Dear Reader,

By the time you read this, I will be in Asunción, Paraguay, on my way back to the United States for summer.

As we are finalizing the preparations for our departure, I suspect – but can never know for sure – today's missive will be brief.

In today's missive, I plan on providing a book-end to the journey that started about seven months ago when our family moved to the remote Northwest of Argentina.

Argentines have a phrase, "mi lugar," for when you find your special place in this world – the perfect combination of place and people that entirely suits your nature. The phrase translates simply as "my place."

As I have related in past missives, I was very fortunate in my early thirties to be able to spend three years on a quest for paradise on earth, visiting pretty much every country I thought might be a suitable candidate. It turns out, in hindsight, what I was really looking for was not paradise, but mi lugar.

Much like "love at first sight," mi lugar has almost mystical connotations – it is the place in this world where, should you be fortunate enough to find it, you belong more than anywhere else.

When we arrived in Cafayate, it was with some entirely natural trepidation. After all, not only were we going to be living in a remote corner of Argentina, we were bringing along our teenage kids with all that that implies.

It is entirely human to worry about the unforeseeable, and so we pondered all manner of questions and concerns. Would our stumbling knowledge of the local lingo prove a hamper? Would the highly dysfunctional government hereabouts be an impediment at every turn, the bureaucracy frustrating? Would the kids adapt to the new environment and be able to get a good education?

Yet, never ones to worry ourselves into inaction, we plowed ahead and on October 22 set down our bags in Cafayate.

So, how's it gone? Were our fears – any of our fears – realized?

To the extent that it may be of interest to those of you currently contemplating seeking solace on the other side of the wall, I would like to tick down some of the good and the not-so-good we have discovered as a result of our move.

Mi Lugar

The first, and possibly most surprising, thing about life in Cafayate has been how social it is. The Argentines are very warm and welcoming people, and we have made a surprising number of local friends. In addition, there are the generally like-minded and almost entirely agreeable owners at La Estancia de Cafayate, complemented by a steady stream of visitors.

Interacting with only one of those groups would be more than enough social life for me, by temperament something of a recluse (my wife always laughs when I say that, but it's true). When taking all three groups into consideration, however, the amount of socializing gets positively over the top.

Case in point, here is a partial list of what we have done in the past week.

• Rode champion Paso Peruano horses on a five-hour ride with the head of one of the best local wine bodegas, followed by an al fresco lunch at his estancia with his extended family. The ride was one of the best in my life, riding spirited horses on beautiful trails, through sand dunes and for several kilometers up an empty river bed.
• Played golf with my local coca-chewing, cigar-smoking cardiologist friend and a new golf buddy, a New Zealander who is renting at La Estancia for six months.
• Watched the last couple of hours of the PGA Players Cup down at the clubhouse on Sunday night. The Clubhouse is normally closed at 6:00 pm on Sunday, but because we asked, they stayed open. That's how it works around here.
• Joined in for an evening of beer pong with some of the younger residents. While I joined in a couple of games, such games are best left to the young and the foolish, so we mainly just observed.
• Had a send-off dinner for my golf partner and his wife, one of our children's tutors (and a wonderful one at that), in the company of a great group of people.
• Played "Mad Max" Volleyball on the sand court at La Estancia. It's called Mad Max Volleyball as a nod to the conditions the first time we played, in a roaring wind, with a rock-hard ball (I still have two swollen knuckles) that had a tendency to pick up nasty little thorns when rolling on the ground outside of the sand court. In our version of the game, hitting the ball back over the net with your head or feet was allowed.
• Worked out at the Athletic Club pretty much every other day.
• Had an al fresco dinner on the plaza at El Terruno, one of my favorite restaurants, with a group of friends.
• Ate parrilla (bar-be-cue) for lunch with another group of friends at El Rancho.
• Participated in a demonstration with the local volunteer firemen (the Bombaros) of the Jaws of Life that a group of us got together to buy. And by demonstration, I mean cutting the roof off an old car… serious fun!

Last week it was a charity poker match, then my wife's big birthday bash with forty friends at the Club… I don't even know forty people in the town in Vermont where we lived the last 25 years.

It just never stops.

In fact, after seeing our friends and enjoying the beauty of a Vermont summer, the next-biggest reason for returning to the States for four months is to get some rest!

Other aspects of life here that represented a significant change from life back on the other side of the wall:

Education of the Kids

Our children are now 14 and 16, ages considered very important in terms of personal development.

Before getting into what they got from living down here, a quick word on what they didn't get. For example…

1. They didn't get a state-mandated cookie-cutter curriculum replete with dogma and indoctrination about completely unimportant topics.
2. They didn't get an education by teachers whose sole purpose in life is to ultimately get a pension. In fairness, our children had had a couple of good teachers in their public schooling back in the States, but most seemed to have majored in sapping the creative juices out of students with minors in spirit crushing and teaching utter nonsense with a straight face.
3. They didn't pick up bad habits from fellow students. They didn't learn how to drink, smoke, do drugs, or have sex at an age when they are not mentally prepared to keep things in perspective. In fact, it became something of a running joke how many times we went to restaurants hereabouts and the kids were offered wine, which they turned down of their own accord. When it's not the forbidden fruit, it's not nearly so desirable.
4. They didn't live in fear. When I see an article such as this, on the US government's zero tolerance for, well, anything – including stupid kid pranks, I am shocked. Here's a link to the article.
   
   For the time-stressed, a couple of relevant quotes…

The Methuen, Mass., high school student was arrested last week after posting online videos that show him rapping an original song that police say contained "disturbing verbiage" and reportedly mentioned the White House and the Boston Marathon bombing. He is charged with communicating terrorist threats, a state felony, and faces a potential 20 years in prison. Bail is set at $1 million.

And it continues…

Using a zero tolerance approach to track domestic terrorists online is the only reasonable way to analyze online threats these days, especially after the Boston Marathon bombing and news that the suspects had subsequently planned to target Times Square in Manhattan, Mullins says. The way law enforcement agencies approach online activity that appears sinister is this: "If you're not a terrorist, if you're not a threat, prove it," he says.

"This is the price you pay to live in a free society right now. It's just the way it is," Mullins adds.

That method can result in arrests of teenagers whose online activity may be more aptly characterized as stupid pranks.

In February, Jessica Winslow and Ti'jeanae Harris, two high school girls in Rapids Parish, La., were arrested and charged with 10 counts of terrorism each after they allegedly e-mailed threats to students and faculty "to see if they could get away with it," detectives told a local television news station. "We take every threat in our schools as a credible threat, and I am happy to say we have made these arrests," Sheriff William Earl Hilton told reporters.

What they did get, however, was…

• Personalized instruction and coaching for their self-studies. In the beginning, there were another three children in the educational program, but the parents pulled up stakes fairly early on, leaving our two kids with a teacher ratio of 1:1 (except for a number of weeks when children of visiting owners and guests sat in on classes). My daughter, never before confident in math, became passionate about the topic and is now ahead of her grade back in the States. She is also now writing a book. My son is determined to learn computer programming. "Dad," he said to me confidently the other day, "you'll never have to worry about me needing money."
• For much of the time we were here, there weren't a lot of other kids their age around. In hindsight, that worked out just fine. In addition to not picking up the bad habits mentioned above, they quickly adapted to interacting on the level of adults with the residents of La Estancia and those from town (many of whom act like kids anyway). Participating in craft groups, dining out in good company, and joining in on various activities gave them both a great deal of confidence in their interactions with adults. On a number of occasions, they sat in on classes in local schools, and my daughter participated in folkloric dance classes.
• A shared family adventure. We've always been a close family, but living together as foreigners in a foreign land has made us only closer. No small feat given they are both in the challenging mid-teens. While there was, naturally, a certain amount of the teen drama, it always passed quickly and we moved forward in concert. Personally, I have learned to accept that they are no longer children but young adults who need to be able to make their own decisions and reap the rewards or suffer the consequences as a result. All in all, the family dynamic has changed, and only for the better.
• Fresh air and a more active lifestyle. While my son is showing the classic characteristics of being something of a geek (by no means a detriment in this day and age), every day he walked to and from school wearing his heavy backpack and, sporadically, joined in on hikes and long walks around the sizable estancia on school projects (for instance, mapping all of the many fruit and nut trees on the property). In addition to the school walkabouts, our more active daughter also took advantage of the Athletic Club, horseback riding, dancing, hiking, and so forth.
  
  What they didn't get was organized sports of the sort so treasured in the state school system but which, when you get right down to it, doesn't really have anything to do with education or with determining who you will be as an adult. In fact, the argument could be made that if you were a star on the school sports team, you might just be receiving indoctrination for a future stint in the military (for time immemorial, sports has a been a gateway for the military). Likewise, if you were bad at team sports and chosen last, or spent your time on the bench, who's to say that the psychological damage might not last long into adulthood?

In the final analysis, hiring our own tutors and having a hand in a curriculum that focused on the core subjects of reading, writing, and arithmetic – with a side course of Spanish, and all of it structured to inculcate the love of learning – turned out to be a big win. So much so that the kids volunteered to continue studying over the summer with the remote guidance of their lead tutor.

Personal Well-Being

In a phrase, I haven't felt this healthy, this fit, this alive, or this happy in decades. The active lifestyle, the high-quality food, the multitude of good-humored friends, the fun activities… the overall quality of life… have completely reenergized me.

Whereas before a dumb email from a colleague might have sent my blood pressure spiking, now it's all water off this duck's back. Hardly a day passes without me opening my arms to the beautiful skies, a happy grin on my face. Reflexively, I start singing, "Oh, what a beautiful morning" when walking outside first thing each day.

Call me goofy, but it sure feels like stark raving happiness to me.

Speaking of beauty, I have always been one of those people who, lost in thought, took almost no notice of my surroundings, no matter how striking (and Vermont can be pretty striking).

Down here, however, the beauty of the place grabs you by the collar and demands you view it in awe. It is like living in an ever-changing art display with the red rocks of the surrounding mountains the canvas.

Connection to a Community

I've written about this before, so won't dwell. But before moving here, I was only tenuously connected to the community I had lived in for 25 years. While it is not all fun and games – because every community, no matter how like-minded, has its small cadre of serial malcontents – the overwhelming majority of the people at La Estancia and in Cafayate are positive and constructive.

In short, they are people you want to spend time with… and so we do.

Additionally, there is a sense of wanting to help support and enhance the community. One day after lunch at the beautiful new Piattelli Bodega, a friend asked if we'd be interested in adopting a baby burro whose mother had been hit by a car. I didn't have to ponder the matter for more than a minute before agreeing.

And so it was that La Estancia gained a new resident, a three-month-old burro who picked up the name Princess Grace as we walked her into the property and passed by the sign for the five-star Grace Hotel scheduled to open here within the next few months.

And the community is not just physical, but virtual as well. There is constant email correspondence between the owners, and several of us have been involved in a writers' group going on a year now.

There is also a local photography group that a number of us have joined.

Here's my wife's entry for this month, a great shot (in my biased opinion) of the sort of transportation hijinks that are a common sight around here, but which would have you face down on the pavement, your arms handcuffed behind your back, were you to attempt the same in the Land of the Free.

In case you can't tell it from the dog's expression, it is having a great time (think sticking your head out the window, but better). Note his paw on the driver's shoulder… too funny.

The Concept of Time

Despite the active schedule, there is always time to linger over lunch or dinner, to have a siesta, to play a little golf with friends (even if it means getting up before dawn to get my work out of the way).

Today I ducked into town on an errand and ended up stopping for an hour and a half at Baco's café to have coffee with Mauricio the Chilean and Bausti, the son of the owner who is in the final phase of a three-week-long motorcycle ride from Cafayate to Northern Brazil and back.

Once the coffee was finished, the old David would have made his apologies and hit the road. Not anymore, as I settled into my chair at the table on the sidewalk, enjoying the perfect weather and sharing stories, music, and photos with my friends. Mauricio, despite having work to attend to at his lighting and paint store, stuck around as well. There are things far more important than money down here, especially time spent with friends.

The Nature of Reality

In the US and other media-saturated countries, reality is defined by deviants with degrees in manipulating minds. The old standard "If it bleeds it leads" has been bolstered with "If it's green, it's good" and "If it scares, it blares."

I can't stress the point enough… down here none of that counts. Reality is what you have for lunch, it's not some imagined threat lurking around every corner. Terrorists, cyber-surveillance, school lockdowns… none of it matters in the slightest.

As for the stories trumpeted over and over in the global press about the Mad Queen Cristina who is tenuously holding power over these lands, no one really cares. And the inflation has again made Argentina one of the least expensive countries in the world for those of us who are not peso-based.

Last night I had an excellent dinner at the best restaurant on the plaza – and it's a very good restaurant – and the cost of my entree was all of US$7.00.

Adventure Around Every Corner

One of the best things about climbing over the wall is that so many things you will experience are new and, at least to me, interesting and exciting. While here, we have been on stunning hikes, amazing horse treks, wonderful drives deep into the Andes – on one memorable occasion spending a few days at fellow Argentine aficionado Bill Bonner's massive estancia, a place so remote that, to reach it, you have to drive for many kilometers on a dried-up river bed.

A deep-thinking friend of mine once explained how important it is to the maintenance of mental acuity to challenge yourself, even – or maybe especially – when it comes to the mundane. For example, if you are right handed, try brushing your teeth with your left as it forces you to use new connections in your brain.

Moving here from a completely different culture, with a completely different language, forces you out of your comfort zone every single day. For instance, when the patron of the well-known local bodega offered to let me ride his powerful champion stallion – he had heard I was a polo player and so assumed I could handle it – my initial reaction was to think, "Are you crazy?!" Fortunately, that thought was quickly supplanted by one akin to, "When will I ever have an opportunity like this again?" So I took him up on his offer, and what an amazing ride it was.

Parting Thoughts

As our time here is growing short, I will sign off for the day with a few final thoughts.

