From Ignorance Comes Certainty

Posted On Apr 2, 2014 By Dave Gonigam

April 2, 2014

  • Harvard Business School and the BS artists of business TV…
  • Bubble chatter in overdrive: A no-BS assessment from three of our favorite experts
  • Gold rallies, Silver Eagle sales soar, platinum supplies tighten
  • “Safe haven” talk that wearies Chuck Butler… a follow-up on drone shoot-down permits… the attack on inherited wealth, continued… and more!

  “Speak with conviction. Even if you believe something only 55%, say it as if you believe it 100%.”

That’s the gist of an information session on how to be a good student at Harvard Business School, as described by Susan Cain in her book Quiet: The Power of Introverts in a World That Can’t Stop Talking.

Successful Harvard Business students “look like people who expect to be in charge… I have the feeling that if you asked one of them for driving directions, he’d greet you with a can-do smile and throw himself into the task of helping you to your destination — whether or not he knew the way.”

Harvard Business alumni include George W. Bush, former Treasury Secretary Hank Paulson, imprisoned Enron CEO Jeffrey Skilling and not-imprisoned JPMorgan CEO Jamie Dimon. Draw your own conclusions.

  “Our society once routinely called people ‘bull**** artists,'” writes psychologist Bruce Levine, “if they spoke with total certainty without any basis for such certainty so as to persuade others and get attention for themselves. Nowadays, bull**** training is called ‘leadership training’ and unashamedly taught at ‘elite institutions’ and at expensive leadership seminars.”

And many products of such training end up as pundits on CNBC. Heh…

Our little ramble this morning is prologue to an earnest exploration of this question: What the hell’s going on with the stock market back at all-time highs again? (As we write, the S&P 500 is inching further into record territory, at 1,889.)

For insight, we draw on three gentlemen who have firm opinions but who also know their limits. All three would bristle at a CNBC anchor asking breathlessly, “Where will the market be a year from now?” (Quips one: “It will probably still be here.”) And none attended Harvard Business School…

 “How many record highs does an investor need to see before he admits that the stock market’s not such a terrible place for his spare cash?” asks Greg Guenther in this morning’s Rude Awakening.

“During the first quarter, market pundits and the media have pummeled us with bubble talk, crash warnings and tales of market euphoria.” A New York Times headline on Sunday read, “In Some Ways, It’s Looking Like 1999 in the Stock Market.”

Really? Greg points us to a Gallup survey in January — shortly after the last all-time highs. “Half of Americans said that if they had $1,000 to spend, investing in the stock market would be a bad idea.”

At the market top in January 2000, 67% thought it was a good idea.

  “The world today is nothing like it was then,” writes Ritholtz Wealth Management chief Barry Ritholtz, recalling those dizzy dot-com bubble days.

“The streets weren’t paved with gold, then trading at a pitiful $250 an ounce, but rather cocaine and $2,000-a-night escorts. No one obsessed about the top 1%, because the top 50% saw so much green coming its way. Profits, salary and bonuses flowed madly from Wall Street to much of the country. Bonuses migrated from traders to Ferrari dealers to the Hamptons. Imagine so much cash sloshing through the system that even the now-shrinking middle class enjoyed rising wages and improving standards of living.”

Now? Only 54% of Americans say they even own stocks — down from 67% at the peak of the dot-com bubble.

“When we think of important market tops,” Mr. Ritholtz writes, “we think of widespread euphoria and absurd valuations, [with] even the dumbest ideas having endless venture capital money thrown at them. There is little of that brand of euphoria today for the market, as the above survey makes clear. Valuations are only mildly elevated by historical standards.”

  “I have no idea when the next bear market will begin or how long it will run,” says our Chris Mayer.

If you’ve been with us for a while, you know Chris is having a rough time finding bargain-priced stocks — which, we hasten to add, is a different proposition than saying we’re in a bubble on the verge of bursting.

Chris got an email from a reader worried about the next downturn and whether the baby boomers will bail from stocks for good. His reply: “I don’t see any reason why people would quit the stock market any more than they would quit gambling or drinking or any other of the many things people do that sometimes bite back at them.

“The stock market will go up and down and up and down for as long as there is a stock market. I don’t see anything special about our current era that says otherwise. Every generation likes to nurture the conceit that what it is going through is somehow unique or special. It isn’t. Our market will be just another set of lines in somebody’s history book.”

  So how do you protect yourself against calamity in the stock market? “Easy,” says Chris. “Don’t own stocks.

“Seriously. There are no ‘safe’ stocks. When the market falls 50%, they will all go down a lot. So all you can do is make sure your financial house is in order such that you can leave your money in and you don’t have to panic out. You may panic anyway, but at least you won’t have to do anything. If you are nervous about your stock portfolio, then it’s too big.

“I’ve been very selective with new recommendations. So I don’t think you should be fully invested. But just how much is a personal decision. I’m keeping quite a bit of dry powder.”

Chris’ caution has paid off: He has only nine names in the open portfolio of his flagship newsletter Capital & Crisis. But the average position is up 61% in 15 months — double the performance of the S&P. If that kind of performance — and the common sense that goes with it — resonates with you, you should join the ranks of his satisfied readers. Here’s where to do so.

  Gold is clawing and scratching its way back to $1,300. At last check, the bid was $1,292.

