Basic Materials Seem to Be on Sound Footing with Home Construction Boom

U.S. Housing starts roared to an 11-year high in May
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According to home-construction services firm Happho, for every 1,000 square feet of new housing, nearly 8,820 pounds of steel are required, as well as 400 bags of cement, 1,800 cubic feet of sand and 1,350 cubic feet of gravel and other aggregate. This doesn’t begin to touch on finishers such as brick, paint and tiles, or fittings such as windows, doors, plumbing and electrical.

I believe

Thirty-year mortgage rates might have ticked up in the past 12 months, but for now that doesn’t seem to be weighing on new home demand. According to the Commerce Department, housing starts climbed to an 11-year high of 1.35 million units in May, a clear sign that the market has continued to improve following the subprime mortgage crisis a decade ago. This is constructive—pun fully intended—not only for the economy but also consumption of building materials, energy and resources.

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According to home-construction services firm Happho, for every 1,000 square feet of new housing, nearly 8,820 pounds of steel are required, as well as 400 bags of cement, 1,800 cubic feet of sand and 1,350 cubic feet of gravel and other aggregate. This doesn’t begin to touch on finishers such as brick, paint and tiles, or fittings such as windows, doors, plumbing and electrical.

I believe metal miners and manufacturers of basic materials could very well be beneficiaries of the construction surge. For the 12-month period through June 20, a basket of industrial metals such as aluminum, copper and nickel are already up 21 percent, with technical support on a clear uptrend.

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Is the Rental Housing Explosion Over?

One sign that the growth in homebuilding might be sustainable is that the rate at which Americans are renting instead of buying appears to be slowing. For the first time since 2004, the number of renter households actually declined last year, according to a report by the Joint Center for Housing Studies of Harvard University.

This could be the result of an improved economy and the unemployment rate being at historically low levels. After nearly a decade, consumers may finally feel financially secure enough to get out of their apartments and make a down payment on a new home.

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Likewise, we see the homeownership rate in the U.S. beginning to recover after hitting a floor in the second quarter of 2016. From its peak in October 2004, the rate fell to a 50-year low of only 62.9 percent. It might be too early to tell if this marks a significant rebound, but the upturn suggests at least that the homeownership rate has stabilized.

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Lumber Prices Appear to Have Peaked

A strong headwind to further demand growth right now is higher material prices. A forest fire in Canada last summer severely disrupted the lumber supply chain, while the Trump administration’s tariffs on imports of Canadian softwood lumber, aluminum and steel have somewhat softened homebuilders’ confidence.

But lumber prices appear to have peaked and are currently in decline. After hitting $651 per 1,000 board feet in mid-May, prices have dropped close to 20 percent and have posted losses in seven of the last eight trading days through June 19.

Curious to know what factors we …read more

Take the Long-Term View in a Late-Cycle Market

annual consumer prices advance the most in six years
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As you might expect, energy was the greatest contributor to higher prices in May, with fuel oil jumping more than 25 percent from the same month a year ago. The current average price for a gallon of regular gas nationwide was just under $3.00, compared to only $2.33 in June 2017, according to the American Automobile Association (AAA).

Inflation is set to get an even bigger jolt now that President Donald Trump has formally approved 25 percent tariffs on as much as $50 billion of Chinese goods. China has already announced retaliatory action. While I agree some targeted tariffs are welcome to address intellectual property theft,

The U.S. inflation story made further inroads this month, with year-over-year price growth for consumers and producers alike hitting multiyear highs. U.S. consumer prices expanded at their strongest pace in more than six years, climbing to an annual change of 2.8 percent in May. Prices for final demand goods, meanwhile, grew 3.1 percent, their strongest annual surge since December 2011.

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As you might expect, energy was the greatest contributor to higher prices in May, with fuel oil jumping more than 25 percent from the same month a year ago. The current average price for a gallon of regular gas nationwide was just under $3.00, compared to only $2.33 in June 2017, according to the American Automobile Association (AAA).

Inflation is set to get an even bigger jolt now that President Donald Trump has formally approved 25 percent tariffs on as much as $50 billion of Chinese goods. China has already announced retaliatory action. While I agree some targeted tariffs are welcome to address intellectual property theft, tariffs at the wholesale level are essentially regulations that threaten to undermine all the work Trump has done to supercharge the U.S. economy. They act as headwinds to further growth, which in turn makes gold look attractive as a safe haven investment.

