“Anonymous” Targets the Fed

by Addison Wiggin – March 14, 2011

  • "Civil disobedience" campaign to end the Fed launches… at the very moment key Fed governor shoots himself in the foot…
  • Mainstream: Japanese power plant monitored for signs of nuclear meltdown… Behind the scenes: Bank of Japan steps in to prevent market meltdown
  • Dan Amoss with six reasons stocks can keep falling… and one stock set to tank tomorrow
  • The seedy reason Congress dithers on a Colombia trade deal… and how it’s hurting both countries’ economies
  • Reader sees same opportunity in Colombia we do… a map helps prove the point… plus, a teachable moment for those whom you care most about…

Time management experts will tell you there’s a difference between tasks that are important… and those that are urgent. Too often, the disorganized ignore the important in order to tackle things they perceive as urgent: “crisis management” it’s called.

This morning, we strive to tackle both in our scant 5 Min.

In the long view of economics and investing, the earthquake in Japan is urgent… but something else has taken shape in the last 72 hours that is, well, important. On one front after another, the Federal Reserve is coming under siege.

On Saturday, to begin, the hacker group calling itself “Anonymous” issued a video manifesto calling for “a relentless campaign of nonviolent, peaceful civil disobedience.”

AmpedStatus

"We aim to break up the global banking cartel centered at the Federal Reserve, International Monetary Fund, Bank of International Settlements [sic] and World Bank," Anonymous says.

The group has been around for years, but made its biggest impact last fall, when WikiLeaks began releasing its stash of State Department cables. As Amazon, PayPal, Visa and MasterCard all cut off their business ties with WikiLeaks, Anonymous launched "distributed denial of service" attacks — basically slamming their websites with so much traffic until they were forced to shut down.

"As a first sign of good faith," says the manifesto, "we demand Ben Bernanke step down as Federal Reserve chairman."

Then, on the same day the tsunami devoured 100 miles of Japanese coastline, New York Fed chief William Dudley — a 21-year vet of Goldman Sachs — stepped out of his bubble to explain Fed policy to real people in Queens.

It might not have been the first time Dudley attempted to gain the trust of the hoi polloi, but we’re pretty sure it’ll be the last. The details here were reported widely. We divined the scene from a Reuters report.

First Dudley swore up and down that inflation was no problem. “When was the last time, sir,” came a reply from the audience, “that you went grocery shopping?”

Dudley boldly proceeded to explain the concept of “core CPI” — the cost-of-living measure designed for people who don’t eat or consume energy. Heh, we know firsthand how well that goes over…

Then in a brilliant stroke, he pointed to Apple’s shiny new iPad 2 to illustrate his point. "Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful," he gamely explained. "You have to look at the prices of all things."

"I can’t eat an iPad," someone yelled from the crowd. How big a leap is it from "I can’t eat an iPad" to "douse myself with gasoline and light my body on fire in the street", we wondered while reading the report. Depends entirely on who’s listening, we suspect.

As we say, it’s important… even if other matters are more urgent.

The emails haven’t been independently verified… but they appear to show that, among other things, loan numbers were routinely falsified with the intent of putting mortgage holders in default. You think the “robo-signing” scandal was a big deal? Wait until this one gets legs.

Anonymous is nothing if not ambitious. And they have a rising tide of public anger on their side.

Then, on the same day the tsunami devoured 100 miles of Japanese coastline, New York Fed chief William Dudley — a 21-year vet of Goldman Sachs — stepped out of his bubble to explain Fed policy to real people in Queens.

It might not have been the first time Dudley attempted to gain the trust of the hoi polloi, but we’re pretty sure it’ll be the last. The details here were reported widely. We divined the scene from a Reuters report.

First Dudley swore up and down that inflation was no problem. "When was the last time, sir," came a reply from the audience, "that you went grocery shopping?"

Dudley boldly proceeded to explain the concept of &#quot;core CPI&#quot; — the cost-of-living measure designed for people who don’t eat or consume energy. Heh, we know firsthand how well that goes over…

Then in a brilliant stroke, he pointed to Apple’s shiny new iPad 2 to illustrate his point. "Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful," he gamely explained. "You have to look at the prices of all things."