Silver has recovered the $20 level. Platinum is up to $1,423 and palladium to $784.

  Silver Eagles are like Doritos: You keep buying them, the U.S. Mint will keep making them.

Well, that’s our thought anyway after seeing the latest Silver Eagle sales figures — 5.4 million in March, a big improvement month over month and year over year.

But as you might be aware, that’s not the whole story: “Sales levels for Silver Eagle bullion coins have largely become a function of how many coins the U.S. Mint can produce rather than a reflection of market demand,” Coin Update reminds us. The Mint has been rationing supply to its dealer network for more than a year because it can’t get its hands on enough 1-ounce silver blanks.

Gold Eagles? Not so hot — 21,000 ounces exited the Mint’s doors in March, the slowest pace in six months.

The return of Platinum Eagles after a five-year absence generated only moderate interest — sales of 10,000 1-ounce coins.

 One of South Africa’s leading platinum producers is on the verge of desperate measures.

The miners’ strike in South Africa has dragged on more than nine weeks. Now Impala Platinum Holdings might buy metal on the open market to meet demand. “We definitely can’t continue to supply all our clients as we normally would’ve done,” a spokesman tells Bloomberg.

Yikes. No progress in negotiations to end the strike, either…

  Copper popped this morning as traders assessed the impact of the earthquake off the coast of Chile — the world’s leading copper producer.

But damage to the mines and ports appears limited; after rising to $3.05 a pound this morning, the red metal is back to $3.02.

  A quiet week for the greenback so far — the dollar index hovers a bit above 80. Among the index’s biggest components, the euro has weakened a bit, to $1.376, and it takes 103.8 yen to equal one U.S. dollar.

“This weakness in the yen so overdue,” says EverBank’s Chuck Butler. “But every time I think the yen is about to take a ride on the slippery slope even lower from here, the currency gets dragged back up by ‘safe haven flows.’

“When will the markets get the news that the Japanese government wants a weaker yen from here and stop treating yen like some strong, fundamental safe-haven currency? That’ll be the day, when you say goodbye, Yes, that’ll be the day, when you make me cry. And the crying will be all that’s left for those that didn’t see that yen is no safe haven!”

  “We weren’t going to really let people shoot aircraft out of the sky,” says Kim Oldfield, the town clerk in Deer Trail, Colo., population 546.

You might recall last fall the town put a referendum on the ballot proposing the issuance of $25 permits to shoot down drones “known to be owned and operated by the United States federal government.”

Yes, it was tongue-in-cheek. But it was also a sign of the times. “The Deer Trail drone-hunting idea,” Reuters reports, “was the brainchild of Phillip Steel, who described it in a telephone interview as a ‘call to all who love peace and freedom to stand up and resist all those who would trample precious liberty.'”

In any event, the proposal went down in flames yesterday — not unlike a small drone getting a 12-gauge shotgun blast. It failed 27%-73%.

Even as symbolism, the idea strikes us as batty: If the feds are flying a surveillance drone that’s flagrantly violating the Fourth Amendment… do you really need a $25 permit from the city to put a stop to that violation? [Note to the NSA: This is an entirely hypothetical question, not to be confused with any act of advocacy.]

  “Gene editing sounds really amazing,” a reader writes after yesterday’s episode, “but a rather far-off prospect for those suffering today.

“If a bone marrow transplant with the CCR5 lock can cure a person with HIV, why not offer that as treatment that is actually accessible today? I understand that this would be available only for those able to pay for it (like all costly experimental drugs and procedures) … Or is this something that the government in the name of ‘protecting us’ is trying to suppress?”

The 5: Hmmm… Your inquiry prompted us to investigate bone marrow donation, something that we’re lucky enough to have never contemplated till now.

“Marrow donation is a surgical procedure that takes place in an operating room,” according to an FAQ at a site called Be the Match. “The typical time commitment for the donation process is 20-30 hours of your time spread out over a four-six-week period.” And that doesn’t include travel time if the person you match is in a distant city.

  “Coincidentally with the Piketty book release,” an alert reader writes again, “Anderson Vanderbilt Cooper chimes in.”

Let’s bring you up to speed if you haven’t been reading daily: The new book Capital in the 21st Century by the French economist Thomas Piketty proposes a wealth tax and higher taxes on the largest incomes.

Since we spotted it a week ago today, our reader has seen boatloads of media citations attacking inherited wealth. The latest entry: CNN’s Anderson Cooper, son of Gloria Vanderbilt. “My mom’s made clear to me that there’s no trust fund. There’s none of that,” he told Howard Stern. “I don’t believe in inheriting money… Who’s inherited a lot of money that has gone on to do things in their own life?”

Back to our reader and his take: “The powers that be and the media are all over this paradigm-shift-riches-grab. Demonize inheritances.

“I don’t care what all those letter writers say, you all are the best. Thanks for all your work.”

The 5: Your editor long ago gave up watching cable news. But we do chuckle every time we recall the president of CNN calling Cooper “the pre-eminent journalist of his generation.” For real. You can Google it…


Dave Gonigam
The 5 Min. Forecast

P.S. Whether or not you have enough assets to qualify for the estate tax, there are always things you can do to limit your tax burden.

If you’re racing the income tax deadline, you really need to see this right now. And if you’ve already filed, you can still benefit next year.

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