Dave Gonigam – September 16, 2011
- You’ve been warned: Chinese central banker looks forward to “liquidating” U.S. Treasuries
- Drone strikes proliferate in Pakistan, yielding an unlikely investing opportunity
- Silver reclaims $40… Alan Knuckman makes a call for six months from now
- Intergenerational warfare: New faction emerges in our Social Security free-for-all… engaging even 30-something lawyers who strip to pay the bills
“Once the U.S. Treasury market stabilizes, we can liquidate more of our holdings of Treasuries.”
And with that, the People’s Bank of China has put Uncle Sam on notice.
According to Ambrose Evans-Pritchard of the London Telegraph, this might be the first instance of a Chinese official using the words “liquidate” and “Treasuries” in the same sentence.
The official is Li Daokui, one of the major rate setters within China’s central bank. He said it at a meeting in China of the World Economic Forum — the organization best known for its annual gathering of the world’s power elite in Davos, Switzerland.
“The incremental parts of our foreign reserve holdings should be invested in physical assets,” Li said. “We would like to buy stakes in Boeing, Intel and Apple, and maybe we should invest in these types of companies in a proactive way.”
Ooh, that ought to go over well on Capitol Hill.
“The Chinese are clearly vexed with Washington,” reports Evans-Pritchard, “viewing the Fed’s QE [quantitative easing] as a stealth default on U.S. debt.”
Cue Addison, in the new issue of Apogee Advisory, released three days ago: “The U.S. Treasury will never ‘default’ in the sense of stiffing creditors on interest or principal. No, it will proceed to default in a far more stealthy way… as when Uncle Sam stiffed the Japanese in the 1970s.”
It’s a story few Americans are aware of… but the Chinese know very well. Meanwhile, the notice Mr. Li served up this week is one in a long line chronicled in the issue. “It’s a warning,” Addison writes, “that China could soon cut up America’s credit card.”
The issue lays out two “coping strategies” for whenever that day arrives. And for one of them, the ideal time to pounce is now. Not a subscriber yet? Access here.
The CIA says one of its drone aircraft has taken out a senior Al Qaeda leader in Pakistan. Abu Hafs al-Shahri played a “key operational and administrative role,” anonymous officials tell the BBC.
There’s no independent confirmation of this claim… and hardly a month goes by that the U.S. government doesn’t claim to have killed a “senior Al Qaeda leader.”
Ho hum… But there’s an intriguing investment angle to the story.
10 years ago, the U.S. military had only 60 unmanned “drone” aircraft in its arsenal. Today, the number is more than 6,000. That’s a lot of weaponry that can be “piloted” remotely from a base in Nevada.
And they’re getting used a lot more. Figures from the New America Foundation show there were nine U.S. drone strikes in Pakistan between 2004 and 2007. In 2008, the number jumped to 33.
The numbers continue to accelerate under President Obama: 53 in 2009, 118 last year.
up to 20 hours, carrying 3,000 pounds of precision munitions.
Drones are now in use in America’s covert war in Yemen… and the covert war in Somalia. Meanwhile, unarmed surveillance drones keep an eye on the U.S.-Mexico border.
Manufacturers can’t make drones without a critical metal that you’ve likely never heard of. It’s six times as strong as steel, and the Pentagon says it “possesses unique properties that make it indispensable in many of today’s critical U.S. defense systems, including sensors, missiles and satellites, avionics and nuclear weapons.”
And those drones that get a lot more flight time these days.
Behind the military, many other customers are lining up. “The big airplane builders have fat order books,” says our metals maven Byron King. “The rest of aerospace is still doing things that have to get done — for example, building satellites that launch on a multi-year schedule, which is immune to short-term ups and downs in the economy.”
The auto and nuclear industries increasingly need it, too.
No, it’s not a rare earth. In fact, Byron believes, with one or two exceptions, the easy money’s been made in rare earths. But this other metal — what he calls “the fourth element” — has just as much investment potential.
