With Friends Like These…

October 17, 2012

  • Forget the Chinese: Even America’s friends are starting to ditch the dollar
  • Jim Rogers ready to invest in a country he once dismissed as a kleptocracy
  • Chris Mayer on a vast untapped oil province… and a means for the Chinese to evade the U.S. Seventh Fleet
  • One category where the USA is still No. 1 by far: Bad news in “The War on You”
  • Government fail, Canadian style: Insult the people you want to join your job-training program
  • Curmudgeonly Californian kicks off secession debate… one factor behind Addison’s summertime absence… a free book offer with no strings attached… and more!

  We are looking for ways for the euro to become another currency of legal circulation and to be accepted in the Panamanian market,” says Panamanian President Ricardo Martinelli.

No, dear reader… you have not been suddenly transported back to 2007…when rappers and supermodels were shunning dollars and demanding payment in the Esperanto currency.

Why now? When the eurozone’s continued existence is open to question?

We launch an “international” edition of The 5 with some puzzling, if not disturbing, news…

  Mr. Martinelli ventured to Berlin this week… and declared his dual allegiance to the dollar and the euro while standing next to German Chancellor Angela Merkel.

It’s a big deal because, as he acknowledged, “In Panama, the currency in free circulation is the American dollar.”

“You vill take ze euro and you vill like it!”

“Panama’s dollarized economy,” says a Reuters dispatch, “is one of the fastest growing in Latin America, expanding 10.6% last year with help from heavy infrastructure spending including the expansion of the Panama Canal.”

Does Mr. Martinelli know something about the fate of the dollar that we don’t? Hmmm… Probably not.

Still, we wonder whether he cleared this with anyone in Washington before he jetted off to Europe. He does remember what happened to Manuel Noriega when his paymasters in D.C. got fed up with him, right?

Perhaps he should have made a stopover in Switzerland before making his decision…

  “I can’t exclude that in the coming years we may need the army,” Swiss defense minister Ueli Maurer says of the potential for euro-violence to spill over his country’s well-defended borders.

Quite the statement, only a few days after the European Union was awarded the Nobel Peace Prize… Heh.

Maurer also questioned, according to NBC News, how long “money alone” could quell the crisis. Since Switzerland hasn’t seen any conflict since the Treaty of Paris in 1815, one wonders if the defense minister is just getting cabin-fever and jumping the gun, so to speak.

100  Go figure: Even as the noose of Western sanctions tightens, U.S. exports to Iran have jumped by nearly a third this year.

Census Bureau figures reveal $199.5 million in exports to Iran during the first eight months of 2012. Last year during the same period, it was $150.8 million.

Grain exports are up more than fourfold. Dairy products have doubled. Ditto for medical supplies.

“The data [are] surprising,” says Reuters’ account, “given Western efforts to isolate Iran economically because of its suspected pursuit of nuclear arms.”

Still, exports of other items have dropped significantly, like medicine. Exporters of those products say it’s hard to get paid because the U.S. Treasury has blacklisted most of Iran’s big banks.

  “I’m convinced things are changing in Russia for the first time,” says Vancouver veteran Jim Rogers.

To call this a “huge turnabout” would be an understatement: In 2003, he told an audience at the Harvard Business School that Russia was a kleptocracy and he would never invest there. So vociferous was the adventure capitalist that he got into an email war with a Russian MBA student; the exchange became the subject of a New Yorker article.

But last month, Rogers signed on as an adviser to an agricultural fund owned by the Russian state-owned bank VTB.

On Monday, he told CNBC he’s still trying to figure out the best vehicle for investing in Russia — the stock market or the currency.

Other Rogers take-aways from around the world…

  • China: Buy only when it collapses. “And it hasn’t collapsed yet.”
  • India: A “complete disaster”
  • United States: “In 2013 and 2014, we’re going to have economic problems. Either (politicians are) going to raise taxes or they’re going to bungle something.” He’s shorting tech stocks.

  Major U.S. stock indexes are adding to yesterday’s gains. The lone exception is the Dow, dragged down by a disappointing earnings report from IBM.

The S&P is flirting with its Fed-induced Sept. 14 high at 1,459.

The big number of the day is housing starts — up 15% in September to the highest level since July 2008. Permits — a better indicator of future activity — also touched July 2008 levels.

