts, it insists.
We must concede, the evidence produced has anchors in truth…
Unemployment hovers near record depths, at 3.6%. And 2019 witnessed America’s greatest productivity gains since 2009.
What is more, real hourly wages (inflation-adjusted, that is) expanded last year at the greatest rate since 2015.
Meantime, the Institute for Supply Management claims its January index of American factory activity came in at 50.9 — up from December’s 47.8.
Any number above 50 indicates a manufacturing expansion, a blossoming.
But the bond market thunders to its feet, and files a blistering objection…
Don’t be Fooled!
Take unemployment, the bond market argues.
Set aside the fact the United States Bureau of Labor is an agency of torture — that it twists, contorts, batters and gouges the numbers into false confessions.
Accept the 3.6% unemployment rate as truth, the bond market allows in generosity.
Unemployment sagged below 4% in April 2000, it reminds us — at the peak of the dot-com derangement.
The economy was in recession by March 2001… less than one year later.
And prior to April 2000, unemployment last hung below 4% in December 1969.
The economy dropped into recession that same month… where it remained until November 1970.
Be not deceived then by today’s gaudy unemployment figure. It gives a false confidence, argues the bond market.
With the serenity of a card sharp with an ace card up its shirtsleeve, this market then summons a certain Nicole Smith to the witness stand…
Ms. Smith is chief economist at Georgetown University’s Center on Education and the Workforce.
Under examination she reveals:
If we look historically at other times when the unemployment rate has fallen below 4%, it’s times where it was the boom phase just before recession or just after a major war period…
It’s almost a precursor for a recession or a precursor for another slumping economy.
We steal a furtive glance at the stock market. It is sunken in its chair, beads of perspiration forming about its forehead. It reaches for a glass of water.
But to proceed…
Next we come to the alleged productivity surge.
Less Than Meets the Eye
The bond market will allow that United States productivity expanded 1.8% last year. Yet it is eager to remind the court…
That productivity still runs substantially beneath the 2.1% average prevailing since the Second World War.
And that the current expansion’s annual productivity gains average a marginally productive 1.3%.
The bond market demands to see more before budging from its skepticism.
It concedes the January index broke above the critical 50 threshold.
But it reminds us that manufacturing was in actual recession for all 2019 — all of it, January–December.
It will not permit a random lurch in the chart to fox it, to trick it. Once again, the bond market insists upon further evidence.
The Bond Market’s Star Witness
Finally the bond market calls upon its star witness: the yield curve.
As we have explained before…
The yield curve is simply the difference between short-term and long-term interest rates.
Long-term rates normally run higher than short-term rates. That is because the long-term future holds less certainty than the short-term future.
Investors, as a result, demand greater compensation to hold a 10-year Treasury than a 3-month Treasury.
The 10-year yield should therefore run substantially higher.
But when the 3-month yield and the 10-year yield begin to converge… the yield curve flattens.
And a flattening yield curve is a possible omen of lean times.
But the true menace is when the yield curve inverts — when long-term yields actually slip beneath short-term yields..
An inverted yield curve is a nearly perfect fortune teller of recession. An inverted yield curve has preceded recession on seven out of seven occasions 50 years running.
Only once did it yell wolf — in the mid-1960s. And the yield curve is giving off another alarm.
“The U.S. Yield Curve Is Flirting with Another Broad-based Inversion”
The U.S. yield curve is flirting with another broad-based inversion, reigniting Wall Street fears over the fate of the American economy… After a respite early last week, the curve is once again flattening, with the spread between yields on 3-month and 10-year Treasuries inverting once more on Monday. This followed an earlier inversion starting Jan. 30 that was caused by growing angst about the coronavirus and an equity sell-off.
Yet an inverted yield curve is not necessarily an immediate scourge. History reveals its dire effects may not manifest for 12–18 months — or longer.
The curve has inverted at various periods over the past two years, incidentally.
But the bond market rests its case. In summation, it argues the stock market gives a dreadfully inaccurate reading of economic health.
“Never Before Has There Been such a Loose Relationship to Economic Growth”
It cites the aforesaid David Rosenberg:
Never before has there been such a loose relationship to economic growth… this is a stock market that is being driven by flows rather than by economic fundamentals.
At this point we recall Mr. Rosenberg’s previous statement:
Both bonds and stocks can’t be right at this moment in time. We have to choose which asset class has the story right…
And which asset class has the story right, in his estimate?
