Bank Run!

February 8, 2013

• Blizzard preps offer proof that the big banks are all sound again (heh…)
• Fed goes on a monetization bender, while consumers borrow more for cars and educations they don’t need
• Byron King on an ugly “milestone” in the energy biz… and the best way to invest around it
• High-tech mind-bender: transforming Girl Scout cookies into the “miracle material”
• Blowing a chance at a free ounce of gold… reader insight into China’s gold grab… a hearty endorsement from Doug Casey… and more!

  Gee, the major banks must all be well-capitalized again after the Panic of ’08.

According to our archives, five years ago today, Citibank announced a limit on cash withdrawals from its ATMs in New York City.

“There could be a perfectly reasonable explanation for all of this,” suggested Dan Denning from his post in Australia. “But the simplest explanation is almost always the best. Citibank is in desperate need of its capital. The best way to keep your customers’ money is to prevent them from taking it out of the bank. It’s a kind of low-level, mild-mannered capital control.”

  Fast-forward to this morning. A major snowstorm bears down on the Northeast, and another banking giant puts this on its Twitter feed…

Heh… As noted here a month ago, BAC has hemorrhaged $44 billion to date for lawyers, payouts and reserves stemming from rotten mortgage securities, robosigned foreclosures and the like. With more to come. But all’s well, apparently…

Oh, and if you’re wondering what “Nemo” is all about… God help us, The Weather Channel’s practice of naming winter storms like hurricanes appears to be spreading.

  The Federal Reserve is printing enough money to cover all of Uncle Sam’s debt issuance so far this year… and then some.

With the debt ceiling now suspended until mid-May, the Treasury has racked up $47.2 billion in new debt going back to Jan. 1. Meanwhile, the Fed’s balance sheet has grown $51.1 billion over the same period.

  Ordinary Americans went deeper in hock in December, according to the Fed. Consumer credit jumped $14.6 billion, owing mostly to car loans and student loans. Revolving debt (i.e., credit cards) was flat, as it’s been for most of the last year.

Just a guess here: When the January numbers come out next month, they’ll show a pop in revolving credit too. It wouldn’t surprise us a bit if the purchasing power drained by the payroll tax increase is being put on plastic.

We’ll know whether we’re onto something when the January retail sales figures come out next week…

  After recovering much of yesterday’s early losses, stocks are on the rise again. The Dow’s made another rendezvous with 14,000.

Precious metals are sliding a bit — gold to $1,663, silver to $31.59.

  Hmmm… Drone warfare good, killing U.S. citizens with drones bad.

Or at least that’s the takeaway from a poll conducted by Fairleigh Dickinson University. It found 75% of those surveyed approve of the military using drones “to carry out attacks abroad on people and other targets deemed a threat to the U.S.”

On the other hand, when asked, “To the best of your knowledge, can the U.S. target U.S. citizens living in other countries with drones, or is that illegal?” Only 24% approve.

Drones and the killing of U.S citizens with drones were the big topic yesterday during the Senate confirmation hearings for John Brennan, the president’s pick to run the CIA. It was much sound and fury, signifying nothing. “There’s bipartisan consensus to whistle awkwardly and let the system continue,” writes Slate’s David Weigel.

My, what a big drone you have…

Earlier this week, House Intelligence Committee Chairman Mike Rogers put out a statement calling the targeted killing of U.S. citizens a “lawful act of national self-defense.”

“In general,” Weigel writes, “Republicans agreed with the legal theories behind all this when George W. Bush was president. They agree with the theories now.”

[Ed Note. "Hoppe shows that a monopoly of violence would never be approved by the population if the people understood it," reads the executive summary of an all too timely book released by the Laissez Faire Club this morning. Hans-Hermann Hoppe's A Theory of Socialism and Capitalism argues instead "the state seeks out tactics to convince people that it is doing good through redistribution that hurts some and helps others.

"Most importantly, it seeks to control education (to instill civic pride), communication (to control access to information), money (to raise funding for the state without taxation) and the apparatus of security (to convince people that they are being kept safe and being offered justice services)." If you'd like to take a look... you can do so here.]

  Here we go again… The U.S. government has tightened sanctions on Iran, and Washington’s NATO ally Turkey says it’ll still trade its gold for Iranian natural gas.

“We will continue to make our gold exports this year to whoever seeks them,” Turkish Economy Minister Zafer Caglayan said yesterday. “We have no restrictions and are not bound by restrictions imposed by others.”

Meanwhile, “The sanctions,” according to a New York Times dispatch from Tehran, “while the source of constant complaint and morbid jokes, have not set off price riots or serious opposition to the Iranian government.”

In other news, the Castro family is still in power after 52 years of U.S. sanctions on Cuba…

  “The recent attack on the BP facility in Algeria marked a milestone,” says our Byron King.

“Up to now, the energy industry had an acceptable working presence across the Middle East and North Africa (MENA). Shiny, energy-producing technology existed side by side with the ancient caravan routes. Westerners did their work and kept a low profile. There wasn’t too much trouble — occasional, but manageable.

“Now? The terrorists have determined that Westerners and energy interests are fair game. The global energy industry — Western players, but national oil companies, as well — must deal with the new reality of development amidst a vast battle space of irregular warfare. It’ll make everything more difficult, time-consuming, costly, riskier.”

The investing takeaway? “Looking ahead, I see better days — better years, actually — for offshore players. Offshore is where there’s lots of oil. Also, offshore, there are far fewer Islamist terrorists.”

And there’s another plus…

  The last building boom in offshore drilling rigs ended 30 years ago. Most of the offshore fleet is old and rusty. Rigs nearing the end of their economic lives must be replaced.