"I can’t eat an iPad," someone yelled from the crowd. How big a leap is it from "I can’t eat an iPad to "douse myself with gasoline and light my body on fire in the street" we wondered while reading the report. Depends entirely on who’s listening, we suspect.

As we say, it’s important… even if other matters are more urgent.

The Bank of Japan is pouring $265 billion into money markets to try to stem a panic induced by Friday’s earthquake and tsunami. The BoJ is also doubling the size of its existing asset-purchase plan — buying still more toxic debt from Japanese banks — to $122 billion.

"That added liquidity may ease volatility in the short term," advises our currency specialist Abe Cofnas. “But the initial reaction in the dollar/yen spot is a good measure of market sentiment on this event — and it points to a weaker yen. That is not just a psychological response, but also an economic conclusion.

"A weaker yen stimulates the Japanese economy, which has received a great shock. As the damage from the quake is further uncovered, more liquidity may be needed."

Abe laid on a trade this morning based on that analysis… and he’ll issue another one tonight. Both of them will play out by Friday — maybe sooner. To learn about the one-of-a-kind market covered by no other North American advisory service, look here.

The BoJ’s intervention wasn’t enough to prevent the Nikkei stock index from plunging 6.2% by the close of trading today — the biggest drop in two years.

Sony has halted operations at 10 factories and two research centers. Toyota has shut down all 12 of its Japanese factories till at least Thursday.

After the close of the markets, another explosion struck the Fukushima Daiichi nuclear plant — one more powerful than the first on Saturday. "The possibility that a large amount of radiation has been released is low," a government spokesman said helpfully.

Tomorrow, we’re going to take a tough look at the future of nukes in the wake of this disaster. Stayed tuned.

The major U.S. stock indexes have given up some of Friday’s gains. As we write, the Dow sits just below 12,000 and the S&P just below 1,300.

"So it turns out the stock market can actually fall," quips Strategic Short Report editor Dan Amoss, surveying market action since the S&P’s Feb. 18 high. "After a months-long, low-volume melt up, the consensus came to believe that as long as the Federal Reserve was implementing in its quantitative easing policies, the market could never fall."

So much for that. The S&P topped out the day after calls went out on Facebook for a "Day of Rage" against the Gaddafi regime in Libya, and crude prices began a steady march above $100.

Of course, "the stock market always has something to worry about," Dan says. "But today, the list of worries seems especially long " at a time when stock valuations are stretched by every historical measure. The list includes:

      1) Continued high oil prices driven by the “scarcity insurance premium” factor.

      2) The possibility of a hard economic landing in China.

      3) The new Irish government could repudiate the bailout deal made by the previous government. If so, the trash credits that have been swept under the proverbial rug in the European banking system would reappear, and blow out credit spreads and sovereign debt spreads in the process.

      4) A debt ceiling showdown in the U.S. Congress.

      5) A double dip in U.S. housing prices is in motion.

      6) A less-than-perfect 2011 North American crop harvest could exacerbate the already tight supply situation in global food supplies.

"To me, this list far outweighs any potential support to the stock market from the Fed’s quantitative easing. I think this correction has much further to go."

Dan will position his readers to profit from the fall. If you’re not already a Strategic Short Report member, there’s no better time to sign up than today. He’s eyeing one stock in danger of crashing, perhaps tomorrow. "If you hold this stock in your portfolio, dump it before they release earnings," he says.

Based on his research into this firm, Dan has recommended a play that could triple his readers’ money… and it’s not too late for you to get in. Dan takes you to the “scene of the crime” in this presentation.

Here we go again. For the second time in three weeks, Congress is staring down a Friday deadline to pass a "continuing resolution" to prevent a partial shutdown of the federal government.

And Congress goes on recess the following week. That means chances are nil that the Senate will sign off on a languishing trade treaty with Colombia, a thread in every conversation we had with CEOs, bankers and analysts last week.

"I give it a 1% chance of passage," one of the country’s most influential money managers told us over an excellent sushi dinner on Thursday night in Medellin. "That’s up from my previous 0.5% chance just last week."

"Colombia used to be self-sufficient in cotton," the manager of a textile plant we met the next day explained. "Now 60% of our cotton is imported… mostly from the United States with a high tariff."

