Sandwiches, Jobs, Gold

Posted On Feb 5, 2016 By Dave Gonigam

  • Who says there’s no food inflation?
  • Does anyone believe the Fed will still raise rates four times in 2016?
  • The one asset that will benefit most as the Fed bows to the inevitable
  • Why cancer can’t be beaten with a “moonshot”… but science is still making progress
  • Nearly everything sells off as jobs surprise to the downside… overseas reader unworried about the war on cash… what if the corporate income tax went away?… and more!

Six-dollar footlong ♫…

Hmmm… It just doesn’t have the same ring, you know?

And if the Federal Reserve isn’t getting the inflation it wants now, we hate to see what happens whenever it does.

If you haven’t heard already, the sandwich chain Subway raised the cost of its $5 footlong specials to $6, effective yesterday.

“We launched the $5 footlong in 2007,” said a Tweet from the company on Tuesday. “Since then our costs have gone up greatly, but we try to balance that with promotions.”

Say this much: Subway is more or less keeping pace with the government’s bogus consumer price index. Using CPI as a yardstick, the $5 footlong of 2007 should cost $5.71 now.

Speaking of bogus government statistics, it’s the first Friday of the month — time for the monthly job numbers.

The wonks at the Bureau of Labor Statistics conjured only 151,000 new jobs for January — barely enough to keep pace with population growth. The number was way below the most pessimistic guess among dozens of economists polled by Bloomberg.

But the labor force participation rate — the percentage of working-age adults either working or looking for work — inched up to 62.7%.

That was enough to drive the U-3 unemployment rate down to 4.9%, a level last seen in February 2008. The U-6 rate — which includes part-timers who want to work full-time and people who’ve given up looking for work in the past year — held steady at 9.9%.

Then there’s the real-world unemployment rate calculated by Shadow Government Statistics — which basically takes the U-6 rate plus all the people who gave up looking for work more than a year ago. That too is steady at 22.9%.

The market reaction to the job numbers is to sell a little bit of everything:

  • At last check, the Dow has shed nearly 200 points, hovering just above 16,200. The S&P 500 is off 1.5% — back below 1,900. The first week of February is likely to end in the red
  • Treasuries are likewise selling off, sending yields up. The 10-year note now yields 1.88%
  • Crude, which inched above $33 yesterday, is down to $31.73.

Gold, at least, is holding steady at $1,155.

But the only “asset class” that’s rallying today is the dollar. As we write, it takes $1.112 to equal one euro.

The weak headline job number of 151,000 is fueling expectations the Fed won’t follow through with another interest rate increase in March. But Jim Rickards says those expectations are off base. He says it’ll take a number below 100,000 in next month’s report… or a stock sell-off that tanks the S&P another 200 points and brings it below 1,700.

It’s later in the year, says Jim, that the Fed will be forced to back off its plans for four rate increases during 2016.

“It looks very unlikely that the Fed will hike rates four times this year,” our income specialist Zach Scheidt chimes in.

“Just a few weeks ago, the Fed told the world that it intended to raise rates throughout 2016. The basic assumption was that the Fed would hike rates four times this year. Higher interest rates make the U.S. dollar stronger because investors can get better interest payments for holding U.S. dollars.”

But not now, with oil falling, stock markets looking more volatile and the economy looking increasingly in trouble.

Zach’s takeaway: “Without the prospect for interest rate hikes, the dollar is likely to weaken and gold and silver prices increase.”

In recent years, “the biggest culprit for lower gold prices has been the strong U.S. dollar. In a world in which emerging countries are trying to devalue their currency in order to make their exports more attractive, the U.S. dollar has been considered a relatively safe place to park capital.

“As the U.S. dollar moves higher, the gold price moves lower. That’s because it takes fewer ‘strong dollars’ to buy an ounce of gold.

“But this year, I’m convinced that we’re going to see a reversal in that trend.”

Indeed, it might already be underway — especially if gold can push above its $1,184 high last October…

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Funny thing is Zach doesn’t say this because he’s a gold bug. “Gold and silver don’t really do anything. They certainly don’t pay you income while you invest in them.”

But as we pointed out last month, you can generate an income stream from precious metals applying Zach’s “perpetual income strategy.” His premium subscribers were able to pull down a $350 payment from a silver play on Jan. 20. And on Tuesday of this week, they had the chance at another $350 from gold miners.

Zach isn’t the only one keen on this strategy. So is our publisher Joe Schriefer — so enthusiastic that last month he launched a cheeky “social income experiment” demonstrating to random people on the street how easy it is to generate hundreds of dollars of income at a time.

Fair warning: You need a solid $20,000 in capital to make the most of this strategy. If that’s you, we encourage you to check out the results of our experiment right here.

As of this week, President Obama’s war on cancer has a price tag attached to it.

“The president is going to ask Congress to spend $1 billion to get this medical ‘moonshot’ off the ground, with the bulk of the spending to take place next year,” says Ray Blanco on the science-and-wealth beat.

The “war on cancer” analogy irritates Ray — himself a cancer survivor. So does the president’s “moonshot” analogy. “Cancer is not like a moonshot. Going to the moon was eminently possible in principle. While there were difficult engineering problems to be solved, no basic scientific breakthroughs were needed. The basics of getting to the moon had been solved by Robert Goddard’s liquid-fueled rocket in 1926 and further refined by Wernher von Braun in the decades following.

“The liquid-fueled rocket was the magic bullet we needed to get to the moon. All we had to do was improve it and use it — a tall order, but still doable. There is no magic bullet for cancer.

