A Pretext for War?

Addison Wiggin – February 13, 2012

• Beyond the latest Israeli-Iranian saber rattling: A pretext for war, with two ominous precedents
• Market rallies on… [media spins the wheel] Greece! Dan Amoss on why the celebration is once again premature, and what to prepare for “ahead of the crowd”
• Another breakthrough in a stunning week of them for the developer of Patrick Cox’s favorite “nutraceutical”
• #FedValentines take over Twitter… Reader snipes about the gold standard… How natgas can easily fuel our cars… and more!

   Even off the grid here at the ranch in Nicaragua, the news managed to pierce our consciousness this morning: Simultaneous bombing attempts at the Israeli embassies in India and the former Soviet republic of Georgia.

The one in New Delhi wounded a diplomat’s wife and her driver. The one in Tbilisi was defused before it could go off. What came next was that Israel’s Prime Minister Benjamin Netanyahu pinned the blame on Iran.

And with that… oil is within a few dimes of $100 a barrel again, for the first time in nearly a month.

   Today we’re going to try to pull back the veil a little and see what’s driving the U.S. to war, again.

“The dispute over Iran’s nuclear program,” declares a blistering editorial in the Tehran Times, the self-anointed voice of the Islamic Revolution, “is nothing more than a convenient excuse for the U.S. to use threats to protect the ‘reserve currency’ status of the dollar.”

“Recall that Saddam [Hussein] announced Iraq would no longer accept dollars for oil purchases in November 2000 and the U.S.-Anglo invasion occurred in March 2003,” the paper goes on. “Similarly, Iran opened its oil bourse in 2008, so it is a credit to Iranian negotiating ability that the ‘crisis’ has not come to a head long before now.”

If the paper’s thesis is correct, then matters will likely come to a head in the next five weeks.

   On March 20, Iran’s oil exchange will start trading in currencies other than the U.S. dollar.

“If Iran switches to the nondollar terms for its oil payments,” says an analysis in the U.K. Telegraph, “there could be a new oil price that would be denominated in euro, yen or even the yuan or rupee.”

That would set a precedent for oil trading in currencies other than the dollar for the first time in nearly 40 years — ever since Saudi Arabia’s King Faisal promised President Nixon he’d accept only U.S. dollars for oil.

Is that a pretext for war? We don’t know.

But the Saddam precedent is there. Ditto for the now-departed Col. Gaddafi in Libya, who proposed a “gold dinar” — a single currency for African and Muslim countries.

We do know this much: The number of scenarios that could bring a “New War” to life is multiplying by the day. It’s still on outlier, but less so than it was even a few weeks ago.

For the most part, we don’t pay much attention to the foreign policy set. But one thing’s certain: If a new war does break out, regardless what justifications are gussied up for the American public, it will have a direct impact on your life. Not the least of which will come in the way of higher energy prices… including gasoline.

Ponder and prepare for the consequences here.

   U.S. stocks are regaining some of Friday’s losses. As of this writing, the blue chips are the weakest, with the Dow up 0.2%. Small caps are strongest, the Russell 2000 up 0.6%.

   In its never-ending search for reasons behind the stock market’s every modest move up and down, the financial media have improbably settled on… civil unrest.

Greece’s parliament voted yesterday to approve yet another round of “austerity measures” in hopes of getting another loan from the European Union and the International Monetary Fund.

Yeah, it makes sense to us too… taking steps guaranteed to tank the economy and tax receipts even further in the hope of borrowing even more money? Work it.

If ordinary Greeks haven’t figured out this is madness, they at least know something’s amiss. And they’re aware too that the covenant they believed they had with their government is being broken at the behest of bureaucrats who live in Brussels and bankers in Bonn.

   “Conditions on the ground in Greece point to a high probability that its debt restructuring won’t unfold as planned,” says our Dan Amoss, ever skeptical whenever the mainstream announces Greece has been “fixed.”

“The gap of priorities between Greek politicians and the Greek public is widening. The public’s appetite for more austerity is waning. A messy default in Greece would result in stress at most of the banks in the eurozone.”

But the European Central Bank would ride to the rescue: That’s the lesson behind the 489 billion euros in three-year loans at 1% interest that the ECB offered eurozone banks just before Christmas. An even bigger cash infusion (the technical term is long-term refinancing operation, or LTRO) is due Feb. 29.

   And Dan says it won’t be the last. “There will be no exit strategy for the ECB from its easy money policies. A reversal of its easy policies would destroy the entire EU banking system overnight.”

“Just like the Fed, the ECB can talk tough about how it will withdraw liquidity ‘in a few years.’ But once that future arrives, there will be no withdrawal. The money printing tsunami won’t be reversed. The implicit merger between the banking system, the state and central banks will gradually be viewed as explicit.”

“Investors, slowly, are going to see this scenario as inevitable, so we should prepare for the inflationary consequences ahead of the crowd.”

   “As the euro debt debacle plays out, our currency may get some spring in its step,” Options Hotline editor Steve Sarnoff wrote to his readers last night.

