The Secrets of Room 641A

October 22, 2012

  • The day they banned yard sales: A Supreme Court case that could limit the right to sell your used goods
  • Your closest secrets, collected in Room 641A: Different Supreme Court case redefines privacy
  • The news from India that could put a new floor under the gold price
  • Exxon Mobil caught up in Middle East intrigue: The 5 sorts out the players and draws an investment conclusion
  • Inside the belly of the beast: Federal worker tells what it’s really like

  “They might as well come in and lock my doors… shut me down,” says Patti McKee, owner of a thrift store in Spartanburg, S.C. “Everything in here is made in China!”

Your yard sale? That’s at risk too. And the stuff you sell on Craigslist — or if you’re still old school, the newspaper classifieds. Our investigation into the multifront War on You continues this morning, kicking off another week of market uncertainty… prior to the election.

  The Supreme Court got back to work in October after its customary three-month break. The cases making headlines so far are hot-button issues like affirmative action and gay marriage. But two cases — little covered — could have a much bigger impact on your day-to-day life.

  One case — which the justices will hear a week from today — affects your right to resell stuff you already own.

No, really, it does.

For more than a century, the Supreme Court has recognized something called “first-sale doctrine.” That means you can resell copyright material that you bought without compensating the copyright holder. Or it did, until Supap Kirtsaeng came along.

Kirtsaeng came from Thailand to the United States in 1997 to study at Cornell. He was taken aback by the price of textbooks, knowing they were much cheaper in his native land. So he had his relatives buy them back home and ship them to him.

Then he realized this could be a very profitable line of work: Family members bought books in bulk and shipped them to him, and he sold them on eBay — hauling in more than $1.2 million, according to court documents.

John Wiley & Sons sued Kirtsaeng for copyright infringement… and so far has prevailed. Last year. a federal appeals court held that anything made overseas is not subject to the first-sale doctrine — only American-made products or “copies manufactured domestically.”

[Full disclosure: Wiley has published several books by Agora Financial editors — most recently Addison’s The Little Book of the Shrinking Dollar and Chris Mayer’s World Right Side Up — but the two firms are independent of one another.]

100  To call the ruling’s potential implication “wide-ranging” is an understatement.

“This is a particularly important decision for the likes of eBay and Craigslist,” writes MarketWatch columnist Jennifer Waters, one of the few mainstream reporters on the case, “whose very business platform relies on the secondary marketplace. If sellers had to get permission to peddle their wares on the sites, they likely wouldn’t do it.”

And then there’s the matter of used auto sales: About 40% of “American” cars have technology and parts made elsewhere.

True, in the event the Supreme Court rules against Kirtsaeng, Congress will likely write legislation to keep the typical Craigslist or eBay transaction on the up and up.

The ruling’s Pandora’s box: Imagine a “resale transaction tax” to be dumped into a fund that compensates copyright holders. How about new regulations on transactions of more than, say, $5,000. The possibilities are endless. Can you feel the warmth generated from Congress as they wring their hands with anticipation?

  Another Supreme Court case of the 2012-13 session has already been decided. It affects you directly… and as far as we can tell, you have no recourse.

Flashback: In the 1970s, after the Church Committee found the government had been spying on everyone from Birchers to Black Panthers, Congress passed laws forbidding eavesdropping without a warrant… and punishing companies like AT&T if they cooperated with any illegal eavesdropping. Each violation was punishable by up to five years in prison and a $10,000 fine.

Fast-forward to 2001, when Sept. 11 “changed everything.” The Bush White House authorized all manner of illegal wiretaps, which was exposed by The New York Times in late 2005. And the National Security Agency recruited the telecom companies to assist.

In 2007, a former AT&T technician named Mark Klein described a special room — Room 641A — in an office tower at 611 Folsom St. in San Francisco. Its sole purpose: vacuuming up phone calls, emails and web searches for the NSA.

“I flipped out,” said Klein when he discovered what was going on. “They’re copying the whole Internet. There’s no selection going on here. Maybe they select out later, but at the point of handoff to the government, they get everything.”

Spy Central: Room 641A (photo by Wired magazine)

  In 2008, Congress took an unprecedented step — granting the telecom companies retroactive immunity from any civil or criminal liability for its lawbreaking. We were tracking the bill at the time.

