The Golden Constant


Dear Reader,

Sitting here in the wee hours on the fringe of the Memorial Day holiday, first cup of coffee at hand and an excellent live version of Safe from Harm by Massive Attack playing at moderate decibels, I suspect that my contribution to today's missive will be somewhat shorter than usual. If for no other reason than that the kids have the day off and it's been one of "those" weeks, so the idea of putting away the tools early is tugging at my sleeve.

To that end, a bit later on I will share the reprint of a controversial article that I have had on my desk for a couple of weeks. It's long and may evoke all manner of reactions (though hopefully none of them violent), but will also make you think.

Before we get to that, however, some quick comments on gold and other commodities.


The Golden Constant

Glancing at the news most days, it's hard not to feel like Bill Murray's character in Groundhog Day. In the event you are unfamiliar with the movie, in it Murray's character becomes trapped in the same day… day after day.

In the current circular condition, we have the powers-that-be assuring us that the next high-level meeting will finally produce a permanent fix to the broken economy, essentially solving the sovereign debt crisis. Then, in no more than a few days, or at most a couple of weeks, the fix is revealed to be flawed and the crisis again sparks into flames. Followed shortly thereafter by yet another high-level meeting – and the cycle begins anew.

While the characters may change – one week it is Greece, the next it is Spain, the next it is France, the next it is the US, the next it is Greece again, etc., etc. ad nauseam – the detached observer who steps back to a distance sufficient to view the larger picture can only come to the conclusion that we are now well outside of the bounds of the normal business cycle.

As we here at Casey Research have written on this topic at great length, I don't intend to dwell on this topic today, but I did want to loop back in just long enough to comment on the recent price action in commodities, especially gold, in the face of the continuing crisis.

Today, a glance at the screen reveals that gold is trading for $1,565. For comparative purposes, as revelers warmed up their vocal cords to sing in the New Year on the last trading day of 2011, gold exchanged hands at $1,531. And exactly one year ago to the day, gold traded at $1,526 for a one-year gain of a modest 2.6%.

A year ago, the S&P 500 traded at 1,325, while today it trades at 1,318, a small loss. Yet, have you noticed we don't hear much about the imminent collapse of the US stock market, as we do about gold? This perma-bear sentiment about gold on the part of what some people lump together under the label "Wall Street" is especially apparent in the gold stocks.

Using the GDX ETF as a proxy for the sector, we see that the shares of the more substantial gold producers are off by an unpleasant 24% over the last year. More on the topic of gold shares momentarily, but first let's round things out by also looking at the price action of a couple of other core components of the global economy.

For instance, a year ago, a barrel of WTI crude sold for a tick over $100. A couple of weeks ago, it was still selling for $102, though it has slid a bit to $91 today. Even so, that is still considerably higher than where it traded as recently as New Year's 2008, when it was just $38 per barrel. Since that low, the price of oil has made a steady advance and for the last year and a half has traded right around $100/bbl.

Then there is the matter of base metals. Copper, for example, traded at $8,980 per tonne a year ago, and is today at $8,289, a loss of almost 11%. Likewise, the iron ore price is off by 15% over the last year, and zinc is off by 13%. Even the minor monetary metal with industrial applications, silver, is off 8.39%.

With that "baseline" in place, I would like to now turn to the current outlook for gold, and touch on some of the other commodities as well.

  • Gold. In the context of its secular bull market, and given that absolutely nothing has gotten better about the sovereign debt crisis – only worse – gold's correction is nothing to be concerned about.

    I know the technical types will point to levels such as $1,540 as important resistance points – and there's no question that if gold was to break decisively below that level, and especially below $1,500 – that a lot of autopilot trades would kick in and put further pressure on gold.

    Yet, when you view the market through the lens of hard realities, which is to say, by focusing on the intractable mess the sovereigns have gotten the world into… in Europe, in Japan, in China and here in the US… then viewing gold at these levels as anything other than an opportunity is a mistake.
     
  • Gold Stocks. As far as the gold stocks are concerned, I consider today's levels to be extraordinarily compelling for anyone looking to build up a portfolio, or to average down an existing portfolio.

    I say this for a number of reasons, starting with the contrarian perspective that this may now be the most unloved sector of the stock market. No one wants anything to do with gold stocks, and hasn't for some time now. As a consequence, the sellers will soon dry up, leaving almost nothing but buyers to push the sector back to the upside.

    This contrarian perspective is important because in today's world literally thousands of competent equities analysts plop down at the desk each trading day with the sole purpose of searching for prospective investments. Many of these analysts are backed by huge firms with billions of dollars at risk in the markets, and so are armed with high-powered computational tools of the sort that was unimaginable even a few years ago. All of these analysts, armed with all their computational power, habitually scan a universe that totals about 4,000 publicly traded companies. Realistically, however, even a thin analytical screen will weed out all but perhaps 400 of those companies as being potentially suitable for investment.