“A firmer U.S. dollar could pressure stock and commodities prices over the weeks ahead. Throughout autumn and well into winter, investors have been forgetting fear and a growing complacency.”

“It makes sense to be prepared for a change and a return visit from volatile market moves.”

   For the moment, the euro is strengthening and the dollar is weakening. The euro is up to $1.323 this morning. The dollar index — of which the euro makes up nearly 60% — is down to 78.8.

   Gold is starting the week where it ended last week. At last check, the bid is $1,719. Silver is treading water at $33.56.

   Gold stocks are also even-steven this morning. The HUI index is barely budging, after getting knocked back on Friday.

An examination of the HUI-gold ratio — literally, the HUI divided by the gold price — reveals gold stocks appear to be their best buy in three years…

And if you already own one of 44 precious metals stocks listed here, you might be eligible to collect thousands of dollars in cash payments. We’re not talking about dividends, either. Get the full story on how to claim these payments without selling a single share you own.

   “The company obviously believes that the enormous sums it is spending to fund this multisite study and peer-review process will be good for the product,” reads an email from Patrick Cox keeping us up-to-date on developments in the tech world.

A distribution agreement we referred to last week with a major retailer of dietary supplements, and then positive results from the first human trials have propelled the company Patrick is keen on to a new level.

And now… a double-blind placebo-controlled study examining its effects on thyroid disease is about get under way in three states.

“I’ve spoken to the scientist/doctor who was treating the CEO’s wife for severe thyroid disease,” says Patrick. “He decided she had nothing to lose from taking this nontoxic naturally occurring alkaloid and was amazed to see Hashimoto’s disease reverse.”

“Later, the same thing was demonstrated in animal studies as well. Simultaneously, nonscientific, but meaningful anecdotal incidents were also being reported.”

This comes in addition to powerful evidence of the supplement’s anti-inflammatory properties. Because inflammation is linked to nearly every disease of aging, the possibilities are nearly endless: Alzheimer’s, Crohn’s disease, even heart disease and cancer.

It’s on the market now… and as noted above, available from a major retailer. You could take it and be ready for a ski trip to celebrate your 85th birthday. And if you move on it now… paying for it will be a breeze.

[Ed. Note: After a doctor wrote last week claiming that there was no peer-reviewed research available at PubMed — a federal database of medical research — Ray Blanco of our tech team wrote in to say there is.

As we say, it’s hard to keep up with all the developments. Best get the latest from Patrick... and snag a significant discount on membership in Breakthrough Technology Alert. Heads up: This discount comes off the table tomorrow night at midnight.]

   If you’ve got a little time you feel like wasting today, check out this timely hashtag over at Twitter: #FedValentines.

Why anyone would expend mental energy composing a Valentine to the Federal Reserve is beyond us, but we can’t deny some of the results are funny: “I’d like to borrow you overnight and then hold you to maturity.” And: “You had me at QE1.”

This morning, we see Justin Wolfers from the Wharton School tweeted the following: “Like fiat money, our love is built on trust.”

Which prompted the following unsolicited riposte from President Obama’s former Council of Economic Advisers chairman Austan Goolsbee: “Roses are red. Violets are pink. Don’t listen to gold bugs. No one cares what they think.”

(Sheesh… someone’s a tad bitter.)

   “It is fairly shocking how stupid your readership is to think that a return to a gold standard makes any sense whatsoever,” writes a reader who may, in fact, be the intellectual soul mate of Mr. Goolsbee.

“If one assumes that the supply of gold is fixed, then how can any economy expand as population grows and standards of living increase? An economy can grow only if the value of gold increases. If the value of gold increases, then the value of everything else declines. So a gold standard would create instant poverty in the world; it would be the ultimate deflation mechanism. In economics, the formula is price = money supply/production.”

“If the money supply is fixed and production increases, prices must fall, so every person’s house and car and wife would decline in value. Or the price of gold would have to increase, and those who owned gold would do fine and everyone else would be impoverished.”

“Not going to happen.”

“If one assumes that the supply of gold is not fixed, then one is saying the growth of the world economy is dependent on mining results. Growth can proceed only at the rate that gold is extracted, which appears to be at a fairly slow rate. Check the mining results to find out if you will be allowed to have children or invent something.”

“So one wonders if your readers are self-selected for stupidity, all born in Austria, or is it the result of limiting their intellectual activity to 5 min. a day.”

The 5: So that explains why wealth contracted so quickly that the whole world descended into a new Dark Ages between 1879-1913, when nearly every major currency was tied to gold, yeah?

Let’s try this. We’ll ping Mr. Benko on his efforts to move the U.S. forward to a new 21st-century gold standard, rather than simply mocking you for your own shortsighted imagination. Sound like a plan?

   “I’ve read Byron’s special report,” “and listened to other industry opinions on the rebirth of America. In a lot of ways I think that this could come to pass, but only if — and it is a huge if — the government gets out of the way and leaves business alone. But I don’t think that’s going to happen anytime soon, and I think they might get even more bold if conditions improve, because people will stop holding their feet to the fire.” “I feel like that section of Atlas Shrugged when they finish the rail line of Rearden Metal in Colorado. They feel like maybe they can overcome the government, maybe the people aren’t all stupid sheep. Then what happens?: The government gets more strict on the useful and keeps dragging the world into the abyss.” “Here’s to hoping we can pull ourselves out of this mess and put the government back in check!”

