The New Cold War

December 18, 2012

  • More “gray swan” events on the horizon… U.S. monkeying in China’s business… plus, a trade to kick off the beta version of the new 5 Min. Forecast Pro!
  • Dr. Copper’s forecast relatively calm in 2013… how can that be… a new ETF to rival GLD…
  • The “Fed fake” and market melt-up… how to trade the last week of December… don’t smoke it, swallow it…
  • AIG jackass caught vaunting on tape… an Aussie woman proves it pays to get [expletive deleted, rhymes with “fade”]… off-screen comments regarding the Newtown massacre… and more.

  “We don’t intend to worsen relations between Japan and China,” Japan’s new prime minister Shinzo Abe said in a press conference yesterday. He then went on to do just that…

We begin this morning’s 5 with another specimen for our “making the empire pay” file. And a new way to trade otherwise inscrutable chatter from the news cycle.

Let’s connect the dots…

  Shinzo Abe “has pledged to defend Japan’s territories,” reports The Week, “and said he want to ‘stop the challenge’ from China over the chain of Senkaku/Diaoyu islands claimed by both countries.”

Japan’s Falkland adventure: so marginal they don’t show up on this map.

The assertion is made easier for the Japanese prime minister because the U.S. Seventh Fleet (your tax dollars) has his “6.” Sixty-seven years after V-J Day, the United States still garrisons 52,000 troops in Japan.

As a result: “The United States risks getting involved in hostilities over strategically irrelevant and economically marginal islands,” warns Boston College professor Robert Ross in Foreign Affairs.

  Last year, the Obama administration grandly declared it would “pivot” U.S. international focus away from the Middle East to Asia.

“As far as Beijing is concerned,” reports the AP, the pivot comes straight out of “the old Cold War containment playbook. Afraid of China’s rise… Washington is trying to inflame new tensions by isolating it and emboldening the countries that China has territorial disputes with.”

Or just about every country with whom they share a border.

  “High-level meetings in Beijing and at the Pentagon,” adds the ever self-important Stars and Stripes, “tours of military bases for visiting dignitaries have done little to mask [the fact that] distrust is at an all-time high. These examples of tit-for-tat one-upmanship and chest puffing have not been seen — outside of the Korean Peninsula — since the fall of the Soviet Union.”

“There is a new kind of Cold War going on,” June Teufel Dreyer, a China-U.S. expert at the University of Miami, told S&S.

  “Put yourself in the shoes of the Chinese leadership,” suggests Vancouver regular Marc Faber, a 40-year resident in the region, “and you will see that Washington’s initiatives in the region are provocative to Chinese interests — which include protecting China’s vital sea lanes for the transport of oil from the Middle East.

“In my opinion, China does not have any territorial ambitions; however, Washington and its Asian ‘allies’ are likely to perceive China’s strategy in Asia as it relates to security considerations as aggression, which may lead to conflict.”

Et voila… another strategic item to keep an eye on. It’s not the events you expect that change your world, but often the ones you don’t.

100  To further complicate things, Taiwan lays claim to the Senkaku/Diaoyu islands too.

100  Add to these tensions, monetary mayhem coming to Japan… or what Reuters describes as “a potentially risky prescription for hypereasy monetary policy and big fiscal spending to beat deflation and tame a strong yen.”


“Japan’s currency has fallen over 5% in the past month as it became apparent that Abe would win,” writes Chris Gaffney at EverBank World Markets. “Currency investors are worried that these expansionary policies and ‘forced’ inflation will lead to drop in the value of the Japanese yen.

“While Bernanke and his compatriots at the Fed haven’t been as vocal as Shinzo Abe on wanting inflation. Watch how the markets treat the Japanese yen over the next few weeks, as the policies Abe will put into place are similar to those being pursued by the Federal Reserve.”