“Curing cancer isn’t something we know how to do. It requires more than solving an engineering problem — it needs a scientific breakthrough. It’s possible to see a path through an engineering problem. Engineering, after all, is an application of existing science. But a scientific breakthrough is unpredictable. Discovery happens when it happens.”

Now for the good news: In the absence of magic bullets, there’s still measurable progress.

“It’s been a long, slow grind,” says Ray, “but for some types of cancer, more-than-90% survival rates are now possible.” Consider…

  • The 5-year survival rate for kidney cancer is up nearly 50% since the 1970s
  • The 5-year survival rate for leukemia is up 80% since the ’70s
  • Nearly all prostate cancer patients survive at least five years after diagnosis; in the ’70s, only two-thirds of them did.

And Ray believes that progress is set to accelerate. “Many cancer drugs are now being developed with a custom diagnostic test to determine whether or not they are relevant to a particular patient,” he says. “And many cancer drugs, rather than being designed for a general cancer type, are only for cancers with specific mutations. These, of course, must be tested before an oncologist recommends a specific therapy.

“New genome tests are also helping guide the process. In doing so, they not only save lives, but money. Many times, a particular therapy is deemed unnecessary based on a patient’s profile.”

Ray is especially keen on one player he recently recommended in our FDA Trader service. “The company has 17 different drugs in human clinical trials — including three Phase 3 drugs. It’s no one-trick pony.”

“Another good reason to dump banks and go with credit unions,” writes a reader with another angle to the war on cash.

“Today I walked into the credit union I have used for probably 30 years with two $500 money orders. Told the teller I want to cash them. She didn’t bat an eye and walked over to the cash drawer and came back with 10 new crisp Benjamins.

“I had sold a new power tool for driving fence posts to a customer and he paid me with the money orders that originated in Colorado. I live in southwest Oregon: two of only three lower 48 states where recreational marijuana is legal!

“The part of my business that sells and rents post drivers for ‘farmers’ to keep deer out was up a lot last year when rec. pot became legal here. I take credit cards, checks and cash… which I have no problem putting to use.”

“Good luck eliminating cash worldwide,” writes a reader from Thailand. “I read yesterday that Uber is changing its policy in Bangkok and allowing cash payments. It seems that in large parts of the world, everyone does not have credit cards to pay for things.

“I live in a town in the far northeast of Thailand and take my bicycle to the local market. I have never seen a credit card used and am sure I cannot convince any of the vendors to take one. The world where I live depends on cash, even though some use ATMs. The people who use the banks conduct most of their transactions in person at the local bank. No restrictions on cash going in or out. My wife and I go to several banks every month. In fact, one bank will pay utility bills automatically for you.

“By the way, you can pay utility bills in cash at the local 7-Eleven or even the post office. Leave your credit card home.”

“Yes, in the late 1980s, and even the early 1990s, when operating as a Schedule C sole proprietorship freelance nerd, it was possible to get decent group health insurance through membership in a professional organization,” writes a reader weighing in on the barriers to starting a business.

“The early 1990s cost was something like $400 per quarter, and it was good insurance. Took a W-2 post in early 2000s. That post evaporated in the 2008 meltdown, so went back to freelance.

“In the intervening few years, all professional organization group health policies had disappeared. Now cough up $1,700 per month for so-so coverage, and insurance operators keep abandoning California because they don’t like the market.”

“A thought on new corporate formations, revitalizing existing corporations and attracting foreign corporations,” writes one of our regulars. “Anyone consider simply eliminating the domestic corporate income tax entirely? For the 10% of you who are still reading, think about the following:

“1. Who pays corporate taxes? Dumb question: the corporations, of course — well, maybe. Where do the corporations get the shekels to pay the tax — from revenues. Where do the revenues come from — its customers, like you and me. Eliminating the corporate income tax would entail some planning (including things like price rollbacks to achieve price parity and a variety of other surmountable issues). Foreign corporations operating in the U.S. would continue to pay the tax, unless they move their corporate HQs to the U.S. and incorporate as U.S. corporations.

“2. Often, the biggest single factor in a business decision is the tax effect. No corporate tax, no tax effect — corporations could then make business decisions based on efficiencies and effective methods, leading to more profitable operations, lower costs, lower prices and an emphasis on long-range benefit.

“In the longer run, overall cost of living to the U.S. consumer would fall, longer-term profitability should be reflected in the corporate stock prices and dividends and foreign-based multinational corporations would enthusiastically move to the U.S. Anyone want to think about what that would do for U.S. exports? Anyone want to think of what that might do to/for the U.S. job market?

“This doesn’t solve other issues, like the tragic joke called Obamacare, a U.S. personal tax code that would no longer trend toward ‘How much do you make — send it in,’ revamping Social Security and Medicare into something that makes sense in the long run without destroying their current victims, a whole cult that seems to think that the U.S. should be boss of the world, the U.S. version of the KGB, the demise of the Constitution and a few other similar, minor considerations.

“But eliminating the corporate income tax is doable — and could be vastly beneficial.”

The 5: We’re down with that in principle. The corporate income tax amounts to an elaborate PR stunt that allows the booboisie to think Uncle Sam is sticking it to ‘the rich.’

Repeal, of course, would be problematic if the objective were to be, as the wonks like to say, “revenue neutral.” Which is why, as with payroll taxes and high health care costs, nothing will change absent systemic collapse…

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. As long as we have cancer on our mind today… the secret of one ex-president could lead you to extraordinary profits.

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