Byron recently identified a tiny company sitting on a huge deposit of “the fourth element.” If you missed out on his rare earth gains of the last 12 months — including plays for 109% and 178% — you don’t want to overlook this.
U.S. stocks started the day up, but as of this writing, the major indexes are flat.
Almost anything can happen before day’s end, it being quadruple witching. Stock futures, stock options, stock index futures, stock index options… they all expire today.
European stock indexes moved up again today, buoyed by this week’s serial applications of Band-Aids to the festering sores of sovereign debt in the PIIGS countries.
Germany’s DAX Index, which hit a two-year low on Monday, closed the week up more than 9%.
The euro, which sat below $1.36 on Monday, ends the week just shy of $1.38.
“Emotions on Monday are often overreactions,” says Strategic Currency Trader’s Abe Cofnas. “So we opened bullish binary options on the euro and the DAX, expecting things to turn around by the end of the week.
“It was a great move… By Wednesday, the fear had evaporated, and our binaries took off. We sold half our DAX position for a 60% gain — and the remaining half is set to show 84% gains.
“Thursday, we closed half our euro binaries for an easy double, with a chance to score 153% on the rest. It just goes to show that when you bet on the unexpected, you can win big!”
That’s how it works in the market Abe follows: In on Monday, out by Friday. No other North American trading advisory covers it. You can be on board for next week’s recommendations by going here.
Gold is regaining its footing after falling below $1,800 yesterday, when the world’s biggest central banks announced they would flood the European banks with dollars.
At last check, the spot price was $1,786.
Silver has regained the $40 level, if not by much. An ounce of the white metal fetches $40.06.
“Silver at these levels offers great reward to risk and is more than 25% off the April highs,” says Resource Trader Alert’s Alan Knuckman. Yesterday, he called for a jump to $48.50 over the next six months.
That’s a 20% move from current levels… but Alan’s readers are hoping for much more after the play they laid on yesterday. In the last 12 months, they’ve had the chance to bag precious metals gains of 125%… 206%… even 233%. Membership to Resource Trader Alert is available at half the regular fee — but only through this link:
We can’t allow the weekend to start without acknowledging the end of the line for one of the auto industry’s iconic brands:
A Ford plant in Talbotville, Ontario, produced the last Crown Victoria yesterday. For several years now, the Crown Vic was available only to fleet buyers — usually taxi companies and police departments.
If it’s a throwback you crave — a full-size, V8, rear-wheel-drive sedan — Detroit hasn’t completely left you in the lurch. Ford still builds the Lincoln Town Car on the same platform as the Crown Vic.
What, you wonder, will police departments buy in the future? This year, Chevrolet brought back a fleet-only version of the Caprice, which was last produced in 1996:
One look, and you understand why even the clueless bailout beneficiaries at GM aren’t trying to sell it retail.
“I’m a 60-year-old, considered a baby boomer,” writes a reader carrying on our Social Security free-for-all, “and since American Government in high school, I’ve known that my Social Security dollars were not going to be there for me.”
“When I started working, I was paying for my grandparents, and then I was paying for my parents. I expected the government to let my generation starve, go without electricity or water and lose our homes, so I worked hard and put money in my pension.”
“People may not want to hear it,” adds a 58-year-old, “but some day, they need to face reality.”
“Yes, Congress stole the money, and it has been publicized for over 30 years that I know of. I can remember hearing about the growth of government and the declining ratio of workers to people on the government payroll, and that was over 40 years ago!”
“The message has been out there, and no one wanted to pay attention. Seniors want to blame Congress, but who elected the Congress for all these years?”
“I am quite surprised at the burgeoning hate toward the older person” that this reader saw emerge yesterday, “and only wish to point out that age discrimination against workers ready to work over 55 is greater than any other form of discrimination, according to UK surveys.”
“My personal experience substantiates this, so if you want me to work in my elder years, please allow me equal opportunity to jobs and not treat me to poverty based upon ‘damned if you do, damned if you don’t’ judgments.”
