• U.S. military communications outsourced to China? The true story behind a little-known Pentagon scandal, and how it’s being cleaned up to the benefit of a tiny subcontractor
• Stocks stumble into the weekend: Elmerraji on why the U.S. equity market is not in a bubble… and how to recognize a bubble when you see it
• “Doomed to fail”: Amoss on the real reason Japan’s stock market fell out of bed… plus, a warning you don’t want to ignore
• North America’s 10-year lead on the rest of the world: Byron King’s takeaway from a gathering of his fellow oil field geologists
• How Britain’s “super tax” set off a chain of events that ended with the breakup of the Beatles… and more!

  “The U.S. military-industrial complex will not be satisfied until it has outsourced its entire activities to China,” declares an outraged and not-entirely hyperbolic Eamonn Fingleton at Forbes.

On April 25, during a hearing of the House Armed Services Committee, a Pentagon flunky disclosed that the U.S. military uses a commercial Chinese satellite to provide communications for the U.S. Africa Command.

5 readers with keen memories and a keener sense of irony will recall that’s the same Africa Command the military formed in 2006… for the express purpose of checkmating China’s ambitions to lock up oil and other resources in Africa.

Seriously.

“The nation that launched the world’s first communications satellite (I remember it well — it was called Telstar),” Fingleton fumes, “has so lost its manufacturing mojo that it has to rely on its most formidable military adversary to provide the hardware for some of its most sensitive communications.”

Nor is the satellite an isolated case.

  “America’s dependence on foreign suppliers is a growing problem that hurts our nation’s defense industrial base and threatens our security independence,” declares Rep. Mo Brooks (R-Ala.), a member of the committee that heard the China satellite revelation last month.

Brooks is pointing to a new study called “Remaking American Security: Supply Chain Vulnerabilities and National Security Risks Across the U.S. Defense Industrial Base,” prepared for the Alliance for American Manufacturing.

It spotlights scads of weapons programs that depend on foreign supplies…

• The F-35 fighter jet
• The F-22 fighter jet
• The littoral combat ship
• The V-22 “Osprey” tiltrotor aircraft
• JDAM — the hardware and software behind “smart bombs”
• Night-vision gear
• Submarine-launched missiles.

  The issue has been literally decades in the making… and spotlighted in an obscure 2005 report issued by an obscure Pentagon-funded think tank called the Defense Science Board.

Forbes’ Fingleton sums it up: “Reporting that most of the key capabilities and technologies on which the U.S. semiconductor industry rested had moved offshore, the board summed up its inquiries with this chilling comment:

“‘The potential effects of this restructuring are so perverse and far-reaching and have such opportunities for mischief that, had the United States not significantly contributed to this migration, it would have been considered a major triumph of an adversary nation’s strategy to undermine U.S. military capabilities.’”

Worst-case scenario: Suppliers from a hostile nation might plant “Trojan horse” computer chips inside critical systems — circuitry that’s nearly impossible to detect.

Could an F-22 misfire, thanks to “Trojan horse” computer chips?

  A more likely scenario: counterfeit parts that might not function as intended.

“We can’t tolerate the risk of a ballistic missile interceptor failing to hit its target, a helicopter pilot unable to fire his missiles or any other mission failure because of a counterfeit part,” said Sen. John McCain during a 2011 hearing that brought the issue to light.

Profit-maximizing U.S. military contractors,” Fingleton concludes, “have clearly long since given up even the pretense of serving the U.S. national interest.”

Undoubtedly true… but it appears events deep in the bowels of the bureaucracy have escaped Forbes’ notice.

  The Pentagon’s 2012 funding bill included a hard-and-fast requirement, as described at Law360.com: “to eliminate counterfeit electronics… from its supply chain, through regulations that would shift liability for replacing counterfeits to the contractors.”

Get that? The contractors can no longer slough off responsibility to the government if counterfeits are discovered. They’re liable… at the very least for making the situation right, and at worst for civil and even criminal damages.

If you’re the likes of Boeing, Raytheon and Lockheed Martin, you’d want to do everything in your power to avoid that. Which is why more than three dozen defense contractors are beating down the door of a subcontractor that the Pentagon has granted a virtual monopoly on anti-counterfeiting technology.

The proposed regulations were published in the Federal Register only last week. They could be final as early as July — propelling this subcontractor into top-of-mind awareness among the industry’s giants.

“Imagine,” says our tech guru Patrick Cox, “owning shares in a small, as of yet unrecognized company destined to become a juggernaut of profits for anyone with the good sense to grab their shares.” Patrick lays out the fascinating — and lucrative — background in this presentation.

Be advised our publisher is pulling this presentation offline at midnight Sunday night… so take a look while you still can.

  The few traders who haven’t knocked off early for the long weekend have teamed up with the high-frequency robots to send the major stock indexes down this morning.

The S&P rests uneasily at 1,640; a mere 48 hours ago, it hit an all-time intraday high at 1,685. Our trading specialist Jonas Elmerraji is, however, resting easy; the index remains solidly within the uptrending “channel” going back more than six months now.

“The most hated stock rally in history” is still on.

  On the other hand, “I spotted an article that got my blood boiling,” Jonas tells us.

“It was a MarketWatch column that argued that we’re in a stock market bubble right now. Here’s the sentence that really did it for me:

“This is an attribute of almost all bubbles; everyone knows they will come to an end, everyone knows what has happened when other bubbles have burst, but very few want to get off in the middle of the parade.”

“Huh?” Jonas says, incredulous. “That’s pretty much the OPPOSITE of what happens in a bubble.

“When the housing market was rising to a foamy froth, everybody leveraging themselves to the hilt to buy real estate thought it would go on forever. When the tech bubble shoved valuations in garbage stocks like Pets.com up to ludicrous levels, nobody thought that the air was suddenly going to get let out of their portfolios — they just thought that the old ways of evaluating stocks didn’t apply to amazing Internet companies…

“Could stocks be overvalued right now? Sure. Could momentum fizzle out in the short term? Of course. But those two risks do not a bubble make.”

  “The Bank of Japan’s bold monetary experiment may blow up in its face,” suggests our Dan Amoss.

“The Japanese government bond (JGB) market — one of the biggest bond markets in the world — is acting strangely. It’s a dynamic, potentially explosive situation.

“Despite huge amounts of newly printed yen constantly flooding the JGB market, it appears supply is overwhelming demand. Japanese banks and insurers are selling JGBs more aggressively than the central bank is buying. Prices are falling and yields are rising.”

That, suggests Dan, is the real reason the Nikkei crashed 7.3% on Thursday — only a small chunk of which was recovered in today’s session.

“The Nikkei crash coincided with weak Chinese economic data,” says Dan, “but the real fuel for the crash was fear that the JGB market could spiral out of control.

“In its effort to push inflation up to 2%, the Bank of Japan may get more than it bargained for. It may find itself the only buyer willing to absorb JGBs at interest rates the government can afford.

“The cost of borrowing is the key to understanding Japan’s trap: The private market for JGBs is doomed to fail. It’s doomed because the supply of private-sector savings to fund a bankrupt government at just 1% will dry up — especially if savers become convinced inflation is heading to 2% (or more).

“Here’s the problem: The Japanese government can’t afford to pay more than 1%, or it would fall into a trap of committing its entire government budget to pay interest on the debt. At that point, default would be inevitable.” PRO-level subscribers can read on for a “final warning” from Dan…

  “How many times have I started a weekly note by stating, ‘I’m in (fill-in-the-blank)’?” asks our resource guru Byron King. He was giving us an update from the American Association of Petroleum Geologists (AAPG) convention in Pittsburgh.

According to Byron, the convention draws an international crowd — a part of the oil industry he calls “Big Geology.” Surprisingly, he said that foreigners are still wrapping their heads around fracking.

“It strikes me,” he noted, “that North America is a decade or more ahead of the rest of the world in fracking. We’re pioneering the fracking process here. It makes sense, because North America is where the energy supply deficit has been made up by expensive oil imports for many years.”

So what will it take for others hoping to enter the fracking fray? “The new breed had better be well versed in using Big Data, math and statistics,” he answered.

“At AAPG conventions of old, there used to be all manner of ‘hard’ exhibits — drill bits, logging tools, etc. Doing oil geology still involved kicking steel and getting your hands dirty. Now the AAPG displays are all screens, on which you see examples of data being manipulated by workstation levels of computational power.

“The future is strong for unconventional plays. There’s much drilling and fracking yet to come.”

But, says Byron, keep an eye out for another trend coming out of nowhere: “At the same time, new tech is moving backward, into older, ‘mature’ oil fields from days past. By incorporating fracking into traditional oil extraction, the Permian Basin of West Texas, for example, is now growing oil output after literally generations of decline.”

Yet another surprising wrinkle in the ongoing “Remade in America” story. If you haven’t acquainted yourself with it lately, give it a look…

  “Is this a good weapon?” said a man clutching an umbrella. “It is if it’s in my hands at the time of attack.” His name is Mark Donnelly, and he practices a martial art called Bartitsu.

Our daily, tireless search for “quirk” with which to keep The 5 entertaining has hit a wall on this Friday before a long weekend. The news gods will simply not comply. We’re forced to examine the “A-Hed” story on The Wall Street Journal’s front page… where we find “an obscure Victorian system of gentlemanly self-defense practiced by Sherlock Holmes, Sir Arthur Conan Doyle’s legendary detective.”

Uh-huh.

“Holmes is fictional,” said Donnelly at the Steampunk World’s Fair. “Bartitsu is real.”

Apparently, it was developed by Edward William Barton-Wright, a British engineer, in 1898.

“Ahem. Pardon me, good sir. Yes, over here. Would you care to altercate? You would? Splendid.”

Mr. Donnelly agrees that “Bartitsu’s value is more historical than it is a practical means of self-defense today — though, he adds, it would be easy to substitute a Starbucks cup for a snuffbox, blinding an attacker with hot coffee, rather than a cloud of snuff.”

We recall reading speculation a few years ago, after Rupert Murdoch bought The Wall Street Journal, that he might kill the A-Hed, the better to fulfill his fantasies of taking on The New York Times mano a mano. Didn’t happen, but if this is the best they can come up with…

  “None of the Beatles ever moved to France,” a reader writes with one of the more obscure emendations we’ve run in The 5.

“The Stones did, in 1971, producing their masterpiece, Exile on Main Street, in Keith Richards’ basement in Villefranche-sur-Mer.”

The 5: We indeed got our iconic British rockers mixed up. That said, the Fab Four also went to great lengths to avoid the “Taxman” — leading, however indirectly, to their breakup.

“In 1967,” wrote George Cassidy in a 2011 National Review piece, “the Beatles were informed that they would need to invest the large pile of cash they had amassed if they wished to avoid a major haircut from Her Majesty’s tax collectors.”

Thus were birthed the infamous Apple Records, Apple Electronics, Apple Films, etc. Most of them hemorrhaged cash. John Lennon brought in Allen Klein to clean up the mess, over Paul McCartney’s objections.

“Klein’s laser focus on money,” Cassidy wrote, “often slighted artistic goals — witness the doctored ‘Let It Be’ tapes, released without McCartney’s consent. McCartney, finding the prospect of continuing with Klein unacceptable, ultimately enraged the other Beatles by suing them to dissolve their partnership in 1970.

“Without the potent tax dilemma, it is doubtful that the Apple group of companies would ever have been founded in the first place. In other words, no super tax, no Apple fiasco. No Apple fiasco, no Allen Klein. No Allen Klein, no lawsuit.”

Who knows what might’ve been?

Just think, McCartney might have never inflicted Wings on an unsuspecting world…

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. U.S. markets are closed Monday for Memorial Day. We’re back tomorrow with our weekly wrap-up, 5 Things You Need to Know. The weekday edition of The 5 returns on Tuesday.

• Regrowing human limbs: A new light flicked on by the “God switch”
• Toting the market damage from Fed doublespeak, China slowdown, Japan smash…
• Dumping ETFs, scooping up the real thing: Latest revealing gold moves from Asia to Texas
• An income tax of over 100% and other dim ideas from the French Fifth Republic
• Cues to the future gold price… coded in Byzantine coins

  “This has got to be one of the most restrained scientific announcements in the history of regenerative medicine,” says an unrestrained Patrick Cox.

Indeed, it was.

The announcement referred to “new data on purified and scalable human embryonic progenitors with molecular markers corresponding to limb bud mesenchyme.”

Before you nod off, let’s allow Patrick to translate…

  “The company has created and identified the cells that can turn into legs.”

Zowie.

“As radical as this seems,” he goes on, “this salamander-like ability actually exists in humans during the embryonic stage of human development. If something happens to the limb of a developing embryo, the entire limb can regrow. This announcement makes it clear, I believe, that this ability can be restored in adults.

“Let me emphasize that this is not transplantation technology or embryonic stem cell therapy. We’re talking about restoring embryo-like abilities in adults using the patients’ own induced pluripotent stem (iPS) cells that have been restored to embryonic youthfulness and power. As a result, there is no chance of immune rejection.”

Ah yes, iPS cells… the kind that were taken from Patrick’s arm and turned into beating heart cells — the subject of a video with which we’ve stirred up a hornet’s nest.

“Obviously,” Patrick concludes, “it’s going to require additional evidence to convince the scientific community that such radical therapies are possible. Fortunately, however, there is already considerable interest in this field of medicine, in large part because of the military’s desire to restore the limbs of injured soldiers.”

The breakthrough opens up whole new vistas of research in the science of immortalizing human cells. Controversial stuff… but enormously lucrative for early investors. Patrick unlocks the science, and the wealth potential, in this presentation that still has people talking.

  “After the market’s torrid run this month, a move lower is just what we need,” suggests Greg Guenthner in this morning’s Rude Awakening.

Indeed, that’s what we’ve got. No sooner did Fed chief Ben Bernanke warn yesterday that “premature tightening” could harm the “recovery” (good for 150 Dow points) than he added the Fed might “taper” its bond purchases over the course of its “next several” meetings (vaporizing all 150 of those Dow points). Then came the minutes of the last Fed meeting, saying “a number” of Fed governors were willing to consider such “tapering” (whoops, another 90 Dow points gone).

