Before I get to the article I planned to write today, I feel compelled to share with you the contents of an email I received from a well-connected correspondent in Washington D.C.
I’d rather be writing about something else, but per this column last Friday I feel both a moral and ethical obligation to include a prologue to this edition on a topic that many of you are well aware of… the Defense Authorization Act of 2012 that is about to be signed into law. When it does, it will codify rendition for the purpose of torture and indefinite military detention without trial, of anyone, anywhere, solely for being suspected of supporting whatever is considered terrorism at the moment.
Wait, the bill only identifies the targets as al-Qaeda and associated groups, so no problem, right? Hardly, because it – along with recent Supreme Court rulings – sets hard legal precedents that can then be applied without breaking a sweat to whichever group is next identified as constituting a threat, whether that threat is real or imagined. Today, it is the radical Islamists. Tomorrow?
The easy thing to do, now that the bill has passed Congress and the administration has dropped its objections, is to shrug and move on. After all, that news is so “yesterday,” and today we have the latest no-calories media eye candy to gobble up.
But before moving into the ever more uncertain, Constitution-free future, I for one want the record on this bill to be entirely clear.
To that end, here are the items from the email I received.
The first is a transcript of a floor speech made by Senator Carl Levin (D-Michigan), a co-sponsor of the worst parts of the legislation along with Sen. Lindsay Graham (R-South Carolina) and Sen. John McCain (R-Arizona). In his speech, Levin discusses how the final language for clauses 1031 and 1032 was shaped. I was going to excerpt his comments, but you have to read the whole transcript to get the full understanding.
I will, however, give you a brief preview. Essentially, Levin demonstrates his remarkable talents as a master politician by talking out of both sides of his mouth, almost simultaneously. From one side of his gob, he says the laws don’t apply to Americans, but immediately out of the other confirms that it does. And he goes to great pains to explain that the laws simply further echo recent Supreme Court rulings and accepted practices when it comes to tromping on what may be the single most important of all the rights proscribed by the founding fathers – the right to a fair and speedy trial. He then informs us that the offending wording was requested by the administration.
The second item is a video showing the same Senator discussing detainees and the White House intervention during committee deliberations.
Again, you will see that Levin rationalizes the totalitarian language as being okay because it was requested by the administration, trying as he does to sound like an innocent bystander. If he were not on their side, then why did he and a sizable majority of Congress grant what are essentially dictatorial powers to the administration and all that follow them?
Do I think Obama is going to start ordering wholesale military detentions? No. But there is no question that this is yet another plank in the gallows that is being constructed for American civil liberties, a gallows that is now fully assembled and ready for use following the next 9/11-scale “event.” Such an event may not happen next year, and maybe not for ten years… but unless and until the US government stops its aggressive meddling, it is all but certain. And when it does happen, per my comments a moment ago, the definition of terrorism, which is vague at best, will instantly be shaped to suit the occasion.
Even Senator Rand Paul, on hearing that the president dropped his veto threat, said, “I think we fought the good fight on it. ... We lost the overall battle.”
And so it is that we slip into the long, dark night with hardly a whisper.
I can assure you that my personal plans for international diversification are now accelerating.
Now, it’s back to our regularly scheduled programming.
While it may seem an odd thing to do, I’d like to introduce you to Dexter Woo, a dog. And not just any dog, but a dog that has much to teach about the world we live in, including broader society, economics and even successful investing.
Despite the large scale of the lessons he has to teach, Dexter, pictured here, is not a big dog. In fact, he weighs in at only about three pounds when wet, and stands about as high as a beer mug.
Note the intense concentration in his eyes in the photo, a direct reflection of a character that I would describe as hyper-aggressive. Not in a vicious, bite-your-ankle sort of way, mind you. Rather as in if a piece of food slips out of your hand, he’ll be on the spot and gobbling it down before the second bounce. Toss a kibble to his stable mate, who is both older and about three times his size, and Dexter Woo will bowl into her, duck the snap of her jaws, grab the morsel and wolf it down literally in the blink of the eye.
