Addison Wiggin – February 27, 2012
- Hackers, the GPS “spoofer,” the “Flash Crash” and your retirement account… a new hassle you probably didn’t know existed…
- Wyoming prepares for catastrophic collapse with… an aircraft carrier? Why Colombia might prove a better refuge…
- Will the Dow top 13,000 this week? How to make money without caring about the answer
- Out of nowhere emerges the nation’s second-largest shale oil deposit… in addition to all the others
- Real-time affirmation of Byron King’s revival outlook… a reader’s reminder the Tea Party isn’t dead… deconstructing a viral email about Nicaragua… and more!
Wealth.
Helping you create it and defend it. That’s what defines our work here at The 5. On some days, that task is akin to deciphering nude images in a Picasso.
We didn’t know, for example, what to make of the first nugget today when we ran across it over the weekend: Hackers, we’re told by the U.K. edition of Wired, can now generate phony GPS signals.
That fact could be annoying if you’re trying to find an unfamiliar place… but let’s face it, your efforts to locate a new restaurant are not likely to be the direct target of Anonymous.
No.
The “more sinister use could be to interfere with the time-stamping systems used in high-frequency trading.” GPS signals, it turns out, are how financial institutions stay synchronized to the microsecond.
It also turns out to be remarkably easy to build a GPS “spoofer” that could fool the antennas affixed to those institutions’ main buildings. Professor Todd Humphreys at the University of Texas did it recently for a cost of less than $1,000.
We distinctly remember watching the Dow drop 1,000 points on May 6, 2010. The episode went down in history as the Flash Crash… and was attributed to a high-frequency trading (HFT) platform malfunction.
Now imagine the 2010 Flash Crash multiplied by an order of magnitude. Suddenly, things fall apart.
“So far,” says Humphreys, “no credible high-profile attack has been recorded, but we are seeing evidence of basic spoofing, likely carried out by rogue individuals or small groups. While the leap to more advanced, untraceable spoofing is large, so are the rewards.”
Longtime readers will recall it’s a myth that HFT accounts for 70% of stock market volume.
It’s closer to 50%. Just something to keep on your radar.
“It is with great personal disappointment,” writes George Friedman, seemingly kicking off our second nugget this morning, “I have to inform you that I will resign from my position as CEO for Stratfor to immediate effect.”
Stratfor, you may recall, is one of the nation’s more notable private intelligence networks. Trouble is, according to Reuters, the email is bogus. Mr. Friedman is still resting atop the outfit. And dealing with a myriad of problems caused by hackers on Dec. 24.
A few weeks ago we got an email from Mr. Friedman — a legitimate one — informing us his firm’s email system had been compromised. Turns out the hackers linked to Anonymous got their hands on more than 5 million messages. WikiLeaks is starting to make them public.
One of them, dated Nov. 14, is an eye-opener. It directly quotes an unidentified source about a report that Israel was planning to attack Iran: “I think this is a diversion. The Israelis already destroyed all the Iranian nuclear infrastructure on the ground weeks ago.”
“The current ‘let’s bomb Iran’ campaign,” it goes on, “was ordered by the EU leaders to divert the public attention from their at home financial problems. It plays also well for the U.S., since Pakistan, Russia and N. Korea are mentioned in the report.”
Without more information, it’s hard telling how valid this is. But it’s another spin on the New War theme we’ve been following… and something else to keep on your radar.
The episode belies — apart from the fact that somebody’s really got a hard-on for Mr. Friedman — the realities of trying to run a business in the modern era.
In the event of “complete economic or political collapse in the United States,” whether caused by hackers or not, state lawmakers in Wyoming want to be prepared.
The House there has passed a bill setting up a task force looking into such a possibility. Its sponsor cited, among other factors, the $15.44 trillion national debt.
“The task force would look at the feasibility of Wyoming issuing its own alternative currency, if needed,” says an account in the Casper Star-Tribune. “And House members approved an amendment Friday by state Rep. Kermit Brown, R-Laramie, to have the task force also examine conditions under which Wyoming would need to implement its own military draft, raise a standing army and acquire strike aircraft and an aircraft carrier.”
At this point we have to wonder if hackers have already gotten to the Star-Tribune website, too. An aircraft carrier?
We vaguely recall from third-grade social studies that Wyoming is landlocked. And we suspect the Snake River is a mite too narrow and shallow to accommodate a Nimitz-class carrier. Maybe there’s a lake near Jackson Hole big enough to house the ship and thereby keep an eye on the annual meeting of central bankers we like to report on in August?
Either way, the carrier costs $4.5 billion. Wyoming’s entire annual budget is $3.4 billion.