Then overnight, “the Japanese Nikkei fell flat on its face,” says Greg. Indeed Japan’s benchmark stock index tumbled 7.3%. “Investors looking for an excuse to take profits received just that in the form of soft Chinese manufacturing numbers. That’s all it took for traders to mash the ‘Sell’ button.”

Once again, The Economist’s timing proves impeccable. Behold the cover of current issue…

Then again, the Nikkei is now back where it was… uh… two weeks ago. And still up 67% since last November.

“Don’t get spooked by today’s action,” says Greg. “Too many investors are easily ‘brainwashed’ when markets move in one direction for too long. Anyone who thought stocks would never have an off day is waking up on the wrong side of the bed today.”

The Dow opened down 130 points… and at last check has recovered all but five of them. The index sits a hair below 15,300. Heh…

  Gold has proven itself remarkably resilient in the face all the sturm und drang.

At $1,376, the Midas metal sits very nearly where it did 24 hours ago. Silver sits at $22.33.

  “Demand for gold bars and coins surged during the first quarter,” reads the latest quarterly report from the World Gold Council, “with the strongest growth seen in the coin segment.

“India, China and the U.S. together generated much of the increase; these three markets combined accounted for 60% of the total. Demand for bars and coins was well above its five-year quarterly average.”

“Paper gold” in the form of ETFs? Not so much…

As noted in the new issue of Apogee Advisory, inventory in the biggest gold ETF, GLD, collapsed during the April gold swoon. We won’t be surprised to see a very similar quarterly chart from the World Gold Council in three month. Not least because…

  Premiums on gold bars in Asia are setting record highs this week.

“Premiums for gold bars in Hong Kong,” Reuters reports, “touched a new all-time high of $6 an ounce over spot London prices, up from $5 last week. Singapore premiums rose to $5.”

Understand these are people buying kilo and 100-ounce bars. In contrast, a single Gold Eagle purchased from an online North American dealer will cost you a $55 premium this morning — which isn’t too shabby by recent standards!

“China premiums remain high because of a shortage in supply of the physical metal,” a Hong Kong trader told Reuters.

  “The crisis in bullion markets is worse than it was before,” adds Alasdair Macleod at GoldMoney.

“A good example of how little physical stock there is can be gained by tracking bullion deliveries on the Shanghai Gold Exchange. In the last few weeks, they have dwindled to virtually nothing, having been a truncated 190 tonnes in April and 297 tonnes in March.

“Yet we know from reports that retail demand in China has taken off; so it is only a matter of time before prices are bid up on the Shanghai Gold Exchange enough to replace lost inventory.”

  Don’t forget the demand from developing-market central banks. Russia just issued its latest figures…

  Also holding firm on gold: The nation’s second-largest university endowment.

“We always prefer that our assets go up, rather than down, but we’re not day traders,” says Bruce Zimmerman, CEO of Utimco — the firm that oversees the investments of both the University of Texas and Texas A&M.

The $29.5 billion endowment — only Harvard’s is bigger — has seen the value of its gold holdings slip from $1.4 billion to $1.1 billion since last fall. “Gold is a hedge,” Zimmerman tells The Wall Street Journal, “and it still fills that role.”

In the three months ended in February, Utimco unloaded about $375 million in bars, reinvesting the proceeds in gold futures and gold stocks.

If you’re curious, there’s still big talk in Texas about “repatriating” Utimco’s bullion, currently held in an HSBC vault in New York. “I recently had a town hall meeting in my district with 200 people, and the gold depository was the No. 1 issue,” said state Rep. Giovanni Capriglione last month.

“Most Americans,” he added, “are worried about an economic collapse.”

  Some Frenchmen are making their way toward their homeland’s exits. Why?

Because of the other capital punishment: taxes. At least 8,000 of them coughed up taxes in excess of 100% of their income last year. Ouch.

Reuters reports “that the exceptionally high level of taxation was due to a one-off levy last year on 2011 incomes for households with assets of more than 1.3 million euros ($1.67 million).

“President Francois Hollande’s Socialist government imposed the tax surcharge last year, shortly after taking office.”

That new levy was 75% of income, but the courts ruled the rate was “too” confiscatory.

“Since then, a top administrative court has determined that a marginal tax rate higher than 66.66% risked being considered as confiscatory.”

Yeah. That’s a lot better.

The ruling didn’t dissuade Hollande; he simply decided to shift the tax to businesses. As a result, many French citizens and businesses have decided to relocate to places like the U.K.

Time magazine quoted Charles-Marie Jottras, who heads up a Parisian luxury real estate company. “Jottras says the departure of wealthy clients is reminiscent of the early 1980s, when the previous Socialist President Francois Mitterrand was in power… The difference this time, he says, is that ‘it used to be just rich people who left, not business people.’”

Seems like just yesterday the Beatles were moving to France to lighten their tax burden. Oh, how the tables have turned.

  Case in point: “l’exception culturelle”.

This subsidy benefits the arts like books, movies and music. But now according to The New York Times, “a government adviser has suggested that manufacturers pay a 1% levy on the price of smartphones and tablet computers to help keep funding for such works alive, as more and more end up online and beyond the reach of existing taxes.”

A report that Hollande’s government produced on the tax offered up this logic: “Considering the weight of cultural content in connected devices, it is legitimate that those who make and distribute the equipment contribute to the financing of its creation,”

Hmn…sounds bass-ackward to us, but c’est la vie!

  “Of course,” a reader writes of gold’s April thumping, “I see myself as a pair of ‘strong hands.’

“Go ahead tear the price down, I want more.”

  “How can anyone assert that the gold ‘rally’ is over?” concurs another. “Someone who is completely ignorant of history, which is practically everyone, including a lot of professors of

history.

“Anyone who wants to understand where all this is going to end must study 5,000 years of history in detail and discover that cultures proceed in 1,500-1,700-year cycles, and how these cycles impact civilization. Then go to the National Archaeological Museum in Athens and follow their chronologically organized collection of Byzantine coins. This was one of the most important events of my life, and it was only several years later that I began to understand its meaning.

“This is what our politicians need to do.”

The 5: Dream on.

  “It doesn’t matter how long it is, I read The 5 until I get bored, writes a reader, mercifully winding down our recent length-of-The 5 thread.

“I have been reading The 5 since inception, and so far I reach the end 99% of the time without falling asleep or deciding to play a game of Spider. I don’t care if you call it the 5, the 10 or The Daily Blurb. The person who wrote in and lit the fuse on this length discussion probably doesn’t have enough to do. Otherwise, why would he/she take the time to complain?

“If the content is interesting, I don’t care how long it is, just keep it coming!”

  “Great job, folks! No complaints here,” writes our final correspondent.

“I wish it were cheaper to get this e-letter, but then we’d be haggling over how much you had to pay me and, and then I’d have to send in a punch card to let you know how many minutes I’d spent every week reading it, and then you’d have to hire extra people to keep track of the time for everyone…

“I think we better just leave well enough alone.”

The 5: Agreed. But we appreciate the sentiment!

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. It’s been a good week for Options Hotline readers. As of the close yesterday, they’re sitting on positions that include…

• A bearish small-cap play, up 5% in a little over a week
• A bearish play on a major retailer, up 46% in only two days
• A bearish play on Treasuries, up 87% in a month and a half.

If you’ve never played options before, Steve makes it as easy as possible. In fact, you could make money on your very first trade. Check out the proof right here.

• “We are in a depression”: If it’s doom-and-gloom you crave, this guy delivers…
• But wait: At the same time, “the technology to create and design new products is available to anyone today,” says someone else
• Can both be true at once? Yes, we suggest… with historical proof
• When you’re a AAA risk, it’s all downhill: Neil George upends the traditional view of bonds
• The day the toaster ban was lifted… a reader’s impassioned plea… the gold manipulation debate, continued in our inbox… and more!

  “We don’t have to worry about a recession — we are in a depression,” declares James Rickards.

“If you take the classic definition of a sustained, long-term downturn with economic growth below trend,” he tells the New York Post, “then we are in the midst of a depression.”

For an “insider,” Mr. Rickards is refreshingly candid. Fifteen years ago, he negotiated the banking system’s rescue of the hedge fund Long-Term Capital Management. In 2009, he was invited by the Pentagon to help “war-game” a global financial conflict — a scenario he fleshes out in his book Currency Wars.

“Each country is degrading its currency in the hopes of spurring growth,” says Rickards. “Look at Japan. The yen has lost 40% of its value against the dollar in a very short period of time.”

And in the United States? “There’s a good possibility I may never see another rate hike in my lifetime.” Quantitative easing, Rickards says, amounts to a $3 trillion trade. Only problem? “Bernanke’s not a trader, so doesn’t think like a trader; he has no exit plan.”

  As if on cue: “Bernanke warns premature tightening could end growth,” reads the liveblog entry at Marketwatch.

It’s time for the Federal Reserve chairman’s twice-yearly testimony to Congress. At the stroke of 10:00 a.m. EDT this morning, Bernanke affirmed Rickards’ thesis in real-time.

The “tapering off” talk that’s had the financial media abuzz in recent days? Ha ha, just kidding. “A premature tightening of monetary policy,” said Bernanke, “could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further.”

  And with that, it’s “risk on,” baby!

• The Dow has broken through 15,500. The benchmark small-cap index, the Russell 2000, might post its first close above 1,000 today
• Money is flooding out of “safe” Treasuries; the yield on the 10-year note has popped to 1.97%
• Gold even leaped the $1,400 barrier for a few moments, but has settled back to $1,376
• And for irony, the greenback is looking sharp relative to the rest of the world’s fiat currencies; the dollar index has jumped to 84.4, the highest in nearly three years.

  “Businesses have no clarity into future policy,” says James Rickards, adding to his litany of woes, “so therefore there’s no investing into hiring new workers or buying new equipment.”

There’s the terrible twosome of multithousand-page legislation, Obamacare and Dodd-Frank; more than two years after passage, regulators are still writing the rules. And there’s the hemming and hawing over the Keystone XL pipeline. Rickards says all of that needs to be resolved “so businesses know their future costs.”

  “The technology to create and design new products is available to anyone today,” writes author Chris Anderson — making as hard a left turn as perhaps we’ve ever made in The 5.

Anderson does not concern himself — not much anyway — with the follies of politicians and central bankers. He’s too busy being an apostle of the Maker movement — or as the subtitle of his book Makers calls it, “the new industrial revolution.”

He has a 3-D printer in his house. Using it and some designs from a website called Thingiverse, he and his daughters can make their own dollhouse furniture — at a low cost, in exactly the right style and the perfect size. Bad news if you’re a toy company.

And that’s in his spare time. He runs 3D Robotics, a firm that started on his dining room table in 2006 and now employs 70 people in San Diego and Tijuana building small drone aircraft — not the military kind, we assure you.

His story can be anyone’s story now: Using 3-D printers, laser cutters and computer numerical control (CNC) machines, you need only a little imagination and an Internet connection to become an entrepreneur. If your awesome new idea is too complex for a crude 3-D home printer, you can outsource the job to someone across town or across the globe who has the right tools. And you can get ready access to capital through “crowdfunding” websites like Kickstarter.

  Can government foul up the Maker movement? Not much, Anderson suggests.

“Every time government tries to regulate technology itself,” he tells us in the new issue of Apogee Advisory, “rather than use the technology, they get tangled up in definitions. Look at the debate over what’s an [assault] weapon. How do you regulate the Internet? How do you regulate copyright?

“Let’s just take drones. What is a drone? You tell me. At what point does the toy that your children can buy in a department store qualify as a drone? It’s very hard to buy a flying toy that doesn’t have a camera right now. We can regulate how they’re used. We can regulate where they’re used. But it’s very hard to regulate the technology itself, because, among other things, who are you going to stop?”

Who, indeed?

  “Periodically,” adds our own tech and biotech maven Patrick Cox, “I forget that the rate of scientific change is accelerating exponentially.

“If you’re paying attention to the people who are actually pushing the scientific envelope, you will be astonished by the progress and the wealth it is creating.” Only yesterday, Patrick alerted his readers to the possibility that science can successfully regrow human limbs; we’ll get into that in tomorrow’s 5.

“It is, however, easy to be lulled into complacency,” Patrick adds by way of underscoring our point. “This is especially true during dramatic events, such as the current meltdown of Chicago-style federal governance. Ultimately, however, scientific progress trumps everything, including malfeasance and inertia.”

Patrick never tires of reminding us — and we never tire of hearing — that amid the economic destruction of the Great Depression, new fortunes were made in emerging technologies like radios and home refrigerators. The best of times, the worst of times… at the same time.

If as Mr. Rickards says we are once again in a depression, the past is prologue. We’re once again living through “A Tale of Two Americas” — the theme of this year’s Agora Financial Investment Symposium.

James Rickards and Chris Anderson will both be on hand in Vancouver to help us make sense of the opportunity still available amid the wreckage left behind by what Bill Bonner fondly calls the “world improvers.”

Both of them will be with us for the first time. So will Sprott Asset Management’s John Embry. We’ll also be joined by familiar faces like Barry Ritholtz, Frank Holmes and Rick Rule. Plus, the full complement of Agora Financial editors.

Early bird registration is still available through Friday, May 31. Your invitation is at this link. Take the time to review it now before you get too caught up in your plans for the long weekend…

  Moody’s is threatening to lower Uncle Sam’s credit rating. Again.

Moody’s never did follow S&P’s lead in knocking down the U.S. Treasury’s AAA rating two years ago. Now the agency is fretting that Congress won’t deliver a “grand bargain” budget deal this year and start lowering the ratio of national debt to GDP. “More needs to be done on the policy front to address this rising debt ratio,” says Moody’s senior vice president Steven Hess.

  “When you’re looking at a AAA-rated bond,” says our income specialist Neil George, “it can only get worse, not better. And with the U.S. Treasury now rated at AA+ by S&P, there is the possibility of even lower ratings.