Blaming OPEC

Let’s return to energy for a moment. Hot off the success of his historic summit with North Korea leader Kim Jong-un, Trump took a stab at foreign oil producers last week, tweeting: “Oil prices are too high, OPEC is at it again. Not good!”

The president isn’t wrong, but I believe he may be overselling the Organization of Petroleum Exporting Countries’ influence here. In May, the 14-member cartel added an extra 35,000 barrels per day (bpd) in output compared to the previous month, to reach a total of 31.8 million bpd. This is down from the average 32.6 million and 32.4 million bpd OPEC collectively produced in 2016 and 2017.

Venezuela’s output deteriorated once again, falling more than 42 percent in May to 1.4 million bpd, which is less than half of what it produced 20 years ago.

The beleaguered South American country didn’t have the biggest monthly decline among OPEC members, however—that title belonged to Nigeria, which saw its April-to-May production tumble 53.5 percent to 1.7 million bpd. Analysts predict output could fall further to 1.4 million bpd by July—a level not seen since 1988—as the country’s Nembe Creek Trunk Line (NCTL) has had to be closed recently to address product theft along its route.

OPEC will meet later this month and is widely expected to loosen production curbs as global demand strengthens. In the meantime, the U.S. continues to pump even more oil on a monthly basis, and by 2019 it could be producing more than 11 million bpd for the first time ever. This would make it the world’s top oil producer, above Russia.

Want to learn more? Watch this brief video featuring Samuel Pelaez, who …read more

Top 10 Gold Producing Countries

global gold production fell slightly in 2017 world gold council data
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As seen in the chart below, China takes the number one spot of global gold producers by a wide margin, extracting 131 tonnes more than second place Australia. The top 10 rankings remained unchanged from 2016 to 2017, with the exception of Canada and Indonesia switching between fifth and seventh place, respectively. Of the top producers, Russia posted the largest annual gain, boosting output by 17 tonnes.

top 10 gold producing countries in 2017
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Below are more details on the top 10 countries with the largest gold production in 2017, beginning with the top producer and top consumer of bullion, China.

1. China – 426 tonnes

For many years China has been the top producing nation, accounting for 13 percent of global mine production. Production fell by 6 percent last year due to escalated efforts by the government to fight pollution and raise environmental awareness. However, production is expected to pick back up this year due to several mine upgrades at existing projects.

2. Australia – 295.1 tonnes

Although gold production increased 5 tonnes from the previous year in Australia,

Gold is one of the rarest elements in the world, making up roughly 0.003 parts per million of the earth’s crust. But how much gold is the world digging up each year and what countries produce the most?

In 2017, global gold mine production was a reported 3,247 tonnes. This figure is down 5 tonnes from the previous year and marks the first annual drop since 2008, according to the GFMS Gold Survey 2018. The driving forces behind the drop in output were environmental concerns, crackdowns on illegal mining operations and rising costs.

This raises the question I’ve explored recently – have we reached peak gold? The idea is that all the easy gold has already been discovered and explorers have to dig deeper to find economically viable deposits. For example, South Africa was once the top gold-producing country by far, digging up over 1,000 tonnes in 1970, but annual output has fallen steadily since. On the other hand, several nations have emerged in the last few years as growing gold producers. China and Russia have both seen production in an overall upward trend.

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As seen in the chart below, China takes the number one spot of global gold producers by a wide margin, extracting 131 tonnes more than second place Australia. The top 10 rankings remained unchanged from 2016 to 2017, with the exception of Canada and Indonesia switching between fifth and seventh place, respectively. Of the top producers, Russia posted the largest annual gain, boosting output by 17 tonnes.

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Below are more details on the top 10 countries with the largest gold production in 2017, beginning with the top producer and top consumer of bullion, China.

1. China – 426 tonnes

For many years China has been the top producing nation, accounting for 13 percent of global mine production. Production fell by 6 percent last year due to escalated efforts by the government to fight pollution and raise environmental awareness. However, production is expected to pick back up this year due to several mine upgrades at existing projects.

2. Australia – 295.1 tonnes

Although gold production increased 5 tonnes from the previous year in Australia, MinEx Consulting released a report detailing an expected drop between 2017 and 2057 unless the amount spent on exploration is doubled. The minerals industry produces over half of Australia’s total exports and generates about 8 percent of GDP.

3. Russia – 270.7 tonnes

A massive 83 percent of European gold comes from Russia, which has been increasing its production every year since 2010. The nation increased output by 17 tonnes last year, even as the ruble appreciated 13 percent, which hurts producers with weaker revenue growth relative to the cost of production. Who is the largest buyer of Russian gold? The Russian government, of course, which purchases around two-thirds of all gold produced locally.