With recent news of faulty bolts used in subsea drilling connectors, investors got a blunt reminder of the offshore rig fleet’s age. These connectors attach blowout preventers to drilling risers and the subsea wellheads. In other words: We’re talking about critical equipment that must remain in top shape to avoid costly disasters.

In a Jan. 29 alert, the U.S. Bureau of Safety and Environmental Enforcement ordered faulty bolts manufactured by GE Oil & Gas must be retrieved and replaced. This may involve costly delays for drillers operating with GE’s equipment.

In today’s 5 PRO, we feature a GE competitor. Dan Amoss says it’s making a fortune finding solutions to the industry’s equipment aging challenges. (If you’re not yet a PRO-level subscriber, watch for a special offer soon.)

  Meanwhile, the graphene headlines keep flowing like cheap wine in a hobo camp.

Straight from the “strangest one yet” file, Jim Tour, a researcher at Rice University in Houston has discovered a few economical sources of the “miracle material”: Girl Scout cookies, chocolate, Dachshund feces and… a cockroach leg.

We assure you, we didn’t see this one coming either.

In an interview with NPR, Marc Abrahams, editor and co-founder of The Annals of Improbable Research magazine ,explains the evolution of the graphene-production process: “Until now, most of the ways of making it started with this first step: Get some really pure, really expensive chemicals that you’re going to mix in and do the next stuff. Huge expense.”

But the researchers in Houston have discovered a different approach. They converted the aforementioned objects into, says host Ira Flatow, “the super-strong wonder material that can be worth over 2 million times the price of gold.”

What’s unique about this motley assortment of materials? Not much. The oddness stems from the researcher’s preferences. Anything with carbon will work, leaving a wide array of more… aesthetic… objects to choose from.

“Super carbon” just got a whole lot weirder…

  How’d Mr. Tour do it? “Essentially,” says Abrahams, “he just got a really big oven, heated it up to about 1,000 degrees C and filled that oven with a little bit of this stuff, the cockroach or the dog feces, whatever, and a sheet of pure copper and a little bit of gas, left it for about 20 minutes, and voila, he’d made little bits of really high-quality graphene.”

Unfortunately, this method produces such small quantities of graphene that hoarding Girl Scout cookies and dog poo is hardly worth it. Nevertheless, progress is progress.

 “The field is so vast and developing so rapidly,” Andre Geim, one of the two scientists who first isolated graphene in 2004, tells the Financial Times, “that to focus on any particular direction would diminish the magnitude of the whole enterprise.

“The number of examples is flabbergasting,” he goes on, “Ten thousand [research] papers were published last year on graphene.”

Although “small niche products,” like Australian champion tennis player Novak Djokovic’s racket, made of graphene, are flooding the market, rest assured: Graphene is still in its infancy. “Normally,” professor Geim concludes, “it takes 40 years for a new material to move from academia to consumer products, so graphene is just a bambina.”

[Ed. Note: Again, this "graphene limbo" situation makes for perfect timing to learn everything you can about, and invest in, our resource maven Byron King's leader of the "super carbon" pack, here.]

  “Who wants to play ‘What’s the price of gold?’” asks Mark Dice in a video we spotted.

It’s part of a series in which he takes to the streets of California and offers to give a 1-ounce Canadian Maple Leaf — free– to anyone who can guess its current market value. He’ll even spot you a 25% margin of error. Or if he’s feeling generous, even 50%.

It’s almost as funny as it is sad. One poor girl guesses $3…

Viewer discretion advised: This may make gold bugs cringe more than laugh.

  “Chinese gold buying is more complex than just government mandate,” a reader writes after Wednesday’s episode of The 5.

“Many people there are concerned that they may have already seen their salad days of go-go growth behind them. There are unbelievable amounts of personal wealth looking for preservation. Gold and real estate are two traditional approaches.

“Like any intelligent person wanting to keep what they have, they would prefer that their government not know about it, hence they seek ways off the radar. Cash in the bank gets reported, but physical gold in a safe, often offshore location and overseas property do not.

“Check out the drive to sell depressed U. S. property to Asians. I attended such a presentation recently. The agent was a London-based company selling residential property in the Detroit suburbs to the Chinese. The selling points included the fact that potential tenants will receive what amounts to ‘rent stamps’ from Uncle Sam. I asked what would happen if (when) the government stopped the program and the response was, ‘They can’t do that because it would cause the economy to collapse.’

“The person being a Brit cannot conceive of a situation over which the government is not in control, in spite of their delusions to the contrary.

“Love The 5. Spot-on stuff.”

  “Ummmm…. has he ever heard of a silver dime?” an indignant reader writes after our 5 flashback yesterday, in which an aide to the governor of Utah dissed the concept of gold as money.

“Or, if Virginia goes back to a precious metals-based currency, perhaps one could use a nickel made of… uh… nickel, or a penny made out of real copper? As a matter of fact, if you do the conversion, a gallon of gasoline is still what it was 40 years ago — if you pay in silver.

“I clearly recall my parents paying around 32 cents a gallon for gas around 1970. Today, a silver quarter is around $5 (there are online calculators to get today’s value). Or just under a gallon of gas. Same as it was 40 years ago. Where do people who say these things actually come from?”

  “Regarding the reader who yesterday suggested gun owners be required to carry liability insurance…

“Ninety-nine percent of the persons who use firearms illegally and incur civil liability would not have a liability insurance policy in the first place. And even if they did, which is purely hypothetical, the policy would be void upon the policyholder’s illegal use of the firearm — like shooting someone.

“What a dumb idea, reader!”

The 5: Gee, and we thought he was being facetious…

Have a good weekend,

Dave Gonigam

The 5 Min. Forecast

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