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Did Goldilocks just die?
The Dow is now in the red for October but Small Caps and Nasdaq are worst…
FANGs are FUBAR…
Semis are getting slaughtered..
Banks are being sold again…
And Treasury yields are extending higher…
And the yield curve is steepening (2s30s back above 50bps) – but we have seen this before…
And VIX has exploded above 16…
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The $36 billion U.S. supplement industry isn’t subject to FDA regulation, which both facilitates experimentation and allows products that don’t live up to their health claims to flourish.
Neil Thanedar has a free market solution: In 2012, he co-founded Labdoor to bring accountability to the supplements industry without quashing its dynamism. The company, which has received backing from venture capitalists Mark Cuban and Y Combinator, buys products right off the shelves, tests them, and then posts the results on its website.
The company doesn’t currently have the resources to verify whether a given supplement actually delivers its promised effects, testing only for potency and purity and deferring to existing studies on efficacy. In the near future, it plans to create a decentralized network of laboratories called TEST.
“[Labdoor] provides this really nice balance between some kind of regulatory function, but at the same time, it’s a free market,” says Thanedar. “If you do something wrong, we’ll do our best to catch you, but we’re not blocking products from the market. We’re not setting up a 10-year process to get to the market.”
Reason‘s Zach Weissmueller sat down with Thanedar in one of the company’s San Francisco labs to talk about the supplements market, the advantages of privatizing consumer protection, Labdoor’s vision of a blockchain-based network of testing facilities, and the company’s decision to test supplements marketed by InfoWars founder Alex Jones.
Produced by Zach Weissmueller. Camera by Justin Monticello.
“Brushed Bells in the Wind,” by Daniel Birch is licensed under a Attribution-NonCommercial International 4.0 License: (https://creativecommons.org/licenses/by-nc/4.0/) Source: http://freemusicarchive.org/music/Daniel_Birch/Minimal_Bells_From_The_Deep/Brushed_Bells_In_The_Wind Artist: http://freemusicarchive.org/music/Daniel_Birch
“Seatbelts are Essential,” by Daniel Birch is licensed under a Attribution-NonCommercial International 4.0 License: (https://creativecommons.org/licenses/by-nc/4.0/) Source: http://freemusicarchive.org/music/Daniel_Birch/Distorted_Chaos/Seatbelts_are_Essential Artist: http://freemusicarchive.org/music/Daniel_Birch
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Authored by Frank Newport via Gallup.com,
23% in U.S. understand socialism as referring to some form of equality
17% say socialism means government control of business and the economy
In 1949, 34% defined socialism as government control of business
When asked to explain their understanding of the term “socialism,” 17% of Americans define it as government ownership of the means of production, half the number who defined it this way in 1949 when Gallup first asked about Americans’ views of the term.
Americans today are most likely to define socialism as connoting equality for everyone, while others understand the term as meaning the provision of benefits and social services, a modified form of communism, or a conception of socialism as people being social and getting along with one another. About a quarter of Americans were not able to give an answer.
Socialism has re-entered the public discourse over the past several years, in part due to the high profile candidacy of socialist Bernie Sanders in the 2016 Democratic presidential primary, as well as the surprise victory of Alexandria Ocasio-Cortez, a member of the Democratic Socialists of America organization, in the Democratic primary in New York’s 14th Congressional District. According to a news report from Axios, over 40 socialists have won in primary elections this year, and the membership of the Democratic Socialists of America (DSA) has grown from 7,000 members to 50,000 since 2016.
This increased visibility of socialism and the prevalence of candidates who in one way or the other are associated with the socialist label makes it important to understand how this concept is understood by average Americans — the objective of the current research.
The broad group of responses defining socialism as dealing with “equality” are quite varied — ranging from views that socialism means controls on incomes and wealth, to a more general conception of equality of opportunity, or equal status as citizens.
In addition to the 17% of Americans who define socialism as government ownership of the means of production, other more traditional or historical views of socialism include those who say it means modified communism (6%) or restrictions on freedom (3%).
