An Oily Holiday

December 27, 2012

  • Deja vu, drama in the Middle East oil fields — just in time for the holidays!… UAE and Saudi terrorists caught plotting (for the first time together)…
  • Uncovering the “gas for gold” trade… what you should know as we head into 2013…
  • The Long Green Mile for resource stocks… good riddance to 2012… good times ahead? The 5 Min. PRO suggests, yes!…
  • A “cure” for 30 million Americans suffering liver disease…
  • The Kafkaesque world of post-Sept. 11 law enforcement… readers offer their own fiscal cliff tax solutions… a 5 Min. glitch resolved… and more!

  As the world turns.

Last year between Christmas and New Year’s Eve, oil crested $100 because of bluster from Iran about Western sanctions. Yesterday, oil crested $90 for the first time in two months because of… well, take your pick:

  • Police in the United Arab Emirates (UAE) broke up a terrorist cell. Attacks were planned in the UAE and Saudi Arabia. It’s the first time militants have collaborated in the two countries…
  • The foreign ministry in Iran accused the Gulf Cooperation Council (GCC) — including UAE and Saudi Arabia — of “creating tension and crisis in the region” by placing their militaries under unified command. Iran are mainly Shiites, the GCC, Sunnis…
  • There’s also a “potential disruption” of oil flow out of Iraq. That would be the one we foreshadowed a week ago today. The Kurds in northern Iraq appear set to cut off the oil flow to Turkey.

The media portrays this last item as a tiff over an unpaid natural gas bill — like Comcast charging you for an on-demand movie you never watched.

That’s easier than trying to explain centuries-old ethnic grievances. Or the craven stupidity of diplomats who redrew the map of the Middle East after World War I. We fully expect these conflicts to deepen in 2013.

As we write this morning, oil has jumped again to $91.24.

[Ed. Note: The complex news today underscores Byron King’s determination to stick to energy plays outside the Middle East. In today’s 5 Min. Forecast PRO — our new “sixth minute” of actionable advice — we describe one of his favorites.

Our 5 PRO edition remains in beta-test with Platinum Reserve members. If you’re among them — by all means tell us what you think. We begin a full “rollout” next week — stay tuned!]

  Added to the tension in the Middle East… a strange anomaly we uncovered in Turkey’s gold export figures dating back to last March.

Last month, unlike the central banks in many of the world’s emerging markets, Turkey trimmed its gold holdings. The International Monetary Fund (IMF) says Turkey cut back its stash by nearly 6 metric tons to 314.

“Turkey allows commercial banks to use gold as collateral for loans,” Reuters tries to explain, “and changes to its balance sheet are often connected to such activity.”

The real story, we believe, is much more interesting… and relevant.

  Turkish gold “exports to a single country — Iran,” we noticed while researching our 2013 issue of Apogee Advisory (released Dec. 21), “totaled $480 million in March. A year earlier, it was just $13 million.

“March 2012 was, conveniently, the same month U.S. and European economic sanctions tightened on Iran — cutting off Iran from the global payments network called SWIFT.

“It wasn’t hard to connect the dots: Natural gas is the source of almost all electricity in Turkey. More than 90% of Iran’s gas exports go to Turkey. Iran furnishes 18% of Turkey’s natural gas.

“Without Iran, Turkey would depend almost entirely on a single gas supplier to keep the lights on — Russia. Under the sanctions, Turkey can’t pay for Iranian gas with dollars or euros.”

That’s where Turkey’s gold supply has come in extremely handy. The U.S. Congress hopes to crack down on the gas-for-gold trade with Iran, tighten the screws on the mullahs and get them to give up their nuclear program once and for all — a gambit we believe is sure to fail.

Two takeaways for you as you follow the story: a) the futility of using sanctions to resolve political tensions and b) the enduring value of gold as “money”… even if the Fed and Treasury would have you believe it’s merely a commodity.

Our full dispatch on the Turkey-Iran gas-for-gold trade goes out in a special alert to Apogee readers later today — a supplement to the 2013 forecast issue. Not a subscriber yet? Here’s where to join up.

  Today’s open reveals another slow-motion slide for the major U.S. stock indexes. At last check, the Dow was a scant 25 points away from breaking below 13,000.

