The Room : Regulation

The Room – 06/19/2009

David Galland — Fri, 19 Jun 2009 19:57:00 GMT

Dear Reader,

David is taking a well-deserved week off, so this week you’re hearing from Olivier.

While David may be off duty, it didn’t prevent him from submitting an interesting article sent by one of our subscribers, along with a couple of comments.

Telegraph: U.S. cities may have to be bulldozed in order to survive

Dozens of U.S. cities may have entire neighborhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline.

Olivier again. Definitely a creative plan that may prove to be a better use of federal dollars than most of the other infrastructure development projects contemplated by the administration. The problem with most new infrastructure projects is that they end up adding operating and maintenance costs to municipalities and states that can’t really afford them. At least the “wrecking ball programs” should result in decreased long-term overhead for the cities that implement them.

The First 150 Days

Yesterday marked the end of Obama’s first 150 days at the helm of the U.S. of A. None of us doubted that Obama was a savvy and ambitious politician, but even we are impressed by the sheer number of new initiatives the president has undertaken. In less than five months, there are very few campaign promises he has failed to tackle.

One has to wonder, however, whether Obama may be failing to deliver on the biggest of his campaign promises – that of bringing change to Washington. Weren’t we supposed to see the end of politics as usual and of government waste and pork? Instead, we’ve gotten more of the same, with Ben Bernanke, Larry Summers, and their ilk still in charge and Geithner replacing Paulson. The doors continue to revolve between Wall Street and K Street, with the same cabal influencing policy.

Given my inclination to look at facts rather than listen to pronouncements, here is my assessment of the State of the Union after 150 days. Let’s look at a balance sheet of achievements with assets and liabilities as of June 18.

Starting with the assets:

While we have not returned to a healthy credit environment, it is undeniable that the massive injection of liquidity into the financial system by the Fed and the Treasury has managed to thaw the credit freeze we experienced last fall.
After declining by 24% from January 1 through March 9, the S&P 500 has managed to recover and closed at $918 yesterday, up 3.4% for the year in spite of a sharp contraction of real GDP (-5.7%). This may be explained by a reported increase in corporate profits for Q1 (+$42.6 billion, although non-financials declined by $64.2 billion).

One may wonder, however, if the $116.1 billion Q1 increase in profits from the financial sector (following a $178.7 billion decrease in Q4 2008) had anything to do with the changes in the FASB mark-to-market rules that were conveniently adopted by this regulatory board on April 2. (This change did not allow financial institutions to restate 2008 results but, interestingly enough, allowed them to apply the new rules retroactively to Q1 results.)
A better-than-expected unemployment report for May 2009. Non-farm employment figures fell by “only” 345,000 compared to a decline of 504,000 in April. Yet the unemployment rate has continued to grow to an all-time high of 9.8% (for the record, it was 5.3% in May 2008).
Total housing starts increased to 532,000 in May from 454,000 in April. The lowest since the Census Bureau began tracking housing starts in 1959.
Foreclosure filings dipped 6% in May compared to April. Yet they increased 18% from May 2008, marking the third highest month on record. "There were almost one million foreclosure filings in a three-month period, and that's simply unprecedented," reported Rick Sharga, senior vice president at RealtyTrac.
The University of Michigan Consumer Sentiment Index for May hit its highest level since last September, indicating that while consumers are still relatively glum, they are increasingly hopeful the economy will experience a turnaround in the next few months. The final index at 68.7 was higher than April’s 65.1 and November’s 28-year low of 55.3.

So maybe there is some light at the end of the tunnel, and the markets are anticipating the 2009 fourth-quarter recovery Ben Bernanke promised us last March in his 60 Minutes interview. Given Chairman Ben’s track record, though, I wouldn’t bet on a recovery just yet, so let’s turn to the liabilities:

