China’s “Clandestine Operations”

July 22, 2013

  • China’s “clandestine operations” in the currency wars: Rickards on how the Middle Kingdom is preparing for an endgame “when the international monetary system collapses”
  • “Will the Fed taper?” and other pointless questions: Ritholtz on distractions that can derail your wealth-building efforts
  • After a rough first half, Frank Holmes with an outlook for gold for the rest of 2013
  • How to be your own manufacturer without a factory… and even without a 3-D printer
  • The financial trial of the century (that’s putting jurors to sleep)… Bernanke’s slip of the tongue (and whether it really matters)… a new flare-up in the gold-versus-guns debate… and more!

  “Recent media reports,” says a site called Russia Beyond the Headlines, “suggest that Beijing is considering backing the yuan with gold.”

Greetings from Vancouver… where we’re puzzling over foreign media reports by way of anticipating a new round of the Currency Wars Jim Rickards has written about so eloquently, and will speak about here at the Agora Financial Investment Symposium on Wednesday.

“According to media reports of early July,” the story continues, “the People’s Bank of China is mulling the possibility of phasing out the dollar as the reference currency for the yuan exchange rate, and to start using gold as the reference point.”

Too bad the article doesn’t actually cite any of the reports. We’ve searched high and low and come up empty.

But we don’t need confirmation to know it’s coming. EverBank World Markets chief Chuck Butler — also speaking this week — has long suggested China aspires to replace the dollar as the world’s reserve currency. “In addition,” he wrote a year ago, “China has been hoarding gold, purchased and produced in the past five years, in preparation (my opinion, not fact) to back the renminbi with a percentage of gold when it comes time for the renminbi to float.”

  China conducted “a clandestine operation,” Jim Rickards writes in Currency Wars, when it built up its gold reserves by 76% between 2003-09.

There were no press releases, no statements at a podium in the intervening six years. That would have driven up the price. Just a quiet announcement on April 24, 2009, that China has a stash totaling 1,054 metric tons.

Hmmm, four years and three months have elapsed…

“When,” Mr. Rickards asked rhetorically during our recent interview for Apogee Advisory, “would they update the world and tell those official figures?

“The answer is you’d do it when you have enough gold that you don’t need more. In other words, they may want more, they may buy more, but they want to be in a position where they just raise their hand and say to the world, Hey, we’ve got our gold, now we’re a player, now when the international monetary system collapses and the world has to reconfigure the system, which has been done a number of times, we get a big seat at the table.

“It’s like going into a game of Texas hold ’em. You want a big pile of chips. The U.S. has a big pile of chips, Europe has a big pile of chips. The U.S. has 8,000 tonnes, 17 members of the euro system have 10,000 tonnes. China at 1,000 tonnes is not a player, but at 5,000 tonnes they are a player.”

And every one of Rickards’ contacts in Asia tells him when he estimates how much gold China has accumulated since 2009… that his estimates are low.

A clandestine operation, indeed. We eagerly await Rickards’ tales from the front lines, and what they mean for your portfolio, when he speaks on Wednesday morning.

We’re sorry if you can’t be with us… but you can still be a fly on the wall with our high-quality audio recordings. Better yet, you can see every slide and chart that accompanies his talk if you opt for high-definition video. The choice is yours… but make it soon. The price goes up after tomorrow.

100  Major U.S. stock indexes are flat this morning, traders unimpressed that a royal baby will be born under a full moon.

At last check the Dow was down fractionally, the S&P up fractionally. McDonald’s delivered an earnings miss; existing home sales likewise confounded the experts and dropped 1.2% last month.

Gold popped above $1,300 as soon as electronic trading reopened last night, and as we write it’s up to $1,328. No obvious reason; Kitco cites “short covering and technical buying.”

Crude is taking a breather at $107.73. On Friday West Texas Intermediate traded higher than world-benchmark Brent Crude for the first time in nearly three years. “Canadian stocks buoyed by oil’s surge,” says the front page of the Globe and Mail’s business section. That said, major energy names here like Suncor trade barely higher than they did at the start of the year.

  “These are the wrong questions,” says sui generis Barry Ritholtz, contemplating the “burning questions” in the summer of 2013. Such as…

  • Will the Fed taper?
  • Who will replace Bernanke?
  • Is the market going to correct?
  • When will the dollar collapse?
  • What about Obamacare?
  • How are earnings going to do this quarter?
  • Are yields going to keep going higher?