After the close yesterday, Treasury Secretary Timothy Geithner announced Uncle Sam would bump up against the debt ceiling on Monday. Ooh, a debt ceiling-fiscal cliff combo platter!

If the idea was to tank the markets and spur Congress to action… it didn’t work; the futures barely budged. Fiscal cliff debt ceiling worries are likely baked into stock prices already.

Rather, the slide this morning coincided with subpar consumer confidence numbers. And slagging retail sales numbers over the holidays dawning on mainstream news outlets.

  Precious metals are quiet this week. Gold’s at $1,659 and silver $30.20.

100  “As 2012 comes to a close,” says Byron King in his second appearance today, this time examining explorer/developer precious metals stocks, “I sense better days ahead for companies that can deliver something tangible.

“We had a long, hot, miserable summer in the resource markets. The share price for many “junior” resource plays went into the tank. As summer turned to fall, the Toronto Venture Exchange was a painful investment scene. Overall, a large fraction of listed TSX-V companies were (and are, alas!) trading under 25 cents, with only a few months of cash left in the bank.”

And good luck raising new money in that environment: “I’m reminded of analogies to that movie The Green Mile, about ‘dead men walking,’ if not the long casualty lists from one of those historic battles of World War I. Even the best of the resource lot — great assets, great management, cash in the bank — had a tough time gaining and keeping market traction.”

100  Byron sees several factors behind the slump… and none of them can last. “First, a lot of money is on the sidelines. A lot of people, funds and institutions have cashed out and stepped aside and are just waiting.” They were waiting on the outcome of the election and now they’re waiting for a “fiscal cliff” resolution.

“Meanwhile, all summer and into the fall, many sellers took even slight upward moves by junior resource players as an opportunity to take a gain off the table. The sellers neutered quite a few momentum efforts.”

Again, it can’t last: “I foresee good days for gold and well-run gold miners,” says Byron. “There are the usual reasons. I foresee too much government spending and not enough revenue to pay for it. I foresee too much Federal Reserve ‘quantitative easing’ (QE). I foresee monetary inflation.”

  “I have enjoyed seeing the U.S. manufacturing revival theme start to get some mainstream play,” says our Chris Mayer.

We’ve tackled the theme with gusto going back to the beginning of this year… fully aware that it rests uncomfortably alongside our ongoing forecast that the mother of all financial bubbles will burst.

But both trends continue to unfold in real time, so we attempt to stay ahead of them.

  “I also think it is funny,” Mr. Mayer continues, “that there is still a lot of complaining, as if people just want to be grumpy and nitpick at the idea. For example, The Wall Street Journal ran an article titled “‘Made in America’ Has Its Limits.” The main point seemed to be this:

“Manufacturing is showing signs of a modest revival in the U.S. Some companies have brought home production of items, including refrigerators and hand mixers, formerly made abroad. But clothing, electronic goods and many other day-to-day staples still tend to come from overseas.”

“So now people will complain about what is made here and what still isn’t,” says Chris. “Too funny. I would remind people that the goal is not autarky. Trade is a good thing. And please resist the urge to play overlord. Nobody knows how much of what should be made where. That is why we have markets. It is a process of discovery.

“The economics of it all, as always, will dictate what goes where — as it should be.”

  Junior resource stocks and manufacturing aren’t the only sectors where you can go bargain hunting right now. Our biotech maven Patrick Cox heard recently from the CEO of a company he follows.

“He mentioned,” says Patrick, “that some of his investors are being forced to sell portions of their portfolios for tax reasons. We know, with the change in tax rates coming, that a lot of people are going to be doing this.

“This creates an enormous opportunity for those who would like to benefit from the foolish government policies. As I’ve said often of late, the biggest pressure on government in the coming years will be to lower health care outlays.”

Thirty million Americans show signs of a condition called fatty liver disease, and “about 10% of those people will develop the full-blown disease, which can be effectively treated today only with liver transplantation.”


The company Patrick’s talking about can “reverse liver disease for a fraction of the costs associated with the oncoming epidemic of fatty liver disease.” And hepatitis C, we might add.

If you’re courageous enough to stare over the fiscal cliff and are ready to put your money into companies with explosive wealth-building potential in the coming year, it’s time to take advantage of our “loyalty reward” program. It furnishes access to Patrick’s high-end tech recommendations… Byron’s premium resource picks… Chris’ special situations… and much more.

