Make the Fed Pay

Posted On Mar 29, 2016 By Dave Gonigam

  • Pining for the days when speeches by Fed chairs didn’t matter
  • The Fed’s “dysfunctional family” temporarily boosts the dollar…
  • … and delivers an opportunity to collect an instant payout
  • Crude slumps again: Can it gather strength to resume the rally?
  • Apple’s off the hook… until next time
  • Pie-in-the-sky deficit projection revised… cutting the Fed out of the deficit game… The 5 as one reader’s only source of “news” (gulp!)… and more!

O for the day we’ll never have to look at a headline like this again: “U.S. Stocks Looking for Clues and Guidance in Janet Yellen Speech,” says MarketWatch.

Indeed, Federal Reserve chairwoman Janet Yellen delivers a lunchtime address today to the Economic Club of New York.

There was a time, not too long ago, when such an event would be tucked away on Page C3 of The Wall Street Journal.

The real business news was about corporate earnings, new products and services coming to market, mergers and acquisitions and so on. The proclamations of Fed chairmen — even as recently as the early Alan Greenspan years in the late ’80s and early ’90s — were of interest, but not the stuff of endless hand-wringing speculation that occupied hours of airtime and gigabytes of bandwidth.

But here we are this morning, the market waiting with bated breath for Janet Yellen to open her trap, and you commiserating with your weary editor about this sorry state of affairs.

The least she could do is, I don’t know, pay you a couple hundred bucks for your trouble.

Turns out there is a way to “make the Fed pay.” We’ll get to that shortly…

“The Fed more closely resembles a dysfunctional family than an organized policy group,” quips our income specialist Zach Scheidt.

Let’s rewind to the Fed’s meeting two weeks ago: “Yellen shocked the world,” Zach reminds us, “with extremely ‘dovish’ comments that turned a blind eye to inflation pressures in the U.S. Yellen was essentially telling the market the Fed will keep interest rates low — even if the data point to higher inflation. Yellen’s comments sent the U.S. dollar sharply lower because low interest rates give investors less incentive to hold dollars.”

By last week, however, several Fed committee members were giving speeches undercutting those remarks. “According to CNBC,” says Zach, “four of the 17 members of the Fed’s Open Market committee have now publicly indicated their disagreement with Yellen. See what I mean about a dysfunctional family?”

“The Fed started last week to set expectations for a June rate hike,” chimes in Jim Rickards, “even giving a rhetorical nod to April.

“Markets immediately began to price in a near-term rate hike. This means lower stocks prices, a strong dollar and lower prices for gold and commodities.

“Expect these trends to continue in the short run until markets have fully priced in the possibility of a June rate hike. This will probably take until early May. Market expectations of a rate hike have whipsawed from high (in December) to low (in February) and are heading higher again now.”

Bottom line: “The recent vocal disagreements have helped to temporarily boost the U.S. dollar,” says Zach.

The U.S. dollar index (DXY) hit its low point for the year the day after the Fed meeting… and has moved up steadily ever since. It reached a plateau last Thursday when some of the Fed pooh-bahs threw out the possibility of a rate increase at the next meeting in late April.

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Meanwhile, precious metals got knocked back a peg last week as the dollar strengthened. Gold tumbled in a day from nearly $1,250 to below $1,220. Silver almost hit the $16 level and then got crushed nearly 80 cents.

But those developments opened up an opportunity just this morning for Zach’s premium subscribers to apply his perpetual income strategy and collect an instant payment of $210 — compensation, as it were, for having to suffer through so much Fed drama these days.

We’ve spoken about this strategy in the past. So far this month, Zach has shown readers how to collect $1,320 in these payments. Our publisher Joe Schriefer applies the strategy to his own portfolio… and he’s shown random people on the street how easy it is.

If you have $20,000 in capital, you can collect payments of your own in as little as three minutes. See for yourself right here.

As oil goes, so goes the stock market once again… and as we write, it’s going down.

Crude is off more than 3%, barely holding the line on the $38 level. True, that’s a lot better than the $27 level of mid-February… but only a few days ago, it was pushing $42.

There’s no obvious catalyst for today’s action, just a lingering suspicion that the bullish news of the last six weeks has run its course — which is another way of saying that the hope of a coordinated production cut by OPEC and Russia was always a pipe dream.

Thus, the major U.S. indexes are in the red, though not by much. The S&P 500 is off a point, at 2,036. Gold has perked up a bit to $1,227.

“There are some things we need to watch as we look for a potential round two of oil’s rally,” says Greg Guenther, looking less at supply and demand and more at the charts.

“The first is tight coiling action between $38–40. We want to see buyers swoop in every time oil dips (like what happened last Friday). With oil down 3% today, that’s not going to cut it. It’s going to have to maintain these levels if we are to expect a positive resolution.

“Next, we’re going to need to see oil mount a serious assault on its 200-day moving average near $42.50. If it can’t breach that mark, we could see an even bigger dip before oil finds its footing again — perhaps to the low $30s.