4. United States – 230.0 tonnes

Gold …read more

Texas Gold Investors Just Got Their Own Fort Knox

could deutsche bank be another lehman
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Many analysts are already making the dubious comparison between Deutsche and Lehman Brothers, the storied American financial services firm whose bankruptcy nearly 10 years ago set off the global financial crisis. At the time of its filing, Lehman had approximately $639 billion in assets. As of the end of last year, Deutsche controlled more than double that amount — $1.7 trillion — meaning its failure could be catastrophic to global financial markets.

Ideas are currently being floated to save the distressed bank, including a German government bailout and a merger with rival Commerzbank, but nothing is guaranteed.

Record Student Debt

Starbucks CEO Schultz debt is the greatest economic threat to the United States

Something else I’m keeping my eye on is the ever-growing mountain of

If you live in Texas and have any extra gold bars, coins and/or jewelry lying around that need safekeeping, you’re in luck. The Texas Bullion Depository, the first of its kind in the U.S., officially opened to the public in Austin last week, putting a cap on three years of planning and construction. The private firm managing the facility, Lone Star Tangible Assets, calls it the “world’s most advanced depository.”

This is wonderful news. Because Texas is such a trend-setting state, it might encourage other states to look into creating their own depositories. It also has the potential to attract even more investors to precious metals, which I believe are crucial components of any well diversified portfolio. As I’ve shown before, gold has little to no correlation with other assets such as equities, cash and Treasuries.

That makes the yellow metal especially favorable—now more than at any time since the financial crisis. We’re in the second longest economic expansion since World War II, and some experts see another recession as soon as 2020. A new survey by the National Association for Business Economics (NABE) finds that half a panel of 45 “professional forecasters” believe the next recession could occur between the fourth quarter of 2019 and the second quarter of 2020.

Although I don’t necessarily agree with this assessment, it’s important to recognize the risks and headwinds and prepare accordingly.

“Troubled” Deutsche Has $1.7 Trillion in Assets

Among the most headline-worthy risks is the uncertain survival of Deutsche Bank. Shares of Germany’s biggest lender have plummeted following a first quarter report showing net income fell some 80 percent from a year ago, as well as news that the Federal Reserve downgraded the bank’s U.S. operations to “troubled.”

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Many analysts are already making the dubious comparison between Deutsche and Lehman Brothers, the storied American financial services firm whose bankruptcy nearly 10 years ago set off the global financial crisis. At the time of its filing, Lehman had approximately $639 billion in assets. As of the end of last year, Deutsche controlled more than double that amount — $1.7 trillion — meaning its failure could be catastrophic to global financial markets.

Ideas are currently being floated to save the distressed bank, including a German government bailout and a merger with rival Commerzbank, but nothing is guaranteed.

Record Student Debt

Something else I’m keeping my eye on is the ever-growing mountain of government and household debt. Howard Schultz, the outgoing billionaire executive chairman of Starbucks, told CNBC last week that he considered national debt to be the greatest threat to the U.S.

“I think the greatest threat domestically to the country is this $21 trillion debt hanging over the cloud of …read more

Gold, World War II and Operation Fish

Darkest Hour

I recently had the opportunity to see the excellent 2017 film Darkest Hour, about British Prime Minister Winston Churchill’s struggle to keep the United Kingdom in the fight against the Nazis, even as members of his own government pressured him to capitulate. Gary Oldman’s portrayal of the tough-as-nails leader is at turns tender and rousing—and very well deserving of the Best Actor Oscar.

I’d recommend the film to anyone, whether they’re a student of World War II or not.

It got me thinking, though, about the important role gold played in how the war was financed, as well as the U.K.’s daring efforts to prevent its gold holdings from falling into Adolf Hitler’s hands, should Nazi forces successfully invade the island and ransack its central bank. After all, Germany had done as much in a number of Central European countries before threatening the U.K.

Although not directly addressed in Darkest Hour, the U.K. ended up evacuating billions of dollars’ worth of gold bullion and other assets across the Atlantic, all to be kept safely in Canada. The mission, codenamed “Operation Fish,” is still the largest movement of physical wealth in history.

Germany’s Economic Straits

So why was Hitler so interested in acquiring gold?

To answer that, we really need to go back to the 1920s. At the time, Germany was in serious economic straits. It faced unprecedented hyperinflation, among the very worst such incidents in world history.

