March 25, 2013
- How 25 tons of fake camo fabric spotlights a tiny company’s impregnable “moat”
- Waiting for a “bull market signal”: Elmerraji cuts through the day-to-day noise (Cyprus, anyone?)
- Three factors Byron King says are setting up the “perfect storm” for platinum (and palladium)
- The $10 billion port: Latest volley fired in “the new cold war” between China and the U.S.
- Our first attempt using a 3-D printer at Agora Financial HQ… an on-the-ground update from Cyprus… second thoughts about Bitcoin… and more!
Who’d have guessed it? Turns out counterfeit camouflage is big business.
While the media’s eyes were fixed on Cyprus over the weekend, some interesting doings elsewhere in the Mediterranean basin caught our attention…
- At the Cairo airport Saturday, customs seized 10,000 pieces of “military-style clothing” — shirts, pullovers, etc. Destination: Benghazi, Libya. “It was not clear what the uniforms would be used for in Libya,” reports the AP, “where the government has yet to bring militias fully under its control”
- Also on Saturday, customs at the Alexandria, Egypt, airport stopped two shipments of fabric from China weighing 25 tons — mostly “in the khaki and brownish-green style worn by soldiers”
- Days earlier, the Egyptians seized still more fabric that could be used to make counterfeit uniforms. The military is looking into possible links with the Palestinian militant group Hamas — which denies any involvement.
On the last of those three incidents, AP says “an Egyptian military spokesman warned a week ago that unnamed parties might impersonate Egyptian troops after the fabric, used for police and army uniforms, was seized near a tunnel running under the Egypt-Gaza border.”
And that’s only a few days’ activity in one country. Meanwhile, attackers disguised as security forces carry out regular attacks in “post-conflict” Iraq.
Nor is the problem confined to the Middle East. In August 2010, assassins dressed in federal police garb kidnapped and killed the mayor of Santiago, Mexico.
And it’s not a “third world” issue. In June 2010 a guy named Wayne Dawes dressed up as a cop and crashed a meeting of police chiefs in Great Britain, attended by the home secretary.
The only reason Dawes was caught is that he bragged to too many people about what he’d done. Posing for a picture didn’t help…
“When officers searched his car,” the Daily Mail reported, “they discovered an imitation police ID card, black handcuffs, baton, police officer’s notebooks and a red-and-blue flashing light for a vehicle.”
For the U.S. military, fake uniforms aren’t nearly as big a problem as fake parts.
As our Patrick Cox has been keen to remind readers lately, a federal sting last year uncovered phony parts — from China, no less — in everything from the warhorse F-15 fighter jet to state-of-the-art nuclear submarines.
It’s why the Pentagon is moving — with speed and alacrity unusual for a behemoth bureaucracy — to nip the problem in the bud. As we mentioned to 5 readers late last year, contractors supplying electronic components to the military must now take steps to keep counterfeit parts out of their supply chain.
“These contractors, including the big names like Boeing, Raytheon and Lockheed Martin, will now be held liable if their products contain counterfeit components,” Patrick explained. “Penalties include withholding payment, being held responsible for repairs and even the potential for civil and criminal damages as well as disbarment from further business with the Defense Department.”
An obscure Pentagon branch called the Defense Logistics Agency has set exacting standards for those contractors to meet. After testing a variety of anti-counterfeiting methods, the agency found only one method was up to par — a method using DNA taken from plants, developed by a tiny firm employing only 26 people.
“In my 30-odd years in this business,” Patrick says, “I can’t recall the last time, if ever, that the largest purchaser of military equipment in the world has, intentionally or inadvertently, placed a de facto strong buy recommendation on a publicly traded company.”
The best publicly traded companies are those with a barrier to entry that’s impossible for competitors to overcome; Warren Buffett likes to use the term “moat.”
There’s no better moat than a government-guaranteed monopoly. Patrick unpacks the staggering profit potential at this link.
So much for the Cyprus rally. After an announcement last night and a pop in the futures, the Dow is in the red this morning at 14,465.
The S&P and the Nasdaq are off slightly; the Russell 2000 is in the green, barely.
The “resolution” to the Cyprus crisis seems to leave a lot, uh, unresolved.
- The country’s largest bank, Bank of Cyprus, will be restructured. Small depositors will be left alone, but deposits over 100,000 euros will take a hit. How much of a hit is up in the air
- The second-largest bank, Laiki, will be shuttered. Small depositors will have their accounts transferred to the Bank of Cyprus. Bondholders will take a hit, and so will depositors with more than 100,000 euros. Again, how much is up in the air
- Nor is it settled when the banks will reopen.
