Rickards on Silver

Posted On Jul 28, 2016 By Dave Gonigam

  • Gold traders call the Fed’s bluff
  • Rickards on silver: Hold it for an extreme crisis, trade it for an extreme gain
  • Work till you drop: An update on the awful way Social Security might be “saved”
  • The black market for “yellow gold”
  • Crude’s climb-down… teachers, cops and loggers… taking football way too seriously… and more!

The Federal Reserve is signaling an interest rate increase as early as September… and the gold market is calling BS.

Shortly after we went to virtual press yesterday, the Fed issued its once-every-six-weeks policy statement. As usual, it was carefully crafted to shape perceptions.

The mainstream keyed in on this sentence: “Near-term risks to the economic outlook have diminished.”

The mainstream translation: An interest rate increase is “on the table” before year-end, maybe as early as the next statement in mid-September.

Poppycock, says Jim Rickards: The Fed’s preferred inflation measure is still stuck at 1.6%, well below the Fed’s 2% sweet spot. The statement concedes as much for anyone who wishes to read it beyond the first two paragraphs.

And that’s not the only factor in play: “The last time the Fed raised rates (December 2015), the stock market had a heart attack and fell over 11% in less than eight weeks,” Jim reminds us.

“The Fed’s Open Market Committee is heavily weighted with Democrats. Donald Trump is their worst nightmare. (That’s not a partisan statement, just a statement of fact.) If the Fed hikes rates and the stock market tanks again, that would practically guarantee the election of Trump.”

Gold traders sniffed out all these factors yesterday, and then some…

Rate Hike

The Midas metal popped in the morning as soon as the Commerce Department issued a sickly durable goods report, which we spotlighted yesterday; weak economic numbers don’t buttress the case for an interest rate increase.

And then it popped again in the afternoon as soon as the Fed statement came out.

In theory, the “hawkish” signals the Fed was trying to send should have sent gold tanking. In practice, the reaction was the exact opposite.

Back to Jim Rickards: “When gold goes up in the face of head winds, that tells me it’s set to go up even more once the head winds turn to tail winds.

“This looks like a good entry point for gold; it should go much higher based on a dovish Fed meeting in September, political uncertainty in the fall and scarcity in physical supply.”

And then there’s silver, which exhibited much the same action yesterday — only in percentage terms, it was more extreme…

Silver: Gold on Steroids

Gold climbed 1.5% in 24 hours. But silver leaped 3.6%, vaulting over the $20 barrier for the second time this month. This time, it looks as if the move will stick.

“I rarely discuss silver,” Jim wrote readers of Rickards’ Intelligence Triggers on Tuesday. “Some assume I dislike silver as a hard asset for your portfolio. That’s not true. In fact, in an extreme crisis, silver may be more practical than gold as a medium of exchange. A gold coin is too valuable to exchange for a basket of groceries, but a silver coin or two is just about right.”

But that’s not why Jim likes silver as a trade right now.

He sees six factors at work, all at the same time. Silver has proven resilient this month “despite a bearish commitment of traders report from the COMEX, approaching futures expiration (usually a time for downward price pressure by shorts), reduced Brexit fears, increased COMEX margin requirements, a stronger dollar and a new round of tough talk from the Fed about rate hikes coming in September.”

Once the Fed has to back down from its tough talk in the fall, silver will benefit the same way as gold. And beyond the fall, the next president — whoever it is — will unleash “helicopter money.” That’s new federal spending that the Federal Reserve will instantly monetize.

“If Hillary Clinton wins, that probably means a pickup in Senate votes for Democrats and a bipartisan infrastructure spending bill. If Donald Trump wins, he has already promised massive infrastructure spending, starting with ‘The Wall.’

“Either way, we’re looking at more spending, bigger deficits, more money printing and, eventually, more inflation. The market’s anticipation of this outcome, starting in mid-November, will be a powerful tail wind for silver.”

Bottom line: Jim’s proprietary “Kissinger Cross” system assigns a 60% probability that silver will leap 25% over the next six months.

Sixty percent probability is the “go” signal in this system. And it’s spotlighting a trade that can parlay silver’s coming move into a gain of as much as 442% over the next 18 months.

This is the same system that only last month turned the results of the Brexit referendum into a 129% gain in only three days. Jim walks you through how it works at this link.

Tumbling oil prices have spilled over into the stock market on this Thursday.

Crude is off more than 1% as we write at $41.43 — a level last seen in early April. It was barely six weeks ago a barrel of West Texas Intermediate was going for more than $52.

Royal Dutch Shell delivered its quarterly numbers this morning. Ouch — profits are down 72% from a year ago. Ford also delivered an earnings disappointment; shares are down 7% at last check.

The Dow Jones industrial average — little moved yesterday by the Fed announcement — is down half a percent as we write, at 18,384.

The mainstream is slowly catching onto “the awful way Social Security might be ‘saved’” — the title of an essay your editor penned for the Daily Reckoning website last year.

We pointed out that the most educated, highest-earning Americans are working longer — and continuing to contribute to the Social Security system. Meanwhile, life expectancy among Americans who never finished high school is falling.

A few months later we learned the death rate among white Americans age 45–54 with no more than a high school education has exploded nearly 48% during the 21st century — thanks to suicides and substance abuse. Those are folks who’ll never collect a penny of Social Security benefits.

Now the latest development: Turns out 19.4% of Americans over 65 are still in the labor force — up sharply from 15% 10 years ago.

Meanwhile, among “working age” Americans, labor force participation remains mired near lows last seen in 1977.

