Will They Haul off Trump’s Statue, Too?

This post Will They Haul off Trump’s Statue, Too? appeared first on Daily Reckoning.

This week, we are talking about the perishable nature of gods.

The city fathers of our hometown of Baltimore have let it be known that it was time to toss out the old deities. Reports the Associated Press:

After violence erupted in Charlottesville, Virginia over the weekend in response to the city’s plan to remove a Robert E. Lee statue from a park there, Mayor Catherine Pugh has renewed efforts to remove similar Confederate imagery from Baltimore. [… ]

On Monday, Pugh released a statement saying that it is her intention to remove all of Baltimore’s Confederate-era monuments – Confederate Soldiers and Sailors Monument on Mount Royal Avenue, the Confederate Women’s Monument on West University Parkway, the Roger B. Taney Monument on Mount Vernon Place, and the Robert E. Lee and Thomas. J. “Stonewall” Jackson Monument in the Wyman Park Dell.

The statues came down this week.

All across the country, the old gods become devils. New, gluten-free gods take their places. The statue of Taney (pronounced Tawney) will be particularly missed.

Roger Taney, like your correspondent, comes from the western shore of the Chesapeake Bay.

Like your correspondent, he grew up among the tobacco leaves. Like your correspondent, his teachers advised his parents that he was someone whose future lay beyond the green fields. And like your correspondent, he left the rich farms and oyster beds, went to college, and studied law.

This is where the similarity ends.

Taney had a brilliant career; he took the high road to the top of the nation’s highest court. We never even took the bar exam…

The statue was less than a one-minute stroll from our office. Artfully done, it shows the Supreme Court jurist in his robes, bent forward in gloomy reflection.

The poor man had a lot to think about. Upon his shoulders fell the weight of contradictions over slavery.

America was supposed to be a free country. As chief justice of the Supreme Court, his main duty was to protect the freedom of its citizens against the power of the government. And yet a large part of the population was kept in chains, condoned and abetted by that very same government.

On a personal level, where he bent to his own bricks and tilled his own plants, he knew what to do. He freed his slaves and gave pensions to the older ones.

Taney said of slavery that it was “a blot on our national character.”

But the gods and myths misled him. In his chambers… wrestling with a complex legal issue by candlelight, the shadows confused him.

Before him was the plaintiff, Mr. Dred Scott, slave and lifelong resident of the United States of America, asking the highest court in the land to affirm that he had a right to life, liberty, and the pursuit of happiness… without being forced into a win-lose deal by his former slave master.

But instead of boring down to the bedrock of the issue, Taney let himself get distracted by the surface …read more

The Changing Face of History

Statue Before

This post The Changing Face of History appeared first on Daily Reckoning.

Today we step away from our normal beat… turn from the daily press of events… and reflect upon the permanent things…

Or the impermanent things as the case may be.

Four Confederate statues were hauled out of Baltimore parks this Wednesday… in the small hours… under cover of darkness.

It might have attracted a crowd otherwise — as in Charlottesville.

And with potentially similar results.

One of the statues, not actually Confederate, squatted just one block from our HQ.

Executed in time-worn bronze, it depicted the stern countenance of Roger B. Taney.

Taney was the Supreme Court justice who authored the majority opinion in the infamous 1857 Dred Scott case.

The ruling denied blacks American citizenship.

Taney’s statue had adorned historic Mount Vernon Square since 1887.

As of this Wednesday… it adorns historic Mount Vernon Square no longer.



We do not know who or what will replace Mr. Taney’s glowering presence atop the lonesome pedestal… if anything.

We are curious about one point, however…

The last surviving ship from Pearl Harbor is permanently docked in Baltimore’s Inner Harbor.

That ship would be the Coast Guard cutter… Roger B. Taney.

She’s part of Baltimore’s Maritime Museum.


What becomes of her?

She bears Taney’s name after all.

Do they refit old USCGC-37 with a moniker more befitting these inclusive times?

Do they tow her out beyond the capes of the Chesapeake and bury Taney’s name in Davy Jones’ locker?

Or do they simply leave her be?

At all events…

What do you think of the growing movement to remove Confederate statues from the nation’s public spaces?

Historical vandalism… or an idea whose time has come?


Brian Maher
Managing editor, The Daily Reckoning

The post The Changing Face of History appeared first on Daily Reckoning.

…read more

Making Sense of a Weird Market

This post Making Sense of a Weird Market appeared first on Daily Reckoning.

