Welcome to the Room - April 30, 2007
Welcome to "The Room"
April's BIG GOLD is now available: Please Click Here
Last Updated April 20, 2007
Dear Subscribers,
This week I’m writing you from the dining room table here in Vermont where, finally, spring has decided to pay us a visit. Over my right shoulder I see a wide vista of green trees and green mountains, tinged with snow and offset by a blazing background of a most distinct and pleasurable blue sky.
Not to worry, I won’t be waxing poetically: having rambled on a bit last week (or so my friend Eric in Portugal was kind enough to point out), this week we’ll get right down to the steely-eyed matter of making money…
The Big Story
Imagine being able to get up each new day with the ability to write checks for anything you want out of a bottomless bank account. Are you Bill Gates? No, because even Bill Gates can hypothetically spend all his money. No, you are a high-ranking government official.
This special license to print has been the
de-facto prerogative of governments over the many centuries, the result being a history littered with ruined currencies followed closely by ruined nations.
It is remarkable, therefore, that government officials are so quick to forget that unfettered spending inevitably results in undone economies. I suspect, however, it has less to do with poor memory and more with the pervasive “not on my watch” attitude that is the hallmark of bureaucrats everywhere.
Lest you misread me, I’m not referring to some stiff-spined determination to do what it takes to prevent bad things from happening. Rather, I reference the spineless dodging of issues with the full knowledge that said officials will be comfortably retired and sucking down margaritas paid for by their handsome pensions by the time the chickens come to roost.
As we have discussed in our many services, the fact that the U.S. dollar, a wounded duck backed by nothing but hot air, serves as the reserve currency of most of the world – an unprecedented occurrence -- has equally unprecedented implications, and none of them good.
While today it is the euro and the British pound that the world is rushing into, pushing the dollar perilously close to the stew, those currencies also have many, if not more, of the same parasites infesting the dollar… starting with the fact that they, like the U.S. dollar, are unbacked by anything other than politicians’ promises.
Ultimately, it will be gold – an asset that has survived the acid test of thousands of years of monetary utility -- that exposes the paper currencies for the frauds they are.
Is it any wonder, then, that every time gold approaches a major breakout point -- $700, for instance -- this or that bureaucrat or their collaborators in the hallowed halls of big banking decide to go on record proposing an action detrimental to gold?
The latest was a double-barreled assault, with Japan’s finance flack, er, minister, Koji Omi firing first with a recommendation that the IMF sell some of its 3,200 tons of gold to make up for a shortfall in income (one can’t have that; any shortfall might require cutting back on the daily hand polishing of the IMF’s Mercedes stretch limos). While the smoke was still swirling out of the first barrel, British Chancellor of the Exchequer Gordon Brown decided it would be helpful to go public with his view that Omi had it right, and that he – and an increasing number of high officials of other countries – were also warming up to the idea of IMF gold sales.
Now, here’s the thing. In the past when these sorts of pronouncements were made, gold markets would reflexively go into a duck-and-cover mode. Not this time. While gold pulled back marginally over the course of this week, as I write, it is pushing right back up towards $700… trading at $692.50 per ounce.
Expect to see the rhetoric heat up even more in the near future. But it is all but futile at this point, and each ounce the bureaucrats do sell off merely weakens their influence over, well, just about everything. Because once it becomes apparent to the slow-to-the-uptake masses that they are getting rid of one of the last tangible assets in their monetary reserves, the already flagging confidence will evaporate like the last remnants of the snow clinging to my porch on this sunny day.
Desperate Acts
Speaking of cornered bureaucrats, a question we get quite frequently around here has to do with the possibility of outright confiscation. My favorite partner and resident guru Doug Casey and I have batted that notion around more than a few times, and our consensus view is that a move toward making gold ownership illegal (again) is all but inevitable.
It will likely be framed in terms of the war on terror (“We have determined that the global network of terrorists are using gold to escape detection”), or, given the shiny new collection of Executive Privileges available to the King of the World, I mean, the U.S. president, to choose from, he might just come right out and tell it like it is: “The hoarding of gold by self-serving individuals is taking currency out of circulation and threatening the U.S. economy and the government’s ability to meet our many obligations.”
Fortunately, absent something that none of us can foresee, this desperate act is likely well off in the future, and will only be triggered by gold reaching a really embarrassing level… like $5,000 an ounce.
And, seeing as politicians these days like to test the waters before making bold moves, we will probably see a few trial balloons floated before any action is taken… giving us abundant time to run to the exits on the precious metals shares, which would be most affected. As for turning over one’s physical gold to the government… well, that’s a call you’ll have to make at the time.
