The Morning Line

Sucks? Yeah, sure. Maybe in the eyes of crypto fanatics and the quacks who re-invent monetary policy every month. In actuality, few things in the material world suck less than gold. Sorry to resort to headline flim-flammery to get your attention, but it was time to upgrade our enthusiastic endorsement of gold -- and silver! -- to an outright declaration of love. If you’re a bullion investor, this means we are confident you can buy the stuff now without fear or qualm. And if your safe deposit box is already filled to overflowing with ingots and precious-metal coins purchased when gold was $300 an ounce, it’s time to rent more space. You can even tell kin and friends that bullion is about to embark on a long, profitable ascent without having to worry about their getting burned. More likely is that they will thank you profusely a year from now, especially if the money they’ve plowed into metals was drawn from tech stocks and other appallingly overpriced shares being distributed to greater fools these days by Wall Street’s mountebanks. Bullion's Correction Is Over Regularly readers of Rick’s Picks will know that we quickened our bullion drumbeat earlier this month after Comex futures exceeded a small but technically significant price peak on the daily chart just above $1800. Nothing as promising as this had happened since December, and it suggested that the painful correction begun from around $2060 last August was close to an end. There were more bullish signs to follow. For one, minor ABCD rallies began to exceed their ‘D’ targets, even as corrections fell shy of them. Under the rules of our proprietary Hidden Pivot System, this was unmistakable evidence that the dominant trend had shifted from bearish to bullish. Perhaps even more noticeable was the absence over

Investors who feared muni-bond defaults when the pandemic first hit created unusual opportunity for those willing to buck the tide. One of the winners was Doug Behnfield, a Boulder-based financial adviser at Morgan Stanley whose ideas have been featured here many times over the years. Doug is not only one of the savviest investors I know, he is one of the savviest guys. Now, he is quite bullish on municipal bonds for reasons spelled out in a report that went out to clients in April.  He also thinks Fed Chairman Jerome Powell's confidence that the inflationary effects of stimulus and fiscal spending will be "transitory" is well founded and that this has already been discounted by stocks and bonds. Doug and his clients enjoyed an exceptional year in munis because he started buying them when others were dumping them. Prices subsequently recovered and then some, yielding excellent gains for anyone who'd faded the panic.  Doug is a canny contrarian who shares your editor's view that deflation poses a greater threat to the U.S. economy than inflation. More immediately, he expects pent-up demand to produce a subdued recovery rather than boom times. It will take years for growth to recover, he says, in part because consumers have learned beneficial lessons of frugality. A Limited Supply There are additional factors that have made Doug especially bullish on municipal bonds. For one, they are exempt from federal income tax. Substantial tax hikes planned by the Democrats will therefore make municipal bonds even more attractive.  Munis also are exempt from a tax that affects mainly the wealthy: the 3.8% levy on investment income under the Affordable Care Act.  Limited supply is another reason munis stand to do well over the next couple of years or longer, he says. Cities will not have to raise

With home prices pumped to record levels, we are hearing more and more about Uncle Sam's plan to avoid sticking it to taxpayers when the next crash hits. Although it's always wise to have a plan to deal with catastrophe, especially one that is inevitable, there are reasons to doubt that a mortgage market valued at $12 trillion could unravel without taking the economy and much else -- including, conceivably, our system of governance -- down with it. Consider that Fannie and Freddie, ground zero in the 2008 crash, still own roughly half of all U.S. mortgages -- as much as the three largest banks -- but lack reserves sufficient to cover more than a small fraction of bondholders' losses if it happens again. Of course, the next crash could conceivably be worse, since the financial system is much more leveraged than then. That's a concern the Feds may not have fully considered when they created "living wills" for financial institutions under the 2010 Dodd-Frank bill.  The law requires large banks to file workout plans that would seek to mitigate the risk of upending the financial system and the economy while accountants deal with the quagmire. Extending this rule to the GSEs reportedly is the last piece of legislation needed to complete the Dodd-Frank reforms. 'Affordable Homes' a Gimmick We should all be grateful that someone in Washington has thought this through. But how deeply? As former heavyweight champ Mike Tyson famously said, everybody has a plan until they get punched in the mouth. And what a devastating punch this one would be. My own forecast, which predates the 2007-08 real estate collapse by more than a decade, calls for a 70% plunge in home prices, with losses on vacation homes reaching as high as 90%. This may sound overly

