Most Successful Speculation Ever

by Addison Wiggin – May 2, 2011

  • "Bleeding America to the point of bankruptcy": Bin Laden dead, but the world's most successful leveraged bet lives on
  • Dollar's bin Laden bounce doesn't last long… Abe Cofnas on the next big event to move currency markets
  • "There are no investments anymore"… Doug Casey on how we're all being forced into speculation
  • Mad grab for local tax revenue sparks revival of the "granny flat"
  • "Wow, can I do that too?" readers react to a drug-and-bank corruption thread

The man who executed the most brilliant leveraged bet in history is dead.

"We, alongside the mujahedeen," Osama bin Laden was reported to have said in a speech delivered a few days before the 2004 presidential election, "bled Russia for 10 years until it went bankrupt and was forced to withdraw [from Afghanistan] in defeat…

"So we are continuing this policy in bleeding America to the point of bankruptcy."

Al-Qaida pulled off the Sept. 11 attacks for somewhere in the vicinity of $500,000, according to the final report of the 9/11 Commission.

By the end of fiscal 2011, the U.S. government will have spent $1.26 trillion fighting the wars in Afghanistan and Iraq, according to the Center for Defense Information. A total equal to nearly 9% of the national debt.

"Every dollar of al-Qaida defeated a million dollars, by the permission of Allah, besides the loss of a huge number of jobs," bin Laden added in his 2004 speech.

We don't know if Allah really gave his permission or not. But he certainly had plenty of help from eager participants across the West. Based on the figures above, bin Laden pulled off a 2,514,000:1 return. And that's just versus U.S. interests.

When you figure in costs beyond direct war, the number is incalculable. Throw in the post-9/11 homeland security bureaucracy, for example, or the covert wars in Yemen and Somalia, future health care costs for wounded veterans, interest on the portion of the national debt that can be attributed to these costs…

Makes you wonder why those students from George Washington University were cheering in front of the White House:

Land of the (somewhat less) Free: Party now, pay later…

Nor does it mean that just because the bad guy's dead the spending stops, the troops come home and the TSA is disbanded.

Far from it.

This morning, the State Department warned of "enhanced potential for anti-American violence" worldwide. Security's been beefed up at the New York airports.

And so… bin Laden's leveraged gains keep piling ever higher.

The boogeyman's death "helped send oil prices down by more than 3%," said a Reuters dispatch this morning.

Whoops, that's already out of date. A barrel of WTI goes for $114.46 as of this writing, another post-2008 high.

"The dollar recovered from a three-year trough versus a currency basket on Monday, boosted by Osama bin Laden's death," reads another wire story that also is out of date.

At last check the dollar index is down to 72.76, another post-2008 low.

Precious metals have gyrated wildly since the spot market opened last night at 7 p.m. EDT. From Friday's record close at $1,565, gold spiked to $1577, tumbled to $1,550, sank to $1,543 after the bin Laden news and now has zoomed all the way back to $1,573.

Silver has been even more volatile, thanks in part to the Chicago Mercantile Exchange's most recent increase in margin requirements.

The white metal opened the new week at $48.22, instantly crashed to $42.17 and has steadily recovered since midnight to a current price of $47.16.

Stocks are enjoying a modest bounce. Both the Dow and the S&P have moved up to new highs, and the Dow just cracked through 12,850. We suspect bin Laden's relevance has long since been priced into these markets.

In the broader economy, the U.S. manufacturing sector is trucking along, but slowing down, according to the latest ISM manufacturing index. The index fell from 61.2 in March to 60.4 in April… but that's still 21 straight months of growth. This morning's number is better than what traders were looking for.

Unfortunately, this "expansion" is driven to a large degree by the "prices paid" component, which rose from 85.0 to 85.5 — the highest since July 2008.

"Manufacturers are experiencing significant cost pressures from commodities and other inputs," says the curiously named head of the ISM's survey committee, Norbert Ore.

Now that the currency markets have digested the bin Laden news, "the dominant event risk for the week is the monthly release of U.S. nonfarm payroll data," says our currency trading specialist Abe Cofnas. The new jobless numbers are due on Friday.

Abe has been sorting through the logorrhea emitted last week by Ben Bernanke and the Federal Open Market Committee (FOMC). "Remember, the FOMC knows traders are paying close attention, so they choose their words very carefully.

"But even those carefully chosen words are revealing, especially when compared to previous FOMC statements. Here is a word cloud from the FOMC's decision last week:

"Now look at the FOMC's statement from the same week last year:

"What is striking is the increase in the size of the word 'inflation.' It confirms that it remains a main area of concern to the FOMC.

"Reuters also did a word cloud for Bernanke's press conference after the meeting. Though he tried to downplay inflation fears, that word crept up a lot. He also maintained that he supports a strong dollar… but the fact that the word is so hard to find in the cloud makes it clear it's not a priority for him.

"So the Fed is thinking about inflation, but not about the dollar. That means we should start betting against the dollar, right? Not so fast… the consensus is already counting on a weaker dollar."

This morning, Abe recommended a dollar play that could, should the markets choose to cooperate, deliver 146% gains by Friday. This would come on top of 135% gains last week… and 108% gains the week before. To learn more about the unique market Abe follows, check this out.

"There really aren't investments anymore," says Doug Casey, surveying the investment landscape wrought by Bernanke and his fellow central bankers. "With trillions of newly created currency units floating around the world, things will become very chaotic and unpredictable shortly.

"I own beef and dairy cattle, which are a good place to be; but that's a business, and it's not practical for most people. I think it boils down to gold.

"Whether you like it or not," Mr. Casey continues, echoing a theme we discussed with our new friend Chris Martenson on Thursday, "you're going to be forced to be a speculator in the years to come.

"A speculator is somebody who tries to capitalize on politically caused distortions in the marketplace. There wouldn't be many speculators, or many of those distortions in the marketplace, if we lived in a free-market society. But we don't."

Is it time to walk away from the United States and take up the life of the "International Man" that Casey has? Or is there still a chance to stick it out and maintain some semblance of the "land of the free"?

We know which side Doug will take in the "fight or flight" debate… but you don't want to miss the fireworks sure to ensue this summer in Vancouver. Your final chance for discounted registration expires tonight at midnight. Here's where to act.

Just in time: The granny flat is coming back. Only now, tax bureaucrats are giving them a suitably wonky name: behold "the accessory dwelling unit," or ADU.

Same as it ever was: the new, improved "granny fla…" er, ADU

The notion of a backyard cottage has been anathema to generations of urban planners. Now they're back in vogue. Seattle allows them up to 800 square feet, and builders can put them up for as little as $50,000.

"The city saw backyard cottages as an attractive new alternative," reports Governing magazine "a way to add affordable housing options without a wholesale redesign of the city's signature neighborhoods.

"Some homeowners use the freestanding cottages as home offices, or as extra room for when relatives visit. Others are building them as in-law apartments for aging parents or as crash pads for post-college children who can't yet afford their own place. But a large number of homeowners are actually renting the cottages to tenants."

In other words, city fathers are allowing these new "eyesores" to prop up falling housing prices and property tax revenue. "Localities everywhere from California to Minnesota to Massachusetts are re-examining their zoning laws and considering the role that ADUs can play in the makeup of their urban design."

We've suspected for some time the longer the financial crisis drags on, the more average folks will rediscover the values — thrift, frugality and industry — that made U.S. prosperous in the first place. Only this time around, we'll get a healthy dose of regulation with them and a perpetually slower-growing economy.

"How can helicopter Ben tell all the bulls**t with a straight face?" writes a reader still aghast at Bernanke's press conference. "It's amazing that they keep doing the same thing over and over and the American people with their head in the sand say nothing.

"It's quite obvious that the f***wads in Washington care about one thing — getting re-elected. I for one am leaving this land before I can't. As my old man used to say, 'F*** 'em and feed 'em beans."

"Leonhardt at The New York Times and various economist types," writes a reader, "say that the Fed is right not to act on the basis of the headline-making CPI, let alone particular items in it, because of its volatility: that is, it will too often change direction before any countermeasure against inflation by the Fed could have its intended effect.

"They say that in the past, acting simply on the basis of fuel and food price increases would have made for bad decisions and effects. But, they say, the CORE index (CPE) is not volatile and its trend can, as it has in the past, usefully detect the kind of inflation buildup that the Fed wants to prevent.

"For now, they see no dangerous increase in the relatively low core index number. Therefore, they do not predict the inflation. You do. Rather than scoff, could you calmly explain why they are wrong in their reliance on the core index to predict and manage inflation, and why the CPI items you cite would be more useful in determining Fed policy?"

The 5: Oh, man, you're taking the fun out of our Monday morning. A better question you might ask: "Why" isn't core CPI going up? What would happen, for example, if the Fed weren't purchasing blocks of Treasuries and keeping long-term interest rates down? We may soon find out. The current round of quantitative easing is scheduled to conclude in 58 days.

We scoff because it's fun. But in all seriousness, we have no interest in determining Fed policy. We haven't the foggiest idea what interest rates should be — which is why we think the market should be allowed to set them.

