by Addison Wiggin – April 4, 2011
- Oil tops $108 as cops shoot protesters in Yemen… How this one country could spark a doubling of the oil price
- Israelis watch nervously, even as they pursue energy independence… Byron King on the resulting bi-fold opportunity…
- Silver Eagle supply bottleneck… Dr. Ron Paul presses for answers…
- Utah affirms Gold and Silver Eagles as legal tender… Meanwhile, the curious case of Bernard von NotHaus gets even curiouser…
- "Shine the light of knowledge and reason"… Early reviews of Bill Bonner's new book… plus, a new text messaging service your trading account may want you to register for
0:00 — Light Sweet Crude is touching another post-Panic of '08 high this morning.
At $108.25, we're still a stretch from the record $147 price set in July 2008. But it's $2 higher than it was on this date in April of that year. So we've got time.
0:11 — No single factor lies behind the latest run-up as we begin the trading week. Rather, a confluence of events across the Middle East and North Africa continues to make the markets nervous:
- The civil war in Libya drags on. Gaddafi's forces and the rebels are stalemated and U.S. airstrikes are doing little to shift the balance
- Bahrain's government has shut down the leading opposition newspaper. Bahrain's Shiite majority is ruled by a Sunni minority. The U.S. Fifth Fleet, stationed in Bahrain, watches nervously
- Troops have opened fire on protesters in Yemen, killing 12 and wounding 30 critically.
0:24 — Yemen has little oil to speak of, but it sits on the eastern side of a narrow waterway crucial to the world oil trade, described in Byron King's "New War" scenario as the Bab-el-Mandeb, "the Gate of Tears."
Yemen is home to a volatile religious mix — 52% Sunni, 46% Shiite. The dictator, Ali Abdullah Saleh, has ruled the place for 32 years.
Seleh has been helping the United States wage a secret war against al-Qaida sympathizers since Sept. 11. So unlike with Libya, the U.S. government doesn't want to see him go.
The problem is how Saleh is suppressing the protests — especially on the country's northern border with Saudi Arabia.
0:45 — "What Saleh's been doing," explains Nation Institute fellow Jeremy Scahill, "is taking sides with really extremist Wahhabi factions from Saudi Arabia and allowing the Saudis to go in and try to exterminate the Shiite minority inside of Yemen.
"So the Houthis [Shiite tribesmen] see him as a puppet of the U.S. and the Saudis.
"The U.S and the Saudis are creating a situation that could draw in Iran to defend the Shiite population there. The dangerous game the U.S. is playing in the north of Yemen could well draw in the Iranians because this is Shiites being exterminated, and it gets covered a lot on Iranian state television."
"Saleh has lost allies," the BBC reports this morning, "Yemen's army is split. The government has lost control of entire areas of the country. And the economy is collapsing."
0:56 — Yemen, as we described in Apogee Advisory a year ago, is a demographic time bomb waiting to blow. Perhaps the fuse has already been lit. The desolate, arid country is also another front in the 1,354 year-old Sunni-Shiite conflict Byron describes in his New War scenario.
A year ago, the media laughed when Mr. King suggested the New War could send oil to $220 in a heartbeat. At $108 — and rising — journalists are beginning to sober up and ask different questions. Byron explains the New War scenario here… and will help you get ahead of the news cycle to bulletproof your portfolio… in this presentation.
1:09 — On the other side of the peninsula, Egypt state media reports police have thwarted an attack on a natural gas pipeline that supplies Jordan, Syria, Lebanon and Israel. The same pipe was recently reopened after an explosion at a terminal shut the pipe down for six weeks in February and March.
In response to the first incident, Israeli leaders ramped up efforts to develop a gas deposit known as Leviathan. With some 16 trillion cubic feet of gas, Leviathan is one of the world's largest new gas fields of the past 25 years:
"The geology off the coast of Israel," Byron explains, "has every indication of meeting criteria for a major 'petroleum system.' It has analogues with other of the world's best hydrocarbon-rich areas. There are salt layers similar to, but not as thick as, the pre-salt of Brazil. There are structures and stratographic traps, like off West Africa, with oil plays like Angola and Namibia.
"Plus, I think it's fair to speculate that the really deep stuff offshore Israel has some similarity with what I've seen of the Wilcox Trend beneath the Gulf of Mexico."
Only two companies are working this region. One is fairly well-known in the oil and gas sector. The other is a newcomer… and Byron says it has enormous potential. Shares can be had right now for a little over $1 each.
Byron spotlights the company in the current issue of Energy & Scarcity Investor. New subscribers also get a special report identifying a stock that could beat all the familiar names in the race to ramp up production of rare earths outside China. Learn all about it in this presentation.