Precious metals continue a laborious recovery from the big drop Friday and Monday. Gold is at $1,748. Silver is a hair above $33.

  “He is going to be a very rich man soon,” our globe-trotter Chris Mayer says of a new friend he made in Myanmar (Burma).

“While in Yangon,” Chris goes on, “I met with U Moe Myint, who started and runs two oil companies in Myanmar. One is an oil field services company. And the other is an oil and gas exploration and production company.”

“Myanmar is a proven oil province,” U Moe Myint says, “but very much unexplored.”

“There are 17 sedimentary basins, 14 onshore,” Chris explains. “Estimates for how much oil and gas might be here vary all over the map. Let’s just say it’s a lot. And knowing how these things tend to work, whatever estimates come out now will surely prove too low.”

It’ll be a big deal for China: “Currently, most of China’s oil comes to China through the Strait of Malacca,” says Chris. “This is one of the most important shipping lanes in the world. It handles an estimated one-quarter of the world’s traded goods — including oil. The problem for the Chinese is that the U.S. Navy controls the strait. They have long sought an alternative route.

Myanmar (or Burma) is that route.

“There is a major transportation hub under construction now at the southern city of Dawei in Myanmar,” Chris goes on. “The centerpiece is a deep-water port. Once completed, the port will have a capacity to rival that of Singapore.”

Chris is back stateside now… and he discussed the many opportunities of Myanmar yesterday with RT’s Lauren Lyster.

(He also discussed a fast-disappearing opportunity that lies within the handful of responsibly run banks that still exist. Don’t miss it.)

  Now, as we turn our attention to domestic matters, an issue that did not come up during the presidential debate last night…

(Click to enlarge)The United States imprisons a higher ratio of its citizens than any other country: 730 out of every 100,000 people. That number has more than doubled since 1980, says Hoover Institution research fellow David Henderson.

“Because we have all these prisons and all of these other resources funneled into our criminal justice system,” says Loyola University New Orleans econ professor Daniel D’Amico, “we have this ability to enforce things that would otherwise be unenforceable.

“That includes the drug war,” he adds, “but it’s also including everything from the Martha Stewart types to immigration policies. The scope of things that are now criminal in corporate law is exponentially higher than it was merely 20 years ago.”

Thanks to the vagueness and complexity of the legal code, Boston civil liberties lawyer Harvey Silverglate estimates the typical American commits three felonies a day — and those are only violations of federal law.

We’d like to think something that onerous happens by accident. The reality is it probably happened by design. A memorable Slate article from 2007 tells the story of federal prosecutors in New York sharing beer and pretzels and trying to dream up how they could prosecute famous figures like Mother Theresa or John Lennon for crimes like “false statements” or “obstructing the mails.”

This prosecutorial culture makes up a huge part of what we’ve come to call “The War on You.” We think it’s important enough that we’ve developed a six-part defense mechanism. You can explore it here.

  One more note from overseas: From Canada, we have government failure at every conceivable level.

Seems there are a lot of jobless young people north of the border, too. In British Columbia, the unemployment rate is 14.7% among the 15-24 age cohort, compared with 6.5% in the overall population.

In its infinite wisdom, the B.C. government has concluded the problem is… laziness. And in its further wisdom, it’s spent C$604,000 in hopes of motivating young people to come to the B.C. provincial job-placement agency.

By running ads like this…

Surprise, surprise: It backfired.

“These ads are offensive and in poor taste because they imply youths are just sitting around and not wanting to gain employment,” Katie Marocchi of the Canadian Federation of Students in B.C. told the Toronto Star.

“It shows how this government is disconnected from reality when they insist there’s no money to invest in postsecondary and then they spend money telling us it’s all our fault.”

There were other versions of the ads, clinkers all: “Because marrying rich may not pan out,” and “Oh, sure, you’ll definitely win the lottery.”

Methinks someone might need a quick lesson in a cardinal rule in advertising: “Know your audience.” Then again, government agencies have no such incentive, do they?

  “To the reader from California whining about the South,” a reader corresponds: “Are you freaking kidding me?

