March 14, 2013
- Got silver? Signs of a supply squeeze as we creep closer to “zero hour”
- Got gold? China notches another big number, despite a pathetic head fake
- On the Chinese president’s first day, a warning from the U.S. president: new developments as we track down “InfoSec” profits
- Government logic: Subsidy money will help an ailing industry pay “bailout” loans following a government-funded program intended to persuade consumers not to use its product… yeah, it’s true…
- Obamacare for expats… victory for a not-speeder… readers try to solve our “crime of the century” following our first and second video clues… and more!
“I enjoy your mostly nonpartisan writing,” a reader kicks us off today in the correct vein. “You seem to understand the false dichotomy of the ‘left’ versus ‘right.’ And you see that either way, you get the same outcome from the ass or the elephant.”
Of course, this bold opening is followed by the inevitable “but…”
“Recently, I am a little disturbed by your faith in the skills, knowledge and wisdom of central bankers.”
Yikes.
“You keep mentioning their brilliance at buying up gold. So are they masters of the universe or fools? As an investor, I don’t have any allegiance to gold, dollars, silver, oil or wheat. [Or sugar… see below.] These are just tools that have different values in different eras.
“Gold goes up like an escalator and goes down like an elevator.”
The 5: We have never, ehem, ascribed any wisdom to central bankers; we’re simply observing and sussing the implications for you… while you manage your own money.
Only some of the central banks are acquiring gold, which makes the activity even more interesting. We cover the “zero-hour” scenario — when gold contracts have to be settled in cash because central bank gold has been “lent” by Western central banks — in the current issue of Apogee. [If you’re not currently in the know, you can join us here.]
“Gold isn’t the only market that might experience a ‘zero hour,'” we share from said Apogee issue. “In fact, Eric Sprott [our feature interview for the piece] believes silver is a more likely candidate, even though the central banks aren’t the kind of players in silver that they are in gold.”
“The reason I think it’ll happen in silver is that the silver market’s so small,” Sprott tells us. Yet U.S. Mint statistics reveal people are plowing as many dollars into silver purchases as gold. At current prices, “They’re buying 50 times more physical silver than gold [measured in ounces].”
This makes the supply-demand squeeze even more glaring than it is with gold: Measured in ounces, annual world production of silver is 11 times that of gold.
What’s more, “There’s only about a 3-to-1 ratio of the silver that’s available for investment, because a lot of silver goes into industrial production,” Sprott says. “So you can’t buy 50 times more as investors when it’s available only 3-to-1. Sooner or later, there’s going to be a shortage.”
We got an early hint of this in January when the U.S. Mint suspended distribution of 2013 Silver Eagles after only 10 days, resuming it after a week’s interruption. Even so, January set an all-time monthly record for Silver Eagle sales.
Silver Eagles sales are on track to set another record this month. As of this morning 1,601,500 bullion coins have exited the Mint’s doors during March.
If the pace keeps up the rest of the month, that would be 3.8 million — the biggest March ever, breaking the 2010 total of 3.4 million. Last month was the biggest February ever. And January, setting the all-time record, was the biggest January ever…
The supply squeeze has smoothed out… this time. But sooner or later, Sprott is convinced, the system will break down… a major commodity exchange will default on a silver contract… and the price of physical silver will break away from the price you see on CNBC’s ticker.
At $28.77 this morning, silver is an excellent buy in the estimation of DoubleLine Capital’s Jeffrey Gundlach.
It was Mr. Gundlach who offered the two charts we shared on Monday showing the parallels between central bank balance sheets and the gold price. He likes silver even more because it’s more volatile — a good thing when prices are rising!
“Silver was very much in favor two years ago,” he said in a recent webcast. “Now it’s very out of favor.” He wouldn’t be drawn on a price target… but we’ll note here that silver came within a hair of $50 two years ago.
Other more mainstream sources are also issuing bullish silver forecasts…
- $33 this year (HSBC)
- $37 this year (Deutsche Bank)
- $35 next year (Morgan Stanley)
- $37 within the next three months (UBS).
Every indication is that silver supply remains tight. “Almost every dealer is now quoting four-six weeks delivery after payment for orders of any size,” writes Michigan-based dealer Patrick Heller at Numismaster.
Silver Maple Leaf coins are proving more scarce than Eagles: “Most wholesalers are now quoting shipments about two weeks out, which means about a three-week delivery delay to a retail customer.” But for the moment at least, premiums on both Canadian and U.S. silver coins are at normal levels.
Meanwhile, several dealers are offering premiums of 7% over spot if you want to unload any of your pre-1965 U.S. dimes, quarters or half-dollars.
