Welcome to the Room - February 2, 2007

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Last Updated January 26, 2007


Dear Reader,

Not so long ago, I came across a magazine article about a growing trend whereas businesspeople actually take their laptops into the bedroom. Worse, even into the bed. They do so in order to try to catch up on their workload while, say, their wives read next to them.

I recollect scoffing at the very idea, thinking such behavior the act of a desperate man, disconnected from the real world, their family life in shambles.

But here I sit, propped up against the bedstead, my wife struggling through Harry Potter in Spanish (she has learning the language fluently as a determined goal this year), while I peck away at… my laptop.

Oh, the indignity, the humility, for I, too, have now stooped to what must be the lowest levels a man can stoop to.

(My pathetic defense is that there was a topic I wanted to look up and my wife was otherwise engaged, so, “why not?” I thought. I also tell myself that it will be a one-time-only thing, but I know somewhere in the smaller recesses of my brain that I may be on the slippery slope.)

As I powered up, watching the little screen come to life, a thought came to me that for some reason had never come to me before. Namely that this little computer, connected as it is to the WiFi in my house, allows me access to pretty much all the information there is to know in this entire world.

How cool is that?

“Hey,” I interrupt my wife’s focused study, “I bet I can use the Internet to translate an English word into Spanish faster than you can look it up in your dictionary. Name the word, any word at all.”

She pauses for a moment, then, for no particular reason, says “shake,” then begins flipping the pages of her dictionary. I beat her by a country mile, spouting off the dozen or so Spanish variations of the word (e.g. shake a bottle, to shake off snow or rain, to shake hands, shake the ground, etc., etc.), and offer to conjugate each.

There was a tech-head who spoke at Doug’s Eris Society conference a couple of years ago, who made what seemed to me at the time to be an outlandish claim: that the kids alive today will be the last generation to ever have to actually study something. And that some day, their kids will ask them, “You mean you used to actually have to memorize things?”

His point being, of course, that it was just a matter of time before virtually all information in the world will be digitized and an machine/human interface will be perfected that allows “on demand” access to the right slices of this worldwide web of data.

The digitization aspect of that futuristic vision is happening ever more rapidly, accelerating as ever more powerful machines driven by ever more processors take over the conversion process. And I am sure somewhere deep in Google’s labs, they are already working on the human interface.

Sitting here in my comfortable bed high on a hill in rural Vermont, almost all of the world’s information at my fingertips (except, maybe, how to make an atomic bomb… but I’m not about to do a search for that), I am now convinced the vision of a totally linked-in world is going to happen, and probably sooner rather than later.

The implications of all of this are almost unimaginable… but it’s a safe bet it will transform the world and almost certainly for the better. Doug Casey, my favorite partner and resident guru around here, has commented in the past that, while bearish on the short term, he is extremely bullish in the longer run.

It is with that optimistic outlook that I turn to some of the items that caught my eye this week.


From Doug Hornig in His Useful “Daily Resource”

From a Monday press release put out by metals dealer Blanchard and Co.: “After months of inquiries and a hotly debated, in-depth position paper by its economic research unit, Blanchard and Company has learned that the International Monetary Fund has adopted a landmark accounting change to the way Central Banks account for their gold loans, giving this sector of the commodities market more transparency than it has ever had, the precious metals market leader announced today.
“‘This is a huge step forward for the precious metals market and a major victory for the gold market investor,’ said Blanchard Chairman and CEO Donald W. Doyle, Jr. ‘Not since the Washington Agreement on gold in 1999 and the legalization of gold ownership for Chinese citizens in 2004 has there been such an important event in the advancement of the gold market.’

“Blanchard and Company has long stated that the IMF's accounting guidelines have allowed Central Banks and bullion banks to inaccurately account for their gold loans, and the newly adopted accounting change means that Central Banks will no longer include the amount of gold they have loaned and sold into the market as part of their reserve total assets, Doyle said.

“‘Transparency has always been a central issue in the gold market for investors and analysts alike, but this decision by the IMF will greatly redress that issue as these accounting changes are implemented,’ Doyle said. ‘It also only adds more credence to our analysis that the precious metals markets are now poised to make long-term, steady price growth’.”

GATA’s Bill Murphy, writing on LemetropoléCafe.com, was quick to react: “Without a doubt, should the central banks reveal the amount of gold they have loaned out, this will rock the gold market like nothing else in its history. IMO the price could double in a very short period of time, as market participants begin to understand THE GOLD IS GONE. Now, we wait and see if this comes to pass.”

We do indeed.

(Since posting this item, a subscriber pointed out that there was some debate about exactly what the intent of the IMF is. Read about it by clicking here. www.resourceinvestor.com/pebble.asp?relid=28416 )

While it is too early to say how this is going to turn out, it seems that only one of two scenarios is likely to come to pass. In the first, GATA is right and the gold reserves are significantly less than previously projected – in which case, depending on how much “less,” the price of gold is going much higher… in a hurry.

