The Government Claims Everything

Dave Gonigam – March 19, 2012

  • White House edict: “All your resources belong to us.” The 5 examines the Truman precedent, plus the NSA’s massive Utah spy complex, complete with data fed from… your refrigerator?
  • Jonas Elmerraji with a new key level to watch in the S&P… Abe Cofnas with a revealing S&P chart you won’t see anywhere else
  • Where domestic buyers fear to tread, foreigners scoop up with both hands: An update on the housing market from Chris Mayer and Greg Guenthner
  • Iran-India oil intrigue… Reader says Greg Smith’s Goldman tell-all is nothing new… A dwindling chance to grab “unclaimed credits”… and more!

   “Basically, it says, oh, and government can own and run everything,” read a Sunday-morning email from Laissez Faire Books executive editor Jeffrey Tucker.

“I’m looking harder at Rancho Santana” adds a Reserve member Addison met at the ranch a while back, “with this despicable chief executive usurping more and more unconstitutional powers.”

Greetings from Rancho Santana, where most of the Agora Financial editorial team has gathered to trade their latest and greatest moneymaking ideas this week; Addison will be joining us later today. Alas, even in a landscape of lush greenery and an ocean blue…

…we can’t escape contemplating about the lingering cloud of the national security state.

   On Friday, the president issued an executive order, or EO, that, according to The Examiner, “gives the executive branch the power to control and allocate energy, production, transportation, food and even water resources by decree under the auspices of national defense and national security.”

The EO cited a law you’ve probably never heard of for its authority — the Defense Production Act of 1950.

Internet message boards lit up on Saturday. But the blogosphere downplayed it Sunday. “The general impact of it is negligible,” estimated Ed Morrissey of the conservative news site Hot Air. “This EO simply updates another EO (12919) that had been in place since June 1994, and amended several times since.” Essentially, he says, the new EO updates the previous one to reflect the federal hydra growing new heads like the Department of Homeland Security.

   On the other hand, the Defense Production Act figured into one of the most notorious executive power grabs of the post-World War II/pre-Sept. 11 era.

President Harry Truman tried to nationalize the steel mills in 1952. He justified it as a wartime measure; the conflict in Korea was raging at the time. The Supreme Court slapped him down in a 6-3 decision. Justice Tom Campbell Clark said the Defense Production Act didn’t authorize such a drastic act.

We daresay it’s not too cynical to wonder if the White House is keen to retest the case in an era when the president orders the murder-by-drone of U.S. citizens who haven’t even been charged with a crime. Today the steel mills, tomorrow the world.

   “We are, like, that far from a turnkey totalitarian state,” says William Binney, a 40-year veteran of the National Security Agency, holding his thumb and forefinger close together.

Binney’s remark is prompted by the Utah Data Center, a massive NSA complex under construction in the desert, set for completion in 18 more months.

“Flowing through its servers and routers and stored in near-bottomless databases,” author James Bamford writes in a new Wired article, “will be all forms of communication, including the complete contents of private emails, cellphone calls and Google searches, as well as all sorts of personal data trails — parking receipts, travel itineraries, bookstore purchases and other digital ‘pocket litter.’”

   And your dishwasher. “More and more personal and household devices are connecting to the Internet,” says another report at Wired, “from your television to your car navigation systems to your light switches. CIA director David Petraeus cannot wait to spy on you through them.”

“Items of interest,” Petraeus told a conference earlier this month, “will be located, identified, monitored and remotely controlled through technologies such as radio-frequency identification, sensor networks, tiny embedded servers and energy harvesters — all connected to the next-generation Internet using abundant, low-cost and high-power computing.”

“‘Transformational’ is an overused word,” the spy boss gushed like a teeny-bopper, “but I do believe it properly applies to these technologies.”

Longtime readers can be forgiven if that makes your hair stand on end. Patrick Cox has tipped us off to transformational technologies in these pages for four years now.