Back in early March, the Obama administration released its forecast for the federal budget for the remainder of 2009 (ending 9/30/09). While the 2009 deficit announced was a staggering $1.8 trillion – four times that of 2008 – the plan is that we will start to see a progressive return to reasonable levels after a few years. Unfortunately, it is already certain that once again actual deficits and unfunded liabilities will rise far beyond current plans. So far, tax receipts are $100 billion lower than forecasted in Obama’s budget, and I doubt that actual spending will come in below.
The Public-Private Investment Partnership (PPIP), announced with great fanfare by Tim Geithner in March, has yet to attract investors. While banks appear to have returned to health, they are still undercapitalized and loaded with toxic assets ready to explode with the next round of bad news.
Over the first five months of 2009, unemployment rose by 3.4 million to 14.5 million.
Foreclosures have declined slightly, but the number of foreclosures from prime borrowers (as opposed to subprime and Alt-A “problem” loans) is rising quickly as job losses increase. We can expect more defaults as a result of the recent layoffs, and we have yet to hit the next wave of Alt-A loan resets that is forecasted to hit later this year and to continue through 2011. The number of new homebuyers may be dwindling soon, too – while 30-year mortgage rates are still low, they are definitely rising. More stringent lending standards and higher rates do not bode well for a recovery in the residential markets.
Commercial real estate is only beginning to see the full impact of the recession. A tight lending environment, stricter loan-to-value ratios, declines in property values, lower occupancy rates, and the lower overall profitability of most properties mean that we will continue to see an increase in defaults in the commercial sector for quite some time.
The Obama administration’s big push for alternative, “green” energies and for a cap on carbon emission is sure to cost American taxpayers and businesses hundreds of billions of dollars while providing no guarantees that it will have any real impact on reducing our dependency on imported hydrocarbons. The administration shows very little support for the only real short- to medium-term alternatives: clean coal, domestic oil and natural gas, and nuclear. In fact, many projects are being curtailed due to lower energy prices and regulatory hurdles and threats.
Not only are we staying in the nightmare of the Iraqi war, we are expanding our involvement in Afghanistan and are drawing closer to involvement in Pakistan --

leading to yesterday’s Senate approval of the war supplemental. Who knows, we may soon be liberating North Korea too.
While universal health care may be a popular concept, it will come at a hefty price, and according to the Congressional Budget Office, it will definitely add to the already staggering, unfunded liabilities of Medicare and Social Security. Who will pay the bill?
Why, the “rich,” of course! By rich, I mean those earning over $250,000 a year. Of course, since raising taxes on the rich and carbon-emitting businesses won’t suffice, new forms of taxation – such as a federal VAT – are being seriously considered in DC. In fact, if you want to get a deeper understanding of the impact of the first 150 days of the Obama administration on future taxation, you should check this link to the Americans for Tax Reform website:. While probably not totally unbiased, it provides a sobering look at what may be upon us.
Inflation is still relatively tame. As we have explained time after time in our publications, we expect the deflationary impact of the recent burst in the asset bubble to soon be overcome by monetary expansion and runaway inflation. As the deficit widens and foreigners lose confidence in the dollar, we can expect the Fed to fill the gap by running its printing presses overtime.
The bailout of the financial, insurance, and auto industries has not only cost taxpayers an enormous amount of money, it is also a clear step towards government control of the private sector.
It is becoming clear that the federal government is challenging contractual rights in the name of the War on Crisis. In the past few months, the protection of stakeholders under bankruptcy has been trampled, contractual bonus obligations have been voided, mortgage lenders have seen foreclosure rights eliminated, and corporations have seen management and capital structure overhauled by bureaucrats without shareholders’ approval. Yet the administration states that private enterprise is the principal element of any economic recovery. Unless coerced, what private investor will want to invest in a challenging economic environment without contractual protections?

One of our subscribers, Tommy K, forwarded a cartoon that appeared in 1934 in the Chicago Tribune. It wouldn’t be too hard to make it current and relevant to our times.

Enough ranting on the state of the union, though. Let me turn to Bud Conrad, who will enlighten us on whether the current stock market rally is the beginning of a recovery or one of those bear market rallies common in serious recessions. I will let you draw your own conclusions.

Where Did the Wealth Go?

Bud Conrad, June 2009

The drop in housing and the stock market decreased consumers’ desire to spend. To understand how big the impact is, I have taken the Federal Reserve’s latest data that was published on June 11 to see what the effect is on the assets of households and nonprofit organizations. The chart below shows all the assets added together are generally growing through the end of 2007. It then shows the levels of decline through the end of the first quarter of 2009. The drop in all assets combined was $12 trillion in just over a year's time. The biggest downturn is in stock market valuation ($7 trillion), and the second-biggest drop in housing ($3 trillion).

Household liabilities decreased a very small amount by comparison. That makes sense, because housing prices can move much more rapidly than the debt on those houses. This very big decline in asset value is both the result of a slowing economy and the cause of future slow growth. As consumers feel less wealthy, they are less likely to spend. The conclusion to be drawn from this loss of wealth is that the slow economy will be with us for quite a while.

Foreigners Are Slowing Investment in the U.S.

Bud Conrad, June 2009

Foreign investment in the U.S. has been one of the supports for our government deficits and for our dollar. With foreigners questioning how large their holdings should grow, a closer look at the total cross-border flows gives some indication of what is going on.

Breaking down foreign purchases of securities into long-term and short-term gives an indication that while foreigners are not yet running away from the dollar, they are reluctant to hold long-term instruments. A logical interpretation is that by holding short-term paper, they retain more flexibility to shift their money towards new investments.

The conclusion from the data is that foreigners are starting to look for alternatives to U.S. investments. Their pronouncements confirm what they are doing. Important meetings are occurring, such as that of the Shanghai Cooperation Organization, where the U.S. was excluded this week and where they discussed looking for alternatives to the dollar.

Olivier again. There are still a few bears around on Wall Street. Goldman Sachs Chief Economist Jim O’Neill said financial markets could weaken in coming weeks amid concern over the government’s intentions to roll back stimulus packages.

See this link.

In fact, it does not take a seasoned economist or a PhD to figure out that there is more downside than upside in the stock market these days.

During the month of May, the S&P 500 traded at an average P/E ratio of 127.48, shattering the previous average monthly high of 58.66 in April. For historical reference, the average P/E for publicly traded U.S. stocks has been around 15.

You may ask, if we see clear signs of a correction and weakness in the dollar, and if inflation is around the corner, why hasn’t gold gone through the roof yet? I can give at least three reasons for its relative lack of strength ($934 this morning):

Seasonality. The gold price typically shows signs of weakness in the summer and picks up in the fall and winter months because of increased jewelry demand.
IMF gold sales. It is expected that the IMF will sell one eighth of its gold reserves (12.97 million ounces) to finance aid programs to developing economies hit by the current crisis.
Deflation. While we are forecasting inflation, there are still some strong deflationary forces at play. We do not anticipate the gold mania to start until deflation fully subsides.

So am I long on gold? More than ever. I see the current softness in prices of precious metal as an opportunity to continue to load up on bullion and stocks of major gold producers, as advised in our BIG GOLD newsletter. If you are not yet a BIG GOLD subscriber, you may want to check it out and follow our recommendations.

Speaking of gold, you may have seen the following article on our site or others: Mint moves to halt possible “run” on gold.

On the same subject, one of our subscribers reports:

Notes from the Field

Although he was just back from a trip to Colombia, Louis James hopped on a plane again this week to go down to Mexico and check out Mexican silver properties there. Louis just sent along preliminary notes from his visit.

International Speculator

A Centrally Controlled Economy?

This week has seen another flurry of activity in Washington. It started with an announcement by Obama on the Financial Regulatory Reform granting the Fed broad authority as a super regulator. After studying the White Paper issued by the White House, our Bud Conrad had the following comments:

We are quickly moving to a centrally controlled economy, private ownership be damned. The source of my opinion is the already 80 pages of general description of the thousands of bureaucrats that will be assigned to direct the economy and not just limit the excesses.
One of the most problematic parts of the proposal, in my opinion, is that the Federal Reserve would be given yet more power and responsibilities in the face of its abject failure to understand and deal with the ongoing economic situation.
The Federal Reserve has stepped beyond its original charter to manage the monetary system and has been taking on loans and responsibilities for specific financial institutions. Look at Mr. Bernanke’s reaction to the simple inquiry by Congress to reveal the names of the institutions to which the Fed handed out almost $1 trillion: he flatly refused to comply.
We don't need more bureaucracy. We need more accountability and prosecution of the crooks that brought us here in the first place. What we will get is an expensive bureaucracy, many reporting requirements, and overhead. This system will add a great burden to the efficient operations of our financial systems.
If exporting manufacturing jobs offshore has hurt our economy, think of what a constipated regulatory system will do to our financial institutions: they will go somewhere else, taking jobs and wealth with them.

I have to say, having the Fed as an unregulated super-regulator is a scary thought.

But there are reports on more activities on Capitol Hill…

Audit the Fed

Don Grove, Casey Research Washington correspondent

The Federal Reserve Transparency Act would require the first audit ever of the Federal Reserve. The bill has 234 sponsors, a comfortable majority of the members of the House, and is gaining momentum.

The Obama administration should be delighted, given its commitment to transparency in government.

Drill, Baby, Drill!

The Senate Energy and Natural Resources Committee adopted an amendment to its energy bill that would allow oil and gas drilling within 45 miles of the Florida coast. If the Senate climate bill becomes law with the Florida drilling amendment intact, it could be sufficient to derail the whole climate bill. "We're simply not going to let this happen," said Bill Nelson (D-Fla).

Yes! That's what I like to hear! As long as they are bickering among themselves, there is less chance they will do any real mischief.

Back to Olivier .

On the subject of hydrocarbons, you may be interested in this article about the recently released 2009 International Energy Outlook. This year’s report released by the Energy Information Administration (EIA) includes the first acknowledgement of Peak Oil by this agency.

At Casey Research, we are so bullish on energy that it will be the central theme of our next conference on September 18-20 in Denver, Colorado. Marin Katusa, Senior Editor of Casey Energy Opportunities, has been working on an extraordinary line-up of experts to cover both conventional and alternative energies in depth. If you have not done so, mark your calendar – registration will open soon.

As we all know, Europe has been struggling with the recession just as much as we have. For a while it appeared as though Italy might have just found the solution ($40 billion more or less) to its financial problems, thanks to the diligence of its border patrol officers, who detained two supposedly Japanese men with $134 billion worth of U.S Treasury bonds in a suitcase.

Check out this story from Asia News: U.S. government securities seized from Japanese nationals not clear whether real or fake.

Unfortunately for Italy, Bloomberg reported yesterday that according to the U.S. government, the notes are fake..

Building Without the Proper Permits

Jacques T. sent us this very funny email I would like to share. Purportedly, this is an actual letter sent to a man named Ryan DeVries regarding a pond on his property. It was sent by the Pennsylvania Department of Environmental Quality, State of Pennsylvania.

While we haven’t verified if this is real or a hoax, it’s quite amusing nonetheless.

SUBJECT: DEQ File No.97-59-0023; T11N; R10W, Sec. 20; Lycoming County

Dear Mr. DeVries:

It has come to the attention of the Department of Environmental Quality that there has been recent unauthorized activity on the above referenced parcel of property. You have been certified as the legal landowner and/or contractor who did the following unauthorized activity:

Construction and maintenance of two wood debris dams across the outlet stream of Spring Pond.

A permit must be issued prior to the start of this type of activity. A review of the Department's files shows that no permits have been issued. Therefore, the Department has determined that this activity is in violation of Part 301, Inland Lakes and Streams, of the Natural Resource and Environmental Protection Act, Act 451 of the Public Acts of 1994, being sections 324.30101 to 324.30113 of the Pennsylvania Compiled Laws, annotated.

The Department has been informed that one or both of the dams partially failed during a recent rain event, causing debris and flooding at downstream locations. We find that dams of this nature are inherently hazardous and cannot be permitted. The Department therefore orders you to cease and desist all activities at this location, and to restore the stream to a free-flow condition by removing all wood and brush forming the dams from the stream channel. All restoration work shall be completed no later than January 31, 2009.

Please notify this office when the restoration has been completed so that a follow-up site inspection may be scheduled by our staff. Failure to comply with this request or any further unauthorized activity on the site may result in this case being referred for elevated enforcement action. We anticipate and would appreciate your full cooperation in this matter. Please feel free to contact me at this office if you have any questions.

Sincerely,

David L. Price

District Representative and Water Management Division.

Here is the response sent back by Mr. DeVries:

Re: DEQ File No. 97-59-0023; T11N; R10W, Sec. 20; Lycoming County

Dear Mr. Price,

Your certified letter dated 12/17/07 has been handed to me to respond to. I am the legal landowner but not the Contractor at 2088 Dagget Lane, Trout Run, Pennsylvania.

A couple of beavers are in the (State-unauthorized) process of constructing and maintaining two wood “debris” dams across the outlet stream of my spring pond. While I did not pay for, authorize, nor supervise their dam project, I think they would be highly offended that you call their skillful use of nature’s building materials “debris.”

I would like to challenge your department to attempt to emulate their dam project any time and/or any place you choose. I believe I can safely state there is no way you could ever match their dam skills, their dam resourcefulness, their dam ingenuity, their dam persistence, their dam determination and/or their dam work ethic.

These are the beavers/contractors you are seeking. As to your request, I do not think the beavers are aware that they must first fill out a dam permit prior to the start of this type of dam activity.

My first dam question to you is:

(1) Are you trying to discriminate against my spring pond beavers, or

(2) do you require all beavers throughout this state to conform to said dam request?

If you are not discriminating against these particular beavers, through the Freedom of Information Act, I request completed copies of all those other applicable beaver dam permits that have been issued.

(Perhaps we will see if there really is a dam violation of Part 301, Inland Lakes and Streams, of the Natural Resource and Environmental Protection Act, Act 451 of the Public Acts of 1994, being sections 324.30101 to 324.30113 of the Pennsylvania Compiled Laws, annotated.)

I have several concerns. My first concern is, aren't the beavers entitled to legal representation? The spring pond beavers are financially destitute and are unable to pay for said representation -- so the state will have to provide them with a dam lawyer. The Department's dam concern that either one or both of the dams failed during a recent rain event, causing flooding, is proof that this is a natural occurrence, which the Department is required to protect. In other words, we should leave the spring pond beavers alone rather than harassing them and calling them dam names…

Being unable to comply with your dam request, and being unable to contact you on your dam answering machine, I am sending this response to your dam office.

Thank you,

Ryan Devries & the Dam Beavers

Miscellaneous

We have received requests for new phyles. Several subscribers want to know if there are existing phyles in either Chicago, Manhattan, or in Massachusetts. No formal group have formed in these areas yet, but if you are interested in organizing or participating in such a group, let Megan know by sending an email to phyle@caseyresearch.com. She will be happy to facilitate contacts in these cities.

Tom in Melbourne, Australia, is interested in starting a new phyle there. Contact Megan if you live in the area, and she will coordinate with him.

Finally, Tommy K. is wondering if the Denver area phyle members would be interested in a summer meeting in Vail he would host with his wife.

12:50 pm… I’m afraid it is time for me to sign out. The Dow is slightly down, the S&P and TSX are up again, and commodities markets are quiet.

Thank you for reading and being a Casey subscriber.

Olivier Garret
CEO, Casey Research

The Room – 05/15/2009

David Galland — Fri, 15 May 2009 16:48:00 GMT

Dear Reader,

Last time I wrote, I labored under the after-effects of a mild case of “immoderation.” In response to which the ever-moving Doug Casey (writing from Washington D.C.) sent along the following witticisms, which I thought you might enjoy...

After a week of engaging in all manner of healthful activity, I am ready once again to tilt my lance against the armies of absurdity that assault the senses more or less constantly these days.

This week, for instance, Alan Greenspan opined that the economy has bottomed, and the stock market actually rallied in response! It’s akin to Bernard Madoff announcing he is opening a new money management service from the secure facility where he now resides, and having investors rush all over themselves to hand him their money.

Or how about these headlines...

US Retail Sales Unexpectedly Fall for Second Month (Bloomberg)… and, Foreclosures: “April was a shocker"(CNN)… or Unemployment Claims in U.S. Jump More Than Forecast on Idled Auto Plants (Bloomberg).

Now, despite my ready access to a large and very capable team of researchers who are intensely curious and focused on facts, I won’t claim anything close to perfect knowledge about anything. But I will claim that any economic observer who is “shocked” by any piece of bad news these days has either been misreading their doctor’s instructions on their daily doses of Valium, or is just plain stupid.

But the absurdity doesn’t stop there. Not by a long shot.

For proof of that contention, look no further than the crime of omission the mainstream media are now committing by failing to report, emphasized with banner headlines, the train wreck now occurring with the government’s finances.

Starting with the trouble the U.S. Treasury had on May 7 when it tried to auction off $14 billion in long-term bonds. Skeptical buyers demanded higher yields, forcing the rate to rise from 4.19% to 4.29% over the course of the auction.

But even that is just the tip of the iceberg. The latest developments have to do with the sharp shortfall in tax revenues we have been anticipating.

Here’s the story…

Tax Revenues Tanking

While everyone else has been focused on the banks’ stress tests and how much government is spending to bail out troubled “too big to fails,” a disturbing trend on the other side of the equation is now emerging: how much (or rather, how little) the U.S. government is receiving in tax revenues.

After combing through the past 25 editions of the “Monthly Treasury Statement of Receipts and Outlays of the United States Government,” which is compiled and published by the Treasury Department’s Financial Management Service, we created the following chart.

Here’s what’s going on:

In 2007 and 2008, government tax revenues averaged about $633.15 billion per quarter. For the first quarter of 2009, however, the numbers just in tell us that tax receipts totaled only about $442.39 billion -- a decline of 30%.
Looking to confirm the trend, we compared the data for April – the big kahuna of tax collection months – to the 2007-2008 average, and found that individual income taxes this year were down more than 40%. The situation is even worse for corporate income taxes, which were down a stunning 67%!
When you add in all revenue from all sources (including Social Security revenue, government fees, etc.), the fiscal year-to-date – October through April – revenue shortfall comes to 19%, vs. the 14.6% projected in Obama’s budget. If, however, the accelerating shortfall apparent year-to-date, and in April in particular, continues, the spread between projected and actual tax receipts will widen considerably.

Tellingly, for the first time since 1983, the U.S. government posted a deficit in April. That’s a big swing in the wrong direction, as the bump in personal tax collections in April historically results in a big surplus -- on average about $68 billion.

What are the implications of this tanking tax revenue?

For starters, it means the federal government deficit is going be as bad or worse than the $2.5 trillion Bud Conrad, chief economist of Casey Research, projected it to be last year.

If the shortfall in individual and corporate tax revenue persists -- and we expect it will -- then the deep hole the government is already digging for itself will be that much deeper.

Using the government’s own expense projections, the revenue shortfall, even if it doesn’t worsen further, would push the fiscal 2009 budget deficit up to about $1.958 trillion. For reasons we’ve discussed at some length in The Casey Report, those expense projections are likely to be significantly understated.

Case in point, in January the government projected a $1.2 trillion deficit for fiscal year 2009… in March, just three months later, they upped the projection to $1.8 trillion. That $600 billion “adjustment” alone totaled more than any full-year budget deficit in the nation’s history.

Yet, the real fly in the ointment is that the actual borrowing by the Treasury is likely to be at least half a trillion dollars more than the deficit.

That’s because the Treasury is buying toxic paper (mortgage, credit card loans, etc.) and putting them on the books with a higher value than the market is willing to assign. While that makes the budget deficit appear smaller, it doesn’t negate the fact that the government still must borrow the money needed to buy the toxic paper in the first place. The additional revenue shortfall means they have to raise that much more money. Based on the struggle they had pushing the $14 billion in long-term notes at the latest auction, it becomes increasingly apparent that when push comes to shove, the only way the government is going to come up with the money needed to meet its aggressive spending is to print it up.

In other words, events are rolling out almost exactly as we have been anticipating. Below, for example, are some useful excerpts from an April 3 article titled “Widening Deficits” by Casey Research CEO Olivier Garret. To quote…

In the midst of the Great Depression, the 1931 federal tax revenues had fallen by 52% from their 1929 highs. While we do not expect anything that dramatic in 2009, it would not be unrealistic to see a 20% to 25% reduction in cash flow from tax collections this tax season. Such a drop would pose significant challenges given that spending commitments are off the charts and climbing.
Later in that same article, Olivier continued,

Olivier’s forecast of failed auctions and rising interest rates on Treasuries proved more prophetic as a May 7th story from Bloomberg reported:

So, what does all this mean?