This was clearly a problem for Hitler, who, soon after being appointed Reich Chancellor in 1933, set in motion the remilitarization of Germany, in direct violation of the Treaty of Versailles. Because the Western European country is not particularly resource-rich—the one exception is coal—everything from aluminum to zinc would have to be imported to manufacture the guns, tanks, ships, and warplanes needed to wage an extended conflict in the age of advanced machines.

But this was the Great Depression, which had suffocated the German economy as much as it had the United States’. Unemployment climbed to as high as 30 percent. In his inaugural address via radio, Hitler vowed to “achieve the great task of reorganizing our nation’s economy” through “a concerted and all-embarking attack against unemployment.”

Much like Roosevelt’s New Deal in the U.S., Hitler’s government tackled unemployment by dipping into deficit spending. It financed great public works projects such as the autobahn, railroad, housing and more.

The plan worked. Within four years, just as promised, unemployment was virtually thwarted. It’s been said that, had Hitler stopped in 1936 or 1937, he might today be remembered as one of the 20th century’s most admired leaders.

However, Hitler assumed a much more aggressive stance toward national rearmament in an effort to reclaim lost dignity—the Treaty of Versailles be damned. What stood in his way was not only his country’s lack of natural resources but also the fact that many supplier nations would not accept Germany’s worthless currency. They insisted instead to be paid in their own currency; some other international, convertible currency such as Swiss francs or U.S. dollars; or hard …read more

GO GOLD! Inflationary Tariffs Could Supercharge the Yellow Metal

US midwest hot rolled steel price up 45 percent from last year
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Next up, the U.S. government could slap steep tariffs on imported automobiles—and possibly even ban German luxury vehicles outright, according to a report by German business news magazine WirtschaftsWoche.

These decisions, if fully implemented, will have a multitude of implications on the U.S. and world economies. What I can say with full confidence, though, is that prices will rise—for producers and consumers alike—which is good for gold but a headwind for continued economic growth.

You Can’t Suck and Blow at the Same Time

US midwest hot rolled steel price up 45 percent from last year

Let me explain. I’ve often said that middle class taxpayers elected Trump president by and large to take on entrenched bureaucrats, cut the red tape and streamline regulations. People are fed up. A study last year by the Congressional Budget Office (CBO) found that government workers not only

Ready for inflation?

Just days after Treasury Secretary Steven Mnuchin reassured markets that a trade war between the U.S. and China was “on hold,” the Trump administration announced that it would be moving forward with plans to impose 25 percent tariffs on as much as $50 billion worth of Chinese exports to the U.S. Beijing has already suggested that it will retaliate in kind.

The White House also reinstated tariffs on imports of steel and aluminum from Canada, Mexico and the European Union (EU) after allowing earlier exemptions to expire. Again, there’s a big chance the U.S. will see some sort of tit-for-tat response.

Steel prices are already up 45 percent from a year ago. The annual change in the price of a new vehicle in the U.S. has been dropping steadily since last summer, according to Bureau of Labor Statistics data, but with the cost of materials set to rise dramatically, we could see a price reversal sooner rather than later.

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Next up, the U.S. government could slap steep tariffs on imported automobiles—and possibly even ban German luxury vehicles outright, according to a report by German business news magazine WirtschaftsWoche.

These decisions, if fully implemented, will have a multitude of implications on the U.S. and world economies. What I can say with full confidence, though, is that prices will rise—for producers and consumers alike—which is good for gold but a headwind for continued economic growth.

You Can’t Suck and Blow at the Same Time

Let me explain. I’ve often said that middle class taxpayers elected Trump president by and large to take on entrenched bureaucrats, cut the red tape and streamline regulations. People are fed up. A study last year by the Congressional Budget Office (CBO) found that government workers not only earn more on average than private-sector workers with similar educational backgrounds, they’re also guaranteed health, retirement and other benefits. Trump responded to these concerns by signing an executive order that eased the firing of federal workers.

He’s kept his word in other ways. Since being in office, he’s already eliminated five federal rules on average for every new rule created, according to the Competitive Enterprise Institute (CEI). He’s weakened Obamacare and Dodd-Frank, not to mention slashed corporate taxes.

In 2017, the number of pages in the Federal Register, the official list of administrative regulations, dropped to 61,950 from 97,069 the previous year. This is especially good news for productivity. Research firm Cornerstone Macro found that Americans were more productive when there were fewer rules, less productive when there were more rules.

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These are all positive developments that should help boost the economy. The problem is that they could be undermined by tariffs, which are essentially regulations. We believe government policy is a precursor to change, and history suggests that rising tariffs and regulations hurt the economy.

Consider automobiles. U.S. automakers are the second largest consumer of steel …read more

Spinning Italy's Distressed Debt into Gold

gold priced in euros at one-year high on political uncertainty in Italy
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Italian government bond yields surged dramatically following President Sergio Mattarella’s decision to block the opposition parties’ pick for economic minister, a euroskeptic who supports Italy’s exit from the eurozone. The two-year bond in particular plunged the most since the creation of the bloc’s common currency in 1999.

italian government borrowing costs surge
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With no working government at the moment, it appears likely that Italy will hold another election soon, raising the odds that either the Five-Star Movement or the League—both populist, anti-establishment parties—could take control. Although at opposite ends of the political spectrum, the two parties have expressed interest in at least opening an earnest discussion on the idea of ditching the euro.

Déjà Vu All Over Again

Italy’s appetite for change fits into what I see as a global trend right now. Based on what I’ve heard during my travels, middle class taxpayers, in the U.S. and elsewhere, are increasingly fed up with special interests and entrenched bureaucrats. As a result, the U.K. elected to end its complicity with

Serious gold investors know that May has historically been a weak month for the price of the yellow metal. For the 10-year and 30-year periods, the month delivered negative returns. The general decline in enthusiasm comes before the late summer rally in anticipation of Diwali and the Indian wedding season, when gifts of gold are considered auspicious. In the past, the fifth month has provided an attractive buying opportunity.

This particular May, the price of gold also had to contend with a stronger U.S. dollar, which appreciated against the euro as political strife in Italy spread throughout the entire continent. Priced in euros, then, gold is performing well, having closed at a nearly one-year high of 1,125 euros on May 29.

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Italian government bond yields surged dramatically following President Sergio Mattarella’s decision to block the opposition parties’ pick for economic minister, a euroskeptic who supports Italy’s exit from the eurozone. The two-year bond in particular plunged the most since the creation of the bloc’s common currency in 1999.

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With no working government at the moment, it appears likely that Italy will hold another election soon, raising the odds that either the Five-Star Movement or the League—both populist, anti-establishment parties—could take control. Although at opposite ends of the political spectrum, the two parties have expressed interest in at least opening an earnest discussion on the idea of ditching the euro.

Déjà Vu All Over Again

Italy’s appetite for change fits into what I see as a global trend right now. Based on what I’ve heard during my travels, middle class taxpayers, in the U.S. and elsewhere, are increasingly fed up with special interests and entrenched bureaucrats. As a result, the U.K. elected to end its complicity with failed socialist rules and regulations from Brussels. Donald Trump, an outsider and disruptor, was recognized by American voters as the right candidate to take on the beltway party.

Similarly, it’s possible that Italy could end up being next to say addio to further European Union (EU) control and take back its own economic and political destiny.

That said, the fear of another government debt crisis, similar to Greece’s, has naturally rattled markets. Because Italy, the eurozone’s third-largest economy, already has the highest debt-to-GDP in the bloc after Greece, and because Five-Star and the League both support ending austerity and challenging Brussels’ limits on government borrowing and spending, financials were the worst performing sector in the U.S. market, falling close to 4.5 percent for the week ended May 29. The Euro Stoxx Banks Index was down 5 percent for the same period. Italian banks fared even worse, collapsing nearly 25 percent since their high in late April.

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Gold Seeing a Boost on Safe Haven Demand

Gold is trading above $1,300 an ounce again, but there could be bigger upside the more investors realize the …read more

Building a Better U.S. Economy

United States public trust in federal government near historic lows
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The polling data, provided by the Pew Research Center, was shared by Pulitzer Prize-winning biographer Jon Meacham, who spoke last week at an Investment Company Institute (ICI) meeting in Washington, D.C. Although no fan of the president, Meacham believes, as I do, that fed up, disillusioned voters turned to Donald Trump to

This shouldn’t surprise anyone, but public trust in the federal government is eroding. Sixty years ago, 75 percent of Americans expressed faith in the government to do the right thing “most of the time” or “just about always.” Seventy-five percent! You can’t get 75 percent of people to agree on anything now, as the recent “Laurel or Yanny” video proved.

Today, only one in five Americans, or 20 percent—a near-record low—believes our leaders make decisions in the country’s best interest. If you’re reading this, you might very well be in the camp that has some serious doubts.

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The polling data, provided by the Pew Research Center, was shared by Pulitzer Prize-winning biographer Jon Meacham, who spoke last week at an Investment Company Institute (ICI) meeting in Washington, D.C. Although no fan of the president, Meacham believes, as I do, that fed up, disillusioned voters turned to Donald Trump to take on the beltway party and career bureaucrats and roll back out-of-control regulations.

Government Policy Is a Precursor to Change

This anti-establishment discussion isn’t just happening here in the U.S., of course. Brexit in the U.K. was a populist backlash against excessive rules from unelected bureaucrats in Brussels. Last year, France nearly elected the far-right Marine Le Pen to the president’s mansion. And in Italy this week, tax-paying middle class, euroskeptic voices are getting louder following President Sergio Mattarella’s veto of their pick for economy minister.

Love him or hate him, Trump has so far stuck to his word, and he doesn’t seem to have any reservations about whose applecart he upsets. He’s an equal-opportunity disruptor, and for that he has opponents on all sides of the political spectrum, including the beltway.

It’s little wonder, then, that “Trump” is likely the most spoken word in the English language right now, according to Meacham. Just don’t tell Trump that.

The presidential historian—who last month delivered the eulogy for former first lady Barbara Bush—also reminded the audience that, as bad as many people believe things are right now, they used to be much worse. Remember slavery? Remember Jim Crow?

Some people believe Trump is determined to weaken First Amendment protections, but he’s not the biggest threat to free speech this country has ever seen, Meacham said.

A little over 100 years ago, in preparation for America’s entry into World War I, Congress passed and President Woodrow Wilson signed the Espionage Act, which gave the U.S. government sweeping new authority to control and censor the press. Overnight, it became illegal to “convey information with intent to interfere with the operation or success of the armed forces of the United States or to promote the success of its enemies.” Hundreds of communist and pro-German newspapers and magazines were banned or …read more

Yields Look Overextended and Ready for Mean Reversion

Year over year percent change oscillator 10 year treasury yield
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Muni Bonds Outperformed in Previous Rate Hike Cycles

Fixed-income investors

The 10-year Treasury yield has been the topic of conversation lately among fixed-income investors. Earlier this month, the T-note closed above 3 percent for the first time since July 2011, prompting some market watchers to call time on the three-decade Treasury bull market. (Bond prices fall as yields rise, and vice versa.) For other investors, these concerns might extend into the $3.8 trillion municipal bond market.

I believe this bearishness is premature. Take a look at the chart below, which shows the 10-year yield’s daily standard deviation based on 10 years’ worth of data. As of Friday, May 18, the yield was up a little more than two standard deviations from its mean—suggesting that, while not guaranteed, there’s a high probability of mean reversion. Such a move would bring the 10-year yield back down to around 2.88 percent, a level last seen in mid-April. This would be similarly positive for muni bonds, though it’s important to remember that Treasuries, unlike munis, are backed by the full faith and credit of the U.S. government.

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Muni Bonds Outperformed in Previous Rate Hike Cycles

Fixed-income investors might find munis more attractive than Treasuries right now for two additional reasons.

For one, muni bonds historically outperformed and were less volatile than Treasuries during previous rate hike cycles, according to Standish data. In the past, a 100 basis point rise in the 10-year Treasury yield—in response to higher interest rates—was accompanied by a rise of only 60 basis points on average in muni bond yields.

Take a look below. In each of the past seven rate hike cycles, munis outperformed Treasuries by at least 5 percent and sometimes as much as 10 percent or more. The Federal Reserve has raised rates six times since December 2015, with two more increases possibly slated for this year.

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Tax Overhaul Favors Munis

Second, because muni bonds are exempt from federal income taxes and often from state and local taxes (SALT) as well, they’re especially attractive to investors living in high-income tax states such as California, New York, New Jersey, Minnesota, Oregon and others.

You might think that the major tax reform bill signed into law at the end of last year would dampen demand for munis. But because the law caps SALT deductions at $10,000, wealthier taxpayers, in many cases, may end up paying more to Uncle Sam than they did before.

Some high-tax states are scrambling to create “SALT workarounds,” designed to help top earners cope with the new tax law and prevent talent from migrating to a state with lower (or no) income taxes.

The problem with these workarounds, though, is that many of them are highly complex. What’s more, filers may run into difficulties with the Internal Revenue Service (IRS), which has expressed disapproval of the workarounds.