Well, it was only a matter of time before the leviathan would start musing about how to twist the rush of human innovation to its own ends.

We don’t doubt, however, that the innovators will figure out a way to keep a step ahead; we’ll be following the trend closely.

  As the Pacific Ocean churns before sunrise here at the ranch, there’s comparatively little movement in the Dow or S&P futures. Both are down fractionally.

The S&P managed to finish last week above 1,400… and for our resident technician Jonas Elmerraji, the new number to watch is 1,365.

“The index,” he says, “broke out above 1,365 back in late February — and despite a throwback that tested newfound support (marked by the red arrow in the chart above), it’s been a solid shot onward and upward ever since.

“Actually, that throwback is a good thing for buyers right now. Because stocks settled back down to test support and then bounced back higher, we’ve got a much better indication of the market’s strength than if the S&P had just gone straight up. As long as we remain above 1,365, we’re in bullish mode.”

   “The Dow Jones index has displayed a persistence of bullish sentiment , essentially from Dec. 20,” says our market-sentiment maven Abe Cofnas. And that brings us to this week’s mock trade.

With the Dow closing last week at 13,232.62, Abe’s counting on the Dow to end this week above 12,975. The potential payout at the close on Friday is 19%.

“The bullish sentiment since Dec. 20 has been consistent with only three reversals. Right now a reversal of sentiment would mean that the Dow would have to close below 13,000. This morning, about 84% of the betting is that the Dow Jones June contract will stay above 12,975.”

Abe is three for three on our mock trades. We’ll keep tabs through the week…

   “I want to show you some interesting relationships between the frequency of key words and markets we trade,” adds Abe. He’s one of the few editors not with us this week. But he has a good excuse — speaking engagements in Sydney and Beijing.

Here’s an interesting slice from one of his presentations. He’s taken his “word cloud” analysis that we’ve shown in previous episodes of The 5 to a new level — plotting correlations between words and markets on a chart.

“For instance,” he says, take a look at the number of times the word recession popped up in a keyword search (the white line) against the S&P 500 index (the orange line).

“Clearly, when the frequency of articles mentioning recession peaked, the market was forming a bottom. If ‘recession’ frequency bottoms out, we are likely to be coming to a top on the S&P 500. I will keep a watch on this.”

Abe had another good week last week. In addition to the mock trade in copper that gained 21%, his for-real trades delivered 6% in oil, 6% in the Australian dollar and 23% in gold. A more aggressive play on the Aussie dollar was the lone loser. Every Monday brings new opportunities to collect gains a mere four days later. Much more about Abe’s strategy right here.

   Gold is starting the week where it ended last week. The bid in the spot market is $1,656. Silver’s down slightly, to $32.27.

   Oil is likewise flat as the week gets under way in earnest. A barrel of WTI fetches $106.96.

   Over the weekend, Iran was cut off from SWIFT, the system that makes international payments transfer hassle-free. The noose of sanctions keeps tightening… but Iran appears able to keep breathing one way or another.

A trade delegation from India just wrapped up a barter deal in Iran: Iran will buy Indian-made goods — stuff it can no longer get from the U.S. and EU — and pay for them with gold and oil. Thus will Iran remain India’s No. 2 oil supplier, feeding India’s growing car and truck fleet.

“The development,” says University of Michigan historian and Middle East expert Juan Cole, “underscores how difficult it will be for the Obama administration and the European Union to impose ‘crippling’ sanctions on Iran.”

Makes you wonder if that leaves war as the only option for Washington…

   “My friends from across the globe understand the value in U.S. real estate,” writes Chris Mayer, returning to one of his major themes for 2012.

“I had a friend from Thailand tell me she is looking at buying rental property in Houston. (She has family there.) The yields you can pick up are substantially more attractive in Houston than in Bangkok. Another friend in South Africa is selling his holdings there to buy U.S. property. ‘I have seen,’ this individual says, ‘some nice $80,000-130,000 houses in Memphis that get 12-15% yearly rental yields.’”