[Ed. note: If you are an Agora Financial Platinum Reserve member, scroll down to the end of today’s 5… you’ll find our first installment of The 5 Min. Forecast Pro — a “sixth minute” in which we suggest a trade on the “hawkish” Shinzo Abe’s taunt against the Chinese and the monetary policy being pursued by the Japanese central bank. The events may be half a world away, but the right trade could make them all the more important to your own bottom line.

If you’re not a Platinum Reserve Member and want to participate in this beta test, call John Wilkinson at (866) 361-7662 and review the credits on your account. He may be able to help you upgrade in time for our next beta issue of the 5 Pro!]

  In the U.S. markets, the proverbial Santa Claus rally remains in play. As we write, the Dow has climbed to 13,275.

“Just when you thought you had it all figured out, the market tricked you again,” says Greg Guenthner. “Call it a ‘Fed fake’…

“When Bernanke pegged interest rates to unemployment last Wednesday, traders sold the news. The market’s 48-hour tailspin gave the fiscal cliff criers even more ammo — until Monday morning, that is.

“Now it’s ‘market melt-up’ time. The S&P has popped 2% since Friday’s lows — and the Dow’s not far behind.

“We could see more of the same next week. No one pays attention to the markets during the last week of December, even though that’s usually the perfect environment for low-volume rallies.”

  Gold briefly reclaimed $1,700 overnight, but has since slipped back to $1,692. Crude has firmed to $87.51.

  Copper fetches a healthy $3.65 a pound this morning. Often referred to as “Dr. Copper” for its ability to forecast economic health… the not-quite-as-precious metal is forecasting economic bliss:

“Let’s think about the price of copper,” says Byron King, “after all, what’s been going on across the world for the past year?:

  • We’ve had the lingering, headline-grabbing economic crisis in Europe — from the never-ending Greece disaster to the U.K.’s “austerity” and much more
  • The Middle East is a mess, with the so-called “Arab Spring” turning into an “Arab Spring Fever” of intra-Islamist religious war. That is, the hard-liners kill each other, while other factions bait Israel with missile strikes. And don’t forget the constant saber rattling over Iran’s nuclear program!
  • We’ve watched continuing stagnation in Japan, with — speaking of nuclear — the Fukushima nuclear aftermath added in
  • There’s the alleged “China slowdown,” which is supposed to mark the “end of the commodity boom,” if you believe everything you read in the Financial Times
  • And of course, there’s that vast U.S. monetary expansion, with the Federal Reserve’s “quantitative easing” subsidizing the U.S. deficit to the tune of about $3 million per minute. That, plus the U.S. election cycle and ensuing political gridlock.

“You get the point,” says Byron. “Copper prices don’t appear to forecast serious weakness in the economy ahead. If the world is falling into an economic coma, then Dr. Copper has missed it and is committing malpractice.”

  Right on cue, your friendly neighborhood Wall Street banks are conjuring up a few copper exchange-traded funds (ETF) for you to get your hands dirty with.

“The proposed JPM XF Physical Copper Trust would be initially backed by 61,800 metric tons of actual metal,” says The Wall Street Journal. “Currently available copper ETFs are backed by futures.”

Several copper fabricators pleaded with the SEC to turn down JPMorgan’s application, contending it would shrink supply… but to no avail. Up next: a second copper ETF from BlackRock: The SEC is set to decide by Christmas.

  Good grief. Here we go again with the “TARP was a winner for taxpayers” bit.

The Treasury announced last week that as soon as it sells its remaining 16% stake in AIG, U.S. taxpayers will have turned a $22.7 billion profit on a $182 billion bailout.

“Misleading,” says TARP’s former inspector general Neil Barofsky. He tells Huffington Post that nearly one-third of the AIG stock Treasury is selling came from the Federal Reserve, not TARP. Barofsky’s successor Christy Romero — who we’ve found to be refreshingly candid on bailout matters — says she’ll wait for the sale to go through before she passes final judgment.

  “To say taxpayers made money from their investment in AIG is to libel the very concept of profit,” says Reuters columnist James Saft.

“When the U.S. bailed out AIG, and for that matter the other banks, it at a stroke removed the issue of confidence, making them immediately better risks because of the perception that they had a backer with unfathomably deep pockets.

