by Addison Wiggin – March 15, 2011
- Third explosion at Japanese nuke plant finally triggers global sell-off… The 5 assesses the damage…
- Unpacking one of the "great risks" for uranium investors… Chris Mayer and Byron King on what to do right now… and what’s next…
- Why the Japan-induced drop in oil won’t last long… and the surprise bottom put in by Middle East strife…
- The man who called two epic market turns released from prison… what it indicates…
- "Anonymous" attack on Federal Reserve prompts interesting book suggestions from readers… plus a few of our own…
It took three explosions, but as of this morning, it appears the containment system around one of the Fukushima Daiichi nuclear reactors in Japan has been breached.
The government is telling people within 18 miles to evacuate or stay inside. Huh? If you’re going to evacuate, doesn’t that mean going outside?
It’s not just the nuke plant, but the pandemonium surrounding it that’s slamming every asset class this morning. Hot money is fleeing to cash. As we write…
- The Dow is down 2%, below 11,800. The S&P is down 27 points, to 1,269
- Japan’s Nikkei index fell more than 10% today, after yesterday’s 2% drop. The FTSE in London is down 2.5%
- Gold has plunged $34, below $1,400 now. Silver fell below $34 for a while, but it’s back to $34.21
- Crude has pulled decisively back below $100 a barrel, down nearly 4%, to $97.18.
The greenback is up, but not much. At 76.7, the dollar index remains within the 76-77 range where it’s been most of this month.
The real beneficiary is the Treasury market: Yields on a 10-year note have plunged to 3.25% — levels we saw during most of December and January.
"One of the great risks anyone investing in uranium takes on — the risk that another catastrophe sets the industry back — has finally unsheathed its sword," says Chris Mayer, who has invested heavily — in time, energy and advice — in the nuclear renaissance.
"The main worry," he adds, "is that the situation in Japan chills the industry in the same way Three Mile Island did in 1979. The political wild cards are the most worrisome thing for uranium investors — and not only in Japan.
"It didn’t take long before a U.S. politician — in this case, Rep. Ed Markey (D-MA.) — warned of ‘another Chernobyl’ and predicted ‘the same thing could happen here.’ He called for an immediate suspension of licensing procedures for the new AP1000 reactors that have been crawling their way through the regulatory process for seven years."
This morning, German Chancellor Angela Merkel announced the shutdown of seven nuclear plants built before 1980. No word on when — or if — they’ll reopen.
The move comes a day after Merkel reversed course on one of the most controversial decisions of her tenure. Last year, she successfully fought to keep 17 aging nuke plants open for 12 years beyond their planned closure.
Now she says, basically, "never mind." The plants will close on the previous timetable.
"Of course," says Chris, "the U.S. is not the focus of the uranium story," and neither is Europe. "Two-thirds of the 324 proposed new reactors will come from outside Europe or the U.S.
"The uranium story is mainly an Asian story. China, Vietnam and Thailand have over 100 nuclear plants on the drawing boards. What they do will mean a lot as far as the nuclear renaissance is concerned."
For the time being, Chris has taken profits on his top uranium play. If you’re a Capital & Crisis reader, be sure to check your inbox for his alert this morning.
"Whatever happens in Japan," says Byron King, offering some additional insight, "the fact is that nuclear power is a global industry. Nuke plants provide a heck of a lot of the world’s electrons. You can’t just flick the switch and shut it all down, Japan or no.
"Looking ahead, the best of the nuclear systems players ought to weather the storm. Indeed, it’s worth it to take a long perspective here. The troubled Japanese reactors are 1960s vintage. They’re the technology of a couple generations ago. Nobody would build ‘those’ reactors again today.
"My view is to hang on for a tough ride with the primary uranium guys," Byron cautions Outstanding Investments readers. "They’ll go down, so if you own shares on margin, you had better get out of the way of this falling knife. But for reasons that I’ll detail in the future, I believe they’ll also come back."
Again, be sure to check your inbox for Byron’s alert. These are critical decisions if you’ve been following the nuclear revival story.
"The earthquake-caused oil price drop mitigates some of the recent rise in price," says Byron, pivoting to another angle. "But the bottom line is that this earthquake oil sell-off is likely a short-term phenomenon.
"Oil prices are on the way up because many nations are increasing not just demand, but oil stockpiles — due to uncertainty of supply from the Middle East.
"In the Philippines, for example, the government recently required that refiners keep a 90-day oil supply, versus the former 30-day supply. Other countries and large oil-using firms are doing similar things in terms of building stockpiles.