You can probably tell where I’m going here. Short-term muni bond funds are a tried-and-true method …read more

Blockchain Will Completely Revolutionize How We Mine Gold and Precious Metals

Global sales of semiconductors crossed above 400 billion for fisrt time in 2017
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Before I get off this topic, I want to mention that blockchain is also bringing change to gold investment. Consider

Last week I had the pleasure to attend Consensus 2018 in New York, the premiere gathering for the who’s who in blockchain, bitcoin and cryptocurrencies. Attendance doubled from last year to an estimated 8,500 people, all of them packed in a Hilton built for only 3,000. Ticket sales alone pulled in a whopping $17 million, while event booths—the largest of which belonged to Microsoft and IBM—generated untold millions more.

The entire three-day conference, hosted by crypto news outlet CoinDesk, had the energy and flair of the world’s greatest carnival. Sleek lambos sat outside the hotel, attracting all sorts of gawkers. Passersby also stopped and stared at the “bankers against bitcoin” protest, conceived and funded by Genesis Mining, one of the largest bitcoin mining companies. (You can read my interview with Genesis cofounder and CEO Marco Streng here.)

The same money went to finance bitcoin awareness billboards outside the Omaha office of Warren Buffett, who recently bashed the cryptocurrency, calling it “rat poison squared.”

“Warren,” the billboards read, “you said you were wrong about Google and Amazon. Maybe you’re wrong about Bitcoin?”

Bringing #BitcoinAwareness to the Masses

That Buffett has a negative opinion of bitcoin shouldn’t surprise anyone. The “Oracle of Omaha” has famously been averse to emerging technology and tech stocks he doesn’t fully understand, including Google, Amazon, Microsoft and others. But he’s changed his mind in the past after he’s seen the value these companies provide.

I’m old enough to remember when Buffett was vehemently against airline stocks. The industry was a “death trap” for investors, he once said. Today, his company Berkshire Hathaway is one of the top holders of stock in the big four carriers—United Continental, Delta Air Lines, Southwest Airlines and American Airlines. He even told CNBC he “wouldn’t rule out owning an entire airline.”

Obviously there’s a world of difference between airline stocks and bitcoin—although blockchain, the technology that bitcoin is built on top of, is already being used in aviation to increase transparency in aircraft manufacturing and maintenance. All I’m saying is I wouldn’t rule out bitcoin, or cryptocurrencies in general, just because Buffett isn’t a fan. He doesn’t like gold as an investment either, and that hasn’t stopped it from being one of the most liquid assets on the planet.

The Future of Gold Mining (And Investing)

But back to Consensus. It wasn’t all fun and games, and there were some serious discussions on how governments might one day use cryptocurrencies; the future of bitcoin mining; and blockchain applications in finance, health care, insurance, energy and more. As I explain in last week’s Frank Talk Live, charitable giving is down because donors are increasingly concerned about fraud. Blockchain can help validate where your money is going.

I would include the mining industry to that list. Blockchain has the potential to revolutionize how gold and precious metals are manufactured and delivered. Consider the journey a gold nugget must take along its supply chain, from mine to end …read more

This Oil Rally Could Have Much Further to Go

energy stocks are recovering alongside oil prices
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Those returns could grow even more, if Bank of America Merrill Lynch’s latest forecast proves accurate. Analysts there believe the price of oil could climb back up to the $100 range as early as next year, which would add another $1 to the cost of a gallon of gas.

Speaking to CNBC this week, famed energy analyst Dan Yergin, winner of the Pulitzer Prize, said that Brent crude, the international oil benchmark,

For more than a week now, West Texas Intermediate (WTI) crude oil has been trading north of $70 per barrel, a level we haven’t seen since November 2014. Gas prices are likewise trending up, as I’m sure you’ve noticed. According to the American Automobile Association (AAA), the average cost for a gallon of regular gas was $2.88 on May 15, up nearly 25 percent from a year ago.

This will inevitably push inflation up even higher. In April, consumer prices advanced 2.4 percent year-over-year, their fastest pace since February 2017.

Energy the Best Performing Sector for the Three-Month Period

The good news is that energy stocks are also recovering. The S&P 500 Energy Index, which tracks heavy hitters such as Chevron, Exxon Mobil, Marathon Petroleum and more, is up almost 7 percent year-to-date, and 46 percent since its low in January 2016. As of May 15, energy was the top-performing sector for the three-month period, returning 14.5 percent.

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Those returns could grow even more, if Bank of America Merrill Lynch’s latest forecast proves accurate. Analysts there believe the price of oil could climb back up to the $100 range as early as next year, which would add another $1 to the cost of a gallon of gas.

Speaking to CNBC this week, famed energy analyst Dan Yergin, winner of the Pulitzer Prize, said that Brent crude, the international oil benchmark, could reach $85 a barrel by July. This would serve as a “big stimulus” for U.S. drilling activity, he noted. I would add energy share prices to that assessment.

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U.S. gas prices peaked at $4.11 a gallon in July 2008, according to AAA, and if you’re like me, you’re probably in denial that we might have to start paying that again at the pump. We’re not quite there yet, but it might be time to get your portfolio ready by adding to your energy exposure.

Venezuela Oil Output Deteriorates Further Ahead of Sunday’s Presidential Election

So what’s driving the current rally?

Besides greater global demand—supported by a healthy, expanding economy—two things in particular are keeping prices buoyant right now. Number one, President Donald Trump’s decision to pull the U.S. out of the Iran nuclear deal has the potential to curb exports out of the Middle Eastern country, by as little as 200,000 barrels per day (bpd) or as much as 1 million bpd, depending on your source. Iran is responsible for about 4 percent of the world’s supply, so the impact is not insignificant.

Global oil supply is also being squeezed right now by worsening economic conditions in Venezuela. A member of the Organization of the Petroleum Exporting Countries (OPEC), Venezuela sits atop the world’s largest proven oil reserves—and yet its monthly output has been declining rapidly for more than two years. In January, the most recent month of data available, the South American country pumped only 1.67 million bpd. …read more

My Conversation with Bitcoin Visionary Marco Streng

only around 4 million bitcoin remain to be mined out of 21 million total
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The second component is a measure of how many miners and how much computing power is in the network. If more miners come online, then of course the competition becomes greater. Because the daily supply is already fixed, your market share shrinks.

bitcoin mining is now in highly concentrated range of the herfindahl-hirschman index
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Think of it like the California Gold Rush. Mining gold at first was relatively easy because the metal was plentiful and there were few miners. By the end, it became more difficult because the easy gold had already been claimed, and you were competing with far more miners. We’re seeing the same thing happen with bitcoin and other mineable digital currencies.

Speaking of computing power, HIVE Blockchain just announced that it

Last week I had the opportunity to sit down with Marco Streng, the wunderkind bitcoin visionary behind Genesis Mining. Genesis, as many of you reading this might know, is the world’s largest cloud bitcoin mining company, with over 2 million customers worldwide. It calls Iceland home, whose cool climate and affordable green energy are ideal for mining newly minted virgin cryptocurrencies. Last year, Genesis helped connect the blockchain sector and traditional capital markets by partnering with HIVE Blockchain Technologies, the first publicly traded digital currency mining firm.

This week, Marco will be one of the panelists at the Consensus 2018 blockchain technology summit in New York, which I will also be attending. Below are highlights from our conversation.

Tell us how you got started in this industry.

I’ve always had a passion for mathematics, science, physics. I wanted to understand how nature works. I used to spend days and nights in the library, and I was actually on my way to becoming a math professor.

But then blockchain and bitcoin came along, and that changed everything. At the time, the community was very small, but the ideas and visions were very big. No one fully realized then how fast it would all grow or just how revolutionary it could end up being. I watched as new marketplaces began to emerge, businesses began to bet on bitcoin and people started adopting it. More and more exchanges popped up. All of this happened within a year of me first reading about blockchain and bitcoin—it progressed that quickly.

It was clear that something big was happening. The world was changing, and I needed to be part of it.

How would you describe bitcoin to someone who knew nothing about it?

With bitcoin, you can send money anywhere in the world to anywhere else without worrying about boundaries or having the transaction controlled or stopped by a third party. It’s a completely independent, decentralized, peer-to-peer system. This is what makes it so revolutionary.

The conventional banking system really shows its limitations when we try to move money between developed and underdeveloped countries, particularly those in Africa. There are some serious inefficiencies that, frankly, many of the big banks just aren’t interested in fixing. But with bitcoin, you don’t have to worry about that. You can send money to, say, a coffee farmer in Africa, and he’ll receive it directly.

Money transfers are only one among a number of many other uses. Bitcoin is also a store of value. It’s one of the few assets that I would say are uncorrelated to the broader financial markets.

As for blockchain, it has innumerable world-changing applications across a wide range of industries. That’s why I believe it’s crucial that people have the right information about blockchain and understand it. If people don’t understand it, and it gets overhyped, I’m afraid it could start going in the wrong direction.

We recently mined the 17 millionth bitcoin, leaving only four million left. Explain why it becomes exponentially more difficult to mine coins the closer we get to …read more