January 9, 2013
- God, guns and gold!… the news cycle drives a whacky episode of The 5…
- Biden kicks Smith & Wesson to the curb… what investors don’t get (or care) about the gun maker…
- Despite correction, how the “gold bull” stacks up against other assets… why and how you should own bullion outside the banking system (in today’s 5 PRO!)…
- Currency wars!… a spate of bizarre tales in the precious metal narrative… pills that make you what?!
- The return of the trillion-dollar coin… a legal justification… reader apologizes for taking a week off… and more!
“Was your challenge to watch the God Switch video ‘if you dare,’” asks a reader to kick off today’s 5, “a subtle reference to the emailers who dare you to print their emails… or have you succumbed to the same tactic?”
The 5: You decide.
“Hmmm,” another reader comments. “We may be looking at cellular rejuvenation and immortality. Interesting. But there has always been a benefit to the aging process and death. It is one certain way to remove the assholes from Earth.”
The 5: Umn, we’re not sure this meets our Presbyterian standard, but it does give you a sense of what type of response we’re getting. Whatever the case, the potential immortality of human cells would appear to have more far reaching implications than a few flippant remarks in The 5. We’ll keep you posted as things develop…
In the markets this morning, gold gave back $3 of its humble gains yesterday, to $1,657, while silver clipped off 15 cents, to $30.26.
“Short term, gold is showing weakness,” trend watcher Jonas Elmerraji writes, advising when might be a good time to buy again, “it’s been making lower lows for the past three months, a sign that buyers aren’t readily jumping in to buy the metal at lower prices.
“At this point, though, we’re getting close enough to support range that buyers should start stepping up to the plate in the near term.” Mr. Elmerraji will keep us posted…
Meanwhile, stocks are faring better. As of this writing, the Dow is up 76 points, to 13,405.26. The Nasdaq inched up 17 points, to 3,109. And the S&P is up 7 points, to 1,464.
“Stocks look good right now,” Jonas offers by way of explanation. “The S&P 500 — our preferred proxy for the broad market — has been rallying hard off of mid-November lows, and is a hair’s breadth away from hitting new 52-week highs — even after Tuesday’s decline.
“That has implications for other big markets — like gold and bonds.
“Earlier this year, gold and Treasuries had been trading in step with one another, a phenomenon that we see only when investors are scared of stocks (we saw the same thing in late 2011, for instance). But that relationship broke down at the end of December, even in spite of the fiscal cliff headlines.”
Translation: Investors are slowly coming around to stocks again.
“Even though Biden did not reveal what such an order would entail,” Greg Guenthner writes, alerting us to a drastic move down in Smith &Wesson on the news, “Twitter gossip suggests a ban — or possibly even government-ordered seizures — of assault rifles.”
Smith & Wesson got whacked shortly after Biden let his loose lips slip“The government coming door-to-door, list in hand, to take your guns? This speculation — which is all it is right now — was enough to spark an immediate reaction from investors.”
Gun stocks like Smith & Wesson reeled on the news.
“It’s a counterintuitive move,” Greg continues, “especially since Smith & Wesson books a vast majority of its revenue on handguns and pistols.
“Still, gun stocks present a moral dilemma for many investors. Share prices immediately dropped following the Sandy Hook tragedy. A stock and a company are two very different things — especially when emotional or controversial products are involved. Smith & Wesson could very well book record profits next quarter while enduring a devastating sell-off.”
One of the most frequently commented on stories currently posted on our Daily Reckoning site boasts the headline “When They Come for Your Guns, Will You Give Them Up”
Likewise, another astute reader brought to our attention one story out of the gun control debate “viral spiral” this week: Joshua Boston, in a letter now largely known as “No Ma’am,” was first penned on CNN’s iReport on Dec. 27 as an open letter to Sen. Feinstein regarding her new proposed gun control legislation.
The letter reads:
Bank of America recently held deposits for “further review” coming from gun dealer American Spirit Arms after their website orders jumped 500% recently.