    Thus, you have thousands of high-priced and well-armed securities analysts crunching pretty much the same data on a very small universe of possible investments. Given this reality, is it any surprise that securities are so tightly correlated? Which is to say, is it any surprise that these securities all trade right in line with the valuations that the analytical screens ultimately derive that they should? Which means there are really only two possible circumstances under which any of these stocks move up, or move down, by any significant degree:
  1. Broad market movements. The saturated levels of analysis mean that, within a fairly tight range, all the stocks now move more or less together. Thus, with few exceptions, a big upswing or downswing in the broader market will send almost all stocks up or down together. To help make the point, I randomly pulled a chart of IBM and compared it against SPY (the S&P 500 tracking ETF) for the last year. Note the lockstep price movements:



    OK, IBM is a big company, so it will have a lower beta than many companies, but the point remains that saturated coverage of the stocks greatly reduces the odds of any one issue breaking free from the larger herd, unless there is…
     
  2. A surprise. All of these analysts, and all of their computerized analysis, help form a certain future price expectation for each security based on past financial metrics (earnings growth, return on equity, and so forth). Other than the broad market movement just referenced, or moves in line with a sub-sector of the larger market (e.g., if oil falls, oil-sector stocks will move up or down in sync), for a company to deviate in any substantial way from analyst expectations, by definition requires a "surprise" to occur.

    Of course, such a surprise can be positive, but because these companies are so closely watched, it is more likely to be negative. In the former category, a positive surprise might come in the form of an unexpectedly strong new product launch á la the iPad. In the latter, less happy category of surprise, it can be the blow-out of a big well in the Gulf of Mexico… or any one of a million other unanticipated vagaries of fate.

As investors, recognizing these fundamental realities is important because it points to where above-average market opportunities are most likely to be found (or not). And that brings us back to the whole idea of being a contrarian. As I mentioned, "Wall Street" has never much liked the precious metals, and by extension the gold stocks. Given the length of the gold bull market – which, in our view, reflects systematic risk in all the fiat currencies, but which Wall Street views as an indication of a fatiguing trend confirmed by the underperformance of the gold stocks – traditional portfolio managers are unhesitant in giving the boot to the few gold shares that somehow made it into their portfolios against their better judgment.

If our thinking is not clouded by our own bias, then it would behoove us as good contrarians to buy these shares from the eager sellers at such unexpectedly favorable prices. So, is our own bias leading us to believe in gold and gold stocks when virtually the entire army of analysts won't even consider them? Some inputs:

  • Gold prices remain near historic highs – and that has a significant impact on the bottom line of the gold producers. Barrick Gold Corp. (ABX), for example, currently boasts a profit margin of over 30%, better than twice that of IBM and almost ten times that of Walmart. While ABX sells for just 1.6 times its book value, IBM sells for 10X.
     
  • Interest rates remain at historic lows, producing a negative real return for bond holders. Unless and until investors are able to capture a positive yield – a potential stake through the heart of gold – there is no lost-opportunity cost for holding gold. And bonds are increasingly at risk of loss should interest rates be pressured upwards, as they inevitably will be.
     
  • Sovereign money printing continues – because it must. In today's iteration of Groundhog Day, the Europeans are once again meeting in an attempt to fix the unfixable, but the growing consensus – because there is no other realistic option left to them – is that they will have to accelerate, not decelerate the money printing. Ditto here in the US, where a fiscal cliff is fast approaching due to the trifecta of the expiring Bush tax cuts, mandated cuts in government spending from the last debt-ceiling debacle and the new debacle soon to begin as the latest debt ceiling is approached. The problems in important economies such as China and Japan are as bad, and maybe even worse (in the Weekend Reading section at the end of this edition is a very worthwhile article on the Chinese economic slowdown.)

  • Debt at all levels remains high. With historic levels of debt, rising interest rates are a no-fly zone for governments, because should these rates go up even a little bit, the impact on the economy and on the ability of these governments to meet their obligations would be dramatic and devastating. This fundamental reality ensures a continuation of policies aimed at keeping real yields in negative territory, meaning that the monetization/currency debasement in the world's largest economies will continue apace.

    To get a sense of just how bad things are and how soon the wheels might come off,  sending gold and gold stocks to the moon as governments throw all restraint in money printing to the wind to save themselves and their overindebted economies – here's a telling excerpt and a chart from a recent article by Standard & Poor's titled, The Credit Overhang: Is a $46 Trillion Perfect Storm Brewing?