In fact, you don’t even need to drop a piece of food – the simple act of opening a kitchen cupboard brings him scrambling. If no food is forthcoming, he will set about dancing on his hind legs while punching your leg with his front paws. It is so commonplace around Chez Galland that most of the time his whacking away at your leg barely registers.
As to the wellspring of his character, I suspect it’s due in more or less equal parts to his genes and to his challenged upbringing. On the former, the breeder we bought him from told us that she had separated his similarly diminutive father from a female she had planned on breeding to another dog. Somehow, however, he managed to slip through the carefully prepared defenses in order to pass his genes on to Dexter Woo. She still has no idea how he pulled it off. As to the latter, in something of a rarity Dexter Woo was born with just one other litter mate, who unfortunately died shortly thereafter (Dexter wasn’t implicated). As a consequence, Dexter was added to another litter where all the other puppies were considerably older and larger, an environment where being aggressive around dinner time was prerequisite for Dexter Woo’s survival.
But what does all this have to do with anything? Actually, after pondering it, I have formed the opinion that it has to do with much.
That revelation came to me one day not so long ago when watching a guy work his way toward the head of the line, ignoring all social niceties as he ducked and weaved to get more advantageously positioned. At which point my wife commented, “That guy’s a real Dexter Woo” – establishing for all time our personal code phrase for anyone who evidences similarly energetic and aggressive traits.
As is the case with such things, I subsequently began noticing Dexter Woos here, there and everywhere – in all walks of life. If you reflect on the matter, I suspect you, too, will be able to quickly recall Dexter Woos who have passed through your life… but for the sake of illustration, I’ll share a few of my own.
Robert Friedland, founder and CEO of Ivanhoe Mines and one of several billionaire members of our Explorers’ League, an organization admittance into which requires having been responsible for the discovery or development of a minimum of three economic mineral deposits (most people in the industry retire with none, so this is a very exclusive club).
Ask anyone who knows Robert to describe him, and they will almost always include the phrase “a force of nature.” To meet Robert is unlike meeting pretty much anyone else, as it is his habit to focus his full attention on you and intensely question you for as long as it takes for him to get a sense of you and where you fit into his world.
It was no surprise, therefore, to discover in the recent biography of late Apple founder Steven Jobs that Robert had played a pivotal role in Jobs’ personal development. In fact, it was Friedland who taught Jobs that he could create whatever reality he set his mind to. I found it both entertaining and illustrative that the first time Jobs and Friedland connected was when the shy young computer-mogul-to-be went into Friedland’s college dorm room to discuss selling him a typewriter and found Robert mid-sex. Embarrassed, Jobs started to leave, but Friedland told him to have a seat and wait a minute or so, as he was almost finished. Could you be more Dexter Woo than that?
Ross Beaty. Another billionaire member of the Explorers’ League, Ross Beaty is commonly referred to as a “broken slot machine” due to the number of big winners he has had in the field of mineral exploration and development. While he has been struggling with a mega-geothermal play of late, given his drive and determination, I think he’ll make things right in the end. Meanwhile, a massive copper project he has been developing looks like a serious takeover candidate, once again making big returns for him and for shareholders who have followed him. Like all Dexter Woos, even when Ross plays, he plays hard – traveling the breadth of Africa on motorcycle, for example.
Marin Katusa. Whenever possible, we at Casey Research like to hire Dexter Woos, and so have a number on the team. Marin Katusa, the head of our energy division, however, may be the reigning Dexter Woo of the lot. From very modest roots, Marin learned at an early age to rely on his own innate talents and drive to get ahead – and has. In his early twenties, he was teaching university-level mathematics before turning his focus to the resource industry, which is how he came to our attention. His ability to concentrate on specific topics until his understanding rivals that of experts working in the field for decades is truly remarkable. Especially in that, while still a bachelor in his twenties, he could literally party until 4:00 in the morning, then head straight into the office and put in a 16-hour day. Until relatively recently, he also was the founder, front man and primary songwriter of a rock band, Era Flair.
(Thanks to the miracle of the Internet, you can view him and the band playing a song he wrote… note Marin’s energetic gyrations in center stage. Sorry Marin, I can’t help laughing every time I see this!)
Showing his natural intelligence, Marin subsequently dialed back on the partying, got married and is now working harder than ever – which is saying something – uncovering new opportunities for subscribers.
