Now they’re just piling on. “Europeans Defy U.S. to Join China-led Development Bank,” says this morning’s Financial Times.
China launched the Asian Infrastructure Investment Bank last year as a potential rival to the U.S.-dominated World Bank. On Friday, Great Britain announced it would join the AIIB — much to Washington’s consternation.
Over the weekend, Australia said it would reconsider its decision to stay out of the AIIB. An Op-Ed in The Australian newspaper says the change of heart “represents a colossal defeat for the Obama administration’s incompetent, distracted, ham-fisted diplomacy in Asia.”
Now it’s the turns of Germany, France and Italy to join up, according to “European officials” cited by the salmon-colored rag. Along with the U.K., that would be a majority of the “G-7” nations, the club long described as “the world’s leading industrial democracies.” The United States, Canada and Japan are left on the outside looking in.
Combine Europe’s rush to join the AIIB with China’s strengthening ties to Russia… and you can practically hear the tectonic plates of world power shifting.
We recall the words of the Asia Times writer Pepe Escobar, cited in our virtual pages last November.
“Think of near future Eurasia as a massive Chinese Silk Belt — in some latitudes in a condominium with Russia,” he wrote — “a complex network of high-speed rail, pipelines, ports, fiber-optic cables and state-of-the-art telecom that China is already building through the Central Asian -stans, linked to Russia, Iran, Turkey and the Indian Ocean, and branching out to Europe all the way to Venice and Berlin.”
Not a pretty picture if you’re in Washington and you’re accustomed to running “the world’s sole superpower.” Or if you’re accustomed to the dollar being the world’s reserve currency.
The “de-dollarization” process we first described last May is suddenly accelerating. And we just published the guidebook to help you make it through the gathering financial earthquake.
It’s Jim Rickards’ new book, The Big Drop: How to Grow Your Wealth During the Coming Collapse. Another 167 of your fellow 5 readers claimed their copy yesterday. Do you have yours? It’s free, as long as you cover shipping and handling. Act here and we’ll have it on your doorstep within a week or two.
Major U.S. stock indexes are in the red today. The Dow is taking it the worst, off 151 points as we write, at 17,826 — dragged down by the likes of Caterpillar and DuPont. Small caps are holding up much better, the Russell 2000 down only a quarter-percent.
The big economic number of the day is housing starts, and it’s stinking up the joint — plunging 17% in February. Just a wee bit off the “expert consensus” among dozens of economists polled by Bloomberg. They figured on a 3% drop, even after factoring in the cold weather.
Gold is steady at $1,155. Crude sits at a new post-2009 low of $43.10.
The market chatter is all about the Federal Reserve. The Fed’s Open Market Committee has begun two days of meetings in Washington.
Come tomorrow afternoon, the FOMC will issue its latest policy pronouncement. Chairwoman Janet Yellen will hold a press conference.
[Yawn… stretch.]
At issue is how soon the FOMC will begin to lift the federal funds rate from the near-zero level where it’s been pinned down since December 2008… and what sort of language the Fed will use to telegraph its intentions. (The trendy in-word is “forward guidance.”)
Since December, the Fed has said it would be “patient” in its approach. Conventional wisdom has it that this word will be dropped tomorrow and the rate will be raised three months from now.
There’s precedent here: Alan Greenspan’s Fed did just that 11 years ago. Back then, the fed funds rate had been suppressed for several months at a then-record 1%. In March 2004, the Fed statement said it could be “patient” in deciding when it was time to raise the rate. In early May, the Fed removed the word “patient” from its statement, and by the end of June, it started to raise the rate.
The aforementioned Jim Rickards weighed in on Twitter a short time ago with a variation on the theme. He’s expecting a muddled message…
That’s a reference to the “taper tantrum” of May 2013. Fed chief Ben Bernanke told Congress he was thinking about “tapering” the Fed’s quantitative easing/money printing program. In the weeks that followed, the stock market dropped 7% and interest rates spiked up.
That sounds like fun…
Since when did a “widow maker” investment — finance lingo for something extremely risky — become something safe enough for widows and orphans?
Jody Chudley of our energy team perked up recently when looking over the portfolio of Baupost Group — the hedge fund managed by Seth Klarman. Klarman is a demigod of the investing world. His 1991 book Margin of Safety has been out of print for years; used copies go for up to $3,000 on Amazon.
Klarman’s biggest position is Cheniere Energy (LNG). “The man is simply the best when it comes to avoiding risk,” says Jody, “so for a stock to become by far his biggest position in his fund, it has to be a really good and really low-risk idea.”
Cheniere is an exporter of liquefied natural gas, hence the firm’s ticker symbol. “The United States has the lowest natural gas prices on the planet,” Jody explains.
The U.S. price is $2.70 per million Btu. “Meanwhile, in Japan, the price for the exact same commodity has recently been above $15, and in Europe, above-$10 natural gas prices are looking like the norm.”
“If successful business is all about buying low and selling high,” Jody goes on, “then it would make sense to buy natural gas here in America and sell it overseas for much higher prices.
