Biden’s Next Boondoggle

• Scammy scam scam! (hydrogen energy)
• Three hot sectors in the fourth quarter
• Danger signal
• Paul Krugman beclowns himself again
• Cursive, phonics… and consequences

Scammy Scam Scam! (Hydrogen Energy)

“You can already see the boondoggle starting to take shape,” says Paradigm Press tech authority Ray Blanco.

On Friday, Joe Biden ventured to Philadelphia to tout $7 billion in grants for seven regional hubs to produce hydrogen energy.

Scattered from coast to coast, each would get about $1 billion in federal funding. Corporate America — including Exxon Mobil, Chevron, natural gas producer EQT and chemical maker DuPont — is expected to pony up another $40 billion.

The idea is that these hydrogen hubs would reduce the use of fossil fuels for shipping, steelmaking and chemical production.

Hydrogen energy technology. The cleanest, greenest energy there is, with water its only byproduct. It’s the energy of the future — and it always will be.

Here’s the beginning of an article from the Chicago Tribune, Sept. 12, 1995…

Richard Daley, mayor of the third-largest city in America, was handed a glass that moments before had been sitting on LaSalle Street collecting a clear liquid that dripped slowly from the tailpipe of a bus.

He drew it to his lips. He took a sip.

"It's not bad," announced the mayor as cameras recorded the moment and spectators chuckled.

The clear liquid in this demonstration was water, and it was the only emission from a new type of clean-fuel bus that Chicago Transit Authority officials contend could revolutionize public transit fleets nationwide, including their own.

Again, that was 1995.

A decade later, I was still commuting to my newsroom job at the Fox TV station in Chicago aboard a CTA bus that was belching prodigious amounts of diesel fumes.

A decade after that, Paradigm trading guru Alan Knuckman would still hop aboard a diesel-powered CTA bus with his pals from the trading floor to get to their lunchtime hangout if a cab or Uber wasn’t available.

And in February 2021 — more than a quarter-century after the mayor’s stunt! — the CTA announced plans to replace 100 aging buses in its fleet… with models powered by “clean diesel.”

OK, you get the idea. Hydrogen energy is one of the scammiest undertakings yet in what Paradigm’s Jim Rickards calls the “Green New Scam.”

To date, the technology has made inroads only in highly specialized markets — i.e., forklifts powered by fuel cells at Walmart and Amazon warehouses. For everyday transportation, the costs relative to fossil fuels remain prohibitive — and will likely stay that way until gasoline and diesel prices reach $5 or $6 a gallon.

Cost aside, the bigger issue is this: “Hydrogen is energy storage, not an energy source,” says Ray Blanco. That is, you need a power source to make the hydrogen.

This inconvenient fact is buried in an NPR story about Biden’s announcement: “The production of hydrogen requires a lot of energy. Where that power comes from defines how ‘clean’ it is.

For example, hydrogen produced from natural gas is called ‘gray hydrogen.’ Renewable energy like wind and solar are used to produce ‘green hydrogen.’

“The White House says about two-thirds of the $7 billion [federal] investment will go toward developing green hydrogen by using solar and wind energy to produce it.”

So… about one-third of the money will actually be going toward those nasty fossil fuels that Joe Biden promised to “end” while he was campaigning for president.

The other two-thirds will be sourced from “renewables” whose use is already stretching the power grid to its limits. This past summer, two-thirds of the country was at risk of planned blackouts because new solar and wind capacity isn’t enough to replace the coal and nuclear plants that have been mothballed. Fortunately it didn’t come to that — but there’s always next year.

Even scattered factions of the green movement see the scam: "Throwing billions at hydrogen hubs deepens our dependence on fossil fuels and worsens the climate emergency," Maggie Coulter of the Center for Biological Diversity tells NPR.

So forget the hype: Hydrogen energy is prohibitively expensive and these projects will take years to develop — if they’re ever developed.

Ray Blanco again: “It's hard to store and hard to transport and would require a massive revamp of our energy infrastructure if we were to switch to that as a major transportation fuel.”