“You need to put down your crack pipe and look at the facts: 13 of the top 15 welfare states are liberal, DEMOCRAT states! The ONLY Southern state is Tennessee. Don’t believe it? Just use the search engine of your choice for: ‘Top 15 welfare states.’

“California is No. 1, coming in at a staggering $3.28 BILLION. To add to his/her ignorance, California has spent itself into near oblivion and we the taxpayers in the other 49 states will probably have to bail them out of their fiscal malpractice.”

  “Your reader from California,” another writes, “displays what is all too typical of the arrogant Californians who likely know nothing about the reality of the south other than what they get from their Hollywood stereotypical productions that are about as realistic as believing that Lindsay Lohan represents all Californians. Oh, wait a minute, that probably is closer to the truth.

“Last time I checked, it was socialistic California that is insolvent and having to borrow money from the federal government to remain afloat. Here in North Carolina, we’re doing just fine, thank you, and suggest that those arrogant snobs in California clean up their own glass house welfare state before casting stones in our direction.”

  “I wish the South could make the guy from California’s day and secede,” writes another, taking on the most incendiary point of the man’s letter, “as we could do much better on our own than the rest of the country could without us.”

  “If you will read your history,” adds a Southerner, “you might find that we tried that once and your like would not let us.

“Also check the War of 1812 and you will find much of New England wanted to leave the union. Take a ride into the rural West and see how many Virginia battle flags you see (mistakenly called the Confederate flag). I think that if secession were allowed, many other states would follow the South. Check which states have the largest public debt. Almost all are and have for many years been Democratic.”

  “About 12 or 13 years ago,” a reader writes, “I was predicting that the United States would break up into between eight-11 new countries, and I tried to guess the time frame that it would occur.

“I knew that the federal government would do everything that it could to keep it going, so my best guess was that the breakup would take place about the year 2025. However, since Obama was elected, he has drastically increased government spending and debt, radically increased socialism and now it looks as if he’s about to get us into another Middle East war. My new prediction is just 2017, only five years away.

“If I were the governor of a state, I think that I would be speaking to the governors of the states adjoining mine and making plans in advance. There was very little advance notice when the old Soviet Union broke up, and I’m guessing that we won’t have much time either.”

  “This secession business is near and dear to our hearts,” writes a reader from the state that’s home to the Second Vermont Republic movement.

“Imagine (a la The Mouse that Roared) Vermont leaving the dear old US of A and merging with the Canadian separatists. We would then declare war on the U.S. and Canada and proceed to lose. Given the war reparations that we could expect from such an arrangement, we would all have our pensions and health care guaranteed for life… more beer?”

The 5: If the governments in Washington and Ottawa don’t go broke first…


Dave Gonigam
The 5 Min. Forecast

P.S. Addison’s latest big-picture forecast is unlike anything you’ve seen before. It has little to do with the markets. Or the dollar. Or U.S. Treasuries.

It’s much, much bigger. It could affect everything from routine household chores… to the way you plan for your family’s future… to how you cope during full-on emergencies.

When Addison “disappeared” from writing The 5 this summer, one of the matters he was attending to was his new forecast. It’s been almost a year in the works.

Now it’s finally ready. He says this could be one of the most urgent — and controversial — of his career.

You won’t hear about this in the presidential debates… or on mainstream news channels.

And now you have the chance to review the fruits of his research… along with a few simple steps he says you need to take to prepare. Click here to see his letter.

P.P.S. “It is not at all clear that accommodative policies in advanced economies impose net costs on emerging market economies,” declared Fed chief Ben Bernanke last weekend.

Translation: “Hey, don’t blame us for your problems,” summed up Barron’s Randall Forsyth. We don’t doubt Bernanke will absolve himself of any responsibility when his folly comes home to roost in the United States, either.

If you want a concise explanation of how we got into our current mess, you can’t do any better than Friedrich von Hayek’s 1972 classic, A Tiger by the Tail.

We commissioned John Papola — creator of the viral “Keynes vs. Hayek” video series — to write a new introduction. “Hayek, more than any other economist of the past century,” writes Mr. Papola, “has offered the most complete and systematic critique of Keynes’ economic system and the Keynesian mainstream. A Tiger by the Tail is a powerful compilation of that critical work into one book.”

We think the volume is so valuable, we’re literally giving away an e-book edition of it. Claim yours right here, right now.


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