“That makes a nonsense of the concept of profits, much less of investment; AIG was owned by an entity [government] that had enormous control over most of the forces which determined how profitable it was: interest rates, regulation and access to and cost of capital.”

  Not that AIG execs seemed very appreciative, certainly not Robert Gifford, the head of AIG’s global real estate arm.

Last August, word got out about a 2010 holiday party for AIG employees during which Gifford rapped to the tune of Jay-Z’s “Empire State of Mind,” complaining, “I was hanging out all comfy, at my crib in bed. Now I have endless meetings with… the Fed.”

Only now… the video has gone public:

To view this man making an ass of himself, click on the screen grab.

“Take a bow, because today marks our second act,” AIG CEO Robert Benmosche said after the Treasury announcement.

We can hardly wait.

  A court in Australia has brought new meaning to the term “on-the-job injury.” The court declared a woman injured during sex on a business trip eligible for worker’s comp.

Really, we read it on the Internet…

“The unidentified woman, who was in her late 30s,” reports USA Today, “claimed facial and psychological injuries after a glass light fitting fell from the wall above the bed in her hotel room while she was having sex with a male friend.”

Whether the light was bumped or it fell down before it struck her face could not be determined: “I think she was on her back when it happened,” the male friend testified, “but I was not paying attention because we are rolling around.”

No matter. “The court ruled,” explains The Australian, “that if the applicant had been injured while playing a game of cards in her motel room, she would be entitled to compensation, and the fact that the woman was ‘engaged in sexual activity rather than some other lawful recreational activity while in her hotel room does not lead to any different result.'”

Footnote: The woman’s employer was the Australian government. Good on ya, mate!

  “I think you need to rethink and restate your views on the situation between government and ‘the people,'” a reader writes on a far more somber note. “Your current statements are a bit too shrill.

“Yes, we all suffer from a normalcy bias, but we also all suffer from an incoherency anti-bias. There is no such thing as ‘the’ American people’; given our 300-plus million people, there are probably at least 600-plus million views on what the problems are and what should be done about them.

“We currently have no settled orthodoxy, no settled consensus on anything. You want Austrian School economics [link to LFB economics in one library] to prevail, while others see it differently. Who do the people in government listen to — you or the others? You may think you are right and everyone else wrong, but others may think they are right and you wrong. And you may both be right and may equally both be wrong. How can you blame Congress or government for reflecting the biases and incoherencies in the system?

“As for Tucson, surely you would acknowledge that a milieu, an environment that encourages violent speech (vehement) and violence and is built on the foundations of violence and endless illegal wars — surely you would admit that this milieu can drive lunatics (and even otherwise reasonable people) to commit violence.

“We’ve sowed a culture of violence and we reap its consequences every day…”

The 5: Tucson? This letter comes from our archives — January 2011, after the shooting that killed a federal judge and wounded a member of Congress. Substitute “Newtown” for Tucson and it might as well have been written today.

“Finally, the USA has an act that perfectly expresses its true spirit as the horror show nation among nations,” writes Vancouver veteran James Howard Kunstler: “the random mass slaughter of little children by a maniac.

“Next, of course, comes the empty ritual of pretending that we must make sure something like this never happens again. How? By some forensic inquiry into the psychology of the shooter, Mr. Lanza… his comings, goings, email musings and Netflix rentals and the chemical composition of his fingernail clippings?

“We flatter ourselves with the technocratic conceit that if we can measure something enough, we can control it.”

  From Karachi, Pakistan…

According to a report last year by the Bureau of Investigative Journalism, seven years of drone strikes in Pakistan had killed at least 168 children.

  Our acquaintances in D.C.’s foreign-policy circles at the Empire Salon are circulating this…

  We also noticed the same day as Newtown, someone in China slashed 22 kids and one adult with a knife at an elementary school. So maybe the problem isn’t with guns or with American society…


Addison Wiggin
The 5 Min. Forecast

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