So in the meantime, Cyprus is quickly reverting to an all-cash economy. “It’s been cash-only here for three days,” a restaurant manager in Nicosia tells The New York Times. “The banks have closed, we don’t really know if they will reopen and all of our suppliers are demanding cash — even the beer company.” ATM withdrawals are still allowed… but as of this morning, the limit is a mere 100 euros per day.
The only certainty now: With large deposits in jeopardy, Cyprus’ status as an offshore banking haven for wealthy Russians is history.
“We’re in unique market conditions right now,” says Jonas Elmerraji of our trading desk, “simply because of all of the noise out there.
“Every other headline has some ‘journalist’ offering his or her take on where stocks should be. Technical traders know that where the market ‘should be’ rarely has anything to do with where it is.
“By and large, investors still don’t want to buy into the fact that stocks are in rally mode right now. The fact that stocks are shoving their way to new highs in spite of mediocre sentiment is telling — it suggests that the move higher is more structural than emotional.”
Jonas says it’s only a matter of time before investors lose their patience earning little or nothing in fixed-income vehicles before they follow through on the Federal Reserve’s attempts to “nudge” investors into stocks. “There’s still substantial dry powder sitting on the sidelines right now, just waiting for what they perceive to be the bull market signal.”
[Ed. note: Jonas recently released his “trader’s checklist” of all the procedures he follows before recommending a trade. It’s a lot like the checklist he follows as a private pilot before takeoff. To learn how it works — and how it can add some meaty short-term gains in your regular brokerage account — give this a look.]
Currency traders are selling off the euro in response to the attempt to sweep Cyprus under the rug. At last check, the euro was down to $1.288. The dollar index has rallied to nearly 82.9.
Stronger dollar, weaker gold: The Midas metal dipped below $1,500 this morning, but has since recovered to $1,604.
Silver’s rallying a bit to $28.87. The platinum group metals (PGMs) are treading water, platinum itself at $1,579.
“We are on the edge of the perfect storm for platinum, palladium and rhodium,” says Byron King of the PGMs.
Strikes and violence are shutting down South African mines. Russian stockpiles have hit bottom. And the auto industry needs more and more PGMs for catalytic converters. “These three things,” says Byron in a recent interview with Bullion Street, “are the trigger for a serious run-up in prices.
“Even in a perfect world, if someone found a wonderful new deposit, you would have to build a new mine or a new processing facility first. It would be five-eight years before you’d see the first few grams of production. In the near term — or possibly the medium or long term — a new supply source would not change anything.”
The most reliable source of supply in the interim is one Byron has identified in our virtual pages before: Technology metals expert Jack Lifton calls it “the rubber tire mine.” That is, older cars whose catalytic converters are being recycled. “The great North American platinum mine,” says Byron, “is rolling around on our highways and streets.”
Byron has identified a more traditional source of platinum in the current issue of Outstanding Investments.
China’s new president Xi Jinping is in Africa bearing gifts.
Xi signed a deal to build a port in Tanzania — a $10 billion project. Nor is such a deal new. “China will do business with any country, anywhere, anytime,” we said in the December 2011 Apogee Advisory. Highways, dams, hospitals, schools — much of it in Africa is underwritten by the Chinese in exchange for access to oil and minerals.
We speculated then that Africa could end up the flash point for a hot war between the U.S. and China a couple of decades down the road — not least because the U.S. is busy building a military presence in Africa through the Africa Command set up during the Bush administration.
But now the Africans want a say: “China’s growing trade ties with Africa,” says the Financial Times, “have been met with a growing chorus of criticism from African officials who fear that Chinese exports to Africa undermine the continent’s manufacturing sector” — an arrangement the governor of Nigeria’s central bank calls “the essence of colonialism.”
Hmmm… Maybe both the U.S. and China will back off. In which case, there’s still ample potential for a hot war in the eastern Pacific over “strategically irrelevant and economically marginal islands.” Good times…
We busted out our brand-new 3-D printer here in the Baltimore HQ last Friday. As soon as the CubeX Duo got here, we took it out of its box and set it up. It was like Christmas morning.
It took us awhile to figure out — the instructions were even more vague than the ones that come with a Blu-ray player nowadays — and then we had to discuss what we would print first. Somehow, we eventually settled on a small crown. After three hours and 25 minutes, it was finished — a bit longer than the estimated time of two hours, 45 minutes.
It’s a little raw — think back to what dot-matrix printing on paper looked like back in the day — but it’s for real…
We’ve featured 3-D printing many times in these digital pages… and now we’ve walked the talk. Have to say, it’s awesome to actually have the ability at our fingertips.
