A Whiff of 2008

August 30, 2013

  • Oil near multiyear highs as war with Syria looms: The 5 revisits an eerie Byron King forecast from 2008
  • The one military realm in which Syria can easily match U.S. power… and the investment thesis that logically follows
  • If the Fed tapers, it will be wonderful for one asset class, revealed today
  • Obamacare’s latest nasty surprise… an eye-catching advertisement (but will anyone pay attention to the message?)… alert reader spots a 5 typo… and more!

  “Obama Willing to ‘Go It Alone’ in Syria,” the headlines say.

The British Parliament has nixed the U.K.’s involvement in any war. Even the French, who still fancy themselves as Syria’s colonial overlords, are having second thoughts. But here at home, we’re told by CBS News that “The Obama administration faced new pressure Thursday to take action on Syria.”

“New pressure from whom?” asks Conor Friedersdorf at The Atlantic, inconveniently. “The story proceeds as if it doesn’t matter.

“What I’d like,” Friedersdorf goes on, “is if news accounts on pressure to intervene in Syria made it clear that the ‘growing calls… for forceful action’ aren’t coming from the people, or congressional majorities or an expert consensus. The pressure is being applied by a tiny, insular elite that mostly lives in Washington, D.C., and isn’t bothered by the idea of committing America to military action that most Americans oppose.”

  Keeping our eye on the investment ball, crude hovers at $108.29 going into a long and uncertain holiday weekend.

Bank of America forecasts a “short-lived spike” to $120-130, assuming the “tailored, limited” military strikes against Syria the president is promising — a promise that makes little sense to our Byron King.

“According to Obama administration officials,” he says, “the impending war on Syria isn’t scheduled to start for another day or two. And it’ll last three days or so, just like clockwork. And we’ll hit only a few targets, which we have conveniently pre-identified for the Syrians.

“Even if the U.S./NATO is going to wage war, is this how you do it? Do you telegraph your moves days ahead of time? I must have missed that class when I studied at the Naval War College.”

And if the war is so urgent, why hasn’t it started already?

100  “We should shut the Suez Canal before destroyers, machinery or oil vessels pass to strike Syria,” says a statement attributed to Egypt’s Tamarod movement.

Well, that’s one possibility for the delay — the ships aren’t all in place yet because they can’t take the Suez shortcut.

Tamarod — or “Rebellion” — is the leading faction in Egypt that supported the military when it wrested power from the Muslim Brotherhood last month.

Internet rumormongers have gone a step further and attributed a similar shut-Suez remark to Egypt’s defense minister. “So far, it’s rumor mill stuff,” says Byron, keeping in regular touch with his government and defense industry contacts. “But I could see the Egyptians not wanting to be party to Western Christians firing Tomahawk missiles at fellow Muslims.”

And as we mentioned on Monday, standing up to the U.S. is very good politics in Egypt these days.

  “Think this through investmentwise,” Byron goes on. “Let’s just look at the economic hit from oil. There’s a war scare out there, driving oil prices up by, say, $20 per barrel.

“Apply that to the 100 million or so barrels of oil that the world uses every day. That’s $2 billion ‘extra’ that the global economy is paying every day out of consumers’ pockets to oil producers — including U.S. oil pumpers, I should add. That’s about $14 billion ‘extra’ per week. It’s about $60 billion per month tacked onto the world economy in the form of higher energy costs.”

Add to that a forecast from Societe Generale that if a conflict in Syria metastasizes across the Middle East, oil supply would be cut and the price could jump to $150 a barrel — as it did in July 2008.

We recall Byron’s eerie words back then: “A lot of things in the world economy don’t work very well with $150 oil.” Indeed, $150 oil was one of several combustibles that set off the bonfire of the financial crisis only weeks later.

  Then there’s the looming cyberwar angle we’ve been pursuing this week.

“Iran and Syria can target coalition cyber-based infrastructure and other potential targets,” says Hayat Alvi, a lecturer in Middle East studies at the U.S. Naval War College. “They prove to be quite capable in that domain.”

Ah, the “fifth domain” of war Byron speaks of — beyond land, sea, air and space.

“Point is,” Byron tells us by email, “cyberwar is much more closely matched than a traditional ‘kinetic’ conflict. The other side just needs a handful of smart guys with access to equipment, and they can work out how to stage attacks.

“With cyber, you can plan dozens of events over many months and launch them all within a microsecond or two.”

As irony would have it, airstrikes on Syria this weekend would coincide with the Pentagon awarding $110 million in new cybersecurity contracts — with nearly $16 billion more on their heels. After a thorough review of recently declassified documents, Byron has identified seven companies he believes are set to collect the lion’s share.

The schedule is locked in. The contracts are set to be awarded Sept. 1 — holiday weekend notwithstanding. So only two days remain in which you can capitalize on this information. Check out the fruits of Byron’s research… while there’s still time.

  Stocks this morning are remaining true to their form this month — a low-volume slow-motion sell-off. At last check, the Dow was down 34 points, approaching 14,800.

American consumers’ income and spending was essentially flat in July, according to a Commerce Department report out this morning. Both numbers ticked up 0.1%… but it was mostly small-business owners and landlords whose income grew; wages and salaries actually fell.