“We’re going to need to see more evidence before we’re ready to declare this new oil rally since February alive and well. It’s been a hell of a bottom-bouncer so far. But if oil can’t consolidate and clear resistance here, the second leg of the rally might be dead on arrival.”

For the record: The federal budget deficit for 2016 might turn out to be a teensy bit less than anticipated earlier.

The Congressional Budget Office has lowered its estimate of the fiscal 2016 deficit from $544 billion to $534 billion. That would still be $100 more than last year’s shortfall.

The CBO anticipates Uncle Sam won’t return to trillion-dollar deficits until 2022. But that assumes no new recession between now and then. Heh…

The FBI vs. Apple battle is dead — long live the FBI vs. Apple battle. Or as a computer science prof at Penn tweeted…

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As you might’ve heard, the FBI has dropped the case in which it demanded Apple conscript its employees to undermine the encryption protections they designed. Seems the FBI figured out on its own how to break into the iPhone of the San Bernardino shooter. Or perhaps the FBI got help from an Israeli outfit called Cellebrite, as the Israeli press reports.

Whether the FBI found anything useful, it’s not saying. (“I think that there is a reasonably good chance that there is nothing of any value on the phone,” said San Bernardino’s police chief a month ago.)

“The news is a partial victory for Apple,” writes Jenna McLaughlin at The Intercept. “The government doesn’t get to establish a legal precedent that would allow it to access other devices in the future, and Apple doesn’t have to design malware to hack its own phones.”

But as the good professor indicated, there are other cases in which the Feds want access to someone’s phones, although the known number is somewhat less than 200-plus. They’re not all terrorism cases, either…

“You are the closest thing I come to as news,” writes a reader, who evidently didn’t hear the FBI dropped its case against Apple.

“I do not follow any news sites on the net. I do not watch or listen to news on TV or Radio. I think I am a happier person because of it. I do not read the paper either. However I do watch YouTube videos.

“Somehow, today in the weird stories of the day that I have chosen to follow were several on Jade Helm. I remember you getting us all worked up about Jade Helm. Now that it is definitely six months after the exercise was supposed to finish, I am curious as to whether or not the Wal-Marts re-opened with their fixed plumbing or has the military just left all their equipment there ready for the real thing — continuing with their occupation, perhaps let in other areas. Who knows? Can you help me?”

The 5: Huh? We didn’t say much about Jade Helm — the military exercises in the desert southwest last summer — other than to link to a couple of pieces by colleague Chris Campbell at our sister e-letter Laissez Faire Today. We’ll reach out to Chris and see if he has anything new to impart.

We further caution that The 5 is only part of a well-balanced news and informational diet. Do not attempt to exercise your citizenship without consulting a variety of other sources.

“The reader’s remarks about the dollar coin yesterday raise an important question,” writes one of our regulars.

“Congress creates the budget each year, and if a deficit is written in, why can’t the U.S. Treasury just credit its own account balance instead of having the Federal Reserve issue them a credit?

“We would have the same inflation, but the big difference is we would not be paying interest on the debt. Just add up all the interest the federal government has paid since 1913. It would sure reduce the total debt we now have by a substantial amount.

“But then the ‘deep state’ or the ‘elites’ would have to figure how to earn money the old-fashioned way, they would have to work for it, instead of taking some from every person who has worked in this country since 1913.

“I am not in favor of running huge deficits, but borrowing from another to cover that spending doesn’t make sense.”

“I have always believed that the cashless/checkless society is intended to bring about the Mark of the Beast as prophesied in the book of Revelation in the Bible,” a reader writes.

“The mechanism is already in place with the United Nations and the international banking system to accomplish this.

“But several years ago, I read an article in an electronics magazine rebutting that theory. The author’s premise was that the banks wanted a piece of every retail transaction in their towns. If a bank can make 2.5% on every retail transaction in their communities, they would be rich.

“No rents to pay, no utilities, no employees or payroll, no inventory to purchase. Just a commission on ALL sales. SWEET!

“Both explanations make sense. You choose what you want to believe, one or both!

The 5: Hmmm… We’ll opt for the latter. It’s the next logical step in the ongoing centralization of control.

As it is, the typical mega-bank rolls into a small town and gives retirees 1.25% on a 1-year CD while charging small business owners who need a loan 22.9% on a credit card. And that’s still not good enough, evidently…

“Thanks for the daily valuable information,” writes our final correspondent — piggybacking on yesterday’s compliments. “I’m not new to The 5… and there are no ‘buts.’

“I am a small-business owner (veterinarian), and I have no money for investing — I have four kids in college. But the news and analysis helps me to understand the world better. Some days there are nuggets, and some days the whole thing is chock-full of useful information for me.”

The 5: We’re flattered… and we hope once the kids are on their own, you’ll turn to us for some guidance to jump-start your retirement. Thanks so much for the vote of confidence!

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Even with gold’s pullback last week, the Midas metal is in a new bull market — up 20% from its lows late last year.

But before you buy a single ounce, national security insider Jim Rickards says you absolutely must do one thing FIRST.

What does he know that the average American doesn’t? Click here to see.


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