mdef metals defense energy food

What is MDEF™ Investing? Strategy before tactics. Strategic investments dictate tactical actions in the Metals, Defense, Energy & Food sectors.

- Jeffrey C. Borneman

This Is Real Demand

Jeffrey C. Borneman | December 20, 2016

In spite of the election of a Second Amendment-friendly president gun sales for personal use are still rising at breathtaking speed.

Yes. it's California and yes, the state passed additional draconian laws preventing the future sales of possibly the most popular weapon in generations; but sales are robust across the nation with the most FBI background checks on record for the Thanksgiving holiday.

To put holiday gun sales into perspective, more guns were bought over Thanksgiving than are used by the U.S. Marines.

I'd say that's real demand. And a wise investors always follows the demand.

Read the Original Article

Original Article
Fox Original Article Date: 2016-12-20

Something Fishy with Beef and it Stinks

Jeffrey C. Borneman | October 25, 2016

Beef prices collapsing while, according to historic Supply & Demand, they should be rising. 

Herman Schumacher, co-founder of R-CALF USA, area cattle feeder and former owner of Herreid Livestock Auction, said the cattle-price freefall started soon after the U.S. Department of Agriculture (USDA) announced that cattle inventories, which were at a 65-year low in 2014, had increased by just 1 percent in 2015.

Tri State Livestock News reports: “It’s impossible for a mere 1-percent increase in cattle inventories to compress our supply-driven price increase, which should have lasted three or more years, into a single year, but that is exactly what happened” asserted Schumacher.

So, what is disrupting a core industry? Schumacher is convinced that something is interfering with a market that has been well understood for decades. 

Schumacher notes that fed cattle prices fell by more than 40 percent during the past 18 months and calf prices fell even more, declining by over 50 percent during the same period. “The price of calves in September 2016 was more than one-third less than it was in September 2015,” he said.

However, though cattle prices have fallen drastically, the price of retail beef paid by consumers remains at near record levels, falling only about 8 percent from 2015 highs. Schumacher says this is convincing evidence that something or someone is interfering with U.S. cattle markets.

Rampart will be keeping an eye on the upcoming exploratory meetings of the cattlemen to be held in November. They will be seeking the "why" of the collapse of prices and may discover the "who" that is causing it.  

Investors should be aware of the term "manufacturing scarcity" in the upcoming months as it relates to normal essentials for living.

Read the Original Article

Something Fishy with Beef and it Stinks

Jeffrey C. Borneman | October 25, 2016

Beef prices falling while, according to historic Suppy & Demand, they should be rising. 

Herman Schumacher, co-founder of R-CALF USA, area cattle feeder and former owner of Herreid Livestock Auction, said the cattle-price freefall started soon after the U.S. Department of Agriculture (USDA) announced that cattle inventories, which were at a 65-year low in 2014, had increased by just 1 percent in 2015.

Tri State Livestock News reports: “It’s impossible for a mere 1-percent increase in cattle inventories to compress our supply-driven price increase, which should have lasted three or more years, into a single year, but that is exactly what happened” asserted Schumacher.

So, what is conflating a core industry? Schumacher is convinced that something is interfering with a market that has been well understood for decades. 

Schumacher notes that fed cattle prices fell by more than 40 percent during the past 18 months and calf prices fell even more, declining by over 50 percent during the same period. “The price of calves in September 2016 was more than one-third less than it was in September 2015,” he said.

However, though cattle prices have fallen drastically, the price of retail beef paid by consumers remains at near record levels, falling only about 8 percent from 2015 highs. Schumacher says this is convincing evidence that something or someone is interfering with U.S. cattle markets.

Rampart will be keeping an eye on the upcoming exploratory meetings of the cattlemen to be held in November. They will be seeking the "why" of the collapse of prices and may discover the "who" that caused it.  

Investors should be aware of the term "manufacturing scarcity" in the upcoming months as it relates to normal essentials for living.

Rotation, Rotation (Of Capital)

Jeffrey C. Borneman | October 25, 2016

I don't often spotlight a single company in the MDEF universe but Lockheed Matin has made the "exception" list. 

The world's largest defense company's statement today aligns perfectly with the MDEF premise of the rotation of capital into the bare essentials. As the world's economies and banking structure is bending under unprecedented weight, capital will flee to areas of safety, reliability and returns. 

FTA: Lockheed’s third-quarter profit of $2.4 billion was up from $865 million a year earlier as per-share earnings rose to $7.93 from $2.77, and sales climbed 15% to $11.55 billion. For the full year, it boosted earnings expectations to about $12.10 a share and revenue to $46.5 billion.

Read the Original Article

Lockheed Martin Rides New Wave of Military Spending
By: Doug Cameron WSJ Original Article Date: 2016-10-25

EPA’s Bizarre Reasoning – When a Mole Hill is a Mountain

Jeffrey C. Borneman | October 25, 2016

In August 2015, a Federal Judge ordered a halt to the EPA from commandeering all private property in the United States through its proposed Waters of the United States (WOTUS) Rule. The Rule would have given the federal government via EPA and U.S. Army Corps of Engineers jurisdiction and control over virtually any water of any size in the United States and along with it, control over any land that water comes into contact with.

That Rule will be reviewed by the Supreme Court at some point but the EPA is nothing if not persistent. The latest bizarre news comes to us from a U.S. Senate Committee report release September 20, 2016. It is specific to farmers who plow fields creating what is commonly known as “furrows” in which seeds are placed. The EPA now views these furrows as “mini mountains”. This is not a joke. According to the EPA, furrows would be considered a “discharge of a pollutant” requiring a federal permit.

Jason Hayes, the director of environmental policy at the Mackinac Center for Public Policy, told Michigan Capitol Confidential that the 1977 amendments to the Clean Water Act specifically exempted plowing as a “normal farming activity.”

“The Corps even tries to argue that these newly created small mountain ranges hamper the growth and development of wetland plant species, apparently ignoring the fact that farmlands are managed to produce crops, not cattails,” Hayes said in an email.

The Senate is accusing the EPA of playing words games to get around the laws in place that specifically restrict its oversight while the EPA refuses to comment and refers all questions to the Department of Justice.

If every farmer in America who plows fields must obtain permission through a use-permit, what stops the EPA from denying it for some arbitrary reason or setting the cost higher than the farmer can afford? This is truly insane.

Daren Bakst, a research fellow in agricultural policy at The Heritage Foundation, said it is not surprising that the EPA and Army Corps claim furrowing can create small mountain ranges.

“Does kicking a pebble next to water create a mini-meteor? Is a puddle a mini-ocean? Who knows?” Bakst wrote in an email. “The moral of the story is furrows will mean what they want them to mean until the courts stop them. Of course, Congress should have been stopping this nonsense a long time ago.”

Investor View

The long view of the EPA’s goals is that they closely aligned with the United Nations “sustainability” goals and what will be considered acceptable behavior by State’s in the future. The EPA is clearly writing Rules to manufacture scarcity by abolish private property rights through regulation by non-elected government employees.

The Rule of investing is to own what is both necessary and scarce. A savvy investor recognizes when its government allows the manufacturing of scarcity in the most important of essentials. 

Current Wars and Future Wars … Still About Energy

Jeffrey C. Borneman | October 24, 2016

Secretary of State Clinton’s first official trip abroad in 2009 was famous in establishing the “pivot to Asia” of American military force. And now, mere weeks before the U.S. presidential election there is almost no mention that the U.S. military is engaged in five separate Middle Eastern wars. They are: Iraq, Syria, Yemen, Libya and Somalia.

More on the pivot to Asia below but one must ask why U.S. involvement has increased and not decreased in the Middle East. A simple view of a Mid-East map shows why the U.S. is engaged in Yemen and Somalia. Oil traders and investors know the Gulf of Aden is the ocean highway for 30% of European-bound oil flows. The choke point of the Gulf of Aden is Yemen in the north and Somalia in the south while The Strait of Hormuz accounts for 35% of world oil consumption and is skirted by Iran and Saudi Arabia - the other choke point of world energy. Any shutter of free passage of tankers in these key areas would cause an immediate and heretofore unseen rise in energy prices.

The Syrian War is about who (whose ideology) controls natural gas flows to Europe. In that conflict’s simplest terms, Russia wants Iranian gas to flow to Europe through Syria under the thumb of Russia while a consortium of pro-western powers (U.S., Israel, Saudi Arabia and Qatar) prefer Qatari and Saudi gas to flow through Syria under the thumb of the U.S..

The problem is Syria’s King Assad chose Iranian and Russian partners which the West would not tolerate. Assad had to be replaced with a regime of the West’s choosing. This lead to the now-standard pattern of demonization, paid rioters, attempted coup de etat. The subsequent war between dozens of competing factions has resulted in mass casualties, destruction and millions of refugee’s. The horror’s of war matters little compared to the prize: the control of European energy and payment for same. 

Is it clear to the investor that war over oil/natural gas is ongoing regardless of the feel-good solar push?     

Far East News – Access to Energy = War Delayed?

Philippine President Duterte shocked the Pentagon this week by severing long-standing foreign policy ties with the U.S. in a speech essentially announcing a divorce from the U.S. while simultaneously announcing its engagement with China.

In what is being viewed as a tectonic shift in relations with the U.S., Secretary of Defense Ashton Carter is in shock saying only “that they would look into it” after proclaiming last month that relationship with the Philippines was ironclad.

Any new alliance between China and Duterte is a double-win for China in that China has long sought to exploit the 100 billion barrels of oil and trillions of cubic feet of natural gas in the South China Sea but could not because of conflicting claims of sovereignty. To put 100 billion barrels of oil in perspective: The North Sea has generated about 40 billion barrels in the last 40 years. The entire Far East region is heavily reliant on Middle East oil and the ongoing conflicts there only complicate its reliability and pricing.

Any agreement for a joint development around the Philippines with China could reverse the trend toward disputes and conflict at least in that section of the South China Sea and was discussed in a meeting this week between Duterte and China President Xi. Peace in the region would be a disaster to some.  

Duterte’s announcement may have a secondary and more far reaching benefit to China. It may preclude the U.S. from expanding its military might to the region putting the brakes on, if not seriously slowing, Clinton’s infamous Asian pivot.