All told, you get lifetime access to a suite of stock-picking services worth $4,094 annually — if you subscribed to each service separately. We call this suite the Equity Reserve… and it’s still available to new members through midnight tomorrow night. For a full rundown of the savings, look here.

 “My new graphic novel is a…” writes one David Axe, caught in the Kafkaesque world of post-Sept. 11 law enforcement, “terrorist organization?”

The Kony 2012 phenomenon appears to be waning as the calendar turns to 2013, but it’s still delivering its share of quirky items for The 5, above and beyond filmmaker Jason Russell’s “out-of-body” (and out of clothes) experience.

Now comes Mr. Axe, a journalist who ventured to the Democratic Republic of Congo in 2010 to report on Joseph Kony’s rebel group, the Lord’s Resistance Army. “I wrote a graphic novel script based on my reporting, and artist Tim Hamilton agreed to draw it,” he explains.

The duo lined up a publisher. All was fine until last month, when a U.S. agency called the Office of Foreign Assets Control confiscated the bulk of their advance payment, “claiming that we were laundering the money for onward transfer to a terrorist organization.

“Yes, you read that right: The feds believe Tim and I are terror financiers.”

Will their book be banned as a result?The authors have lawyers on the case. They surmise the title of the book “threw up a red flag.”

“You would think,” writes Mike Masnick at TechDirt, “that once that red flag went up, some bureaucrat somewhere would then have looked at the damn book and realized that it’s not some terrorist conspiracy. I guess that’s too much to ask.”

The naivety is almost touching, no?

  “It seems to me,” writes a reader determined to reflect on the fiscal cliff, “that it’s time America went down the taxation route that most other ‘developed’ nations have gone, and that is to reduce income tax in favor of national consumption tax.

“We have reached the stage at which income tax is inequitable, unwieldy and requires major bureaucracy to manage. It would pay to look at a smaller-country example, such as New Zealand, where a flat consumption tax was imposed and income tax tiers were rationalized and reduced.

“This is not to say that we should get rid of the capture of funds flowing to offshore investments, or company taxes, just that a fairer personal tax system takes the heat out of the debate around who ought to pay more. A consumption tax, in essence, is simple. The more you earn, the more you spend, ergo, the more you pay in tax.

“Evidently, one cannot replace the other, but provided there are checks and balances around the disposition of capital gains and repatriated earnings, a consumption tax beats the heck out of an income tax for simplicity and effectiveness, as well as removing the heat from the politics of class.

“Tax reform and nationwide debate around it ought to be a lot higher on the national agenda than it is.”

  “I just had a bright idea,” writes another reader, less earnestly: “Why don’t we ask our legislators to introduce a ‘regressive’ income tax.

“Under this scenario, unless disabled, rich or retired, the less a person earns, the less a person keeps. Corporations, which seem to have the same legal status as people, could be plunked in the regressive tax rule bucket also.

“Wow… think about how frantically that kind of tax law would get everyone scuttling around, each trying really hard to make an additional dollar! Also, all dollars earned would actually be reported… and… a bazillion dollars, currently parked in foreign countries, would be repatriated right pronto. Ah… what a swell world we would have.”

  “Hmm,” writes a Reserve member, “you state it was lucky for Walter Samaszko Jr.’s (the guy that died with 7.4 million in gold coins) heir (Arlene Magdanz) that he died before 2013 because of the estate tax increase.

“I would say his heir is lucky the IRS/government goons don’t claim that some of that was his mother’s and that he didn’t properly pay estate taxes in 1992 when she died.

Imagine the scene: “Let’s see, (sound of 10-key calculator…) with penalties, (sound of calculator), interest (more key punching…), late filing fee (more calculator sounds)… and the grand total $7.4 million should cover it Arlene… will you be paying by check?”

The 5: Cynical, you are. With good reason, of course.


Dave Gonigam
The 5 Min. Forecast

P.S. “Receipt of The 5 has been very hit-or-miss over the last two weeks. Is there an archive of the latest ones so that I can catch up on the ones I have missed? Enjoy the work very much and look forward to making more use of it.”

The 5: It’s true, we’ve had some intermittent email issues. But our tech guys tell us they’ve been ironed out. The complete archive of The 5 is right here… careful, there’s nearly six years’ worth of episodes in there.


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