Our study of corporate and bank balance sheets indicates that the bank loan and debt capital markets will need to finance an estimated $43 trillion to $46 trillion wall of corporate borrowings between 2012 and 2016 in the U.S., the eurozone, the U.K., China, and Japan (including both rated and unrated debt, and excluding securitized loans). This amount comprises outstanding debt of $30 trillion that will require refinancing (of which Standard & Poor's rates about $4 trillion), plus $13 trillion to $16 trillion in incremental commercial debt financing over the next five years that we estimate companies will need to spur growth (see table 1).

(Click on image to enlarge)

You can read the full article here. While the authors of the S&P report try to find some glimmer of hope that roughly $45 trillion in debt will be able to be sold off over the next four years – even their base case casts doubt on the availability of the "new money" shown in the chart above. Note that this is the funding they indicate is required to fund growth. Which is to say that should the money not be found, the outlook is for low to no growth for the foreseeable future.

It is also worth noting that the analysis assumes that something akin to the status quo will persist – which is very unlikely given the pressure building up behind the thin dykes keeping the world's largest economy's intact. The landing of even a small black swan at this point could trigger a devastating cascade.

We have said it before, and we'll say it again: there is no way out of this mess. At least not without acute pain to a wide swath of the citizenry in the world's most developed nations. While this pain will certainly be felt by sovereign bond holders (and already has been felt by those who owned Greek issues), it will quickly spread across the board to banks, businesses and pensioners – in time wiping out the lifetime savings of anyone who is "all in" on fiat currency units.

In this environment, gold isn't just a good idea – it's a life saver. And gold stocks are not just a good contrarian opportunity, they are one of the few intelligent speculations available in an uncertain investment landscape. By speculation, I mean that, at these prices, they offer an understandable and reasonable risk/reward ratio. Put another way, every investment – even cash – has risk these days. With gold stocks, you at least have the opportunity to earn a serious upside for taking the risk… and the risk is much reduced by the correction over the last year or so.

Now, that said, there are some important caveats for gold stock buyers.

  • With access to capital likely to dry up, any gold-related company you own must be well cashed up. In the case of the producers, this means a lot of cash in the bank, strong positive cash flow and a manageable level of debt. (Our Casey BIG GOLD service – try it risk-free here – constantly screens the universe of larger gold stocks for just this sort of criteria, then brings the best of the best to your attention.)

    In the case of the junior explorers that we follow in our International Speculator service (you can try that service risk-free as well), the companies we like the most have to have all the cash they need to clear the next couple of major hurdles in their march towards proving value. That's because a company can have a great asset but still get crushed if it is forced to raise cash these days… and the situation will only get more pronounced when credit markets once again tighten as the global debt crisis deepens.
     
  • Beware of political risk. Despite the critical importance of the extractive industries to the modern economy, the industry is universally hated by politicians and regular folks everywhere. If your company – production or exploration – has significant assets in unstable or politically meddlesome jurisdictions, tread carefully. And it's important to recognize that few jurisdictions are more politically risky than the US. This doesn't mean you need to avoid all US-centric resource stocks – but rather that you need a geopolitically diversified portfolio that you keep a close eye on at all times (something we do on behalf of our paid subscribers every day).
     
  • Know your companies. Some large gold miners are also large base-metals miners. And at this juncture in time, personally I'm avoiding base-metals companies like a bad cold. While most base-metals companies have already been beaten down – and hard – over the last year and a half, the fundamentals remain poor. Specifically, they not only have the risk of rising production costs and political meddling, but unlike gold – where the driving fundamental is its monetary role in a world awash with fiat currency units – the base-metals miners depend on economic growth to sustain demand for their products. In a world slipping back into recession – or perhaps, in the case of Japan and China, tripping off a cliff – betting on a recovery in growth is not a bet I'd want to make just now.

Having gone on longer than anticipated, I will now edge for the exit on this topic by pointing out that while it is hard to accurately predict the timing of major developments in any one economy, let alone the global economy, there are a number of tangible clues we can follow to the conclusion that the next year will be a seminal one in terms of this crisis.

For starters, there is the next round of Greek elections on June 17, the result of which is likely to be the anointment of one Alexis Tsipras as the head of state. An unrepentant uber-leftist whose primary campaign plank is to tell the rest of the EU to put their austerity where the sun doesn't shine, the election of Tsipras would almost certainly trigger a run on the Greek banks, followed by a cut-off of further EU funding and Greece's exit from the EU. And once that rock starts to slide down the hill, it is very likely that Spain and Portugal will follow… after that, who knows? As I don't need to point out (but will anyway), June 17 is right around the corner, so you might want to tighten your seat belt.

A bit further out, but not very, here in the US we can look forward to the aforementioned fiscal cliff. Or, more accurately, the political theatrics around the three colliding co-factors in that cliff (the approach once more of the debt ceiling, the expiring tax cuts and mandated government spending cuts). While the outcome of the theatrics has yet to be determined, it's a safe bet that the government will extend in order to pretend while continuing to spend – and by doing so, signal in no uncertain terms that the dollar will follow all of the sovereign currency units in a competitive rush down the drain.

