Crude is back above $50 a barrel this morning… thanks to a war in the world’s No. 37 oil producer.
This map will come in handy several times during today’s episode of The 5…Last night around dinnertime in the United States, Saudi Arabia dispatched its air force to bomb targets in Yemen — aiming to restore what the Saudi princes call Yemen’s “legitimate government.”
Now, there’s a loaded term if there ever was one. Herewith, a bit of history the media won’t tell you about unless you look for it…
Yemen is a place where Washington sought to squelch the “Arab Spring” four years ago.
Since 1990, the joint had been ruled by American stooge dictator Ali Abdullah Saleh. The Obama administration wanted very much to keep him in power; he was a valuable ally in America’s drone war against the al-Qaida franchise there.
But the street protests during 2011 became overwhelming. Saleh gave up power in November. In early 2012, Washington engineered a dubious election in which Saleh’s vice president, a guy named Abd Rabbuh Mansur Hadi, was the only candidate on the ballot.
Problem solved… at least for the moment.
About 60% of Yemen’s population is Sunni Muslim, the rest Shiite Muslim. Late last year, a Shiite sect known as the Houthis took over the capital, Sana’a, along with much of the country’s western coast. President Hadi fled for the southern port city of Aden… where the Houthis are now advancing.
The U.S. closed its embassy in Sana’a last month. U.S. troops serving as “advisers” withdrew from a base near Aden last weekend. It’s now occupied by the Houthis.
If Lebanon made your head spin in the ’70s and ’80s, that’s what Yemen is quickly turning into today — with more fractious factions than you can count on one hand.
You have the Houthis. You have the forces still loyal to the “legitimate government” of Hadi. And you have al-Qaida, which rules many tribal areas. Meanwhile, ISIS pokes around in the shadows. So do forces of the old dictator, Saleh, who’s scheming to return to power.
And now Saudi Arabia’s gotten into the act, bombing Houthi targets. The Houthis have responded by lobbing missiles into Saudi Arabia. Unless those missiles have a significant range, the oil fields concentrated in eastern Saudi Arabia appear safe. But any sort of conflict involving Saudi Arabia — still the world’s leading oil exporter — will generate a bump in the oil price.
The “oil wars” of which we’ve long written, pitting Shiite against Sunni, are gearing up again. With Sunni Saudi Arabia now intervening on behalf of Hadi, how long before Shiite Iran responds on behalf of the Houthis? Stay tuned…
Major U.S. stock indexes have arrested the free fall they got into yesterday afternoon.
After closing down nearly 300 points, the Dow slipped another 100 on the open this morning. But now it’s back near breakeven, at 17,700. The other indexes are also in the red, but only fractionally.
Gold popped overnight the moment trading opened in London. At last check, the bid is $1,205. The move comes despite a bit of dollar strength, with the dollar index back above 97.
“Biotech stocks aren’t in a bubble,” says our Ray Blanco — revisiting a question we’ve explored now and then since late 2013.
It’s been a terrible week for biotech stocks. The Nasdaq Biotechnology Index is down more than 7% from its open last Friday. And that index is dominated by large, profitable biotechs. The small-fry companies still working to get their drugs through trials have been clobbered worse.
But we’ve been here before, Ray reminds us: “Biotech stocks sold off 20% last year between mid-February and mid-April. They didn’t fully recover from their February highs until August. And right now, we’re 28% above that February high.”
So back to the B-word: “Although some companies might be overvalued, several things are happening in biotech right now that make this a different market from what we had 15 years ago.
“For one thing, we have better science,” Ray says. “Collectively, our understanding of human biology and how to interact with it are far stronger.
“We are seeing new biotechnologies show real, solid promise in everything from gene therapy to cancer immunotherapy. We’re seeing clinical results. That often wasn’t the case in the biotech bubble of the 2000.
“Furthermore, the FDA has started to become somewhat more amenable to approving new therapies. It’s approving more new drugs than it has in years. This reduces the regulatory risk for clinical-stage biotechs. This isn’t simply due to regulatory easing, although that’s helped. The FDA has a better grasp of the science behind what’s going with new drug candidates, too.
“Plus, there’s the X factor: buyouts,” Ray reminds us. The old “patent cliff,” as it’s known.
“Big Pharma needs to plug holes caused by flagging in-house pipelines and patent expirations. It’s fighting to preserve its revenue streams, and right now, most of the innovation to create new blockbuster drugs is taking place in these small biotech names. Hidebound Big Pharma is buying its future growth and paying big premiums.”
So no, Ray concludes — no bubble.
“However, the growth in biotech stocks doesn’t move in a straight line,” he allows. “We could see another month like we saw at this time last year. There’s a lot of bubble chatter, just like we saw early last year. Investors are anxious and might sell off some more.”
Now it’s the entire Bill of Rights that’s been shredded.
In mid-2013 we quipped that at least the Third Amendment might still be safe — the one about how soldiers can’t be quartered in your home in peacetime. But even that one was under threat, as we chronicled the case of the Mitchell family in Henderson, Nevada.