“That is exactly what Cheniere is going to start doing later in 2015. And then do a lot more of it in each subsequent year.”
Skeptics will point out that to ship natural gas to another continent, it must be converted to a liquid form — chilling the gas to -260 degrees Fahrenheit. That’s expensive. Cheniere plans to spend $30 billion on infrastructure by 2020.
“I believe what reduces the risk involved in owning Cheniere,” Jody tells us, “is that Klarman knows almost exactly how much money the company is going to make over its first 20 years of operation. Cheniere has locked in contracts both to sell all of its production and the price that it will be sold for.
“Cheniere purchases its natural gas based on the Henry Hub spot price. That Henry Hub price will fluctuate, but Cheniere’s contracts to sell LNG are locked in at Henry Hub plus 15%. That means that it doesn’t matter if natural gas prices rise or fall. Cheniere will make the same amount either way.
“If you are looking for a low-risk way to profit from the United States shale gas boom,” Jody concludes, “this might be it. It certainly seems like a better bet than owning the shale gas producers that keep waiting in vain for the commodity price to improve.”
No, it’s not “Peak Bourbon.” It just feels like it.
“If bourbon is your drink of choice,” writes Ria Misra at the website io9, “you may have heard quiet rumblings the last few years of something unsettling afoot: a possible shortage coming down the pipeline.”
Turns out the bourbon business is a lot like mining. Supply and demand are subject to long-lasting cyclical swings. It’s risky deciding today to build a mine that won’t go into production until five or seven years later.
“Making bourbon is, in a sense, an attempt at trying to predict the future,” Misra explains. “What will the world be like 20 or so years from now, the whiskey maker must ask herself, and just how much bourbon might they want there? So to a large extent, our current shortfall is due to people in the 1990s underestimating how much bourbon we’d want to drink today — possibly because 1990s drinkers had worse taste in alcoholic beverages. (Curse you, Zima.)”
There’s a lot of risk capital tied up in those barrels…
Distillers are experimenting with a variety of methods to speed up the process of aging bourbon — even ultrasonic energy bursts. Alas, according to an article at Nautilus, the results are less than ideal: “Spirits aged for shorter amounts of time (four months instead of the two years minimum for federally approved straight bourbon, for example) have an edgy taste, often described as ‘hot,’ ‘raw’ or ‘aggressive,’ with a ‘shorter finish.'”
Bleah. At least we can take comfort that the shortage won’t last forever…
“Here’s my thought about the proposed Internet sales tax,” a reader writes. “By even contemplating an the idea, Congress is turning a blind eye to the consumer’s product costs for those who purchase goods online.
“Not a single knucklehead in Washington even considered that a lack of interstate sales tax compensates for the additional shipping costs an online consumer must pay to get their product delivered. An Internet tax, or interstate sales tax, would kill Internet businesses because the prices of goods with shipping and tax would be higher than local retailers, who charge only tax, and by virtue of cost, some consumers wouldn’t bother shopping online.
“Duuuhhh — online sales will decrease, and some mom and pops will go under completely. Sorry.
“It seems our Washington friends are only thinking about tax revenue and campaign contributions, NOT about we the people.”
“I recently made my first purchase through Amazon and had to pay sales tax,” writes another reader. “I am in Tennessee, and our sales tax is as high a 9.75%.”
The 5: Yes, even without passage of the Internet sales tax, you’re currently charged sales tax by an online retailer if that company has a “nexus” — some sort of physical building — in your state. Amazon started charging sales tax here in Maryland last fall because it’s opening a distribution center in Baltimore.
That’s a steep sales tax you’ve got there in the Volunteer State. Does the lack of income tax compensate?
“If Britain is interested in joining the Asian Infrastructure Investment Bank, which will doubtless also bring in Germany, France, Italy, etc., why shouldn’t this country also join?” a reader muses.
“After all, we do a whale of a lot of business in that region, and it might help our exporters and importers. Also, if China joins the World Bank, we are going to lose some of our power in that body. We could balance that substantially by ourselves joining the AIIB, so that we could have a say in its activities. The stupidos in Washington would rather get on their high horse, though, even as they lose face and influence in that huge and growing market. As I’ve said before, learn Chinese. You’re going to need it.”
The 5: Heh… China already has 4.4% voting power at the World Bank — third behind Japan at 6.8% and the United States at 15.9%.
Which only reinforces your point…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. We can’t begin to fathom the mindset — people owed a refund from the IRS who don’t file a return to claim that refund. There are about a million of them every year.
“Potential 2011 filers have one more month to claim their money, which the IRS estimates totals a little more than $1 billion in unclaimed benefits,” reports USA Today. “People have three years to file a tax return for a refund before the money goes to the U.S. Treasury. If you’re owed money, there’s no penalty for filing late.”
We presume you’re not in this category. Chances are you’re the kind who leaves no stone unturned in trying to keep every penny that’s legally yours. That’s why Laissez Faire is back this year with its revised and updated guide, Vanishing Point: How to Disappear From the IRS This Tax Season and Save a Boatload of Money in the Process.
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