Is the “New Cold War” on Hold?

  • Nuclear war with Russia in a year? Shades of 1962… and 1941
  • Should U.S. troops die for Estonia?
  • For now, the war danger has been suspended… delivering an unusual profit opportunity
  • So much for the kissin’-cousins relationship between stocks and crude: What now?
  • Waiting on the Fed… Saudi Arabia issuing IOUs?… Soros jumps back into gold
  • China’s gold buildup and a windfall profits tax: Two intriguing gold inquiries in the mailbag

It doesn’t make headlines every day, but it’s the most vital issue of our time… and players on both of the issue sides agree on one point: The risk of a nuclear war between the United States and Russia is as high as it’s been since the 1962 Cuban Missile Crisis.
“NATOP risks a nuclear war with Russia within a year if it does not increase its defense capabilities in the Baltic states,” reports the U.K. Independent — citing Gen. Richard Shirreff, once a top NATO commander.
Shirreff voices the conventional wisdom in Washington and Brussels by saying it’s all Vladimir Putin’s fault: “We need to judge President Putin by his deeds not his words… He has used force and got away with it.”
But even the experts who criticize U.S. and NATO policy agree the stakes are staggeringly high.
Here’s the Russia scholar Stephen F. Cohen speaking last night on John Batchelor’s syndicated radio show: “There’s no way, if there’s a war with Russia, on Russia’s borders, that eventually some kind of nuclear weapons will not come into play.”
And it sure seems the risk of a war with Russia is escalating. Time to revisit a map we shared nearly a year ago, when the United States and NATO moved tanks and artillery near Russia’s border for the first time.
The heavy weaponry, along with a “spearhead” force of up to 40,000 troops, is now “pre-positioned” in the three Baltic states, plus Poland, Romania and Bulgaria.

Too Close for Comfort

Last week, NATO upped the ante — opening a “missile defense” site at an air base in Romania.

Ribbon Cutting Ceremony

They even had a ribbon-cutting ceremony [U.S. Navy photo]

The official story is that the anti-missile capability is meant to counter Iran.
As if the Iranians are somehow hellbent on lobbing missiles toward Eastern Europe?
Putin doesn’t buy it. “This is not a defense system,” he said last Friday. “This is part of U.S. nuclear strategic potential brought [to]… Eastern Europe… Now, as these elements of ballistic missile defense are deployed, we are forced to think how to neutralize emerging threats to the Russian Federation.”
Putin is likewise contemplating how to “neutralize” the growing troop presence on his country’s doorstep. Three weeks ago, the Pentagon announced four more NATO battalions totaling 4,000 troops will be posted in Poland and the three Baltic states.
Professor Cohen calls it an “unprecedented” massing of hostile forces on Russia’s border, not seen since Hitler invaded in June 1941 during World War II. “The memory of the German invasion and the 27 million dead Soviet citizens is a living memory [for Russians],” he says.
Incredibly, one of the four new NATO battalions will be furnished by Germany. “To send troops to the Russian border now is to forget history and to escalate,” objects one German lawmaker.
Quips an (understandably) anonymous Pentagon officer to Politico magazine: “How many British soldiers do you think want to die for Estonia? And if they don’t want to, why should we?”
Well, U.S. troops won’t be dying for Estonia — not anytime soon, says Jim Rickards. “Current indications are that Russian-U.S. relations are entering a new period of thaw after two years in the Deepfreeze.”
We’ll give you a moment to breathe the proverbial sigh of relief.
Jim’s assessment is based on his extensive contacts within the U.S. intelligence community.
“This new era of cooperation between the U.S. and Russia centers mainly on joint efforts by President Obama and President Putin to bring an end to hostilities in Syria and remove Syrian President Bashar al-Assad from office.”
Not that Putin’s critics are pleased with this development. But they appear resigned to it. The Economist’s editorial board — as reliable an establishment mouthpiece as you’ll find anywhere — gives voice to that view in the current issue: “By proving itself indispensable [in Syria], Russia believes it can compel the West to collaborate on Russian terms.”
What’s more, Jim says this thaw opens up an intriguing investment possibility… because the Russian economy and Russian ruble are about to climb up off the mat.
Both have been down and out the last two years, thanks to low oil prices and Western economic sanctions. In addition to the cooperation in Syria, Jim sees the following intelligence indications that point to a Russian revival…

