The Banks and the Bear

August 28, 2014

  • Russian cyberattack? Maybe, maybe not. But one thing’s for sure…
  • Who will be first to market with an Ebola drug that really works?
  • Neil George on why all’s well with municipal bonds this year…
  • How to pad your portfolio with “net operating losses”
  • Air travel warning if you live in one of six U.S. states… another irony to the Burger King caterwauling… last chance to collect loyalty reward points… and more!

   “Companies of our size, unfortunately, experience cyberattacks nearly every day,” says a flack for JPMorgan Chase. “We have multiple, layers of defense to counteract any threats and constantly monitor fraud levels.”

Hmmm… Feeling a bit defensive, are we? And what awful timing this morning: JPM’s PR department would much rather talk about CEO Jamie Dimon’s own cyber-foray…

Bloomberg has a big splashy story this morning about the FBI looking into whether Russian hackers tried attacking the U.S. financial system — and especially JPM — a few days ago.

If true, we should not be surprised. From our friend Jim Rickards’ Twitter feed (which he manages himself)…

Here at The 5, we’re withholding judgment — as we have the last 18 months anytime a cyberattack is traced to Russia or China or some other boogeyman of Beltway crowd. In today’s instance, Bloomberg relies on two conveniently anonymous sources.

The feds appear determined to gin up a new Cold War. For months, we’ve been bombarded with claims that Russia is invading Ukraine. None of them ever pans out. Heck, there was another one overnight. Gold and oil popped briefly and are already giving some of those gains back, so inured traders have become to the incessant noise.

   But all the same, we won’t dismiss Russian involvement in cyberattacks, for reasons Mr. Rickards cites in his book The Death of Money.

It comes back to the concept of “asymmetric warfare” — fighting an enemy, but refusing to do so on the enemy’s own terms. Cyberattacks are an ideal asymmetric response to years of Western provocations on Russia’s frontiers — starting with the expansion of the NATO alliance in the 1990s, up to and including U.S.-engineered regime change in Ukraine last February.

If nothing else, cyberattacks are a lot less drain on Putin’s treasury than sending columns over the border. And as we pointed out on Tuesday, Putin’s treasury gets squeezed whenever oil prices trend downward — as they have of late.

The one inescapable investing conclusion from this morning’s headlines? More money flowing into the kind of cybersecurity plays highlighted in one of our premium publications, Byron King’s Military-Tech Alert…

   We’re also following the money this morning in light of the Ebola outbreak in Africa.

“Ebola is a so-called hemorrhagic fever with a long incubation period of up to 21 days,” writes Stephen Petranek of our high-tech/biotech team.

“Both factors are important. The hemorrhagic part means that victims typically begin bleeding internally soon after getting the disease. Ebola kills quickly. But the long incubation period means that someone infected with Ebola may not know it for weeks, and during that time, he or she may infect many others.”

This year’s outbreak is concentrated in dense urban areas. “Ebola has suddenly escalated,” says Stephen, “into a far more fearful disease because it can spread surreptitiously before being detected. As this disease spreads, fear in the United States of it spreading is likely to push more government funding toward vaccine development.”

The experimental drug ZMapp has shown inconclusive results so far. “We know six people have received the drug. Two recovered, two seem to be improving and two died. We can’t make much out of that.”

Meanwhile a company in Stephen’s Breakthrough Technology Alert portfolio is wrapping up Phase 3 trials for an antiviral drug treating adenoviruses. He thinks it’s entirely possible the Department of Health and Human Services will look into using the drug to combat Ebola. As it is, shares of the firm are up 75% in less than four months.

   Stocks are slumping this morning, though not badly. The S&P is off less than a quarter percent as we write, to 1,996. CNBC is latching onto the latest Russian invasion rumors as a handy explanation.

Well, that’s a lot sexier than saying the S&P 500 might need to consolidate its recent gains for a day or two before moving higher into record territory…

The Commerce Department took another stab at estimating second-quarter GDP this morning. The latest guess is an annualized 4.2%, even higher than the first guess. But it still barely offsets the decline in the first quarter.

   “Bond markets will remain attractive for new issuance by corporations and countries, including the United States,” says our income specialist Neil George.

Neil’s been assessing recent chatter from the world’s central bankers. His conclusion? “Look for further largess from the Fed for some time to come. Yields should remain lower for benchmark Treasury bonds.” Indeed, as we write this morning, the 10-year T-note is touching another 15-month low, at 2.33%.

“This makes our higher-yielding alternatives in Lifetime Income Report even more compelling,” says Neil. “It’s especially good for our global and municipal bond investment funds.”

Munis are looking strong of late — S&P’s muni index is up 7.4% this year, more than a full percentage point higher than Treasury prices.

“And while demand for their tax-free payouts is on the rise,” says Neil, “supplies of muni bonds are not keeping up. This month alone, maturing munis and interest payouts have outpaced new muni issues by over $14.3 billion. And it looks like September will find more of the same.

“Toss in improved tax revenues around the country and there just isn’t as much of a need for state and city governments to borrow more money, meaning fewer munis on the market.” Less supply, continued demand, higher prices…

   When can you turn a company’s losses into your own gains? And without using complicated short selling strategies?

