The Attack America Never Saw Coming

  • The complicated relationship with a sworn “ally” of America…
  • … and the double cross its government plans against the dollar
  • Another dire junk bond warning
  • The heavy hand of China, in chart form
  • Two more cautionary tales about cannabis investing… holiday bonuses, Chinese style… making Russia cry uncle… and more!

 One of the world’s most backward regimes has just arrested a woman for the crime of managing a Twitter account calling for her husband’s release from prison.
Her husband was imprisoned in 2014 for “undermining the regime” by founding a human-rights group in his country.
The woman is also the sister of a blogger who in 2014 was sentenced to 10 years in prison and 1,000 lashes for “insulting Islam.”
Betcha thought we were talking about North Korea or maybe someplace in sub-Saharan Africa until we got to the “insulting Islam” part, huh?
The country we’re talking about is one of Washington’s closest “allies” — and yes, those quotation marks are laced with irony. Especially in light of the double cross its government is planning against the U.S. dollar. But we’re getting ahead of ourselves…
The woman’s name is Samar Badawi, and she’s from Saudi Arabia.
Freedom House — a nonpartisan group that tracks political rights and civil liberties in 195 countries — ranks Saudi Arabia among its 12 “Worst of the Worst,” right down there with North Korea and Uzbekistan (where the dictator has his opponents boiled to death).
Amnesty International cites local activists as saying Badawi was picked up yesterday, sent to a police station along with her 2-year-old daughter, questioned and then jailed. She’s supposed appear before a prosecutor today.

Samar Badawi: An honest-to-God freedom fighter…

The arrest “demonstrates the extreme lengths to which the authorities are prepared to go in their relentless campaign to harass and intimidate human rights defenders into silent submission,” says Amnesty’s Philip Luther.
And yet the American and Saudi regimes are so joined at the hip that when Saudi Arabia was chosen last fall to lead a major human-rights panel at the United Nations, a State Department spokesman said Washington “welcomed” the announcement.
We can hardly wait to see how Saudi Arabia’s $6.78 million public-relations and lobbying machine in America tries to spin the news of Badawi’s arrest.
That’s how much the kingdom spends each year to wield influence in Washington, according to the journalist Eli Clifton. More than 40% of that total goes to one firm called Qorvis/MSLGroup, an outfit run by veteran operatives from both major political parties.
The kingdom first hired Qorvis to brush up its image after it turned out most of the Sept. 11 attackers came from Saudi Arabia. Qorvis commissioned radio and TV ads crowing that the 9/11 Commission found there was “no evidence that the Saudi government as an institution or senior Saudi officials individually funded [al-Qaida]” — conveniently omitting the report’s conclusion that “Saudi Arabia has been a problematic ally in combating Islamic extremism.”
“Problematic” is the understatement of the century — if the redacted “28 pages” from another government report are ever made public.
In addition to the 9/11 Commission, there was a Joint congressional inquiry into the attacks. Its report includes 28 pages that the Bush administration barred from publication on national security grounds. The Obama administration has continued to suppress the 28 pages.
The handful of people who’ve seen the uncensored document say it identifies Saudi Arabian citizens “complicit” in the attacks. “They are clearly identified,” Rep. Stephen Lynch (D-Massachusetts) said. “How people were financed, where they were housed, where the money was coming from, the conduits that were used and the connections between some of these individuals.”
“I had to stop every couple pages,” said Rep. Thomas Massie (R-Kentucky), “and… try to rearrange my understanding of history… It challenges you to rethink everything.”
Unfortunately, that’s as specific as they can get without getting arrested for spilling classified information…
And now comes the financial double cross… as the House of Saud clings to power ever more desperately.
Last week, Byron King explained in this space how 2016 will be the year war and revolution come to Saudi Arabia.
Low oil prices are quickly draining government coffers. The regime cut back fuel subsidies two weeks ago, which had the effect of raising gasoline prices 50%.
Little wonder then that the regime chose to behead a revered Shia Muslim cleric on Jan. 2. It was a way to buy off the country’s Sunni Muslim majority — at least for a while.
But as long as oil prices stay low, the squeeze will only get worse. It will undermine an unspoken bargain that’s existed for decades. “People may not have political liberty, but they get a share in oil revenues through government jobs and subsidized fuel, food, housing and other benefits,” explains Patrick Cockburn, Middle East correspondent for the London Independent.
Which brings us to the financial double cross Saudi Arabia has in the works — a body blow to the U.S. dollar.
We’ve already used up a goodly portion of our 5 Mins. today… so we’ll get into more detail tomorrow. Suffice it to say few people will see it coming. Certainly not the clueless elites in Washington who still suck up to the Saudi regime.
But for a savvy few, it could mean 300% gains using a strategy safer than how most investors usually buy stocks. Jim Rickards says it’s a “once-in-a-lifetime chance.” And he’s holding a special online workshop to spotlight what he’s calling “The Great Currency Shock of 2016.” It’s the evening of Jan. 18 — next Monday.
Participation in this event is free. Just drop us your email address at this link and we’ll reserve your spot.
For a second day running, crude prices are proving a drag on U.S. stocks.
The oil price had stabilized earlier this morning. Then the Energy Department issued its weekly inventory report. To the surprise of the “experts,” it showed a slight build in crude inventories… and another huge gain in gasoline inventories.
Cue the hand-wringing over whether there’s enough room to store all that oil and gas. At last check, a barrel of West Texas Intermediate has sunk to $30.35 — around where it was 24 hours ago.
With that, the major U.S. stock indexes are all slightly in the red, the S&P 500 a hair above 16,500. Gold is nearly unchanged at $1,089.
One of the world’s foremost bond investors is affirming Jim Rickards’ long-standing warning of stresses in the junk-bond market.
Jeffrey Gundlach is the man behind the $85 billion-strong DoubleLine Capital. He says the failure of the Third Avenue Focused Credit Fund (FCF) last month signals more trouble ahead: “There’s plenty of credit [funds] that do the same thing” — that is, investing in poor-quality bonds that are hard to unload if investors want to sell their shares in the fund. If another fund ceases redemptions as FCF does, an investor’s portfolio “might be worth absolutely nothing.”
“I’m worried when the redemptions come in for the credit hedge funds,” Gundlach tells the Financial Times. “It will be difficult for the market to absorb when it is already in illiquid conditions.”
Our guidance via Jim Rickards still stands: Make sure there’s no junk in any bond funds you own.
Currency war update: China’s winning the battle for control over the yuan — at least for the moment.
Last week, we pointed out the yuan has two exchange rates against the U.S. dollar — an onshore market the government controls tightly and an offshore market that’s more exposed to market forces. The gap between the two rates grew to a record last week, which didn’t help calm down global stock markets.
What could the Chinese do to get the two rates back in line and look credible again?
“Traders said a surge of yuan buying by state-owned banks on Friday and Monday in Hong Kong sent the cost of borrowing yuan overnight soaring past 66% by Tuesday, making it prohibitively expensive for investors to finance bets against the currency,” according to The Wall Street Journal.