“History sides with the Treasury market.”
We are forced to agree.
The bond market will let you know where the economy is heading, say the veterans.
New York Times economics reporter Neil Irwin:
Savvy economic analysts have always known the bond market is the place to look for a real sense of where the economy is going, or at least where the smart money thinks it is going.
We must rule, therefore, in favor of the bond market. The coronavirus only reinforces our judgment.
The stock market will naturally appeal its case to a higher court.
And yes — we freely concede — it may even win…
Managing editor, The Daily Reckoning
No man can avoid politics. All are in siege.
No rival field of human enterprise can approach its ferocity. War is the extension of what by other means… in Mr. Carl von Clausewitz’s telling?
The answer is politics of course.
Today we file a scorching tort against politics.
Politics separates, divides, enrages, disrupts — as war itself.
Democratic politics offer no exception. Reduce electoral politics to its naked core…
The Essence of Electoral Politics
You have Candidate X and you have Candidate Y. Each is nothing more in this world than a liar, jackleg or rogue.
This human sculch appears before the voters, hopeful of election.
Both roar their flubdubberies before eager and attentive crowds. Both shout their propagandas.
Each denounces the other as an arm of Satan. Amazingly, both are correct.
Come the election…
50.1% of voters yank a lever for X. 49.9% pull one for Y.
X claims the laurel. He immediately proceeds against the wants, hopes and interests of the hapless 49.9%.
Each day they live they must wither, cringe and chafe beneath X’s atrocities… helpless as worms on fisherman’s hooks.
Only upon some distant November can they heave this jackal out. Assume they do…
Y — or some other Y — comes in. X’s voters must then endure their own parallel hells.
The case of President Donald J. Trump is brilliantly in point…
In Politics, Smaller Is Better
One half of the nation is with him. The other half is against — many violently against.
Why should 50%-plus one of the population boss 50%-minus one of the population?
The same pitiful calculus apply to elections at any level of American government… down to canine-catcher.
But the greater the scale… the greater the menace.
The mayor of Why, Arizona, may impose his torments upon his encircled victims — as may the mayor of Whynot, North Carolina.
Yet their victims are free to jump the fence. The next hamlet might run to saner and more tolerable settings… and so they flee.
Has a California or an Illinois gone lunatic? For many they have. But a Texas or a Tennessee holds out asylum.
These local competitions form a severe brake on the natural rascalities of politics.
But to escape a president a fellow must quit the country altogether — or rot down four years until he takes another go at the vote booth.
And if the scalawag wins reelection?
Then this wretch must endure another four years under occupation — for a total of eight.
There is politics for you.
The business is so dismal… it can wear the soul out of the stoutest fellow.
Now contrast the political system with the market system…
Voting in the Marketplace Is Entirely Different
Free markets — authentically free markets — lack entirely the violent combats central to politics.
They are scenes of peace, tolerance… and justice.
Let us draw a parallel case to our previous example of candidates X and Y…
A Coca-Cola holds itself out before the American people.
This candidate claims to be the “real thing.” “Vote for me,” it says.
Behind another podium stands a Pepsi.
“No. Vote for me,” counters this fellow. Drink me “for the love of it.”
Each cries his case before the voter.
This fickle and capricious fellow proceeds to reach into his wallet… and vote.
He pulls the lever for Coke. Or he pulls the lever for Pepsi.
Does his vote injure, usurp or ruffle another voter? Does he club the other voter over the head… as he does in politics?
In no way, no shape, no form.
Both are satisfied voters. Neither has any care to impose his preference upon the other… or deny him his soft drink of choice.
Multiply this one example countless times and in countless directions — and you have a picture of majestic electoral peace.
McDonald’s versus Burger King, Honda versus Ford, Nike versus Adidas, Walmart versus Target… it is all one.
A vote for any of them is peaceful as a dove. This voter for any holds no gun to the other voter’s ribs.
When he votes in politics — conversely — he does hold a gun to the other’s ribs.
To pull a lever is to pull a trigger.
Red State vs. Blue State
Chain a red-state American to a blue-state American. Force a vote between any product on the free and open market.
The blue-state voter may razz the red-stater’s ghastly and barbarian tastes. The red-state voter may in turn razz the blue-stater’s effete and supercilious tastes.
But neither attempts to dragoon or bayonet the other. Each is free to vote his own way, as he might.
