August 12, 2014
- What’s really happening with U.S. airstrikes in Iraq?
- When borders are erased: Investing in a 21st-century reality
- Look who’s leading the latest stock market rally
- The partly sunny outlook for small business
- After three years of pain, four reasons gold is about to shine again
- Revisiting the world’s most useless smartphone app… reader wonders where the “great bargains” are… an up-close encounter with a “smart” golf cart… and more!
Talk about lowering expectations.
“I in no way want to suggest that we have effectively contained, or that we are somehow breaking the momentum of, [ISIS],” said Army Lt. Gen. William Mayville yesterday. Mayville is the Pentagon’s top war planner.
As you’re no doubt aware, U.S. involvement in the Iraq War resumed last Thursday after a three-year hiatus… with air strikes against ISIS positions.
“I don’t think we’re going to solve this problem in weeks,” the president told reporters Saturday. Yesterday he said, “There is no American military solution to the larger crisis in Iraq.”
Huh?
Reminds us of something Hillary Clinton said when she took the job of secretary of state in 2009: “I looked around our world and I thought, you know, we are in just so many deep holes that everybody had better grab a shovel and start digging out.”
Heh…
“The U.S./British air effort is an unsustainable, ineffective tactical gesture,” says our military affairs expert Byron King.
Byron spent a few days recently in Norfolk, Virginia, and environs. “I visited a number of military facilities — including the aircraft carrier USS Harry Truman at Norfolk Naval Base — and spoke, off the record, with several Navy and Army reps.”
The air effort amounts to “pinpricks against a dispersed target set,” says Byron, “spread out over a vast region larger than France (see map, below).”
Understand they don’t control all this territory… but they’re active throughout it.
The press releases boast about 100 missions each day. “But 30% are refueling missions, and more are basic reconnaissance,” Byron explains. “As for bombs dropped? Perhaps 15% of missions lead to an airstrike on bad guys.
“When U.S. jets fly away, the militants move back in, retake towns, cut off more heads… and then post gruesome video on YouTube.”
“This volcano is going to explode sooner or later,” says Byron. “The place is falling apart, so we WILL have more instability in world oil markets.
“In this part of the Middle East, the bottom line is that Sunni Arab players have been outsmarted and outmaneuvered by Islamist/ISIS forces. The new adversary has transformed from a ragtag bunch of desert rebels into an effective army, equipped with ex-U.S. weapons and massive supplies. Today, Iraq; tomorrow, Saudi Arabia.”
Indeed. ISIS fights with weapons supplied to, then abandoned by, the Iraqi army. ISIS funding comes from regimes like Saudi Arabia. Don’t be surprised if ISIS one day turns on its paymasters.
Meanwhile, “Iraq is doomed as a nation,” says Byron. “The Middle East is about to erupt. You’ll see it reflected in higher energy prices.”
There’s a bigger theme at work, too: “These days,” says Byron, “it’s not wise to view the world in absolute terms of classic, European-derived political abstractions.
“From the South China Sea to Ukraine to the Middle East and North Africa, the settled world of settled borders — which has been the basis of our political worldview for several centuries — is under assault.
“Nations across the world are arming up. We have seen, and will continue to see, booming demand for all manner of ships, aircraft, ground vehicles, communication systems, surveillance, software, cyberwar, remote-sensing equipment and smart systems to help manage it all.”
[Ed. note: It’s the purpose of Byron King’s Military-Tech Alert to follow the money flowing into both the hardware and software that will define warfare in the 21st century. In the current portfolio, 10 of 13 positions are in the green. One of them is up 131%. The biggest loser is down 15%.
Byron’s research into the fast-growing cybersecurity sector will remain online only through midnight tomorrow. Check it out while there’s still time.]
Major U.S. stock indexes are giving up a bit of yesterday’s modest gains. The S&P 500 sits at 1,931.
“Those beaten-down small caps that everyone loves to hate are beginning to show signs of life,” writes Greg Guenthner of our trading desk.
“For the past several weeks, the Russell 2000 small-cap index seemed to lag the large caps almost every single day — sometimes by a wide margin. But this hasn’t been the case over the past few trading sessions. In fact, we’re seeing the opposite.
“By lunchtime yesterday, the small-cap index was up well over 1%, while the S&P 500 was clinging to a 0.5% gain. It’s been only a few days of outperformance. But it could be a clue that a small-cap (or overall market) rebound is on the horizon.”
Small-business owners feel more optimistic than they did a month ago… but less optimistic than two months ago.
The monthly Optimism Index from the National Federation of Independent Business clocked in this morning at 95.7 — on the high side of the mediocre range where the index has been for more than four years.
“On the positive side,” says NFIB chief economist Bill Dunkelberg, “expectations for business conditions and outlook for expansion accounted for virtually all of the net gain in July’s index.
“However, capital spending reports continue to remain mediocre, spending plans are weak and inventories are too large, with more owners reporting sales trends deteriorating than improving.”
Gold is inching up this morning. At last check, the bid was $1,315. “Gold’s next big move is coming,” advises Matt Insley of our natural resources desk.
“The past three years have been ugly for gold, miners and precious metal investors. It’s clear, however, that the weak hands have been flushed out. Likewise, the momentum traders are gone.
“With gold in 2014, we’ve seen a strong baseline of buying in the $1,200-1,300 range. And in the past six months, we’re seeing a lot of action around the $1,300 level — a positive sign for prices to move higher.
“There’s been a lot of pressure building for gold prices over the past nine months — something that you can see clearly in the price history.”