We went out on a limb here last week with speculation that, just maybe, the bull market was topping. Alas, Friday ended with a short-covering orgy that bloodied bears, leaving the boldest of them festooned on the ropes. My hunch had been rooted in technical factors, including an ominous head-and-shoulders pattern that has been evolving since January in IWM, a vehicle that tracks the small-cap Russell 2000. Unfortunately for bears, rather than dropping into a steep dive like the textbook says it should have, the index tacked on five new bars to the right shoulder, turning its promising symmetry into asymmetrical dross -- a mocking, rubberized Mona Lisa smile. Similarly, the E-Mini S&Ps had seemed well poised for a long overdue plunge. They'd turned down sharply the week before after getting within an inch of a major 'Hidden Pivot' resistance that was capable in theory of stopping a buying stampede. By Friday's close, however, El Toro had gored the resistance and was snorting flames. In both instances, the geniuses who purport to be "managing" your and Other People's Money provided bullish spin and buoyancy. But when the rally threatened to turn ballistic on Thursday, bears scrambled to buy 'em back lest they get trampled this week by Wall Street's recurrent homage to Pamplona. Can you blame them for panicking? With the Fed monetizing full-tilt and Joe Biden hawking a version of the New Deal that makes FDR's look miserly, who would be so foolhardy as to bet against the asset bubble? Add corporate share buybacks to the raucous mix of monetary and fiscal stimulus and it becomes difficult to imagine how the bull market could possibly end. Apple's announced $50 billion buyback alone will help sustain the illusion of health in the U.S. pension system while eliciting more unearned huzzahs

First, let me titillate all of you die-hard permabears with a ray of hope:  A potentially important top may have formed last week in, respectively, the E-Mini S&Ps and in IWM, a proxy for the Russell 2000. The former stalled inches from a 'Hidden Pivot' resistance at 4222.82, while the latter turned down precisely on schedule after tracing out the right shoulder of a nasty-looking head-and-shoulders pattern. I must caution you against making too much of this, however, since the stock market since 2009 has blasted free of a dozen similarly daunting predicaments, even achieving enormous gains during an economically devastating pandemic. Still, one can always hope that the time for a long overdue and presumably healthful correction has finally arrived. Just one additional note of caution: If stocks bull-doze their way higher next week, the S&Ps should be presumed headed to at least 4536, a level that would equate to a 3000-point Dow rally. Now on to something with more impact on our day-to-day lives: auto-warranty scams. This plague interrupts tens of million of us each day with robotic phone calls offering worthless car-service agreements. All of us have received scores if not hundreds of these nuisance calls over the years, sometimes two or three of them in a single day. Supposedly, if you follow the voice prompts, you can purchase an extended auto-service policy for $3,000 that will turn out to be useless when it comes time to file a claim. Big Money Despite this, the scam is obviously making some crooks a lot of money, since the calls -- billions of them -- just keep coming and coming and coming. Mine come mostly from spoofed Colorado numbers (where I lived for 20 years) and hit in the late afternoon or early evening. Although I use a call-blocker

Headline writers hyperventilated last week over the prospect of higher capital gains taxes while the stock market took it in stride. Biden wants to double the levy on long-term investments to 39.6%, ending a felicitous run at 20% that was enacted 40 years ago under President Reagan. The Wealthy Will Fight Him to the Death, proclaimed a teaser above a Los Angeles Times column. And Bloomberg.com hoisted this 'Mayday!' above the fold: Rich Americans Face Biden Tax with Anger, Denial and Grief'. They'll get over it, as we well know; they always have. And what is the secret of their Zen forbearance? It is this: Make so much money that even after giving half of it to the revenuers, there will be plenty left to summer in the Hamptons and charter Mediterranean yachts without feeling pinched. And now more than ever, there is consolation in knowing that whatever sums The Government's left hand taketh pales in comparison to what the right hand giveth -- namely, 'stimulus' that all but promises to inflate asset values to infinity. In the unlikely event it is enacted, Biden's proposal would put well-heeled investors in high-tax states like New York and California over the 50% threshold for total taxes paid. The well-to-do have been fleeing to low-tax jurisdictions such as Nevada, Florida and Texas anyway, but a tax hike would undoubtedly hasten the exodus, even of rich Biden backers who disingenuously claim to love Big Government wholeheartedly. In the meantime, although year-end tax selling could increase if talk of a tax hike grows serious, it seems unlikely to faze a bullish herd that has stampeded through a global pandemic and 20% unemployment. Bitcoin No Tax Haven Dramatic headlines aside, the stock market shrugged off the news much as it has been doing ever since the