There’s a stock market crash coming.


It’s been a wild period in the markets. Between earnings season, increased tensions with North Korea and CEOs abandoning Trump after the Confederate statue controversy, investor anxiety has been on the rise.

That came to a head earlier this week when more than 90% of the stocks in the S&P 500 ended deep in the red. The tech-centric Nasdaq Composite plunged more than 2%.

The market was heavily down again yesterday. And as I write these words this morning, the major indexes are down again.

Needless to say, the big tail wind that’s been driving the broad market higher has tapered off.

Does that mean that the S&P is set to plunge now? No — it could turn around and tick higher, actually. But it does mean that we don’t have as clear a picture of what’s going to happen next in the big index.

But to be clear, there are some very good reasons why Mr. Market might be due to roll over.

Some very smart people — including some of my colleagues at Agora Financial — think that you have reason to be worried about owning stocks right now.

So where do I stand on that?

One of my readers, named Al, cuts to the chase with the following question:

Hi Jonas,

With all the Agora publications talking about a looming correction ahead — what’s your take on that and how should we play our positions to reduce risk, or will those positions be affected at all?

To start, let’s look at the first part of Al’s question — my take on all the correction and crash talk.

First off, we’re probably going to experience a stiff correction at some point in the not-so-distant future. It’s inevitable. But that’s not much of an insight.

And as to when it might happen — next week, next month, next year — your guess is as good as mine. Heck, it may have just started.

That’s not a cop-out answer.

It’s a way of thinking that could make you a more profitable trader than 99% of all other market participants. You see, it’s human nature to want to predict what’s going to happen next in the stock market.

There’s a reason why CNBC and all the other media outlets gather up all the stock market predictions from Wall Street strategists every year and rank how close they got to the final number at the end of the year. It makes for great TV. Easy ratings.

But don’t you think it’s kind of funny that CNBC never ranks those Wall Street talking heads by how much money they made their clients instead?

CNBC — and The Wall Street Journal, CNNMoney, etc. — are all fixated on who’s right. But they totally ignore the fact that there’s a difference between being right and making money.

And the way you make money in the markets is by identifying a consistently profitable system and then sticking to that that system — …read more

“Hindenburg” Spotted Over Wall Street

This post “Hindenburg” Spotted Over Wall Street appeared first on Daily Reckoning.

“This may well be one of the most important days in the future of the equity markets for a very long while.”

That was today’s early-morning warning of famous trader Dennis Gartman.

The Dow lost 274 points yesterday.

The S&P shed 38 of its own — percentagewise, even worse than the Dow.

The booming Nasdaq fared worse than both. The tech index lost 123 points on the day — nearly 2%.

The three indexes all opened lower this morning.

The S&P and Nasdaq have since clawed their way back for slight gains.

The Dow remains in red territory at writing.

And so the market skitters like a panicked colt… confused… uncertain of its bearings… uneasy of its own uneasiness.

Was yesterday’s swoon the “first foretaste of a bitter cup,” to take a leaf from Churchill … or a healthy shaking of the tree, just one more opportunity to buy the dip?

Today we go in search of answers…

But first, what exactly frightened the horses yesterday?

A terrorist attack in Barcelona claimed 14 or more souls. Scores were injured.

Rumors also swirled that Trump’s top economic lieutenant, Gary Cohn, might desert his post.

Cohn was evidently displeased with Trump’s reaction to the Charlottesville statue scandale.

Investors fear Cohn’s resignation would sink Trump’s economic agenda even deeper into the dingles of doubt — if that’s possible.

The White House insisted the rumors were false.

It was right.

Cohn stays put — for now at least.

But let us revisit our question…

Was yesterday the start of a correction or — worse — just a random journey into red?

Market analyst Eric Parnell says correction. But he submits his case with bombshell evidence…

He claims a correction has not only begun — but actually started a month ago:

In many respects, a correction in U.S. stocks has already been underway for nearly a month now.

“But hasn’t the market been powering higher?” you squeak in protest.

“And haven’t the major indexes have been notching record highs this past month?”

Yes. But Parnell argues that a camouflaging has taken place.

In reality, he says, a mere handful of stocks account for most of the gains.

These are the likes of Apple, Facebook, Amazon and Microsoft.

And since the S&P is weighted by market cap, for example, these overachievers have hauled the overall market higher.

