Urban Survival’s Inside Report  # 4    November 10,2001

NOTICE:  All contents © 2001, George A. Ure, except other authors as noted.  This document is intended for the sole use of subscribers and may not be transmitted, reproduced, or in other way used without the prior express consent of the author.  This publication is by subscription:  $30/year for web browser accessed delivery to a password protected site (price effective until January 1, 2002), and $100/year if delivered by U.S. mail within the U.S. and Canada.  Overseas subscriptions are US$ 250/year which includes postage.  To subscribe, send a check to: George A. Ure, 2726 Shelter Island Drive, #322, San Diego, CA  92106.  Your username and password are both your email address, in all lower case to access the protected web site, so don't forget to include it!   Address comments and correspondence to: george@ure.net.    Read the disclaimer: http://www.urbansurvival.com/disclaim.htm

  The Breakout that Failed ?  

This was an incredibly interesting week in the market from a technical perspective.  Why?  Because the market almost - and I mean almost - broke out to the upside.  It was so close...ohhhhhh so close.....that I put a warning up on the public side of the site that I would advise subscribers with a special update if the Aggregate Index broke out. 

There was nail-biting galore around the boat on Friday when I got back from meetings with a local college (regular work may still have a place in my future).  I kept watching for the Dow to bust out to a new high.  Instead, the wild ride Thursday was probably just more hype and bluster around the Fed's latest rate drop.  The trend, I'm sad to report, is still downward.

Which is not to say that the market won't open up 300 points on Monday, skies will clear across the Nation, Osama bin Laden will turn himself in to a bounty hunter, and the Easter Bunny will announce he's going to work for S. Claus & Company in time for the holidays this year.  It's just that a breakout looks less like.

The news that came out after the market closed on Friday may well have a dampening effect for the next week or two.  The reports that Osama (OBL) has a nuclear weapon or two and has more bioterror in store for us is not the kind of stuff that makes you want to run and buy more presents to put under the tree, unless, of course, you've put a tree up in that old bomb shelter your family built in the late 1950's.

Although I had every intention of going out two weeks ago and buying more gold, I didn't.  Instead, I waited.  No, I have no idea why, but something at the last minute came up and I haven't gotten around to it.  Still, that's where I will keep putting the odd dime here and there...into gold.  Things aren't feeling right, aren't feeling settled, and unless the market gets serious about pushing above the long-term declining trend line, I am not at all interested in getting back into any kind of long-term investments. 

That's a pretty good sized statement, too.  No new cars, no new property, no new securities, just a few more coins and a little more cash.  Another box of .22 ammo.  Another fishing rod, some sinkers and lures.  You know, the practical stuff of life.

The Question of Nukes  

Let's have a little conversation about terrorism, and where things are this week.  I'm going to give you two perspectives, one from a learned lawyer, and a different take from the "think tank".  Lawyer first.

I was reading an email sent along by a long-time acquaintance who is a lawyer by profession, a pretty good economist by hobby, and one of the more reasonable and rational voices of economic and political discussions you'll ever run across on the web.  Let me share his email with you because he makes some points about how we're a country in denial right now and that's not a good place to be...

Probably most of you on this board have thought I have been a little alarmist since 9/11.  That is not surprising since emotionally American's didn't want to face the issues that have squarely faced them since the Twin Towers were hit.
 
I think the words "doubtful" were used about my continual monologue about WMD's, and Nuclear Weapons, as were similar words when I first said there would be follow up attacks.
 
Most of you probably already know the new news wrt WMD's and Osama bin Laden by now.
 
OBL now openly claims to have Nuclear Weapons and other Weapons of Mass Destruction.
 
The US Government according to the news today is "dismissing his claims"............. which I suppose is why they have been keeping our VP out of town most of the last three weeks in a bunker somewhere, part of the cabinet out of town the last two weeks, and Congress has been rushing to get legislation in place on how to replace them if 1/4 or more are killed.
 
To put the issue of OBL directly having Nuclear Weapons into context one can think back to the Cuban Missile Crisis, the last time the US looked down the nuclear barrel.  In that case the USSR held the keys to the weapons, but the minor leader in the conflict and the one most ideologically inclined, Fidel  Castro it has been reported since was chomping at the bit to have Nuclear Weapons used. 
 
Fidel's hatred of the US was so great that he didn't care about the cost of nuclear exchange......he craved one (at least according to reports that have come out since from both Cuban and Russian sources).  What would have happened if Fidel Castro in 1962 held the keys to Nuclear Weapons? 
 
As it was the USSR had just as much to lose in 1962 as the US and backed away from a confrontation, marginalizing Castro's desire to use nuclear weapons during the Cuban Missile Crisis.
 
Today the keys of some Nuclear Weapons (and other WMD's) apparently are held by another person who harbors a deep hatred of the US, and is even more ideologically driven than Castro was. 
 
The keys of doomsday are held by someone who has even less to lose than Castro: he has no nation state or peoples to protect; he himself is going to be "taken out" if the US has anything to do with it (no big protector like Castro had); his personal philosophy/religion which he appears to believe very strongly says death in advancing the "cause" is glorious.
 
The American People are having a hard time waking from their slumber of unconcern.  The mood of the country is very different now from during the Cuban Missile Crises, yet the physical risks may be just as great while at the same time the motivational risks of the other side to actually use WMD's is much much greater.
 
Most of you probably think I am just a gloomy person......those of you who have followed my posts for a while though know I completely poo-pawed the Y2k thing and most other doom and gloom scenarios of the perma bears.  This is real this time.  This isn't some uneducated doom and gloom scenario that has people panicked (in fact most are unconcerned).  This is where the rubber finally meets the road so to speak.  This is the real thing.
 
This is a real risk the US, and the Western World faces........  How do we deal with WMD's in the hands of Religious Zealots whose version of their religion calls for the complete elimination of us, all of us, and in the readily foreseeable future?
 
Peggy Noonan in yesterday's WSJ compared this period we are in right now to the "False War" period of WWII, the interval between when the Western Countries and Germany  declared war on each other and when the fighting actually started.  That period, which lasted several months, had an outside appearance of near normalcy even as the real war inexorably grew closer and closer.  It is a good comparison.  On the surface things are mostly normal, but under our feet the ground has shifted dramatically, and the foundations of all of our wonderful cold war logical constructs have been weakened to the point of near failure.
 
Most Americans still don't "get it"; the Fundamuslimites want us dead, and dead in the not too distant future.  This is not a negotiable position. 
 
Just as people said Hitler didn't really mean what he said in Mein Kampf, people are saying that the Islamic Fundamentalists don't really mean it when they say they want to destroy us.  My reply is that Hitler meant what he said, and the Islamic Fundamentalists mean what they say.  People don't want to believe it because it doesn't fit their own personal views, not because those saying it don't believe it.
 
The Fundamuslimites abhor the American way of life, and everything we represent: Democracy; The vote; Equal rights for all human beings; Freedom of religion; Freedom of speech; Freedom of association.  A secular state in their minds is an abomination.
 
The Fundamuslimites continue to gain political support among the masses in the Moslem world. 
 
The Wildfire continues to spread.
 
Weapons of Mass Destruction are part of what they WILL USE in advancing their clearly stated goals.

Now this is a pretty reasonable, level-headed, well-educated fellow's view.  That would be easy enough to dismiss if there were just a handful of people like him sounding an alarm.  It would be easy to pass of their concerns as "excessive" or fear-driven and let it go. 

But now let me flip over to the other side of the coin and lay three or four facts on you.  First, if OBL had a nuke, and if he had it in the U.S., I think he would already have set it off.  By all accounts these people are wild-eyed fanatics and want to "off" as many Americans as possible.  But there's a catch.

Largely unreported or underreported by the U.S. press is that OBL is not especially bright when it comes to procuring  nuclear materials.  As the think tank pointed out to me today, bin Laden has been "scammed" at least five times in trying to buy weapons grade nuclear materials.  Not once...five times.  You gotta wonder about their learning curve.

By the reports from the think tank, bin Laden was scammed twice by a South African crime group, and twice by Central Asia groups (Chechnya connections expected) and once by a Nigerian group.  Apparently, the Nigerian group claimed to have 40-pounds of weapons grade plutonium and that it could be sent in a foot-locker sized box.  So OBL and company have probably spent a fair amount of money and don't have much but some boxes of low level waste to show for it.

On that note, the think tank suggested I learn to read Russian because the U.S. press has a very U.S.-centric view of reporting.  They suggest that this is the kind of news we will probably see "broken" by the big name Eastern Press in the next week or two.

I then discussed them the scenario covered in Clive Cussler's latest book, "Valhalla Rising".  In the story, an Ultra Ultra Large Transport ship full of millions of gallons of propane is hijacked coming into New York, and is stopped (by the hero Dirk Pitt) just short of going aground and being exploded in downtown New York a few blocks from the World Trade Center.  (The book was written before 9/11)

"Oh that?  Yeah, that's the rub.  They are very good at using stuff lying around against us.  If they had something nuclear in Afghanistan, we would probably know about it by just pointing the radiation detectors of the Hubble space telescope at the country.  You did see the comment this week that the Afghanistan is so backward they can't even make glass?"

Nope.  I confessed, I had not.  "Oh, hell, you're missing all kinds of good stuff.  We're all learning Chinese now."

Well, there you have it.  An "all side of the problem look at the exogenous risks to the market - those outside events. 

Then there's the technical side of the markets.  Every bit as worrisome right now.  Certainly, you might be able to build a case for optimism IF the Aggregate Index had managed to close above, instead of AT the long-term downtrend line this week.  Let's look at the charts for a minute and weigh things out:

So Now What?

That's always the $64,000 question, isn't it.  I want you to look at the Dow chart above and let me run you through a couple of interesting things.  First, the Dow looks to me like it has completed a major decline of A,B,C and I've sketched these in on the chart.

Now when do crashes occur?  In Elliott terms, E wave crashes have been the kind occurring of late and the mechanism that my friend Robin Landry of Landry Asset Management sees goes something like this:

It's at turns like this that everyone who's a bull can panic, especially if what professional economists call an exogenous event changes everyone's view of the future suddenly and unexpectedly.  Like a major terror attack sometime in the next week with a nuclear weapon.  Remember, that's still in the cards and the latest readings from the web bots still give us another terrorist incident between now and the winter solstice.  But as I explained above,  it's probably not a suitcase nuke that we need to worry about.  It's one of our own assets being turned against us. Like a propane tanker leaving a two-mile fireball over Long Beach.

So much for the markets and the news.  Elaine, her brother "Panama", and I are taking off for the local party lounge.   If I'm going to live in a country of fear, it's by God gonna be a fear that we won't get a table, or won't get there in time for the $0.50 monster shrimp. 

Fair winds,

George