“Such questions offer a distribution of outcomes that provide nothing in terms of your longer investing timeline.”

Nor can you trade around them. “At best, you can make binary bets on skimpy information along with the rest of the hot-money crowd. Personally, I don’t like those odds.”

What’s wrong with those questions? “They involve things you can neither predict nor make any sort of intelligent risk/reward decisions about. But the key is they are all things you have precisely zero control over.”

We have every expectation Mr. Ritholtz will ask the right questions… and offer actionable answers here at the Symposium. He’s speaking on Wednesday, right after Jim Rickards.

  “It was a challenging first half of the year for most commodities,” says U.S. Global Investors chief Frank Holmes.

Only natural gas and oil were in the green. Precious metals got it the worst.

“At first glance,” Frank says, “the correction seems to support naysayers who believe the supercycle in commodities has ended. We disagree. Instead, we see severe price declines as possible buying opportunities during this ongoing commodity supercycle.”

Case in point: Gold. “As one measure of how bears have ganged up against the yellow metal, take a look at the spike in the level of short positions on the precious metal since the beginning of the year. As of the beginning of July, the number of outstanding gold short contracts was close to 140,000!

“In June,” Frank goes on, “while I was on CNBC’s Squawk Box, Howard Ward, the chief investment officer of GAMCO Investors, made a bullish call based on the severity of the speculative short position.”

Said Mr. Ward: “Whenever so many people are on one side, I will take the other side. I think gold probably rallies between here and the end of the year.”

When it comes to gold, Mr. Holmes is standing pat. “My position remains: Maintain a 5% weighting in gold bullion and a 5% weighting in gold stocks, selling when the price moves up significantly and buying when the opportunity presents itself.”

Frank is a stalwart here at Vancouver. His topic on Thursday is “The World of Gold.”

  3-D printing just took another leap into the mainstream…

Our first inkling came with the news that both Staples and Amazon had decided to jump on the 3-D printing party line.

And now, only confirming our thesis that 3-D printing is quickly making a name for itself in the mainstream, comes this story…

“EBay is jumping on to the 3-D printing bandwagon,” the productivity sages at the MakeUseOf blog write, “with the launch of an [iPhone software]-based store called Exact, which allows companies with 3-D printers to sell their custom goods with ease.”

So if you don’t own a 3-D printer yourself, you can choose, customize and order products from people who do. The 3-D printer owners will then print the products to your specifications and ship them to your home.

Easy as that.

Design your own 3-D-printed shapes from your iPhone

While “the auction website,” the French startup blog Rude Baguette adds, “might have lost the war against Amazon back in the days when online marketplaces started taking off, the behemoth that Amazon has become proves their strategy right. But eBay is not sticking around selling cheap, auctioned, secondhand iPhone cases: They are paving the road to build the leading 3-D-printed object store.”

It’s the implications of massive-scale peer-to-peer sharing of 3-D printable files that has had tech arbiters abuzz over the past few years. Now that the biggest peer-to-peer auction site is on board, and going as far as to create a mobile-friendly platform, the reality of mainstream 3-D printing isn’t coming… it’s knocking on our front door.

Tomorrow, one of the entrepreneurs in the vanguard of 3-D printing and the much broader “Maker movement” takes the stage here. Chris Anderson will tell us how the age of mass production is making way for the age of “small batch” production. If you have a good idea and an Internet connection, you can be a manufacturer. Or if you like someone else’s idea, you can invest in it.

Not the sort of stuff we’re accustomed to here in Vancouver… which is what makes it all the more exciting. And for two more days, you can secure the recordings of our Symposium at the lowest possible price. The audio will be ready on or around Friday, Aug. 2, and the high-definition video a couple of weeks later. Order now for the best deal, bar none.

  “The trial of Fabrice Tourre may be riveting Wall Street,” says Nick Summers at BusinessWeek, “but it’s boring the crap out of the jury.”

We noted the opening of the ex-Goldman Sachs banker’s trial last week. It appears the juicy emails haven’t yet been introduced into evidence. So boring are the proceedings to date that Summers has taken to observing the conduct of the bored jurors.

One “grimaced in the direction of the lead defense attorney. Another juror removed his glasses and rubbed the bridge of his nose.” And a third was seen “conspicuously nodding off for at least five long stretches.”

Even Fabulous Fab might be fatigued…

On day one, federal Judge Katherine Forrest urged the lawyers to keep the financial jargon to a minimum for the sake of the jury. “Be gentle,” she advised.

