“It’s Nakedly Political Now”
Election-Year Fed Follies, Then and Now
If the Federal Reserve doesn’t do what the president wants, then “the central bank would lose its independence.”
This admission, as absurd as it is candid, is attributed to Arthur Burns — the Fed chair who notoriously opened the monetary spigots to goose the economy and help Richard Nixon win re-election in 1972. As legend has it, Nixon threw Burns against a wall just to make sure there was no misunderstanding about Nixon’s wishes.
Of course, Nixon’s victory was tainted by the Watergate scandal — which forced his resignation 50 years ago this summer. Meanwhile by early 1980, Burns’ mad money printing manifested itself in near-runaway inflation.
Here we are, 50 years beyond Nixon’s resignation, and once again Fed policy looms large in a presidential election.
The outlook for inflation, interest rates and Fed policy — that was the first topic tackled by an all-star panel at the Watergate Hotel in Washington during the latest edition of our ever-popular Whiskey Bar roundtables. (You missed the stream when it was released yesterday? You can — and should! — catch the replay at this link.)
Rude Awakening editor Sean Ring said the Fed will cut interest rates at its next meeting — less than two weeks away. “It’s nakedly political now, but it won’t look political to the hoi polloi.” Sean is convinced Fed chair Jerome Powell does not want to work for Donald Trump again (even though it was Trump who appointed him) — thus Powell will act to loosen policy.
But Jim Rickards begged to differ — saying the Fed wants to see more evidence that inflation is in retreat before making the first rate cut.
That’s the beauty of the Paradigm team: We don’t enforce a “company line” when it comes to making forecasts. When you pay an editor for his recommendations, you know you’re getting his unvarnished opinion.
That said, every opinion that came out of yesterday’s Whiskey Bar stream is available to you absolutely free. Among the pithy quotes I jotted down as I watched from my (uncomfortable) chair about 15 feet away…
- Sean Ring: “I’m swinging for the fences at the moment” by investing in one niche sector of the stock market. (He names several names with explosive potential)...
- Byron King: “Prepare to be shocked a couple of times a week” as a long, hot summer of social strife sets in…
- Jim Rickards: “We are incredibly close to nuclear war” — even if both mainstream and conservative media choose to ignore it.
You’ll also hear Jim’s senior analyst Dan Amoss describe how the AI boom differs from the 1990s dot-com boom… income specialist Zach Scheidt on his favorite pre-election investment strategy… and Moneyball economist Andrew Zatlin on how AI’s investment potential can be likened to the Kevin Costner movie Field of Dreams.
Lots of actionable names and ticker symbols throughout — all of it free, all part of a rollicking 2½-hour discussion. If you missed the stream yesterday, for goodness sake don’t miss the replay at this URL: https://secretsofwatergate.com/whiskey-bar-replay
And there’s much more where that came from: Tonight at 7:00 p.m. EDT, you can sit in for an extended pre-election investment confab with Jim Rickards at the Watergate titled “Scandals, Secrets and Scoundrels.”
Reader questions will be included, so you don’t want to miss this. Once more, you don’t need to sign up in advance and we won’t try to sell you anything. We’ll send you a link to the stream at 6:45 p.m. EDT, shortly before the event gets underway.
Rate Cuts Incoming? Sell! (Wait, What!?)
The likelihood of a Fed rate cut is rising this morning — but for once, the prospect is bringing no joy to the stock market.
The Commerce Department is out with its latest guess at first-quarter GDP. The initial guess a month ago was an anemic 1.6% annualized. This new guess is an even more anemic 1.3%. Most of that revision can be chalked up to lower-than-expected consumer spending.
The betting in the futures market is that the Fed will cut rates by September at the latest. But if the mighty American consumer is withering under the weight of inflation and debt service… that means the Fed would be cutting rates not to goose an already-healthy economy but rather to revive an economy that’s turning south.
With that, all the major U.S. indexes are in the red.
The Dow is taking it worst, down 1% because one of its 30 component stocks — Salesforce — soiled the bed with its quarterly sales forecast. At last check, CRM shares are down nearly 21%. The Dow is in danger of closing the day below 38,000 — after hitting 40,000 less than two weeks ago.
Today’s down day comes on top of a down day yesterday — attributed to a lousy auction of U.S. Treasuries. Between yesterday and today, Uncle Sam is putting $244 billion in Treasury debt up for sale — a huge amount for just two days, but that’s what it takes when Congress and the White House are spending prodigious amounts of money that aren’t covered by tax revenue.
Poor demand translates to lower prices, and in the bond market that translates to higher interest rates. The yield on a 10-year Treasury reached 4.62% yesterday, the highest in a month.
Elsewhere, silver’s grip on $32 couldn’t hold — at last check, the bid is down to $31.33. Gold is holding up better at $2,342. Crude is down modestly after the Energy Department’s weekly inventory numbers, now $78.55. Bitcoin languishes a little over $68,000.
Spooky 2008 Parallels (Mortgage Losses)
For the record: Something ominous happened this month for the first time since the 2007–2009 financial crisis.
