Addison Wiggin – June 13, 2011
- Ctrl+Alt+Bernanke: Hackers break into IMF, while “Anonymous” ups the ante on Bernanke — or does it?
- Brazilian currency, commodity speculation: Chris Mayer examines two more triggers for the next financial crisis…
- Egyptian-Israeli pipeline dispute resolved, maybe, maybe not… Spy drama spotlights offshore energy opportunity…
- “Cheap political maneuver” shuts down California gold panners for the next six years…
- The 5 accused of “cheap shot” against strategic defaulters… plus, the new American Revolution and other nutty ideas from readers… enjoy…
Well, Ben Bernanke can’t say he wasn’t warned. You may recall, the hacker group known as Anonymous issued a demand on March 11 that Bernanke step down as Fed chairman.
“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,” their video manifesto declares.
The outfit managed to briefly shut down the websites of Amazon, PayPal, Visa and MasterCard in retaliation for those firms’ cutting business ties to WikiLeaks, so we assume the original threat was more than just an idle one.
Fast-forward 90 days. Big surprise, Bernanke has not resigned. But on Saturday, hackers broke into the computer system of the International Monetary Fund. They got away with a “large quantity” of data, including documents and e-mails.
At least, that’s what a security expert “familiar with the incident who wasn’t authorized to speak on the subject” told Bloomberg.
As of this morning, no one knows who did the job.
Only hours later, however, Anonymous issued a new statement, with the ingenious title “Ctrl+Alt+Bernanke.”
The new video lists a litany of crimes by the Fed and blames Democrats and Republicans for failing to stop them. It concludes with the ultimatum: “We must now launch Operation Empire State Rebellion. The operation will commence on June 14th.”
“As a first step,” the message concludes, “we are calling upon you to occupy a public space until Federal Reserve Chairman Ben Bernanke steps down.”
“A public space” is pretty vague.
Maybe Anonymous has something bigger planned. Maybe they were behind the IMF hack. But right now it sounds as if your editor is supposed to wander over to Mount Vernon Place, two blocks from our office, and start shouting… at passersby?
We do that every day already. Nobody listens.
“Markets don’t do second acts,” observes our managing editor Chris Mayer who’s joined us atop the battlements on the lookout for signs of the next financial crisis. “Whatever crisis awaits us in the future — and there certainly is one — the rational bet is that it won’t unfold like 2008.”
To our growing list of potential catalysts — Greece, the Fed’s leveraged balance sheet, the banks’ vulnerability to strategic defaults — Chris adds two more.
“The trends in Brazil I pointed out” on May 13 “have only gotten worse,” Chris says. Then, he cited a potential “caipirinha crisis” — a deep devaluation of the real.
Now comes a recent Financial Times Op-Ed, pointing out that credit amounts to 45% of the Brazilian economy. Consumers are borrowing to buy cars, homes, refrigerators… and they’re doing so at the second-highest interest rates in the world. Brazilian consumers devote 20% of their income to debt service.
“Brazil will be a great place for bargains some day,” Chris concludes, looking at the prism from the investment side, “but for now I wait.”
Another potential trigger Chris is eyeing: speculation in the commodities space. Consider, he says, the $13 drop in the oil price on May 5.
“Oil had never fallen by that much before in a single day. To move by 10% or more usually means there was a dramatic event of some kind, like the first Gulf War in 1991 or the collapse of Lehman Brothers in 2008.
“What happened on May 5, 2011? Well, pretty much nothing.”
Theories abound. Among the more plausible ones: automated sell orders. “About half of all volume in the oil markets is through these kinds of high-frequency trading systems. That makes the oil price a speculative football on a day-to-day basis.
“And it’s not just oil. If you look at other commodities that trade on exchanges, such as silver and copper, they have also had big moves — much bigger than commodities that don’t trade on a futures exchange (like iron ore and coking coal). Jefferies, the investment bank, recently showed that the former group was down 22% from their peaks while the latter was down only 5%.
“There are a lot of speculative currents pushing around commodity prices that have little to do with real world demand or careful analysis of supply. Perhaps a surprise in the next crisis is the commodities that trade on big exchanges get whacked while things like iron ore and coking coal hold up better.”
The investment takeaway: “Take the storms and squalls as a given. I spend more time ensuring I am invested in things able to handle the unpredictable than I do trying to guess the weather.
“That means staying with strong finances, good owners, transparent businesses and value-rich stocks.”
[Ed. Note: We know people are becoming more attuned to the coming crisis because there’ve been 148,306 page views for our Forbes blog entry on the subject.
Whatever form the next crisis takes, our team will be with you all the way. Chris will take you bargain hunting, Byron King will scout out the opportunities in ever-scarce natural resources, Dan Amoss will take advantage of falling stocks for big gains, Jim Nelson will keep you sheltered with reliable income sources and our host of short-term trading services will take advantage of the volatility.
You can access all their insights with one easy payment by joining the Agora Financial Reserve — our highest level of VIP membership. Enrollment grants you access to everything we publish for a one-time fee… and it’s good for life.
You also gain instant access to all our new publications — including Jim Nelson’s premium advisory Total Income Alert. Plus, free admission to our annual investment symposium in Vancouver. As well as a bevy of unique coin offers and special travel invitations seen only by members of the Reserve. A full rundown of all the Reserve benefits can be found here. Please be advised the current membership drive concludes this Thursday.]
Meanwhile, there’s nothing like a little merger-and-acquisition activity to goose the stock market on a Monday morning. The Dow is back above 12,000 after Friday’s sharp sell-off.
The biggest of the deals is in the insurance space, a merger between Allied World Insurance and Transatlantic Holdings for $3.2 billion.
The Dow ended Friday with six straight down weeks. That didn’t happen even during the 2008-09 swoon.
“Some serious IPO activity has been taking place in the last several weeks,” notes Jonas Elmerraji of our small-cap desk, “following the pricing of shares of LinkedIn on May 18.
“Venture-backed tech firms like Groupon and Pandora are in the process of doing the same, a move that will certainly add to the supply of low-quality stocks available to speculators right now.
“I’d strongly suggest steering clear of any of these fad names unless they can start showing market strength. Then, consider them only as shorter-term trades.”
Heh… Jonas reminds us LinkedIn shares are down more than 24% from their first week of trading. The Nasdaq as a whole is now in negative territory for the year.
Congratulations, by the way, to Jonas’ readers who bagged up to an 85% gain in two weeks this morning by following his recommendations.
Precious metals are drifting down as the new week begins. Spot gold sits at $1527, while silver has sunk below $36.
The losses come despite a weakening of the greenback. The dollar index is off slightly, to 74.7.
For the first time since April, natural gas is flowing through a pipeline from Egypt to Israel.
Saboteurs blew up the line on April 27. Repairs were done by mid-May… but Egypt’s new military dictators hoped to squeeze the Israelis into doubling what they pay for the gas.
Did the Israelis agree to pay more? Did the Egyptians back down? No word as of this writing.
“The gas started flowing at small amounts on Friday,” was all a spokeswoman for Egyptian Natural Gas Holding Co. would say. “Now they are trying out the spare parts that were imported to replace the parts that were damaged.”
Of course, that was three days ago. Today comes word that Egyptian police marched into a five-star hotel in Cairo and arrested a former Israeli military officer on suspicion of spying.
Whatever happens from here, Israeli leaders detest the fact their country depends on the pipeline for 40% of its natural gas. They’re moving at breakneck speed to develop Leviathan, a huge offshore gas field in the Mediterranean.
“At 16 trillion cubic feet, Leviathan is one of the world’s largest new gas fields of the past 25 years,” says Byron King. Two companies are working the territory. One is Noble Energy. The other is very nearly a pure play on Leviathan’s potential… and this morning, shares can still be had for under $1 a share. Check out this presentation to see why this tiny firm has Byron so excited.
Remember the “New California Gold Rush”? How the rising price of gold was inspiring a new breed of adventurers more than 150 years after the 49ers flooded the state?
The event was even touted as a new source of tourism in a recession-battered economy.
Well, forget it.
The Golden State has banned gold prospecting — at least the modern-day form of it called “suction dredging.” Environmentalists say the dredges also suck up Pacific salmon eggs… and the salmon population is plunging.
Two years ago, then-Gov. Arnold Schwarzenegger took enough time away from schtuping his housekeeper to order up a study. The scientists assigned to the task came back with a few “regulations.”
This week, a state assemblyman, who apparently doesn’t agree with the regulations, added a provision into the new state budget denying funds to the Fish and Game Department for the reissue of dredging licenses through 2017.
“It’s crazy,” says Rachel Dunn, the proprietor of Gold Pan California. “It’s a circumvention of due process, in which a cheap political maneuver has been used to circumvent science.”
She even says it like she’s shocked.
“I read with interest Alan Knuckman’s comments on the nation’s corn crop,” writes a reader, “He reported on a short field trip he took out of Chicago to look at a few fields. Oftentimes, this can lead to misleading impressions. What one can see in one’s own neighborhood may not be typical for the Corn Belt as a whole.
“However, in this case, Alan is right. The USDA’s forecasts are using best-case scenarios for this year’s production. Acreage losses will likely set some records this year. The expected national yield will also be lowered. Right now it appears that $7.50 corn is not high enough to ration the available supply. Exports have dropped off some, but ethanol production and livestock use are staying strong.
“Supplies of corn and soybeans will remain tight for at least another year.”
“I just spent a week in Nebraska visiting friends who happen to be farmers,” another concurs. “The first thing I noticed flying into Omaha was that any farmland close to the Missouri River was under water. Three of five dams north of Nebraska are open and the remaining two were being opened last weekend.”
“The additional water will hit southeast Nebraska in the next few days. This will result in much more flooding of farmland and homes. This situation is ugly, to say the least.”