The U.S. previously had three major military bases in the Philippines and had signed an agreement (prior to Duterte’s election) in March, 2016 to build five more. Again, looking at a map of the location of the proposed bases it’s easy to see why this loss of military hardware placement would stymie any U.S. efforts at containment including China’s ability to search for energy resources closer to home.

Almost eight years after the vaunted “pivot to Asia” which meant to decouple the U.S. from further military involvement in any Middle Eastern wars, the U.S. finds itself mired in five wars principally about future energy supplies for Europe while maintaining the free flow of energy to the Far East.

The question now seems: how many other “ironclad” allies of the West will find China’s siren song irresistible? Duterte’s pivot to China, coupled with a rejection of U.S. military expansion and allowing China a cooperative search for energy in its own sphere of influence, may serve as the determining factors in keeping the peace with China a little longer, or not.

What can investors glean from understanding these events? That energy; oil and natural gas, aren’t going to be replaced anytime soon and that wars will be fought to own and control them. 

Always Watch the Other Hand ... Always

Jeffrey C. Borneman | November 22, 2015

Are you ready for 2016? The U.S. election may slow some of the inevitable events but the trajectory is set and most serious investors know this. Adults understand the magician's job is to keep the audience's eyes on the distraction to pull off the seeming magic. The manufacturing of scarcity is the hand we're not supposed to see. We are now supposed to see only the threat of terrorism and war. Know this: the two are being molded into one as an excuse for scarcity.

Why Manufacture Scarcity?

The reasons are legion: too many people on the planet using too many resources (neither true); Mother Earth cannot take the human abuse (not true); too many people to control (true); the debt-as-money system has run its course (only because it's convenient now); we need war to maintain balance of power (very true) ... we could go on and on.

If you were a believer in any of the above - and one of the magicians who demand scarcity - how best to convince the masses that scarcity is both inevitable and beneficial? It is in the convincing that the magic happens. You'd stir the masses over a generation or two to accept many false pretenses using faux science, shame and, most importantly the concept of duty. Each generation is conditioned with new concepts of scacity, abuse that build on previous ones like Legos (some even have a grain of truth for the sake of legitimacy). If the bait isn't too outrageous and survives its first contact with reality, the magic is accomplished. That building-block becomes ensconced into the psyche and subsequent generations will eagerly up the ante for you in Orwellian fashion assisted by media, acedamia and NGOs.

The enraged masses will demand scarcity without understanding the consequences until it is too late.

What is Becoming Scarce and Why?

Growth and Earnings

Investors are keenly watching world GDPs. China's debt-to-GDP is now over 300% and growing while international trade collapses with the Dry Bulk Index. Russia has all but admitted it is shifting its production into war economy status thanks to the double-team sanctions (U.S., Eurozone) and the Saudi oil war of attrition. Japan is now back in recession status after foolishly following the U.S. monetary model. The Eurozone is beyond anemic. Here in the U.S. the ecnonmy continues to slow: Q3 2015 blended earnings decline is -1.3%. The third quarter marks the first back-to-back quarters of earnings declines since 2009.

So, where's the growth?

Right now a key area of growth is the defense sector. If the current geopolitical chess game continues, the world will devolve into a series of Wars:

Let's start with just two of many assumptions. Some assumptions we must make in light of current events: World economies are mostly command and control (if "we" wanted 5-10% growth, we'd have it) and my favorite quote from FDR: "If it happens in politics, you can be sure it was well planned in advance". Why the sudden increase in terrorism and the laser-like focus on it while world economies teeter on collapse?

Manufacturing Scarcity

The irony of ironies today is that growth, expansion and peace are squarely in the sights of those who pull the power-levers on this planet. Manufacturing scarcity There are many reasons

How, exactly;y, do you manufacture scarcity? What would you want scarce and why?

Leaving aside that the explosion of violence in the Middle East was manufactured by governments of "the West" it is real. The West bought and paid for the terroist with tax-payer money ostensibly to, what?

Events might be slowed but the slowing comes from the political side of the equation and not the demand side.

The Double-Edged Sword of Cheap Oil - ConocoPhillips Lays Off 10%

Jeffrey C. Borneman | September 2, 2015

Cheap Oil has arrived on the heels of Peak Oil and, while a boon to some, falling oil demand continues to add to the unemployment lines in America. ConocoPhillips (COP) today announced additional lays-offs of 1,800 workers decreasing its total workforce by 10%.

According to Fuel Fix the number of lost U.S. energy jobs from last fall through the end of June this year was 150,000. Today's announcement by ConocoPhillips should come as no surprise. The question is always, "Where is the bottom of oil prices?” Goldmann Sachs recently opined that it may fall as low as $25 per barrel. Their announcement is no doubt based on a thorough analysis of fundamentals. Nevertheless, in this case the question may not be accurately answered based on standard, fundamental supply and demand equations.

Since the Saudi announcement last November that it would not cut production, oil prices have marched steadily downward, taking global economies, currencies, employment rates and standards-of-living with them (See Venezuela food riots, nationalization). In what has been generally described as a "game of chicken" between Saudi Arabia and the West, late last week it appeared that the Saudis were the first to blink when Venezuela requested an emergency OPEC meeting to discuss cutting supply. It is rumored that the Saudi regime is attempting to coordinate the curtailment of supply with Russia, and it is certainly conceivable that plummeting oil prices have led to such machinations.