Beyond the charts, Matt sees four factors in play…
- Rising government debt, especially in the eurozone
- A turn in sentiment: “From institutions to individuals, we could see a general revival of interest for gold and mining shares”
- The Federal Reserve: “As folks come to realize that the Janet Yellen Fed isn’t really serious about keeping tabs on inflation or the U.S. dollar, we’ll see renewed interest in gold”
- China: Matt’s convinced next year, China will reveal the size of its gold stash — something it hasn’t done since 2009.
“Is China hoarding gold at an egregious clip? Are they set to make a game-changing announcement that will rattle the world currency markets? Is the Middle Kingdom holding more gold than any other sovereign nation? Yes, yes and yes! As the hype builds or an announcement hits the market, we could be in for a major upside move in gold.”
From the “what do we know” department comes an unexpected follow-up on the smartphone app known as “Yo.”
As we mentioned about eight weeks ago, Yo’s only capability is to send a message that says, “Yo.” Its creator calls it “a whole new means of communication.”
Dumbest thing ever, right? Oh no, says Christopher Mims on The Wall Street Journal. It has the potential to be the next Twitter. “It might be even bigger.”
“Yo’s next iteration,” explains Mr. Mims, “will let users send a link along with their ‘Yo.’ And a forthcoming service that lets any person connect an RSS feed to Yo means every blogger, website and media outlet on Earth will be able to send push notifications to their followers, including links, whether or not they have downloaded a corresponding app.
“I wouldn’t be surprised if ‘subscribe via Yo’ became a button on articles alongside Facebook and Twitter share buttons.”
Hmmm… We’re still skeptical. That’s because Mims’ article about Yo includes the factoid that “its 50,000 or so active users have sent more than 4 million Yos.”
Uh… those are exactly the same figures we cited in our original Yo story on June 19. Surely if the numbers had risen substantially since then, the company would be crowing about it, right?
“Great bargains — good one, Dave,” writes a reader.
The gentleman takes issue with Neil George’s assertion in this space yesterday that traders find many of the world’s economies “in reasonable shape. They’re seeing plenty of good companies building their businesses and paying big dividends… and thanks to the selling, they’re great bargains.”
To which our reader retorts: “And the little mousie always gets the cheese and never triggers the mechanism that snaps his neck… forever and ever. Amen.
“I thought you guys had had a talk with Jim Rickards last week. He didn’t disabuse you of these silly notions?”
The 5: We solicit all sorts of opinions from within our team and without.
It’s the only way we have a prayer of untangling the “Tale of Two Americas” that’s the subtext behind most of what you’ve read in The 5 since early 2012 — insane debt and leverage on one hand, undeniable innovation and wealth creation on the other.
We know that’s a little strange coming from an outfit that made its mark playing up the debt and leverage part of the equation in the first decade of the new century. We haven’t forgotten Time labeling us as part of “the Armageddon gang” in 2007, and we still wear it as a badge of pride.
But if doom is all you want these days, there’s been no shortage of free websites to come along in the last five years. They predict an imminent crash nearly every month. Not one has materialized. Those sites are mostly about entertainment. They make their money from advertisers hawking everything from overpriced bullion to solar cookware.
We make our money by selling actionable advice to (we hope) satisfied customers. It’s a higher bar. We’d have done you a profound disservice if we’d hyped THE BIG ONE nonstop.
Still… we know something is bound to go kerflooey again sometime. So we’re having an ongoing discussion with Mr. Rickards to tease out what that might look like and when it might transpire. Stay tuned…
“How many engine rebuilds can you get for $3 billion?” writes a reader marveling at the boondoggle that was “cash for clunkers,” which we revisited yesterday.
“Did anyone consider the loss taken by the aftermarket parts industry? Or how some used parts became rarer? How many people bought a clunker for $100 so they could participate?”
“For those who predict the fall of police revenue due to lack of DUI fines for driverless cars,” writes a reader on an ongoing topic, “it won’t happen.
“The state will simply pass laws to make RUI (riding under the influence) illegal and force the driverless carmakers to install sniffers to detect. Revenues from fines will soar.
“The rationale? For the liberals… to protect us from ourselves. For the conservatives… to protect us from ourselves. For the state… BECAUSE WE CAN!”
“Just read your issue about the car hacking,” a reader writes.
“Went golfing this past weekend. The starter brought my foursome up to date on the newest software downloaded to the golf cart. In addition to the standard yards-to-the-hole feedback display, the golf cart has now been programmed to stop the cart itself from going places the course does not want you to go.
“For example, if there has been rain, certain holes would be ‘cart path only.’ If you tried to drive the cart onto the fairway of one of these holes, the cart came to a halt and you had to put it in reverse to get back to the cart path. Another would be to prohibit you from taking the cart into the parking lot to put your clubs back after the round.
“Upon experiencing this for the very first time, it was a freaky feeling. But then, as with all things applied to us sheeple, I know I’ll get used to it, for my own good!”
The 5: When the cart pipes up saying, “I’m sorry, Dave. I’m afraid I can’t do that,” it’ll be time to really worry…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. All kidding aside, the “Internet of Things” — connected cars, connected coffeemakers — is a target-rich environment for hackers. And as we documented yesterday, some 70% of connected devices harbor major vulnerabilities.
Keeping the hackers at bay will require big money. We have a bead on which cybersecurity players will collect the lion’s share of that money. Follow this link for our time-sensitive presentation. And we do mean time-sensitive: It comes offline in less than 36 hours.