Bottom line: Be very cautious about industrial commodities as a whole, at least until we see signs of inflation showing up in earnest, but don't miss this opportunity to use the recent correction to fill out that corner of your portfolio dedicated to gold and gold stocks.

(Silver? Personally, I own some silver investments and believe it will do just fine over time – but I see no big rush to build a bigger position today as the metal's industrial applications are likely to be a drag on its price for the next little while.)

And now, a quick detour for a look at the downgrade of Japan this week, then on to the controversial article I mentioned at the onset of this week's musings.


Japan's Debt Conundrum

By Robert Ross, Casey Research

On the heels of Fitch's sovereign credit downgrade to A plus (the fifth-highest investment grade), Japan's government debt continues to swell. With its debt at over 200% of its GDP, the Land of the Rising Sun appears to be embarking on a trek into the debt-laden unknown.

(Click on image to enlarge)

A ballooning government debt is often associated with sovereign debt crises, as market shocks can send the interest rate paid on the debt to unsustainable levels. Coupled with Japan's shrinking population (and thus tax base), the country is setting itself up for a hairy situation (data for both charts are from the IMF's World Economic Outlook Database).

(Click on image to enlarge)

As with any well-known macro-trend, there are speculators eager to capitalize on it.

Enter Kyle Bass, one of the few hedge fund managers who made a killing when he bet against housing during the subprime mortgage bust. He and his fund have now set their sights on Japan, specifically shorting Japanese yen and Japanese government debt.

His thesis is simple: with a debt-to-GDP ratio over 200% and a contracting population, it's only a matter of time before a sovereign debt crisis sets in, thus triggering a rise in Japanese interest rates – which the government would be unable to service with a shrinking and aging tax base.

So far this strategy hasn't worked as Bass intended: according to ValueWalk, Bass' fund lost 29% of its value in April alone.

That's not to say Bass' assumptions are incorrect. But there are alternative ways of looking at Japan's situation.

Many blame the 2011 earthquake and subsequent reconstruction efforts for the ballooning debt, while some, like Business Insider columnist Joe Weisenthal, think Japan will never implode.

Weisenthal's main point is that Bass' analysis is simplistic and incorrect. He says that the debt-to-GDP ratio is a lousy measure of anything because "it's measuring a stock (total debt) to a flow (a country's national income for the year)." And "beyond that, debt-to-GDP just doesn't tell you anything about interest rate risk or credit risk."

Weisenthal is entitled to his opinion, but we think Bass will eventually be proven right – although his fund could go broke in the meantime.

The Japanese problem is real, and a sovereign default – outright or inflationary – along with the rising rates that lead up to it are inevitable. But as we have said many times before, just because something is inevitable doesn't make it imminent.


The Spirit of Geert Wilders

David again. As a setup, I was sent the following article by a friend a couple of weeks ago. As is often the case these time-pressed days, I figured I would give it a quick scan. But it quickly sucked me in and kept me riveted until the end.

The article is about the author's decision to write the introduction to Geert Wilders' new book. For those who are unfamiliar with the name, Wilders is a Dutch politician who has spoken out against the unchecked immigration of Muslims into his country. Or, more to the point, the refusal of the Muslims to integrate into the Dutch culture. As a consequence of his views, Wilders is now, literally, a hunted man.

I don't usually pay all that much attention to this particular topic of cultural assimilation or the millennia-long conflict between the ancient religions, mostly because it has no immediate personal relevance: here in the little New England town, or in Argentina – the two places I spend the most time, Islamic/Christian tensions are non-existent. In addition, I am very skeptical about anti-immigration arguments and the knock-on scapegoating of "foreigners" that has caused so much pain to innocents trying to better their lives over the course of human history.

Yet, Mark Steyn's article, which I am reprinting in its entirety here, followed by some research I did, struck me as important in understanding the challenges facing Europe (and elsewhere)… challenges related to religious and cultural conflicts, as well as those emanating from out-of-control political correctness. In other words, challenges that are almost impossible to meet head on.

I'll have a bit more to say after the article. 

The Spirit of Geert Wilders

By Mark Steyn

When I was asked to write a foreword to Geert Wilders' new book, my first reaction, to be honest, was to pass. Mr. Wilders lives under 24/7 armed guard because significant numbers of motivated people wish to kill him, and it seemed to me, as someone who's attracted more than enough homicidal attention over the years, that sharing space in these pages was likely to lead to an uptick in my own death threats. Who needs it? Why not just plead too crowded a schedule and suggest the author try elsewhere? I would imagine Geert Wilders gets quite a lot of this.