That leaves 19% of all mentions which are focused on a “gentler, lighter” view of socialism — government provision of benefits and services, liberal government or some type of cooperative plan. In addition to 6% non-specific derogatory comments, 6% describe it as getting along with other people, 8% give miscellaneous responses, and about a quarter of Americans (23%) said they couldn’t answer the question.
The biggest difference between 1949 and now in terms of Americans’ understanding of the term socialism is the drop in the percentage who define socialism as government ownership of the means of production. This drop is offset by the increased number of Americans who say that socialism means equality and an increase in those who define socialism in terms that are closer to what might be considered a more standard liberalism. Americans today are also more likely to have an opinion than was the case in 1949 when over a third gave no opinion.
Previous Gallup research has shown that socialism as a concept is viewed positively by less than a majority of Americans (37% in a late July, early August survey) and that these attitudes have not changed materially since 2010. However, 57% of Democrats and Democratic-leaning independents view socialism positively, particularly telling in light of the 47% of Democrats who view capitalism positively. Republicans are, unsurprisingly, much less positive about socialism (16% view the term positively).
The current research shows that Republicans are significantly more likely to view socialism as government ownership of the means of production than are Democrats and are more likely to describe socialism in derogatory terms. For their part, Democrats are modestly more likely to view socialism as government provision of services and benefits. Democrats are also more likely to say they don’t have a view of socialism than Republicans.
Although young Americans are in general more positive about socialism as a concept than those who are older, there are few significant differences by age group in self-reported understanding of the term.
Do we have socialism in America today? That was the question Gallup asked Americans in the 1949 survey when 43% said “yes.” There has been little significant change in the affirmative response to this question over the years, with 38% of Americans saying that there is socialism in America today. However, in 1949, with almost one in five Americans not giving an opinion, the affirmative responses outnumbered the negatives. Today, negatives are more prevalent than those who say yes.
There is little significant difference in these views by partisanship today, with Republicans just a bit more likely to say “yes” than Democrats, 42% to 36%.
Socialism historically has been associated with the concept of public or collective ownership of property and natural resources and has long been associated with Marxism and communism.
In 1949, with the Chinese Communists just having taken control of China, and with the Communist Soviet Union creating fear of an aggressive effort to spread their ideology around the globe, Americans’ view of the term embraced the classic elements bound up in these types of movements.
Now, almost 70 years later, Americans’ views of socialism have broadened. While many still view socialism as government control of the economy, as modified communism and as embodying restrictions on freedoms in several ways, an increased percentage see it as representing equality and government provision of benefits.
These results make it clear that socialism is a broad concept that can — and is — understood in a variety of ways by Americans.
Republicans, who are overwhelmingly negative about socialism, tend to skew toward seeing socialism as government control of the economy and in derogatory terms, while Democrats, a majority of whom are positive about socialism, are more likely to view it as government provision of services.
No doubt candidates who are affiliated with the Democratic Socialists of America or in other ways lay claim to a socialist approach to government will continue to define what the term means in ways that fit their personal viewpoints.
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Amid the debate about whether Brett Kavanaugh’s performance at last week’s Senate Judiciary Committee hearing showed that he lacks the proper temperament to serve on the Supreme Court, the nominee defends himself in today’s Wall Street Journal. Like his testimony last week, his essay is not entirely convincing.
“My hearing testimony was forceful and passionate,” writes Kavanaugh, whose nomination cleared a procedural vote today and is expected to be narrowly approved by the Senate tomorrow. “That is because I forcefully and passionately denied the allegation against me. At times, my testimony—both in my opening statement and in response to questions—reflected my overwhelming frustration at being wrongly accused, without corroboration, of horrible conduct completely contrary to my record and character. My statement and answers also reflected my deep distress at the unfairness of how this allegation has been handled.”
Just as Kavanaugh admitted during his testimony that he sometimes “had too many beers” in high school, he concedes in his Journal piece that he sometimes went too far at the hearing. “I was very emotional last Thursday, more so than I have ever been,” he says. “I might have been too emotional at times. I know that my tone was sharp, and I said a few things I should not have said. I hope everyone can understand that I was there as a son, husband and dad. I testified with five people foremost in my mind: my mom, my dad, my wife, and most of all my daughters.”
All of this is plausible as far as it goes. If you believe that Kavanaugh did not, in fact, try to rape Christine Blasey Ford 36 years ago, his anger and frustration are not only understandable but justified. As UCLA law professor Eugene Volokh noted here the other day, it would require a complete failure of empathy to be puzzled by Kavanaugh’s emotions or view them as evidence of a character flaw. “We see someone being subjected to unbearable, unearned, televised humiliation and disgrace,” Volokh wrote. “And when he verbally lashes out in anger, we say, ‘Aha! You’re not qualified, because you reacted to this dire, extraordinary provocation precisely the way normal human beings would’?”
But neither Volokh nor Kavanaugh acknowledges the extent to which the nominee’s “forceful and passionate” defense was also a premediated partisan offensive. The written testimony that Kavanaugh submitted the day before the hearing was relatively restrained. But by the time he sat before the committee, his opening statement included this passage:
This confirmation process has become a national disgrace. The Constitution gives the Senate an important role in the confirmation process, but you have replaced advice and consent with search and destroy.
Since my nomination in July, there’s been a frenzy on the left to come up with something, anything to block my confirmation. Shortly after I was nominated, the Democratic Senate leader said he would, quote, “oppose me with everything he’s got.” A Democratic senator on this committee publicly—publicly referred to me as evil—evil. Think about that word. It’s said that those who supported me were, quote, “complicit in evil.” Another Democratic senator on this committee said, quote, “Judge Kavanaugh is your worst nightmare.” A former head of the Democratic National Committee said, quote, “Judge Kavanaugh will threaten the lives of millions of Americans for decades to come.”
I understand the passions of the moment, but I would say to those senators, your words have meaning. Millions of Americans listen carefully to you. Given comments like those, is it any surprise that people have been willing to do anything to make any physical threat against my family, to send any violent e-mail to my wife, to make any kind of allegation against me and against my friends. To blow me up and take me down.
You sowed the wind for decades to come. I fear that the whole country will reap the whirlwind.
The behavior of several of the Democratic members of this committee at my hearing a few weeks ago was an embarrassment. But at least it was just a good old-fashioned attempt at Borking.
Those efforts didn’t work. When I did at least OK enough at the hearings that it looked like I might actually get confirmed, a new tactic was needed.
Some of you were lying in wait and had it ready. This first allegation was held in secret for weeks by a Democratic member of this committee, and by staff. It would be needed only if you couldn’t take me out on the merits….
This whole two-week effort has been a calculated and orchestrated political hit, fueled with apparent pent-up anger about President Trump and the 2016 election. Fear that has been unfairly stoked about my judicial record. Revenge on behalf of the Clintons. and millions of dollars in money from outside left-wing opposition groups.
Kavanaugh may believe all that. It may even be true. But saying it was not temperate or diplomatic. It was intentionally inflammatory, and its partisan edge went beyond even Clarence Thomas’ description of the Anita Hill hearing as “a high-tech lynching for uppity blacks who in any way deign to think for themselves.” As David Post noted in response to Volokh, “this was a planned assault” that helped turn “a difficult but sober discussion of a complicated issue into a partisan brawl.” Kavanaugh’s vituperation against Democrats came before they started asking him questions, when, in the heat of the moment, he might have said things he regretted. Things like this:
Amy Klobuchar: Was there ever a time when you drank so much that you couldn’t remember what happened, or part of what happened the night before?
Brett Kavanaugh: No, I—no. I remember what happened, and I think you’ve probably had beers, Senator, and—and so I…
Klobuchar: So you’re saying there’s never been a case where you drank so much that you didn’t remember what happened the night before, or part of what happened.