That gives a false reading of market health:

While the headline benchmark that is so heavily driven by its selected handful of largest stocks continues to hold its ground, the same index on an equal weight basis has been down by as much as 2.6% in recent days…

Today, less than 50% of stocks in the headline benchmark are trading above their 50-day moving average. This reading reached as low as 40% in recent trading days.

Parnell adds that 85 stocks on the S&P are officially in bear territory — down more than 20% from recent highs.

Something rots in Denmark, it seems.

Enter now the “Hindenburg Omen”…

The Hindenburg Omen is a technical indicator tracking the number of stocks trading at 52-week highs relative to the …read more

Don’t Forget About The Red Swan

China Fixed Asset Investment

This post Don’t Forget About The Red Swan appeared first on Daily Reckoning.

[Urgent Note: The nation’s future and a massive debt ceiling hangs in the balance as Trump pushes beyond the Comey hearings. That’s why I’m on a mission to send my new book TRUMPED! A Nation on the Brink of Ruin… and How to Bring It Back to every American who responds, absolutely free. Click here for more details.]

Given the anti-Trump feeding frenzy, we continue to believe that a Swan is on its way bearing Orange. But if that’s not enough to dissuade the dip buyers, perhaps the impending arrival of the Red Swan will at least give them pause.

The chart below comprises a picture worth thousands of words. It puts the lie to the latest Wall Street belief that the global economy is accelerating and that surging corporate profits justify the market’s latest manic rip.

What is actually going on is a short-lived global credit/growth impulse emanating from China. Beijing panicked early last year and opened up the capital expenditure (CapEx) spigots at the state-owned enterprises (SOEs) out of fear that China’s great machine was heading for stall speed at exactly the wrong time.

The 19th national communist party Congress scheduled for late fall of 2017. This every five year event is the single most important happening in the Red Ponzi. This time the event is slated to be the coronation of Xi Jinping as the second coming of Mao.

Beijing was not about to risk an economy fizzling toward a flat line before the Congress. Yet that threat was clearly on the horizon as evident from the dark green line in the chart below which represents total fixed asset investment.

The latter is the spring-wheel of China’s booming economy, but it had dropped from 22% per annum growth rate when Mr. Xi took the helm in 2012 to 10% by early 2016.

There was an eruption as dramatized in the chart. CapEx growth suddenly more than doubled in the one-third of China’s economy that is already saturated in excess capacity.  The state owned enterprises (SOE) in steel, aluminum, autos, shipbuilding, chemicals, building equipment and supplies, railway and highway construction etc boomed.

It was as if a switch had been flicked on by Mr. Xi himself, SOE CapEx soared back toward the 25% year-over-year rate by mid-2016, keeping total CapEx hugging the 10% growth line.

However, you cannot grow an economy indefinitely by building pyramids or any other kind of low-return/no return investment – even if the initial growth spurt lasts for years as China’s had.

Ultimately, the illusion of Keynesian spending gets exposed and the deadweight costs of malinvestments and excess capacity exact a heavy toll.

If the investment boom that was financed with reckless credit expansion is not enough, as was the case in China where debt grew from $1 trillion in 1995 to $35 trillion today, the morning-after toll is especially severe and disruptive.  This used to be called a “depression.”

China’s propagated spurt in global trade and commodities was artificial and short-term. …read more

Oh, the Humanity! Another Selloff Rattles Investors

This post Oh, the Humanity! Another Selloff Rattles Investors appeared first on Daily Reckoning.

It was a dark day on Wall Street.

The Dow dropped 274 points. The S&P 500 slumped by more than 1.5%. The tech-heavy Nasdaq Composite lost almost 2%.

An ornery August trading month is finally showing its teeth. Investors who eagerly bought the dip after last week’s drop are stuck with losses. The bears have an opportunity to force stocks into a genuine pullback for the first time in more than a year. They might even get the help of a spooky indicator that’s sneaking back into the picture.

Oh, the humanity! I’m talking about the Hindenburg Omen.

Nazi imagery is all over the news this week thanks to the events in Charlottesville. Now it’s infected the markets. We’re seeing breathless mentions of the Hindenburg Omen all over the financial media. If we are to believe the warnings, the stock market is nothing more than a fiery zeppelin crash waiting to happen.

On top of the perfectly-named Hindenburg Omen, we are experiencing some actual market weakness and volatility creeping into the picture. Conditions are ripe for some new worries. The click-hungry financial media is cashing in.

The message is simple: Sell your stocks and take cover. This ship is about to blow!

If only investing was this simple…

In reality, the Hindenburg Omen is a tough nut to crack. If you’ve bothered to read any of the articles that cite the indicator, you’ve probably noticed that none of them explain what the hell the Hindenburg Omen measures. That’s because it’s incredibly complicated. Fully grasping the Hindenburg Omen requires more than a rudimentary understanding of simple technical analysis techniques.

I’m not even going to bother wasting my time trying to lay it all out for you. I can’t even come up with a simplified explanation beyond the fact that it’s bearish and it involves tallying NYSE advances plus declines and new highs vs. new lows. And that doesn’t even begin to get into the nuances of what’s required to trigger the indicator.

What I can tell you is that Hindenburg Omens are starting to come in waves. Multiple sources are reporting spotting a Hindenburg Omen on the S&P 500 during five out of the past six sessions.

“Such clusters typically lead to poor returns in subsequent days and the last time a similar trend emerged, in November 2007, stocks fell by 1.6% in the following week and 2.3% two weeks later, MarketWatch notes. “A year later, the S&P 500 was about 40% lower.”

Despite all the commotion, these signals don’t guarantee an imminent correction. In fact, the last time the market caught Hindenburg fever was August 2013. Going back over my market stats from four years ago, I noted 11 Hindenburg Omens materialized in from late July to mid-August 2013. But the S&P 500 finished the year up 30%.

If the Hindenburg Omen had a mundane name, it never would have caught on. Its track record for calling major tops isn’t consistent. Most people don’t even …read more

The Real Story Behind “Rising” Interest Rates

chart: Yellen Raised Rates?

This post The Real Story Behind “Rising” Interest Rates appeared first on Daily Reckoning.

This year, the Federal Reserve has hiked its target interest rate twice… With a third rate hike expected before the end of the year.

Great news for savers right? Because higher interest rates will allow us to collect more income from deposits at the bank. Isn’t that how it works?

Well unfortunately, that’s not at all what we’re seeing in the market right now. And I don’t think savers will have any reason to cheer about higher interest rates for months and months to come.

Here’s the real story behind the Fed’s rate hikes and the interest rates you’ll have to work with at the bank…

The Fed’s Target Rate

Take a look at the chart below. This chart shows the yield (or interest rate) on 10-year treasury bonds for 2017:

Can you pick out the two spots where the Fed hiked interest rates this year?

Neither can I!

That’s because the Fed’s two interest rate hikes had essentially ZERO effect on the 10-year treasury yield. Instead, the interest rate on treasury bonds has been moving lower throughout the year — not higher.

It’s important to realize that yields on Treasury bonds have a much bigger impact on the interest rates that will affect your life than any rate that Janet Yellen and the Fed can set.

When banks decide what rate of interest to charge customers for mortgages or business loans, or when these same banks set interest rates for savings accounts or certificates of deposits, they base their decisions primarily on Treasury bond yields.

That’s because the Treasury bond market is a very liquid market in which investors buy and sell bonds based on the yield that they can receive from owning these bonds, and competing investments they can make with the same capital.

Essentially, Treasury bond prices represent free market interest rates, as opposed to manipulated interest rates set by the Fed. Keep in mind, the target interest rate that the Fed sets is simply the rate the Fed targets for when banks lend short-term deposits to each other.

This rate is only very loosely connected to market interest rates (which we can see have been falling).

So when you hear that the Fed is raising interest rates, just keep in mind that an increase in the Fed’s target rate doesn’t necessarily mean that you’ll get a higher return on your savings account (or that you’ll have to pay a higher rate for a mortgage)…

What To Expect For The Rest of The Year

This week, the Fed released its minutes from the most recent Fed meeting.

According to the notes, the Fed is deeply divided between raising rates one more time this year and keeping them steady.

Some members believe that the Fed’s policy of exceptionally low rates will backfire, leaving the Fed fewer options for helping the economy during the next recession. While others believe that the global market has changed, and that lower interest rates are now much more appropriate.

Here’s what you can expect …read more

Trump Takes on Giant

G3 Central Bank Balance Sheet - AMZN

This post Trump Takes on Giant appeared first on Daily Reckoning.

Dear Reader,

Well, The Donald has shown Amazon that he still wields a modicum of power — at least until he takes his final helicopter ride away from the South Lawn.

Here’s what he tweeted at 3 o’clock Wednesday morning:

Amazon is doing great damage to tax paying retailers. Towns, cities and states throughout the U.S. are being hurt — many jobs being lost!

The online retail giant was soon hemorrhaging $5.7 billion of market value. Amazon stock slipped as much as 1.2% in pre-market trading.

And with that middle-of-the-night tweet, Trump unloosed a major warning shot across the bow of S.S. Amazon.

Yes, The Donald is well on his way toward his last helicopter ride. But I’d bet on Trump launching a major regulatory or antitrust attack on Amazon as he finally goes down in flames.

Make no mistake, I believe fully in the virtues of free market capitalism. I further recognize the considerable entrepreneurial prowess of Jeff Bezos and his army of disrupters.

But Amazon is less the work of free market capitalism and its gales of creative destruction than it is the mutant child of Bubble Finance.

Bubble Finance is profoundly destructive because it distorts the signaling system of everyday capitalism. In turn, that causes sweeping malinvestments, irrational economic decisions and the vast waste of real economic resources.

In carrying out its scorched-earth policies across the retail landscape, Amazon is not doing God’s work. It’s functioning as a giant predator motivated by false incentives to destroy perfectly serviceable assets, business operations and jobs.

It is now estimated that 30,000 retail stores will close over 2017–19 due to Amazon’s relentless attack. That’s nearly three times the 12,000 stores that closed from 2014–16.

But let’s face it: Amazon is not a startup — it’s almost 25 years old. And it hasn’t invented anything explosively new like the iPhone or personal computer. Instead, 91% of its sales involve storing, moving and delivering goods — a sector of the economy that has grown by just 2.2% annually in nominal dollars for the last decade.

And after nearly three decades of operation, Amazon still generates limited operating free cash flow relative to its nosebleed valuation. It has never made a profit beyond occasional quarterly chump change.

Simply put, it has never, ever generated any material free cash flow. What’s more, Jeff Bezos — arguably the most maniacal empire builder since Genghis Khan — apparently has no plan to ever create any.

The fact is Amazon is one of the greatest cash burn machines ever invented.

And at 182X earnings, Amazon is an out-and-out bubble. There is simply no macroeconomic basis for Amazon’s insane valuation.

In an honest free market, Jeff Bezos would be more than welcome to run a profitless growth machine. But it would also be valued accordingly.

I will readily grant that Bezos is a visionary and great capitalist innovator, builder and disrupter. But I would also lay heavy odds on the probability that his business strategy might be dramatically different — and …read more

Cryptocurrencies Can Make You Rich Beyond Your Dreams

14 times better than bitcoin chart

This post Cryptocurrencies Can Make You Rich Beyond Your Dreams appeared first on Daily Reckoning.

One market is hotter than anything I’ve ever seen before.

And the good news is we’re in the midst of an absolute earthquake for that market!

I’m talking about the “cryptocurrency” market.

Cryptocurrencies are things with names like “bitcoin” or “ethereum.”

They’re digital currencies that are largely out of the hands of any centralized government.

And the fact of the matter is that people from all over the world are getting rich from these cryptocurrencies…

There are over 984 cryptocurrencies in existence now. More are coming to market every day. And many are shooting higher and higher each and every day.

In fact, Bloomberg reports that one trader recently made over $200 million in one month.

How is that possible?

Well, these cryptocurrencies are essentially the equivalent of microcap stocks. That is, many are underfollowed and trading at a huge discount — but poised for explosive moves higher.

Consider the case of a gentleman profiled in Forbes named Mr. Smith, who turned $3,000 into $2.3 million!

What’s he doing now?

According to Forbes:

Just like that, Smith had landed upon a windfall of $2.3 million. “It was absolutely insane,” he says. “I quit my job and left on a round-the-world trip the following week.”

There are many stories just like that, I promise.

And the fact that savvy institutional investors — including prominent venture capitalists — are now treating cryptocurrencies as a new asset class is a major tell that we’re on the cusp of a permanent transformation.

In other words, this isn’t simply a hype-driven fad that will fade. It’s the dawn of a new technology.

And I believe bitcoin’s price could conceivably reach $10,000 as interest heats up.

Why do I say that? The math is simple.

With huge demand from hedge funds, venture capitalists and big investment banks like Goldman Sachs…

All piling millions of dollars into bitcoin…

And with the scarcity and strictly limited number of bitcoins available…

Bitcoin must go up over time. And the day it hits $10,000 and beyond could happen a lot sooner than you think.