And so peace prevails between them.
But give them the choice of Trump versus Hillary or Trump versus whomever…
They will fall into savage combat… as the Kilkenny cats fell into savage combat.
We must therefore conclude the free market’s voting system is vastly superior to political voting.
A vote in the marketplace is a “win, win” deal, as our co-founder Bill Bonner styles it.
What is politics then but a colossal “win, lose” deal?
And market voting improves the world in ways large and small…
Voting in the Free Market Improves the World
Each business must compete for the consumer’s vote. That vote harms no one, as we have established.
It also benefits many. It benefits many because a vote sends a signal.
It tells the outvoted to field an improved product — or take the consequences. And an improved product lifts this world that much higher.
If a business fails the market’s harsh and ruthless voting, it falls into bankruptcy… and goes away.
Yet here is perhaps politics’s greatest crime, its most scarlet of sins:
It has drained away “social power”… and channeled it off into state power.
That is, politics has stripped society’s power and liberty… and handed them to the state.
Social Power vs. State Power
Albert Jay Nock (1870–1945) was a gentleman and thinker of deep and penetrating insight.
Nock bemoaned the loss of social power during the New Deal:
If we look beneath the surface of our public affairs, we can discern one fundamental fact: namely, a great redistribution of power between society and the State…
It is unfortunately none too well understood that, just as the State has no money of its own, so it has no power of its own. All the power it has is what society gives it, plus what it confiscates from time to time on one pretext or another; there is no other source from which State power can be drawn. Therefore every assumption of State power, whether by gift or seizure, leaves society with so much less power. There is never, nor can there be, any strengthening of State power without a corresponding and roughly equivalent depletion of social power…
Heretofore in this country sudden crises of misfortune have been met by a mobilization of social power. In fact (except for certain institutional enterprises like the home for the aged, the lunatic asylum, city hospital and county poorhouse), destitution, unemployment, “depression” and similar ills have been no concern of the State but have been relieved by the application of social power.
And as the frog in its pot acquiesces to the gradually warming water… the citizen has acquiesced to his gradual loss of social power:
Thus the State “turns every contingency into a resource” for accumulating power in itself, always at the expense of social power; and with this it develops a habit of acquiescence in the people. New generations appear, each temperamentally adjusted — or as I believe our American glossary now has it, “conditioned” — to new increments of State power, and they tend to take the process of continuous accumulation as quite in order.
The lingering vestiges of social power are in the State’s sights.
And many voters are hot to sign them away.
Is There Any Alternative to Politics?
Do we propose an alternative to the political arrangement?
No — not earnestly. We diagnose a disorder… we do not prescribe a fix.
Besides, most would find a true alternative hard to worry down. It would be very rough stuff.
We have previously held out the relative virtues of monarchy to jab cherished democratic theories.
But we certainly do not expect — nor do we propose — a return to monarchy.
But you say we are a republic, not a democracy. It is the best we can do in this fallen world of sin and evil.
Just so. We will not argue. But as French historian François Guizot said of republics:
“I have no use for a republic that begins with Plato… and ends necessarily with a policeman.”
Managing editor, The Daily Reckoning
When the “Queen of Soul” Aretha Franklin died last year, it was believed that she hadn’t prepared any kind of estate plan, including a last will and testament.
But, a few months ago, three handwritten wills were found in her home near Detroit. Two were in a locked closet and one was stuffed beneath the cushions of a couch!
If you’re wondering whether the handwritten wills are valid, join the crowd.
In Franklin’s case, with her $80 million estate, it’s likely good news that some kind of last will and testament was found to help divide her assets.
But, there’s no guarantee that the informal, handwritten wills are going to hold up in court. So the saga continues…
Aretha’s problematic situation is why it’s so important to have an estate plan with a legally valid last will and testament.
I won’t bore you with estate planning details (today), but I do want to talk about when you should consider updating your will.
This is all personal preference, of course, but I would suggest reviewing your will if you’ve done any of the following recently.
Moved to a Different State
If you’ve moved to a different state since your will was written, it’s a good idea to review it. Whatever state you die in, will be the state’s laws that are applied to your will.
And some rules in your new state could be different from your old one. For example, some states vary in the number of witness signatures needed on a will to transfer property once you die.
If you move from a state that requires only one witness to two, this can be problematic for your executor. Other rules that differ between states are the types of wills deemed valid.
Some states allow self-written wills but have rules around how they can be written. In one state, you might have to write out your entire will by hand. Whereas, in another state you can type your will and just sign at the bottom.
Purchased a New Property
Another mistake a lot of people make is they assume that because their will states that they are gifting their home to their children when they pass that it’s a done deal.
Your will needs to specify exactly what home and at what address you’re gifting. So if you move or decide to buy a second property, make sure your will specifies who receives which property and at what address.
Purged Old Possessions
If you’ve moved or downsized recently, you likely purged some of your old possessions. Sometimes you end up giving away or selling something you had planned on passing down.
If your will lists items you no longer own, those possessions will be skipped over and the recipient of those items with get nothing. So, it’s best to review your will and redistribute whatever possessions you currently still own.
Gifted a Willed Item
Sometimes you will gift some of your possessions early due to downsizing or out of necessity. For instance, you might gift an antique desk to one child, but in your will, it says that same desk goes to another child.
Things can become awkward between families if you don’t catch these little hiccups. Whenever you give something away that’s significant, review your will to make sure you haven’t disrupted the balance.
Had a Significant Change in Your Net Worth
You might have exact amounts of money earmarked for each one of your children. This will likely depend on how much your estate is worth, the value of stock you own, etc.
But the size of your estate and the worth of your stock could have grown or shrunk dramatically since you last wrote your will.
This can create challenges for your executor. Especially if one asset has grown significantly while another has shrunk. If that’s the case, it’s best to update your will to reflect your current net worth.
Begun Working with a New Charity
Maybe you’ve recently started volunteering at a nonprofit or you joined a board for a charity that means a lot to you. You might wish to donate some of your wealth to this group.
Now is a good time to update your will to reflect those changes. And the same can be said for charities or groups you no longer feel the same way about. You might need to remove some groups from your will to better reflect how you currently feel.
Had a Death in the Family
If your spouse dies before you, you won’t need to update your will because wills typically list alternate recipients in case this happens.
But, if your will lists a child who has recently passed as a beneficiary, then you’ll need to include instructions on how you would like that child’s items redistributed.
Your Primary Caregiver Changed
If one of your sons or daughters becomes your primary caregiver since you last wrote your will, it might be time to update your document to reflect your gratitude.
Oftentimes, becoming a primary caregiver involves a huge time and financial commitment. The best way to go about making this change so as not to upset the other beneficiaries listed in your will is to explain your intentions.
To a richer life,
Wall Street is a scam.
I’ve said it probably a thousand times. It’s something I know from experience. Over the past 15-plus years, I’ve tried just about every investing strategy in existence.
I’ve run a hedge fund that was successful. I ran a fund of hedge funds, which means I’ve probably analyzed the track records and strategies of about 1,000 different hedge funds.
I’ve written several books about my experiences, but I can summarize everything I’ve learned in just one basic idea. The best way to make money in stocks is to hold forever.
I know what you’re probably thinking: You’ve heard stories about big-shot traders that rake in millions. My colleague Tim Sykes, for example, has certainly struck it rich jumping in and out of stocks.
But let’s face it, success stories like Tim’s are rare. And there will always be a few people who get lucky. That’s how luck works.
But all my years of experience have led me to strategies that generate consistent, market-beating returns. Having an arsenal of diverse strategies is the key to unlocking enormous wealth (go here to learn about one of the best).
I get emails every day from people who say they have a system that beats the market. They’re usually really nice people. I’m sure they’re talented and hardworking. And their ideas are usually terrible.
Here’s the problem…
There are millions of talented people trying to beat the market. They’re smart. They’re hungry. And they spend their time finding every advantage possible — the fastest computers, the best data and the most valuable inside information.
I’m telling you what I know from experience.
The only folks that make millions without these advantages are the ones like Warren Buffett and Bill Gates. They’re committed to owning a stock for a long time.
Warren Buffett has never sold a share of Berkshire Hathaway since 1967. Bill Gates sells a little nowadays, but basically held his Microsoft stock for decades.
Every great investor will tell you the same thing. They’ve all used “compounding” to make a significant portion of their wealth.
In short, compounding involves reinvesting the money you make from an initial investment in order to make even more money. As you keep reinvesting the money, the effect multiplies. Over a long period, you can earn staggering profits on your original investment.
So what kind of stocks should make sense for this strategy?
“A company is only worth the money you get back from it.”
