Next Saturday Separates Friends and Foes

  Since it’s coming up on Friday… allow us to be the first to wish you a happy V-E Day.

If you’re old enough, you might remember annual school assemblies marking the Allied victory over Nazi Germany in May 1945. Already by the time your editor was a grade-school tyke in the early ’70s, such remembrances were no more.
But in Russia, it’s still a big deal. We monitor international news channels throughout the day as we keep a pulse on economies and markets. RT, Russia’s state-run English network, is sparing no effort to mark the 70th anniversary this week.


In Russia, WWII is better known as the “Great Patriotic War”

  Americans just can’t relate to the Russian experience in World War II. “Epic” barely begins to describe it.
In the American mind, the iconic moment is the D-Day invasion of June 1944. But that victory over 11 Nazi divisions was possible only because the Soviet army tied down another 228 Nazi divisions on the Eastern Front.
At least 27 million Soviet citizens were killed in World War II. That’s 14% of the population… compared with 0.3% of the U.S. population.
Some more not-so-fun facts, recounted last night by the Russia scholar Stephen F. Cohen during John Batchelor’s syndicated radio show…

  • About 70% of those Soviet deaths were ethnic Russians
  • 60% of all Soviet citizens lost a spouse, parent or child during the war
  • Of every 100 Soviet boys who graduated from high school in 1941, only three came home in 1945.

So the victory commemoration in Moscow this weekend is a major event. Bill Clinton paid homage and showed up for the 50th anniversary. George W. Bush did likewise for the 60th.
Obama? He’s blowing it off… presumably to “dis” Russian President Vladimir Putin.
OK, so maybe it wouldn’t look good at a time Washington and Moscow are at loggerheads over Ukraine. After all, the main event this Saturday, May 9, is a giant military parade. None of the NATO heads of state will show up. But at least Germany’s Chancellor Angela Merkel will lay a wreath at Moscow’s Tomb of the Unknown Soldier on Sunday.
“Obama promised to crush us, like a bug underfoot,” grumbled a senior Russian policymaker earlier this year — someone who speaks with Putin nearly every day.
But he added, “They can’t do that now.”
  “May 9 is the date in our calendar that divides us from friends and foes,” added that leading Russian government official. “We’ll show our newest equipment” at that military parade.
The official is Deputy Prime Minister Dmitry Rogozin. He oversees Russia’s defense portfolio.
“Rogozin is the son of a Soviet-era three star general who ran a key research directorate of the former Soviet ministry of defense,” says our military technology expert Byron King. “Rogozin holds a degree in economics and a Ph.D. in philosophy. He’s a trained helicopter pilot, as well as Russia’s former ambassador to NATO.”
No lightweight this guy. Rogozin has even personally flown Russia’s newest attack helicopter, the Ka-52. “Handles like a butterfly,” he offered.
Rogozin made these remarks last winter, in Russian, during in an interview with Russian domestic TV, a studio audience looking on.


Deputy Prime Minister Dmitry Rogozin holding court
before a live studio audience

The interview got almost no attention in the West. Too bad, says Byron. It’s an eye-opener.
  “We are now re-equipping our armed forces at a great pace,” Rogozin said.
“Off the top of his head,” says Byron, “Rogozin rattled off a remarkable set of statistics — accurate, as best I know from public sources — about the upward spike in Russian weapon output in the past four years, since he took the defense job in 2011. This means aircraft, helicopters, rockets, surface ships (including new icebreakers for the Arctic), submarines, electronics, robots and much more.
“As Rogozin spoke, I immediately thought of newly fielded Russian capabilities in electronic warfare, directed electromagnetic pulse and long-range anti-air missiles that are intended to destroy U.S. radar, intelligence and refueling aircraft (AWACS, Rivet Joint, Cobra Series, KC-135, etc.) at long distances — 200 miles away and more.”
Yup, a missile that could take out an airplane from 200 miles out.
And the nuclear missiles? “Our missile development,” said Rogozin, “has reached a point where both the current and future American anti-ballistic missile capabilities are incapable of impacting the Russian strategic missile potential.”
  Why the buildup? Insurance, said Rogozin, against Western-engineered regime change in Russia.
“We do not want to see the tragic events which we see, every day, in Ukraine, repeat themselves here [in Russia],” he said. Thus, Russia is “independently developing our country, and taking an independent role in the world.”
Paranoid, you think? Remember the context, says Byron: “Rogozin is referring, of course, to the U.S./NATO-sponsored coup in Ukraine last year, followed up by the ongoing, bloody, destructive Ukraine civil war. It’s all happening right on Russia’s doorstep — in Russia’s historical ‘near abroad’ — under circumstances that violate clear assurances that Western leaders gave to Soviet leaders in 1991, during the peaceful demise of the Soviet Union. Just sayin’…”
Again, Rogozin gave this interview last winter. On Feb. 6, Byron described it in detail to his Military-Tech Alert readers. And with May 9 — this Saturday — in mind, Byron said, “we in the West have three months to come to an arrangement with Russia and develop a modus vivendi in Europe and across the world.”
Didn’t happen. So now what?
At least one aspect of Russia’s buildup hasn’t gone unnoticed in Washington. And it’s leading to what Byron describes as perhaps “the largest contract that the American military machine doles out in 2015.” More on the investing angle tomorrow…
  U.S. stocks are mixed after a good thumping yesterday afternoon. The S&P 500 has shed another three points, to 2,086. But the small-cap Russell 2000 is in the green, if barely.

Gold is stuck in low gear at $1,190. Crude remains above $60 at $60.67.
  The market’s early gains today were pared back when Federal Reserve chair Janet Yellen once again saw fit to venture an opinion on stock valuations.
“I would highlight that equity market valuations at this point generally are quite high,” she said this morning at a forum in Washington. “They are not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there.”
Our Jim Rickards weighed in via Twitter moments ago…

It was on July 15 last year when Ms. Yellen last saw fit to weigh in on this matter. Then, she got sector-specific: Social media and biotech, she suggested, “appear to be stretched.”
For whatever it’s worth, biotech is up 35% since then — even after its recent pullback. Social media as a group has gone nowhere.

If Yellen’s remarks today have any predictive value at all, we can say at worst the broad market will be near breakeven 10 months from now. Heh…
  And we Americans complain about ATM fees: Greece is about to impose a tax on cash withdrawals.
It’s not official yet. The buzz is it’ll be one euro for every 1,000 Greeks withdraw.
For the Greek government, it’s a two-fer: It discourages people from cleaning out their bank accounts in a panic, thus shoring up the finances of Greek banks. And it could generate as much as $202 million in revenue — maybe enough for Greece to meet the next interest payment on its bailout loans later this month.
It’s still not official yet. The European Central Bank has to sign off. But seeing as the ECB is one of Greece’s creditors, is there any doubt?
But wait… If it’s not yet official, what’s to stop anybody from cleaning out their account in advance of the directive becoming official? And what would that do to the banks’ finances?
Grab the popcorn…
  “The individual who ranted at you a bit about desalination of water,” writes a reader reacting to yesterday’s mailbag, “appears to not even be aware of the least energy-intensive method of doing it: The Israelis have developed something called ‘spin flash’. A cycle resembling a refrigeration or heat pump cycle is used, and an enormous (because of the huge specific volume of water vapor) turbine compressor is involved.
“In a country that flares huge amounts of natural gas anyway — a gas turbine could be used to drive the water vapor compressor wheel, and the waste heat from the gas turbine’s exhaust could also be put to productive use.
“Funny how (apparently) left-leaning folks tend to be smug whilst staying busy falling behind the technological times!! In a parallel development, I rather doubt that Gov. Moonbeam has anywhere near enough sense to seek advice from the Israelis about such things!! The ONE lesson that he MAY have learned from his daddy (Pat) is that water tends to run uphill to money!!”
  “Had to chuckle reading that California could solve its water problems with old TV sets,” adds one more — “another leading-edge technical development and cheap because of all of those discarded TVs! Come on, fellows, let’s just do it!”
  “In regard to solar,” writes one of our regulars after Friday’s episode, “I purchased my current home last year and assumed a lease on the solar system on the home.
“As far as market value, it added no value to the resale of the home, but that said, I do like it. It does generate more electricity than I can use, and that excess electricity is banked at my utility company. Since I have natural gas heat and water, I do not have a high consumption of electricity, and overall, it is really just a green thing.
“I considered switching my water heater to electric, and also was looking at the battery pack that Elon Musk is offering. In either case, I cannot justify the cost. As it is, with my solar lease at $35 per month, I only break even or so across the board.
“What I really like, though, is my monthly utility bill. For April on a 1,500-square-foot home — $47. The electric portion was a service fee of $7.80. The largest bill I had, which was January, was $97. Overall, I am pleased with my utilities and service all across the board.
“That said, I think each situation is different for different folks and different areas. It depends on the available infrastructure and the size of the home. Solar is getting close, but it is not there yet. At present oil and natural gas prices, it has a long ways to go.
“It takes a big system to go 100% off grid, with a lot of variables. You likely need an ax, a saw and a bit of timber and a stove. The greenies hate wood stoves. I love them but can’t justify one: I have natural gas.”
The 5: Our new friend Cam Mather, profiled last week, loves wood stoves… and he’s as green as they come. You’re just accelerating the carbon release that would happen anyway if a tree was dead and decaying on the floor of the forest.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Jim Rickards’ newest book — the Agora Financial exclusive The Big Drop — is drawing praise from an unlikely corner.
Writes a reviewer at the liberal Daily Kos, “He is definitely not a conventional economist, and his evaluation of the economy is insightful and clearly presented. He is smart enough and successful enough and has sufficient experience that his statements cannot easily be discounted…
“Rickards’ description of the current state of our economy presents it as balanced on a knife edge between the gaping maw of deflation and the massive inflation which the Fed is pumping to counteract it. His view is first that the people in charge don’t actually know what they are doing and are winging it. Second, he feels that the efforts to stabilize the economy will fail, inflicting us with runaway inflation, massive deflation or both one after another.”
Well said. The Big Drop distills all of Jim’s thoughts since he joined the Agora Financial team last fall into a single easy-to-follow package. And it has actionable what-to-do-with-your-money guidance that builds on his two earlier books.
Again, we’re the only place you can get this third book. If you don’t have your copy yet, here’s where you can act.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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