Addison Wiggin – November 7, 2011
- Colombia, capitalist hide-out? Two catalysts that make us even more juiced than we were when we visited
- “Euphoria-regret-fear”… Abe Cofnas sees a return to a familiar cycle, egged on, this time, by Italy’s gigolo premier
- Gold’s value as money: Beneath the surface of the euro mess, world’s second- and third-largest gold holders duke it out
- “No traction”… Chris Mayer’s second thoughts about natural gas
- The Occupy movement hits the Hamptons… reader shares a story of his great good fortune… and the unique storage solution we found for your precious metals
On Friday, a gun battle in southwest Colombia ended with the death of Alfonso Cano, leader of the Revolutionary Armed Forces of Colombia — better known by its Spanish acronym, FARC:
At 63, Cano, a grizzled old-style revolutionary, was nearly the last of a breed. He’d spent much of the 1970s in the Soviet Union. At one point, led a revolutionary force of some 20,000 guerillas in the jungles to the north and west of Bogata.
Perhaps Cano knew the military was onto him. The army reports he’d shaved the bushy beard that had become his trademark.
“With the collaboration of people within the FARC,” President Juan Manuel Santos confirmed, “our armed forces slowly planned the operation they carried out [Friday].
“It is the most devastating blow this group has suffered in its history,” he went on to declare.
Santos was defense minister for much of the previous decade, orchestrating a fight that diminished the FARC’s numbers from its high-water mark to something under 8,000 men today (with no small amount of U.S. and Israeli training and aid, we learned when we were in country in March).
Many former FARC revolutionaries have given up the fight and decided to work within the system.
Eight days ago, Gustavo Petro was elected mayor of Bogota, widely regarded as the second-most-important political office in the country. Petro used to belong to the rebel group known as M-19.
Still, along with last month’s passage of a trade agreement with the United States, we can’t help but see Colombia emerging as a new hide-out for capitalists in the Western Hemisphere.
The details of the trade agreement were first settled five years ago between Santos’ predecessor and then President George W. Bush. But the deal became a political football, held up by unions in the U.S. until the need for jobs became more politically expedient to the Obama re-election team.
The United States-Colombia Trade Promotion Agreement passed a little less than a month ago. It will be a good deal, for example, for the owner of the textile mill we met outside Medellin. The cotton he buys from the U.S. won’t be subject to a 15% import tariff as it enters Colombia. Nor will his jeans be subject to the 18% increase he used to pay when shipping them back to Estados Unidos.
Let’s try something that would have seemed outrageous a few years ago. Let’s count Colombia’s blessings:
- 40 years of guerrilla war are winding down…
- Having already faced a financial crisis in the late 1990s, the Colombian banking system weathered the 2008 panic with relative ease…
- $24.4 billion in new infrastructure spending was initiated in 2010 alone…
- Half the population is 27 or younger; that’s a skilled labor pool, and social charges are a fraction of those in the “developed” world
- And… Sofia Vergara is still burning up the charts on the ABC comedy Modern Family:
Hmmn… we’re starting to like Colombia even more today than we than in our original Apogee Advisory write-up this spring. [Ed note: Current readers can find it in the archive. Not an Apogee reader yet? Here’s where to sign up:]
We’d be remiss if we failed to point out the blowback from U.S. intervention in Colombia.
“Plan Colombia,” an effort dating back to the Clinton administration, has, no doubt, altered guerrilla activity — and the drug trade that finances it.
Altered, but not diminished.
“All the drug violence we had here,” one of our hosts told us when we visited back in March, “we’ve exported to Mexico.”
Not to worry, we’ve got more on the Mexican affair up and coming in a future episode of The 5…
Halfway around the world, it looks like the bond vigilantes have now shown up on Italy’s doorstep as a new week of the euro-drama begins.
This morning, yields on Italian government debt rose to their highest levels since 1997. A 10-year bond topped out at 6.67%.
You may recall it was the bond vigilante, those nefarious inhabitants of the financial underworld, who first started blowing the whistle on Greece’s debt crisis.