As an example, Bloomberg pointed this week to an optometrist in Connecticut still working part time at age 74, spending what he earns “on vacations with his wife and golf club memberships.”

Says an analyst at the Brookings Institution: “It means that older people are not so dependent on the young. They’re supporting themselves and they’re making contributions to Social Security, Medicare, until later in life.”

Yep. Exactly.

Who knew? Fryer grease is a thing again.

For a long time, an occasional feature in our daily e-letter was an ongoing chronicle of bizarre thefts of valuable commodities — hay bales from parched Texas fields, lead from the roofs of Anglican churches, copper tubing from a TV transmitter crackling with 35,000 volts of electricity.

And fryer grease.

Commodity prices being in a slump in recent years, we haven’t had as much to say on this topic. But along comes the CBS TV station in Chicago, which doesn’t have hard numbers but does have anecdotal evidence that used cooking oil is still highly desired for making biodiesel. “Yellow gold,” as it’s supposedly known in the black market.

It’s easy to locate — just look in the dumpsters behind almost any restaurant. “People are taking our grease, back here out in the alley,” says Cesar Izquierdo from Taste of Peru. [Disclosure: Your editor and his wife have eaten there. Recommended.] Thieves are getting to it before the contractors authorized to pick it up.

As someone from a contractor called Ace Grease explained, thefts are hard to track. It’s not as if fryer grease comes with a serial number…

“I have had it completely with supporting public employees,” a reader writes as our thread on government pensions has rapidly deteriorated into a urination match over the merits of teachers.

“As a taxpayer with no kids who has worked his ass off for 32 years as a small-businessman by getting my rear end out of bed every morning at 3:30 to go to the forest and run my timber company, working on bids for next month every night until sometimes 11 p.m. and then going out to personally walk every job we are bidding for on the weekends — all for the lovely privilege of a 1–3% pretax margin, as our industry has no safety net and such competition that you are immediately eliminated if you make a single misstep.

“To hear these public employees bitch about how hard their life is working where they dip into their pockets to supply classrooms with a few consumables and they may work more than 9–3 makes me want to vomit.

“They are the most coddled and fawned over in all of my direct experience with them. Get out in the real world and you teachers will have a different view. What the hell do you think those teachers over at the local private school make? Peanuts, I can tell you, as I went to one because my parents wanted me to receive a proper education free from socialistic indoctrination curriculum. Those teachers all drove old cars and didn’t have a lot of money but they were there to teach, not join a union.

“Get over yourselves, for God’s sake!”

The 5: We’re not going to get in the middle of this smackdown over teachers.

All the same, we can’t resist stirring a different pot. Why isn’t some of the hostility directed at teacher unions also directed at police unions? Isn’t their lobbying prowess in state legislatures at least as strong? And do they not also aggressively go to bat for poor performers in their ranks?

“Consider the binding arbitration that has become a standard feature of virtually all police contracts, which are often negotiated in secrecy,” writes Shikha Dalmia in The Week. “Binding arbitration allows cops to appeal any disciplinary action taken by their superiors to outside arbitrators such as retired judges.

“In theory, these folks are supposed to be neutral third parties. In reality, they are usually in the pockets of unions and dismiss or roll back a striking two-thirds of all actions, even against cops with a history of abuse and excessive violence.

“The upshot is that police chiefs are powerless to clean house, even as community complaints pile up. This is exactly what was happening in Baltimore when Freddie Gray died during his ride to the police station last year.”

At least when a bad teacher screws up, taxpayers are usually on the hook for only his or her salary and benefits. Bad cops cost taxpayers millions in settlements from civil suits.

One more thing: As long as the reader brought up what he does for a living, we’re compelled to point out logging tops the list of the deadliest occupations in America, with 111 deaths on the job for every 100,000 workers. Law enforcement doesn’t even make the top 10.

On the subject of government-financed sports stadiums, a reader writes, “The Roman Colosseum was used to host gladiators and various other forms of savagery for almost 500 years… and yet the NFL teams seem to need a new stadium built after their current digs are only 20 or 30 years old.

“But I guess these new stadiums are just our modern-day version of ‘bread and circuses.’

“Keep up the great work.”

“Now that I know you’re a Packers fan, I can no longer read The 5,” writes another. “Nice rip on the Vikes, though.”

The 5: Uhhh… We notice you didn’t declare your own team loyalty.

“Sour grapes are never appealing,” writes a reader from Minnesota.

“Think stadiums are stupid? Then make sure Green Bay never builds one, and leave ours alone. Oh, yeah, don’t come and enjoy yourself in ours, either — you’re not welcome!”

The 5: Awww, lighten up! All we’re doing is making a point about the folly of taxpayer funding of pro sports stadiums for the benefit of team owners who can damn well afford to pay for them themselves.

Nor is it the first time we’ve addressed the matter. In the New England-Seattle Super Bowl a couple years ago, we ventured to say the Patriots were a finer choice in this regard. Robert Kraft, for all his faults, didn’t mooch off the taxpayers to finance Gillette Stadium; meanwhile, Paul Allen hit up Seattle taxpayers for nearly two-thirds of CenturyLink Field’s cost.

And on that score, we have a belated update: At the time of that Super Bowl in early 2015, we mentioned Seattle taxpayers were still paying off the bonds for the Kingdome, which was demolished in 2000.

The debt was finally retired in March of last year. Nine months early, said news accounts at the time. Hooray?

Best regards,

Dave Gonigam
The 5 Min. Forecast

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