January 7, 2013
- “Blackmail!” a Congressman cries. “Trillion-dollar platinum coins!” the masses reply. “Do we have to talk about this again?!” The 5 grumbles…
- Stocks stall, banks rally: Meanwhile, Guenthner spots a breakout…
- An Apogee forecast for 2013: one last infusion of air before the “mother of all financial bubbles” bursts… and PRO guidance to sidestep the turmoil…
- Regulators gone wild: When warnings for the creatively stupid aren’t enough, shut down a small business
- Stock melt-ups, a variation on the Social Security outrage theme, chimp feces… A mailbag of curiosities
What sort of “blackmail” is he talking about? And what “things” must be done in response?
We’ll come back to that…
We now have confirmation that Uncle Sam indeed broke through the debt ceiling a week ago today — just as Treasury Secretary Timothy Geithner promised.
Hey, even a stopped clock…
The ceiling is $16.394 trillion. On New Year’s Eve, the national debt totaled $16.433 trillion. So now the Treasury is figuratively looking under the sofa cushions… by literally borrowing from government pension funds, among other “extraordinary measures.”
So we won’t keep you in suspense any longer: The “blackmail” to which Rep. Nadler referred was the debt ceiling.
As for the “things” that must be “considered,” he was referring to a harebrained scheme we spotted less than a month ago — the one about the U.S. Mint making two platinum coins and stamping them with a value of $1 trillion each, which the Treasury then uses to pay its obligations and stay under the debt ceiling for another couple years.
With “extraordinary measures” now in force, the platinum coin contrivance is catching on.
Business Insider’s Joe Weisenthal is all over it. There’s a petition on the White House website that at last check has 4,551 signatures. Drudge linked to a short ABC News story on Friday.
“While there are laws in place to regulate how much paper, gold, silver or copper currency can be circulated by the government, there is nothing so clearly stated when it comes to platinum,” the story explained. “That door open, the Treasury could have the U.S. Mint melt and mold a few trillion dollars of it, then ship the goods over to the Federal Reserve for safekeeping until the time comes to pay the bills.”
If only it were so simple.
“This is ridiculous,” writes Kevin Drum at Mother Jones — mind you, not exactly a repository of limited-government and balanced-budget philosophizing.
Drum goes back to the “loophole” that supposedly made the platinum coin ruse possible, passed in 2000.
“This is a small bill,” said its sponsor, Oklahoma Republican Frank Lucas, “but important to the Mint and important to coin collectors. It has no cost implications whatsoever.”
“No particular restrictions were placed on the design or issuance of platinum coins,” Mr. Drum sums up, “but this paragraph was plainly intended to apply to bullion and commemorative issues for coin collectors. That’s all.”
Even The New York Times‘ Paul Krugman says the idea’s a nonstarter. “Not everything is a free lunch,” he says uncharacteristically, “even now. Sorry.”
[Update: That was so last week. Krugman has flip-flopped faster than a fresh-caught trout. "Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default?" he writes this morning. "Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that's silly but benign, the other that's equally silly but both vile and disastrous. The decision should be obvious."
Nothing like a false-choice fallacy to get the week off to a rip-roaring start. Oy...]
Stocks are in retreat after last week’s big rally. The major indexes are all down about half a percent.
One exception: financials. The KBW Bank Index has jumped more than 1% as the sector picked up two get-out-of-jail-free cards before the open.
First, the Basel Committee — a supervisory body set up by the world’s major central banks — has pushed back the deadline for banks to beef up their capital reserves. Instead of 2015, the banks have until 2019 — more than 10 years after the crisis that supposedly made these reforms an urgent gotta-get-it-done-yesterday matter.
Second, Bank of America has reached an agreement with Fannie Mae settling all the mortgage messiness from Countrywide — which BAC acquired during said 2008 crisis. Bank of America will fork over $10 billion — $6.75 billion to repurchase mortgages from Fannie and $3.6 billion as a cost-of-doing-business fine that works out to less than 3% of BAC’s market cap.
“Experienced market watchers know there are two kinds of fear,” writes technician Greg Guenthner: “the fear of losing money and the fear of missing out on a huge rally.