That quote is from Mark Cuban. Mark is tremendously successful. He made his first billion by selling his company, Broadcast.com, to Yahoo back in 1999. Most people call him lucky for selling at the top.
I don’t think he was lucky. I think he’s one of the smartest people I’ve met. If he didn’t make a fortune on Broadcast.com, he would’ve made a pile of money on something else. That’s what the smartest investors do. The quote above is something he said to me a few years ago. It stuck with me because it’s so simple.
When I first met him in the ’90s, I would never have imagined him being a dividend lover.
Nevertheless, a few years back Mark dropped this line — “I believe non-dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for them.”
Again, he makes a great point.
Dividends are the simplest way to collect a piece of a company’s cash flow. When a company pays a dividend, it shows they’re serious about sharing profits with investors. Every other smart investor I’ve met says the same thing.
Warren Buffett is still the best-known dividend aficionado. Each of his top 10 stock holdings pays at least a 1% dividend yield (as of his latest reported holdings). His amazing track record is a testament to the power of compounding.
As I mentioned earlier, Buffett believes in holding stocks for decades, if possible. He has a unique way of looking for companies to invest in…
You see, he doesn’t look at P/E ratios. He’s not a value investor in the classic sense. He bets on demographic trends. The most important investing quote he’s ever said is, “If a company will be here in 20 years, then it is probably a good investment now.” This is not always true. He said, “probably.”
So what companies will probably be here in 20 years? I have no clue. Nor does he. But I will bet on the companies that are returning cash to shareholders. They’re called Dividend Aristocrats.
The term “Dividend Aristocrats” refers to an exclusive group of companies that have increased their dividends every year for at least 25 consecutive years.
The list represents the best, most reliable stocks out of the thousands of companies in the stock market. The requirement sounds pretty simple, but it’s an extremely high bar for a company to aim for.
You see, lots of companies are profitable. Lots of companies use dividends to distribute their profits to their shareholders. And lots of companies have long streaks of paying out dividends.
But only a few businesses raise their dividend every single year for decades. Keep in mind, companies are constantly dealing with changes. There are a million things that can go wrong, messing up management’s growth plans.
Over a 25-year stretch, you’re guaranteed to run into recessions, shifts in technology and consumer tastes. Meanwhile, every profitable business faces competition.
The more profitable you are, the faster your growth, and the more competition there is for every dollar you collect.
That’s why the Dividend Aristocrat title is such a big deal. It means a company has delivered the kind of stable growth that every smart investor looks for. It means the company has a disciplined approach to deploying capital.
In short, it means the company is extremely well run.
Not surprisingly, research shows that these companies do better than the rest of the market over long periods.
According to S&P, the S&P Dividend Aristocrats index returned something like 225% over the past 11 years or so. That’s more than 90% higher than the S&P 500 index over the same timeframe.
That’s why every smart investor should know about dividend-paying stocks. And why, when looking for those stocks, the Dividend Aristocrats list is the best place to start. You can look them up online.
But if you’re looking for a safe way to supercharge your retirement, go here.
for The Daily Reckoning
Jerome Powell dangled the morsel yesterday — rate cuts are on the way.
And like Pavlov’s famously conditioned dogs, Wall Street heard the opening bell this morning… and began drooling.
The major indexes were instantly up and away.
They lost momentum after the president intimated he may take a swing at Iran for downing a U.S. drone.
“You’ll soon find out” was his response when asked if the U.S. would retaliate.
The bulls nonetheless won the day…
The Dow Jones was up 249 points at closing whistle. The S&P gained 28; the Nasdaq, 64 points.
Gold, meantime, went skyshooting $44.50 today — $44.50!
Combine the prospects of vastcentral bank easing with possible fireworks in the Persian Gulf… and you have your answer.
What about the bond market?
Stocks vs. Bonds
The bellwether 10-year Treasury slipped to 1.98% this morning… its lowest point since the 2016 election.
And so the infinitely expanding gulf between stock market and bond market widens further yet.
One vision is bright, cheery, trusting. The other is dark, dour… and morose.
One of these markets will be proven right. One will be proven wrong.
Our money is on the bond market.
We have furnished ample evidence that recession is likely on tap within three months of the next rate cut.
Here analyst Sven Henrich reinforces our deep faith in the calendar of misfortune:
Every single time the Fed cut rates when unemployment was below 4%, a recession immediately ensued & unemployment shot to 6–7%. Again: Every. single. time.
