by Addison Wiggin – April 29, 2011
- Your government in action: Running guns to Mexican drug gangs, looking the other way as U.S. banks launder their money
- Gallup poll results, Wal-Mart sales point to a strapped consumer… Barry Ritholtz on a generational change
- Variation on the dollar index hits all-time low, Fed goes all Alfred E. Neuman on us… What you need to do now
- Gold touches record high… Silver briefly eclipses 1980 record despite new margin requirements
- "Bernankruptcy" and other reader takes on The Bernank's first news conference
If nothing else, these WikiLeaks cables give you pause. Yesterday afternoon, we learned the government's been up to no good in the "front that shall not be named" across the U.S.' southern border with Mexico.
After the president claimed on April 16, 2009, that "more than 90% of the guns recovered in Mexico come from the United States," we find out now how true that statement was.
But rather than coming "from gun shops that line our border," as the president had characterized the transactions, it turned out the Mexican government bought $177 million in U.S.-made weapons in 2009 — more than was the total purchases made by Iraq or Afghanistan.
Mexican cops and soldiers then sold or gave the weapons to the drug gangs they are supposed to be used against. "U.S. law enforcement has fair reason to worry a number of weapons simply 'disappear,'" reads one of cables, dated November 2009.
"The violence has been exported to Mexico," was a common refrain we heard on last month's exploratory mission to Colombia.
Ironically, the improving security situation in the land of El Dorado has opened what may be one of the best ground-floor investment stories in the Western Hemisphere over the next several years… at the expense of communities much closer to Texas, New Mexico, Arizona and California than most of the media seem willing to admit.
If you're interested in investing in El Dorado while the market is still beaten down, we urge you to consider Chris Mayer's argument presented here. Still today, we're inexplicably intrigued by ongoing street war closer to home.
Some U.S. weapons follow a more direct route from the U.S. government to the drug gangs.
In February, it emerged that the Bureau of Alcohol, Tobacco, Firearms, and Explosives was funneling weapons through U.S. gun dealers to the drug gangs in Mexico — a sting operation. Roughly 2,500 weapons made their way into Mexico as part of "Project Gunrunner."
The sting backfired.
Two of the guns were used in a shootout on the Arizona border last December, killing a U.S. Border Patrol agent. Serial numbers reveal the guns used were from the Project Gunrunner crop.
Word comes too, that back when Wachovia was still an independent bank, it was laundering money for the Mexican drug gangs — $378 billion worth moved through Mexican currency exchanges.
The transactions were made public last year when Wells Fargo — which ended up hitched to Wachovia in one of Hank Paulson's shotgun marriages during the Panic of 2008 — was hauled into federal court.
"Wachovia's blatant disregard for our banking laws," said federal prosecutor Jeffrey Sloman, "gave international cocaine cartels a virtual carte blanche to finance their operations."
So the Feds threw the book at Wells and its directors went to jail like regular drug users… right? Not so much. The case was dismissed after Wachovia paid $160 million in fines and penalties. Must be nice to belong to the "too big to fail" club. Membership has its privileges.
We suspect there's much more to this story worth keeping an eye on. By the grace of WikiLeaks and other leveling technologies, the unraveling of the security apparatus of the empire… and the financial chicanery therein…. will likely be a recurring theme of these pages in the near and distant future.
Just a guess…
Looks as though Bank of America (BoA) has been let off the hook for crimes committed by one of its late-game acquisitions, too.
Last week, a federal judge in Los Angeles dismissed BoA from a lawsuit brought by investors who bought some of the crappy mortgage securities bundled up by Countrywide.
The judge reasoned that BoA can't be held responsible for something that happened before it bought Countrywide. Never mind that it bought Countrywide fully aware of the firm's shaky finances… precisely because it bundled up mortgages into securities that the market judged to be nearly worthless.
In the markets today, following the Fed's much ado about nothing, the dollar index is wavering around 73 this morning — its low since August 2008.
By a different measure — the trade-weighted dollar index of 26 currencies — the dollar has hit an all-time low, not that any of the "strong dollar" crowd in Washington really care.
"There is little indication of a change in policy from either the Fed or Treasury," says today's Wall Street Journal, "that would alter the currency's downward course."
"America's economy in 2011 is a crumbling house of cards," says our Dan Amoss. "The 'recovery' they tout is held together by false statistics and worthless paper.
"In fact, the deception is more sinister and runs deeper to the heart of the American economy than the problems that started the financial crisis in 2007" — as Dan explains in his most recent presentation.
As the 2007-08 crisis got under way in earnest, Dan protected his readers with gains of 220%… 334%… even 462%. Now he's formulated a six-part strategy to protect yourself from whatever's coming next. To help you get started, we're offering access Dan's premium advisory at an unheard-of membership fee.
This is the last time we'll be telling you about it — the offer expires promptly at midnight on Sunday.
Today is shaping up to be the third Friday in a row that gold closes the week at a new high. The spot price is currently $1,345.
Silver, however, is pausing to catch its breath. The white metal hit $49.53 an ounce yesterday, surpassing the previous record set in 1980 by a nickel.
Twice this week, the Chicago Mercantile Exchange has jacked up margin requirements for silver traders, once on Monday and then again yesterday. If the aim is to take the wind out of silver's sails, they're only causing them to buffer.
At last check, the spot price is $48.57 — up 56% since the start of the year. Still, it may be worth giving Better Than Gold a once over.
Despite the Fed's insistence yesterday that recovery is proceeding at a "moderate pace," more than half of Americans surveyed by Gallup think we're still in a recession… or even a depression.
The Gallup figures square with the assessment of Wal-Mart CEO Mike Duke. "We're seeing core consumers under a lot of pressure," he maintains.
Last year, Il Duce noted how Wal-Mart sales spike at the beginning of the, when government-issued debit cards for food stamps and other forms of relief kick in. Now, "purchases are really dropping off by the end of the month even more than last year." That is, he says, folks are "running out of money" at a faster pace.
"During the actual Recession (officially dated December 2007-June 2009), the public was way ahead of many public officials," writes our friend and financial gadfly Barry Ritholtz, assessing the polling data then and now.
"Has the severity of the 2007-09 collapse," he wonders, "changed them in ways quite similar to the way the Great Depression turned their great-grandparents into a generation of cash-paying, credit-averse money savers who hated leverage and bank obligations of all kinds?
"The severity of the financial crisis, and the elevated levels of insecurity it created, left an indelible mark upon their psyches. The latest generation might become more risk averse, less likely to take a flyer on a new startup or company."
Barry will no doubt contribute a valuable perspective to our fight-or-flight debate coming up a mere three months from now in Vancouver. He'll be joined by familiar faces like Bill Bonner and Doug Casey… Brazilian oil pioneer and last year's top-rated speaker Marcio Mello… and a host of new faces.
Time is running out if you want to secure discounted admission. The price goes up next Tuesday. Symposium Director Bruce Robertson says fewer than 200 seats remain. Here's where to sign up.
Stocks are losing their post press conference glow as the week comes to an end. The S&P is flat as of this writing… but at 1,360, it's still comfortably above the 1,344 high it set in February and broke through on Tuesday.
The blue chips are the standouts today — the Dow powered past 12,800.
"Let's not kid ourselves any longer," writes the first of many readers engrossed by Ben Bernanke's first news conference. "The Fed said a stable dollar is in the American and global economies' interests… what I gather he meant to say is a weaker dollar is in the Fed's interest, not the American or global economy that holds the buck.
"Gradually, they are going to inflate all their debts away at the dollar holder's expense.
"Good 5, as usual."
The 5: Thanks.
"So Bernanke attributes the increase in gas prices to 'the economist's basic mantra of supply and demand,'" adds another.
"Someone should remind the professor that expansionary monetary policy ("quantitative easing") is a policy intended to stimulate demand, ostensibly to correct what Keynesian economists believe to be an imbalance between aggregate supply and aggregate demand.
"Therefore, Bernanke does not dodge culpability."
The 5: If you need help with the Keynesian allusion we refer you to the following:
"With tongue in cheek, I ask," asks a third reader, 'how can any 'first-ever' press conference' be 'regularly scheduled'? Do you mean to tell us that the — formerly secretive — Fed is going to tell the American people its lies and miscreant activities on a regular basis from here on out?
"I've been a steady reader of The 5 Min. Forecast for a long time."
The 5: Well, they haven't said if we'll be graced with Bernanke's visage every Federal Open Market Committee meeting, but it's going to be regular thing. The next one could come as early as June 22. But we too are tingling with excitement.
"Despite all the Newspeak," a reader sums it up, "we appear to be heading in the direction of a Bernankruptcy."
"Come to think of it," another writes after connecting some dots of their own, "those clear typewriters should be packaged up and sent to the Fed. Imagine a device that would provide the public with both transparency and a ribbon of red ink.
"Thanks guys for the humor you provide. It's like a breath of fresh air from all the foul smells coming out of Washington."
"Regarding the Fed's forecast — a magical return of the CPI to 1.4-2% in 2012 — of course it will!
"By then, they'll be applying the 'magical' substitution factor that states we'll all eat
hamburger, instead of steak, to dropping hamburger from the calculation altogether, suggesting we can subsist on a steady diet of on mac and cheese and iPads instead … and QE-infinity.
"I'm so testy about it already I'd better start on my passport questionnaire before the malnutrition makes me forget all the answers.
"Thanks for keeping us informed … I read The 5 every day."
The 5: Thank you for reading. We were reminded yesterday that Wednesday, April 27, was our four-year anniversary in this endeavor. Not a day would have been possible without you.
"Fortunately," our last reader writes, "my passport has several years to run. I am 76, and by the time it expires, I will either be dead or too decrepit to run."
Well, enjoy your weekend, at least…
Addison Wiggin
The 5 Min. Forecast
P.S. At last check, the euro is at $1.484 — only a dime and two pennies away from its all-time high. Thanks to the euro's rise, it's been a terrific week for readers of Strategic Currency Trader. By the time the day is over, readers should be sitting on euro gains this week of 17%… 35%… and 135%.
And all of it happened in four days or less. That's how it works in the unique market that editor Abe Cofnas follows.
Don't kick yourself for missing out. Abe issues a new round of recommendations first thing Monday morning. Here's where you can get on board.