The 5: We share your concern. But it’s worth pointing out Byron believes the potential is so huge — and the price is consistently high enough — that the opportunity in new energy development will overcome the hubris, imprudence and sheer thickheadedness of government. Even if it doesn’t, there will likely be some good money to be made in the interim.

   “Last week,” writes our last reader for today. “Reuters reported a U.S. FBI document that stated that people considering themselves as sovereign individuals objecting to the legality or form of the federal income tax and people who support a gold standard to back U.S. currency are extremists and dangerous.”

“I wonder if that also includes the states that have passed and/or are considering legislation to issue/recognize precious metal coinage or notes backed by precious metals? If so, does that mean that the president, as commander in chief of the U.S. military (as authorized by the National Defense Authorization Act of 2012) can then order the indefinite incarceration and/or assassination of the state governments, or does the order extend to the entire population of the affected states?”

“If the entire population, does that mean that federal forces will occupy each of the states? If so, can the governor of each state call up the state’s national guard to repel the invaders — I mean, errr, uhhhh, the federal troops?”

“Do you feel like you are somehow stuck in the pages of a Mad magazine instead of the realities of what is and can occur?”

The 5: Frequently. Only we don’t laugh as much.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. This morning, we’ve begun participating in a three-day conference of Agora’s worldwide group of companies. It’s the official christening of our new conference center down here. The facility is really quite nice. Stunningly so.

In attendance, there are writers, marketers and publishers from all over the U.S. down here at Rancho Santana and more from India, China, South Africa, Australia, France, England, Germany and beyond. We’ll try to keep you up-to-date on any new ideas that arise from the meeting.

One thing we’ll say at the outset… it’s amazing what you can achieve when you assume you’re people are intelligent and responsible.

“Natural gas is not a substitute for oil unless you have a bifuel vehicle that can use it,” writes a reader who is skeptical about Byron King’s “Re-Made in America” thesis.

“Having a vehicle that can use compressed natural gas is no help if there is no place to fill it. Rushing in to produce natural gas for a market that has no outlet to use the added supply is poor strategic planning.”

We figured Byron might have a few words to address this concern. Turns out he had more than a few:

“Huh?” Mr. King responds, “This is practically no-brainer strategic planning. Some of the best strategic planning that the U.S. could do involves eventually using CNG to power much of the truck and auto fleet.”

“Begin with Say’s law… a classic of economic theory that states ‘Supply creates its own demand.’ And we have a great supply of CNG, far into the future.”

“As for the demand? What should the U.S. plan to do with all the natural gas that’s out there? Begin with the fact that there are over 250 million registered vehicles in the U.S…. and virtually all of them run on gasoline or diesel fuel.”

“It’s not at all technically difficult — its ‘easy,’ if you want to use that term — to convert some (actually, many) of these vehicles to CNG.”

“There’s essentially no new technology involved with converting cars and trucks to CNG, as compared with, say, ramping up an entire new industry for battery-powering cars (like the Chevy Volt, perhaps).”

“It’s well-known technology to build CNG tanks that are quite strong and safe. The flow lines are pretty basic technology. Converting the engine to suck CNG, versus gasoline, is something they teach at most junior colleges in auto tech class.”

“As for filling the tank with CNG? We’re already seeing the fueling stations pop up for fleet usage — city bus lines, taxi fleets, UPS, FedEx, Consol Energy (here in Pittsburgh). I foresee truck stops along interstate highways being the first adopters, when the trucking fleet goes for CNG in a big way.”

“Also, looking ahead, there’s already technology out there that allows you to hook up a compressor to your household natgas line. You pull the car into the driveway, plug in a hose and top off the tank of your car each night. This would suffice for most local driving needs for most car owners.”

“One big issue is government barriers, starting with motor fuel taxes. Right now, federal and state taxes in Pensylvania are about 51 cents per gallon. That’s collected at the terminal, when the fuel comes through the pipeline from the refineries or off the barges and such. It gets passed through to the gas station, and you have to pay it at the pump when you fill up.”

“But if I’m going to ‘fill my tank’ out of the household natgas line, how does the tax collector get paid? As far as the gas company knows, I’m heating my house or boiling water on the stove… versus running my car. So… put a separate gas meter onto the CNG compressor for the car? Will I get two gas bills every month?”

“In the event of a sudden spike in oil prices (war in the Middle East or a major shutdown of supply from one nation or another, etc.), a ‘crash’ program — excuse the pun — to convert to CNG would be very doable, both technically and strategically.”

“The gas glut has come on pretty fast in the past couple of years. Far faster than politicians can think, truth be told.”

“But now that we have this gas glut problem, a national program to switch from $100 oil to $40-equivalent CNG is an obvious answer to a lot of problems. I’m surprised that more politicians aren’t falling all over themselves to take credit for the idea…”

Heh. That’ll come, we’re sure.