The tariff makes it more expensive to make his goods — everything from camouflage uniforms for the Colombian military to the spandex denim favored by many women (and men) in Latin America.

But the tariff will stay as long as the United States slaps its own tariff on imported Colombian textiles… yet another hindrance to the gentleman’s business.

Both tariffs are supposed to go away under the "Free Trade Agreement" signed by U.S. and Colombian officials in November 2006. Colombia’s Congress approved it in 2007.

But in the United States, it’s been held hostage by knuckleheads in Washington. Trade unions recoil at any tariff-reducing agreement, even if would make some U.S. products, like cotton, more competitive.

Thus, President Obama "has hesitated for two years and still has doubts," says an Op-Ed in this morning’s Washington Post. Yet "the substantive issues that the president has raised – Colombia’s purported indifference to labor rights… were never as serious as he contended, and are well on their way to resolution."

The Free Trade Agreement is a "no-brainer," the Senate Finance Committee chairman Max Baucus (D-MT) during a hearing last week, "and I just hope we get this passed quickly. American farmers lost $1 billion in sales to Colombia over the last two years."

Guess Mr. Baucus is getting an earful from Montana wheat growers losing Colombian business to Canadian competitors?

"The pressure on the White House to drop its passive-aggressive opposition to the Colombia free trade agreement is now officially bipartisan," concludes The Wall Street Journal, which also opined on the subject today.

But now Republicans want it passed as a package deal, along with trade agreements for Panama and South Korea. Ugh. Wake us up when it’s over. Idiots.

From down under comes a nugget for the “what were they thinking” file:

Retro Down Under

Three weeks ago, Australia’s Virgin Blue airways made a huge deal over its new retro uniforms for flight attendants — "style, sophistication and old-world glamour" launched by Elle McPherson and designed by a winner of Australia’s version of Project Runway.

Except they’re just not very comfortable. They’re itchy; some employees report getting rashes. "In an emergency," says one anonymous flight attendant, "these garments will be a hindrance, as the arms cannot be lifted above shoulder height due to the ill-fitting design."

And the lining is 100% polyester. "In the event of a fire, it would be like having plastic melted onto the skin."

Virgin Blue says it’s looking over the matter and "no matter how much research and consultation you do, you are never going to get it 100% right first time." Because God forbid you have actual employees put the uniform on for a flight or two before outfitting the whole fleet with them, right?

There’s a reason these abominations were left in the clothes bin of history.

I am wondering why The 5 was so late last week?" a reader inquires. "Is it going to be late every day, or was this week exceptional?"

The 5: First off, thanks for noticing. Such are the hazards of writing from an iPad on the road. Friday, in particular, was bad. We set a record for the latest broadcast since we began writing. Going in, we figured there might be a trade-off: Our firsthand observations from Colombia might come at the expense of our daily missives running a bit late.

But to let you behind the scenes a little bit, both Dave ‘Davivienda’ Gonigam, the 5’s managing editor, and I were in Colombia at the same time… which made getting the issue out all the more challenging. Writing from a moving car, at restaurants and during meetings with banks, textile and cement companies didn’t help much.

The week was exceptional. In the future, we’re going to plan our excursions to avoid broadcasting The 5 later in the day.

"Thank you for your reporting of Colombia," another reader writes. "As you saw, ‘something’s up’…"

The 5: Indeed, we do like the "Colombian story," as those we met with all week called it.

"During my last trip to Bogota," the reader continues, "I was with a U.S. executive of one of the companies we rep. He noticed that people in their 30s and 40s are wearing braces and found it odd. I too had noted that, and my personal theory on it is that few Colombians started having disposable income until maybe eight years ago. It may or not be an adequate explanation, but the fact is you can notice a general better well-being.

"There’s something else most people comment on and I’m sure you noticed: Colombian service. Colombians are known for being hard workers. Not so much so in any of the neighboring countries. And the service almost anywhere you go is usually above average."

"On the oil side," our reader writes, getting specific, "a well-known nonsecret regarding Venezuelans pouring into Colombia and escaping the ‘reforms’ (I do have to say I enjoy your sarcasm regarding Venezuela) is the number of oil professionals working, investing or setting up shop there.

