The Room – 04/17/2009
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.


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: While I have heard it described as something of a "lads’” show, I can attest to the fact that both my wife and I equally enjoy the HBO series Entourage about the career of a fast-rising Hollywood star, which I suspect is loosely patterned after the career of the series’ producer, Mark Wahlberg. It’s a very funny and very interesting look inside of the Hollywood star-making machine. As an aside, the character of Ari – the young star’s frenetically scheming agent – is patterned after the brother of Rahm Emanuel, President Obama's chief of staff. In any event, if you're looking for something fun to watch -- though not with the kids -- check out Entourage, also available on Netflix.]

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 Percentersrefers 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…

    April 15 (Bloomberg) -- Gun City USA, the largest gun store in Nashville, Tennessee, has sold arms to country music stars Hank Williams Jr., George Jones and their entourages. What it can’t sell them much of right now is ammunition to reload.
    “We have very, very little of any caliber,” said Larry Baity, a 74-year-old counter clerk at Gun City who said he has waited on Williams. “We’re virtually out. We’ve got a lot of bare shelves.”

    The scene at Gun City is playing out across the U.S. as record gun sales deplete stocks from ammunition makers Alliant Techsystems Inc. and Olin Corp. Demand for firearms is being driven in part by concern that U.S. President Barack Obama may impose new controls, said Matt Rice, a spokesman for Springfield, Massachusetts-based Smith & Wesson Holding Corp.

    “Each administration has their own policies,” Rice said. “It definitely made people a little apprehensive, and that led to increased gun sales.” Smith & Wesson makes the .357 Magnum, the .38 Special and Walther PPK handguns.

    Federal Bureau of Investigation background checks for firearm sales jumped 27 percent to 3.82 million in the first quarter this year, following a 14 percent jump to a record 12.7 million for all 2008. October through November 2008 saw the largest number of quarterly background checks since they were launched in 1998 as part of the Brady Handgun Violence Prevention Act passed earlier, the data show.

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!


David Galland
Managing Director
Casey Research, LLC.

Posted 04-17-2009 10:22 AM by David Galland