A Slow-Motion Suicide

David Galland, Managing Director

Dear Reader,

Over the past couple of weeks, it became obvious to me that my eyesight was worsening – which is no small matter, given the amount of time I spend staring at a computer screen. Without glasses, my eyes noticeably tire after only a couple of hours of writing. Yet, every time I put on my glasses of late, my vision would worsen, not improve, and so I would set them aside and tough it out. Clearly, the time had come for an eye checkup and new glasses.

Yesterday, as I was preparing to leave for my eye appointment, I grabbed my glasses and only then noticed that the right lens was missing. And, apparently has been… for the last couple of weeks!

That your editor could fail to notice something as obvious as a missing lens literally on the bridge of his nose should be a warning that I can be a bit distracted... absent-minded, even.

Could it be that I spend so much time pawing through the tangled entrails that make up the big picture of the global economy that the small stuff fails to make an impression?

I don’t know, but whatever the case, I had a hearty laugh on discovering the oversight. And, by happenstance, it turns out I did need a modest adjustment in my prescription, so the doctor’s visit wasn’t for nothing.

And then there was this…


A Slow Motion Suicide

After spending time with the eye doctor, I was led to an outer office to be fit with new frames. While going through this rather dragged-out process, I noticed an old man who had shuffled out of another doctor’s office and was making his way painfully across the room in front of me.

It took me a moment to recognize him as a member of a local writer's group I had belonged to some years ago. A former executive involved with the start-up of what became a leading technology company, Don (as I will call him) had retired – set for life – with millions of dollars in stock and options.

Unfortunately, the company, which literally became a household name, zigged when it should have zagged and blew up, almost overnight. When the smoke cleared, the value of Don’s stocks and options had gone up in flames.

It was not so long after that unfortunate event that our writer’s group was assembled and I began spending a couple of hours or so each week in Don’s company. For the most part, members of the group read and critiqued each other’s writings in what we hoped was a constructive manner. In addition, this being largely a social club, it was not unheard of for drinks to be served.

It was the latter aspect of the group’s get-togethers that first alerted me to a certain weakness in Don – a weakness that, according to conventional wisdom, is not uncommon amongst those who pursue the lonely arts. I refer, of course, to an over-fondness for strong drink.

It was a weakness that was hard to miss. While others in the group would sip on a glass of wine or a drink or two, Don would approached his liquor in what has been termed a “two-fisted” manner, pouring out large tumblers of bourbon, accompanied by only a cube or two of ice. He could handle his drink, no question about it; I don’t recall him even slightly slurring his words even as he made quick work of a bottle.

The true extent of his weakness became clear when one evening he looked at his watch, then made like Wonderland’s White Rabbit and announced he must rush off. When asked why the hurry, he explained – while grabbing for his car keys – that the town's police force had a shift change at the same time each night. During it, for a brief window of time, the streets were unencumbered by members of the constabulary, allowing him to sail home without fear of being pulled over for DUI.

While there are many lists available which detail the warning signs of alcoholism, a short-form version of the list might be created as follows:

  1. If you monitor the shift changes for your local police force, so that you may drive home without fear of being pulled over after a bout of drinking, you are an alcoholic.

Period.

Don’s other obvious weakness was a fondness for sucking tobacco smoke into his lungs – which he did seamlessly throughout our meetings and, I strongly suspect, from arising each morning to turning out the lights at night.

In any event, as is inevitable, the writer’s group grew stale and we all moved on to other pursuits.

And so it was that, before he materialized ghost-like from the doctor’s office, I had not seen Don in probably eight years. To say that the man’s aspect had changed would be a gross overstatement. While a bit on the gray and puffy side during the time of our writer’s group, his appearance still fell well within the range of a man of his age at the time, which was then around 60. The change between the man then, and the shell of a man yesterday in the doctor’s office, was truly astounding.

So astounding, in fact, that if you were to call an ambulance for the man, the attendants, on arrival, would take one look and agree he should be in bed, hooked up to some sort of machine – maybe all the medical machines.

No question about it; Don is not long for this world... his slow motion suicide is almost complete.

