The 28 Pages and the Next Currency Shock

  • The “28 pages” go mainstream
  • After the Sept. 11 double-cross comes the currency betrayal
  • Subtle signal from the elites that negative interest rates won’t come to America
  • Compromising encryption to catch drug dealers
  • Gold the strongest performer of the day… Harry Potter and the Spies With Screwy Priorities… skeptics question virtual reality’s investing potential… and more!

And so the “28 pages” have finally entered the public consciousness.
We first alluded to their existence early last year, after the death of Saudi Arabia’s King Abdullah. In December 2002, a Joint Congressional Inquiry issued a report about the Sept. 11 attacks. The Bush administration classified 28 pages of the report. The Obama administration has refused to declassify them.
The few people who’ve seen those 28 pages say they point to complicity by individuals and organizations from Saudi Arabia — America’s great Middle East “ally” going back to at least 1945, when a dying FDR paid a call on the kingdom’s founder Ibn Saud aboard a U.S warship in the Suez Canal.
The 28 pages have been getting more and more publicity since.
Six weeks ago, Donald Trump made a veiled promise to declassify them if he’s elected president. “It wasn’t the Iraqis that knocked down the World Trade Center,” he told a rally in South Carolina. “We went after Iraq, we decimated the country, Iran’s taking over… but it wasn’t the Iraqis. You will find out who really knocked down the World Trade Center, because they have papers in there that are very secret, you may find it’s the Saudis, OK? But you will find out.”
Last night, the 28 pages were the big story on 60 Minutes — right after the telecast of The Masters, for maximum impact.
The story broke little new ground. Its treatment was clinical, lacking any emotional wallop. But even in the Internet age, 60 Minutes still carries the perception of journalistic cachet.
It matters when 60 Minutes gives a platform to former members of Congress who’ve seen the report and are convinced the hijackers got help within the United States, and those helpers had ties to Saudi Arabia. It matters when 60 Minutes describes the monarchy’s super-strict form of Islam, Wahhabism.
“After oil,” said correspondent Steve Kroft, “Wahhabism is one of the kingdom’s biggest exports” — via mosques and religious schools worldwide that are “recruiting grounds for violent extremists.”
Not that any of it will matter when President Obama pays obeisance to the new Saudi king, Salman, 10 days from now.
The president will attend a summit with leaders from the Gulf Cooperation Council — Saudi Arabia and five other Arab monarchies.
On the official agenda is the war against ISIS. We’re reasonably certain the president will not tell the leaders of Saudi Arabia, Kuwait and Qatar to knock it off funneling money and weapons to Iraq and Syria, where it ends up in ISIS’ hands.

Obama and King Salman: Who’s got the stronger negotiating hand?

