Goldman’s Goof and Golden Income

Posted On Feb 10, 2016 By Dave Gonigam

  • Five “top trades” turn sour a mere six weeks into the new year!
  • Amid market volatility, a way to seek safety and generate income
  • Fed noise dialed up to 11 as Yellen heads to Capitol Hill
  • Rickards on what it’ll take to derail a March rate hike
  • HSBC sued for drug-related murders: Will it ever go to trial?
  • The war on cash and where it’s waged… an artificial intelligence thought experiment… the value of tending to one’s own garden… and more!

That didn’t take long: Only 41 days into anno Domini 2016 and Goldman Sachs has jettisoned five of its six “top trades” for the year.

“The dollar versus a basket of euro and yen; yields on Italian bonds versus their German counterparts; U.S. inflation expectations: Goldman Sachs Group Inc. was wrong on all that and more,” says a summary from Bloomberg. “The fumbles underscore the volatility that has beset global markets, accelerating price swings across currencies, stocks and bonds.”

One of the bets was that large U.S. bank stocks would outperform the S&P 500 — which, if you read yesterday’s episode, should strike you as especially hilarious.

But no apologies from the vampire squid: After all, having a taxpayer backstop means never having to say you’re sorry.

“During times of stress, many investors see gold and silver as good places to park their money,” says our income specialist Zach Scheidt — returning to a recent theme of his.

“This month, gold and silver prices are moving higher as investors move money out of stocks and into safe areas. We’re very early in this trend, which means gold and silver could continue to rise for months (or even a few years).”

In addition, the Federal Reserve will be forced to dial back its plans for four interest rate increases this year (about which more below).

“With the Fed keeping interest rates low,” Zach explains, “the U.S. dollar will weaken. We’re already seeing the dollar trade lower compared against other global currencies. A low dollar is very bullish for gold and silver prices.”

Sure, you could buy the metal, or shares of mining companies. But if it’s income you’re after — and that’s what Zach seeks for his readers — you might think that’s the last place to go. Gold doesn’t throw off any cash, and the dividend yields from most gold stocks are paltry.

That’s where Zach’s “perpetual income strategy” comes in. So far in 2016, he’s urged his premium subscribers to apply this strategy and pull down instant income payments of…

  • $350 on Jan. 20
  • $350 on Jan. 2
  • $280 only yesterday.

And each of these payments is tied into precious metals.

Don’t worry if you’ve missed these payouts — there’s more where they came from, be it from precious metals or other sectors. In 2015, Zach recommended $35,283 in payout possibilities. There’s a new one every week.

And as our publisher Joe Schriefer has shown us in our “social income experiment,” the strategy is easy to implement. Not only does he use it in his personal portfolio; he’s also shown random people with zero investing experience how to make it work.

If you have $20,000 in capital, you can put this strategy to work right away. Click here and see for yourself.

To the markets, where all eyes are glued on Fed Chair Janet Yellen.

Ms. Yellen is delivering her twice-yearly testimony to Congress this week. Traders are watching her every move for clues about the Fed’s intentions next month — another rate increase, or a pause?

“Financial conditions in the United States have recently become less supportive of growth,” she said, “with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market.”

From this, the Street has deduced that a March rate increase is a bit less likely now.

With that, the major U.S. stock indexes are cautiously treading into the green this morning. At last check, the S&P 500 is up about 1%, at 1,870.

The tentative “risk-on” trade has dealt small setbacks to both gold and Treasuries. As we write, the bid on the Midas metal is down to $1,186. The yield on a 10-year Treasury is up to 1.74%.

Crude took another blow after we went to virtual press yesterday, and it’s not recovering today. A barrel of West Texas Intermediate is back below $28.

All that said, Jim Rickards believes the Fed remains locked into a March rate increase.

Yes, the S&P 500 is down 12% compared with last July… but Jim says the Fed no longer cares about stock prices. Not that much, anyway.

If you’re thinking that’s a major change, it is. “From 2009–2013, the Fed very much cared about stock prices,” Jim tells us. “The Fed’s interest in rising stock prices following the panic of 2008 is well documented in academic literature and the Fed’s own pronouncements.”

Remember the “wealth effect” — how rising stock prices were supposed to make consumers more willing to spend and businesses more willing to invest? Ben Bernanke made a big deal of it in The Washington Post when he launched “QE2” in November 2010.

Theory and practice were two different things, though: “Rising asset prices since 2009 have done little to stimulate aggregate demand,” says Jim. “Annual growth rates have been stuck around the 2% range (well below potential), and have been weakening lately.”

So while the Fed cared about stocks on the way up, it doesn’t care nearly as much now, with stocks on the way down.

“Today, the Fed is not trying to achieve a reverse wealth effect,” Jim explains. “They are not trying to cool down an overheating economy. They simply don’t care about asset prices.”

However… that would change if the market experiences either a steep decline or a panicky one. Last August was a panicky decline — 11% in seven trading days. It was enough to dissuade the Fed from a rate increase in September. From present levels near 1,900, the S&P 500 would have to crash to 1,690 by next week. That would derail plans for a March increase.

As for a steep decline, Jim recalls something Ben Bernanke told him in private conversation last year: “The Fed doesn’t care if the stock market goes down 15%.” Again, from present levels near 1,900, we’d be looking at a drop to 1,615 over the next month before the Fed would reconsider a March increase.

“Short of that, the Fed doesn’t care,” Jim sums up. “They have other policy goals, and will remain on track to raise interest rates.”

Grab the popcorn for this one: The families of U.S. citizens killed by drug gangs in Mexico are suing HSBC for helping drug cartels launder money.

As we’ve mentioned here periodically, the feds doled out a $1.9 billion cost-of-doing-business fine to HSBC in 2012 for laundering Mexican drug money — a sweetheart deal arranged by U.S. attorney Loretta Lynch, now the attorney general.

“The Mexican drug cartels are terrorists who routinely commit horrific acts of violence to intimidate, coerce and control the civilian population and the government,” says Richard Elias, a lawyer for the victims and their families. “HSBC was complicit in laundering billions of dollars for drug cartels and should be held accountable under the Anti-Terrorism Act for supporting their terrorism.”

But wait: The lead plaintiff is the family of the late U.S. immigration agent Jaime Zapata. He and his partner Victor Avila Jr. “were run off the road by two vehicles filled with hit men from the Los Zetas cartel, who then opened fire. Avila survived,” recalls a Bloomberg story.

It turned out the gun that killed Zapata was linked to the infamous “Operation Fast and Furious” — in which the feds purposely funneled weapons into Mexico to see where they’d end up.

Hmmm… We wouldn’t be at all surprised if Loretta Lynch’s Justice Department intervenes to have the lawsuit dismissed on “state secrets” or some other bogus grounds…

“As the war on cash continues to escalate in the coming years,” a reader writes, “a thought has occurred to me, and I don’t understand how the two could be connected, but it just seems there has to be one.

“The countries that we hear about making new rules regarding the use of cash are for the most part in the West, the very same ones who have run up huge national debts. I’m not sure how, but it seems there has to be a connection.”

The 5: You are pulling our leg, right?

But yes, digital cash is easily confiscated for whatever purpose a government might deem worthy — be it a “bail-in” for a bank or the purchase of government bonds. As you might be aware, the latter possibility is what gets the “401(k) confiscation” crowd in a lather.

We don’t mean to dismiss the possibility of 401(k) funds being forcibly converted to Treasuries, by the way — not with the White House’s 2017 budget blueprint featuring a $500 billion deficit. But it’s not a near-term thing… for reasons we don’t have time for within our 5 Mins. today. Some other time, we promise.

“I have an intriguing question that I would like to have debated and considered, to see if a consensus opinion — or let’s call it a well-thought out prediction — can result,” another reader writes.

[Uhh, OK. Go on…]

“My concern is that there are two kinds of societies. I will propose that there is a ‘zero’ kind and also a ‘one.’ This suggests that there is no middle ground on this possible event. Notice that it is a system such as computer systems that use 0s and 1s to make calculations and deliver information of all types.

“Here is the concern I have: Suppose the good society will attempt to program all artificial intelligence machines in their realm to not harm humans in any way if at all possible. Let’s call this the ‘1 Society.’ Also, suppose the evil society will attempt to program all artificial intelligence machines in their realm to ‘harm’ (eliminate) the humans that oppose their society. Let’s call this the ‘0 Society.’

“I don’t presume to predict which society will eventually win out. This is where you and your colleagues can enlighten us as to which society you suspect will win out? I am somewhat afraid to see the result, and I think this happening is nearing its arrival much sooner than we can imagine!”

The 5: At the moment, we’re still more concerned about the onset of another financial collapse. See yesterday’s episode, for example.

“I could not believe my ears,” a reader writes, when the question was asked at last Saturday night’s debate about a pre-emptive strike on North Korea.

“What part of a bad idea do you not understand, lady? Or is it? Would enough nuclear bombs exploded for an EM shutdown of several strategic continents not be a global reset? Can the elites survive that? Would civilization at long last have to rethink its way of life? Seems easier than a globalized revolution. Would the gold standard be revived? Would banking change?

“The real question is how long would it be before the thieves and liars rise up again, the haves and the have nots? Would mankind finally leave his hubris behind and rebuild a better civilization? And just what would all the learned folks do to rebuild, as their skill set might not be what is needed?

“I get up every morning with the same responsibilities I had yesterday. I accomplish what I can, watch a movie with dinner and go to bed tired from my normal day as civilization works industriously all day to destroy itself.

“Who won today is not a question I have time to ponder. I prefer to rest peacefully so I have energy to face my responsibilities in the morning. I can’t change the world… can you?”

The 5: No. You’ve got the right idea. There’s only so much within your control. Our fearless leader Addison Wiggin is fond of citing the French expression, “Sauve qui peut,” which translates roughly to, “Let he who can, save himself.”

We’re grateful you turn to us for help in doing so…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. How much could it be worth to you if you have the courage to break one of Wall Street’s most cherished “rules”?

If you’re like Jeff, an ex-soybean farmer from Illinois, it could be a lot.

He never got a college degree. And he lived more than 1,000 miles away from Wall Street.

But he turned $16,000 into more than $50 million — enough to score himself a 164-foot yacht, among other things.

What’s his secret? It’s revealed here.


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