The key number in this report, though, is “core PCE” — the Federal Reserve’s favorite measure of inflation. At a 1.2% year-over-year increase, it’s nowhere near the Fed’s 2% target. If you’re caught up in “tapering” predictions, take note. Then again…

  “Don’t fear the taper,” our own Thompson Clark begins.

As you may know by now, Thompson is our newest addition to our editorial staff. He’s a former Wall Street analyst, and before that he worked as a broker at Euro Pacific Capital. Today he’s making his debut in our digital leaves with one “taper-immune” sector.

“Whether the taper is announced or not,” Thompson writes of the Fed’s Sept. 17-18 meeting, “is of no concern to this sector of the stock market. These stocks, historically, appear to be taper-immune. When rates have risen, they continue charging on. The gain months after a rate hike, believe it or not, continue to stay in the double digits.

“What sector am I referring to?

“The small- and microcap sector.”

Small caps have a total market cap below $5 billion. Microcaps? Under $250 million. And according to Thompson, they’re top performers when the interest rates rise.

Higher interest rates, as you know, mean higher borrowing costs. This has a negative effect on government spending, private industries, manufacturers of capital goods and lower blue chip stock valuations, among other things.

“In the small-cap sector, however,” Thompson writes as he unravels the chart below, “we see a different result.

“The results are shocking.

“Twelve months after a rise in rates? The average performance is 15%.

“Eighteen months? 10%.”

Thompson lays out three reasons why this could be:

1. Smaller companies are not correlated to larger caps.

2. Immunity to macroeconomic forces. Investors always see value in the cutting-edge and disruptive.

3. Smaller companies are nimble and are able to adapt to changing markets much quicker.

“Incorporating the smaller stocks in your investment portfolio might be something to consider if your fear the taper — or not.

“Bigger,” Thompson concludes, “is not always better.”

[Ed. Note: As mentioned yesterday, we have reopened access to Agora Financial’s Microcap Millionaires — Thompson’s unique high-end advisory targeting these tiny players.

Because it takes very little buying to move some of the stocks he recommends, we’re imposing a strict limit on the number of subscribers. We have only 435 slots remaining. That’s literally one out of every 402 people receiving this email today… so take a look.]

  Here comes the next Obamacare surprise: “For the vast majority of Americans, premium prices will be higher in the individual exchange than what they’re currently paying for employer-sponsored benefits.”

So concludes National Journal after analyzing the coverage and cost data.

“Health law proponents,” the article says, “have excused the rate hikes by saying the prices in the exchange won’t apply to the millions receiving coverage from their employers. But that’s only if employers continue to offer that coverage — something that’s looking increasingly uncertain.”

Case in point: Our item earlier this week about UPS dropping coverage for 15,000 employee spouses.

What’s more, a single wage-earner would have to earn less than $20,000 a year if his or her current premiums were to drop in the exchanges. For a family of four, the figure is $62,300.

Have you followed our “preventive measures” against the Affordable Care Act yet?

  Gold dipped below $1,400 overnight and has barely recovered as of this writing, to $1,402.

Dollar strength is a factor here; the dollar index has poked its nose above 82 for the first time in nearly a month.

  “Don Draper would be proud,” says the business newsreel Quartz, channeling the protagonist of AMC’s hit series Mad Men.

Of what would he be proud, exactly? A PR firm in Tokyo called Wit Inc. is trying to get a leg up on competitors (excuse the pun, it’s Friday) by paying women to plaster stickers of brands on their thighs.

Though the thighs are uncharted territory, “skinvertising” is nothing new. In 2005, for example, Andrew Fischer rented a month of ad space on his forehead for $37,375. Actress Shaune Bagwell, that same year, for $15,000 sold space on her cleavage to an online casino.

“Advertising on women’s skin,” Quartz goes on, “appears to be much more cost-effective than forking out exorbitant sums for public billboard space.”

What does thigh-branding rake in? According to Wit, they pay $121 per day, per thigh.

But of course, not just any thigh will do. There are stipulations:

  • They must be 18 years or older
  • They must have at least 20 friends on social networking sites (setting the bar pretty high, eh?)
  • They must take pictures of themselves wearing the sticker in two different locations and upload them to the Internet.
  • Also, it’s recommended they wear miniskirts and long socks.

“It’s an absolutely perfect place to put an advertisement,” Hidenori Atsumi, CEO of Wit, told ITN, “as this is what guys are eager to look at and girls are eager to expose.”

Knowing how these things tend to escalate, we’re afraid to ask what’s next.

  “Dave,” begins today’s mailbag, “please ask the reader who said the Fed policy or Obamacare has very little to do with what is going on in the economy to go start a company with 60 employees.

“It’s easy, and anyone with a brain should be able to do it!”

  “Was there a typo in your story about Homeland Security Secretary Napolitano’s exit?” a reader inquires.

“Is it ‘run’ or ‘ruin’ the University of California system?”

The 5: [rimshot]

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. Your Saturday 5 Things You Need to Know will arrive as usual tomorrow. U.S. markets are closed Monday for Labor Day, and Canadian markets are closed for Labour Day, so the weekday 5 returns on Tuesday.


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