The “De-Dollarization” Summit

  • Russia shuts out U.S. astronauts: Is the U.S. dollar next?
  • Or is the stock market most at risk from financial warfare? An unnerving dinner conversation with Jim Rickards
  • Something’s gotta give: Rising wholesale costs, falling retail sales…
  • The rocket-like chart that points to more good things for our favorite precious metal of 2014
  • $256 million in 10 minutes: The lucrative trades to be had if you pick your reporter friends right
  • Busted by LinkedIn… the “obscene overseas profits” of U.S. corporations… a jump-start on your tax planning for next April… and more!

  “We are very concerned about continuing to develop high-tech projects with such an unreliable partner as the United States, which politicizes everything,” said Russia’s Deputy Prime Minister Dmitry Rogozin.

And with that, Russia delivered a firm “nyet” yesterday to a long-standing U.S. request for access to the International Space Station (ISS) after 2020. It’s a tit-for-tat move: A few days earlier, the United States announced plans to deny export licenses for high-tech items that conceivably could land in the hands of the Russian military.

ISS New Sign

Most of the media hand-wringing we see this morning is about the folly of shutting down the Space Shuttle Program with nothing to replace it; U.S. astronauts have to hitch a ride on Russian spacecraft to get to the ISS.

But as we type, we’re thinking more about — for instance — how a Russian cyberattack that might shut down the U.S. stock market.

  “Financial warfare… includes malicious attacks on an enemy’s financial markets designed to disrupt trading and destroy wealth,” writes Jim Rickards in his new book The Death of Money.

Mr. Rickards dined last night with your editor, joined by our executive publisher and fearless leader Addison Wiggin and The Daily Reckoning’s Peter Coyne. With worsening U.S.-Russian relations as the backdrop, he explained how the strategies and tactics of financial warfare level the playing field for nation-states that can’t hold a candle to Washington’s military might.

“Sure, the United States could carry out a cyberattack that shuts down the Moscow stock exchange. But that’s a tiny percentage of global capital flows. Attack the New York Stock Exchange or the Nasdaq and the impact would be far more devastating. Advantage Russia.”

Come to think of it, Nasdaq still hasn’t come clean about what happened one afternoon last August when a mysterious “glitch” halted trading for three hours. And as we write this morning, the NYSE is having a “data feed” issue with stocks whose symbols begin with the letters D through J.

While we dined with Mr. Rickards, an email came in reminding us of another front in U.S.-Russian financial warfare.

  “I hate to say it, but everything I predicted is starting to happen,” said the note from hedge fund manager Erik Townsend.

Mr. Townsend helped us flesh out a radical proposition in the new issue of Apogee Advisory — that America’s newfound energy bounty might prove the final undoing of the U.S. dollar. Key to that scenario is Russian — and Chinese — determination to get out from under the dollar’s large shadow.

The email he sent had a link to a Russian press summary from the Voice of Russia — the old Radio Moscow: “The country’s Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions.”

The plan was hatched at what was labeled a “de-dollarization meeting” on April 24, convened by First Deputy Prime Minister Igor Shuvalov.

  And China might be willing lend a hand in the effort.

Russian President Vladimir Putin pays his first visit to Chinese President Xi Jinping next Tuesday. “It can be speculated,” says the Voice of Russia, “that the gas and oil contracts that are going to be signed between Russia and China will be denominated in rubles and yuan, not dollars.”

Suddenly, our friend Mr. Townsend is looking awfully prescient when he said, “Tuesday, March 4, to me, was as big as the Cuban missile crisis in the history of the world.”

That was the day Kremlin economic aide Sergei Glazyev declared, “An attempt to announce sanctions would end in a crash for the financial system of the United States, which would cause the end of the domination of the United States in the global financial system.”

And foreign ministry spokesman Alexander Lukashevich said hours later, “We will have to respond… if provoked by rash and irresponsible actions by Washington… and not necessarily symmetrically.”

Next Tuesday could prove mighty interesting…

[Ed. note: Out of respect for the paying readers of Apogee Advisory, we’re compelled to withhold a full account of the implications… and the investment guidance that follows from those implications. But if you subscribe now, you’ll have immediate access. You’ll also have access as soon as we publish our interview with Jim Rickards — in which he answers questions no one in the mainstream media has dared pose to him.

These are perilous times for the dollar as we’ve come to know it: Best arm yourself with the information you’ll need to make it to the other side safely.]

  Stocks are in the red this morning. Most of the major indexes are off modestly, a quarter percent or so. The Dow and the S&P set record closes again yesterday.

The outlier is the small-cap Russell 2000 — down three-quarters of a percent as we write, on top of a 1% drop yesterday. “The tale of two markets continues,” says Greg Guenthner of our trading desk.

  The one economic number of the morning was a stinker — wholesale prices up 0.6% in April, way ahead of market expectations. The year-over-year increase works out to 2.1%.

That’s a sign the Federal Reserve is on the cusp of finally getting the inflation it so desperately wants. But dig into the numbers and you find crude goods up 6.5% year over year.

Can businesses absorb those costs at that pace? Yes, if they can pass along those costs to their customers. Unfortunately, April retail sales clocked in yesterday with a soft 0.1% increase.

Something’s gotta give…

  Gold is perking up, finally pushing past $1,300 this morning. At last check, the bid was $1,305.