Not that those regimes are directly arming and funding ISIS. But they have a habit of allowing their citizens to arm and fund other hardcore Islamist groups — whose members often defect to ISIS.
“America’s Allies are Funding ISIS,” said a 2014 Daily Beast article. “ISIS and Saudi Arabia: A Dangerous Double Game,” read a headline last December in Israel’s respected daily Haaretz.
If President Obama were serious about putting a stop to it, he’d threaten to cut off the flow of U.S. arms sales to the kingdom — $100 billion worth since 2010.
But then Saudi leaders could threaten to retaliate by breaking the Saudi riyal’s peg to the U.S. dollar.
Going back to 2011, “practically every important currency in the world has devalued against the U.S. dollar,” Jim Rickards said in this space last fall. “These include major economies and our trading partners. Canada, Australia, the eurozone, Russia and China have all devalued against the dollar in efforts to export deflation, boost exports and create jobs.”
The lone exception is Saudi Arabia and its fellow GCC members.
Obama could threaten the flow of arms, threaten to expose the 28 pages… but then King Salman and his buddies would launch their attack on the dollar.
Heck, Saudi Arabia might break the dollar-riyal peg anyway. That’s a possibility Jim’s been entertaining since January.
With super-low oil prices and the Saudi Arabian government dependent on oil for more than three-fourths of its revenue, the riyal has been under immense pressure. The kingdom has been burning through its foreign exchange reserves at breakneck pace.
Breaking the peg, devaluing the riyal, might be the only way the kingdom can maintain the fuel subsidies, housing subsidies, government jobs and so on that the royal family uses to buy off their restive subjects.
Jim calls it “The Great Currency Shock of 2016.”
The precise timing is up in the air… but the profit potential when it happens is immense, if you know how to play it. See Jim’s strategy right here.
The new week began with a strong rally… which is already fizzling as lunchtime approaches.
The Dow was up more than 150 points shortly after the open, but that’s been pared back to a 58-point gain at last check. Same drill with the S&P and the Nasdaq. The small-cap Russell 2000 has slipped into the red.
But gold has been gaining steadily all day — up to $1,257 as we write. Crude is also impressive — piercing the $40 level this morning, now up to $40.39.
And only a tiny amount of those moves can be chalked up to dollar weakness. That said, the dollar index has dipped below 94 for the first time in six months.
The establishment has spoken: Negative interest rates in the United States are a nonstarter.
The voice of the establishment in this case is Larry Fink, the CEO of Blackrock — the world’s biggest asset manager. He’s issued a warning in his annual shareholder letter about near-zero and negative interest rates: “Not nearly enough attention has been paid to the toll these low rates — and now negative rates — are taking on the ability of investors to save and plan for the future.”
Fink’s letter points out something Jim Rickards has mentioned in this space before: Negative rates achieve the opposite of their intended effect. Rather than spurring people to spend, they spur people to save even more.
“A 35-year-old looking to generate $48,000 per year in retirement income beginning at age 65,” says Fink, “would need to invest $178,000 today in a 5% interest rate environment. In a 2% interest rate environment, however, that individual would need to invest $563,000 (or 3.2 times as much) to achieve the same outcome in retirement.”
Thus, “consumers saving for retirement need to reduce spending… A monetary policy intended to spark growth, then, in fact, risks reducing consumer spending.”
“If the Fed goes for negative interest rates, it will ignite a firestorm of political opposition on Main Street among the tens of millions of long-suffering savers and retirees who have been savaged by the Fed in the name of stimulating wealth effect gains for the 1%,” says our own David Stockman.
“Ironically, the billionaire real estate speculator who benefited mightily from the 30-year reign of the Fed money printers, and who has now single-handedly taken over the nation’s political process, would be the first to arrive at the front door of the Eccles Building with torches and pitchforks, denouncing any move to negative rates. In a word, the rise of Donald Trump now trumps any possibility of negative interest rate policy.”
Jim Rickards concurs: “Stimulus,” he believes, is much more likely to come in the form of new federal spending, running up the national debt; the Fed would print money to buy all the new debt issued by the Treasury. (We addressed this scenario in a rare single-topic episode of The 5 four weeks ago.)
Well, we warned you: The FBI’s determination to break end-to-end encryption has nothing to do with terrorism.
As you’ll recall, the feds went to court to force Apple to break into the iPhone of the San Bernardino shooter — something Apple said it couldn’t do without compromising the security of every iPhone on the planet. The FBI dropped the case once it managed to, in fact, break into that one iPhone on its own.
On Friday, the Justice Department announced it would press forward with a similar “request” of Apple — this time in a drug case.
Can’t say FBI chief James Comey was playing coy about this: In February, he told Congress even “car accident cases” were fair game for law enforcement to break encryption.
This from the guy who made an offhand comment last week that he puts a piece of tape over the camera of his laptop. The Twittersphere predictably erupted. A representative post from the ACLU’s Chris Soghoian…