And then I took a stroll in the woods, and felt vaguely ashamed at the ease with which I was willing to hand a small victory to his enemies. After I saw off the Islamic enforcers in my own country, their frontman crowed to The Canadian Arab News that, even though the Canadian Islamic Congress had struck out in three different jurisdictions in their attempt to criminalize my writing about Islam, the lawsuits had cost my magazine (he boasted) two million bucks, and thereby "attained our strategic objective — to increase the cost of publishing anti-Islamic material." In the Netherlands, Mr. Wilders' foes, whether murderous jihadists or the multicultural establishment, share the same "strategic objective" — to increase the cost of associating with him beyond that which most people are willing to bear. It is not easy to be Geert Wilders. He has spent almost a decade in a strange, claustrophobic, transient, and tenuous existence little different from kidnap victims or, in his words, a political prisoner. He is under round-the-clock guard because of explicit threats to murder him by Muslim extremists.

Yet he's the one who gets put on trial for incitement.

In 21st-century Amsterdam, you're free to smoke marijuana and pick out a half-naked sex partner from the front window of her shop. But you can be put on trial for holding the wrong opinion about a bloke who died in the seventh century.

And, although Mr. Wilders was eventually acquitted by his kangaroo court, the determination to place him beyond the pale is unceasing: "The far-right anti-immigration party of Geert Wilders" (The Financial Times) . . . "Far-right leader Geert Wilders" (The Guardian) . . . "Extreme right anti-Islam politician Geert Wilders" (Agence France-Presse) is "at the fringes of mainstream politics" (Time) . . . Mr. Wilders is so far out on the far-right extreme fringe that his party is the third biggest in parliament. Indeed, the present Dutch government governs only through the support of Wilders' Party for Freedom. So he's "extreme" and "far-right" and out on the "fringe," but the seven parties that got far fewer votes than him are "mainstream"? That right there is a lot of what's wrong with European political discourse and its media coverage: Maybe he only seems so "extreme" and "far-right" because they're the ones out on the fringe.

And so a Dutch parliamentarian lands at Heathrow to fulfill a public appearance and is immediately deported by the government of a nation that was once the crucible of liberty. The British Home Office banned Mr. Wilders as a threat to "public security" — not because he was threatening any member of the public, but because prominent Muslims were threatening him: The Labour-party peer Lord Ahmed pledged to bring a 10,000-strong mob to lay siege to the House of Lords if Wilders went ahead with his speaking engagement there.

Yet it's not enough to denormalize the man himself, you also have to make an example of those who decide to find out what he's like for themselves. The South Australian senator Cory Bernardi met Mr. Wilders on a trip to the Netherlands and came home to headlines like "Senator Under Fire For Ties To Wilders" (The Sydney Morning Herald) and "Calls For Cory Bernardi's Scalp Over Geert Wilders" (The Australian). Members not only of the opposing party but even of his own called for Senator Bernardi to be fired from his post as parliamentary secretary to the Leader of Her Majesty's Loyal Opposition. And why stop there? A government spokesman "declined to say if he believed Mr Abbott should have Senator Bernardi expelled from the Liberal Party." If only Bernardi had shot the breeze with more respectable figures — Hugo Chávez, say, or a spokesperson for Hamas. I'm pleased to report that, while sharing a platform with me in Adelaide some months later, Bernardi declared that, as a freeborn citizen, he wasn't going to be told who he's allowed to meet with.

For every independent-minded soul like Senator Bernardi, Lord Pearson of Rannoch, or Baroness Cox (who arranged a screening of Wilders' film Fitna at the House of Lords), there are a thousand other public figures who get the message: Steer clear of Islam unless you want your life consumed — and steer clear of Wilders if you want to be left in peace.

But in the end the quiet life isn't an option. It's not necessary to agree with everything Mr. Wilders says in this book — or, in fact, anything he says — to recognize that, when the leader of the third-biggest party in one of the oldest democratic legislatures on earth has to live under constant threat of murder and be forced to live in "safe houses" for almost a decade, something is badly wrong in "the most tolerant country in Europe" — and that we have a responsibility to address it honestly, before it gets worse.

A decade ago, in the run-up to the toppling of Saddam, many media pundits had a standard line on Iraq: It's an artificial entity cobbled together from parties who don't belong in the same state. And I used to joke that anyone who thinks Iraq's various components are incompatible ought to take a look at the Netherlands. If Sunni and Shia, Kurds and Arabs can't be expected to have enough in common to make a functioning state, what do you call a jurisdiction split between post-Christian bi-swinging stoners and anti-whoring anti-sodomite anti-everything-you-dig Muslims? If Kurdistan's an awkward fit in Iraq, how well does Pornostan fit in the Islamic Republic of the Netherlands?

The years roll on, and the gag gets a little sadder. "The most tolerant country in Europe" is an increasingly incoherent polity where gays are bashed, uncovered women get jeered in the street, and you can't do The Diary of Anne Frank as your school play lest the Gestapo walk-ons are greeted by audience cries of "She's in the attic!"