She had to repeat her guidance several times on day two… Heh.

We acknowledge having bit of a soft spot for Judge Forrest. An Obama appointee, she nonetheless kicked sand in the administration’s face last year in Hedges v. Obama. Journalist Chris Hedges is one of eight plaintiffs, along with Daniel Ellsberg of Pentagon Papers fame, challenging Section 1021 of the National Defense Authorization Act — the part that authorizes the president to hold U.S. citizens in indefinite detention without charge or trial. Because, you know, habeas corpus is so 13th century.

Last year, Judge Forrest forbade the administration from carrying out any such detentions until the case was settled. Alas, last Wednesday, an appeals court threw out the ban.

At least the lawsuit can still go forward for now…

  “You always mention gold,” a reader writes, “but rarely talk about the long-term aspects of silver investments and silver industrial use. I’m told that silver is rarer than gold due to its industrial use. Gold has few uses, and it’s never exhausted. The 5’s comment and thoughts?”

The 5: Because silver is an industrial metal, it will always be subject to the ups and downs of industry.

What’s more intriguing is this: “The silver market’s way out of whack vis-a-vis the gold market. It’s the more obvious situation,” according to Sprott Asset Management honcho Eric Sprott, who’s dispatched no fewer than three of his trusted lieutenants to be with us in Vancouver this week.

Silver is even more likely to experience a “Zero Hour” scenario, in which the price of physical metal runs away from the paper price. “The reason I think it’ll happen in silver,” he told us earlier this year in Apogee Advisory, “is that the silver market’s so small.” 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].”

Our Byron King, by the way, is out with some stunning new silver research. No time to get into it ourselves here, but it’s worth a look…

  “If the quote below is true,” writes a reader, “I am surprised that you did not point it out in your daily emails. Obviously, the media will not. Last Wednesday, Ben Bernanke told the Senate, ‘If we were to tighten policy, the economy would tank.’

“Unfortunately,” the reader adds, “the longer this goes on, the worse the final act will be.”

The 5: Thanks for passing it along. We concede we missed it.

On the other hand, we find it a better use of our time tracking down actionable investment ideas than monitoring every tedious second of Fed testimony on the off chance the chairman will say something confirming the obvious.

  “The two basic theories are to hoard guns or hoard gold,” a reader writes, returning us to a topic that’s carried on in one form or another all this month.

“I suspect one side will end up with both by using high-velocity lead to acquire the other, more precious, metal. Of course, the real issue shows up after all the ammunition has been exhausted. Probably best to learn archery. After all, Albert Einstein wasn’t certain which weapons would fight WWIII, but was relatively sure the war after that would be fought with sticks and stones…”

  “Guns are useless,” chimes in another, throwing a curveball, “if you do not know how to grow your food or have an independent electric supply.

“All this talk about guns bores me, because it totally avoids the real problem. You cannot eat ammunition, and chewing on guns will ruin your teeth. Few Americans know anything about gardening, and most of the ones I know think I am weird for doing it, but they sure do love whatever free vegetables I’m willing to share. They are the best and freshest they have ever eaten.”

  “A comment back to the reader who carries small gold and/or silver coins on trips out of the U.S.

“My father-in-law wisely did the same thing for every trip he made over the course of his eventually 94-year life. He simply carried quarter-ounce and 10th-ounce gold and silver coins in his pocket, painted red, blue and black to resemble very closely some cheap trinket tourist souvenir coins that one might pick up at a junk shop or might find jammed into a jukebox like a common plug coin.

“I watched him many times pull a handful of quarters out of his pocket to pay for various small items while holding half a dozen beat-up-looking painted gold coins in the same pile, and no one even paid a second glance but one time. When they asked that one time, he said he found them in Vegas when they spilled out of a slot machine on a winning spin.

“And all the while, he could have bought half the inventory in that junk shop with a few of those painted coins in his hand, and no one even knew. I’ve got my red, white and blue paint at the ready.”

The 5: Guess that works… as long as you’ve got a supply of solvent if you ever need to trade the coins for goods…


Dave Gonigam
The 5 Min. Forecast

P.S. A quick word about another benefit that comes with the Vancouver recordings. You also get a PDF file listing every name and ticker symbol mentioned during the “breakout” sessions.

These small-group gatherings — as many as five taking place simultaneously — are where our guests drill down for some of the most profitable guidance of the entire week. And the PDF’s yours free whether you choose audio or video of the sessions in the main hall. Once again, the best deal is available through tomorrow only.


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