Government Acting As Referee (Literally!)

Posted On Jan 25, 2019 By Dave Gonigam

  • Blown call in an NFL game? Nothing the gummint can’t fix
  • Biotech trouble? Shutdown bites into new drug approvals
  • Fed sends a signal that propels both stocks and gold
  • As January goes, so goes the year? Interesting history…
  • Team Trump’s impossible oil gambit in Venezuela
  • The American founding vs. the American empire

Apparently nothing is beyond the scope of Big Government 19 years into the 21st century.

Rep. Cedric Richmond (D-Louisiana) wants to haul NFL Commissioner Roger Goodell before Congress to answer for the blown call during last Sunday’s NFC championship game.

The blown call is one reason — though certainly not the only one! — that the New Orleans Saints won’t be going to the Super Bowl and the Los Angeles Rams will. Richmond’s district includes most of the city of New Orleans.

“I have since spoken with colleagues on the Judiciary Antitrust Subcommittee about inviting NFL Commissioner Roger Goodell to answer some important questions about the unfair call against the Saints, a call that he has the jurisdiction to overturn,” Richmond huffs.

Don’t get us wrong. We’d love nothing more than the sight of Roger Goodell squirming. But at the risk of belaboring the obvious, “Just because fans are mad doesn’t mean the government needs to get involved,” writes Joe Setyon at Reason. “Better to let the NFL work out its issues on its own.”

Besides, doesn’t the government have, umm, more pressing issues to resolve at the moment?

As we write, the FAA has just halted some arriving flights at New York’s LaGuardia Airport, supposedly because a fair number of unpaid air traffic controllers are no-shows today.

Tweeet

Meanwhile, “the FDA isn’t accepting new drug applications or user fees from pharmaceutical companies,” writes our Ray Blanco on the science-and-wealth beat.

Last year the FDA approved a record number of new drugs — 59, trouncing the previous record of 46 the year before.

The longer the shutdown drags on, the lesser the chances for another record in 2019.

“The FDA has a few more weeks of funds left,” Ray tells us, “but if the shutdown continues, we could see wholesale delays on decisions regarding new drugs. Dozens of new drugs are on the schedule over the next few months, and if the backlog gets too long, the effects could make themselves felt for much of the year.

“Eventually the budget impasse will be resolved, one way or another. But for now, we need to face the prospect of potential FDA delays affecting biotech stock prices. Delayed biotechs could see share prices drop or not rise as much as otherwise.”

[Ed. note: That said, there’s one biotech play on Ray’s radar that could rocket higher in less than two more weeks — even if the shutdown is still in effect.

How could that be? Answers at this link. No long video to watch, either…]

An “authorized leak” from the Federal Reserve has sent both stocks and gold racing higher at week’s end.

The Fed let slip to The Wall Street Journal that “quantitative tightening” might end sooner than expected.

QT is the flip side of the “quantitative easing” the Fed engaged in from 2008–2014 — when the Fed bought up Treasuries and mortgage-backed securities willy-nilly to bail out the banks, quintupling the size of its balance sheet. The Fed began selling some of that debt in late 2017, aiming to shrink the balance sheet.

In terms of its impact on the broad economy, QT amplifies the Fed’s interest rate increases. So if the Fed intends to wind down those debt sales — we’ll surely learn more during the January Fed meeting next week — that would have the effect of goosing financial assets.

Little wonder then that the major U.S. stock indexes are all up about 1%… and gold is making another run at $1,300.

No economic numbers today: In fact, the shutdown has gone on so long, a key indicator has now been delayed twice.

The Commerce Department was supposed to issue figures on new home sales this morning — but no dice. The report due on Dec. 27 didn’t come out, either. Also missing today are durable goods orders.

“If January ends up the way it’s started so far, then there’s serious potential for upside for the rest of the year,” says Alan Knuckman — our eyes and ears in the Chicago options trading pits.

“In 1972,” he explains, “investor Yale Hirsch discovered a strong correlation between what happens in January and what happens the rest of the year.

“Hirsch’s ‘January barometer’ is a seasonality litmus test of sorts. It utilizes market data going back 68 years, to 1950, and the premise is simple…

“If the performance of the S&P 500 ends red in January, then there’s a good chance the index will end red on the year. Likewise, if the S&P 500 ends January up (which is looking likely for 2019), the year has historically ended up as well.”

No, not always. January 2001 was an up month, but a mild recession and the Sept. 11 attacks pushed the market down for the full year. Meanwhile, January 2009 was a terrible month, but 2009 also marked the start of the current bull market.

But the exceptions are just that — exceptions. “All told,” says Alan, “there have only been nine major cases of divergence since 1950. This makes Hirsch’s January barometer accurate 87% of the time. (Which is still pretty good!)”

Who says toothpaste and laundry detergent are boring?

As we mentioned in real time on Wednesday, Procter & Gamble delivered better-than-expected earnings. “But the really good news was hidden in some of the report’s details,” says income specialist Zach Scheidt.

“For starters, P&G noted that it was able to raise prices on most of its products, thanks to strong consumer demand. This is important because some investors were worried that higher costs for raw materials and transportation would cut into PG’s profits. By raising prices, P&G was able to keep earnings at a healthy level.

“Its sales were particularly strong in the beauty care business. Investors love that P&G is selling more product in this area at higher prices. Talk about a win-win!”

Look for another dividend increase this spring, Zach says. “P&G has plenty of room to increase its dividend payment and still have enough left over to plow into new growth opportunities.”