[Ed. Note At best, we’re 3-D printing novices, but the real expert and author of Makers, Chris Anderson, will be coming to our Vancouver Symposium this summer. Seats are going fast. If you haven’t reserved your place yet, you can do it, here. We’re also interviewing him for the next issue of Apogee Advisory.
In the meantime, if you have any ideas for what we should make with our 3-D printer, you can let us know here.]
“From what I’ve seen on the ground here,” writes our correspondent from Cyprus, taking issue with a word we used last week, “mayhem it wasn’t! Why is it necessary to unduly dramatize every situation?
“For example — perhaps 100 or so people gathered peacefully in protest in a small section of Nicosia near the parliament. A minimal number of police, not acting in any manner of brutal repression (so typically seen in media coverage of U.S. demonstrations) had no problem controlling them.
“Lineups at some cash machines are not anxious or angry — when asked, people say they are taking cash because ‘the bank is going bust and we don’t want to lose our money.’
“Credit cards are working, but some retailers are accepting only cash. So for the moment, most people are OK. Transfer inter-account and out of the bank have been blocked for a week already. Some capital controls are/will be in effect.”
The 5: You’re right. Maybe we should stick to calling it “the longest and most boring financial crisis in history“… or the natural endgame when everyone believes they can live off the fruits of everyone else’s labor.
“Further to Byron’s dissertation on China’s increased gold holdings,” writes a reader, “I offer several comments.
“No matter what China announces in several weeks’ time, it is unlikely to be all of the truth. There is no specific reason for them to make their total gold holdings public. They may acknowledge some increase — perhaps only that part that is already known — through Hong Kong. Or for that matter, they may announce nothing, or that their holdings haven’t changed at all, so that they may continue to build their reserves.
“But Byron’s reference to China seeking to establish the renminbi as a currency in the basket of currencies upon which is established IMF special drawing rights might explain China’s recent repositioning showing less support for North Korea. Continued support for North Korea could erode their goal of legitimizing the renminbi with the IMF, while appearing to show increased co-operation within the Security Council may prove beneficial.”
The 5: No doubt. We’re sure to see many interesting developments as the “Dragon’s Gold” story plays out.
“Last weekend, I delved into the Bitcoin revolution to figure it out,” a reader writes. “It was sitting at a value of about US$43.
“I was going to get a wallet and pick up a few coins to test. Now, a week later, it is $75. Now I am perplexed. As I didn’t follow through. It is a bit mind-boggling. The normalcy bias is difficult to overcome.
“Day late and a dollar short again.”
“I have always suspected the Bitcoin folks have good intentions,” writes another, “but I advise The 5 and everyone else to think carefully before getting too enamored with the Bitcoin craze.
“Sure, if it’s Bitcoin versus Federal Reserve, that’s an easy choice. But the recent dramatic fluctuation in value of Bitcoin exposes one of its two weaknesses. The point is not for some to make profit at the expense of others (like fiat does for predators-DBA-government and banks).
“The fact is gold holds value because it is real, physical material that has value for many purposes, not the least of which is exchange, AKA ‘money.’ That the exchange rate of Bitcoin can flail all over the place is a sure sign that Bitcoin is not good money, and not some kind of large-scale answer to fiat, fake, fraud, fiction, fantasy, fractional-reserve debt notes.
“When we exchange gold for goods, both parties have full value at all times (either gold or other goods), and neither is subject to promises or arbitrary manipulations by fictional ‘authorities.’ Unfortunately, Bitcoins do not have these features, and therefore cannot be good money. Sorry.
“All honest, awake people hate fiat money, the Federal Reserve and the predatory authoritarianism they stand for. And it seems the originators of Bitcoin agree with this, and created what they consider an alternative. Thus, our natural reaction is to cheer at their success.
“But only gold and/or silver, platinum and other real physical goods can fill the role of ‘reliable, honest money,’ no matter how good the intentions of fiat, unreal, virtual, fictional or noninherently valuable alternatives. Don’t jump from one mistake to another. The solution is well-known.
“In real, physical gold we trust.”
The 5: Well said.
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. “While discussing Gold IRAs,” one more reader writes, “I was surprised that you didn’t mention your friends over at EverBank. I rolled over one of my IRAs to EverBank in 2010 and converted it entirely into gold via their World Markets division. It was as simple as you describe in The 5.
“Furthermore, there is the comfort of knowing that it can be converted to other metals or currencies with ease, with a single phone call, should it become desirable. Keep up the good work.”
Thanks for the note. In their tireless efforts to innovate, EverBank World Markets offers an outstanding gold IRA option, which we encourage you to explore at this link.