“Watch What They Do… Not What They Say”

• September 22nd, 2014
• 5 Min Forecast
• Daily Issue, Issue

• The next Scottish referendum might only be five years off… but a more important referendum is coming in November.
• Be careful popping the cork for Alibaba… something may be amiss in the markets
• Chinese warships find safe harbors in Iranian waters…
• The return of QE is coming…
• and illegal napkins send Wall Street trader to jail… and more!

  The Scottish referendum is over… for now. But our new confidant David Stockman notes that the separatist sentiment has a strong generational divide:

• Voters aged 16-17: YES: 71%; NO: 29%
• Voters aged 65-plus: YES: 27%; NO: 73%.

“How,” Stockman asks, “will [this week’s] vote look like in five, 10 or 15 years when today’s 17-year-olds are Scotland’s prime demographic?” Even more interesting, while 18-24-year-olds voted against, the next three demographic groups polled (ages 25-54) all voted in favor of independence.

Prepare for round two? Could be sooner than later. The Lord Ashcroft exit poll indicated that a large chunk of “yes” voters (45%) expect the question will remain settled for only about the next five years.

Our “insider” source says if you think the Scottish referendum shook things up… wait until the Swiss gold referendum in November…

Panic in the streets of London could ensue.

We’re on our way to London this evening. We’ll get a man on the street’s view and report back.

  Investors were eagerly snatching up shares in Chinese online retail giant Alibaba’s IPO last week when the company went public to the tune of $25 billion, netting underwriters of the sale a $300 million windfall. Reuters declared the IPO the “world’s biggest” in an article this morning.

Investors are excited by Chinese entrepreneurship as the country prepares for increasing economic freedom in the coming months.

Our trading guru Greg Guenthner urged caution with the Alibaba IPO, given the volatility in markets. “Your IPO strategy should keep you away from Alibaba stock during its first few weeks of trading — even if you are just looking for a quick flip. Let this noise settle before considering a move…”

  But while investors are popping Champagne, China has been trying to keep its rampant corruption out of the headlines. Last month, the former head of China’s secret police, Zhou Yongkang, became the target in an investigation over bribery allegations.

Our man says Zhou is part of a group of “financial warlords” that reign in China and are largely responsible for the enormous waste of public funds, including building the country’s famous “ghost cities.”

Our source                 , in addition to his experience within the CIA and top-level U.S. banks, has a great deal of experience doing business in China. He says, “China’s highly unregulated legal system makes investing in the country difficult for those without government connections,” he says. “The best way to invest in China is to find a service business that China needs, where they pay you in hard currencies outside of China and you don’t have to put a lot of fixed assets inside China. That way, if things go badly, you just tear up your contract and walk away.”

                 predicts that for all the exuberance over China’s growing wealth, it’s largely a mirage that will be toppled before too long due to the aforementioned corruption, hollow GDP “growth” and other factors. “China is in the midst of a massive credit and property bubble,” he says. “Many expected this bubble would burst in 2015. However, recent evidence is that the bubble is bursting faster and these problems may come to the fore in 2014.”

                                .                                 .

  In other underreported news, Chinese warships have quietly arrived in Iran’s Gulf port of Bandar Abbas. Seriously. Chinese warships. The Chinese plan to execute joint training exercises for “search and rescue” and “maritime accidents.”

China is, of course, nowhere near Iran. Its navy had to cross the entire Indian Ocean to arrive in Iranian waters. “The four-day visit is the first time a Chinese naval vessel has called at a port in the Islamic republic,” notes Yahoo News. China has become Iran’s largest trading partner in recent years, and the two countries have dramatically strengthened their relationship.

Chinese banks, says                 , have helped Iran get around sanctions. “Iran uses Chinese and Russian banks to act as front operations for illegal payments through sanctioned channels… It arranged large hard-currency deposits in Chinese and Russian banks before the sanctions were in place. Those banks then conducted normal hard-currency wire transfers through                  for Iran, without disclosing that Iran was the beneficial owner, as required by                  rules.”

That relationship is part of a larger plan by the Chinese, says                 . What is the big picture? We’ll be revealing that very soon…

                   is a fan of economic history and notes that the Fed’s unprecedented money creation is, well, not entirely without precedent. “The global situation today resembles the 1970s,” he notes. “The Fed engaged in easy money policies in 1971 and 1972… high inflation did not emerge immediately. But a series of geopolitical events in 1972-73 culminating in the Yom Kippur War in October 1973 led to an oil embargo and sharply higher oil prices. In turn, that raised inflationary expectations.