Under the circumstances, Colombia — formerly renowned for its drug cartels and wanton violence — is starting to look better.
A year after our first formal visit, the Revolutionary Armed Forces of Colombia (FARC) — the guerrilla group that’s dogged the country for nearly 50 years — has renounced the practice of kidnapping for ransom.
“We announce that from this date we forbid this practice in our revolutionary conduct,” said a press release from their leaders.
“We value the announcement of the FARC to renounce kidnapping as an important and necessary step,” responded President Juan Manuel Santos on Twitter, “but it is not enough.”
FARC is a shadow of its former self after a decade-long crackdown led by Santos, first as defense minister and now as president. We daresay Colombia is a rare exception to the rule that central governments don’t stand a chance against guerrilla-warfare tactics.
Then again, guerrilla warfare doesn’t work without the support of the people. Kidnapping for ransom has a funny way of undermining that support.
Colombia’s IGBC Index is flat this morning. It’s been on a tear since bottoming in late November, jumping 22%. Good news for Apogee Advisory readers who followed our guidance after our visit.
Back in the U.S., major indexes have opened down about two-thirds of a percent, traders disappointed in the Hollywood establishment’s decision to hand another Oscar to Meryl Streep for an accent.
At least that makes as much sense as MarketWatch’s explanation: G-20 finance ministers delaying a decision to shovel more money into the International Monetary Fund for European rescues.
Heck, this strikes us as a good thing: Taxpayers won’t be raided to pour more money down the rathole of the PIIGS governments for the purpose of keeping French and German banks afloat.
For the moment anyway, Dow 13,000 and S&P 1,365 are again proving stubborn resistance points.
[Ed. Note: This morning readers of Chris Mayer’s Capital & Crisis collected 220% gains on Chart Industries after a little over two years. “It’s easy to fall in love,” Chris wrote upon initiating the sale, “but I’m going to let this one go. The risk is no longer greater than the reward.” He also notes some insider selling. For more where that came from, check out Capital & Crisis.]
While small-caps began the year racing ahead of the broad market, the trend reversed this month.
“Larger stocks have been inching higher,” says our small-cap specialist Greg Guenthner, “while the smallest stocks on the market continue to flat-line. The Russell 2000 has remained range-bound for the entire month of February.”
“The first leg of a big move off a bottom is just a rush,” he explains. “But when it starts to stall/consolidate, investors are looking for some sort of validation that the new trend is real. That’s where we are now. It’s going to take more positive reinforcement before a rally like this can be trusted.”
Even if the Dow doesn’t break above 13,000 this week, there’s a way to make money from its ups and downs.
“We don’t have to anticipate the direction,” says our monitor of market sentiment Abe Cofnas. “We simply bet on movement.”
That’s what “binary options” are all about: taking advantage of volatility. So with the Dow, Abe is watching two key levels this week:
And here’s a mock trade that results, playing the most widely traded options market available:
Action: BUY US30 (DOW) Weekly Binary Strike price 12925 @ market
Trade Action: SELL US30 (DOW) Weekly Binary Strike price 12825@ market
Don’t worry about how you’d execute this. We’re just showing it by way of example: “If the Dow settles by Friday end of day above or below either level,” says Abe, “there’s a win. If it stays between the strike prices — the payout is zero.”
“A win provides a fixed payout of $100 per unit. Let’s see what happens. The cost of buying the 12925 binary will be $50.25 and the cost of selling the 12825 binary will be at $32 ($100 – the bid).”
“In short, the trade would cost $82.25, and if it works, it pays out $100, for a total return of 24% in five days!”
For the record, we recommend you don’t try this at home. We’ll follow the progress of this “mock” trade and let you know how it turns out. Stay tuned…
Precious metals are taking a breather after their big run-up last week. Gold is at $1,774, silver at $35.55.
Oil is pulling back from the $110 brink it reached late Friday. A barrel of West Texas Intermediate is down 84 cents, to $108.93.
To the long list of U.S. shale energy plays you can add a new one — Alaska’s North Slope.
The U.S. Geological Survey is out with a new estimate of the shale resources available there: 2 billion barrels of oil. That’s the second-largest U.S. deposit, after the Bakken in North Dakota.
And the available gas comes to 80 trillion cubic feet — making it the fourth-largest gas deposit.
“Alaska’s energy resources hold great promise and economic opportunity for the American people,” says Interior Secretary Ken Salazar — which is the White House’s way of signaling it won’t stand in the way of development.
