July 3, 2013
- Showdown in Egypt, 200% annual inflation in Syria: Crossfire in the currency wars
- Because the market never sleeps: China’s latest gold gambit
- Rent, don’t buy: Chris Mayer interrupts his Spanish holiday to survey the nation’s housing market
- Byron King on the hunt for copper in the Balkans
- Poor taste, Singapore edition: McDonald’s chokingly bad advertising
- Firing back at the surveillance state… an inquiry into gold confiscation… reaction to “the last Vancouver”… and more!
The “fear premium” on oil is kicking in again. A barrel of West Texas Intermediate fetches $101.02 as we write. The showdown between Egypt’s military and civilian leadership is reaching critical mass.
The last time oil crested $100 was for a few hours on Sept. 14, 2012 — the day after the Federal Reserve unleashed QE3.
We launch an international edition of The 5 with the question: Why the uproar in Egypt now?
One of our guests in Vancouver three weeks hence, Currency Wars author Jim Rickards, nailed it yesterday…
To wit: “An Egyptian economy that was ailing when President Mohammed Morsi took power a year ago,” reports USA Today, “has since tumbled under his leadership and is at the root of the unrest gripping the Arab world’s most populous country.”
What’s old is new again. Recall the catalyst for the Arab Spring: rising prices for the needs of everyday life.
“Food prices and inflation are crucial issues in Egypt,” said one expert in our virtual pages, three days into Egypt’s 2011 revolution.
Of course, Fed chief Ben Bernanke swore up and down he had nothing to do with it. The mere suggestion that Fed money printing has the effect of “exporting inflation” sent him into a fit of righteous indignation.
“Some of the emerging markets are facing inflationary pressure because their own economies are growing faster than their own capacity,” he said about 10 days into Egypt’s revolution. “I think it’s entirely unfair to attribute excess demand pressures in emerging markets to U.S. monetary policy.”
The part about “Waaaah!” was merely implied.
“Currently,” says Johns Hopkins economist Steve Hanke, turning our attention to another front in the Currency Wars, “Syria is experiencing an annual inflation rate of 200%.”
“The Syrian pound has lost 66.2% of its value in the last 12 months,” Hanke writes in a Cato Institute blogpost. That’s been widely reported. The accompanying inflation, not so much. “Beyond the occasional bits of anecdotal evidence, there has been nothing to report by way of reliable economic data.
“To fill that void, I employ standard techniques to estimate Syrian’s current inflation.” Not only is it running 200% a year, it’s running 34% a month.
Not quite as extreme as the 70% monthly inflation Hanke reckoned Iranians were grappling with last fall, but still plenty bad.
Hanke is launching a “Troubled Currencies Project” at Cato to monitor situations like these. “I wonder,” quips Jim Rickards, “when the dollar makes the list.”
[Ed. note: Your editor just got off the phone from a wide-ranging and provocative interview with Mr. Rickards, which will appear in the next Apogee Advisory. And you have a chance to hear him speak in person at the Agora Financial Investment Symposium, July 23-26.
As announced yesterday, this will be our final year in Vancouver as we transition to smaller, more intimate conferences in a variety of locations worldwide. We still have seats available for our last-ever Symposium, but we fully expect to sell out soon. Call Opportunity Travel at 800-926-6575, or 561-243-2460 for full details.]
U.S. stocks have held their own despite Egypt, and despite a political crisis in Portugal that dragged down European indexes about 1%.
The exchanges closed early for the Independence Day holiday. The Dow wound up less than two points below 15,000. The S&P barely squeezed out a gain at 1,615.
Gold is holding at $1,250 as a few stray blips of electronic trading punctuate the screen. Silver is poised for a run at $20 on Friday, currently $19.73.
On Friday, the Shanghai Futures Exchange begins night trading hours for gold and silver contracts.
Our international edition takes us next to the Middle Kingdom. “China is the world’s largest gold producer and the second-largest consumer, after India,” The Wall Street Journal notes, “but industry executives and professionals have been complaining that gold prices in China are just shadows of global prices and don’t have any impact on other markets.”
The new trading hours aim to start having such an impact. The Journal pooh-poohs this attempt, digging up a Yale finance professor to sniff, “I don’t think it is all that important. China doesn’t have the pricing power, so what?”
Maybe not now… but the Chinese think in very long time frames. And the night trading hours are only one piece of a very large golden puzzle. If you haven’t seen how the pieces fit together, it’s worth a look.
It’s an old story, says our globe-trotter Chris Mayer. “Housing prices did crazy things, and people took on too much debt.”
No, we haven’t turned our attention stateside. Chris is referring to Spain, where he spent his vacation.
