Welcome to the Room - August 25, 2006

David Galland, Partner, Casey Research
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Last Updated: August 18,2006

Dear Subscribers,

One of the prerequisites of being a cane-waving old codger, a club I’m still too young to attain card-carrying status for, is to complain about the damn media.

Even so, the longer I draw breath, the more I find myself in full sympathy with the cane wavers.

Take, for example, the latest breaking news in the JonBenet Ramsey case. Where to start? How about the fact that the media has focused literally countless hours and miles of print to this one sad case, creating an instant (dead) celebrity… a celebrity that persists to this day - a decade later? War, pestilence, economic misdeeds be damned… the networks are too busy rushing their crack reporters to breathlessly report on every dribble of news about the case from their four corners of the split screens that signify a true media event.

And the hypocrisy! Back in the day, the media tried and convicted the girl’s parents. They were guilty, guilty, guilty – signed sealed and slow roasted. Now, however, the reporters adopt sad and conciliatory countenances as they speak with JonBenet’s father and supporters, cooing sympathetically over the long nightmare. It’s like a torturer going out for a cup of coffee, then returning with tears in his eyes and commenting “You poor thing, that must really hurt.”

Then there’s the question of facts. Did the confessor actually do it? Or, is he just some disturbed perv who woke up one day and decided to be famous? I don’t know and neither does the media… but they’ve already got him hanging from the gallows.

By now I can hear the grumbling of the investment purists, the same lot that delights in writing me complaining admonitions that I should stick to the investment business. I mean, JonBenet Ramsey… now I have surely gone too far!

Whipping out my foil, I parry with this.

The mainstream media is in the business of getting eyeballs on screens or newsprint. That, and no other reason, is why they are so quick to create a steady stream of JonBenet’s, or failing that, trot out the daily body count from the Middle-East, an area where there has reliably been a daily body count since the first two steps of mankind.

That they attract those eyeballs is simply because, like the Roman’s of antiquity, we like our entertainment bloody. And because we like our information to be entertaining, that should be bloody too.

A plane landing safely is not news, and neither is an economy.

Taking two quick steps backward then lunging in, I would like to go on record stating that the stealth crisis in the economy and the media’s need for red will soon coincide, resulting in blaring headlines that things are no longer okay and that people should prepare for economic pain. Preparing for pain means the tightening of consumer belts and cutting back on non-essential spending. (A straw in the wind: earlier this week Wal-Mart reported the worst results in a decade.)

In the way of substantiating this view, check out this fresh chart from our own Bud Conrad…




What the picture above really shows is that the Fed has no wiggle room. They can’t raise interest rates, because they will only make what is sure to be a serious recession even more so. And they can’t lower rates to stimulate the economy, because interest rates are already effectively at zero. That’s because the real rate of inflation is much higher than the “new and improved” CPI deigns to report. In fact, if you believe economist John Williams, and we do, the actual rate of inflation is closer to 8%. Therefore, if the Fed does try to drop rates, it will be akin to blowing pure oxygen onto the inflation fire.

The Fed is out of bullets and the dollar is doomed - maybe not tomorrow, but soon. The trend for higher gold bullion prices, and much higher returns from quality gold stocks is very much on track… so pay almost no attention to the fluctuations in gold driven by traders reacting and overreacting to the latest data. It is the big picture that will so handsomely profit us.

And, in time, when the media headlines are at their darkest and the talking heads are waxing most eloquently about the financial crisis that has beset us, we’ll be moving on… most likely picking through the rubble of the blue chips to find the next big opportunities to profit.

Which points to the best use, other than for blood-soaked entertainments, of the mainstream media... as a lagging indicator.


Shopping Season Over?

This summer we have periodically checked in with the trading volume on the Toronto Cap Gold Stock Index to gauge where we are in the Shopping Season, looking to spot when the engines are beginning to restart for the next leg up in the gold stock rally.

As you can see from the chart below, though the prices are firming a little, trading volume remains low and even falling. No doubt in response to the latest weakening in gold prices.

That means there is still time to load up on the best plays, but you won’t want to put things off much longer. When the Shopping Season ends, usually in September but occasionally in October, you want to be well-positioned for what could turn out to be the ride of a lifetime in the gold stocks. (For a refresher on gold’s seasonality, see Vol. XXVII, No. 4 -- Seasons of Gold from the April 2006 edition of our International Speculator).

Trading volume aside, we are beginning to see early signs that the summer quietude will soon be history. The foremost of those signs is a rising number of press releases coming out from companies trying to get a jump on the competition for investor dollars. The trading volume that will send these stocks to the moon will reliably follow… it’s just a matter of time.




NEVER MIND

Did you see that the Bolivian government has announced a suspension of its plans to nationalize the country's natural gas industry?

Turns out they didn’t have the skills or even funds to complete the nationalizations… at least not without quickly ruining the economy.

Hopefully this will help put a cap back in the bottle for the anti-capitalistic, pro-nationalistic, jingoistic, anti-humanistic, socialistic and moronic resurgence in South American economic self-immolation.

This, of course, bodes well for the resource stocks with targets in Bolivia, and may give pause to Chavez-wannabes in other countries in the region tempted to try similar pranks. Most of all, being staunchly in favor of the free markets, in my view the turnabout bodes well for the people of those countries. In the case of Bolivia, straying from the course of nationalization may save the economy from devastation… though if I was a corporate exec working in the area, I’d be mighty slow to reach for my wallet in order to invest more money there.

Whoops, there goes another hour! And so I must run.

As always, your comments of all stripes are most welcomed… send them my way at info@caseyresearch.com.

Until next week, thanks for reading and for subscribing!



David Galland
Managing Director
Casey Research





Aug 18, 2006