“No, This Is Much Bigger Than That”

  • Crude and gold soar, stocks slump amid Middle East shocker
  • So much for “America First”… and the U.S. empire
  • A military response from Iran? Or more quiet de-dollarization?
  • The manufacturing recovery is (not) underway (yet)
  • Illinois rings up $3.2 million in legal pot sales…
  • … While giving weed-smoking gun owners a break
  • A keen grasp of the obvious… or a proven moneymaking strategy?

We begin with a flashback to this same time frame, give or take, during the 2012 campaign cycle…

Donald J. Trump Iran Tweet


Or is the more relevant historical reference this morning to December 1998 — when Bill Clinton fired his “Monica missiles” on Iraq as a shiny-object distraction from his own impeachment drama?

Whatever the case… crude has leaped to $63.49 as we write, the highest since mid-September. Gold is fulfilling its safe-haven role, rallying to a high seen last fall at $1,548.

The major U.S. stock indexes are slumping, all down at least two-thirds of a percent. But not defense stocks; ITA, the big defense-and-aerospace ETF, is up about a half percent.

After coming out of the gate strong yesterday, we’re compelled to put our 2020 forecasts on pause today — long enough for some instant context to the big story of the moment.

It took the Establishment media a while to figure out the significance of a U.S. airstrike in Iraq’s capital, taking out Iranian Gen. Qasem Soleimani.

As the news spread across Twitter and Reddit last night, Aaron Maté, a writer for The Nation, turned on his TV in search of meaningful information — a decision he quickly came to regret.

Aaron Mate CNN Tweet

Aaron Mate CNN Tweet

But eventually the elite media tumbled to the fact this is an enormous story. They began reaching for descriptions of Soleimani’s role in the Iranian power structure. The best they could come up with was calling him the second-most powerful man in Iran behind Ayatollah Khamanei himself.

Even that doesn’t cut it, though. The best analogy we’ve found comes from Matthew Hoh of the Center for International Policy.

“The equivalent of the killing of Gen. Soleimani,” he writes, “would be as if the Iranians assassinated Gen. Richard Clarke, the U.S. four-star general in charge of all U.S. special operations, but only if Gen. Clarke had the name recognition of Colin Powell and the competency of Dwight Eisenhower.”

On a micro level, the attack shreds any pretense Donald Trump once claimed to an “America First” foreign policy. On a macro level, the attack feels like a nearly last gasp of a bankrupt empire.

The Trump administration claims Soleimani was the proverbial “tip of the spear” when it comes to Iranian influence inside Iraq and Syria.

But how did Iran get so much influence inside Iraq and Syria in the first place? Oh, right, the Bush administration toppled Iran’s most hated enemy, Saddam Hussein, in 2003. After that, it was inevitable that representatives of Iraq’s Shia Muslim majority would take over. And as it turns out, the best-organized Shia leaders spent much of Saddam’s quarter-century rule exiled in… Iran.

A few years later in 2011, the Obama administration began pursuing Syrian regime change… arming up “moderate rebels” who in most cases were hard-core jihadis. Many of them became the literal cutthroats of ISIS. It was the Iraqi and Syrian militias organized by Gen. Soleimani who did the hardest fighting on the ground to beat back ISIS from 2014–17.

(We could go even back further in history to chronicle how we got here this morning. How about the Reagan and Carter administrations siding with Saddam during the vicious Iran-Iraq war that dragged on for most of the ’80s? Or the original sin of Eisenhower overthrowing Iran’s democratically elected President Mossadegh in 1953 as a favor to the oil company that now goes by the name BP?)

So now what? Well, Tehran gets to respond at a time and place of its choosing.

Unlike Saddam Hussein’s Iraq in 1998, when the Monica missiles rained down, Iran has both the capacity and the motivation to do something. As Trita Parsi from the Quincy Institute explains…

Trita Parsa Tweet

There are roughly 5,000 U.S. troops in Iraq. Surely they must not feel very safe now. Their commanders especially must not feel safe. Then there’s the virtual flotilla of U.S. military ships transiting the Persian Gulf, the Straits of Hormuz and the Arabian Sea at any given time.

“Killing Soleimani,” writes Daniel Larison at The American Conservative, “means that [Iran’s Islamic Revolutionary Guard Corps] will presumably consider it open season on U.S. forces all across the region.”

Then again, Tehran is playing for the long haul. Iranian leaders might just continue quietly working on their de-dollarization plans with China and Russia — and deny The Donald his splendid little war.

To be continued…

As the day wears on, dismal economic data are further dragging down the stock market.

The ISM manufacturing survey just came out. As a reminder, readings over 50 indicate a growing factory sector; below 50 points shrinkage.

After four straight months of sub-50 readings, the “expert consensus” among dozens of economists polled by Econoday was… well, not a return to growth, but at least some improvement from the month before.

Instead, the number sank to 47.2 — the lowest since June 2009, when the economy finally climbed out of the “Great Recession.”

None of the “internals” of the report look good, and employment in particular looks bad — suggesting five straight months of job cuts.

Weak as that all looks, it’s still way too premature to declare “incoming recession.” Too many other indicators remain too robust…

One day never tells the whole story… but the first day of legal recreational cannabis sales in Illinois seems to have gone well.

The state’s Department of Financial and Professional Regulation reports 77,128 transactions generating nearly $3.2 million in revenue.

Of course, those are the legal transactions. Illinois has a high-tax regime for marijuana — in Chicago, consumers of edibles will fork over more than 30% tax, for instance — so presumably there’s still some black-market activity out there.

“Illinois is a big market, about equal to Canada as a whole,” ventures our penny-pot stock authority Ray Blanco. And because it was the first state to legalize via the legislature instead of a referendum, it will be a bellwether for the growth of the legal-marijuana industry.

Meanwhile, a related development in Illinois is at least as meaningful when it comes to acceptance of pot…

More than two years ago, we first observed how sooner or later, “conservative” Americans would have to reconcile their professed support for the Second Amendment with their law-and-order attitude toward weed.

When you buy a firearm from a dealer and fill out your Form 4473, there’s a question about “unlawful” drug use, including a warning in bold font: “The use or possession of marijuana remains unlawful under federal law regardless of whether it has been legalized or decriminalized for medicinal or recreational purposes in the state where you reside.”

As we said back then, as far as the NRA is concerned, you forfeit your Second Amendment rights the moment you take a puff of the herb.

Thus, the NRA kept a stony silence in the case of an Arkansas woman named Krissy Noble. She shot and killed an intruder with her husband’s handgun — a shooting prosecutors found justified. But it turned out she was disqualified from possessing a gun because she’d earlier pleaded guilty to a felony pot possession charge. In the end she was sentenced to six years of probation and a $2,500 fine.

Back to the Prairie State: This week, Illinois State Police confirmed they will not revoke firearms owner ID cards “based solely on a person’s legal use of adult-use cannabis” — even as the agency still cautions that “the purchase of a firearm from a federally licensed firearms dealer is governed by federal law."

As far as the feds somehow getting into a database of users, Ed Sullivan of the Illinois State Rifle Association says, “No cannabis dispensary can share your personal information, unless you authorize them, [with] anyone or any entity. This includes the Illinois State Police (ISP) and the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).”

Still, the whole charade seems so unnecessary. “Millions of gun owners are felons in the eyes of the federal government,” writes Reason’s Jacob Sullum, “simply because they use an intoxicant that is legal in states accounting for more than a quarter of the country's population.”

With two-thirds of Americans now in favor of legalizing marijuana, Congress and the White House will bow to the inevitable sooner or later. Sooner, in Ray Blanco’s estimation: “I think 2020 is the year we finally see federal legalization.”

[More of Ray’s 2020 outlook next week…]

To the mailbag, and a clever variation on “I like The 5, but…”

“I couldn't help but feel sorry for the folks not receiving The 5 Min Forecast for the past fortnight only to find out in their first issue back that Greg declares that ‘until something changes, the path of least resistance is higher.’ 

“Well, guess what, when the market starts going down, clearly something changed. So he might as well have said the market is going higher… until it's not.

“In my mind, he still remains the king of having a firm grasp of what just happened.”

The 5: Mock it if you like, but that’s the whole idea behind the chart-driven art of “trend following.” You don’t try to anticipate turns in the market, which trend followers will tell you is a fool’s game. Instead, you confirm a turn has already taken place and then ride that trend until it’s clearly exhausted itself (usually after the trend has already begun to reverse).

“Buy high, sell higher,” in the pithy words of trend-following guru Michael Covel. Yes, you miss the very bottom and the very top… but you make up for it with a vastly improved win rate.

The technique has a proven track record going back nearly 40 years, when Chicago commodities trader Richard Dennis recruited 14 people via old-fashioned help-wanted ads — most with little to no trading experience — and gave them just two weeks of training.

In less than five years, they made a combined $150 million — well over $300 million in today’s money. And all by “having a firm grasp of what just happened,” dontcha know.

“It is alarming that Germany is cracking down on gold buyers with this new legislation,” writes one of our regulars after yesterday’s 5.

“So sellers must now register and perform background checks on people who want to buy more than 2,000 euros worth of gold?

“This legislation as well as the European Union’s ‘anti-money laundering directive’ is a crock. Don’t you just love the cupcakey phrases our politicians and bureaucrats use to describe their tyrannical agendas?

“The last time I checked, this concept called liberty involved a few things. One of them was sound money. You know, precious metals (like gold and silver) instead of fiat currency. Another was self-defense (the whole right to keep and bear arms thing). And, of course, property rights.

“Not that any of this matters — but historically, governments that infringe on these things were on their way to despotism and serfdom. They wrecked their nations in the process and did quite a number on their citizens. Widespread impoverishment, imprisonment and death were the usual results.

“A few folks at the apex of the food chain prosper, at least for a while. But typically it doesn’t end well for them either.

“Our German brothers and sisters have long memories; and they have paid a hell of a price to learn these lessons. IMO we would do well to listen to them now.”

The 5: Word. The Germans also remain in the forefront of stashing physical cash (to combat negative interest rates) and conducting daily transactions in physical cash (for privacy). Hard-won wisdom, indeed.

Have a good weekend,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. As a practical matter, Washington can’t wage full-scale war against Iraq right now. Only one of its 11 aircraft carriers is anywhere near Iran. 

We’ll stay on top of the situation as needed, of course, but in all likelihood we’ll return to our 2020 forecasts on Monday.

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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