The Terror Trade
- Did an options trade tip off the Sept. 11 attacks?
- The CIA’s predictive financial tool, now available to you
- One-upmanship on the road to Bitcoin 2.0
- Hawaii 5-0 taps the brakes on weird gun grab
- The mysterious case of Utah’s shrinking national monument
Of all the missed warnings before the Sept. 11 attacks, 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.
Agora Financial’s 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.
“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 with “Project Prophesy” during 2003.
Heading up the effort was a CIA veteran named Randy Tauss, who happened to be a seasoned options trader. Jim was recruited in part because of his experience with Islamic banking in Pakistan; soon he became one of two project managers reporting to Tauss.
Project Prophesy’s mission: To identify market activity that would tip off another big attack.
By 2004, Jim had helped build a functioning prototype of a Project Prophesy machine, 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, 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.”
Still, the CIA pulled the plug on Project Prophesy. As Jim tells it, the agency was concerned about public perception that the feds were combing through citizens’ personal trading records. That’s even though the system relied on “open source” (publicly available) information to generate leads; if the leads needed following up, that had to go through the court system.
“After 2008, I moved on to other projects,” Jim tells us, “but I never lost sight of the potential predictive power that we had discovered in Project Prophesy.
“I learned that the techniques I developed were useful far beyond the realm of counterterrorism… If you know where to look and how to examine the history and data, much can be learned about the future movements of financial markets. A lot of this information can be gleaned by the actions of insiders who have special information everyday investors don’t.
“The tools I developed for Project Prophesy can detect these insider actions, giving everyday investors the same advantage insiders have.”
But only now — more than a decade after Project Prophesy scored its biggest “hit” — is Jim in a position to “declassify” certain aspects of the system… and show retail investors how to put its power to work in their own portfolios.
The profit potential? An average $15,760 every two weeks, Jim says. You can learn more about how it works at this link.
To the markets today, where it’s tech stocks taking the lead.
At last check, the Nasdaq is up more than three-quarters of a percent at 6,834. The Dow, by contrast, is up only a little bit from yesterday’s close at 24,321. Yesterday, it was the other way around — the Dow leading the charge and the Nasdaq lagging.
But the big story is gold, which is getting whacked — down 1% as we write, to a two-month low of $1,262. And it’s not a strong-dollar story either; the dollar index is up, but not much, at 93.4.
The base metals are hurting even worse; copper is down nearly 4% and back below $3 a pound for the first time since early October.
The new era of bitcoin futures trading will arrive even sooner than expected.
Late last week, the Commodity Futures Trading Commission gave its blessing for the two big Chicago-based derivatives exchanges to launch bitcoin futures trading. As we mentioned on Friday, CME Group immediately announced plans to “go live” on Monday, Dec. 18.
Yesterday, CBOE Global Markets one-upped its competitor — setting its launch date for this coming Sunday, the 10th.
“The prospective introduction of bitcoin futures has the potential to elevate cryptocurrencies to an emerging asset class,” says Nikolaos Panigirtzoglou, a strategist at JPMorgan.
Wait — didn’t JPMorgan CEO Jamie Dimon call bitcoin a “fraud” and threaten to fire any employee who traded it? Why yes, he did — it’s right there in The 5’s voluminous archives from Sept. 12. Heh…
Bitcoin, by the way, came within less than $100 of the $12,000 mark this morning; it’s since pulled back to $11,752.
[Ed. note: We got a phenomenal response to James Altucher’s live bitcoin Q-and-A last night. If you missed it, it’s too late to take part in the $1,000-a-minute giveaway… but you can still watch a replay of the event as James answers readers’ most burning questions. Access here.]
A quick 5 follow-up: Honolulu police might be having second thoughts about their ganja gun grab.
As we mentioned last week, police cross-referenced a list of medical marijuana patients with a list of firearms purchasers. People on both lists got letters giving them 30 days to “voluntarily surrender” their guns and ammo.
Now the policy is under “review,” according to the Honolulu Star-Advertiser: “The policy review follows community backlash since news of the letters sent to at least 30 legal medical cannabis users and permitted gun owners spread nationally this week via marijuana websites and the media.”
The NRA, meanwhile, still maintains a stony silence on the matter…
Now the backstory on a Trump controversy few seem to remember except us.
Yesterday the president ordered a huge reduction in the size of two national monuments in Utah — Bears Ears and Grand Staircase-Escalante.
Media coverage told us the latter of those two monuments was created by Bill Clinton in 1996. Media coverage glossed over the possibly, uhh, questionable motives for Clinton’s move at the time.
Beneath that land in Utah lay an unusual grade of clean-burning coal, worth up to $1 trillion in 1996 dollars. There were only two other places in the world where such coal existed in abundance. One was in Colombia, where the location was so remote that the cost of roads and power lines would have been prohibitive.
The other was in Indonesia — a country where at the time a $5 billion conglomerate called the Lippo Group had a hand in, well, nearly every major development project.
If you have a good memory for Clinton scandals, you’ll recall the Lippo Group was accused of illegally funneling foreign money to the Clinton campaign — perhaps through an intermediary named John Huang, a former Lippo executive who later became a Clinton fundraiser and then a Commerce Department official.
A Utah congressman said at the time it was an “uncanny coincidence that the high-grade, clean-burning coal found within the monument’s borders is rivaled only by a deposit in Indonesia. The potential connection to the Lippo Group is obvious.”
Granted, the monument angle was all smoke and no fire. But there was also no attempt to investigate further.
According to the journalist Greg Palast, senior members of Congress cut a sweetheart deal during Clinton’s second term to sweep dueling campaign-finance scandals under the rug: The Republicans would go after Clinton only for the sex stuff and not for Lippo shenanigans. In exchange, the Democrats would hush up about the Koch brothers breaking campaign finance laws in their backing of the Republicans’ successful effort to win the House and Senate in 1994.
Fast-forward to the present day and it appears that their pro-coal rhetoric notwithstanding, Team Trump has little interest in the coal deposit at Grand Staircase-Escalante: According to this morning’s Wall Street Journal, the aim of Interior Secretary Ryan Zinke is “to increase public access to the area for roads, grazing and active management for conservation.” Hmmm…
“Are you certain about the loss of all those small business deductions?” a reader writes after yesterday’s episode of The 5.
“My understanding was one of the earlier iterations of the bill dumped some of the deductions employees could claim as a part of their employment (think teachers who buy supplies for their classes) but owners of businesses would not lose any significant deductions.
“Of course, a lot of deals went down at the last minute to get the votes for passage, so I suppose anything is possible, but in spite of my complete and total lack of respect for our Congress critters, I can’t imagine even they are so stupid as to support what would be a massive small-business killer, should it be true.
“Love you guys, as always.”
The 5: A few years ago we’d joke about Nancy Pelosi’s infamous line during the Obamacare debate, “We have to pass the bill so that you can find out what is in it.”
Nowadays it seems as if that’s how every major piece of legislation is passed, no matter which party is in charge. Here’s a page from the “final draft” of the Senate tax bill passed early Saturday morning, complete with handwritten changes:
Anyway, it seems a lot of people are conflating “small business” with “self-employed.” Our primary concern is with the self-employed folks who aspire to become small businesses first and big businesses later. They’re the real job creators.
As we pointed out a month ago, the House bill is written in such a way that only certain kinds of “pass-through” businesses will qualify for a 25% tax rate. The folks at Emergent Research estimate only 7–8% of such business owners would qualify. “Few if any traditional freelancers and independent contractors will be able to take advantage of the pass-through provision, even if they make a lot of money.”
Meanwhile, near as we can tell, the Senate bill ashcans the home office deduction.
“I will believe in bitcoin when the government accepts it as payment for taxes,” a reader writes. “Not until.”
The 5: What do you mean, “believe in”?
Believe in it as an investment vehicle? Or as a medium of exchange? Those are two different questions. Indeed, the bitcoin “fork” back in August was driven in part by folks who are disappointed that many people are merely speculating in bitcoin instead of using it to carry out commerce.
“I’d love to see a lively discussion between Jim Rickards and James Altucher about bitcoin,” writes our final correspondent. “They appear to be on polar opposite sides of this topic. Thoughts?”
The 5: We’ll see what we can do. In the meantime, we’ll share some of Jim’s thoughts about cryptocurrencies tomorrow or later this week.
The 5 Min. Forecast
P.S. We did the best we could last night during James Altucher’s live crypto Q-and-A, considering readers submitted 10,000 questions. That said, James answered about 50 of the most common ones. Impressive. So if you have a question and you didn’t get a chance to watch, chances are good he addressed it.
Please note: Because the cryptocurrency market moves quickly, this information could be out of date before you know it. So we’re taking it offline Thursday at midnight — give it look while you still can.