“I don’t expect the huge imbalance between supply and demand for physical silver to end until the spot price is much higher,” Heller concludes. “At the most optimistic, we could see some turnaround once the spot price reaches $32. By the time silver tops $35, I think we will definitely see some evening out of supply and demand.”
While a rush is on to acquire physical silver, stock market investors ignore silver mining stocks. Sold off to a cheap valuation, the silver miner we feature in today’s 5 PRO looks ready for another move higher.
[Ed. Note: If you don’t have PRO-level access, you can sign up here and get immediate access to the PRO archives, including today’s pick.]
Gold continues its downward drift this morning. At last check, the bid is $1,585. The move comes despite weakness in the greenback; the dollar index has retreated to 82.8.
China’s gold imports through Hong Kong clocked in 56% higher than a year ago during January:
The latest figures — the best proxy we have for China’s mostly secret acquisition binge — reveal 51.3 metric tons for January. While the number is down from December’s all-time record, the year-over-year trend remains impressive…
The Chinese central bank is letting it be known that it will limit gold to 2% of its foreign exchange reserves.
“If the Chinese government were to buy too much gold,” says deputy governor Yi Gang, “gold prices would surge, a scenario that will hurt Chinese consumers.”
Assuming the People’s Bank of China has not added to its gold stash since its last official announcement in April 2009 — ahem — gold would already make up 1.8% of China’s forex reserves, according to the World Gold Council.
As disinformation attempts go, this one’s pretty lame. The evidence of China’s gold grab is overwhelming — as exhaustive research compiled by our own Byron King demonstrates. Wait till you see his forecast for the gold price based on what he’s uncovered: Byron’s full report will be ready for your eyes no later than next week, so stay tuned…
“We’ll have some pretty tough talk with them,” says the president — amping up the rhetoric over cyberattacks originating from China. “We already have.”
“There’s a big difference between them engaging in cyberespionage or cyberattacks and obviously a hot war,” he told ABC News yesterday. “What is absolutely true is that we have seen a steady ramping up of cybersecurity threats. Some are state sponsored. Some are just sponsored by criminals.
“We’ve made it very clear to China and some other state actors that we expect them to follow international norms and abide by international rules.”
Obama’s “strongly worded letter” serves as a welcome for China’s new president Xi Jinping, who was formally installed yesterday.
(Whether those norms and rules apply to the 13 strike teams under the aegis of the Pentagon’s Cyber Command — as discussed in yesterday’s episode of The 5 — the president did not say. At least not on ABC. Heh.)
“If your business is threat intelligence,” says Taia Global CEO Jeffrey Carr, “the No. 1 bad actor in the world that the U.S. government is interested in buying information about is China, hands down.”
Many “InfoSec” companies are eager to deliver: As we noted last month, “blame China” is good business in that sector.
Nor is the government the only eager buyer. For private companies, “It’s almost a badge of honor to hear you’ve been breached by China, as opposed to Anonymous or some hackers from Slovakia,” Carr told radio host Scott Horton. “CEOs feel like they have status if the culprit is China.”
Carr believes many attacks that appear to be the work of Chinese hackers actually originate elsewhere… and are routed through China on the way to their final destination. “There are multiple states engaging in this activity, not just China,” Carr writes at his blog.
However the cybersecurity story unfolds, there’s undoubtedly money to be made. “InfoSec” will be a major focus of Byron King’s new premium advisory, Military-Tech Alert.
[Ed. Note: For the moment, access is restricted to an inner circle of readers we’ve asked to beta-test the service and give us their feedback. You will, however, have the chance to join this circle by using the “loyalty rewards” we’ve credited to your account. Please note these benefits expire next Tuesday, March 19.]
Stocks broke their pattern of the last three days, the major indexes all rising decisively in the morning, instead of meandering. The Dow has pushed above 14,500, and now the S&P is within reach of an all-time record. At 1,560, it’s only five points away.
Traders shrugged off this morning’s ugly wholesale price report. Producer prices jumped 0.7% in February, according to the Bureau of Labor Statistics.
Rising energy prices get most of the blame here — much as happened when producer prices spiked last year at this time. Then, it was a passing phenomenon. This year? We’ll see…
Crude prices are hanging in there this morning, a barrel of West Texas Intermediate fetching $92.63.
“Sugar is getting such a bad rap Americans just aren’t consuming enough of it,” quips the Laissez Faire Club’s Doug French.
The government is looking to buy 400,000 tons of sugar… so that sugar producers can pay back their government loans before they default.
Seriously.
“The purchases could leave the price support program with an $80 million loss, its biggest in 13 years,” USDA economist Barbara Fecso tells The Wall Street Journal.