The other outcome seems neutral… i.e., the gold is actually there. As there is no market premium in gold’s current price based on the speculation that it isn’t there, this revelation would have little to no impact on prices.

So, super-bullish from an unexpected development… or neutral… those are the kinds of odds I like.

By the way, if you haven’t yet read Doug Hornig’s excellent article on GATA, you can do so now by clicking here.


The Dollar’s Doomsday Clock… Tick… Tick…

Not sure if you saw it, but Kuwait – long considered a U.S. lapdog – has announced that it is considering dropping its currency’s peg to the dollar and going to a basket of currencies instead.

This vote, by the third-largest Arab oil producer, of no confidence in the very currency in which it prices its economic lifeblood is just another straw in the wind… or, maybe better put, a kit in a hurricane, that the dollar’s hegemony is coming to an end.

According to Bloomberg…

”Dollar reserves are being replaced with euros by oil producers including the United Arab Emirates and Venezuela. China, which has the world's largest foreign-exchange reserves, and Indonesia say they plan to increase euro reserves and Iran says it's boosting oil sales priced in euros.”

As discussed in the International Speculator lead article “The Coming Currency Crisis” (June 2006), this global shift in the established currency regime, once it really gets rolling, is not going to happen without a serious financial upheaval… heavily favoring precious metals.



Gold & Oil

Our two primary areas of focus at Casey Research at this time are gold and oil. While it is not a matter of “either or,” there does arise the question as to which is currently the better investment.

As expected – and predicted -- gold has continued to show spine, pushing back over the $640 level this week. For its part, crude has come off its summer high of $78 to trade at about $54 as I write.

So, is gold on an elevator up, while oil is headed lower? Or, is oil at these prices a better buy? Or, are both equally good investments, but for different reasons? For a quick look, we turn to our own Bud Conrad.

“Believing in the value of historical data, in the chart below I look at the long-term historical comparison by just calculating the ratio of the prices of the two commodities. As you can see, gold has held up better since 2005, but the ratio since 1972 of 15.6 barrels of oil to an ounce of gold is higher than the current level of only 11.9. There’s plenty of variability for this number, so the conclusion is not just that gold is a better bet than oil, especially with the problems of the Middle East and the long-term potential shortages if we eventually use up our oil, but the conclusion is that gold is as good a buy from historical data.”






Article of the Week

The Baltimore Chronicle ran a story by Robert Parry, entitled “Gonzales Questions Habeas Corpus”

Here are some of the relevant quotes…

In one of the most chilling public statements ever made by a U.S. Attorney General, Alberto Gonzales questioned whether the U.S. Constitution grants habeas corpus rights of a fair trial to every
American.

Responding to questions from Sen. Arlen Specter at a Senate Judiciary
Committee hearing on Jan. 18, Gonzales argued that the Constitution
doesn't explicitly bestow habeas corpus rights; it merely says when
the so-called Great Writ can be suspended.

"There is no expressed grant of habeas in the Constitution; there's a
prohibition against taking it away," Gonzales said.

Gonzales's remark left Specter, the committee's ranking Republican, stammering.

"Wait a minute," Specter interjected. "The Constitution says you can't take it away except in case of rebellion or invasion. Doesn't that mean you have the right of habeas corpus unless there's a rebellion or invasion?"

Gonzales continued, "The Constitution doesn't say every individual in
the United States or citizen is hereby granted or assured the right of habeas corpus. It doesn't say that. It simply says the right shall not be suspended" except in cases of rebellion or invasion."

"You may be treading on your interdiction of violating common sense,"
Specter said.

While Gonzales's statement has a measure of quibbling precision to it, his logic is troubling because it would suggest that many other
fundamental rights that Americans hold dear also don't exist because
the Constitution often spells out those rights in the negative.

"...Ironically, Gonzales may be wrong in another way about the lack of specificity in the Constitution's granting of habeas corpus rights. Many of the legal features attributed to habeas corpus are delineatedb in a positive way in the Sixth Amendment, which reads:

"In all criminal prosecutions, the accused shall enjoy the right to a
speedy and public trial, by an impartial jury of the State and
district wherein the crime shall have been committed … and to be
informed of the nature and cause of the accusation; to be confronted
with the witnesses against him; [and] to have compulsory process for
obtaining witnesses."

You can make of Gonzales’ statement what you will. In my view the guy should be fired, ostracized, chased out of Washington with a broom or, better, tarred and feathered and ridden out on the federally subsidized rails.


Housekeeping…

For no reason other than portfolio management, one of our editors will be selling some of his position in International Enexco… after the usual 72-hour window of opportunity for those of you who own it to sell it first.

Doug and I will both be at the Vancouver Round-up next week, where we’ll be interviewing company management teams from early morning until late each evening, looking for the next double or better.

If you see us wandering around, don’t hesitate to introduce yourself.

That’s it for this week… as always, thanks for reading, and for subscribing.

Warm Regards,



David Galland
Managing Director
Casey Research, LLC.