“Buying an AAA-rated bond is like buying a fully priced stock. You can’t get any better, and the markets have priced it for perfection. The only way that you’ll make money is to hope for perfection. I’d rather make a different bet.

“I look at bonds as I would look at stocks,” Neil explains. “With a little digging, you can find better yields and some opportunities for gains. The key is to find bonds from governments and corporations that are on their way up in credibility — rather than being questioned on their way down the credit ladder.

“To put is simply, I’d rather buy a ‘B’ credit on its way to becoming an ‘A’ than to buy an ‘A’ and hope it doesn’t slip.”

Neil has cast his gaze overseas for suitable opportunities. They’re not complicated to buy, either: In fact, they’re as simple as a few clicks at your existing online brokerage account. And they’re a core holding in Lifetime Income Report.

  Cuba took another step towards the 21th century yesterday. The island’s citizens are now allowed to purchase domestic appliances that had been banned from abroad.

According to The Associated Press, the ban was instituted in 2005 because of widespread blackouts. Air conditioners, refrigerators, microwaves, water heaters, toasters and irons… all prohibido.

Now citizens are allowed to import two units per person, for personal use. What changed? It’s all because of “an energy crisis that prompted the then president, Fidel Castro, to launch the so-called energy revolution, seeking to lower consumption”

Hah. It’s always a revolution with these guys…

“‘Prices for those products in Cuba are very high,’ said Maria Rosas, a 42-year-old office worker who added that she makes about $12.50 a month. ‘I see things like a blender, a sandwich maker or one of those steam irons, and I’d like to have them, but I can’t afford to.’”

Hrm…we detect a problem already. Apparently, one Cuban retiree, Gregorio Santos, does too.

He asked the AP the million-dollar question about this two unit per person policy.

“What the government is not going to be able to avoid with this measure is that people who travel won’t just buy for their personal use, but also to resell it later.”

Try as they might, the Castros can’t repeal the law of unintended consequences…

  “The economy is in good shape,” a reader asserts. “It must be if people are taking this much time to complain about whether it takes five, 10 or 84.3 minutes to read The 5. I’ll stay long on the market for as long as these arguments continue.”

“If you want to please everyone,” writes another, “you can change your name to an old iconic retailer known as the five and dime.”

“Fifteen minutes for free is a 300% better deal than 5 Mins. for free (depending on how you do the ‘profit math’),” suggests a third. “I vote for all ya’ll (Texas plural) to do three times the work for free and the folks with ADHD can stop when they notice some other shiny lights and their attention span dissolves. Everybody’s happy!”

  “I know that publications are helped by fueling controversial topics,” reads our next email, “but Dear God (and I do mean that in a prayerful way), please stop fueling the feuding over the time it takes to read The 5! Please! — ‘It’s too long!’ ‘No, it’s not!’ ‘Yes, it IS!’ ‘NO, it’s NOT!’

“This is exactly the type of juvenile behavior we see from Congress and the president. Tit for tat, with nothing of substance. I’m afraid that someone will ask Congress to get involved and pass a bill on the number of words that can be contained in The 5. Then we’ll have to pass it to find out what’s in it.

“With regard to the more material debate over gold manipulation, I agree that there is not yet a smoking gun. But there is certainly the means, the motive and the opportunity for manipulation in addition to all of the circumstantial evidence that has been covered previously.

“Currency and bond interest rates are manipulated openly and we recently discovered the Libor rigging. It’s not a stretch to imagine that gold is being manipulated as well. It also doesn’t require a secret cartel working and planning together, as Mr. Casey and others suggest. The motive of profits and knocking down competition to the dollar are shared by all the central banks.

“Throw in a nicely timed article by The New York Times on gold being dead on the day several hundred tons was dumped and it would seem to be a stretch to not believe it is being manipulated, or at least assisted in its fall. When did Casey and others gain such a high regard for bankers that they don’t see manipulation as all but discovered at this point?”

  “I have to chuckle at the quotes from Doug Casey about gold manipulation,” writes a reader after yesterday’s episode. “I like Doug and always look forward to what he has to say. I find it interested that he is completely not on board with gold price manipulation given that Ed Steer’s Gold & Silver Daily, a Casey publication, is probably in the top five newsletters screaming that there is price manipulation in the gold and silver market.

“I don’t know if Doug is losing a grip on his publication empire or just giving the people what they want. After all, a conspiracy isn’t much fun without two opposing views. Perhaps Doug is just talking his book.”

The 5: Newsletter editors are an irascible bunch. Even the ones who aren’t argumentative by nature end up in arguments. There’s a donnybrook within Agora Financial right now involving at least four — no, make that five — editors, about the merits of a certain master limited partnership.

We think it’s a healthy thing; from such disagreements truth can emerge. And as we said a couple of weeks ago, what fun is it when someone enforces a party line from on high?

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. “The Internal Revenue Service official at the center of a tax scandal about extra scrutiny of conservative groups,” reports Reuters, “told a congressional hearing on Wednesday she had done nothing wrong but asserted her constitutional right not to answer questions.”

Thus has an IRS official put herself in the same lofty company as Oliver North and other top officials who’ve taken the Fifth. If only you could do the same when dealing with an IRS agent.

This is starting to get ugly for the Obama White House. Worse for them, it’s only the beginning… as you can see for yourself here.

• The 5′s Great Gold Smackdown: Casey and Faber vs. Embry on gold manipulation
• Dr. Evil’s white cat, the “paper gold” market and a revisit of the Zero Hour scenario: Where our combatants actually find common ground
• What’s wrong with stocks reaching new highs? Plenty, says Chris Mayer. What to do? Chris draws on two investing legends for guidance
• Picking through the literal wreckage of a Supreme Court decision… “Today’s prosperity is an illusion”… a novel suggestion for keeping The 5 to five minutes… and more!

  “I’m not concerned about gold being down,” says the inimitable Doug Casey, “because markets fluctuate.”

Let’s get our bearings as we embark on today’s episode of The 5: Gold has taken a wild ride in the last 24 hours. From the $1,360 area, it made a couple of runs at $1,400. To no avail: At last check, the Midas metal fetches $1,362.

“Considering that gold’s been in a bull market for a dozen years,” Casey tells The Daily Bell, “I’m very unconcerned about the fact that it’s come off. All the fundamentals that underlie the bull market are still in place.”

  “I’m a believer in Occam’s razor,” adds Mr. Casey, a Vancouver perennial, “which holds that the simplest explanation of something is usually the correct one.”

Uh… We get the sense he’s about to veer into controversial territory here…

“Many gold bugs (but not all, because I too am a gold bug) seem to think that a coterie of malefactors of great wealth sit around a huge boardroom table, perhaps chaired by Dr. Evil cradling his white cat, and send forth their minions, ‘Da Boyz,’ to ‘smack down’ the depressed and struggling gold and silver markets.

Well, it was a white cat before losing its fur in a cryogenic capsule…

“These people are asserting that the powers that be have been short during one of the biggest bull markets in history. Nobody’s got that much money — not even governments; they’re all bankrupt.”

  “I’m not a believer in the manipulation theory,” piles on Vancouver veteran Marc Faber.

“I’m a believer that the market went down,” he tells CNBC, “because there was a technical break and also because stocks are so strong. So when people look at their gold and they look at the stock market that goes up every day, they then decide, ‘Gold is dead. Let’s buy stocks,’ because, at heart nowadays, everybody is a momentum player.

“The fund managers who must outperform the index, the hedge fund guys, the high-velocity trading people, the algorithmic people — they’re all momentum players. What moves up, they chase. What moves down, they sell.”

  “I don’t doubt that the powers that be would prefer to have the price of gold lower,” Mr. Casey adds, “but there’s no evidence that I’ve ever been shown other than, frankly, just assertions.

“They point out that large bullion banks are short a lot of gold. But in the past, at the beginning of the bull market, they were long a lot of gold, so this doesn’t constitute a proof at all, from my point of view. Nor does the fact that central bankers have said they have an interest in controlling prices. Of course they do. That’s part of their mandate — and one more reason central banks should be abolished.”

  “Doug is a very smart guy,” says Sprott Asset Management’s John Embry, “and he has some very interesting views on a number of things…”

Uh-oh…

“…but when it comes to gold and silver price manipulation, he will not go there. And only he knows why he doesn’t go there.”

Hmmm… We sense fightin’ words coming next.

“This is so obvious that a blind man could see it. You’d have to ask Mr. Casey. Just as a matter of interest, a friend of mine is associated with Casey’s firm, and he just shakes his head at Casey’s views at this point, at Casey’s views on what’s really going on in the gold and silver market.

“The paper market has been set up specifically so that it can be manipulated,” Mr. Embry says of the commonly quoted gold prices on the Comex and the London Bullion Market Association.

But maybe not much longer: “I think we saw the first example of what’s going to stop them recently, when the gold and silver prices were pounded far below their real values. And that is exploding physical demand all over the world.

“What I believe is going to happen, probably in the not-too-distant future, is that the pricing mechanism of the gold and silver markets will swing to the physical market, which cannot be manipulated, because, basically, either you’ve got it or you haven’t.”

On this score, it seems Mr. Casey might be in agreement. He invokes what we’ve come to call the Zero Hour scenario: “Maybe [the central banks] leased out most of their gold to commercial bullion banks to collect some interest, and the bullion banks sold it in the futures markets to collect the contango.

“If so, wonderful. If they can’t give it back, that will only serve to drive the price higher.”

What? Common ground? Perish the thought…

We’re delighted Mr. Embry will join us for the first time at this year’s Agora Financial Investment Symposium in Vancouver. Mr. Casey will be back as usual, as will other precious metals and natural resource luminaries like Rick Rule, Frank Holmes and David Franklin.

But because we always aim to be much more than a “gold bug” event, we’ll also be joined by Barry Ritholtz (he of the recent tweet, “Whenever you hear the phrase ‘The fundamental case is intact’ you best run screaming from the room”… Makers author Chris Anderson… Currency Wars author James Rickards, and many more.

Early-bird registration discounts are available for 10 more days. For the dates, a full speaker lineup and other critical details, go here.

  No market-moving data… no big earnings reports… and not much movement in the major U.S. stock indexes today. The Dow’s at 15,340, the S&P at 1,664.

  “The market is giving us the ‘all-clear’ sign as it barrels on to new highs seemingly every other day,” says Chris Mayer — who can’t shake the feeling something’s not right. And he’s finding validation in the quarterly letters published by two investment rock stars.

“Investing, when it looks the easiest, is at its hardest,” muses Baupost Group’s Seth Klarman, he of Margin of Safety fame. Klarman frets over the slowdown in China, the mess in Japan, the crisis in Europe… to say nothing of the Fed’s zero-rate policies.

Chris continues, “Klarman’s letter was all about the importance of maintaining discipline and patience in the face of markets like these. Avoid leverage. Buy only undervalued securities. Hold fewer stocks and bigger concentrations of what you like.”

A similar outlook comes from Paul Singer of Elliott Associates. “We are not whining,” he writes, “just describing an environment beset by thoroughly confused investors, severely distorted by government policy and driven by money flows chasing hyperbolic news reports and brokerage firms ‘themes of the day.’”

Together, Singer and Klarman reaffirmed Chris’ outlook: “I also see the market as too optimistic. I see that bargains are hard to find. I see stocks that I didn’t buy because they were too expensive now soar ahead. But I will continue to be picky in this market and look for low-risk ideas. When I can’t find them, we’ll sit on our hands.”

And be content with his “coffee can portfolio,” we’ll add. You haven’t heard of this lazy man’s road to riches? Check it out at this link.

  A whole lot of nothing is happening in New London, Conn. — ground zero for an infamous 2005 Supreme Court case, Kelo v. City of New London.

“The U.S. Supreme Court allowed New London officials to seize an entire neighborhood via eminent domain,” summarizes John Ross at Reason, “on the basis that the city had a ‘carefully considered’ plan to boost economic development.” Probably not the “public use” envisioned by the Framers when they wrote the Fifth Amendment, but there you go.

“After the initial plan — a corporate campus with hotels, condos and office space — fell apart, officials selected a new developer to build an apartment complex on a portion of the razed neighborhood, Fort Trumbull, in 2010.

“Yesterday, the developer missed a second deadline to show they had secured financing.”

According to David Collins at The Day, the developers, who’ve had a contract for over two years, were unable to prove they had the money or intent to actually start building.

Today, the plot of land remains an eyesore serving only as a landfill.

This what the public good looks like.

Have any heads rolled during this mega-blunder? Heh. Nope.

Michael Joplin, president of New London Development Corp., joked during the agency’s annual meeting about begging on his knees to the mayor to keep his job.

“The mayor,” writes Collins, “who vigorously campaigned on the promise that he would abolish the much-hated NLDC… simply changed the name instead last year and said Joplin would go as president.”

Except Joplin was re-elected president. No ill deed goes unrewarded… or something like that.

[This just in: J.P. Morgan Chase shareholders have voted to keep Jamie Dimon as both chairman and CEO. As we were saying...]

  “It’s a bull market,” writes a reader as if to expand on Chris Mayer’s musings today, “until the Fed’s stimulus pushes the market to the point that earnings are no longer supportive of prices, and as for the $4 trillion in bonds that would need rolling over, they will be.

“Isn’t that the whole point of the QE, to push short-term bonds to long-term 30-year notes and buy mortgages to keep the rate down and pump money back to the mortgage industry to support the housing market, or rather the mortgage companies, the same scenario as the buildup to the housing bubble.

“The whole thing just stinks of pushing the day of reckoning down the road: ‘Let someone else deal with it, I am going to get mine now, screw the rest of you. Vote for me, I have brought you prosperity.’

“Today’s prosperity is an illusion, it is not real, it is not based on a productive vibrant economy. It is an economy just going through the motions. This economic base today has been sustained on government money, printed electronic dollars.”