And for the record, we don't "predict" inflation — or anything, for that matter. We're looking at the trends in place, just like you, and trying extend them into a reasonable amount of time in the future… then plan accordingly.

We don't know what events will or won't impact those trends any more than the members of the Federal Open Market Committee. But you can be darn sure they think they do. Admiring their hubris is half the fun of writing The 5.

"Thanks for the acerbic expose," a reader writes after seeing our take on drug running and big banks Friday."Nice of the U.S. government to support local gun dealers. Thanks to Project Gunrunner, they do not have to tell a lie when they say many of the guns came from U.S. gun dealers!"

"Bank of America (BoA) has been let off the hook for crimes committed," adds another. "So does that mean you can commit the crime and sell it to someone else and all is forgiven?

"Wow, can I do that too?"

The 5: Last October, former Countrywide chief Angelo Mozilo forked over $67.5 million in penalties to settle the SEC's civil case for "crimes" committed between 2001-06. There was no criminal case.

During that same period, Mozilo took home $470 million. In the end, he gave back less than 15% of his gross earnings from the six-year period his company was helping to inflate one of the largest asset bubbles in human history.

Good work if you can get it.

"Congress says they are looking into the Bernard Madoff scandal," writes our final reader. "Oh, great! The guy who made $50 billion disappear is being investigated by the people who made $ 1.5 trillion disappear!"

The 5: What a mess.


Addison Wiggin
The 5 Min. Forecast

P.S. "I am an American who is reasonably well-off," adds a reader who seems to have a lot on his mind. "I am 69 years old and about to retire with about $2.25 million in assets. My concern is not so much how well I will do in retirement, but how my country and my children will do in the next 100 years.

"My education is in science (physics). I see Democrats constantly ignoring scientific method and committing totally emotionally to the belief that more government is the solution to all of mankind's problems in absolute denial of the actuality of recorded history. Where is the empirical evidence that more government has ever been a successful solution to any problem?

"Most all of today's problems, from the U.S. to the EU to Zimbabwe to North Korea, are the direct result of incompetent, bad and actively destructive governments. It is clear that the current U.S. administration is totally focused on the destruction of America capitalism. Clearly, socialism consistently leads to totalitarianism. Totalitarianism consistently leads to oppression and economic collapse. Yet Democrats are totally committed to this path.

"What can I do to help turn this around? Clearly, I can vote — but that is just about irrelevant. Am I reduced to preserving wealth for my family? Must I move it offshore or hide it? How can I contribute to a rational American government when the president's party is totally committed to destruction of the nation and the Republicans seem totally committed to the status quo or at most opportunistic gain without the slightest shred of long-term concern?

"I know I can approach the world as a 'global citizen' from a financial point of view, but is that really the answer? Are we really at the point of every American for him/herself, or is there still hope for the nation? Are we really forced to identify transnational communities of interest? If so, what's next — hiring mercenaries for protection? Is the destruction of the U.S. to the advantage of any Western nation or culture?

"I respect your opinion. I look forward to your response."

The 5: We don't know the answers. Nor would we lay the cause entirely at the feet of Democrats. We wrote three books and took 2½ years to make a documentary on deficit spending, government hubris and unfunded promises before there was a Democrat in the White House. Having said that, this administration and their cohorts in Congress between 2006-2010 exceeded our expectation for ignoring the obvious.

We heard a rumor during dinner one evening at the Macaroni Grill in Silver Spring, Md., while screening I.O.U.S.A. to a D.C.-based crowd in early 2008. The assumption at the time was the Democrats were going to take the White House. They already had Congress. Even then, leaders in the party were saying, in effect, "The Republicans had their time in power and spent money on their wars and pet projects, and now it's our turn."

We assumed Obama would take office too, but didn't expect the impact to be quite so brazen. $450 billion deficits and wars without end were bad enough in the Bush years. But Obama and his crew have really outdone themselves. Now, "suddenly," the wind has shifted inside the beltway and it's time to pay the piper.

All of which makes your question timely and on the verge of becoming urgent. As we're discovering in our research for a future issue of Apogee Advisory, there's a sort of virtual Berlin Wall being constructed around Americans, with the intent of keeping them, or at least their capital, from fleeing the country.

There's a host of more stringent reporting requirements, both to the IRS and the Treasury Department, for Americans looking to park a portion of their wealth overseas. From there, it's not a significant leap to capital controls — where you might not be able to move your money out of the country.

So what can you do? We'll pursue all the possibilities with guest experts from all over the world when we meet in Vancouver July 26-29 this year. Will you join us? Today is the final day for discounted registrations… and fewer than 150 seats remain. You can find the dates, scheduled speakers and everything else you need to know right here.


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More