“Take back your cheap shot about ’contract law,’” demands a third reader, who caught our lament on Friday regarding the doubling of people willing to commit “strategic defaults” over the past year.
“A mortgage loan is secured by the down payment and the real estate purchased with the loan. When the mortgage is no longer being paid, what happens is part of the contract and standard practice — and the bank can eject the dwellers, per usual practice.
“If the bank chooses to temporarily hide their losses, obscure the nature of their totally fraudulent ’loan’ and not eject the dwellers, that is not a violation of contract law — that is their decision and choice. How long these people stay in their homes is not the choice of the dwellers, it is the choice of the banks.
“Oh, before you ask what fraud, you know perfectly well that banks do not actually lend anything when they issue a mortgage ’loan.’ They simply press keys on a keyboard to ’credit’ the account of the buyer or seller. The bankers do not lend money deposited by their customers, the bankers do not lend any of their own money and the banksters produce nothing.
“Walk away, people. Bring down the fiat system.”
“While many condemn those who walk away from their mortgages as being immoral,” writes another, “and not keeping their end of the deal, every individual and lender has already agreed in the documents as to the consequences of making the choice not to pay… foreclosure.”
”Thus, I don’t see the moral dilemma. People will get what they already agreed to. They agreed to the following choices… pay and keep the house or don’t pay and lose the house and their credit. What is the moral issue, given the consequences were agreed to in advance?”
The 5: No moral dilemma, just an observation.
The system works, or used to work, when two parties agree to a contract. Without the perception that contract will bind in the future, generally speaking, we’ll be left with the kind of systems Hernando de Soto describes in The Mystery of Capital, in which capital gets locked up in years upon years of court proceedings, our own version of the permit raj and rent seeking.
The perception that there is bad faith on either side of these contracts is already there, whether ’strategic defaults’ constitute an accurate execution of the contract or not. Hence, our comment: So much for contract law, eh?
“If you think 27% of underwater home owners considering walking away from an underwater house is a lot,” another reader appears to agree ahead of time, “wait until it becomes common knowledge that the lender may not be able to give them a clear title for the home, even after the mortgage is paid off!
“Consider how the lack of clear title will affect the sale price of foreclosed homes. How many people will buy a house that they can’t get title insurance on? The only foreclosed home I would buy at this point is one from a tax auction.
“It is also not common knowledge that you can squat in your home for a year or two rent free after stopping payment. Areas with lots of foreclosures and very expensive homes yield an even-longer ’squat period.’”
The 5: “Title insurance” is the innovation de Soto points to when holding up the settlers moving West in the U.S. as a model for modern countries who are trying to solve their overburdening bureaucracies… places like Egypt.
If you haven’t read The Mystery of Capital and find yourself teed off about the mortgage crisis, we recommend you get yourself a copy right quick. I’m not sure it will make you any less angry… but it might give you a more-productive point of view.
“I completely agree,” says a reader chiming in with fellow reader’s remark on Friday:
“In a perfect world, all of the miscreants at the Fed would be hanging in a tree right along with the majority of Congress.”
“But I don’t think we need to have a perfect world to drag the politicians out and hang them.
“In this imperfect world, when enough hungry, out-of-work and homeless people become fed up with the feds and their failed policies, we need only enough people willing to ’storm the Bastille.’ Then we can do the more humane thing and drag the politicians out and shoot them, after parading them around town.
“Thanks always for the lively conversation and commentary!”
The 5: Oy, modern-day storming of the Bastille, you say? You know how that story ended, right? The revolution consumed itself until the revolutionaries themselves were dragged off to the guillotine in an orgy of blood. The “only way out” climaxed in a near-20-year reign of a ruinous emperor.
It’s one thing for half the U.S. population to be ogling the modern French health care system. Let’s not have the other half pining for their version of revolutionary politics.
Seems like a good time for a refresher on The Idea of America.
The 5 Min. Forecast
P.S. “Molycorp got burned last week,” comments Byron King about the darling stock of the rare earths sector.
“Last month, Molycorp announced that a group of shareholders were selling up to 11.5 million shares, about 12% of the company. Then last week, Molycorp supplemented the news with an announcement that company insiders were selling another equivalent number of shares.
“The total of shares sold is 24% of what’s outstanding.” Byron’s contacts inform him this may be a signal that Molycorp may not come through on its production timetable or financial targets.
Byron knew Molycorp was getting far ahead of itself last January, and he told readers of Energy & Scarcity Investor (ESI) to bail… after bagging a 178% gain in a little over four months.
Byron still likes one rare earth stock that’s flying under Wall Street’s radar… but maybe not for long. You can gain access to all of Byron’s ESI recommendations, as well as a host of others identified this week by our stellar list of editors and analysts, by joining the Agora Financial Reserve.
Indeed, for a list of reasons why we’re willing to pay you $9,207 to cancel your Agora Financial subscriptions, please review the following.