• Hackers, the GPS “spoofer,” the “Flash Crash” and your retirement account… a new hassle you probably didn’t know existed…
• Wyoming prepares for catastrophic collapse with… an aircraft carrier? Why Colombia might prove a better refuge…
• Will the Dow top 13,000 this week? How to make money without caring about the answer
• Out of nowhere emerges the nation’s second-largest shale oil deposit… in addition to all the others
• Real-time affirmation of Byron King’s revival outlook… a reader’s reminder the Tea Party isn’t dead… deconstructing a viral email about Nicaragua… and more!

   Wealth.

Helping you create it and defend it. That’s what defines our work here at The 5. On some days, that task is akin to deciphering nude images in a Picasso.

We didn’t know, for example, what to make of the first nugget today when we ran across it over the weekend: Hackers, we’re told by the U.K. edition of Wired, can now generate phony GPS signals.

That fact could be annoying if you’re trying to find an unfamiliar place… but let’s face it, your efforts to locate a new restaurant are not likely to be the direct target of Anonymous.

No.

The “more sinister use could be to interfere with the time-stamping systems used in high-frequency trading.” GPS signals, it turns out, are how financial institutions stay synchronized to the microsecond.

It also turns out to be remarkably easy to build a GPS “spoofer” that could fool the antennas affixed to those institutions’ main buildings. Professor Todd Humphreys at the University of Texas did it recently for a cost of less than $1,000.

   We distinctly remember watching the Dow drop 1,000 points on May 6, 2010. The episode went down in history as the Flash Crash… and was attributed to a high-frequency trading (HFT) platform malfunction.

Now imagine the 2010 Flash Crash multiplied by an order of magnitude. Suddenly, things fall apart.

“So far,” says Humphreys, “no credible high-profile attack has been recorded, but we are seeing evidence of basic spoofing, likely carried out by rogue individuals or small groups. While the leap to more advanced, untraceable spoofing is large, so are the rewards.”

Longtime readers will recall it’s a myth that HFT accounts for 70% of stock market volume.

It’s closer to 50%. Just something to keep on your radar.

   “It is with great personal disappointment,” writes George Friedman, seemingly kicking off our second nugget this morning, “I have to inform you that I will resign from my position as CEO for Stratfor to immediate effect.”

Stratfor, you may recall, is one of the nation’s more notable private intelligence networks. Trouble is, according to Reuters, the email is bogus. Mr. Friedman is still resting atop the outfit. And dealing with a myriad of problems caused by hackers on Dec. 24.

A few weeks ago we got an email from Mr. Friedman — a legitimate one — informing us his firm’s email system had been compromised. Turns out the hackers linked to Anonymous got their hands on more than 5 million messages. WikiLeaks is starting to make them public.

One of them, dated Nov. 14, is an eye-opener. It directly quotes an unidentified source about a report that Israel was planning to attack Iran: “I think this is a diversion. The Israelis already destroyed all the Iranian nuclear infrastructure on the ground weeks ago.”

“The current ‘let’s bomb Iran’ campaign,” it goes on, “was ordered by the EU leaders to divert the public attention from their at home financial problems. It plays also well for the U.S., since Pakistan, Russia and N. Korea are mentioned in the report.”

Without more information, it’s hard telling how valid this is. But it’s another spin on the New War theme we’ve been following… and something else to keep on your radar.

The episode belies — apart from the fact that somebody’s really got a hard-on for Mr. Friedman — the realities of trying to run a business in the modern era.

   In the event of “complete economic or political collapse in the United States,” whether caused by hackers or not, state lawmakers in Wyoming want to be prepared.

The House there has passed a bill setting up a task force looking into such a possibility. Its sponsor cited, among other factors, the $15.44 trillion national debt.

“The task force would look at the feasibility of Wyoming issuing its own alternative currency, if needed,” says an account in the Casper Star-Tribune. “And House members approved an amendment Friday by state Rep. Kermit Brown, R-Laramie, to have the task force also examine conditions under which Wyoming would need to implement its own military draft, raise a standing army and acquire strike aircraft and an aircraft carrier.”

At this point we have to wonder if hackers have already gotten to the Star-Tribune website, too. An aircraft carrier?

We vaguely recall from third-grade social studies that Wyoming is landlocked. And we suspect the Snake River is a mite too narrow and shallow to accommodate a Nimitz-class carrier. Maybe there’s a lake near Jackson Hole big enough to house the ship and thereby keep an eye on the annual meeting of central bankers we like to report on in August?

Either way, the carrier costs $4.5 billion. Wyoming’s entire annual budget is $3.4 billion.

   Under the circumstances, Colombia — formerly renowned for its drug cartels and wanton violence — is starting to look better.

A year after our first formal visit, the Revolutionary Armed Forces of Colombia (FARC) — the guerrilla group that’s dogged the country for nearly 50 years — has renounced the practice of kidnapping for ransom.

“We announce that from this date we forbid this practice in our revolutionary conduct,” said a press release from their leaders.

“We value the announcement of the FARC to renounce kidnapping as an important and necessary step,” responded President Juan Manuel Santos on Twitter, “but it is not enough.”

FARC is a shadow of its former self after a decade-long crackdown led by Santos, first as defense minister and now as president. We daresay Colombia is a rare exception to the rule that central governments don’t stand a chance against guerrilla-warfare tactics.

Then again, guerrilla warfare doesn’t work without the support of the people. Kidnapping for ransom has a funny way of undermining that support.

Colombia’s IGBC Index is flat this morning. It’s been on a tear since bottoming in late November, jumping 22%. Good news for Apogee Advisory readers who followed our guidance after our visit.

   Back in the U.S., major indexes have opened down about two-thirds of a percent, traders disappointed in the Hollywood establishment’s decision to hand another Oscar to Meryl Streep for an accent.

At least that makes as much sense as MarketWatch’s explanation: G-20 finance ministers delaying a decision to shovel more money into the International Monetary Fund for European rescues.

Heck, this strikes us as a good thing: Taxpayers won’t be raided to pour more money down the rathole of the PIIGS governments for the purpose of keeping French and German banks afloat.

For the moment anyway, Dow 13,000 and S&P 1,365 are again proving stubborn resistance points.

[Ed. Note: This morning readers of Chris Mayer’s Capital & Crisis collected 220% gains on Chart Industries after a little over two years. “It’s easy to fall in love,” Chris wrote upon initiating the sale, “but I’m going to let this one go. The risk is no longer greater than the reward.” He also notes some insider selling. For more where that came from, check out Capital & Crisis.]

   While small-caps began the year racing ahead of the broad market, the trend reversed this month.

“Larger stocks have been inching higher,” says our small-cap specialist Greg Guenthner, “while the smallest stocks on the market continue to flat-line. The Russell 2000 has remained range-bound for the entire month of February.”

“The first leg of a big move off a bottom is just a rush,” he explains. “But when it starts to stall/consolidate, investors are looking for some sort of validation that the new trend is real. That’s where we are now. It’s going to take more positive reinforcement before a rally like this can be trusted.”

   Even if the Dow doesn’t break above 13,000 this week, there’s a way to make money from its ups and downs.

“We don’t have to anticipate the direction,” says our monitor of market sentiment Abe Cofnas. “We simply bet on movement.”

That’s what “binary options” are all about: taking advantage of volatility. So with the Dow, Abe is watching two key levels this week:

And here’s a mock trade that results, playing the most widely traded options market available:

Action: BUY US30 (DOW) Weekly Binary Strike price 12925 @ market
Trade Action: SELL US30 (DOW) Weekly Binary Strike price 12825@ market

Don’t worry about how you’d execute this. We’re just showing it by way of example: “If the Dow settles by Friday end of day above or below either level,” says Abe, “there’s a win. If it stays between the strike prices — the payout is zero.”

“A win provides a fixed payout of $100 per unit. Let’s see what happens. The cost of buying the 12925 binary will be $50.25 and the cost of selling the 12825 binary will be at $32 ($100 – the bid).”

“In short, the trade would cost $82.25, and if it works, it pays out $100, for a total return of 24% in five days!”

For the record, we recommend you don’t try this at home. We’ll follow the progress of this “mock” trade and let you know how it turns out. Stay tuned…

   Precious metals are taking a breather after their big run-up last week. Gold is at $1,774, silver at $35.55.

   Oil is pulling back from the $110 brink it reached late Friday. A barrel of West Texas Intermediate is down 84 cents, to $108.93.

   To the long list of U.S. shale energy plays you can add a new one — Alaska’s North Slope.

The U.S. Geological Survey is out with a new estimate of the shale resources available there: 2 billion barrels of oil. That’s the second-largest U.S. deposit, after the Bakken in North Dakota.

And the available gas comes to 80 trillion cubic feet — making it the fourth-largest gas deposit.

“Alaska’s energy resources hold great promise and economic opportunity for the American people,” says Interior Secretary Ken Salazar — which is the White House’s way of signaling it won’t stand in the way of development.

Indeed “President Barack Obama’s administration and the state of Alaska are offering more access to oil and natural gas resources on land and in Arctic waters,” reports Bloomberg, “to help lower dependence on imported fuel and push more crude through a major oil pipeline crossing the state.”

Developing the resource will take time… but the news amounts to more wind in the sails of Byron King’s “Re-made in America” outlook. He believes other developments in the Lower 48 will bring his forecast to life no later than May. That’s barely two months away.

   “Here’s another vote FOR Byron’s thesis for a manufacturing revival in the U.S.,” a reader writes.

“Caterpillar announced last week they’re building a new plant in my hometown, Athens, Ga. — moving production from Japan to the U.S., with 1,400 good-paying blue-collar jobs. Yeah!!”

“I think the trend is starting; most people can see that this is the best way to get our economy moving again, and there are a lot of forces lined up supporting this. Higher shipping costs (from Asia), higher wages and inflation in China, the massive Shale Gale and a lower dollar are conspiring to bring manufacturing back to the good ole U.S.”

The 5: That’s an excellent summary of all the factors Byron sees in play. But there’s one more. “It’s a natural phenomenon so powerful it has repeatedly altered history,” he says, “and yet so subtle it usually reaches a crescendo before most people even realize the significance of what’s taking place.”

It’s the same phenomenon that drove the development of railroads and the steel industry in the 19th century… and the electronics industry after World War II. Byron shares the full story here.

   “I’m glad that at least some small steps are being made to restore a bit of growth to the U.S. economy,” writes another, “but I’m sorely puzzled about just one thing.”

“What happened to all the trillions of off-balance-sheet debt and contingent commitments that the major banks are supposed to be carrying as the result of their pre-2008 shenanigans? Has it simply evaporated and, if so, how did that happen?”

“And if it hasn’t evaporated, how can the banks (and the country) ever get back to genuine health? Does that sound like a dumb question? Be gentle in your response!”

The 5: Not a dumb question. There’s a ton of debt sitting on the balance sheets of the banks (and governments, and consumers) that needs to be liquidated.

We can easily foresee a cycle of fever and chills, euphoria and depression in both the economy and the markets for years ahead — just as we’ve experienced in the last 12 months.

If you have money you can’t afford to lose, the best way to safeguard it is by following a strategy that delivered an 11.1% gain last year, while the S&P ended up ruler-flat after some stomach-churning moves. We spell it out in a special report for every new reader of Apogee Advisory. Access here.

   “I had to take off my coonskin hat to write this,” writes a reader who caught our ruminations on popular movements Friday, “but you may want to know that yes, as a Tea Party person, I find the Republican Party has values closer to mine that the Democrats, in general (that’s why Ron Paul isn’t running as a Democrat).”

“What I have done is thrown off what little dignity I actually have and entered the disgusting world of politics as a lowly precinct committeeman. But there, indeed, are non-negotiables, trademarks of what you know as the Tea Party, and I am bringing those to bear with my shoe leather.”

“We’re still here, and folks like me have left the rarified atmosphere of speculation to try to bring some sanity back on a practical level. You might also be pleased to note that a lot of that ‘sanity’ I learned from you folks at, or associated with, Agora.”

“This, along with a firebranding across my forehead that states ‘Absolute power corrupts absolutely’ (replaced the ‘Property of Bar U Ranch’ I had before), will keep me in place — and if that doesn’t, well…. I am married!”

The 5: Oy.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. “Nicaragua Confiscates Tourism Real Estate” screams the subject line of an email making the rounds this weekend; one reader forwarded it to us.

“Business associations,” it says inside, “are demanding to know the legal basis for an intervention at Hotel Punta Teonoste, where 20 acres of land were confiscated, to be handed to the former rebel leader Eden Pastora.”

This is of no small amount of interest to us, seeing as the property is just down the road from Rancho Santana.

But the email doesn’t tell the whole story. For one thing, the guy circulating it helps his clients buy property in Panama. So he has a vested interest in telling the story far and wide.

For another thing, we looked into this property years ago when deciding where to put up stakes in Central America. We steered clear of it because the title was cloudy; the old dictator Somoza confiscated it from one of his enemies. Now the Sandinistas, rather than righting the old wrong, have committed another wrong.

Just goes to show you have to be careful — no matter where you are. It’s not as if the good old US of A is a paragon of property rights, either — not when Bank of America seizes foreclosure properties whose buyers paid cash.

By the way, our first-ever offshore investing conference at the ranch, The Rancho Santana Sessions, is now full up. But if you can clear your schedule last-minute — the dates are March 21-25 — we can still make room for you. Call Kristen Palmer at (800) 708-1020.

• As oil climbs, former Big Oil CEO foresees $7-8 gasoline…
• Rising oil… or a falling dollar? The connection with a national debt that’s grown more than 50% in less than four years
• Dramatic developments in the stem cell space: Patrick Cox on the breakthrough that can transform a cell from almost anywhere in your body into a new healthy heart or lung
• “Sophomoric” and other reactions to our take on the prospect of an Iran war… an entire winery that fell into a pawnbroker’s hands… a CNG-powered Camaro… and more!

   Another day, another bump up in the oil price. A barrel of West Texas Intermediate fetches $108.14 this morning.

Oil has moved almost entirely in one direction this month… approaching its highs from last spring.

   The national average price for a gallon of regular unleaded this morning is $3.61. The record set in 2008 was $4.11. Last year’s high was $3.98.

It’s getting so expensive, someone in Florida cut a hole in the floorboard of a Chevy minivan… put a makeshift pump and plastic tank inside… and sucked up fuel direct from the underground storage tank at a gas station. The cops showed up and the perps ran off.

“We had this problem pretty widespread a couple years ago,” Hillsborough County Sheriff’s Capt. Andy Ross tells the Tampa Bay Times. “It kind of ebbed. It seems like this is on the uptick again.”

Hmmm… The people at GasBuddy.com figure on a national range between $3.75-4.15 as “summer driving season” approaches, with isolated pockets on the coasts pushing $5.

Already, God help us, it’s becoming a campaign-year football. But in reality, “There’s no quick fix to this, no short-term fix,” said Treasury Secretary Tim Geithner to CNBC this morning — one of the few sensible things to escape his lips during his ignominious tenure.

   And without a long-term fix, we’re in for “gas lines, paying $7-8 a gallon,” according to former Shell Oil CEO John Hofmeister.

“There’s not enough oil out there to meet that demand,” he told the North American Prospect Expo in Houston. As evidence, he cites the following …

• U.S. oil consumption: Over 18 million barrels per day. U.S. production: around 7 million
• Chinese consumption: Around 9 million barrels per day, on the way to 15 million by 2015
• Indian consumption: Currently 4 million per day, headed to 7 million by 2015.

“The reason oil prices are so darned high,” says Daily Resource Hunter editor Matt Insley, who attended the conference, “is simple: There’s a global grab for resources. Please don’t forget this simple fact.”

[Ed. Note: Hofmeister did say there’s a chance to short-circuit the rise to $7-8 gasoline... even making it possible to “tell OPEC to take a hike.”

It’ll take the help of Canada and Mexico, he said, but the other key is to raise U.S. oil production back to 10 million barrels a day. Sounds a lot like the American revival Byron King’s been talking about.]

   There’s another factor in play, however: “Maybe Oil has become another anti-dollar,” suggests EverBank’s Chuck Butler this morning.

“So the price of oil is rising because the dollar is falling? Something to think about, anyway.”

Indeed, “oil is traded in dollars,” opines The Wall Street Journal’s editorial page this morning, “and its price, therefore, rises when the value of the dollar falls, all else being equal. The Federal Reserve throughout Mr. Obama’s term has pursued the easiest monetary policy in modern times.”

   In a sense, the Fed has to: The national debt totals $15,416,323,644,046.76 this morning.

For perspective, the day we released I.O.U.S.A. — Aug. 21, 2008 — the total was $9,618,645,199,394.09.

“My oldest son,” writes Chuck Butler, “actually shows the movie I.O.U.S.A. to his class and quizzes them on it. But think about this for a minute. I.O.U.S.A. was made four years ago. Imagine if my friend, Addison Wiggin, were to make that movie/documentary now?

“Where is the Tea Party?” Chuck goes on. “Have they faded away?”

“I say this because I saw this story in The Washington Post yesterday. ‘The national debt is likely to balloon under tax policies championed by three of the four major Republican candidates for president, according to an independent analysis of tax and spending proposals so far offered by the candidates.’”

One guess whose plan would actually bring the debt down.

When we ventured into the Conservative Political Action Conference a couple weeks ago, one of the people we met said, “There have been four populist movements of late.

“The first was the popular election of Obama, which brought 2 million to the National Mall. Then the came the Tea Party. That was followed by the midterm election which ‘threw the bums out’… then last year came Occupy.”

And now? Hope and change are a distant memory, the Tea Party was co-opted by the Republican establishment, the new crop of congressmembers has proven ineffectual and Occupy vanished as soon as winter arrived.

The only constant has been the growing debt… the mother of all financial bubbles, as we’ve come to call it.

   Stocks are inching up this morning, traders exhibiting no excitement at either decent consumer-confidence numbers or Danica Patrick’s overhyped debut in the Daytona 500 this Sunday.

The Dow has pierced 13,000 and the S&P 1,365… for the moment, anyway.

   Gold is on a pace to end the week above $1,750 for the first time since early November. At last check, the bid is the nifty number of $1,776.

Silver’s adding on to yesterday’s big gain, currently $35.45.

   “This is one of the biggest victories in the battle against disease and aging in my lifetime,” says our biotech maven Patrick Cox. “Scientists have identified the gene that locks down inactive DNA — SP100.”

So what’s it to you? “The SP100 gene,” he explains, “expresses an RNA protein that keep portions of the genome that shouldn’t be activated locked down. This is critical because every cell in your body contains the entire vast genome, containing all of the information necessary to become all of our many thousands of cell types.”

That is, the cells in your skin have all the information they need to become, for instance, heart cells. “It is possible for any cell to become any other cell type — if you know the genetic code and the right gene switches.”

Now that scientists have pinned down SP100, they’ve made a huge leap toward being able to turn the right switches on and off — giving them the ability to take cells from your skin and build a new healthy heart.

“This discovery,” Patrick says, “will accelerate regenerative medicine and enable untold numbers of therapies.” And, no doubt, deliver considerable profit for early investors.

Patrick is all over the iPS stem cell sector. He’s identified three companies leading the way in a $64 billion market. New readers of Breakthrough Technology Alert learn about all of them as soon as they sign up. Access here.

   “Your analysis of Iran is sophomoric,” begins the first of several letters reacting to yesterday’s issue.

“Iran may not plan to actually eliminate Israel, but if you lived in Israel and there was a nation that threatened to do so, and if you thought you had the opportunity to prevent them from attaining that capability, you might wish to do so, rather than having to live every day with that threat hanging over you.”

“In addition, apparently you are not familiar with the Hojjatieh sect in Iran.”

“It would not hurt if you actually were familiar with topics on which you commented. That might take a bit more work, but the results would be improved.”

   “If,” writes another, “a man came up to you and said, ‘I am going to get a gun and blow your brains out,’ would you take him seriously? Would you just stand there waiting for him to come back and do what he said or would you take action to prevent your death?”

“That is the situation that Israel is in. Do they wait to be incinerated or do they take steps to prevent it? What would you do?”

   “I have written to you quite critical of some of your political perspectives,” writes a third. “I now want to compliment you about your discussion of Iran’s putative efforts for a bomb and your very perceptive comments about the efforts of Israel and AIPAC to direct our responses.”

“What better way for them to distract from the Israelis’ refusal to stop settlements and to reach a genuine two-state settlement. Thanks for being clear thinking.”

   “Back from a business trip in three Arab countries,” writes European reader, “I am, as everybody, very much worried about the persisting explosive situation in the Middle East.”

“Everybody there expects the bombing of Iran from Israel, with the logistic support of America. So writes every paper. Everybody worries, particularly the new political class, that the war will make the masses of the whole Arab and Islamic world explode.”

“The question I hear more frequently is: ‘How is possible that America doesn’t understand that they all (Arab and Islamic) feel very much involved and partisan with the Palestinians, and the solution is in Palestine?’”

“No one understands how a world power like the USA is completely subordinate to an internal minority and to the leadership of a country that looks after only its own interests.”

“Because of that, America lost the sympathy and much of the business of the Arab world, the Islamic world, African countries and more. China is very thankful. Europe looks astonished in the way Israel maneuvers your political establishment.”

The 5: Yikes. All we do is point out a few things about the futility of war and empire and suddenly we find ourselves square in the middle of a debate about Israel’s relations with its neighbors. We should have known better.

   “A pawnbroker friend in California,” writes a reader noting our item yesterday about fine wine as collateral, “made a loan three years ago to the owner of a small winery which was put up as the collateral for the loan.”

“When the loan could not be repaid, my friend became the owner and now has his own label. And he’s making money at it, which, obviously, is more than the original owner could manage.”

   “I live in central Texas and yes, we have an oil boom going on,” writes a reader who’s taken note of Byron King’s Re-made in America report. “As I speak, there are more businesses cropping up and people doing better financially, considering we were all on unemployment up till last year.”

“I know this does not help many readers other than that there is a significant truth as to what Byron says and predicts with natural gas and oil markets.”

“At this very moment,” he adds, “I am gearing up to convert both my vehicles to natural gas. Why? It’s CHEAP and environmentally friendly. I have never been an extreme environmentalist, but believe it should be an important practice for all to adhere to. My point is when things get in dire straits, take drastic measures and adapt.”

“I drive 80 miles a day to work, gas is $3.50 and rising at the pump for regular unleaded. All in all, I can fill my tanks with CNG for about 80 cents a gallon and get the same mileage. We are CNG advocates, and when gas prices fall again, I will stay with CNG.”

“I love reading The 5 and all the stories and rhetoric.”

The 5: “One of the coolest things I saw during my recent trip to Houston,” writes the aforementioned Matt Insley, “wasn’t out in the energy patch — it was on the conference center floor.”

“Chesapeake Energy, a huge land leaser and natural gas driller, had this little baby on display”:

“Besides being damn cool,” says Matt, “this car shows the industry’s desire to find a place for all of this cheap gas. One of the most useful places that I’m seeing is right inside the engine of your car. Heck, who wouldn’t want to peel wheels (in a sports car, no less) at half the price of gasoline!”

Who, indeed? Who can predict what sort of ingenious ways will be developed to use the ever-growing reserves of U.S. shale gas and oil?

One thing’s for sure… By the time inventors and entrepreneurs figure it out, the easy money will have already been made. You don’t want to miss out.

Have a good weekend,

Addison Wiggin
The 5 Min. Forecast

P.S. “The Little Book of the Shrinking Dollar does an admirable job of highlighting the dangers of the Federal Reserve’s monetary policy,” writes Rep. Ron Paul — one of several testimonials for the new book that frankly make us blush.

“Not only,” adds Gloom, Boom & Doom Report editor Marc Faber, “does Addison convincingly and disturbingly argue that ‘every paper currency in the history of civilization has eventually lost its entire value,’ but he also offers ways to protect our wealth.”

“This latest effort,” adds resource investing guru Rick Rule, “is a must-read for investors and speculators whose wealth is denominated in U.S. dollars. While the topic is certainly not pleasant, this book is easy to read, and insightful.”

The manuscript is in the hands of our editors at Wiley. Release is set for sometime in April, but you can pre-order your copy right now and snag a 20% discount at Laissez-Faire Books.

• Echoes of 2003 in the imperial debate: Hemingway’s “great fallacy of war” stalks the land again
• “This could end badly”: A borrower so broke it needs a bridge loan… but it can still line up 100-year financing at only 4.9%
• Ray Blanco on a sector poised to grow 18-fold by 2016
• Liquid assets accepted at high-end pawnbrokers… Readers react to a radio version of The 5… and more!

   “The Iranian nation has never pursued and will never pursue nuclear weapons,” declared Iran’s supreme leader, Ayatollah Khamenei, yesterday.

“The Islamic Republic, logically, religiously and theoretically, considers the possession of nuclear weapons a grave sin and believes the proliferation of such weapons is senseless, destructive and dangerous.”

Heh.

   “No one buys Iran’s claim that its nuclear program is for peaceful purposes,” declared CNN’s Erin Burnett last week, speaking authoritatively on behalf of the pundit class in the U.S.

Sigh. We’ve seen this movie before.

“The debate surrounding the invasion of Iraq,” we wrote in the first edition of Empire of Debt, “was an imperial debate — about means and methods, not about right and wrong or national interest.”

“No one from either major political party bothered to suggest that the United States had no business nosing around in other peoples’ business.”

“Both parties recognized that Iraq was not a matter of national interest — it was a matter of imperial interest. No sparrow falls anywhere in the world without triggering a monitoring device in the Pentagon.”

   This time, at least, there’s a variation on the theme.

In 2003, you heard nary a word about whether Iraq really had weapons of mass destruction… or whether an invasion might turn out to be something other than a sprint to victory.

This time around — while you wouldn’t know it by listening to knuckleheads like Burnett — there’s considerable skepticism even among the imperial classes about whether Iran aims to produce a nuclear weapon… or whether a military attack on Iran would work out well.

“Tehran has not made a decision to proceed with developing a nuclear weapon,” said Defense Secretary Leon Panetta to Congress a week ago today, trying to stifle the first question. A National Intelligence Estimate issued by the Obama administration last year affirmed a similar report issued by the Bush administration in 2007: Iran stopped pursuit of a nuclear weapon in 2003.

Darn it.

As for the second question, “Both the American and Israeli governments,” writes Peter Beinart at The Daily Beast, “boast military and intelligence agencies charged with answering [the question of whether military attack would be wise]. With striking consistency, the people who run, or ran, those agencies are warning — loudly — against an attack.”

What’s wrong with these people?

   Mr. Beinart was among a cadre of “liberal hawks” who gave the Iraq war a good name nine years ago. Now he’s turned into a wuss. Among the warnings he cites:

• Lt. Gen. Ronald Burgess, director of the Defense Intelligence Agency, told Congress last week, “the agency assesses Iran is unlikely to initiate or provoke a conflict”
• Director of National Intelligence James Clapper — who oversees 16 U.S. intelligence agencies — estimates a U.S or Israeli attack would set back Iran’s nuclear program by only a year or two
• Further, Joint Chiefs Chairman Gen. Martin Dempsey says a U.S. or Israeli attack would “guarantee that which we are trying to prevent: an Iran that will spare nothing to build a nuclear weapon.”

“I’ve never seen a more lopsided debate among the experts paid to make these judgments,” Beinart goes on. “Yet it barely matters. So far, the Iran debate has been a rout, with the Republican presidential candidates loudly declaring their openness to war and President Obama unwilling to even echo the skepticism of his own security chiefs.”

   “War is no longer made by simply analysed economic forces if it ever was,” Ernest Hemingway wrote in an essay entitled “Notes on the Next War: A Serious Topical Letter,” published by Esquire in 1935.

“War is made or planned now by individual men, demagogues and dictators who play on the patriotism of their people to mislead them into a belief in the great fallacy of war when all their vaunted reforms have failed to satisfy the people they misrule.”

   As such, Congress is moving quickly. A bipartisan group of senators introduced a bill last week that:

“…rejects any United States policy that would rely on efforts to contain a nuclear weapons-capable Iran; and urges the president to reaffirm the unacceptability of an Iran with nuclear weapons capability and oppose any policy that would rely on containment as an option in response to the Iranian nuclear threat.”

Leave aside the fact the bill leaves the definition of nuclear weapons “capability” murky. The point is that if Iran crosses this new red line, it compels the United States to go to war.

“Imagine,” writes M.J. Rosenberg of the Israel Policy Forum, “if President Kennedy had been told by the Congress back in 1962 that if the Soviet Union placed missiles in Cuba, he would have no choice but to attack the USSR. If it had, I wouldn’t be here writing this column today, and you wouldn’t be reading it.”

Right now, this is nonbinding legislation. But it has the support of the American Israel Public Affairs Committee. “Often, AIPAC-backed congressional initiatives start as nonbinding language (in a resolution or a letter), and then show up in binding legislation,” says Lara Friedman of Americans for Peace Now.

“Once members of Congress have already signed on to a policy in nonbinding form, it is much harder for them to oppose it when it shows up later in a bill that, if passed, will have the full force of law.”

   Whatever. What’s a new war to you?

   The price of oil this morning is up a few pennies, to $106.33. Under ordinary circumstances, it would have come down today, because the Energy Department says U.S. crude inventories grew more than expected last week.

The fact that it didn’t come down speaks to a “fear premium” — fueled in large part by tensions over what will happen next in the Persian Gulf. Meanwhile, oil priced in euros and pounds is setting record highs — which won’t do much to prevent a new eurozone recession.

What makes matters especially delicate this time is that Iran has its own imperial legacy to protect — one with a longer history than the U.S. one, in fact.

   “Don’t forget,” reminds our own Byron King on the matter, “Iran used to be Persia. At one point, Persia was the biggest and most-powerful empire in history. Iraq, Syria, Turkey, Egypt — even Israel — the Persians controlled them all. Along with all of Afghanistan and Pakistan and most of the oil-rich coast of the Caspian.”

“For 300 years, Persian armies held off the Roman Empire. Their scholars walked with Aristotle and Plato. And influenced Greek art. It was the Persians who invented chess. And the windmill. Not to mention bricks, algebra, trigonometry and wine.”

“The bottom line is no empire forgets its past glory.” And if two of them clash, you best prepare yourself for the consequences — which Byron lays out in considerable detail here.

   By way of returning to quotidian mundanities, we see U.S. stocks are whipsawing within a narrow range today.

For a third day, the Dow is playing coy with 13,000. And while 1,365 is not a round number, it’s proving an equally stubborn point of resistance for the S&P 500.

“Quite frankly,” says our resident technician, Jonas Elmerraji, “it’s no great shock that Mr. Market is failing to plow through a key resistance level this week — after all, stocks have already posted fairly impressive performance year to date in 2012.”

“We’ll need a real catalyst to push stocks above that post-crash high watermark.”

   “The fear of stocks,” Jim Nelson adds from the income desk, “and the desire for higher yields are clearly coalescing — pushing the unlikeliest of investments much higher.”

“S&P, which had given the state of California a ‘negative’ outlook as recently as eight months ago, reversed its opinion last week. The state’s muni debt now comes with a ‘positive’ outlook.”

“Yesterday, California took advantage of its new rating outlook by issuing $860 million worth of ‘century bonds.’ Meaning the state won’t have to pay bondholders back until the year 2112. And the rate the state has to pay these bondholders in annual income… 4.9%.”

“That’s next to nothing.”

   Meanwhile, the state also announced a deal it struck with Barclays and JPMorgan Chase for a bridge loan. The reason, according to Bloomberg: “Controller John Chiang said in January that… tax collections trailed budget projections and spending exceeded estimates.” Without the bridge loan, “the state would face a $3.3 billion cash shortfall by mid-April.”

“California can’t control its fiscal house month to month,” Jim sums up, “but it can get a low-interest 100-year loan without any problem?”

“Of course, don’t tell the average 401(k) contributor how ridiculous this situation is. According to Thomson Reuters, municipal bond funds saw their 11th week of inflows last week,” totaling more than $1 billion.

“That fresh investment capital from these ‘mom and pop’ investors is the very reason overrated states like California can get such cheap borrowing rates. How long can that last?”

“This could end badly.”

And so it goes.

[Ed note: For a few saner income-investing ideas, we suggest giving Jim’s latest presentation a look.]

   Gold is adding on to yesterday’s late-day gains. At last check, it’s up to $1,784. Silver is up nearly 3%, at $35.22.

   “Mobile and wireless computing will be strong for years to come,” says Ray Blanco, catching us up on an opportunity in tech, “despite weak overall economic conditions.”

No doubt, with the proliferation of smartphones and tablets. That means “the growth in mobile devices will lead to growth in mobile data traffic. Cisco recently released its yearly mobile data traffic forecast, and the upside is explosive.”

The unit represented in the chart is exabytes. For perspective, a typical movie download is two gigabytes. An exabyte is 1 billion gigabytes:

“Accommodating all of this new data traffic will require tremendous expansion in the networks that connect mobile devices,” says Ray. “This expansion will include installing networking devices that require the use of application processors.”

   “Mobile networking devices that connect wirelessly,” says Ray, zeroing in even further, “such as cellular base stations, will require radio frequency circuitry to do so.” Readers of Ray’s Technology Profits Confidential are already investing in companies making this happen.

“Hundreds of thousands of cell phone sites are currently connected to carrier networks by copper communications lines,” Ray goes on, “but this technology does not provide the bandwidth necessary to accommodate the increased mobile traffic in a cost-effective manner.

“While fiber-optic technology can do so, installing new lines is an expensive proposition. Microwave links, however, provide far superior performance to copper links, while being far cheaper to install than fiber optics.”

Ray’s onto a company in that space, too. For access to Technology Profits Confidential, look here.

   From the “things are tough all over” file, we see a growing number of high-end pawnbrokers are accepting fine wine as collateral.

“You’d be amazed by how many wealthy individuals have terrible credit ratings,” says Jordan Tabach-Bank from Beverly Loan Co. in Beverly Hills, Calif. “I have a lot of people who come in who have a business opportunity,” he tells Reuters, “and they need an infusion of cash for business purposes.”

Meanwhile, borro.com, a British-based pawnbroker, recently lent $120,000. The collateral? 128 bottles of Chateau d’Yquem, worth an estimated $250,000. The clients are described as those with net worth between $1 million and $10 million, “mostly small-business owners with cash flow problems.”

Meanwhile in Paris, Credit Municipal de Paris has been accepting wine in exchange for loans since 2008. It has a cellar with capacity for 90,000 bottles.

The wines most frequently offered as collateral there? Bordeaux.

   “So if we take Canadian oil via the Keystone pipeline,” a reader writes after yesterday’s issue, “and refine it and export it, what’s wrong with that?”

“It is American jobs refining that oil, profits made here — what’s not to like? If we had the demand for it, we would buy it. Some people just don’t think things through. Would these same idiots be upset that we manufacture stuff here that we export?”

The 5: Probably.

   “Has nobody else noticed,” writes a reader looking at the issue through another lens, “that the Chinese are ‘horsetrading’ infrastructure development for long-term commodity contracts all over the world, especially Africa?”

“Why would we not think the Chinese are not, as we speak, actively negotiating for the development of a trans-Canadian — i.e., to Alberta to Prince Rupert — pipeline in exchange for a long-term contract for tar sand oil?”

“I fully expect it to be a done deal by the time we get around to deciding that maybe we ought to approve the Keystone project after all.”

   “My answer is an absolute yes,” writes a reader replying to our inquiry about a radio show version of The 5.

“I exercise obsessively and spend about two hours every day with earbuds stuck to my head. Would love to listen to The 5 while I work out. In fact, this sounds like a great idea for all of Agora’s daily missives.”

“Yes!” says another. “I’d love to listen on the radio, but it has to be Internet radio.”

“I would download it everyday!” adds a third.

“I’d love to listen to your show if it were on NPR,” says a fourth. “On other stations, I’d forget to dial around at just the right time. NPR is the way to go.”

“Maybe GBTV would be a good outlet,” writes a fifth, suggesting Glenn Beck’s online video venture. “I would check it out.”

The 5: NPR? Beck? Well, it does speak to the diversity you all exhibit…

   “Please don’t turn The 5 into a radio show,” writes a dissenter. “We have constant noise coming at us in our society, we don’t need more. The written 5 is just perfect.”

“I listened to Porter Stansberry’s radio show for a few minutes on my computer,” adds another. “I’d rather have some moneymaking research breakthrough than a radio show.”

“My advice: Save your time. Do what you do best: good moneymaking research.

You don’t want to become the Donald Trump of advisory letters.”

The 5: Sheesh, if you put it that way…

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. “America’s Per Capita Government Debt Worse Than Greece,” screams a press release just out from Sen. Jeff Sessions, the top Republican on the Budget Committee.

We haven’t had a chance to vet the numbers ourselves, but they look credible: Greek per-capita debt is $38,937… while the U.S. number is $44,215.

How bad is it in Greece?

Bad enough that pay cuts for some government employees will be retroactive to November. Which means they’ll go without pay at all for a few weeks.

Of course, Greece can’t simply print their way out of the crisis. The United States can. Act accordingly.

• No longer a stimulus: The payroll tax cut, transformed into a coping mechanism for high gas prices
• Why are “American” gasoline, diesel and jet fuel destined for export? Byron King peels an onion at the request of The 5 readership
• How a deal between China and Turkey pounds another nail into the dollar’s well-sealed coffin
• Beyond radiation and chemo: Patrick Cox on the trail of a cancer vaccine
• Fitch says fie on Greece fix… an “insane” lawsuit settlement… and more!

   In celebrating Congress’ agreement to extend the payroll tax cut through year-end, the president made a startling claim yesterday: The tax cut, he says, “helps to pay the rent, the groceries, the rising cost of gas — which is on a lot of people’s minds right now.”

Frankly, we’re a little surprised that he’d make the connection.

Two months ago, we pointed out how all of the proceeds from the payroll tax cut in 2011 essentially went into the gas tank: A family earning the median household income got an extra $989 in their paychecks. But higher gas prices last year took an extra $1,300 out of a typical family’s budget, compared with the average gas price over the previous decade.

When the payroll tax cut was passed in December 2010, it was advertised as economic stimulus. Now it’s just a rebate that helps people try to keep pace on the cost-of-living treadmill.

Maybe the Bureau of Labor Statistics (BLS) will find a way to use it to bring down the “official” inflation rate, too.

(Whoops, don’t want to give ’em any ideas…)

   With oil crossing $106 yesterday for the first time since last May, we piece together today’s episode of The 5 knowing energy — or at least the cost thereof — is, indeed, on the minds of many readers.

“This absolutely stunned me,” writes one, “I read several sources that said the oil from the Keystone XL pipeline will mostly be exported after being refined in Port Arthur, Texas.”

“I was strongly in favor of the pipeline until I heard this. Are politicians and oil experts unaware of this, or are they just using it as a political football?”

“I keep looking at the apparent reality,” writes another, “that Big Oil USA is sending refined fuel to countries outside the U.S. in order to keep the costs of fuel high.”

   “Let’s get something clear,” writes our resident oil field geologist Byron King by way of response. “Canada’s oil is Canada’s oil. It’s not America’s oil. We in the U.S. can’t boss Canada around. That’s not how this world works.”

[Heh. Don’t you just love Byron?] “Of course, the U.S. is very fortunate that historically, about 100% of Canadian oil exports have come here. Why? Due to Canada’s proximity and the close historical-cultural relations between our two great nations.”

It also helps that the oil in Alberta’s tar sands is “stranded” in the middle of the continent. It’s a lot easier to send it via pipeline across the U.S. Great Plains than to build a pipeline over the Rocky Mountains to Canada’s Pacific coast for export to Asia:

“The midcontinent pipeline systems go only to Cushing, Okla., where the carrying capacity is maxed-out,” Byron goes on. “The result is that Canadian oil sells at a discount to world prices, because it cannot get to a place where it can compete in volume and price with the world tanker markets.”

“Still, every barrel of Canadian oil — to Cushing or elsewhere — satisfies U.S. demand and displaces the need to import another barrel of oil from overseas — Venezuela, Nigeria, Saudi Arabia, wherever…”

   That brings us to the Keystone XL expansion — which would “unstrand” the oil by sending it to Gulf Coast refineries… and ports.

“What happens to Canadian oil when it pipelines down to Houston?” Byron asks rhetorically. “Refiners will buy it and crack it down, in lieu of Venezuelan, Nigerian, etc., crude. You’ll drive your car on Canadian oil or fly in airplanes powered by it or eat food that was trucked across the country with it.”

Will some of those barrels also be exported?

“Maybe,” says Byron, “but so what? What’s the problem with that? It’s not ‘your’ oil, unless you buy it. Meanwhile, U.S. people and companies will still get paid for handling the oil, storing it in tanks, loading ships, whatever.”

Why will it be exported?

“It’s that darned economic recession” says Byron acerbically. Or at least as acerbically as he gets.

   Americans drove 1.2% fewer miles in 2011 than they did in 2010, according to new figures from the Federal Highway Administration. That’s the fewest number of U.S. road miles since 2003 — despite 7% population growth during that span.

“Think of it this way,” Byron says. “All those unemployed people, and people who’ve dropped out of the work force, are not using oil. Well, not as much oil as in the good old days. Thus, refinery capacity sits idle, unless refiners use the assets to process oil and ship the products overseas at a markup.”

   “Please,” implores Byron, “don’t fall for the anti-Keystone propaganda that exporting refined products is somehow ‘bad’ for America.”

“The world price of oil is what it is, and that sets the price at the pump. Big Oil’s profit per gallon is about 3 or 4 cents. Your state and federal taxes per gallon are about 50 cents per gallon, depending on your state. Exported fuel products are good foreign exchange for the U.S. economy.”

“If politicians (stupidly) banned fuel exports, any number of U.S. refineries would just scale back or shut down.”

In fact, that very export capacity will be an essential building block of the renaissance in U.S. industry that Byron sees coming very soon.

We’re still rather skeptical of Byron’s thesis… but the key to understanding it is that it’s not based on a single U.S.-based energy play, like the Bakken oil shale or the Marcellus gas shale.

“The railroad age… the steel age… the electronics age… the technology age — this phenomenon triggered them all,” he says. “This is something far, far bigger than any single, new resource discovery.”

Nor is there any denying the profit opportunity within. It’s already bringing torrents of wealth to places as diverse as the given-up-for-dead Rust Belt city of Youngstown, Ohio… and Texas’ dusty and remote Dimmit County. To learn how you can grab some of this for yourself — starting as early as this May — please give Byron’s case your attention.

   U.S. stocks are climbing down from yesterday’s highs. The Dow hit 13,000 for about a nanosecond, but this morning, it’s back to about 12,920.

A handful of numbers are weighing on traders’ minds…

• Existing home sales: up 4.3% in January, according to the National Association of Realtors, but that was less than the “expert consensus” was counting on
• The eurozone’s service sector shrank in January — another “surprise”
• “Flash PMI” figures from Hong Kong indicate that manufacturing in China might shrink for a fourth straight month.

   Precious metals are holding their own after yesterday’s modest run-up. The bid on gold is $1,756. Silver’s down to $34.13.

What little weakness gold is showing appears tied directly to a slight amount of dollar strength. The dollar index is up to 79.2 this morning.

   That didn’t take long: After yesterday’s latest “Greece is fixed” announcement, Fitch promptly downgraded Greece from CCC to C. That’s the lowest rating above a default.

In the credit default swap market, traders now peg Greece’s likelihood of default at 93.3%.

   “In a global economy saturated with private and public debts, all roads ultimately lead to inflation,” says our short strategist, Dan Amoss, keeping one eye on Greece.

“Central banks unfettered by the discipline of the gold standard will see to that. One of the two following paths will ultimately drive markets to a similar inflationary destination:”

1. “Greece defaults in March as the political system breaks down and the EU abandons bailout efforts. We return to a brutal ‘risk off’ environment for a little while. The lag time between a Greek default and another round of quantitative easing from the Fed and ECB would be measured in hours, if not minutes. The resulting surge in money supply would drive up prices in the tightest choke points of the global economy, especially oil.”
2. “The EU and ECB continue to push off resolution of Europe’s debt problems, and inflation driven by the ECB and other central banks drives up cost increases for all businesses. This is bad news for sales and profit margins in many sectors.”

   China has signed another currency swap arrangement to bypass the dollar in their trade. “This time, China signed an agreement with Turkey,” writes Chuck Butler from his post at EverBank’s currency trading desk.

“China is being coy with these smaller — in terms of world trade — countries, but that’s how they are going to spread their wings, and gain a wider distribution of their currency. And again, I sit here and tell you, dear reader, that China has plans to remove the dollar as the reserve currency of the world.”

“To have the reserve currency title stripped from the dollar would be devastating to our economy. To you, me, our kids, our grandkids. After World War II, the pound sterling could no longer be the reserve currency of the world. Because of the debts they built fighting the war, the U.S. became the financier of the world, and was the only country that had the ability to act as ‘settlement banks’ and use dollars in the terms of trade.”

“Then gloom, despair and agony fell on the U.K. economy. This is what the Chinese have in mind for us. And why are they doing this? They believe that the U.S. has broken their promise to the world to keep the dollar strong, which they can no longer do, given the debts, deficits, economy, scandals, unfunded liabilities and on and on.”

In other words, the mother of all financial bubbles.

   “Cancer vaccine therapies are one of the hottest areas of biotech research today,” writes Patrick Cox.

“At least a hundred organizations, I hear, are currently looking for vaccination therapies that train T-cells to more effectively fight cancers.” T-cells are the white blood cells that fight disease and communicate information about threats to the immune system.

“This is only logical, since prior anti-cancer therapies have been, by definition, toxic. Both chemotherapy and radiation therapy harm the patient. The trick is to harm the cancer more, but it is not an optimal solution. Prior to new approaches to cancer, the best possible scenario was to reduce side effects and damage.”

One vaccine is now undergoing an intriguing test: It’s being combined with a drug produced by one of the companies he follows.

“This complex carbohydrate, essentially food, blocks galectin-3s. Briefly,” explains Patrick, “galectins-3s are proteins that have the ability to recognize and attach themselves to specific sugar molecules. This sugar-binding characteristic is typical of all lectins and is essential to our bodies’ functioning, but galectin-3s, for some reason, are also involved in all manner of disorders. Galectin-3s are integrally involved in strokes, heart disease, cancers, inflammation and fibrosis in its many health-destroying forms.”

And… they attach to the aforementioned T-cells. Block the galectin-3s, and doctors could forever change how cancer is treated.

And that’s only one of the breakthroughs on Patrick’s radar. For another, look here.

   “Absolutely insane!” a reader writes in reaction to our odd-lawsuit roundup yesterday. “Cybex needs a better attorney — there’s no way in hell a good lawyer could lose this case.”

“I worked for a physical therapist as his business manager, and I knew the difference between a shoulder machine and a leg-extension machine. No PT with a brain could possibly have not known the difference.”

“But I DO want to know the name of the plaintiff’s attorney in case I ever get injured — the SOB must walk on water!”

   “I wonder,” writes another, “if you have a stock ticker (or ETF) for lawsuits. I’d buy up the shares.”

“At least the personal injury lawyers are making money.”

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. Phew!

We just got back to Baltimore after a week and a half of travels and meetings. Thanks as ever to Dave “the Stalwart” Gonigam here at the headquarters for keeping The 5 train running on schedule.

As you know, we were down at Rancho Santana on the Pacific Frontier last week for our annual publisher’s jamboree. Nothing too crazy to report from the meeting. Oh, and we made plans to start exploring Brazil for business opportunities with a trip that begins in early May. If you know of anyone currently doing business in Brazil… let us know!

Following the meeting, we diverted ourselves to Phoenix, where our 12-year-old played in a national soccer tournament. Nail-biter until the last 30 seconds of the fourth match. Despite holding the U-12 No. 1 ranking, their team met with a couple worthy opponents and didn’t make it through the group stage. A team from Massachusetts ended up taking the trophy. That team has now moved up to third place. In two weeks, we meet many of the same teams in a tournament in Virginia.

While in Phoenix, we enjoyed a quick glass of wine with our friend, best-selling author Charles Goyette. Charles has a new book coming out called Red and Blue and Broke All Over. We were honored to have been given the first copy of the book during its maiden print run, which he signed. (Thanks again, Charles, we’re honored!)

Charles is a veteran radio talk show host. We’re thinking of trying to turn The 5 into a radio program… what do you think? Would you listen to such a thing…?

Heh.

Last program note: With the considerable, diligent attention and professional goading of co-author Samantha Buker, we turned in the completed manuscript for a Wiley Little Book series book called The Little Book of the Shrinking Dollar today at 11:26 a.m. EST — 34 minutes before the (mildly) extended deadline.

The book works as a primer for our point of view on the markets and reads like a book-length edition of The 5 Min. Forecast! In other words, it’s a perfect for the jackass you argue with on the golf course about the strength of the U.S. economy. We’ve already received some very positive feedback and suggestions from Ralph Benko, Rick Rule, Ron Paul, Bill Bonner, Peter Cooper, Michael Covel, Chuck Butler, the above-mentioned Charles Goyette and a few others.
The pub date for The Little Book of the Shrinking Dollar is in April, but we’ll fill you in more when we get details ourselves.

• Reality sets in at last: Another Greek bailout… but no hard rally. What gives?
• Obscure but vital indicator going parabolic: Chris Mayer with “one heck of a scary chart”
• Another ominous chart: Abe Cofnas on why stocks might be getting ahead of themselves
• The litigious society: $19.5 million award for misusing exercise equipment, $750,000 sought for “improper law school admission”
• Avoiding a double-dip… a gold coin quip… an email rumor clarified… and more!

   It’s come to this: No one’s impressed by the latest Greek bailout.

Another $170 billion in debt so Greece can keep up payments on (some of) the debts it took on previously? “Bailout Just Buys More Time,” according to a headline at The Wall Street Journal.

Even some of the eurocrats themselves are starting to get it: The Financial Times got its hands on a memo that’s been making the rounds in the last week.

“It warned,” reports the salmon-colored rag, “that two of the new bailout’s main principles might be self-defeating. Forcing austerity on Greece could cause debt levels to rise by severely weakening the economy, while its €200 billion debt restructuring could prevent Greece from ever returning to the financial markets by scaring off future private investors.”

   Thus, an underwhelming response in the markets: The Dow is up 50 this morning, cresting 13,000 for the first time since 2008. But last fall, a deal like this would have been good for 300 points.

European stocks actually sold off — which CNBC chalks up to profit-taking, natch.

It took two years, but the crowd is finally figuring out that Greece isn’t fixed, and isn’t going to be fixed. Thus, The 5 forges ahead to seek out new outlier territory.

   “This is one heck of a scary chart,” says Chris Mayer.

Before we reveal it, however, some background: The chart depicts “return on equity” — a helpful yardstick that demonstrates profit margin isn’t all it’s cracked up to be.

“Let’s say a company has $10 in sales and earns one dollar,” says Chris by way of example. “We would say that the company has a 10% net profit margin. But what’s really important is how much capital it took to generate that dollar.”

“Take two businesses. One has equity invested of $5, and the other has $15. Neither has any debt. Both generate $10 in sales and both generate $1 in profits, for a 10% profit margin.”

“But the return on equity (ROE) of the first business is better, at 20% ($1 divided by $5) compared with the second, which is 6.7% ($1 divided by $15). So you see that the profit margin itself tells only part of the story. All other things being equal, the market pays up for the higher ROE.”

With that in mind, witness the return on equity for the market as a whole, both for the U.S. and for the world. “It’s been rising as if shot out of a cannon,” says Chris.

“It’s not a perfect indicator,” Chris hastens to point out. “The market peaked in March 2000, well ahead of the peak in ROEs. The market also bottomed ahead of the bottom in ROEs.”

“But the scary part of the chart is where we are now. In January 2012, we sat at a peak not seen since the 2000 peak. We are way above the long-term average.”

Chris says there are three ways to drive ROE higher: “You can take on debt, you can raise profit margins or you can increase your asset efficiency (do more with fewer assets). In the U.S., it’s the latter two that drove ROE higher lately. But it certainly will be tougher to make similar gains in 2012 — especially with the macro risks hanging out there.” Like Europe.

“I think it is safe to say it is unlikely that ROEs can climb much further or for much longer. It seems unlikely they can stay here for very long.”

That makes this a stock-picker’s market. Fortunately, Chris has some favorites right now — like this one.

   “The S&P 500 is likely to be in play over the next two weeks,” warns our monitor of market sentiment Abe Cofnas.

He’s been eyeing the S&P relative to the Bloomberg Financial Conditions Index. The BFCI monitors stress in the U.S. markets. It tracks money market spreads, bond market spreads and assorted stock market indicators… and how far they deviate from historical norms.

Here they are plotted together on a chart. “Pay special attention,” says Abe, “to the huge spike down in the middle. That’s the financial collapse in September 2008.”

“As you can see, for the most part, there is a close co-movement. What’s interesting is when it diverges from being a coincident indicator.”

“Right after the ’08 collapse, the S&P 500 actually lagged the BFCI. This showed the market sentiment was oversold or too pessimistic.”

“This time we are seeing something very different. The S&P 500 is probing resistance levels, but the BFCI is not. This indicates that the crowd’s sentiment is too optimistic — or at least is not being confirmed by financial conditions.

“The takeaway from this divergence is that the S&P 500 price action is not sustainable. In other words, get ready for a change in expectations.”

   Precious metals are moving up strongly as the holiday-shortened week begins. Gold has reclaimed $1,750 — currently at $1,752. The bid on silver is up to $34.09.

   Oil is holding its own at $104.85 after moving up in thin holiday trading, driven once again by headlines from Iran. Iran suspended oil sales to Britain and France yesterday — a “so there” move ahead of a European embargo on Iranian oil that takes effect in July.

Meanwhile an Iranian military commander is making noises about preemptive moves against “our enemies” if the government feels its interests are threatened.

One thing’s for sure: If the atmosphere remains this tense for months to come… and oil prices stay this persistently high as a result… it will mean windfall for U.S. energy producers even bigger than the one Byron King already foresees.

   The Federal Reserve is out with its two most reliable recession indicators… and both continue to point away from a double dip…

• The Chicago Fed National Activity Index is signaling weak growth. The number fell slightly last month, but its three-month average continues to inch up and now stands at its highest level since last March
• The Philadelphia Fed State Coincident Index slumped in December from 78 to 64… but it’s still well above the 50 level that historically signals a recession.

   For whatever reason, we have a bulging file of, um, interesting lawsuits this morning.

Cybex International, the maker of fitness equipment, has agreed to pay $19.5 million to a Natalie Barnhard, a woman from New York State who was paralyzed when she was crushed by a leg extension machine.

Sounds straightforward enough. Except Barnhard is a physical therapist… who thought the machine was for shoulder stretches.

The settlement was less than the $44.5 million Barnhard won in court last November. “If you look at [Cybex’s] balance sheet and see what payment of the full judgment would have done to it, bankruptcy was a real possibility,” says her attorney Kevin English. “Natalie’s a great person. She had no desire to force a bankruptcy.”

All told, it’s been a rotten couple years for Cybex CEO John Aglialoro. He’s the fellow who backed the movie adaptation of Atlas Shrugged.

Despite a box office take that recouped not even half of the production costs, he’s moving ahead with plans to film the second installment of a planned trilogy. Release is tentatively scheduled for this coming October.

   For a truly awesome moment in the law, however, we turn to the case of Morgan Crutchfield. She’s a law student in Tennessee who’s racked up $80,000 in education debt.

In a suit filed last week, she claims her school should have never admitted her.

The Duncan School of Law accepted her even though she had not completed her undergrad degree… and is thus ineligible for the bar exam.

She won’t have her bachelor’s from Lincoln Memorial University till June. “Plaintiff has, however,” according to the complaint, “completed 54 hours of law studies credit, obtained and used $79,560 of student loans and expended 2½ years of her life during her law studies.”

Crutchfield is seeking $750,000. The mind boggles…

   “The $20 Double Eagles found in the ceiling in France made me think,” writes a reader after Friday’s issue.

“If those coins were Spanish doubloons, would Spain have come in with a restraining order claiming that they had salvage rights?”

The 5: Ha! As long as you’ve brought it up, the sordid case of Spain’s legal looting of Odyssey Marine is ending with a whimper this week.

“Spain said Monday that it will soon send hulking military transport planes to Florida,” reports the Tampa Bay Times, “to retrieve 17 tons of treasure that Tampa-based Odyssey Marine Exploration found but ultimately lost in U.S. federal courts.”

A federal appeals court dealt the final blow earlier this month.

   “Did you know that if you sell your house after 2012, you will pay a 3.8% sales tax on it?” writes a reader passing along a persistent email rumor.

“That’s $3,800 on a $100,000 home, etc. When did this happen? It’s in the health care bill and goes into effect in 2013.”

“Why 2013? Could it be to come to light only AFTER the 2012 elections?”

“This bill is set to steal from the retiring generation who often downsize their homes. Does this make your November and 2012 vote more important?”

The 5: Well, seeing as the last time we knocked this one down was nearly 18 months ago and our readership has grown 20% in that time, it’s worth another go.

Yes, come next year, there’s a new 3.8% tax on the investment income of couples earning more than $250,000 a year ($200,000 for singles). However… it does not apply to the first $500,000 of profits from the sale of a personal residence ($250,000 for singles).

So it’s an “eat the rich” measure. Which makes it no less an outrage… but its effects won’t be as widespread as chain emails would lead you to believe.

As always, consult your own tax pro before making any decisions. (No, the lawyers didn’t tell us to say that, but it seems prudent anyway.)

Regards,

Dave Gonigam
The 5 Min. Forecast

P.S. “Oil didn’t hit $103 by accident,” a reader wrote in over the weekend. “Abe Cofnas recommended the weekly $101.25 oil binary contract (long).”

“I got into the trade for $36/contract on Monday and came out with $100/contract on Friday. And no, I did not sell half of my position on Wednesday. Thanks Abe!”

Indeed, Abe’s readers had a terrific week last week. Following his guidance, they had a chance to collect 116% on oil, 15% on Germany’s DAX index and 25% on the Australian dollar… a combination far outweighing a loss in a gold play. And all of that played out in four days or less.

We’re getting closer to reopening membership in Abe’s trading advisory, Fear & Greed Trader. Watch this space.

• Government’s estimation: Inflation is “contained.” The 5’s estimation: Stock up on candy bars and nickels while you can
• Oil crosses $103 as a 1,354-year-old conflict metastasizes
• The bacteria antibiotics can’t kill… and the $10 billion market for a breakthrough treatment that can
• Golden discovery at a French winery… the unexpectedly passionate interest in CNG… your final opportunity for discount access to one of our most expensive services… and more!

   “The cost of living in the U.S. rose less than forecast in January,” reports Bloomberg this morning, “supporting the Federal Reserve’s view that inflation will be contained.”

Well, if you can twist and distort the numbers the way the Bureau of Labor Statistics does so, yes, inflation can easily be “contained” — much the same way the feet of Chinese girls were once “contained” via the practice of foot binding.

It can be done… but whether it’s desirable is another matter entirely.

   Consumer prices as distorted by the BLS rose 0.2% last month. The year-over-year increase has settled down to 2.9%, the lowest since last March.

Within the index, energy and food prices were both up 0.2% in January. Clothing was up 0.9%. Used vehicles fell 1.0%. Maybe the used-car market is finally stabilizing after “cash for clunkers” took 700,000 perfectly serviceable vehicles off the market in mid-2009.

John Williams at Shadow Government Statistics, performing his yeoman’s service of calculating CPI the way it was 30 years ago, comes up with an overall annual increase rather larger than 2.9%.

The way he figures, it’s 10.5%. We see a couple of items in the news that bear out his conclusions a lot more closely than those of the BLS.

   Mars, the candy maker, plans to shrink its candy bars come next year. A regular Snickers bar will be slimmed down about 11%. We assure you the price will remain the same.

Incredibly, Mars is pitching this as a health thing: It wants to keep all its candy bars at no more than 250 calories. (So much for the king-size versions.)

No mention of Mars’ rising costs: While cocoa prices have come down about 25% from nosebleed levels in the last six months… sugar prices are up 50% in the last two years.

   “We’ve long said that this situation couldn’t last,” says Whiskey & Gunpowder’s Gary Gibson of an inflationary signal tucked into the president’s 2013 budget proposal.

The Treasury is looking to alter the composition of pennies and nickels. Both of them cost more to make than their face value. And in the case of nickels, the value of the metal by itself is higher than face value. Gary has long believed in time, nickels will actually trade for more than face value.

Impossible you say? “When the price of the metal gets high enough,” says Gary, “a market will naturally become established for the coins and that market will be use the higher-content value, not the lower face value. The same thing happened to pre-1965 silver dimes, quarters and half dollars. These coins have traded for their metal value since shortly after their production ceased.”

“When you go to the bank and exchange your paper bills for nickels,” Gary writes, “you are buying copper and nickel from Uncle Sam at anywhere from a 10-50% discount, with your local bank acting as the broker.”

The budget does not propose a new composition of the coins, or a start date for the transition… but the idea’s on the table. “This window of opportunity,” says Gary, “is about to be slammed shut.”

“Saving in nickels,” he concludes, “isn’t a get-rich quick scheme. It’s a risk-free way to protect your purchasing power. If you save in paper — or in the electronic paper substitutes that comprise your bank account holdings — then you are giving the feds free rein to steal from you via inflation.”

   Meanwhile, the debt that fuels all that inflation is racking up faster than anticipated. A study by former White House Budget director and current U.S. Sen. Rob Portman projects Uncle Sam will smack into the $16.4 trillion debt ceiling before Election Day.

“Washington will be hitting the debt ceiling again in mid-October,” reckons Sen. Portman — “burning through a $2.1 trillion debt limit increase in just over 14 months.”

Won’t that make for amusing campaign theater? The mother of all financial bubbles just keeps growing bigger.

   U.S. stocks are mixed as traders stumble toward a holiday weekend.

The Dow is building on yesterday’s post-2007 high… but the Nasdaq is retreating from yesterday’s post-2000 high.

   The U.S. economy is in for more weak growth in the months ahead, if the Conference Board’s leading economic index can be believed. It rose in January for the fourth-straight month.

Readers with really good memories — or those who are masochistic enough to follow these numbers as closely as we do — will recall last month the Conference Board revamped the index so it wouldn’t be distorted by rapidly growing money supply.

The old measurement, plotted on a chart through last November, complete with gray bars for official “recessions,” looks like this…

The new one is updated through January. Like the old one, the index is keyed to 100 in 2004. But wow, does it ever look different…

The LEI, notes Bloomberg’s economic calendar page, “has been revised many times in the past 30 years — particularly when it has not done a good job of predicting turning points.” Heh…

   “With a $10 billion market that is rapidly growing, the potential rewards are stratospheric,” says Patrick Cox — eyeing an opportunity in a new breed of antibiotics.

“Some estimates are,” he explains by way of background, “that bacteria cause, in the U.S. alone, over 14 million skin and soft tissue infections and 7 million methicillin-resistant Staphylococcus aureus (MRSA) cases annually.”

“Of those infections, 70% are resistant to at least one antibiotic. Moreover, resistance is growing due to natural evolutionary mechanisms as well as the misuse and overprescription of antibiotics.”

Indeed, according to a new article in Scientific American, “A new pattern of antibiotic resistance that is spreading around the globe may soon leave us defenseless against a frighteningly wide range of dangerous bacterial infections.”

A handful of companies are rushing to bring products to the market to combat the trend. But Patrick thinks one in particular has a leg up: “The company’s anti-bacterial technology mimics the body’s own natural antibiotics called defensins.

“Using advanced bioinformatic systems to predict which synthetic defensins will be effective against target antigens, the company is moving the science forward in ways that no other company has duplicated. Preclinical work shows that their drugs are fast and powerful.”

Indeed, it’s one of the companies Patrick thinks can change the world — not unlike the maker of the anti-inflammatory “nutraceutical” that caught his eye last year. If you missed his updated presentation on that company — complete with four new developments this past month, and a stunner only two days ago — it’s worth a look.

Be advised we’re removing this presentation from the web tonight at midnight, so check it out while there’s still time.

   For no obvious reason, oil has crested $103 a barrel this morning. That’s something it’s done only four times since the price tumbled from its post-2008 high of $114 last May.

The tension surrounding Iran is still out there, of course. Top U.S. intelligence officials told Congress yesterday that in the event of an Israeli or U.S. attack, Iran might very well close the Strait of Hormuz — one of the world’s “chokepoints” for oil shipments.

In the “unlikely, but statistically possible event that the Strait gets closed,” Byron King tells MarketWatch, “it’ll be an economic and energy event about which you’ll tell your grandchildren, should you live long enough.”

Result? It would “spike oil prices by $50 per day for a few days — to $350 per barrel within a few days — then settle back to $250 per barrel.”

Meanwhile, the war in Syria “is rapidly expanding into a regional proxy battle that threatens to cleave neighboring countries, including Lebanon and Iraq,” according to The Wall Street Journal, “as their populations harden along sectarian lines.”

This is the 1,354-year-old divide between Sunni and Shia that’s key to Byron’s scenario for an all-out Middle East war — unfolding in real-time.

   Gold is likely to end the week about where it began. At last check, the bid is $1,723. Silver’s down to $33.37.

   Some people have all the luck. Not only does Francois Lange supervise a winery in France, he’s now the fortunate owner of some 250 U.S. Double Eagles.

Workers at the winery recently began renovating one of the buildings. “One of the workers (was) attacking the building’s ceiling with a crowbar,” says M. Lange, “when gold coins started to rain down on him, followed by sacks of gold.”

By the time the showers let up, there were 497 gold coins — all minted in the United States between 1851-1928 with a face value of $20.

How they got there, no one knows. Or cares. Current value of the whole stash — just shy of $1 million. M. Lange will keep half for himself, while the workers will split the rest.

   “I believe the person writing about CNG/LNG is a little confused,” a reader writes after yesterday’s issue. “There wasn’t much of either around in the ‘70s.”

“I think he was referring to LPG — which is liquid propane gas. Propane is different from natural gas. I was using LPG in my tractors and vehicles in the ’70s. Until recently, there has not been an LNG plant to produce the product. That plant won’t be on line until 2013.”

   “One point I would like to clarify,” adds another from his post developing a gas field in Qatar, “is the use of LPG (liquefied petroleum gas — usually butane or propane) that has been in use in vehicles and off-road engines (we used it for operating engines for irrigation systems 30 years ago when I was growing up) versus LNG (liquefied natural gas, which has to be chilled and maintained at about -260 C or it regasifies).”

“It would be great to use CNG or LPG to power the U.S. transport sector, but extremely difficult to use LNG.”

“I ardently read all of The 5 Min. Forecast daily musings and am quite amused by some of your respondents’ rantings. I love The 5. Keep the theme and demeanor up!”

The 5: Thanks. “More than a decade ago, I used to drive a box truck,” says colleague Matt Insley at Daily Resource Hunter. “It ran fully on compressed natural gas.”

“It wasn’t a hybrid or anything. It ran only on CNG. Indeed, the truck was like any other truck I’ve ever driven. And just like your average vehicle, we filled up at the local gas station — Shell, to be exact.”

“Clearly, the technology has been around, in perfect working order, for a long time.”
“At some point, the market and our government will have to realize the potential of America’s abundant natural gas.” Which is why it fits in neatly with Byron King’s “Re-Made in America” outlook for a revival of U.S. industry.

Thanks to everyone for writing in on the topic this week. If you wish to carry on the conversation with your fellow readers this weekend, we direct you to The 5 blogsite.

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. “I’m really excited about this company,” says Patrick Cox of his most recent recommendation. “First, it has fantastic technologies. One uses remote sensing to cut the cost of energy production and increase reserves. It is also in very good condition financially.”

“Prior to recommending the company, by the way, I had the best resource analyst extant, Byron King, look at it to see if he could find some unexpected problem. He found none.”

You can access that recommendation… plus a special report on what Patrick says might be “the last stock you’ll ever need”… plus a discounted membership in his premium advisory, Breakthrough Technology Alert. But only if you act by midnight tonight.

P.P.S. U.S. markets are closed Monday for Presidents Day. The 5 returns on Tuesday.

• “Slant drilling” 1990… “Complex oil smuggling network” 2012… Parallel paths on the road to war in the Gulf
• Breaking news on the nutraceutical front and your chance to take advantage
• Sunny economic numbers, but Dan Amoss finds a cloud that points to more margin squeeze
• China’s new golden distinction, and an update on the gold holdings of top U.S hedgies
• Readers write: Revenue-hungry governments abetted by private firms, the CNG solution and a broken dollar hypothesis?

   If history doesn’t repeat, but rather rhymes, as Mark Twain said… then we recognize some doggerel this morning in the latest news from the Persian Gulf.

“Iran has been systematically plundering large amounts of oil from southern Iraq for years,” according to a UPI story that cites a report from Stratfor, the U.S.-based private intelligence outfit.

Through a “complex oil smuggling network,” the Islamic Republic is able to pull in $20 million per day in oil revenue that short-circuits Western sanctions, the report claims.

If there’s something about this that sounds familiar, recall one of Saddam Hussein’s justifications for Iraq’s invasion of Kuwait in 1990 was Kuwait was stealing Iraq’s oil. The Kuwaitis, he said, resorted to “slant drilling,” whereby its wells entered the earth on Kuwaiti territory, but crossed the border underground.

“There’s an element of Iraqi propaganda here,” observes our Byron King — who takes note of every development that hinges on his New War scenario — “but I don’t doubt that Iran is somehow sucking Iraqi oil into is pipeline system.”

   “I just saw another report,” says Vancouver favorite Doug Casey, “proclaiming that Iran is likely to attack the U.S., which is about as absurd as the allegations Bush made about Iraq bombing the U.S., when he fomented that invasion.”

Hmmm… Another rhyme.

“It’s starting to look rather serious at this point,” Mr. Casey continues, “so I do think the odds favor actual fighting in the not-too-distant future. We’re dealing with criminal personalities on both sides, and criminals are basically very stupid — meaning they have an unwitting tendency to self-destruction.”

Doug’s investment guidance for this scenario is similar to his guidance for other man-made disasters: gold and silver to safeguard your wealth, gold stocks if you’re feeling speculative. “And diversify your holdings internationally. You can never tell when the government of your home country will have a psychotic break.”

Aside from spelling out a war scenario, Byron King’s New War report also presents an investment strategy to help you protect and grow your portfolio during the tumult — starting with three market moves you can make right away. Here’s where to get started.

   U.S. stocks are recovering some of yesterday’s losses. The Dow is back above 12,800.

The Nasdaq is again within striking distance of its post-2000 high set only two days ago… although much of that index’s strength has been driven by one stock, Apple.

“Stock indexes, looking toppy, may now be starting to slip,” Options Hotline editor Steve Sarnoff wrote his readers after yesterday’s close. “Negative character of price action in Apple shares indicates gravity may kick in. If Apple shares fall toward earth, markets would feel a thud.”

“Euro weakness may also keep pressure on stocks and commodities over the weeks ahead. We shall see how much of a stand bulls can make.”

   “Clearly, he’s not a shill for any old thing that comes down the pike,” reads an email this morning from a member of our research team.

Once again, we’re having trouble keeping up with developments involving the anti-inflammatory “nutraceutical” that’s had the attention of Patrick Cox for the last year. This month alone, we’ve seen…

• Positive results from the first human trials: lower levels of CRP, the gunk in your blood linked to inflammation
• A distribution agreement with one of the nation’s top vitamin retailers
• The final stage of a patent-infringement lawsuit that could deliver a big cash infusion.

Now comes word of a remarkable celebrity endorsement. Out of respect to Patrick’s existing readers, we won’t reveal his name. But he’s agreed to be the product’s “brand ambassador.”

He’s perhaps the most popular golfer of the last 20 years — um, well, now that Tiger Woods has fallen from grace. He darn near gave up playing because of chronic injury.

Fox Sports has picked up the story. “I don’t even know how to explain it,” this legend said yesterday, “I just feel much better.” And that’s after taking it for only two months. “Whether it’s in my fingers, my shoulders, my back,” the inflammation is gone.

He felt so strongly he reached out to the company.

So what’s it to you? This: Our discount-membership offer in Breakthrough Technology Alert expired Tuesday at midnight. But given this new development — sure to be another catalyst under the share price as time goes on — we want to give you one more chance.

This isn’t something we ordinarily do. And in fairness to the folks who signed up before the previous deadline, the discount isn’t quite as steep… but it’s still a very attractive offer, more than 50% off the regular membership fee. Be advised: It comes off the table at midnight tomorrow night.

   Traders are evaluating a slew of numbers today…

• First-time unemployment claims: Down again last week to 348,000 — the lowest since March 2008. The four-week average has now declined 10 of the last 11 weeks
• Housing starts: Up 1.5% in January. Permits — a better indicator of future trends — edged up 0.7%
• Producer prices: Nearly flat in January, up 0.1%. Food and energy prices actually fell at the wholesale level, but that was offset by rises in things like pharmaceuticals, light trucks and tobacco. (Doesn’t bode well for aging smokers who need a new pickup.) The year-over-year increase is still 4.1%
• Mid-Atlantic manufacturing: Up this month, according to the Philadelphia Fed survey, which jibes with the Empire State survey of activity in New York state yesterday.

   However, a worrisome gap shows up in the Philly Fed survey — between the prices manufacturers are paying for their raw goods and the prices they’re receiving for finished product.

“Lots of companies I follow mention the ‘need’ to get price increases,” says our short strategist Dan Amoss, “as if they’re entitled to them simply because their costs rose. Yet many companies simply distribute or retail goods that are available elsewhere, which limits their ability to push through higher costs.”

Case in point, Beacon Roofing Supply, a distributor of roofing shingles. “Its ability to push through price increases depends on demand from roofing contractors, which depends (mostly) on demand for re-roofing investments. With fewer households in a positive home equity position, they have neither the desire nor the ability to replace old roofing shingles.”

Meanwhile, its costs are going up: Shingle maker Owens Corning is pushing through a price increase at the end of this month.

Dan’s readers already collected a 131% gain playing put options on Beacon Roofing last year. For similar opportunities to profit from companies whose margins are getting squeezed, give this a look.

   Precious metals have surrendered all their gains of the last 24 hours. At last check, the bid on gold was $1,720. Silver is back to $33.10.

   China’s already the world’s largest producer of gold… and by the end of 2012, it should be the world’s biggest user too.

The World Gold Council projects China will overtake India this year as the No. 1 gold consumer. No wonder: As we noted a few days ago, China’s gold imports via Hong Kong tripled last year.

A collapse in the value of the Indian rupee is another factor: “You’ve effectively seen foreign direct investment dry up in India,” says the council’s Marcus Grubb. “That feeds down into the economy with slowing growth and less liquidity available. That really impacts the rupee, and gold looks horribly expensive to local consumers.”

   Turns out the scuttlebutt about George Soros getting back into gold was right — well, up to a point.

According to his latest 13F filing with the SEC, Soros grew his stake in the GLD ETF 77% during the fourth quarter. Still, his total holdings remain a paltry 85,450 shares — a far cry from the 4.67 million he held a year ago.

John Paulson cut his stake for the second straight quarter, from 20.3 million to 17.3 million shares. Paulson remains GLD’s biggest holder.

   “This is somewhat in line with your item yesterday about private prisons,” a reader writes. “I recently received a photo-ticket in the mail from Fife, Wash., police (actually, their contractor) for failing to stop at a red light prior to making a right turn.”

“This really teed me off, as the difference between a full stop and what I did is negligible. So I decided to do a little research and sent in a FOIA request and got data that knocked me off of my chair. These cameras are supposed to be installed for safety reasons so I was a bit miffed when I was told there were NO data about accidents at this particular intersection before or after the cameras were installed (how did they know there was a safety issue?).”

“So naturally, I started looking at the revenue side (they kept that data). This is from ONE camera on ONE leg of an intersection. They average $5M/yr from infractions on this camera.”

“These cameras have NOTHING to do with safety and everything to do with revenue, but your gutless, lying council members will not confirm this but continue to lie about the need for these cameras to reduce accidents. I have heard that there are actual studies that show the cameras tend to cause more accidents then they prevent.”

“So if you are wondering how municipal budgets are being balanced, we now know!!”

The 5: Another reader sends along a story from Davenport, Iowa — where city fathers are looking at withholding state tax refunds to recoup unpaid fines resulting from violations caught by traffic cameras. And yes, the cameras are operated by a private vendor that gets a 40% cut of the revenue.

As Addison has been pointing out for months, a society consumed by debt first begins to crumble on the local level. If you haven’t taken steps to prepare yourself, best get moving now.

   “If the Obama administration is sincere about American energy independence and curtailing CO2 (and other) emissions, they would promote CNG/LNG power plants and autos,” writes a reader determined to carry on our discussion of compressed natural gas.

“Like your Texas reader, I experienced the technology and efficiency of LNG/CNG decades ago. I worked in a RV plant in Elkhart, Ind., in the late ’70s that outfitted motor homes with LNG heaters and stoves. The owner converted his fleets of company and personal vehicles to LNG combustion and filled their tanks at the plant, with substantial reduced fuel costs and environmental impact (no leaded gas or catalytic converters).”

“Similarly, my uncles have converted all their gas-powered farm vehicles to LNG in the same period, primarily to avoid highway taxes on gasoline without having to validate on/off-highway use to the IRS.”

“Maybe Byron can muster some venture capital and be a part of the American renaissance he is predicting? Let’s hope so! NG is the perfect ‘bridge’ fuel to get us to the nano or (safe) nuclear future.”

The 5: Maybe in the future. Right now we keep him busy enough tracking down companies already trading publicly that are set to grab the biggest gains from the renewal he sees coming. He’s eager to tell you all about them right here.

   “Regarding the hypothesis that the U.S. is really defending the U.S. dollar as the world reserve currency,” a reader writes: “I was under the impression that China and Venezuela had already dropped the dollar for their petroleum dealings… no?”

“The hypothesis works until it doesn’t?”

The 5: Um… we don’t recall saying that a government’s desire to escape the dollar was a guarantee of regime change. Only that there’s precedent with Saddam and Gaddafi.

China and Venezuela, China and Russia, Russia and Iran — they’re all trading in each other’s currencies and bypassing the dollar. Even with a military budget equal to all the other nations in the world, Washington can’t invade ’em all…

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. One more gentle reminder: Due to breaking news, we’re extending the discounted membership offer on Patrick Cox’s Breakthrough Technology Alert through midnight tomorrow.

• Cash-strapped states hook up with the “prison-industrial complex.” Will your town or state throw you behind bars just to raise revenue?
• Old news: Oil rises again after news from Iran. Untold story: U.S. admiral says carrier movement is “provocative”
• The fund manager who shares our belief that gold is due for a rest… and Jim Nelson with ideas about how to turn the metal into income
• Readers turn poetic… a suggested wager between Addison and Byron King… and more!

   Last year, we spent a fair amount of time exploring how you’re threatened by the dire financial straits of local and state governments.

Increasingly, Americans are being nickel-and-dimed by “new taxes and weird fees.” These can be anything from a “wheel tax” on top of regular auto registration fees… to a “flush fee” tacked onto water and sewer bills.

But this morning we contemplate something far more sinister: Your cash-strapped locality might have an incentive to put you behind bars to help pay the bills.

   “CCA is earmarking $250 million for purchasing and managing government-owned corrections facilities,” reads a letter from Corrections Corporation of America sent to officials in 48 states.

CCA is the biggest “private prison” company in the country. Until recently, it made its money by building new prisons or managing existing ones.

Last year, its business model began to shift when it bought a prison outright: the Lake Erie Correctional Institution. The state of Ohio got a $72.7 million windfall.

Now CCA proposes to do the same with a prison near you.

“We want to build on that success and provide our existing or prospective government partners with access to the same opportunity as they manage challenging corrections budgets,” reads the letter, obtained by Huffington Post.

   Here’s where you come in: The deal in Ohio, and any future deal broached in the CCA letter, is contingent on CCA keeping a 20-year management contract… and a guarantee the prison will be 90% full.

Hmmm…

“It becomes a self-fulfilling prophecy,” says Shakyra Diaz of the American Civil Liberties Union of Ohio. “In order to have it at 90%, you need to be able to make criminals to fill it at 90%.”

   Indeed, CCA lies at the heart of what critics label the “prison-industrial complex.”

Its rise to prominence coincides with a dramatic increase in the number of Americans in prison or jail. While the United States accounts for 5% of the world’s population, it accounts for nearly 25% of the world’s prison population.

“The company,” reports HuffPo’s Chris Kirkham, “capitalized on the expansion of state prison systems in the ’80s and ’90s at the height of the so-called ‘war on drugs,’ contracting with state governments to build or manage new prisons to house an influx of drug offenders. During the past 10 years, it has found new opportunity in the business of locking up undocumented immigrants.”

We pause here to note CCA stock is up 340% in the last 10 years; the S&P 500 is up less than 20%.

   CCA is upfront about these, um, perverse incentives in its annual report. “The demand for our facilities and services,” it says, “could be adversely affected by the relaxation of enforcement efforts.”

“For instance, any changes with respect to drugs and controlled substances or illegal immigration could affect the number of persons arrested, convicted and sentenced, thereby potentially reducing demand for correctional facilities to house them.”

   You don’t have to be a drug user or an illegal immigrant to be concerned, however. Consider the case of Matthew Townsend — who was recently thrown into the Jefferson County, Colo., jail because he didn’t get a dog license.

Near as we can tell, the jail there is not privately managed. But imagine how many more people would end up in Townsend’s shoes if more jails and prisons were owned by CCA and similar firms with a 90% guarantee.

Sound far-fetched? Local governments everywhere are looking under the sofa cushions for every last nickel. You’d do well to consider living in a state where the situation isn’t completely beyond hope. We’ve compiled a best-and-worst list that goes out to every new reader of Apogee Advisory. Access here.

   Oil is up again this morning to $101.72 — another one-month high. Once again, the move up coincides with headlines from Iran.

   “Iran masters nuclear fuel cycle despite Western, U.N. sanctions,” declared a breaking news banner on Press TV, Iran’s state-run English-language news channel.

Scientists there have started loading fuel rods into a nuclear reactor that can enrich uranium to 20% purity — enough to use for treating cancer patients, but nowhere near enough for a weapon.

   Then again, some days you wonder who’s really in charge there.

Press TV reported earlier today that Iran had halted oil exports to six European nations. Now the nation’s oil ministry is denying that to Reuters.

   Meanwhile, the aircraft carrier USS Abraham Lincoln traversed the Strait of Hormuz today.

“This carrier and these [fighter] jets are more than just a show of force,” reports the BBC’s Jonathan Beale. “They’re here to send a clear message to Iran as to who really controls these waters.”

Added Rear Adm. Roy Shoemaker candidly, “The presence of this ship is provocative.”

Day by day, Byron King’s “New War” scenario runs the risk of quickly becoming ancient history.

   U.S. stocks are again drifting nowhere today. The Dow and the Russell 2000 are down slightly; the S&P 500 and the Nasdaq are up slightly.

   Gold is showing a little strength at the moment, up to $1,731. Silver’s stuck in neutral, however, at $33.59.

   “I’m probably one of the few fans of [gold] who thinks it could actually decline quite a bit in the short term,” says our friend, Gaineswood Investment Management founder Bill Baker.

We were starting to wonder if we were standing alone in our call that gold is due for a rest this year. Bill comes to our rescue in an interview with Wall $treet Week.

Still, he sees a resumption of gold’s epic run-up as inevitable. Any short-term dip “doesn’t really stop me from thinking that it has an intrinsic value as a currency that can never be debauched. It’s got a very small market share of all currencies in terms of its total value. And that market share can only increase over time.”

   “The question many [gold] miners have been facing of late is what to do with all this cash,” says Jim Nelson of our income desk.

Miners are, indeed, cashed up these days. While the price of their product has jumped dramatically in the last 10 years, their biggest cost — energy — has grown much more slowly. “The gold-to-oil ratio 10 years ago was below 10-to-1,” says Jim. “Today, it’s 17.5. Meaning, in general, gold miners’ margins have expanded 75%.”

“Obviously, many miners are piling into exploration of new mines and veins. But with all this money coming in, there’s still plenty left over. That leaves them three options.”

The first is takeovers — witness Pan American Silver’s recent acquisition of Minefinders.

Then there are buybacks. “After all,” says Jim, “mining company share prices have lagged the metal itself. Many — us included — think that is presenting some great opportunities in metal producers. A number of miners have already begun to buy back their own shares.”

And finally there are dividends — Jim’s bread and butter. “A number of mining companies have initiated or raised their dividend payments. But the way some have gone about it is what makes this recent movement so exciting.”

They’re linking their dividend payments to the price of gold. “For any gold bug out there, this must be one of the best moves they’ve ever seen,” says Jim. “You see, in the past, there were very few ways to collect both gold and income from the same investment. This policy is changing that.”

Newmont took the lead. Its yield has nearly doubled since. Eldorado and Hecla are following suit.

“For the average income investor, this is a positive trend,” Jim concludes. “But not too exciting. After all, what good is a 1% or 2% dividend yield? That doesn’t even beat U.S. Treasuries, which are at all-time lows right now.”

That’s why Jim has sought another way to squeeze more income out of gold miners. It works on any of 44 companies listed here. “In fact,” says Jim, “we’ve found a way to collect double-digit yields on one of these golden dividend payers. However, it takes a bit of money and a complete understanding of a fairly advanced income strategy.”

You can count on Jim to put it in plain English and walk you through the process step by step. To decide if this strategy is for you, look here.

   “In response to Mr. Goolsbee’s somewhat bitter Valentine poem,” a reader writes after Monday’s issue: “Roses are red, violets are blue. Greenspan, Bernanke — SHAME ON YOU. Roses are red, violets are blue. Gold and silver — WE LOVE YOU. ”

   “I like your hypothesis that the U.S. is really defending the U.S. dollar as the world reserve currency when it attacks Iran.”

“Gaddafi also proposed gold as a replacement for the U.S. dollar. Saddam Hussein did demand euros for his oil, but didn’t he also have sanctions against him. Which came first, sanctions or his demanding euros?”

“Keep it up with The 5.”

The 5: The sanctions came first.

   “While I agree that the future of the Middle East is not looking good,” a reader suggests we’re “talking about oil only as if human lives are worth nothing.”

“Besides,” he says, “your information is not true regarding armed Shia. No armed Shia attacks in Syria, for instance, just peaceful demonstrations faced down by bullets. No policemen were killed, or even injured — just eight young kids were killed in old blood.”

“The dictatorship should be denounced, and human rights abuses. Killing innocent demonstrators in cold blood should be unacceptable not just in Syria, but in Bahrain and Saudi Arabia. Double standards, and for the sake of oil the U.S. is willing to look the other way. No wonder U.S. foreign policy is heading the wrong direction.”

“Hoping for the support of dictatorships instead of people is not American at all.”

The 5: If you think that’s what we’re doing, then you clearly haven’t read The 5 for very long.

   “I was interested to see Byron King’s take on compressed natural gas [CNG] for autos,” a reader writes. “Yeah, big problem with refilling stations right? Why not put refilling stations at every car rental facility at every airport in the U.S. and convert all those to CNG?”

“Most cars won’t use a whole tank, users get familiar with CNG, refill, etc…. and if nothing less, it is an easy, almost immediate start. Probably makes too much sense for the pinheads in charge, though.”

   “When I went to Air Force pilot training,” another writes, “my roommate from Texas used CNG on a regular basis. He could and did use gasoline when CNG wasn’t readily available. This was in 1960. Nothing is as new as it seems.”

The 5: We had no idea CNG would inspire such passion among the readership. If you missed Byron’s original write-up in Monday’s Overtime Briefing, here’s the link. And to see how CNG might fit into the American energy renaissance Byron sees coming, look here.

   “How about,” a Reserve member writes, “wagering compensation of heating bills for life from each other’s primary residences?”

The 5: Hmmm… Readers might recall last Friday Addison’s skepticism over Byron’s forecast. Addison even wondered if he should make Byron a friendly wager… but he was stuck on the stakes. From Nicaragua, Addison tells me he’ll have to think about it…

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. There’s breaking news from the nutraceutical world… on top of the three major developments that Patrick Cox has clued us into over the last two weeks.

He didn’t have time to share many details in time for deadline today, except to say this could be a game-changer for the company pioneering a nondrug anti-inflammatory. Come back tomorrow and we’ll bring you the full story.

P.P.S. Aside from musing over his heating bill, Addison reports he’s having a good time at Rancho Santana. And why not? This was his view from the clubhouse as he enjoyed his morning coffee.

“Reserve members really owe it to themselves to come down here and check the place out,” he says.

• As gasoline crests $3.50 in February (!) a new and hidden threat to Middle East oil fields
• Stocks falter, Italy and Spain downgraded, retail sales disappoint… but Patrick Cox finds reason to be more optimistic than ever
• How fiber optics are about to revolutionize oil production… and deliver a windfall to early investors
• More gold-standard sniping… reader agreement on “an easy replacement for gasoline and diesel”… Cox addresses a skeptic about “the last stock you’ll ever need”… and more!

   In 2008, the national average price of gasoline topped $3.50 a gallon for the first time… on April 21.

Last year, it happened for a second time… on March 6.

This year, it has happened already.

“There’s a chance that the U.S. average tops $4 a gallon by June,” says Brian Milne of the commodity research firm Telvent DTN, “with some parts of the country approaching $5 a gallon.”

   After the latest Iran-Israel drama we noted at the start of yesterday’s 5, oil is up to $101.58 this morning… the highest in a month.

And there’s a new wild card this morning. Few are talking about it… but it could easily drive oil much higher, and gasoline to $7 or even $8 a gallon.

Here’s where you might think we’re crazy. But it’s a real possibility. What would your life be like with $8 per gallon gas??

   “This is another one of those possible flash points in the region,” says Georgetown political scientist Paul Sullivan, “that could become a much bigger fire if it is not contained early on.”

Sullivan is referring to an internal rebellion in Saudi Arabia.

According to Bloomberg, fighting is getting worse in the east of the country, with police and armed Shia protesters. The protesters killed 11 police in October. Since then, police have killed seven Shia, according to human rights observers.

Here’s what makes the situation so volatile: The east is where the Saudi oil is. It also has a majority population of Shia Muslims — in a nation ruled by Sunni Muslims for the last 80 years. We have been talking about it a lot, but the fact is you don’t need an Israeli or U.S. attack on Iran to drive gas prices up dramatically.

The conflict in the Saudi oil patch sets up an alternative scenario.

   U.S. stocks are in retreat this morning, with small caps taking it harder than the blue chips. The S&P 500 has sunk back below 1,350.

   Retail sales grew in January, according to the Commerce Department… and that’s as far as the “good news” goes.

The 0.4% increase was less than the “expert consensus” was counting on. The numbers were dragged down by autos — which flies in the face of Street noise about booming car sales.

The numbers likely would have been even worse were it not for retailers’ post-holiday discounts — which won’t do much for their margins. December’s figures were revised down.

Other than that, Mrs. Lincoln thought the play was terrific.

   The greenback is rallying this morning after Moody’s downgraded six European governments, including Spain and Portugal. The dollar index is up to 79.4.

“While there was nothing new here, since S&P and Fitch had already gone through this exercise last month,” EverBank’s Chuck Butler observed this morning, after having perused the release. “Moody’s did grab the markets’ attention by being the first rating agency to warn the U.K. that their rating could be at risk.”

At 80%, Britain’s debt-to-GDP ratio is worse than Spain’s, which is only 61%.

   Yet… precious metals are moving preciously little. At last check, gold was $1,721 and silver was $33.67.

   Small-business owners feel marginally more confident about business conditions than they did last month. The Optimism Index put out by the National Federation of Independent Business inched up a tenth of a point last month, to 93.9.

While the number has grown five straight months, it’s still lower than it was a year ago — and still at what the NFIB characterizes as “recession levels.”

   “A quiet revolution in oil and gas production has been going on for over 30 years,” says Patrick Cox.

It might sound as if Patrick is venturing onto Byron King’s turf… but lately Patrick has been exploring the intersection of energy and information technology. Moore’s law — the doubling of computer processing capacity every 18-24 months — has immense relevance to the oil patch.

“Consider,” says Patrick, “that the ratio of unproductive dry wells to productive exploratory wells in 1979 was seven-to-one. In the 1980s, new and powerful computing technology made it feasible to perform 3-D seismic surveys on prospective drilling sites. Today, dry wells are almost never drilled. “Furthermore, the digital revolution increased the production of drilled wells” via computer-aided graphics.

But one aspect of oil exploration remains in a relative dark age. “Computer-aided oil and gas production relies on good data or information about the lay of the subterranean land,” says Patrick. “To gather the data, sensors are inserted into wells.”

“The legacy sensor technology used in oil and gas fields, electronic geophones, is 50 years old. Geophone technology converts tiny seismic vibrations into electrical signals by means of small magnets located within coils of wire. When the geophone sensor experiences seismic vibrations or movement, it generates and transmits a small electrical signal to the surface recorder.”

Patrick has unearthed a company that’s about to make current geophones obsolete — ramping up oil and gas production that much more. This technology “promises to eliminate electronic geophones, replace them with fiber-optic geophones and revolutionize remote sensing in oil and gas operations.”

[Ed note: If you’re wondering... Patrick tells us he ran all of this past Byron, and it all checks out. He details the opportunity in the new issue of Breakthrough Technology Alert, which came out a mere 24 hours ago.

You can secure discounted subscription through midnight tonight. Within minutes of signing up, you’ll have access to that issue, plus a special report on what Patrick calls “the last stock you’ll ever need.”]

   “The economic situation created by our feckless ruling class tends to cast a cold pallor on the world,” Patrick concedes on another front. “The real story going on behind the scenes is an unbelievable number of technological breakthroughs. These are not hypothetical breakthroughs. They have already occurred, but are not yet fully deployed.”

Still others are flying under the radar — such as the maker of the anti-inflammatory supplement that’s piqued his interest. As we told you last week, this alkaloid “nutraceutical” derived from a substance found in tomatoes and peppers is now on sale at the website of a major supplement retailer.

And already it’s attracting glowing testimonials: 11 reviews so far, every one of them five stars. “Amazing Product!” enthuses one user. “So many effective uses! Simply take a couple lozenges each day and watch your pain disappear.”

“I personally use it for allergies (yes, allergies), which I never even thought were connected to inflammation… It clears up my allergies better than anything ever has. The best part of this product is I know it is not messing with my system and organs the way other products do.”

“I started several months ago,” says another, “and found I had less aches and pains of getting older. I swear my memory is improving also…which is important to me since my mom had dementia.”

Indeed, early lab tests show it’s very promising in preventing the onset of Alzheimer’s… and nearly every other disease of aging. That’s because most of the diseases of aging are linked one way or another to inflammation.

The company has an earnings report due in about a month. Testimonials at a website are no guarantee of an upside surprise, but they can’t hurt.

   The 56-year-old man we profiled in November as a poster child for the downward mobility of the boomer generation is getting back on his feet.

Fred Cantu was a TV news anchor in Austin, Texas, for decades. In 2010, he was cut loose… and last year he ended up working part time in the hardware section of a Home Depot, just to make ends meet.

Toward year-end 2011, his old station took him back on part time… and now he’s returning to full-time work behind the anchor desk.

“I do have a contract,” he tells the Austin American-Statesman, “but I don’t know how long it is. It’s a couple of years at least, so I have some job security.”

“Undoubtedly he’s making more than he did at Home Depot,” reckons The 5’s Dave Gonigam, who spent 20 years in the TV news trenches, “but a lot less than he did when he was anchoring before. Big-name anchors are taking big-time pay cuts all over the country right now.”

It will be, um, interesting to see the next poll result from The Associated Press and LifeGoesStrong.com. A year ago, 67% of boomers said they planned to work after “retirement.” By fall, that number was up to 73%.

   “The guy who thinks a gold standard is stupid… is stupid,” writes a reader who speaks for many others today. “How can money (gold) and savings becoming more valuable be a bad thing?”

“How would getting government out of money be a bad thing? How can paper and ink and the consequent inflation be a good thing?”

“The gold standard is appreciating money versus fiat money, which equals depreciating money.”

The 5: We only ask you try to keep your comments civil.

   “Thanks for using my lengthy comment,” writes the reader who inspired the vitriol. “I enjoyed reading myself pontificate.”

“Let me add one more thought. If going to a gold standard is thought to control inflation (and I agree it would), then must we not conclude that a gold standard would be inherently deflationary?”

“Perhaps there is some sort of middle ground, like having the money supply bear some resemblance to the amount of goods and services produced? That might be easier to do with a fiat currency than some randomly selected commodity. At least gold doesn’t mildew like grain; an earlier attempt at facilitating trade.”

   “Most historians and economists are conditioned to believe that steadily and sharply falling prices must result in depression,” wrote the late Murray Rothbard. Which is why so many of them have trouble making sense of the 1870s.

Conventional wisdom has it that 1873-79 brought a depression at least as bad as the 1930s. But “the decade ending in 1879,” writes Thomas Woods in Meltdown, “saw 6.8% real national product growth per annum and a 4.5% average annual increase in real product per capita.” Census figures show manufacturing employment growing from 2.47 million to 3.29 million. Farm employment grew from 12.9 million to 17.4 million.

“What appears to have made historians conceive of this period as one of unmitigated ‘depression,’” Woods writes, “is the ongoing decrease in the price level by about 3.8% per annum.” Can’t have that…

   “I totally agree CNG [compressed natural gas] is an easy replacement for gasoline and diesel fuel for cars,” writes the first of many emails we got after Byron King’s Overtime Briefing yesterday.”

“Conversion is very easy for most cars. It is being done in Europe. These cars are now dual system. They can switch to whatever fuel is available at the time. The advantages are many: less oil imports, less pollution, more output power and longer life for the engine.”

“If only the Big Oil-sponsored government would get out of the way. I read a little bit on the subject and it turns out an auto shop would have to pay a $10,000 annual license fee for each car model they would want to convert! That effectively forbids access to CNG.”

“Always a pleasure to read The 5.”

   “I like the sniping at Patrick over his scientific and medical investment insights,” a reader writes. “The discussions back and forth help those of us thinking of going with Patrick…..a better idea of whether he knows his stuff…or not….keep it up….”

The 5: “I had a conversation about [the alkaloid nutraceutical] with one of my readers, a doctor, some months ago in Baltimore,” says Patrick. “Understandably, he was very skeptical about the efficacy of the nutraceutical. So was I, initially. Frankly, I wouldn’t respect someone who didn’t question claims made about natural supplements, since there has been so much hype and fraud in the past.”

“I pointed out to the good doctor that there is more evidence than the animal data. Specifically, I detailed some of the general improvements in health that I’ve experienced, as have so many others using the product.”

“He countered, rationally, that the effects might be placebo. I don’t believe that is the case, because the impacts have been so profound, but new hair growth is particularly hard to dismiss as psychosomatic. You can see new hair. It’s there. My barber noticed it.”

And as we mentioned last week, athletes like tennis pro Jimmy Arias and Carolina Panthers tight end Jeremy Shockey have offered unpaid testimonials. “Celebrity endorsements,” says Patrick, “are exactly the sort of thing that could lead to that one story that sends the company’s stock into uncharted territory.”

You can access the name and ticker — and a discounted membership in Breakthrough Technology Alert — through midnight tonight.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. The conference continues here at the ranch. There are a lot of conversations going back and forth about Facebook and Google. Not sure yet if anything will come of it.

“Last week,” writes Fusion IQ chief and Vancouver veteran Barry Ritholtz in The Washington Post, “I made a surprising discovery about Facebook: It has far fewer ‘active’ users than it claims. I learned this from a note buried deep in the company’s S1 — the IPO document it filed with the SEC in order to go public.”

The upshot is that while it claims 850 million users, only 161 million of them have actually been to Facebook.com — and exposed to its ads — in the last 30 days.
In other words, the number of regular Facebook users might be overstated by up to 500%. “I suspect that the $100 billion valuation may be overstated by nearly as much.”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ponder and prepare for the consequences here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(Sheesh… someone’s a tad bitter.)

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

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

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

“Not going to happen.”

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

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

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

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

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

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

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

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

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

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

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

Cheers,

Addison Wiggin
The 5 Min. Forecast

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Heh. That’ll come, we’re sure.