- Obama’s “big three” global threats…
- …and chances are you have something in common with two of them
- T-minus 16 days: Commence freakout over the Swiss gold referendum
- Guenthner’s happy holiday retail forecast
- Loss of reserve currency status: No big deal?… Jonathan Gruber and the “stupidity of the American people,” continued… Retirement dreams closer than you think… and more!
“There is a pervasive unease in our world,” President Obama droned before the United Nations General Assembly on Sept. 24.
While the assembled world leaders tried their best to avoid nodding off, the president identified what he considered three “global forces” threatening the established order.
“As we gather here, an outbreak of Ebola overwhelms public health systems in West Africa and threatens to move rapidly across borders. Russian aggression in Europe recalls the days when large nations trampled small ones in pursuit of territorial ambition. The brutality of terrorists in Syria and Iraq forces us to look into the heart of darkness.”
The Ebola virus, as far as we know, is neutral on the question of whether gold has any utility in the world monetary system.
But as for ISIS and Russia…
“ISIS Declares Its Own Currency,” says this morning’s Financial Times — affirming Internet buzz we passed along here on Wednesday.
And it will be a gold-backed currency in what used to be western Iraq and eastern Syria. The gold dinar will consist of 4.25 grams of 21-carat gold… worth about $139. Silver and copper coinage will be issued too, the better to get out from under the “tyrannical financial system imposed on Muslims” — in the words of an official ISIS statement.
Of course, there will be logistical issues to hammer out: “The important thing is: Where are they going to get the gold and copper?” muses Johns Hopkins econ professor Steve Hanke. “ISIS will have to confiscate more property through theft and the spoils of war.” Not that they’d have any qualms about that…
How much gold does ISIS have on hand already? Western intelligence agencies don’t know. Or if they do, they won’t say. (We’re betting on the former.)
While ISIS gets its gold act together, it has plenty of ready cash from its looting of the Iraqi central bank offices in Mosul this past June — $429 million in Iraqi dinars.
At this morning’s gold price, ISIS could pick up 365,417 ounces to back its new currency.
The bid on gold slipped more than 1% overnight… recovered… and as we write is up more than 1%, to $1,174, the highest it’s been this month.
There is no obvious catalyst, leaving the analysts at Kitco to credit the move to “short covering” and “bargain hunting.” Gee, you don’t say?
“The growth of Russia’s gold reserves is evidence of both the leadership’s paranoia about the West and the country’s resilience,” writes Bloomberg columnist Leonid Bershidsky.
Or as Bloomberg’s headline writers sum it up, “Putin Is the Biggest Gold Bug.” World Gold Council figures show Russia bought 109 metric tons of gold between April-October of this year — more than the previous two years combined.
With this latest acquisition, Russia’s gold stash is now the sixth largest in the world, bigger than China’s — well, what China declared officially back in April 2009, anyway.
Not a new picture, but worthy of a caption contest
What’s more, Russian central bank data appear to understate the value of its gold hoard: Supposedly, it grew by $1.6 billion… but the 109 metric tons acquired during the second and third quarters would have been worth $4.2 billion as of Oct. 1. “The price drop in that period,” writes Mr. Bershidsky, “doesn’t explain the discrepancy.”
This much we do know: The acquisition spree began as soon as Western sanctions on Russia began to bite. No longer were they targeted at only a handful of people in President Vladimir Putin’s inner circle who could no longer score decent seats at the Super Bowl.
It’s at this moment we hark back to a quotation in our voluminous archives from one of those aides on March 4: “We would find a way not just to reduce our dependency on the United States to zero,” said Kremlin economic aide Sergei Glazyev, “but to emerge from those sanctions with great benefits for ourselves.”
No, the benefits haven’t materialized yet. But the Russians are playing a long game here.
With 16 days to go before the Swiss gold referendum, the elite media pushback is getting underway in earnest. The Financial Times describes “consternation” at the Swiss National Bank (SNB).
As a reminder, if the referendum passes, the SNB would be…
- forbidden from selling any of its gold
- required to buy enough gold to equal 20% of Switzerland’s foreign-exchange reserves (it’s now 7%)
- required to repatriate all Swiss gold held at the Federal Reserve Bank of New York.
“One of Switzerland’s great strengths is the predictability of its legal and business framework,” sniffs Stephane Garelli of Lausanne’s IMD business school. “Votes such as this,” he tells the salmon-colored rag, “are a reminder that the system is not as stable as it might seem, and can be changed on the basis of quite emotional campaigns. That, for me, is the biggest concern.”
This might be the first time we’ve seen anyone assert fiat currency is essential to the “predictability” of a nation’s “legal and business framework.” Heh…
[Ed. note: We’ve pushed back the date of Jim Rickards’ next exclusive briefing for Agora Financial readers — due in part to developments with the Swiss gold referendum two weeks hence.
We tipped you off to the referendum on Oct. 1, when Jim said markets were underestimating the possibility of a “yes” vote: “This would deliver both a demand shock (in terms of requiring new purchases) and a supply shock (in terms of depleting the gold in New York used to manipulate the market).” Indeed, he believes it might be the “snowflake” that sets off a financial avalanche.