China's Heavy Hand

See, Chinese leaders want to devalue the yuan in baby steps for now. They can’t let currency traders get ahead of them. Heavy-handed intervention like this always has a risk of backfiring… but it appears to have worked this time.
In any event, “China will devalue its currency further,” Jim Rickards told his Strategic Intelligence readers yesterday, “and possibly close its capital account to some extent in order to preserve what’s left of its reserves. Look for more adverse U.S. stock reaction to China’s experiments.”
A “historic development for the cannabis industry” says the press release. Hmmm…
Yesterday, a publicly traded firm called Terra Tech (it trades over the counter as TRTC) announced it’s buying a privately held outfit called Blum Oakland — a medical cannabis dispensary in Oakland. And with that, we have the first publicly traded pot dispensary.
Or as Terra Tech’s CEO put it, “Today, we can proudly claim the title of the only U.S.-based, publicly traded company that touches every aspect of the cannabis lifecycle — from cultivation, to extraction, to branding and now, with the acquisition of Blum, to retail sale.”
Shares jumped 19% yesterday, and they’re up another 19% as we write today. They’re a whole 13 cents now!
Heh… That’s still less than half TRTC’s 52-week high of 28 cents.
Our ongoing skepticism about pot as an investment is affirmed by recent developments from Colorado.
Last week, a federal judge tossed a lawsuit brought by Fourth Corner Credit Union — which was formed to cater to Colorado’s legal pot industry. As we mentioned back in October, Fourth Corner couldn’t open for business without access to the Federal Reserve’s payment system… and those buzzkills at the Fed refused access.
The Fed said granting the credit union access “would facilitate criminal activity,” and Judge R. Brooke Jackson agreed: Pot is still illegal under federal law, end of story. However, the judge expressed sympathy for pot businesses that are stuck dealing exclusively in cash. “I regard the situation as untenable,” Jackson wrote, “and hope that it will soon be addressed and resolved by Congress.”
We’re not holding our breath for that. Or inhaling, for that matter.
“I know this is very anecdotal info,” a reader writes, “but I have not seen it mentioned anywhere else.”
Oooh, that gets our attention…
“My wife is native Chinese and has quite a few close friends in China. Two of her friends this year were expecting their usual end-of-year bonuses: one for about 50,000 yuan, the other for about twice as much.
“Both of their employers informed them at the last moment that rather than an actual ‘cash’ bonus this year, they instead were required to purchase stock in their respective companies. One was also told that she was ‘not allowed’ to sell the stock for at least a year. Hmmmm…
“I thought you’d like to know. Been a reader since day one; love The 5!”
The 5: Wow… Thanks for the micro picture of the Chinese government’s control-freak attempts to hold everything together.
“Not sure I understand the mindset of the Saudi oil barons,” a reader writes.
“Let’s see: Sub-$25 oil with market share preserved is better than $100 with some loss of market share? Doesn’t seem to add up.
“The whiplash will be swift when price heads back up. U.S. producers will be bankrupt, and people who find the oil will no longer be in the industry.”
The 5: Hedge fund manager Erik Townsend presented an intriguing thesis in this space last month: While low prices hurt Saudi Arabia, they hurt Russia even more… and Saudi Arabia is willing to drive prices down to make Russia cry uncle and sign onto production cutbacks or even join OPEC.
“Eventually, one of two things will happen,” he told us: “Russia will run out of money and cave to OPEC/Saudi Arabia or Saudi Arabia will run out of money and cave to the other OPEC members who favor a production cut.”
The result is as you say — low prices now, much higher prices later.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. One more thought about this Saudi Arabia-Russia game of chicken: The longer Russia holds out, the more likely it is Saudi Arabia will double cross the United States and carry out a surprise attack on the U.S. dollar.
Jim Rickards calls it “The Great Currency Shock of 2016.” And you can brace for impact by taking part in a live exclusive online briefing Jim’s holding next Monday night. Details here.

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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