All of which got me to wondering how it is that a person can plod so unswervingly down a path they must know leads to ever-worsening health and, in time, a slow and likely painful death. I understand the nature of addictions, and am sympathetic, but there are too many ex-addicts walking about to discount them as exceptions. One can choose another path, even though the change-over to that path may be painful in the short run. Yet so many simply refuse to try, or try only half-heartedly and soon return to the path of their own self-destruction.

These observations are, you may have concluded, completely analogous to the situation now under way on the larger stage, here in the United States and other developed countries. Namely that even though the political leadership – along with much of the body politic that continues to prop them up – are well aware that the country is embarked on a dangerous and self-destructive path, they make no real attempt to change directions.

If anything, the nation-state is imbibing and ingesting even more frantically as it hurries along towards its appointment with unhappy destiny.

Thus, even though the U.S. is bankrupt, it spends more. And even as many large landmark social programs of yesteryear are revealed as unaffordable and unsustainable shams, the politicians roll out more of the same in the form of ObamaCare, while ducking the urgent need to fix the legacy programs.

Taking my habitually indirect route to the actual point, I will relate a local story which I think is highly revealing as to the mindset of those addicted to the institution of the state.


What’s Wrong with This Picture?

As you may have heard, the Vermont legislature has just passed a law calling for a single-payer healthcare system in the state, the single-payer being the state. On May 26, the governor will sign the bill into effect.

To get a sense of the intended consequences of the bill one has to look no further than to the Statement of Principles of one of the leading organizations pushing the bill forward: Vermont For Single Payer (VFSP). And I quote directly from the organization’s website:

Statement of Principles: We support a universal health care system for the State of Vermont, one that includes all Vermonters, offers free choice of providers, is progressively financed, decoupled from employment, affordable for all, and pays for all necessary care out of public funds; a system which retains the private delivery of health care and has a publicly accountable budget process to ensure adequate capacity to meet the health care needs of all Vermonters.

At first glance, that may sound all very high-minded, socially responsible, and all that. But read carefully: the phraseology reveals the organization's truly self-destructive tendencies.

For example…

Phrase: “one that includes all Vermonters”. The legislation the organization has helped spawn means just what it says – “all” as in everyone. But, of course, not everyone can afford the medical treatments they might want or need, which by default means that someone else will have to dig in to their pocket to pick up the tab. Even if it means paying for trying to mitigate some of the damage my old chum Don has done to his own lungs, liver, and virtually every other vital organ. So who, pray tell, is going to be called to pay these costs? Ah, here we are…

Phrase: “is progressively financed”. In case one is unfamiliar with the phrase, “progressively financed” that means the more you make, the more you’ll pay. In other words, the more productive one is, the more one pays. Given free rein, I suspect the authors of this Statement of Principles would have been just as happy to swap the phrase with “… to be paid for by fat cats and other greedy capitalists.”

Phrase: “decoupled from employment”. No job, no worries. The fat cats are picking up the tab!

Phrase: “affordable for all”. See above.

Phrase: “pays for all necessary care out of public funds”. Last time I checked, the government didn’t actually produce anything hereabouts. See above.

And so on, and so forth.

Not surprisingly, the legislation avoids any details on how this wonderful new level of health care for all will be paid for, though the trial balloons floated so far include up to a 12% surcharge on top of existing payroll taxes, and higher personal and corporate taxes – or some combination thereof.

The problem – nay, the complete disconnect with the reality that actions have consequences – is that Vermont is already the highest-taxing state in the nation.

As a consequence, what few large employers still remain in the state are now openly discussing shutting down their operations and heading to friendlier climes.

What happens then?

And don’t forget that at the same time as the best-paying jobs in the state are heading out, less-flush individuals will be moving in from other states in order to take advantage of the state’s wonderful new (free!) health coverage?

Does the state, deprived of tax revenue at the same time its costs are soaring, raise taxes even further?

Pour another drink, light up another cigarette?

Of course, if it was the nation rather than just a single state propagating this sort of legislation, it might enact legislation levying a considerable “exit tax” on businesses that choose to move elsewhere – Or layer on special corporate taxes that would make it uneconomic to set up elsewhere.