“After countless hours on the phone with BANK OF AMERICA I finally got a Manager in the right department,” Joe Sirochman, owner of American Spirit Arms wrote in the Ironic Surrealism blog. “HER EXACT WORDS WERE.” the peeved owner goes on, “‘WE BELIEVE YOU SHOULD NOT BE SELLING GUNS and PARTS ON THE INTERNET.’”
“There’s no room for logic,” Guenthner sums up the investment perspective. “If you own companies like Smith &Wesson (SWHC), you should prepare for intense volatility as this debate evolves.”
“Over the past four years, gold and silver have provided the best returns among major asset classes,” senior precious metals analyst at Casey Research Jeff Clark helps steer us to investment implications of a meandering gold price.
“Gold producers, meanwhile, have collectively underperformed the metal, while the juniors as a whole have lost money.
“Some claim that gold is in a bubble,” Jeff writes, “because it has advanced so much. The reality is, however, that this bull market is small compared to most others in modern history.
“Over the past 40-plus years, our bull market would be among the smallest of the major bull markets listed, in terms of percent gains. It’s about a quarter of what the 1970s bull market returned. A good number of them also lasted longer than ours.
“Based strictly on percentages, I’d bet that ours isn’t over.
“History shows that bull markets tend to end in a climactic blowoff top. For example, gold rose 120% in 1979. Our best year was 32% in 2007. Hardly meteoric, and contrary to how the typical bull market culminates.”
So where do we go from here?
“I don’t think [gold] will go up right away,” our friend and Vancouver fave Marc Faber told CNBC this week by way of answer, “and we maybe have a correction of 10% or so on the downside.”
Of course, this doesn’t change his position: “I see that governments will print money… so I want to have gold as an insurance policy.”
“Gold is having a correction,” another Vancouver speaker, Jim Rogers, forecasts to the same news source, mirroring Mr. Faber’s sentiments, “it’s been correcting for 15-16 months now — which is normal in my view, and it’s possible that [the] correction is going to continue for a while longer.
“Most things correct 30% every year or two, even in big bull markets — 30% corrections are normal, and yet gold has only done that once in the past 12 years.”
“The modern central banking community is a ship of fools,” comments our macro strategist Dan Amoss on the flip side of the gold asset argument. “Fools don’t think through the consequences of their actions. Harebrained schemes that feel like good ideas today will inevitably lead to disaster. Central banks are sowing the seeds for the ultimate bust — one that will be impossible to contain.”
One such method for sowing those seeds: ongoing “currency wars.”
“Currency wars,” Mr. Amoss clarifies, “refer to the process of central banks printing up their own currencies and buying trading competitors’ assets, mostly government bonds.”
“Today’s Wall Street Journal,” Dan writes, “offers a glimpse into the future of the global currency war. In this war’s early skirmishes, the Swiss National Bank is leading the arms race; it’s run like a hedge fund, buying mostly foreign assets, including French government bonds (big mistake). The SNB’s balance sheet has grown fivefold since 2008, and now is loaded with non-Swiss assets:
“What happens if the values of the assets fall? The normal central bank response is to print even more and redouble efforts to support prices for those assets. So much new currency leaks into the financial system that its value falls.
“Other central banks then worry about the ‘strength’ of their own currencies. They’ll retaliate, beef up their trading desks, print their own currencies and buy bonds and other assets denominated in trade competitors’ currencies.”
“Ironic, isn’t it?” asks Dan, “Rather than fight trench warfare, as in WWI, economic competitors are funding each other’s budget deficits through their own central banks. This is a recipe for continued growth (or nonreform) of the bankrupt welfare state and slow suffocation of the private sector: governments borrow at near-zero rates from eager bond buyers at central banks; international trade grinds to a halt amid the chaos.
“Is a reversal of globalization in the works? Will central banks usher in the end of the ‘global economy’ and spark the resurgence of intracountry trade within closed borders?