Klobuchar: It’s—you’re asking about, you know, blackout. I don’t know. Have you?
Kavanaugh later apologized for that exchange, but his irritation was understandable, since he had already answered this question several times and answered it yet again for Klobuchar, who nevertheless asked him one more time. It is harder to understand why Kavanaugh repeatedly resorted to evasion and obfuscation when asked about trivial subjects such as his teenaged drinking and high school yearbook jokes. “In retrospect,” he said in his written statement, “I said and did things in high school that make me cringe now. But that’s not why we are here today. What I’ve been accused of is far more serious than juvenile misbehavior.” That is the line he should have taken at the hearing: There is a big difference between stupid teenaged behavior and attempted rape.
I’m not sure Kavanaugh’s strategy at the hearing showed he lacks a judicial temperament, which might better be assessed (as he argues) by his dozen years on the U.S. Court of Appeals for the D.C. Circuit. But I can understand why his performance might give pause even to someone who was otherwise inclined to support his nomination.
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With payrolls now in the rearview mirror and nothing too outlandish revealed in the generally goldilocks data, traders have resumed contemplating the one question that is on everyone’s mind: how much higher (and at what pace) will rates rise before stocks are slammed?
To be sure, the recent spike in US yields – driven by a combination of very strong US growth data, sturdy equity gains, rising oil prices and improving global growth expectations – and the dollar can extend in the near-term, but as UBS points out, only as long as risk tolerates this (another key aspect is the recent speed of yields increase, which “might become problematic”): naturally, once rates rise high enough there will be a capital reallocation out of stocks and into bonds. The question, of course, is what is “high enough.”
Alternatively, US yields could rise further, if global growth firms up and ex-US yields rise independently – and also if the neutral rate (r-star) is seen as rising in tandem with yields – but in that case the dollar rally would come to an end. Which is why, to UBS long term, US yields are likely to peak in the 12 months ahead “and the higher we go from here the closer we get to that peak – at least levels-wise.”
But the biggest question whether US yields keep rising will depend on whether risky assets tolerate the spike. Earlier this year, UBS looked at the uptick in US yields and subsequent equities sell-offs of at least 5%. What the Swiss bank found is that the more gradual the rise, the higher the threshold to generate equity pain, and inversely the faster the move higher – and the latest episode has seen a 40bps move higher in just over a month – the more acute the equity reaction. Curiously, the duration and magnitude of the current yield sell off is now virtually identical to the January 2018 episode that culminated with a 10% drop in the S&P.
That analysis, charted below, suggests we are now within a zone when yields can trigger a risk sell-off.
So what happens next? While the answer for equities remains “fluid”, the UBS credit team agrees with the recent pieces we published from Nomura’s Charlie McElligott and suggests that US yields are reasonably priced for three reasons:
a) the long-end was anchored by fair expectations of neutral rates (even under a scenario where r* is revised higher);
b) the front end included an “uncertainty premium” which would likely decline over time leading to a flatter curve and
c) the market had priced little downside risk to growth (hence we continue to like receiving 1y rates).
Meanwhile, term premia have increased substantially – and could increase further but only if term premia in global rates pick up from here (a weaker dollar would be required for that). The recent bear steepening, extensively discussed by McElligott yesterday, in the 2s10s curve reflects this, supporting UBS’ view that the front-end is fairly priced.
Meanwhile, amid bearish signals for the 10Y Treasury (see below) and recent short-term data and oil strength, imply that the market overshoots the “fair range” mid point (between 2.9 and 3% in the UBS forecasts) in the weeks ahead, resulting in further pain for stocks, especially if the move higher is as rapid as it has been so far.
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It has long been speculated that Mattress Firm, the US mattress retailing giant, was in a solvency crisis, largely as a result of an aggressive expansion strategy in recent years coupled with the spectacular collapse of its parent, Steinhoff International Holdings NV following an accounting scandal in late 2017 and has been struggling to restructure the debt of some subsidiaries with its creditors.