The 5: You know what the problem is in our country these days? People with bad attitudes like yours. If it weren’t for you, we’d be back to 5% unemployment and 4% GDP growth.

Yeah, we’re being facetious. But we fully expect to hear that line of “reasoning” from the politicos sooner or later…

  “I could not help commenting on KFC in Gaza,” a reader writes after a quirky item we caught yesterday.

“The USA, after World War II, was synonymous with ‘big spender’ and ‘advertising’ — if you

wanted to sell something, let an American promote it; if you were looking for buyers…

“I am surprised that an Israeli businessman has not opened a franchise in Gaza by now, but I will stop there.”

  “Perhaps you should change the name to The 10 Min. Forecast“, a reader suggests cheekily as today’s installment of an ongoing debate.

“I am sure the ones who enjoy reading the articles, as I do, will wonder why the change, but still look forward to your new stories every day. It will take something away from those who love to complain, but I’m sure they will find something They always do.”

  “Here’s a suggestion to anyone who doesn’t want to spend over five minutes reading The 5. Stop reading after five minutes. You’ve got your money’s worth at that point. Any further reading is just gravy, so quit complaining. (Tongue in cheek.)

The 5: Now you’ve done it: The speed readers will write in and say they’re not getting their money’s worth.

Except, this being a free publication, they are…

Best regards,
Dave Gonigam

The 5 Min. Forecast

P.S. “More Tornadoes in Forecast for Central U.S. Today,” says the headline at ABC News. Let’s hope it doesn’t come to that. Our thoughts are with everyone in the Oklahoma City area.

• One of the most powerful weapons in the Pentagon’s arsenal… and the generals and politicians never even saw it coming
• Better than Buffett: Neil George highlights the up-and-comers who play the way Warren used to — with handsome dividends, to boot
• Making sense of miserable sentiment in the gold market… and the extreme hazards of picking a bottom in silver
• A black market for KFC (who’da guessed?), snappy comebacks for the guy who “lost” money in gold… two more answers to the age-old question of how long 5 Mins. really is… and more!

  “This new energy weapon is a strategic game-changer,” says our Byron King.

Byron is feverishly researching ideas for his new service, Military-Tech Alert. And he’s come across Buck Rogers-like devices like an electromagnetic rail gun that shoots projectiles at Mach 6… and laser beams so powerful they can burn holes in the skin of incoming missiles.

But the energy weapon Byron has in mind this morning is one that dominated his thoughts last week at a conference in London. “I’m talking about the U.S. fracking revolution that has begun to liberate all manner of natural gas and associated oil from shale rock and tight sandstones across the U.S.”

No, the politicians and generals had nothing to do with it. In fact, they never anticipated it. But it’s shifting the geopolitical landscape all the same.

 “All of a sudden,” says Byron, “U.S. foreign policy isn’t so beholden to events in faraway places filled with people we don’t truly understand.”

As Byron explained last week, U.S. oil imports from the likes of Algeria and Angola have collapsed. And even imports from major suppliers like Saudi Arabia, Venezuela and Nigeria are falling. “At the rate things are going, the U.S.-Canada-Mexico block is moving toward a version of North American energy independence from the rest of the world.

“The reversal of decades-old oil trading patterns means a tectonic shift in U.S. strategic outlook, which flows directly into the military requirements for the country. Do we need the same Navy or Air Force or Army? In essence, the U.S. military can back away from its former reflexive process of planning for intensive, long-term, military-based engagement in the Middle East.”

True, the Navy’s Fifth Fleet won’t be pulling out of Bahrain anytime soon. The Army and Marines still have 15,000 troops in Kuwait — in case Iraq starts going to pot again. “But looking ahead,” says Byron, “the U.S. can plan and conduct its global affairs without being plugged into an intravenous line for oil from parts of the world where we’ve had all manner of trouble for many decades. That’s quite a burden lifted off the backs of national planning authorities.”

 Indeed, the ultimate impact of the “shale gale” on the military might be something none of us can foresee now.

“In the 1930s, the U.S. was mired in the Great Depression,” says Byron by way of analogy. “To relieve joblessness and kick-start the economy, President Herbert Hoover commenced, and President Franklin Roosevelt continued, a massive series of ‘energy’ projects such as the hydro dams on the Colorado and Columbia rivers, as well as the Tennessee Valley Authority (TVA).

“Then — and NOT by previous design — in the 1940s, during World War II, these power-generating assets were critical to U.S. industry. One of the most famous energy-using projects was the Manhattan Project, which built the atom bomb. But looking back, it’s not as if anyone built the Hoover or Grand Coulee dams or set up the TVA anticipating that there would be a global war in a few years and U.S. national defense would require all that electricity.

“It’s fair to say,” concludes Byron, “that America’s new growing energy security is the culmination of over a century of research across a spectrum of industries now coming together in the oil biz. The trick is for the nation, the politicians and the generals and admirals to figure out how to use it to good effect.”

 For the record, crude is flat this morning. A barrel of West Texas Intermediate fetches $95.93.

Brent crude, a better gauge of what most of the world pays, sits at $104.51. The spread between WTI and Brent is as narrow as it’s been for nearly 18 months.

 Stocks are likewise treading water this morning. The Dow is retreating a bit from its latest all-time closing high of 15,354. But the S&P is up fractionally to 1,668.

 “It only makes sense that you’d want to sell a stock that’s overbought, right?”

Jonas Elmerraji of our trading desk is all too aware the broad market is overbought right now. “But recent technical studies have shown that stocks that go overbought are actually more likely to keep getting more overbought than they are to reverse lower.”

Bottom line: “The uptrending channel in the S&P 500 remains intact, until it isn’t.

“I think we are due for some consolidation in stocks, but I expect it to resemble the sideways churn from late January.” For access to Jonas’ trading recommendations at an accessible price, look here.
 “It may seem that Mr. Buffett has forgotten how he made his initial fortune and earned the title ‘Sage of Omaha,’” says our income specialist Neil George.

Buffett himself has acknowledged he’s losing his mojo.

At the most recent shareholder’s meeting in Nebraska, he confessed younger investment managers have left him trailing behind.

“His key was to focus on cash,” explains Neil. “He’d grab small firms that produced a small, but steady cash flow that grew over time.

“Unfortunately, his success has proved his undoing. Berkshire Hathaway is a behemoth. The same investments in the kind of high-cash, basic businesses that made his reputation and initial wealth would just be a rounding error in dollar amounts on the company’s books today.”

Berkshire’s stock price confirms Neil’s narrative…the S&P 500 has outperformed Berkshire’s Class A shares by 19.1% over the past three years.

“Make no mistake — he can still buy and sell most investors many times over,” Neil tells us. “But the simple fact is that he can’t invest like he used to… which has opened an opportunity for companies and investors who can.”

Given Buffett’s own admission, Neil thinks it might be time to examine “companies that can still make the kind of fortune-making deals Buffett can’t make anymore… and, as an added bonus, pay out big dividends.”

Which Berkshire does not… heh.

Neil has spotlighted two particular plays for subscribers of Lifetime Income Report. One of them has outperformed Berkshire by nearly 71% since 2006… with ample room for further upside. If the Sage’s reign is on the decline, you’ll want to review these plays before it’s too late. You can join up with other subscribers here.

 Like crude and stocks, gold is holding its own this morning. It “gapped down” last night when electronic trading opened, but has since recovered nearly all those losses — sitting at $1,359.

“Bearish sentiment toward gold is near record highs,” notes our macro strategist Dan Amoss. “Positioning in gold futures reflects traders’ negativity; it’s at extremes typically seen near the end of gold price declines.

“Last week’s data from the Commodity Futures Trading Commission show 74,432 short gold futures contracts outstanding — the highest since the data series began in June 2006. Net long positions dropped to lows last seen in July 2007.

“Being a ‘paper bug’ is the new, cool thing. Paper bugs are those who assume the global paper money system has entered a new, stable, finely tuned state; they believe central bankers, after enough practice, have become maestros, able to keep ‘good’ prices up and ‘bad’ prices down.

“Such beliefs reflect childlike hope; they ignore the history of central banking, which is a tale of boom and bust, brought about by manipulating interest rates — the market price of money.”

 Unlike gold, silver has fallen and can’t get up. The white metal plunged 8% as electronic trading opened last night. At last check, that loss has been trimmed to less than 2.5%.

Result: spot silver at $21.74, a level last seen in the fall of 2010.

But don’t go trying to pick a bottom now, warns technician Greg Guenthner. “Too many factors are holding silver underwater right now,” he writes in today’s Rude Awakening: weakening industrial demand, weakening safe-haven demand, dwindling inventory in silver ETFs and bearish bets by hedge funds.

“Major support levels are not yet visible,” says Greg. “Sunday night’s breakdown to new lows on the year is another warning signal. Don’t ignore it. This price shock is just the latest evidence pointing toward a hard landing for silver between $17.50-18.00”

 Col. Sanders is smirking from up above. The black market is supplying Kentucky Fried Chicken to the Gaza Strip.

According to The Christian Science Monitor, buckets of the fried chicken are some of the stranger items to be trafficked through a series of tunnels spread across the Egyptian border — tunnels set up to evade an Israeli blockade.

The Egyptian KFC “gets tens of orders a week for KFC meals, despite having to triple the price to 100 shekels ($30) to cover transportation and smuggling fees. The deliveries go from the fryers at the Al-Arish KFC joint 35 miles away to customers’ doorsteps in about three hours.”

Uh… Doesn’t it get cold?

How does the KFC spread its message to the craving Gazan masses? Facebook, of course.

“The company got more than 20 orders a few hours after a short advertisement was posted on their Facebook fan page.”

One Gazan accountant, Rafat Shororo, had tasted KFC while visiting Egypt and wanted to enjoy it back home.

“All you need to have any KFC product is a short phone call and a few hours, then you can enjoy the great taste of fried chickens,” Shororo told the Monitor. “I just want it. It has been a dream, and this company has made my dream come true.”

Whoa… the things people do for those 11 secret herbs and spices…

 “To the reader who is worried about losing his ‘investment’ in gold,” reads the first of several replies we got to an email on Friday, “it appears he/she may have bought for all the wrong reasons and the wrong form.

“Sheesh, if you wanted to invest in gold, you would invest in collectable coins, not bullion. I do not feel his pain.”

 “A couple of years ago,” writes a reader addressing Friday’s correspondent directly, “I could go to a coin store, plunk down my paper money and walk out with gold and silver. Within the last year, the coin stores are empty of inventory and my premium guys went from a couple of days’ wait for my gold and silver to a couple of weeks, and now to over a month.

“I understand your frustration at lower prices, but at least you have the stuff. Hold onto it for a while. You don’t complain about an unused umbrella when the sun is shining.”

 “Apparently, that reader is one of the ‘Buy Monday and hope another moron will pay more on Wednesday,’ etc.

“Gold is an investment to help you pay your nursing home bill when you are whatever-plus in age. My gold still has an increase over purchase price of around 300%-plus. If you want immediate gratification, then become one of those trader-player types who buys and then chews their nails waiting for the instant the price increases. And if gold is still down Monday, I will be checking my records for the phone number of the guys I bought it from way back there.”

On the subject of Venezuela’s toilet paper shortage, the reader adds, “My wife traveled Europe and India back in the 1980-90s and carried extra TP and booze on her trips. Claimed TP in England/Sweden, etc., was about the texture of a magazine cover, and booze was prohibitively priced.”

 “I routinely spend at least 10 minutes reading The 5,” writes a reader, revisiting whether an issue can really be read in 5 Mins.

“And a few more on the PRO. But I can assure you my lips don’t move. It’s well worth my time — always a nugget or two I can use, or at least smile at.”

 “Readers complaining of overlong 5 Min. Forecasts ought to use some rational basis,” suggests another. “Such is not hard to find — for three recent issues, I counted 3,000-plus words.

“Average reading-for-comprehension speed is 200-230 words per minute (wpm), which would be 1,000-1,150 words for five minutes. On the other hand, skimming can be done around 700 wpm, which matches well with the 3,000-plus words actual length.

“Do the authors and editors think their writing is only worth skimming? They should know, so I accept their judgment.”

The 5: Ah, you’re discovering the method to our madness: There’s a reason we highlight key points in boldface!

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. As we said at the start of today’s episode, the Pentagon is rethinking its priorities now that the U.S. is less dependent on Middle Eastern oil than it used to be.

But that’s not all the generals are rethinking. They’re also scouring their “supply chain” for counterfeit parts in everything from airplanes to submarines to missiles.

It’s not a theoretical threat; phony Chinese memory chips nearly ended up in F-16 fighter jets. And that’s one of only 1,800 such incidents in the space of a year.

Thousands of companies that supply the Pentagon are being scrutinized top to bottom… a process that funnels down and ultimately benefits one tiny firm that the brass have all but granted a monopoly.

This subcontractor is still flying below Wall Street’s radar, so it’s still bargain-priced. But not for long — for reasons you’ll see at this link.

• “The substance of the American Dream”… laid bare as a Ponzi scheme
• Good news for bullion and juniors? More than meets the eye to the “Soros dumps gold” story
• “The rally that no one loved,” and why Elmerraji says it’s still not over
• If you missed out on “the biggest fire sale in history,” Chris Mayer is back with a second chance
• Corporate accounting fraud, and how to turn it to your advantage
• The great Venezuelan TP shortage… a glimpse at the seamy underbelly of sunny jobs numbers… two contrasting and revealing views of gold… and more!

  “Mark Zuckerberg,” gushed CNBC’s anchors one year ago tomorrow, “has accomplished the substance of the American dream.”

The people who bought public shares of his company? Not so much…

Facebook went public on May 18, 2012.

More than a year earlier, we smelled a rat. “If and when the IPO happens — like any good Ponzi scheme — retail investors, those last in the door, will get stuck holding very expensive paper,” Addison suggested.

Peter Thiel, who became the company’s first big investor in 2004, cashed out last August, as soon as the three-month “lockup period” after the IPO expired. Zuckerberg himself unloaded some shares, although that was mostly to pay his tax bill.