Government sugar subsidies have already cost consumers $14 billion since 2008, according to the National Confectioners Association. Guess the candy lobby has less clout than the sugar lobby.
“Now if the government does buy the sugar,” Doug writes, “you might wonder if you should get your cup ready. No, the 2008 Farm Bill requires that the sugar be sold to ethanol producers.
“That’s right, the forfeited sugar might end up in your gas tank. Once upon a time, pouring sugar in someone’s gas tank was considered a cruel prank.”
It still is… but now the prank is more sophisticated and takes thousands of bureaucrats to pull off.
“I recently got my residency in Ecuador,” writes an expat reader after our Obamacare discussion yesterday. “I am a retired federal employee. I no longer need my health insurance in the U.S. and would like to divert what I was paying into investments.
“Will I be required to maintain health insurance in the U.S. or be fined? The savings would allow me to invest $9,000 a year. I enjoy Agora materials.”
The 5: Near as we can tell, the IRS will classify you as having met the coverage requirements as long as you stay overseas for 330 days of the year. What you cannot escape, however, is the new 3.8% tax on investment income if your adjusted gross is over $250,000, or $200,000 for single filers.
The usual disclaimer applies: Consult your tax adviser for an answer that applies to your situation.
“In trying to take down the helicopter,” a reader responds to our second mystery video yesterday, “the pilot blew himself up when the missile he fired exploded due to faulty microchips purchased by our government from China.
“You didn’t answer the question about how to respond to the clues.” [Geez, workin’ on it… in the meantime, just send your guesses to the 5 Min. email.]
“In the first video,” the reader continues, “I also noticed that there were three men, when the report said there were two. One of the men had an AK-47, which could mean that he was from one of the former Soviet states or is perhaps special forces. If the third man stayed in the building, that means an inside job. There was a ladder on the roof, but I don’t think it would have fit in the helicopter, so it had to be put there by someone working in the building or a contractor. There was no mention of alarms, but they knew that going in through the skylight probably wouldn’t set off alarms. I would say that if the videos are linked that it is probably either a special forces group or a private militia.
“The second video reminds me of an article about faulty circuit boards used in high-tech equipment that didn’t meet government specifications. The shot of the circuit boards being constructed in some possibly third-world factory lends credence to that. But it would be large contractors who were contracting for these subpar parts. So perhaps the real criminals are the ones who are supposed to be investigating these thefts. Perhaps a large multinational company has paid private contractors to arrange for certain law enforcement to look the other way.
“Or perhaps our military is acting around the world to raise black operation funds and, by using defective parts, is using misdirection to have everyone looking in another direction.”
“It wasn’t obvious from the first video, though, in hindsight, it should have been,” another reader comments. “European bank robberies figured prominently in the description, but I didn’t make the connection.
“The second video gave it away. Reliable supply chains, meaning being able to verify the source of each and every part. And an opening video showing the hazard of unreliable parts.
“It’s all about [ticker withheld to protect paying subscribers] and the promotion of this phenomenal technology. The $1 million dollar reward? There’s no chance of solving the Swedish bank robbery. Presumably, they weren’t using [the company’s] tech, but the potential reward from investing is easily $1 million.
“Clever tactic. It will make your point far better than ‘mere storytelling’ could do.”
“Don’t let anyone kid you,” writes a reader with his own take on the driver ticketed for going below the speed limit. “Maryland is desperate for cash.
“The speed limit is designed around the maximum speed under ideal conditions that you should travel, meaning dry pavement, a bright clear day and no wind to speak of, and if any of those factors are not present, you should decrease your speed accordingly in order to be safe.
“You wouldn’t expect to travel 65 mph on a road during a snowstorm or heavy fog, but at the speed at which you can stop safely and handle the auto in a likewise manner. I’d ask for a jury trial.”
The 5: No need: Police have dropped the case. Turns out the law specifies a fine only if you’re going more than 10 mph under the posted limit in the left lane. She was going 63 in a 65.
Victory!
Now she’ll get her own personal drone… assigned to catch her when she screws up again!
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. Samsung takes the wraps off its Galaxy S4 smartphone tonight at 7 p.m. at Radio City Music Hall in New York.
Rumors abound… including the one about a flexible display made possible by our favorite wonder material, graphene. A flexible display is “foldable, rollable, wearable and more, [and] will allow for a high degree of durability through their use of a plastic substrate that is thinner, lighter and more flexible than… conventional LCD technology,” said a Samsung spokesperson awhile back.
We’ll see what they come out with tonight… and we’ll bring you up to speed tomorrow.