Well now it’s all over.
With liabilities of at least $1 billion and over 50,000 creditors (including Simmons Manufacturing Co. and Serta Mattress Co.), Mattress Firm – US’ largest mattress retailer – has filed for Chapter 11 bankruptcy in Delaware (along with a dozen other affiliates – including units of well-known brand names such as Sleepy’s and 1800mattress.com).
As Bloomberg reports, the company plans to complete a restructuring within 45 to 60 days, closing poorer performing stores, and has a commitment of $525 million in senior secured credit to fund its turnaround, according to a Friday statement.
According to Mattress Firm’s web site, it has more than 3,000 stores across 49 states, and will keep operating as usual as it moves through a restructuring.
“Leading up to the holiday shopping season, we will exit up to 700 stores in certain markets where we have too many locations in close proximity to each other,” Steve Stagner, CEO of Mattress Firm, said in the statement.
The company said the bankruptcy includes a prepackaged restructuring plan, meaning it already has the approval of key stakeholders, but will still need court approval.
Mattress Firm needs “incremental liquidity” for its recovery to be secured, Steinhoff said in the presentation to creditors, saying last month it was evaluating ways to attract extra funding, and bondholders were said to be considering a loan of about $300 million into the firm as part of a bankruptcy filing.
Bought for $3.8 billion two years ago, Mattress Firm has emerged as a headache for Steinhoff as it strives to shore up liquidity following an accounting scandal. The 3,300-store chain expanded too aggressively, suffered from ineffective marketing and has been embroiled in a dispute with suppliers, Steinhoff said.
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Well that re-escalated quickly…
Having started the week on such a high note, settling with the SEC and agreeing to be a grown-up C-level exec once again, Tesla’s Elon Musk has drifted day-by-day back into bad habits and along with his drift, his company’s share price has collapsed – erasing all the post-SEC-settlement gains.
Just hours after we reported that a judge was seeking further explanation on the fairness of the settlement between Elon Musk and the Securities and Exchange Commission, a tweet from Elon Musk’s Twitter account openly mocked the government agency. In a Tweet by Musk just after 4PM EST, he referred to the SEC as the “Shortseller Enrichment Commission“.
When called out about the typo (of leaving the word “say” out in between “to” and “that”), Musk doubled down on his comments, seemingly saying about the SEC, that it’s “their mission” and “what they do”.
He then went on to tell a concerned long investor to “hang in there” and that everything was going to be “fine”. Musk also decided to start handing out more detailed investment advice, instructing market participants when they should and should not buy Tesla stock.
He also stated that “so long as a company makes great products, it will have great value”.
As a reminder, one of the conditions of Elon Musk’s proposed settlement with the SEC was that he was to have all of his tweets vetted by the company before he put them out. The settlement required “Tesla Inc. to put in place a system to monitor his public communication.”
And it appears the market has had enough of this childish behavior!
TSLA bonds are also tumbling…
Well one thing is for sure – the board won’t do anything about it.
And finally, Musk just will not let go of the bears – now blaming Blackrock for profiteering from the seclend markets…
The big funds can & will, as they’re suffering a net loss. Index managers like Blackrock pocket make excessive profit from short lending while pretending to charge low rates for “passive” index tracking.
— Elon Musk (@elonmusk) October 5, 2018
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In his comment from yesterday, Nomura’s Charlie McElligott highlighted several key ways in which the latest rout in interest rates has been different from previous episodes, most notably that of January 2018: one main difference was the lack of rate vol, which however has been picking up over the past two days; the second difference was the inflection from “bear flattening”, which defined the yield curve for much of 2018, to “bear steepening” and which sending an important message for stocks, as “it’s this upgrading of R-star / neutral rate which is re-pricing the long-end of the curve.”
This morning, in his latest note to clients with the 10Y yield just above 3.20% and moments ahead of the payrolls report, the Nomura cross-asset strategist noted that global yield curves have continued the grinding “bear-steepening” overnight (JGB 2s30s @1.5 year highs, Bund 2s10s at 5m highs) — and as anticipated for months, “it’s the steepening which is the ultimate indicator of potential macro regime inflection and the driver behind the (nascent) cross-asset volatility spike, especially due to the jarring violence of Wednesday’s Rates selloff.”
However, as he explained yesterday, the current selloff remains different – for now – in that unlike his “mid-2019 “risk-off” steepening scenario, McElligott views the steepening as not being caused by the market “sniffing a slowdown” (and repricing hikes “out of” / rallying the front-end), but instead it’s the sudden repricing (higher) of U.S. economic growth via “hot data”—and slowly-but-surely, U.S. inflation expectations as well—which is “selling-off” the long-end.
This is also the result of repricing r-star higher, and now pricing in a cycle high 60bps of hikes in 2019 (up from 57.5bps yesterday).
While theoretically the above makes sense, at least as long as the data keeps coming in hot and forcing the Fed to keep hiking, it also has practical implications for the market: specifically, according to Nomura, this “positive shock” and “bear steepening” is the catalyst for the “Momentum” factor unwind, which corresponds with the reversal in the Growth/Value ratio, as “Long Growth” / “Short Value” has been de facto positioning and “the” performance driver for the last two + years.
There are two reasons why Momentum may no longer work in the current market regime:
That said, the market remains near a tipping point, and while for now the bear steepener is an indication of a stronger economy, the market’s next question is how the Fed will respond. It is this concern that led to yesterday’s aggressive selloff in US stocks, which was triggered by two factors:
There is also a technical factor, in the form of CTA exposure. Nomura’s latest CTA model indicates that systematic-trend funds were “at- or near- deleveraging “triggers” as SPX 2m and 1m windows “flipped,” creating substantial notional which was “unemotionally” sold—S&P emini contract volume at 2x the 20d avg, with notional traded in Spooz a massive $309B—a six month high.“
Such trigger point were said to be found just around 2,890; should this level be taken out, it is likely that the CTA community will promptly deleverage aggressively. The good news is that unlike human traders, who focus on small changes in narrative and trendlines, the machines will only unwind once they see other machines do the same.
So going back to fundamentals, what will determine the fate of the “benign” Treasury selloff? Here, Nomura believes that it’s all about today’s U.S. data (NFP, AHE and U-Rate) either:
As the Nomura strategist concludes, if we can maintain strong growth trend without inflation (not “too hot”), “goldilocks” parties-on and broad stocks likely relief rally (“Growth” stocks likely get their legs again), with Treasuries also stabilizing (somewhat) as well.
However, another surprise beat in AHE – which however will only come one month from today the earliest – would further stoke that “wage inflation” story “would likely reaccelerate the repricing U.S. Rates (belly to long-end), keeping pressure on “consensual” U.S. Equities positioning” amid more rotation “out of Growth, into Value” (as witnessed MTD)—and would likely supercharge McEliggott’s “Long Cyclicals (Financials / Banks esp) / Short Defensives” trade, which we discussed here.
Luckily there were no overheating “surprises” in recent weeks and months.
Putting all of above observations by McElligott, “he notes that going forward a “rogue inflation beat” without a doubt is the largest “risk-off” threat to risk-asset psyche, as it disrupts the current “steady” pace of normalization and would pivot the “risk-positive” narrative from “growing faster than we are tightening” (GDPNow at 4.1%) to then risking “Fed policy error” due to “over-tightening risk” and thus, “pulling forward” the end of the cycle.”
Meanwhile, as Charlie touched above, as the curve continues to steepen, we are seeing a rotation of value stocks into a position of strength vs “secular growth.”
Last but not least, here is indication of exposure/length by systematic funds which are liquidating longs in the Nasdaq 100 future amid the yield-curve steepening spillover.
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The Senate voted today to advance the nomination of Brett Kavanaugh for the Supreme Court. This was a cloture vote, ending floor debate on the nomination. A final vote is likely to take place over the weekend.
The cloture vote was mainly along party lines. Fifty-one senators voted yes, while 49 opposed the measure. But in the hours leading up to the vote, the outcome was uncertain. Forty-eight of 51 Republican senators were expected to vote yes, including Sens. Rand Paul (R–Ky.), Mike Lee (R–Utah), and Ben Sasse (R–Neb.) Likewise, 48 of 49 Democrats were believed to be certain nos.
Four senators were still undecided as of Friday morning: Republican Sens. Lisa Murkowski (R–Alaska), Susan Collins (R–Maine), and Jeff Flake (R–Ariz.), plus Democratic Sen. Joe Manchin (D–W.Va.). Manchin, who voted yes, is up for reelection next month in a state President Donald Trump carried in 2016 by a 41-point margin.
Collins, who also voted yes on cloture, informed reporters of her plans minutes beforehand. She said she’ll announce this afternoon how she’ll vote on the confirmation itself.
Flake also voted yes, while Murkowski was a no.
Flake was largely responsible for last Friday’s drama before the Senate Judiciary Committee voted to approve Kavanaugh’s nomination. Flake originally said he would support the nominee. But moments before senators voted, he complicated things. Flake said that while he would vote yes in the committee, he wanted the Senate to delay its floor vote so the FBI could reopen its background check into Kavanaugh.
Flake got his wish. The FBI did indeed look into allegations of sexual misconduct against Kavanaugh. The bureau specifically probed the accusations of Christine Blasey Ford, who says Kavanaugh sexually assaulted her when he was a student at Georgetown Prep, and Deborah Ramirez, who claims he exposed himself to her while they were both students at Yale.
The final FBI report, which has not been made public, contains “no corroboration of” Ford or Ramirez’s allegations, according to an “executive summary” released by the office of Senate Judiciary Committee Chairman Sen. Chuck Grassley (R–Iowa). But many Democrats challenged the findings, claiming the investigation was too limited in its scope.
Regardless, Senate Majority Leader Mitch McConnell (R–Ky.) scheduled the cloture vote for Friday morning. “It’s time,” a GOP official told CNN prior to the vote. “It’s never going to get any easier, so it’s time to pull the trigger and get this done.”
Kavanaugh’s confirmation is not yet a done deal. But as CBS News notes, senators are not likely to change their vote now. If they supported ending floor debate on the nomination, they’re likely vote to yes on the nomination itself. According to CNN’s Manu Raju, though, there’s a chance Collins’ final vote may be different from her yes vote this morning.
On Thursday, Sen. Steve Daines (R–Mont.) said he’ll be attending his daughter’s wedding on Saturday, though he’s willing to return to Washington, D.C. afterward. In any case, Vice President Mike Pence is reportedly on standby in Washington in case he needs to break a tie in the Senate.
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Yesterday I told you about a still little-known gem in the US tax code known as opportunity zones.
The example I gave you yesterday is– let’s say you have Apple stock, and you sell today for a total gain of $250,000.
Ordinarily you’d have to pay tax on that gain.
But if you invest that money in a fund that invests in specially designated ‘opportunity zones,’ which are generally underdeveloped areas, you can push out the tax bill on that $250k for years and years.
And any gains you make on that money in the meantime will be tax free… forever.
Here’s why I think this is a pretty big deal–
A decade ago when the Global Financial Crisis broke out, central banks around the world (including in the Land of the Free) printed trillions upon trillions of dollars, flooding the financial system with a tidal wave of money.
That new money wasn’t backed by anything. They didn’t produce anything of value. They didn’t work to earn it.
They just clicked a few buttons, and, poof… money was created out of thin air.
And for most of the past decade they also managed to hold interest rates down to historically low levels.
For years, in fact, interest rates were literally at the lowest level they had ever been in all of human history.
When money is so abundant and cheap, things can get pretty ridiculous.
Banks and investors start making loans that don’t make any sense. People buy things they can’t afford because it’s so easy to borrow.