The demand and supply make it a mathematical certainty.

That being said, the biggest gains going forward aren’t going to come from bitcoin.

Think of bitcoin as the “blue chip” of cryptocurrencies. Trading near $4,298, it’s a lot harder for bitcoin to multiply in price than it is for a “penny” crypto trading for under $1.

That’s why the biggest gains in this market will come from sifting through the 1,000 or so “penny” cryptocurrencies.

Here’s proof…

But take a look at another cryptocurrency investment:

During this spike, one little-known cryptocurrency made 14x the gain of bitcoin.

That means the same $1,000 invested would have turned into $41,260. And this was not a one-time event.

Take a look at this…

This time, the same secret “crypto-coin” returned 36x more than bitcoin.

Here’s a chart showing you how much more you’d have made by using this secret cryptocurrency strategy instead of buying bitcoin directly.

Here’s the bottom line:

While I believe everyone should have a small fraction of their …read more

Better Than Gold: Huge Gains from a Hidden Metals Trade

This post Better Than Gold: Huge Gains from a Hidden Metals Trade appeared first on Daily Reckoning.

If you want to get away from the endless political distractions of the world, the stock market is a great place to hide.

The talking heads on TV can scream all they want about Trump, nukes or political extremists. But we know at just a glance that the market is feeling fine. It might seem like the world is falling apart – but Mr. Market assures us that we will live to fight another day.

Despite an afternoon dip, stocks finished the day just in the green. We saw significant gains from several major sectors and industries ranging from semiconductors to retailers.

But today, I want to single out one of yesterday’s top performers: copper.

Dr. Copper – the industrial metal that’s supposed have a PhD in economics – is launching higher once again. The metal posted new 2017 highs yesterday, extending its breakout. It’s now sitting on year-to-date gains just shy of 18%.

Copper’s bounce off its summer lows is legit. Now it’s time for round two…

Most investors didn’t believe copper would ever recover from its lows. Can’t say that I blame them. One look at a long-term chart of the industrial metal reveals a nasty bear market. As the commodity super-cycle topped out in 2011, the metal entered a death spiral that lasted nearly six years.

But something changed in over the past 10 months.

The post-election rally back in November was the spark that helped copper snap it’s nasty downtrend. After seven months of choppy consolidation, copper jumped back near its March highs late last month and signaled to us that it was ready to make a play at a huge breakout.

The bulls are now in control. After years of pain, we’re finally seeing an extended rally.

When we first jumped back on the copper bandwagon earlier this summer, we told you it had been a long time since we’ve taken a swipe at trading the commodity. We made out like bandits betting on copper’s short-term pops in the past, particularly when no one else was paying attention to the industrial metal. But the trading signals had been few and far between lately.

I can’t say that I blame anyone for ignoring copper over the past few years. After all, its boom days are a distant memory. The massive, 10-year rally that pushed copper to gains of more than 600% during the early 2000’s is ancient history. When it comes to copper, investors are still stuck in their bear market mindsets.

We don’t know if copper is just getting started on another decade-long bull run or if it’s simply undergoing some mean reversion after years of neglect. Either way, we’re willing to ride the new trend to gains. After years of pain and suffering, a sustainable rally is in the works.

Our favorite copper play Freeport-McMoRan Inc. (NYSE: FCX) has set up perfectly since we took a position last month. We’re already up nearly 15% on FCX since …read more


chart: Small-Caps Diverge

This post Divergence appeared first on Daily Reckoning.

People often spend much of their time looking for the best opportunities of the market in small, unknown companies.

Perhaps a small tech firm that has patents to the 5G wireless spectrum…

Or a speculative gold mining company that has the rights to the largest gold deposit in the world.

But what if I told you that the best opportunities don’t have to exist in risky, single stock scenarios?

In fact, the opportunity I would like to show you today could be the best risk-reward bet you could make for all of 2017.

Here’s why…

Right now, there is huge opportunity lurking in the divergence of the S&P 500 and Russell 2000.

Two indices…

2500 companies spread between them.

Year to date, the S&P 500 is up around 10.3%.

The Russell 2000, however, is lingering just above a 2% gain…

Check out the chart below…

The upper green line is the S&P 500, an index of the 500 largest companies in the US. The S&P 500 is often used to demonstrate the performance of the stock market as a whole.