Alas, the state of Vermont has no such option, so heading off a business exodus will most likely require negotiating special company-specific concessions with the large employers, pushing the taxes down the chain and on to the backs of the medium-sized employers and individual taxpayers – but, progressively, of course, so it’s really only the fat cats who are inconvenienced.

Regardless, the outcome is predictable: an exodus of wage earners and income generators, with the higher the wages and income generated, the greater the likelihood they’ll pack up and move on. That’s how a negative incentive works.

Now you might have missed the nuance in these musings. Nuances make them relevant to you, no matter where you live in these United States – and, for that matter, most any of the developed countries.

Specifically, while the individual states don’t legally have the right to levy punitive exit taxes on companies looking to disembark for friendlier shores – that is not the case with the federal government.

Given that the federal government is making not even a little attempt to stop its binge spending and chain legislating, the nation itself remains firmly on course for its own slow-motion suicide. Unfortunately, in this case, the wealth of the citizenry will be increasingly stripped to pay to keep the party going. And, it is inevitable that exit penalties will be increased, and foreign exchange controls implemented, in an attempt to keep businesses and individuals from moving elsewhere to protect their assets.

In time, however, no matter how aggressive its wealth stripping becomes, if the federal government doesn’t reform its spendthrift ways it will find itself barely able to shuffle across the room – let alone compete internationally, and the economy will drop dead.

When that happens, a number of outcomes are likely. One could be that government’s continued overstepping of reasonable bounds, and the excesses that overstepping has led to, could be revealed as the central cause of the nation’s economic ills. In which case, the country could undergo a renewal and be returned to the robust health that made it such an economic powerhouse in the first place.

Regrettably, it is far more likely the citizenry will fail to recognize the self-inflicted nature of the problem (after all, they do keep voting the bums in), and instead will demand even more from the government. At that point, literally any number of unfavorable consequences could materialize.

If you don’t want to suffer those same consequences, it behooves you to begin thinking seriously about how you will cope with demands that are only likely to get more extreme as the government continues to take the economy down with its self-destructive excesses.

Buying precious metals on dips (more on that in a moment), converting your IRA to a Roth IRA ASAP, exploring the use of well-structured trusts, diversifying into the currencies of better-managed central banks, opening foreign bank accounts (duly recorded), buying foreign property, and so forth are all options.

The alternative, of betting your future on the actions of power- and money-addicted government, is to set yourself up to get everything you’ve got coming to you. Which may very well turn out to be nothing.

In case you might be wondering if I greeted Don in the doctor’s office... the answer is no. I am not good at small talk, and even worse at lying, which is what I would have had to do if I had engaged in the customary banalities. “Hey Don, long time, no see! You look… well… you look…ahhh… ummm.”

Besides, by the time I exited the doctor’s office, Don was resting his tired bones on the curbside, waiting for his ride I guess, passing the time by further abusing his tired lungs with yet another cigarette. I decided to let him rest in peace.

[P.S. On the topic of internationalizing, lately I’ve been lending a helping hand to a start-up website, www.InternationalMan.com, which picks up where Doug Casey's best-selling book The International Man left off. I do a bit of writing for the site, which just launched, and will probably be doing more. If it’s of interest, I know they are looking for additional correspondents around the globe – if you, too, have a passion for writing and reporting on events in your neck of the woods, be sure to contact them and let them know.]


The Obaminator

Somewhat on the same topic – of heading down self-destructive paths – it came to my attention this week that on the day before Osama bin Laden was assisted in shedding  his mortal coil, President Obama’s approval rating were bouncing along at just 53%. Within just a couple of days after the successful hit, the number had jumped to 60%, a two-year high.

Now, if we know nothing else about politicians, it is that anything that moves the poll numbers in a positive direction is something they will want to do more of. Which is very bad news for Gaddafi and, I suspect, al-Assad of Syria as well. 

It is also bad news for the U.S. economy. That’s because one consequence of this particular form of political pandering is likely to be continued full funding, or close to it, for the U.S. war machine – a machine that currently consumes upwards of $1.4 trillion annually. That not only has serious implications for the deficits and the national debt that those deficits flow into, but paradoxically for the nation’s energy and national security as well.