“Once this starts, nobody can predict how it will end. But there will be chaos in the foreign exchange markets. The academic arguments to take paper money seriously, already losing credibility, will become laughable.”
[Ed. Note. In today's 5 PRO we'll explain why -- and how -- in preparation for chaotic currency wars you should own gold stored outside of the banking system. As you may be aware, we're giving 5 readers an opportunity to test-drive PRO for two weeks free. If you haven't already taken advantage, click here.]
In October of last year, it was reported that a cargo ship carrying 700 tons of gold ore vanished in the sea of Okhotsk, off the coast of Russia. Although weeks later the boat was found shipwrecked, the majority of the crew are still missing.
This resurfacing story is only one of a growing string of bizarre precious metal narratives lately.
Shortly thereafter, in early December, artist Tobi Wong created a gold pill he says will “turn your innermost parts into chambers of wealth.”
“Digest to increase self-worth” suggests the online storeThe price tag for the 20mm tablets sits at $425 a pop.
Relatively cheap in comparison to the $1,007 golden cupcake created by baker Shafeena Yusuff Ali in Dubai earlier in the year.
In mid-December, an armored truck carrying $10 million in silver crashed in upstate New York, scattering hundreds of kilo bars across Interstate 81.
And more recently: “U.S. authorities in Puerto Rico,” ABC News reported yesterday, “have confiscated 11 gold bars sent by mail from Curacao,” according to officials.
Nearly 77 pounds of gold worth an estimated $1.7 million were found in several courier packages at an airport in the town of Aguadilla, spokesman for U.S. Customs and Border Protection Jeffrey Quinones told ABC.
The officials weren’t clear whether or not there is a link to the recent gold heist on the Dutch Caribbean island where six masked men masquerading as police stole $11.5 million in gold from a fishing boat.
Coincidentally, around the same time yesterday, Honduran police reported they seized a gold-plated, jewel-encrusted AK-47 rifle worth an estimated £30,000 (or $48,165) believed to belong to a group connected to Mexico’s Zetas drug cartel.
“It’s an exclusive design and a fine carving,”police chief Leonel Sauceda told the free British daily Metro.We’d generally view all the news and interest in precious metals with a jaundiced eye… and suspect that a top is nearing in the precious metals markets. However, for reasons we outline above… and in the first reader mail below… we don’t think we’ve even come close to the panic buying phase we would expect to see in this economic cycle.
“What’s the difference,” a reader writes referring to an item we referenced last week, “between the Treasury minting a coin out of platinum and declaring it to be worth $1 trillion and selling it to the Federal Reserve and fancy green paper, virtually printed, and declared to be worth $1 trillion?
“Seems to me the Fed is getting the better part of the deal. At least the platinum coin actually exists! This is the ultimate destination of the make-believe economy.”
The 5: James Pethokoukis, a writer at the American Enterprise Institute covering this goofy plan, was recently contacted by Philip Diehl, who “says he is the former U.S. Mint director and helped write the law authorizing the trillion-dollar platinum coin.” In an email, reprinted below in full, Diehl justifies the legality of minting such a coin, if not the lunacy:
“I took all of last week off and swore off even reading my daily dose of The 5,” writes our last reader with a clever apology, “Now that I’m back up to speed, I really enjoyed the reader’s reply on the feces-throwing chimps. Well put.
“Now I’ve got to comment on the Jan. 2 5 and the new government regulations incurred on the lowly 75-watt incandescent bulb: Looks like another item to hoard and have available for trade and barter when TSHTF.”
The 5: We’re already loading up…
The 5 Min. Forecast
P.S. The company referred to in the God Switch video announced important news this morning. They’ve acquired a complete line of a competitor’s “product” and did so without diluting existing shareholder value.
“The contract has been signed,” reads an elusive release, “giving [name withheld] control of nearly all the relevant patent library covering [technology] and [product].” That’s big news for existing shareholders and a development our tech maven Mr. Patrick Cox has been anticipating for some time. If you’re interested in learning more, please subscribe to Breakthrough Technology Alert.