Zach last talked up PG in these virtual pages six months ago. Since then, shares are up more than 15% — not including dividends — while the S&P 500 is still down 6%. (For access to all of Zach’s favorite dividend payers, look here.)

Crude still isn’t reacting much to the trouble in Venezuela — a barrel of West Texas Intermediate up slightly at $53.27.

As indicated here yesterday, the Maduro regime’s mismanagement of the oil industry — actual, honest-to-God “socialism” — has decimated the country’s oil production. It’s been nearly cut in half over the last five years. How much worse can it get, really?

Tweeet

Meanwhile, the White House is already getting stung by the hornets’ nest it kicked over when it openly declared support for Maduro’s opponents.

As you might’ve heard, on Wednesday, opposition leader Juan Guaidó swore himself in as acting president. Washington’s regime-change machine immediately kicked into gear, but with a novel twist — declaring that under a “proper” reading of Venezuela’s constitution, Guaidó is the rightful president.

National Security Adviser John Bolton says the White House is now trying to figure out how to channel the revenue from Venezuelan oil exports to Guaidó and not Maduro.

How that’s supposed to work when the military still supports Maduro — among other factors — no one’s saying. Bolton concedes the process would be “very complicated.” Gee, ya think?

The neocons never learn. Foreigners don’t like being told who their leaders should be. In 2005, Bush 43 denounced one of the candidates in Iran’s presidential election. That candidate, Mahmoud Ahmadinejad, ended up winning with 62% of the vote.

Washington siding with Guaidó immediately discredits Guaidó in the eyes of Venezuelans who — understandably — distrust the gringos.

And claiming Guaidó is the “real” president under Venezuela’s constitution could have all manner of unintended consequences. “It’s far from clear,” writes Noah Feldman at Bloomberg, “that President Donald Trump’s administration should be embracing a legal argument that invites foreign countries to rely on doubtful interpretations of the local constitution and declare that they know who the president genuinely is.

“That kind of argument can be flipped against governments the U.S. wants to support — or even, albeit symbolically, the U.S. itself.”

But hey, that’s how it goes for an empire in decline like the United States: God forbid that Venezuelans be allowed to work out their differences among themselves, right?

Speaking of the United States as an empire, we inadvertently stirred up that topic in our mailbag a week ago today, and we’re only getting around to responses today…

“Dave, I loved last Friday’s edition of The 5,” writes one of our regulars. “You touched on a central issue.

“So a liberal ignoramus and gutless man-child named Beto has the temerity to ask if our empire can be managed by the same principles it was founded on. I agree with your answer — hell no — with one qualifier: An empire can’t be managed at all.

“Empires are inherently unmanageable, which is why they’re ruled through concentrated power and wealth. It often gets ugly early. It always ends in collapse. But as history has shown, that’s the endgame most governments tend toward (regardless of what they’re called).

“(It would be easy to digress into how disingenuous and misleading Beto’s question was. But let’s not go there…)

“The framers of our Constitution put careful thought into preventing the empire thing from happening to America. Unfortunately, the problem is now out of control because over the last century, progressivism has advanced the statists’ big-gubment agenda. That agenda happens to be anti-constitutional. The 16th Amendment and Federal Reserve Act of 1913, anyone?

“The quote you cited by James Madison from 1795 is spot on here and conveys his genius. It also shows how profound the Founders’ experiences and insights must have been in this regard.

“What’s currently happening is just the latest iteration of an old game plan: ongoing war and spending; currency debasement and inflation; taxes and tyranny; bread and circuses; identity politics; and of course, wealth extraction and loss of liberty throughout.

“It seems so chaotic, it’s mind-numbing. But we know what we’re up against!

“Thanks, as always, for the superb work you and your team do.”

“Dave, I disagree with your response to O’Rourke’s question of whether the United States can ‘still be managed by the same principles that were set down 230-plus years ago.’

“You responded, ‘Hell no.’ I think the correct answer is ‘Hell yes, but it has never been tried.’

“I point you to your quotes from James Madison. That is one of our founding principles and it is a good one. Unfortunately, it has never been applied. If you look at ‘List of Wars Involving the United States’ on Wikipedia, you see that America has averaged a war or armed conflict every 2.11 years since its founding. The Wikipedia article ‘List of the Lengths of United States Participation in Wars’ is a little more generous, listing only 25 wars. Still, that averages to a war every 9.72 years since our founding.

“The only conclusion you can reach from this is that America has never followed the principle laid out by Madison. In fact, many or even most of the principles laid out by our Founders were challenged from the very beginning of this country. You can’t say they didn’t work, because many were never actually adhered to.”

The 5: Ah, but don’t forget the framing of the question. O’Rourke was asking whether “an empire like ours” can be governed by those principles.

It’s the empire that’s the problem, as you implicitly point out.

And in that vein, let’s not give Madison too much credit. As we mentioned on a previous occasion when we trotted out that quotation, Madison ended up waging the War of 1812 — which in some ways might still be the most idiotic war ever waged by the ever-present D.C. swamp.

Have a good weekend,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Wow, that was fast. Scroll back up to that tweet early on in today’s episode and then come back here…

[We’ll wait…]

As we go to virtual press, The Wall Street Journal says, “Trump weighs signing a three-week spending bill to reopen government with no immediate funding for border wall,” while The New York Times’ take is that the president “appears poised to agree to reopen the federal government for three weeks while negotiations over border security continue.”

Granted, the situation remains fluid. But there’s a reason we’ve been citing Mr. Tracey’s work for more than two years now, and he’s become our favorite political reporter. More next week…


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