While I have had the pleasure of getting to know a number of Dexter Woos, in the interest of time, I’ll leave it at those three, all of whom have managed to channel their laser-like focus and energy into big success.
There are Dexter Woos, however, who for one reason or another fail to live up to their full potential. For example…
Slick. This particular Dexter Woo was a real goer when young. Handsome, charming, incredibly aggressive in business, a big ladies' man… the very embodiment of the personality type. Unfortunately, his business successes were only temporary, and time and circumstances have conspired to disappoint him in his outsized ambitions. As a consequence, today he is a caricature of his former self – desperately clinging to the trappings of his ambitious youth while barely hanging on to house and home. His former charm gone to seed, his handsome countenance now puffy with age and overindulgence, his life history reads like a series of almost unblemished failures.
Sneaky. A Dexter Woo of the most overtly self-centered and therefore unsophisticated sort, a man with no moral and ethical compass. In one instance, after using his DW charms to ingratiate himself with a senior member of the Casey team, he was allowed to tag along on a due-diligence trip to a mineral exploration project, a very rare occurrence.
We subsequently discovered that immediately prior to taking the trip, he had taken us up on our generous cancellation policy to get a full refund for the Casey newsletter he was subscribing to – just because he could – and then during the trip called his broker to try and front-run a hoped-for recommendation on the project we were looking at. The naked greed and avarice of this sort of overreaching Dexter Woo all but ensures a poor future.
Snarky. Snarky is a broker for an NYC money management firm who called me for the first time about two years ago, dropping the name of a mutual friend as an introduction. Of course any friend of a friend warrants a bit of time, and so I spent about 40 minutes on the phone answering his questions on where I thought gold was going and so forth. Well, a month or so later, he called again, and again I answered a rather long list of questions. And a month or so later, he called again, at which point I realized that he wasn’t even a subscriber to one of our services – so I told him that that was where he needed to get this information, then fairly briskly ended the call.
Undaunted, a month or so goes by and he called again and, as usual, dropped my friend's name before launching once more into his questions. After ten minutes or so of trying to get him off the phone, I informed him in a fairly stern voice (I've been told I have a fairly humorless telephone voice under the best of circumstances) that just because he was a friend of a friend didn’t entitle him to call me whenever the mood struck him. With no small amount of effort, I was able to end the call, figuring that would be the last time I heard from him.
But no, a month or so later, he called again and, acting as if we didn’t have the last conversation, launched into his questions. Now, this time I was properly miffed, so I gave it to him with both barrels – but even as the unpleasant call came to an end, I could tell I hadn’t even dented his special mental armor. Shortly thereafter I heard from another friend in the industry who told me that Snarky had also been calling him and introducing himself as my friend in order to pick his brain. And then, of course, he called me again. Even though that call lasted only long enough for me to hang up, he still calls – though thanks to the miracle of caller ID, I just don’t answer.
So, that’s a bit of background on the nature of Dexter Woos. But where’s the lesson in all of this? Some thoughts.
Summing up, while perhaps not a particularly profound thought, I think it can be quite helpful in navigating this world of ours to consciously keep an eye out for Dexter Woos. It’s usually pretty easy, as they tend to stand out in a crowd. By watching them, you can learn a lot – for instance, by finding out where the successful ones are now investing their own time and money. (The Casey Research Summits can be a great opportunity to interact with our Explorers’ League and NexTen honorees, almost all of whom are Dexter Woos.)
As importantly, if you keep your eyes wide open, you might be able to avoid being trampled under the self-interest of a degraded Dexter Woo… John Corzine, for example. (You don’t get to be chairman of Goldman Sachs without being a serious DW.)
As I was thinking about this, I asked myself if I might be a Dexter Woo. And the answer is "probably." I remember I was just starting out in business, as the office boy in a convention planning company in Chicago. I used to save my money and cajole my group of friends to do the same, in order to hire various professors from the University of Chicago to deliver a lecture one evening a month, on some topic that interested me. I have to smile when I think back and realize that everyone but me in the room – including both the professor and my friends who would have rather been out in a disco – were probably wondering what the hell they were doing there, while I sat in the front row studiously taking notes.
But that was then… today I am considerably less driven.
Maybe you’re a Dexter Woo, too?
[Louis James, our chief metals and mining strategist, is definitely a Dexter Woo, traveling to all four corners of the globe to find junior mining companies for his subscribers that have the potential to net life-changing returns. And through midnight tonight, you have the opportunity to get a one-year subscription to his precious metal advisory, Casey International Speculator (a $995 value), for free. Read on for details...]
And with that, I’ll move on to a contribution that arrived in the overnight mail from our own Bud Conrad, but before I do, I’ll share a favorite piece of music from another quintessential Dexter Woo, a man with a degree from the London School of Economics who went on to create one of the most iconic rock bands in the world – and unlike virtually all of the other mega-rock stars, kept the band together and turning out hits for decades. Ladies and Gentlemen, I present, Mick Jagger and the Rolling Stones in Sympathy for the Devil.
By Bud Conrad
As we survey the investment landscape, it is pretty clear that we need to look beyond our shores to understand how foreign actions affect us at home. The international connection is even more important these days because of the very prominent crises in Europe.
One of the measures I watch is the cross-border flow of money into and out of the United States. It provides an indication of the confidence in investing in the US. For many years, the flow of foreign funds investment into the US was a boost to our economy. During the Credit Crisis of 2007 to 2009, these flows were disrupted and provided one indicator of shifts ahead. The US Treasury published its latest data yesterday, December 15, 2011, which shows a modest warning.
(Click on image to enlarge)
The question of what this might mean brought me to compare the annual sum of the above flows to the annual change in the exchange rate of the dollar to the euro. The chart below suggests that when there are big inflows, the dollar is stronger. The relationship is not strong, but it provides a framework for thinking through what might happen to the exchange rate if there is a big flight to safety as investors flee Europe's problems for the safety of the dollar. The relationship is not perfect, but I think the logic and the chart below suggest that a rising dollar (falling euro) could be the result of foreigners losing confidence in their own financial structure.
(Click on image to enlarge)
The blue line adds up the flows for the last 12 months to give a smoother effect than the individual months of the first chart. The red line is the annual percentage increase in the exchange rate of the dollar against the euro, with a higher level indicating the dollar has been rising. You can see a big drop in foreign investment as the Credit Crisis became worse in 2009, and that the dollar was weaker. The dollar strengthened in 2010 as the European/Greek crisis got into the news. With some bailout mechanisms being announced and the disastrous inability of the US Congress to deal with our own debt in September, the dollar fell in mid-2011. But now the situation has changed.
There is plenty of negative news on ratings of European government debt, with 15 of the 17 countries of the Eurozone put on credit watch by S&P. There are also downgrades for banks that hold too much of that debt. Fitch announced (December 15) the downgrade in some capacity of Bank of America, Barclays, BNP, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and Société Générale. Fitch downgraded Credit Agricole to A+, and the German government has begun preparations for a possible bailout of Commerzbank, both of which we had mentioned as problem banks in last week’s The Casey Report. The day before that, Moody's placed the ratings of eight Spanish banks on review for a possible downgrade. Australian regulators are asking their banks to stress test the effect of a EU debt crisis.
The logical question is why depositors in the weaker European countries’ banks would leave their money there. For now, they are free to move it to a safer haven in a stronger country. There is movement in the weakest of the countries, and it is increasing. Greece reported it lost 4.5% of its deposit base in October. But individuals doing what is prudent can make life very difficult for the banks that have long-term loans outstanding. This European crisis is definitely escalating.
In trying to figure out how these forces may line up, we can look at a technical indicator for the euro vs. dollar exchange rate.
Large Speculators Think the Euro Will Fall
The following chart shows the positions of traders of the euro in the futures and options market. The traders that are most influential, and that usually get their trades right, are the large speculators. They are also called non-commercial traders. Their net position, either long or short, is shown in the chart below by the red bars in the middle panel. When they are pointing up, the euro is usually rising.
A good example is in the middle of the chart, where a large group of upward-pointing red bars matches the rising price of the euro, as shown in the upper single blue line. Today, at the right end of the chart, the red bars are pointing downward in one of the biggest net short positions, indicating downward pressure on the price of the euro.
(Click on image to enlarge)
There are many more reasons to consider weaknesses in the euro system (and they are described with over a dozen charts in the latest edition of The Casey Report – along with details on how to invest in order to profit from the situation). Try it with three-month money-back guarantee.
The following exchange was sent to me by a young reader and subscriber to The Casey Report.
My wife told me, in passing, "Did you hear Paul Krugman said we're in a depression?"
It wasn't really a surprise to me, because even a New York Times economist has to eventually call a spade a spade.
I told her Doug Casey had been calling this the "Greater Depression" for years.
"Why The 'Greater' Depression?" she asked me.
I told her, "Because by the time this is all over and we're looking at it in the rear view mirror, Doug expects it to look a whole lot worse than the Great Depression."
"Hmm," she said, pondering briefly before taking the conversation in a completely different direction.
"You know, if it's true – if our savings are going to be devalued and soon be worth nothing – why not just go out and spend all our money right now?" she asked.
"That sounds fun," she added with a grin.
I told her that's exactly what happened in the hyperinflation of Weimar Germany. "It started to look like boom times. Not because that's what was really going on. But because everybody knew: the money they earned today wouldn't be worth anything tomorrow. So they'd go out and blow it all, having a great time."
"So why shouldn't we do that?" my wife asked, more of a twisting of the stick she'd used to prod the topic than an honest inquiry.
I'm the one who can't let humor be humor, so I replied, "Well, because our savings don't have to turn into nothing. We can put them in things like the Norwegian krone or gold if we want to keep them around while the dollar dries up and blows away."
"But what happens when you want to buy food?" she asked, getting serious again.
"You convert back what you need for your expenses, using it a little at a time. That way you keep what you want to save and can still spend what you need to spend."
She took half a second to process this.
"You make a depression no fun!" she told me, as she walked away.
Stimulus – Chicago Style
Three contractors are bidding to fix a broken fence at the White House. One is from Chicago, another is from Tennessee and the third is from Minnesota. All three go with a White House official to examine the fence.
The Minnesota contractor takes out a tape measure and does some measuring, then works some figures with a pencil. "Well," he says, "I figure the job will run about $900: $400 for materials, $400 for my crew and $100 profit for me."
The Tennessee contractor also does some measuring and figuring, then says, "I can do this job for $700: $300 for materials, $300 for my crew and $100 profit for me."
The Chicago contractor doesn't measure or figure, but leans over to the White House official and whispers, "$2,700."
The official, incredulous, says, "You didn't even measure like the other guys! How did you come up with such a high figure?"
The Chicago contractor whispers back, "$1,000 for me, $1,000 for you, and we hire the guy from Tennessee to fix the fence."
"Done!" replies the government official.
And that, my friends, is how the new stimulus plan works!
In the coming New Year, 2012, both Groundhog Day and the State of the Union address will occur on the same day.
This is an ironic juxtaposition of events.
One involves a meaningless ritual in which we look to an insignificant creature of little intelligence for prognostication.
The other involves a groundhog.
Moving on, I have a timely article from a new correspondent and fellow La Estancia de Cafayate owner, Stefan Voss, writing from the heart of the euro crisis, Germany.
By Stefan Voss, Hamburg, Germany
Given the mess we are in over here in Europe, David asked me to write a few lines about the mood of the Germans.
To give you a real-time perspective, the headline story this morning was: "USA not going to save the Eurozone." So, was anybody here interested? Probably not very much, as the story did not even make it into the top 20 most-read articles on one of the biggest German Internet news services… unlike an article about Commerzbank canceling Christmas parties for employees, which made it to page eight!
Of course, despite the title of my article, I am not sure anyone can write about the mood of an entire population, but as I do live in Germany for large parts of the year, my daily interactions give me a sense of what people are thinking. So what's my take?
Let me start with the sort of questions I hear a lot from my American friends: "Stefan, when will the Germans say, 'Enough's enough'? When will the people go out on the street and say 'No' to their government? Do they really want to pay for the rest of Europe with their own hard-earned money?"
Those questions are understandable, but it's a bit like asking an American, "Why don't the American people complain about the Patriot Act, the loss of habeas corpus, the new bill about terrorism, etc.? Why are they not on the streets?"
Germany is still a very wealthy country. The standard of living is pretty high across society, with the wealth being relatively evenly distributed (or, redistributed!); the nation has one of the lowest Gini coefficients in the world. Even those who live on social security are far better off than most people in the world (e.g., it is a basic "human right" here to be provided a government-sponsored TV – LED or plasma, of course). That inevitably breeds complacency.
Germans hear stories about Europe and the bailouts all day, but the large numbers tossed around have long ago reached a dimension beyond the grasp of the average person… especially in that most have no idea what their share of the money being pledged to bail out actually is. A poll on that topic given to members of parliament right after they voted for the EFSF was a disaster, with almost no one getting even close to the correct numbers. Okay, one was spot on but confessed immediately it was a wild guess. Can we expect the majority of the German population to be smarter or better informed than the politicians who voted for the EFSF? Not likely.
Returning to the "hard-earned money" part, it is worth noting that the German government is not directly paying its share of the bailouts with the hard-earned money and saving of its citizens. Instead, it is just adding more debt to the already large pile, in essence pledging the hard-earned money of future generations. For the time being, as long as the government is just adding numbers to the pile, nobody here feels really affected. That would not be the case if the government started sending bills to the taxpayers every month or started keeping more of their income.
In other words, if the German people were made to feel the cost of the bailouts "in their own pockets," then they'd get upset and might even pour out into the street and say "No." We're not there yet, but the time may come as higher taxes are already being discussed, and that raises the risk that people may eventually connect the dots between higher taxes and European bailouts.
But what about right now? In my humble opinion, I think the idea that the euro could really fail and nations could go bankrupt has just begun to sink in. A possible sign of that occurring is that lately the German real estate market has turned around from a very boring last 15 years. In some areas, prices have advanced by more than 40% over the last 12-18 months. That is in stark contrast to the average 1% annual gain between 2001 to 2007.
Is this a bubble in the making? Probably, but the main driver is fear. For Germans, the first line of protection is traditionally real estate, not precious metals (though those are greatly popular, too)… which is fairly ironic in that many Germans saw their houses destroyed in World War II, but that is largely forgotten today. What is not forgotten is the great inflation of 1923 and several total currency breakdowns around that era.
Bottom line: The people sense that something is awfully wrong, and they are beginning to lose some confidence in the euro. But tens of thousands of people in the streets angrily protesting against the bailouts? Not now.
There was actually so much more I wanted to mention today but didn't have time to do so. For example…
… The Miracle of Christmas Comes to Congress. Despite weeks of political posturing, all of a sudden over the last 24 hours, the Democrats and Republicans managed to put aside all their hard-edged differences and agree to keep the government muddling along by passing a fresh $1 trillion spending bill that extends the payroll tax reduction and additional unemployment benefits. So what was behind the quick shift? Some big breakthrough and resolution of deeply held philosophical differences? Hardly… It was time to head home for the holidays. Meanwhile, the whole super committee, which had as its task to make a measly $1.5 trillion reduction in the deficits over a ten-year period, closed shop without even pretending to have any ideas on the topic.
While it is Europe that is taking it on the chin of late, just wait – we are so far from being out of the woods here in the US at this point, it's not even funny. Meanwhile, interest rates on 10-year US Treasuries are now at the lowest levels in 120 years. When they turn around, the debt party is going to turn into a crash for the history books.
… The Latest Move from the Land of the Free. During the Egyptian uprising, much was made of the Mubarak government's shutting down the Internet. Well, the US government is about to lock into place a system that allows it to automatically shut down any website on even the thinnest of pretenses… that a website contains a link to copyrighted material. Again, will it be used wholesale? Don't know. But I do know it sets a dangerous precedent, and that counts for a lot these days. Here's one of many stories on the kill switch coming to a website near you soon.
And there is so much more… the trial of Bradley Manning, the death of Christopher Hitchens… but the bell is tolling, and so I must stop, thanking you once again for reading and for being a subscriber to a Casey Research service.