According to one survey, 20 percent of history teachers have abandoned certain, ah, problematic aspects of the Second World War because, in classes of a particular, ahem, demographic disposition, pupils don't believe the Holocaust happened, and, if it did, the Germans should have finished the job and we wouldn't have all these problems today. More inventive instructors artfully woo their Jew-despising students by comparing the Holocaust to "Islamophobia" — we all remember those Jewish terrorists hijacking Fokkers and flying them into the Reichstag, right? What about gangs of young Jews preying on the elderly, as Muslim youth do in Wilders' old neighborhood of Kanaleneiland?

As for "Islamophobia," it's so bad that it's, er, the Jews who are leaving. "Sixty per cent of Amsterdam's orthodox community intends to emigrate from Holland," says Benzion Evers, the son of the city's chief rabbi, five of whose children had already left by 2010. Frommer's bestselling travel guide to "Europe's most tolerant city" acknowledges that "Jewish visitors who dress in a way that clearly identifies them as Jewish" are at risk of attack, but discreetly attributes it to "the Israeli-Palestinian conflict." "Jews with a conscience should leave Holland, where they and their children have no future," advised Frits Bolkestein, former Dutch Liberal leader. "Anti-Semitism will continue to exist, because the Moroccan and Turkish youngsters don't care about efforts for reconciliation."

If you're wondering what else those "youngsters" don't care for, ask Chris Crain, editor of The Washington Blade, the gay newspaper of America's capital. Seeking a break from the Christian fundamentalist redneck theocrats of the Republican party, he and his boyfriend decided to treat themselves to a vacation in Amsterdam, "arguably the 'gay-friendliest' place on the planet." Strolling through the streets of the city center, they were set upon by a gang of seven "youngsters," punched, beaten, and kicked to the ground. Perplexed by the increasing violence, Amsterdam officials commissioned a study to determine, as Der Spiegel put it, "why Moroccan men are targeting the city's gays."

Gee, that's a toughie. Beats me. The geniuses at the University of Amsterdam concluded that the attackers felt "stigmatized by society" and "may be struggling with their own sexual identity."

Bingo! Telling Moroccan youths they're closeted gays seems just the ticket to reduce tensions in the city! While you're at it, a lot of those Turks seem a bit light on their loafers, don't you think?

But not to worry. In the "most tolerant nation in Europe," there's still plenty of tolerance.

What won't the Dutch tolerate? In 2006, the justice minister, Piet Hein Donner, suggested there would be nothing wrong with sharia if a majority of Dutch people voted in favor of it — as, indeed, they're doing very enthusiastically in Egypt and other polities blessed by the Arab Spring. Mr. Donner's previous response to "Islamic radicalism" was (as the author recalls in the pages ahead) to propose a new blasphemy law for the Netherlands.

In this back-to-front world, Piet Hein Donner and the University of Amsterdam researchers and the prosecutors of the Openbaar Ministrie who staged his show trial are "mainstream" — and Geert Wilders is the "far" "extreme" "fringe." How wide is that fringe? Mr. Wilders cites a poll in which 57 percent of people say that mass immigration was the biggest single mistake in Dutch history. If the importation of large Muslim populations into the West was indeed a mistake, it was also an entirely unnecessary one. Some nations (the Dutch, French, and British) might be considered to owe a certain post-colonial debt to their former subject peoples, but Sweden? Germany? From Malmö to Mannheim, Islam transformed societies that had hitherto had virtually no connection with the Muslim world. Even if you disagree with that 57 percent of Dutch poll respondents, the experience of Amsterdam's chief rabbi and the gay-bashed editor and the elderly residents of Kanaleneiland suggests at the very minimum that the Islamization of Continental cities poses something of a challenge to Eutopia's famous "tolerance." Yet the same political class responsible for this unprecedented "demographic substitution" (in the words of French demographer Michèle Tribalat) insists the subject remain beyond discussion. The British novelist Martin Amis asked Tony Blair if, at meetings with his fellow prime ministers, the Continental demographic picture was part of the "European conversation." Mr. Blair replied, with disarming honesty, "It's a subterranean conversation" — i.e., the fellows who got us into this mess can't figure out a way to talk about it in public, other than in the smiley-face banalities of an ever more shopworn cultural relativism.

That's not enough for Geert Wilders. Unlike most of his critics, he has traveled widely in the Muslim world. Unlike them, he has read the Koran — and re-read it, on all those interminable nights holed up in some dreary safe house denied the consolations of family and friends. One way to think about what is happening is to imagine it the other way round. Rotterdam has a Muslim mayor, a Moroccan passport holder born the son of a Berber imam. How would the Saudis feel about an Italian Catholic mayor in Riyadh? The Jordanians about an American Jewish mayor in Zarqa? Would the citizens of Cairo and Kabul agree to become minorities in their own hometowns simply because broaching the subject would be too impolite?

To pose the question is to expose its absurdity. From Nigeria to Pakistan, the Muslim world is intolerant even of ancient established minorities. In Iraq half the Christian population has fled, in 2010 the last church in Afghanistan was razed to the ground, and in both cases this confessional version of ethnic cleansing occurred on America's watch. Multiculturalism is a unicultural phenomenon.

But Europe's political establishment insists that unprecedented transformative immigration can only be discussed within the conventional pieties: We tell ourselves that, in a multicultural society, the nice gay couple at Number 27 and the polygamous Muslim with four child-brides in identical niqabs at Number 29 Elm Street can live side by side, each contributing to the rich, vibrant tapestry of diversity. And anyone who says otherwise has to be cast into outer darkness.

Geert Wilders thinks we ought to be able to talk about this — and indeed, as citizens of the oldest, freest societies on earth, have a duty to do so. Without him and a few other brave souls, the views of 57 percent of the Dutch electorate would be unrepresented in parliament. Which is a pretty odd thing in a democratic society, when you think about it. Most of the problems confronting the Western world today arise from policies on which the political class is in complete agreement: At election time in Europe, the average voter has a choice between a left-of-center party and an ever so mildly right-of-left-of-center party and, whichever he votes for, they're generally in complete agreement on everything from mass immigration to unsustainable welfare programs to climate change. And they're ruthless about delegitimizing anyone who wants a broader debate. In that Cory Bernardi flap Down Under, for example, I'm struck by how much of the Aussie coverage relied on the same lazy shorthand about Geert Wilders. From The Sydney Morning Herald:

"Geert Wilders, who holds the balance of power in the Dutch parliament, likened the Koran to Mein Kampf and called the Prophet Muhammad a pedophile . . . "

The Australian:

"He provoked outrage among the Netherlands' Muslim community after branding Islam a violent religion, likening the Koran to Hitler's Mein Kampf and calling the Prophet Mohammed a pedophile."

Tony Eastley on ABC Radio:

"Geert Wilders, who controls the balance of power in the Netherlands' parliament, has outraged Dutch Muslims by comparing the Koran to Hitler's work Mein Kampf and calling the Prophet Muhammad a pedophile . . . "

Golly, you'd almost think all these hardworking investigative reporters were just cutting-and-pasting the same lazy précis rather than looking up what the guy actually says. The man who emerges in the following pages is not the grunting thug of media demonology but a well-read, well-traveled, elegant, and perceptive analyst who quotes such "extreme" "fringe" figures as Churchill and Jefferson. As to those endlessly reprised Oz media talking points, Mein Kampf is banned in much of Europe; and Holocaust denial is also criminalized; and, when a French law on Armenian-genocide denial was struck down, President Sarkozy announced he would immediately draw up another genocide-denial law to replace it. In Canada, the Court of Queen's Bench upheld a lower-court conviction of "hate speech" for a man who merely listed the chapter and verse of various Biblical injunctions on homosexuality. Yet, in a Western world ever more comfortable in regulating, policing, and criminalizing books, speech, and ideas, the state's deference to Islam grows ever more fawning. "The Prophet Mohammed" (as otherwise impeccably secular Westerners now reflexively refer to him) is an ever greater beneficiary of our willingness to torture logic and law and liberty in ever more inane ways in the cause of accommodating Islam. Consider the case of Elisabeth Sabaditsch-Wolff, a Viennese housewife who has lived in several Muslim countries. She was hauled into an Austrian court for calling Mohammed a pedophile on the grounds that he consummated his marriage when his bride, Aisha, was nine years old. Mrs. Sabaditsch-Wolff was found guilty and fined 480 euros. The judge's reasoning was fascinating:

"Pedophilia is factually incorrect, since pedophilia is a sexual preference which solely or mainly is directed towards children. Nevertheless, it does not apply to Mohammad. He was still married to Aisha when she was 18."

So you're not a pedophile if you deflower the kid in fourth grade but keep her around till high school? There's a useful tip if you're planning a hiking holiday in the Alps. Or is this another of those dispensations that is not of universal application?

A man who confronts such nonsense head on will not want for enemies. Still, it's remarkable how the establishment barely bothers to disguise its wish for Wilders to meet the same swift and definitive end as Pim Fortuyn and Theo van Gogh. The judge at his show trial opted to deny the defendant the level of courtroom security afforded to Mohammed Bouyeri, van Gogh's murderer. Henk Hofland, voted the Netherlands' "Journalist of the Century" (as the author wryly notes), asked the authorities to remove Wilders' police protection so that he could know what it's like to live in permanent fear for his life. While Wilders' film Fitna is deemed to be "inflammatory," the movie De moord op Geert Wilders (The Assassination of Geert Wilders) is so non-inflammatory and respectable that it was produced and promoted by a government-funded radio station. You'd almost get the impression that, as the website Gates of Vienna suggested, the Dutch state is channeling Henry II: "Who will rid me of this turbulent blond?"

There's no shortage of volunteers. In the Low Countries, a disturbing pattern has emerged: Those who seek to analyze Islam outside the very narrow bounds of Eutopian political discourse wind up either banned (Belgium's Vlaams Blok), forced into exile (Ayaan Hirsi Ali), or killed (Fortuyn, van Gogh). How speedily "the most tolerant country in Europe" has adopted "shoot the messenger" as an all-purpose cure-all for "Islamophobia."

It's not "ironic" that the most liberal country in western Europe should be the most advanced in its descent into a profoundly illiberal hell. It was entirely foreseeable, and all Geert Wilders is doing is stating the obvious: A society that becomes more Muslim will have less of everything else, including individual liberty.

I have no desire to end up living like Geert Wilders or Kurt Westergaard, never mind dead as Fortuyn and van Gogh. But I also wish to live in truth, as a free man, and I do not like the shriveled vision of freedom offered by the Dutch Openbaar Ministrie, the British immigration authorities, the Austrian courts, Canada's "human rights" tribunals, and the other useful idiots of Islamic imperialism. So it is necessary for more of us to do what Ayaan Hirsi Ali recommends: share the risk. So that the next time a novel or a cartoon provokes a fatwa, it will be republished worldwide and send the Islamic enforcers a message: Killing one of us won't do it. You'd better have a great credit line at the Bank of Jihad because you'll have to kill us all.

As Geert Wilders says of the Muslim world's general stagnation, "It's the culture, stupid." And our culture is already retreating into pre-emptive capitulation, and into a crimped, furtive, (Blair again) subterranean future. As John Milton wrote in his Areopagitica of 1644, "Give me the liberty to know, to utter, and to argue freely according to conscience." It is a tragedy that Milton's battles have to be re-fought three-and-a-half centuries on, but the Western world is shuffling into a psychological bondage of its own making. Geert Wilders is not ready to surrender without exercising his right to know, to utter, and to argue freely — in print, on screen, and at the ballot box. We should cherish that spirit, while we can.

Mark Steyn, a National Review columnist, is the author of After America: Get Ready for Armageddon. This article is adapted from his foreword to Geert Wilders' Marked for Death: Islam's War against the West and Me.

David again.  

While the situation in Europe will, of course, differ from place to place, my own observations from a recent visit to Montreux, Switzerland and Paris confirmed that the culture of the continent is definitely morphing into what appears to be a permanent admixture of Islam and non-Islamic faiths. The difference between the two is that other than some small sub-sects, for example the Hassidic Jews, most people don't (literally) wear their religions on their sleeves – or try to shape their adopted societies to their own religious dictates (even the Hassids don't do that).

Thus, while the full impact of this cultural crash may not be felt for many years, as time passes it is hard to see how this doesn't become yet another serious problem for Europe – the equivalent of another world war.

In the interest of trying to head off a lot of angry emails, or worse, allow me to clarify that I never believe in lumping large groups of people in the same category. It is only ever a small percentage of any group that causes most of the trouble. In Europe, most people – regardless of religion – just want to go about their lives in peace. Unfortunately, when the small subset acts out, then everyone associated with that subset pays the price… in time the anti-this and the anti-that rhetoric turns into physical actions with all sorts of unpleasant consequences.

Is it any wonder why so many of the 240 or so property owners at "Casey's Gulch" in the tranquil wine-growing region in the Northwest of Argentina hail from Europe?


Friday Funnies

Thanks to friend and colleague Dennis Miller for sending along a link to a great collection of photos along the lines of the one below. Check them out.

(Click on image to enlarge)


Weekend Reading

  • Cash Confiscation – Just Because. The police in Tennessee confiscated $22,000 in cash from a New Jersey driver… without due process or probable cause… just because "common people do not carry this much U.S. currency." They call it "Policing for Profit." Here's the story.
     
  • China Slows Down. A must-read for investors in industrial commodities, or anyone who thinks that the world is back on track to a normal recovery. Here's the story.
     
  • Coming Soon to a Media Outlet Near You: Government-Sanctioned Propaganda. The slip down the slope continues with an amendment in yet another defense authorization bill that would strike down the current ban on domestic dissemination of government propaganda. Here's the story.
     
  • Laws, What Laws? While America sleeps, the EPA, encouraged by the administration, has been assuming new powers unto itself to ensure that dirty activities such as mining coal come to a screeching halt. Here's the story.

And with that, I am outta here! Have a great weekend, and for those of you here in the US, a wonderful holiday. Which, for me, begins right… now.

David Galland
Managing Director
Casey Research

May 25, 2012