Meanwhile, “There is a lot of money from China and Japan coming in,” a friend in Hawaii tells Chris. In south Florida, Latin American buyers are snapping up properties with both hands. Canadian snowbirds are picking up properties in Phoenix for a song.

“This is all anecdotal evidence,” Chris says, “but the big-picture numbers back the story they tell. There is a lot of foreign money poking around U.S. real estate.”

   Still, “In a post-bubble world,” says our small-cap specialist Greg Guenthner, “the housing market is not as easy to navigate.”

He’s been hearing from gun-shy readers about a recent pick, a regional supplier to homebuilders. What would happen, they wondered, if home prices don’t begin to appreciate. “The short answer is nothing,” Greg says. “We will not see another housing bubble in our lifetimes. Homebuilders aren’t expecting another bubble. They are, instead, looking toward sustainable growth after years of decline.”

As homebuilders find their footing, companies like Greg’s recent pick will follow suit. Heck, it’s up 8% in a month and already trading above his buy-up-to price.

It just goes to show that you can’t stay stuck in an investment mind-set forever. We take considerable pride being among the lonely voices in 2004 who said the housing market was due for a fall. And conventional measures of housing like the Case-Shiller index might have more room to fall. But that shouldn’t blind you to hidden opportunities unfolding right now.

Our entire team is dedicated to uncovering such hidden opportunities… whether it’s housing diamonds in the rough, or resource companies sitting on hidden reserves of shale oil or precious metals, or four-day trading opportunities in a market few people have even heard of.

For the past few days, we’ve been out to make our full range of information as accessible as possible to as many readers as possible. We’ve been telling them about “unclaimed credits” in their Agora Financial account — credits they don’t know they have that they can apply to new services that maybe they’ve heard about but haven’t had a chance to try.

You can learn — right down to the penny — your total in unclaimed credits. It takes all of two minutes. And time’s running short: Any unclaimed credits will expire at 5 p.m. EDT on Wednesday. Check out what you’re entitled to right here.

   “The requirement to open an account with Nadex,” a reader points out about Abe Cofnas’ trades, “is to be a legal resident of the U.S., not necessarily a citizen.

“It makes a big difference, as I am on a green card and initially thought I cannot open an account. I did and the process was very smooth and fast. It won’t help the reader from Austria, though.”

The 5: Good point. Thanks.

   “Some things never change,” a reader writes after Greg Smith’s public resignation from Goldman Sachs in The New York Times. “This is one of them.”

“As a wire house broker back in 1973-74, I observed the same environment, which is why I moved on quickly, rather than get caught up in racketeering. Greg Smith’s piece was probably too gentle relative to the thievery that really goes on behind the scenes.”

“The same players are still there, too. The very fellow for whom I worked is now running the show. The percentage that get caught is minuscule. The percentage that actually get convicted is almost nonmeasurable. The wolves are guarding the henhouse and the investing public hasn’t got a clue.”

   “Sounds like Greg Smith might be a good candidate for the newest Agora writer,” adds another. “His writing demands an audience and he’s going to be a little bit desperate. In all reality, though, imagine his tales. GS must be furious.”

“We live in interesting times. ¡¡¡Viva la revolución!!!”

The 5: Sí.


Dave Gonigam
The 5 Min. Forecast

P.S. We’re only four days away from the start of the Rancho Santana Sessions — a first-of-its-kind event we’re holding for an exclusive circle of 30 Reserve members.

They’ll have the chance to hear from a panel of experts on offshore investing. If it sounds exotic, it’s more accessible than you might think. And the information these experts have assembled is about as accessible as we can make it: We’ll have sound techs on duty to record the Rancho Santana Sessions from start to finish.

You can have these recordings delivered in MP3 format to your inbox only a week or so after the sessions wrap up. You can learn about everything from tax planning to estate planning from the comfort of wherever you happen to be. Order now — before the Sessions begin on Friday — to assure you’ll get the best available price.


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