And gold is the weak performer in the precious metals complex: Silver is up more than 1%, to $19.78. Platinum has firmed nearly 2%, to $1,473. And palladium — talked up this year by both Greg Guenthner and Matt Insley of our team — is approaching highs last seen in late 2011, at $827.

  “Global open interest for palladium is up 401,000 ounces year to date,” says Frank Holmes of U.S. Global Investors.

That’s an 18.4% increase… and it’s powered palladium holdings in exchange-traded funds (ETFs) to all-time highs. “This is particularly significant,” says Frank, “since the market is set to record a major deficit this year, which has sent prices up 16% from the lows in early February, to new 32-month highs.”

Palladium ETF Holdings Spike to New All-Time High

Among the drivers for palladium: the ongoing miners strike in South Africa. “Impala Platinum,” says Frank, “announced it may reduce its platinum group metals supply by 60% over the next three months, as it remains unclear how the long the strike might last.”

The other major palladium producer is Russia — which, as noted above, isn’t exactly an outpost of stability right now either. Heh…

Mr. Holmes, we want to remind you, will be among the resource-investing luminaries on hand in July for the Sprott Vancouver Natural Resource Symposium 2014. Our own Byron King will also be there. So will Sprott USA chief Rick Rule, who’s organizing the event. And what kind of resource conference would be complete without guys like Adrian Day and the one and only Doug Casey?

The dates are July 22-25. Because of our long-standing relationship with Rick, he’s graciously arranged an exclusive registration discount for Agora Financial readers. But that discount is available for only a few more hours, and it’ll pay to act soon: Details, including a full speaker lineup, are available at this link.

  Front-running the Fed? Say it ain’t so!

From Bloomberg: “Some investors may have gotten early word of changes to Federal Reserve policy between 1997-2013 and profited by trading before the policy shifts were publicly announced, according to Singapore-based researchers.”

The research paper zeroed in on trading in stock index futures and stock index ETFs during the 10-minute “lockup period” before the release of Federal Reserve policy statements, which occurs every six weeks on a Wednesday afternoon.

During that window, reporters are allowed access to the statement before its official release. They’re not supposed to pass it along to anyone else. Pinky-swear.

The researchers concluded that on days the statement delivered a market surprise, early access to the statements resulted in profits to those in the know as high as $256 million.

As it happens, the Fed changed the lockup rules last fall. It’s been extended to 20 minutes before the release of the statement… but reporters can no longer carry phones into the room, and Internet connections to their laptops are blocked.

Or so we’re told. We’ll believe it when the Fed constructs metal mesh on all sides and on top of the Marriner Eccles Building, rendering its headquarters the world’s biggest Faraday cage…

  Well, at least the traders front-running the Fed had sense enough not to get caught.

Lukas Kamay — and we hasten to add he’s innocent until proven guilty — appears less fortunate. He’s an associate director at National Australia Bank now charged with insider trading.

Kamay stands accused of offering a $47,000 bribe to a college buddy who’d landed a job at the Australian Bureau of National Statistics. In exchange, prosecutors say Kamay got early access to economic data and made roughly $7 million from the resulting trades.

A foreign-exchange broker named Owen Kerr stumbled to what might be going on when he noticed unusually large trades on the Australian dollar near the time of economic releases. Kerr looked up Kamay’s LinkedIn account and spotted Kamay’s college connection to his friend at the statistics office.

“That initial LinkedIn discovery lead to an elaborate nine-month surveillance operation,” according to a story at Quartz. “Kamay’s brokers and both men’s employers were looped in and monitored the pair using surveillance cameras and phone taps. The two took some steps to conceal their actions, buying disposable phones and making intentional bets the wrong way, but by then, it was too late. Both men were arrested on Friday.”

We can only imagine how many finance professionals are busily scrubbing their LinkedIn and Facebook profiles this week…

  “Food for thought,” a reader offers after our musings this week about the tax woes of Americans living overseas: “An American citizen is condemned to pay taxes on worldwide income, no matter if he lives in the USA or not, no matter where he generates his income. Uncle Sam always gets a piece of the action.

“Why is it companies do not have to pay taxes on worldwide income? How come they can generate income overseas and not pay taxes in the USA?

“To suggest they will all run away if they were to be taxed is redundant. They have already moved as many jobs as they can overseas and left only what they could not move.

“Truth is they are not paying taxes anywhere, and the money is not going to the shareholders, either. The biggest beneficiaries are the management with inflated options, bonuses and salaries.”

The 5: Ah, but that’s not quite how it works. Thus, you sometimes hear congresscritters complaining about companies like Apple “keeping their profits parked overseas.” Which they do. Otherwise, if they repatriate those profits, they’re subject to U.S. taxes.

And the United States is now burdened with the highest corporate tax rate in the world, after Japan cut its rates awhile back. Imagine if companies could repatriate their overseas profits tax free… or even at a reduced rate… and the American jobs that would result.

Much more about this before the end of the week…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. April 15 isn’t even a month in the rearview mirror yet… but it’s never too early to begin your planning for next year’s income tax return.

With that in mind, our income specialist has shown thousands of people just like you how to collect 36 tax-free checks every year.

As you can imagine, he hasn’t exactly endeared himself to the IRS. But frankly, the IRS can jump in the lake: No less an authority than the Supreme Court has put its stamp of approval on the strategy he’s perfected.

Curious? Start maximizing the savings on next year’s tax bill today. Check out this presentation.


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