Trade Deficits: A Contrarian Thought
There’s little argument that a ballooning trade deficit ultimately helps to undermine the outgoing currency. The U.S., for instance, has been shoveling its wealth into the bank accounts of the Chinese and others for many years now, trading their wages for all manner of wonderful household appliances, automobiles and so on.
But Doug made an interesting observation a couple of days ago, an observation I hadn’t heard from anyone else. Namely that as worrisome as the massive trade deficit is, it is when the trade deficit begins to narrow again that the lasagna may be about to hit the floor.
That’s because the most likely cause of a turn-around in the trade deficit will be that the trillions of U.S. dollars now in foreign hands are starting to be shipped back to us, COD. Or, more accurately, AOD (Assets on Demand). That will be highly inflationary, administer the coup de grace to the dollar, and send gold soaring… maybe even to the point where the government starts getting un-pure thoughts about the yellow metal.
Something to keep an eye on…
Congratulations on Your New Job… Working for Me!
Like many of you, I have just finished being relieved of all my spare cash by Uncle “The Vig” Sam’s annual protection payment.
As a small consolation, I was thrilled to learn that, in addition to being used for bombing various recalcitrant corners of the Middle East, my money is now being deployed keeping 52.6% of my fellow Americans in bread and flat-screen televisions.
That percentage is, according to economist Gary Shilling, how many Americans are now receiving a significant share of their income from the government. But of course, because the government doesn’t make anything, the fount of this largess is actually…oh, yeah, you and me.
With over 70 million Americans now headed for retirement, most of which have nowhere near enough money to scrape by on, the deeply dependent population is only going to grow… lockstep with the ballooning costs of Social Security and Medicare.
So, I wonder, at exactly what point does the U.S. stop being considered a free-market economy and officially warrant the label of socialists… or, for that matter, communists? Because when you think of it, the communist motto “from each according to his ability, to each according to their need,” a motto that has always resonated in certain circles, certainly seems appropriate to the evolving nature of the “new” America.
Chicago, Chicago…
Having just finished our sold-out and very well-received Uranium Summit in Las Vegas, we turn our attention once more to the world’s very best early-stage gold and silver stocks… at our
Casey Research/Explorers’ League Chicago Gold & Silver Stock Summit. This exclusive, limited-attendance event is being held May 30 & 31 at the elegant Drake Hotel.
If you haven’t been to one of our Summits yet, this is an opportunity not to be missed. In addition to getting to know your Casey Research team, it offers a very profitable chance to question the world’s leading analysts and mine finders about the stocks that have captured their attention… and allows you the perfect opportunity to clean up your portfolio and focus your attention on the stocks that are all but certain to double, triple or better in the months just ahead.
The cost of the event is of no consequence compared to the value you’ll receive, with a single great new pick more than covering the cost, with a big profit to boot… and you’ll hear far more than one good idea. Including start-up and very early-stage companies (some just “shells” selling for pennies) that are too small even for our high-octane
Casey Investment Alert.
If you can make it, do. Despite the $895 registration fee, the fact that we limit the attendance and the inflated cost of everything these days makes the Summits a marginal activity for us, so this will likely be the last one we’ll do this year… it is not one you should miss lightly.
For more details,
click here.
The Quisling
Ever since my youth I have had an odd interest in speaking with my elders. When my teenage friends would shuffle their feet and mutter a couple of platitudes while edging away from an old person, I would seek them out as something akin to living history books, peppering the codgers with a barrage of questions about their lives and the world they grew up in. Given enough time, even a boring life becomes filled with interesting historical anecdotes. But so many of the older people I have met have led anything but boring lives.
In that vein, last year I befriended a man in his eighties at the gym here in town. Roman is his name, and he originally hailed from Czechoslovakia. As a young man, Roman related to me, he was in that country when the Nazis invaded. He remembered vividly that, after occupying the country, outlawing private gun ownership was among the first orders of business. (For you history buffs, a law forbidding German Jews to own guns was passed shortly before the concentration camps were opened. A connection between the two events is not hard to discern.)
In any event, Roman’s story takes a tragic turn. His father was an avid hunter and had spent a considerable amount of money on a pair of especially fine rifles which he just couldn’t bear to see fall into the hands of the Germans. So, he hid them. Unfortunately for him, one of his employees knew of the guns and, to curry favor with the new regime, turned Roman’s father in. As a consequence, young Roman was forced to watch as the Nazis executed his father for the crime. (He was also present when, after the Nazis’ defeat, the turncoat… or quisling as he termed him… was hung for that very act).
