by Addison Wiggin & Ian Mathias
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The smoking gun? Pentagon announces $1 trillion worth of metal deposits in Afghanistan
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Legal Ponzi scheme: N.Y. “fixes” its state pension shortfall… by borrowing from the same pension fund
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Chris Mayer offers an intriguing penny stock speculation: A “too big to fail” bank for $3 a share, trading at 75% of book value
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Plus, your reports from the front lines: Readers on the state of (un)employment in the U.S.
"The difference between fiction and reality? Fiction has to make sense,” fellow Baltimorean Tom Clancy once said. The biggest headline in the world today reads like a chapter straight from one of his spy novels:
“U.S. Identifies Vast Riches of Minerals in Afghanistan,” trumpets The New York Times this morning.
Turns out there’s iron, copper, cobalt, gold and other highly sought after metals all over the place in Afghanistan, says a Pentagon report. There’s a boatload… early estimates guess $1 trillion worth.
“Afghanistan could eventually be transformed into one of the most important mining centers in the world,” the Times paraphrased the government report, which later called Afghanistan the “Saudi Arabia of lithium.”
Of course, such a discovery will completely transform Afghanistan’s $12 billion annual economy. Luckily for them, in this fantastic coincidence, there are highly industrialized invaders hanging around, ready and willing to “help” this ravaged nation.
“The Pentagon task force has already started trying to help the Afghans set up a system to deal with mineral development,” the Times adds.
So… a “War on Terror” extended far too long for the sake of precious resources, like oil in Iraq, and now precious metals in Afghanistan? That certainly doesn’t make much sense, at least from an ethical point of view… but as Clancy noted, it doesn’t have to.
We’re not the first to try to develop Afghanistan’s massive metal deposits. “Just last year,” the Times report continues, “Afghanistan’s minister of mines was accused by American officials of accepting a $30 million bribe to award China the rights to develop its copper mine.”
Heh, those bribing bastards! Don’t they know who’s in charge over there? “The minister has since been replaced,” the Times concluded, displaying a crafty use of passive voice.
“Just as public surveys reveal the American people are losing faith in continuing the interminable war in Afghanistan,” writes Byron King, who has been on this story for quite some time, “we read news of a years-old major mineral assessment that may be worth a trillion dollars.
“Oh, the benefits of a timely press release, eh?
“Still, the fact is that the resources are there in Afghanistan. In an unintended, unplanned outgrowth of the war, we're watching the game change. We're seeing the roots of resource competition during the next century.
“As this story unfolds, we'll see a scramble for mineral concessions, and the critical question of control over development, extraction and the proceeds of sale.
“The bottom line in Afghanistan is that Western companies are competing with Chinese firms for access to riches, in the backyard of the ancient Persian, Russian and Indian Empires — and these rocky mountains happen to be some of the most remote and dangerous real estate on the planet.
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Not exactly Coeur d'Alene
“The stakes are immense, in terms of total resources and the costs of development.
“It drives home the point that if you want resources, you have to go where the right rocks are. You have to deal with whatever is the situation on the ground — whether it's a war in the Hindu Kush or drilling wells under thousands of feet of seawater, in the case of deep-water oil.”
(This seems like an appropriate moment to note that Iran has the third largest proven reserves of crude oil in the world, according to the CIA, and also controls the Strait of Hormuz, through which 40% of the world’s shipped oil passes every day. If you think these resources, along with Iran’s nuclear ambitions and radical sympathies, could tempt the U.S. into another Middle Eastern war, click here… Byron’s assembled quite a report on the matter.)
Oil’s up almost two bucks today, to $75 a barrel.
Back in the U.S., tales of indebted states far stranger than fiction: The N.Y. State pension fund has decided to borrow money — from itself — to cover this year’s payments. Having learned truly nothing from the last 10 years, Gov. Patterson and his ilk announced Friday a tentative agreement to fund required state pension payouts with a $6 billion loan taken from the very same pension plan. Seriously.
The plot, of course, hinges on a booming U.S. stock market over the next few years. The borrowed funds are due to be paid back to the pension plan, with interest, starting in 2013. If the market doesn’t return at least 5% a year, the scheme will likely cause an even larger loss. It’s hard to imagine this working, even a little bit, with much less than 10% annual stock returns.
But if things don’t go as planned, there’s always the taxpayer. Unlike private 401(k)s, state pension plans have defined payouts that can’t be altered when the market plunges or the economy stinks. Thus, if the money truly runs out, the state will have to choose between higher taxes or default. For reference, check out Vallejo, Calif.
And here comes those tax dollars now… The Obama administration is asking Congress for another $50 billion to avoid "massive layoffs of teachers, police and firefighters." In a letter sent to lawmakers over the weekend, President Obama insisted the states are in need of “emergency measures” to stay afloat — namely, more free money.
Just don’t call it a stimulus… polls show the American public is suffering from a little “spending fatigue.”
The current national debt is around $13.04 trillion.
Even the government’s Commission on Fiscal Responsibility and Reform is out of money! Still operating on its original annual budget of $500,000 and four full-time salaries, the commission has been sending out quiet signals lately that the well is all dried up. “The commission could use additional support to help it work more effectively,” Harry Reid wrote on their behalf to President Obama recently. Oy…
Just one bank failed over the weekend — Washington First International in Seattle. The relatively small failure marks the 82nd of the year, which is still well on track to top 2009’s 140 failures. Washington First took a $158 million bite out of the FDIC’s deposit insurance fund — a fund we have reported, many times, is now out of money. As of March 31, it was over $20 billion in the hole.