“Immunity doesn’t enhance freedom; it rewards lawlessness,” Fox legal analyst Andrew Napolitano objected. “If the government and the telecoms had obeyed the law, there would be no need for immunity. Show me the legal justification for illegal spying on Americans, and I’ll show you a government that just doesn’t care about the Constitution.”

Groups like the Electronic Frontier Foundation (EFF) immediately went to court, saying the law “robs innocent telecom customers of their rights without due process of law.”

The lower courts brazenly upheld the law. Two weeks ago, the Supreme Court refused to review those decisions.

“We’re disappointed,” said the EFF’s legal director Cindy Cohn, “since it lets the telecommunications companies off the hook for betraying their customers’ trust and violating the law by handing their communications and communications records to the NSA without a warrant.”

  The NSA has wasted no time pressing on the gas following this new green light. The security agency is proceeding apace with plans to open the innocuously named Utah Data Center next year.

“Flowing through its servers and routers and stored in near-bottomless databases,” author James Bamford wrote last spring in Wired, “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.'”

“You need to know about the shocking new incursions on your privacy,” says Addison in his latest special report. And that’s only the beginning. “From the laws that pretend to protect you from yourself… to stifled innovations… to hidden taxes and the real story behind prices on the rise… we’re headed nowhere good.”

The good news (at least for now): Reclaiming your liberty does not involve hiding out in a bunker with automatic weapons… or moving overseas… or any other extreme steps. As long as you’re willing to think a little outside the box, you can liberate your finances, your health care, even your heirs’ education from the grasping hands of government. Let Addison open your eyes to the possibilities: The stakes couldn’t be higher.

  The major U.S. stock indexes are ruler-flat this morning. Despite Friday’s big losses, the Dow is higher than it was a week ago at this time.

“For much of last week,” Options Hotline editor Steve Sarnoff wrote last night, “stocks and the euro were up; bonds and the US dollar were down. The central bank money pump is running, but its effects may be lagging. The 25th anniversary of the 1987 crash saw the return of volatility (fear) to the market, as corporate earnings disappointed investors. Leading tech stocks are under pressure.

“A bounce in the dollar could weigh on stocks and commodities. Risk may become heightened over the weeks ahead. We shall see if selling becomes rampant.”

For the moment, the dollar index is rock-steady at 79.5. Gold is inching up after its own losses on Friday, currently $1,726.

  Frank Holmes’ “love trade” in gold is starting to work its magic again.

India’s gold imports are on a pace to climb for the first time in six quarters according to Bloomberg, “as a decline in domestic bullion prices stokes jewelry and investment demand ahead of major festivals.”

Mr. Holmes, the chief of U.S. Global Investors, says while Westerners engage in a “fear trade” with gold — using it as a defense against crashing currencies — people in China and India have a centuries-long “love trade” intrinsic to their cultures, giving gold as holiday gifts.

In India, the love trade hit a rough patch last year as the rupee fell, sending the local price of gold to all-time highs. But lately the rupee has been strengthening… and so have Indian gold imports.

The All India Gems & Jewelry Trade Federation estimates imports could reach 200 metric tons this quarter — up from 157 tons in Q4 last year. “With the festival season and marriage season starting now,” says Quantum Asset Management’s Chirag Mehta, “demand will gain further momentum.”

[Ed. Note: Frank Holmes is a perennial favorite at the annual Agora Financial Investment Symposium in Vancouver. We’ve already opened up the earliest of early-bird registration for next year’s event. It’s the simplest way to lock in the lowest admission fee possible. Of course, Reserve members are admitted free.]

  So much for the U.S. oil bonanza in Iraq. Exxon Mobil is giving up on its agreement to help develop the West Qurna oil field.

Exxon’s stake in West Qurna was the only major deal struck by “Big Oil” in postwar Iraq. Most of the goodies went to Chinese firms like CNPC and Russian firms like Lukoil.

Yankee go home: The West Qurna oil field in IraqThe U.S.-installed government in Baghdad has been giving Exxon a hard time because Exxon is also cutting deals with the “autonomous” government in Iraq’s northern Kurdistan region.

“The Iraqi central government,” says Petroleum Economist, which broke the story, “considers Kurdistan’s production-sharing contracts, judged by investors to be more generous than the technical service contracts on offer in the south, to be illegitimate.”