"In fact, many Colombians give partial credit to Venezuelan petroleum expertise for the investment and revival of the sector. Those "reforms," by the way, included firing 18,000 employees of PDVSA, Venezuela’s state-owned oil company, a few years ago, plus all the ongoing expropriations and company shutdowns that continue to this day.

"Colombia has moved from producing about 400KBPD to about 750KBPD today. The plan is to get to 1.4MBPD in the next four years."

"In fact, there’s already a pipeline capacity shortage. In essence, there’s a lot to be done. There are over 100 operators registered now, so the story will continue to unfold."

"Thanks for your, as expected, great reporting and information. Keep it up!"

The 5: We heard that often… Chavez chased Venezuela’s most professional and competent oil field geologists and engineers out of the country. "Many came to Colombia and used their expertise in heavy oil to tap Colombia’s rich Llanos Basin in the east," Chris Mayer reported back to Capital & Crisis readers on Friday, "which shares a similar geology with Venezuela’s prolific fields."

"What may surprise you is just how quickly it’s all happened. Much of the acreage is already locked up. When new blocks come up for bid, they are heavily contested. We met with Charles Gamba, president and CEO of Canacol Energy. He told us there were 67 bidders on their latest block. Gamba also shared this next chart, which shows you how quickly oil companies locked up acreage.

"In 2003, Colombia licensed only 4% of its available acreage. Today, that’s 60%:

Licensed

"Still, there are several companies here that have stocked up an enviable portfolio of prospects to explore. And oil and gas will be an important driver of Colombia’s economy for years to come as it develops further."

Mr. Mayer is culling through many of the potential plays for his premium advisory, Mayer’s Special Situations. To be on board when he issues his recommendations, look here.

"Since 23% of all mortgages are upside down," a reader muses, changing the subject, "why doesn’t someone impress on the moneylenders that if they can figure a way to allow these folks to also refinance at a lower interest rate, there would be more money that can be spent in other areas, which would help the economy to improve."

The 5: The problem is that rates are already near rock bottom. The only thing that’s going to help a strapped homeowner is to reduce his principal. But as soon as the banks do that, they take a hit to their balance sheets — a phenomenon known as a "balance sheet recession" — during which the banks are revealed to be the insolvent zombies they already are.

"As a big fan of your musings," writes another, "I thought I’d share a revelation I had today."

"Following the Caltech/USGS briefing about the earthquake in Japan on the morning news, one of the newsreaders noted that although this was a devastating tragedy for individuals, from a macroeconomic perspective, it might be a good thing for Japan, as the money spent to rebuild would boost GDP."

"And then it hit me… fiat currency! Where does paper come from? Money really does grow on trees!"

The 5: That’s not even the half of it. What you point to is yet another instance of the broken window fallacy identified Frederic Bastiat, later modernized by Henry Hazlitt in Economics in One Lesson.

Someone throws a brick through a bakery’s window, and it’s supposed to be a boon to the economy because the baker has to give the glassmaker his business. True enough, but what about the tailor who won’t get the baker’s business because he has to go spend his money on a new window?

Too, if rebuilding a devastated city or country is such a great thing for the economy, why don’t we just routinely bomb cities and countries? It would be a recipe for endless prosperity and employment.

Teachable moment: If you haven’t already, we highly recommend you visit the Laissez Faire Bookstore and get yourself and any young person whom you love and/or respect and/or have high hopes for a copy of Economics in One Lesson. Then make sure they read it. And use the example of the disaster the earthquake and tsunami have reaped to illustrate this most basic economic principle. Visit the store here.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. "I predict one of the market’s hottest fad stocks will take a huge blow," says our Dan Amoss, "causing its share price to plummet.

"Three things may come up before it announces earnings on the evening of March 14, 2011."

That’s tonight.

"If so, I expect this news to be all over the mainstream press on March 15, 2011."

That’s tomorrow.

"As we speak, their stock trades for just over $8. When the dust settles, it’ll trade closer to $2.

"Based only on the fad industry in which this company operates, investors have massively (and blindly!) bid their share price up 418% within the past year."

After tonight, that could be all over… and Dan has devised a way you could make three times your money on this one move. Time’s running out. Here’s where to seize your chance.


rspertzel

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