Bitcoin mania hit an air pocket on Sunday with a so-far $11,500 plunge from last week's record-high $64,858. Groping for an explanation, Bloomberg and other mainstream sources attributed the drop to speculation that the U.S. Treasury might crack down on digital-money laundering. Yeah, sure. This tired story has been marking time for a decade, ever since the days when only a few hardcore gamers knew about blockchain money. Now it is being reheated and served up as a convenient explanation for bitcoin's nuttiness, much as stories about "tariff fears" and "vaccine hopes"' were trotted out each and every time mass psychosis seized traders. Crypto fans had better get used to the crackdown story. Recall that it took almost two years for the news media's tariff-war allegory to die a natural death. This occurred when the "war" itself became too convoluted for the supposed experts to explain. Eventually, and mercifully, they came to realize that they were only embarrassing themselves when they tried.  Now financial writers have trained their wellspring of ignorance on the latest tabloid story involving markets -- the epic mania in cryptocurrency. While this may be a welcome respite from sensationalist blather about how Reddit kids were crushing the hedge funds, it hardly serves to explain bitcoin's rabid swings. So let me try, even though the simple explanation is voodoo stuff that will never surface on Bloomberg or Jim Cramer's vaudeville show. 'Hidden Pivots' Rule! First understand there is no rational explanation for the day-to-day histrionics of deranged markets. The overarching mania is not hard to understand. It exists, and intensifies until climax, because speculators increasingly become convinced they can get rich quickly and with little actual work.  However, short-term whoops, dives and spasms can be explained and even predicted only by using charts.  Thus can we assume

The inflation trade is struggling for loft, a potential victim of its own, wild popularity. “We don’t have strong reflation-trade momentum at the moment because people are waiting for more data,” said Daniel Tenengauzer, markets strategy chief at Bank of New York Mellon. By his logic, all that it would take to stoke inflation would be a little more…inflation. So much for investors' supposed collective prescience. Tenengauzer and his flock should instead be asking themselves when was the last time every investor on the planet got on the same side of a bet and made money. Answer: never. That hasn’t stopped them from praying that Tuesday’s release of CPI numbers for March will show a significant jump. Don’t these guys know that the harder they hope for statistical evidence of inflation, the less likely it is that the markets will move their way if and when it comes? Buy the rumor, sell the news, as the saying goes. Prominent among those who have made money for clients in the past by betting against the popular wisdom is Lacy Hunt, chief economist at Hoisington Investment Management.  The firm’s official position is that “inflationary psychosis” has gotten too far ahead of the real thing. Hunt is an old-timer who well understands how inflation fears can flout reality – for decades, even --causing otherwise astute investors to do the wrong thing. That was the case from about 1980 on, when the few un-fearful investors who stuck with Treasurys made a bundle, racking up capital gains of 15% or more in many years. They outperformed the herd because bond prices at the long end of the yield curve are highly leveraged inversely to small decreases in short term rates. There were blips against this strategy, of course, such as in 1991, when nearly everyone

Biden’s $2.2 trillion ‘infrastructure’ plan is quite ambitious as far as Government boondoggles go. But what if it’s just the Democrats' opening bid? “We can do $10 trillion!” exhorted Alexandria Octavio-Cortez in a wild-eyed remark that is unlikely to be challenged by fellow Democrats or the New York Times.  Even $10 trillion would be chump change, however, if Biden’s Trojan horse for the Green New Deal births the full-Monty environmental and civic transformation envisioned by AOC, Bernie Sanders, Elizabeth Warren and some other socialist zealots on the Hill. It is ironic that Biden chose Pittsburgh as a backdrop last week to showcase the pandemic era's first fiscal-stimulus monstrosity. Pittsburgh has been a model for urban redevelopment in the post-War era, having avoided getting sucked into an economic quagmire by its dying steel industry. Instead, the 'Iron City' transformed itself into an urban success story with massive investment in health care, banking, higher education, parks and cultural amenities. Is the Federal Government capable of deploying funds so judiciously?  It seems unlikely at a time when America's political leadership has embraced the practice of financing vast Federal outlays with money from trees. Note also that Pittsburgh’s regeneration was achieved over many decades with private investment that sought maximum economic returns. In contrast, Biden's plan seeks maximum political returns and contains little actual spending on potholes. With a partisan emphasis on social engineering, it seems more likely to clone Detroit's dereliction than Pittsburgh's prosperity. 'Racist' Highways Indeed, only a reported 5% of the proposed new trillions is earmarked for the repair of roads and bridges. A significant share of what remains evidently would go toward social tinkering and -- heaven help us! -- improving the weather. That’s what Pete Buttigieg, among others, has in mind, believing as he does that the transportation sector