On April 6, 2010, they forced the yield on the Greek 10-year note to 6.67% for the first time. Today, following 19 months of tedious headlines but little in the way of solutions, the Greek deca-note is yielding 25%.
Alas, Italy is a whole other basket case unto itself.
“Many analysts,” according to Reuters, “say yields above 7% would make funding costs [for Italy] unsustainable.”
In the credit default swap market, Italy’s probability of default is pegged this morning at 35% — worse than other European basket cases like Hungary and Spain.
“Greece is a problem for the European common currency. But Italy could be a catastrophe,” says a report in the Germany newsweekly Der Spiegel, spotted by our currency trading specialist Abe Cofnas.
“Prime Minister Silvio Berlusconi is losing support at home, and on Thursday evening, he agreed to have his austerity efforts monitored by the IMF. Concern is rising that Italy could be the next euro battleground.”
Italians have been remarkably forgiving of Berlusconi. Corruption? Par for the course. Underage prostitutes? Well, his mid-life crisis waited until his 70s. But once you let IMF bureaucrats issue marching orders, that’s a bridge too far.
So what does it mean? “Essentially,” Abe explains, “there is no rest for the euphoria-regret-fear sentiment cycle. We expect continued volatility, with the trigger being fear of a Berlusconi government collapse.”
Abe made the most of euro-volatility last week to bag gains of 41% in less than a week. He’s been on a roll, playing “binary options” on Germany’s DAX Index to collect gains as high as 161% seven times in the last eight weeks. Learn more about Abe’s system, right here:
Here’s an intriguing undercurrent to the euro crisis — the amount of talk about gold that’s come up in the last 24 hours.
A lawmaker in German Chancellor Angela Merkel’s governor coalition is suggesting Italy sell some of its gold reserves to pay its debts.
Meanwhile, Germany is, again, rejecting the idea of backing the eurozone bailout fund with German gold. “German gold reserves must remain untouchable,” says the economy minister.
After the United States, Germany is the world’s second-largest holder of gold, with 3,400 metric tons. Third is Italy, with 2,500.
“Gold’s value as money and as a strategically important monetary asset,” observe the analysts at GoldCore upon reviewing these events, “is being slowly realized again.”
Euro fears have given a lift to the dollar price of gold. The bid is up to $1,782. Silver is also perking up, to $34.59.
Oil is knocking at the door of $95 a barrel. The spot price, at last check, was $94.98, a three-month high.
Natural gas is down slightly this morning, to $3.69 per million BTUs. Gas continues to founder after a 75% drop from record highs six years ago.
“I don’t see natural gas prices getting any traction, as long as the shale gas revolution is enjoying such success,” says our Chris Mayer, who even while traipsing through Southeast Asia, managed to donate a few remarks to this MarketWatch article posted over the weekend.
“The single biggest factor for the decline in natural gas prices is the shale gas revolution,” he went on. “Shale players are enjoying excellent economics, even at current low gas prices — rig productivity continues to improve, and costs are falling.”
And the revolution is still in its early days, Chris believes. “Literally, there are hundreds of thousands of locations that can produce meaningful oil and gas reserves at very low prices,” says John Bookout from KKR, a private equity player that’s big into shale.
“The inventory is so big it will take decades to drill it all,” Chris goes on. “There are 20 million acres of highly prospective acreage in shale. There are over 200,000 drilling locations, maybe 800 trillion cubic feet of oil and gas reserves.”
Numbers like these have made Chris a lot less sanguine about the prospects of natgas producers. He’s retaining a couple of super-low-cost producers in Mayer’s Special Situations, but if you’re looking to play it safe, “I no longer believe the upside from higher natgas prices is there.” You can see Chris make an extensive case in today’s Daily Resource Hunter.
U.S. stocks are meandering. At one point this morning, the major indexes were up half a percent. Now they’re down half a percent.
As the surveillance society digs its tentacles further into American society, we see that several big cities are outfitting their police officers with micro video cameras.
They’re already in use in Oakland and Cincinnati. Now Seattle is looking at it, too. Supposedly, it would help better document cases of police brutality that show up on YouTube — showing things from the officer’s perspective.