The divide between Kurds in the north and Arabs in the south is one of many unresolved conflicts in Iraq that could blow up at any time. One more reason to heed Byron King’s advice about avoiding oil firms with heavy Middle East exposure. Byron has loaded many safer, surer alternatives into the Outstanding Investments portfolio.

  “I work for the federal government,” a reader writes, “with one of the agencies mentioned in your recent 5 Min. Forecast.


“Despite what government officials would lead you to believe,” the reader continues, “there is no incentive to promote cost savings in an agency, because if an employee does, s/he is usually shouted down.

“The annual operating budget we have is a sacred cow; the way the system works, two things happen:

A) If we don’t spend it all, we have to give the remainder back and hence cannot ask for more next year, and

B) If the agency doesn’t spend all it receives, it will most likely get a budget haircut because we didn’t spend everything we were given the previous year and therefore didn’t need everything we asked for… Catch-22 right?

“Where is the incentive to save?”

  “A couple of good examples,” the reader goes on, “one small, one big.

“Small: When we travel for work on official business, we are required to use a travel agent to purchase tickets at a price quoted as full fare economy, fully refundable.

“The supposed purpose of this is so the government will not be out additional money because of changes or ticket cancellations. Now, you would think that the government with all its buying power could lock in the same considerations (no fee for change, refundable) from all the airlines at the lowest ticket price available. Apparently not.

“I recently bought my own tickets online (twice) for official travel using my own funds at prices 30% less than those quoted by the travel agent. My seats were better than what the travel agent could get me at full-fare economy! Even with the possible penalty for changes, I would still have saved the government money, right? Well, I was chastised by the financial management office, told not to do it and the threat was that if the ticket was changed, I would pay the penalty from my own pocket, and if the ticket was canceled, I would not be refunded.

“Multiply 30% premiums paid on behalf of the thousands of government official flyers on thousands of flights….

“One big example: What happens at the end of the government fiscal year, Sept. 30? Any savings or economy accumulated during the year is spent frivolously in the last 30-60 days to bring the bank balance down to zero. The purchases end up stored in warehouses, eventually replacing perfectly usable and working equipment, good furniture, computers, etc., which ends up sold at 20 cents on the dollar.

“Happens every year. A huge part of the blame lies with Congress for not being able to pass a budget most years until well into the 12-month operating period. They penalize agencies that underspend. Unspent funds must be returned… which raises the specter of cutting the budget the following year, when the need might even be legitimate.

“‘When I joined the government,’ one colleague recently told me, ‘I was told not to even bother to try to save money for the agency.'”

The 5: Wait, Are you suggesting government is, umn, inefficient? Gasp.

  “It is not just your right to vote, but your duty!” writes another reader… tuning in from another wavelength. Disregarding “the obligation to vote is selfish, narcissistic and childish!

“From the Revolutionary War to present day, MILLIONS of Americans have given their lives so that we are free to do what so many people in other countries cannot. VOTE! To not vote because you don’t like either candidate is not an excuse.

“Not voting because of choice is like giving someone a $100 bill to buy groceries, but since the store of your choice is not available, you throw away the $100! I have never seen a perfect candidate ever. We are all human and we all have to deal with character flaws. So for all you fence sitters and the lesser-of-two-evils crowd, grow up and stop disrespecting our fallen heroes!”

The 5: “No matter who wins,” wrote Doug French last week in Laissez Faire Today, “the government gets elected.

“The millions of government employees will wake up on Nov. 7 and trudge off to their assigned work areas. They will march to the beat of their bureaucratic drummer — just like any other day. They will do all they can to spend their budgets, keep their jobs, and convince elected officials they are important. They never go away. The elected politicians and their political appointees are transitory decorations; the real structures of the nation-state are permanent and constitute the core of what is called ‘the state.’

“The idea that you can change all this by spending a few quality minutes making your enlightened choices in a voting booth is complete fantasy. There comes a time in a person’s life when they should face the facts and stop believing in Santa Claus, the Tooth Fairy and change through politics.”


Dave Gonigam
The 5 Min. Forecast

P.S. “Our government,” Addison adds in his new special report, “has picked up a lot of special powers since Sept. 11… from warrantless wiretapping to the right to arrest or even kill Americans they suspect of wrongdoing.

“Does anybody really think they’ll give those powers up?

“More likely, they intend to expand them.

“Of course, there will be steps you can take to protect yourself. In fact, I’m taking many of these steps myself.”

If you haven’t given this report a good look yet, now’s the time.


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