“You need both the wood and the spark to have the fire of inflation. The same is true today. The Fed and other central banks have printed trillions of dollars of money in the past four years. So far, inflation has been relatively tame. But the printed money is only the wood; a spark is still required. Events in the Middle East, Ukraine and China today may provide the spark.”

He predicts this will lead to a crash worse than that of 2008… and the dreaded “stagflation” of the late 1970s will inevitably result.

“The Fed is between a rock and a hard place,” he notes. “If they withdraw ease by tapering the money printing, they will puncture asset bubbles. If they keep printing, inflation will gather strength.” He predicts QE will resume in 2015, and that will further grow the “powder keg.” Within the next five years, he says, it will likely blow.

  Currently however, the Dow Jones is blasting through to fresh highs, and exuberance seems to be never-ending. But how can you figure out if the market is ready for a fall?

It’s important to see what the big funds are doing, says our small-cap guru, Jonas Elmerraji, in today’s Rude Awakening PRO.

“It might surprise you to hear that stock buying hasn’t driven this post-2008 rally,” Jonas explains. “Participation among both retail and institutional investors has been at record lows in recent years. And big firms are still advising folks to stay out of stocks overall.

“This chart shows the average stock allocations recommended by Wall Street strategists at firms like Bank of America, UBS, Oppenheimer and HSBC,” Jonas continues. “It’s a good barometer for how heavily funds are invested in stocks. Wall Street has been telling funds to hold a lower percentage of their portfolios in stocks than they did when everyone was panicking in 2009.” Looks like they’ve been increasingly sour on stocks since 2001…

                 has some sage advice on the big banks: “Watch what they do, not what they say.” This chart is a clear indication of what they are doing, regardless of which stocks they’re trying to pump in the media. Fidelity Investments, for example, used to have 67% of its assets invested in stocks, Jonas notes… Today, that number is 47%.

  In this rather strange environment for stocks, everyone is trying to get an edge. No wonder, then, that some people will even resort to eating napkins to get that leg up.

Frank Tamayo, 41, began scribbling insider stock advice on napkins and handing them to an associate in New York’s Grand Central Station, according to prosecutors. He pled guilty to securities fraud, tender offer fraud and other charges on Friday.

When the information was transmitted, Tamayo would then eat the napkins to destroy the evidence. Given that the scheme began in February 2009, Tamayo has been eating illegal napkins for more than five years and presumably has a great deal of fiber in his diet.

  “Faux populist Elizabeth Warren is elected president by the largest ‘dead men voting’ majority in history,” one reader forecasts, responding to our Prophecy 2015 request for predictions. “She institutes a Newer (and Improved) Deal to finish the job FDR started… After the riots, martial law and urban warfare wind down, the survivors restore the Republic.”

“The yuan will become convertible, backed by China’s gold reserves as well as its foreign currency holdings,” says another reader. “Oil-producing countries in Africa will be pressed into signing crude oil supply contracts priced in yuan.”

“What is in the packet Dave gave you?” a third reader asks. “Don’t keep us in the dark. That is not fair: I think Dave got so shook up he just decided to leave for a while. I sure hope he will be OK.”

The 5: We hope so too… By the way, that packet information is coming soon…

“The only reason the market goes down, on rare occasion, is to make the charts look legitimate,” says a reader who has evidently been watching the charts. “Even a ‘correction’ would still be just a little off the top… of free money. If the media start promoting to the herd how much easy money can be made in the markets, then there could be a fleecing of the sheep, being more profitable than QE free money. Until then, it’s to the moon! Facts and fundamentals obviously are meaningless… Even professional wrestling seems more legitimate.

“Your insider’s credibility is questioned when he makes mistakes like saying China is the largest consumer of gold. Gold isn’t consumed but hoarded, as every ounce ever mined is still around.”

The 5: OK, we’ll see.

“How about some analysis about what is happening in the precious metals markets. Whew, just don’t understand what is happening in the context of the Fed’s circus!?”

The 5: Tomorrow.

Sincerely,

Addison Wiggin
The 5 Min. Forecast

P.S. Here’s a note from a buddy of mine: