Daily Dispatch: More Political Math

April 02, 2010 | www.CaseyResearch.com More Political Math

Dear Reader,

Back in February, we poked fun at President Obama’s math because he implied his 3.83 trillion budget for fiscal 2011 will somehow put the federal government back on the track to fiscal sanity and shrink budget deficits. We noted that the budget calls for nearly a 9% increase in spending over the FY 2009 level, and that the only way not to have another record deficit in FY 2011 would be if tax revenues (which had grown by an average annual rate of less than one percent over the last decade) grow by almost 15%. We then joked that only a politician could get behind the math that plans to shrink budget deficits by increasing the budget deficit. Well, wait until you hear this next bit of political math.
On March 15 in Strongville, Ohio in a final push to win public support for Obamacare, the president uttered the following: How many people are getting insurance through their jobs right now? Raise your hands. All right. Well, a lot of those folks, your employer, it’s estimated, would see premiums fall by as much as 3,000 percent, which means they could give you a raiseLet me reiterate. The President of these United States said that his health care plan will cause employer health insurance premiums to fall by 3,000 percent.
Here’s a funny little YouTube video

explaining that math. President Bush said some pretty stupid things while he was in office, but this gaffe by Obama beats most “Bushisms” hands down. And I don’t know what’s worse, the fact that the president said it or the idiots in the crowd cheered.

Census Workers Boost Payrolls

According to the new jobs report from the Bureau of Labor Statistics, nonfarm payroll employment increased by 162,000 in March.

It’s not quite as good as it sounds. The increase in jobs includes the hiring of 48,000 temporary workers to conduct the Census. And the unemployment rate remained unchanged at 9.7%. Plus, long-term unemployment got worse. Of the 15 million people officially classified as unemployed, a record 6.5 million, or 44.1%, have been out of work longer than six months. Lastly, the U6 alternative gauge of the unemployment rate, which includes discouraged workers and those forced to work part-time, rose to 16.9% from 16.8%.

After the Bureau of Economic Analysis (BEA) recently released its monthly personal income and outlays report, the major media cherry picked the data boasting the headline “Consumer Spending Rises Again in February” or some variant on this theme. What wasn’t widely reported was the fall in personal disposal income together with a rise in personal consumption over this same period. The only way to balance that ledger is by taking on debt. Old habits die hard.

To get a better handle on a trend, we need a wide-angle lens. As today’s chart shows, personal income in the U.S. fell last year for the first time since 1969, the year the BEA began publishing the data. If a sustainable U.S. economic recovery hinges on an upturn in housing, neither is likely to happen if incomes in America continue falling, especially in the states most challenged by the crash in home prices.

Still getting your financial news from the biased Big Media? We can help. At Casey Research, we monitor all the trends that impact your life and your money. Start getting the objective and independent analysis needed to position your portfolio to profit from the unfolding trends by accepting a no-risk, no-hassle, 100% satisfaction-guaranteed subscription to The Casey Report. Get started now by clicking here.

Shale by the Pail: Europe Shakes Its Fist at Russian Hegemony
By Casey Research Energy Division

The latest buzzword on investors’ lips is shale and it’s everywhere. Shale gas production is rapidly growing and the domino effect of unconventional gas development on the global energy market is staggering. North America has already seen the stampede of companies staking their territories and is now in the next phase: consolidation. However, buying into the American industry giants now, where even a major strike creates only a blip in share price, is like catching a ship that’s left the harbor. But at Casey Research, we wouldn’t advise you to despair just yet, because the next big opportunity is just over the horizon. Coming up next the basins of Europe.

The new techniques in drilling and well completion have transformed this formerly unprofitable source into a gold mine. Add that to the success that shale gas has enjoyed in North America and you see why shale gas is creating a stir and intrigue throughout Europe. Possibilities for shale gas production in Europe are endless the American Association for Petroleum Geologists estimate a total resource of 510 trillion cubic feet (enough to power 27 European countries for over 30 years) of unconventional gas for Western Europe alone and the rewards for investors in the right place could be huge.
In addition, unlike the United States, where major gas companies started snatching up land and smaller companies as shale gas became more popular, Europe’s shale market is still in infancy. This puts the junior and smaller companies on the same playing field as the biggest players. If commercial amounts of gas are found on a junior company’s land, it’s not inconceivable that its share price will multiply by ten. At the very least.

Taking on the Bear

But the main attraction of shale gas in Europe, and what gives it government support across the board, is the increasing urge to break the stranglehold of the Russian gas giant Gazprom. Almost all of Europe is heavily dependent on the state-controlled Gazprom for the majority of their gas supply. Gazprom’s tap-twisting of Ukraine’s prices, through which flows almost 80% of Europe’s gas, has made it clear that Russia has a big stick and it is not afraid to use it.

With the installation of a pro-Moscow president in Kiev, Europe’s interest in a non-Russian source of gas has escalated, and should a U.S.-style shale phenomenon turn up in Europe, the energy landscape could drastically change.

Knowing Your Enemy: The Other Side of the Story

That is not to say that there aren’t any challenges facing the companies. The lack of equipment in Europe 20 fracturing sets vs. 2000 in North America is a major obstacle and at millions of dollars each, companies aren’t exactly falling over fracturing sets. Then there is the chance that the rush for land will lead to over-staking of territories, with more than one company claiming a piece of land. This will invariably lead to quarrels, even legal battles, which would delay exploration and create a mess for companies and shareholders alike. And after all this, no two shale basins are the same and techniques that work on one may not translate to the other. So companies looking for shale gas in Europe in largely unexplored regions face significant risks the initial production rate, its sustainability and costs of the well are all unknowns…and that’s precisely what makes it so exciting.

What Would You Do With A 670% Return? Shale gas is the hot topic in Europe today and we knew this would happen back in 2007. Our subscribers bought one .25 cent stock, then sold it at $1.80, netting a quick gain of almost 700%.

With the huge potential just waiting to be explored, investors need to have their ears on the ground to know about the “me too” companies, the ones that will hit the payload. For now, the watchwords are “oil shale in new markets.”[Ed. Note: Casey’s Energy Report has its finger on the pulse of the world’s most exciting energy plays… and its readers are the first to know which companies have the equipment, the management, the property and the expertise needed to make the big returns in oil shale.
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Energy Independence: A False Goal
By Vedran Vuk

Energy independence is the new American sacred cow. For many, it’s already up there with supporting the troops, the virtue of high school teachers, and the holiness of fire fighters. Hardly anyone disagrees with the new national goal. The only disagreements now are between drilling for oil and producing other alternatives.

Well reader, since no one else will do it, I must attack this concept. First, there is the myth that energy independence will make us safer and lead to peace without our reliance on the Middle East. A quick look back into U.S. history dispels this myth instantly. Natural resources have little to do with our foreign escapades just look at Vietnam and Korea. There’s absolutely no reason to believe that our aggressive foreign policy will change with energy independence.

In fact, things would likely get worse. Imagine how the post September 11th world would have turned out with nothing holding the U.S. back in the Middle East. The younger members of Casey Research such as me, Chris Wood, and Jake Weber, wouldn’t be analyzing stocks right now. Instead, we’d be analyzing roadside bombs and kicking down doors in Saudi Arabia as part of WWIII. If anything, energy dependence kept the worst war hawks at bay.

The world is a safer place because countries have grown more interdependent. A militaristic supergiant with a violent history and without dependence on others is a frightening prospect. Look at the difference between China and North Korea. Which country is a bigger threat? China has absolutely no reason to attack us because of our interdependence. On the other hand, North Korea is much more threatening not because they’re developing nuclear weapons, but because they’re not dependent on us. This makes them a loose cannon.

War and security are only the peripheral problems. The real problem with energy independence is the economics behind it. The idea necessarily implies price controls or nationalization of energy companies somewhere down the road unless the entire economy is transformed by wind mills and solar panels.

For an example, let’s say that the U.S. becomes 100 percent energy independent. We don’t get a single drop of oil from the Middle East. Suppose OPEC goes crazy and pulls back the oil supply more than ever. A barrel of oil skyrockets from $80 to $300 on the world market.

So, we’re safe, right? Not exactly. The idea of energy independence assumes that our oil companies will continue to sell domestically for $80 a barrel while the rest of the world sells at $300. Domestic oil companies would have to be insane to do this. By refusing the market price, they would forego $220 in extra profit per barrel.

The only way to maintain the $80 price would be either through nationalization of the oil companies or export restrictions with price controls. Naturally, price controls always create shortages exactly what energy independence tries to avoid. Nationalization would be even worse. The government might as well tax the oil companies for the $220 profit and redistribute it to the public in the form of gas vouchers. The result would be crushing one industry for lower gas prices nationwide. Rather than energy independence being a new concept, this sounds like the same old tax and redistribute.

The obsession with energy independence can be a dangerous vice. Just look to WWII Nazi Germany. Instead of continuing to trade with Russia for oil, the Germans were obsessed with controlling Russian oil fields. The opening of Operation Barbarossa against Russia easily marked the biggest mistake of the German command. In a sense, World War II was won thanks to German economic ignorance on energy independence. If they had continued to buy oil from Russia and had fought on only one front as a result, history could have turned out much differently.

Energy independence is just a back-door entrance for redistribution and price controls. Without government intervention, oil companies could not be stopped from selling at world prices. It’s just supply and demand as always. The location of the oil does not change the world market price.

Friday Funnies

Heaven or Hell?

While walking down the street one day, a “Member of Parliament” (or Congress) is tragically hit by a truck and dies.

His soul arrives in heaven and is met by St. Peter at the entrance.

“Welcome to heaven,” says St. Peter. “Before you settle in, it seems there is a problem. We seldom see a high official around these parts, you see, so we’re not sure what to do with you.”

“No problem, just let me in,” says the man.

“Well, I’d like to, but I have orders from higher up. What we’ll do is have you spend one day in hell and one in heaven. Then you can choose where to spend eternity.”

“Really, I’ve made up my mind. I want to be in heaven,” says the MP.

“I’m sorry, but we have our rules.”

And with that, St. Peter escorts him to the elevator and he goes down, down, down to hell. The doors open and he finds himself in the middle of a green golf course. In the distance is a clubhouse and standing in front of it are all his friends and other politicians who had worked with him.

Everyone is very happy and in evening dress. They run to greet him, shake his hand, and reminisce about the good times they had while getting rich at the expense of the people.
They play a friendly game of golf and then dine on lobster, caviar and champagne.
Also present is the devil, who really is a very friendly & nice guy who has a good time dancing and telling jokes. They are having such a good time that before he realizes it, it is time to go.

Everyone gives him a hearty farewell and waves while the elevator rises…
The elevator goes up, up, up and the door reopens on heaven where St. Peter is waiting for him.

“Now it’s time to visit heaven.”

So, 24 hours pass with the MP joining a group of contented souls moving from cloud to cloud, playing the harp and singing. They have a good time and, before he realizes it, the 24 hours have gone by and St. Peter returns.

“Well, then, you’ve spent a day in hell and another in heaven. Now choose your eternity.”
The MP reflects for a minute, then he answers: “Well, I would never have said it before, I mean heaven has been delightful, but I think I would be better off in hell.”
So St. Peter escorts him to the elevator and he goes down, down, down to hell.
Now the doors of the elevator open and he’s in the middle of a barren land covered with waste and garbage.

He sees all his friends, dressed in rags, picking up the trash and putting it in black bags as more trash falls from above.

The devil comes over to him and puts his arm around his shoulder. “I don’t understand,” stammers the MP. “Yesterday I was here and there was a golf course and clubhouse, and we ate lobster and caviar, drank champagne, and danced and had a great time. Now there’s just a wasteland full of garbage and my friends look miserable. What happened?”
The devil looks at him, smiles and says, “Yesterday we were campaigning… Today you voted.”

Congressional Tipping Point

This video is just down right shocking. I thought it was one of the funniest things ever until I read that the guy is ill. But sick or not, this guy certainly shouldn’t be allowed to hold a position in Congress if he’s that far detached from reality.

The Second Amendment

The Age We Live In

MiscellanyA new Casey phyle in Uruguay. Ron Y. has volunteered to organize a monthly meeting located anywhere between Montevideo and Punta del Este depending on where interested parties are located. Drop us a note at Phyles@CaseyResearch.com and we’ll connect you.
And that, dear reader, is that for today… and for this week. David will be back with you on Monday. Until then, thank you for reading and for subscribing to a Casey Research service. Have a great weekend!

Chris Wood
Casey Research, LLC

Daily Dispatch: What’s Up With Employment? – Dec 29, 2009

December 29, 2009 | www.CaseyResearch.com What’s Up With Employment?

Dear Reader,

I had planned on writing a Daily Dispatch both today and tomorrow, before shutting down again for the New Year holiday.

For personal and business reasons, however, I’m going to be brief today and give the Dispatch a holiday for the rest of the week.

Because so many of you have written, for which I am deeply appreciative, and because I have news, I have a follow on to yesterday’s story about the mysterious disappearance of Myles Robinson in the Swiss town of Wengen. Unfortunately, it is not good news – his body has been found in a neighboring village, miles from where he was last seen. While the details are still sketchy, it is unimaginable and nearly impossible that he would have decided on the spur of the moment to set out on a trek across the snowy alps in the middle of night, dressed in his casual going out clothes. The mystery continues at the same time that the tragedy deepens.

The Daily Mail is providing the best coverage of the story so far. Here’s a link for those interested.

Those who knew Myles will never forget him. And I personally won’t forget the message of his young death; cherish your loved ones, and live life to the fullest. Because truly, you just never know…

I’m now going to turn things over for a moment to Bud Conrad, who has been working ridiculously long hours on his 2010 forecasts for the upcoming edition of The Casey Report. The January edition, which will be released next week, also includes a Special Casey Report on Expatriation, featuring Doug Casey’s reflections from a life spent as a citizen of the world; Terry Coxon on expatriating your money; a collection of expat interviews from Uruguay, Portugal, Mexico and Argentina; and much more.
Thanks to a three-month,100% money-back-guaranteed trial, you can receive the next edition and the special report with no risk. Details here.

Employment Charts
By Bud Conrad

Unemployment is expected to rise into 2011 as population grows and few new jobs are created. Population growth requires 100k+ new jobs each month just to keep the unemployment rate unchanged. The calculations for the chart below suggest that new jobs do not start appearing in quantity until 2012.

Of course, the more unemployed, the bigger the unemployment payments:

Likewise, tax revenues decline due to the fall-off in wages paid to the employed.

The combination of rising unemployment, larger unemployment payments and falling tax revenues makes the already disastrous deficit worse. For the sake of its own budget, as well as the political consequences, the government wants to get people back to work and so this will be a rising focus of the administration.

David again, still on the topic of unemployment, there is this from our own Jake Weber…

Back in July, we first showed this chart of the states that have essentially bankrupted their unemployment insurance systems, and are now forced into borrowing from the Federal Unemployment Trust Account. Since then, the number of states relying on Federal money, in order to keep sending out weekly checks, has grown from 18 to 26. And the total amount borrowed has zoomed over 100% * from $12.0 billion to $25.1 billion.

This exponential growth trend is clearly not sustainable. We suspect that 2010 will see many state tax rate hikes on employers and employees, in order to fund their respective unemployment schemes. This will only further burden business’s ability to operate profitably, and reduce the take-home pay of already stretched consumers.

With 18 researchers now on staff at Casey Research, we continually monitor all the data and trends that impact your investments. Whether it’s energy or mining, tech stocks or commodities, bonds, interest rates, or currencies, the Casey team will keep you up to date and in the know. And, for a limited time, you can have the entire Casey Research team working for you for life, by becoming a Casey’s Club member. Find out how now.
Happy New Year!

And that is it for this abbreviated edition of Casey’s Daily Dispatch and for 2009.
It’s traditional at this time of year to reflect on the year gone by, a tradition I will mostly resist. In sum, it has been a good year, full of new challenges, new friends and new perspectives on life. What more can a person ask for?

As for the year ahead, if I was a betting man, I’d place a big bet that it is going to be a very interesting year, indeed. I look forward to sharing it with you.

Until 2010 then, thanks for reading and for being a Casey Research subscriber.

David Galland
Managing Director
Casey Research

Daily Dispatch: Health Care Hairball – Dec 21, 2009

December 21, 2009 | www.CaseyResearch.com Health Care Hairball

Dear Reader,

I hope this missive finds you in fine fettle, not suffering overly from the onslaught of holiday food and drink.

While I’m not exactly a social butterfly and with some groups hereabouts, my views make me something of a social outcast thanks to my far more charming wife, we do get invited to several parties around this time of year. Which, of course, I use to take an informal survey on the state of the economy.

This year my informal survey of the party circuit presents something of a mixed bag, though almost none of my business acquaintances provide an unabashedly enthusiastic report. Instead, the reviews tend to be couched in comparative terms with the recent depths. As in, “Well, things are bit better.” Or, “We’re seeing some pick-up.” But, no question, it’s not quite the disaster it was.

Which is what one would expect, given the unprecedented infusion of money into the economy over the last couple of years.

The new year looms large in its importance to everyone I spoke to. Because everyone recognizes that in 2010, the jury will almost certainly return its verdict on whether the global economy can strengthen its tenuous grip on recovery, or lose that grip and tumble back into the abyss.

That the jury is still very much out was confirmed to me when a serious money manager friend of mine revealed that he is almost entirely in cash and has next to no idea what to do with that cash.

Bonds? Not hardly. Not with the near certainty that interest rates are heading higher, under almost any conceivable scenario. If the monetary inflation begins to bear fruit in the form of rising prices, rates are going higher in a hurry. Likewise, if the economy stumbles, the combination of rising default risk and a further layering-on by the government of yet more stimulus, with an increasing share of same outright monetized, that will also send bond yields higher and prices lower.

So, bonds are pretty much a lose-lose proposition at this point. Given that this is a huge market on the order of $80 trillion globally, about twice the size of the equity markets a bad year for bonds is a bad year indeed.

Stocks? Unlike bonds, which tend to move in concert based on the interest rate environment, it is usually a mistake to look at stocks in the aggregate. That’s because if you look hard enough, you can usually find a compelling value, or a sector that is unloved and due for an upward rotation. That said, as you can see from the chart here, based on trailing 12 months earnings through 3rd Quarter 2009, the P/E ratio of the S&P 500 at 74.68 (using current price) is not cheap.

Even so, shoveling hundreds of billions of freshly minted dollars into the economy in 2010, as is the clear intention of Team Obama, could help the broader market hold its own over the course of the year ahead. Of course, you have to expect sharp sell-offs as Mr. Market periodically glances about and, like a giant ground hog, notes that it’s not yet safe to come out of his hole because of the large shadow of economic hurt hanging overhead.

So, the watchwords for the year ahead have to be “caution” and “careful selection.”
Commodities? I think you know how we come down on this asset class. The industrial commodities had a tremendous run-up in 2009 and are likely to run into turbulence should a second leg down for the global economy materialize in 2010. Our view on the precious metals is far more sanguine, for much the same reason we are negative on bonds.

Namely, should a real recovery materialize, it will unleash the price inflation we see as inevitable; once banks, businesses, and people come to feel they have enough cash, they’ll begin lending and spending again in earnest. Conversely, another whack up the side of the head of the economy will have governments scrambling to apply thick plasters to where it hurts plasters made up of yet more fiat money. The market will see these actions as further evidence that the government is sticking to its current inflationary course, damn the torpedoes and damn the inflation.

So, precious metals still seem a win-win to us.

A year from now, when we look back at 2010, we’ll find any number of adjectives to describe the year, but I sincerely doubt “uninteresting” will be one. Keep your head down and your powder dry.

Hello, Health Care Goodbye, Dollar

One of my cocktail chats was with an older woman who is a staunch supporter of the current president. For good reasons, I am forbidden to broach politics at these affairs but I am able to pipe up if someone kicks the ball in my direction, which this individual did by saying, “I’m almost afraid to ask, but what do you think about the job that President Obama is doing?”

Rather than launch into a dissertation, I turned the question around and asked her how she thought the big O was doing.

“Oh, he’s doing fine.”

“And what has he accomplished?” I asked.

“A lot,” she said, “health care, for example.”

“Interesting,” I opined, “because what I see is that all we are going to get is a mish-mash of new taxes and regulations designed to avoid stepping on the toes of any important lobbying groups. Which is to say, just a big, slimy hairball of new bureaucracy that doesn’t really benefit anyone.”

“Well, yes,” she admitted, “it does seem a little convoluted.”

“You know,” I added, because I believe it to be the case, “but if my fellow Americans in this great democracy have decided that they want free health care for all, which I disagree with, then they should have it. But the government should have then cast an eye around the world for the best of the worst universal coverage plans and set about implementing that hopefully with some American improvements. Instead, they did the classic political hyena feast with everyone tearing at the legislation, snarling when any other politicians approached the meat of a favored political donor, with the net result being a gruesome carcass that will do nothing but stink up the place.”

Or words to that effect, though I hope I didn’t mix my metaphors quite so badly.
Even my companion in the casual cocktail chat had to agree with me that the new health insurance plan now speeding its way into law leaves much to be desired but she could have just been humoring me, given that she was edging away to a safe distance even as she concurred.

That plan, however, is now expected to cost a smooth $1 trillion over 10 years, adding another $100 billion a year in government spending.

If I had the time, I could pick apart the economics behind the plan, but as American Thinker has already done so, I will link off to their analysis.

I would share one worthy quote, though, as to how the government is trying to rationalize the spending.You get “deficit reduction” by cutting Medicare and raising taxes by more than $1 trillion: Medicare and other program cuts of $483 billion, and an extra $521 billion in new taxes and fees.
Here’s the article.

But as our own Bud Conrad points out rather skeptically, I thought the odds of the government actually getting around to cutting Medicare and other programs by $483 billion are pretty slim. Therefore, it’s almost a sure thing that the financial outcome of this new mega-legislation will be far, far worse than the government says it will be.

Time for Some Clarification?

Ever since the U.S. government invaded Panama and whisked that sovereign country’s president off to a Florida jail cell, I have had a nagging sense of bewilderment at what seems to be a certain growing disconnect in matters of international affairs.

Examining the evidence, it seems as though the world has rolled over for the U.S. Empire and is now capitulating to pretty much every demand out of Washington, no matter how egregious.

Per the case of Panama’s Noriega, how would we here in the U.S. react should a platoon of crack Iraqi paratroopers storm the Texas compound of George Bush Jr. and take him into custody for destroying their country an act that is demonstrably far worse than any real or imagined crime committed by Noriega against the U.S. prior to his incarceration?

The repertoire of U.S. actions, which in recent years has included launching full-scale “preemptive” strikes, as was the case in Iraq, and drone attacks in other countries, begs the question of what role it is that the U.S. is now playing on the global stage? Are we now the de facto global government, able to act at will whenever and wherever we choose? Are the laws that limit the actions of other countries not applicable here?
Some recent actions that have caught my attention.
Drug terrorists in Ghana. It was reported last week that three men from the African nation of Mali were busted in Ghana for conspiring to sell drugs in Europe. But it turns out that the arrests were made in a sting operation run by the U.S. Drug Enforcement Administration (DEA), and that the men were then stuck on a plane and shipped to New York for trial. Apparently, the DEA decided that the men might have an affiliation with Al Qaeda, and that along with a threat and/or payoff to the right people in Ghana it was necessary to extradite the men to the U.S. for trial. Read the article from the LA Times and see if you can find any credible rationale for us sticking our noses into Ghana to arrest men from Mali for planning on selling drugs in Europe, with zero U.S. connection that I can discern.
Open up, Mr. Karzai, it’s the FBI. A story that caught my attention over the weekend involves an old blood feud between relatives of Afghan President Harmid Karzai, a feud that resulted in the recent shooting death of Waheed Karzai, an 18-year-old nephew. The press reports discuss casually that the FBI is on the case, as if it is entirely normal and to be expected. Have you noticed how the FBI has been involved in a lot of this sort of thing around the world? In fact, there’s hardly a serious international incident these days that doesn’t cause the FBI to grab for their suitcase handles. Including, apparently, a murder in Afghanistan. Why? It must be noted that murderers in Baltimore or Chicago enjoy no such attention from the G-Men. So, what are we doing? What is the precedent? Again, I’m just asking, because I really don’t understand what our government is doing. Here’s the story.
The $536 million Credit Suisse fine. I also thought it was interesting that the U.S. government found that Credit Suisse violated international sanctions against doing business with Iran, and unilaterally used its muscle to wrest a $536 million fine out of the bank. And that, further, about half of the monster fine is to go to the U.S. federal government, with the balance split between New York City and New York State. Maybe you understand why the U.S. alone gets the fine, and why half is dedicated to New York, because I can make no sense of it. (And, by the way, the prosecutors are so satisfied with the result that they are now apparently limbering up to apply the same treatment to a whole slate of other international financial institutions.) Meanwhile, there’s no noticeable protest from the Swiss government about the hard treatment one of its leading banks is getting. Here’s the story.
Geneva Convention? I seem to recollect that when Country A invades Country B, and the soldiers of Country B fight back and are captured, they are covered by certain international laws, most famously the Geneva Convention. Yet, such niceties seem to have been thrown out the window by the Bush administration. Oddly, Team Obama has continued to advocate much the same policies. While there are many examples one could point to quizzically, the case of Mohamed Jawad, an Afghan teenager who was captured and charged with tossing a grenade at a U.S. jeep during the war, will make the point. On being captured, he was tortured, wrapped up, and sent off to Guantanamo, where he has been cooling his heels since 2002.
Do as we say, or else. The U.S. Congress recently passed HR 4213, a bill that includes the following provision:

“Reporting on certain foreign accounts: Requires foreign financial institutions, foreign trusts, and foreign corporations to obtain and provide information from each of their account holders to determine if any account is American-owned. Foreign financial institutions would also be required to comply with verification procedures and to report any U.S. accounts maintained by the institution on an annual basis.

“Any foreign financial institution that did comply with the new verification and reporting standards would be subject to a 30 percent tax on income from U.S. financial assets held by the foreign institution.“

In other words, just because it can, the U.S. passed legislation demanding that every financial institution in the world spend time and money trying to ascertain if their account holders are from the U.S. and if so, they must break whatever their own national or corporate privacy regulations dictate by turning said account holders over to the U.S.
Taken in small doses, these and dozens of similar incidents represent interesting geopolitical oddities and, in the case of the Afghanis, an artifact from the nation’s strong reaction to 9/11. But viewed in the totality, these “our way or the highway” actions paint the picture of a changed role for the American Empire that, I believe, warrants some internal debate and clarification on just who we as a nation want to be.

It seems that the late-stage U.S. Empire is assuming all manner of new and far-reaching powers unto itself. When we can so casually toss the Geneva Convention aside and get away with it, or have prosecutors from individual states levying crushing fines on foreign corporations for defying international sanctions why, just about anything and everything is fair game. And given the dire financial straits of the empire, there is the very real risk that it could get much worse.

In time, however, this sort of thing is likely to beget a blowback and when that happens, it will constitute more than just the refusal of foreign banks to have anything to do with U.S. individuals. Foreigners will stop wanting to do business with American corporations, stop cooperating on security issues, and maybe even feed us back our trillions of dollars they now hold.


Over the weekend, I took the kids to see the new blockbuster, Avatar. Despite being somewhat fatigued due to the aforementioned appearances on the local party circuit, I stayed riveted to the screen for the entire movie.

(As some of you may recall, my movie rating system revolves around “slept a lot,” “slept a little,” “didn’t sleep at all”… this was definitely in the latter category.)

The film is graphically stunning, very well crafted and I even liked the story, despite the obligatory odes to unspoiled nature and man’s devastating effect on same. Or the fact that the bad guys are businessmen and miners at that. But the storyline doesn’t overwhelm the movie’s far more interesting science-fiction aspects, the cinematography, and the fast-paced but not over-the-top action sequences.

While the film is shot in 3-D, James Cameron, who wrote and directed it, didn’t make much use of the technology at least in the sense that things are constantly flying out of the screen at you. And while I have heard complaints that some people were made nauseous by the effect, there were only a couple of passing scenes in the beginning that had that brief effect on me. Even so, the pacing of the film is very tight, and so the 2 hours and 40 minutes go by quickly.

The movie is rated PG-13, but I think it’s safe for any kid over about 8 or 9… and anyone older than that should enjoy it.

You’re Invited

Before I sign off for the day, I wanted to mention that, for a limited time only, we are reopening memberships to Casey’s Club the unique membership organization that allows you to receive all of our paid Casey Research services, and more, for the rest of your life. And for a deeply discounted one-time initiative fee, and a low annual maintenance fee.

The last time we opened Casey’s Club for membership, the number one question we received was “What’s the catch? Why so cheap?” All the details are in the link just below but don’t put it off, as this offer ends in January.

Casey’s Club Membership Open

And that, dear readers, is that for today. As I do, I see the stock market is up pretty strongly, and gold and silver are weak again.

Sit tight and you’ll come out more than alright.

Until tomorrow, thanks for reading and for subscribing. Don’t miss out on Casey’s Club… it is, by far and away, our best offer. And of course you can apply any outstanding balance on your current subscriptions to your initiation fee. Details here.

David Galland
Managing Director
Casey Research

Daily Dispatch: Weekend Edition – Nov 14, 2009

November 14, 2009 | www.CaseyResearch.com Weekend Edition

Dear Reader,

Welcome to the weekend edition of Casey’s Daily Dispatch, a compilation of our favorite stories from the week for the time-stressed readers.

Of course, if you want to read all of the Daily Dispatches from the week, you may do so in the archives at CaseyResearch.com.

Reign of Error

As you can see in the chart below, the employment situation in these United States is unlike anything seen in many decades. In fact, were you to calculate things as they did, “back in the day,” you’d have to look to the Great Depression to find a proper comparison.
Back then, unemployment reached approximately 25%. Today, when you include those who have given up looking for work, or who have been forced to work part-time, the total comes to 17.5%. The chart clearly shows the trajectory of the trend is not going in the right direction.

In response, El Presidente told us last Friday that he and his minions are pulling out all the stops to assure that “Americans who want to find work can find work and all Americans can earn enough to raise their families and keep their businesses open.”
Under consideration, we are further told, is a tax break for companies to hire new employees.

While I certainly am in favor of tax breaks of any and all description, I have to wonder just how much of a tax incentive the government would have to offer before businesses would want to run out and hire new employees?

Especially given that virtually every business survey indicates that corporate executives remain concerned about the economic outlook. As such, human nature beckons the executive team to cut all non-essential expenses, shrink inventories, raise cash, and otherwise hunker down. Survival of the fittest pretty well sums it up.

Hiring new employees runs contrary to that mindset. Especially given that, in these United States, hiring an employee requires not just paying the wages but entails a multitude of costs, from those associated with training to a myriad of employment-related payroll taxes, including unemployment taxes, Social Security taxes, Medicare, to sundry benefits, furniture, hand soap and tissue in the corporate facilities, periodic outbreaks of employee litigation, and ongoing compliance training for anyone involved in any work involving regulated activities. Also to be paid, of course, are the HR personnel necessary to keep track of the whole tangled ball. And that’s just for starters.

Soon, costs associated with mandatory health care will be demanded and, most likely, a levy to offset your new worker’s “carbon footprint.”

Speaking broadly, the cost of the average employee in the U.S. private sector comes to $29.31 per hour. Whipping out the calculator, we soon discover that the annual tab for having the next desk occupied comes in at $60,964.80.

(The wages and benefits of federal employees tally in at about 50% higher, but in honor of their tireless service to the public, we’ll leave them out of the discussion. They are worth every darn penny in lifetime pension benefits, paid holidays, and free insurance they earn! Right?)

At the moment, using the government’s own, somewhat optimistic calculations, there are on the order of 15.7 million Americans unemployed. Of course, no economy enjoys full employment, so we’ll turn the dial only back to December of 2007, the month that the recession officially began. At the time, the unemployment rate was 4.9%, versus 10.2% today. Since that momentous month, 7.3 million jobs have been lost.
Replacing the calculator with a spreadsheet and plugging in the numbers tells us that giving all those folks a job at average wage levels, either through private employers or government work projects, would amount to $445 billion a year.

Which, when considering the planned trillion dollars plus annual deficits contemplated by the administration, seems almost reasonable.

Of course, this overlooks the reality that the money used to pay all those workers would ultimately have to come from taxpayers, including the companies themselves, making it essentially a zero-sum game. Worse, it would be a game played against a backdrop of ballooning government debts.

There is, of course, a much simpler and more sustainable approach. Namely, stop the madness and get out of the way of wealth creation. Or, put another way, it is time to stop asking what the government can do for the people, but rather what the government can do to stop tripping up the people.

Make no mistake, the U.S. is in a bare-knuckle competition with the rest of the world, starting with China where, according to Bureau of Labor Statistics estimates, the average worker earns on the order of $0.67 an hour, or $1,393 per annum. Which is to say, the average Chinese worker earns less in a week than the average Yankee earns in an hour.
Sure, we could look to Uncle Sam to do our competing for us. Say, by starting a trade war and slapping tariffs of up to 99% on Chinese goods, but that’s a sure-fire way to create an entry in future editions of the history texts titled “Smoot-Hawley Redux, 2010-2011.”
Instead, given the remaining good, albeit somewhat ragged, reputation of these United States as a reasonable place to do business, the government could simply step back out of the limelight it has so eagerly sought these many decades and especially in the recent months and strip away most if not all of the disincentives to starting operating businesses. One-off tax incentives are fine and all that, but what is desperately needed is a 180-degree change in the bureaucratic mindset.

Were such a change of thinking to materialize, the list of options available to encourage the economy to get out of its slump would expand exponentially.

Put another way, the alternatives being contemplated under the current regime are, loosely speaking, to (a) destroy the dollar, (b) start a trade war, (c) tax the productive into penury, and (d) beggar the next ten generations.

Adopting a fresh new mindset that reduces the government’s role in the economy to that of an extra — instead of it being the director, producer, and all leading actors, as is the situation today — would vastly expand the options available to stimulate the economy.
Here they are:

(a) cut personal and corporate taxes to a level that would have entrepreneurs the world over clamoring to open up shop and do business here,

(b) slash government spending to the bone, further requiring,

(c) a sharp reduction in the expensive and time-draining bureaucratic meddling that hinders virtually every economic activity, and

(d) the end of funding for foreign adventures, subsidies, and overseas bases, therefore kicking off a new Pax Americana, all of which would quickly

(e) reestablish the country’s fading status as the bastion of free enterprise in an increasingly statist world.

Truly, setting the right example today could have as much of an impact on the world as did the group of visionaries that launched America, Version 1776.

Call me Pollyanna, but I cannot help but think as I look down the path we are on, versus the path just described, that the latter is clearly the better of the two. Because the first, this Reign of Error, can only lead to an economic guillotine.

Unfortunately, I can’t see how we are going to get off the current path, not without first letting it run its insane course.
Speaking of which…“President Obama has increased funding for staffing at the U.S. Equal Employment Opportunity Commission, and is adding labor economists who will be looking for [trends that indicate] systemic discrimination patterns,” said Judy Keenan, a trial attorney with the New York District office of the EEOC who served as a panelist at the LeClairRyan conference. “So companies that use credit checks or even criminal background searches as part of the employment process may be reviewed to see if their investigative actions have a disparate negative racial or gender-based impact.”

The EEOC is also looking into alleged cases of wage discrimination, where employees who engage in similar work are paid differently according to their nationality, Keenan said.

The EEOC is also looking carefully at severance or separation agreements — where a company provides an involuntarily terminated employee with cash or other benefits in return for the employee’s agreement not to sue over the layoff, Keenan said.

(NJBiz, “Employers will face increased workplace scrutiny”, Nov 9 2009)
And people wonder why so many American companies have outsourced overseas? It’s a trend that will continue until, of course, the government passes new tax legislation to penalize it. That cannot be far away.

While hoping for the best, it is imperative to prepare for what’s coming. That people are doing just that can be seen in the gold price, which hit a new record level as I wrote this.

The 138th Reason We Like Gold
Jeff Clark, Casey’s Gold & Resource Report

There are so many reasons every investor should hold gold that it’s a chore just to track them all. Here’s one you don’t see much press about, and yet it begs for higher gold prices in and of itself.

The list of mega gold deposits waiting in the wings for production is getting shorter. And of the 15 largest developments in the world, most are in politically risky countries, and in that list we now have to include the U.S.

Gold Reserves (million ounces) Location
90 Alaska
Sukhoi Log
61 Russia
60.5 Russia
45 British Columbia
Oyu Tolgoi
44 Mongolia
Reko Diq
43 Pakistan
Donlin Creek
40 Alaska
Pueblo Viejo
31 Dominican Republic
Cerro Casale
28 Chile
25 Mexico
Las Cristinas
23 Venezuela
22 Chile/Argentina
21 DRC
Detour Gold
21 Canada
20 Russia

As with oil, much of the easy gold has already been found and dug up. And, per above, of what remains in the earth’s crust, an increasing number of those ounces are in countries with substantial levels of political risk. A couple more on this list have development challenges so extreme that they may never pour a doré bar or could at least see extensive delays.

World gold production is already in decline, falling from 81 million ounces in 2005 to 75.7 million last year, despite the clear financial incentive to produce more. And the dearth of remaining big deposits doesn’t provide much hope that the production decline will turn around anytime soon.

[For more information about gold and gold stocks, including a must-read article on the reasons why Jiao Sixpack the Chinese equivalent of Joe is about to flood into gold, silver, and the related stocks, try a 3-month subscription with 100% money-back guarantee to Casey’s Gold and Resource Report. That’s $39 per year that’s more than worth it.]

Follow the Gold

Louis James, another of the always moving senior members of the Casey Research team, is currently in Chile, chasing up a major new deposit being developed by a highly prospective and very well-run Canadian-listed junior exploration company. Here’s a flash report…I’m in Copiapo, northern Chile, on the edge of the Atacama desert. But I’m not here to taste Atacama wines, I’m here for the Maricunga Gold Belt. That’s because this is one of the few places in the world where companies are making new elephant-size gold discoveries (up to 10 million ounces of gold, some larger) in a politically stable, pro-mining jurisdiction, and I wanted to gather local intel on a couple of particularly promising plays.

I’m very encouraged. This place is really booming. Global economic crisis? Not here. I’m writing from a brand-new hotel that wasn’t even a hole in the ground last time I was here. From my window, I can see mine dumps on the mountainsides outside of town. Are people upset about the environment? Not any I can find. And because I am fluent in Spanish, I can and do ask just about everyone I come into contact with. They’ve got jobs and are building new homes. On the way into town, I saw that one enterprising local entrepreneur had converted what had been a vacant lot into a sales lot for haul trucks and other mining equipment, ready for the highest bidder.

Barrick and Kinross are reported to have completed a final feasibility study on their nearby 25.4-million-ounce Cerro Casale gold project, but have not yet published the results. As you might imagine, lot of people here are waiting eagerly to see if the partners will go ahead with the project, as the initial capex for the mine’s construction in the pre-feasibility study weighed in at $3.65 billion. There are literally thousands of jobs in the balance.

For us, a green light on Cerro Casale will mean even more and better infrastructure in this already active mining area. And it will mean a lot of attention drawn towards the juniors operating in this area, especially the best of the best we are now completing our due diligence on for Casey’s International Speculator.

It’s as close to a certainty as you can have in this business that early investors make big money any time a micro-cap junior explorer can develop a serious new deposit in a mining-friendly jurisdiction with existing infrastructure. That’s what we’re looking for, and finding, here in the Atacama.
(Don’t miss Louis’ final findings on the latest chapter in his quest to find triple-digit profits from well-positioned junior exploration companies including a brand-new company recommendation, a gold producer operating in Mexico whose shares look ready to take a moonshot. Getting started with a fully guaranteed 3-month trial to Casey’s International Speculator is as easy as clicking here.)

The Complex Energy Complex
Dave Hightower, November 2009

In the energy complex, a combination of surging, inelastic global demand, an ineffective global refining industry, and periodic supply setbacks are setting the table for a move to $140 per barrel crude oil prices.

While the groundwork for the historic 2008 price spike could be attributed to the double hurricane strike on the U.S. Gulf Coast’s refinery industry in 2005, the real seed of the rally probably started in 1995, when Chinese petroleum demand first began to exceed domestic supply. Now in 2010, Chinese crude oil demand is expected to be almost twice their domestic supply.

This growth in Chinese demand alone has required another 4 million barrels per day of world oil production. While this increase in world demand grew gradually over the course of a decade, and did so against a background of oil prices not really showing a significant premium until well into 2004, it was not surprising that global supply was outstripped by consumption. In other words, low prices did nothing to encourage exploration or to restrict demand.

Those who think speculation was responsible for the 2008 spike in oil prices need to realize that the best-case forecast for the daily world oil surplus fell below 1 million barrels per day in the months ahead of the peak. Just meeting world demand required almost flawless oil production, unhindered transportation, and, perhaps the hardest element of all, a fully functioning refining effort.

While no one expects U.S. refiners to operate at a loss to ensure the U.S. maintains an adequate supply of fuel products, the refinery industry can to a certain degree influence its own profit margins. Simply, the processing of too much crude oil into end products usually results in a product glut, while processing too little crude oil into end products results in a shortage.

By our calculations, processing too little was the source of four major energy bull market moves from 2000 to 2009. At the end of 2009, the U.S. refinery operating rate dipped down to just 80% of capacity, leaving 20% idled. Poor refinery margins certainly encouraged and possibly justified the slowdown, but if these facilities are left idle for too long, the oversupply of gasoline and distillates will quickly turn into another shortage.

The “Oil Market Manipulation” Argument Is Flawed

The argument that speculators caused the 2008 rally in oil prices is highly suspect, considering that the peak of speculative interest in crude oil futures took place four months ahead of the peak in prices.

Specifically, the Commitments of Traders (COT ) reports show that the net long positions in crude held by speculators fell from 149,000 net long in March 2008 to 83,945 by July 15th, four days after the August 2008 contract peaked at 147.27.
Furthermore, the spec long position peak in 2008 was not even as high as the previous spec long record of 152,000, posted July 31, 2007. If the specs caused the spike in oil prices, why didn’t oil hit the $140 per barrel level in 2007? Apparently it is an “inconvenient truth” that the world petroleum rally was the result of massive annual deficit readings in 2006 and 2007.

Another inconvenient truth is that U.S. EIA weekly motor gasoline stocks were falling to a modern-day record low in the lead-up to the peak in prices. And that U.S. heating oil stocks in early 2008 fell to a modern-day low of just above 20 million barrels!

The subsequent decline in prices, while welcomed in the short term, is likely only temporary. At the 2009 summer lows, nearby crude oil futures fell to within $4 of cost of production for Canadian tar sands oil. This further suggests that it is unrealistic to pine away for a return to $35 per barrel crude oil. Clearly, the world now depends on more expensive sources of oil. Cheaper oil prices will mean less oil supply.

An Important Time for Market Signals

The world is facing an extremely critical junction. We can attempt to regulate commodity trading, as the government is now contemplating, and limit the necessary “investment” required to feed, power, and clothe the world and in turn suffer the ravages of starvation, conflict, and commodity inflation or we can facilitate “investment” and allow the world the ability to cope with the massive changes wrought by globalization.(David again. Who’s talking about oil these days? Answer: Almost no one even though prices have doubled from the recent bottom. And it is going far, far higher. If you do nothing else, do yourself a favor and sign up for a year of

Casey’s Energy Opportunities.
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For active traders only, Dave Hightower and his team offer a full-contact trading service, Casey’s Trend Trader, that uses a strategic combination of futures and options to take advantage of fast-moving opportunities in any and all of the major commodities markets. This service is for high-net worth, sophisticated investors. If that’s you then learn more by clicking here.)

Don’t Do It

Looking up Afghanistan in the CIA Fact Book reveals the nation’s official population tally at some 28 million.

But that number is totally, dangerously wrong.

Dangerous because the erroneous population count sets the stage for a certain failure of the United States military’s efforts in Afghanistan, and even raises the possibility of a nuclear conflagration.

I will attempt to quickly explain.

The story begins with an Englishman by the name of Mortimer Durand who, in 1893, was tasked with drawing a border separating Afghanistan from British conquests in India. Other than dictates from the Raj to assure the Brits kept the strategic parts, Durand’s line was arbitrary.

In this way was divided the population of Afghani Pashtuns, the region’s dominant ethnic group.

On one side of the invisible line, in modern-day Afghanistan, live about 12 million Pashtuns (out of a total population of 28 million). Tucked up against the other side of the line, in what now constitutes Pakistan, live another 25 million Pashtuns.
Simply, they are members of the same large family a family with a long and colorful history of putting aside their internecine shoot-ups in order to come together to wear down and ultimately defeat far stronger and better equipped invaders.
Now, look at the map here.

As you can’t miss, there is very long and uninterrupted border between the countries of Afghanistan and Pakistan. A border no more substantial than the ink Durand used to draw it over a century ago.

Across that border, in a region of incredibly hard terrain, flows an almost uninterrupted exchange of relatives, food, guns, refugees, and warriors in need of rest and sustenance, donkeys, RPGs, and any other thing the Pashtuns and other Afghani insurgent groups want to move in one direction or the other.

In the past, I have referenced (and recommended) David Galula’s excellent manual Counter Terrorist Warfare: Theory and Practice, the very same manual that General Petraeus, on taking the reins in Iraq, purchased in bulk for his officers. In his book, Galula lays out the required conditions for success in fighting a guerilla war. At the top of the list is that the insurgents can have no safe sanctuary to which they can retreat to for rest and resupply.

Simply, the Pakistani Pashtun problem alone makes sending more troops into Afghanistan a non-starter. The border separating the Pashtun populations is too long and too rough to control. And so the insurgency will never want for supplies, sanctuary, or fresh soldiers for its struggle. That gives it a staying power well beyond that the latest crop of invaders will be able to manage as the months and years string out and the casualties rise.

Of course, the U.S. could decide to take the war to the Pakistani Pashtuns, using more than just drone strikes. But such an invasion would necessitate pacifying a large, well-armed, and hostile population. It would also likely result in the toppling of our allies in the fragile Pakistani regime. That could then require an even broader action or risk Pakistan’s nukes falling under the radicals’ control. And that would quickly bring India into the picture.

In other words, should the U.S. decide to invade nuclear-armed Pakistan, the whole situation would quickly get so wiggly that there’s no telling where it could lead, but it’s doubtful it would lead anywhere good.

Which leaves the U.S. and its allies with only two alternatives. Get out or continue trying to pacify the Pashtuns (among others) in Afghanistan, while a huge number of their brethren are actively are cheering them on and providing material support from just across Durand’s line. While I am no expert, I have read enough history and Galula’s manual to form the strong opinion that such an effort will end poorly.

Maybe we can get tougher? Really take off the gloves and all that stuff?

Well, it’s hard to imagine how we could get tougher than the Soviets, or Genghis Khan, or Alexander the Great, or all the other invaders that didn’t just capture the region but actively tried to exterminate the population. The Soviets, much to their discredit, actually went so far as to drop bombs designed to look like toys, in order to blow off the arms of the next generation of mujahedeen.

The Afghans are still standing.

Then there’s the all-important question, what exactly is it we are fighting for? On that topic, I’ll have to defer to someone who purportedly knows — or should know: Ambassador Richard Holbrooke, the U.S. special envoy to Afghanistan and Pakistan. Two months ago, he was asked which benchmark the U.S. was using to measure its success and progress in Afghanistan. His response, “We’ll know it when we see it.”

So, why am I writing this article, knowing that it will offend pro-war readers?
First and foremost, because of my distain for foreign adventures and my hope that a pushback from an increasing number of Americans will keep Obama from going deeper into Afghanistan. Secondly, there is a moral issue here. We can’t very well call ourselves the land of the free if we are fighting wars here, there, and everywhere for objectives that even our senior diplomat in the area is unable to enunciate.

And then there is the less important, but still important, question of finances.
Namely, the U.S. is already broke. Thus, the idea of spending trillions of dollars on a war with no clear objective and no clear enemy is not just stupid, it is madness. I read recently that the U.S. spends $350 million a day on fuel alone in Afghanistan and Iraq. Money that is ultimately being spent to support a fraudulent regime that condones the sort of religious intolerance you’d expect to be championed by a mullah from the Middle Ages.

Finally, there is the truth inherent in the old saying, “War is the health of the state.” This war, like so many others, opens the door for the government not only to rationalize the sort of fiscal irresponsibility just discussed, but also to exert more and more control over the populace, all in the name of “national security.” Over the last 100 years, the U.S., despite its high-road self-image, has engaged in more wars, in more countries, than all of the other Western powers combined. Of course, some have made more sense than others. But this one makes no sense at all.

In my opinion, having fired off some shots that cost far too many lives, it’s time for the U.S. to end this madness and head home. Sticking our face ever deeper into the dark hole that is Afghanistan is not just futile, it’s crazy.

Don’t do it.

(And, should Obama opt for an escalation in Afghanistan, run, don’t walk, to the nearest gold window. Because there’s only one way to pay for the massive ongoing operational costs and that’s inflation.)

And that, dear reader, is that for this week. See you on Monday!

David Galland
Managing Director
Casey Research

Daily Dispatch: Weekend Edition – Oct 31, 2009

October 31, 2009 | www.CaseyResearch.com Weekend Edition

Dear Reader,

Welcome to the weekend edition of Casey’s Daily Dispatch, a compilation of our favorite stories from the week for the time-stressed readers.

Of course, if you want to read all of the Daily Dispatches from the week, you may do so in the archives at CaseyResearch.com.

Black Gold… Green Oil
By Michelle Burgess

This summer and early fall, there’s been a flurry of new green announcements from the world’s major oil firms. ExxonMobil, Chevron, Valero, Statoil, Marathon, and Sunoco have all thrown their hats into the green ring.

According to a recent article in Newsweek:The list [of Big Oil investors] goes on. And this time it’s the real deal. It’s not just that these projects involve bigger money, …it’s that companies are actually beginning to think about alternatives not just as a tool for greenwashing (throw up a few solar panels here, sponsor a conference on wind energy there) but as real businesses that might turn real profits—or at least help make fossil-fuel production more profitable. The catalyst is that governments are moving to force industry to cut carbon emissions, creating a new “long-term regulatory reality” that favors alternative energy, says PFC Energy chairman J. Robinson West.

Meanwhile, President Obama’s green-stimulus efforts and China’s massive investment in alternatives have created a serious market for green technologies.
The fact that nations like Russia and Venezuela are pushing out big oil companies also gives CEOs an incentive to consider green alternatives. So does the fact that oil companies are among the world’s biggest energy users, and will ultimately need to offset emissions. “I believe the large integrated oil firms will eventually become major players—perhaps even the dominant players—in alternative energy,” says Don Paul, a former Chevron executive who now runs the University of Southern California’s Energy Institute.

Big Oil is taking a closer look at how [renewable energy] might be used to increase efficiency internally, or to free up increasingly profitable fossil fuels, like natural gas, for commercial sale. When you consider that the top 15 oil and gas companies have a market capitalization of $1.9 trillion, it’s clear that these firms themselves have the potential to be major renewable customers.
Oil companies are also taking a harder look at how to make their own business models work in the alternative sector. Companies like Chevron are capitalizing on geological expertise to build large geothermal businesses.

Big Oil is going to be an increasingly important investor in alternative energy. Venture-capital money has dried up. But with oil at $70 a barrel, the internal venture arms of the major oil firms are increasing the amount and percentage of investment going to alternatives. Historically, when Big Oil spends a dollar on research, it will spend many hundreds more to bring a product to market. If the new projects coming online this summer are any indicator, alternatives may soon be awash in black gold.
U.S. government subsidies into renewable energy are forming a green bubble. One that’s steadily inflating. But the catch is: only one alternative energy is currently economically viable before subsidies… and that’s geothermal.

That would explain the interest Big Business has in the sector.
Another member of the oil community, Statoil, has formed StatoilHydro, to focus on advanced geothermal development.
Google.org — the charitable wing of the search engine giant — has become the largest funder of enhanced geothermal research in the country, outspending the U.S. government.
Alcoa, the world’s largest producer of aluminum, is actively participating in the geothermal Iceland Deep Drilling Project (IDDP).
And then there’s the mining industry.
Lihir Gold has already used geothermal resources to build a power plant, which today provides green electricity for their mining operation in Papua New Guinea.
BHP Billiton is currently investigating the potential for using geothermal heat in the Olympic Dam region of Southern Australia.
The smart money likes geothermal.

To learn how you profit from the growing green bubble, sign up for a 3-month trial subscription to Casey’s Energy Report by clicking here now.

Why Gold Has a LONG Way to Go
By Jeff Clark, Casey’s Gold & Resource Report

A couple weeks ago, I had my TV tuned to a business show that loves to give predictions on the markets and the economy. On that day, one of the program’s regular guests declared it was time to “short” gold, that it had reached its top, and that the precious metals bull market was over. I’ll try to be nice in my rebuttal.
So, what was his reasoning: technical analysis of wave counts? falling demand? a telling ratio? sun spots? No, he noted that upscale department store Harrods in London began selling gold bullion and coins “over the counter,” ergo, the top was in. Nice try, “Bert,” but this is amateurish. You really shouldn’t be playing with the big boys if that’s the basis of your call.

Yes, gold will someday put in a top, and since the gold price is largely determined by psychology, the end of the bull run will be marked by behavioral types of signals. But calling a top in gold now is like declaring that WWII was over because the Allies won a small skirmish in early1942. To have made such a statement, based on a small, isolated event, ignored the greater forces that had yet to play out and would have made any journalist or military strategist look foolish indeed.

And here’s why Bert looks equally silly today…

If the top were in, we’d be in the midst of an all-out Mania. Are we? Do you get the impression there’s a rush into gold by the greater public right now? Are headlines blazing on the covers of major magazines pronouncing gold as the new investment king? Has Wall Street gone gaga over gold and silver? I ask because these are the true signs that a trend has entered its final blow-off top and would signal it’s time to get out.
I decided to put Bert’s prognostication to the test, and I invite you to play along.
First, I struck up casual conversations with my friends, neighbors, relatives, acquaintances, my wife’s co-workers heck, even my seatmates on airplanes angling to learn how much gold they were hoarding, about the killing they were making in gold stocks, and how they were getting rich from all their precious metal investments. (In fairness, I had to exclude my dad, who is an award-winning gold panner, but he’s the only one.)

I found no one not one person who is actively investing in anything gold or silver, let alone rushing to buy or hoard the stuff. I had two people who confided that they did own gold, but in both cases it was inherited. A few were curious how they would go about doing such a thing, and fewer asked if I thought they should. Most everyone looked at me blankly when I asked; they didn’t seem to know what I was talking about. When I got a reaction like that, it was pointless to ask about gold stocks. Of the handful I did ask, most had never heard of Barrick Gold, the world’s largest gold producer.
Now ask yourself the same thing: how many of your family, friends, neighbors, and co-workers are buying gold and silver coins? Are any of them giving you hot stock tips about a fantastic gold producer, or telling you about the latest gold discovery made by a company in China? Have any fellow investors told you they’re dumping their brokers because they can select gold stocks better on their own? Anyone telling you they’re going to night school to learn the gold mining business?

Next, I surveyed a large sampling of print media looking for some of these signals that Bert must have spotted. Over the past couple weeks, not one of the major business magazines I reviewed had anything on the cover about gold or silver. Further, there were no articles on precious metals, such as the best ways to buy or store all this gold everyone is buying that surely signals the top is in.

One magazine ran an article about ways to prepare for inflation, and gold wasn’t even mentioned! I did see an ad from the U.S. Mint in another, along with a couple small ads in the back that said they had the best prices on bullion (right beside the teasers for buying a Russian wife), but that was it. Even the portfolio allocation models recommended in the articles made no specific mention of precious metals (one recommended a “resource” fund, but their discussion of it was centered around energy investments).
Other than the articles you seek out, how many mainstream magazines do you see extolling the virtues of gold and silver on their cover? How many bestsellers are prominently displayed at your nearest bookstore that scream at you to buy gold stocks? Are you getting fed up with all the junk mail you get about gold and silver?
Last, I went out of my way to look for stories on gold and silver on TV and radio. About all I could find were the same ads that popped up after last year’s Super Bowl commercial by Cash4Gold. A couple programs quote metals prices, and I was able to find another that actually used the word “gold” in a sentence. It might just be me, Bert, but I can’t find any news anchors talking about the latest gold discovery or that “must own” gold stock. No in-depth special reports from investigative journalists on the hot Canadian junior mining sector. Nothing on my radio about the best ways to store all the silver every smart investor has been buying.

How about you are you feeling bombarded by TV and radio ads and segments on precious metals? Do you have the clear impression gold and silver are the hot new investing trend around the world? Are you Tivo-ing certain TV shows because of all the great info they provide about picking the next great gold stock?
If we were in a Mania, Bert, all of this would be happening. But it’s not. Those who buy gold coins in the U.S. are still largely viewed as members of a fringe group. There is no public discussion on gold, no insider tips on the latest hot gold stock, no special reports on how to store all the bullion you’ve collected. The psychology isn’t on our side yet. One signal does not a Mania make.

Last and perhaps most important, Bert, are you sure the dollar is done falling? You’re absolutely convinced we won’t see price inflation? Our current debt load won’t pose any future problems? No more worries about foreigners buying all that debt? Obama and Bernanke really have saved the day?

Bert, send me your shorted gold positions, I’ll buy them from you. And although the gold price could see a correction in the near term, and several more along its journey to “the top,” remember that battle in early1942 and all that had yet to occur before the war was over.

And one more thing: when you finally become breathless to buy gold stocks, I just might be ready to sell them to you.

Are you convinced you have the right gold and silver investments for what lies ahead? For just $39/year, you can be sure you have the best gold and silver stocks, along with specific recommendations on the best places to buy bullion. Check out Casey’s Gold & Resource Report.

Who Owns Your Mortgage?

The New York Times ran an interesting story a couple days ago, citing a federal bankruptcy court case in which the judge wiped out a $461,263 mortgage debt on a property because the lender hadn’t proved its claim to the delinquent borrower’s home.
That seems kind of strange. Why would the lender not prove its claim to the property in question? Simple answer: It couldn’t, because the note had gone missing.

To quote the article:The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some of the nuts and bolts of the mortgage game — notes, for example — were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what.
So, the judge in this case ruled that the homeowner’s mortgage debt was canceled because there was no hard proof that anyone actually had title to it.
Is this a trend that could actually pick up steam?

Real estate entrepreneur and friend of Casey Research, Andy Miller, weighs in with some other thoughts for us:This is happening in an isolated way. It isn’t very significant at this point. However, there are many other pitfalls for lenders today. The difficulty in being a lender today is in trying to proceed against your collateral. Courts are not very sympathetic to lenders, and the entire system is overloaded and being tilted toward the borrower.

This is having an impact in the land of unintended consequences. Private lenders are now finding it too risky to make mortgage loans, and as a result, they have contracted. This happens, of course, at the worst possible time. This is the time when we need private lenders to enter the market, not exit the market. Fannie, Freddie, and FHA are responsible for 80%-90% of the origination of new U.S. residential mortgages.

Effectively, the home mortgage market has been nationalized. This is the reason that I am very bearish about the home market. If the government withdrew its support for home mortgages, the entire mortgage market would implode. Values would crater, and private money would rush in to fill the void albeit at large discounts and higher yields.

Are Fannie, Freddie, and FHA at risk of being curtailed? No, not at this moment.
One must remember, though, that the entire U.S. mortgage market is dependent on bond buyers purchasing mortgage-backed securities. Right now, bond buyers are focusing on bonds backed by the full faith and credit of the U.S.A. Fannie bonds, Freddie bonds, and GNMAs. No one wants the junior bonds created by uninsured private mortgages.

If the dollar continues to weaken, or if inflation begins to take its toll on purchasing power, then buyers of mortgage-backed securities will most certainly rethink their purchasing strategy.

This would be catastrophic. However, I think it is inevitable.
The Fed has sponsored the purchases of “agency securities” to the tune of $1.5 trillion. That, if you recall, was part of their strategy in “quantitative easing.” It sounds just like the Treasury markets. It is. When Treasuries lose their luster, which is highly likely, then the agency market will collapse as well. This will happen at the worst possible time, when the government bond market becomes tenuous. Yields will have to increase, which means that mortgage rates will increase, and the vicious cycle will be initiated in the home market and the attendant mortgage market.
Thank you, Andy. Very interesting and, as always, much appreciated.
If you want to read more of what Andy Miller has to say on all things real estate, sign up for a risk-free three-month trial of The Casey Report and access his exclusive interviews in the archives.

A Look Behind GDP
By Kevin Brekke

Yesterday the Bureau of Economic Analysis (BEA) released the advance GDP numbers for 3Q09, and they showed the economy grew at an estimated annual rate of 3.5%. But, like the saying goes about drowning in a lake with an average depth of three feet, it’s what lies beneath the surface that requires our attention. And so it is with GDP announcements. I took a look at the full report and charts, and here’s what they reveal:
Motor vehicle output added 1.66 percentage points to the Q3 change in real GDP. The report concedes that the jump in output is the result of the Cash for Clunkers program. For the previous quarter, motor vehicle output added just 0.19 percentage points to the second-quarter GDP change.
The change in non-farm inventories added 0.91 percentage points to the third-quarter change in real GDP, the largest amount since 4Q05. This figure is way above the historical Q3 trend for inventory change, and reflects inventory replenishing after the last three consecutive quarters saw hefty declines.
Personal consumption expenditures added 2.36 percentage points to the Q3 change in real GDP.
Personal consumption expenditures increased 3.4% from the prior quarter.
Personal income (wages and salaries) declined slightly from the prior quarter.
The first two items above are one-offs and will not likely be repeated next quarter. Just for fun, let’s see what the number would have been without these extraordinary events. Reducing the 3.5% advance GDP number by the approximately 1.47% artificial boost from the Clunkers scheme (1.66% – 0.19%), and 0.66% for inventory build-up (third-quarter trend is roughly 0.25%), gives us a rounded figure of 1.4%.

But wait, the BEA shows in another impressive chart that the average revision from the advance GDP (what was just reported) to the final (what will be reported in two months) is ±1.3%. So the “un-juiced” number we just calculated is almost within the margin for error. One guess not subject to error is that 4Q09 GDP, unless Washington rolls out some other spending-inducing programs, is almost certain to be far lower.

The personal consumption figure indicates that consumer spending accounted for 67% of GDP down from the bubble years’ high of 70%, but still lofty nonetheless.
How are consumers maintaining their spending in the face of high unemployment? Look at the last two items above: Personal consumption climbed while personal income fell. The only way to fill that gap is to borrow more debt. Old habits do indeed seem hard to kick.
So although the headlines are filled with glee and government leaders are walking with a little more spring in their step as they approach the dais to announce the corner has been turned, we remain unconvinced. One suspect quarterly number does not a trend make. We’ll continue with our finger on the pulse of all things economic in The Casey Report and keep our subscribers armed with reality-based facts.

And that, dear reader, is that for this week. See you on Monday!
Chris Wood
Casey Research, LLC

Daily Dispatch: Buffaloes and Bureaucrats – Oct 20, 2009

October 20, 2009 | www.CaseyResearch.com Buffaloes and Bureaucrats

Dear Reader,

In yesterday’s edition of the Daily Dispatch, I closed by commenting on a much circulated video of climate change skeptic Lord Monckton. In that video, he shares his opinion that by signing the climate change agreement now being worked up for the UN Copenhagen Climate Change conference in December, the U.S. would be essentially signing away its sovereignty.

Last night, I made my bedtime reading the 181-page United Nations Framework Convention on Climate Change agreement that Monckton referenced.
If you can read this document without getting incensed and perhaps even a little green around the gills, you are made of sturdier stuff than I. While I did not get all the way through the bureaucratic brick, from what I did read, the following principles/objectives are clear:1) The developed world owes a “carbon debt” to the developing world, which should be settled posthaste by providing billions of dollars in additional aid each year.

2) The document grossly conflates climate change alarmism with economic development. And I quote…

“Developing countries face not only the additional challenge of adaptation but also the need to put their economies on a sustainable path. All Parties agree that developing countries face serious adverse effects of climate change as well as threats to their future economic potential due to insufficient access to shared global atmospheric resources.”

(Ed. Note: I am shaking my head at that last line, which seems to say that because of proposed new emissions caps, the developing countries will have to remain quiet backwaters that rely for their subsistence mostly on the billions in fresh aid. )

3) There is no further debate as to whether or not the world is on the path to climate-related destruction, or whether it is entirely the fault of mankind. Those are officially settled in no uncertain terms in the document, even though there is no consensus among real scientists (versus the pretend sort).

4) It makes a clear attempt to squeeze as many recipient nations as possible under the tent into which the developed nations are expected to throw their many billions. Again, below I provide a quote, leaving intact the proposed edits that are still found in the document. To assist you in translating same, I am boldfacing the definitional phrases.

“[Recognizing that sustainable development that ensures capacity for] [A shared vision recognizes that] [adaptation to the adverse effects of climate change is the most important issue for] [the most vulnerable countries are] all developing countries, [particularly] low-lying and other small island countries, countries with low-lying coastal, arid and semi-arid areas or areas liable to floods, drought and desertification, and developing countries with fragile mountainous ecosystems are particularly vulnerable to the adverse effects of climate change, [as stated in preambular text 19 of the UNFCCC].”

So, just to be clear, if you are a developing country with a coast line, or an arid or semi-arid region… or an area that occasionally floods, or suffers drought, or you have mountains, then it’s under the tent and onto the gravy train for you.
In other words, every developing country in the world will qualify.
Now, as fast as I read, I was unable to battle through the bureaucratese to the parts where the U.S. signs over its sovereignty although there are many clauses even in the early going that are strongly suggestive of same.
For instance…12. [All Parties should take mitigation actions under an enlightened sense of solidarity] [All Parties should contribute to the global effort to combat climate change], in accordance with their common but differentiated responsibilities and respective capabilities [ a spectrum of effort is envisaged]. All countries will need to develop comprehensive climate response strategies, in line with their individual responsibilities and capabilities, that achieve an emission trajectory to a low emission economy.
(Ed. Note: Can you say “From each according to their abilities, to each according to their needs”?)13. [[In this context,] developed country Parties [have committed to] [should] demonstrate that they are taking the lead in modifying [the] long-term trends in emissions [reduction] consistent with the objective of the Convention [and in accordance with its provisions and principles.] In doing so, Annex I Parties pledge to meet their targets fully, effectively and in a measurable, reportable and verifiable manner.
(Ed. Note: “Annex I Parties” are the developed countries the milking cow in this treaty.)
So, is this treaty something to be concerned about? Yes and no.
Yes… because if this treaty were to be signed in Copenhagen, it would open up a whole new chapter in the global reach of government, including billions in new spending and tax mandates.

No… because as feeble-minded as people in power can be, I have to believe that no leader of a developed nation is going to sign on to this insanity. If I’m wrong, however, then good luck to us all we’ll need it.

For those of you made of sturdier stuff, you can download the document and delve into it yourself, by following the link just below.

Text of the Convention

Before moving on, if you feel like taking a break for some humor, you can read the posting on Watts Up With That? on the court in Louisiana that ruled the unfortunates living in the path of Hurricane Katrina can sue energy companies over the global warming that the plaintiffs’ ambulance chasers say caused the hurricane.

Hurricane Katrina Victims Have Standing To Sue Over Global Warming Watts Up With That?

All of which makes me wonder as I read this stuff if I’m still asleep and having a dream… or a nightmare, such as the case may be.

The Housing Trap

No surprise to you, dear readers, but the latest data find that fewer houses are being built than anticipated in the celebratory gushings about the many green shoots now rising steadily into the blue sky.

According to reporters at Bloomberg, the likely reason for the unexpected slowdown is the builders’ growing and entirely valid concern that demand will again dry up once the government’s $8,000 sticky trap for new homeowners is withdrawn on November 30.

Proving that the first-time homeowner should energetically avoid these traps traps that, once stepped into, leave the recipient inextricably stuck with taxes, upkeep expenses, repairs, etc. our own Jake Weber has produced a chart that does much to dispel the popular illusion that real estate was uniformly a good investment over the recently deceased bubble years. Here’s his report…

The stretch from 1997 to 2007 was the helium-rich years of a multi-decade-long credit bubble, when buying and selling dot-com stocks was replaced with suburban houses as the path to riches.

However, IRS data show that during these years, as Americans pocketed $5,312 billion in capital gains, they simultaneously shelled out $5,252 billion in mortgage interest and real estate taxes a difference so small as to be a rounding error. Over the same period, homeowner costs rose 122% for mortgage interest and 112% for property tax, while personal income increased by a paltry 63%. The cost of home-sweet-home ownership was eating Mr. & Mrs. Suburbia alive.

This 10,000-foot view is just a snapshot of the big-picture trend. There were obviously home flippers and stock market players that profited handsomely during the market’s boom. And we haven’t factored in the balance between taxes saved from interest/taxes written off and taxes owed from capital gains. But as a whole, did the nation grow any wealthier as a result of Americans being obsessed with selling their houses to each other? At best it looks like a zero-sum, tax code-induced illusion.

As Doug Casey has long and often said, a house is not an investment, it’s a consumer good, albeit the most expensive one that most Americans will ever make. And consumer goods are not, as a rule, great investments.

For over 28 years, Doug Casey has spotted the big-picture trends emerging throughout the investment universe. But more importantly, he understands how to profit from them by investing ahead of the crowd. So what does Doug Casey think makes for a great investment in today’s frenzied markets? Find out now by accepting our no-risk, 100% satisfaction guaranteed trial subscription to The Casey Report by clicking here.

David again. Whereas most housing hasn’t been a particularly good investment, gold certainly has been. On that topic, here’s some breaking news from Jeff Clark, editor of our popular Gold & Resource Report…

Buffaloes Are Back!
By Jeff Clark

You may recall the U.S. Mint stopped producing the American Gold Buffalo coin late last year when demand for all things gold and silver skyrocketed and they couldn’t keep up. I was personally disappointed, because I love that coin.

Well, I’m glad to report it’s back on sale! Beginning this Thursday, October 22, you can once again buy the 2009 Gold Buffalo. The U.S. Mint is officially releasing the coin for sale that day, and you can purchase them from the Mint directly or from any dealer who’s got them available.

What many people don’t know is that the Gold Buffalo is the only U.S.-minted 24-karat gold coin. Wait, you’re saying, isn’t the American Eagle 24 karats? Nope, it’s a 23-karat coin; it contains one ounce of gold, but it also contains an alloy, about 10%, presumably to make it sturdier. The Buffalo contains no alloy and is thus the purest form of gold you can buy.

If you’d like to own a Buffalo, I’d suggest calling Asset Strategies International (1-800-831-0007). Why? Even though you can’t buy it today, they’ll take your name and number now and then call you on Thursday to lock in a price. They’ve also got the best price I’ve seen: they’re currently asking a 6% premium (or lower for larger orders).
This is a better deal than Kitco, for example, because they’re not taking orders yet and also said their premium is likely to be at least 8.25%. Keep in mind, though, that premiums could easily be forced up if the demand, like last time, is strong. I suspect it will be for this popular coin.

If you think the gold price is going to fall and could thus get it cheaper, I’ll mention that the U.S. Mint projects they’ll produce enough coins to keep up with demand. This doesn’t mean your dealer couldn’t run out, but hopefully the mint’s calculations are correct and there will still be plenty of coins available at later times. No guarantees, though, and premiums will certainly fluctuate.

[Not all precious metal dealers are created equal. Want to know whom we trust to buy our gold and silver from? Check out our archived issues by subscribing to the new Casey’s Gold & Resource Report for just $39. Click here to learn more.]

Is Limited Government an Oxymoron?

This past Sunday, a television station in Texas ran a program by the title above, featuring Thomas Woods of the Ludwig von Mises Institute and our own Doug Casey.
If you’ve got the time, give it a watch, as it offers worthwhile insights into the philosophical underpinnings of the case for small governments.
Watch it here…

Is Limited Government an Oxymoron?


Fannie & Freddie are worthless. Yesterday, leading bank analysts Keefe, Bruyette & Woods (KBW) updated their opinion of Fannie Mae and Freddie Mac, the two government-sponsored mortgage providers. Between them, Fannie and Freddie backed 68% of all mortgages generated so far in 2009.

So, how, according to KBW, are they doing?

Well, despite the government (taxpayers) pumping a cool $98 billion into these lap dog institutions, KBW has cut their target price from $1.00 to $0.00. Yes, zero.
While they used more genteel terms to describe the dysfunctional pair, their final analysis might be summed up as saying that Fannie and Freddie are a couple of bungling bureaucratic and bankrupt black holes whose business has largely been bank-rolling billions in bad loans.

Olympic Dam Update.As reported here previously, Australia’s massive Olympic Dam mine recently suffered severe damage to its main shaft. Today we found out just how severe, when mine operator BHP Billiton declared force majeure on contracts tied to the mine’s production. In its announcement, BHP said they expected to produce 20% less uranium and copper from the mine for a period of up to six months.

Glancing over the portfolio of uranium companies now being followed by Casey’s Energy Report, you can see the results of this announcement in spiking share prices… with Denison Mines as a representative example, up over 7% so far today, despite the broader markets and even gold heading in the opposite direction.

(For all our favorite uranium picks, and much more, try a risk-free, three-month subscription to Casey’s Energy Report today.)

And with that, dear reader, I must sign off. As I do, I see the U.S. stock market is giving back most of its gains from yesterday. Be careful, we are on thin ice.
Thanks for reading and for being a subscriber to a Casey Research service!

David Galland
Managing Director
Casey Research

Daily Dispatch – July 27, 2009

July 27, 2009 | www.CaseyResearch.com How Long Can the Wonder Rally Last?
Welcome to Casey’s Daily Dispatch!

Dear Readers,

Welcome to the first edition of Casey’s Daily Dispatch, formerly (and forever in my heart) The Room).

This experiment in daily musings will go on for as long as you all enjoy it and find it of value. Unlike its weekly predecessor, the Daily Dispatch will be (hopefully) shorter and more timely.

Other than that, I expect the content to flow pretty much the same way: namely whatever pops out when I sit down to write. And what usually pops out are observations on the passing parade, a parade that includes the fearsome economy, growling investment markets, the elephant of government, and the general idiosyncrasies and inanities that make life so darn interesting.

And, on occasion, I’ll share with you some music that has struck my ear in a favorably dramatic sense, including today, when I’ll share two versions of the same song, Knocking on Heaven’s Door. The first is the original by Bob Dylan, which you can listen to here…
Or, for those of you who like the harder stuff, here’s a cover by Guns & Roses, which stays true to the spirit of the song, while being a lot more spirited…
Now, it’s on with the parade…

The Wonder Rally

Yesterday I ran into a friend of mine, who is, without the slightest exaggeration, one of the most important persons in the derivatives industry. He was brought out of retirement to try to sort out the mess and works for one of the nation’s largest financial institutions, where he continues to labor despite being vilified wholesale by politicians about the compensation he receives.

We briefly discussed the stock market, and his comment was simply that he and his colleagues are stunned and surprised to their core by the extent of the July rally in both equities and bonds. Looking out from the inside, what they see are markets seeking a pin, and a significant correction coming in the near future.

Of course, the markets can stay irrational longer than your money can hold up betting against them, but with the S&P 500 having now returned to just about halfway back from its bubble highs, and with the economy still in widespread distress, it is hard not to be a little extra bearish for the stock market.

Ed Steer, who will soon have his own Casey-published daily letter, about which we’ll send you more when it is ready to go, forwarded along the following chart over the weekend that shows the projected inflation-adjusted earnings of the S&P 500 once the tally for Q2 09 is made.

Quoting its author, chartoftheday.com…
“Today’s chart illustrates how earnings are expected (38% of S&P 500 companies have reported for Q2 2009) to have declined over 98% since peaking in Q3 2007, making this by far the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative.”

While anecdotal, I spend a lot of time talking to merchants, real estate agents, and anyone else whom I bump into who is engaged in providing goods and services to the consuming public. Right across the board, the message is the same namely that sales stink and that they are managing to survive only by cutting expenses. Even the owner of the local hardware store tells me business has never been worse, so I guess people aren’t even bothering to fix up their homes anymore. And a close friend in the real estate sales business for over 30 years says she has never seen anything remotely close to how bad things are at this moment.

Jumping upwards to the national picture, some companies are indeed reporting better earnings than anticipated by various analysts the news of which has, of late, sent their stocks satisfactorily higher.

But it’s important to recognize that there are three things at work here. The first is that, having been caught with their proverbial knickers down by the first big leg down in this crisis, analysts dramatically revised their earnings forecasts downwards for virtually all the companies on their watch lists. Thus, given the decidedly lackluster expectations, it’s relatively easy for a company to “outperform” those expectations. And secondly, as per above on a local level, much if not all of any gains in profitability are the result of slashing overhead (read “workers”) and not a pick-up in sales. Finally, as you can see in the chart above, in no sense are the earnings being posted anywhere remotely close to prior levels.

And so the situation today is comparable to changing the grading curve for a class of students so that managing to drink water without slopping it down the front of your shirt would earn you a hearty “Well done!” and a passing grade. That several students subsequently get one or two answers out of ten answers correct is, therefore, cause for the whole school to gather together for a celebratory punch party.

While I may sound like a broken record, I and the entire Casey Research team remain convinced that what we’re experiencing here is nothing more than a beautifully set bear market trap that is allowing insiders to dump their shares as quickly as they can be dumped. Don’t buy it.

A President to Believe In…

In the history of American presidential politics, there has rarely been one like him; a man of humble origins who seemingly appeared out of nowhere, with no serious chance of actually winning the presidency, but who won nonetheless.

Perhaps his success was due to a public disillusioned by his predecessors and looking for a more intelligent, competent, and yet sympathetic leader to take the flock forward. That intelligence, competence, and sympathy echoed in his inaugural address, excerpted here…
The American dream endures. We must once again have full faith in our country and in one another. I believe America can be better. We can be even stronger than before.

Let our recent mistakes bring a resurgent commitment to the basic principles of our Nation, for we know that if we despise our own government, we have no future. We recall in special times when we have stood briefly, but magnificently, united. In those times no prize was beyond our grasp.

But we cannot dwell upon remembered glory. We cannot afford to drift. We reject the prospect of failure or mediocrity or an inferior quality of life for any person. Our Government must at the same time be both competent and compassionate.

We have already found a high degree of personal liberty, and we are now struggling to enhance equality of opportunity. Our commitment to human rights must be absolute, our laws fair, our natural beauty preserved; the powerful must not persecute the weak, and human dignity must be enhanced.

We have learned that “more” is not necessarily “better,” that even our great Nation has its recognized limits, and that we can neither answer all questions nor solve all problems. We cannot afford to do everything, nor can we afford to lack boldness as we meet the future. So, together, in a spirit of individual sacrifice for the common good, we must simply do our best.

To be true to ourselves, we must be true to others. We will not behave in foreign places so as to violate our rules and standards here at home, for we know that the trust which our Nation earns is essential to our strength.

We will fight our wars against poverty, ignorance and injustice, for those are the enemies against which our forces can be honorably marshaled.
No question about it a man with a passion for humanity and a mighty wielder of the sword of justice. A man you can trust. A man with a plan and a fresh perspective to change the world for the better.

Unfortunately, Jimmy Carter’s words ended up as so much dust in his mouth, as the pretty dreams and visions he conjured blew up in his face and ended his presidency in ignominy after a single term.

Yet, according to the job approval ratings, as poorly as Jimmy Carter fared as president, at this same point in his presidency, President Obama is doing worse, with a 58% approval versus Jimmy Carter’s 62%.

To be clear, approval ratings are no statistically valid predictor of Obama’s presidential fortunes; at this point in their respective presidencies, the first Bush was rated at 66% but lost after one term… and Bush the Second was rated at 57% approval, and he went on to win a second term.

But there are, I believe, some important observations that could be made. Starting with the Bushes. It is fair to argue that if 9/11 had not happened, then Bush Junior’s ratings might have continued to roll downhill, as it is equally fair to ponder what might have happened if George Sr. had not made the devastating misstep of publicly violating his most vocal campaign pledge “Read my lips, no new taxes.”

Or, put another way, in the first instance, Bush Junior’s presidency was saved by the sort of martial crisis that has proven so effective at driving the herd together in the past, while Bush Sr. lost by a glaringly public reversal of his number one election pledge.
Likewise, in the context of the Deus Ex Machina, President Obama’s success from this point forward could be determined by an unforeseeable “event” or by an avoidable yet massive political misstep for example, if he were to pass a VAT tax and the regressive nature of that tax were made to be widely known by the disloyal opposition therefore publicly breaking his pledge not to raise taxes on the middle class.

Yet, neither of those conditions could occur and still Mr. Obama could follow in the disappointing steps of the Georgia peanut farmer, if he fails to heed the distinct lesson offered by the Carter administration, a lesson summed up nicely here in the National Journal…
A self-imposed May 1 deadline for filing welfare reform legislation proved too ambitious, and only a statement of principles was released by that date. But perhaps the most extreme example of overreach was the Administration’s effort to enact a comprehensive energy program in the 90 days following the President’s now-infamous Feb. 2 fireside chat. During that talk to the nation, a cardigan-clad Carter declared a national energy crisis, citing the growing dependence on foreign oil. The resultant legislative package developed with few contributions from Congress, the Cabinet, or interest groups later had to be scaled back and took six months to pass, not three. “We completely overburdened the congressional circuits with too many initiatives,” admitted Deputy Treasury Secretary Stuart Eizenstat, who was Carter’s chief domestic policy adviser.

… The internal party divisions that Carter faced made matters worse, because these divisions diluted the advantages of Democratic control of Capitol Hill. Carter’s New Democrat beliefs clashed with the expectations of congressional liberals, who longed for the return of the free-spending, big-government policies of the Lyndon B. Johnson era. “There was always ideological tension,” said Wexler, who now runs a lobbying shop, “and it lasted for the whole four years he was in office.”
As noted, even Jimmy Carter’s party majority in Congress wasn’t enough to protect him from the political collapse resulting from his early legislative overreaching and stentorian management style. It’s far too early to say whether or not Barack Obama will go down in history as a “Jimmy” Obama, generally ridiculed and chased from office as ineffectual. But for those of you who wince at his every fresh announcement of this new government program or that bit of legislative sleight of hand, may I suggest that you instead encourage him in his many efforts, as that will be the surest way to bring his octopus-like regime to a quick end.

For those of you who support him, you may want to email him with my personal mantra for a satisfactory life, namely “Everything in moderation, including your excesses.”

Upcoming Events

Casey Research Energy & Special Situations Summit, Sept 18-20, 2009. The schedule has now been posted for this first-ever event, being held at Denver’s beautiful Westin Tabor Center. View the schedule and learn more by clicking here.

As you’ll read, this is a working session. While there will be abundant opportunities to rub elbows with the blue-ribbon faculty and share notes with like-minded people, the summit is being designed from the ground up to provide you with a serious download of virtually everything important you need to know about the most exciting investment opportunities in the large and vibrant energy sector.

Not to put too fine a point on it, the Energy & Special Situations Summit will be a one-of-a-kind “intensive” designed to put you in the know on where the real upside potential is in energy going forward. Given the importance of the energy sector, this is not an event to be missed. Click here to register.


The More Things Stay the Same… Here’s a CBS 60 Minutes video from the 1970s about swine flu that you may find interesting from an historical context. While there is no question that the current variations of the flu are pretty virulent, by keeping an eye on the Southern Hemisphere, which is still in its flu season, you can get a good sense of what’s headed to the Northern Hemisphere this fall and winter. So far, the death toll is still well within seasonal norms which is to say not even a blip compared to the catastrophic death tolls that accompanied the flu that swept the earth in the early 1900s.
And that, dear readers, is it for today. Before signing off, I would like to clarify one point about some of the changes that are going on here at Casey Research.

Based on several emails and phone calls, it appears we failed to properly communicate to current International Speculator subscribers that the subscription price they now pay will be “grandfathered” for two full years, so they will not have to pay the significantly higher new subscriber fee that goes into effect on August 31.

(As for non-subscribers, don’t miss out on this opportunity to lock in the same low price for two years by subscribing before the August 31, 2009 price change goes into effect. Click here to learn more.)
Ditto, for those of you who consider joining the rapidly growing membership of our Casey’s Club submit your application prior to August 31, and you’ll lock in the lowest rate we’ll ever offer for this lifetime subscription to all Casey Research services. Learn more here.

It’s too early in the day to comment on the stock market action, but later this week, we’ll be taking a close look at the unprecedentedly large Treasury auctions now underway… especially as we get toward the end of the week when the longer-duration paper is being offered. Should be exiting.

Until tomorrow, thanks for reading and for being a Casey Research subscriber!

David Galland
Managing Director
Casey Research, LLC.

Charts: Ten Thousand Commandments

July 09, 2009

The Federal Register is a daily publication of all the proposed and final rules and regulations of the U.S. government. The size of the register is often used to gauge the scope of regulation, and it’s been on steroids for decades.

According to the Washington, DC-based Competitive Enterprise Institute’s 2009 edition of “Ten Thousand Commandments” by Clyde Crews, the cost of abiding federal regulations is estimated at $1.172 trillion in 2008 8% of the year’s GDP. This “regulation without representation,” says Crews, enables the funding of new federal initiatives through the compliance costs of expanded regulations, rather than hiking taxes or expanding the deficit.

Investors that keep a watchful eye on Washington can recognize tomorrow’s opportunities from today’s wasteful government interference disguised as “solutions.”

Find out how you can unmask the profits in the growing trend of massive government intervention by clicking here.