Welcome to the Room - August 8, 2006

David Galland, Partner, Casey Research
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The August edition of the International Speculator, is now available: click here.



Last updated: July 28, 2006


Dear Subscriber,

Who needs entertainment when all you need to do is turn on the news?

My personal favorite over the past week was the announcement yesterday that, on top of selling Venezuela boat loads of armaments, Putin’s Russia would be investing billions into Venezuela, with a focus on the energy sector.

Can you say, “Yo, Bush… right back at you”? This for the U.S. foreign policy that has Cheney and company running all over Russia’s backyard cutting energy and arms deals.

It’s too early to see clearly the implications of this small but important bit of geopolitical one-upmanship, but there is little doubt that there will be implications.

This reminds me of GO, my favorite board game. An ancient Chinese game, it is often remarked that “If Chess is a battle, GO is a war”. In GO, when you feel threatened in one sector of the large board, you typically open a new front in a far away corner, forcing your opponent to decide between continuing to attack you where he is, or redeploying in order to head off what may be a bigger loss down the road.

Make no mistake, political leaders – or at least those who are reasonably astute – well understand the principles expressed in the game of GO. And whatever his other qualities, Putin is clearly astute.

The current management of the U.S., however, seems somewhat less so.

That is, unless stumbling into the tar pit of Iraq while on the hunt for Osama bin Laden is part of a large and yet-to-be-revealed master stroke. Or, dealing ourselves into the latest war between Israel and its neighbors, first by stubbornly refusing to call for a cease fire until a “lasting solution" can be found... this in an area that has been in conflict for time immemorial and will remain so until it is someday covered in radioactive glass… and then by sending Condi into the fray.

Something tells me that Chinese diplomats aren’t booking any flights to Beirut or Tel Aviv. That’s because they, along with those from Japan and now India are busy trotting around the globe, not with soldiers but with briefcases, busily locking up energy and mineral concessions needed to assure strong economies for decades to come.

The U.S., empire though it may be, is instead focusing on only one small corner of the game board, preoccupied in its battle against “terrorists”.

Now don’t get me wrong. I don’t like religious fanatics of any stripe, especially those who think killing people will buy them a ticket to paradise. But the Bush team's insistent attempts at trying to lump together virtually all of the world’s many revolutionary factions, especially those where the members are Muslims, into a single, vaguely connected terrorist army with ill-intent towards America, is just a tick short of madness.

It wasn’t Hezbollah that boarded those planes on 9/11… it was, most people believe, members of Al Qaeda. Not anti-Russian Czechan fighters, or anti-Israeli Hamas fighters.

Yet we declare ourselves at war with all of these people, no matter their cause, their particular sect, or even if they hate each other or someone else far more than they hate us. It is, as Doug calls it, a Forever War, a war without possible end.


What Does This Have to Do With Speculating?

What does this have to do with speculating in the resource sector, you might ask (especially those of you who favor the approach summed up by "kill them all and let God -- our God -- sort them out")? Everything.

Because while we chase ghosts in the Middle East and elsewhere around the world, creating more ghosts and more enemies in the process, the competition for natural resources is getting a serious leg up… and the big picture is falling apart.

In addition to Russia, China and others using our distraction to their advantage, there is a real threat to global trade, from the failure of the Doha Treaty, to heavy-handed trade sanctions being threatened against China by U.S. politicos talking tough in an election year. In retaliation, China is beginning to pass legislation limiting foreign investments in that country.

“Yo, right back at you!”

Meanwhile, the cost of the Forever War -- layered on top of the mountain of already out-of-control spending mandated by vote-seeking politicos – is helping to drive inflation up. Which, in turn, is helping to push interest rates up around the globe, with India, Japan and soon Australia the latest in a long list of countries where rates have either been raised, or soon will be.

The air in the U.S. housing bubble is already starting to hiss out. According to the U.S. Foreclosure Market Report, the first 3 months of 2006 saw 320,000 properties enter the foreclosure process, a 72% increase over the same period last year.

Adding to the immediate pain of higher mortgage payments as ARM’s reset and borrowing costs rise, we have oil at persistent highs, the economic discomfort from which is only now beginning to kick in.

Regardless of the warning signs, the current administration – in league with the Democrats who seem to be trying to out-hawk the Republicans - stubbornly refuse to pay attention to anything other than the Middle East. In fact, given that the Pentagon has just announced it will be boosting troop levels in Iraq and is said to be considering issuing more stop loss orders, keeping soldiers in theater beyond their planned deployments, it seems as though we intend to get only deeper in the tar pit.

While I recognize that our subscriber base is made up of a diverse group, with a lot of opinions, we do share a common interest – namely to find intelligent ways to create personal wealth, thereby assuring ourselves and our families a more comfortable lifestyle than otherwise might be the case. That seems a perfectly reasonable objective, seeing how the average American retiring today will do so with about $60,000 in total net worth.

There is no doubt that the chaos in the Middle East will continue, and little doubt that we will continue to lose ground in the new Great Game by alienating the leaders and populations of countries containing much of the world’s natural resources – Russia being just the latest example – and by dithering while other countries get down to business.

Based solely on the geopolitical front, the resource sector makes for a solid speculation. Toss into the mix a long list of monetary concerns, and investing in the resource sector becomes essential. That is, if you want to survive, let alone prosper, in the months and years ahead.


Argentina

On Monday I am heading back to Argentina for another round of meetings on our real estate project (and a bit of fine dining, fine wine, horse back riding, golf…), so you’ll likely be hearing from another of our editors in this space next week.

Those of you who have expressed interest in learning more about Argentina and the area where Doug and I, and a small group of friends, have been buying land, might be interested in a recent article on the area that appeared in the New York Times Sunday Travel Section. Here’ a link:

http://travel2.nytimes.com/2006/07/02/travel/02next.html

While still a few months early, if you’re interested in learning about the resort community we are working on with a development partner in Cafayate, drop us an email at argentina@caseyresearch.com and we’ll make sure you get some information as it becomes available.

But for now I must return to the tasks that inevitably must be done before leaving on a trip, and so sign off by thanking you for putting up with occasional rants, and for being subscribers to one or more of our publications.

Until next time…





David Galland

Jul 28, 2006