Spain’s housing bubble blew up from 1996 until the big fall in 2008. But today, five years later, it’s no better. Spain “just logged its seventh quarter of contraction after some limp growth in 2011,” Chris explains, “following a couple of years of shrinkage. Unemployment is unbelievably high, at 27%, officially.”
But even with those dismal numbers, “it does not feel like things have washed out. I have been to depressed economic areas. What I have seen in Spain is not that. There seem to be no bargains for Spanish goods, besides the wine. Real estate prices have come way down, but are they cheap?”
Chris notes that S&P forecast that it would take four more years for the market there to clear. “There is still a huge excess supply of unsold homes — somewhere between 700,000 and 1 million units.”
The takeaway: Visit Spain, but don’t buy the real estate.
Byron King reports in from Serbia with a group of readers…
“We’re visiting,” he begins, “Serbia, Montenegro and Croatia — formed in the 1990s and 2000s out of the former Yugoslavia.
“The other day, my intrepid travel mates and I began our trek in Belgrade, Serbia, near the ‘Istanbul Gate’ — part of the old Roman road system and for many centuries thereafter the road to Constantinople, now Istanbul, Turkey. We headed east and southeast, toward the Danube River and border with Romania.”
Afterward, Byron and his comrades stopped by Bor, an East Serbian town with one of the largest copper mines in Europe. So large, it has been a cardinal Serbian mining center since the 1890s.
“In fact,” Byron writes, “Bor is what’s called the ‘type locale’ for the copper-bearing mineral ‘bornite’ — a copper-iron-sulfide mineral (Cu5FeS4) also known as ‘peacock ore,’ due to its bluish luster.”
Super-high-grade bluish bornite ore
The real reason for visiting Bor is, of course, the investment opportunity: “In terms of share price,” Byron writes about one company taking advantage of Bor’s rich terrain, “this company has held up well through this latest market meltdown for energy and mineral stocks. The company is nicely cashed up, with nearly $10 million in the bank and [another, much larger, company] paying the big bills. Apparently, there’s a solid core of major shareholders who know what’s there and buy the dips, so that things seldom drop too far.
“If you want to meet the company’s management,” Byron offers, “but not have to travel to Serbia, your chance is coming to attend the Agora Financial Investment Symposium in Vancouver, July 23- 26. There are still tickets, and I hope to see you there.”
That’s one of the beauties of our event: You can meet face to face with executives of up-and-coming companies and ask them the tough questions in person. You can get your ticket — while supplies last — right here at this link.
Heads up: If you’re doing any Web surfing tomorrow, you might run into a roadblock.
Our one domestic item in this international edition goes like so: “Reddit, Mozilla and a host of other websites,” according to The Hill, “are planning to launch an online protest this Fourth of July against the National Security Agency’s (NSA) sweeping surveillance of telephone records and Internet traffic.”
“The NSA programs that have been exposed are blatantly unconstitutional,” says Tiffiniy Cheng of the Internet Defense League, “and have a detrimental effect on free speech and freedom of press worldwide.”
The participating sites claim this will be the biggest online protest since the one in January 2012 that managed to kill off the Stop Online Piracy Act (SOPA) in Congress.
Alas, tomorrow’s version won’t be as big: Google is sitting it out.
Considering Google’s extensive cooperation with the NSA, as revealed by Edward Snowden, that’s just as well…
We’ll remind you that the Laissez Faire Club’s new report, Make Yourself Invisible to the NSA… as Well as All Those Other Snoops, Sneaks & Goons Who Would Love to Plunder Your Privacy, has now been released. If you think you’re helpless, this report will convince you otherwise — with practical steps you can take to shield yourself. Claim your copy at this link.
Back overseas, Singapore recently experienced record highs of haze…
As fires raged on Indonesia’s Sumatra island, winds blew the smoke Singapore’s way. According to data from Singapore’s National Environment Agency, the Pollutant Standards Index (PSI) hit new all-time record highs of 371 a couple weeks ago… skyrocketing nearly 100 points within an hour.
Putting this into context, the previous peak was 226 in 1997, in the “very unhealthy” range of 201-300. Anything between 101-200 is considered “unhealthy.”
And anything above 300 is lumped in the domain of “hazardous.”
Enter Mickey D’s poor taste and terrible timing…
As the streets of Singapore were barely visible through the thick fumes, people were greeted with the newspaper ad below…
After getting flak for the ad, a spokesman apologized, agreeing that given the worsening haze, the ad was “inappropriate.”
Since then, PSI readings hit unprecedented highs of 401.
To which McDonald’s responded with, “in order to ensure the safety of McDelivery riders, as air
pollution continues to choke the city. All McDelivery orders will be halted until further notice.”
401 is too deliciously high, we suspect.