As long as we have the surveillance state on our mind…
News emerged from Britain over the weekend that that GCHQ — that country’s version of the NSA — stepped in to halt an online leak of the sixth Harry Potter novel before its publication in 2005.
Publisher Nigel Newton says GCHQ contacted him after the agency spotted an early copy of Harry Potter and the Half-Blood Prince. “I got them to read a page to our editor and she said, ‘No, that’s a fake,’” Newton told the BBC.
“If newspapers splashed ‘Dumbledore dies,’ what pleasure is there going to be for a kid reading it?” Newton told Australia’s ABC Radio. “The enemies stood to ruin a great deal of pleasure for the world.”
Here’s what no media outlet has pointed out till now, as far as we can tell: Harry Potter and the Half-Blood Prince was released on July 16, 2005 — nine days after the infamous “7/7” bombings that targeted public transit in London, killing 52 innocents and wounding 700 more.
We don’t know the precise timing of the conversations between GCHQ and Mr. Newton — after the bombings or before. But neither possibility reflects well on the spies’ priorities, does it?
“Virtual reality is but the tip of a very deep iceberg,” a reader writes after we explored the topic several times last week. “Beyond lies Asimov.
“His first story introducing positronic information processing dates back to 1939, seven years before ENIAC (arguably the first electronic digital computer, which went online in 1946 to provide artillery table calculations).
“Asimov’s three laws of robotics were firmly established by 1942. While my background in computers only goes back 52 years, I have followed and corresponded with Asimov, comparing our remarkable but slow advances in information processing and control of physical reality.
“My first encounter with what is now called artificial intelligence dates back to the late 1960s. Without doubt, the trends say that we are headed in the direction of which Asimov wrote. Not only technologically, but also sociologically.
“P.S. Asimov wouldn’t recognize the movie based on his book, I, Robot.”
“Treating virtual reality as the next boom investing opportunity I think is a little optimistic,” writes a skeptical reader.
“The nonsense about working in a VR environment is almost silly. The actual number of people who are skilled enough to justify the need for this kind of technology is pretty small. Certainly there are many good applications, but stereoscopic viewing is actually the only difference between a Skype video conference and what someone would call VR on a cardboard box holding a smartphone. 3-D video conferencing does not sound as sexy as VR, but let’s not kid ourselves — that is all it is.
“As always, content is king, and the trick of VR is not viewing the content with an Oculus Rift headset. It is getting the content to the headset. The key elements will be the camera end to capture the environment and, if you are doing it live, a very substantial data connection with low enough latency for it to be useable.
“This would also require some pretty beefy computing power to process the images and keep the left and right pictures synchronized so the user does not end up getting seasick. Just wait for the health and safety issues to hit the news cycle. ‘Man Dies of Heart Attack in VR Car Crash.’
“It all goes back to the Gold Rush. Don’t dig for gold; sell the diggers cheap commodities like blue jeans, picks and shovels. If content is king, what is unique about the content collection tools that makes a business case for VR. Just like the Gold Rush days, the picks and shovels are a cheap commodity.
“Not too different from today where cameras, bandwidth and computing power are cheap as well. Find companies caught up in the hype watch them go up on PR stories and short the heck out of them when actual reality becomes the news.”
The 5: Perhaps. But by the same token, you have lurched uncontrollably into Ray Blanco’s thesis about the best ways to invest in VR. “A headset needs to have several times the graphics processing power behind it as even a high-resolution screen when gamers play a realistic video game,” he said here in The 5 at the start of the year when our editors were rolling out their 2016 predictions.
And while headset makers are a dime a dozen, only a handful of niche players know how to provide those proverbial picks and shovels to the headset makers. Much more from Ray here…
“Funny you mention Ikea and VR,” a reader says after our episode last Thursday. “My family dropped some serious coin at the Ikea in Baltimore in 1995 and 1997.
“My college student kids furnished their apartments in basic Ikea. They used it in their second apartments, and some is still being used in their houses. Good stuff at a good price.
“Confession: We paid to have it put together.”
The 5: Yeah, that’s a whole cottage industry in itself!
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Many thanks to colleague Brian Maher for moving over from his regular duties at The Daily Reckoning and spelling me on Friday.
P.P.S. With Tax Day only days away now, you should know about the government tax “glitch” that could be worth up to $6,988 every year.
Right now everyday Americans are collecting thousands in mysterious “tax back” checks — all thanks to this “glitch.”
This is 100% legal. And get this: It’s IN ADDITION to any tax refund you get from Uncle Sam.
For the full story, click 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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