- The warnings of the Paris attacks that went unheard
- A financial tip-off to the attacks?
- The peculiar pre-9/11 airline trades… and lessons learned since
- Factory gears grinding ever slower
- The Chinese currency’s next step toward the SDR… and then what?
- A reader who’s weary of “experts”… Is Rickards “talking out of both sides of his mouth”?… a rejoinder to the easily offended… and more!
Understatement of the day: “European and U.S. security services,” writes Dan De Luce at Foreign Policy, “apparently failed to detect signs in advance of the well-organized plot in France that involved three teams of terrorists armed with Kalashnikov assault rifles and suicide bomb belts.”
When bad news breaks in a distant land, your first thoughts naturally gravitate toward anyone you know who might be there. And so it went for us Friday night. We have an office in Paris. And we had a small team from Baltimore HQ visiting there last week, led by our executive publisher, Addison Wiggin.
We’re grateful they’re all OK. We ache for the families of the 129 dead, and wish a speedy recovery for the 352 wounded.
About the “failure to detect signs in advance”: It’s not as if the signs weren’t there.
According to The Associated Press, Iraqi intelligence sent the French a warning on Thursday: ISIS leader Abu Bakr al-Baghdadi had ordered an attack on the nations fighting ISIS in Iraq and Syria, “through bombings or assassinations or hostage taking in the coming days.”
Meanwhile, The Times of Israel reports that on Friday morning, “security officials in France’s Jewish community were informed of the very real possibility of an impending large terrorist attack in the country, according to Jonathan-Simon Sellem, a freelance journalist and a representative of French citizens in Israel.”
And then there’s the possibility of shenanigans in the financial markets in the run-up to the attacks.
Here’s a chart of the action last week in France’s main stock market index, the CAC 40. “The 3.4% drop from midday Wednesday, Nov 11, to the close of Friday, Nov 13 (before the attack), is spooky,” says Jim Rickards.
“But as more information comes out, we can see that at least 25 people, probably more, and several intelligence services had advance information about the attack (not surprising, really).”
The move is reminiscent of the strange action in options on airline stocks during the run-up to the Sept. 11 attacks in 2001.
“On Sept. 6 and 7,” Jim wrote in his book The Death of Money, ”option bets that United Airlines stock would fall outnumbered bets it would rise by 12-to-1. Exchanges were closed on Sept. 8 and 9 for the weekend. The last trading session before the attack was Sept. 10, and on that day, option bets that American Airlines stock would fall outnumbered bets it would rise by 6-to-1.”
There was no news to trigger that sort of action. And there was no similar action in the other airlines like Southwest or US Airways.
“Seasoned traders and sophisticated computer programs recognize this pattern for what it is — insider trading in advance of adverse news. Only the terrorists themselves and their social network knew that the news would be the most deadly terrorist attack in U.S. history.”
The 9/11 Commission dodged the issue, saying the feds uncovered “no evidence” anyone with advance knowledge of the attacks profited.
Still, a small office within the CIA decided to dig deeper… and Jim Rickards was among nearly 200 finance pros called on to assist with “Project Prophesy” during 2003.
Its purpose: To identify market activity that would tip off another big attack. “We had modeled terrorist trading from start to finish,” Jim wrote in The Death of Money, “anticipating that the insider traders would be not the terrorists themselves but rather members of the terrorist social network. We also concluded the insider trade was likely to be executed in the options market less than 72 hours before the attack to minimize the risk of detection.”
On Aug. 7, 2006, Jim and his colleagues spotted just this sort of activity — once again, in American Airlines.
As it happened, Scotland Yard was in the process of thwarting a plot to blow up seven airliners traveling between Great Britain and North America. By the night of Aug. 9, police in and around London were able to pick up 24 suspects in a series of raids.
“We realized that the plot was unfolding in exactly the time frame that our behavioral modeling had estimated.”
[Ed. note: It’s this intersection between finance and geopolitics that Jim has studied ever since a fateful meeting he had in 1981.
Fast-forward to 2015…. and during the last year, he’s refined his thinking into a revolutionary “tactical” approach to the markets — one you can put to work in your own portfolio. Keep an eye on your inbox: We’ll take the wraps off this approach in the next 24 hours.]
To the markets — which, in the United States at least, are reacting little to the Paris attacks.
The Dow and the S&P are slightly in the green as we write. The Nasdaq and the small-cap Russell 2000 are slightly in the red. Treasuries are rallying a bit, the 10-year yield at 2.25%. Gold is nearly flat at $1,084.
Crude — despite the prospect of escalating Middle East war — is sinking ever closer to $40 a barrel.
“For the week ahead, the Fed is going to be where all the attention is,” says Jonas Elmerraji of our trading desk. Ugh…
“The central bank’s October meeting minutes get released Wednesday afternoon, and investors will be parsing them carefully to try and figure out whether a December rate hike is as likely as everyone seems to think right now.
“Thursday and Friday showed us pretty sharp corrections in the S&P 500, and momentum is rolling over. But so far, we haven’t seen any important support levels get violated — the downside moves have been pretty ‘easy’ so far, and that’s a good thing.