“This could raise all sorts of privacy and search issues,” Gary Gibson observes at Whiskey & Gunpowder, as he travels the country in search of the ideal place to settle down. “Our inclination is to stay away from places where things are so contentious with the police that this sort of monitoring solution is being taken seriously.”
For some different considerations about the best places in the United States, our report, American Oases, is still available to new readers of Apogee Advisory.
We’re not sure what to make of anything when people who live in the Hamptons are launching their own Occupy movement, so we introduce the following without comment:
“They don’t even pick up our leaves anymore.” OK, so the concerns are a little more local and, well, prosaic, compared with foreclosures and student loan serfdom.
But this points at another of our ongoing themes: Even at the far end of Long Island, local government can’t keep all its promises. Beachgoers drown because the villages can no longer afford lifeguards. The East Hampton dump is closed on Wednesdays. And indeed, leaf pickup was eliminated a year ago.
It’s close to home where the decay of an overleveraged empire shows up first. For some more eye-opening examples… and a plan to prepare for when you can no longer count on “essential” services… check this out:
“What, in your mind,” a reader inquires, “is the best way to invest in precious metals?”
- Gold and silver shares? They are now starting to increase their dividends
- Gold ETFs? Is there actually gold behind these ETFs, or is it someone’s gold paper, which may be worthless?
- Sprott’s Physical Gold Trust?
- Gold bars? Coins? A pan, to go find your own?
“I enjoy receiving your comments.”
The 5: We like all of them, of course. But there’s nothing like bullion in your hands for a secure future — which is why we recently obtained a limited supply of it for a select group of readers.
In only three days, about 20% of that supply is already spoken for. Time’s a-wasting if you’d like to claim your own. We even went the extra mile and developed a storage solution. More about that, below.
“I may belong to the luckiest generation,” a reader writes, winding down last week’s intergenerational food fight in the mailbag. “I graduated from high school in 1955. I lived at home, got a mechanical engineering degree from Georgia Tech for $200 per year, including books and tuition.
“I was on the co-op plan, so I worked every other quarter. I earned enough to pay for college, my car, insurance, clothes and dating.
“After a short time in the Army, I worked for one company that matched my savings in company stock. My stock basis is $.50, and it pays $2 in dividends. I have a paid-for house and car, and gold/silver in the ground.
“I think my cohort came from a narrow window, and I have known for some time that those that came after me did not have the same opportunities that I had.
“I read The 5 for knowledge and entertainment. I know of no other place to get so much for so little. Keep up the good work.”
The 5: Thank you. And you’re right. “The second half of the baby boomers may be in the worst shape of all,” according to demographer Cheryl Russell. “They’re loaded with expenses for housing, cars and kids, but they will never generate the income that their parents enjoyed.”
In Financial Reckoning Day, we pointed out that age 45-54 is supposed to be the peak “getting and spending” years, when earning power is strongest. But the Census Bureau reveals this age cohort lost the most ground between 2000-08. Inflation-adjusted household income shrank 10.7%.
This will only get worse as the “mother of all financial bubbles” starts to pop. Guidance on how to cope is available at this link:
“Those guys doing ‘bankstas’ in the video on Friday are NOT dorks!” writes a reader taking issue with us. “They are actually quite funny, and it’s a cool YouTube piece. Where’s your sense of humor?!”
The 5: Yeah, you’re right. Mustering a sense of humor is something we’ve been meaning to work on these days. Thanks for the advice.
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. About the storage solution for your precious metals… We know about the usual problems with a home safe: It’s the first thing a thief looks for. The shovel-in-the-backyard solution has, umm, it’s own drawbacks. Your mattress? Well…
How about this solution, brought to us by a young entrepreneur named Hilary?
She was an expert in bookbinding and antique books. One of her customers was the victim of a burglary — who’d foolishly stored his valuables in a safe, which was now gone. Could Hilary, the customer inquired, hollow out a real book of his to keep his valuables “hidden in plain sight”?
Thus was a new business born… and thus did we discover a real storage solution for customers who take us up on our one-of-a-kind bullion offer. Supplies are extremely limited, and 20% of it already was gone after we first mentioned it on Friday. Here’s where to move on it: