The Room : commodities

The Room – 07/10/2009

David Galland — Fri, 10 Jul 2009 17:59:00 GMT

Dear Reader,

In the June edition of The Casey Report, and again in the edition that was put to bed July 2, we warned that the U.S. equities markets were on the edge of the next leg down in the slow-motion crisis now unfolding. (You can read both issues... more here).

While there is no such thing as a sure thing, the idea that the worst could be behind the economy is almost unimaginable, given the deep structural flaws and governments doing what Doug Casey correctly calls the "exact opposite" of what they should be doing.

Namely trying to solve a debt crisis by adding more debt.

Of course, as turmoil returns to the broader stock market, investors will again scramble for "safe harbor" investments, and that spells trouble for commodities and commodity-related equities, which are viewed by many as "recovery" investments.

While it often marches to its own drummer, in June and again in July, we warned that gold, too, will be affected, though more moderately so. Looking over the price charts since June for gold and oil – among other commodities – it seems clear the correction has begun.

Even so, for the record, we see any setback to the "tangible" sector as being relatively short lived. That's because commodities are the actual stuff of life – unlike, say, flat-screen televisions, which you can hold off buying indefinitely. Food for the table, on the other hand...

As prices fall, commodity producers, long accustomed to dealing with price volatility, will reduce output to rebalance the supply/demand equation and stabilize prices at a profitable level. Of course, there are circumstances under which a producer will continue to produce, even with prices below production costs – say, to avoid the cost of shutting down and eventually restarting a mine or a well. Though not for long.

clicking here

But for many commodities today, structural issues already make any further reduction in production a quick ticket to shortages and soaring prices: copper, gasoline, sugar, cotton, and hogs, to name just a few.

Casey's Trend Trader

More about the Trend Trader here

Regardless, we see the potential for a return to a period of increased volatility in pretty much all things – including some of our favorite investments – but soon thereafter, opportunity will present itself at our collective doors.

Opportunity Knocks

Using history as our guide, after running for shelter as the next leg down in the economy unfolds, most investors will then cower there until the experts on CNBC (the same ones that completely missed this crisis in the first place) tell them it's safe to get back in the water.

Of course no one can be blamed for being extra cautious just now, and we urge you to follow the herd on that point. However, we would also urge you to remember that the herd is almost always slow to react... in getting out of fragile markets, and especially in getting back in.

At the same time that the level of risk is rising, there is a big, fat opportunity brewing as well. If you are attentive and willing to take actions that run contrary to the herd.

The source of this opportunity comes from the government's highly predictable reaction to the next wave of bad news. That reaction becomes obvious (at least to us) by asking the rhetorical question, "Confronted with steadily worsening unemployment, collapsing real estate prices, bankrupt state governments, skyrocketing bank failures, what do you think they are going to do?"

Cutting back on the spending? Letting the free market run an unfettered course? Not likely.

Instead, the president will ask the public for more patience, as his administration mans the spending pumps even more aggressively. The straws confirming that view are already in the wind; on July 7, one of President Obama's top advisors called for yet another round of stimulus.

Sure, they'll have to be increasingly clever to avoid an even stronger political backlash, but the squeeze they are now in (and, for the record, not all of it was this administration's doing) is getting tighter by the day. They have painted themselves into a corner.

And so, to use an old poker term, they are reaching the point where they'll feel they have no choice but to either fold or go "all in." You know, shoving all their chips onto the table (actually, they're your chips they are playing with, but hey...).

Given the unacceptable political consequences of folding their hand (i.e., doing nothing) and the simple truth that monetary inflation has been the default mode for handling economic downturns for many decades now, we have little doubt the government will take the "all in" approach, a desperate measure designed to buy time (at least through the next election).

And that sets up the opportunity.

Playing the Bounce

There has already been a sea change in awareness among the trading community about the seeds for monetary damage sown over the last year. And with this awareness comes increased sensitivity to further debasement of the dollar. Thus, each new announcement of stimulus lately has triggered a quicker rebound in gold and other commodities – as well as the resource-related stocks.

To be as succinct as possible, a struggle for me at all times, in the same way that we anticipated the resource sector correcting along with the broader markets, we also anticipate it to bounce back much quicker. Supporting that contention, consider the last three 25%+ corrections in the S&P versus the GDX, a gold stock ETF.

From Sep 19 to Oct 27, 2008, the S&P dropped 32%, but the GDX fell 57%. Deflation was then the watchword of the day.
From Nov 4 to Nov 20, 2008, the S&P lost 25% while the GDX fell slightly less, by a 23%. Is it really deflation we fear, the traders asked, or might this whole doubling-of-the-money-supply thing be signaling inflation?
It was during the slide in the S&P that occurred between January 1 and March 2009 that the changing tide in inflationary expectations became pronounced. During that correction, the S&P 500 lost 26%, but the GDX lost only 14% in the first two weeks of January – then roared back 33% by February 17, while the S&P continued to fall.

Subsequently, as the S&P rallied 36% between its bottom on March 9 and July 1 due to the (false) sightings of green shoots, the resource stocks added to their head start, rallying 50%.

In other words, natural resource investors who can keep their heads about them will be able to win in both scenarios: the one where the economy is falling and the government is stimulating (a certainty on both fronts), and the one where the economy begins to recover – or the masses come to believe it is.

The only scenario, in fact, that will disadvantage natural resources is if the government adopts a posture of steely-eyed free marketers that step aside and let the worst come to pass. We would contend that to be highly improbable.

Thus, the way to play things just now, as we see it, is to be cautious, but with the full expectation of aggressively buying up resource bargains before the crowds venture back out of their safe harbors. It might take a month or two (or maybe three), but it's unlikely to be much longer than that.

Investments can be made in certain physical commodities (gold and silver bullion), leveraged commodities positions (using strategic combinations of options and futures), or in selected resource equities, especially those of deeply undervalued and well-positioned companies in the precious metals and energy sectors.

In fact, the biggest challenge you'll face will be choosing between all the many opportunities we see materializing just over the horizon. But if you begin planning now, you should be ready to act when the time for action arrives.

Of course, all of the Casey Research specialty publications will make it a point to help you prepare for the next leg up in our favorite sectors. Of these, the services most dedicated to elephant hunting – namely bagging the really big returns – are Casey's International Speculator and, for especially active investors, our premium Casey's Investment Alert.]

Speaking of Unemployment

As you can see from the chart here, compliments of the monthly Data Farm feature in The Casey Report, the trend in unemployment remains solidly intact. Unemployment is now reaching a point so dire that soon it won't be reported on as further evidence of the economic slump but rather as a driving force (among many) in the ongoing collapse.

As recently as January, the government predicted that, thanks to the stimulus, the unemployment rate would top out at 8%. Despite energetic attempts to conceal the actual numbers, the official rate has still shot up to 9.5%... but the actual number is running closer to a depression-era level of 16%.

Ed. Note:

Worsening unemployment is one of those "important" things people should be paying close attention to. That's because the duration of the crisis – and sadly, the government's many exertions will result in it going on for much, much longer – means that the clock on receiving regular unemployment benefits is running out for more and more of the unemployed.

And, other than rely on the kindness of family members and friends, once the unemployment benefits dry up, what is a person to do? Well, for starters, sign up for special extended unemployment programs. Those programs are seeing a large increase in recipients. Quoting the Washington Times on the topic...

"... there were major jumps in two federal jobless programs. Workers collecting payments from the extended-benefits program increased by 65,000 to 347,000 for the week ending June 20. States also reported that 2.52 million persons were collecting Emergency Unemployment Compensation benefits, reflecting an increase of 81,000.
And this from Bloomberg...

average duration

benefits

This is a trend in motion that will stay in motion and worsen. Which means that the cost of maintaining the social safety net will only grow with each passing day. And, of course, unemployed people, no matter how willing, eventually run out of savings and have to let their debt payments – credit cards, auto loans, home equity, mortgages, etc., etc. – fall by the wayside.

In addition to exacerbating the economic downturn and, by extension, deficits, persistent and growing unemployment will soon lead to social pressure as desperate people begin to do desperate things. Riots in the streets are not out of the question.

And confronted with desperate people doing desperate things, the government will again react predictably – ginning up yet more and larger quantities of bread and circuses.

From where I sit, anything other than letting the situation self-correct in a quick and brutal crash so we can get this over and done with will result in a protracted, torturous death spiral, a negative feedback loop that will last longer than any of us can imagine.

You know what I hope? I hope I'm wrong.

Wicked Game

you can listen to it here

What Really Makes the World Go Round
(and How to Profit from It)

Understandably, people tend to think about energy in terms of the cost of gasoline at the pump or the electricity bills they get each month.

But energy is much more than that. It's the very juice that allowed humankind to graduate beyond being just another dumb animal. Without exaggeration, it's the critical component in most human endeavors, touching everyone and virtually everything that makes up the modern life.

Further, a solid case can be made that each discovery of new and more efficient energy sources coincides with humankinds most stunning advances: in food production, population growth, health, transportation, technology.

Case in point, consider that the rise of nearly unlimited oil and natural gas as mass energy sources began in earnest in the 1860s (unseating whale oil, which was quite limited). At that time the U.S. Civil War (1861-1865) was fought by men on horseback with swords and muzzle-loaded firearms.

Almost impossibly, just 80 years later Paul Tibbets dropped an atomic bomb on Hiroshima. And just 100 years after Lee surrendered his sword at Appomattox, man set foot on the moon.

Simply, the story of energy is step-by-step the story of the ascent of humankind.

I mention this as a circuitous route to make the point that the constant quest to maximize existing energy sources, and to find new ones, is a quest that will never end... at least not until the ultimate breakthrough occurs that allows us to, for example, efficiently harness energy from the sun.

But that is then, and this is now. And right now the energy sector is huge, diverse, and geographically fragmented.

And because of its day in, day out importance, it is also extremely rich in opportunities for investors armed with the right information.

On that front, by now you should have received an invitation to our first ever Casey Research Energy & Special Situations Summit, which is being held in Denver, September 18 to 20.

The registration site for the event, which already boasts one of our most impressive faculty line-ups yet, is now open. Access our summit site by clicking here.

At the event, you'll get concise briefings on specific opportunities in everything from green energy to lithium technology, and from conventional oil and gas in North America, to unconventional oil and gas in Europe. Coal, uranium, geothermal, hydropower, solar, and much, much more will be covered (and, where appropriate, debunked) and the very best opportunities to get positioned for energy profits revealed.

As for the "special situations" in the summit's title, that refers to first-ever programs on emerging homerun opportunities in areas such as rare elements.

All signs are that it will be one of our best – and maybe even our best – summits ever.

As always, it will be a great opportunity for you to meet members of the Casey Research team and to share notes with like-minded individuals. If you've ever attended one of our summits, you already know what I'm talking about. If you haven't, then this is a great chance to find out.

As usual, to keep these events congenial and collegial, we always limit the attendance. Every summit to date has been a sell-out... so, please don't wait to check your schedule and to register.

See you in Denver!

Statehouses in the Poorhouses

People are not the only ones feeling the pinch. As has been widely reported, so, too, have been the states. This excerpt from the Washington Post may not say it all, but it says a lot...

David again. I can well remember the sense of incredulousness I felt back in 2005 when watching state governments, flush with tax loot as a result of booming real estate and investment markets, passing lavish new spending programs. The financial rationale for the many new programs at the time could best be described as "Happy Times Are Here Forever!"

Well, now they are learning the hard way that they are not, leaving the government worker unions scrambling to retain their grips on the public purse. In California, where a pitched battle has been going on over the soaring deficits, the government unions are taking the stance that their backs are up against the wall. That they have pretty much cut all they can cut and still provide the services that the helpless public demands of them. A contention that someone with a brain and a lot of time on their hands answered by assembling the following list of California state agencies.

California Academic Performance Index (API) * California Access for Infants and Mothers * California Acupuncture Board * California Administrative Office of the Courts * California Adoptions Branch * California African American Museum * California Agricultural Export Program * California Agricultural Labor Relations Board * California Agricultural Statistics Service * California Air Resources Board (CARB) * California Allocation Board * California Alternative Energy and Advanced Transportation Financing Authority * California Animal Health and Food Safety Services * California Anti-Terrorism Information Center * California Apprenticeship Council * California Arbitration Certification Program * California Architects Board * California Area VI Developmental Disabilities Board * California Arts Council * California Asian Pacific Islander Legislative Caucus * California Assembly Democratic Caucus * California Assembly Republican Caucus * California Athletic Commission * California Attorney General * California Bay Conservation and Development Commission * California Bay-Delta Authority * California Bay-Delta Office * California Biodiversity Council * California Board for Geologists and Geophysicists * California Board for Professional Engineers and Land Surveyors * California Board of Accountancy * California Board of Barbering and Cosmetology * California Board of Behavioral Sciences * California Board of Chiropractic Examiners * California Board of Equalization (BOE) * California Board of Forestry and Fire Protection * California Board of Guide Dogs for the Blind * California Board of Occupational Therapy * California Board of Optometry * California Board of Pharmacy * California Board of Podiatric Medicine * California Board of Prison Terms * California Board of Psychology * California Board of Registered Nursing * California Board of Trustees * California Board of Vocational Nursing and Psychiatric Technicians * California Braille and Talking Book Library * California Building Standards Commission * California Bureau for Private Postsecondary and Vocational Education * California Bureau of Automotive Repair * California Bureau of Electronic and Appliance Repair * California Bureau of Home Furnishings and Thermal Insulation * California Bureau of Naturopathic Medicine * California Bureau of Security and Investigative Services * California Bureau of State Audits * California Business Agency * California Business Investment Services (CalBIS) * California Business Permit Information (CalGOLD) * California Business Portal * California Business, Transportation and Housing Agency * California Cal Grants * California CalJOBS * California Cal-Learn Program * California CalVet Home Loan Program * California Career Resource Network * California Cemetery and Funeral Bureau * California Center for Analytical Chemistry * California Center for Distributed Learning * California Center for Teaching Careers (Teach California) * California Chancellor's Office * California Charter Schools * California Children and Families Commission * California Children and Family Services Division * California Citizens Compensation Commission * California Civil Rights Bureau * California Coastal Commission * California Coastal Conservancy * California Code of Regulations * California Collaborative Projects with UC Davis * California Commission for Jobs and Economic Growth * California Commission on Aging * California Commission on Health and Safety and Workers' Compensation * California Commission on Judicial Performance * California Commission on State Mandates * California Commission on Status of Women * California Commission on Teacher Credentialing * California Commission on the Status of Women * California Committee on Dental Auxiliaries * California Community Colleges Chancellor's Office, Junior Colleges * California Community Colleges Chancellor's Office * California Complaint Mediation Program * California Conservation Corps * California Constitution Revision Commission * California Consumer Hotline * California Consumer Information Center * California Consumer Information * California Consumer Services Division * California Consumers and Families Agency * California Contractors State License Board * California Corrections Standards Authority * California Council for the Humanities * California Council on Criminal Justice * California Council on Developmental Disabilities * California Court Reporters Board * California Courts of Appeal * California Crime and Violence Prevention Center * California Criminal Justice Statistics Center * California Criminalistic Institute Forensic Library * California CSGnet Network Management * California Cultural and Historical Endowment * California Cultural Resources Division * California Curriculum and Instructional Leadership Branch * California Data Exchange Center * California Data Management Division * California Debt and Investment Advisory Commission * California Delta Protection Commission * California Democratic Caucus * California Demographic Research Unit * California Dental Auxiliaries * California Department of Aging * California Department of Alcohol and Drug Programs * California Department of Alcoholic Beverage Control Appeals Board * California Department of Alcoholic Beverage Control * California Department of Boating and Waterways (Cal Boating) * California Department of Child Support Services (CDCSS) * California Department of Community Services and Development * California Department of Conservation * California Department of Consumer Affairs * California Department of Corporations * California Department of Corrections and Rehabilitation * California Department of Developmental Services * California Department of Education * California Department of Fair Employment and Housing * California Department of Finance * California Department of Financial Institutions * California Department of Fish and Game * California Department of Food and Agriculture * California Department of Forestry and Fire Protection (CDF) * California Department of General Services * California Department of General Services, Office of State Publishing * California Department of Health Care Services * California Department of Housing and Community Development * California Department of Industrial Relations (DIR) * California Department of Insurance * California Department of Justice Firearms Division * California Department of Justice Opinion Unit * California Department of Justice, Consumer Information, Public Inquiry Unit * California Department of Justice * California Department of Managed Health Care * California Department of Mental Health * California Department of Motor Vehicles (DMV) * California Department of Personnel Administration * California Department of Pesticide Regulation * California Department of Public Health * California Department of Real Estate * California Department of Rehabilitation * California Department of Social Services Adoptions Branch * California Department of Social Services * California Department of Technology Services Training Center (DTSTC) * California Department of Technology Services (DTS) * California Department of Toxic Substances Control * California Department of Transportation (Caltrans) * California Department of Veterans Affairs (CalVets) * California Department of Water Resources * California Departmento de Vehiculos Motorizados * California Digital Library * California Disabled Veteran Business Enterprise Certification Program * California Division of Apprenticeship Standards * California Division of Codes and Standards * California Division of Communicable Disease Control * California Division of Engineering * California Division of Environmental and Occupational Disease Control * California Division of Gambling Control * California Division of Housing Policy Development * California Division of Labor Standards Enforcement * California Division of Labor Statistics and Research * California Division of Land and Right of Way * California Division of Land Resource Protection * California Division of Law Enforcement General Library * California Division of Measurement Standards * California Division of Mines and Geology * California Division of Occupational Safety and Health (Cal/OSHA) * California Division of Oil, Gas and Geothermal Resources * California Division of Planning and Local Assistance * California Division of Recycling * California Division of Safety of Dams * California Division of the State Architect * California Division of Tourism * California Division of Workers' Compensation Medical Unit * California Division of Workers' Compensation * California Economic Assistance, Business and Community Resources * California Economic Strategy Panel * California Education and Training Agency * California Education Audit Appeals Panel * California Educational Facilities Authority * California Elections Division * California Electricity Oversight Board * California Emergency Management Agency * California Emergency Medical Services Authority * California Employment Development Department (EDD) * California Employment Information State Jobs * California Employment Training Panel * California Energy Commission * California Environment and Natural Resources Agency * California Environmental Protection Agency (Cal/EPA) * California Environmental Resources Evaluation System (CERES) * California Executive Office * California Export Laboratory Services * California Exposition and State Fair (Cal Expo) * California Fair Political Practices Commission * California Fairs and Expositions Division * California Film Commission * California Fire and Resource Assessment Program * California Firearms Division * California Fiscal Services * California Fish and Game Commission * California Fisheries Program Branch * California Floodplain Management * California Foster Youth Help * California Franchise Tax Board (FTB) * California Fraud Division * California Gambling Control Commission * California Geographic Information Systems Council (GIS) * California Geological Survey * California Government Claims and Victim Compensation Board * California Governor's Committee for Employment of Disabled Persons * California Governor's Mentoring Partnership * California Governor's Office of Emergency Services * California Governor's Office of Homeland Security * California Governor's Office of Planning and Research * California Governor's Office * California Grant and Enterprise Zone Programs HCD Loan * California Health and Human Services Agency * California Health and Safety Agency * California Healthy Families Program * California Hearing Aid Dispensers Bureau * California High-Speed Rail Authority * California Highway Patrol (CHP) * California History and Culture Agency * California Horse Racing Board * California Housing Finance Agency * California Indoor Air Quality Program * California Industrial Development Financing Advisory Commission * California Industrial Welfare Commission * California InFoPeople * California Information Center for the Environment * California Infrastructure and Economic Development Bank (I-Bank) * California Inspection Services * California Institute for County Government * California Institute for Education Reform * California Integrated Waste Management Board * California Interagency Ecological Program * California Job Service * California Junta Estatal de Personal * California Labor and Employment Agency * California Labor and Workforce Development Agency * California Labor Market Information Division * California Land Use Planning Information Network (LUPIN) * California Lands Commission * California Landscape Architects Technical Committee * California Latino Legislative Caucus * California Law Enforcement Branch * California Law Enforcement General Library * California Law Revision Commission * California Legislative Analyst's Office * California Legislative Black Caucus * California Legislative Counsel * California Legislative Division * California Legislative Information * California Legislative Lesbian, Gay , Bisexual, and Transgender (LGBT) Caucus * California Legislature Internet Caucus * California Library Development Services * California License and Revenue Branch * California Major Risk Medical Insurance Program * California Managed Risk Medical Insurance Board * California Maritime Academy * California Marketing Services * California Measurement Standards * California Medical Assistance Commission * California Medical Care Services * California Military Department * California Mining and Geology Board * California Museum for History, Women, and the Arts * California Museum Resource Center * California National Guard * California Native American Heritage Commission * California Natural Community Conservation Planning Program * California New Motor Vehicle Board * California Nursing Home Administrator Program * California Occupational Safety and Health Appeals Board * California Occupational Safety and Health Standards Board * California Ocean Resources Management Program * California Office of Administrative Hearings * California Office of Administrative Law * California Office of AIDS * California Office of Binational Border Health * California Office of Child Abuse Prevention * California Office of Deaf Access * California Office of Emergency Services (OES) * California Office of Environmental Health Hazard Assessment * California Office of Fiscal Services * California Office of Fleet Administration * California Office of Health Insurance Portability and Accountability Act (HIPAA) Implementation (CalOHI) * California Office of Historic Preservation * California Office of Homeland Security * California Office of Human Resources * California Office of Legal Services * California Office of Legislation * California Office of Lieutenant Governor * California Office of Military and Aerospace Support * California Office of Mine Reclamation * California Office of Natural Resource Education * California Office of Privacy Protection * California Office of Public School Construction * California Office of Real Estate Appraisers * California Office of Risk and Insurance Management * California Office of Services to the Blind * California Office of Spill Prevention and Response * California Office of State Publishing (OSP) * California Office of Statewide Health Planning and Development * California Office of Systems Integration * California Office of the Inspector General * California Office of the Ombudsman * California Office of the Patient Advocate * California Office of the President * California Office of the Secretary for Education * California Office of the State Fire Marshal * California Office of the State Public Defender * California Office of Traffic Safety * California Office of Vital Records * California Online Directory * California Operations Control Office * California Opinion Unit * California Outreach and Technical Assistance Network (OTAN) * California Park and Recreation Commission * California Peace Officer Standards and Training (POST) * California Performance Review (CPR) * California Permit Information for Business (CalGOLD) * California Physical Therapy Board * California Physician Assistant Committee * California Plant Health and Pest Prevention Services * California Policy and Evaluation Division * California Political Reform Division * California Pollution Control Financing Authority * California Polytechnic State University, San Luis Obispo * California Postsecondary Education Commission * California Prevention Services * California Primary Care and Family Health * California Prison Industry Authority * California Procurement Division * California Public Employees' Retirement System (CalPERS) * California Public Employment Relations Board (PERB) * California Public Utilities Commission (PUC) * California Real Estate Services Division * California Refugee Programs Branch * California Regional Water Quality Control Boards * California Registered Veterinary Technician Committee * California Registrar of Charitable Trusts * California Republican Caucus * California Research and Development Division * California Research Bureau * California Resources Agency * California Respiratory Care Board * California Rivers Assessment * California Rural Health Policy Council * California Safe Schools * California San Francisco Bay Conservation and Development Commission * California San Gabriel and Lower Los Angeles Rivers and Mountains Conservancy * California San Joaquin River Conservancy * California School to Career * California Science Center * California Scripps Institution of Oceanography * California Secretary of State Business Portal * California Secretary of State * California Seismic Safety Commission * California Self Insurance Plans (SIP) * California Senate Office of Research * California Small Business and Disabled Veteran Business Enterprise Certification Program * California Small Business Development Center Program * California Smart Growth Caucus * California Smog Check Information Center * California Spatial Information Library * California Special Education Division * California Speech-Language Pathology and Audiology Board * California Standardized Testing and Reporting (STAR) * California Standards and Assessment Division * California State Administrative Manual (SAM) * California State Allocation Board * California State and Consumer Services Agency * California State Architect * California State Archives * California State Assembly * California State Association of Counties (CSAC) *0ACalifornia State Board of Education * California State Board of Food and Agriculture * California Office of the Chief Information Officer (OCIO) * California State Children's Trust Fund * California State Compensation Insurance Fund * California State Contracts Register Program * California State Contracts Register * California State Controller * California State Council on Developmental Disabilities (SCDD) * California State Disability Insurance (SDI) * California State Fair (Cal Expo) * California State Jobs Employment Information * California State Lands Commission * California State Legislative Portal * California State Legislature * California State Library Catalog * California State Library Services Bureau * California State Library * California State Lottery * California State Mediation and Conciliation Service * California State Mining and Geology Board * California State Park and Recreation Commission * California State Parks * California State Personnel Board * California State Polytechnic University, Pomona * California State Railroad Museum * California State Science Fair * California State Senate * California State Summer School for Mathematics and Science (COSMOS) * California State Summer School for the Arts * California State Superintendent of Public Instruction * California State Teachers' Retirement System (CalSTRS) * California State Treasurer * California State University Center for Distributed Learning * California State University, Bakersfield * California State University, Channel Islands * California State University, Chico * California State University, Dominguez Hills * California State University, East Bay * California State University, Fresno * California State University, Fullerton * California State University, Long Beach * California State University, Los Angeles * California State University, Monterey Bay * California State University, Northridge * California State University, Sacramento * California State University, San Bernardino * California State University, San Marcos * California State University, Stanislaus * California State University (CSU) * California State Water Project Analysis Office * California State Water Project * California State Water Resources Control Board * California Structural Pest Control Board * California Student Aid Commission * California Superintendent of Public Instruction * California Superior Courts * California Tahoe Conservancy * California Task Force on Culturally and Linguistically Competent Physicians and Dentists * California Tax Information Center * California Technology and Administration Branch Finance * California Telecommunications Division * California Telephone Medical Advice Services (TMAS) * California Transportation Commission * California Travel and Transportation Agency * California Unclaimed Property Program * California Unemployment Insurance Appeals Board * California Unemployment Insurance Program * California Uniform Construction Cost Accounting Commission * California Veterans Board * California Veterans Memorial * California Veterinary Medical Board and Registered Veterinary Technician Examining Committee * California Veterinary Medical Board * California Victim Compensation and Government Claims Board * California Volunteers * California Voter Registration * California Water Commission * California Water Environment Association (CWEA) * California Water Resources Control Board * California Welfare to Work Division * California Wetlands Information System * California Wildlife and Habitat Data Analysis Branch * California Wildlife Conservation Board * California Wildlife Programs Branch * California Work Opportunity and Responsibility to Kids (CalWORKs) * California Workers' Compensation Appeals Board * California Workforce and Labor Development Agency * California Workforce Investment Board * California Youth Authority (CYA) * Central Valley Flood Protection Board * Center for California Studies * Colorado River Board of California * Counting California * Dental Board of California * Health Insurance Plan of California (PacAdvantage) * Humboldt State University * Jobs with the State of California * Judicial Council of California * Learn California * Library of California * Lieutenant Governor's Commission for One California * Little Hoover Commission (on California State Government Organization and Economy) * Medical Board of California * Medi-Cal * Osteopathic Medical Board of California * Physical Therapy Board of California * Regents of the University of California * San Diego State University * San Francisco State University * San José Stat e University * Santa Monica Mountains Conservancy * State Bar of California * Supreme Court of California * Teach California * University of California * University of California, Berkeley * University of California, Davis * University of California, Hastings College of the Law * University of California, Irvine * University of California, Los Angeles * University of California, Merced * University of California, Riverside * University of California, San Diego * University of California, San Francisco * University of California, Santa Barbara * University of California, Santa Cruz * Veterans Home of California

David again... finally. I wonder how many of those agencies existed 50 years ago? And I wonder, really, what would happen if they closed half of those agencies and cut the budgets of the survivors by half?

We may find out.

Report from CYCLE

A few weeks back I mentioned CYCLE 2008 (Casey's Youth Conference for Liberty and Entrepreneurship), the week-long camp for young entrepreneurs that we sponsor in Lithuania. Louis James of our team organized this year's event, and the reviews have been very positive. Happily, even though we mentioned CYCLE at the last moment, a couple of Casey subscribers were able to arrange things to have their own children participate. Here's an excerpt from the notes of one, Natalie.

Up to this point, these camps have only been held annually, in Eastern Europe, but we are considering holding them more frequently and in other areas of the world, including North America. While there may be some commercial gain to be made by expanding this initiative (and no apologies for that), the reality is that there is a dearth of opportunities available to young people these days to learn about the free market and how to succeed in it. Maybe we can do some good.

So, what do you think? Good idea or not? Do you know a kid that could benefit from an immersion course in freedom and free markets? Drop us a note at info@CaseyResearch.com and let us know. We'll keep you posted on any developments.

Too Funny

I have to share this, because it is classic Doug Casey, and I laugh every time I think of it.

The setup is that the nation's media fell all over itself to say kind things in obituaries about Robert McNamara, the former defense secretary who presided over Vietnam and who shed his mortal coil this week.

Louis James, who does the interviews for our new free e-letter, Conversations with Casey, thought that McNamara's passing was something that might have caught Doug's attention and so asked him about it. The result, in addition to being spot on, included some memorable lines, my favorite coming as a result of a follow-on about why the media was so complimentary of the man.

Doug:

If you aren't signed up for Conversations with Casey, it gets very high reviews, and I guarantee you'll never find it dull. Sign up for it here, and don't forget to pass it along!

Miscellany

Casey Phyle News.
- Bend, Oregon, Up and Running. A group of Casey subscribers have started meeting regularly in Bend, Oregon.
- Kansas City Phyle will be having their first meeting very soon.
- SoCal Phyle's Next Meeting Set for July 18, from 1:30 to 5:00 pm. The largest and most active Casey phyle is hosting a program with a speaker reporting on his recent trip to Uruguay, and another from Italy who will be discussing the European perspective on the crisis. The meet-up is at the Steelhead Brewing Company in Irvine California, and space is limited.
If you are in any of those neighborhoods and want to join in the fun, drop us a note at phyles@CaseyResearch.com and we'll get you connected.
Big Changes Coming. Watch your email inbox for an announcement on some exciting and significant changes here at Casey Research. One of those changes will be that this weekly experiment in musing will be going daily (at least for a trial period, likely beginning July 20). The name of the publication will change, too... to Casey's Daily Dispatch. That's just the tip of the iceberg, but I wanted to let you in on the new name now. Watch for the announcement of additional changes soon...

And That's That for This Week

As I sign off this week, the S&P 500 is off 62 points, a slight improvement from earlier in the day, but still well established on a negative down slope, exacerbated, no doubt, by the latest news that the sentiments of consumers are growing less cheery (gee, I wonder why that could be?).

With duty calling, I must now sign off, thanking you for reading and for being a Casey Research subscriber.

Until next week, remember... good things can happen in bad times – if you are sufficiently prepared and have the right attitude.

David Galland
Managing Director
Casey Research, LLC.

The Room – 04/17/2009

David Galland — Fri, 17 Apr 2009 15:22:00 GMT

Dear Reader,

Being new to a profession is always a challenge. The neophyte wants to impress his superiors, but lacking experience, is left to rely upon what natural skills he possesses. And, often, will try to make up for any shortcomings in specific skills by displaying a double dose of enthusiasm and energy.

Our new president, for example, has a great many skills related to successful politicking, but none at all specifically related to the task of being president of the world's most powerful country. This is not a job that one can prepare for.

And so We the People, his new bosses, are left to observe Obama leaning heavily on his considerable political skills – and his obvious energy – in an attempt to impress.

He is trying to do so through a constant stream of new pronouncements emanating from the White House, or wherever Mr. Obama happens to be standing at the moment. On one day he wishes to put an end to nuclear weapons, on the next to reach an accommodation with the Iranians. While he’s at it, he'll be (maybe) pulling the troops out of Iraq, but redeploying them into Afghanistan and maybe even Pakistan.

Hopping on Air Force One to bask in foreign adulation, he might close the afternoon by announcing he’s going to rescue the indebted mortgagees while dealing with bank insolvency. With hardly time for a deep breath, we see commitments to salvage the U.S. car industry -- but without overly inconveniencing its unionized workers -- followed by a promise to tackle the thorny question of immigration. Over afternoon tea or perhaps a Seder supper, he pronounces that help is on the way for Mexico in its “war” with its drug gangs, then over breakfast dedicates himself to assembling an “armada of allies” to wipe the earth clean of Somali pirates.

Worried that those initiatives may fail to impress, Obama’s administration then treats us to news that it will reform the tax code (if only to tighten the weave of the net) and close down the world's "tax havens." Further, before this December, if the Obamites have their way, carbon emissions in the United States will be smashed down to the levels of 50 years ago (which is to say that what is left of American manufacturing will soon become Indian or Chinese manufacturing). In support of that goal, a comprehensive cap-and-trade program will be initiated, invoking tens of billions of dollars in new taxes on American enterprises each year.

While I have the chronology wrong, the actual list of initiatives proposed so far by the energetic Obama is correct, though not complete. In fact, the list goes on and on… and expands even as I write: with the administration’s encouragement, the EPA is set to declare carbon dioxide -- you know, the stuff that makes plants grow -- a threat to public health.

In any event, the point I am trying to make, other than to offer President Obama a kindly word of advice that maybe he should take a deep breath and pause in his many exertions, is that rather than impressing, he is increasingly at risk of blowing all of his considerable store of political capital and going down in the history books as something of a failure.

There is a saying in marketing that I've always found true, and I think it is very appropriate in this instance. Namely, "The more you emphasize everything, the less you emphasize anything."

I, for one, am getting dizzy from watching Mr. Obama's antics and trying to understand exactly what he’s looking to accomplish, other than endeavoring to impart the impression that he’s accomplishing a lot. But there is a big difference between creating an impression and actually delivering the goods.

Sooner rather than later, I suspect, Congressional Democrats -- looking just over the horizon at the next election -- will realize that not only is the economy on tilt but so perhaps is their president, at which point he will be forced to begin a program of massive backpedaling with serious consequences to his credibility.

For those of you who are supporters of Mr. Obama and hoping for the best from his administration, now might be a good time to drop him an email suggesting he might wish to rein in his goals before spinning into oblivion. For those of you who don't particularly care for Mr. Obama, at the pace things are going, I think you’ll find your worst fears about the ambitious president will remain unrealized.

Alternatively, finding himself all of a sudden at risk of becoming marginalized and being fired at the end of his four-year probation period, Mr. Obama might take a serious gamble to regain his relevance – a war with Pakistan? While one can only hope not, stranger things have happened.

Why Do You Buy Gold?

As you can see from the chart below, since the latter part of February, the GLD gold ETF has been on a down trend, reflecting the underlying action in gold.

The retracement, while unwelcome, is understandable given the news about persistent deflation in widely followed indices such as the consumer price index. Also pushing things in the wrong direction, there are the U.S. dollar’s recent gains against the euro. And, as discussed here last week, we've also heard that the IMF is going to be dumping a fair bit of gold in its attempt to rebuild its war chest.

Not exactly cheery news for our favorite yellow metal. In fact, in any other than the Bizarro World in which we now live, the chart for GLD would be looking a lot worse than it is. As you can see more clearly in this next chart, the volume in GLD has fallen off quite a bit of late, which is a good proxy for broader interest in gold. Granted, we live in a particularly volatile and unpredictable age, which means anything can and likely will happen on any given day that can change virtually anything or even everything. But the odds are pretty good that absent one of those "shocker" incidents, gold is likely to remain range bound, perhaps even trend lower, until the inflation that has been baked into the cake by the government’s massive infusions of money makes itself known.

Which brings me to a question: Why do you buy gold?

Being clearly able to answer that question is the only way you can intelligently determine both the quantity of gold you ultimately buy and the timing of when you will buy (and eventually sell).

I mention this because on far too many occasions, I have had conversations with individuals, or received emails from subscribers, who view gold with an almost romantic affection. That's a mistake. As Doug Casey recently wrote, it's important not to fall in love with something that cannot love you back.

While gold can backstop your portfolio and place a solid foundation under your net worth, in the final analysis it is simply an asset, albeit one with unique properties that make it an especially attractive form of money.

It’s because of those unique properties that many of you own gold, as a form of insurance against inflation and other forms of monetary mayhem. In our view, that is the most important reason to own gold, especially these days. Viewed through that lens, the latest price setbacks for gold should be of almost no concern, unless you have not purchased your full allocation to the metal -- in which case, beginning to buy on the dips makes sense.

On the other hand, if you're a speculator in gold, your challenge becomes trying to discern gold’s current trading range so that you can buy when it's low and sell when it’s high. Reflecting the extreme volatility that grips almost all markets, gold's trading range these days is fairly wide, roughly between $800 and $1,000.

Frankly, absent a shocker event, I see no reason for gold to break out of that range decisively anytime real soon… at least not until we see the inflation that is the inevitable outcome of the Fed’s determined destruction of the dollar and U.S. government deficits of a magnitude that would bring tears to the eyes even of the late Lord Keynes.

Entourage

As you may have heard, our media star president is heading off to the Summit of the Americas next week to engage in another round of photo opportunities with other politicians.

Given the obvious importance of the event, it is no wonder that he is taking an entourage of over 1,000 important U.S. delegates, including wife Michelle's full-time makeup artist, a presidential first.

So what are the lofty goals of this important summit?

According to the AP…

Obama's priority list for the trip that begins Thursday is stacked with matters of concern across the Western Hemisphere – the crippling recession, the warming of the planet, the trafficking in drugs, the gloom of poverty. Crime, despair and political unrest south of the border can all undermine U.S. interests.
In order to meet and discuss these many challenges, the princely sum of $80 million will be spent by summit organizers, an amount that does not include the staggering sums involved with transporting the Obamas and their entourage to the Caribbean island where the summit will be held.

Not to worry, I am sure that all 1,000 of our delegates are necessary and worth the cost of sending them on their spring break and putting them up in the style they are quickly becoming accustomed to.

Interestingly, as is the case with these highly staged events, the outcome has already been decided and the post-summit agreement already drafted. Again, according to the AP...

The draft summit agreement, negotiated laboriously, speaks broadly about cooperation on climate change, education, safety and prosperity. But it makes no direct mention of the overarching crisis of the time, the global economic swoon. In fact, most of it was negotiated before the crisis hit with full force last fall.
If you excuse me for being a bit of a skeptic, a Grinch even, don't you think this all could have been handled with a couple of conference calls? Because as you and I both know, in the final analysis nothing will come out of this grand holiday other than a noticeable increase in local rum sales.

All of which moves me to ask, is anybody actually keeping a tab on the president's tab? Does no one now occupying the polished corridors of power in Washington understand that the economy is wrecked, and that every dollar counts?

Is anybody out there?

Ed. Note:

Entourage

Opportunity Knocks?

The chart shown here is of the CRB commodities index. A couple of things jump off the page, at least to me. The first is, that was one hell of a slide in commodities prices. The second is that it sure looks like it's trying to put in a bottom.

The contrarian in me tells me that this is a picture of a very interesting opportunity in the making. Again, no guarantees the commodities complex can't go lower, but the simple fact is that people need to eat, to keep the power on, and to actually produce the things necessary for daily life. Thus, looking for opportunities to get intelligently positioned in the commodities complex, with the expectation of a double or better over the next five years (without leverage… with leverage, the returns could be manifold that), seems to make a lot of sense.

Rest assured that in The Casey Report -- and for those of you with a higher net worth and a familiarity with futures and options, the Casey Trend Trader – we will be sharing a variety of strategies to get positioned in this trend.

The Down Low

Upon reading that Homeland Security has issued a report this week warning about the rising threat from "right wing extremist" groups brought to mind a topic I’ve been meaning to comment on for some time.

The topic is simply, armed revolution.

While I doubt their ability to get the specifics right, I suspect the general thesis of the Homeland Security report is probably correct. Namely, that some Americans may be willing to go to the mats should the U.S. government continue to infringe upon their rights, with stronger gun control measures being a likely tripwire.

Supporting that contention, below is an excerpt from an email that someone forwarded to me – not in support of the idea, but rather to show me that there are those willing to entertain the idea of a gun-battles-in-the-street sort of revolution.

(Note: The term "Three Percenters” refers to the 3% of colonialists who, the authors of this email allege, were the minority who actually took up arms against the British in the American Revolution, versus the 97% who were largely just bystanders. In the modern context, it is this 3% who are supposedly ready to grab arms and use them against the government.)

Below is the excerpt… which, as you will read, is inflammatory stuff.

Three Percenters today do not claim that we represent 3% of the American people, although we might. That theory has not yet been tested. We DO claim that we represent at least 3% of American gun owners, which is still a healthy number somewhere in the neighborhood of 3 million people. History, for good or ill, is made by determined minorities. We are one such minority. So too are the current enemies of the Founders' Republic. What remains, then, is the test of will and skill to determine who shall shape the future of our nation.

The Three Percent today are gun owners who will not disarm, will not compromise and will no longer back up at the passage of the next gun control act. Three Percenters say quite explicitly that we will not obey any further circumscription of our traditional liberties and will defend ourselves if attacked. We intend to maintain our God-given natural rights to liberty and property, and that means most especially the right to keep and bear arms. Thus, we are committed to the restoration of the Founders' Republic, and are willing to fight, die and, if forced by any would-be oppressor, to kill in the defense of ourselves and the Constitution that we all took an oath to uphold against enemies foreign and domestic.

We are the people that the collectivists who now control the government should leave alone if they wish to continue unfettered oxygen consumption. We are the Three Percent. Attempt to further oppress us at your peril. To put it bluntly, leave us the hell alone. Or, if you feel froggy, go ahead AND WATCH WHAT HAPPENS.

(As an aside, I’m sure Homeland Security appreciates it when these self-described revolutionaries make their identities well known by sending around broadcast emails.)

Supporting the notion that people are loading up out of concern that the government has designs on their weapons is this citation from Bloomberg…

sales

I can attest to the fact that the local gun store is clearly thriving; it has recently undergone a top-to-bottom renovation in order to more comfortably accommodate its many patrons. The trend toward more gun sales is also evident in the share price of Smith & Wesson (SWHC) over the last six months…

So, it’s not out of the question that the stage may be set for what could turn into a series of confrontations between the government and its harshest critics.

Some random thoughts...

As is true of almost all successful species, it’s human nature to want to group together. This tendency toward the collective is perfectly understandable in that it allows for a more efficient sharing of resources. There are other benefits, including a sharing of the protective duties and chores that would otherwise take an inordinate amount of time and/or resources should each individual be forced to undertake them. While I personally shy away from most forms of collectivization, that so many gravitate toward that condition is easily understood.
Along with this natural desire to collectivize, it is equally natural for an individual or individuals to assume power of the collective, once formed. As often as not, the group encourages and even demands that a particular individual or individuals assume the reins of power. We can all recall the kids who, even in our kindergarten classes, would naturally assume a leadership role and be supported in that role by many.

Perhaps this is related to a subconscious quest for better genes, or simply because most people prefer it when others stronger than themselves take on the responsibility of decision making. Regardless, the tendency to gravitate to power is a clear and present human trait.
Which brings me back to the “Three Percenters.” Imagine, for a moment, the logical outcome if this group were to actually rise up and win the day? In my construct, all this would achieve is that the national collective would replace the current leadership with that of another sort. While I am not any more enamored of the current power elite than I was of the bumblers they replaced, I suspect that I might like living under the rule of the Three Percenters even less.
While I don't doubt that we'll see incidents of violent pushback against the current government, and maybe even something as dramatic and devastating as the Oklahoma bombing (notably carried out by a veteran of Gulf War I), the idea that a group of homegrown revolutionaries could actually outgun our modern army is ludicrous.

There is a significant difference between 1776 and the situation today. Not only does the U.S. government not have to deal with long supply routes, as was the case with the British, but today even the best-equipped gun shop has nothing in stock to remotely compare with the sophisticated armaments the U.S. government has at its disposal, thanks to decades of massive military budgets. When we can take out houses in Peshawar using drones operated by technicians comfortably seated in a Nevada command post, how much trouble, really, will it be to handle a small cadre of malcontents operating in Poughkeepsie?
The danger, therefore, doesn’t come from the outbreak of a guerrilla war here in the U.S. -- although dramatic incidents and perhaps even large-scale riots are almost a certainty over the next 10 years -- but rather from the government’s reaction to these events.

Already, local police are being equipped and trained to view even commonplace crime with a military sensibility. And we have seen a breathtaking degradation in individual liberties in response to the 9/11 attacks.

Of course, this degradation is not apparent to most, other than as modest inconvenience at airports. That’s because most of us will never experience the dire consequences of a negative assessment of our email records and other similar intrusions upon our privacy – picture a door being kicked in in the middle of the night followed by a quick trip to a dark cell. Even so, the fact that the government has been willing to cross previously unimaginable lines in its fight against real and imagined terrorists is a clear indicator that, should domestic disturbances begin to reach anything approaching a regular tempo, the response could be extreme.

So what is one to do? Given humankind's tendency toward collectivization, and for the collective to be controlled by a small power elite that will not generally give up the reins once taken, it seems logical to me that the only sane response that we as individuals who value our individual freedoms can have is to learn the fine art of keeping a low profile. Or, to use modern slang, to keep things on the “down low.”

Put another way, trying to swim against a powerful river, a river that stretches back to the very beginning of human time on this planet, will only wear you down and eventually pull you under.

In my opinion, people should spend a lot less time worrying about the collective and a bit more time thinking about the steps that they can take as an individual to enjoy an excellent life while simultaneously keeping out of harm's way.

To be sure, that might involve eventually coming to the conclusion -- as some Jews did in Germany pre-WWII -- that as warmly as one might feel about their hometown, to remain in place is to risk everything. By the time the sentimentalists were being packed up for camps, the realists had already set up shop in far less dangerous climes.

In the current instance, as much as we may complain about the growing power and meddlesomeness of the U.S. government, most people are able to go through their lives largely unaccosted – saved by the tax man. But that doesn't mean you should be blind to the hard historical evidence that any country, no matter how enlightened it might seem, can and will change... and in some cases, dangerously so.

It is for this reason that my globetrotting partner Doug Casey has long advocated having at least one foot in another country. And by "one foot," I mean some percentage of your assets, ideally some property, and at least a working knowledge of the place and some local connections.

Don't get me wrong, I think the United States of America is a great place, and the odds are good that as bad as things might get, it will remain in solid contention as one of the top five countries in the world in which to reside. But if things took a decided turn for the worse, long before I would even begin to get it into my head to grab up arms, I’d be headed for the nearest international airport.

Having traveled the world extensively, I can say with complete confidence that there are many, many other countries where one can live an exceptional and fulfilling life, even if – or maybe even especially if – you don’t have very much money.

I apologize if this comes across as rambling or disappoints those of you looking only for investment advice, but I think the point is important... the point being that we each have to deal with the realities of where we live, and getting overly heated up serves no real purpose. Sure, join up with your fellows in protesting higher taxes, write your congressman, and make your voice heard – but don't overlook the need to also organize your life in such a way that you generally fly below the radar of the powers-that-be, and so that you can move on to friendlier climes in the unlikely event that becomes a necessity.

Most of all, don't forget to smell the roses.

To quote Robert Friedland speaking at our recent Las Vegas summit, "The situation is hopeless, but it is not serious."

Tax This!

Given that this week encompassed the dastardly date of April 15, I thought at least a passing reference was in order.

To assist in making a reference, I turn to the folks at Reason magazine who have put together a worthwhile short video on the topic, which you can view by clicking here.

Elsewhere, I thought it was interesting to read this week that the governor of Texas publicly pondered the idea of Texans seceding from the union, should the federal government continue its insane tax-and-spend ways. Here's what he had to say on the subject...

"We've got a great union. There's absolutely no reason to dissolve it. But if Washington continues to thumb their nose at the American people, you know, who knows what might come out of that. But Texas is a very unique place, and we're a pretty independent lot to boot," Perry said Wednesday.
And, of course, as I'm sure you have been reading about, there has been an outbreak of anti-tax "tea parties" around the country.

So there's hope. The situation is hopeless, but not serious.

That’s It for This Week!

Before signing off today, I would like to thank all of you who responded to my solicitation last week for feedback on whether the U.S. should sell "economic citizenships." The views I received were roughly split down the middle, with half in favor of a program that offered citizenship in exchange for a significant investment in U.S. real estate, and the other half dead set against anything that would allow more foreigners into the country. Next week, when I have a bit more time, I'll try to share some of the juicier excerpts from both sides of the argument.

As I sign off just after midday on Friday, April 17, I see that the Dow has stalled out and is flat on the day. Given that today's news includes that Citigroup's earnings were stronger than estimated, as well as the profits earned by GE -- I cannot help but take it as a very bad sign for the stock market that it has not managed to mount a further rally.

Meanwhile, gold has fallen again and is now trading at $868 per ounce. It could go lower, but per above, at this stage in the game, with the longer-term fundamentals for gold firmly in place, its short-term price action is of very little real concern.

Until next week, thank you very much for reading and for subscribing to one or more Casey Research services!

Sincerely,

David Galland
Managing Director
Casey Research, LLC.

The Room 09/19/2008

David Galland — Mon, 22 Sep 2008 20:43:31 GMT

September 19, 2008

Dear Readers,

Hi, I am Olivier Garret, this week’s editor of The Room.

What a rough week out there. My mind wanders as I drive at a crawl (I am not known to be a patient driver) behind a car full of “leaf peepers,” as Vermonters affectionately call the tourists who invade our state every autumn. I wonder how my friend David Galland is doing in Portugal, sipping the local wines with no access to his emails? It may be the worst week to be without market news -- or perhaps not…

Hopefully David is enjoying himself while celebrating an old friend’s birthday with a group of other newsletter editors and industry peers.

Meanwhile, Treasury Secretary Paulson and Fed Chairman Bernanke are not exactly having a day at the beach as they try to solve our nation’s problems. By the way, this past week, it seemed to me that Lehman drew the wrong lottery number while AIG appears to have hit the jackpot. I wonder how many other “private enterprises” will be lucky enough to get bailed out at taxpayers’ expense in the next few months: WaMu, Wachovia, and hundreds of other financial institutions, GM, Ford, Delta, United?

Where Is the Bottom of the Markets?

For several years, we have been warning about the emerging crisis in our publications, and during the past few months, The Casey Report has been emphasizing that what started as a subprime mortgage issue is now quickly evolving into a full-scale depression. I actually wish that our analysis had been flawed and that the government officials who had claimed that the subprime crisis was contained and the markets would rebound in the second half of the year had been right.

Unfortunately, the Fed’s quick fixes did not stick and current events are reinforcing our conviction that this is much more than a normal cyclical correction. It seems as though no securities are being spared these days. Of course, the financials are taking a beating as expected, but we are feeling the ripple effect in all sectors of the economy, including commodities and the junior sector.

Recession fears usually negatively affect the commodities market, as investors expect industrial activity and consumption to decline. This time, however, the very sharp correction of recent months in commodities has been amplified by the need for liquidity on the part of many hedge funds and institutional investors.

Is this the end of the commodity bull market? I am convinced that we are actually feeling the effect of a relatively short-lived, albeit very painful correction. As the Fed and the Treasury continue to intervene in the market, they continue to lose ground and credibility, caught between a sharp recession and strong inflationary pressures. In an effort to bail out the financial sector (soon to be followed by the broader insurance, auto, and airline industries), they have no choice but to start injecting hundreds of billions in liquidity into a contracting market place. This, in turn, will contribute to the makeover of a stagflation period of historical proportion that will make the ‘70s look like a tea party.

Is it time to run for the exit? My answer is a definite “No,” but don’t take my word alone for it. I would like to quote a short excerpt from a fascinating interview of one of the most respected players in the resource markets, Rick Rule. You can read the full interview in this month’s edition of BIG GOLD. Here it is:

David Galland

Rick Rule

So Why Are We Still Bullish on Commodities?

In spite of a sharp recession, the rest of the world will not stop (although it may experience downturns for a while). The aspirations of hundreds of millions of emerging middle-class Chinese and Indian citizens will eventually be attained -- they will continue to work hard to see their standard of living climb and will increase their consumption of food, energy and durable goods. This, coupled with the inflation and debasement of the dollar, will inevitably start a new run for tangible commodities long before this crisis is over.

It is hard not to panic in the current environment and not to run for cover. Instead, we believe it is time to adjust our strategy, taking new input into consideration, of course, but generally speaking, stay the course: continue to invest in precious metals, energy, and other commodities, and buy stocks of discounted top-quality producers and juniors. Some reallocations could also be used to minimize tax liabilities for the year.

In the meantime, make sure that if some of your stink bids get filled, you take money off the table as soon as you can on short-term news. Over the last few weeks, we have seen some great stocks get hit hard by redemptions, then rebound somewhat (20%, 30%, or 50% in a few days). The trend could continue downward for a few months before we see a real turnaround in the resource markets; in the meantime one needs to use the current volatility to acquire great stocks cheaply and take some quick profits. Last week, our Casey Energy Confidential alert provided an opportunity for double-digit gains within a couple of days on several stocks. Subscribers were able to recover their initial investment and retain free positions on some great stocks.

More than ever, we believe in gold and quality gold stocks. I would like to share with you an article recently sent by Nicholas Pingitore, one of our readers:

SHUIT Happens!

HUI Index Components
Company Name	Symbol	% Weighting	Market Cap (9/11/08)
Barrick Gold	ABX	15.83%	23.35 billion
Goldcorp Inc	GG	14.98%	17.72
Newmont Mining	NEM	11.91%	16.3
Randgold Resources Ads	GOLD	6.57%	2.45
Iamgold Corp	IAG	6.43%	1.32
Eldorado Gold Corp	EGO	5.80%	2.02
Agnico-Eagle Mines	AEM	5.49%	6.31
Gold Fields Ltd Adr	GFI	5.21%	4.64
Kinross Gold	KGC	4.96%	7.29
Harmony Gold Mining Adr	HMY	4.80%	2.67
Yamana Gold	AUY	4.12%	5.27
Hecla Mining	HL	3.91%	0.54
Coeur d'Alene Mines	CDE	3.54%	0.77
Northgate Minerals	NXG	3.47%	0.32
Golden Star Resources	GSS	2.99%	0.28
TOTAL MARKET CAP			91.25 Billion

The total market cap of the HUI is less than $92 billion. Now compare that figure with the below chart of diversified companies.

Company Name	Symbol	Market Cap (9/11/08)
Johnson & Johnson	JNJ	197.12 billion
Microsoft	MSFT	244.42
Exxon Mobil	XOM	386.07
Intel	INTC	111.49
General Electric	GE	270.98
Proctor & Gamble	PG	219.23

Editor’s note: Fannie Mae, Freddie Mac and AIG used to be in the above list but we had to write their market cap down to almost $0 and take them out...

the largest un-hedged miners in the world!

http://www.commodity-trading-solutions.com/

Back to Olivier – as I am not a regular columnist for Casey Research, I would like to share a little bit of my personal experience.

Can Our Government Save Us from All Evil?

All of the rhetoric from our politicians on what our government should do to protect its citizens reminds me of a period 18 years ago when I traveled frequently on business throughout what was then Eastern Europe.

I remember arriving in Warsaw about twelve months after the fall of the Berlin Wall in East Germany; the city was grim, dark, and polluted. The best hotel in the city was in a state of disrepair with broken fixtures. Service was poor and the food was horrendous (the hotel was still state-run).

http://www.poloniatoday.com/history13.htm

I traveled around the country to the famous city of Gdansk, seat of the Solidarity revolution and one of the largest ship building ports on the Baltic Sea. On the road, I met a few smoky Trabants, some local versions of Fiats (1960s design), and many horse-drawn carriages (trucks were rare then). Everywhere I went, life was grim. Most enterprises were state-run with large bureaucracies and very low productivity.

Throughout this trip, as well as many prior trips to Yugoslavia, Hungary, Czechoslovakia, and Romania, I remember being horrified by the state of disrepair, sadness, and darkness of the communist bloc societies.

My trip to Poland in 1990 was in the aftermath of the fall of the Berlin Wall; in Warsaw, there was suddenly a glimmer of hope in the midst of the darkness. Many locals immediately started to set up “shops” on the sidewalks, trying to sell whatever miserable belongings they could spare in order to trade them for something else they needed.

Over the next 3 years, I returned to Poland several times, and each time I discovered progress in this country’s steady march away from the yoke of 50 years of state dictatorship. With each trip, I saw gigantic state enterprises shutting down with all of the disruption and pain it caused in people’s lives. These inefficient monsters were soon replaced by smaller, more nimble entrepreneurial firms. Streets began to look cleaner and brighter, with new paint on many buildings and new cars parked along the roads. For many people, standards of living were visibly improving; others were still the victims of the harsh transition to capitalism.

In 2006, I returned to Poland after 13 years of absence. I found in Warsaw a modern and vibrant city that could rival many other Western European cities of similar size. It was clean, modern, with signs of new wealth throughout its middle class. Although I am sure there are still some people left on the margins of society, they have become a small minority.

In all, it took 15-plus years of hard work and entrepreneurship to rebuild a modern society out of the destruction brought by 50 years of socialism. The Poles rejected overwhelmingly their central government and adopted many of the free-market ideas that made for the early success of America. Their journey was often painful, but they transformed their country into a better, more prosperous land. They quickly became more successful than their East German neighbors, who were led to believe that their salvation was to come from their fellow West Germans rather than through their own enterprise and hard work.

It is interesting to me that after having “won” the Cold War and having freed Europe, the United States is gradually becoming a centralized state where we abandon capitalism and individual liberties in the name of fear of failure or terrorism. Not all is perfect in Poland, but they have moved in the right direction (at least until their integration into the EU), while capitalism and entrepreneurship are being trampled in the U.S.

Recessions are painful and difficult to deal with, but it is better to poke the bubble early than to prolong the pain. I do not know any other alternative than to let the market correction take its course. Delaying the burst of a bubble only makes the pain worse when it finally explodes.

I spent several years of my working life restructuring businesses. Many people have asked me: How difficult is it to lay off half of the employees of a distressed business? How can you do it? Invariably, my answer is: very easily. I look at the remaining half and know that if I do not make a difficult choice today, the business will close and the other half will lose their jobs as well.

After failures and bankruptcies, people and nations have the opportunity for a fresh start; with innovation and hard work, generations of Americans have managed to better their lives and those of their children. I can’t say I feel we have achieved the same in the last 10-20 years.

Back to what comes next. I have asked our Chief Economist Bud Conrad to share a few comments and a chart that illustrates the dilemma faced by Paulson and Bernanke:

Bud correctly points out that as our domestic consumption slows, China and other exporters to the U.S. will see a decline in their activity that will be accompanied by a corresponding reduction in the financing of our debt. Continued injection in liquidity by the Fed will contribute to further devaluation of the dollar.

Foreign lenders see their U.S. investments being hit by the combination of currency devaluation and write-offs of stocks and bonds. The only possible way for our government to retain and attract foreign funds will be to increase interest rates. This will be a very challenging decision as long as our economy is in a recession. In spite of calls to ease interest rates in the short run, it will be difficult for the Fed to continue to support a policy of negative real rates if it needs to encourage foreign investment.

At the risk of being redundant, I have also asked Louis James to give us his thoughts on current events. Here is what he has to say:

International Speculator

It’s currently the third image down

www.youtube.com/watch?v=XwzYtdA6y_U

Boobus Americanus

Casey Investment Alert

International Speculator

Options & Futures

Last month, several attendees to our Chicago Options & Futures Intensive asked me if Casey Research would ever consider launching an Options Alert to complement The Casey Report. At the time, I responded that Doug, David, and I had discussed the possibility of launching such a service within six months but that we would only do so if we found a very experienced editor for this service.

I now have the pleasure of announcing that Sally Limantour, a 30-year veteran floor trader on the Chicago Commodities Exchange, has decided to join our team and launch this new alert service for us. In addition to being a professional options and futures trader, Sally is teaching online intensive training classes for traders and is a talented newsletter writer. I have asked Sally to write a short note to introduce you to her world.

A Ride to the Rescue

Multiple Personalities

Buck Broke Mountain

Especially in these tumultuous times, options and futures provide unique investment opportunities to profit from almost any major trend and to tailor investments to literally any risk/reward strategy. The Casey option alert will be a unique service that will combine both educational and trading advice. We anticipate launching this service during the second half of October and will keep you informed as soon as details are finalized.

And from the Desk of Doug Hornig…

chutzpah

sturm und drang

that’s

Olivier again for the closing remarks.

Panama

At Casey Research, we do not usually announce conferences until we have picked a destination, a topic, and a date. Last month in Chicago, we announced to attendees that we were planning a conference in Panama in November and that details would come in September. Unfortunately, it turned out that we could not finalize all of the arrangements to our satisfaction in order to make it happen for this date, and we will have to delay this event until after the turn of the year. We thank you for your patience and will let you know as soon as we have secured a venue and planned the program. Stay tuned…

TV?

Many of you have had the opportunity to hear Bud Conrad at our conferences, but have you ever seen him on TV? As one might expect, with the developing crisis, the mainstream media are beginning to pay attention to what the Casey Research contrarians have to say. In the past several weeks, it seems that the opinions of Doug Casey, David Galland, Terry Coxon, and Bud Conrad have been heavily sought by Fox Business, CNBC, the Boston Globe, and Dow Jones Newswire (WSJ), to name a few. In case you have missed Bud’s latest appearance on CNBC, I have included the link below.

http://www.cnbc.com/id/15840232?video=852271347&play=1

Before I leave you to take my second son, a high school senior, for a seven-hour drive to New Jersey to visit Princeton University, I wanted to continue David’s tradition and let you enjoy a very appropriate song for these trying times.

http://www.youtube.com/watch?v=zeo0_3gN190

While it has been a tall order to fill in for David, he will fortunately be back at the helm next week.

Thank you for being our subscribers. It truly is a pleasure to work for such a fine group of sophisticated investors. I look forward to the opportunity to meet many more of you during future conferences or travels to cities where Casey Phyles get together.

Olivier Garret
CEO
Casey Research

The Bursting Commodities Bubble

David Galland — Tue, 24 Jun 2008 16:24:00 GMT

A steadily growing drumbeat is sounding throughout financial mediadom; a major commodities blowout is in the cards. The most widely quoted reason is a U.S. recession that will sympathetically pop the commodity bubble.

It seems to me that these views are intertwined with a changed perception of how the economy works. A new paradigm if you will.

People used to pay homage to the notion of a business cycle, a somewhat predictable and even stately progression of economic growth leading to excess, followed by a corrective recession. After which the cycle would begin anew.

In today's bold new world, however, most investment observers overlay onto the business cycle a shifting series of rapidly rising - and falling -- sector-focused bubbles.

Because of their noticeable size and influence, it seems to me that the bubbles can mask the underlying business cycle to some extent. Case in point, we all easily recall the dot.com bubble but have a harder time recalling what the prevailing economic times were in the late 1990s. What came after the dot.com bust? Why, the housing bubble, of course.

Of course, bubbles have always occurred. But they appeared only periodically, every generation or so. Prior to the dot.com bubble that heralded in this new era, economic activity was more broadly distributed. When times were good, the sectors that normally benefited, all benefited in something of a range.

Today, however, while most remain somewhat range bound, a single sector appears, Godzilla-like, to cast a shadow over the broader financial landscape. It is that sector that then receives the lion's share of the focus and the investment flows, quickly becoming a self-fulfilling prophecy.

Of late it has been the turn of the commodities to stalk the land. And, if you believe the pundits, it is time for the monster to be brought low. If not by Mr. Market alone, then with the help of the regulators with all their many WMDs (Weapons of Market Disruption).

Before commenting on whether or not I believe they may succeed, a brief observation on the origin of this new bubble era.

In my view, it is largely due to the massive amount of money in various forms sloshing around the globe, most of which emanates from the Quicky Print Fiat Money Machines which have been reliably chugging away at central banks around the globe for decades now. One of the primary outcomes of this odd chapter in monetary history is that the notion of the value of money has been pretty much thrown out of the window... though not one person in a thousand understands that the game has changed.

For example, the Chinese are correct in thinking their reserves include 1.4 trillion foreign currency units, but that fact is increasingly disconnected from any reliable measure of future value.

Underscoring the point, 1 trillion U.S. dollar units set aside 5 years ago are today, adjusted for inflation, worth just $620 billion. But who can say what those 1 trillion units will be worth five years hence?

While it would require far more electro-ink than time allows for today, it is my contention that the utility of the fiat monetary system is beginning to fade. After all, at its core, the acceptance of unbacked money is an act of faith.

And people are losing faith in the fiat currency units they are being asked to accept in exchange for their many labors, or in return for their tangible assets -- and what is more tangible than commodities?

Back to the Bubble

So, are commodities merely the latest bubble, a bubble now resting up against a pin? Or is something else going on?

In my view, the explanation hinges on the difference between, say, a dot.com fantasy company run by a couple of twenty-somethings and, say, oil... the stuff you use to get to work in the morning... or to assure the icicles stay on the outside of your windows.

As much as you might enjoy the software offered by your favorite dot.com, when push comes to shove, you could probably manage without. Oil? Food? Good luck.

To a lesser or greater degree, the same acid test can be applied to the value-add of Bear Stearns and the other financial stocks versus, say, the iron that supports your local highway bridges. Or the copper that is so important to all manner of electronics.

Or even houses and condos bought on speculation by people who couldn't afford them versus the nickel needed to create the stainless steel that is everywhere.

It is my simple contention that while selected commodities can and will get ahead of themselves (and probably already have)... the underpinning reality for their higher prices has far more to do with the value of the currency units they are priced in than with some broader investment fad. To this date, I can count on one hand the number of friends of mine outside of the business circles I run with who have made any investments in commodities.

Add into the equation the clear supply and demand challenges for many of the core commodities and the bubble doesn't seem quite so bubbly.

Here's a picture of commodities against both the U.S. dollar and the major currencies (ex-dollar).

And gold?

Well, while useful in certain industrial applications, gold as a commodity has a unique utility - it is considered as tangible money the world over. It is portable, easily divisible, durable and unquestionably accepted around the world. In an environment of a global crisis in confidence in fiat money, gold will provide a critical function that will only grow in importance in the months and years just ahead.

In short, the occasional corrections aside, this show is far from over.

How do you protect your assets in times of economic decline? Which investments provide safety when blue-chip stocks, government bonds and mutual funds do not?

You'll find specific answers and actionable advice in our new FREE special report The Recession Tool Kit - 9 Winning Strategies to Profit from Crisis. Including: a nest egg for rainy days and how to buy it... lucrative, low-risk investments that every prudent investor should have... how to make money instead of losing it... and much, much more.

You don't want to miss this special report. To get your Recession Tool Kit FREE today click here.

The Room 3/3/08

David Galland — Mon, 03 Mar 2008 17:52:08 GMT

Dear Readers,

It's getting to the point where even the most determined optimist is having a hard time finding a good reason to roll out of bed.

Among just the smattering of news that crossed the lens this week...

Producer prices rose 7.4 percent in January from a year ago, coming on the heels of the news last week that the Comedic Politicized Inflation (CPI) index has risen over the last 12 months at the highest year-over-year rate in decades.
The National Association of Purchasing Management's business barometer has fallen to the lowest level since 2001, beginning to reflect a knock-on slowdown in consumer spending.
And, according to the U.S. Commerce Department today, what modest growth in spending there is, is now coming from inflation and not from confident consumers mobbing local electronics shops to load up on the latest and greatest.
On that latter point, consumer confidence in the U.S. is reliably reported to have grabbed its chest and slumped to the ground, or at least to levels last seen only in 1992.

And no wonder, given that housing prices, the single most important component of the net worth of so many people, are crashing; in December they fell by the most on record, off 9.1% from the year before.

(During a cross-country ski slog over the weekend, a friend who is a housing contractor by trade told me he has not seen a slowdown like this in his 20 years in the business. He knows of only one new house on the flight path to be built in these parts. The property holder has six different contractors scraping it out in a bidding war to get the job, assuring that the victor ultimately receives as a reward a dry and meatless bone at best.)

If the housing sector slowdown with its rising foreclosures and defaults isn't enough to keep our optimist abed, he would have to do no more than flick on the morning news to learn of soaring food prices, a crashing dollar and a tumbling stock market.

No sooner had a trembling hand secured a double dose of Advil, topped off with a cold compress, then he would hear a report of hundreds of millions and maybe even billions of dollars worth of new and unexpected losses being suffered by municipalities, banks, and sundry financial institutions on purportedly "safe" instruments concocted in earlier, more positive times. This week, for instance, we hear that the supposedly invincible Goldman Sachs may take it in the chops for as much as $11 billion due to "variable interest entities," a form of conduit, our faltering optimist learns as he falls back on his pillow in a fatalistic swoon, that holds close to $800 billion in assets, some significant percentage of which are now considered suspect.

At this point, the only folks able to view the unfolding carnage with any casualness are the super-rich for whom almost any conceivable loss would still leave them the requisite funds to live like the royalty of old... and the relatively small handful of investors who've been smart enough to have moved assets out of harm's way and into gold and other commodities early on (a group that I continue to hope includes you, with the help of our various services).

Interestingly, this week it was revealed that the California Public Employees' Retirement System can be counted among the few that have been seeing the nature of the unfolding crisis in the right light, and has at least begun to act appropriately. Calpers, according to Bloomberg...

...the largest U.S. pension fund, may increase its commodities investments 16-fold to $7.2 billion through 2010 as raw materials prices surge to records.

Calpers, which has about $240 billion in assets, agreed at a Feb. 19 board meeting to hold between 0.5 percent and 3 percent of its assets in commodities, spokesman Clark McKinley said. The Sacramento, California-based fund last year put $450 million into commodities, its first such investment.

The agreement is the fruit of Chief Investment Officer Russell Read's efforts since joining in 2006 to boost returns by shifting funds into raw materials and markets such as China and India. Oil has soared above $100 a barrel, wheat breached $13 a bushel for the first time, and gold and platinum climbed to the highest ever since Calpers began investing in commodities.

"We plan on ramping up the program by hiring additional staff," McKinley said by phone yesterday. "We are excited about commodities, which have performed exceptionally well for us."

To which we say, welcome aboard! Better late than never, so hats off to the obviously competent Mr. Read.

Of course, as the pension funds, like the hedge funds, mutual funds and institutional funds in general tend to run in packs, this news can only help solidify the base under our current favorite investments.

Listen and you can almost hear the chat around the polished-wood-encased water coolers strategically positioned around finely appointed pension managers' offices worldwide.

"Did you hear, Calpers got into commodities last year?"

"Yeah, smart buggers. And here we are with our bonuses slashed -- slashed, I say! -- to only $2 million, just because we invested in AAA bonds!"

"Well, if commodities are good enough for Calpers, who are we to argue, eh?"

"Race you to the trading desk!"

Pile on in, we shout enthusiastically, daydreaming about selling our appreciated resource stocks to the stampeding herd a ways down the road.

But that, fellow travelers, is about the only golden lining to be found in the chaos now gripping the world. And while a good investment brings a warmth not unlike a crackling fire and a hot toddy on a cold day, the toddy loses much of its flavor when one considers the impact that the unfolding crisis will have on our less well-prepared friends, family and fellow countrymen (and women, as the case may be).

Commenting on the news in an email exchange from New Zealand this morning, Doug Casey had this to say...

"My own feeling is that by the time this cycle is over, people are going to be shocked by how high gold goes. But it will be a sideshow compared to the circus the Greater Depression will put on."

Unfortunately, however, the news for the unprepared gets much, much worse. There are two areas that I would like to comment on in a bit more depth, starting with Bernanke's testimony.

Bernanke Pushes the Button

Yesterday, while engaged in my periodic physical exertions, or more specifically, while I was clinging to the handles of a medieval masochistic device sternly labeled the "Stair Master" down at the local facility for such things, I managed to snake out a finger to the television monitor to tune into Chairman Ben's testimony in front the House Financial Services Committee.

It was, I noticed when the camera pulled back from Bernanke's oddly detached countenance, a sparsely attended affair. In fact, it seemed to my sweat-filled eyes as if there were no more than five or so members of elected officialdom in the gilded chamber.

(But, hey, why should members of Congress be interested in anything to do with the economy? It's not like there's anything going on these days. Whether or not Roger Clemens is doping - now THAT is worth packing the chambers for!)

In all seriousness, however, Bernanke's testimony yesterday was far more important than most people understand, least of all those now doing "service" in government. Far be it from me to be critical of the pandering class, but I was appalled at how unbelievably, well, stupid the questions were that were pushed toward Bernanke by the handful of Congressmorons who bothered skipping the brunch put on by the American Lawyers Association down the hall in order to be present.

Bernanke's testimony was important because in it he made it abundantly clear that the Fed - and by extension the U.S. government - was coming down firmly on the side of inflation.

Those of you who have been with us for any length of time know that we have been calling for things to arrive at a location loosely identified as "between a rock and a hard place." It has been our consistent belief that the Fed would inevitably be forced to make a decision between letting the economy collapse under the weight of its many debts and obligations, or letting the dollar collapse by shifting into default mode. Which is to say, trying to inflate the country out of trouble.

The specific quote from Bernanke's testimony you want to pay attention to was this...

"The Federal Open Market Committee will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks."

Note the lack of reference to run-away-inflation that is already making itself known here, there and everywhere.

The news that the Fed is again opting for inflation, while coming as no surprise to us, caught the gold bears flat-footed by sending gold sharply higher, to over $970 as I write.

Speaking from an entirely personal basis, I am, of course, cheered by the rise in gold, thanks to a long-held position in a gold ETF and a portfolio stuffed to the gills with the higher-quality gold exploration and energy stocks of the sort followed in our International Speculator and Casey Energy Speculator services. But there is a real risk arising... a true tipping point... that I am not so sure I'll be happy to see.

While there are many factors that might push the economy over the edge, the one to watch closely now are the foreign holders of the U.S. dollar. As we have mentioned more than once, the amount of U.S. dollars in the hands of foreign holders is at historic levels. In fact, the level of holdings, estimated at as much as $16 trillion, is unprecedented by an order of magnitude.

At this point in the game, we would expect to see wealthy foreign individuals cashing in their dollars for all manner of alternatives, including other currencies, tangible property and, of course, gold and other tangible assets. Given the price of tangibles at this point, that trend is likely well underway.

Diversification out of the dollar by institutional holders is likely also underway. But after that, if pushed to it, will come the big kahunas: the foreign governments and their many trillions.

Up until this point, that they have been reluctant sellers can be understood in much the same way you can understand the concept of Mutually Assured Destruction when discussing the pros and cons of launching nuclear strikes against your similarly armed adversaries. At what point, however, do the foreign governments come to the conclusion that the other side has already "pushed the button"?

Watching Ben Bernanke, there is a reasonable chance, were I a foreign holder, that I might come to the conclusion that he has done the equivalent of just that.

Regardless, the pressure is growing daily on the economies of the Middle East and Asia, which have to date helpfully reinvested the money they have received in exchange for their goods into U.S. Treasury securities. And, by doing so, effectively imported our inflation back home. Even if they wish to continue avoiding the nuclear option, they will at some point be forced to it by the U.S. pursuing a monetary policy one could correctly term "Everyone for themselves!"

Make no mistake that once the tipping point is reached -- and if the Fed makes yet another steep cut at its next meeting on March 18, that could do it -- then things have the potential to shift from crisis to catastrophe almost overnight.

What impact would a true collapse in the dollar have on the global economy? It is a topic we'll continue to poke at here and in our various publications. But for now, keep your eyes wide open and your head down.

I'll touch on the second serious development this week, but the lunch bell has just rung, so I'm going to pass the baton over to Bud Conrad, who has sent over a couple of items he thought you'd find of interest...

Bud on Bernanke

In alarming testimony to the House Financial Services Committee, this week Fed Chairman Ben Bernanke declared: "We have a problem ... the spreads between the Treasury rates and lending rates are widening, and our policy is essentially, in some cases, just offsetting the widening of the spreads, which are associated with signs of illiquidity."

I said at the Denver Summit, and since in articles, to watch out when the Fed cuts and long-term rates don't drop.

It means that the rate-cutting process of printing money to buy Treasuries in an attempt to provide liquidity to lower rates is failing. The confidence in the ability of Bernanke, or anyone else, to stop the collapse is lost when people become aware that printing money makes it worth less. The Fed action becomes the fear, rather than the solution. At this point further cuts won't help the economy, because long-term and riskier rates will reflect that loss of confidence.

(Ed. Note: Bud Conrad recently gave a wide-ranging interview for the Gold Report on where the economy, gold, energy, food and interest rates may be headed. You can view it by clicking here.)

A Trip Down Memory Lane

Our own Terry Coxon sent along a link to a video of Richard Nixon announcing the end of gold convertibility, pointing out that I would especially enjoy the reference to "international speculators."

You can see Nixon make the announcement by clicking here.

The canceling of convertibility was, of course, a seminal event as it left the world with a pure fiat monetary system, an experiment which has subsequently resulted in the steady deterioration of all paper currencies, among other ill effects (including unchecked growth in government, thanks to the removal of any real obstacles to spending).

Will the whole house of cards implodes some day, forcing a return to a gold standard or some other system that forces fiscal restraint? If I was a betting man, I would place large sums that the answer is "yes"... it is inevitable.

In fact, the collapse may have already begun.

Energy Chart of the Week

By Chris Gilpin, Contributing Editor, Casey Energy Speculator

[click to enlarge]

Gasoline prices are comprised of several costs: transportation of oil (usual from some distant corner of the globe), refining costs and profits, more transportation of gasoline (to get it from the refinery to the gas station), taxes from every level of government, and the cost of buying the crude it all started from. This last cost has mounted, and now oil prices hold a greater and greater influence over gasoline prices.

In 2004, oil prices rose 50% from $30 to $45 roughly, and this created a corresponding 26% rise in gasoline prices. In other words, gasoline prices increased half as fast as oil prices did.

As oil prices have risen, the oil cost of gasoline has begun to dwarf all other components. Now when oil prices go up, it will cause a much steeper rise in gas prices. If oil were to make another 50% jump from $100 to $150 - which we think is quite possible in the next year or two - gasoline prices would rise at a rate closer to 35%. The U.S. average for regular-grade gasoline hovers around 310 cents per gallon right now with oil near $100; a 35% increase would lift it to 419 cents per gallon.

The rogue factor in all these calculations is refining capacity. Last spring, a spree of unplanned refinery outages pushed gasoline prices higher when oil had retreated to $60. By the time refining capacity came back online, oil was marching to $100. By having one major cost replace the other, gasoline prices have stayed between 280 and 310 cents per gallon since April 2007.

This may have created a false sense of security among motorists, who saw oil move up twenty or thirty dollars without much of a corresponding rise in gasoline prices. This spring refineries have scheduled their normal outages to switch from winter to summer-grade gasoline, but how many unplanned outages will occur? The U.S. oil-refining infrastructure is outdated and badly in need of replacement, but permitting a new refinery in the Lower 48 has proven to be a near impossible task. It's reasonable to expect a growing number of unplanned outages at refineries in the years ahead, and if any of these correspond with another jump in oil prices, then prices at the pump would roar to new heights.

As a motorist, it's all very annoying. The best tactic is to hedge your rising fuel costs with energy stocks that will benefit from higher oil prices - or trade in your car for one of those Flintstone vehicles. But I hear they can be rather hard on the feet.

[Ed. Note: If you are looking to profit from energy, you owe it to yourself to check out the Casey Energy Speculator. And it couldn't be easier, given that subscriptions come with a 3-month, no-questions-asked, 100% money-back guarantee. Check out the current profit-packed edition by clicking here now.)

The Other Important News of the Week

Last week I pointed to the breaking news Fitzroy MacLean of our Without Borders publication tipped me to, about German intelligence officers paying a Liechtenstein bank employee US$5.9 million to steal a disk containing the names of all the German account holders.

In writing this news up, I posited that the Germans likely also got the account names of non-Germans, "...giving the German government a very nice trading card."

It didn't take long for my intuition to be proved right, as it was announced this week that the Germans were now cooperating with friendly governments around the world so they, too, could corner tax miscreants.

Confirming the point, one of our subscribers sent along a news item from New Zealand about how that country's Internal Revenue Department is offering anyone with an offshore account, especially of the Liechtenstein variety to, in essence, come out with your hands up or else. If you are a New Zealander with assets in the pilfered bank, I have no doubt you are sweating bullets.

Here in the U.S. of A., the Internal Revenue Service is also working hand in glove with the Germans to hunt down the tax cheats.

This is a trend firmly in motion, with serious implications.

First, now that executives and even lower-level employees of banks in tax havens with the right levels of access have seen the going market price for client names, and that rather than being brought up on criminal charges for breaking confidentiality agreements, they will be saluted by officialdom around the world, there will be a rush to capitalize. All that the person needs to do is to grab the list, download the file, or whatever, and make it past the front door to collect on the waiting riches.

In addition to the considerable personal problems this will cause the account holders, it effectively spells an end to the idea of financial privacy.

And that is an important battle to be lost by anyone who values individual freedom. Look at it this way, until recently countries knew that if they squeezed too hard, money would begin slipping across the borders to undeclared safety. With that escape route closed, they can now squeeze ever harder.

Even so, human nature being what it is, you can expect the same people - at least those not in jail following the global witch hunt that will soon extend to the Caymans, Andorra, or any other jurisdictions where the bankers have been accommodative to privacy seekers - to look for other ways of hiding wealth.

Of course, gold, diamonds and other readily portable and fungible assets will find favor. Setting the stage for the battle in the war of the state against the individual: a new round of government confiscations of gold and other such assets, "in the public interest."

I can't see this happening imminently, and we should be able to see it coming, but the threat that it could happen in the next decade, along with foreign exchange controls and similar acts of desperation by the tax farmers, is real.

Now let me be clear. I am not in favor of tax cheating. Per the fresh example from Liechtenstein, the risks are too high and, in my view, always have been. But that doesn't mean that I can't lament the fact that the system is moving closer and closer to the point where you won't be able to enjoy any level of privacy in relation to your financial affairs.

Visa's $19 Billion IPO a Scam?

During the course of dinner with a highly positioned financial services executive the other night, he told me that Visa and MasterCard had lost a major lawsuit related to hidden charges, and that it will cost them a lot of money and force them to change their business in a number of detrimental ways.

Almost immediately thereafter I read that Visa was planning a $19 billion IPO. Coincidence, I wondered?

Curious, I decided to dig a bit. I hadn't gotten very far when I came across a very coherent analysis on the situation by Mish Shedlock. You can read it by clicking here.

Could the broader investment community catch on to the true intent of the IPO, dooming it and by doing so, maybe, lead to yet another giant stumbling? While that remains an outside possibility, it is by no means out of the question given the impact of the lost lawsuit, and that the credit card companies are almost certain to be next to feel the pain of consumer belt tightening.

I suspect most people wouldn't be unhappy if the credit card companies took it in the neck.

On that theme, years ago I interviewed a senior credit card company executive and over the course of our meeting, I mentioned to him that I had recently caught a charge for "lost credit card insurance" on my bill. It was for something like $46 a year - for nothing, as far as I could tell. Indignant, because I hadn't approved the charge, I called the service center and no sooner were the words of complaint out of my mouth than the representative said, "No problem, sir. That charge will be removed." In other words, no questions or pushback at all.

"Oh, that!" my new acquaintance, the credit card executive, commented, a smirk on his face. "That was the idea of the guy in the office next to me. We were running behind on the quarterly numbers and he came up with the idea to bump the revenue."

"You mean," I asked, a somewhat stunned look on my face, "that you simply hit all the credit cards with a $46 charge?" (And we're talking about hundreds of thousands of accounts.)

"Yep. It was a big winner, because most people don't look very hard at their bills."

"But that must be illegal," I said dismayed.

"Probably," he said with a dismissive shrug.

He didn't get the job.

Of course, the flip side of Visa running into trouble will be yet another form of credit that gets tighter... and more costly.

Miscellany

Lines of Lawyers. As predicted, lawyers armed with thick briefcases and high-digit display calculators are increasingly jostling each other in the long lines that are starting to form at the doorsteps of the wounded financial service industry behemoths.

This week, HSH Nordbank, a German sector public bank (translation, they have clout), announced it was going after UBS bank for "hundreds of millions" in subprime losses. As the piling on grows, we'll start to see the major bank failures that our own Bud Conrad has been forecasting these past months. Followed, natch, by the helicopters' worth of bailouts, courtesy of taxpayers.
High-Stakes Shell Game. In a classic shell game, the banks are trying to prop up the AAA ratings of the insurers standing behind the hundreds of billions of dollars of toxic waste now eating away at their portfolios. While cost effective -- $3 to $5 billion is a lot cheaper than the carnage that will follow a downgrade -- the odds are high that they'll invest the money, the insurers will get downgraded anyway, costing them their investments and the value of their portfolios. Unless, of course, the same helicopters show up with yet more taxpayer largess to keep the insurers intact. It would not surprise me in the slightest to see, even, the de facto nationalization of a failing rating agency.
In the "Remember, We're All Only Human" Department ... I came across another anecdote about another of the esteemed members of the judiciary, one Robert Somma, a federal bankruptcy judge appointed by President Bush in 2004. It appears he has stepped down from the bench after police found that he had crashed his Mercedes into another car while drunk and wearing a dress, fishnet stockings and heels, and carrying a purse. "He's a highly respected member of the bar," said a fellow judge, "and remains so." I don't care about his dress code, live and let live, I say... but next time, take a cab.
Look Before You Leap. There was news out this week that Norilsk, the Russian mining giant, was ordering a fleet of super icebreakers to take advantage of the melting of Arctic ice, opening up new routes across the top of the world. Someone might want to tell them not to place their deposit yet, because the Arctic ice hasn't just re-formed, it's thicker than ever. Here's the reference.

That's It for This Week

Major developments are afoot, with the term "We live in interesting times" barely covering it.

While we expect things to continue in a similar vein, and to likely grow steadily worse for some months and maybe even years to come, the best approach at this point is to assure that you and your family come out okay.

It's like the warnings that the flight attendants give during their briefings on the topic of what one should do should yellow oxygen masks start falling on your head while in flight. If you don't first take care of yourself, before turning your attention to the less well positioned, you could find yourself wiped out and of no use to anyone.

As I close my weekly musings, I see that gold is solidly planted at $971, oil is parked over $101 and the long-suffering DJIA is off yet another 295 points.

Wall Street types like to look down their nose at people who invest in gold, silver and other commodities... but they may have to revisit their prejudice, given that the broader U.S. stock markets have been essentially flat over the last 5 years... which means, adjusted for inflation, their favorite sector has been a loser for half a decade now. Decidedly not the case for the precious metals, energy and other commodities.

Until next week, thanks for reading and for subscribing...

David Galland
Managing Director
Casey Research, LLC

The Room 2/18/08

David Galland — Mon, 18 Feb 2008 14:00:21 GMT

Dear Reader,

Foolishly, I now realize, I closed last week's column by announcing that I would endeavor to write today's entire missive without a single mention of... okay, well, just this once... government.

Some readers have suggested that I could meet the test simply by replacing that specific word with another, for instance, "Turnip." While the idea has merit, as does even that word (looks a lot tastier than it is), I believe that self-created rules are rules nonetheless and no cheating allowed.

But, given the deep influence of that particular form of human activity, the task of producing this edition of The Room is made all the more daunting by my admittedly childish challenge.

I suppose we could talk about the weather.

(Actually, we can! My wife, the chief science officer of our household, gives a dismissive sniff any time I mention the latest forecast from local news sources, then logs on to consult with http://www.ssec.wisc.edu/data/geo/, a geostationary satellite with a number of filters that, once you master it, provides all the intel you'll ever need about what's really coming next.)

Okay, well, that about covers the small talk.

But before we move on, I must make one small edit to the rules surrounding today's challenge... namely that, should I decide to quote someone else, that person will not be subject to the same constraint, because, well, they weren't aware of the rules in the first place.

Okay, now that we have the rules straight, I'm going to wander into the kitchen for a further consultation with my dear friend, Ms. Rancilio Espresso-Maker, and let our own Bud Conrad take over the reins for a few moments.

As you may recall, last week Bud commented on the obvious play to be had in lumber. In a similar vein, this week he looks at commodities as a sector play...

Commodities: Looking Beyond the News

By Bud Conrad

We have read Jim Rogers' comment on commodities in his new book and seen the price of gasoline when we fill up, but most of us get too distracted by some enticing traditional investment, like a stock in some extractive resource, to think beyond the obvious.

For a year and a half, I have been watching grains scream higher. With oil, gold and odd items like milk and butter rising, I start to ask what might be beyond the horizon.

First, to report the bedrock under the commodities, see how commodities have jumped. There's no deflation there.

[click to enlarge]

Here is a chart on Minneapolis wheat, from $5 to $18 since last summer:

[click to enlarge]

It has been said that the guys that made the most money in the gold rush were the suppliers that provided the tools to the miners. So, who are the guys that are making money providing tools to the commodity traders? Here is one measure of the jump in this vein: the price of a seat on the commodity exchange. It jumped from under $10,000 in 1971 to $725,000 at the end of 2007 in Kansas City. These seats are traded on the exchange, and can earn profits along the way by being leased out to institutions or rich individuals who want to place trades directly.

[click to enlarge]

And a seat on the Minneapolis Grain Exchange tells the same explosive commodity story, jumping from $16,000 as recently as 2004 to $280,000 now:

All this is obvious once someone points it out. What else should we be looking at?

David again. Care to take up Bud's challenge? Drop me your ideas via email: david@caseyresearch.com.

(A possibly profitable trend pops into my own mind... I'll share it a bit later on. But first, this...)

The First Annual Casey Research Inflation Google

One of our core theses is that global price inflation is on an unstoppable upswing at this point. Supporting that contention are nearly daily reports from around the globe of rapidly escalating inflation emerging everywhere from Russia to Saudi Arabia... from Australia to China... and almost literally everywhere in between.

In fact, I have a rather eye-opening way to prove the point.

Simply enter the following search query into your favorite search engine, formatted as follows... except replace the "name of country" with the name of any country that pops to mind. Be sure to include the parentheses.

(name of country inflation 2008)
What you'll find, without exception, is a recent news story about local price inflation ratcheting up far more than previous expectations.

For example, I randomly googled Egypt... and here's what I found.

On February 8, the bank initiated a hike of 25 basis points, bringing its deposit rate to 9% and its lending rate to 11%. The decision came in the wake of news that inflation hit 11.5% in the year to January, reversing Egypt's disinflationary trend from the last quarter of 2007...

Okay, let's try another one. Throwing a mental dart at an invisible board, it lands on... Mauritania? Here's that story...

NOUAKCHOTT, Nov 15, 2007 (AFP) Mauritanian President Sidi Ould Cheikh Abdallahi ordered villages to stockpile food to help cushion the effect of rising inflation, his economic adviser said Thursday. The announcement came just days after the latest unrest over the crisis. Some six thousand tonnes of wheat had already been put aside for the stocks as part of a bid to stabilise prices, said Sidi Mohamed Ould Biye. The announcement [came] after a series of violent protests since last week over spiralling prices have left one person dead and 17 injured."

There are a number of reasons for this powerful upswing, but none more important than the fiat monetary regime that allows for a steady, unfettered flow of freshly minted paper and its electronic doppelgangers to enter the market. The most widely used and traded commodities, energy and food, are, like canaries in an old-fashioned coal mine, early warnings of what's coming.

This week, for instance, we have the news out of England that families there are now spending an extra £1,300 pounds a year (US$ 2,550) on household items, most notably food and fuel, which, according to an article in the Daily Telegraph, are rising at the briskest pace in 17 years.

As you can see by letting your eyes float back up the page to Bud's first chart, which shows the commodities index curve moving up more or less steadily since the U.S. dollar's link to gold was broken, the canary is now lying on its back, its cute little feet stretched upwards, a convulsive twitch the only indication of a weak spark of life.

Is there any force on earth that can stand in the way of commodities continuing to rise over the next thirty years and beyond? (With the inevitable short-term corrections along the way, of course.)

Absent a wholesale abandonment of the fiat monetary system, the answer is no. That many of these same commodities are concurrently getting harder and more expensive to find in any useful quantities only exacerbates the problem.

And, of course, as the cost of living goes up, so must wages and benefits, some of which are already pegged to automatic adjustments.

By now almost everyone is familiar with the concept of "tipping" points -- that point beyond which the inevitable also becomes the imminent. My favorite partner of all times, Doug Casey, is of the opinion that we are at that point.

I am finding it harder and harder to disagree.

Unless you are new to our services, you should, by now, be getting pretty chummy with the right side of this trend through investments in precious metals, energy commodities and other "stuff." Played right, these investments will assure you won't be one of those who, like our barely breathing canary, are caught by surprise by the unfolding monetary crisis. And you might even get rich... or richer than you already are.

These are topics we will, of course, continue to cover at greater length, and with far more specificity, in our various subscription services.

[ED. NOTE: If you're new to Casey Research and are looking for a good place to get started, take an inexpensive subscription to our BIG GOLD as that monthly newsletter offers simple and lower-risk ways to play the inflation trend. For more on BIG GOLD and its 3-month, 100% money-back satisfaction guarantee, click here.]

New Zealand Get-Together

At this time of year, Casey Research chairman and namesake Doug Casey likes to hang his spurs either in Salta, Argentina, or just outside of Auckland, New Zealand, where he is at this writing.

Given that I already correspond with a number of subscribers from New Zealand, I asked Doug if he might enjoy hosting an informal get-together for anyone in the area. You know, a couple of beers, a few laughs, that sort of thing. He said it would be his pleasure.

While we don't have anything yet in the way of a specific time or place, Auckland is the nearest big town to him, so it will be at a suitably equipped establishment (i.e., the presence of beer pulls and a decent wine list) there at some point in the next week or so.

If you are in the area and would like to meet up, just drop me a note at david@caseyresearch.com and I'll make sure you get the details.

Dispatches from the Front Lines of the Credit Crisis

Remember back when... when certain individuals associated with certain unnamed institutions were pontificating that the subprime losses would amount to no more than $100 billion to $150 billion? It turns out that said individuals were somewhat ill informed, a point made clear by the steady stream of blood-soaked dispatches coming back from the front of the credit crisis. Just this week...

Mortgage insurer MGIC announced yesterday it had a net loss of $1.47 billion, or $18 per share, mainly attributable to a $1.2 billion loss reserve. The company is now said be to urgently seeking new capital in order to avoid further rating downgrades.
It was announced Wednesday that between April and December 2007 alone, Japanese financial institutions have incurred losses of 600 billion yen (US$5.5 billion) from investments related to U.S. subprime mortgages. I have recently come across credible analysis that says the Japanese banks are scrambling behind the scenes to avoid fully disclosing the size of their subprime losses, but that it could run into many multiples of the number reported this week.
Bond insurer MBIA this week begged for relief from short-sellers and further, asked that the rules be changed about how bond insurers are assessed. Otherwise, they were at risk of going out of business by virtue of having done a spectacularly poor job and being punished for it with a ratings downgrade. Predictably, their argument revolves around the time-honored contention that they are too large to fail. Which is another way of saying that the burden of their losses should ultimately be shifted to taxpayers.
Warren Buffett seems to disagree, in effect, encouraging their collapse by offering to off-load the company's municipal bond liabilities (as well as those of the other bond insurers) at fire sale prices. Grasping at straws, the equity markets did a dead-cat bounce on the news based on the observation that, "Ah, Buffett is doing what JPMorgan did in 1907 to bail out the stock markets!" Not so fast, say us...

Bud Conrad's take...

"Buffett is no dummy. He isn't in this for the good of the U.S. economy: he's in it to make money. So I doubt he is paying more than the Muni insurance is worth. The sellers are up against the wall, having fire sales to stay afloat.

"They would be selling off their only assets that are worth anything, leaving behind the toxic waste. This is not the bailout that will fix the overleveraged guarantees on $2.4T of bonds by these insurers; rather, it confirms that they are desperate, and even closer to worthless, in my opinion. If such a deal goes through, it shortens the life of the insurers unless a big government bailout emerges."
UBS, Europe's largest bank, announced this week a fourth-quarter subprime-related loss of almost $12 billion. And it's not over yet. According to Bloomberg, the bank's CEO said that 2008 would be another "difficult year."
Perhaps, like a child caught with its hand in the cookie jar and then tries to deflect attention by pointing to the chocolate-smeared face of a nearby sibling, UBS analyst Philip Finch issued a report today stating that, in his view, the world's banking sector as a whole could suffer another $203 billion in losses due to the credit meltdown.

A billion here, $200 billion there, this is beginning to add up to real money. Or is it? It's hard to say any more, thanks to the steady drumbeat of these large numbers. It is positively numbing.

Which begs the question...

What, Really, Is a Billion?

Some time ago, I did an article in which I tried to remind people just how much a billion dollars is.

As I can't find that article to republish here, I trolled into the internet, that source of all knowledge, to find a reference I recalled from speeches Ronald Reagan used to make on the topic.

Here it is, from a 1977 speech.

Does anyone realize how much a single billion is? A billion minutes ago Christ was walking on this earth. A billion hours ago our ancestors lived in caves, and it's questionable as to whether they'd discovered the use of fire.

A billion dollars ago was 19 hours in Washington, D.C. And it'll be another billion in the next 19 hours, and every 19 hours until they adopt a new budget at which time it'll be almost a billion and a half.

But let me really paint the picture for you. If you gentlemen sent your wives out on a shopping spree, and gave them each a billion dollars, and told them not to spend more than a thousand dollars a day, they won't be home for 3,000 years.

Of course, that was then, and this is now. Based on the 2008 budget, it no longer takes 19 hours for $1 billion of your tax dollars to go out the door, but just three.

Or, viewed another way, your tax dollars are being spent at a rate of $331 million each and every hour of each and every day... 365 days of the year.

And even at that frenetic pace, it still takes 125 days to spend a trillion. Using $100 bills as our unit of measure, we find that it would require a stack 670 miles high to add up to $1 trillion.

Gee, I'm not sure that helped.

The Solution to All That Ails the World
(But Don't Tell Anyone)!

By Doug Hornig

Last weekend's meeting of the G-7 finance ministers in Tokyo came and went without much publicity. Concern about the state of the world economy was expressed, but no momentous actions were taken. Yawn. Yet for those who were paying attention, some very revealing dialogue slipped out.

Now let it be said that honesty and transparency are uncharacteristic of government in general. If they were more common, the people might actually know what was going on behind the curtain. And that's the last thing governments want because, were the public not so dumbed down, it might respond appropriately, with torches and pitchforks.

Thus our surprise at the following:

One of the things G-7 officials discussed was the need for collective action to calm markets if price moves become irrational, Jean-Claude Juncker was quoted as saying.

Juncker, who chairs the Eurogroup -- the monthly meetings of Eurozone finance ministers and the European Central Bank -- said in an interview he's concerned about ongoing turbulence in the financial markets.

"We are not yet at the end of the crisis," Juncker said. "The corrections will drag on for a few weeks, months. We have agreed in Tokyo that if there are irrational price movements in the markets, we will collectively take suitable measures to calm the financial markets."

No big news there. Although we devoutly believe in free markets, we're not so naïve as to believe that's their actual state. Governments intervene, all the time. Always, of course, "for our own good."

But here's the kicker. When asked what form such collective calming action might take, Juncker said: "Whoever has a strategy, should not set it out. Otherwise it will lose its effect if it is explained."

Well, that exposes the man behind the curtain, doesn't it? What Juncker is admitting is that not only should governments intervene, but it's important that they do so in secret. A strategy explained might become ineffective. Or, in other words, if people knew what these guys were up to, they might not want to go along!

A remarkably candid moment that Juncker probably wishes he could take back.

[ED. NOTE:Doug Hornig is the editor of the Daily Resource Plus, our free daily e-letter on all the latest news related to resource markets. If you are not yet receiving this valuable, yet complimentary service, you can sign up by clicking here now. ]

An Unfolding Trend

Earlier in this edition, Bud challenged readers to come up with other trends and ways to play them profitably.

I have an early entrant. It is that over the next ten years, we are going to see a growing number of nations to ban the export of critical resources.

As I have commented on in the past, given that it has now been established that Mexico's massive Cantarell oil field is past its peak and at risk of becoming uneconomic within the next 10 years, how long do you think it will be before that country starts restricting oil exports to its northern neighbor?

In fact, oil imports from Mexico are already off by 21% just since December 2006. And they are expected, based on current trends, to drop by as much as another 1 million barrels a day over the next decade (from about 1.3 million bbl per day currently).

For the record, in addition to Mexico, the other largest oil exporters to the U.S. include Canada at the #1 spot, followed by Saudi Arabia and then Venezuela, at #3. Thus, when Hugo Chavez threatens to cut oil shipments, as he has done again recently, it is a threat actually worth paying attention to.

So, one entrant on a trend to profit from would be to buy the oil sands companies that have gotten beaten up. It is just a matter of time before Canadians see the wisdom of dropping a nuclear power plant over the oil sands, providing the energy required to extract the oil economically. This play could take awhile to unfold, but given how beat up many of the oil sands companies were, it's a play to keep an eye on.

But my big idea here is that, as the world's resources come under increasing pressure, you can expect to hear more and more calls for countries to limit exports -- the equivalent of hoarding on a national scale -- leading to massive economic dislocations and, one would assume, opportunities for the fleet of foot.

Lending support to this idea, Vietnam announced this week that it would immediately begin cutting back the amount of coal it will allow exported, and is thinking of stopping all exports by 2015. According to Bloomberg, Nguyen Khac Tho, vice director of the Ministry of Industry and Trade's energy and petroleum department, made the following comments in a phone interview:

Coal is a resource that can't be renewed. Our most important task is to meet domestic demand to ensure national energy security.

([ED. NOTE: I would be remiss on many levels if I didn't mention that we have been following the coal story closely in the Casey Energy Speculator... to learn more and take a trial subscription is as easy as clicking here.)

The Letter Bag

I received the following note from a subscriber, Daniel T. I thought you'd find the following excerpt of interest.

Dear David,

I want to convey something that may be of interest to you, with regard to what's happening in the ongoing saga of the big banks. About six weeks ago, a close friend told me that she had just gotten a letter from her mortgage lender informing her that her HELOC (Home Equity Line of Credit) is now frozen due to the "current financial climate" or some vague reason like that.

I immediately thought about my own HELOC and said to myself "They won't ever do that to me – I'm an accredited investor, never ever a late payment on anything, no credit card debt, no car loans, lots of equity in a higher-end home in a neighborhood that actually appreciated in the last year, great FICO score, etc."

My HELOC was for about $250,000, which I never touched and only thought of it as perhaps useful one day for some quick cash to bridge some investment opportunity, or whatever.

But because I believe Bud Conrad and all his brilliant analyses (not to mention you and the rest of the Casey crew), I decided to take all of my equity money out of the HELOC except for a few thousand, and put it into something that will return, at the very least, the cost of the interest payment and exceed even that for some profit. (That's not hard to do being a Casey Research subscriber).

Guess what? In less than a week, I got the same letter as my friend. It was from IndyMac Bank, one of the bigger banks, telling me that my HELOC was now frozen. From the contents of the letter, I could tell that it came from another department of IndyMac which had no idea I had just cleaned them out.

You better believe that I was very happy I got those $$$ out and put them to good use.

I tell you this so as to possibly warn others, especially those that are absolutely depending on their HELOC to carry them through rough times. We are going to see a lot more of this. If they would do this to someone with my financial profile, then, well... look out.

Just Google "banks freeze helocs" and have a look. One can only imagine what will happen when this becomes widespread and what will happen to people who utterly depend on their HELOC for survival. Scary. This could be the last straw for many.

I'm very much looking forward to seeing you again at the Crisis and Opportunity Summit in Scottsdale. The last one was great.

Best,

Daniel Trevor

Make no mistake, the credit crisis is far from over. In fact, it is spreading.

Miscellany

Foreigners Go Home... Many in the U.S. wish the illegal immigrants would get the hell out. Well, if you fall into that camp, you will be cheered to hear that you may be getting your wish. An unintended consequence, however, is that they may be taking some segments of the economy with them. Follow the link below for the story from the New York Times.

Click here to view.

Except Sovereign Wealth Funds... Here's a cool tool to look at the size and distribution of sovereign funds. Note that there are two tabs in the upper right-hand corner of the page the link leads to... http://tinyurl.com/yokar9

The Nature of Complexity... I have often commented on the fact that we live in a complex world. Which is why, no doubt, so many people are willing to let the mass media do their thinking for them. It is far easier to accept as truth the latest news burbling out of CNN, rather than puzzle things out for yourself. On that topic, earlier this week, Doug Casey forwarded me a link to an exceptional speech on that topic by author Michael Crichton.

If you are comfortably seated and have a bit of time, do yourself a big favor and give this a read. You might even want to pass it along to your family, friends and associates. Given the general dearth of critical thinking these days, the world can use all the help it can get.

Here's the link...

http://www.michaelcrichton.com/speech-complexity.html

And that, dear readers, is it for this week's edition.

In review, I found that I sort of, but not quite, avoided references to the "Turnip" today. It is, I can assure you, no simple task given the deep roots that the Turnip has in all things, financial and otherwise.

A quick glance at the numbers shows that gold is holding, yet again, over $900 on the week, and the U.S. stock market is, once again, losing ground.

As always, I greatly appreciate you taking time out of your day to read, and for subscribing.

Sincerely,

David Galland
Managing Director
Casey Research, LLC.

The Room : commodities

The Room – 07/10/2009

Opportunity Knocks

Playing the Bounce

Speaking of Unemployment

What Really Makes the World Go Round (and How to Profit from It)

Statehouses in the Poorhouses

Report from CYCLE

Too Funny

Miscellany

And That's That for This Week

The Room – 04/17/2009

Why Do You Buy Gold?

Entourage

Opportunity Knocks?

The Down Low

Tax This!

That’s It for This Week!

The Room 09/19/2008

Where Is the Bottom of the Markets?

So Why Are We Still Bullish on Commodities?

S*HUI*T Happens!

Can Our Government Save Us from All Evil?

Options & Futures

And from the Desk of Doug Hornig…

Panama

TV?

The Bursting Commodities Bubble

Back to the Bubble

The Room 3/3/08

Bernanke Pushes the Button

Bud on Bernanke

A Trip Down Memory Lane

Energy Chart of the Week

The Other Important News of the Week

Visa's $19 Billion IPO a Scam?

Miscellany

That's It for This Week

The Room 2/18/08

Commodities: Looking Beyond the News

The First Annual Casey Research Inflation Google

New Zealand Get-Together

Dispatches from the Front Lines of the Credit Crisis

What, Really, Is a Billion?

The Solution to All That Ails the World(But Don't Tell Anyone)!

An Unfolding Trend

The Letter Bag

Miscellany

What Really Makes the World Go Round
(and How to Profit from It)

SHUIT Happens!

The Solution to All That Ails the World
(But Don't Tell Anyone)!