“Our nearest key support line is down at 2,000 in the S&P, and 2,134 is still the next-highest resistance level worth worrying about.
“The market can keep on pinballing between those two levels without telling us anything technically meaningful.”
As we check our screens again, the S&P sits at 2,029.
The one big economic number of the day is another stinker — just like retail sales on Friday.
The Federal Reserve’s Empire State Manufacturing Survey for November clocked in this morning at minus 10.7. That’s four straight months of negative readings, indicating that factory activity in New York State is contracting.
Tomorrow we’ll get the latest readings on consumer prices and industrial production. Just a guess: They too won’t support the case for a December rate increase, regardless of Fed jawboning to the contrary.
Right on schedule, the staff of International Monetary Fund has recommended the Chinese renminbi should be included in the special drawing right.
The SDR, you might recall, is the IMF’s “super currency” — available only to governments. “They are added to national reserves by the IMF,” explained Jim Rickards over the summer. “SDRs can be swapped for dollars, euros, yen or other major currencies using a secret trading facility inside the IMF in Washington.”
The IMF staff report says the renminbi meets both its litmus tests for inclusion in the SDR: It’s been “widely used” for years, and it’s now “freely usable” in the sense that China has opened up its bond market for use by other nations’ central banks.
The IMF board is likely to sign off on the staff recommendation Nov. 30. It will likely set a date of Sept. 30 of next year for the change to become official.
At that time, the IMF will be fully positioned to issue SDRs in response to the next global financial panic — something Jim anticipates by 2018. And the inflation the globe’s central bankers so desperately crave will finally materialize. Will you be ready?
“It’s pretty obvious this country is in a big mess and heading to even tougher times,” reads the first entry in today’s mailbag. (Sheesh, this is one heavy episode of The 5.)
“Even as the economy spins its wheels, precious metals, oil and other commodities all seem to be in a coma. I’m out of the equities 100%, holding cash, and just started buying gold and silver bullion. But even that is problematic, as the experts want me to ‘invest’ in very high-priced numismatic (overpriced) gold and silver coins.
“I think I’m going into a hold and just plan on waiting out all this confusion.
“I’m even feeling information overload and have started canceling investment advisement letters, the like of which one expert said, ‘I’d rather be in gold and silver early and buy more as it goes down than be even a second late when it begins its rally.’ Turns out he’s been buying early, all right! LOL.”
The 5: What “experts” are steering you toward numismatic coins? The ones who do a hard sell over the phone about how bullion coins will be confiscated? Oy…
Forecasting the timing of gold’s rejuvenation — priced in dollars, that is — is no sure thing. But it’s true, whenever the price does start taking off, it’s possible supply will be squeezed to the point you’ll have trouble finding gold at any price. Just the way it is…
“You never mention silver!” a reader chides. “Years ago, I bought silver for $5.85 per ounce and sold it for over $30.
“Can the same thing happen again, and why do I never see the word ‘silver’ with the word ‘gold.’ Sometimes I hear the words ‘precious metals,’ but that’s it. Why?”
The 5: Absolutely, it can happen again. We don’t say much about silver these days simply because there’s not much to say. It’s languishing in the $14-15 range. But yes, its day will come…
“Last Thursday’s 5 makes me think Jim Rickards is talking from both sides of his mouth,” says a reader — after Jim allowed for the possibility the Federal Reserve might raise the fed funds rate next month.
“It reminds me of the unelected, schizophrenic fed officials.”
The 5: Ouch.
As we’ve said before, Jim deals with probabilities in a world with very few certainties. And the probability of a December rate increase is certainly greater than zero at this time. If Janet Yellen’s going to keep up the “hawk talk” the closer we get to the decision one month from today, we’d be foolish to dismiss it.
“I know you don’t pay attention to the ‘whiners,’ and I’m glad you don’t,” writes one of our regulars in response to some criticism that came our way on Friday.
“You guys have made me money for years. Keep up the good work!”
“You know what I find offensive?” writes another reader in the same vein. “All the people who are so thin-skinned, nonthinking, overreactive and offended by just about anything and everything.
“I deal with offensive people and activities every day in my job. It is called interaction and activity and poor choices of words and actions. The trick is dealing with it.
“Just deal with it. So many people overreact to simple comments or many times inadvertently unknowing actions by other people. No one seems to want to be responsible for their own lives and turn to the nanny state and repressive laws, and repression of personal freedom, i.e., the Constitution, especially the First Amendment.
“The attack on the First Amendment will be much more devastating to this country than the attack on and limitation of the gun laws.”
The 5: Perhaps.
While it’s fresh in our minds, we’re also concerned about a Sixth Amendment case before the U.S. Supreme Court.
It’s the case of Sila Luis, indicted in Florida in 2012 for Medicare fraud. The feds moved to seize not only her “tainted” assets — that is, her allegedly ill-gotten gains — but also her other assets that have no connection to criminal activity.
That’s money she was counting on to fund her defense. She says she’s being effectively denied her Sixth Amendment right to counsel in a criminal prosecution.
The court will rule sometime by next June.
The 5 Min. Forecast
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