Specifically, investors in AAA-rated bonds — the highest rating possible — are getting hit with losses.
“Buyers of the AAA portion of a $308 million note backed by the mortgage on the 1740 Broadway building in Midtown Manhattan got less than three-quarters of their original investment back earlier this month,” reports Bloomberg, “after the loan was sold at a steep discount.”
Losses like these are like cockroaches — there’s never just one.
Earlier this week, Paradigm’s recovering investment banker Sean Ring reminded readers that events much like this one presaged the global financial crisis — especially when Bear Stearns disclosed that two of its hedge funds collapsed thanks to craptastic mortgage-backed securities.
“If we take the time from the first failings of MBSs during the crisis to the stock market capitulation of October 2008 and apply that to now,” Sean writes, “we should see a market crash in about a year.”
Sean laid out many more eerie parallels in Tuesday’s Rude Awakening, which you can read in full here.
To be sure, this one haircut is not a sell-everything signal… but it does mean “to keep a weather eye out for trouble,” Sean says. Which, rest assured, we will do…
Science Solves Cow Burps (Yay?)
Talk about a solution in search of a problem…
So yeah, there’s a company that’s developed an additive for the feed given to dairy cows so they’ll burp less methane into the environment. For real.
As the Reuters newswire informs us, “One tablespoon of Bovaer per lactating dairy cow a day can reduce methane emissions by about 30%, or about 1.2 metric tons of carbon dioxide equivalent emissions annually, the company said… The feed ingredient would help dairy food companies to buy carbon credits from their own farms and create a value stream of $20 a cow, Elanco CEO Jeffrey Simmons told Reuters.”
Bovaer was developed by Elanco Animal Health Inc. (ELAN). As it happens, FDA approval of Bovaer gave only a modest bump to ELAN’s share price this week.
As one wag summed up on Xwitter, “Make up an imaginary issue. Solve imaginary issue with higher costs. Be mad at corporations for getting wealthy while increasing costs.” Word…
Mailbag: Sober Remembrance, Sincere Thanks
“Thank you for that breakdown of history,” a reader writes after we republished our 9/11 reflections on Memorial Day. “It was eye-opening, brilliant and sad. Where does it end, indeed?
“Very thought-provoking,” says another — “wish I could share this one.” [For the record, you’re always welcome to forward these daily musings to your friends and loved ones.]
“Thank you SO MUCH for your incisive post,” says a third. “Being a veteran, your latest struck a chord in me.
“Our Founding Fathers are, I imagine, rolling in their graves over the, dare I say, militaristic country we’ve become. The cost has obviously aided in putting American citizens at financial risk. (How much per citizen is our debt, again? 🙄) President Eisenhower, whose record in the military stands alone, warned our great country of the potential threat, as you well indicated.
“Retiring in a few years. Being an expat is sounding attractive. Searching for the right country…”
Dave responds: I’ve published these reflections on “a totalitarian bureaucracy within our shores” every now and then since the 20th anniversary of the attacks in 2001. It’s heartening whenever a veteran writes in to say that they resonate, seeing as I didn’t serve myself.
Then again, I’m not altogether surprised; during his two presidential campaigns in 2008 and 2012, the strict non-interventionist Ron Paul collected more contributions from active-duty military and veterans than any of his rivals.
“I am sorry that you have to justify what you people do,” a reader writes after seeing our “who we are and what we’re all about” edition.
“At least that's what I understood. Maybe I looked through it fast on my phone but I think you guys do your homework way more than probably any investor could. And I thank you for that and I do understand there are no guarantees if you could guarantee everything, we'd all be living on an island or not but we strive and thank you for your help.
“I think you guys are awesome. I didn't say perfect. I said awesome.”
Says another: “Just no bloody pleasing some people. You all do a fantastic job there. Made me a few bucks over the years, and lost a couple also! But that's the nature of the cantankerous beast we're all dealing with — Mr. Market!!
“Keep doing what you're doing! Selling subscriptions!..🤣😂… Very successfully!.. Love your work … And the 5 Bullets.”
“It was good for me to learn about the history and purpose of Paradigm Press,” adds a third.
“I loved the transparency you discussed about several things. One, the group’s goal and intentions to be free of obligations (real or felt) to any outside interests, and two, explaining the structure and thought process behind the more expensive Paradigm Press offerings.
“I am retired from the corporate world (though my wife and I still work our own business) and wanted to take advantage of some of these membership upgrades, but monetarily it's just not in the cards at this moment in time.
“Having said that, I KNOW in the near future, I will be able to sign up, because of being blessed with the knowledge that has been imparted to me from my current membership level. As you said from the article, I ‘feel the tug,’ and sooner rather than later because of the success of my Paradigm investment portfolio, I'll be enjoying even more benefits!”
We give the last word to a newer reader who we vaguely remember called us out a few weeks ago…
“Well said, sir. BTW, I apologize for any offense to your promotional team for saying y'all are ‘like a pack of rabid dogs’ always trying to sell me more. Fondly from a ‘happy’ customer…”
Feels good to dive back into the mailbag after a few days’ rest — more reader feedback coming tomorrow!
Best regards,
Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets
