- 25 years after the Wall fell: The downside of being a “sole superpower”
- GOP Senate takeover heralds Cold War comeback… The 5 follows the money
- Clouds in the silver lining of the latest job numbers
- Mayer tunes out Fed-speak… and tells you what really matters to your stocks
- Gold jumps… Silver struggles… A long, hard look at the gold-silver ratio… and more!
“A Pyrrhic victory” is how constitutional lawyer Bruce Fein describes the fall of the Berlin Wall.
Time flies — it was 25 years ago this Sunday. Ceremonies are already underway in Berlin today. As we write, the last leader of the Soviet Union is speaking to a crowd at “Checkpoint Charlie”…
We’ll spare you the trouble of looking it up: Gorby is 83 now.On the wall of your editor’s home office is a framed poster capturing that moment in time a quarter-century ago. I remember being so moved by the TV images — people with sledgehammers taking the wall down, chunk by chunk — I had to buy the poster when I saw it in a catalog a few months later. It’s come with me from place to place ever since.
So at first, it’s disconcerting to read Mr. Fein’s curious nostalgia for a superpower showdown. But after a few moments’ reflection, he has a point.
“The Cold War victory left the United States with no rival superpower to teach us daily what we were not,” Fein writes in The Washington Times.
“So we embraced practices emblematic of the Soviet Union, for instance, detention without accusation or trial or indiscriminate spying on citizens without warrants.
“The United States paradoxically came to resemble the global tyranny the Cold War was fought to defeat because of its Cold War triumph.” To say nothing of the “predictable gratuitous wars and spiraling national debt.”
And now, 25 years on… we Americans don’t even have the comfort of saying we’re the unchallenged “sole superpower.”
“We’re kicking off into a new global arms race,” says our military affairs analyst Byron King.
“You can like it or not. You can invest in it or not. But the new arms race is happening, and you owe it to yourself to understand the facts. Watch the world through this lens and many things will become clearer.”
Last week, in shades of the Cold War, Russian aircraft buzzed the European coastline. “In recent months,” says Byron, “Russian aircraft have probed Alaska airspace and flown down off the coast of California. Russian aircraft have moved near northeast Canada, into simulated ‘launch’ positions for missile strikes on, say, Norfolk Naval Base… or Washington.”
The immediate cause is Ukraine. But events have been building up almost from the moment the Soviet Union collapsed.
“Russia,” Byron explains, “is responding to NATO encroachment eastward, to a Western-backed coup against the previous Ukrainian government (no matter how bad it was), to U.S.-NATO ships in the Black Sea and to constant Western military surveillance.
“Beyond Ukraine, however, we have a long string of events that unfolded since the breakup of former Yugoslavia in the early and mid-1990s. Think Serbia, Kosovo, Iraq, Afghanistan, Libya and more. Russians view these Western military expeditions as encircling moves.
“It’s not hard to make the case that, in the U.S., the Clinton-Bush-Obama administrations have walked (perhaps ‘sleepwalked’ is a better term) into serial buzz saws of confrontation, and Russia is but one aspect of the multidimensional competition that’s breaking out.”
“We didn’t start this,” said Russian President Vladimir Putin during a speech two weeks ago today.
“Putin listed a long series of U.S.-led military expeditions,” says Byron, “from the former Yugoslavia to Libya. Putin chastised the U.S. for taking a triumphal attitude when the Cold War ended, working to ‘reshape the world to suit [U.S.] needs and interests.’
“Putin was only warming up, however. He declared, ‘This is the way the nouveaux riches behave when they suddenly end up with a great fortune — in this case, in the shape of world leadership and domination. Instead of managing their wealth wisely… I think they have committed many follies.'”
“This is NOT your father’s Cold War,” Byron cautions; “it won’t be a simple replay of the first one.
“The next arms race won’t necessarily be based only on which economy — capitalist or communist — can build more ships, tanks and airplanes, although my hunch is that the Russian economy (and Chinese economy, too, while we’re on the topic) can produce lots of ships, tanks and airplanes if the need arises.
“The next arms race will move into entire new levels of battle space. Land, sea and air, of course. Outer space too, but in ways far surpassing what we saw in the old U.S./NATO-versus-Soviet competition.”
To say nothing of cyber — what Byron calls the “fifth domain of war.”
And with both houses of Congress under Republican control, look for U.S. defense spending to grow, and grow big.
The new chairman of the Senate Armed Services Committee is none other than John McCain. He’s already letting in friendly reporters on his plans: “McCain said his first order of business as chairman,” reports The Daily Beast’s Eli Lake, “will be to end the budget rule known as sequestration, which requires the U.S. military to cut its budget across the board.”
Sums up Byron: “You don’t have to like the idea of a new level of great power confrontation, but at least you ought to get ready to deal with it.”
And, if you’re so minded, invest in it. We anticipated a big ramp-up in global defense spending two years ago… and launched Byron King’s Military-Tech Alert in response. The portfolio is sitting on open gains like 36% in a year… and 60% in 18 months. And as Byron explains right here, much bigger gains are yet to come.
The unemployment rate has fallen to its lowest since July 2008… and for once, it’s not because people departed the workforce for good.
The wonks at the Bureau of Labor Statistics conjured 214,000 new jobs for October… and an unemployment rate of 5.8%.
The labor force participation rate — the percentage of the working-age population in the labor force — rose a touch, to 62.8%. Last month, the number hit a 36-year low. So that’s progress.
Now the reality check: The number of long-term unemployed — six months or longer — remains higher than during any other “recovery” of the postwar era.
More than one-third of all Americans out of work and looking for a job have been looking for more than half a year…
And wage growth, which we addressed on Wednesday? Still weak. Average hourly earnings rose last month by all of 3 cents, to $24.57. The year-over-year increase is 2.0%.
Still, the overall trend is in the right direction. Even the real-world unemployment rate as calculated by John Williams at Shadow Government Statistics has climbed down to 23.0%. Hey, that’s the lowest in 18 months!
Major U.S. stock indexes are flat as we write… after the Dow and the S&P notched record closes again yesterday.
At last check, the S&P has added a point, to 2,032. Traders are paying way too much attention to “hawkish” speeches by Federal Reserve governors today, hinting they’ll start raising interest rates sooner, rather than later.
Ugh… After all the “tapering” chatter for 18 months, now this. It’s all jawboning. Even the bosses at the Fed know the headline unemployment number is bogus and until wages improve, interest rates will stay where they are. Traders will eventually catch on. Maybe even before the close today, heh.
“People will believe what they want to believe,” says our Chris Mayer of the market’s obsession with the Fed. And the European Central Bank, Bank of Japan, et al.
“This belief in central bank wizardry reminds me of the late 1990s and the mass belief in the ‘new economy.’ For a long while, things like earnings and valuations and return on capital didn’t matter. People believed in the new economy. They believed in eyeballs. The more that hit your website, the better. You didn’t need to make a profit.
“But eventually, that ended. And those things — earnings and valuations and return on capital — mattered again. People who believed in the new economy lost a lot of money.
“Today, the narrative is that central banks drive the market. That seems to be the overwhelming focus of everybody. So once again, earnings and valuations and return on capital — the nuts and bolts of good investments — don’t seem to mean anything.
“But they’re still there. They still matter. No matter what the central banks do.”
As for the recommendations Chris makes to his readers, “I will stick with the realities of good investing. An idea has to make sense on its own merits, not because of what I guess a central bank’s actions might bring about.”
Gold is on a tear… and has been since the moment the jobs numbers came out this morning.
As we write, the Midas metal has jumped $27, to $1,168. Silver, which is usually more volatile than gold, is strangely subdued — up 29 cents, to $15.72.
“OK, I get it,” a reader writes after we noted yesterday U.S. Silver Eagles are sold out for the moment. “Supply minus demand (e.g., 100 mm oz. minus 120 mm oz.) plus collusion, corruption and Corzine-like cronyism equals a drop in price.
“Got it. Thanks for the clarification.”
“The oft-quoted classic ratio of silver to gold is 16 to 1,” writes another metal-minded reader.
We’ll interject to explain: That means measured in currency, it would take 16 ounces of silver to equal 1 ounce of gold. As we noted yesterday, the ratio is now at a multiyear high of 74 to 1.
“When was the last time 16 to 1 actually existed? Many people believe that prices will change and we will once again see 16 to 1.
“I submit that it has been long enough ago that 16 to 1 was the norm that a new norm now exists.
I don’t know what the new norm is, but investments based on a future return to 16 to 1 are little more than wishful thinking.
“What say you? Is there really a new norm, and if so, what is it?
The 5: Hmmm… a chart of the gold-silver ratio the last 40 years doesn’t shed much light…
It was only briefly in January 1980 when silver was $50 and gold more than $800 that the “classic” or “historical” gold-silver ratio was reached.
Can we get back there again? Sure. But it will take a lot more turmoil in the markets and the economy and the world at large. Which, judging by everything Jim Rickards has been telling us, is highly likely.
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. Jim Rickards’s latest briefing is now available for your review. And he’s lining up another online Q&A for new subscribers next Thursday, Nov. 13. Details here.]
Here’s something very strange…
Today, we received a bunch of boxes marked only with “Laissez Faire’s PROJECT ‘W'” on them. See here:
“What’s in the boxes?” I asked Doug Hill, the director of our Laissez Faire business.
Doug tells me that what’s inside has nothing to do with the markets or the economy or geopolitics or any type of investment… yet the contents of the package could dramatically improve your lifestyle in retirement.
Hmmm…
He also told me that what’s inside isn’t a pill or supplement… but if used the right way, it could improve your health.
We’re as curious as you are.
“Don’t worry,” Doug tells me. “I’ll share everything with you on soon enough.”
Doug plans to spend his entire weekend (sorry, Hill family!) finalizing all of the details for Project “W.” As soon as he has everything wrapped up, we’ll let you know. According to Doug, we should have it to you before you sit down to dinner Sunday night.
Stay tuned for how to claim one of these packages. I don’t even know what’s inside… but I already want one…