“Right now we could be seeing the latter showing up in investors’ collective psyche. It’s on display now as money continues to chase this sharp rally.”
While the S&P 500 grabbed the headlines last week by closing at a new post-2007 high, small caps represented by the Russell 2000 quietly reached a new all-time high.
“After the post-2008 crash rally,” says Greg, “we saw new highs briefly in 2011. Now we’re seeing the index break out yet again. This strong performance should help us in our quest to load up the Penny Stock Fortunes portfolio with winners yet again this year.”
On Friday, readers closed out a position in SiriusXM for 105% gains… and a position in a homebuilding supplier also topped 100%. Want some of that for yourself? Look here.
Precious metals are losing ground even as the dollar holds steady.
Gold has slid to $1,645, and silver is losing its grip on $30 yet again… while the dollar index sits stubbornly at 80.5.
The 10-year Treasury note opens the week yielding 1.9%. Yields spiked last Thursday after the release of minutes from the Federal Reserve’s December meeting.
“The Fed threw a cat among the pigeons,” EverBank’s Chuck Butler reminds us, “by saying in their minutes that they thought they would end their latest round of Quantitative Easing (QE) in 2013. For those of you keeping score at home, that’s $85 billion in monthly bond purchases.”
Then Chuck got wound up: “Did the Fed heads say when they would end their latest round of QE in 2013? NO! So it could end up being on the last day of 2013, when they also announce a new round of QE! Did the markets EVER take a moment to think of that scenario? NOOOOOOO! They just went ‘all in’ and began selling Treasuries.”
Conclusion: “We have seen these moves higher in bond yields a few times in the past couple of years, and they didn’t end up being too much of anything. Remember, the Fed IS STILL BUYING $85 billion per month!”
We go much further than Chuck in the current issue of Apogee Advisory: “The ‘mother of all financial bubbles’ will burst… but not before blowing up even bigger!”
We owe a debt of gratitude to Big Picture blogger and Vancouver fixture Barry Ritholtz for the inspiration. (The conclusions we draw are solely ours.) Barry went nearly blind reviewing one of the world’s most boring spreadsheets. It showed a monthly survey of economists by Bloomberg going back to 2002, revealing their “expert” guesses about the 10-year Treasury yield over the following six months.
Told you it was boring…“In the history of finance,” Barry quips, “we cannot find a more one-sided opinion about a freely traded double-auction market.” Ninety-seven percent of the time, a majority of economists predicted higher yields. On three occasions, including last May, the consensus was unanimous: The average forecast was for a yield of 2.4%. Oops… It turned out to be 1.7%. Just a little bit off.
And in the most recent survey, 94% of economists surveyed expect higher rates by next May. The average guess is 1.93%.
True, rates are basically there now. But we’re taking the other side of that trade. Indeed, we did already in the October Apogee issue: “We think the 30-year bull market has one more blowoff phase before the end. You need to act accordingly.”
Look for a Black Swan — perhaps a new euro scare coming from nowhere — to send hot money flooding back into Treasuries. “The 10-year yield will plunge below its 1.4% record set last July. It might even go all the way down to 1%.”
“Safe investment income is rare these days,” says our macro strategist Dan Amoss. “Interest rates on bank deposits and CDs are nil. Treasuries yield almost nothing. Even worse, Treasuries that offer yields measurably above zero carry lots of price risk. When yields rise, prices fall. So unless you’re willing to hold a long-term Treasury bond until it matures, you’re betting that long-term interest rates — and inflation — will stay low.”
Aside from Treasuries, what can you buy to profit from another push lower in yields toward 1%? We have an idea that yields 3.9% in today’s 5 Min. Forecast PRO — an investment that, over a long-term holding period, will have less downside and more upside than Treasuries. If you’re already a subscriber, the details are at the bottom of today’s issue. If not, here’s where to get a free trial to our new “sixth minute” delivering daily actionable advice.
“It’s usually a good idea to fade whatever is popular,” said Chris Mayer on Jan. 11, 2012. We beg your indulgence as we examine one more of our 2012 forecasts to see how it turned out.
“The best-performing stocks in 2011,” Chris explained, “were dividend payers with low volatility (or low beta).”
That’s because volatility was high in 2011. Thus “investors sought to minimize the big swings in the market and so huddled up in utilities and the like.” Empirical Research found utilities their most overvalued in 90 years.
“No utilities for us, thank you very much,” says Chris. “Volatile stocks are cheap right now.
“If the market wants Internet stocks, then let it have Internet stocks. If the market goes nuts for oil stocks, then let it have oil stocks. Today, the market is nuts for utilities and ‘defensive’ stocks, it seems. Let it have them, but don’t own any yourself.”
In the end, volatility as measured by the VIX reached remarkable levels of complacency during 2012… hitting new post-2007 lows. Meanwhile, utilities were the worst-performing sector in the S&P.
“Do not eat iPod Shuffle,” warns the disclaimer for the small gadget the size of a pack of Wrigley’s gum.
“DO NOT put any person in this washer,” reads another behind the lid of most washing machines. According to the Consumer Product Safety Commission (CPSC), labels such as these are a matter of life and death. “A company needs to anticipate the ways in which consumers will use their products,” said CPSC spokesman Scott Wolfson.
“That’s a tall order,” Philadelphia Daily News columnist Stu Bykofsky writes. “In a country of 310 million people, we have some real creative cuckoos out there.”
As one alert reader recently noticed: Four years ago, Leslie Gudel invented the “Nap Nanny” to solve a nap-time problem she had with her child. A month ago, the CSPC drowned Gudel’s company Baby Matters in lawsuits and recalls, putting her out of business and vaporizing 22 jobs.
This is despite Gudel agreeing to a voluntary recall in 2010, correcting a design issue and slapping a warning label that the CSPC “helped author and approve the language” of, she says.
Unfortunately, misuse of the Nap Nanny led to the death of five infants. Of course, an issue not to be taken lightly, “but at what point do we accept the idea that adults have to be responsible for their own actions, for ignoring simple directions?” Bykofsky asks.
“Is this where we want America to be?”
“This guy must be off his meds or something,” writes a reader in reply to a reader who suggested last week that in a hyperinflationary collapse, people will flee to stocks before bullion “as what good will coins be in the apocalypse?
“I don’t see people exactly clamoring for shares of Microsoft,” the reader goes on, “when little Johnny is thirsty and hungry. Personally, I think that more people will be willing to trade items for a shiny gold, silver OR NICKEL coin than for ANYTHING made out of paper. Besides, when was the last time anybody actually HELD the actual stock certificates?”
“I see repeated reference to trimming and/or controlling the entitlement programs of Social Security and Medicare,” writes a reader weighing in on the never-ending budget drama in D.C. “At effective gunpoint, I paid dearly for these programs.
“It seems to me that through the years, actual entitlements were added to Social Security and Medicare — welfare without having to declare welfare or fund it (except, of course, for the poor schlubs who had to actually pay into the system). Widows and orphans who get benefits without ever having made a direct or indirect contribution to the system. The rapidly rising disability claims from those who have never paid, directly or otherwise, into the system.
“Strip these entitlements out of Social Security and Medicare and put them into a welfare program that can be dealt with as entitlement without messing with Social Security and Medicare. I wonder what would be the impact of such a long-overdue adjustment?”
The 5: Nil, considering how the “trust fund” money was raided to pay for other government expenses.
“I think I can see the rationale behind studying the chimps who throw feces at passersby,” writes one more reader on strange line items in the federal budget.
“It has to be real-world vocational training for legislators and regulators so they can be more effective in their chosen occupation. I wonder if they have studied throwing feces over the cliff. Probably not. They’ve ‘risen above’ that.”
The 5 Min. Forecast
P.S. They laughed when Chris Mayer recommended an owner of B-list shopping malls a year ago. But when he told readers to cash out a 62% gain today…
“Given that we have so many other bargains available,” he wrote this morning, “let’s take our gain and shuffle the money to better opportunities.” To learn what sort of better opportunities he has in mind, give this a look.