As per above, the rock-and-the-hard-place scenario we have been predicting is unfolding before our eyes. At this point, other than sharply changing course and letting the free market cope with the crisis through a brutal “survival of the fittest” scenario, the government is left with no other option than to accelerate its buying up of its own debt.

Which is to say, it must push even harder on the levers of its printing presses, further setting the stage for the massive period of inflation we continue to see as inevitable… and for the stunning rise in interest rates we are now positioning ourselves for in The Casey Report (and, you can too… learn more).

Super Fed, Super Cop?

Did you see that the Obama administration wants to turn the Fed into a “super cop” to regulate any company considered by the government to be “too big to fail”? If not, you can read the story here…

That notion caught the attention of Bud Conrad, no big fan of the Fed. In his own words…

video of testimony by the Inspector General

anything

David again. Speaking of banking, there is a short but very informative video that explains in simple terms what a sham the recently concluded bank stress test really was. Watch it here…

Sharks Eat Sharks

Dear friend and regular UK correspondent Sadia sent me a collection of links to the unfolding media scandal now underway in England over the egregious abuses of expense accounts by members of parliament in that country. Here’s her email…

Times: Parliament's darkest day: MPs suspended and Michael Martin at risk

Linked here

Times: Shahid Malik stands down as Justice Minister after PM orders inquiry into his expenses
Linked here.

Daily Mail: Bring them to justice! The Mail helps to launch campaign to prosecute sleaze MPs
Linked here.

Independent: The married couple who took taxpayers for £282,731
Linked here.

FT: MP claimed for non-existent mortgage
Linked here.

Guardian: MPs' expenses
Linked here.

Telegraph: MPs' expenses
Linked here.

David again. My purpose for including all those links was not to invite you to spend the rest of your day in idle reading, but rather to make the point that there is an honest-to-goodness, blood-in-the-water media frenzy now underway in England. Members of both the ruling party and its loyal opposition are (correctly) under assault – which is to say, the very institution of government in the UK is running for cover.

The good news, for this side of the Atlantic, is that you can bet your last dollar that the desk editors of various U.S. media factories, having taken note of the satisfactory increase in eyeballs-on-pages being generated in England over the expense scandal, are now urging their reporters to look for – and find – a similar scandal in Washington D.C.

I suspect they won’t have to look too hard.

While no fan of the whole genre of news-as-entertainment, I expect to be highly entertained by the revelations of expense abuses by U.S. congressmen and sundry bureaucrats that should be coming to a media outlet near you soon.

Eat Dirt

Given the general outlook and views of those here at Casey Research, it is something of an oddity that we are headquartered in Vermont. It is, in fact, something of an accident -- the outcome of the usual twists and turns of life that brought me to this place roughly 25 years ago. Subsequently, Casey Research followed along.

The "oddity" part has to do with the fact that this is one of the highest-taxed states in the union, and the overarching political temperament could be accurately described as "socialist." In fact, Vermont's Senator Bernie Sanders is the nation's only elected (openly declared) socialist.

Yet, the place has much to recommend it, including a general lack of population due to the aforementioned high taxes and a well-earned reputation for cold winter weather. But it also has an abundance of beautiful scenery, scenery that includes any number of ski hills and even the shores of the six largest lake in the country. When the weather is good here, Vermont is very nice indeed.

I mention all of this because I came across a story this week from one of our fellow residents, an amateur environmentalist by the name of Annie Leonard who has created a popular YouTube video about America's "stuff"... the general theme being that to own "stuff" is bad. Very bad.

To give you a sense of her views, here is an excerpt from an article on her film.

“We’ll start with extraction, which is a fancy word for natural resource exploitation, which is a fancy word for trashing the planet,” she says at one point. “What this looks like is we chop down the trees, we blow up mountains to get the metals inside, we use up all the water and we wipe out the animals.”

There is an old saying, "Beware what you wish for because you may get it.” While I cannot find it in my heart to hope that Ms. Leonard gets her wish, because then we would all be living in caves and subsisting on roots and berries, I can certainly hope that the populace come to their senses before her Luddite notions gain any real traction.

Alas, I think it is a false hope because she has just signed a contract with Simon & Schuster to publish a book on the same theme. Further, her video is now being widely distributed to the nation's schools to be used in their normal curriculum of brainwashing.