Meanwhile, the $47 billion in government and “private sector” funds going toward this boondoggle is $47 billion that won’t be bringing additional oil and gas into production — at a time global oil demand is outstripping supply by a couple million barrels a day.

The hydrogen energy sector is investable, now and then: Last year, Alan Knuckman’s Profit Wire readers took home 100% gains in less than two months playing call options on Plug Power, a developer of hydrogen fuel cell systems.

But hydrogen energy as a long-term wealth-building technology? Forget it.

Three Hot Sectors in the Fourth Quarter

Two weeks into the fourth quarter of 2023, “this is a great period to be an investor,” says Paradigm income-investing pro Zach Scheidt — “and especially in a year when the market is already up year-to-date.”

“Seasonality” factors are in the market’s favor: “The S&P 500 has ended Q4 positive nearly 80% of the time since 1950, averaging a 4% return (double that of the next-best quarter).”

In addition, “after we've had a sell-off in August and September, markets are a bit oversold. So that just gives us even more firepower for markets to be mean-reverting.”

Meanwhile, heading into a presidential election year, “it's just natural that Washington does whatever they can to juice the stock market so investors are happy with the incumbent and it helps to get the existing administration reelected.”

And then there’s earnings season, which got off to a strong start with the big banks reporting last Friday.

“We've already started to see analysts increase their earnings expectations,” says Zach. Despite recession fears and signs the mighty American consumer is growing cautious, “so far this year, the market, individual companies and the overall economy have been resilient and they've been beating those expectations.”

With that in mind, Zach says three sectors are set to outperform going into year-end…

• Profitable blue chip tech companies — specifically Google parent Alphabet (GOOG) and Facebook parent Meta (META). “Both of those companies are generating plenty of cash flow,” says Zach. “Both are tied to this AI theme that investors seem to really love. But they're tied to it in a way that they're actually making money

• Industrials: “We're going to see a lot more infrastructure spending,” Zach reminds us. “So even if we move into a recessionary period, we will see the governments respond to that by having infrastructure projects that help to create jobs and help to sustain the economy.” Consider Caterpillar: The company “is selling a lot of equipment as new data centers are built, as new warehouses are built, as new factories are built to manufacture computer chips and plenty of other things.” [Disclosure: Zach holds a position in CAT call options]

• Financials: No, not the regional banks. Those are still dicey in the wake of Silicon Valley Bank and other bank failures last spring. That said, however, “the competitive tables are skewed in favor of the big investment banks.” If JPMorgan Chase (JPM) pulls back after its big earnings bounce last Friday, that would be the obvious name to consider.

As a reminder, the phenomenal results Zach achieved in his own portfolio last year — while the S&P 500 took a 19.6% spill — were the occasion for Paradigm to make a major change in company policy. What’s in it for you? A lot — as our VP of publishing shows you at this link.

The U.S. stock market is off to a strong start for the week — all the major averages up 1% or better. The S&P 500 is up 1.1% at 4,374, on par with its high-water mark last week.

Precious metals are losing a little ground after Friday’s monster run-up… but gold is still hanging in there at $1,917 and silver at $22.58. Crude is off about 1% after Friday’s rally at $86.87. Bitcoin is back above $28,000.

Danger Signal

One potential spanner in the works for this year-end rally? The weakness in small-cap stocks.

Companies with a market cap of $2 billion or less are getting hit especially hard by rising interest rates; when the time comes around to refinance their debt, they’re in line to pay more. Maybe a lot more.

“Small-cap companies are typically more susceptible to economic shifts, both good and bad,” writes Sean Ring in this morning’s Rude Awakening, “because they don't have the financial buffers or diversified revenue streams that large-cap companies do.”

The most commonly cited index for small caps is the Russell 2000. “When the economy's revving up, these small players can experience explosive growth, which is reflected in a booming Russell 2000.

“Conversely, economic downturns often hit them first and hardest, making the Russell 2000 a canary in the coal mine for market troubles ahead.”

The ETF keyed to the Russell 2000 is the IWM. So far, so good: Twice this year it’s bounced off the $161 level and this morning it trades at nearly $173.