That’s because the administration’s enthusiasm for extra-judicial killings – especially of the swarthy Middle Eastern types now cast in the roll of bogeymen – only further alienates us from the people sitting on the cheap oil we so desperately need to keep the economy moving forward.

Of course, no one knows how all this turmoil in the Middle East is going to shake out, but that’s exactly the problem and the point. At a time when we should probably be playing a more discreet hand – as China is adroitly doing – the administration is embellishing the nation’s reputation as being willing to interfere anywhere, and to kill anyone, no trial required, if it comes to perceive such a killing serves its interests.

With Obama’s polls rewarding him for being seen as the Obaminator, ready to smite enemies on a moment’s notice, we can only expect the body count to grow, along with the foothold enjoyed by the military-industrial complex in the halls of power.

It’s how democracy works.

Watch the Money

Earlier this week I picked up my small lobster boat from the winter storage facility attached to one of the largest boat dealers in the state.

While getting the boat’s trailer hooked up, I got in to a conversation with the dealer’s service manager, during the course of which he told me that April was  the busiest sales month for the dealership – ever. And not just for boats, but for the expensive motorcycles they sell as a side line.

“Why?”, I wondered out loud; he gave me an answer that, in the broader context of things, made a lot of sense.

Namely, it is that the financial crisis caused people with jobs to hunker down and start saving more. Now, three years on, people are eyeing the cash they have built up – something they have previously been unaccustomed to doing – and, tiring of being so frugal, are thinking, “The heck with it, I’m going to get that boat I’ve been dreaming of!”

This is, of course, a classic phase as described by the monetarists. It is what, in time, leads to price inflation as the stockpile of cash reaches the point where people just can’t resist spending it.

And it’s not just people spending money on boats: One cash-rich investor thought the self-portrait of Andy Warhol shown here, commissioned in 1963 for $1,600, was now worth shelling out a record $38.4 million greenbacks for.

The inflation is coming: be prepared.

In the current edition of The Casey Report, published last night, I interview co-editor Terry Coxon – the smartest person I have ever met when it comes to money and how monetary systems work (or don’t). In it, he explains in some detail why a major inflation is now baked in to the cake. This interview alone is worth taking us up on our three month, no-risk trial.

But the issue also contains a collection of up-to-date and very timely contributions from some of the brightest analysts working today, focusing on what key indicators they are watching to gauge where the economy is going next… including Bud Conrad, John Williams, Pam and Mary Anne Aden, James Rickards, Chris Whalen, Steve Belmont, Mike Maloney, Steve Yuzpe, and others. Learn more here.


Friday Funnies

This first entry is a very well done spoof site – the Galactic Empire Times  – dedicated to a parody of the killing of Osama bin Laden. It is always remarkable that people have the talent, and the time, to pull together this sort of thing.

Check the full site out also.

Dilbert-Like Quotes

A special thanks to subscriber Garry J., for many of today’s entries!

Starting with the following from a “Dilbert Quotes” contest recently held by a magazine.  To enter, people were asked to submit actual quotes from real-life Dilbert-like managers. Here are the winners:

'As of tomorrow, employees will only be able to access the building using individual security cards. Pictures will be taken next Wednesday, and employees will receive their cards in two weeks.' (This was the winning quote from Fred Dales, Microsoft Corp,)

'What I need is an exact list of specific unknown problems we might encounter.' (Lykes Lines Shipping)

'E-mail is not to be used to pass on information or data. It should be used only for company business.' (Accounting manager, Electric Boat Company)

'This project is so important we can't let things that are more important interfere with it.' (Advertising/Marketing manager, United Parcel Service)

'Doing it right is no excuse for not meeting the schedule.' (Plant manager, Delco Corporation)

'No one will believe you solved this problem in one day! We've been working on it for months. Now go act busy for a few weeks and I'll let you know when it's time to tell them.' (R&D supervisor, Minnesota Mining and Manufacturing/ 3M Corp)

Quote from the boss: 'Teamwork is a lot of people doing what I say.' (Marketing executive, Citrix Corporation)