First and foremost, as you may be able to tell from the above, despite the trepidations we felt before heading down here, my wife and I have not had a single regret… not for a second.

The house we built, which is fully paid for (as is the case with virtually all the houses in Argentina), was beautifully constructed. And, thanks to the competence of the architect who oversaw the construction, and the builder, the building went up with less hassle than was the case with our house back in Vermont.

We have fallen in love with the area, most ardently with Cafayate but also the province of Salta and the surrounding countries that, together, form what is called the Southern Cone. While life here, like everywhere, has its challenges, the challenges are nothing that a reasonably intelligent and patient person can't handle. In fact, with a little help from our local lawyer and knowledgeable friends, our interactions with the government amount to next to nothing… and, in most months, literally nothing.

Meanwhile, as noted above, the much-noted inflation here in Argentina has put the place on sale… and at a steep discount. Yet, even the locals in this tight-knit community don't appear to be overly disadvantaged. I suspect that's because, unlike the big city, this is an agricultural area where the cost of input is low, and so is the price of the output… thus the basic stuff of life is extremely cheap.

It is worth mentioning the cost of labor, as well. We have an exceptionally agreeable and hard-working maid who comes in for five or six hours a day, five days a week, at a cost equivalent to $40 a week. Simply put, that means that the drudgery of washing dishes and clothes, dusting, making beds, and so forth simply vanishes from your life, freeing you for far more agreeable pursuits. This is, in my view, almost the very definition of luxury – yet at a price many Americans push over the counter at Starbucks each week.

Now, this is not to say that other places in the world don't have their strengths as well as their weaknesses. If you love to snow ski or sail the big blue sea, this is probably not the place for you… at least not full time.

I also think, despite the low cost of living here, that it's probably not terribly well suited for people without at least some decent amount of money in the bank, or a source of revenue from outside the country. For example, from a job you can do over the Internet. That's because while there is 100% employment here, the local pay scale is low and the challenges of actually starting and running a business here are considerable.

While I have often said that "anyone who can live here and doesn't is a fool," in truth your own special lugar may have a completely different set of characteristics. I understand that some people even like big cities.

Whatever you do, if the place you are living doesn't make you feel alive, then do seriously consider setting out in the quest for a place that does.

This will be the end of what has turned into something of a series on life of an expat family in the Argentine outback. I hope you have found it of some interest and maybe even somewhat inspiring.

If you have any interest in visiting here, drop a note to VIPconnect@LaEst.com and they can help set you up with a customized itinerary. As the North American summer is the South American winter, the weather here will be growing somewhat less than perfect – though the skies are almost always blue with about 320 days of sunshine to chase away the night chills. If you live in the US deep south, I suspect you'd find the weather a refreshing alternative.

For those of you who might enjoy visiting as part of a small VIP group, this November – spring hereabouts – La Estancia will be hosting week-long visits for small groups in three successive weeks. The five-star Grace Resort and Villas will be in full operation, ensuring your stay at La Estancia is truly special. Again, if you are interested in participating, please contact  VIPconnect@LaEst.com.

We will again be in residence here and will look forward to a bit of socializing.

Friday Funnies

The World's Worst Hotel Painting?

Earlier I mentioned a recent game of beer pong with some of the younger set here in Cafayate. The site of the game was a hotel with the odd name of Paris Texas where one of the participants acts as a manager on those rare occasions that a guest darkens the door.

The absentee owner of the hotel apparently fancies himself a painter, and likewise appears to have something of an affinity for the macabre. The result is that the hotel rooms proudly display large canvases of his work. A photograph of one appears here with compliments of Pete Chandler. Now, the really funny thing is that this particular canvas, which is about four feet high from bottom to top, is planted squarely in front of the beds in a room set aside for families with small kids (by virtue that it has a third bed). If you can zoom in, you'll see the blood dripping from the fangs.

Though I suspect you'll be hard pressed to find a worse example of the genre, if you can find a worse hotel painting, feel free to send it along to me at David@caseyresearch.com...

Mark the Dates!

The only Casey Research Summit of the year is being held October 4 – 6 at the beautiful Loews Ventana Canyon Resort in Tucson, Arizona.

Being the only Summit this year, we are pulling out all the stops for the faculty, most of whom are arranging their schedules to participate side by side with the attendees throughout the entire three-day event.

Among the faculty now confirmed is keynote speaker Dr. Ron Paul (who will be attending all three days). For the entire list of faculty, the schedule, and a secure registration form, click here.

I think you'll be most impressed. As always, registration at our events is strictly limited, and we expect a quick sell-out. Hope to see you there!

A Short Note from Doug Casey

A few years ago, Porter Stansberry started what may be the most unusual club in the world, The Atlas 400. He asked me to join, and I did, simply because I both liked the idea and like and trust Porter.

The concept is, in some ways, similar to something I put together years ago called The Eris Society. The idea was to provide a forum for accomplished people who should know each other, but didn't, to hang out together. Everyone enjoyed it and benefitted from it – where else could you expect to be in the same room, as an equal, with the world's leading aircraft designer, the leader of the world's largest outlaw motorcycle club, several billionaires, the most decorated living US soldier, several of the world's leading life-extension scientists, and lots of best-selling authors? Among many others.

Porter has done an excellent variation on that theme. And now that it's been around, and vital, for several years, I feel confident in recommending it.

Atlas is quite expensive, like most proper men's clubs. That's a good idea; it excludes those who aren't successful. And it turns away two out of three applicants. That's also a good idea; it does a pretty good job of excluding the annoying, the pushy, the dull, and those of bad character. And instead of having just one meeting a year, as Eris did, it sponsors a number of adventures, where you can get to know your fellow members while doing something memorable.

I don't know about you, but I'm always up for both making new friends and having fun. The Atlas 400 makes both of those things better and easier. That's a huge plus. It's why I don't go to most cocktail parties; it's like dealing with the public is usually a frustrating waste of time.

Atlas isn't for everybody, but if you can qualify, I think I can assure you that you'll be very pleased with your membership. Feel free to check out this interesting video of club highlights and apply to join The Atlas 400 here.

David again. One other housekeeping item: There's a new Casey phyle starting in downtown Chicago – so if you're interested in getting together with like-minded investors, shoot us an email at phyles@caseyresearch.com and we connect you.

And with that, I will sign off for now and return to packing for the trip back to the States. Until next time, thanks for reading and thanks for being a Casey Research subscriber!

David Galland
Managing Director
Casey Research

By Adam J. Crawford, Junior Analyst

In August 1956, the Calder Hall Power Plant in Seascale, England began generating electricity and earned the distinction of being the world's first commercial nuclear power plant. It was a humble beginning for nuclear power; the plant only had a 50-megawatt (MW) output capacity, whereas the smallest US plant today has a 478 MW capacity. Nonetheless, Calder Hall represented the launch of a new era in energy that promised to bring electricity too cheap to meter.

But early on, the promising power source had its detractors. They objected to the high initial cost of constructing nuclear plants, the problems of radioactive waste disposal, and the risks of nuclear accidents and nuclear proliferation.

The detractors had an impact. The heavy regulation they pushed for and the litigation they initiated extended construction times and drove up construction costs. But despite their efforts, over 100 reactors had been placed in service in the United States by 1974.

Then came 1979 and a landmark event – the nuclear accident at Three Mile Island. In the aftermath, public opinion turned solidly in favor of the anti-nuclear movement, several construction projects were canceled, and no new US building permits for nuclear power plants were issued for the next 33 years.

Though the US abandoned nuclear expansion in the 1980s, other countries forged ahead. Worldwide startups peaked in 1984 and 1985, as over 30 plants were brought online in each of those years. However, escalating regulatory and litigation costs and pressure groups were not unique to the US. By the 1980s, it was becoming difficult to cost-justify new projects. On top of all that, the Chernobyl accident occurred in 1986, and the world had its own Three Mile Island moment.

In the 1990s, global startups fell to an annual average of less than six per year; in the first decade of the new century, average annual startups were just over three per year. In fact, since 1990 there have barely been enough startups to offset shutdowns.

The recent flurry of closures was caused to a great extent by yet another accident. After the earthquake and tsunami in Japan on March 11, 2011 and the ensuing catastrophe at the Fukushima Nuclear Power Plant, several countries began to rethink their nuclear energy policies. In May 2011, Germany announced that it would abandon nuclear energy entirely, shutting down all 17 of its plants by 2022. In June 2011, Italian citizens voted overwhelmingly in favor of a referendum to cancel plans for new reactors. The Japanese Cabinet, though unclear about a specific plan, has issued a white paper calling for less reliance on nuclear power.

So is nuclear on its last legs? It would appear so... but before we make the funeral arrangements, let's take a closer look.

A Nuclear Renaissance

In the wake of the Fukushima disaster, much of the attention in the Western world has been on the nuclear power debate, plant shutdowns, and project cancelations. Meanwhile, those in developing countries recognize the harsh reality that something has to be done to produce more power. Driven by population growth and increasing standards of living, future demand for energy in those countries will be strong, if not overwhelming.

The International Energy Agency forecasts that global demand for electricity will grow by a staggering 70% between 2012 and 2035. The increase will come predominantly from developing countries – over half is expected from China and India alone.

Serious pollution problems mean that those developing countries cannot produce all that electricity by burning coal. Amir Adnani, Uranium Energy Corporation's CEO, says, "The plans to develop nuclear power in China and other countries are very much driven by a set of realities that is very different and very acute. People are dying every year in China, literally choking to death, because of all the toxins that are being put into the environment by burning coal."

This explains why China, India, and the Russian Federation are quietly forging ahead with nuclear energy expansion while the West and Japan fret over it. As you can see in the table below, those developing countries are dominant leaders in the construction of nuclear facilities.

Source: European Nuclear Society

It typically takes about six years to complete a plant once it is under construction, so the 67 facilities shown above should be producing electricity soon. In addition, over 100 reactors are at various stages of planning and permitting.

So it looks like the needs of developing countries will be more than enough to revitalize and sustain the nuclear-power industry. As for the developed countries, many still heavily rely on nuclear energy, and that won't change anytime soon. In fact, the reliance may only increase in the coming years.

Though many developed countries have been cool at best and hostile at worst toward nuclear energy expansion, a more conciliatory approach may be required in the future. That's because many of the same people who are concerned about the risks and costs of nuclear power are even more concerned about global warming. That means fossil fuels and the carbon dioxide they emit must be limited.

But what will be used other than fossil fuels? The hope was wind and solar, but the inefficiencies, high costs, and intermittent nature of these two energy sources make them unlikely candidates for widespread use. What's left is nuclear.

On February 9, 2012, the US Nuclear Regulatory Commission approved a license for two new nuclear reactors in Georgia, the first in over 30 years. This could be a sign of more approvals to come. But what could eventually really ignite a nuclear expansion are the promising technology advancements that are being developed.

Nuclear Technological Developments

Small Modular Reactors:

You've heard of the mini-brewery and the mini-steel mill; now meet the mini-nuclear reactor. Commonly known as "small modular reactors" or SMRs, these reactors are tiny compared to conventional ones. However, with capacities reaching up to 300 MW (power sufficient to supply 45,000 homes) they pack plenty of punch to have practical commercial application. Here are some advantages that SMRs offer:

• They are cheaper to construct and operate than conventional reactors.
• They can be standardized and factory built, a much more efficient process than on-site construction.
• They can be set up in groups to provide however much power an area needs. Grouping would allow for a unit to be taken offline for repairs, maintenance, or replacement without an interruption of service. On the flip side, more units can be easily added if an area's power needs increase.
• They can basically run themselves with little on-site supervision.
• They can be stored underground, which enhances security.

Most important, because they are small and use less fuel, they are easier to cool, which greatly reduces the risk of a meltdown.

Small Modular Reactor

Some SMRs can even run on what was once considered nuclear waste. For example, a Bill Gates-backed company, TerraPower, is developing a reactor that burns depleted uranium. Depleted uranium burns very slowly, so TerraPower's reactor could theoretically run for decades without the need for a fill-up. This is an exciting development. Unfortunately, the TerraPower reactor only exists as a prototype on a PC. This means that it will take several years before it could possibly make its debut on the power grid.

In fact, most SMRs are still in the very early stages of development, with many challenges to be met and many questions to be answered. However, the concept has enough promise to induce the US government to invest in its pursuit. If it proves to be viable, this technology could really shake up the energy scene.

Thorium Reactors:

Imagine a cheap, plentiful atomic fuel that could provide safe, emissions-free power for hundreds of years without refueling and without any risk of nuclear proliferation. That fuel is thorium, and proponents claim it eludes many of the pitfalls of today's nuclear energy.

Robert Rapier, chief technology officer and executive vice president at Merica International, says:

"Longer term, commercialization of thorium reactors would dramatically reduce (although not totally eliminate) the risk of nuclear-weapon proliferation. Thorium is abundant relative to uranium, and thorium does not have to undergo the enrichment process that uranium requires. Further, thorium reactors have little risk of melting down because climbing temperatures will decrease the power output, eliminating the runaway reaction possibility present in a uranium-fueled reactor. Thus, these reactors would naturally tend toward the fail-safe state. The primary disadvantage is that thorium reactors are still mainly at the experimental stage, and therefore commercial viability has not yet been clearly demonstrated."

Pebble-Bed Reactors:

The pebble-bed reactor concept was first introduced way back in the 1940s. The US, Germany, and South Africa have experimented with the technology over the years, but it is the Chinese who have persisted in the experiment and plan to implement the technology in two reactors near the Yellow Sea.

Under the pebble-bed design, uranium fuel rods are replaced with tennis-ball-sized graphite spheres that contain tiny beads of uranium, and helium (instead of water) is used as a coolant. A New York Times piece provides a simple explanation of how the technology works:

"Rather than using conventional fuel rod assemblies…(pebble-bed reactors) use hundreds of thousands of billiard-ball-size fuel elements, each cloaked in its own protective layer of graphite.