“The FDIC closed three of Puerto Rico’s top 10 banks this year,” Chris Mayer reports from Toa Alta, where he is visiting family. “These bank failures were the first bank collapses in Puerto Rico in 15 years. The three banks held about $21 billion in assets and 30% of the island’s deposits. It’s the biggest credit accident for the agency since the S&L bust of the 1990s.
“The weakness of the banks reflects the collapse of the economy. There are 4 million people here. Household income is half that of Mississippi, which lies at the bottom of the ranking of 50 states. Unemployment is, officially, 16%. That figure, though, cuts no ice with locals. ‘16%, my ass,’ said a friend of mine, who owns a business on the island. ‘I think half of the population that could be working doesn’t work.’
“But if you are a penny stock speculator type — perhaps an opportunity has opened up in the stronger Puerto Rican banks. For example, the largest bank here is Banco Popular, with 27% of the island’s deposits. It trades on the Nasdaq under the ticker BPOP. It took over Westernbank, the largest of the three banks that collapsed. It did this via an FDIC-assisted transaction whereby the FDIC guarantees up to 80% of the losses from certain assets. The FDIC holds out for banks to acquire ailing banks. It’s a free ticket to make some money with the U.S. taxpayer standing behind you.
“Besides getting that sweet deal, the stock itself trades cheaply. FBR Capital Markets calls Banco Popular ‘the cheapest big bank in America.’ It trades for 75% of book value and recently recapitalized with a billion-dollar cash infusion. The main issue is potential losses from bad loans, as it is with all banks right now. But being the biggest — and, hence, most important — bank on the island, it will get every break from the government to make good.
“For a long time, Popular was a great stock to own. Now the shares go for less than the cost of a Starbuck’s coffee. Perhaps one day the island will revive and Popular will once again be a popular stock.”
For all the world’s trials and tribulations, stocks had a surprisingly great run last week. After a dreadful May and lousy first week of June, the sellers finally took a break and the S&P popped 2.5%. The buy up continues today, with the index opening up nearly 1%.
“It sucks here,” a reader writes from Kokomo, Ind., responding to our query Friday to let us know how the employment scene looks in your neck of the woods.
“Unemployment is 10% or more. Employers are making big announcements to say they will be able to retain jobs through cash investments. No new employment. Manufacturing has been going away in this area since the 1980s. A person has to go 50 miles — minimum — to acquire jobs that pay $8.50-15.00 an hour, if you can get them.
“Still waiting for the stimulus package to start here.”
“In response to your other reader’s email about software engineering jobs,” another writes. “I am also a software engineer in Los Angeles. I have noticed the same thing. The job openings are picking up — many, many interviews, but no offers.
“It seems that the people in charge of making the hiring decisions are being extremely picky, to say the least. It seems as though they are making the hiring process so difficult, it is almost impossible to get hired. I have a great resume, great experience, great references and great knowledge, yet they always seem to come up with SOME reason not to make an offer…
“I am kind of wondering if the prospective employers are keeping jobs open for other reasons, such as keeping tabs on market trends in technology or getting people to give them good ideas in interviews to solve the problems they are too incompetent to resolve themselves.”
“I work in the second largest city in the state of Illinois,” writes a reader from Rockford, Ill. “I work in the transportation sector. We have lost hundreds, if not thousands, of middle-class, blue-collar jobs over the last three years. There are so many empty factories, retail stores, warehouses, industrial parks and office buildings that it is hard to imagine without seeing it firsthand…
“If you are lucky enough to find work, it is usually at half or lower than your old pay rate. The more my family tries to cut back on costs at home, the more grocery prices, fuel, utilities and the everyday cost of living go up. It is an endless battle that feels insurmountable most of the time. The Midwest is really hurting, I don't care what all the analysts say, the average guy is suffering! Big-time!
“I work in environmental consulting (own a small business),” the last reader writes, with a glimmer of hope, “and since the start of the year, I and just about everyone else I talk to in the industry have been extremely busy. Many firms are hiring. This is a huge turnaround from a year ago, when a lot of work dried up. I’m still puzzled about what is driving the trend, because very little of it is related to federal stimulus money, and state (we’re in California) money isn’t flowing all that fast, either. But there has been a very definite change.”
The 5: Thanks for sharing your stories. Please keep ’em coming.
Best,
Ian Mathias
The 5 Min. Forecast
P.S. We’ll be sending out invitations tomorrow for a conference call featuring Addison, Chris Mayer and a few of our favorite front-lines contacts in China. They’ve promised to “unpack the entire ‘China: Boom or Bubble’ question,” and offer a few strategies to help you profit from this story — truly, the story of this generation.
In order to receive an invitation to this call, you need to let us know you’re interested by signing up, here. Space is extremely limited… it’s very likely some folks will be turned away. So don’t wait: Sign up here and be on the lookout for your invitation.
P.P.S. Still interested in the Gulf oil spill and BP’s fate? We certainly are, though we deliberately left it out of our forecastin’ today. Really… it was time for a break.
But if you insist on your 55th day in a row of BP coverage, check out this interview PBS conducted on Friday with our very own Byron King. Good stuff.