Businesses go heavily into debt and embark on foolish, expensive projects simply because interest rates are so low.
We routinely discuss our observations of the absurd in these daily conversations–
Just earlier this week I told you about the $25 billion Hudson Yards project in New York City– THE most expensive real estate development in US history, complete with a gaudy, $150 million stairway to nowhere.
A greater concern, though, is how overvalued most financial assets are.
Investors have rarely (if ever) paid more for real estate, bonds, or stocks.
Even companies that perennially lose money are selling for record high prices and are immensely popular investments.
So far this year, in fact, an unbelievable 83% of IPOs in the United States involve companies that are LOSING MONEY.
That beats the previous record of 81% reached in 2000 at the peak of the dot-com bubble.
And the amount of money that investors are paying for every dollar in earnings, sales, and cash flow for their investments has rarely been higher.
The average “price to sales” ratio in the US stock market, for example, has literally never been higher. Ever.
That’s why some of the most famous investors in the world are avoiding the market.
Warren Buffett, for example, is sitting on a $116 billion mountain of cash. He’s hardly buying anything right now, and is actually selling some assets, patiently waiting for a major correction.
Finding credible investments under such absurd conditions is difficult. But not impossible.
And believe it or not, smaller investors have a major advantage.
There simply aren’t enough credible investment opportunities for someone like Warren Buffett to deploy $116 billion.
But for an investor with $116,000? Or a million… or ten million? Absolutely.
Here’s a great example– I just got off the phone with our lawyers in Luxembourg, where we’ve been working on a unique investment that can generate a safe, double-digit return over the next twelve months.
It’s a secured lending opportunity, whereby my bank is making a loan that is secured by extremely high-quality collateral in Europe that I’ll have legal control over throughout the life of the 12-month loan.
This means the risk is very low. Yet I’ll still make 10% to 15% on the investment.
[Total Access members– I sent you an email about this on Tuesday.]
For me the choice is obvious– I’d rather make a safe 10% than put money into a stock market that’s trading at record-high valuations.
But the whole deal is only about $7 million. That’s way too small for someone like Buffett who has $116 BILLION to invest.
Similarly, our Chief Investment Strategist Tim Staermose recently told readers of his 4th Pillar investment newsletter about a profitable company he found in Japan that pays a 3.3% dividend, yet its shares are worth LESS than the amount of cash the company has in the bank.
At that level, it’s extremely unlikely to suffer a permanent loss. So it’s a lower-risk way to earn a decent dividend, with the potential of the stock doubling in value.
These types of investments are out there. They simply take a bit more work to find.
But the easiest and SAFEST way to generate a significant return on investment is to take legal steps to slash your tax bill.
That’s where the opportunity zones come in.
Think about it– if you can eliminate capital gains tax, you’ve essentially earned a RISK-FREE return of 23.8%.
And given that (as we discussed) the most popular assets are selling for record high prices, it might be a good time to think about selling.
You could then roll those gains into an opportunity zone fund and park your legally UNTAXED gains in safer, undervalued assets.
One of the things that I find interesting about the legislation is that the entire island of Puerto Rico is an opportunity zone (in addition to all 50 states).
And as I told you yesterday, it’s not just a catchy name; I’m seeing an enormous amount of opportunity here.
I’ve looked at office buildings selling for peanuts– for example an entire office tower in good condition for less than $2 million. That works out to be less than $20 per square foot.
There’s everything from beach front property to commercial developments to private businesses (which also come with substantial tax advantages).
It’s definitely worth considering. But you’ve got to get moving now.
Any day now, the IRS will give its final guidance on opportunity zones… and billions of dollars (currently waiting in the wings) will be unleashed.
These opportunities don’t come around often. So it’s important you take advantage when they do.
That’s why I’ve created an entire report outlining the opportunity, how to invest, who to invest with, where you can invest, exact tax implications, etc.
The more information you have now, the better prepared you’ll be when the IRS says “go.”
Here’s the best way to get started.
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