“When I volunteered to be a counselor for children whose parents are in immigration proceedings (our judicial wisdom only grants representation to adults and lets them use the children for their own purposes) to protect their legal rights, I was asked, at my doddering old age of 61, ‘You are so old, are you still practicing?’”
“Can’t work due to anti-elder discrimination and too young to retire and too old to volunteer. Strange semantics.”
“If all the retirees go back to work,” writes another, “how will all the new college grads find a job? There won’t be any openings. The new grads are already complaining in this tight job market and asking the old people to get out of the way.”
The 5: This week, a study by the Center for Work-Life Policy found Generation X getting squeezed — in part because their numbers are relatively small: 46 million Americans were born between 1965-78. Ahead of them are 78 million boomers, and behind them are 70 million millennials.
“When boomers were in middle management, they didn’t have pressure from Generation X leapfrogging them, because it’s not a huge group,” says Sylvia Ann Hewlett, the report’s co-author. “We think that Generation X is certainly feeling this more strongly because the boomers are delaying retirement.”
Thus, you have lawyers in their mid-30s who make ends meet by stripping. Seriously.
We pause in rummaging through the mailbag to tell the story of Carla, who, understandably, wants to keep her last name private. She’s 10 years out of law school, living in a “medium-sized city,” according to a story at MSNBC’s website. She was let go from her firm in 2009, and she’s still paying off her student loans.
“With our economy the way it is, especially in smaller cities … you strip or you starve,” Carla says.
“I work with war widows, a nurse, a med student, women who have had to go to work to save their homes after their husbands have lost their jobs, and others who do this as a means to an end and who do not fit the profile of junkie/prostitute/dancer.”
“What we all have in common is being in a tight spot financially and living in an economy that provides limited options right now.”
That, and they have to contend with the paperwork to pay FICA taxes on their tip income — which they’ll likely never see returned to them. Insult added to injury…
“I am fed up,” as we return to the mail, “with the paranoid whiners who fret that in two years, as one such writer said, he’ll get no Social Security payout at all! Give me a break.
“Not one single solitary politician has proposed the elimination of Social Security for those at or close to retirement. All changes, virtually without exception, are for those much further behind (i.e., much younger). Now those people who are decidedly younger — yes, they will likely see benefits pushed further out, sooner or later.”
“But I can hardly see why you publish the paranoid ramblings of those who see all Social Security imminently down the toilet for those very close to retirement.”
“In defense of your choices, I suppose the letters serve the purpose of showing just how paranoid the population is.”
“I was really hit hard,” writes our final contributor, “by the letter from the 49-year-old reader yesterday. I perceive he feels, like me, almost solely responsible and accountable for preparing and, ultimately, taking care of his children, wife and other family members completely unaware and unprepared to deal with the coming calamity.”
“Keeping my head down and eyes on the horizon, I am lately accused by my loved ones of being too negative and too engaged in rage at the government follies levied on us.
“Maybe, as stated, laughter and satire is the best or only way to get through what portends to be a hurricane of epic proportions. As they say, so we’ve sown the wind, so we shall reap the whirlwind. Thanks for keeping us ready!”
Have a good weekend,
The 5 Min. Forecast
P.S. “A group of researchers,” reports today’s Wall Street Journal, “said that by examining the whole genome of a family of four, they were able to make unusually specific findings, including the daughter’s risk of blood clots and suggestions for preventive care.”
This breakthrough would not have been possible without the work of Craig Venter and the Human Genome Project. His privately funded initiative cracked the complete human genetic code in 18 months. A parallel effort by the federal government was funded with a 20-year time horizon.
Addison is on the West Coast today, interviewing Venter for the documentary RISK! He’ll describe how entrepreneurs can accomplish things that bureaucrats and academics can only dream about.
Venter will also speak from first-hand experience to the ways envious bureaucrats can make life difficult for entrepreneurs… but that’s a story for another day. Stay tuned…