“Which brings to mind my general maxim on IPOs,” said our own Chris Mayer the day FB first traded publicly: “insiders selling what they no longer want at prices they’d never pay.”

  “Soros Is Selling Gold. Should You?” reads the headline at Yahoo Finance.

Mainstream financial media have a simple job — beat you over the head with a two-by-four that’s painted in black and white, stripped of nuance, insight or — heaven forbid — useful advice.

Although The 5 comes to you free of charge, we still aim higher. And so it goes with the Soros gold story.

Before we set out on our journey, let’s get a navigational fix…

  Another day, another slide for the metals. At $1,370, gold is barely $50 above its April 15 low. Silver’s at $22.46.

  Once again, dollar strength is a contributing factor in the metals’ struggles.

Relative to other fiat currencies, the greenback is on a roll; the dollar index sits at 84.3, a level last seen in July 2010.

  So… What the heck is Soros up to, and does it even matter?

In early 2010, gold was still below $1,200 and Soros cryptically remarked, “The ultimate asset bubble is gold.” Gold bashers projected their own biases onto Soros and concluded he thought a bubble was well under way and about to pop.

Not so. “It’s all a question of where are you in that bubble,” he said later that year. “The current conditions of actual deflationary pressures and fear of inflation are pretty ideal for gold to rise.”

Last month, Soros was again taken out of context when he told a Hong Kong newspaper, “Gold was destroyed as a safe haven, proved to be unsafe. Because of the disappointment, most people are reducing their holdings of gold.” Business Insider’s headline? “Soros: Gold Has Been Destroyed as a Safe Haven.”

Here’s what he said before the safe haven line: “When the euro was close to collapsing in the last year, actually, gold went down, because if people needed to sell something, they could sell gold. Therefore, they sold gold. So gold went down together with everything else.” Just like the 2008 panic, when gold slumped 30%, we might add.

And here’s what he said after the safe haven line: “But the central banks will continue to buy them, so I don’t expect gold to go down.”

He said that on April 7, when gold was around $1,575. Eight days later, it touched $1,321. Heh…

  Now we have some context in which to examine Soros’ latest gold moves.

This is the week hedge fund managers file their quarterly 13-F forms with the SEC. The headline the financial media have latched onto is that during the first quarter of 2013 Soros Fund Management dumped 12% of its stake in GLD, the big gold ETF.

But get this: Soros added 1.1 million shares of GDX, the ETF of big gold miners. And while he trimmed his position in GDXJ, the junior miner ETF, he also bought 1.51 million GDXJ call options — betting on a bounce.

Hmmm…

It’ll be another three months before we get a handle on what Soros was up to as gold swooned in mid-April. And even then, 13-F forms are something of a black box: As we’ve pointed out before, bullion holdings don’t have to be disclosed.

It wouldn’t surprise us if Soros was buying physical with both hands at $1,321 on April 15… but we’ll likely never know.

Heck, compared to Soros, the Chinese are models of transparency.

  The major U.S. stock indexes are making another run at record highs today. At last check, the Dow is this close to 15,300 and the S&P has cleared 1,660.

Consumer confidence numbers clocked in this morning at the highest level in nearly six years, while the Conference Board’s leading economic indicators jumped 0.6% for April.

  “This rally just isn’t stopping,” says our trading specialist Jonas Elmerraji – “and for the doubters, it’s not for a lack of trying.

“Welcome to the rally that no one loved. Bears are coming out of the woodwork, asking how the S&P 500 could possibly manage another up day when earnings/valuations/jobs numbers/housing stats don’t support it. Fact is, the market is moving higher, and it’s time to think like a trader: I’m happy to buy an overvalued stock as long as it gets more overvalued before I sell it.

“Is the market overbought right now? Sure.”

Jonas is looking at the two-week “relative strength indicator” in the S&P. We’ll spare you the technician-speak; for our purposes, it’s worth noting the number looks overbought for the second time since the S&P began its run-up six months ago. “Both times, the big index has been at the top of its price channel. But look at what happened last time: The index continued moving higher.

“I’m expecting the same from here.” And no doubt eyeing some juicy trading setups for readers of his STORM Signals Elite trading service.

  “I see a big opportunity for investors to pick up commercial property on the cheap,” says Chris Mayer.

We think we heard him smacking his lips in the same way he did in early 2012 when he spotted “the biggest fire sale in history.” Then, the opportunity was in real estate that European banks needed to unload to raise cash. To date, his readers have parlayed that fire sale into 57% gains… and they’re holding on for much more.

Now the opportunity lies in the United States: “There are more commercial mortgages coming due this year than in any other year on record.”

This is territory Chris knows well from his days as a commercial lender: “Bankers largely make loans by looking backward at past financial results” — usually the last five years.

Uh-oh… Five years ago was 2008.

“Many of these loans don’t look so good after five years of slogging through a mushy recovery. Even though interest rates are low, credit is tight for all but the most creditworthy customers.”

The lenders, however, are another story: “The theory floating around banking circles these days is that banks are now more willing to foreclose on these properties. The banks are in much better shape — in many cases in better shape than they were heading into the crisis.”

That means they’re willing to foreclose — even if it means taking a loss — just to get the loan off their books and shareholders and regulators off their backs.

“So,” Chris suggests, “I can imagine what this new bone in the throat — that pile of $276 billion in debt — will do to the bankers involved. They are going to choke on it and spit up lots of cheap property.

“This is not an easy theme to play,” Chris acknowledges, “short of keeping a tab on your local market for opportunities to pick up a small commercial property on the cheap. (I plan to.)

“In the public markets, there are a few companies that do invest in distressed debt secured by real estate. And even fewer focus on that alone.” That’s where Chris is directing his premium subscribers in Mayer’s Special Situations.

  “Imagine a company that’s faking its income,” said famed short seller John Hempton. “It means one of only two things: It’s overstating its revenue or it’s understating its expenses.”

Mr. Hempton was a featured speaker last week, along with our own Chris Mayer, at the Value Investing Congress in Las Vegas. “One of his key points,” says our Dan Amoss, also in attendance, “should grab the attention of all investors and regulators: In most accounting frauds, corporate cash is rarely stolen by management; rather, cash balances that disappear are almost always the result of fake profits.”

Dan, in his role as our resident stock market vigilante, has spotted something funky in the books of a well-known retailer; played right, it could mean gains of up to 200%. Sorry, but “well-known retailer” is as specific as we can get out of respect to Dan’s Strategic Short Report readers.

[Ed. note: For two more days, we're offering you the chance to sample every pixel of research we publish -- Dan's short plays, Chris' Special Situations, Jonas' near-term trades... everything.

That also includes Patrick Cox's microcap biotech plays... Byron King's new military-tech advisory... and Neil George's "perpetual income" system.

We're giving you the chance to check out the Agora Financial Reserve -- our highest level of VIP service -- for the next 30 days. "Consider this a 'skeleton key,'" says our publisher Joe Schriefer, "unlocking every door inside the decade-plus of publishing some of the world's best investment research services."

It's an unprecedented offer... and it comes off the table Sunday night, maybe forever.]

  Venezuela is out of toilet paper,” the Daily Beast article begins.

“In a scene reminiscent of Woody Allen’s Bananas,” the Beast goes on, “Commerce minister Alejandro Fleming proclaimed this week that ‘The revolution will bring the country the equivalent of 50 million rolls of toilet paper.’”

  “Why is the Venezuela running low on toilet paper?” The Week asks, appropriately.

The government blames the media. “There is no deficiency in production,” Fleming asserted, “but an excessive demand generating purchases by a nervous population because of a media campaign that has been created to undermine the country.”

Those dastardly hoarders!

Hugo Chavez’s successor, President Nicolas Maduro, takes it even further — claiming that “anti-government forces, including the private sector, are causing the shortages in an effort to destabilize the country,” reports The Associated Press.

Johns Hopkins professor Steve Hanke has a different theory: “State-controlled prices,” he writes, “prices that are set below market-clearing price — always result in shortages. The shortage problem will only get worse, as it did over the years in the Soviet Union.”

What was it the late Margaret Thatcher said? Socialism works until you run out of other people’s toilet paper? Something like that…

  “For the improving employment numbers, credit Obamacare,” a reader suggests. “My son just found a job, after more than a year unemployed, working in a convenience store. His new boss was very explicit that he would never be able to work more than 30 hours per week, at less than a dollar an hour over minimum wage, but he is working, and making employment numbers look better.

“So this convenience store pays for the same number of employee-hours per week, but it’s now spread over more people so as to keep all employees officially ‘part-time’ and thus ineligible for employer-paid medical insurance. Multiply that across all similar employers across the country and the number employed will rise, even while pay per person declines, at least for those who previously had a full-time job.

“But this effect should wear off soon, as July 1 is the date on which employment hours will be evaluated for Obamacare purposes. So employment numbers after that date may not look so good.”

  “You keep on promoting gold, silver, etc.,” says an evidently irate reader. “I believed you, but now I am losing a tremendous amount. I am greatly disappointed with you.”

The 5: The only way you would “lose” a “tremendous amount” is if you sold now at a price lower than you bought.

  “If my information is correct,” counters another reader, “the bullion market is exploding while the gold paper market is being manipulated into oblivion by the Fed & its cronies. What say thee?”

The 5: Nothing we haven’t said already. Although there’s an eye-popping chart that crossed our desk recently. We share it in the next issue of Apogee Advisory, coming out later today.

Have a good weekend,

Dave Gonigam

The 5 Min. Forecast

P.S. You’re really missing out if you pass up our test-drive offer. Not only do you get a “skeleton key” to the Agora Financial Reserve… but once inside, you’ll have a guided tour to all of our research services for the next 30 days. You won’t be left to fend for yourself, and you won’t be overwhelmed.

The offer expires in a little over 48 hours, so take the time now to decide whether you want to take advantage. Just know that we may never offer this high a level of access at this low a price ever again.

• The gold narrative revisited with Vancouver vets Rick Rule and Frank Holmes… and the attractiveness of “return-free risk”…
• Bullion brain John Embry on moonshot metals and why all roads lead to Rome…
• Patrick Cox’s revolutionary solution for the “silent epidemic”… and your shot at a “test drive”…
• Trouble in cryptocoin paradise… The running of the bulls… A “post-apocalyptic Mad Max era”… an odd Argentine investment trend… and more!

  “The narrative associated with gold and the narrative associated with the resource story haven’t changed,” says Vancouver stalwart Rick Rule in a recent interview with Casey Research’s Jeff Clark.

“A lot of analysts,” Jeff Clark points out, “especially the CNBC types, claim the gold bull market is over, that we’ve entered a bear market and it’s time to get out.”

If you’re tempted to entertain the idea that the pundits might have a point, Mr. Rule begins today’s episode with a few rhetorical questions:

“How many of your readers — in fact, how many listeners of CNBC or CNN — believe that the Western world’s financial crisis is over? How many believe that any of the G-20 nations can balance their budget? How many believe that central bank liquidity is a substitute for solvency, owing more than you can pay back? How many people would deny that physical gold demand has been strong?

  “The point is,” Rick goes on, “the narrative that drove the gold market in 2006 and 2010 is very much intact. Nothing, in fact, has changed. The only thing that has changed is the perception and the price, both of which are lower, which is better.

“I think that one of the things you have to look at in the gold market,” says Rick, “is that we are changing the nature of ownership, from institutional momentum holders who are leveraged, which is a long way of saying ‘weak hands,’ to physical individual buyers on a global basis, which is a different way of saying ‘strong hands.’

“So one of the things that happened in the gold smackdown is that gold did what many things do in bear markets: It went from weak hands to strong hands”.

  “So, yes,” he concludes, “I am absolutely a gold bug, particularly when you compare it with the alternative, the U.S. 10- or 30-year Treasury, which Jim Grant famously describes as ‘return-free risk.’”

“Does return-free risk sound attractive to you? It doesn’t to me.”

  “That’s where gold companies come in,” another Vancouver fave, Frank Holmes, writes, as if on cue. “With the Federal Reserve suppressing interest rates, investors have to adapt and reallocate investments to generate more income.”

And lately, Mr. Holmes explains, “Miners have become much more sensitive toward the needs of their investors as they compete directly with bullion-backed ETFs and bar and coin buying programs.”

“In response,” he says, “gold companies have rolled out dividend programs and increased payouts.”

  Mr. Holmes illustrates his point in one eye-popping chart…

“Not only are gold companies increasing their payouts,” he says, “the yields offer a tremendous income value to investors compared against government bonds today.

“In addition,” he writes, as insinuated by Mr. Rule, “the yields of gold stocks have been climbing over the past year while the 10-year Treasury remains low.”

  Throw the burgeoning “zero hour” scenario in the mix and we’re left picking apart a jumble of knots in the metals market…

Disorderly as they may be, as suspected, all roads lead to Rome.

Nevertheless, the question still in the air is: What happens to the price of precious metals if the Comex defaults on paper from an overflow of physical demand?

“Both gold and silver will be moonshot,” Sprott Asset Management’s John Embry says, clearing the air.

“When people realize [the paper market is] completely fraudulent, and all the buying will be directed at physical, and there’s already a distinct shortage of physical gold and silver, it will have a positive impact on gold prices.”

  And silver?

“I like gold very much,” John writes, “but I think the upside potential exists in silver. I say that for several reasons.

“As you know, silver has a number of interesting industrial uses that are expanding. Gold, basically, is used for jewelry and not much else other than as money. But silver is sort of poor man’s gold, and it’s also used as money, but mostly silver is used in industrial applications.

“So what I see happening is when the gold price restarts to move to the upside, a lot of people will be squeezed out of that market, because it will be too expensive. A lot of investment demand will head toward silver and be in competition with the industrial demand.

“It’s also a smaller market than gold,” Embry explains, “so when a lot of money hits the market, it’ll have a greater impact on silver. Lastly, there’s been a historical relationship between gold and silver, as you know. It’s currently just over 60-to-1. In the past, it’s been as low as 10- or 15-to-1. It’s possible to get that low again…

“On that basis,” Embry concludes, “I see silver rising much more rapidly.”

  Pivoting away from the precious metals, a quick update on one “silent epidemic” Patrick Cox has been tracking…

Late last month, Patrick clued us in on NASH, short for nonalcoholic steatohepatitis. As we wrote, NASH is “a liver disease that can lead to cirrhosis and organ failure” that’s afflicting nearly 12 million Americans today.

Patrick is following one innovative company because it has “wisely moved its focus to address liver disease, for which there are no effective therapies on the market.”

The company is developing a revolutionary new treatment with the potential to reverse NASH. And a recent update reaffirms Patrick’s confidence that this company is set to “not only make investors fortunes,” he wrote last month, “but prevent incalculable human suffering.”

  “In short,” says Patrick of the newest development, “this is overwhelming validation of this remarkable new breakthrough in an entirely new field of medical science.”

According to the press release, the company’s revolutionary treatment had a “robust effect on cirrhosis, including reversal of tissue architectural changes in the liver that result from fibrosis…” This is huge… because we have only begun to understand fibrosis in the last few years. What is understood is, Patrick explains, it “plays a major role in the process of many different organ failures.”

Exposed to this company’s revolutionary new treatment, “not only did fibrosis reverse in cirrhotic animals,” Patrick writes, “but other markers of liver disease, such as blood pressure, improved.”

[Ed. Note: As announced Monday, we're offering our readers an opportunity to "test drive" not only Patrick's favorite plays, but every single research advisory we publish. In the entire history of Agora Financial, it's never been done. And it's possible it'll never happen again. To see why we're doing it and how you can take part, click here.]

  “Homeland Security used a confidential informant, based in Maryland” tech blog Ars Technica reports, “to conduct the investigation. The informant simply created accounts with Dwolla and Mt. Gox, bought Bitcoins, and then changed them back to dollars.”

When the DHS followed the breadcrumbs of the transaction, they noticed the money passed through Wells Fargo account 7657841313, signed off by president and CEO of Mt. Gox, Mark Karpeles.

The problem, according to the DHS, is that upon opening the Wells account for the umbrella Mutum Sigillum LLC, Karpeles lied on the Money Services Business (MSB) customer form. This prompted them to immediately seize Mt. Gox’s currency exchange service, Dwolla. According to the seizure warrant issued on Tuesday, Karpeles claimed on the form that his company “does not deal in or exchange money, and that it does not send funds based on customer instructions.”

Baltimore, Md., eh? Hmmm…

As a result, the DHS shut down all money transfers between Dwolla and Mt. Gox, throwing a huge stick in the spokes of the biggest Bitcoin exchange, stopping all transactions. Following word of the seizure, Bitcoin fell more than 10% overnight on Tuesday, but has since returned to its previous price of $115, holding strong since.

  Meanwhile, “S&P 500 futures are tumbling,” Business Insider reports, “and Treasuries are catching a bid in the wake of three weaker-than-expected economic data releases that all came out at 8:30 a.m. EST.”

This data include the consumer price index for April, which fell 0.4%… jobless claims, which surged from 328,000 to 360,000 last week… and the Philly Fed manufacturing survey, which has gone nowhere for seven straight months.

  Enter the markets. Upon writing, the Dow slunk down 15 points, to 15,260, and the S&P is down a slight point and a half, to 1,657. The Nasdaq is up 6 points, to 3,477.

Gold is down $5, to $1,388, and silver is sitting steady at $22.76.

  “What we are dealing with today,” another esteemed Vancouver sojourner, Barry Ritholtz, explains, “is a case of first impression, massive credit crisis and collapse, followed by massive Fed intervention.

“We don’t know how this plays out, as we have never seen anything quite like this in history. Can the Fed simply wait it out and let $4 trillion in bonds mature without rolling over? I have no idea, but neither do the folks insisting it ends with us living in a post-apocalyptic Mad Max era.

“Just like every other cycle,” Barry says, “one day, this bull market will end. I cannot tell you if it’s next Tuesday or sometime in 2019. The average is 3.8 years,” which we passed with the new year. “We are now at 4.1 years.”

Interesting, yet, as stated, this is no ordinary bull market. And who knows how long this one can hold up.

[Ed. Note: Noticing a theme? Thought so. Today's Vancouver-lined episode is a small taste of what to expect at this year's Vancouver Symposium, "A Tale of Two Americas." Where a stellar lineup of world-class speakers strike a balance between high-growth opportunities with record-breaking profit potential and backbreaking deficits caused by lowbrow financial oversight. Investing legends, best-selling authors, legendary fund managers, gurus, luminaries, contrarians, visionaries... all will be in attendance at this year's event. To be a part of the crowd, all the details are available at this link.]

  Speaking of contrarians, Argentina is taking the term to a whole new level…

“Argentines,” Bloomberg reports, “are buying more BMWs, Jaguars and other luxury cars as a store of value as inflation decimates their deposits and pummels the nation’s bonds.”

In response to last month’s ban on buying dollars to flee their unstable peso, Argentines are turning to luxury vehicles imported at the official dollar rate. “Argentines with savings in dollars,” says Bloomberg, “are able to purchase cars at half the cost by trading in the unofficial currency.”

Like money in the bank.

Because of this, Bloomberg goes on, “Car sales surged 30% in April from a year earlier, to 88,323 units, the fastest increase since August 2011 and the second highest on record,” according to the Argentinian car association known as Adefa.

“I’m seeing a lot of people buying high-end cars for the first time,” Ignacio Monteserin, a BMW salesman in Buenos Aires, tells the rag, “trading Minis for middle-of-the-market models. It’s become very convenient to own luxury cars in general because of the big gap in the exchange rates and you get to have a quality good that will preserve the value of your money with time.”

Well, that’s the car salesman talking his book, anyway: You know your country’s currency is seriously screwed up when a “store of value” is something that depreciates 20% the moment you drive it off the lot!

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. You were always curious about Options Hotline, but you never pulled the trigger? Wondered about some of Patrick Cox’s Breakthrough Technology Alert plays, but failed to act? Kicked the tires on Dan Amoss’ Strategic Short Report, but took a pass?

For the next three days, we’re offering you the chance to sample them all, like a smorgasbord of investment recommendations. You’ll be able to test-drive our highest-end level of service, the Agora Financial Reserve. You’ll even have your own tour guide in the passenger seat, describing the ins and outs of our varied advisories and trading services.

As we’ve said from the moment we opened the Reserve in 2005, it’s not for everyone. But we think that’s something you have to decide for yourself. Now, with this unprecedented test-drive opportunity, you can.

Seriously, $99 to check out everything we publish for the next 30 days? Crazy, but true. Take advantage, while you still can.

• How everything you thought about the U.S. and energy is changing: Byron King’s reflections from a conference in London
• What’s even better than the government granting you a monopoly? Government subsidizing the buyers of your products. Patrick Cox with a true story only hours away from a dramatic turn
• Lousy economic indicators, strong stock market response… while gold slips another rung down the ladder
• Dan Amoss on a bubble popping in real-time… and the sector you don’t want to own right now
• The wrath of the auto dealers… Sen. Warren’s subversive proposal… a bridge too far even for the timid D.C. press corps… and more!

  “All of your previous assumptions about the U.S. and oil are up for reconsideration,” says Byron King — expanding on the thoughts he shared with us yesterday.

Byron is in London this week for the Platts Crude Oil Conference — along with more than 200 international oil executives, traders, ministers and so on. And he’s discovering there’s more to the shale story than the report issued yesterday by the International Energy Agency.

  “U.S. Shale Oil Supply Shock Shifts Global Power Balance,” reads the tongue-twisting headline at the BBC’s website.

The aforementioned IEA report says the U.S. will account for one-third of new oil supplies over the next five years. “While the U.S. has been drilling,” says Byron, “the rest of the world is being caught flat-footed.”

  “Entire global trade patterns are changing profoundly,” Byron goes on to explain. “U.S. imports of light sweet crude are down to about negligible.”

Light sweet is the easy-pouring, low-sulfur variety that’s easy to refine. Result: “Several African nations that used to be U.S. suppliers have had to scramble to find new markets,” says Byron — “especially Nigeria, Algeria and Angola.” Meanwhile, the U.S. is also importing a lot less of heavy sour crude from Venezuela.

  The oil that used to be shipped stateside is now going to…

[imaginary drumroll]

…China.

That’s good news if it’s World War III you’re worried about. (Around here, we think about such things now and again.) China’s liable to be less bellicose about its claim to disputed islands in the South China Sea where oil might lie offshore. That ratchets down tensions with U.S. Navy ships patrolling the region.

Nor is that the only geopolitical consequence. “What if,” muses Byron, “the Pentagon didn’t have to worry so much about Middle East oil?”

It’s not a hypothetical question. “We’re finding out right now.”

  “In regard to OPEC, we’re in for an interesting next five years,” adds Matt Insley, the editor of Daily Resource Hunter, also in London.

“The Saudis and other, more money-needy OPEC states are set for some internal conflict. How much spare capacity should they produce? Who are they going to sell it to? And what about Iraq, set to produce 3 million more barrels of oil per day in the coming years?

“No matter which way you look at it, OPEC, in the next five years, loses.”

  Nor do the consequences end there.

“The U.S. dollar is strengthening because of lower oil bills,” says Byron. “So it affects the price of gold (down), as well as other commodities (down again).

“I don’t think any government official could have ‘planned’ this… via some ‘policy.’ It’s quite a display of history taking its own path, and free capital flowing to its highest and best uses, within the heavily regulated energy sector.”

And it speaks once again to the theme of our conference this year in Vancouver…

We’ll spend four days in July pulling apart the world-changing growth in U.S. energy production and transformational technologies… amid the ever-present backdrop of massive debt that’s masked (for now) by the machinations of central bankers.

Our first-time speakers run the gamut from Chris Anderson, champion of the “maker movement” that’s bringing manufacturing to the computer desktop level… to James Rickards, who’s sounding the warning of global “currency wars.” For a full rundown of speakers, activities and accommodations, please review this invitation from Symposium director Bruce Robertson.

  “I love this company,” our tech arbiter Patrick Cox fondly announces. Hey, as long as we brought up transformational technologies…

To better understand the catalyst behind his affection, he’s offered up a small quiz:

“Question: What is better than having a government monopoly mandated for use by the military-industrial complex?

“Answer: Having the military-industrial complex pick up the bill for that mandated technology.

“Astonishingly,” Patrick declares, “that is exactly what has happened.”

  “The Defense Logistics Agency,” he goes on to explain, “has announced that the suppliers’ costs of licensing this company’s technology will be reimbursed.”

You’ve likely noticed we’ve been tracking this company closely for several weeks. If you’re lost, though, here’s the explanation in three bullet points:

• This tiny company in New York has developed an essentially “unbreakable genetic encryption strategy to prevent counterfeiting”
• The government has created a virtual monopoly out of it
• And it’s virtually unknown to the investment public… making it extremely cheap at the moment.

  The subsidy comes on top of the agency’s previous finding that this company’s technology is the only one that meets its anti-counterfeiting standards.

No wonder this tiny operation — with all of 26 employees at last count — has lined up 42 Pentagon contractors, either under contract, in negotiations or at the very least asking for a quote.

“We are now strongly branded in the electronics industry,” the company’s vice president said recently, “and that brand is recognized and bringing more companies to us. We believe that there is a large potential for this technology to transition to other high-reliability supply, beyond defense, such as medical and automotive equipment.”

  The rest of the world’s governments have good incentive to eye this technology too…

“Counterfeit components,” Patrick writes, “are not a problem for just the U.S. military. A major scandal is currently brewing in Canada, where the military has, apparently, covered up the presence of bogus chips in its C-130J Hercules aircraft program.”

According to Canada’s CBC News, “Failure of the parts could leave Canadian military pilots flying blind, potentially in a combat zone, with no information on altitude, speed, location, fuel supply, engine performance or warning messages.”

“Given the legion of lawyers who stand ready to sue over any aviation accident,” says Patrick, “the incentive for adoption of the only validated anti-counterfeiting technology yet created is enormous. The adoption by the U.S. military will help spur other countries’ militaries, including Canada’s, to adopt this company’s technology.”

The best part?

“As of now, the general market has not yet discovered this company, but,” Patrick concludes, “that will change.”

[Ed. Note: We're beginning to see awareness of this company poking through to the mainstream. That's why we believe that this company's announcement tomorrow could be the "tipping point" that could skyrocket its 20-cent stock to $3... $4... even $10 a share.

With that in mind, we've hooked up an opportunity for you to listen in when the call goes down... and see for yourself if this company is set to take off. If you'd like to be among the early movers to witness this company firsthand, you can find all the details before they're taken down tonight right here at this link.]

  Another day, another bunch of intraday records for the Dow and the S&P. At last check, the Dow is less than 25 points away from 15,300.

Among the numbers in traders’ sights…

• Producer prices: Down 0.7% in April, mostly because of food and energy, says the Bureau of Labor Statistics. Energy prices supposedly dropped 2.5%
• Industrial production: Down 0.5% nationwide in April, the biggest drop in eight months
• New York State manufacturing sector: Contracting this month, according to the Fed’s Empire State survey, for the first time since January. Within the survey, new orders and shipments are also contracting.

Congratulations to Options Hotline readers. Steve Sarnoff parlayed a 2% rise in shares of General Dynamics… into a 53% gain in a little over a week. Another play — still open — is up 72% in just over a month. Don’t feel bad if you missed out; as Steve is fond of saying, “There’s always opportunity in options.”

  What was it Byron said about a stronger dollar?

As we write, the dollar index is about to poke its head above 84 for the first time since last July. The euro fetches $1.286 while it now takes 102.45 Japanese yen to equal one greenback.

  None of which is helping precious metals this morning. The $1,400 gold level has given way, while silver’s below $23.

  “Each day brings more evidence that the Chinese construction and infrastructure bubble has popped,” says our macro strategist Dan Amoss.