“I can’t be the only reader,” our mailbag begins, “who was slightly saddened to hear you were bringing the feral hog thread to a ‘merciful’ end.
“I was, however, amused by the last reader’s submission inquiry if it was ‘two- or four-legged hogs’ in Washington being turned loose and eventually ending up in Texas for some kind of a free-range hunt. Brings to mind how good a shot former Vice President Dick Cheney was. Wouldn’t want to be his hunting partner.”
“Can we get back to investing ideas, please?” writes a reader who clearly had his fill of feral hogs.
“How about discussing gold and what will likely happen if it ever does explode in value, say after a ‘Zero Hour’ event? In my constant rumination over the various scenarios that could occur if gold hits and remains at prices north of $3,000-ish, I just can’t see a safe way to own it. Below are some of my concerns/observations about owning gold.
“1. Confiscation. Anyone who doesn’t believe this can happen again is perched on the precipice of reality above the river denial. I include in this category legislation or executive orders to make it too costly to own, including huge taxes on any sales. So what if gold goes to $5,000 but when you sell you are hit with a 95% tax or are paid back with a newly printed and vastly devalued dollar.
“2. Hold it overseas? This idea has so many holes in it I don’t know where to start. So many different ways the government can insert itself, like an executive order making holding gold outside our country illegal or, if things get bad enough, treasonous.
“3. And here’s another possibility I’ve not heard mentioned anywhere. What if the countries who have purchased our Treasuries wake up to find everyone is selling and they are now worthless? Is it possible their government might decide to keep all of your gold (which might be worth $30,000 per ounce at that point) to help offset their losses on our Treasuries? I can easily see their justification and hear them telling you to go talk to the Fed about being made whole. If you are really lucky, maybe you will be paid back in Treasuries or those newly devalued dollars that won’t even be exchanged for pesos any longer.
“I’d love to see a discussion of these points and how one might safely hold precious metals. Is silver the dark horse here?”
The 5: The aforementioned Jim Rickards recommends a 10-20% allocation to gold. He’s also suggested that in a crisis the feds could impose a 90% windfall profits tax on gold.
In our interview this morning, we asked him to reconcile the two positions… which he did with aplomb. Apogee Advisory readers will get the scoop first next week.
“I used to absolutely love to attend the Symposiums in Vancouver,” a Reserve member writes upon learning the 2013 event will be the final one, “but it just got too expensive to make the annual trip. The $700 plane tickets (just to Seattle) and $150 per night hotels in the city just got to be too much.
“Once you start the mini-symposiums, I hope you can maybe have them in some of the areas where the travel and accommodations expenses are a little more reasonable and easy to get to. Maybe like Orlando or Las Vegas. I know that everybody has things there, and that’s probably the reason why.
“But I did really look forward to them every year.”
The 5: We’re not in a position to make any announcements yet… but we think you’ll like what you hear once we are.
“What’s happening to the usual offer for CDs and streaming videos of the Symposium? Will these be available for the last year’s presentations?
“I have been unable to attend the ‘Big Event,’ but I appreciated being able to catch the highlights via CD. Please tell me how I can obtain copies of the 2013 event.”
The 5: Absolutely we’ll make recordings available. Watch this space. We’ll start accepting orders in a few days. As usual, early movers will get the best deal.
A quick emendation, while we’re at it: Bill Bonner’s appearance will be on Tuesday to accommodate his travel schedule. As noted yesterday, he originally had an insurmountable scheduling conflict, but once he learned this is the last Symposium as we’ve known it, he figured out a way to make it work.
“I think it is telling,” writes our final correspondent, “that you will print the most offensive crap from your right wing nut readers, but will not print a rebuttal from someone who proudly leans left (that means cares for others, not just myself)…
“I guess you feel that most of your readers are of the selfish well-to-do group and don’t want to offend them by printing a response to their trash.
“OK, it’s good to know you; not a pleasure, but useful.”
The 5: Uhh… Wish you’d specified the “trash” you’re referring to.
But c’mon. If you pay attention, you know we run mail from all over the political spectrum. If your correspondence doesn’t make the cut, it’s because it doesn’t meet the standard laid out by the late New Yorker editor Harold Ross: “If you can’t be funny, be interesting.”
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. Congratulations to STORM Signals readers who collected 10% gains in three weeks on Acuity Brands — to say nothing of the readers who rode an accompanying options play to 60% gains.
We’ve gone out of our way to make Jonas Elmerraji’s trading guidance as accessible as possible. See for yourself here.
P.P.S. U.S. markets are closed tomorrow for Independence Day — which is its proper name. What’s with this “Fourth of July” stuff that strips away all meaning? And God forbid we ever talk about the idea of America.
Rant over. The 5 returns on Friday!