The blue line, however, is the Russell 2000 index, which is an index consisting of 2000 small to mid-cap companies. For comparison, the largest market cap in the Russell 2000 is $6.1 billion… whereas the smallest company in the S&P 500 has a market cap of $7.8 billion.

Historically speaking, small-cap companies have significantly outperformed large-cap companies, so what gives for this year to date performance?

How can the S&P 500 be outperforming the Russell 2000 by such a large margin?

There are two big factors — A dollar that has been weakening year-to-date, and Trump’s proposed tax plan.

With a weakening dollar, companies that export to foreign nations have an advantage… And when you compare the S&P 500 to the Russell 2000, those big, multinational companies of the S&P have the advantage with a declining dollar.

A weaker dollar means U.S. goods are cheaper for overseas customers. And because the profits are generated in Euros, Pounds, etc… that means more income when the profits are exchanged back to dollars.

The second factor for the rise in the S&P 500 is Trump’s proposed tax plan.

President Trump wants to lower the corporate tax rate to 15%, and impose a one-time tax holiday that would allow the repatriation of cash that is held overseas.

Currently, large US companies are holding TRILLIONS of dollars in overseas cash.

For example, Apple alone has $246 BILLION stored offshore.

That one-time tax holiday would allow companies to bring back cash and benefit shareholders. Companies could distribute special dividends… Or use that money for growing business further.

Clearly, the biggest US companies that are part of the S&P 500 would benefit most under Trump’s plan. That’s why the S&P is up 10% year-to-date.

But while large companies have been on a hot streak, there is a massive opportunity in the Russell 2000…

The Russell 2000 has been flat out ignored.

As mentioned before, small cap companies have historically outperformed large blue chip companies. And with more investors piling into the …read more

Two Prominent Elites Telegraph Recession?

The Zombification of the U.S. Economy

This post Two Prominent Elites Telegraph Recession? appeared first on Daily Reckoning.

Are elites telegraphing the next recession?

Not one… but two card-carrying members of the monetary elite have recently raised the harrowing “r” word.


Perhaps. Perhaps not.

The odds of a U.S. recession over the next year is a mere 15%, according to a Bloomberg survey of 40 economists.

But as former Treasury secretary and current Harvard grandee Larry Summers wrote in the Financial Times this week:

Experience teaches that recessions are almost never forecast or even rapidly recognised by the Fed or the professional consensus forecast.

“Recovery is now in its ninth year,” adds Mr. Summers with foreboding, “with relatively slow underlying growth.”

A muted warning of recession?

And how does the Fed respond to recession, Mr. Summers?

Historically, the Fed has responded to recession by cutting rates substantially, with the benchmark funds rate falling by 400 basis points or more in the context of downturns over the past two generations.

The benchmark funds rate to which Summers refers currently rests between 1 and 1.25%.

Assume for the moment a recession at current rates.

If the Fed hews to script and cuts rates 400 basis points — or 4% — the ultimate result will be a substantially negative interest rate as low as -3%.

Enter now the second character in our drama…

A Harvard economist like Summers — and a chess grandmaster, no less — Kenneth Rogoff plays the role of mad monetary scientist.

For years Rogoff has warbled the virtues of negative interest rates and the cashless society.

The first can’t truly be realized without the second.

And Rogoff has just scribbled a new paper arguing that central banks should prepare now for the next recession by pursuing plans to cut rates below zero.

Amplifying Summers slightly, Rogoff notes the Fed slashed rates an average 5.5% during the nine recessions since the 1950s.

That is of course impossible given today’s 1–1.25% rates — unless the Fed ventures deep into the dingles of negative rates — precisely his vision.

Behold if you will, a slight glimpse of Rogoff’s deep-water greatness:

With today’s ultra-low policy interest rates — inching up in the United States and still slightly negative in the eurozone and Japan — it is sobering to ask what major central banks will do should another major prolonged global recession come anytime soon…

It makes sense not to wait until the next financial crisis to develop plans and, in any event, it is time for economists to stop pretending that implementing effective negative rates is as difficult today as it seemed in Keynes’ time.

John Maynard Keynes’ time was of course during the Great Depression — long before the advent of digital money.

And Rogoff argues the cashless vision is now within grasp because cash is mainly limited to small transactions:

The growth of electronic payment systems and the increasing marginalization of cash in legal transactions creates a much smoother path to negative rate policy today than even two decades ago.

Doubtless true.

And disturbing — if you prefer cash and the defense it provides …read more