You, too, can glimpse the future we should aspire to, according to Ms. Leonard, by emulating the world of the past – by taking 20 minutes now to view the same video, “The Story of Stuff,” that millions of schoolchildren will be viewing in the months and years ahead.

This seems to be an appropriate time to mention that we are now homeschooling one of our children... and none too soon. More on that topic on another day.

(But since we are on the topic, however briefly, if you have any good recommendations for online courses for middle- and high-school students, I would greatly appreciate it if you'd shoot them my way, at David@CaseyResearch.com.)

Word from the (Mexican) Street

Earlier this week, as part of an effort to further calibrate our investment advice to the needs of our readers, I reviewed a count of Casey Research subscribers by geographic location. As usual, I was pleasantly surprised at the large number of countries in which our subscribers reside – including Burkina Faso, Lebanon, Brunei, Nepal, and well over 100 more.

Once again tapping into this widespread network, I was able to solicit a first-hand report “from the ground” as to the state of things in Mexico. Jeff B., a longtime correspondent, filed this dispatch on how the swine flu hysteria had affected life in his current home town of Acapulco…

Star Trek – “Stayed Wide Awake”

Last weekend, I took the kids to see the new Star Trek movie. While most movie reviewers tend to use some number of stars or perhaps thumbs pointing upwards or downwards in order to communicate their opinions on the movies they watch, I have a simpler system that emanates from the hours I keep.

Using my rating system, uninteresting movies warrant a "long nap" -- literally.

Mediocre fare will garner "periods of napping," or perhaps "occasional nodding off.” It is only the very best movies that rate "stayed wide awake throughout" -- the rating I enthusiastically award to the latest entry in the Star Trek movie franchise.

As a youth, I enjoyed Star Trek but would not categorize myself as a "Trekkie" (generally speaking, a self-imposed moniker that always struck me as categorizing oneself as "delusional" and maybe in need of "getting a life"). Even so, it was fun to see how the director managed to seamlessly introduce the Star Trek characters as they came together in their early careers, the background against which the movie unfolds.

But even if I had never seen a Star Trek episode, I have to believe that the overall plot and production values of the film would have sucked me in and kept me glued to my seat, as they did. The only disappointment came in mild doses, mostly associated with brief appearances by one of the original cast members whose age is sufficiently advanced at this point that you can detect a slight but distracting whistling of his dentures as he delivers his lines. But that’s a petty critique of what is otherwise a very tight movie.

So, at least by my rating system, if you're looking for an entertaining, interesting, and action-packed film for a rainy weekend, Star Trek may be just the thing.

Miscellany

Lecture on the Great Depression. While there is as much or even more misinformation on the Internet, and a great deal of mindless -- make that mind-numbing -- stupidity on services such as YouTube, there is no debate that there is also much excellent content available. For instance, if you have 49 minutes available, you can listen into an excellent lecture on the Great Depression sponsored by the Von Mises Institute. All that’s required is that you click the link here.
Charlotte Phyle… Grant in Charlotte is looking to get a phyle started. If you are in the area, drop us a note at phyle@CaseyResearch.com and we’ll get you hooked up.
Trade War… with Canada? As I was getting ready to go to press, someone sent me an article from today's Washington Post on the topic of a burgeoning trade war between the U.S. and Canada, the unintended – or maybe intended – consequence of the "Buy American" provisions inserted by Congress into the recent stimulus package. Here's an excerpt to give you a flavor of the thing...

Once again reminding one of the reason to run in the opposite direction whenever one hears the phrase "Hi, I'm from the government and I'm here to help." (Read the full article here)

And with that, I must sign off for the week, noting as I do that the U.S. stock market is jumping around like a yo-yo, with the DJIA down 36 points as I sign off. Gold continues to defy its naysayers by holding firm at $930, and oil is changing hands at $58 a barrel, no small feat given the surpluses now filling storage tanks, and even oil tankers, around the world. There is big money moving into inflation hedges just now… but merely a trickle compared to what’s to come.

Until next week, thanks for reading and for being a Casey Research subscriber…

David Galland
Managing Director
Casey Research, LLC.