Vancouver Countdown

July 23, 2013

  • What Detroit has in common with one of the most prosperous, hip metropolises in the U.S. And probably your town, too…
  • If you can’t buy farmland as Jim Rogers and Marc Faber recommend, you can do this instead
  • Byron King visits “the most powerful laser system in the world” for new insights into one of his oldest investing themes
  • “So much land to do many things”… Chris Mayer takes the investment measure of an ancient empire in the 21st century
  • Odyssey Marine’s impressive haul… a precious metals field report… your last chance to snag Vancouver recordings at the lowest available price… and more!

  “Rolling brownouts,” they’re called. Not electric power… but fire protection. They’re in effect now in Miami-Dade County through Sept. 30.

Go figure. We’re in Vancouver, only hours away from the start of the 2013 and final Agora Financial Investment Symposium. Addison will take the stage for opening remarks and then we dive right into the “new industrial revolution” with author and entrepreneur Chris Anderson. Later, old hand Rick Rule will help us make sense of what’s going on in the resource market. [Urgent: For only a few more hours, you can snag the best available price on recordings of every session. Click here and save.]

And yet… our thoughts are drawn back south of the border… and our ongoing forecast that as the mother of all financial bubbles bursts in slow motion, you feel it on the local level first.

“The county,” reports Miami’s WFOR-TV, “plans to randomly shut down different trucks at different stations for a 24-hour period until the start of the new budget year on Oct. 1.”

True, some of this is the sort of taxpayer blackmail that goes on everywhere. “Last week,” says the report, “Mayor Carlos Gimenez recommended and the commission approved a budget which did not include an increase in the property tax rate.”

Then again, Miami is stuck with massive, growing and likely unsustainable pension obligations.

  “They made me some promises, and I made them some promises,” retired Detroit police sergeant William Shine tells The New York Times. “I kept my promises. They’re not going to keep theirs.”

Pensions are on the chopping block as the city’s bankruptcy slogs through the courts. Pension obligations make up $3.5 billion of Detroit’s $18 billion hole.

Detroit’s bondholders, we hasten to add, will feel it too. The city’s “emergency manager” is proposing they get 20 cents on the dollar. “Rating agencies and institutional investors in municipal bonds,” says the Financial Times, “say they will reconsider their views on so-called ‘general obligation’ (GO) bonds if Detroit is allowed to treat the owners of these securities as unsecured creditors.”

A municipal bond expert at Citi calls the prospect a “negative precedent.” Gee, ya think?

100  In contrast to Detroit is the heart of Silicon Valley. San Jose is flush with cash and has no worries.

Just kidding. The city and its employee unions began a protracted court fight yesterday over pensions.

Says Reuters: “The lawsuit brought against the measure, led by San Jose’s police union, shows how difficult it is for local governments to break benefit promises to current and past employees even when other public services are being cut to pay for them.”

The pension reforms were approved by 70% of voters in a referendum last year. The unions say the reforms violate the state constitution — exactly what Detroit’s unions are saying too, by the way.

  “It’s not going to save the city,” says Arlan Ettinger of Guernsey’s auction house, “but it’s a good amount and hopefully it’s enough to settle some debt.”

As we noticed three weeks ago, the city of Harrisburg, Pa., was on the verge of selling a collection of Wild West memorabilia for a museum that was never built.

The auction is now over. It raised almost $4 million. The city is in a $340 million hole. Only $336 million left to go. We suspect the pensions are going to get chopped there too.

  The major U.S. stock indexes have barely budged this morning. The Dow is up fractionally at 15,557, the S&P down fractionally at 1,692.

If you’re looking for negative economic harbingers, UPS merely met earnings expectations and the Richmond Fed manufacturing index slipped into negative territory.

Gold is catching its breath after yesterday’s nice run-up, currently $1,332. Crude has slipped to $106.83.

  “It is truly unique,” says Chris Mayer of a company that went public only yesterday.

The company provides financing to Canadian canola farmers. In exchange, the farmers hand the company a fixed amount of their crop.

“You may recognize this,” says Chris, “as a streaming deal.

“The most famous streaming companies are those related to mining. Silver Wheaton, Franco-Nevada and Royal Gold are three of the largest such companies. They don’t do any mining themselves. Someone else owns the mine and runs it. The streaming companies usually get a percentage of the gold and silver that comes out of the mines they’ve invested in at some fixed price.”