1:48 — The strife across the Middle East is helping to push up gas prices here in the United States again. The national average for gas at the pump this morning, AAA tells us, is $3.66 — up 84 cents from a year ago.
The highest price ever recorded was $4.11 back on July 17, 2008. As the summer "driving months" are still a few windstorms away, chances are good we'll have a go at that record this year.
1:50 — Stocks are inching up as the week begins, the Dow eclipsing 12,400 and adding onto Friday's gains.
"The Fed's money-pumping operations are keeping shares high," says Options Hotline editor Steve Sarnoff. "The assertiveness of demand for stocks didn't look like an April Fools' prank. This strengthens underlying support and forecasts higher prices down the road."
1:59 — Gold is inching back to where it was for much of last week, at $1,436. Silver, meanwhile, has powered to another post-1980 record, currently $38.46.
2:04 — The greenback is treading water as a new week begins. The dollar index is up a skosh, to 75.9.
2:16 — "The Canadian dollar has reached multiyear highs against the U.S. dollar," counsels our currency trader Abe Cofnas. "This is partially due to the loonie's co-movement with oil as well as the more positive U.S. economic outlook.
"Remember, the United States is the key export market for Canada, accounting for about 80% of its exports. So better U.S. growth means more demand for Canadian products."
On the basis of this action, Abe recommended a Canadian dollar trade to his readers today with the potential for gains of 156% by Friday… maybe sooner. He also recommended a play on a strengthening British pound that could turn every $1 invested into $4… again, no later than Friday.
Did you buy it? Last week, Abe's readers collected an average 104% gain on four plays… including a 177% gain on a Japanese yen trade… all in five days or less. The market Abe covers moves fast… and no other North American trading advisory makes trades on it. Yet we're making it easier than ever for you to try it out… as we explain here.
2:35 — Sales of U.S. Silver Eagles in March totaled 2,767,000, according to the U.S. Mint. That's down from February, and less than half of the all-time record set in January — 6,422,000.
But put in the context of Silver Eagle sales going back to their launch in late 1986, the upward trend is unbroken.
A chart like this reinforces our outlook that silver has the potential to outperform gold by 3-to-1 in the next 12-24 months… a forecast we spell out in detail here.
2:43 — The premium over spot price for a Silver Eagle is up to $4, according to an informal survey we made of dealers today — a signal the Mint can't keep up with demand.
"Why can't they keep the supply of coins up?" asks Rep. Ron Paul, chairman of the House Subcommittee on Domestic Monetary Policy. That's in part a rhetorical question: The Mint doesn't make its own blanks. "There is a contract with a foreign company, which makes no sense at all."
Dr. Paul will bring the Mint's operations under the microscope at his subcommittee's hearing next Thursday. The Eagle program is near and dear to him. In fact, the program likely wouldn't exist were it not for Paul's involvement in the U.S. Gold Commission appointed by President Reagan in 1981.
[Ed note. Most of Paul's recommendations during that commission were overlooked. But they were preserved for posterity in a book called The Case for Gold — which is back in print after 28 years, thanks to a joint effort by the Ludwig von Mises Institute and our own Laissez Faire Books. You still have a chance to get your own copy — free. Here's how.]
3:02 — U.S. Gold and Silver Eagles are now legal tender in Utah.
Actually, they're legal tender in every state — a 1-ounce Gold Eagle has a face value of $50 — but "the intent would be to see where a gold or silver coin is valued at its market value instead of its face value," says State Rep. Brad Galvez, who introduced the bill.
"This allows the people of Utah to protect their assets against what we're seeing in inflation and the devaluation of the dollar."
Gov. Gary Herbert signed the bill into law last week.
An aide who wished to remain anonymous told CNN, "If somebody is stupid enough that they want to buy a Snickers bar at 7-Eleven with a gold coin worth thousands of dollars, they will be able to do that."
There is one practical effect to the bill: Sales of Gold and Silver Eagles will not be subject to state capital gains taxes; sales of foreign precious metals coins still will.
"So alarming has been the collapse of the dollar," says writer Seth Lipsky in The Wall Street Journal, "that the legislatures in as many as a dozen American states are considering using their authority — under Article 1, Section 10 of the Constitution — to make legal tender out of gold and silver coins…
"However, the von NotHaus verdict will stand as a warning."
3:34 — You may recall von NotHaus was convicted last month of violating a law that makes it illegal, in the words of the FBI press release, "to create private coin or currency systems to compete with official coinage and currency of the United States."
But as Lipsky points out, that's not entirely true.
In another wrinkle to an incredibly tangled case, the judge threw out the part of the indictment that claimed "it is a violation of law for private coin systems to compete with the official coinage of the United States."
You can't make this stuff up.
"It is not clear that there is a constitutional basis or a logic," Lipsky concluded in his piece, "for prohibiting individuals from making and selling pieces of gold and silver and using them, on a voluntary basis, as money — i.e., to 'compete with' the official coinage of the U.S."
To be continued…
3:57 — "What was left to convict the man on, we don't know," added our own Bill Bonner to the von NotHaus saga on Friday. "But the court did so. And now he must appeal… or face penalties, possibly time in jail… and possibly a long time.
"But what about the rest of us? Are we sentenced too? Will we be forced to pay the price for the feds' goofy monetary policies?
"Compare Mr. von NotHaus's money to the money issued by the U.S. Treasury Department. The Treasury's dollars have no precious metal content — none. At best, their content comes from trees and cotton plants, with a scrap value that is probably negative. Meaning, if it loses its value as money, you'll have to pay someone to haul it away.
"So who do the authorities haul to the hoosegow? The guy who mints honest money in tiny quantities… or the guy who puts out $2.2 trillion in 'paper' money that is sure to lose its value quickly?
"Go ahead…take a guess."
4:19 — "Like P.J. O'Rourke," writes an eloquent reader who's made his way through Dice Have No Memory: Big Bets and Bad Economics From Paris to the Pampas and posted his insights here, "Bill Bonner has the entertaining ability to make us laugh at the stupidity we humans are capable of in large groups while teaching truths that we seem determined to forget. It is indeed a truth that the only animal capable of learning from the mistakes of others is so reluctant to actually do so. Thus, we go round again.
"As the Bible teaches: 'Professing themselves wise, they became fools.' The sociopaths craving power that rise like pond scum to positions of authority and become the societal cancer known as government can only be exorcised through an informed populace.
"Via the hard-won truths of history, Mr. Bonner provides that necessary information. Exposing the intellectual dishonesty and moral bankruptcy of the 'wise' men, he delivers the education our government-controlled school system totally abdicates — and he does it in a delightful way that will have you impatient for the next installment.
"If you enjoy the sarcastic wit of O'Rourke or the finger-pointing ridicule of Monty Python, you will love the quite real education Bill provides. We learn that, far from being doom and gloom, the cure for our economic ills is quite simple — shine the light of knowledge and reason through the fog between the ears of authority.
"Through his writings, Bill Bonner hands you that flashlight."
5:00 — "I have been reading The Daily Reckoning for most of its existence," adds another. "You're absolutely right about Bonner shining a light through the fog. He's a great thinker and the best writer out there and has since surrounded himself with a team of (like-minded) outstanding writers and thinkers."
The 5: Heh.
"Bonner called the 2008 recession," the reader continues "expecting it earlier, however and fully expects a double dip — again expecting it to have manifested itself by now. His team forecast the rise in gold, which would have protected a number of investors through the recession.
"When the three car companies went to Washington, two of them with their hands out, it was with the DR in my veins that I recommended to my brother to invest in the third, Ford, which doubled in value in a week or two and has ultimately ten-tupled in value since my recommendation."
The 5: "Journalists believe their job is to report the facts," Mr. Bonner writes in the introduction to Dice, commenting on the roots of the project, "not to laugh at them. Even the commentariat and editorialists believe they need to take the news seriously; who will buy their papers and magazines if they make a joke of it?
"The lectorat, too, had become convinced that the world of finance, investments and economics was serious business. Many believed that the latest developments — both in technology as well as in financial theory — would make them rich.
"They had heard that the Internet made wealth secrets available to everyone. You could now go onto the Internet to find out how to make a nuclear bomb, or a fortune. 'Stocks for the long run' seemed like an almost risk-free road to riches. Readers weren't going to pay someone to mock their ambitions and undermine their hopes.
"But The Daily Reckoning was free. Readers could not complain that they were not getting their money's worth."
Over the weekend, we posted the introduction to Dice Have No Memory: Big Bets and Bad Economics From Paris to the Pampas to Daily Reckoning website. Take a look: You'll not only relive the last decade of economic and financial folly — but come to new conclusions about what's best for your money.
The 5 Min. Forecast
P.S. "We could see much higher prices in the near-to-mid term," says Jonas Elmerraji of an oil-themed play he recommended this morning to readers of Penny Momentum Trader. He's watching the $108 oil price as closely as the rest of us, and he's suggesting two ways to play it depending on your risk tolerance.
In late February, a similar play generated a 27.5% gain in a week, a textbook play for Jonas' S.T.O.R.M. system. Mr. Elmerraji explains how the S.T.O.R.M. works (including a newly minted text messaging service) to quickly grow your trading account in this presentation.