"The coating moderates the pace of nuclear reactions and is meant to ensure that if the plant had to be shut down in an emergency, the reaction would slowly stop on its own and not lead to a meltdown.

"The reactors (are) cooled by non-explosive helium gas instead of depending on a steady source of water – a critical problem with the damaged reactors at Japan's Fukushima Daiichi power plant. And unlike those reactors, (pebble-bed) reactors are designed to gradually dissipate heat on their own, even if the coolant is lost."

Challenges remain for pebble-bed reactors, and some environmentalists oppose the technology. They point to the fact that the volume of radioactive waste increases under the pebble-bed design, but do concede that pebble-bed waste is far less radioactive per ton than spent uranium fuel rods.

These technological developments in the nuclear-reactor space are promising and certainly worth keeping an eye on... but it's unlikely that anything disruptive will hit the mainstream anytime soon.

So from an investment standpoint, this means that the best and most immediate way to play the nuclear trend is not the companies that make the reactors, but the companies that mine the fuel for the reactors.

The Coming Uranium Bull Market

There are a number of supply and demand circumstances that appear to be forming a perfect storm for bullish uranium prices. From the demand side, the 67 new reactors that we discussed earlier will be coming online in the near future.

On the supply side, there isn't enough uranium being mined to meet current reactor requirements, let alone new facility requirements. According to the World Nuclear Association, there was a 40-million-pound uranium production gap in 2011. It is unlikely that that gap will be closed at current prices; miners claim that their production costs average $85 per pound. With spot prices at about $40 per pound, miners have no incentive to bring new capacity online.

Another factor affecting the supply side is the coming end of the Megatons to Megawatts program. Under this arrangement, the US and Russia agreed to convert high-enriched uranium from Russia's dismantled weapons arsenal into low-enriched uranium for use in power plants. This secondary source provides about 15% of the US's annual supply of uranium. However, the program will expire later this year and when it does, the production gap will widen. Guess what will happen to uranium prices. That's right: they'll skyrocket.

Intrigued yet? Want some more specific investment advice? Help is on the way. Marin Katusa and the Casey Research Energy Team are on top of the emerging opportunity in uranium and have assembled a panel of world-renowned energy experts to discuss it in further depth in an upcoming webinar titled The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment? The webinar premiers at 2:00 p.m. Eastern on Tuesday May 21, 2013 and is free of charge. In addition, all attendees will receive a free copy of our new Global Resource Intelligence Report on uranium (a $29 value). I urge you to reserve your seat today.

Bits & Bytes

À La Carte Won't Fix Cable (Slate)

Tech giants such as Google and Apple are working on ways to unbundle the cable package. As it turns out, so is John McCain. Senator McCain recently introduced a bill that would kill the cable bundle, offering consumers the option of purchasing channels à la carte. The intent is to lower consumer cable bills. However, as this article points out, it would likely have the opposite effect.

Amazon Is Developing Smartphone with 3D Screen (Wall Street Journal)

The Amazon smartphone rumors are picking up momentum again. According to the Wall Street Journal, Amazon will soon introduce two smartphone models. One will be a high-end device that will include a screen which will allow for 3D images without the use of glasses. Though the Wall Street Journal did not provide any details on the other device, it will presumably be more traditional and have a mass-market appeal.

Apple Supplier Pegatron Boosts Chinese Workforce by 40 Percent in Second Quarter (Reuters)

Pegatron, a components and devices supplier for Apple, is hiring 40,000 additional workers at its China-based manufacturing facility. There has been widespread speculation that Apple will release an updated iPhone 5 and a lower-end, plastic-bodied iPhone this fall. These hirings would indicate that those releases will indeed take place and that big orders are expected.

"You'll know gold sentiment is at a high when "Slime" (Time) magazine has a cover showing a golden bull tearing apart the New York Stock Exchange."

–Doug Casey

The Economist, whose editors apparently don't read Doug's work, ran the cover below on May 11.

In this case, the bull, whose smug facial expression appears to be taunting us for ever doubting that Wall Street is the most awesomest place on earth, isn't golden. Rather, his smashing through the wall is a metaphor for stocks smashing through their nominal all-time highs, and an implicit projection that there are more gains to come.

Different magazine, different asset, same idea: by the time the mainstream media adopts a narrative, it's a good bet that whatever trend they're celebrating has just about run its course.

The crowd will likely hail this cover – and those sure to follow soon in more widely distributed publications – as an "all clear" sign to jump back in to stocks if they haven't already. But you're probably better off doing the exact opposite: prepare for tough times by reviewing your stock portfolio and cutting loose all but the best companies.

At the most basic level, Doug's observation is a comment on human psychology. I can think of endless knocks on the mainstream media, but one role it competently fills is to reflect the prevailing psychology of the people. The bull on the cover is no exception.

When making decisions, humans tend to rely on their experiences in the immediate past. Thus, while trying to decide where to invest money today, the majority peer into the rearview mirror and see nothing but gains in stocks for the four preceding years. Our brains are wired to tell us this is a good thing – that stocks are safe once again and represent an exciting opportunity to jump on a rising wave and make some money.

But remember: the bull gracing the cover of The Economist is a reaction to the crowd's bullish attitude, not a precursor to it. The crowd is mostly bullish already.

Such a bullish signal will only serve to draw in the most sluggish and unaware of investors. They're very last to get in. After their money is drawn in from the sidelines, there's no one left to buy. Ignore crowd psychology at your own peril.

Which brings me to this week's feature, courtesy of an organization dedicated to studying the effects of crowd psychology on world events. If you're not familiar with the Elliott Wave Theory (EWT), it's based upon the idea that changes in crowd psychology are the dominant driver of changes in markets – more so than earnings, margins, or other fundamentals. Further, these psychological swings usually occur in measurable patterns. Thus, by studying crowd psychology, one can predict where markets may go next.

There's a strong contrarian element to EWT's methods, such as the position that extremes in investor sentiment usually mark stock market inflection points. EWT's sober take is that when euphoria is running high and everyone is bullish, what's really happening is that anyone who could potentially invest has already invested, meaning there are no buyers left – only sellers, which marks a true market top. I suspect EWT proponents would judge the above bull cover in much the same way Doug Casey does – as a warning, rather than a celebration.

You'll find that the excerpt begins with a story of how the author, Robert Prechter, used his study of crowd psychology to predict that the global-warming hysteria of a few years ago was way overblown and that it would die down, just as all of the contrived emergencies before it did. I asked to include this section for readers who are unfamiliar with Elliott Wave Theory, as an example that it can apply across all realms of human action, not just financial markets.

Following that section, you'll find a small taste of Elliott Wave International's forecast for US stocks. If you like what you see, you can download the entire global forecast – which includes big-picture analysis on US, Asian, and European stocks as well as commodities like gold and oil – for free.

Enjoy, and see you next week!

Dan Steinhart
Managing Editor, The Casey Report

Excerpt from The State of the Global Markets, Elliott Wave International's 2013 Global Forecast

Part I: The Global-Warming Panic Is a Distant Memory

By Robert Prechter, editor of The Elliott Wave Theorist

A non-event that recently had the media buzzing was the dearth of discussion of the global-warming issue during the presidential debates, not to mention nearly everywhere else on earth over the past year.

This is another social change predicted in The Elliott Wave Theorist in the face of vicious opposition. This excerpt highlights the key points:

Sometimes scientists herd as much as investors do, and this study [by NASA] appears to be a case of extreme expression following a long-established trend. I am not a climatologist, but I am a student of manias and herding, and that is what the global-warming craze appears to be about.

My purpose here is not primarily to make a case against man-made global warming. My primary intent is to take a look at the question from the point of view of a social psychologist to decide whether it appears to be the result of hysteria. The points above establish that there are two sides to the global-warming question. Yet only one has captured the public's imagination (and I choose that word consciously). The global-warming scare is highly reminiscent of the Alar scare, in which Congress called upon the expertise of movie stars; the ozone-depletion scare and the acid-rain scare, which have all but vanished; the claim that pesticides were making frogs lame (it turned out to be a virus); the rash of reports of devil worshippers, who were never found; the national child-care molestation hysteria, which turned out to be almost entirely contrived; the panic in Europe over poison in Coca-Cola; and any number of like manias. Hysteria often signals the end of a trend.

There is powerful evidence of herding at the social level on the global-warming issue. Commentary on the subject is even selling theater tickets. And like all past social trends that were ending, there is a rush to extrapolate. The temperature data from which modelers at NASA derive their extrapolations are scant, the projection is extreme, and their tone is strident. When any writers, including scientists, extrapolate 29 years' worth of temperature data to predict an imminent apocalypse of biblical proportions in an environment of waxing social focus, rising panic, and calls for government obstruction, one must acknowledge the likelihood of social-psychological forces behind such a report and investigate whether the data support the prediction.

The crowd fearing global warming rejects as heretics professors and scientists who challenge all these methods and conclusions, whether they be at MIT or Stanford. Such rejection is akin to what happens near the end of a financial mania, such as the peak of the real estate mania [in 2005], when bears were dismissed as delusional.

GW advocates told me that doubting man-made global warming is akin to denying evolution, but the GW movement has not a little taste of old-time religion in its accompanying admonition of humanity: Man is evil; he is destroying the earth; he is "fouling his own nest," as one scientist on the Web says. Scientists are usually good at their fields but not necessarily at recognizing their own political, moral, and philosophical biases.

One thoughtful scientist took issue with the term "hysteria." But the term applies here to social activity, not the overt behavior of any particular individual. In 2005, when I was speaking about real estate hysteria and warning people against investing in property, people sporting a rather bemused expression would coolly respond, as if instructing an alien who lacked understanding of the way things worked on Earth, "They are not making any more land" and "It's all about location." They would say this with utmost calm. They had thought about it and sifted through the evidence. They were not hysterical but rational and thoughtful. At least, this was the appearance of behavior at the individual level. At the collective level, something else was going on. The number of people participating in the real estate market was unprecedented, and their borrowing, building, and bidding activities, collectively, were extreme.

Advocates of man-made global warming may appear sober as judges individually, but they are participating in a mass movement, complete with press releases, student rallies, pop concerts, movie documentaries, and an underlying tone of moral crusade.

I think the current frenzy over the subject is probably a symptom of peaking cycles in both climatic temperature and social psychology. But unfortunately 70 years from now most of us won't be around to know the answer. What I expect, based upon observing mass movements, is that this fear, too, will go away.

–The Elliott Wave Theorist, June and July 2007

That was six years ago. Recently it has come to light – from globally collected data reported by some of the very institutions that had passionately promoted the case for man-made global warming in 2007 – that the earth in fact hasn't warmed at all since 1997. One would think the case for man-made global warming would be virtually closed from such contrary evidence and that those who feared global warming would breathe a happy sigh of relief and go home. Some of them have done just that. But proponents remain vocal.

[In November] a professor in a syndicated editorial blamed the recent relative silence on the issue on "a profit-driven economic system that demands and necessitates endless growth, a global US military presence that helps facilitate it, and the ecologically rapacious consumption it entails." Whatever your opinion of these matters, all three of them were in place during the entire period of waxing panic over the global-warming issue, negating the claim to their causing its opposite.

He further charged, "In the wake of extreme drought in much of the United States, widespread wildfires in the western US, and now Hurricane Sandy, Barack Obama's and Mitt Romney's refusal to discuss human-induced climate change will undoubtedly go down as political recklessness of historic proportions." If hurricanes, wildfires, and droughts were evidence of man-made climate change, man must have secretly industrialized the world millions of years ago. Archaeologists are pretty sure that didn't happen. The main thing likely to go down as being of historic proportion is the extent of fear about global warming that held sway in 2007. I doubt it will return in our lifetimes.

Further suggesting that the old trend is dead is that government, always the last institution to join a herd, is taking action. California passed a "cap and trade" law at the height of the panic in 2006 and is now implementing it. Naturally, it involves taxing people:

Under the plan, the California Air Resources Board will auction off pollution permits on Wednesday called "allowances" to more than 350 businesses, including electric companies, food processors, and refineries. The board has estimated that businesses will pay a total of $964 million for allowances in fiscal year 2012-2013. (AP, 11/15)

Extorting a billion dollars annually from industry will ultimately cause more pollution, as it did in communist East Germany, where air became toxic and rivers caught on fire. But California doesn't yet shoot people trying to leave, so the first likely trend here is that businesses will accelerate their exodus out of the state.

Unfortunately, there may be more action at the federal level as well. At a press conference on November 14, President Obama declared, "I am a firm believer that climate change is real, that it is impacted by human behavior and carbon emissions. And as a consequence, I think we've got an obligation to future generations to do something about it." (Reuters)

Republican Mayor of New York Michael Bloomberg likes Obama's position on this issue so much that he endorsed the president for reelection. But Obama's waste of billions of taxpayer dollars propping up so-called "clean energy" companies, along with whatever new taxes and regulations the feds dream up, will ultimately contribute to the trend toward national poverty, which will increase pollution, not reduce it. With any luck, the depression will distract various governments from this destructive path. But, then again, destruction is what depressions are about.

Part II: The Stock Market Is Ripe for a Decline of Historic Magnitude

By Steve Hochberg and Pete Kendall, editors of The Elliott Wave Financial Forecast

Incredibly, the DJIA rallied back to a new all-time high, a move that generated a cornucopia of ever-higher projections.

The wide array of optimistic extremes in sentiment measures includes several readings that exceed the extremes of 2007, when the Dow made its previous high. With a finishing structure that Elliott Wave Principle describes as occurring at "the termination points of larger patterns," the market is ripe for a decline of historic magnitude.

The sudden, loud chorus of market bulls, which has grown to a full-blown crescendo, fits perfectly with the terminal stages of a major advance. This chart shows the stunning breadth of optimism extending to every class of investor.