Growth prospects are impressive: “Canada is the largest canola exporter in the world. It made up 72% of the export market last year. Most of it wound up in China and Japan. Over the last five years, exports to China and Japan have grown at 333% and 21% clips, respectively.”

The firm is called Input Capital. It trades on the Toronto Venture Exchange. Proceed with caution, says Chris: “The model, as compelling as it is, has not yet proven itself as a public company.”

Better yet, you can do your due diligence by listening to Input Capital chief Brad Farquhar’s talk here in Vancouver this week; Brad’s a veteran of the Symposium with a globe-trotting habit at least equal to that of Chris’. The choice is yours: high-quality audio or high-definition video. We’re recording every session in the main hall. Once again, you get the best price only if you order within the next few hours.

  “Not everything I do involves visiting oil rigs or copper mines,” says Byron King — who on his way to Vancouver made a stop last week at the Lawrence Livermore National Laboratory in California.

Specifically, Byron got inside the National Ignition Facility (NIF) — home to the most powerful laser system in the world. Still, “the primary reason for NIF’s existence is to support the U.S. nuclear weapons program.”

The investment angle, you ask? “The laser system at NIF uses optical glass that’s doped with the rare earth (RE) element neodymium,” explains Byron. “This element helps boost the power of transmitted coherent laser light. What’s the physics at work with that? That’s why I’m here. I want to find out some of the answers to questions like this. That and to gain insight into what this kind of laser tech will mean for RE demand in years to come.”

  On the subject of rare earths, there’s been a blip in the one big U.S.-based player.

“Last week,” says Byron, “Molycorp bounced off the basement floor and traded up into the $6 range. In essence, a couple of brokerage houses put out strong endorsements of Molycorp.”

Byron urged his readers to hop aboard Molycorp in the fall of 2010 at under $19. And he urged them to get out less than five months later at $55… before the subsequent collapse below $6.

And now? “Are the swallows returning to Capistrano, to use a California analogy? Well, maybe the analysts are onto something, but forgive me if I don’t join the Molycorp bandwagon. I just don’t see it.”

No doubt he’ll talk about more promising rare earth players this week during the “breakout” sessions — the small-group talks that take place on the sidelines of the Symposium. Along with recordings of all the sessions in the main hall, you get a handy report with every name and ticker symbol that comes up during the breakout sessions. And all of it is still yours at the lowest available price — until the price goes up tomorrow. Act now to secure your first-mover advantage.

  “It’s a beautiful country… if you like stone,” the Armenian gentleman at the bar chuckled, striking up a conversation with our globe-trotting Chris Mayer. “And history,” he added.

As we covered in our digital leaves last week, with the help of his guide Ara, Chris has recently taken his investment search to Armenia, “a tiny mountainous country,” he writes, “roughly half the size of my home state of Maryland.

“Historic Armenia,” Chris goes on, “or sometimes called Greater Armenia, was much larger.”

In Armenia’s glory days, it stretched from the Caspian to the Mediterranean, an area nearly the size of California and Utah combined. Today, Armenia is only about 4.8% of its peak size.

  “People say Armenia is too small,” Chris’ guide Ara noted as they drove through the open plains. “Yet there is so much land to do many things.”

“There are ideas to put some of it to work,” Chris writes of the unused land. “I saw plans for wind farms and greenhouses and early-stage sketches of luxury hotels.

“Every government everywhere has plans for such things. Armenia is no different. For example, the government has a target to develop 500 megawatts of wind energy potential by 2025. I hope it works. But as an investor — or, I should say, as a value guy looking for near-sure things — these kinds of plans seem half serious to me. They are almost pie-in-sky type investments.

“Maybe they will all work well. I don’t know,” says Chris. “But in a place like this, I prefer to stay closer to the ground — and to the basics: secure, best-in-class real estate, bank accounts, financial services, telecom and alcoholic beverages.”

  Enter the SS Gairsoppa…

It was 1941 when the red-and-black steamship sailed with a convoy from Calcutta to deliver supplies to the choked British soldiers.

On the way back home, a storm hit. Ferocious winds began slamming into the ships, forcing them to burn more coal to keep up the pace. The heavily loaded Gairsoppa, Capt. Gerald Hyland realized, was at risk of running out of coal before reaching Britain. On Feb. 14, Captain Hyland decided to break away from the convoy and headed for Ireland to refuel.

Unfortunately, along the way, was the German submarine U-101, with Ernst Mengersen as its captain.