More concerning, however, are the microcaps — companies with a market cap of $300 million or less. Here, the relevant ETF is the IWC. It ended last week at $95.65, almost a three-year low.

In the main, Sean shares Zach’s bullish outlook through the rest of the year. But if IWC tumbles further (this morning it’s up to $96.63), that coal-mine canary is in danger of asphyxiation. “Since the IWC has broken down, the IWM may be next. Then the Nasdaq, and finally, the S&P 500.” We’ll be watching…

Inflation Is Under Control (if You Don’t Eat or Drive or Need a Roof Over Your Head)

Amazing: Celebrity economist Paul Krugman keeps putting his foot in it when it comes to inflation.

Last month we took note of how Krugman got roasted on social media for asserting, “Over the past couple of days I’ve had several conversations with smart people who follow the news — and had no idea that inflation is way down. Presumably hasn’t broken through at all to the wider public.”

Yeah, the inflation rate might be way down from its 9.1% peak in the summer of 2022… but prices keep climbing. Funny how that works, huh?

Well, Krugman doubled down on Thursday after last week’s release of the official inflation numbers. Note the title on his chart there…

Back when inflation was a problem in the run-up to the global financial crisis in 2008, economists liked to point to the “core” inflation rate — excluding food and energy. Many wags lampooned it as “inflation for people who don’t eat and drive.”

But Krugman really took it to another level here. In a follow-up post, he admitted he was too flip.

"But the data really want to tell us that inflation has very nearly normalized."

No, it has not: The inflation rate bottomed in June at 3.0% and rebounded to 3.7% in both August and September. At the risk of repeating ourselves, these numbers line up exactly with research we cited last summer: Once the inflation rate gets out of control (as it did last year), it can take a decade or longer to bring it back to the 2–3% level.

Cursive, Phonics… and Consequences

“Cursive? What about phonics?” writes a reader as we predictably set off a firestorm last week with a mention of cursive writing in decline.

“A, E, I, O, U and sometimes Y and W? All too often now I hear the mispronunciation of the letter I. Many make it sound like an E. If that continues, then why have an E? 

“I think vowels are necessary! If you can't read and write, then, like the one fellow said, how much dumber can we get? There's more to illiteracy than not being able to read, isn't there?”

“The decline in the use of cursive writing has accelerated over the last 10–15 years,” writes another reader, “due to the decline in the use of pencils and pens and the rise in the use of keyboards of all types to put thoughts and words to paper.

“Teachers no longer teach it in schools, along with a rather long list of what were once considered essential subjects that gave students the ability to function effectively in the workplace and world.

“Good English spelling and grammar used to be considered basic needs to communicate effectively and bespoke a good education.

“Good vocabulary used to be taught to give precision and interest to essays and longer writings as well as scientific and engineering papers.

“Math skills used to be taught in a progressive manner, with more complex concepts building on simpler ones. This was handy when the power went off or you had to do a math problem without a calculator. Now handheld computer devices are ubiquitous and the formulae that make them work are essentially unknown to the button pushers who rely completely on their devices to derive answers from the input data and parameters.

“The human products of this decline in basic education concepts will be totally lost when the source of power that runs these electronic devices fails. They have no backup fueled only by the power of their minds to replace the lost computing power. Worse, they will have no means to accurately lay it out with paper and pen even if they did have some basic conceptual understanding of the processes at work.

“This is not a good situation and I believe we will see the consequences of the educational failures reach catastrophic proportions in the not-to-distant future. Be prepared!”

Dave responds: And that’s before you get to the learning loss wrought by COVID lockdowns, even though kids were at minimal risk from the virus…

Best regards,

 

 

 

 

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets

P.S. A sharp-eyed reader has an update about the video we linked to on Friday — in which a European Union official said laws governing “illegal hate speech” such as those they have in Europe will be coming to the United States.

If you click the link now, here’s the result YouTube gives you…

Fortunately it’s still available to posterity on Xwitter, via the Washington Free Beacon’s account. Watch while you still can…