We remind you:
The United States unemployment rate presently stands at 3.6% — the lowest in 50 years.
“A Gorgeously Wrapped Gift Box Containing a Time Bomb”
An unemployment rate below 4% is a false prize, a sugar-coated poison… a gorgeously wrapped gift box containing a time bomb.
Unemployment previously slipped beneath 4% in April 2000 — at the peak of the dot-com delirium.
The economy was in recession by March 2001.
Prior to 2000, unemployment had previously fallen below 4% in December 1969.
The economy was sunk in recession shortly thereafter.
The pattern stretches to the 1950s.
The proof, clear as gin… and equally as stiff:
And unemployment often bottoms nine months before recession’s onset… according to the National Bureau of Economic Research.
Meantime, it is 10 years into the present economic “expansion.” Next month will establish a record.
A Very Strange Expansion
An expanding economy is generally a time of surplus.
It is a time to store in reserves, to squirrel away acorns, to save against the rainy day — the inevitable rainy day.
These savings will see you through.
But during this economic expansion, during this season of bounty… the United States has only sunk deeper into debt.
The cupboards are empty.
Trillion-dollar annual deficits are presently in sight.
The national debt rises to $22.3 trillion — some 105% of GDP.
And interest payments on the debt alone will likely eclipse defense spending by 2025.
Come the inevitable recession, Uncle Samuel will plunge even deeper into debt.
That is, he will reach even further into the future… to rob it for our benefit today.
Deficits may double — or more.
How is the business at all sustainable?
But it’s not only a doddering old uncle going under the water…
The Corporate Debt Bomb
Corporations have loaded themselves to the gunwales with cheap debt — cheap debt coming by way of the Federal Reserve.
First-quarter nonfinancial corporate debt increased to $9.93 trillion. That is a record.
And this we learn from the Treasury Department:
Today’s nonfinancial corporate debt-to-GDP ratio is the highest since 1947… when records began.
And here we spot a straw swaying menacingly in the wind…
Fitch informs us nearly $10 billion of high-yield corporate bonds have already defaulted in the second quarter — double the amount of first-quarter defaults.
Warns Troy Gayeski, co-chief investment officer at SkyBridge Capital:
“Whatever the cause [of the next recession] may be, the acute point of pain will be in corporate credit.”
Depends on it.
Finally we come to the fabulously and grotesquely indebted American consumer…
Consumers Drowning in Debt
Total U.S. consumer debt notched $14 trillion in the first quarter — exceeding the roughly $13 trillion before the financial crisis.
Twenty-three percent of Americans claim that life’s essentials — food, rent, utilities — constitute the bulk of their credit card purchases.
And 60% of Americans hold less than $1,000 in savings.
How will they keep up come the next recession? How will they meet their debts?
They already groan under the load — and the economy is still expanding.
Meantime, the cost of a middle-class lifestyle has surged 30% over the past two decades.
But Pew Research reports the average American worker wields no more purchasing power today… than he did 40 years ago.
That is, he has jogged in place 40 years.
Utter and Complete Failure
The past 10 years of central bank intervention on a grand and heroic scale have worked little benefit.
The coming recession will bring yet more intervention— on an even grander and more heroic scale.
But why should we expect it to yield any difference whatsoever?
For the overall view, we turn to Mr. Sven Henrich:
The grand central bank experiment of the last 10 years has ended in utter and complete failure. The games of cheap money and constant intervention that have brought you record global debt to the tune of $250 trillion and record wealth inequality are about to embark on a new round… The new global rate-cutting cycle begins anew before the last one ever ended. Brace yourselves, as no one, absolutely no one, can know how this will turn out…
We are witnessing a historic unraveling here. Everything every central banker has uttered last year was completely wrong. Every projection they made over the last 10 years has been wrong… Why place confidence in people who are staring at the ruins of the policies they unleashed on the world and are about to unleash again?…
All the distortions of 10 years of cheap money, debt, wealth inequality, zombie companies, negative debt… will all be further exacerbated by hapless and scared central bankers whose only solution to failure is to embark on the same cheap money train again. All under the banner to “extend the business cycle” at all costs. Never asking whether they should nor considering the consequences. But since they are not elected by the people and face zero consequences for failure, they don’t have to consider the collateral damage they inflict.
Unfortunately, the rest of us do…
Managing editor, The Daily Reckoning