Without warning, a torpedo struck the Gairsoppa. Fire and smoke ripped through the hull. As she began to sink, Captain Hyland ordered all men to abandon ship. Only one of the 31 men who escaped in the lifeboat, named Richard Ayres, managed to survive the 13-day voyage to land.

  What was on board the SS Gairsoppa?

Let’s back up a bit…

Astute 5-ers know we’ve been following our friends at Odyssey Marine Exploration for years now.

While we filmed the Odyssey’s explorations, for example, we tracked the Black Swan case in The 5, when the team got stiffed out of over $400 million in treasure by the U.S. and Spanish governments.

We also kept up with the interesting revelations uncovered by WikiLeaks about the case.

Our last mention of the Odyssey was a year ago last Friday, when they discovered the largest stash of sunken precious metals ever in the Atlantic Ocean about 300 miles off the southwest coast of Ireland… inside the SS Gairsoppa.

“So far,” the Daily Mail writes by way of update, “workers have brought up more than 1,200 silver bars, or about 1.4 million troy ounces worth about [$37 million].”

The team smartly struck a deal with the British government, who had urged them to find more British wrecks, as they were ‘desperately looking for new sources of income.’ The contract states that the Odyssey keeps 80% of the haul after expenses.

  “If you read The 5 or any other Agora publication, your readership couldn’t have possibly held city of Detroit municipal or any other kind of bond with city of Detroit in front of or behind it, could they?” a reader asks rhetorically.

“If they did, they were dumber than a rock lying in my front yard! Over the years, The 5 has made mention of Detroit, and more than one time called Detroit the failure of socialist policy, inept and just plain stupid. It was like any decision made by the city of Detroit: Whatever they come up with, you should do the exact opposite!

“You know, the USA will probably bail out anyone who is ‘too big to fail’ that holds these worthless bonds, but heaven help the little guy, AND what were you thinking? Apparently, this is what derivatives are all about. Buy bonds that are probably going to be worthless and then bet against them, just in case, so you can insure yourself against such an unthinkable probability. Oh, wait a minute, I think I just revealed how Goldman Sachs makes money and has us taxpayers pay against the possibility of failure!

“Read your 5 and take heed!”

The 5: Thanks for the endorsement.

For the actionable guidance on the back of this ongoing forecast, look here.

  “Something that I bet the Dubai government never thought about,” a reader writes with a follow-up on the story of Dubai giving people gold for weight loss.

“I remember back about 25 years ago or so when two co-workers had a bet that each one could lose more weight that the other. They first weighed themselves after lunch and then each one spent the next week dieting and getting more exercise. One lost about seven pounds that week, but the other lost about nine.

“The funny thing was that the one who ‘won’ didn’t look like he lost that much weight. Sometime later, the ‘winner’ admitted that before the initial weigh-in that he had put rocks from the parking lot in his pocket and socks to make himself heavier.

“Given that the Dubai government is paying — in gold, no less — I’m willing to bet that at the beginning of the 30 days they will have many people lining their shoes and clothing with lead and the government will be paying out a lot more gold than they had anticipated.”

  “On Saturday, July 20,” a reader writes from outside Toronto with a precious metals field report, “I purchased a couple of Silver Maples (last two in the store) and three of the last seven 1-ounce ‘bars.’

“Spot price (in Canadian dollars) was $20.20, counter price was $25 and $24. I’d be curious to hear where premiums are for silver elsewhere in Canada and the U.S. Maybe the dealer doesn`t have enough local competition?”

The 5: Or the dealer was anticipating the pop in the metals Sunday night and Monday?

Anyway, if you have your own field report, we’re eager to hear it.

Regards from Vancouver,

Dave Gonigam
The 5 Min. Forecast

P.S. The speaker lineup this afternoon includes not only the aforementioned Chris Anderson and Rick Rule… but a special appearance by Bill Bonner.

“Special?” you ask. “He speaks there every year.” True. In fact, this is the only conference where he speaks every year. This year, however, he ran into a scheduling conflict.

Then we told him this was going to be the last Symposium ever… and he moved heaven and earth to resolve the conflict. Long story short, he’s making a stopover in Vancouver on the way from Spain to China — just long enough to deliver a talk entitled “Doomsday Central Banking.” It’s sure to be as funny as it is insightful.

For only a few more hours, you can get the best-available deal on recordings of our final Symposium. Choose high-definition video, or if you want maximum on-the-go convenience, high-quality audio. Once more, the price goes up only hours from now. Take advantage while you can.


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