  • Oil is back above $48 a barrel — a far cry from the $27 levels of February. “This is a major lifeline for Russia,” Jim says
  • Meanwhile, “the Central Bank of Russia has been aggressively buying gold with its dollar reserves. This was a brilliant strategy. They bought gold when the dollar was strong and gold prices were near seven-year lows. Now that the dollar is weakening and gold is surging, Russian gold reserves (priced in dollars or SDRs) are going up
  • “Because of the weaker dollar, other commodity prices are rising. Russia is a major exporter of nickel, palladium, iron and timber
  • “U.S. allies, especially Germany and France, are growing tired of the sanctions regime and are looking for opportunities to get back to business as usual with Russia”
  • Finally, Russia is seizing on the loosening of Western sanctions against Iran. “They are moving ahead with deals in nuclear power, weapons, refineries and other infrastructure.”

“In short,” says Jim, “all of the factors that were working against Russia from 2014–16 (cheap oil, strong dollar, sanctions and low commodity prices) are now working in Russia’s favor.”
Thus, a new Russia-themed trade, recommended only yesterday to readers of Rickards’ Intelligence Triggers. It’s not the first: A previous Russia-themed trade delivered 51% gains in 14 months.
This one has much bigger profit potential — as high as 250% over the next 18 months. Not a subscriber? You can remedy that here.
To the markets… where the major U.S. stock indexes are mostly flat as traders await the minutes from the most recent Federal Reserve meeting, due later today.
After we went to virtual press yesterday, the indexes fell out of bed. As we check our screens now, the S&P 500 rests at 2,049 — about 12 points lower than 24 hours ago.
Gold held up OK yesterday, but today it’s the Midas metal’s turn to take a spill — down more than $8 at last check, to $1,270.
Crude is adding to yesterday’s gains — up a dime as we write, to $48.41.
After yesterday’s market action, traders are reassessing the view that oil’s upside is limited, according to Greg Guenthner of our trading desk.
“One of the big market memes this year,” he reminds us, “has centered on the relationship between oil and stocks. Everyone was worried that crude was dragging the market down as it crashed to its lows in February. And the consensus opinion when stocks started rallying was that they wouldn’t get very far without oil hitching along on the ride.”
But that relationship has broken down over the last month…

Oil Eviscerates

“I’m not going to waste your time with an oil price prediction for next week, next month or next year. Instead, I’m going to predict that after yesterday’s action, a lot of folks start to seriously reconsider their bearish stance on oil.
“There’s not a lot to get excited about as far as market performance goes this week. But select energy stocks are flashing some welcome green on the screen while other sectors suffer.”
Despite a rising oil price, Saudi Arabia might resort to the unthinkable — issuing IOUs to government contractors.
“A projected budget deficit this year,” says Bloomberg, “is prompting the government to weigh alternatives to limit spending. Contractors would receive bond-like instruments to cover the amount they are owed by the state which they could hold until maturity or sell on to banks, the people said, asking not to be identified because the information is private.”
Hmmm… The kingdom is looking to raise money by floating shares of the state-owned oil company, the kingdom is shopping for an $8 billion bank loan, the kingdom draining its foreign exchange reserves at a furious pace… and they’re still looking to issue IOUs?
We don’t know exactly when the princes will cry uncle and devalue the riyal… but we know the day is getting closer. Will you be ready?
[Emendation: To all the sharp-eyed readers who wrote in yesterday, you’re right: Your editor hastily wrote that Saudi Arabia’s Treasury holdings total $116.8 “trillion” when I meant “billion.”
Said one reader, “Has the kingdom advanced us the amount we need to make good on Social Security and Medicare?” Another, rather more forgiving, added, “I love The 5. I look forward to reading it daily.” You’re too kind…]
For the record: George Soros is getting back into gold.
Time was a few years ago we’d track Soros Fund Management’s quarterly gold moves, as revealed by the billionaire’s 13F filings with the Securities and Exchange Commission. He’s been mostly out of gold since 2013. But now he’s back in.
During the first quarter of this year, he bought call options — a bet on a rising price — on 1.05 million shares of the SPDR Gold Trust (GLD). He also picked up a $264 million stake in Barrick Gold (ABX) — the world’s biggest gold miner, under new management since last summer.
“I haven’t yet seen anyone discuss the following gold scenario and wonder if you could comment on it,” a reader writes.
“If the gold price is at a ‘low’ of $1,270-ish while China is buying hundreds of tons per year, what will that mean for the price when they have what they want and stop buying?
“I picture it causing global demand to drop significantly, and therefore supply would advance against demand and the price would likely go down, would it not?
“I always enjoy reading The 5 — thanks for the daily work you folks put into it.”
The 5: Those are some interesting trees. But here’s the forest: Whenever the next global monetary crisis rolls around, gold is what “the powers that be” will use to restore confidence in the system. They might not like a currency with a measure of gold backing, but they’ll hold their noses it if that’s what it takes for people to transact in that currency.
And the price of gold has to be set high enough to generate that confidence. Otherwise, you get a deflationary disaster like the one that befell Great Britain when it returned to a gold standard in 1925.
That’s one reason Jim sees gold headed, in time, to $10,000 an ounce. (We haven’t forgotten our promise to explore that number in more depth. Hopefully, tomorrow…)
“About Jim Rickards’ statement that a windfall profits tax requires an act of Congress, and gold holders would ‘have time to prepare,’” a reader writes…
“The word ‘prepare’ can only mean a) hide/export the gold… or… b) sell/trade the gold.
“It seems that anything worth selling or trading gold for will have gone up in price (paper money) about as much as gold went up. The trade would just convert the gold (with a big windfall tax wrapped around its neck) into something else that is a physical thing or property.
“With all thing/property/gold stuff run up five or so times (in paper money value), what would motivate the physical thing/property owner to accept for payment the gold (with its attached ‘lead balloon’ windfall tax) at its then-current times five price?
“If I were a thing/property owner, I think I would much prefer a suitcase stuffed with five times the paper cash in it than I would have gotten before the currency meltdown. I might even be able to trade in the big suitcase full of mean, green cash for a much smaller bag filled with paper cash having a pretty blue color… the hue of the inevitable ‘new and more better somewhat gold-backed’ paper money that would be issued.
“What do you think, wise 5’ers?”
The 5: Diversification, friend. As it happens, cash is one of Jim’s five preferred long-term investment vehicles — along with gold, land, fine art and private equity opportunities.
Cash is a terrific deflation hedge. Cash gives you freedom if you spot an opportunity to buy assets on the cheap. “A cash component in a portfolio also reduces overall portfolio volatility, the opposite of leverage,” Jim writes in his second book, The Death of Money.
Also, ponder this in your scenario: If gold’s price appreciates only as much as other “property/stuff,” what would be the attraction of taxing it?
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Another week, another winner: As we go to virtual press, readers of Rickards’ Gold Speculator have been urged to sell another position recommended only a week ago Monday when we launched the service.
Last Thursday, it was a 30% gain on Kaminak Gold. Today it’s a 37% gain on Golden Arrow Resources.
Yes, there’s more where that came from. Much more… with much higher profit potential. We won’t even make you watch one of those “boring, long-winded presentations” to learn more about it. Just a 48-second introductory video from Jim, followed by some easy reading. Here’s where to go.

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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