Police wanted to use their homes as lookouts while conducting a domestic violence investigation into their neighbors. For real. Three members of the family were arrested for not complying as quickly as the lawmen wanted, although the charges were dismissed.
The family sued. Last month, a federal district judge threw out the Third Amendment claim.
His ruling made perfect sense — if you’re a lawyer. “I hold that a municipal police officer is not a soldier for purposes of the Third Amendment. This squares with the purpose of the Third Amendment because this was not a military intrusion into a private home, and thus, the intrusion is more effectively protected by the Fourth Amendment.”
Just one problem, as George Mason University law professor Ilya Somin writes at The Washington Post: “When the Amendment was enacted in 1791, there were virtually no professional police of the sort we have today. The distinction between military and law enforcement officials was far less clear than in the world of 2015.
“Moreover, many parts of the Bill of Rights were in part inspired by abuses committed by British troops attempting to enforce various unpopular laws enacted by Parliament.”
Somin also points out the militarization of police forces muddies up the matter. “If a state or local government decides to quarter a SWAT team in a private home, it is not clear whether that is meaningfully different from placing a National Guard unit there.”
Brings to mind a meme circulating last summer during Ferguson. We shared it at the time…
Saving grace: The judge did allow the Mitchells have a legitimate Fourth Amendment complaint. That part of the lawsuit will still go forward.
“I own a parcel, besides owning my house,” writes one of many readers after we broached the subject of property taxes yesterday.
“The parcel is raw land, just like what Rickards suggests to hedge the collapse of currencies. But as Doug Casey says, ‘You think you really own that? Try NOT paying the annual property tax and see how long before it’s no longer yours free and clear.’
“It is municipal extortion, plain and simple, methinks.”
“Owning property is an illusion,” writes another. “You only lease it from the state that you live in.
“The fastest way to get evicted is to not pay your property taxes. Does that sound like you own your property? You can never have a mortgage-burning party for your property taxes. As long as you own property, you will pay the state their lease payment… and by the way, it goes up every year.”
“The property tax is an especially delicate topic in California,” reads the first of several state-specific reports.
“My parents moved to the Bay Area and paid $60,000 for a house in 1962 that is now worth over $2 million, and the people across the street who just bought a house are paying $2,500 a month in property taxes to live in a similar house that hasn’t been changed since the 1960s. That’s more than some people pay for rent for similar houses elsewhere in the country.”
“Here in the great state of Texas, property tax levels are confiscatory.
“If you bought the average house with a few acres of property 40 years ago for $25,000 and retired now with just Social Security, your property tax on your now $250,000 home, paid for a decade ago, will cost you about $4,000 a year in taxes, or about two months of your SS income. Just to keep ‘your’ house.”
“New York’s is a misleading number,” a reader refers to the Tax Foundation research we cited yesterday. “Since New York City controls the state, the five boroughs are property assessed capped at 50%, while the rest of New York state is at 100%.
“The logic: At 100%, no one could afford to live in New York City. Most New Yorkers I meet are clueless about this strange carve-out. And in the state capital, they wonder why New York is ranked as the worst state for business, people keep leaving and our university graduates leave also as a net loss each year.”
“While I complain about the property tax in Indiana at 0.86% for homeowners and about triple that for landlords, since it is a maximum of 2% with no exemptions, I would really hate to be in some of the other states.
“In a state like Connecticut, at nearly 2%, it is like the local government confiscating one in every 50 homes every year, or if you live in yours for 50 years, they get your entire house. Wow! And they aren’t even the worst offenders.”
“Why would someone who has purchased property with after-tax dollars be subjected to taxation all over again?” muses our final correspondent.
“For as long as I can remember, I have felt it was one of the greatest of evils, that someone who had purchased property with their after-tax dollars would end up having that property taken away from them/stolen in their old age or retirement years by the government. This usually occurs, also, in conjunction with the loss of value in the retirement savings of these individuals from inflation, which appears to be yet again another purposeful theft of the hard-earned money and savings of we the people.
“I’d have thought that politicians would have long ago put an end to such a heinous practice of preventing life, liberty and the pursuit of happiness. However, reading the description of how the two-party system was planned and implemented, as described in the book Tragedy and Hope, it does tend to explain why justice and common sense never seem to prevail and our elected officials almost always appear to sell out the people, regardless of which party they are affiliated with.”
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Confidential to Laissez Faire Letter subscribers: My colleague Doug Hill has been trying to reach you about an extraordinary event set for next week, called the Tax Freedom Summit.
Doug has rounded up four of the most renowned tax experts in the country — including “Loophole Queen” Diane Kennedy, tax adviser to Capitol Hill.
She charges $250 for 15 minutes. You won’t have to pay anything like that. And you’ll have access to three other authorities, too.
The event is set for next week. If you can’t make it “live,” you can watch the recording at any time. You’ll find Doug’s personal invitation at this link.
