Welcome to the Room - September 1, 2006

David Galland, Partner, Casey Research
Welcome to "The Room"
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Last Updated: August 25,2006


Dear Subscribers,

We are very pleased to introduce the Casey Gold Stock Companion, a brand new service from your team here at Casey Research. More on that in a moment, but first a little musing…

Last week I discussed the sad case of JonBenet Ramsey, so this week I thought I’d turn my thoughts to a scholarly theme: Mel Gibson’s drunk driving arrest.

How can it be that one of the wealthiest, most respected, most successful actors in the world takes a few too many drinks on board then -- rather than calling for a limousine or other suitable conveyance to whisk him safely home -- insists on driving himself? To make matters worse, when pulled over by a duly appointed officer of the law, he elects to enter into the public record his uncharitable feelings about Jewish people.

What in the world could he have been thinking?

"He wasn’t thinking… he was drunk!" you might retort.

On that point there appears to be no question. Reminding us of wise words from the Talmud on that topic, loosely restated as "You can tell a man by what he does when he is drunk or angry or by what he spends his money on". And so, there for the whole world, Mel Gibson has revealed who he really is.

But the "he was drunk" argument only goes so far. By Mel’s own admission, his problem with the bottle is of some duration. So, given that his personal capital runs well into the hundreds of millions -- an indication he is not a stupid man -- why would he have not arranged, in advance, or even as a matter of habit, a chauffer to cheerily speed him from one shining Hollywood party to another… and then home?

Is he cheap?

Maybe, but I suspect the real reason for his very public mistake has to do with the first deadly sin; excessive pride. Leading, perhaps, to a sense of invincibility. That this sort of thing happens is entirely understandable. After all, the well-documented cooing of sycophants and soft stroking by Hollywood wannabes of the celebrity class would, over time, inevitably erode even a humble man’s ability to engage in a healthful level of introspection.

And so Mel most likely ventured forth with an elevated sense of his own self worth, and into the simplest form of trap, one set by a poorly-paid public servant. But make no mistake, this was a trap of his own making.

Will Mel Gibson’s career ever recover? Probably not. Like Brando before him, he’ll probably now hie off to some island retreat where drunk driving laws are non-existent -- or where his celebrity will actually protect him from same -- to eat, drink and grow fat and odd. But really, who cares? For the story of Mel, as you may suspect, is just my round about way of getting to a larger point.

You see, nation states, which are really just an assemblage of humanity, can also fall into the trap of hubris. Britain, France, Japan and Germany, to name just a smattering, have at one time or another in history attained a level of success such that it caused their populations, encouraged by officially-sanctioned propaganda, to begin to believe that they were somehow special (and, in many ways, they were). But, like the more current example provided by Mr. Gibson, or Matthew Webb, the man who first swam the English Channel only to later drown swimming in the rapids of Niagara Falls, the sense of specialness soon transformed into a sense of invincibility and that is when the real risk arises.

In the case of the Germans and the French, a desire to show the inferior Russians a thing or two about waging war, ultimately led to their rude awakening. And in 1842 the previously invincible British Empire similarly received its own wake up call with the loss of 16,000 men, women and children in the hard passes leading out of Kabul.

Returning to more modern times, it is almost certain that a sense of invincibility led the U.S. to decide to steam into Iraq … only to find ourselves pretty much on our own in a battle we are morally ill-equipped to win. If you haven’t yet seen it, rent The Battle of Algiers, the exquisitely filmed story of the French occupation of Algiers and the measures they took to suppress the insurrection there (albeit, temporarily, as it turns out). Simply put, if you really want to win against an enemy embedded in the population, you have to put on the leather gloves and pull out the car batteries and tooth pullers and get to work in earnest.

But there is much more to it than a greater willingness to engage in war (and why not, how could we lose!) Hubris can also lead to a tendency to wrong foot yourself in other ways, as well. Some relevant examples:

  • We recently had an email from one of our subscribers recounting how his small Canadian firm has been prevented by new anti-terrorism controls in the U.S. from receiving a much-needed technology from the boutique U.S. technology firm that usually provides it. It is not that the Canadian firm is suspect, it is that the Department of Homeland Security is blanketing U.S. technology firms with prohibitions to keep them from sharing their special products with the world. And, in the process, causing deep financial pain to the U.S. based firms, so much so that many are now going out of business. Meanwhile, the rest of the world looks for the same technology elsewhere – and finds it. That’s because the same technology is either already available hassle-free from foreign firms, or if it isn’t, it soon will be as new foreign companies are set up to meet the demand… defeating the whole point of the exercise in the first place.


  • U.S. securities regulators, waving the “we do it better” flag, have now so burdened the directors of U.S. public companies with reporting requirements, backed with criminal penalties for non-compliance, including even for those actions taken by lower level employees, that new corporations are looking outside of the U.S. in droves – mainly the London Stock Exchange – for their listings.


  • The Department of Homeland Security, helped along by both houses of Congress, are rapidly advancing a new computerized system that every corporation in America will soon be forced to use to pre-screen job applicants for the proper documents. Failure to pre-screen will be a prosecutable offense. Unlike many mass systems deployed by the government, this new system might actually work. Now, I’m not going to comment on whether or not we should care, but I think I can reliably guess what the unintended consequence will be. Either we will (a) have to greatly loosen up immigration laws or (b) labor costs are about to go through the ceiling. Given that labor costs are, by a considerable margin, the single most important component of the CPI, the ramifications of this unstoppable new bit of legislation are sure to be dramatic.

And make no mistake, the examples above are just random extrusions of a much bigger iceberg.

Taken together, this reinforcing of our specialness through government dictate and coercion in all its many guises, add up to a modern day form of protectionism. The sort that will, in time, result in retaliation from other nation states and further cripple an already dangerously perched economy. Just as did Smoot-Hawley in 1930.

But it can’t happen to us. We’re Mel Gibson, god damn it!

That may be so, but I for one am going to continue taking precautions... just in case we as a nation are not quite so invincible as we think. Starting by continuing to load up on gold and quality gold stocks. Speaking of which…



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The new Casey Gold Stock Companion focuses entirely on opportunities in producing gold companies and, for added portfolio punch, in carefully selected development companies for whom production is all but certain.

Unlike the International Speculator and Casey Investment Alert services which hunt the explosive returns available from early-stage exploration and development stocks, the stocks followed in the Casey Gold Stock Companion are the "easy-chair" variety of gold stocks, those which offer more conservative investors a simple way to profit from rising gold prices, without the risk of an exploration or development set-back.

Soon, you'll receive a separate email with more information on this inexpensive new service, which comes with a subscriber-only 6 month 100% satisfaction guarantee. Watch for it!



And Finally, this from Hedge Fund World

An interesting bit of news out of hedge-fund world, that glamorous place where bright young investment managers use their clearly-superior intellectual capabilities to risk $1.3 trillion in client funds so adroitly they are able to earn annual performance fees running into the billions.

It turns out that somewhere over half of the hedge funds trades are now being made automatically by so called “black boxes”… proprietary computerized trading programs. And for hedge fund investments in the resource sector, the percentage of black box trades is even higher.

Simply put, untold billions of dollars in daily trades are now completely automated, based solely on a miasma of historical algorithms that, once deployed, are supposed to be nothing less than automated profit machines.

If that doesn’t scare you, you are missing the fear gene.

Until next week…




David Galland
Managing Director
Casey Research
Aug 25, 2006