"So which news trumps the other news? Will generally rising oil demand keep pricing strong? Or will unexpected events continue to keep a lid on that oil demand, and thus hold down prices?
"We could see a quick rebound in oil price strength due to concerns over supply. There’s strong upward momentum built into oil prices due to fundamental supply issues, not the least of which relate back to political unrest in the Middle East."
On cue, in the Middle East… more volatility.
As we suspected, the ruling Sunni Muslim minority in tiny Bahrain is getting a help from the House of Saud in neighboring Arabia.
More than tanks, some 1,000 troops have now crossed the causeway from Saudi Arabia to help the regime suppress protests by the majority Shia. Yesterday, the protestors drove police out of the central business district in the Bahraini capital, Manama.
Bahrain isn’t much of an oil power, but it is home to the U.S. Fifth Fleet. Defense Secretary Robert Gates dropped in on Friday to urge ‘reform’ as a solution, rather than violence. Oh, well.
Of course, Iran calls the arrival of Saudi Arabian troops "unacceptable."
The Shia leadership in Iran obviously sees a chance to stand up for their fellow Shia in Bahrain… and maybe even reclaim their "14th province."
If you thought Libya was nasty, now we’ve got armed clashes between Sunni Saudi Arabia and Shia Iran over an island that’s home to 10 U.S. Navy task forces. That’s a dust-up.
But it’s also fulfillment of the 1,354-year-old prophecy Byron King has long written about. Oil may have pulled back below $100 today, but the potential is there to shoot up to $220 at any moment. Best get up to speed on the situation here.
Ironically, the strife across North Africa and the Middle East could help put a bottom in for one of the greatest busts of our time. "With the instability in the rest of the Middle East," writes our friend, a wandering penthouse gypsy who has settled in the region and played host to us during our visit there last year, "Dubai has been a net beneficiary.
"Tourists have come in droves in favor of alternative Middle East destinations. Cash is coming from Egypt, Tunisia, Bahrain and other current hot spots, as well as from Saudi Arabia, the big one yet to blow up. People are also coming to buy a bolthole property here as well.
"The stock market drop has given investors an excellent opportunity to buy quality Dubai-based stocks at significant discounts. We would recommend something like Emaar and Dubai World as good value buys with a diversified global business model, relatively low-debt quality assets, good quality cash flow."
Of course, troops from the United Arab Emirates are part of the contingent that crossed the causeway from Saudi Arabia today… so umn, this could easily be an all-consuming regional conflict sending oil into the stratosphere.
With no fanfare, one of the strangest sagas of the financial world came to an end last week. According to several Internet sources, Martin Armstrong has been released from federal prison in New Jersey.
At his peak in the mid-’90s, Armstrong managed over $3 billion in client assets. He’d developed a theory that broke down market action into precise 8.6-year cycles. He called the 1989 start of Japan’s terminal bear market, almost to the day. 8.6 years later, he called a top in the S&P, just before Russia’s default and the collapse of Long-Term Capital Management.
Soon after his S&P call, Armstrong claims the CIA phoned him to learn more about how he could make such uncanny predictions. He says he declined an invitation to pay the agency a visit in Washington.
Whether that’s true or not, this much is certain: A year later, the feds hit him with both civil and criminal charges that he cheated investors out of nearly $1 billion. In early 2000, the judge in the civil case ordered him to turn over $15 million in gold and antiquities, plus documents. He said he didn’t have them. He went to jail in New York for contempt.
And there he sat. Usually, federal law has an 18-month limit on how long you can be held in jail for civil contempt. Armstrong languished there for seven years.
"This contempt [charge] was used to stop me from going to [criminal] trial," he told Gretchen Morgensen of The New York Times in 2007. As long as the civil case was tied up, criminal prosecutors never had to prove their indictment in court.
In 2006, shortly after he was put in solitary for allegedly damaging a vent, Armstrong pleaded guilty to one of the 24 criminal counts. The maximum penalty was five years. He hoped he’d get credit for time served. Wrong.
He was transferred to the federal pen in Fort Dix, N.J., Armstrong started turning out typewritten newsletters that his fans turned into PDF files and distributed widely on the Internet.
Supposedly, he was released last week, a few months early. The reason — and his whereabouts — are unknown. We’re going strictly on Internet accounts here. The New York Times has not seen fit to follow up.
Which is perhaps one more reason the Internet just surpassed newspapers among Americans’ leading news sources, according to the Project for Excellence in Journalism.
"I guess people are beginning to take Thomas Jefferson true to his words: ‘A little rebellion now and then…is a medicine necessary for the sound health of government.’
"The 5 Min. Forecast never ceases to amaze. Keep up the fantastic work!"
"You should include Ron Paul’s End the Fed in your suggested reading for people seeking information on our beleaguered reserve bank," adds another reader who saw our account of Anonymous and the Federal Reserve.
"On that same subject, there was an article in the March 11, 2011, issue of Default Servicing News that read, ‘A new study from the Federal Reserve says household net worth in the U.S. soared $2.1 trillion during the last three months of 2010.’
"I have seen that number before, and it seems to me the total of QE1 and QE2 was somewhere in the neighborhood of this figure. With these results, why doesn’t the Federal Reserve just go ahead with QE3 and QE4 and our net worth would increase another $2.1 trillion dollars.
"I, for one, could sure use the help with the higher costs of gasoline and groceries that I am buying today. But it is good to know that if I needed a new iPad 2, I could still buy it for the same price as the old iPad1. I will surely sleep better tonight."
The 5: Indeed, you can get End the Fed from Laissez Faire Books — in hardcover or paperback. What’s more, if you watch this space, you’ll find a special offer on a "lost" Ron Paul gold bible… very soon.
"While I do appreciate your reference to Henry Hazlitt" and the broken window fallacy discussed yesterday, "I feel I must respond to your other comment."
The 5: Hmmm… This one?: "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."
"What makes you think that’s not what we’re doing?" the reader continues. "I can’t think of a more rational explanation for our ‘nation building’ wars in Iraq and Afghanistan.
"Of course, it doesn’t create prosperity for most of us serfs, but it’s certainly profitable for some and keeps the GDP numbers up. Besides, with Gaddafi torching the oil fields, my Halliburton stock will soar."
"Your comment," adds another reader, "brought to mind pictures I recently saw of Nagasaki ‘then’ and now. From desolate wasteland to sparkling jewel. Alongside, it showed pictures of Detroit then and now 65 years later.
"Ah, how the screw turns. A friend living in the Rust Belt suggested something similar to yours: ‘Let’s nuke Detroit… and wait 60 years’."
The 5: Ummm… yeah. Economics are as a powerful an agent of change as any nuclear option.
Even during our trip to Colombia last week, we heard the refrain: "The Chinese think long term, the West can only think about today. That’s why they’re going to eat our lunch." The Chinese have proposed to build a "dry canal" across the lowlands of Colombia just south of the Panama border, so they’ll have options in case the Panama Canal gets expensive, politically or otherwise.
But the truth is there are important thinkers in the West who’ve been advocating long-term thinking… for a long time. Get a copy of Economics in One Lesson and make sure a young person near you reads it. Pick someone at random if you must… and dog them until they’ve digested the simple idea in the book.
The 5 Min. Forecast
P.S. Abe Cofnas from Strategic Currency Trader followed through last night on his promise to lay on a bonus yen play. It has potential for 669% gains… by early Friday morning.
His previous recommendations — including a gain of 1,329% — have also played out in a similar time frame. That’s how it works in the market that he covers… a market no other North American advisory service has tackled.
Playing this market is "one of the things you should do before you die!" Abe told us with characteristic enthusiasm at our holiday party in December. So put it on your "bucket list"… and take action right here
Investing legend Jeremy Grantham says: “The thing about a bubble… it can keep going.” Read More
The Federal Reserve’s twice-yearly Financial Stability Report whistled past the graveyard where Archegos Capital Management will soon be interred. Read More
“While China may be the leader in the race to build central bank digital currency (CBDC),” says Jim Rickards, “the Fed has not been caught napping…” Read More
The Central Bank of Russia has been loading up on gold for years. “No one plays the gold market better,” observes Jim Rickards. Read More
If China forces Taiwan reunification, is the U.S. ready to go to war with China? Read More
The mainstream is finally recognizing that a new era of the mom and pop investor has arrived. Read More
“Financial technology (FinTech) — along with some good old-fashioned creativity — has opened an elite market to the masses,” says Zach Scheidt. Read More
“Even prior to COVID, moving to the suburbs seemed to make economic sense relative to higher city prices,” says former Wall Street banker Dr. Nomi Prins. Read More
As the number of American companies dwindles, George Gilder says: “Now [investors] have to find where the new value is really being generated.” Read More
If the mainstream insists on beating this 1999 theme to death, we’ll insist on continuing to push back against it… Read More