Electricity consumption in the Middle Kingdom — a favorite economic indicator of the new premier Li Keqiang — is growing at the slowest rate in nearly four years. What’s more, says Dan, “it’s clear that the new Communist Party leadership doesn’t want to follow the old economic development playbook.

“Beijing regulators are tightening rules for the pre-sale of homes, Chinese airline traffic has cooled, industrial production numbers are falling short of expectations and the Shanghai Composite stock index lags far behind the rest of the world’s indexes.

“As China’s appetite for construction-related commodities shrinks, global mining companies are cutting back. Expansion projects are getting canceled or deferred.

“Mining giant BHP Billiton is the latest company to announce a big reduction in capital spending plans.” Nor does he suspect they’ll be the last; Dan’s on the prowl for juicy shorting opportunities as we speak.

[Ed. note: For five more days, you have the chance to test-drive Dan's premium research... along with Steve Sarnoff's options recommendations and all of the other high-end research we publish... for one ridiculously low price.

Simply put, we've never done this before. And you may never see this offer again. Carpe diem.]

  Nothing like using the iron fist of government to crush your competition.

A state Senate committee in North Carolina has unanimously approved a bill banning automakers from selling their cars directly to the public, bypassing dealers.

Gee, how many automakers do that?

Uh… one. Tesla Motors, the trendy — and yes, we know, subsidized — maker of electric cars that are already outselling comparable Mercedes, BMWs and Audis.

The Tesla Model S: Banned in the Tar Heel State?

The head of North Carolina’s Automobile Dealers Association, Robert Glaser tells the Raleigh News & Observer the bill isn’t about his organization’s self- interest, though. No sirree. He pointed to Tesla representatives at a recent hearing and he said, “You tell me they’re gonna support the little leagues and the YMCA?” like his members.

Right… it’s about the kids.

  “Sen. Elizabeth Warren (D-Mass.),” a reader writes as we catch up on an email backlog, “submits a bill to charge students the same rock-bottom rate the Fed charges banks at the discount window, 0.75%.

“Hell, why not? While the Fed and banks insist on a return on investment, the Obama administration is figuring out how to ‘forgive’ some of that student debt.”

LOL, 5 Min. editors, wrap your mind around that one.

The 5: On the one hand, it’s delightfully subversive vehicle to point out the sweet deal the Fed gives its member banks.

On the other hand, the proposal would only open up the cheap-money spigot further, driving up college costs even more. Phooey.

  “Concerning the latest ‘Auditgate’ scandal (I’m taking credit for the name, as I haven’t read it yet), you posit that ‘They might even indict a low-level flunky or two.’ ROFL!

“We’ve seen two instances where U.S. officials were killed from direct actions (Fast and Furious) and inaction (Benghazi) and another where a billion dollars ‘disappeared’ (MF Global)… and not one person even got fired!… let alone indicted!

“It is amazing to me that violent crime is declining in America, as obviously there is no longer rule of law at the top levels of our government. No one even remembers how POTUS stole shareholders’ money and gave it to union pension plans in the auto bailout.

“No one needs indictment or firing… the IRS manager was a Bush appointee! It is still Bush’s fault! ‘At this point, why does it even matter?’ says our heir to the throne.

“P.S. Thank God I closed my MF account three days before the debacle, or I would have been left with an empty bag.”

The 5: And they haven’t gone after you for the bogus “crime” of insider trading?

  “Why do these stories never seem to make the national news?” writes another reader.

“Could some of the people in the White House be too close to the MSM? For example, the ABC news chief has a sister who is a special assistant to Barack Obama, the CBS news chief has a brother who is national security adviser for strategic communication for Barack Obama, and a CNN deputy bureau chief is married to the former deputy secretary of state for management and resources under Hillary Clinton, who has now returned to his old job as vice chairman of Morgan Stanley. Could all of this be coincidence?”

The 5: Maybe it’ll start to change now that we have yet another scandal — in which the media itself is a target. As you might already know, The Associated Press says the Justice Department “secretly obtained two months of telephone records of [its] reporters and editors.”

The stenographic pool otherwise known as the Washington press corps has finally summoned a little outrage. “The Justice Department’s collection of journalists’ phone records and the Internal Revenue Service’s targeting of conservative groups,” reports The Washington Post, “have challenged Obama’s credibility as a champion of civil liberties — and as a president who would heal the country from damage done by his predecessor.”

Now they take notice.

Grab the popcorn, it could be at least as fun a summer as Iran-Contra gave us in 1987…

  “You may not be cynics,” a reader writes after last Friday’s episode, “but the person in Thurmond, W. Va., who shot down the power line to steal the copper gets my nomination for this year’s Darwin Award.

“I work for the local power company, and we have had many break-ins to our substations over the years, and more than a few have been found incinerated after attempting to make off with copper bus bar that was energized at 14,000 volts.

“Love The 5.”

  “Thurmond,” writes a reader by way of more background than we ever expected, “is an old little ex-mining hamlet on the river along a steep-sided valley, with little going on.

“Thirty years ago when I was there for a rapids trip down the New River, at the entrance on the small road was a sign that more or less read: ‘Thurmond. Population 181; Elevation 761; Total 1,123 feet.‘

[Ah... 181 times two feet plus 761 feet equals 1,123 feet. What a bunch of cutups.]

“I enjoyed that. But when I asked a local nearby who was the one-legged man, he looked at me like one of those locals in Deliverance. So I think it was the same local as shot the line and picked it up.”

The 5: [Trying to think of a witty but still tasteful riposte, which is of course impossible with anything involving Deliverance. Best to sign off...]

Cheers,

Dave Gonigam

The 5 Min. Forecast

P.S. Patrick is calling it “the best 20 cents you could ever spend.” And beginning tomorrow morning, that 20 cents could transform — virtually overnight — into one of Patrick’s most lucrative tech breakthrough plays yet.

That’s why we’re offering you a chance to have a “seat at the table” at the exclusive company briefing tomorrow morning. This way, you can hear every detail straight from the source. Act fast, because this opportunity ends tonight. To vet all the details for yourself before it’s too late, click here.

• Uncle Sam’s juicy $516.3 billion pie… the contractors that get the biggest pieces… and one niche player grabbing the tastiest morsel of all
• More big numbers: 11 companies benefiting from $125 billion spent on two of the U.S. economy’s biggest growth sectors
• “The hottest real estate” in the U.S: You can’t live in it, but you can still profit
• What keeps small-business owners awake at night… the golden lie behind the Chinese boom… the ultimate in do-it-yourself… and more!

  You want to make money? Really good money? Become a government contractor. A big one.

“A majority of the top 200 government contractors made more money on federal awards last year than in 2011,” reads a story at the website of the magazine Government Executive, “despite major budgetary cutbacks.”

The top 200 firms captured nearly two-thirds of the $516.3 billion spent on federal contracts in fiscal 2012, according to an analysis prepared by Bloomberg Government. (Supplying news to the government sector also appears lucrative.)

The top five recipients of contracts are the “Big Five” defense contractors — Lockheed Martin, Boeing, General Dynamics, Raytheon and Northrop Grumman.

The news affirms our “make the empire pay” thesis. You can channel some of your tax dollars back into your own pocket by investing thoughtfully in the sectors poised to benefit as leviathan keeps metastasizing. A while back in Apogee Advisory, we suggested the big defense and aerospace ETF. Over the last year, it’s outperformed even a torrid S&P 500.

Sequestration? What sequestration?

  If you’re more speculative-minded, you could take a flier on a niche subcontractor.

Of course, you have to choose carefully. The $516.3 billion contract pie in 2012 was actually 3% smaller than the year before… but the big guys managed to grow their share of the pie.

Which brings us around to an opportunity we’ve been eyeing for the last nine months. It’s about as specialized as you can get… and as a result it has what amounts to a government-guaranteed monopoly.

The firm has a lock on anti-counterfeiting technology using DNA taken from plants. The applications of this technology are nearly endless… but the company is first making hay in the defense space. Simply put, the Big Five must turn to this company if they want to stay in the government’s good graces.

“These contractors, including the big names like Boeing, Raytheon and Lockheed Martin, will now be held liable if their products contain counterfeit components,” explains our Patrick Cox. “Penalties include withholding payment, being held responsible for repairs and even the potential for civil and criminal damages as well as disbarment from further business with the Defense Department.”

Harsh.

A few months ago, the company had contracts in hand from six Pentagon suppliers. As of a week ago today, that number had exploded sevenfold… to 42.

Patrick’s research leads him to believe the next catalyst in the company’s growth is due to become public within the next 48 hours. Shares can still be had for about 20 cents each… but maybe not for long. Click here to see why Patrick thinks now’s the time to pounce.

  After two listless days Friday and yesterday, the major U.S. stock indexes are roaring to new intraday highs.

At last check, the S&P 500 was a few ticks below 1,650. As our trading specialist Jonas Elmerraji is wont to remind us, round numbers matter.

  “Two of the strongest sectors of the current U.S. economy,” Byron King wrote his readers on Friday, “barely existed a few years ago.

“In fact, one sector was left for dead (and I mean roadkill!) when the U.S. government effectively shut it down overnight in 2010. The other sector was rooted in then-novel technology that few people understood, and in which only visionaries saw the future.”

  The International Energy Agency affirmed this radical change only today.

“The supply shock created by a surge in North American oil production,” says a new IEA report, “will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15.”

“The technology that unlocked the bonanza in places like North Dakota can and will be applied elsewhere,” says IEA executive director Maria van der Hoeven, “potentially leading to a broad reassessment of reserves.”

“Looking ahead,” says Byron, “North American oil and gas will add to our continental-scale energy security — which is NOT the same thing as so-called ‘energy independence,’ a silly and confusing term (and another story entirely).”

  The two sectors Byron speaks of are… “onshore” and “offshore.”

“Currently fast-growing sectors include companies that support drilling for oil and gas in so-called ‘tight’ geologic plays, meaning rock formations like shale and low-porosity sandstones.

“Fast-movers also include offshore-oriented companies that are still healing from the awful disaster of 2010, when a BP well blew out in the Gulf of Mexico.”

  How much money is blowing in the winds of the “shale gale”?

In 2011, the U.S. energy industry plowed $125 billion into drilling new wells, according to the American Petroleum Institute. Those are the most recent figures available. More than half that total — $65 billion — went into shale wells. Two years earlier, shale accounted for barely a quarter of total drilling investment.

“This is a remarkable testament,” says Byron, “to the mobility of capital within the U.S. economy, even in an industry with as much federal, state and local regulation as well drilling.”

  “In a strange irony,” Byron goes on, “the onshore shale gale is related to the BP blowout offshore in 2010.

“After the Gulf of Mexico accident, the U.S. government effectively shut down drilling by imposing an immediate moratorium on almost all offshore operations.”

$25 billion of offshore investment by the U.S. energy industry in 2009 cratered to $4 billion in 2010… and “recovered” to $8 billion by 2011 as the government limits were slowly lifted. Good thing the shale boom came along to pick up the slack, eh?

“Now in 2013 and with reasonably strong oil prices,” says Byron, “we’re beginning to see more of the offshore rebound. Between the Gulf of Mexico and many other developing offshore locales around the world, we have numerous firms whose share prices have moved upward strongly over the past year, with more good news coming as capital expenditures increase toward 2009 levels.”

You have the chance to channel those investment dollars into your own pocket. Byron has identified five companies profiting from the onshore shale gale… and six companies profiting from the offshore revival.

Here again, timing is everything… for reasons Byron explains at this link.

  For the record, crude is hovering around $95 this morning, on the high end of its trading range the last six weeks.

  “The hottest real estate in the U.S. isn’t housing,” explains our globe-trotting guru Chris Mayer.

Chris was early to make the case for investing in rental properties. But if you’re looking to profit from real estate now, he invokes the advice of Dickson Watts, president of the New York Cotton Exchange from 1878-1880: “Don’t batten down the door, pick the lock.”

Here’s your less-obvious way into real estate circa 2013: farmland.

“Take a look,” says Chris, “at the chart on cropland value in the six states of North Dakota, South Dakota, Nebraska, Kansas, Iowa and Minnesota. The worst market enjoyed a 23.7% gain last year alone.”

In the past, Chris has written about North Dakota, calling it the “Mongolia of America.” Both have open spaces, abundant resources and small populations.

“In North Dakota, there is an oil boom going on,” he told us, but according to him you’d best steer clear of the mainstream plays. “I always look for a backdoor to play an idea, and I wouldn’t recommend buying U.S. farmland at these prices.”

According to Federal Reserve data, price-to-cash rent ratios in Iowa are north of 30. In other words, people are shelling out $30 to buy $1 of cash yield.

“You’ll get no bargain buying a manufacturer of tractors, either,” he goes on. “And you’re not likely to get a bargain in fertilizers. Those stories are out there and get all the attention.

“But remember that prosperity leaves its fingerprints in all kinds of places. In that spirit, let’s think back to those rising farmland prices. Farmers with loot will benefit other industries, such as insurance…

“Robust economics in the farm belt ought to be good for the banks too. I started by looking at the institutions with the largest exposure to agriculture.”

So what’s Chris’ “backdoor” to this idea?

For subscribers to Mayer’s Special Situations, Chris has a play that piggybacks on the oil boom going on in North Dakota. It’s up 20% since he told subscribers about it, and it yields better than 5%.

[Ed. note: A select few of our readers have access to the premium recommendations of Chris... and Byron... and Patrick. Along with higher-risk, higher-reward shorting and option opportunities from the likes of Jonas, Steve Sarnoff and Dan Amoss.

For a limited time -- and we do mean limited, less than a week -- you have the chance to access all of their guidance and "test-drive" our highest level of service. We've never extended an offer like this before. Let Addison explain why we're doing it now in this exclusive invitation.]

  Small-business owners are feeling marginally more perky. The monthly optimism index put out by the National Federation of Independent Business ticked up to 92.1 in April.

That’s slightly better than the average since the economic “recovery” began in June 2009, but still well below the index’s long-term average.