Jim’s briefing has been rescheduled for Tuesday Nov. 24. That’s six days before the vote — giving you ample time to understand what’s at stake… and to learn how you can prepare. Subscribers to Rickards’ Strategic Intelligence will receive further instructions next week. If you’re not yet a subscriber, you can join up at this link — no “long-winded presentation” to watch.]
Like gold, silver is catching a bid this morning: It’s only 2 cents away from reclaiming the $16 level.
Word came from the U.S. Mint this week that sales of Silver Eagles will resume on Monday. As we mentioned last week, supplies ran out and sales were suspended on Nov. 5. Once sales begin again, supplies will be strictly rationed to the Mint’s dealers — as they were throughout last year and the first half of this year.
So far in 2014, the Mint has sold 39.4 million Silver Eagles. The annual record was set last year — 42.7 million.
Major U.S. stock indexes are going nowhere fast as we write. The S&P is off fractionally, to 2,039.
Traders are chewing on the October retail sales numbers from the Commerce Department. They rang in better than expected — up 0.3%.
That’s impressive considering how gasoline prices figure into the statistics: When gas prices rise, they make the number look better than it should — because people are spending more on gas. When gas prices fall, they can actually prove a drag on the number.
Positive? Maybe. But as we pointed out yesterday, what falling gas prices giveth the consumer, rising food prices are taking away.
Then again, retail stocks are showing signs of life after going nowhere for more than a year.
“Retailers are coming on like gangbusters,” says Greg Guenthner of our trading desk. “The S&P Retail Index is up 13% over the past four weeks.”
What’s more, “it looks like Target and Wal-Mart are no longer struggling with weak sales,” says Greg. “Heck, they might even beat expectations this season. Wal-Mart jumped more than 4% yesterday alone on its third-quarter earnings report. Same-store sales, an important retail metric, rose for the first time in seven quarters. That’s just the boost it needed heading into the holidays.
“Despite stiff competition from online price matching, I still think stocks like Wal-Mart can outperform heading into 2015.”
“Losing reserve currency status is nothing more than losing No. 1 standing in the NFL,” writes one of our regulars after yesterday’s episode.
“Once more, I simply don’t buy the alarming prognostications you attach reserve currency reserve status.
“The dollar is just one of many currencies. The deutsche mark or yen didn’t collapse as a result of dollar gaining reserve status.
“Seems to me that doom forecasts are as reliable as the weather or climate change predictions. They all lack plausible explanations.”
The 5: Well, who says it has to be a case of everyone waking up one morning and realizing, “Hey, the dollar’s no longer the world’s reserve currency!”
When did the British pound lose reserve currency status? Was it after World War I in 1925 when Churchill bungled the U.K.’s return to the gold standard and British needed what amounted to a bailout from the Federal Reserve? Was it after World War II in 1947 when the politicians realized they could no longer hang onto their “crown jewel” in India?
Or as Agora Financial’s fearless leader Addison Wiggin suggested in the documentary I.O.U.S.A., was it during the Suez crisis in 1956 — when Eisenhower squeezed the dead-broke British and forced them to withdraw from Egypt?
Point is, it’s been one long, steady slide for the British and their standard of living ever since their leaders joined in the slaughter of WWI a century ago — a slide interrupted briefly by the North Sea oil boom during the 1980s.
Is it so unreasonable to suggest the United States is on the same trajectory?
“Jonathan Gruber is not sorry he said the American voter is ‘stupid.’ He is sorry that he got caught saying it,” a reader writes on this week’s Obamacare kerfuffle.
“In some respects, I agree. The houseplants elected Obama twice. That is confirmation that Gruber knew what he was talking about.”
“Mr. Gruber implies that his Obamacare deception fooled everyone into voting for it,” writes another.
“Actually, it was only those of his liberal persuasion who bought into it. Conservatives saw its economic fallacies from the start and opposed it. So who are the really stupid ones?”
The 5: As we never tire of reminding people, the “conservative” Heritage Foundation came up with the splendid idea of the individual mandate.
“I’m no elitist, but I too think we are stupid,” writes another reader along the same line.
“Did we not re-elect Mr. O. for a second term? Have we not let them get away with SO many faux pas — fast and furious, Benghazi, IRS tactics, veterans’ health care affairs, Obamacare itself and on and on?
“Yet we collectively only just did something at the ballot box. Well, perhaps we are not stupid, but certainly we are long forbearing! Nah, some of us really are stupid.”
The 5: Uh, who’s “we”? And what was the “something” that was done on Nov. 4?
As it happens, the United States Elections Project finds turnout this year — 36.4% — was the lowest since the midterm election of 1942.
That’s 63.6% of the electorate who have the right idea…
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. Seats are filling up fast for the next phase of our project code-named Gamma-nMC. If you’re looking for the fast track to the retirement of your dreams, be advised access will be closed as of this Sunday. For details, simply follow this link.