The first indicator (second graph) on the chart shows the percentage commitment to equities in the portfolios of members in the National Association of Active Investment Managers (NAAIM). The latest reading reveals an all-time high equity exposure of 104%, which means managers are in a leveraged long position for the first time in the seven-year history of the survey. The reading far surpasses the 83% level, which occurred at the October 2007 all-time high in the Dow.

A separate BofA Merrill Lynch survey of 254 fund managers confirms that money managers' "appetite for risk in their portfolio" is at its highest in nine years. "An increasing number judge equities as undervalued – particularly in Europe." They soon will become even more "undervalued," as the Euro STOXX 50 Index has traced out five waves down from its January 30 countertrend rally high, indicating that Europe's bear trend has returned. There's more: Even though Spain, Portugal, Greece, and Italy are de facto bankrupt, confidence is suddenly so high in that region that Europe's junk-bond yields relative to investment-grade debt have collapsed to the lowest premium since the start of the global credit crisis. It is an astonishing and historic display of optimism relative to a collapsing economic reality.

The second indicator shows a major upswing in bullishness among options traders via the Credit Suisse Fear Barometer Index (the name is misleading since a rising index means less fear). This index measures trader sentiment by comparing the cost of three-month out-of-the-money calls on the S&P 500 relative to puts of the same duration. The recent extreme of 33.32 on January 25 is the highest in the history of the indicator, which goes all the way back to November 1994. The CBOE Volatility Index (VIX), which tracks the level of fear and complacency using the premium paid for at-the-money S&P options, declined to a low of 12.29 on January 18, its lowest reading – indicating the most complacency – since April 2007, just prior to the major top in the financials.

The third indicator shows a new optimistic extreme among investment advisors. The 15-day average of Market Vane's Bullish Consensus rose to 68.2% in February, its highest reading since June 2007.

The bottom graph plots the total assets in the government money-market funds at Guggenheim (formerly Rydex), showing that the public is likewise complacent about the potential for a market decline. We've inverted the totals to align them with the trend in stocks. When people are highly confident that stock and bond prices will continue to rise, they see little need to hold money aside in money-market funds and instead load up on financial assets. The total holdings in Guggenheim's money-market funds just dropped to their lowest level ever, reflecting a supreme confidence by investors and a full embrace of stocks and bonds.

At the opposite extreme, corporate insiders – investors who are presumably privy to the future potential of their companies – are dumping shares into the market at a furious pace. According to Vickers Weekly Insider Report, among NYSE stocks there were 9.2 insider shares sold for every share bought over the previous week. The last time the ratio of sales-to-buys was higher was in July 2011, just before the Dow declined 18% over the following four months. As we've said previously, there may be many reasons why an insider sells shares, but one of them is not because they think their price is going higher.

Taken together, the breadth of extremes shown on the chart indicates that stocks are not making a short-term top: these measures are all greater than at any time since at least 2007. This is a rare alignment that confirms this is an even more important, and more bearish, juncture than 2007.

You have just read an excerpt from State of the Global Markets – 2013 Edition, a report from Robert Prechter's Elliott Wave International. The full report, including big-picture analysis on US, Asian, and European stocks as well as gold, silver, oil, and more, is available for free for the next week. Follow this link to download the full 39-page report now – it's free.

By Marin Katusa

Back in 2008 during the second presidential debate, Obama had an extremely optimistic goal: to be completely "free of dependence on Middle Eastern oil" by 2018, since according to him, being dependent on other people's energy is "bad for our national security."

Then why does the US currently need to import more than 90% of its domestic consumption of uranium? How can America even pretend to be on the path of energy independence without solving this uranium problem? As the world depends more and more on nuclear power, can the US continue to secure friendly sources of uranium?

In order to look deeper into the question, we have interviewed some of the most well-respected people in the sector and created a free, online video event titled The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment?

Below are some excerpts from the interviews which I conducted:

Don't miss this fantastic chance to gain amazing insights into the uranium sector – and how you can profit as an investor. By attending our online event, you will also receive a free copy of our Global Resource Intelligence report on uranium (a $29 value). The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Play? webinar premiers on Tuesday, May 21, at 2 p.m. EDT, so sign up now.

And to conclude on just how profitable this sector could be, I will once again borrow the words of Rick Rule:

"There were a lot of people who added a zero to their net worth as a consequence [of the last uranium bull]. Suppose one only did half as well and their net worth only went up five times; would that be sufficient for most of your viewers?"

I would definitely be happy with a 500% increase to my net worth.

Would you?

Additional Links and Reads

Rosatom Offers Emerging Nations Nuclear Package (Reuters)

Rosatom is involved with 19 reactors outside of Russia, and looks to increase the number by offering special package deals to developing countries. We expect Russia is undercutting its competition, but doing so to control the nuclear market in the longer term. We are not sold on Russia's safety standards; this accompanied by the Putinization of the world definitely gives an unsettling feeling.

EU raids Oil Groups over Price Manipulation (Globe and Mail)

The European Commission announced that several oil companies have been raided as part of an investigation into manipulation of oil benchmark prices. Both Statoil and Shell have traded sideways, suggesting that nothing will come of the news. The raid comes in the wake of the LIBOR scandal, which according to some is the largest financial scam in the history of the markets. UBS was fined about $1.5 billion for its part of the scandal, while Barclays was hit with a $450 million fine. If anything materializes from the case, Statoil and Shell can both be out cash, but it would be relatively immaterial to what they have on their books.

Brazil Oil Auction Gathers Drillers with African Energy Experience (Bloomberg)

It is safe to say that almost all large onshore oil deposits have been tapped, and the majors must now turn to high-risk, offshore plays. Offshore Brazil is definitely frontier acreage, but like offshore Africa, it has the potential to hold enormous deposits. With Exxon and Chevron in the mix, it appears Brazil is set for a major influx of foreign money.

Dear Reader,

Rick Rule is the founder and chairman of Sprott Global Resource Investments Ltd. As many readers know, he's one of the most successful resource investors in the world, so our own Jeff Clark interviewed him to get his take on the recent crash in gold. In the process, he found out why Rick thinks the capitulation process may not be over, what catalysts he believes could turn the industry around, and why he's thrilled about this market.

Read on to learn why Rick thinks a lifetime buying opportunity is shaping up in the junior resource sector…

Sincerely,

Louis James
Senior Metals Investment Strategist
Casey Research

Jeff Clark: First, Rick, what's your basic explanation as to why gold crashed a few weeks ago?

Rick Rule: I think there are two parts to the answer, maybe three. First, the gold market was technically weak. The second thing is that there were a lot of institutional players long gold on leverage, using capital that was borrowed rather than their own, so when the price crashed they had to unwind very rapidly.

The fact that there was a very large futures player who attempted to come out of the market all at once during a period in time when the market was extremely illiquid is, of course, also very suspect. I know that most Internet articles are focused on the one large 400-tonne sale at a very odd point in time, and I would certainly agree with the suspicion that if I were a holder of that size and I was looking to sell or had to sell, I probably wouldn't have chosen to do it all at once or in a very illiquid time in the market.

I think that one of the things you have to look at in the gold market is that we are changing the nature of ownership, from institutional momentum holders who are leveraged, which is a long way of saying "weak hands," to physical individual buyers on a global basis, which is a different way of saying "strong hands." So one of the things that happened in the gold smackdown is that gold did what many things do in bear markets: it went from weak hands to strong hands.

Jeff: I saw a BNN video where you said the capitulation process isn't over. What makes you say that?

Rick: I don't know if I have an opinion regarding the capitulation process in gold and silver, but I certainly think that the lows are yet to come for the junior mining equities. My experience in 35 years in junior equity markets is that bull markets end in an upside blowout, and bear markets end in a downside puke. I think we were partway through that a couple weeks ago, but I think it got interrupted. I haven't seen the sort of cataclysmic capitulation selling that usually marks a bear market bottom. It doesn't mean that just because it has always happened that way that it will happen this way again, but I haven't seen the capitulation selling. What I have seen, for example, is mutual funds being forced to sell to meet redemptions – but I haven't seen the no-bid market that usually marks the cataclysmic bear market bottom.

Jeff: And the point is that you expect that.

Rick: I do.

Jeff: That was a record selloff a few weeks back.

Rick: It didn't have the duration that one would have expected. These things are usually two or three week long sell-fests. I forget what month it was in the year 2000, but there was an absolutely comical selloff. People who were on margin didn't find it funny at all, but because I was cashed up and I was extremely experienced, it was just an absurd theater that I took advantage of. There were a bunch of people who didn't know much about these stocks that bought them in 1996, and that same group of morons that knew nothing about what they owned or why they owned them and so puked them out in 2000. Your job as a speculator is to be on the other side of both of those trades.

Jeff: This implies that gold returning to the $1,900 level and going higher could be a couple of years away.

Rick: I have no opinion on that. It's important to note that most of the juniors are nonviable at any gold price. When people ask me what would happen to the price of Amalgamated Moose Pasture if gold went to $2,000, I'm forced to say to them, "Well, it really shouldn't matter. Amalgamated Moose Pasture doesn't have any gold. They are looking for gold, and if the price of something that you don't have any of goes up, it shouldn't make any intrinsic difference."

The truth is, we need to unwind the excesses of the last decade in the junior market. We've done a pretty good job of that, but we need to finish it.

Don't get me wrong, I'm a gold bug. But if you think gold is going higher, buy gold. If you are going to buy gold stocks, buy them because there is some internal reason to own that company and why it is becoming more valuable. Never confuse the two.

Jeff: Good point. What do you make of the record insider buying in the junior market?

Rick: I think there are two things to consider there. The first is that the high-quality gold juniors are very cheap. We believe, statistically, that the high-quality gold juniors are the cheapest they've ever been since 1992. So you are seeing very sophisticated buying of the gold juniors to match the selling from other places.

The other thing you're seeing with insider buying are financings where they issue God knows how many millions of shares at a nickel to raise $300-400K, which are basically going to pay insiders' salaries. These people are basically putting the money from one pocket into another pocket, and issuing themselves 10 or 11 million shares in the process. There are hopefully 500 or 600 companies headed to extinction.

Both of those things are happening. One of them is bullish, and the other is just the way these junior markets work.

Jeff: A lot of analysts, especially the CNBC types, claim the gold bull market is over, that we've entered a bear market and it's time to get out.

Rick: I disagree with that on many levels. The narrative associated with gold and the narrative associated with the resource story hasn't changed. How many of your readers – in fact, how many listeners to CNBC or CNN – believe that the Western world's financial crisis is over? How many believe that any of the G20 nations can balance their budget? How many believe that central bank liquidity is a substitute for solvency, owing more than you can pay back? How many people would deny that physical gold demand has been strong?

The point is that the narrative that drove the gold market in 2006 and 2010 is very much intact. Nothing, in fact, has changed. The only thing that has changed is the perception and the price, both of which are lower, which is better. So yes, I am absolutely a gold bug, particularly when you compare it with the alternative, the US 10- or 30-year Treasury, which Jim Grant famously describes as "return-free risk." Does return-free risk sound attractive to you? It doesn't to me.

Jeff: Right.

Rick: I also need to say that my 30-year track record and Eric Sprott's 30-year track record are a function of being extremely aggressive buyers in very bad markets. The $10 billion business that is now Sprott, Inc., is really a consequence of aggressive investing during bear markets. In periods like the 1990 bear market and the year 2000 bear market, it is precisely markets like these, when we have taken pain but have also taken aggressive action. And the rebound coming back out of markets like these can be very violent. You don't have the ability to reap the rewards of those upturns if you are not an aggressive investor in downturns like these.

Jeff: I've heard you say that you've made the biggest part of your wealth during big selloffs. This has been one for the record books, so are you viewing this as being another one of those opportunities?

Rick: Absolutely, Jeff. Let's face it, I'm 60 years old. This is probably my last major market cycle. I'm going to make the most of it. I can tell you that I'm having the most fun I've had in my career for 13 years. I have spent all my life honing my skills, building up the capital, building up the client base – this is tailor-made for me. I realize this period is unpleasant for some people, but the market doesn't care if it's unpleasant. The market doesn't care if it's inconvenient. You take what the market gives you – and this market is giving me a gigantic sale on assets I want to own.

Jeff: It's very exciting from that perspective. It begs the question, though: how do investors know when to reenter the market? How do we know when to buy?

Rick: You know, Jeff, I'm always early. Your friend Doug Casey will tell you that about me. I have a very logical mind. I believe if A is true, B is true, and C is true, then X will be the result. And when I reach that conclusion, I often confuse imminent with inevitable. So I don't know the answer to that.

What I do know is that my own net worth seems to go up fivefold coming out of a bear market and going into a bull market. Suppose it took 18 months longer than I had hoped; does that really matter, given the magnitude of the outcome? When there is a sale at a store for goods that you want, do you really worry too much about the fact that there might be another sale two weeks from now? I don't think you do. When goods that you want to own are attractively priced, you buy them.

Jeff: What about the investor who has already built a full position in a high-quality company; how does someone take advantage of what you're essentially calling a lifetime buying opportunity?

Rick: I think a key part of the answer has to do with "high-quality company." Most investors, particularly in the junior sector, are very bad at stock selection, and they don't have a good sense of what constitutes a high-quality company. If, in fact, I am to answer the question precisely as you asked it – what does a person do if they already have a full position in a high-quality company – then the answer is easy: relax. But if the question goes to somebody who has a laundry list of 20 companies and doesn't really remember why he or she bought the companies and is not aware of the fundamentals of the company and hasn't bothered to benchmark those companies against other companies that exhibit similar characteristics, that's a very different question.

In bull markets and in bear markets, one must continue to high-grade one's portfolio. One must make oneself at least once a year sell at least 20% of the portfolio. If you have 20 names in the portfolio, you have to make yourself sell four or five of them, and increase your positions in your best names. And you don't just do that in bull markets, you do it in bear markets, too.

Jeff: It's critical to be selective with stock picking.

Rick: It is absolutely critical. You've heard me say this before: if you merged every junior exploration company in the world into one company, that company would lose somewhere between $2 billion and $5 billion a year. So how do you price the industry… do you price it at five times losses? Ten times losses? The question, of course, is apocryphal.

What you need to remember is that all of the performance that gives the sector its occasional luster is concentrated in the top 10% of companies. People who are going to participate in the sector need to either spend the time or spend the money to have their portfolio selectively high-graded on a consistent basis. It's all about stock selection. If you want the extra leverage inherent in equities, do securities analysis and pay attention to those equities.

Jeff: Someone wrote to me recently saying, "I thought I was going to get rich in gold stocks, and here they are plummeting." What is your response to the investor who makes that kind of comment?

Rick: That's easy. Natural resource businesses and precious metals businesses are capital intensive and extraordinarily cyclical. Somebody in the sector must always remember, you are either a contrarian or you will be a victim. It's funny; people only want to be contrarians when it's popular. The fact that the narrative hasn't changed, the fact that the facts haven’t changed, the fact that nothing has changed except the TSX.V being off by 60%, means that the same goods that appeared attractive to people at twice current prices must be more attractive now.

The gentleman or the lady who wrote to you is probably somebody who only believed in the narrative when it was being reinforced by the market. That's not being a contrarian, that's being a victim. If you came into a market when it was popular in 2010 and then you exit the market when it's unpopular in 2013, that's a classic example of buying high and selling low, a silly thing to do.

Remember the take-home phrase: you are either a contrarian or you are a victim. To buy low, you have to buy in markets that don't have competition. To sell high, you have to be a seller in markets where other people are greedy. It's that simple.

Jeff: Are there any specific catalysts you're looking for to turn the gold market around, as well as gold stocks?

Rick: There are three catalysts in every market. First, markets work, and the cure for low prices is simple: low prices. Bear market pricing causes bull market pricing. And the overvaluations of bull markets cause bear markets.

With regard to gold itself, I think the real catalyst will be the fact that on a global basis, people are mistaking liquidity – counterfeiting, if you will – with solvency. The truth is that the Western world has lived beyond its means for some substantial period of time, and they are attempting to engineer a default by depreciating the purchasing power of the denominator – the currency – so I think that's the ultimate catalyst for gold.

With regard to the stocks, which are a very different set of circumstances, I would suggest that one catalyst may be an increase in the gold price, but a much more important catalyst is the fact that high-quality gold companies, in our opinion, are selling at the best price they have sold at for 20 years. They are simply too cheap. It won't be immediate, but it will cause some of the higher-quality names to be taken over, because it's cheaper to buy gold than it is to go find gold.

And the third thing that's really going to surprise people in the juniors is that we are slowly coming into a discovery cycle. There is nothing that adds hope and liquidity like a discovery. People talk about what a pathetic market we had last year, but if you happened to own Reservoir Minerals before its discovery, the stock went from $0.26 to $3.50. Africa Oil went from $0.80 to $10. This is a market that will reward performance, but it's a market that has been starved for performance, too.

Jeff: Okay, last question. I'm a planner, so I want to write down in my calendar what year I'm going to be sitting on a beach sipping a mai tai with you after we've sold our junior stocks for 10 or maybe even 100 times our original investment. What year should I write in my calendar?

Rick: I suspect it will be in the epicenter of a bull market five years from now. It might be sooner, frankly, but I've found that these cycles take four or five years, and we're sort of two and half years into the cycle.

First, though, we need a cataclysmic selloff to mark the bottom. Then we'll go sideways for a while. I certainly think that people who are involved in the gold stocks that don't have a two- or three-year time horizon are delusional.

Jeff: Okay, it's in my calendar. Thanks for the insights, Rick.

Rick: It's an enormous pleasure for us, Jeff. We have done this for 30 years in the Sprott organization, and this is our third big decline. And as I said, the fact that we manage $10 billion is due to bear markets, and your speculative readers need to remember that.

Jeff: Good point. Where can readers go if they want to learn more about Sprott?

Rick: We would love for people to come visit us at Sprott Global. We encourage them to sign up for our daily Sprott commentary by hitting the subscribe button at Sprott's Thoughts on the website.

Jeff: Very good. Thanks again, Rick.

Rick: Always a pleasure, Jeff.

Rick had much more to say about today's opportunities in junior mining at our recent Downtown Millionaires webinar, which included our own Doug Casey, Agora Publishing founder Bill Bonner, and Mauldin Economics Chairman John Mauldin. Louis James was also on hand, and he revealed a junior mining company you should add to your portfolio now. Watch the video and discover who this company is now.

Gold and Silver HEADLINES

Mining M&A Appetite Restrained in Favor of Smaller, Lower-risk Deals (Mineweb)

Despite their more optimistic view of the global economy, an Ernst & Young survey of 193 mining and metals sector executives finds only 24% are focused on mergers and acquisitions.

Those surveyed anticipate 91% of mining and metals M&A deals will be below US$500 million in value.

"Instead, companies are opting for lower risk organic growth, optimizing capital structure, and strategic divestments," said Ernst & Young in its latest Global Capital Confidence Barometer.

In a backhanded way, if this trend holds up, it could be very good news for juniors with advanced projects, especially those with well-studied high IRRs.

Mining Exploration Sinks to New Low (Mineweb)

"The mining industry's search for new ounces fell to a new low in March, extending a 17-month decline in exploration activity." This is according to IntierraRMG's latest State of the Market report.

According to the group's online database, there were drilling reports from a total of only 355 prospects. This, it says, is compared to "440 in February, 662 in January, and 367 in December 2012."

This is an example of the market process, leading to – as Rick Rule describes above – low prices being the cure for low prices.

Retail Gold Buying Soars in April After Sharp Selloff (Reuters)

Physical gold buying among private investors surged in April as they took advantage of bargain prices after bullion's historic selloff, a survey by BullionVault showed on Tuesday.

According to the company, its Gold Investor Index rose to 58.6 in April, its highest level in 16 months.

Find Out How Silver Helps Solar Panels Work (YouTube)

Have you ever been curious how the solar panels work and what they are made from? And how sunlight gets turned into usable electricity? All these and similar questions are tackled in this video, which explains the basics of solar panels and how silver is used in the process.

This Week in International Speculator and BIG GOLD – Key Updates for Subscribers

International Speculator

• Several International Speculator companies filed quarterly reports last week – get the latest on them all by checking the portfolio page.

• One of our favorite exploration teams has delivered another set of value-adding drill results. The company remains on sale, and we're buyers.

BIG GOLD

• A number of BIG GOLD companies filed press releases this past week – get the latest by scanning the portfolio page.

Dear Reader,

Vedran Vuk here, filling in for David Galland. First, we'll have Dennis Miller discussing one of the best ways to reduce your risk – getting good investment research. Dennis and I have been talking about this topic a lot. In the financial media, you're practically bombarded with investment suggestions. However, there's a difference between investment research and investment ideas. There's only so much that you can learn about an investment from a two-minute TV pitch or a couple of paragraphs online. While those sorts of pitches might give you a good idea worth exploring further, it's really not research. Which one are you getting?

As an example of our research, a little while back we released a free pick for Miller's Money Weekly. The stock currently has an astounding 5.1% dividend yield. On top of our two dividend payments, the total holding period return so far is a nice 14%. For that pick, check out the free Miller's Money Weekly. For a subscription to Miller's Money Forever – a gateway to yet more great yields – click here.

Next, since it's graduation time for many college students and I always get a ton of reader responses on articles about education, I'll share some reflections on what many consider "useless college majors" –in particular the arts. Why do they have such a bad reputation? Don't these degrees sometimes produce value? But first, let's start with Dennis.

While investing in the market is a little like gambling in a casino, when we invest part of our hard-earned nest egg, we want to tilt the odds in our favor before placing any bets.

At one time in my life, I was a student of the game of craps. When I placed a bet on the pass line, I could tell you the exact statistical probability of winning or losing on each roll of the dice. Of course, the odds of every game in the casino favor the house – otherwise there wouldn't be a house. Gamblers consider themselves lucky when they can hold positions called "true odds" – which is basically 50/50 – and that happens very rarely.

Craps – like a stock portfolio – allows you to hold several positions at the same time and can quickly get complicated. Each shooter ends the game on a roll of the dice, with the casino potentially hauling in all the money on the table.

In the recent Downturn Millionaires webinar, Rick Rule of Sprott US Holdings said: "Volatility and risk are not the same." Certainly, when we invest in a good company, the volatility of the market may cause the share price to fluctuate; however, if we know the company is solid, then the daily closing prices are nothing more than background noise. I seriously doubt Warren Buffett feels a need to check the price of Coca-Cola several times a day.

At one point or another, I'm sure many of us have jumped into a stock hoping to catch a short-term trend going in the right direction. Though the rewards of this sort of investing can sometimes be very high, if you are a baby boomer nearing retirement or already retired, it's better to throttle your emotions and place small bets.

When the dice get hot and people around the craps table start screaming, normally rational people often get too caught up in the game. When the shooter finally sevens out, the casino takes in quite a haul. One of the most important lessons in craps is learning the discipline to keep from getting caught up in all the emotion.

Since joining Casey Research, I've been amazed at how Marin Katusa, editor of the Casey Energy Report, Louis James, editor of the Casey International Speculator, and Alex Daley, editor of Casey Extraordinary Technology, have all managed to have such phenomenal success in highly volatile sectors. How have they managed to take risks down to a manageable level and build such a tremendous track record?

As a quick example, in the October issue of Miller's Money Forever, I interviewed Louis James about the junior mining sector. At the end, I shared the track record of the Casey International Speculator with our subscribers:

"In the last ten years, it has recommended 359 positions; 280 have been closed, and the average gain is 107% over a time period of 24 months. What is interesting is that only 37% of its current recommendations are in positive territory, while the publication averages 60% winners. It gives great credence to the caution that, many times, after they make a recommendation, a stock will go down. In other words, despite a huge volatile market, where a good percentage of the investors lose all their money, Louis and his team have done a terrific job."

Is this what Rick Rule was trying to tell us?

Risk Reduction Through Real Research

After I read a stock write-up in a non-Casey publication, I often forward it Vedran for his input. I've been surprised by the number of times he's had to explain misinformation that somehow gets published. One recent example happened when I asked him about a company that specializes in animal pharmaceuticals. The author (who appears regularly on TV) went on and on about the company and their superior research and development. However, Vedran read its annual report, which basically stated that its R&D is less than innovative. Instead, the company simply takes products that have worked on one animal and try to tailor them to work on others.

So essentially, the company is just tweaking existing drugs for use on different species. That's an interesting strategy, but it's certainly not what the big TV personality was promoting. Vedran said to me:

"It happens all the time, and the guy touting the stock should know better. The devil is always in the details with these things. What many people don't understand is that the research behind even big names in the financial press is often very shallow. You can't comment on fifteen different stocks every day and expect to really know what's going on in each one. Unfortunately, a lot of people are investing based on this sloppy research."

Wham! It hit me. That's why pure research companies are so valuable to individual investors. Vedran and his team thoroughly research every single recommendation in the Money Forever portfolio. We want our subscribers to know as much about a company, its products, and its industry as we do. The same holds true for the other Casey editors I mentioned earlier.

So what is my point? The best way to reduce risk in a risky world is to lean on competent professionals who know what they're talking about. I think Vedran said it best:

"Dennis, we look at the company, its management, and hundreds of other variables. Most of the companies we investigate never come close to making the grade. Once a company is good enough to be a recommendation, both the researchers and editors (after a required waiting period) are likely investing in the stock along with our subscribers. Our odds of success have to be well tilted in our favor before we will recommend it."

Rick Rule was right. The best way to minimize risk is to do the hard, challenging research, and then invest only where the odds are well in your favor.

In addition, we have an extra accountability factor. If a TV pundit touts a stock and it goes south, that is one thing. Tomorrow he will tout the next one. But when we add a pick into our portfolio, our subscribers hold us accountable. Also, we are reminded regularly when we check our own portfolios how well our picks are doing.

While I read as much as I can, I pay a lot more attention to a recommendation that is going into the author's model portfolio as opposed to a cool, one-page article about a company that sounds like it was written by its marketing department.

In the same discussion with Vedran, he was quick to mention that picking a solid company is the first step toward reducing risk in a volatile market. What happens if we have a lot of money tied up in junior mining stocks or technology stocks and the volatile market turns in an ugly direction? Much like the craps player who has multiple bets on the table, we might take a beating if we are too heavily invested in one sector.

For our subscribers who are baby boomers saving for retirement, or for those already retired, we focus quite a bit on sector allocation. Retirees can't afford to get hammered when one sector takes a hit. Good companies with good products and top-quality management will follow the market, but have a history of recovering quicker than most. Meanwhile, spreading our capital among sectors and limiting our bets gives us an additional hedge against volatility.

So how can we reduce the risky part of risk? It's pretty simple. We either do the research ourselves or work with trusted research professionals who can guide us through the process. Let the TV characters create the hype and emotion; they are geared for entertainment. The true professional research newsletters are comfortable doing the heavy lifting. I will continue to rely on the latter to help me understand where to place my bets when the odds are well tilted in my favor.

When I was in my sophomore year of undergraduate studies, like many students, I was more interested in finding out what's happening this weekend than hitting the books. So it was no surprise that when I got to one of my first challenging courses, Business Statistics II, my carefree lifestyle had a head-on collision with reality. One of my best friends and I were both taking the class, and we both completely bombed the first test, failing miserably. Embarrassed, I withdrew from the class.

When I took the class the next time, I was determined to overcome it. I had failed once, and it wasn't going to happen again. I would study several hours before and after each class and afterward would visit the professor's office every week to glean further insights on the statistics course. When it was all said and done, I earned the highest grade in the whole class, 99 out of 100 points. Note that wasn't my final exam grade, but my final class grade – I pretty much got everything right on every homework, quiz, and test.

What did my friend do? He dropped out of the business school and began studying political science. He just didn't want to do the statistics class again – he said the math was too boring and hard for him. Hey, math isn't exactly fun, but he could have done it. He was essentially trying to take the easy way out. Unfortunately, few easy roads lead anywhere worthwhile.

I've noticed this same problem with many students in "useless majors," such as political science, history, art, philosophy, music, etc. Most of them are not particularly hard-working or ambitious. And in my opinion, the students themselves are what give these majors a bad name. Look, there's nothing wrong with art, music, and the liberal arts. The world would be a worse place today if Van Gogh, Mozart, and Monet had become accountants instead of artists. If you're talented at art and want to really push yourself in that field, please do become an artist.

However, many students go in to these fields with the exact opposite mindset. They don't study political science because it's a challenge, but because it's easier than statistics or chemistry classes. In fact, students are often encouraged to study things that they enjoy, rather than what's practical or realistic given their abilities.

Let me just put this out there on the topic of studying what one enjoys in that sense. If you don't like music or art and reading literature, history, and/or philosophy books, you probably don't have a pulse. I'm pretty sure that 99% of the world enjoys at least one of those things – it doesn't mean that 99% of the world has a calling in the arts or philosophy.

From my experience, what separate the liberal arts students from the business students is really a single factor: ambition and drive. I'll just say this flat-out about my own major: If you want to find the dumbest kids on any campus, head straight for the business school. Business education is pretty easy. Accounting is nothing more than addition and subtraction, plus learning a bunch of arbitrary rules. What else is there? Learning to create a PowerPoint and giving presentations in front of a group… come on, it's all easy stuff. I'm pretty sure you could teach a monkey to do it, and at some point, a wily business student will surely outsource all these tasks to well-trained chimps.

With that said about business students, what I've always found amazing is their ability to hustle and make something out of nothing. For example, business students are always trying to network, think of business ideas, and get internships. You almost never see the same behavior from other majors. I'll give you an example of a conversation that I've had literally a hundred times with art majors:

Vedran: "So, you're an art major; what kind of art do you like to do?"

Random Art Major: "Ummm, I don't know... ummm… like, different kinds of stuff."

Vedran: "Oh, OK. Well, what are you working on now?"

Random Art Major: "Uhh, I don't know. I'm kind of in between projects right now."

Vedran: "Do you have any pictures of your other stuff online? I'd love to see them."

Random Art Major: "No, I don't. You know, I'm trying to get that all organized and stuff, you know."

I kid you not; this is the typical conversation with an art student 95% of the time. They supposedly "love art" so much, yet they're almost never working on anything and never have their art organized for display, online or off. They're just waiting for some fairy to sprinkle them with magical pixie dust which will transform them from art-world nobodies to overnight successes. In a way, it's a bit ironic that artists necessarily require a more entrepreneurial spirit than business majors. The business student can always get some sort of job in an accounts receivable department, but the art student must always sell himself on the market.

There's nothing wrong with these majors at all. A good ambitious and entrepreneurial artist can make a much better living than many business students or even sciences students. The problem is that those liberal arts majors are more often than not dominated by a slacker mentality. Many make the choice of these majors not because they want to work hard, but rather because they don't. As a result, they give a bad name to the hard-working and dedicated students in those fields.

My example of the artist is true across these fields of study. I've met few history majors who literally read everything that they can get their hands on. I've met only a tiny proportion of philosophy students with anything interesting to discuss. We are graduating thousands of music majors every year – how many great songs are they producing for the world? Let me tell you, it's not in the thousands per year. There's a lot of mediocrity out there.

Furthermore, consider the unique opportunity of the arts. Artists don't need anyone to hire them. As someone with a finance background, I can't exactly start my own investment bank tomorrow. That's pretty tough, but no matter what, an artist can always create a painting or a song and use it down the road, if not immediately.

People make fun of "useless majors" a lot – as have I in the past – but there's really no such thing as a useless major. There's only a wrong way of approaching things. In these majors, one can't afford to be a slacker or unambitious – yet slackers and the unambitious are the people often attracted to them. One can be a mediocre accounting student and still get a job somewhere, but mediocrity is not an option in the arts. Given the lack of drive often found among these students, it's no surprise to me to find so many of them pouring coffee for a living. That outcome has less to do with their major than their reasons for choosing it in the first place. If one selected a major based on its ease, how do you expect the rest of their life to go? Taking the easy route leads nowhere in art, in science, in business, and in life.

Friday Funnies

And now for a collection of funny protest signs…

That's it for today. Thank you for reading and subscribing to the Casey Daily Dispatch.

Vedran Vuk
Casey Senior Analyst

By Chris Wood, Senior Analyst

The term "diagnostics," for some, probably conjures images of the character Dr. Gregory House from the popular Fox television show, House. But diagnostics is actually a multibillion-dollar-a-year business that has until recently lagged other medical innovations, costing billions of dollars and countless lives in the process. That is all changing rapidly now.

If you've never seen the show, House invariably saves his patients' lives by diagnosing some obscure ailment based on a controversial insight that only a genius of his caliber (and lovable, curmudgeonly demeanor) could have spotted, and gets the patient on the correct treatment regimen just in time. It makes for good TV.

But the real world of medical diagnostics is not so reliant on the whims of madmen. House's portrayal of diagnostics was true to life in one regard: doctors need better tools to diagnose disease, lest they be left with what amounts to a guessing game.

Think about it. How much can a stethoscope really tell you about the health of a heart, never mind the miles of arteries and veins that meander throughout the body?

That's not to say that advancements like MRI machines and CT scans are not big diagnostic improvements. They are. Nevertheless, as Alex Daley wrote in a recent issue of Casey Extraordinary Technology:

"[T]he vast majority of what happens inside our bodies happens at a subcellular level, even an atomic one. The complex interactions between proteins, amino acids, lipids, and all the other things that make us biological have been, until now, a virtually impossible puzzle to understand. Simply put, doctors don't really know what's going on inside of you. We are macroscopic beings trying to conjure up cures for what happens in a molecular world."

Thankfully, this is changing for the better. And today, we stand at the threshold of an exciting leap forward in medical care, one that is poised to change the way doctors work in fundamental and compelling ways. It's called molecular diagnostics, or MDx for short.

Molecular diagnostics is the term used for a new class of tests that identify nucleic acids or proteins that belong to the patients themselves or foreign organisms, in order properly to diagnose disease and get the right treatment to the patient at the right time. It's basically augmenting the physician's decision-making process through the analysis of genetic content for disease information. And it's only possible thanks to technologies like polymerase chain reaction (a process of selectively amplifying and replicating DNA to look for disease-causing organisms) and advancements in DNA sequencing.

Molecular diagnostics has applications in infectious disease, cancer, genetic ailments, and pharmacogenomics (which analyzes how one's genetic makeup affects one's response to certain drugs), to name just a few areas. Because of all these applications and the advantages of the tests discussed below, MDx is the fastest-growing segment in the $50 billion/year in-vitro diagnostic space.

Estimates of the size of the global MDx market vary, but a 2012 report from Frost & Sullivan pegged it at $4.1 billion in 2010. That same report forecast global sales to exceed $6.2 billion in 2014, with double-digit growth rates baked into the cake for the foreseeable future. Other sources are projecting even higher growth rates, with one industry source predicting the market will reach $15 billion by 2015. Regardless of the source or the accuracy of a given figure, it's safe to say that growth in this market will be robust for many years to come.

There are hundreds of companies with many different tests operating in the molecular diagnostic space. In the interest of time, let's use one company and one test to highlight some of the advantages of MDx over traditional methods.

First, some background on a condition known as sepsis, which may be the deadliest medical condition you've barely heard of.

Septicemia is the technical term for an infection in the bloodstream, usually bacterial. Left unchecked, such an infection (which usually begins with a common, local infection that goes untreated and which the immune system struggles to control) often leads to sepsis, a deadly condition that sends the whole body into a dangerous inflammatory state.

Think of sepsis as your immune system gone mad. It occurs in response to a bloodstream infection and destroys your body from within. In the words of Dr. Kevin J. Tracy, a neurosurgeon and immunologist who wrote a book on sepsis titled Fatal Sequence: The Killer Within, once it starts, every white blood cell in the body is activated, "turning them into uncontrolled roving gangs of street fighters."

This frightening infectious attack is also one of the most expensive reasons for hospitalization in the US. According to the Agency for Healthcare and Research Quality (AHRQ), septicemia cost hospitals an aggregate $15.4 billion in 2009 and was responsible for a total of 1.7 million inpatient hospital stays. That's nearly one out of every 23 patients in the hospital.

Septicemia isn't just prevalent, it also advances quickly and carries an extremely high in-hospital mortality rate, at about 16% overall in 2009 – more than eight times higher than the average for other reasons, according to the AHRQ.

Because septicemia is such a pervasive problem, carries a high mortality rate, and kills quickly, doctors must act quickly and decisively – first to determine what bacteria caused the underlying infection in the first place, and then to identify and eliminate any drugs to which that bacterial strain may be resistant. But all too often, they can't.

The traditional test for septicemia is called a "gram-positive blood culture," and has barely changed over the past half-century. And, although the test works, it takes a long time to deliver useful results.

To perform the test, they start by drawing large volumes of blood from the patient. Then the blood is shipped to a lab, where it's put in an incubator and allowed to slowly grow into a culture, which can take anywhere from six hours to five days. Explains Dr. Nathan Ledeboer, who oversees the clinical microbiology and molecular diagnostics laboratories at the Medical College of Wisconsin:

"When the blood culture signals positive, and in most cases those blood cultures will signal positive within 6 to 24 hours of initial incubation, the laboratory technologist is going to perform a gram stain which is basically taking a sample of that positive blood culture, smearing it out onto a slide and looking for the presence of bacteria."

If the lab tech sees bacteria and they are stained dark blue or violet from the gram stain, he or she will alert the doctor to the presence of gram-positive bacteria, which account for 50% to 65% of bloodstream infections. If the test is negative, they begin again and start looking for the other side of the spectrum, gram-negative bacteria, which cannot retain the crystal violet dye used in the gram-staining protocol, by administering a counterstain coloring all gram-negative bacteria with a red or pink color.

Once the gram-positive or gram-negative bacteria have been detected, the doctor will start "empiric therapy," which is medical lingo for a shotgun approach: administering the antibiotic he or she thinks, based mostly on intuition, is mostly likely to work, or just dosing the patient with several different antibiotics at once. Scientific, huh? It's not the doctor's preferred treatment method, of course. The doctor would rather know for sure, but sepsis moves so fast and the test so slowly that a physician has no other choice today.

While the doctor is busy shooting at rough shadows, the laboratory continues to work up the results by subculturing the organism they found in the blood, trying to grow enough to get colonies that can be identified. This adds anywhere from 12 to 24 hours to the overall identification process, according to Dr. Ledeboer – meaning it's now been up to 48 hours since the blood was drawn. For every hour that the patient is not on appropriate therapy, mortality increases.

But the lab work is still not over. Even once you know what organism you are dealing with, you have to start resistance testing to see what therapies it might be immune to. The sad reality is that bacteria are adapting to our cures, in part because of our overuse, partly as cited in the previous "shotgun" treatment approach. In the end, a full 48 to 72 hours will have passed from the original blood draw to the moment the lab is finally able to tell the physician, "This is what you're dealing with, and this is how to treat it."

What if we could cut off those last two steps of subculturing and resistance testing, and alert doctors to both what bacteria they are dealing with and what it's resistant to in as few as 10 hours?

The benefits would be huge. Hospitals could potentially save billions by considerably cutting the duration of stay for patients with septicemia; it would promote responsible antibiotic use in an era of increasing drug resistance; and most important, diagnoses would be more prompt, and lives would be saved.

That's where MDx come in.

Specifically, in this case, a company called Nanosphere (NSPH). Nanosphere has developed a test for sepsis called the Gram-Positive Blood Culture assay (BC-GP) to run on its Verigene molecular diagnostic platform. The test is capable of providing results just 2.5 hours after a positive blood culture and requires only five minutes of simple, hands-on technician time.

This is not some test that's still in the early stages of development, either. The BC-GP assay was cleared for sale and marketing by the FDA in June of 2012 and is the first and only one of its kind. It detects 13 of the most common bacterial targets – which account for 90% of the gram-positive bloodstream infections – along with three common antibiotic resistance determinants, all with greater than 95% accuracy.

The value of a test like this is profound. Studies have demonstrated a drop in mortality in the ICU from 50% to 10%, as well as a 6.2-day reduction in length of stay, saving over $21,000 per patient. And Nanosphere's customers have already documented numerous cases where the test has provided critical information that doctors couldn't have known or acted on without the speedy new test.

In one such instance, the test identified a deadly Enterococcus faecium infection that was resistant to vancomycin, the usual first-line therapy given to sepsis patients. The doctor immediately escalated therapy to restricted, last-line linezolid, which worked. The hospital estimates that the rapid diagnosis saved up to eight days of hospital stay, if not the life of the patient.

For us as investors, the prospects of MDx are exciting – it's a technology that patients, hospitals, insurance companies, and everyone else involved can get behind because it saves money as well as lives. Early-stage companies with new tests and technologies are popping up all over the place. Sure, there is risk in these early-stage companies. But there is also immense opportunity to buy in to future game-changers early on, amplifying your potential return.

In Casey Extraordinary Technology, we are following this emerging sector closely, and have already made a few key investments that we believe hold enormous potential for our subscribers. One returned over 96% for subscribers in a few short months, and we've just added another to our portfolio that we think holds as much or more promise. Of course, we invite you to judge for yourself – take CET for one of our risk-free, 90-day test drives and we're confident you'll see for yourself the great opportunity in this sector and how a subscription to CET will easily pay for itself many times over.

For us as human beings, the prospects of MDx are even more exciting – with the promise to provide doctors with the right information at the right time to improve patient outcomes and save lives.

Bits & Bytes

3D-Printed Gun Fires First Shot (Discovery)

Late last week, the "Liberator" became the first known 3D-printed gun to fire a shot. That's right; someone has printed a plastic firearm that actually works. You can watch the Liberator unload a .38 caliber bullet in this video.

Coming Soon: Your Personal Flying Car (Mashable)

Has the age-old promise of flying cars finally come to fruition? Massachusetts-based Terrafugia has announced its Transition design, which is part sedan, part private jet with two seats, four wheels and wings that fold up so it can be driven like a car.

Tesla CEO Talking with Google About "Autopilot" Systems (Bloomberg)

Two of the world's most innovative companies may soon join hands. According to Bloomberg, Tesla Motors is interested in self-driving cars and is in talks with Google on how to bring that technology to Tesla's electric vehicles. Tesla CEO Elon Musk says that self-driving cars are the next step in car technology.

Having just put the finishing touches on this month's The Casey Report – for which Casey Research Chief Economist Bud Conrad combed through reams of data to figure out what really caused gold's recent precipitous drop (as well as predict where gold is going next) – the specter of paper-gold market manipulation is fresh in my mind.

This week's article touches on that very topic, examining the possibility that the Fed or Treasury may have leased out over 4,000 tonnes of US gold unbeknownst to the public, and thus holds much less gold than we've been told.

Before I go any further, let me acknowledge the treacherous waters into which I'm wading. I realize that by discussing gold manipulation, I'm begging for controversy. Both sides of this debate feature passionate believers, and personally, I find both sides convincing. But in the interest of full disclosure, I do think gold is manipulated to some extent, if only because every other investment – stocks, housing, bonds (via interest rates) – is too. Why should gold be any different, especially when a rising gold price represents the single most credible threat to the US government's fiat hegemony?

Because many a book could be (and probably has been) written on this topic, I'll limit myself to just one contention from each camp, for the purpose of illustrating how compelling both sides of the argument are.

The manipulation crowd points to the fact that gold's recent plummet was jump-started by a huge, 400-tonne sell order that was dumped on the market all at once. Under normal protocol, and in deference to common sense, said seller should have spread the sale out over several orders to garner the best possible price. That this didn't happen leads to the conclusion that the seller's goal was not to get a fair price, but to suppress the price of gold itself.

Why? Consider that a short seller, if it believed such a massive trade could spark a rapid further spree of selling (as it did), might be able to quickly buy to cover its shorts at a lower price and collect a handsome bounty. For instance, assuming an average spread of $30 per ounce – quite possible, considering the $225 total price drop – the profit on 400 tonnes of gold would be approximately $423 million… in a single day.

The non-manipulation crowd responds that if something fishy is going on, someone should have squawked by now. Doug Casey himself has made this argument, noting that three people can keep a secret as long as two are dead. Wall Street is the world's biggest rumor mill, so it's hard to fathom that the Fed or Treasury could collude with one or several banks to suppress the price of gold while keeping their diabolical plot completely silent for decades on end.

See? Both positions are believable, at least to me. Skeptics want a smoking gun, but such a burden of proof seems unattainable. Take, for example, claims that the Fed has leased out much of the US's gold into the market in an attempt to suppress the price. I doubt that the manipulators are dumb enough to record such actions in a memo. And the paparazzi isn't going to snap an incriminating photo of Ben Bernanke sneaking away from the Fed vault in the middle of the night with a glistening wheelbarrow full of gold. Unless an independent and trustworthy third party is allowed inside the Fed vault – which no unauthorized human is allowed access to – we'll never see a smoking gun for this particular claim. Shortages in the vault will forever be a rumor until the vault is audited, an outcome those in charge are hellbent on preventing.

Now that I've outed myself as a loony conspiracy theorist, let's get to the main event. In a piece previously reserved for his premium subscribers, Chris Martenson of Peak Prosperity has agreed to share his fascinating take on just how much gold might be missing from the Fed and Treasury's vaults. In his levelheaded and methodical style, Chris parses the data from a recent report by Sprott which calculates that from 1991-2012, the US exported about 5,500 tonnes of gold – which doesn't make sense considering that the US only had about 1,000 tonnes of surplus gold available for export. Where did the extra 4,500 tonnes come from? Chris believes either the Fed or the Treasury must have leased them out, since no private source is near big enough to account for even a fraction of that amount.

I'll leave you to ponder along with Chris the implications of there being much less gold in the Fed/Treasury's vaults than we've been led to believe. If you like Chris' analysis and are interested in learning more about his work, visit his website at Peak Prosperity.

Finally, though I might be inviting a firestorm, I have to ask: do you have any alternate theories as to what happened to all that gold? Let us know in our comments section.

See you next week!

Dan Steinhart
Managing Editor, The Casey Report

Exactly How Much Gold Do We Have?

There's growing concern that a lot of official gold has been leased out into the market and that sooner or later, as happened back in the late 1990s, one or more parties, perhaps bullion banks or a metals exchange, would run into difficulty trying to meet a physical gold delivery commitment.

For a short video on the mechanics of gold leasing, click here.

If a lot of gold has been leased out, someday it will have to be rebought, and difficulties may emerge if the gold cannot be rebought in sufficient quantities without creating mayhem within the financial system by causing a very large hike in the price of gold.

Important: The amounts of gold leased by central banks is a very closely guarded secret, and we do not have direct information on them, which means we have to try and back-calculate these amounts by other means.

A recent and thought-provoking study regarding gold leasing was done by Sprott Asset Management in March. After accounting for all known flows of gold into and out of the US over the past 22 years, the Sprott team arrived at a figure of nearly 4,500 tonnes of gold that cannot be accounted for.

Here's the summary flow chart:

(Source)

In short, because gold is not consumed and never misplaced, there has to be a balance between gold supply and demand. It cannot be printed out of thin air, and it is this inconvenient fact that really matters the most here.

One caveat: Because of the explosive nature of the above findings, Adam and I sought out an opposing view. We talked with a managing partner at an NYC commodity firm that tracks and reports on gold and silver as specialty areas, and their view was that the US has actually been a net importer over the same time period. I could not resolve the massive discrepancy between these views, so I have more research to do. When asked directly how the US government's own import-export data could be this far off the mark, the response was that gold is only counted if it is in wrought form, meaning that it has been fashioned into bars, coins, rods, etc. Uncomfortable with the implication that the US had somehow imported 4,500 tonnes of unwrought gold – that is, gold in the form of dust, pellets, or gold ore – I asked if it was realistic that unwrought gold alone could account for so many missing tonnes. The response left me with plenty of doubts. So more digging is required.

Presumably this gold came from leasing arrangements and from official sources, as there are no private suppliers that could possibly match these enormous amounts. Further, it should be noted that one very important missing value in this flow chart is private investment – such as gigantic hedge funds buying gold, or you or I buying coins – which means that the actual shortfall would be higher than 4,500 tonnes, because private investment subtracts tonnage from the amount available for export.

Depending on how much private demand you estimate (and it has been considerable over the past 13 years), you might double the shortfall or perhaps even go higher.

There's really no other possible source for that gold than from "official" sources, meaning the Fed and/or the Treasury. The only other explanation is that thousands and thousands of tonnes of gold somehow got into this country without being detected by US trade and customs officials, which implies that a rather large series of crimes had to be committed.

Because I almost completely discount the idea of illicit gold imports being of a material size, that just leaves us to try and figure out how much leasing the Fed and the Treasury have supported over the prior decades, as we will see below.

The facts are easy enough to grasp. The US has exported vastly more gold than it has imported, and that gold had to come from somewhere. It is very doubtful that accounting errors can explain away even 1% of this discrepancy.

This leaves gold-leasing from the Fed as the most likely source for all that gold, and it is such a large amount that I know of no possible source on the face of the planet where such an amount could be purchased. This is why Germany seeking to repatriate their gold is such a big deal. What if that gold has already been loaned out?

To put it mildly, any whiff that the world's central-bank gold is not where people think it is would really be an enormously unsettling admission to have to make.

Another caveat: There are other experts out there who dispute the figures of this Sprott study. I'm in contact with one of them, probably the best-credentialed of the bunch. If I receive data contradicting Sprott's analysis, I'll present it in a subsequent post here on the site.

Where It Came From

In the meantime, let's play a game here. Suppose for the sake of argument that the US is missing 4,500 tonnes of gold that has been leased out, and it's time to either admit that it's been lost to the world or get it back somehow. That is, the bullion banks will have to pay back the gold they borrowed with cash, or come up with the gold.

How much are we talking about? In current terms of ~$1,380 per ounce, those 4,500 tonnes of missing gold pencil out to a liability of some $200 billion. While the Fed might decide that it is able and willing to forgo its gold and allow the bullion banks to deliver cash instead of physical to avoid their probable failure, the Fed does not own that much gold to deliver. Not even close.

If you look at the Fed's balance sheet, they claim to have ~$11 billion in gold (listed as an asset, by the way), but that number is a historical aberration. The Federal Reserve, just like the Treasury Department, carries gold on its books at the rate of $42.22, a price set way back in the 1930s and not touched since.

This means the Fed has, on its books as an asset, some 261 million ounces of gold, or more than 8,000 tonnes of gold.

The Federal Reserve Balance Sheet

(Source)

If you do the math, that $11.041 billion in "gold stock" works out to 261 million ounces of gold, or more than 8,000 tonnes. That's a nice pile and more than enough to forgo the return of 4,500 tonnes, right?

Not so fast. Those 261 million ounces of gold actually belong to the US Treasury.

Quite confusingly, both the Fed and the Treasury claim this same reserve amount of gold on their balance sheets, an accounting mystery that I have not resolved to my complete satisfaction. (I have heard that the Fed's balance sheet has an offsetting liability, though I have yet to locate it). Here's the current report of US gold holdings put out by the Treasury:

(Source)

See? There are those same 261 million ounces of gold listed for the identical $11.041 billion. So who really owns it? Well, that's another mystery to be resolved on another day. For now, let's just try to figure out where the 4,500 tonnes of gold came from before we worry about the claims and responsibilities of actual ownership.

The main point I want to make here is that if 4,500 tonnes has been leased out by the Federal Reserve, it could not have been done without the Federal Reserve leasing out either gold belonging to the US Treasury (i.e., US citizens) or belonging to other countries for whom the Fed is holding gold "in custody."

How can I be sure? Because the Fed does not have any other gold listed anywhere else on its balance sheet. If it's holding some as an asset, it's hiding it, and I just don't think that's the case. The Fed is holding a lot of gold for other countries as a custodian, but that's a liability of the Fed, not an asset.

So the conclusion is simple enough: The Fed has leased out the gold of US citizens, other countries, or both. One other possibility is that the Treasury Department did it directly, but they, to my knowledge, have never been involved in gold leasing, nor have I heard even the first hint of rumor that they might have been involved. Any gold leased into the market belonging to the US Treasury was almost certainly conducted via the Federal Reserve.

I would presume that if the Fed has lent out a lot of Uncle Sam's gold, that had to have been done with the full knowledge of the Treasury Department, because that gold could only have come from the so-called "deep storage" category, which means either the Fort Knox, Denver, or West Point vaults.

Recently, there was a big splashy show of claiming that the United States' gold had been audited. Not only was it all there, we were told, but we learned it was more pure than previously thought! Carefully read the below article and see what impressions are created for you:

Gold at NY Fed Is Intact, Some Purer than Thought, Audit Finds

Feb 13, 2013

NEW YORK – The U.S. government's gold in New York is safe in a vault underneath Manhattan, and some of the precious metal there is purer than previously thought.

That's according to a first-ever audit conducted last year by the Treasury Department of U.S. gold on deposit at Federal Reserve banks in New York and elsewhere.

The New York Fed holds 99.98% of the U.S.-owned gold bars and coins in the custody of the Federal Reserve. The rest of the gold is on display at Fed banks in cities such as Richmond, Kansas City and San Francisco.

If you came away with the impression that 99.98% of all the United States' gold was audited and 1) found to be there and 2) found to be in even better shape than originally thought, then congratulations are in order to whomever wrote those careful, slippery words.

The truth is that the Fed only holds 13.4 million ounces of the Treasury's physical gold (see image above of Treasury gold) out of some 261.5 million ounces – just about 5%. So the more accurate sentence would have read: "The New York Fed holds 5% of the US-owned gold bars and coins, and these were fully accounted for in our recent audit. The other 95% has not been fully audited in decades." Not quite as impressive-sounding, is it?

So the audit confirmed that at least 5% of the nation's gold is safe and sound. But that's all we know. Because every audit request by former Congressman Ron Paul to check in on the gold held in deep storage has been utterly rebuffed. No such audit has been conducted by an independent third party in many decades. So we really don't know. But we are still left with Sprott's unexplained data showing that the US has exported 4,500 tonnes more than it has imported, and perfectly sane logic leads us to conclude it had to have come from the Fed, the Treasury, or both.

Now, suppose again that the 4,500 tonnes are missing and that either an audit or a collapse in the bullion-leasing game would reveal as much. If you were in charge of that potentially nightmarish scenario, what would you do? If it were my job, I would do everything possible to scare that gold back into the markets where I could purchase it, preferably at a cheap rate and on the sly, with the hopes that I could get that done before anybody was any the wiser.

The alternative – a breakdown in the gold delivery market – would create massive price spikes, panic, immediate demands by other central banks for their gold, and quite possibly a lot of financial instability at a very, very vulnerable time in financial history. I should remark that there's never really a good time for such an event, but now would be especially poor timing, given the state of things.

If indeed the US is short 4,500 tonnes (or 145 million ounces), then for every dollar that the price of gold is dropped, $145 million of potential losses are avoided on the repurchase of the leased gold.

This could be the story of the decade, maybe century, if the Sprott data is remotely accurate. If it is, then when all of this has to finally be undone, my prediction is that agreements will be broken, allies will be stiffed, and the Fed will not willingly part with whatever gold actually remains, no matter who thinks they own it (Germany, et al.) or how many times Bernanke says that the Fed holds it merely out of tradition. The level of secrecy surrounding gold, gold leasing, and the complete lack of a full audit of deep-storage gold all suggest there's something to hide here – not the opposite.

There's an awful lot of smoke out there right now, and the concerted US public relations campaign to convince the world that gold is useless strikes me as both strident and desperate.

Conclusion

Again, if the Sprott analysis is accurate, there's a lot of missing gold in the US equation, and it had to come from official sources, either of US origin or belonging to other countries. Either way, the leased gold represents a tremendous liability of the Fed and the bullion banks to which it was loaned.

In this context, the gold slam begins to smell like an operation designed to shake as much gold as possible out of weak hands so that the bullion banks can begin to recover it to square up their accounts. GLD, the gold ETF that so many small investors participate in, is one large, obvious target, as it was sitting on 1,350 tonnes as of January 2013. The most recent figure I have shows that GLD has coughed up close to 175 tonnes and will certainly lose more in the coming days, as long as the price of gold is held down or even dropped further.

But even if GLD loses it all, that won't even cover a third of lowest possible estimate of the US shortfall. And we can be sure that other central banks in the UK and European arena have played similar games, so there will certainly be some competition for every tonne of gold that is released.

It is my distinct impression that something is very wrong behind the scenes, and I am about as worried now as I have ever been. But I'm also excited because it means that finally some interesting things are about to happen. The long, boring quiet period in the markets, where the price of everything was manipulated or distorted by official actions and volatility was managed down to unbelievably low levels, is probably over.

This is good news because it means that markets might again be able to function more normally and give us useful information and price signals that can help us determine which direction to go in.

Along with this feeling of unease, one line of thinking I have is that gold and silver are getting closer to the day when you or I will not be able to purchase physical bullion at any price. Were a major bullion bank to openly renege on its lease commitments, or the LBMA or COMEX were to declare force majeure and fail to deliver physical, all domestic stocks of gold and silver bullion would evaporate for all practical purposes.

When queried about what would happen if even 10% of the US population decided to access the physical bullion market, one large dealer told us it would just break the system. It's a very narrow pipeline that delivers relatively few rounds, bars, and coins to a very small population of bullion holders. Any big flood and the 5-6 week wait times we now see will certainly get longer. Not many dealers and/or wholesalers will want to honor such long lead times when/if prices are volatile or skyrocketing higher.

Where there's smoke there's fire, and there is a lot of smoke in the bullion world right now. I am more certain than ever that holding physical bullion is a must-do for everyone who wishes to preserve their purchasing power.

I am not yet issuing an Alert on this matter, but I am wrestling very hard with the urge to do so. I need some more hard information to justify such a drastic step, but for now my gut is telling me that something is about to break open.

More to come as this fast-breaking situation develops.

Chris Martenson, PhD (Duke), MBA (Cornell) is an economic researcher and futurist specializing in energy and resource depletion. As one of the early econobloggers who forecasted the housing market collapse and stock market correction years in advance, Chris rose to prominence with the launch of his seminal video seminar, The Crash Course, which has also been published in book form (Wiley, March 2011). It's a popular and extremely well-regarded distillation of the interconnected forces in the Economy, Energy, and the Environment (the "Three Es," as Chris calls them) that are shaping the future, one that will be defined by increasing challenges to growth as we have known it. In addition to the analysis and commentary he writes for his site Peak Prosperity, Chris' insights are in high demand by the media as well as academic, civic, and private organizations around the world, including institutions such as the UN, the UK House of Commons, and US State Congresses.

By Marin Katusa

On May 1, 2012, Porter Stansberry and I made a bet. Porter predicted that oil would go below US$40 per barrel within 12 months. I stated that there was no chance that this would happen (my reasons are presented at the link above).

Putting our money where our mouths are, we both agreed to bet 100 ounces of silver on the matter.

I have a lot of respect for Porter, who is a very smart man. When he talks, I listen. But when he discussed the reasons why he thought oil was going below US$40 per barrel, I knew I had him – this was going to be one of the easiest bets I have ever made.

One of Porter's main arguments was that a global shale-oil revolution would push volume way up and prices way down. It is definitely a sensible argument, yet it was missing something very critical: timing.

The shale gas boom that happened in the United States did not occur in a vacuum. Rather, it was built upon decades of experience in new technologies such as hydraulic fracturing and horizontal drilling. This was then based off of more than 150 years in conventional oil and gas exploration. Today in North America, there are thousands of rigs and hundreds of thousands of skilled oil and gas workers to work on the projects.

This simply does not exist in the rest of the world.

For a new shale discovery – however large it may be – it would take years just to prove up its commercial viability, another few years to get the infrastructure running, and even more years before it produces enough to matter.

This means there are tremendous opportunities to profit while we wait for the rest of the world to catch up, for those who are in the know…

While we are talking about opportunities in the energy sector, I'd like to invite you to the premier of our free online webinar, The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment?, on May 21 at 2 p.m. Eastern Time. I will be interviewing some of the most trusted names in the uranium sector: former US Energy Secretary Spencer Abraham; former Canadian Minister of Natural Resources Herb Dhaliwal; and Chairman Emeritus of the UK Atomic Energy Authority Lady Barbara Thomas Judge. It will be an exciting, highly informative webinar highlighting just how important nuclear power is for the global energy paradigm, and how you can leverage its importance to outstanding gains. Participation is free, and all attendees will receive a free copy of the Global Resource Intelligence report on uranium (a $29 value). Reserve your spot today.

Going quickly back to oil, here is an important question: Could Porter actually be right about his call on oil, but just got his timing wrong? Could oil be going to US$40/bbl next year?

Why don't you ask him yourself?

Porter has just mentioned to me that he has opened up space in his very exclusive club, the Atlas 400 Club. This is not a subscription service, but a club of accomplished and smart entrepreneurs and leaders. It not only gives you the opportunity to freely chat with industry veterans like Doug Casey and Porter Stansberry (two of my favorite people to hang out with), but puts you among other intelligent, successful, and like-minded people. The events you will attend, the experiences you will have, and the stories you will be able to tell are sure to be endless. The several group trips conducted every year will take you to places that you may never be able to go by yourself: from private racetracks in Germany to hunting excursions at some of the most luxurious lodges in the world – all while being able to discuss ideas and make friends in a relaxed environment. If you have lots of extra cash lying around and this sounds like something that would interest you, feel free to check out the most recent highlight video and apply to join the Atlas 400 Club here.

Additional Links and Reads

Southern Illinois Braces for Oil Rush (Fox News)

Could there be oil locked within the basins of Southern Illinois? Oil and gas operators want to find out as soon as the Illinois Legislature considers regulations that could allow hydraulic fracturing in the bedrock. If it works out, this could create a new region for oil and gas exploration – and plenty more controversy between the fracking and anti-fracking groups.

Norway Oil Hike Only a Small Setback (Reuters)

For countries without oil, government taxes on oil and gas companies are often lower in order to attract more investment. However, some of the countries endowed with lots of oil and gas potential are beginning to ratchet up the taxes to see how much they are able to scrape from foreign companies. Even Norway, considered one of the best areas in the world for oil and gas exploration, is beginning to increase the government's take. Is this a one-time move, or is this a foreshadowing of things to come…?

Despite US Oil Boom, Some States Fear Fuel Scarcity (Globe and Mail)

Though the United States is producing more oil within its borders, the pipelines that run through the country are decades old – and those pipelines are no longer servicing the right areas. The Bakken, for example, has become one of the most important oil regions in the United States, yet it does not have nearly the same amount of energy infrastructure as Texas. If the United States does not address this problem soon, it will soon be "oil, oil everywhere, but not a drop to use."

Dear Reader,

Last week, our senior precious metals analyst, Jeff Clark, advised: Buy Gold NOW. So far that has worked out well, but it begs the question: What about gold stocks? When do we back up the truck for them?

My own answer in the current edition of the International Speculator is that no one really knows, but that those who buy value when its price is low should do very well indeed.

Jeff returns this week with a by-the-numbers look at the last two biggest gold stock corrections, comparing them to our market today. This is excellent context we would all do well to remember when asking such questions.

Sincerely,

Louis James
Senior Metals Investment Strategist
Casey Research

The fundamental picture for gold is as solid as it's ever been since this bull market started, so we're all eager to see the price begin its next leg up.

But is the bottom in?

One way to address that question is to compare the recent selloff to other large corrections…

In December 1974, gold entered a 20-month, gut-wrenching decline that cut the price by 47%. Our current correction began at the September 5, 2011 high of $1,895 (London PM Fix) and has fallen as much as 27%. Here's an overlay of now compared to then.

The chart reminds us that the last great bull market in gold was interrupted by a prolonged, severe price decline, much deeper than our current one. The chart also shows the beginning of the mid-'70s rebound. From gold's low of $103.50 on August 25, 1976, it rose 721% to its $850 peak on January 21, 1980.

But that was decades ago. How does our correction compare to the 2008 meltdown?

In the 2008 crash, gold dropped 30%, and then went on to more than double from its 2008 low. Our current downdraft has been longer, but the fall has not been as deep – not even during last month's panic.

It may feel worse because the malaise in our industry has lasted longer than many anticipated, but objectively, this correction is not the worst we've seen. And in previous cases, even big corrections like this did not signal the bull market was over.

Meanwhile, the selloff in gold stocks has been far more brutal than for gold itself. However, this too is something we've seen before, as you can see in this comparison between now and the mid-'70s.

Starting in July 1974, gold stocks (measured by the Barron's Mining Index) fell 65.8% over two years. Since the recent high on September 6, 2011, the HUI (Gold Miners Index) has fallen as much as 58.8%.

As with gold, though, once equities bottomed, they soared to new highs, handing mouthwatering returns to investors with the courage to hold – and add to – their positions through the downdraft.

Here's today's gold stock decline compared to the 2008 crash.

The current decline has not yet been as deep, but it has worn on the nerves of investors far longer. You'll notice that gold stocks, after severe consolidation in late 2008, rebounded dramatically. That's what we expect when the current correction ends as well.

In short, compared to the two biggest corrections in modern history, both gold and gold stocks today have not fallen as far. The downdraft has lasted longer than 2008, and is nearing the same length of time as in the mid-'70s.

What these charts also show is that when the corrections end, prices rebound for what can be life-changing rallies. Investors who panic and sell during big downdrafts miss out on some of the greatest buying opportunities of any bull market.

I also note that in the mid-'70s selloff, it took the gold price three years and seven months to return to its December 1974 high. But it only took another 18 months to soar to $850. Today, that would be the equivalent of gold falling until next month, and not returning to the $1,900 level until April 2015. It would also mean that gold would reach $6,227 in November 2016.

We won't follow the same script this time around, of course, but we're confident that the movie will have the same ending, only bigger and brighter – with more special effects. Based on this, the International Speculator just released new Top Picks, a must-have list of junior mining stocks we're buying ourselves and are recommending to subscribers who are interested in sensible speculation in an industry likely to see a spectacular rebound. Get that list here.

Gold stocks aren't the only game in town today for contrarian investors. In fact, right now there's an energy play that's so promising Casey Research has called together some of the world's foremost energy experts – including a former US Secretary of Energy – to discuss the matter. You're welcome to sit in free of charge. Details here.

Gold and Silver HEADLINES

Royal Canadian Mint 2013 Bullion Sales Rise on Aggressive Demand; 2012 Revenues Fall (Kitco)

Sales of physical gold and silver from the world's leading mints have soared in the first months of 2013, as the gold price tumbled. The Royal Canadian Mint reported that in January-April of this year, sales of gold Maple Leaf coins increased by 123% compared to the first four months of 2012, while sales of silver Maple Leaf coins rose 88%.

The US Mint reports similar results: in April, coin sales shot up to three-year highs – 209,500 ounces. Of these sales, 187,500 were one-ounce American Eagle bullion coins. For comparison, in April 2012, the Mint sold only 26,000 gold coins.

Silver sales were vibrant, too, having increased in April by 169% over April 2012.

Australia's Perth Mint reported that as the gold price plunged, demand soared to the highest level in five years.

The lower gold price – including the April 15 drop – did not scare investors who see the value in physical metals, but instead encouraged them to buy. Buying on a big correction makes perfect sense to us, too.

Junior Mining Stocks See Record Insider Buying (The Globe and Mail)

INK Research reports that its insider buying indicators are at their highest levels since 2008, signaling that company executives are buying their companies' stocks left, right, and center.

At the current level of 715%, for every one stock seeing insider selling there are seven where there is buying. The action in the gold subsector is even more bullish: insiders are buying ten stocks for one sell.

Historically, such action preceded a sector bottom: The Globe and Mail recalls that in 2008, such high points came about six weeks before the market bottomed in December 2008.

We shall see how the market responds this time, but insider buying is a good reflection of what company managers and directors think about the current valuations.

Peru Rolling Back Indigenous Law in Win for Mining Sector (Reuters)

Rumors of a rare case of sanity in a country well endowed with mineral resources spread quickly, as Peru's mining minister reportedly watered down a law that would have hampered mining investment. With $50 billion of potential inflows at stake, the fight is how much say to give local highlander communities regarding new mineral projects. According to Reuters, the "prior consultation law" that the country's president Ollanta Humala touted during his 2011 campaign "requires companies to negotiate agreements with indigenous communities before building new mines or oil wells around their lands." The communities don't have the power to veto a project but could delay it significantly.

The current government realizes the impact of mining investment on the country's economic growth. Let's hope Peru makes pro-mining decisions going forward, and we'll continue following developments.

This Week in International Speculator and BIG GOLD – Key Updates for Subscribers

International Speculator

• An exploration-stage company with cash flow and a highly successful team announced new high-grade drill results last week.

• A production-stage company has made a significant acquisition that we believe will add to its upside potential.

BIG GOLD

• Numerous BIG GOLD companies filed quarterly reports and other announcements this week – get the latest updates on your favorite stocks on the portfolio page.