I mention all of this because, predictably, following the tragedy at Virginia Tech, the world’s reporters have dusted off the file labeled “death by gun” and are waxing loudly and indignantly for gun control.
But that is too simplistic a notion, not when you consider that government ranks right up there with heart disease and well ahead of malaria as a leading cause of death: it always has, but never more so than over the last century.
Just to provide you with a quick sampling, I present the following body count from R.J. Rummel, author of “Death by Government”…
Adolf Hitler |
1933–1945 |
21,000,000 |
Chiang Kai-shek |
1921–1948 |
10,000,000 |
Vladimir Lenin |
1917–1924 |
4,000,000 |
Leopold II of Belgium |
1885–1908 |
10,000,000 |
Pol Pot |
1968–1987 |
2,000,000 |
Joseph Stalin |
1929–1953 |
43,000,000 |
Hideki Tojo |
1941–1945 |
4,000,000 |
Mao Zedong |
1923–1976 |
77,000,000 |
Of course, that overlooks the estimated 2,000,000 killed by the U.S. in Vietnam (I won’t bother mentioning Iraq, as that is still something of a second-rater as these things go).
For no other reason than I find it interesting, I would also bring to your attention the fact that one of the record holders in this death-a-thon is Joseph Stalin, the U.S.’ staunch ally in World War II. As Rick Maybury likes to point out, if you use a body count of the innocents as a measure of evil, then Stalin was twice as evil as Hitler… and that is pretty evil.
Given the hard numbers, then, it would seem that letting the government be the only ones with guns just might not be such a great idea. (I am sure that many of you will disagree… which you are welcome to do by dropping me an email at info@caseyresearch.com).
I Could Go On…
About the vision of Barney Franks on the television down at the gym spouting off about the need to “do something” about the level of executive compensation at publicly traded firms. Here’s a thought: Think a company is throwing their money away on an overpriced CEO? How about selling your shares? Nah, let’s spend millions of dollars of taxpayer money holding hearings, then pass a bunch of new regulations that make it harder to do business. Now that makes a lot more sense.
Or, the latest out of the housing sector… that the number of houses entering foreclosure in the first quarter of 2007 doubled from a year earlier. If you look at the structure of the ARM “challenge,” you will see that the banner year for these things was in 2004… and the most popular version of mortgages back then had a 3-year reset clause. And, that since 2004, there have been 17 hikes by the Fed… There’s more to the story, none of it helpful, but the bottom line is that 2007 is going to be a bad year on the housing front. Despite the cooing noise coming out of Washington, it is the beginning, not the end, of the problems.
But I really must get on with the day, and with an exciting new initiative here at Casey Research…
Welcome to BIG GOLD!
As was previously announced, a few months ago Doug and I hired the highly organized Olivier Garret as CEO to help manage the daily business here at Casey Research, LLC.
Now that he is fully up to speed, I have freed up the time needed to assume the reins as Managing Editor of the
Gold Stock Companion. From this point forward the publication will be called BIG GOLD
!... a name that more accurately sums up our strongly held opinion that gold is about to become big news… and acknowledges the producing gold stocks followed in the publication.
But the name change is the least of it…
Over the past month we have assembled an “A” team to make BIG GOLD
! a big winner, a team that now includes Bud Conrad, Casey Research’s chief economist; Doug Hornig, the tireless editor of KitcoCasey’s Daily Resource column; and financial whiz Terry Coxon, founder of the highly respected Permanent Portfolio Fund (who will be providing quarterly precious metals mutual fund reviews, analysis and updates).
The new BIG GOLD
! takes things to the next level, keeping readers fully informed on big-picture developments in the precious metals and providing a deeper level of analysis of large- and mid-cap gold stocks and even precious metals mutual funds.
In addition, the new publication will include a number of other useful new features, including the inside scoop on all the many ways you can buy and sell precious metals (the next edition delves deeper into pros and cons of ETFs), a quarterly mutual fund review, analysis of news related to the metals and much, much more.
And over the next month or so, we’ll be announcing further improvements, including deeper integration with the Casey Research website… starting with the “Our Stocks” tab where the BIG GOLD
! portfolio stocks will be included and where, between monthly editions of the letter, updates on important news related to those stocks will be posted.
If you are already a subscriber to
Gold Stock Companion, you’ll receive your first edition of BIG GOLD
! on or about April 23.
Everyone else will soon be sent additional information on BIG GOLD
!... including how you can receive it for free and lock in a special rate for the
International Speculator at the same time. Watch for more on this front early next week.
Until then… thanks for reading, and for subscribing!
David Galland
Partner
Casey Research, LLC
(And now, Managing Editor,
BIG GOLD!)