When a company books net operating losses, or NOLs. “When a business loses a lot of money,” explains our Chris Mayer, “it can carry those losses forward to offset future taxes. The idea is that since a corporation pays taxes on profits, it should also have relief when it loses money. The tax man likes symmetry, you see.

“These NOLs can be a valuable asset in the right hands. A company with NOLs can acquire profitable companies and then use its NOLs to shield those profits from taxes.”

A classic example is when the commercial real estate tycoon Sam Zell buying a company called Covanta out of bankruptcy in 2003. “It had over $500 million in NOLs,” says Chris. “From 2004, Covanta did a number of acquisitions and grew to be a profitable company. The stock went from $2 per share in 2004 to $30 by 2008.”

Not bad. And Chris recently spotted a similar opportunity for Mayer’s Special Situations readers…

[Subscriber notice: Your “loyalty rewards” points are valid for only a few more hours. Use them now and you can get access to all of our stock-oriented advisories for one low lifetime price. You’ll have access to Chris’ value plays and special situations… Neil’s income strategies… Stephen’s high-tech and biotech breakthroughs… along with Byron’s military-tech and natural resource recommendations.

You also get access to two of our new services — Catalyst Trader and FDA Trader. For a full rundown of what you get when you collect your loyalty rewards, just follow this link. There’s no “long-winded presentation” to watch, just a cordial invitation spelling out the privileges and benefits of the Agora Financial Equity Reserve. Check it out now: Your points expire at midnight.]

   And now a 5-style travel advisory: If you live in one of six U.S. states, you will soon need a passport if you want to fly domestically.

Yes, it appears the “Land of the Free” will soon require internal passports for some of us…

Maybe you remember the brouhaha over the Real ID Act of 2005. This federal law requires all the states to make their driver’s license photos compliant with facial-recognition software… and to make their driver’s license databases available to the feds. (All to fight “the terrists,” of course.)

But several state governments balked at the cost. Maine was first to outright reject the standards in 2007. Alas, the Pine Tree State’s plucky act of nullification is about to bite its residents in the rear: “By Jan. 19, 2016, Maine driver’s licenses may no longer be an acceptable ID to board aircraft,” reports the Portland Press Herald.

Note well: The other states that have refused to comply with Real ID are Massachusetts, Oklahoma, Alaska, Arizona and Louisiana. All told, about 7.5% of the U.S. population.

This could be interesting: Will outraged air travelers from these states tell the feds to stuff it? Will they demand their state lawmakers buckle under the feds’ rules?

Or will they just grumble and get a passport if they haven’t needed one till now?

   “Dave, I love it when little dogs get an itch and run around dragging their backside and howling at the moon,” writes one of our regulars observing the squawking about Burger King moving to Canada to lower its tax bill.

“Boycott away, folks. I believe that Burger King has currently been owned for several years by a LLC holding company somewhere south of the United States.”

The 5: Good point. Brazil-based 3G Capital bought Burger King in 2010, although BK remained domiciled in the United States.

   “Why doesn’t the U.S. reduce our corporate tax rate?” another reader writes on the same topic.

[Hell if we know. But go on…]

“I understand we are at 39%, whereas Canada is at 26%. Perhaps if we lowered our rate, we would get many corporations to return to the U.S., which, in the long run, would get us more corporate tax revenue.”

The 5: You really want more money in the hands of Washington, D.C.?

   “People can speculate and prognosticate all they want,” a reader writes in reply to yesterday’s mailbag, about why the price of oil has tanked in the last 30 days, why the prices of gold, silver and the miners have been in the toilet for the last three years and what they think the future prices will be.

“However, it doesn’t have anything to do with the fluctuations in the dollar, inflation versus deflation, conflicts in the Middle East or Nicki Minaj getting new butt transplants.

[Nice one. And it’s a more contemporary cultural reference than I usually pull off…]

“Plus, one would intuitively think that the price of oil would rise with the world starting to blow up. But no…

“There is only one REAL reason, and I will share it with you now.

“The price of all that stuff is down because I invested in it. Plain and simple. If I sold all my positions tomorrow, there would be a new bull market like you wouldn’t believe — until I bought it again — which would be a signal for everyone that a new bear market would be starting. As long as I hold my positions, it is all just going to keep getting worse or, at best, tread water. You can take that to the bank.

“So for all you investors sitting around waiting for a bull market in gold and silver, it doesn’t matter what Eric Sprott or Byron King has to say, there is only one surefire way to make money on oil, gold and silver. It is by subscribing to my investor newsletter, which is named Watch What I Do and Then Do the Opposite. You will be informed about every trade I make, and then you will know what not to do. I guarantee that it is the best way for all of you to make a few bucks.”

The 5: Heh. You should join up with the fellow who wrote us nine months ago telling us he dumped all his gold stocks. He said it was a sure sign of a bottom. Indeed, the GDX ETF of major gold stocks is up 27% since then…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Final reminder: All your unclaimed “loyalty rewards” expire tonight at midnight.

I have no idea when we’ll reopen the loyalty-rewards program. Typically, we do it at six-month intervals. But not always.

What’s more, given the new services we’ve added to the Agora Financial Equity Reserve, the price of this extraordinary package deal is almost certain to go up the next time we offer it. So any loyalty rewards points you accumulate in the future won’t be nearly as valuable. Take advantage now, while you still can.


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More