Indeed “President Barack Obama’s administration and the state of Alaska are offering more access to oil and natural gas resources on land and in Arctic waters,” reports Bloomberg, “to help lower dependence on imported fuel and push more crude through a major oil pipeline crossing the state.”
Developing the resource will take time… but the news amounts to more wind in the sails of Byron King’s “Re-made in America” outlook. He believes other developments in the Lower 48 will bring his forecast to life no later than May. That’s barely two months away.
“Here’s another vote FOR Byron’s thesis for a manufacturing revival in the U.S.,” a reader writes.
“Caterpillar announced last week they’re building a new plant in my hometown, Athens, Ga. — moving production from Japan to the U.S., with 1,400 good-paying blue-collar jobs. Yeah!!”
“I think the trend is starting; most people can see that this is the best way to get our economy moving again, and there are a lot of forces lined up supporting this. Higher shipping costs (from Asia), higher wages and inflation in China, the massive Shale Gale and a lower dollar are conspiring to bring manufacturing back to the good ole U.S.”
The 5: That’s an excellent summary of all the factors Byron sees in play. But there’s one more. “It’s a natural phenomenon so powerful it has repeatedly altered history,” he says, “and yet so subtle it usually reaches a crescendo before most people even realize the significance of what’s taking place.”
It’s the same phenomenon that drove the development of railroads and the steel industry in the 19th century… and the electronics industry after World War II. Byron shares the full story here.
“I’m glad that at least some small steps are being made to restore a bit of growth to the U.S. economy,” writes another, “but I’m sorely puzzled about just one thing.”
“What happened to all the trillions of off-balance-sheet debt and contingent commitments that the major banks are supposed to be carrying as the result of their pre-2008 shenanigans? Has it simply evaporated and, if so, how did that happen?”
“And if it hasn’t evaporated, how can the banks (and the country) ever get back to genuine health? Does that sound like a dumb question? Be gentle in your response!”
The 5: Not a dumb question. There’s a ton of debt sitting on the balance sheets of the banks (and governments, and consumers) that needs to be liquidated.
We can easily foresee a cycle of fever and chills, euphoria and depression in both the economy and the markets for years ahead — just as we’ve experienced in the last 12 months.
If you have money you can’t afford to lose, the best way to safeguard it is by following a strategy that delivered an 11.1% gain last year, while the S&P ended up ruler-flat after some stomach-churning moves. We spell it out in a special report for every new reader of Apogee Advisory. Access here.
“I had to take off my coonskin hat to write this,” writes a reader who caught our ruminations on popular movements Friday, “but you may want to know that yes, as a Tea Party person, I find the Republican Party has values closer to mine that the Democrats, in general (that’s why Ron Paul isn’t running as a Democrat).”
“What I have done is thrown off what little dignity I actually have and entered the disgusting world of politics as a lowly precinct committeeman. But there, indeed, are non-negotiables, trademarks of what you know as the Tea Party, and I am bringing those to bear with my shoe leather.”
“We’re still here, and folks like me have left the rarified atmosphere of speculation to try to bring some sanity back on a practical level. You might also be pleased to note that a lot of that ‘sanity’ I learned from you folks at, or associated with, Agora.”
“This, along with a firebranding across my forehead that states ‘Absolute power corrupts absolutely’ (replaced the ‘Property of Bar U Ranch’ I had before), will keep me in place — and if that doesn’t, well…. I am married!”
The 5: Oy.
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. “Nicaragua Confiscates Tourism Real Estate” screams the subject line of an email making the rounds this weekend; one reader forwarded it to us.
“Business associations,” it says inside, “are demanding to know the legal basis for an intervention at Hotel Punta Teonoste, where 20 acres of land were confiscated, to be handed to the former rebel leader Eden Pastora.”
This is of no small amount of interest to us, seeing as the property is just down the road from Rancho Santana.
But the email doesn’t tell the whole story. For one thing, the guy circulating it helps his clients buy property in Panama. So he has a vested interest in telling the story far and wide.
For another thing, we looked into this property years ago when deciding where to put up stakes in Central America. We steered clear of it because the title was cloudy; the old dictator Somoza confiscated it from one of his enemies. Now the Sandinistas, rather than righting the old wrong, have committed another wrong.
Just goes to show you have to be careful — no matter where you are. It’s not as if the good old US of A is a paragon of property rights, either — not when Bank of America seizes foreclosure properties whose buyers paid cash.
By the way, our first-ever offshore investing conference at the ranch, The Rancho Santana Sessions, is now full up. But if you can clear your schedule last-minute — the dates are March 21-25 — we can still make room for you. Call Kristen Palmer at (800) 708-1020.