My sister passed away and her funeral was scheduled for Monday. When I told my boss, he said she died on purpose so that I would have to miss work on the busiest day of the year. He then asked if we could change her burial to Friday. He said, 'That would be better for me.' (Shipping executive, FTD Florists)

'We know that communication is a problem, but the company is not going to discuss it with the employees.' (Switching supervisor, AT&T Long Lines Division)

Note To All Hunters:

This is from a San Francisco newspaper:

Golf Tips

As it is the beginning of the golf season here in the Northeast, I thought I’d pass along the following helpful tips and observations…

Never try to keep more than 300 separate thoughts in your mind during your swing.

The less skilled the player, the more likely he is to share his ideas about the golf swing.

No matter how bad you are playing, it is always possible to play worse.

Counting on your opponent to inform you when he breaks a rule is like expecting him to make fun of his own haircut.

It's not a gimme if you're still five feet away.

The shortest distance between any two points on a golf course is a straight line that passes directly through the center of a very large tree.

You can hit a two-acre fairway 10% of the time and a two-inch branch 90% of the time.

If you really want to get better at golf, go back and take it up at a much earlier age.

Since bad shots come in groups of three, a fourth bad shot is actually the beginning of the next group of three.

When you look up, causing an awful shot, you will always look down again at exactly the moment when you ought to start watching the ball if you ever want to see it again.

Every time a golfer makes a birdie, he must subsequently make two triple bogeys to restore the fundamental equilibrium of the universe.

There are two things you can learn by stopping your back-swing at the top and checking the position of your hands: How many hands you have, and which one is wearing the glove.

If there is a ball on the fringe and a ball in the bunker, your ball is in the bunker.

If both balls are in the bunker, yours is in the footprint.

It's easier to get up at 6:00 a.m. to play golf than to get up at 10:00 a.m. to mow the lawn.

A good golf partner is one who's always slightly worse than you are.

Golf balls are like eggs. They're white. They're sold by the dozen. And you need to buy fresh ones each week.

It's amazing how a golfer who never helps out around the house will replace his divots, repair his ball marks, and rake his sand traps.

If your opponent has trouble remembering whether he shot a six or a seven, he probably shot an eight (or worse).

Hedging His Bets

The priest was preparing a man for his long day’s journey into night. Whispering firmly, the priest said, "Denounce the devil! Let him know how little you think of his evil!"

The dying man said nothing. The priest repeated his order. Still the dying man said nothing. The priest asked, "Why do you refuse to denounce the devil and his evil?"

The dying man said, "Until I know where I’m heading, I don’t think I ought to aggravate anybody."


That’s it for this week…

As I sign off, a word about the slow-rolling commodities correction. While we discuss this at more depth in the current edition of The Casey Report, our view remains that, given the almost-certain end of the Fed’s quantitative easing, things are going to remain particularly volatile – in equities in general, and in commodities in particular.

At this point the best approach for most people looking to deploy cash into the precious metals or related investments is to dollar-cost average through periodic purchases on pullbacks.

Alternatively, you can sell puts against your favorite metals, or metals-related stocks. While this is the sort of thing you’ll need to do your due diligence on before acting, and will have to set up an account which allows you to do so, by selling puts you essentially get paid to agree to buy an asset at a certain, lower, price. Thus, if silver were to again hit $33, you might be able to sell a put with a strike price of $30.00. You get paid the premium up front, further reducing the cost you’d pay for your silver if it was to hit the $30.00 mark. If it doesn’t hit your strike price by the option expiration date, the premium paid is yours free and clear (actually, it’s yours free and clear either way).

As long as you are happy to own silver around $30 an ounce, even if it subsequently falls even further, then this is a strategy you might want to learn more about.

In any event, I remain firm in my view that the Fed’s (temporary) stepping aside from Treasury markets has the potential to cause increased volatility in a number of markets – including commodities. So I am continuing to be particularly cautious for the next little while. You will have to make your own decision.

And with that, I will sign off for the week, thanking you for reading, and for subscribing to a Casey Research service as I do.

David Galland
Managing Director
Casey Research

May 13, 2011