“Nothing in the NFIB data,” says the group’s chief economist Bill Dunkelberg, “suggests that the small-business half of the economy is expanding other than by an amount driven by population growth and associated new business starts now in excess of terminations.”

But an interesting trend is emerging in the responses to the survey question, “What’s your single-most important problem?”

A year ago, there was essentially a three-way tie between poor sales, taxes, and government regulations. Now taxes are the clear leader, with 23% of respondents saying that’s their biggest problem. Regulation clocks in at 21%, while poor sales are down to 16%.

  Precious metals popped a couple of times in the last 18 hours, only to give it all back. Gold is mired at $1,426, silver at $23.39.

  Here’s a mind-bender: Gold might be covering up weakness in the Chinese economy.

“Many analysts,” says a new white paper from Sprott Group, “have attributed China’s increasing imports as signs of a healthy manufacturing sector, or increasing investments in infrastructure and property.”

Think again, write Eric Sprott and his associates: “Our simple analysis shows that more than one-third of the increase in imports is due to China’s increasing gold consumption…

“When we strip out the ‘gold effect,’ we find that 37% of the increase in imports over the last 12 months into China is due to the massive amount of gold that’s being imported.”

As we mentioned at the beginning of the month, Shanghai Daily reported that Chinese housewives alone scooped up approximately 300 tons of gold in a two-week span, more than 10% of annual global mine production.

“We expect this will only increase in the near future when the explosion of gold buying in April is accounted for,” the white paper concludes. “This new gold buying could have a significant impact on Chinese import statistics and force analysts to reconsider the strength of the Chinese domestic economy.”

  Meanwhile, another group of analysts fish for beacons of growth in China… wherever they can find them.

“One visible sign of China’s recent economic growth,” The Atlantic opines, “is the rise in prominence of inventors and entrepreneurs.

“For years now, Chinese farmers, engineers and businessmen have taken on ambitious do-it-yourself projects, constructing homemade submarines, helicopters, robots, safety equipment, weapons and much more.”

Our first inkling of this DIY movement took place last December when we came across Liu Qiyuan and his “apocalypse balls.” Qiyuan was just putting the finishing touches on his spherical life-pods in preparation for the coming apocalypse on Dec. 21.

The other DIY-ers seem a little more optimistic…

“Some of the inventions are built out of passion,” The Atlantic goes on, “some with an eye toward profit… and a few have already led to sales for the inventors.”

Pictured below from left to right are artist Matt Hope’s effort to combat China’s air pollution with his “breathing bicycle,” Zhang Wuyi’s multiseater submarine, farmer Shu Mansheng’s homemade aircraft and farmer Wu Yulu’s walking robot.

Hmmm… If Zhang’s sub were available through Kickstarter, we might be tempted…

Cheers,

Dave Gonigam

The 5 Min. Forecast

P.S. Email gremlins have struck The 5′s inbox. They’ve now been fixed.

We’ll spare you the technical explanation, mostly because we don’t understand it even after our skilled IT people explained it patiently three times.

Bottom line: If you sent us an email anytime after 3:30 p.m. EDT last Thursday, we weren’t able to read it… but now it’s sitting in a queue waiting to be read this afternoon. We expect to serve up a fun and voluminous mailbag section tomorrow!

• IRS scandal: more common ground between the tea party and Occupy… while politicos fret over “profound distrust” in government!
• Stock aversion syndrome: Elmerraji’s case for a long-term bull market in stocks
• Neil George on pulling nearly a nearly 8% yield from a “rough business”
• Amoss on why the rush into Japanese stocks is due for a rest
• How the government makes the epidemic of computer hacking even worse… Bitcoin mining as a source of heat… why Buffett has one reader worried… and more!

  “It’s not the crime,” was the infamous saying that came out of Watergate, “it’s the coverup.”

We won’t say much this morning about the IRS scrutiny of tea party groups, etc. But as scandals go, it seems this one will have more “legs” than Benghazi or the birth certificate.

For one thing, we’ve noticed the IRS’ targets run across the political spectrum. A report from the IRS inspector general obtained by The Washington Post reveals the agency took aim at “political action-type organizations involved in limiting/expanding government, educating on the Constitution and Bill of Rights, social economic reform movement.”

Expanding government? “Social economic reform”?

We don’t want to reopen an old debate — oh, hell, yes we do. It inspires some quality reader mail — but it sure sounds as if once again the tea party and the Occupy movement have more in common than either wants to admit. They’re both making the politicos squirm.

Which is a fun spectacle to watch. On the Sunday talk shows, there was Sen. Susan Collins (R-Maine), the epitome of what blogger Glenn Greenwald would call a Very Serious Person in Washington, as far removed from those ragamuffin tea party and Occupy types as you can get.

“This is truly outrageous,” she said, “and it contributes to the profound distrust that the American people have in government.”

Yep… That’s what has the power brokers quaking this morning.

Heck, they might even indict a low-level flunky or two to “restore trust” and make the whole thing go away…

  Major U.S. stock indexes are pulling back a bit from Friday’s record closes. At last check, the Dow is about 15 points below 15,100.

The one big number of the day came in better than expected: Retail sales jumped 0.1% from March to April. The consensus among dozens of economists polled by Bloomberg was looking for a drop of 0.3%.

Take away the Census Bureau’s “seasonal adjustments,” however, and the number fell 2.6%. Heh…

“Stock and bond markets have been flying high,” wrote Options Hotline’s Steve Sarnoff to his readers last night, “bolstered by the central bank bond-buying binge. While stock indexes finished Friday still looking higher, bonds and utilities slipped. I view this action as a warning sign for equities.”

  “Would it surprise you,” writes STORM Signals editor Jonas Elmerraji, “to hear that stock ownership among Americans is at a record low?”

Sure enough, barely half of Americans polled by Gallup say they or their spouses own any stocks — including mutual funds.

“That’s a jaw-dropping number,” says Jonas, “if only for the fact that the S&P 500 has more than doubled since its 2009 bottom. The data show that, left to their own devices, most individual investors sold into that 2009 bottom, and they kept selling stocks as the market recovered and pushed to new highs.”

Jonas has two takeaways: First, “there’s a lot of money still sitting on the sidelines. I believe it’s just a matter of time until we see some cash getting thrown at the stock market again,” as people get tired of earning zip on their cash holdings.

Second, “while the masses are wrong at turning points, they’re also right for the ‘meat’ of the move.” Think back, says Jonas, to the heart of the dot-com bubble. “When your average investor starts liking stocks again, it’s not going to be a contrarian signal for us to turn bearish — but it will be a signal to pay closer attention to our exit strategy.

“Even so, I think this rally has years ahead of it.”

  Commodities are getting clobbered today.

Gold and oil both popped late on Friday when it looked as if Libya was about to fly apart — well, worse than it already has. But Libya’s still sort of holding together, and a car bombing in Turkey over the weekend looks like a domestic thing — tragic, but lacking much geopolitical importance.

Thus, when electronic trading reopened last night, all the gains vaporized. This morning, gold is back to $1,435. A barrel of West Texas Intermediate is back below $95.

And that’s despite a slightly weaker greenback. The dollar index is down a tad, at 83.1.

  “The shipping business can be rough,” says our income specialist Neil George.

“During flush times,” he explains, “companies can face a lack of capacity — forcing them to scramble for new ships with additional cargo room. And in economic downturns, they face lower revenue and the prospect of idle ships costing thousands of dollars in lost opportunities and storage…”

Lately they’ve faced the latter. But it looks like things are finally turning around. “First,” says Neil, “the global spot rates for container ships have rebounded, as shown by the Container Ship Time Charter Assessment Index.

“Meanwhile, U.S. ports have made a big push to expand their capabilities to load and unload container ships much more efficiently. So ships spend less time idling in port.”

In addition, upgrades to the Panama Canal are due for completion this year: “New locks will allow bigger ships to use the canal, so super-carriers from Asia can reach Eastern U.S. ports, instead of unloading on the West Coast and sending it the rest of the way over land.”

Neil likes a company that leases ships to the industry. It sports a respectable dividend of 5.4%… but for his premium subscribers, he’s uncovered a way to parlay the yield into nearly 8%.

  “In the short term, the trend looks overdone,” says Dan Amoss of the run-up in Japanese stocks.

As noted here on Friday, the yen broke through the round-number barrier of 100 to the dollar. As the yen has slipped, the Nikkei index has soared.

Time for a rest, Dan says. “Short positions against the yen look excessive. And the consequences of the Bank of Japan’s aggressive printing are starting to unfold: The Japanese government bond market was halted several times in recent days, as prices fell sharply. The BOJ can’t afford to lose control of the bond market, since higher interest rates on Japan’s national debt would quickly bankrupt the country; so it may tone down the easy money rhetoric.

“Many traders are short the yen against the dollar on the belief that the U.S. economy is on firm footing and that the Fed will soon stop its quantitative easing. Yet leading economic indicators point to stagnation. So the Fed will continue its practice of printing rapidly, while promising to stop printing at some undefined future date.

“This ‘strong dollar’ mentality is overdone,” Dan concludes. “It will reverse quickly as high hopes for the U.S. economy are dashed.”

  The U.S. government “has become the biggest buyer,” reports Reuters, “in a burgeoning gray market where hackers and security firms sell tools for breaking into computers.”

It would be one thing if the feds were trying to ward off attacks. But no. The military and intelligence agencies “are using the tools to infiltrate computer networks overseas, leaving behind spy programs and cyber-weapons that can disrupt data or damage systems.”

In other words, the Stuxnet worm that was used to disrupt Iran’s nuclear program wasn’t a one-off thing. It’s standard operating procedure.

“The strategy,” according to the wire service, “is spurring concern in the technology industry and intelligence community that Washington is in effect encouraging hacking and failing to disclose to software companies and customers the vulnerabilities exploited by the purchased hacks…

“The more the government spends on offensive techniques, the greater its interest in making sure that security holes in widely used software remain unrepaired.”

Madness? Yes… but as we’ve documented since February, a huge source of revenue for the burgeoning “information security” sector, or as the people in the know call it, InfoSec. Byron King continues to buttonhole his extensive contacts within the military-industrial complex to find the best players for his new premium advisory, Military-Tech Alert.

[Ed. Note: We've alluded to several of our high-end services in today's episode. That's because they figure into the "major change" I mentioned in an admittedly vague email I sent you earlier today.

Here's the scoop. We're offering you unlimited access to every advisory we publish -- including microcap stock plays and high-octane trading services -- in an unprecedented "test drive" venture. We've never done it before. We may never do it again. Learn how to take advantage at this link.]

  We’re not sure if this falls under the category of hacking, but it’s fiendishly clever.

“If you’ve been playing Counter-Strike on the ESEA gaming network,” says a report at Wired, “you’ve been doing a lot more than tossing virtual hand grenades and firing virtual machine guns. You’ve been mining Bitcoins for an unnamed staffer inside the company that runs the network.”

Seems a rogue employee slipped some Bitcoin-mining code into software that ESEA distributes to players.

Counter-Strike: As many as 14,000 gamers might have been affected…

“The software,” says Wired, “gives players better data on their game play and cuts down on the use of known game cheats, which can give opponents an unfair advantage.”

“What transpired the past two weeks,” says ESEA co-founder Craig Levine, “is a case of an employee acting on his own and without authorization to access our community through our company’s resources. As of this morning, ESEA has made sure that all Bitcoin mining has stopped. ESEA is also in the process of taking all necessary steps internally to ensure that nothing like this ever happens again.”

Looks as if the rogue employee netted about $3,700, funds ESEA says it will donate to the American Cancer Society.

  “Coming from a guy who heats his one-bedroom U.K. flat all winter with two old gaming PCs that mine Bitcoins,” writes the alert reader who tipped us off to the previous story, “you’ll find a maybe not-so-coincidental connection between the price of electricity and the price of Bitcoins.

“For the last few years, I’ve turned off the electric heat in my flat and I mine Bitcoins instead. The electric costs are identical, but with the mining rigs, I get the bonus of ‘free’ Bitcoins!

“There’s no doubt that the demand side plays a big role in the price, but I get the feeling the bottom of the market is supported by today’s cost to mine new coins (as each coin is harder to mine than the last). Especially in the era of cloud computing, if the price dropped low enough, you could simply spin up ‘pay by the hour’ mining rigs and make a healthy margin. No capital costs and quick turnaround.

“As always — keep up the great work! You guys do an awesome job.”

  “OK, so now I am a bit worried,” writes one of our regulars. “Not two months ago, I read that Buffett and Munger never talk or discuss macroeconomics. And in reality, if you are those guys, you aren’t too worried.

“Now I see that they are both concerned about policies of both the Federal Reserve and our government.

“Money is so cheap that even Berkshire is selling bonds. Hell, a couple of years ago, they had so much cash they couldn’t find anything worth buying. Is that the story now? Nothing worth buying, let’s sell some bonds. But on the other side of the coin, what are they going to do with the cash?

“Haven’t looked to see how much cash they have on hand, but I am sure $1 billion is pocket change. Go figure. Why would a cash-rich company want debt? Seems to be the way of the financial industry as a whole.

“But then again, he is Warren Buffett. We are just a bunch of schmucks.”

The 5: This is what “financial repression” looks like.

Look at Apple. The company had $145 billion cash sitting on its balance sheet… but it tapped the bond market for $17 billion two weeks ago, the biggest corporate bond issue ever.

OK, some of that is a tax-reducing gambit, but even so… if you could borrow for five years at 1.076%, wouldn’t you? You’d have investors beating down the door — and Apple did — with a five-year Treasury note yielding 0.823%.

Of course, you can’t borrow for five years at 1.076%, because you’re, in the reader’s words, a schmuck.

Not that you’re helpless, though. We have several ways to line your pockets in spite of financial repression. Here’s a reader favorite.

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. If you clicked on the “test drive” link above and instantly decided, “It’s not for me. I’d get too many emails,” rest easy. We’ve figured out a method around that. Seriously, check it out.