It is further worth remembering the Saudis said last December that oil could fall to $20 per barrel and it would not cut supply. This confluence of circumstances and related posturing clearly demonstrate two unspoken likelihoods: That the Saudi Royal Family is ready and willing let all of OPEC go bankrupt to hold its position and power, and that the regime has lost the game of chicken with U.S. shale producers (who have cemented astronomical growth in production) and may be scrambling for a way out of past brinksmanship without actually admitting defeat.

About that Supply & Demand of Oil

Fundamental analysis is a simple gauge in a static world, where adjustments can be made to rectify imbalances of supply or demand. Assuming there is ample supply and dwindling demand, demand is often manufactured artificially, or alternatively, the impetus for organic demand put in place.

Organic demand is preferable, as it tends to be peaceful. In contrast, manufactured demand may easily manifest as violence. The Goldmann Sachs call for $25 per barrel was based on its fundamental analysis and assumed a static view of "all things being (relatively) equal" in the world of slowing economies.

The difficulty is that nothing could be further from the truth – today we have a world at the breaking point. There is simply too much at stake and too much global interdependence for a fundamental analysis of oil (based on constants that do not exist) to produce reliable predictions.

Oil is the lifeblood of numerous economies with too much debt, too many refugees, too much unemployment, and too many governments out of monetary ammunition to handle this economic pivot - and many that now fear for their own survival. Yes, oil may fall further but there will be a point at which the collapsing price and ensuing economic pain become so great that a violent move to cut supply may appear to be the most prudent option.

Remember, the markets always overreact (on both the upside and downside). If such a violent scenario unfolds, we will not be concerned with testing $25 per barrel but whether we will smash through (WTI) resistance around $148 per barrel.

In such a scenario, the manufacturing of demand will have cured the unemployment problem but created many more in its wake.

How China Takes Over the Gold Market

Jeffrey C. Borneman | September 1, 2015

Ending years of speculation about its official gold holdings, China’s central bank announced a 57.3 percent increase in its reserves to 1,658 tons since its last disclosure in April 2009, when reserves hit 1,054 tons.The addition, although seemingly large, was a bit shocking to gold analysts who closely follow the market and who estimated China’s holdings to be double that amount.

In fact, economist Stephen Leeb adroitly pointedout that China could perhaps have 10 times this amount through its member banks. Knowing China’s propensity to publish questionable financials, the question becomes: What advantage does publishing misleading gold holdings give China? And, what might we expect from gold pricing in the near future?

Most knowledgeable investors are immune to the onslaught of the “buy gold now” media commercials. Yet they persist, out of various fears of an unstable world and an unknown future. The speculation about gold’s future valuespans a truly diverse universe.

There are doomsday scenarios centering on a collapsing U.S. dollar via an unexpected announcement by China that its currency will henceforth be “gold-backed,” leading to a Weimar-like inflation for all commodities, to the dollar’s replacement as reserve currency with its own.Lately, it seems the more fear there is in the system, the higher the dollar rises, while gold continues its retreat. That trend may nearly be at an end.

What’s China Up To?

First and foremost, the Chinese want respect as an international power and the unencumbered ability to influence its own geographic sphere. It sees its ancient culture and its accomplishments as world class, as deserving of world leadership, which it believes is its natural destiny.

The world’s banking institutions (central banks, supported by the International Monetary Fund (IMF), the Bank for International Settlements (BIS), and World Bank), which evolved in the aftermath of World War II, excluded much of the Pacific Rim region, focusing instead on a U.S./Eurocentric culture. However, in spite of being forced to sit at


Page 2 Financial Intelligence Report September 2015

the banking “kids’ table,” China has amassed $3.8 trillion of foreign reserves. This is very respectable, indeed. China is hardly being unreasonable to ask for a review of a post-war order, now 70 years old. Two well-choreographed events will unfold later this year that are best understood as a two-act play.

Act One: The IMF will meet in October to consider, among other items, whether to allow China’s currency into the Special Drawing Rights pool (SDR). This alone would vault China’s economic maneuverability greatly, while also weakening the status of currencies currently in the pool.

The U.S. dollar holds the largest and strongest weighting in “the basket” at 41 percent, while Japan

brings up the rear at 13 percent. The talk is that China will finally be granted a seat at the adult pokertable

with a weighting of 12 percent. The idea is that all countries would forfeit a few percentage points of weighting to accommodate the yuan. It’s important to note here the U.S. has balked at the yuan’s addition each of the past few years, noting the yuan’s lack of flexibility and convertibility.

The US has veto power over any IMF decision.

The IMF itself welcomes the yuan, however, and has no particular love for the U.S. dollar as reserve currency. Indeed, the IMF threatened to strip the U.S. of its veto power if necessary to get a proper reallocation. This may leave the U.S. as the sole and impotent protester when the IMF votes in October.

Ultimately, though, China doesn’t care what seat or how many chips it receives at the adult table because it intends to change the game.

If this were a one-act play, the addition of the yuan to the SDR would be a welcome event, as it would be mildly inflationary. After all, central banks have so far failed to create the level of inflation needed to spur further private-sector spending/borrowing. But China is much craftier than it’s given credit for because it envisages a second act to its play.

Act Two: China seeks a seat at the world table, with the ability to influence events that favor China and enhance its sphere of influence. China’s response to being denied entry to the U.S./euro-centric banking system was to launch the Asian Infrastructure Investment Bank (AIIB), a clear and present challenge to the world’s central bank structure.

Almost immediately following its November 2012 christening, the AIIB attracted some 50 European countries wanting to become members – some of which are NATO allies/members. But we must keep the AIIB in perspective: China is using it as leverage for a seat at the “adult” table.

China is the world’s largest gold producer and (at times) one of the largest buyers. It is also the hub of the physical-gold trading market, with little influence over the pricing of the metal that mostly trades via derivatives in both New York and London. China rightly sees the New York/London Comex as pure financial repression — of both the metal’s value and of the country’s ability to influence the pricing. China’s preparation for Act Two is also crafty.

It joined the London Bullion Market Association as a major player. Rather than trade “paper gold,” China has moved to trade the real metal through the new Shanghai gold market and shift the “London Fix” to the Shanghai-Fix.

This bypasses the pricing distortion by the banks that we have seen in the swooning gold prices of the past year. To date, the price of paper gold has fallen, but we are seeing some trades of the physical metal at prices far over the paper spot.

Alan Greenspan made a stunning admission last fall that would have spooked markets had he uttered it while Fed chairman: “Gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.”

So Greenspan has come full circle (now that he is not paid to defend the dollar). He agrees that gold is money, and China has announced that a re-pricing of gold will take place late in 2015 via its Shanghai-Fix in the physical market.

What Gold Investors Need to Know

So the inclusion of the yuan into the SDR basket and China’s new role setting gold prices will be pivotal for investors worldwide. But it would be unwise to panic over these events yet. China still holds $1.2 trillion of U.S. Treasurys and needs the American market as a buyer of its products.

If the U.S. dollar were to collapse, it would become worldwide within hours. Chinese leaders are not stupid. They are not about to blow the bottom out of a boat they are sitting in by destroying the value of the dollar. However, both events will be inflationary.

Adding the yuan to the SDR will decrease the percentage of all five existing currencies, and with the U.S. as the largest player, it will hurt the value of the dollar all the more.

Regarding the repricing of gold, consider the statement of China’s new gold boss, SGE Vice President Shen Gang, at the LBMA Bullion Market Forum in Shanghai in June: “We will be introducing a yuan-denominated fix at the right moment. We hope to introduce [it] by the end of the year.”That “right moment” to “adjust” the price of gold is meant to coincide with the IMF’s admission of the yuan as a real, stable alternative to the U.S. dollar. This is the absent point from all discussions on China and gold.

The introduction of the yuan to the SDR coupled with China’s ability to influence the price of gold is nothing short of a shift in the balance of power the world hasn’t seen since the Bretton Woods Agreement in 1944, just before the end of World War II.

Aside from the mandatory rebalancing and inflation expected by the yuan, the world will discover later this year whether the U.S. claim of holding 8,133 tons of physical gold is real, how much is owned outright by the U.S. Treasury, how much is hypotheticated (borrowed out) or rehypotheticated (the assets of others borrowed out in the name of someone else), and how deep those contracts go.

The fear of an Enron-like collapse of the paper gold market as traders flock to sell paper gold and own the physical via the Shanghai market is very real. But again, it does China no good to be too disruptive at the outset of its new role. Gold prices will rise, but it’s a safer bet that China will allow only a slow inflation of “hedge to world currencies.”

The Twist Ending to Act Two

China must make sure the yuan is included in the SDR before it reveals its true gold holdings. It would not surprise any analyst if China were to state its reserves topped 15 or even 20 thousand tons. An announcement of reserves near this size would immediately cause gold prices to rise substantially.

China’s endgame — replacing the U.S. dollar as the global reserve currency — would be apparent to

all. How far and how fast would gold rise? Is this the scenario the “gold bugs” in the media envision? The possibility of an SDR currency addition and the Shanghai Fix raising gold prices is a scenario no media has yet mentioned, but is a strong possibility.

Investors may see the potential described above as analogous to David vs. Goliath in that such a shift would cause an immediate division in the SDR, pitting the dollar against the yuan. The dollar position, no matter how far lowered to allow China in, would be at least three times as large as the yuan.

This would leave investors the world over with a choice of currencies: one backed by gold, and the other, oil. Gold looks great in a vault, but it will not power aircraft or tanks. But America’s problem is that a gold-backed currency sitting on 15,000+ tons of gold can buy a lot of petroleum from Russia.

Of course, there are some potential pitfalls for China. China has no substantial oil assets. The U.S. arguably has trillions of barrels of oil in the lower 48 states. China has purchased petroleum assets around the world, but the U.S. controls the seas while China is years away from a true blue-water navy. China’s only source of oil on the continent is Russia.

Pitfalls go both ways. If the U.S. loses its reserve status to a gold-backed currency, the flood of dollars coming back to the Treasury could be inflationary to the point of threatening to social stability. This would be especially true to equities. Imagine the future earnings of any company not producing essentials like metals, defense, energy, and food. We can expect a rotation of investment capital out of non-essential companies into essentials in a way never seen.

Caught in a trap and looking for any scapegoat, it is possible the U.S. will resort to the time-tested war scenario: We will pick a fight with a real or perceived enemy that we’ve spent the past few years demonizing — possibly even Putin’s Russia.

The U.S. has the biggest hammer (military) in the world and commands NATO. The temptation to use them will be great. The old adage of “all wars are bankers’ wars” should be updated for the times: All wars are currency wars.

Of course, our leaders have planned for this as well as scads of other possible scenarios, so all may be fine by Christmas — a new alternative currency the world welcomes with only a slight rise in gold prices.

The question then becomes, will that please China or will it want to run the table and end the game immediately? Either way, China will be setting the physical price of gold soon. No one has a clue whether there will be a hard or soft landing. 

Jeffrey C. Borneman had a career on Wall Street that spanned nearly three decades trading equities, debt and commodities. Mr. Borneman began working independently in 2003, and developed the MDEF™ strategy, designed on the Value at Risk (VAR) model, for equity investors. Mr. Borneman is CEO of Rampart Portfolio Partners, LLC.

Introducing WOTUS - Water of The United States, A Partial-Birth Abortion

Jeffrey C. Borneman | August 30, 2015

Mere hours before the EPA Clean Water rule was to take effect, a North Dakota judge acted to block the Obama administration’s controversial water pollution rule in thirteen states which would render state's right's over its sovereign water and land null and void. This in not hyperbole.

While most American's are fixated on one "shiny penny" event after another, last week's news of the EPA slap-down may have escaped investor's attention entirely. Albeit a real and effective ruling, the judge's decision applies only to the 13 states that sued to stop the EPA's new water rule, and the injunction is temporary. Water (and associated lands) in the remaining 37 state's is now effectively controlled by the federal government.

I wonder what the state's legislatures think about that ...


"Known as the Waters of the United States — or what critics call WOTUS for short — the new rules have been controversial from the start," (AT).

According to Rick Wells, "Those rules give the federal government jurisdiction and control over virtually any water of any size in the United States and along with it, control over any land that water comes into contact with. It would effectively and unconstitutionally subordinate every American to the EPA with private property rights converted into privileges to be granted, denied or declared void by unaccountable, un-elected DC bureaucrats," (emphasis mine).


Judge Ralph R. Erickson called the Environmental Protection Agency’s attempt "inexplicable, arbitrary and devoid of a reasoned process," and issued an injunction preventing the EPA and the U.S. Army Corps of Engineers from claiming oversight of millions of acres of land that contain small bodies of water.

Judge Erickson added, " ... that the states would probably suffer harm if the courts did not act to intervene and ... “Once the rule takes effect, the states will lose their sovereignty over intrastate waters that will then be subject to the scope of the Clean Water Act," (emphasis mine).

EPA Reaction - Undeterred

In a statement issued shortly after the ruling, the EPA "pledged to continue with much of its original package of regulations in spite of the judge’s ruling, claiming that the decision only applied to the thirteen states which voiced objections ... In all other respects, the rule is effective on August 28," (AT).

Investor View

Prudent investors tend to own the items that are either rare, or being made rare.

As a manager of other people's money I attempt to avoid hyperbole, even when discussing blatantly unconstitutional agencies and the restrictions of rights, however the title given to this piece is accurate. The WOTUS rule is an abortion of personal property rights in the 37 states that did not sue to stop it. It is a partial-birth abortion only because one judge had the common sense to say "No". That said, the EPA has given the remaining 13 states fair warning that it will not stop unless congress stops it.

The world did not end on Friday morning after the effective date of WOTUS and few of us should expect the EPA to come to our homes, farms or businesses tomorrow to demand you cease-and-desist water use or claim your house is too close to some arbitrary border.

But it now can in 37 states.

Still Bullish on Oil? Absolutely

Jeffrey C. Borneman | August 21, 2015

The most oft asked question today is "where is the bottom in the oil price"? Is Goldmann Sachs' prediction of $25 per barrel remotely possible? What about the rig count decline and the cessation of capital expenditures (Capex) on exploration? Are we setting ourselves up for an economic boom from lower prices or inviting a military conflict that would send the price per barrel back into triple digits?

Some review is necessary.

In November, 2013 the U.S. shale revolution was in full swing. The U.S. had increased shale oil production from 5 million barrels a day in 2008 to about 9 million barrels a day. Saudi Prince Alwaleed Bin Talal, the billionaire businessman who is CEO and owner of the Kingdom Holding Company saw the writing on the wall. He said the exploding "shale output in the West poses a genuine threat to his country’s economic stability and future survival."

Alwaleed wasn't kidding. He went on to say “I will make them (the Saudi ministers) get it; there is no doubt about that. I’ll make them get it. It is matter of survival. There is no choice but to get it. I will keep pushing until they do."

The breakeven for the Kingdom is known. It is $106.

Politics or Market Share

The prevailing theory is that the Saudis were willing to pump more oil at half the price to hold on to its "market share" while demand, although somewhat down, did not dictate it such a drastic move. This makes no economic sense at all.

But it does make perfect sense from the political view. It was clear from the start the Saudis finally at SA wanted to drive the American shale revolution into bankruptcy, harm the Iranian regime while America wanted to starve the Russia

The idea that SA wanted to hold on to market share seems to be non-sense. Secretary of State John Kerry

Did the U.S. Double Cross the Saudis?

The theory goes like this: September meeting between John Kerry and Saudi King Abdullah where a deal was made to boost production in order to hurt Iran and Russia.

The debate is NOT between so-called “conspiracy theorists” and those who think market forces alone explain the falling prices. It’s between the people who think that the Saudis decision to flood the market is driven by politics rather than a desire to grab “market share.”

and was

calling for the diversification of the Saudi economy as 90% of government revenues are based on oil sales. Increased supply by America would threaten the Saudi treasury by driving prices down.

Wars have been fought for it, and lost for lack of it ... Oil.

Iran Prepares for War - Orders for Weapons Begin

Jeffrey C. Borneman | August 19, 2015

The theory that the Iran nuclear deal would somehow relieve tensions in the region is now dead. It was a ridiculous notion really, only taken seriously by journalists who reported accurate quotes but missed the real story. The ink wasn't dry on the U.N. deal before Iranian orders for heavy weaponry began and the scope became clear.

Iran has inked a deal with China to purchase 150 Chengdu J-10 mult-role jet fighters. The J-10 is an Israeli copy of the U.S. F-16 and will be refueled in-air with the additional purchase of 100 MK1 air tankers capable of refueling 6-8 fighter jets simultaneously. Iran is also considering the additional purchase of 250 Sukoi-Su-30 muli-role air superiority fighters from Russia. That is just for starters.

It is clear by the immediate purchase of some 500 military aircraft, that Iran intends to establish air superiority over the entire region and doing so with a brand new air force capable of striking far from its borders.

To protect these new military assets and dissuade any possible attacks on its nuclear facilities, Iran has also inked a deal with Russia for four batteries of the Russian S-300 air defense system.

According to a senior Air Force commander the S-300 "essentially makes Iran attack-proof by Israel and almost any country without fifth-gen [stealth fighter] capabilities. In other words, Iran, with the S-300, can continue to do what they want once those systems are in place without fear of attack from anyone save the US." (The Daily Beast).

U.S. allies in the region are beyond concerned. The idea is that Iran's military shopping spree cannot be matched by Israel or even the combined purchasing of the Gulf Arab states. But to allay fears, the U.S. has graciously offered Israel and Gulf Arab states billions in weapons sales and even weapons "aid" that includes increasing Israel's allotment of F-35 fighter jets.

Just last spring the Pentagon announced that, due to the sequester, it would cease production of both the Tomahawk cruise missile and the Hellfire missile. But just this week the Pentagon announced it has requested the production line for the Hellfire increase from 500 missiles per month to 650 to meet foreign demand.

Saudi Arabia just announced the purchase of 600 Patriot (Advanced Capability) Interceptor missiles at a cost of $5.4 billion and continues to pursue the purchase of 600-800 German Leopard Battle tanks. In 2002, Saudi Arabia’s defense spending was just under $20 billion; today it’s over $80 billion, a rise of 300 percent.

Demand for defense (offensive weaponry) continues to escalate. The nuclear deal with Iran has fundamentally altered the balance of power in the Middle East. It won't be long before enough dust settles that it becomes clear the Iranian nuclear deal was the U.S. exit strategy from the region. This strategy opens the door wide for Iran to prepare for war with a new conventional military while it completes its offensive nuclear weapons program.

Wait for it ... Not yet ... Now ... (George Soros Buys Coal)

Jeffrey C. Borneman | August 18, 2015

The title above are the words spoken by Dan Aykroyd in the trading pit scene at the end of Trading Places using his inside information (about the orange-crop report) and gauging the exact time to make his move on the futures market. What does George Soros know about the coal industry that the average investor does not?

"SNL Financial reported on Friday that Soros’ investment fund informed the Securities and Exchange Commission that it purchased stakes in Peabody Energy and Arch Coal this year (reports Free Beacon) - Soros acquired more than 1 million shares of Peabody and 553,200 shares of Arch in the second quarter, according to the filing."

Should investors be surprised at this move by the financier of every "green" organization in America? Perhaps Soros realizes the beatings the EPA has taken over both the new "rules" of The Clean Air Act and Clean Water Act and is merely hedging his bets that congress will reign in future EPA overreach. Or perhaps he realizes the U.S. cannot make up the 37% of electricity from coal with the vaunted "renewable, green and sustainable" alternatives.

Or just maybe Soros couldn't resist buying excellent companies at pennies on the dollar (literally) thinking that surely U.S. coal is exportable if all else fails.

The shares of both companies are considerably lower now than during the Q2 of 2015 but Soros is no fool. He undoubtedly would be adding to his positions to cost-average down. We will discover his intent during the next SEC reporting period.

There are money managers that are now accusing Soros of both theft and collusion with the EPA.

Thomas Lifson wrote today in American Thinker, "These companies own huge reserves of coal that would be worth far more if the jihad against coal ended. If, for instance, the EPA backs away from its latest rules on CO2 emissions."

Does the Soros move signal he knows what is in the crop report? If the EPA is forced to perform a cost-assessment of compliance on future "rules" the writing is on the wall for all to see. The jihad against coal would end ... my guess is that Soros is betting like he knows the "orange harvest was not affected by the unusually cold winter."

China, Gold & Timing

Jeffrey C. Borneman | August 16, 2015

From WND and Dr. Jerome Corsi.

Read the Original Article

By: Corsi WND Original Article Date: 2015-08-16

Legislating and Regulating Scarcity

Jeffrey C. Borneman | August 3, 2015

I'm not promoting one candidate for POTUS over another but encourage the debate of the strangulation of basic human needs at the highest of levels.

No matter how, or by whom the EPA is slapped down, castigated or berated it is hell bent de-industrializing the American economy. Today's new-new proposed Rule on Clean Power Plan is meant to literally throw our Energy might like a hail-marry pass back to pre-industrialized America. The idea that "renewable's" can ever take the place of fossil fuels or nuclear has been disproved time and again but the myth persists because it is the train the EPA is on.

As investors ask yourself this: If the EPA is granted the unlimited power's it already presumes to have and regulates at will, what will America look like? Savvy investors know that whatever the government is intending to make scarce is a wise investment.

Don't be fooled by the conciliatory language in the article below and demand that whomever you support politically speak to the EPA's illegal overreach:

Read the Original Article

EPA Issues More Ambitious But Flexible Final Clean Power Plan
By: Sonal Patel Power Magazine Original Article Date: 2015-08-03

Greece: There is a Plan, Joe - There's Always a Plan

Jeffrey C. Borneman | July 6, 2015

The title above is a line from the iconic movie "Heaven Can Wait" and should speak to frantic investors world-wide. Although this particular game is deep in late innings the rules will be followed, nonetheless. Let me explain:

In G. Edward Griffin's book The Creature from Jekyll Island there, in the second chapter titled "The Name of the Game is Bailout", we find the banking cartel's game plan detailed. While some view Jekyll Island as inconsequential due to its simplicity, Griffin does a masterful job exposing and explaining the goal of the banking cartel.

" ... that the primary objective of that cartel was to involve the federal government as an agent for shifting the inevitable losses from the owners of those banks to the taxpayers."

Some have erred in thinking that Griffin's work speaks only to our own federal reserve and domestic banking. What makes that too narrow a view is the history of how our own U.S. Federal Reserve (with the help of the IMF, World Bank and Bank of International Settlements) established the cartel on every continent and in almost every country, so it is safe to say the rules apply internationally.

According to Griffin, the Greek situation can be likened to a football game with nuanced rules that can morph depending on circumstances - and which only the most sophisticated viewers are meant to understand. I recommend you read Jekyll Island if only for its second chapter, but do so with the Greek banking situation in mind.

To date, we've witnessed threats, riots, cash, food and medicine shortages and a public referendum denouncing the debt owed the EU. But know that any final Greek collapse does the EU and world banking cartel no good. The EU does not want to absorb the Greek losses by allowing it to further default.

Might Greece still refuse a bailout? Might the people of Greece follow the Iceland example and jail the bankers who bankrupted its country? Yes, but the Greek game is different for many reasons. As the situation progresses into extra-inning, the referees will huddle again (tomorrow) to add time and "morph the rules" to placate the people of Greece into accepting some alternative to keep it in the Eurozone.

As of this writing the Greeks have floated the idea that a 30 percent "haircut" of the debt is required to further discuss further bailouts, and of course the EU (lead by Germany) has flatly rejected the idea. Perhaps a smaller haircut for banks combined with the "rescheduling" play or "guaranteed payment" play (see Jekyll Island). The sophisticated banker knows well the value of a non-preforming loan: All that is required to reinstate loan value is to increase the capital lent which allows interest payments to resume.

Aside from the balance-sheet issue we should remember that Greece is a NATO member and borders the entrance to the Black Sea. The Black Sea is home to half of the Russian naval fleet so it is no surprise that Russia (and China) have approached Greece to assist financially. It is doubtful that any disruption to the balance of power of this size would be allowed.

What may make this time different? On the scale of loans to countries, Central banks lend money against assets first - the borrower's ability to repay the loan is important but secondary. There is a chance the assets are running out ... I have referred to this as "running out of wheelbarrows to monetize". If the fear of this becomes widespread, the world will face another bout of very serious inflation, unrest and war.

While the financial stakes are enormous and contagion looms which may dissolve the EU, it should be remembered the original intent of the EU - unification was meant to so dilute a powerful German state to the point that it could never again instigate a European war. The bank's game has continued with only minor modification for some sixty years, so history suggests taxpayers with absorb bank loses through inflation - again. Yes, Greece may be the beginning of a new game; the EU may unravel and cause massive disruptions and war while the referees officiate an unrecognizable game ... but history favors FDR's almost-forgotten quote: "If it happens in politics, you can bet it was well planned in advance."

It was with this, and other, eventualities in mind that the MDEF™ Investing strategy was created. The banking cartel does not really think in terms of money (sound strange?) but only its movement and control of the ultimate assets of Metals, Defense, Energy and Food. A savvy investor will think likewise as "there's always a plan".

If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.

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