The Pre-9/11 Financial Omen

Financial Foreboding

Of all the missed warnings before the Sept. 11 attacks in 2001, some of the most compelling — and to this day, least publicized — were the financial warnings.

The attacks took place on a Tuesday morning. The previous Thursday and Friday, something funky was going down in the options markets.

Paradigm Press macroeconomic maven Jim Rickards recounted the story in his book The Death of Money: “On Sept. 6 and 7, option bets that United Airlines stock would fall outnumbered bets it would rise by 12-to-1. Exchanges were closed on Sept. 8 and 9 for the weekend. The last trading session before the attack was Sept. 10, and on that day, option bets that American Airlines stock would fall outnumbered bets it would rise by 6-to-1.”

There was no news to trigger that sort of action. And there was no similar action in the other airlines like Southwest or US Airways — whose jets were not involved in the attacks.

“Seasoned traders and sophisticated computer programs recognize this pattern for what it is,” Jim wrote — “insider trading in advance of adverse news. Only the terrorists themselves and their social network knew that the news would be the most deadly terrorist attack in U.S. history.”

The 9/11 Commission dodged the issue, saying the feds uncovered “no evidence” anyone with advance knowledge of the attacks profited.

Still, a small office within the CIA decided to dig deeper… and Jim Rickards was among nearly 200 finance pros called on to assist the effort during 2003.

Their mission: To identify market activity that would tip off another big attack.

By 2004, Jim had helped design a functioning algorithm — incorporating artificial intelligence, applied mathematics, news feeds and price feeds.

“We had modeled terrorist trading from start to finish,” Jim wrote, “anticipating that the insider traders would be not the terrorists themselves but rather members of the terrorist social network. We also concluded the insider trade was likely to be executed in the options market less than 72 hours before the attack to minimize the risk of detection.”

On Aug. 7, 2006 — Jim and his colleagues spotted just this sort of activity. Once again, it was concentrated in American Airlines.

As it happened, Scotland Yard was in the process of thwarting a plot to blow up seven airliners traveling between Great Britain and North America. By the night of Aug. 9, police in and around London were able to pick up 24 suspects in a series of raids.

“We realized that the plot was unfolding in exactly the time frame that our behavioral modeling had estimated.”

And yet… the CIA wound up pulling the plug on the project. As Jim tells us, the agency was concerned about public perception that the feds were combing through U.S. citizens’ personal trading records. That’s even though the system relied only on “open source” (publicly available) information to generate leads; if the leads needed following up, that had to go through the court system.

➢ Bonus points for government stupidity: It was this August 2006 incident that’s cursed us ever since with the TSA’s arbitrary and pointless 3.4-ounce limit on liquids and gels in your carry-on luggage.

Silver Shines

Don’t look now, but silver is back to its 2024 highs.

The white metal closed over $32 an ounce yesterday. It’s pulled back a bit this morning — $31.80 — but the price action is constructive.

“Silver has been lagging gold since the summer,” Paradigm’s Greg Guenthner writes his Trading Desk readers today, “but has accelerated higher this month. Not only has its year-to-date performance now surpassed gold following yesterday’s rally of almost 5% — it’s also right back to those May highs. This is a huge level!

“Remember, silver can really fly in the right conditions. Gold probably needs a break after running to new highs, but a fresh breakout in silver could really get the precious metals bulls running.”

“$32 silver is nothing,” affirms our floor-trading veteran Alan Knuckman of The Profit Wire. As Alan is keen to remind us, silver’s 2011 high of $50 adjusted for inflation would be almost $70 today. (For the moment, we’ll overlook silver’s 1980 high, also $50 — that was a truly extreme circumstance. But if you must know, that would be $191 now.)

Gold, meanwhile, is holding onto its gains of recent days at $2,656 — close to record highs, but totally flying under the radar. The Midas metal is getting no attention from corporate media or retail investors.

“I think this is a good thing if you are bullish on precious metals!” says the aforementioned Greg Guenthner. “There are lots of folks out there who will be late hopping onto this bandwagon as these names continue to break out. And the more speculative plays are beginning to catch and run.”

As for stocks, watching the major indexes is like watching paint dry: At 5,728, the S&P 500 is down less than a tenth of a percent from yesterday’s record close.

Crude is sinking back toward $70 a barrel, even as the Financial Times reports that Israel is preparing a ground offensive in Lebanon.

Bitcoin is holding the line on the $63,000 level.

Is Altman Demanding the Impossible?

What the hell does OpenAI founder Sam Altman want?

From Bloomberg: “OpenAI has pitched the Biden administration on the need for massive data centers that could each use as much power as entire cities, framing the unprecedented expansion as necessary to develop more advanced artificial intelligence models and compete with China.”

All this year we’ve been alerting you to the prodigious electricity demands that AI is making on an electric grid whose capacity is no greater now than it was in 2011.

Altman dropped in on the White House two weeks ago, trying to pass himself off as the man with a plan. He proposed the construction of several 5-gigawatt data centers around the country. “To put that in context,” says Bloomberg, “5 GW is roughly the equivalent of five nuclear reactors, or enough to power almost 3 million homes.”

Exactly what he wants from the government is fuzzy. All we get from the Bloomberg story is that “the U.S. needs policies that support greater data center capacity.” What policies are those, exactly? No clarity.

Also fuzzy is who Altman expects to pony up the funds for this scheme. Taking his case to the White House seems suspicious. If it’s such a great idea, can’t he line up private equity money on his own?

At least one utility executive is calling BS: “Whatever we’re talking about is not only something that’s never been done, but I don’t believe it’s feasible as an engineer, as somebody who grew up in this,” Constellation Energy CEO Joe Dominguez tells Bloomberg.

Constellation’s operations include an outsized presence in the mid-Atlantic — the region that’s home to “Data Center Alley” in Loudoun County, Virginia. The management consulting firm ICF projects a 68% increase in the region’s power demand by 2050.

But forget 2050: As a result of this surge in demand, other independent researchers project rolling blackouts in the mid-Atlantic by 2026, maybe even next year.

We don’t know how all of this will play out in the end… but something’s gotta give.

And not enough people are talking about it. So we’ll keep shouting into the void…

News From Canada: CBDC, RIP

Canadian leaders say they’ve given up on a CBDC — a central bank digital currency.

If you’re a newer reader, let’s get you up to speed: Global elites envision CBDCs as the digital replacement for physical cash. The aim, as Paradigm macro maven Jim Rickards explained in 2022, is “herding you into digital cattle chutes where you can be slaughtered with account freezes, seizures, etc.

“In a world of CBDCs, the government will know every purchase you make, every transaction you conduct and even your physical whereabouts at the point of purchase.

“It’s a short step from there to negative interest rates, account freezes, tax withholding from your account and even putting you under FBI investigation if you vote for the wrong candidate or give donations to the wrong political party.”

And yes, the concept is under consideration in the United States — following an executive order signed by Joe Biden in March 2022.

But days ago, the Bank of Canada said it’s “scaling down its work on a retail central bank digital currency and shifting its focus to broader payments system research and policy development.”

Perhaps the writing was on the wall late last year, when the central bank commissioned a survey on the concept — finding 86% opposition. Among the comments: “Horrible idea” and “Leave cash alone.”

Said one: “A digital dollar sounded great until we saw the federal government freeze private bank accounts of its own citizens for supporting a political movement it disagreed with. I have no faith at all in the system anymore.”

As you might recall, that’s exactly what happened in January–February 2022 when Canadian truckers swarmed the capital Ottawa to protest COVID jab mandates.

Shortly after the government froze the bank and credit card accounts of several protest leaders, the websites and phone systems of all the Big Five Canadian banks became inaccessible. To this day, Canadians speculate about whether a bank run was underway — as either a panic or a protest in response to those account freezes.

So that’s the background to Canada’s decision.

Canada is not alone in the English-speaking world, by the way. The Reserve Bank of Australia recently published a report concluding, “There is no clear public interest case to issue retail CBDC in Australia as yet.” And in the developing world, Colombia is also giving up.

As Nicholas Anthony writes for the Cato Institute, none of these central banks’ statements is binding… but they are “a welcome change of pace.”

The Mailbag

Let’s return to the topic of property taxes: Amid a referendum in North Dakota to repeal property taxes, we heard from a Texas reader who defended the property tax as “not progressive like the income tax.”

Now another Texas reader fires back: “I was incredulous at my fellow Texan who offered that prop taxes are not progressive. Well, that may be true until your central appraisal district’s valuation increases — kinda sorta like if your income levels increase.

“Unlike increasing income taxes, which result, of course, from making more money to pay on those increasing taxes, when your prop taxes go up, you start eating more beans and tortillas to pay the tax fiddler. 

“I am talking about one's homestead — the place where you actually live. If you have a second house on the lake, beach or sixth fairway, our well-heeled brothers/sisters can typically afford the extra dollars to pay on the multimillion-dollar athletic complexes common in Tejas where the independent school districts receive the bulk of tax revenues.

“It's called the real world.

“My regards, and keep looking up.”

Dave responds: The problem is even worse for the proverbial retiree living on a fixed income whose property values are rising relentlessly.

I’d imagine there are more than a few 70-somethings in Austin who’ve lived in the same house for the last 30 years and are finding it mighty hard to get by right about now…